As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

11/14/07  WSB Holdings Inc                  S-4EF/A    11/12/07    1:4.7M                                   Merrill Corp-MD/FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-4EF/A     Pre-Effective Amendment to Registration of          HTML   3.11M 
                          Securities Issued in a                                 
                          Business-Combination Transaction Forming               
                          a Bank, Savings & Loan or Holding                      
                          Company                                                

As filed with the Securities and Exchange Commission on November 14, 2007

Registration No. 333-146877

 

Washington, D.C. 20549

 

 

AMENDMENT NO. 2

 

FORM S-4

 

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

 

WSB Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

 

 

Approximate date of commencement of proposed sale of the securities to the public:  As soon as practicable after this Registration Statement becomes effective.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

 

 

Calculation of Registration Fee

 

Title of each class of securities to be registered		Amount to be registered (1)		Proposed maximum offering price per unit (2)		Proposed maximum aggregate offering price (2)		Amount of registration fee (2)*
Common Stock, par value $0.0001 per share		8,410,710		$6.95		$58,454,435		$1,795

(1)          Based on the approximate number of shares to be issued in respect of the same number of outstanding shares of common stock of The Washington Savings Bank, F.S.B., plus shares issuable pursuant to outstanding exercisable options.

 

(2)          Estimated pursuant to Rule 457(f)(1) solely for the purpose of calculating the registration fee based on the market value of the securities to be received by the Registrant as determined on October 19, 2007.

 

*                 Previously paid.

 

 

WASHINGTON SAVINGS BANK

4201 Mitchellville Road, Suite 200

Bowie, Maryland  20716

(301) 352-3120

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON DECEMBER 19, 2007

 

 

To the Stockholders of

The Washington Savings Bank, F.S.B.:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of The Washington Savings Bank, F.S.B. will be held at 9:00 a.m., local time, on December 19, 2007 at the Comfort Inn Conference Center, 4500 Crain Highway, Bowie, Maryland, for the purpose of considering and voting upon the following matters:

 

1.                                      The election of Messrs. Harnett and Huffman as Directors for a term of three years each;

 

2.                                      The approval of the reorganization of  The Washington Savings Bank, F.S.B. into a savings and loan holding company form of ownership by approving a plan of merger and  reorganization, through which the Bank will become a wholly owned subsidiary of WSB Holdings, Inc., a newly formed Delaware corporation formed solely for the purpose of becoming the holding company of the Bank, and each outstanding share of Bank common stock will be converted into one share of common stock of WSB Holdings, Inc.;

 

3.                                      The adjournment of the meeting, if necessary, to permit further solicitation of proxies in the event there are not sufficient votes at the time of the meeting for a quorum or to approve the holding company reorganization; and

 

4.                                       Any and all other business which may properly come before the meeting or any adjournments thereof.

 

Stockholders of record at the close of business on October 22, 2007 are entitled to notice of and to vote on the matters to come before the annual meeting and at any adjournment of the meeting. The Board of Directors is not aware of any other business to come before the meeting.

 

Under Office of Thrift Supervision regulations, the stockholders of Washington Savings Bank common stock will not have dissenters’ rights as a result of the exchange of shares of Washington Savings Bank common stock for shares of WSB Holdings, Inc. common stock as part of the reorganization.

 

It is important that your shares be represented at the annual meeting regardless of the number you own. Even if you plan to be present at the annual meeting, we urge you to vote your shares via the toll-free telephone number listed on the proxy card, the internet or by mail. If you attend this meeting you may vote in person or by your executed proxy. Any proxy given may be revoked by you in writing or in person at any time prior to the time it is exercised as described in the accompanying proxy statement/prospectus.

 

	By Order of the Board of Directors
	William J. Harnett
	Chairman of the Board of Directors
Bowie, Maryland
November 12, 2007

 

IT IS IMPORTANT THAT YOU VOTE PROMPTLY. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE BY MAILING IN YOUR PROXY CARD AS SOON AS POSSIBLE.

 

 

 

QUESTIONS AND ANSWERS ABOUT THE HOLDING COMPANY REORGANIZATION

 

Q:          Where and when is the stockholders’ meeting?

 

A:           The Annual Meeting of Stockholders will be held at 9:00 a.m., local time, on December 19, 2007 at the Comfort Inn Conference Center, 4500 Crain Highway, Bowie, Maryland.

 

Q:          Why is The Washington Savings Bank proposing to reorganize into a holding company structure?

 

A:           The Washington Savings Bank’s Board of Directors believes that a savings and loan holding company structure will have strategic benefits including:  (1) having the structural flexibility for alternative business investments; (2) when appropriate, being able to repurchase stock from existing stockholders as part of our capital management strategies; (3) having the ability to access the capital markets with alternative structures such as trust preferred or debt securities to continue the growth of the company without the dilution of the existing stockholders; and (4) being able to better compete against financial institutions who have all of these capabilities available to them. For more information, please see the section of this proxy statement/prospectus captioned “Proposed Reorganization into a Savings and Loan Holding Company — Reasons for the Reorganization” on page 37.

 

Q.           What will happen in the reorganization?

 

A.            In the proposed reorganization, a wholly owned subsidiary of WSB Holdings will merge with and into Washington Savings Bank, and, as a result, Washington Savings Bank will become a wholly owned subsidiary of WSB Holdings. The Plan of Merger and Reorganization, which governs the reorganization, is attached to this proxy statement/prospectus as Appendix A. You are encouraged to read it carefully.

 

Q.           Will my rights as a stockholder change as a result of the reorganization?

 

A.           As a result of the reorganization, you will no longer own stock directly in Washington Savings Bank, but will instead own stock in the holding company, WSB Holdings. Your rights will be governed by WSB Holdings’ Certificate of Incorporation and Bylaws rather than by Washington Savings Bank’s Charter and Bylaws. WSB Holdings’ Certificate of Incorporation and Bylaws, which will have different provisions than those governing Washington Savings Bank; and your rights as a WSB Holdings stockholder, will change in some respects as a result of the reorganization. In addition, your rights as stockholder will be governed by provisions of the Delaware General Corporate Law. There is a summary of the rights of stockholders of Washington Savings Bank and WSB Holdings starting on page 59 of this proxy statement/prospectus.

 

Q:          What do I need to do now?

 

A:           Carefully read and consider the information contained in and incorporated by reference into this proxy statement/prospectus, including its annexes.

 

In order for your shares to be represented at the annual meeting:

 

•                  you can vote by telephone or through the Internet following the instructions on your proxy card;

 

•                  you can indicate on the enclosed proxy card how you would like to vote and sign and return the proxy card in the accompanying pre-addressed postage paid envelope; or

 

•                  you can attend the annual meeting and vote in person.

 

If you sign and send in your proxy and do not indicate how you want to vote, your proxy will be voted in favor of all proposals.

 

If you hold your shares in “street name,” please refer to your proxy card or the information forwarded by your bank, broker or other holder of record to see which options are available to you.

 

If you abstain from voting or do not vote (either in person or by proxy), or fail to direct your broker how to vote, it will have the same effect as a vote against the reorganization.

 

We currently expect our directors and officers, who collectively own an aggregate of approximately 42% of the issued and outstanding common stock of Washington Savings Bank as of October 22, 2007, to vote in favor of the

 

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reorganization. Their vote alone is not sufficient to approve the reorganization.

 

Q:          If my shares are held in street name by my broker, will my broker vote my shares for me?

 

A:           Your broker will vote your shares only if you provide instructions to your broker on how you want your shares voted by completing the proxy card you will receive from your broker.

 

Q:          Should I send in my stock certificates now?

 

A:           No. If the reorganization takes place, you will receive instructions on how to exchange your Washington Savings Bank certificates for WSB Holdings certificates.

 

Q:          What will Washington Savings Bank’s stockholders receive in the reorganization?

 

A:           In the reorganization, each outstanding share of Washington Savings Bank common stock will be converted into one share of common stock of WSB Holdings.

