<PAGE>
EXHIBIT 99.3
Index to ASBI'S Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Consolidated Financial Statements of ASBI Holdings, Inc. and Subsidiaries
as of March 31, 2000 and for the six month periods ended March 31, 2000 and 1999
Consolidated Balance Sheet.................................................................... 2
Consolidated Statements of Income............................................................. 3
Consolidated Statements of Cash Flows ........................................................ 4
Notes to Consolidated Financial Statements.................................................... 6
Audited Consolidated Financial Statements of ASBI Holdings, Inc. and Subsidiaries
as of September 30, 1999 and 1998 and for each of the years in the three year period ended
September 30, 1999
Independent Auditors' Report.................................................................. 7
Consolidated Balance Sheets................................................................... 8
Consolidated Statements of Income............................................................. 9
Consolidated Statements of Cash Flows......................................................... 10
Consolidated Statements of Changes in Stockholders' Equity.................................... 11
Notes to Consolidated Financial Statements.................................................... 13
</TABLE>
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
March 31, 2000
(unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Cash and due from banks $ 8,660
Loans held for sale (at market value) 46,629
Loans held for investment, net 234,397
Real estate purchased for development 2,437
Premises and equipment, net 2,986
Other real estate owned, net 948
Federal Home Loan Bank stock (at cost) 1,807
Accrued interest receivable 1,798
Other assets 592
---------------
$ 300,254
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest bearing $ 12,760
Interest bearing 212,475
---------------
Total deposits 225,235
Advances from the Federal Home Loan Bank 35,632
Other liabilities 9,681
Minority interest 886
Stockholders' equity:
Voting common stock of $0.001 par value. 101,000,000 Class A and B
shares authorized; 272,064 shares issued and outstanding 1
Nonvoting common stock of $0.001 par value. 101,000,000 Class A and
B shares authorized; 26,934,336 shares issued and outstanding 26
Additional paid-in capital 238
Retained earnings 28,555
---------------
Total stockholders' equity 28,820
---------------
Commitments and contingencies
---------------
$ 300,254
===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(2)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Six Months Ended March 31, 2000 and 1999
(unaudited)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 16,793 $ 14,737
Interest and dividends on investments 255 462
--------------- ---------------
Total interest income 17,048 15,199
--------------- ---------------
Interest expense:
Interest on deposits (including interest expense on certificates
of deposit of $100,000 and over of $725 and $761
in 2000 and 1999, respectively) 5,787 6,437
Interest on notes payable 74 -
Interest on FHLB advances 589 322
--------------- ---------------
Total interest expense 6,450 6,759
--------------- ---------------
Net interest income 10,598 8,440
Provision (credit) for possible loan losses 685 (271)
--------------- ---------------
Net interest income after provision for possible loan losses 9,913 8,711
--------------- ---------------
Noninterest income:
Gain on sale of assets 1,414 1,207
Other 555 485
--------------- ---------------
Total noninterest income 1,969 1,692
--------------- ---------------
Noninterest expense:
Compensation and benefits 3,401 2,867
Occupancy and equipment 648 401
Other 1,804 1,257
--------------- ---------------
Total noninterest expense 5,853 4,525
--------------- ---------------
Income before minority interest 6,029 5,878
Minority interest (367) (124)
--------------- ---------------
Net income $ 5,662 $ 5,754
=============== ===============
Earnings per common share $ .21 $ .21
=============== ===============
Weighted average shares outstanding 27,206,400 27,206,400
=============== ===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(3)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended March 31, 2000 and 1999
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,662 $ 5,754