 

Q.           Will I have appraisal or dissenter’s rights?

 

A.           Under Office of Thrift Supervision regulations, the stockholders of Washington Savings Bank common stock will not have dissenters’ rights as a result of the exchange of shares of Washington Savings Bank common stock for shares of WSB Holdings common stock as part of the reorganization.

 

Q:          What happens to my future dividends?

 

A:           Before the reorganization takes place, The Washington Savings Bank expects to continue to pay regular quarterly cash dividends on its common stock, currently $0.04 per share. After the reorganization, any dividends will be paid when and as declared by the board of directors of WSB Holdings. Presently, WSB Holdings expects to continue the current dividend policy of the Bank. You should note, however, that WSB Holdings ability to pay dividends to you will depend largely on the amount and frequency of dividends paid to it by Washington Savings Bank. For more information, please see the section of this proxy statement/prospectus captioned “Market Price of Washington Savings Bank’s Capital Stock and Dividends” on page 45.

 

Q:          What are the tax consequences of the proposed reorganization?

 

A:           In general, we expect that the reorganization will qualify as a tax-free reorganization under the Internal Revenue Code and Washington Savings Bank stockholders’ will not be required to pay federal income taxes as a result of exchanging Washington Savings Bank common stock for WSB Holdings common stock. However, the tax consequences of the reorganization to you will depend upon your particular situation. You should consult your own tax advisor for a full understanding of the federal, state, local and foreign income and other tax consequences of the reorganization. For a more complete description of the tax consequences of the reorganization, see “Proposed Reorganization into a Savings and Loan Holding Company —Proposed Federal Income Tax Consequences of the Reorganization” on page 39.

 

Q.           Is the reorganization subject to any other approvals?

 

A.           Yes. The reorganization must be approved by the Office of Thrift Supervision. On September 27, 2007, applications were filed with the Office of Thrift Supervision. It is anticipated, but cannot be guaranteed, that the regulatory approvals will ultimately be obtained.

 

Q:          When do you expect the reorganization to take place?

 

A:           We expect the reorganization to take place sometime in January of 2008, as soon as practicable after the annual meeting and the receipt of all required regulatory approvals; however, the exact timing cannot be predicted.

 

Q.           What will happen if the reorganization is not completed?

 

A.           Significant reorganization-related costs incurred by Washington Savings Bank, such as legal, accounting and financial advisor fees, must be paid by Washington Savings Bank, even if the reorganization is not completed. Also, the price of Washington Savings Bank common stock may change to the extent that the current market price reflects a market assumption that the reorganization will be completed.

 

Q.           Who can help answer my questions?

 

A.           If you have any questions about the annual meeting or how to vote or revoke your proxy, you should contact Phillip C. Bowman, Chief Executive Officer, The Washington Savings

 

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Bank, F.S.B., 4201 Mitchellville Road, Suite 200, Bowie, Maryland 20716.

 

SUMMARY

 

This summary highlights selected information from this proxy statement/prospectus. It does not contain all of the information that is important to you. We urge you to read carefully the entire proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus to fully understand the reorganization. In particular, you should read the documents attached to this proxy statement/prospectus, including the Plan of Merger and Reorganization, which is attached as Appendix A. For a guide to where you can obtain more information regarding Washington Savings Bank, see the section entitled “Where You Can Find More Information” beginning on page 65. We have included page references parenthetically to direct you to a more complete description of the topics presented in this summary of the proxy statement/prospectus.

 

The Annual Meeting (page 15)

 

The Annual Meeting is scheduled to be held at 9:00 a.m., local time, on December 19, 2007 at the Comfort Inn Conference Center, 4500 Crain Highway, Bowie, Maryland. At the Annual Meeting, Washington Savings Bank’s stockholders will be asked to vote on the following matters:

 

•              the election of two directors;

 

•              the approval of the Plan of Merger and Reorganization;

 

•              the adjournment, if necessary, of the Annual Meeting; and

 

•              any other business that may be properly brought before the Annual Meeting.

 

Each holder of record, as of October 22, 2007, of Washington Savings Bank common stock may vote at the Annual Meeting. As of October 22, 2007, Washington Savings Bank’s directors and executive officers owned approximately 42% of the issued and outstanding shares of Washington Savings Bank common stock. It is anticipated that all of the directors and executive officers of Washington Savings Bank will vote in favor of the reorganization; however, no agreement to this effect has been entered into.

 

You may cast one vote for each Washington Savings Bank share of common stock you own, except for the election of directors, where you may elect to cumulate your vote. The proposals require different percentages of votes in order to approve them:

 

•                                          The affirmative vote of a 50% of the shares of Washington Savings Bank common stock issued and outstanding plus one affirmative vote as of the record date is required to approve the Plan of Merger and Reorganization. The affirmative vote of a majority of the shares presented in person or by proxy at the meeting and is entitled to vote is required to approve the proposal to adjourn the Annual Meeting, if necessary; and

 

•                                          The affirmative vote of a plurality of the votes cast at the Annual Meeting is required to approve the election of each director nominee. You may elect to cumulate your vote. Cumulative voting will allow you to allocate among the director nominees, as you see fit, the total number of shares equal to the number of director positions to be filled multiplied by the number of shares you hold.

 

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The Parties to the Reorganization (page 36)

 

The Washington Savings Bank, F.S.B.

4201 Mitchellville Road

Suite 200

Bowie, Maryland 20716

Tel: (301) 352-3120

 

The Washington Savings Bank, F.S.B. is a federally chartered savings bank operating under the regulations of the Office of Thrift Supervision. Washington Savings Bank’s deposits are insured up to the applicable limits by the Federal Deposit Insurance Corporation. For additional information about Washington Savings Bank and its business, see the section entitled “Information About Washington Savings Bank” beginning on page 46.

 

WSB Holdings, Inc.
4201 Mitchellville Road

Suite 200

Bowie, Maryland 20716

Tel: (301) 352-3120

 

WSB Holdings is a corporation formed under the laws of the State of Delaware on September 26, 2007 as wholly owned subsidiary of Washington Savings Bank and will serve as a holding company after the reorganization. For additional information about WSB Holdings, see the section entitled “Information About WSB Holdings” beginning on page 49.

 

Washington Interim Savings Bank

4201 Mitchellville Road

Suite 200

Bowie, Maryland 20716

Tel: (301) 352-3120

 

Washington Interim Savings Bank will be established as an interim federal savings bank formed under the laws of the United States of America as a wholly-owned subsidiary of WSB Holdings and will not directly engage in any business activities other than the proposed merger with Washington Savings Bank. Washington Interim Savings Bank will be formed solely to facilitate the reorganization. For additional information about Washington Interim Savings Bank, see the section entitled “Information About Washington Interim Savings Bank” beginning on page 51.

 

The Plan of Merger and Reorganization (page 42)

 

In the proposed reorganization, WSB Holdings will become the holding company for Washington Savings Bank (the “Reorganization”). Washington Savings Bank organized Washington Interim Savings Bank as a wholly owned subsidiary of WSB Holdings. Washington Interim Savings Bank will be merged with and into Washington Saving Bank, with Washington Savings Bank as the surviving entity following the completion of the Reorganization. The Plan of Merger and Reorganization is attached to this proxy statement/prospectus as Appendix A. You are encouraged to read it carefully.

 

What You will Receive in the Reorganization (page 42)

 

In the merger of Washington Interim Savings Bank into Washington Savings Bank, each share of Washington Savings Bank common stock will be converted into the right to receive one share of WSB

 

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Holdings common stock. The stockholders of Washington Savings Bank will then become the sole stockholders of WSB Holdings in its form as the holding company for Washington Savings Bank. The holding company formation will not change your equity or voting interest relative to other stockholders.

 

Stock Options (page 42)

 

Each Washington Savings Bank option that is outstanding and unexercised immediately before the effective date of the Reorganization shall be converted automatically into an equal number of options to purchase shares of WSB Holdings.