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of discount on loans (1,215) (1,191)
Gain on sale of loans held for sale, net (1,241) (1,239)
Provision (credit) for loan losses 685 (271)
Depreciation and amortization of premises and equipment 157 90
Gain on sale of real estate owned (5) (12)
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest receivable (297) 136
Decrease in other assets 447 237
Increase in other liabilities 3,309 1,323
Purchases of loans held for sale (12,835) (24,576)
Proceeds from sale of loans held for sale 13,837 28,167
Decrease (increase) in warehouse loans (13,624) 10,091
--------------- ---------------
Net cash provided by (used in) operating activities (5,120) 18,509
--------------- ---------------
Cash flows from investing activities:
Loan originations and purchases, net of repayments (24,795) (1,718)
Decrease in factored receivables, net of repayments 672 2,057
Purchases of premises and equipment (877) (171)
Proceeds from sale of real estate owned 2,148 402
Capitalized improvements of real estate owned (98) -
Purchases of Federal Home Loan Bank stock, net (596) (90)
Purchase of real estate for development - (159)
--------------- ---------------
Net cash provided by (used in) investing activities (23,546) 321
--------------- ---------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(4)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(continued)
For the Six Months Ended March 31, 2000 and 1999
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW,
savings and money market accounts (248) 1,296
Net decrease in certificates of deposit (3,803) (9,828)
Net increase (decrease) in advances from the Federal Home Loan Bank 31,202 (589)
Proceeds from note payable 2,500 -
Dividends paid (4,258) (3,075)
--------------- ---------------
Net cash (used) provided by financing activities 25,393 (12,196)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (3,273) 6,634
Cash and cash equivalents at beginning of period 11,933 3,666
--------------- ---------------
Cash and cash equivalents at end of period $ 8,660 $ 10,300
=============== ===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(5)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Select Notes to Consolidated Financial Statements
March 31, 2000 and 1999
(unaudited)
1. Basis of Presentation
The accompanying unaudited interim financial statements as of March 31, 2000 and
for the six months ended March 31, 2000 and 1999, respectively, reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for such periods presented. Management has determined
that all such adjustments are of a normal recurring nature.
2. Statements of Cash Flows
ASBI has chosen to report its cash flows by the indirect method and has chosen
to report on a net basis its cash receipts and cash payments for time deposits
accepted and repayments of those deposits, and loans made to customers and
principal collections on those loans.
Supplemental information on cash flows and non-cash transactions for the six
months ended March 31, 2000 and 1999, (unaudited) is as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash transactions:
Interest expense paid $ 6,323 $ 6,778
=========== ============
Federal income tax paid $ -- $ 16
=========== ============
Noncash transactions:
Net acquisition of other real estate owned $ 360 $ 1,525
=========== ============
</TABLE>
3. Income Taxes
ASBI changed its tax status from taxable to nontaxable effective as of January
1, 1997. The remaining deferred tax liability at March 31, 2000, of
approximately $490,000 is related to ASBI's future taxable income due primarily
to the recapture (for tax purposes) of the reserve for loan loss and certain
built in gains primarily associated with purchased loan pools, which may be
taxable at the corporate level in future years.
(6)
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
ASBI Holdings, Inc. and Subsidiaries
We have audited the consolidated balance sheets of ASBI Holdings, Inc. and
Subsidiaries (the Company) as of September 30, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three year period ended September 30, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ASBI Holdings, Inc.
and Subsidiaries as of September 30, 1999 and 1998, and the results of its
operations and its cash flows for each of the years in the three year period
ended September 30, 1999, in conformity with generally accepted accounting
principles.
Fisk & Robinson P.C.