 

Conditions to the Consummation of the Reorganization (page 43)

 

Washington Savings Bank will not be permitted to complete the Reorganization until it satisfies a number of conditions, including the receipt of:

 

•              stockholder approval;

 

•              regulatory approvals, which have been applied for, and

 

•              rulings or opinions concerning the tax consequences of the Reorganization.

 

For more information, please see the section of this proxy statement/prospectus captioned “Proposed Reorganization into a Savings and Loan Holding Company — Conditions That Must be Satisfied Before the Reorganization Can Occur” on page 43.

 

Reasons for the Reorganization (page 37)

 

For a description of the reasons considered by Washington Savings Bank’s Board of Directors, please see the section entitled “Proposed Reorganization into a Savings and Loan Holding Company — Reasons for the Reorganization” beginning on page 37.

 

Recommendation of the Washington Savings Bank Board of Directors (page 38)

 

After careful consideration, Washington Savings Bank’s Board of Directors has determined that the Reorganization is advisable and in the best interests of Washington Savings Bank and its stockholders. Accordingly, the Board approved the Reorganization. Washington Savings Bank’s Board of Directors recommends that you vote “FOR” approval of the Reorganization.

 

Material United States Federal Income Tax Consequences (page 39)

 

You should not incur United States federal income taxes as a result of exchanging your Washington Savings Bank stock for WSB Holdings stock, but tax laws are very complicated and special rules may apply to some stockholders.

 

The merger of Washington Interim Savings Bank into Washington Savings Bank is intended to qualify as a reorganization under Section 368(a) of the Internal Revenue Code. Washington Savings Bank has received an opinion of Hogan & Hartson LLP that the merger will qualify as a reorganization if the merger takes place as described in the Plan of Merger and Reorganization. The opinion is based upon the assumption that factual representations made by Washington Savings Bank, which are ordinarily given in transactions of this type, will be correct when the merger closes. If the merger qualifies as a reorganization, no gain or loss will be recognized by Washington Savings Bank stockholders as a result of the merger. For a further discussion of the federal income tax consequences of the merger to Washington Savings Bank stockholders, see “Proposed Reorganization into a Savings and Loan Holding Company —Proposed Federal Income Tax Consequences of the Reorganization” beginning on page 39. However,

 

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different tax consequences may apply to you because of your individual circumstances or because special tax rules apply to you, for example, if you:

 

•                  are a tax-exempt organization;

 

•                  are a dealer in securities;

 

•                  are a financial institution;

 

•                  are an insurance company;

 

•                  are a non-United States person;

 

•                  acquired your shares of Washington Savings Bank stock from the exercise of options or otherwise as compensation or through a qualified retirement plan; or

 

•                  hold shares of Washington Savings Bank stock as part of a straddle, hedge or conversion transaction.

 

These matters are very complicated. You should consult your tax advisor for a full explanation of the tax consequences of the reorganization to you.

 

Regulatory Approval (page 38)

 

In addition to approval by the stockholders, the Reorganization must be approved by the Office of Thrift Supervision, the governmental agency that will supervise and regulate the activities of WSB Holdings. On September 27, 2007, the applications were filed with the Office of Thrift Supervision. It is anticipated, but not guaranteed, that the regulatory approvals will ultimately be obtained.

 

Differences in Stockholder Rights (page 59)

 

As stockholders of Washington Savings Bank, your rights are governed by the rules and regulations of the Office of Thrift Supervision. Your rights as a stockholder of WSB Holdings will be governed by Delaware General Corporation law. This change in applicable law will cause some changes in your stockholder rights. For example, holders of a simple majority of WSB Holdings’ shares present in person or represented by proxy and entitled to vote can approve most merger or consolidation transactions under Delaware law, whereas the affirmative vote of two-thirds of the outstanding voting stock is generally required under Office of Thrift Supervision rules for Washington Savings Bank.

 

For more information, please see the section of this proxy statement/prospectus captioned “Comparison of Stockholders’ Rights” on page 59.

 

Market for WSB Holdings Common Stock (page 45)

 

Washington Savings Bank’s common stock is traded on the NASDAQ Stock Market under the symbol “WSB.”  We expect WSB Holdings common stock to be traded on the NASDAQ Stock Market as well. There are no assurances that WSB Holdings common stock will continue to be listed on the NASDAQ Stock Market nor that there will be a market for WSB Holdings common stock. For more information, please see the section of this proxy statement/prospectus captioned “Market Price of The Washington Savings Bank’s Capital Stock and Dividends” on page 45.

 

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Dissenter’s or Appraisal Rights (page 41)

 

Under Office of Thrift Supervision regulations, the stockholders of Washington Savings Bank common stock will not have dissenters’ rights as a result of the exchange of shares of Washington Savings Bank common stock for shares of WSB Holdings common stock as part of the Reorganization.

 

Risks of the Reorganization (page 7)

 

In considering whether to approve the Reorganization, you should consider certain risks of the Reorganization. We urge you to read carefully all of the factors described in “Risk Factors” beginning on page 7 before voting.

 

Accounting Treatment of the Reorganization (page 40)

 

Washington Savings Bank will account for the Reorganization at a historical cost. Because this method records the assets and liabilities of the merged companies on a historical cost basis, no new intangible assets, including goodwill, will be recorded as a result of the Reorganization.

 

Supervision and Regulation (page 52)

 

After the Reorganization, (1) the Office of Thrift Supervision will regulate WSB Holdings’ operations as a savings and loan holding company, (2) Washington Savings Bank will continue to be regulated by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation; and (3) deposits in Washington Savings Bank will continue to be insured by the Federal Deposit Insurance Corporation to the fullest extent provided by law. For more information, please see the section of this proxy statement/prospectus captioned “Supervision and Regulation” on page 52.

 

RISK FACTORS

 

In addition to the other information included in this proxy statement/prospectus (including the matters addressed in “Cautionary Note Concerning Forward-Looking Statements”) and incorporated by reference into this document, you should carefully consider the risk factors listed below. This list includes only the risk factors that we believe are most significant and is not a complete list of the risks associated with an investment in the common stock of Washington Savings Bank or of WSB Holdings. Any of these risks could have an adverse effect on Washington Savings Bank’s business, financial condition, results of operations or prospects, which could in turn affect the price of its shares.

 

Risks Related to the Reorganization

 

Certain provisions of WSB Holdings’ Certificate of Incorporation will make it more difficult to remove the Board or Directors or management of WSB Holdings.

 

As with Washington Savings Bank’s current charter, WSB Holdings’ Certificate of Incorporation provides for the classification of the Board of Directors into three classes with each class serving a staggered three-year term. As a result of this classification, only one third of the entire Board of Directors should stand for election in any one year and a minimum of two annual meetings would be required to elect a majority of the Board of Directors. This may have the effect of deterring or discouraging, among other things, a proxy contest for control of WSB Holdings, the assumption of control of WSB Holdings by a holder of a large block of WSB Holdings common stock, and the removal of incumbent management.

 

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Approval of the Plan of Merger and Reorganization will, in effect, constitute approval of the classified Board of Directors by stockholders.

 

The Reorganization will involve some short-term costs, and no assurance can be given that the restructure will ultimately benefit stockholders.

 

Although the Washington Savings Bank’s management anticipates that the Reorganization will ultimately facilitate growth within the banking field, the Reorganization initially will require approximately $100,000 of expenditures related to operational changes, regulatory requirements, and professional fees. Furthermore, although WSB Holdings will use its best efforts to have its common stock listed on the NASDAQ Stock Market (“NASDAQ”), there can be no assurance that NASDAQ will permit such listing or that the market for those shares will be similar to the current market for Washington Savings Bank common stock.

 

We must obtain government approvals to implement the Plan of Merger and Reorganization.

 

The holding company reorganization contemplated by the Plan of Merger and Reorganization may only be consummated if the Office of Thrift Supervision approves the application filed by WSB Holdings to undertake the holding company reorganization. WSB Holdings filed the application with the Office of Thrift Supervision on September 27, 2007. There can be no assurance that the Office of Thrift Supervision will not deny our application or impose conditions which we find objectionable.

 

The market price of WSB Holdings common stock may decline as a result of the Reorganization.

 

The market price of the WSB Holdings common stock may decline as a result of the Reorganization for a number of reasons, including if:

 

•                  the integration of Washington Savings Bank and WSB Holdings is not completed in a timely and efficient manner;

 

•                  the combined company does not achieve the perceived benefits of the Reorganization as rapidly or to the extent anticipated by financial or industry analysts;

 

•                  the effect of the Reorganization on the combined company’s financial results is not consistent with the expectations of financial or industry analysts; or

 

•                  significant stockholders of Washington Savings Bank or WSB Holdings decide to dispose of their stock following completion of the Reorganization.

 

The stockholders of WSB Holdings will not be entitled directly to elect the directors of Washington Savings Bank following the Reorganization.

 

If the Reorganization is completed, the Board of Directors of WSB Holdings, acting on behalf of WSB Holdings in its capacity as the sole stockholder of Washington Savings Bank, will elect the directors of the Washington Savings Bank. The stockholders of WSB Holdings will elect the directors of WSB Holdings, but will no longer be entitled, as stockholders of WSB Holdings, to directly elect the directors of the Washington Savings Bank.

 

Sales of substantial amounts of WSB Holdings common stock in the public market after the proposed Reorganization could materially adversely affect the market price of WSB Holdings common stock.

 

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The sale of substantial amounts of WSB Holdings common stock may result in substantial fluctuations in the price of WSB Holdings common stock. In addition, sales of a substantial number of shares of WSB Holdings common stock within a short period of time could cause WSB Holdings’ stock price to fall. The sale of these shares could also impair the combined company’s ability to raise capital through sales of additional common stock.

 

Failure to complete the Reorganization could negatively impact the market price of the Washington Savings Bank’s common stock.

 

The obligations of Washington Savings Bank and WSB Holdings to complete the Reorganization are subject to the satisfaction or waiver of certain conditions. See “Proposed Reorganization into a Savings and Loan Holding Company — Conditions That Must be Satisfied Before the Reorganization Can Occur “on page 43 of this proxy statement/prospectus for a discussion of these conditions. If these conditions are not satisfied or waived, the Reorganization may not be completed. If the Reorganization is not completed for any reason, Washington Savings Bank may be subject to other material risks, including:

 

•                  a negative effect on the stock trading price of Washington Savings Bank common stock to the extent that the current market price reflects a market assumption that the Reorganization will be completed; and

 

•                  costs related to the merger, such as legal and accounting fees, must be paid even if the Reorganization is not completed.

 

The holding company reorganization would allow our board and management greater flexibility.

 

The holding company reorganization would provide our Board of Directors and management with greater flexibility in connection with corporate governance and business operations. This greater flexibility would increase our reliance on the judgments and actions of the board and management to achieve effective corporate governance and to operate our business.

 

We may require additional capital in the future.

 

We anticipate that our existing capital resources will adequately satisfy our capital requirements for the foreseeable future. Future capital requirements, however, depend on many factors, including our ability to attract new customers and provide additional services. To the extent that our existing capital resources are insufficient to fund future operating requirements, it may be necessary to raise additional funds through public or private financings. Any equity or debt financings, if available at all, may be on terms which are not favorable to us and, in the case of equity financings, could result in dilution of the interests of our then-existing stockholders. If adequate capital is not available, we will be subject to an increased level of regulatory supervision and our business, operating results, and financial condition could be adversely affected.

 

Washington Savings Bank’s directors and executive officers own a large amount of its stock and accordingly will own a large amount of WSB Holdings, Inc. stock and therefore will have  significant control of WSB Holdings’ management and affairs, which they could exercise against your best interests.

 

As of the October 22, 2007 record date, the directors and executive officers of Washington Savings Bank beneficially own approximately 47% of Washington Savings Bank outstanding common stock, including all options to purchase shares. As a result of this percentage ownership, after the reorganization our directors and executive officers as a group can exercise significant control over the management and affairs of WSB Holdings.

 

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Risks Related to Our Business

 

Because Washington Savings Bank will become a wholly owned subsidiary of WSB Holdings and the profitability of WSB Holdings will be dependent on the profitability of Washington Savings Bank, the following risk factors, while having a direct impact on Washington Savings Bank, will also effect the financial condition of WSB Holdings.

 

We face strong competition in our market area, which could hurt our profits and slow growth.

 

We face strong competition in our market area from many other banks, savings institutions, and other financial organizations, as well as many other companies offering now offering a broad array of financial services. Many of these competitors have greater financial resources, name recognition, market presence, and operating experience than we do. While our strategy will be to attract customers by providing personalized services and making use of the business community and personal ties to our directors and officers, as well as by providing superior products and services, there can be no assurance that we will be able to gain market acceptance and operate profitably. We expect that competition will intensify in the future both from existing institutions as well as new institutions. We believe that our ability to compete successfully depends upon a number of factors, including: market presence; customer service and satisfaction; the pricing policies of our competitors; the timing of introductions of new products and services by us and our competitors; and industry and general economic trends.

 

Economic conditions and related uncertainties may adversely affect our financial condition and results of operations.

 

Our success is largely dependent on the general economic conditions of our targeted market area of Baltimore-Washington corridor and Virginia. Unexpected changes in the national and local economy may adversely affect our ability to attract deposits and to make loans. Economic downturns could result in nonpayment of borrowers’ outstanding loans in excess of those anticipated by our allowance for loan losses. A significant decline or a long-term downtrend in one or more areas, including real estate and consumer spending, could have an adverse impact on our ability to become or remain profitable. Such risks are beyond our control and may have a material adverse effect on our financial condition and results of operations and, in turn, the value of our securities. See Also “Our allowance for loan losses may not be sufficient to cover loan losses and any increase in our allowance for loan losses would adversely affect earnings” on page 11.

 

Our operations are susceptible to adverse effects of changes in interest rates.

 

Our operations will be substantially dependent on our net interest income, which is the difference between the interest income earned on our interest-earning assets and the interest expense paid on our interest-bearing liabilities. As with most depository institutions, our earnings will be affected by changes in market interest rates and other economic factors beyond our control. If our interest-earning assets have longer effective maturities than our interest-bearing liabilities, the yield on our interest-earning assets generally will adjust more slowly than the cost of our interest-bearing liabilities, and, as a result, our net interest income generally will be adversely affected by material and prolonged increases in interest rates and positively affected by comparable declines in interest rates. Conversely, if liabilities reprice more slowly than assets, net interest income would be adversely affected by declining interest rates, and positively affected by increasing interest rates. At any time, it is likely that our assets and liabilities will reflect interest rate risk of some degree, and changes in interest rates may therefore have a material adverse affect on our results of operations.

 

In addition to affecting interest income and expense, changes in interest rates also can affect the value of our interest-earning assets, comprising fixed- and adjustable-rate instruments, as well as the ability to realize gains from the sale of such assets. Generally, the value of fixed-rate instruments fluctuates inversely with changes in interest rates.

 

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Our allowance for loan losses may not be sufficient to cover loan losses and any increase in our allowance for loan losses would adversely affect earnings.

 

We believe we have established an allowance for loan losses to prudently cover the eventuality of losses inherent in our loan portfolio. However, we cannot predict loan losses with certainty and we cannot assure you that charge offs in future periods will not exceed the allowance for loan losses. In addition, regulatory agencies, as an integral part of their examination process, review our allowance for loan losses and may require additions to the allowance based on their judgment about information available to them at the time of their examination. An increase in our allowance for loan losses could reduce our earnings.

 

We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.

 

We are subject to extensive regulation, supervision and examination by the Office of Thrift Supervision, our chartering authority, and by the Federal Deposit Insurance Corporation, as insurer of our deposits, and the holding company reorganization contemplated by the Plan would result in additional regulation. Such regulation and supervision govern the activities in which a financial institution may engage and are intended primarily for the protection of depositors and the insurance fund and are not intended for the protection of holders of our common stock. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution’s allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations or legislation, may have a material impact on our operations.