November 19, 1999
Dallas, Texas
(7)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1999 and 1998
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
------
Cash and due from banks $ 11,933 $ 3,666
Loans held for sale (at market value) 32,763 75,071
Loans held for investment, net 210,107 183,768
Real estate purchased for development 2,813 2,915
Premises and equipment, net 2,266 867
Other real estate owned, net 2,257 515
Federal Home Loan Bank stock (at cost) 1,211 1,089
Accrued interest receivable 1,501 1,883
Other assets 1,039 741
--------------- --------------
$ 265,890 $ 270,515
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest bearing $ 10,493 $ 10,303
Interest bearing 218,793 229,385
--------------- --------------
Total deposits 229,286 239,688
Advances from the Federal Home Loan Bank 4,430 4,623
Other liabilities 4,758 3,991
Commitments and contingencies - -
Stockholders' equity:
Voting common stock of $0.001 par value. 101,000,000 Class A and B
shares authorized; 272,064 shares issued and outstanding 1 1
Nonvoting common stock of $0.001 par value. 101,000,000 Class A and
B shares authorized; 26,934,336 shares issued and outstanding 26 26
Additional paid-in capital 238 238
Retained earnings 27,151 21,948
--------------- --------------
Total stockholders' equity 27,416 22,213
--------------- --------------
$ 265,890 $ 270,515
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
(8)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Years Ended September 30, 1999, 1998 and 1997
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 30,333 $ 29,620 $ 21,713
Interest and dividends on investments 771 723 531
--------------- --------------- --------------
Total interest income 31,104 30,343 22,244
--------------- --------------- --------------
Interest expense:
Interest on deposits (including interest expense on certificates
of deposit of $100,000 and over of $1,445, $1,595 and $1,708
In 1999, 1998 and 1997, respectively) 12,359 12,117 7,619
Interest on notes payable - - 6
Interest on FHLB advances 484 974 1,551
--------------- --------------- --------------
Total interest expense 12,843 13,091 9,176
--------------- --------------- --------------
Net interest income 18,261 17,252 13,068
Provision (credit) for possible loan losses (3) 2,140 1,024
--------------- --------------- --------------
Net interest income after provision (credit)
for possible loan losses 18,264 15,112 12,044
--------------- --------------- --------------
Noninterest income:
Gain on sale of assets 2,868 2,086 1,282
Other 1,103 931 659
--------------- --------------- --------------
Total noninterest income 3,971 3,017 1,941
--------------- --------------- --------------
Noninterest expense:
Compensation and benefits 5,577 4,892 3,365
Occupancy and equipment 813 608 483
Other 2,984 2,055 1,979
--------------- --------------- --------------
Total noninterest expense 9,374 7,555 5,827
--------------- --------------- --------------
Income before income taxes and minority interest 12,861 10,574 8,158
Income taxes 111 55 1,766
--------------- --------------- --------------
Income before minority interest 12,750 10,519 6,392
Minority interest (527) (126) (84)
--------------- --------------- --------------
Net income $ 12,223 $ 10,393 $ 6,308
=============== =============== ==============
Earnings per common share $ 0.45 $ 0.38 $ 0.23
=============== =============== ==============
Weighted average shares outstanding 27,206,400 27,206,400 27,206,400
=============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
(9)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended September 30, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Redeemable Additional
Preferred Common Paid-In Retained
Stock Stock Capital Earnings Total
----- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1996 $ 1,499 $ 27 $ 186 $ 13,102 $ 14,814
Dividends on common stock - - - (2,919) (2,919)
Purchase and retirement of preferred stock (1,499) - - (58) (1,557)
Sale of common stock - - 52 - 52
Net income - - - 6,308 6,308
---------- ------- -------- ---------- ------------
Balance at September 30, 1997 $ - $ 27 $ 238 $ 16,433 $ 16,698
Dividends on common stock - - - (4,878) (4,878)
Net income - - - 10,393 10,393
---------- ------- -------- ---------- ------------
Balance at September 30, 1998 $ - $ 27 $ 238 $ 21,948 $ 22,213
Dividends on common stock - - - (7,020) (7,020)
Net income - - - 12,223 12,223
---------- ------- -------- ---------- ------------
Balance at September 30, 1999 $ - $ 27 $ 238 $ 27,151 $ 27,416
========== ======= ======== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
(10)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended September 30, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 12,223 $ 10,393 $ 6,308
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Amortization of discount on loans (3,463) (3,408) (175)
Gain on sale of loans held for sale, net (2,636) (1,889) (1,268)
Provision (credit) for loan losses (3) 2,140 1,024
Depreciation and amortization of premises and equipment 192 180 123