 

Applicable laws and regulations restrict both the ability of Washington Savings Bank to pay dividends to WSB Holdings, and the ability of WSB Holdings to pay dividends to you.

 

WSB Holdings’ principal source of income initially and for the foreseeable future will consist of dividends, if any, from Washington Savings Bank. Moreover, Delaware law restricts dividends that the holding company may pay if the capital of WSB Holdings is less than the aggregate amount of capital represented by the issued and outstanding capital stock having a preference upon the distribution of assets until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets has been repaired.

 

Any payment of dividends in the future will be at the sole discretion of WSB Holdings’ Board of Directors and will depend on a variety of factors deemed relevant by the Board of Directors, including, but not limited to, earnings, capital requirements and financial condition.

 

Payment of dividends by the Bank to WSB Holdings is subject to regulatory limitations imposed by the Office of Thrift Supervision, and Washington Savings Bank must meet Office of Thrift Supervision capital requirements before and after the payment of any dividends. In addition, the Office of Thrift Supervision has discretion to prohibit any otherwise permitted capital distribution on general safety and soundness grounds.

 

Washington Savings Bank’s directors and executive officers own a large amount of its stock and accordingly have significant control of its management and affairs, which they could exercise against your best interests.

 

As of the October 22, 2007 record date, the directors and executive officers of Washington Savings Bank beneficially own approximately 47% of our outstanding common stock, including all options to purchase shares. As a result of this

 

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percentage ownership, our directors and executive officers as a group can exercise significant control over our management and affairs.

 

We may not be able to attract and retain skilled people.

 

Washington Savings Bank’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people in most activities engaged in by Washington Savings Bank can be intense and Washington Savings Bank may not be able to hire people or to retain them. The unexpected loss of services of one or more of Washington Savings Bank’s key personnel could have a material adverse impact on the Washington Savings Bank’s business because of their skills, knowledge of the Washington Savings Bank’s market, years of industry experience and the difficulty of promptly finding qualified replacement personnel.

 

Our information systems may experience an interruption or breach in security.

 

Washington Savings Bank relies heavily on communications and information systems to conduct its business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in Washington Savings Bank’s customer relationship management, general ledger, deposit, loan and other systems. While Washington Savings Bank has policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of Washington Savings Bank’s information systems could damage Washington Savings Bank’s reputation, result in a loss of customer business, subject Washington Savings Bank to additional regulatory scrutiny, or expose Washington Savings Bank to civil litigation and possible financial liability, any of which could have a material adverse effect on Washington Savings Bank’s financial condition and results of operations.

 

We continuously encounter technological change.

 

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Washington Savings Bank’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in Washington Savings Bank’s operations. Many of Washington Savings Bank’s competitors have substantially greater resources to invest in technological improvements. Washington Savings Bank may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on Washington Savings Bank’s business and, in turn, Washington Savings Bank’s financial condition and results of operations.

 

Severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact our business.

 

Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on Washington Savings Bank’s ability to conduct business. Such events could affect the stability of Washington Savings Bank’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result

 

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in loss of revenue and/or cause Washington Savings Bank to incur additional expenses. Although management has established disaster recovery policies and procedures, the occurrence of any such event could have a material adverse effect on Washington Savings Bank’s business, which, in turn, could have a material adverse effect on Washington Savings Bank’s financial condition and results of operations.

 

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

 

Some of the statements contained in this proxy statement/prospectus, including statements containing the words “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other comparable terminology constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.

 

The forward-looking statements contained in this proxy statement/prospectus reflect our current views about future events and financial performance and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statement, including those risks discussed under the heading “Risk Factors” in this proxy statement/prospectus. Some factors that could cause actual results to differ materially from historical or expected results include:

 

•                  changes in general economic conditions, either nationally or locally in the areas in which we conduct or will conduct our business;

 

•                  inflation, interest rate, market and monetary fluctuations;

 

•                  the execution of our business plan;

 

•                  increases in competitive pressures among financial institutions and businesses offering similar products and services;

 

•                  higher defaults on our loan portfolio than we expect;

 

•                  changes in management’s estimate of the adequacy of the allowance for loan losses;

 

•                  legislative or regulatory changes or changes in accounting principles, policies or guidelines;

 

•                  management’s estimates and projections of interest rates and interest rate policy; and

 

•                  other factors affecting the financial services industry generally or the banking industry in particular.

 

For more information regarding risks that may cause our actual results to differ materially from any forward looking statements, see “Risk Factors” beginning on page 7. We do not intend and disclaim any duty or obligation to update or revise any industry information or forward-looking statements set forth in this proxy statement/prospectus to reflect new information, future events or otherwise, except as may be required by the securities laws.

 

SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION

 

The following tables sets forth certain selected consolidated financial and other information of Washington Savings Bank as of and for each of the dates indicated. This selected consolidated financial and other information is derived from Washington Savings Bank’s historical consolidated financial statements and should be read in conjunction with, and is qualified in its entirety by, “Management’s Discussion and Analysis,” the “Quantitative and Qualitative Disclosures About Market Risk” and the Washington Savings Bank’s consolidated financial statements and the notes thereto, which are included in Washington Savings Bank’s 2007 Annual Report on Form 10-K for the year ended July 31, 2007, incorporated by reference into this proxy statement/prospectus and attached hereto as Appendix C.

 

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		Years Ended July 31,
		2007			2006			2005			2004			2003
		(in thousands except per share and other data)
Selected Financial Condition Data:
Total loans receivable, net		$	208,380		$	251,085		$	440,788		$	480,718		$	393,070
Mortgage-backed securities		70,349			46,489			—			2,155			842
Other investments and other interest-earning assets(1)		141,582			124,297			67,889			20,057			22,896
Total assets		437,026			444,123			528,713			521,480			433,032
Deposits		282,899			323,734			413,279			378,285			291,627
Borrowings		89,000			58,000			55,900			89,900			96,331
Total stockholders’ equity		62,807			59,947			55,587			48,808			39,447

 

		Years Ended July 31,
		2007			2006			2005			2004			2003
		(in thousands except per share and other data)
Selected Operations Data:
Total interest income		$	28,182		$	33,659		$	41,494		$	32,411		$	24,675
Total interest expense		14,620			15,363			15,715			12,049			11,224
Net interest income		13,562			18,296			25,779			20,362			13,451
(Reversal) provision for loan		(300		)	200			5,410			1,395			1,265
Net interest income after provision for loan losses		13,862			18,096			20,369			18,967			12,186
Loan related fees		770			1,044			1,540			2,105			2,001
Gain on sale of loans and mortgage related securities and investments		854			1,223			3,675			2,982			6,427
Other income		1,671			1,484			1,769			1,336			1,443
Total non-interest income		3,295			3,751			6,984			6,423			9,871
Total non-interest expenses		12,979			13,888			14,324			11,054			11,111
Earnings before income taxes		4,178			7,959			13,029			14,336			10,946
Provision for income taxes		1,325			2,897			5,028			5,448			3,409
Net earnings		$	2,853		$	5,062		$	8,001		$	8,888		$	7,537
Earnings per common share:
Basic earnings per share (2)		$	0.38		$	0.68		$	1.09		$	1.25		$	1.09
Diluted earnings per share (2)		$	0.35		$	0.62		$	0.98		$	1.11		$	0.98
Average shares outstanding:
Average basic shares outstanding (2)		7,510			7,412			7,369			7,131			6,895
Average diluted shares outstanding (2)		8,123			8,106			8,196			8,040			7,727
Other Data:
Return on average assets		0.65		%	1.03		%	1.48		%	2.02		%	2.20		%
Return on average equity		4.61		%	8.82		%	15.30		%	20.23		%	21.15		%
Equity-to-assets ratio		14.37		%	13.51		%	10.48		%	9.36		%	9.10		%
Cash dividends declared		$	0.12		$	—		$	0.21		$	0.22		$	0.13
Dividend payout ratio		31.72		%	—		%	19.31		%	17.70		%	12.30		%
Interest rate spread		2.89		%	3.52		%	4.31		%	4.03		%	3.64		%
Number of savings branches at end of period		5			5			5			5			5
Number of mortgage origination offices at end of period		4			6			11			11			11

 

(1)         Other investments and other interest-earning assets include federal funds sold, Federal Home Loan Bank stock,  zero coupon bonds, FHLB and FNMA callable paper, Preferred Trust Coupon Bonds, Investment Certificate of Deposit, and Bank Owned Life Insurance.

 

(2)         Adjusted for three-for-two stock split effective April 23, 2003.

 

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THE ANNUAL MEETING

 

This proxy statement/prospectus is being furnished to you as part of the solicitation of proxies by Washington Savings Bank’s Board of Directors for use at the Annual Meeting to be held on December 19, 2007, and at any adjournment or postponement of the meeting. This proxy statement/prospectus, this notice of Annual Meeting of stockholders and the enclosed proxy card are being mailed to you on or about November 23, 2007.

 

Date, Time and Place

 

The Annual Meeting of Stockholders will be held at 9:00 a.m., local time, on December 19, 2007 at the Comfort Inn Conference Center, 4500 Crain Highway, Bowie, Maryland.

 

Matters to be Considered at the Meeting

 

At the meeting, holders of Washington Savings Bank common stock will consider and vote upon:

 

1.                                       The election of Messrs. Harnett and Huffman as Directors for a term of three years each;

 

2.                                       The approval of the reorganization of  The Washington Savings Bank, F.S.B. into a savings and loan holding company form of ownership by approving a plan of merger and reorganization, through which Washington Savings Bank will become a wholly owned subsidiary of WSB Holdings, Inc., a newly formed Delaware corporation formed solely for the purpose of becoming the holding company of Washington Savings Bank, and each outstanding share of Washington Savings Bank common stock will be converted into one share of common stock of WSB Holdings, Inc.;

 

3.                                       The adjournment of the meeting, if necessary, to permit further solicitation of proxies in the event there are not sufficient votes at the time of the meeting for a quorum or to approve the holding company reorganization; and

 

4.                                       Any and all other business which may properly come before the meeting or any adjournments thereof.

 

Washington Savings Bank knows of no other matters to be brought before the Annual Meeting. If any matter incident to the conduct of the Annual Meeting should be brought before the meeting, the persons named in the proxy card will vote in their discretion.

 

A vote for approval of the Plan of Merger and Reorganization is a vote for approval of the holding company formation. If the holding company formation is completed, you will receive one share of WSB Holdings common stock in exchange for each share of Washington Savings Bank common stock you hold.

 

Board of Directors Recommendation

 

Washington Savings Bank’s Board of Directors unanimously recommends that you vote FOR the election of all of the Board’s nominees for election as directors, FOR adoption of the Plan of Merger and Reorganization and the transactions contemplated thereby, including the Reorganization and FOR the adjournment of the annual meeting, including, if necessary, to solicit additional proxies in favor of the adoption of the Plan of Merger and Reorganization.

 

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•            by using the toll-free telephone number listed on the proxy card,

 

•            by using the Internet website listed on the proxy card,

 

•            by signing, dating and mailing the proxy card in the enclosed postage-paid envelope, or

 

•            by attending the Annual Meeting and voting in person.

 

Whichever of these methods you select to transmit your instructions, the proxy holders will vote your common stock in accordance with your instructions.

 

 Shares of Washington Savings Bank common stock represented by properly executed proxy cards that do not contain voting instructions will be voted “FOR” election of all nominees for directors presented in Proposal 1, “FOR” the Reorganization as presented in Proposal 2 and “FOR” adjournment of the meeting, if necessary.

 

 If your shares are held in an account at a broker or bank, you must instruct the broker or bank on how to vote your shares. If you do not provide voting instructions to your broker or bank, your shares will not be voted on any proposal on which your broker or bank does not have discretionary authority. Your broker or bank does not have discretionary authority to vote on the Reorganization proposal. If an executed proxy card returned by a broker or bank holding shares indicates that the broker or bank does not have discretionary authority to vote on a particular matter, the shares will be considered present at the meeting for the purposes of determining the presence of a quorum, but will not be voted with respect to that matter. This is called a “broker non-vote.” Your broker or bank will vote your shares only if you provide instructions on how to vote by following the instructions provided to you by your broker or bank.

 

Because approval of the Reorganization requires the affirmative vote of a majority of the outstanding shares of Bank common stock, abstentions, failures to vote and broker non-votes will have the same effect as votes against the Reorganization. Accordingly, you are urged to vote your shares.

 

Any stockholder who submits a proxy card may revoke it at any time before it is exercised by:

 

•                              delivering a notice of revocation or delivering a later dated proxy to Gerald J. Whittaker, Corporate Secretary, The Washington Savings Bank, F.S.B., 4201 Mitchellville Road, Suite 200, Bowie, Maryland 20716;

 

•                              submitting a duly executed proxy card bearing a later date;

 

•                              you can vote at a later time by telephone or through the internet; or

 

•                           appearing at the Annual Meeting and giving the Corporate Secretary notice of his or her intention to vote in person.

 

/Attendance at the Annual Meeting will not in and of itself revoke a proxy that you submitted prior to the meeting.

 

Proxies solicited pursuant to this proxy statement/prospectus will be returned to the proxy solicitors or Washington Savings Bank’s transfer agent, and will be tabulated by inspectors of election designated by the Board of Directors of Washington Savings Bank. After the final adjournment of the Annual Meeting, the proxies will be returned to the Board of Directors of Washington Savings Bank for safekeeping. Proxies solicited pursuant to this proxy statement/prospectus may be used only at the Annual Meeting and any adjournment of the meeting and will not be used for any other meetings.

 

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CORPORATE GOVERNANCE

 

Code of Ethics

 

Washington Savings Bank has adopted a Code of Ethics to promote the highest standards of ethical conduct by the Company’s directors, executive officers and employees. The Code of Ethics requires that Washington Savings Bank’s directors, executive officers and employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity and in Washington Savings Bank’s best interest. A copy of the Code of Ethics can be found on Washington Savings Bank’s internet web site (www.twsb.com).

 

Meetings of the Board of Directors; Independence of the Board of Directors

 

Washington Savings Bank conducts business through meetings of its Board of Directors and through activities of its committees. During 2007, the Board of Directors held 12 meetings. All of the current directors attended at least 75% of the board meetings held and committee meetings on which such directors served during 2007. The Board of Directors has determined that Messrs. Sullivan, Conover, Troese and Lodge are independent directors meeting the independence requirement of NASDAQ (the “Independent Directors”). In making this determination, the Board considered transactions and relationships between each director or his or her immediate family and the Company and its subsidiaries, including those reported under “Compensation Committee Interlocks and Insider Participation” and “Certain Relationships and Related Party Transactions” below. Mr. Harnett is not independent because he was an executive officer of the Company within the past three years, and remains a non-executive employee. Messrs. Bowman and Huffman are not independent because they are executive officers of the Company.

 

Committees of the Board of Directors

 

Nominating Committee. The Board of Directors of Washington Savings Bank does not have a separate standing nominating committee. Washington Savings Bank’s Bylaws provide that the full Board shall act as the nominating committee; however, pursuant to procedures adopted by the Board, the Independent Directors select and recommend nominees for the full Board’s consideration. Washington Savings Bank does not believe it needs a separate nominating committee because the full Board is comprised of a majority of independent directors and the full Board selects nominees for election as directors based on the recommendation of the Independent Directors. The Board of Directors has adopted a resolution setting forth its director nomination process. The Independent Directors endeavor to identify, recruit and nominate candidates characterized by wisdom, maturity, sound judgment, excellent business skills and high integrity. Washington Savings Bank’s Bylaws also permit stockholders to make nominations for directors, but only if such nominations are made in writing and addressed to and received by the Assistant Secretary of Washington Savings Bank at least five days before the annual meeting. Stockholder recommendations for director nominees complying with the procedures above will receive the same consideration as other candidates identified by the Independent Directors.