Gain on sale of real estate owned (108) (207) (14)
Provision for real estate owned losses 51 56 136
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest receivable 382 (402) (227)
Decrease (increase) in other assets (298) (496) 602
Increase (decrease) in other liabilities 767 (302) 646
Net decrease (increase) in loans held for sale 5,623 (76,789) (9,082)
Proceeds from sale of loans held for sale 40,187 17,688 11,794
--------------- -------------- ---------------
Net cash provided by (used in) operating activities 52,917 (53,036) 9,867
--------------- -------------- ---------------
Cash flows from investing activities:
Loan originations and purchases, net of repayments (26,587) (7,042) (42,013)
Increase in factored receivables, net of repayments (1,338) (2,511) (2,773)
Purchases of premises and equipment (1,591) (447) (388)
Proceeds from sale of real estate owned 2,725 2,687 1,315
Capitalized improvements of real estate owned (122) (48) (62)
Purchases of Federal Home Loan Bank stock, net (122) - (127)
Proceeds from sale of FHLB stock - 957 -
Purchase of real estate for development - (2,915) -
--------------- -------------- ---------------
Net cash used in investing activities (27,035) (9,319) (44,048)
--------------- -------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
(11)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(continued)
For the Years Ended September 30, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in demand deposits, NOW, savings and money
market accounts 4,994 9,534 987
Net (decrease) increase in certificates of deposit (15,396) 69,800 35,266
Net (decrease) increase in advances
from the Federal Home Loan Bank (193) (19,013) 2,342
Payments on note payable - - (550)
Sale of common stock - - 52
Repurchase of preferred stock - - (1,557)
Dividends paid (7,020) (4,878) (2,919)
-------------- -------------- -------------
Net cash provided by (used in) financing activities (17,615) 55,443 33,621
-------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents 8,267 (6,912) (560)
Cash and cash equivalents at beginning of year 3,666 10,578 11,138
-------------- -------------- -------------
Cash and cash equivalents at end of year $ 11,933 $ 3,666 $ 10,578
============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
(12)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999, 1998 and 1997
1. Basis of Presentation
ASBI Holdings, Inc. (Company) was formed January 31, 1995 when the owners of the
common stock of Arlington Savings Bancshares, Inc. (ASBI) contributed their
shares of stock in ASBI to the Company in return for an equivalent ownership
interest in the Company. The Company then owned 100% of the outstanding common
stock of ASBI. ASBI was subsequently merged with and into Arlington Savings
Bancshares of Delaware, Inc. (ASB Delaware), a wholly owned subsidiary of the
Company also formed on January 31, 1995. The Company, through ASB Delaware, owns
100% of First Savings Bank, FSB (Bank). The Bank began operations in 1986.
2. Summary of Significant Accounting Policies
The following is a description of the more significant accounting policies which
the Company follows in preparing and presenting its consolidated financial
statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
those of its wholly-owned subsidiaries, ASB Delaware and the Bank. In addition,
the consolidated financial statements include the accounts of First Consumer
Credit, L.L.C. (First Consumer), FSB Financial, L.L.C. (FSB) and FSB
Development, L.L.C. (FSBD), limited liability companies. The Bank owns an 83%
voting interest in First Consumer, a 51% voting interest in FSB and a 100%
interest in FSBD. An officer of the Bank owns 4% of First Consumer. All material
intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ significantly from those estimates.
(13)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, the Company considers
funds due from banks, interest bearing deposits in other banks, and all highly
liquid debt instruments purchased with original maturities of three months or
less to be cash equivalents.
Loans Held for Sale
Loans held for sale are valued at the lower of cost or market as determined by
outstanding commitments from investors or current investor yield requirements
calculated on the aggregate note basis. Discounts are amortized using a method
approximating the interest method over the remaining period to contractual
maturity. Loans held for sale consisted of first mortgage loans and home
improvement loans which had been purchased but had not yet been sold in the
secondary market. Gains and losses on the sale of loans held for sale are
determined using the specific identification method. At September 30, 1999 and
1998, the cost of loans held for sale approximated market.
Loans and Allowance for Possible Loan Losses
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off are reported at their outstanding principal
balance adjusted for any charge-offs, the allowance for loan losses, and any
deferred fees or costs on originated loans and unamortized premiums or discounts
on purchased loans.