 

Compensation Committee. Washington Savings Bank does not have a separate compensation committee. However, only outside “Independent Directors” participate in the deliberation, evaluation, and establishment of executive officer compensation. Our outside independent directors acting as a Compensation Committee held two meetings dealing with compensation during the year ended July 31, 2007. During these meetings the outside independent directors approved our corporate goals and objectives relative to compensation, and evaluated the executive officers’ performance and compensation in view of those goals and objectives. Our CEO does not participate in discussions relating to his own compensation, but makes recommendations of amounts for each element of compensation for the other

 

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Named Executive Officers (as defined on page 31) (“NEO”).  The outside independent directors, however, have the ultimate say over all compensation amounts.  The other NEOs do not participate in decision-making by the outside independent directors, although periodically Mr. Robey, on an as-requested basis, provides relevant comparative information to peer groups based on Federal Deposit Insurance Corporation (FDIC) and Office of Thrift Supervision (OTS) quarterly financial filings.  The three peer groups utilized in the analysis of quarterly regulatory reporting for the outside independent director’s review and evaluation were defined as:

 

•                  Savings Institutions based in Maryland, with asset sizes between $388 million and $906 million;

 

•                  Commercial Banks based in Maryland, with asset sizes between $310 million and $748 million; and

 

•                  All national institutions.

 

Other than in negotiating Mr. Bowman’s employment contract, while authorized to engage consultants as deemed needed, our outside independent directors have not engaged the services of a compensation consultant to prepare benchmark surveys. However, the outside independent directors do utilize outside, publicly-available independent executive compensation reviews from SNL Financial, American Bankers Association, and America’s Community Bankers Association in analyzing banking peer group salary and benefit information for the NEOs.  The peer group information used for consideration is based on peer groups as defined and set by the outside service provider based on asset size, geographic location, type of financial institution, and operating performance.  Accordingly, consistent with our objectives, the compensation of our executives is set with regard to the competitive market.  We do not, however, specifically benchmark the NEOs’ total compensation or any individual element of compensation to our peer companies, but generally review the information for competitive purposes.

 

Audit Committee. The Board of Directors has established an Audit Committee in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Committee currently consists of Messrs. Sullivan (Chairman), Conover and Lodge, all of whom meet the independence and experience requirements of the NASDAQ. The functions of the Audit Committee are to (i) review the independence of the independent registered public accounting firm and make decisions regarding engaging and discharging the independent registered public accounting firm, (ii) review the plan, scope, results, and fees of the independent registered public accounting firm and (iii) to review the adequacy of internal audit controls. The Audit Committee meets with the independent registered public accounting firm and with Washington Savings Bank’s Internal Auditor, which reports on the results of Washington Savings Bank’s Quality Control reviews, outsourced compliance and internal audit reports. The Audit Committee’s responsibilities are as described in a written Charter. A copy WSB’s Audit Committee Charter can be found on Washington Savings Bank’s internet web site (www.twsb.com). The Audit Committee held five meetings during the fiscal year ended July 31, 2007.

 

Compensation of Directors

 

The following table summarizes the compensation paid to Washington Savings Bank’s non-employee directors during fiscal 2007. Beyond these and other standard arrangements described below, no other compensation was paid to any such director.

 

 

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Director Compensation

 

Name		Fees Earned or Paid in Cash ($ )			Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings		All Other Compensation ($)(1)		Total ($)
George Q. Conover		$	25,000		—		—		—		—		—		$	25,000
William J. Harnett		—			—		—		—		—		100,000		100,000
Eric S. Lodge		23,000			—		—		—		—		—		23,000
Michael J. Sullivan		24,500			—		—		—		—		9,967		34,467
Stephen J. Troese		26,000			—		—		—		—		—		26,000

 

(1)          Represent annual salary of $100,000 paid to Mr. Harnett as a non-executive employee;  and Health insurance benefits paid by the Bank for Mr. Sullivan.

*     Stock Options available by Mr. Conover- 43,500; Mr. Harnett- 478,500; Mr. Sullivan- 43,500; Mr. Troese- 43,500

For options available for Directors Bowman and Huffman refer to the Beneficial Ownership Table.

 

Director/Committee Fees

 

The non-employee directors are paid board fees and committee fees based on attendance. Committee fees are only paid for meetings occurring not on board meeting dates. Chairman Harnett receives a salary of $100,000 and the use of a company auto which was established at his retirement as CEO by the outside directors for his continuing service as advisor to the CEO and Board. Mr. Harnett’s salary is as a non-executive employee, serving of counsel to Mr. Bowman, senior management, and the Board of Directors. Mr. Harnett is also entitled to certain other benefits in his capacity as a non-executive employee, including participation in the Bank 401(k) plan, life insurance, group health and dental insurance plans as other employees.  Mr. Harnett is also entitled to a change in control lump sum severance payment in the amount of $500,000 in the event his employment is involuntarily terminated, or if his level of compensation does not remain substantially the same (including bonus) and he voluntarily terminates within 18 months of a change in control as defined by the OTS in 12 C.F.R. 574(a) and (b).  Mr. Harnett is provided as part of his employment, the use of a company vehicle, in which the personal use benefit is included in his taxable wages.

 

Director compensation and benefits are reviewed annually by the outside directors using the outside, publicly-available independent compensation reviews from SNL Financial and America’s Community Bankers Association in analyzing board compensation and benefits. The peer group information used for consideration is based on peer groups as defined and set by the outside service provider based on asset size, geographic location, type of financial institution, and operating performance. Accordingly, consistent with our objectives, the compensation of our directors is set with regard to the increased demands of serving as a director and local market practice. We do not, however, specifically benchmark the director compensation or any individual element of compensation to our peer companies, but generally review the information for competitive purposes.

 

Incentive Stock Awards

 

Directors are eligible, and have received stock option grants as part of their compensation; however, no grants were awarded to non-employee directors in 2007. Option grants for non-employee director are subject to board approval, with the same consideration given to timing and appropriateness as discussed for the NEOs. It is the belief that stock option grants further align the interest of the directors with our shareholders.

 

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Health and Welfare

 

Non-employee directors were previously allowed to participate in the Bank’s medical insurance plan on a basis consistent with employee participants; of the non-employee directors, only director Sullivan elected to participate.

 

Communication with Directors

 

Stockholders wishing to report complaints or concerns about Washington Savings Bank’s accounting, internal accounting controls or auditing matters or other concerns to the Board or Audit Committee may do so by writing to the Board or Audit Committee at 4201 Mitchellville Road, Suite 200, Bowie, Maryland 20716.

 

Complaints relating to Washington Savings Bank’s accounting, internal accounting controls or auditing matters will be referred to members of the Audit Committee. Other concerns will be referred to the Board of Directors. All complaints and concerns will be received and processed by the General Counsel’s office upon receipt of your written complaint or concern. You may report your concerns anonymously or confidentially.

 

Director Attendance at Annual Meetings

 

It is The Washington Savings Bank’s policy that all Board members attend the Annual Meeting of Stockholders. All Board members were in attendance at the 2006 Annual Meeting of Stockholders.

 

EXECUTIVE COMPENSATION AND OTHER INFORMATION

 

Executive Officers of Washington Savings Bank

 

The following table sets forth information regarding the named executive officers of The Washington Savings Bank at July 31, 2007, other than Messrs. Bowman and Huffman. For information regarding Messrs. Bowman and Huffman, see “Proposal I – Election of Directors – Information as to Nominees and Other Directors.”

 

Susan L. Grant Age 55		Ms. Grant joined The Washington Savings Bank in December of 2005, as Senior Vice President in charge of the Mortgage Banking Division. Prior to joining WSB, Ms. Grant was the Regional Vice President for nBank, of Atlanta, Georgia, from December 2001 to December 2005. Prior to this Ms. Grant was the Regional Vice President of Wholesale Lending for the Royal Bank of Canada from December 1997 thru December of 2001. Prior to this Ms. Grant was the Regional Vice President in charge of Wholesale Lending for New America Financial from December of 1993 thru December of 1997. Ms. Grant began her early career with Chase Manhattan, opening the Mid-Atlantic region for Chase in April of 1985 and until December of 1993.
Randall M. Robey Age 50		Mr. Robey has served as Senior Vice President and Chief Financial Officer since November 2004. Prior to joining WSB, Mr. Robey served as Executive Vice President and Chief Financial Officer of Carrollton Bank and Carrollton Bancorp from November 2000 until September 2004; and as Senior Vice President and Chief Financial Officer from October 1999 through October 2000. Prior to that Mr.

 

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Compensation Discussion and Analysis

 

General Principles and Procedures

 

Our executive compensation programs are designed to enhance shareholder value by enabling us to recruit and maintain a management team that has the industry expertise, leadership skills and motivation to drive the Company to meet functional, operational and strategic goals.

 

General Program Objectives

 

Our NEOs’ compensation is designed to provide a competitive compensation package that continuously motivates them to perform in a manner which enhances long-term shareholder value. Our program rewards executives for achieving strategic goals and for providing leadership WSB needs to achieve those goals. While there were no pre-established, defined individual performance goals for each NEO during 2007, the outside independent directors exercised their business judgment and experience in evaluating the general performance of the NEOs. Besides performance, our program also focuses on retention by providing the executives with financial security through compensation arrangements that are competitive in the marketplace in which we operate. Based upon our review of the compensation arrangements discussed below, our assessment of compensation at surveyed companies, our assessments of individual, as noted above, and corporate performance and other relevant factors, we believe that the value and design of our executive compensation program is appropriate.

 

Performance Rewarded

 

Our compensation programs will reward our NEOs for overall Company and individual performance based on completion of strategic planning goals as well as operational performance. The outside independent directors, serving as our “Compensation Committee” recognizes long-term strategic initiatives and timelines developed from the strategic operating plan which has been approved by the Board of Directors, in establishing expectations and the resultant compensation and bonus levels for our NEOs. In setting these goals, the outside independent directors also consider our competitors’ performance and general economic conditions. Some of the factors that are also measured are the NEOs:

 

•                  contribution to achieving long-term and short-term strategic goals;

 

•                  regulatory compliance management;

 

•                  diversification of loan portfolio;

 

•                  loan portfolio risk and loss management;

 

•                  achievement of Company revenue goals;

 

•                  ability to control expenses;

 

•                  development of employees; and

 

•                  new business acquisition and customer retention.

 

Role of Executive Officers and Outside Compensation Consultants

 

Our outside independent directors acting as a Compensation Committee held two meetings dealing with compensation during the year ended July 31, 2007. During these meetings the outside independent directors approved our corporate goals and objectives relative to compensation, and evaluated the executive officers’ performance and compensation in view of those goals and objectives. Our CEO does not participate in discussions relating to his own compensation, but makes recommendations of amounts for each element of compensation for the other NEOs. The outside independent directors, however, have the ultimate say over all compensation amounts. The other NEOs do not participate in decision-making by the outside independent directors, although periodically Mr.

 

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Robey, on an as-requested basis, provides relevant comparative information for peer groups based on FDIC and OTS quarterly financial filings. The three peer groups utilized in the analysis of quarterly regulatory reporting for the outside independent director’s review and evaluation were defined as:

 

•                  Savings Institutions based in Maryland, with asset sizes between $388 million and $906 million;

 

•                  Commercial Banks based in Maryland, with asset sizes between $310 million and $748 million; and

 

•                  All national institutions.

 

The compensation committee is authorized to engage such consultants and other advisors as it deems necessary or advisable in carrying out its functions. During fiscal year 2007, the committee did not engage the services of a compensation consultant. The outside independent directors do utilize outside, publicly-available independent executive compensation reviews from SNL Financial, American Bankers Association, and America’s Community Bankers Association in analyzing banking peer group salary and benefit information for the NEOs. The peer group information used for consideration is based on peer groups as defined and set by the outside service provider based on asset size, geographic location, type of financial institution, and operating performance. Accordingly, consistent with our objectives, the compensation of our executives is set with regard to the competitive market. We do not, however, specifically benchmark the NEOs’ total compensation or any individual element of compensation to our peer companies, but generally review the information for competitive purposes.

 

Specific Principles for Determining Executive Compensation

 

The material components of compensation which we believe to be necessary to attract and retain qualified NEOs are summarized in the table below.

 

General Elements of NEO Compensation for 2007

(see “Executive Compensation Decisions for 2007” for Amounts and Further Detail)

 

Element		Reason for Element
Salary		Our career-oriented philosophy toward executive compensation requires a competitive base salary as a starting point. The outside independent directors establish the base salaries for our NEOs as fixed amounts in order to provide a reliable indication of the minimum amount of compensation that each NEO will receive in a given year. Salary levels are typically considered annually as part of the Company’s performance review process as well as upon a promotion or other change in job responsibility. Merit-based increases to salaries are based on the Committee’s assessment of the individual’s performance.
Bonus or Incentive		We maintain annual bonus and incentive programs under which executive officers may earn cash bonuses or incentives, based on meeting annual strategic and/or business development objectives or corporate performance. These programs are designed to provide incentive for the executives to attain goals established and approved by the outside independent directors.

 

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Moreover, cash bonuses or other awards paid in one year will normally not impact those paid to the NEOs for the next year. The outside independent directors and the Board of Directors have discretion to make exceptions to any compensation, bonus or incentive. However, they did not approve any exceptions to usual practices with regard to any of the NEOs in 2007.

 

Executive Compensation Decisions for 2007

 

Base Salary

 

For 2007, ranges for salary increases were market driven. Salary increases for the calendar year 2007 for the NEOs ranged from 4.0% to 7.1%, with the differences reflecting performance against individual goals for the prior year and relative placement within the Company’s salary grade and range structure. In conjunction with Mr. Bowman’s employment contract renewal, the outside independent directors increased his base salary $10,000 (3.8%) effective April 1, 2007.

 

Cash Bonuses

 

In 2007, the Company accomplished many of its strategic plan objectives.  Certain strategic decisions by management to improve future operating results will have a negative impact on both short and intermediate-term Company performance; however the Company’s NEOs generally performed satisfactorily during 2007, and as such the compensation committee exercised its discretion to award bonuses for 2007 to the NEOs ranging from 9.5% to 22.2% of base salary.

 

Stock Awards

 

For 2007, the outside independent directors made only one grant pursuant to the various stock incentive plans, granting a stock option award for 5,000 shares to Mr. Bowman in conjunction with his employment contract renewal. The option price is set as the closing price as of the day of grant in accordance with plan documents. The options granted to Mr. Bowman vest 50% on the first and second anniversaries of the grant.

 

Post-Employment Compensation (Retirement and Severance)

 

We did not change our retirement plan, or change-in-control severance agreements in fiscal year 2007, on the premise that they provide reasonable and adequate post-employment compensation in accordance with plans and written agreements entered into before fiscal year 2007.

 

Bank Owned Life Insurance

 

The Bank has invested in BOLI to finance employee benefit programs. The current cash surrender value of the policies included in other assets was $10.3 million as of July 31, 2007. The Bank recorded income from the insurance policies for the twelve-month period ended July 31, 2007 of $286,000. Under the BOLI insurance agreement, while employed, the beneficiaries of the NEOs would receive life insurance benefits of two times their annual salary. Life insurance coverage under the plan is solely during the active employment of the NEO and does not continue past retirement. The outside independent directors have determined that these insurance policies and death benefit endorsement are a desirable and appropriate investment for the Bank.

 

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