Loan origination and commitment fees and certain related direct costs are
deferred and amortized to interest income, generally over the contractual lives
of the loans, using the interest method.
Subject to management's assessment of loan performance and other factors,
discounts on first mortgage, consumer and other loans are amortized to income
using a method approximating the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments.
Impaired loans (as defined by SFAS Statement No. 114 and as amended by SFAS No.
118) are accounted for at the net present value of expected future cash flows,
discounted at the loan's effective interest rate, the observable market price of
the loan or at the fair value of the collateral if the loan is collateral
dependent.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized generally to the extent cash payments
are received.
(14)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The allowance for possible loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Bank's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
Factored Receivables
Interest income from factored receivables is recorded on an accrual basis in
accordance with the terms of the agreements. Certain fees charged in connection
with the factored receivables are earned and recorded in the month in which the
receivables are purchased.
The Company disburses approximately 80% of the invoice amount at the time a
receivable is purchased from a customer. On collection of the purchased
invoices, amounts collected in excess of finance income, net of initial payment,
are remitted to the customers. At September 30, 1999 and 1998, approximately
$1,748,000 and $1,491,000, respectively, of amounts due to customers under this
program arrangement are classified in other liabilities in the consolidated
balance sheet.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Provisions for depreciation are computed using the straight-line method. Average
useful lives used for depreciation with respect to major classifications of
property are as follows:
Type Term
---- ----
Building 7 years
Furniture and equipment 5 to 10 years
Automobile 3 years
Leasehold improvements Lease term
Maintenance and repairs are charged to expense; betterments and renewals are
capitalized. Upon retirement or replacement, the cost of the asset and the
related accumulated depreciation are eliminated with the resulting gain or loss
included in the statement of income.
(15)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other Real Estate Owned
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in other noninterest expense.
Income Taxes
The Company elected S corporation status effective January 1, 1997. Earnings and
losses after that date are to be included in the personal income tax returns of
the stockholders and taxed depending on their personal tax strategies. Except
for the possible effects of taxes on built-in gains (as defined in federal
income tax law), the Company will generally not incur additional income tax
obligations, and future financial statements are not expected to include a
provision for federal income taxes.
Because the Company's stockholders are obligated to pay federal income taxes on
the earnings of the Company, the Company expects to declare cash dividends
sufficient to fund stockholders' tax payments as they come due.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
the Company to disclose the fair values of its financial instruments (see Note
16). The following methods and assumptions were used by the Company to estimate
the fair value of each class of financial instruments.
Cash and cash equivalents, accrued interest receivable and accrued interest
payable
These assets and liabilities are considered short-term instruments for which the
carrying amount is a reasonable estimate of fair value.
Loans held for sale
Fair values are determined by outstanding commitments from investors or current
investor yield requirements calculated on the aggregate note basis.
(16)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Loans receivable
Fair values are estimated for portfolios of loans with similar characteristics.
Loans are segregated by type such as real estate, commercial and consumer which
are also segregated into fixed and adjustable rate interest terms. The fair
value of loans receivable is calculated by discounting scheduled cash flows
through the estimated maturity using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Loan fair
values estimates include judgments regarding future expected loss experience and
risk characteristics.
Stock in Federal Home Loan Bank of Dallas
No secondary market exists for Federal Home Loan Bank (FHLB) of Dallas stock.
The stock is bought and sold at par by the FHLB. The fair value, therefore, is
the carrying value of FHLB stock.
Deposits, advances from Federal Home Loan Bank, note payable and subordinated
debt
The fair value of deposits with no stated maturity, such as interest-bearing
checking accounts, passbook savings accounts and advance payments from borrowers
for taxes and insurance are equal to the amount payable on demand (carrying
value). The fair value of certificates of deposits and advances from FHLB is
based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits and borrowings of
similar remaining maturities.
Forward-Looking Statements
Certain phrases contained in these financial statements including, without
limitation, statements containing the words "believes", "anticipates",
"estimates", "expects" and words of similar meaning, constitute forward-looking
statements, as defined in securities law. Among others, notes to the financial
statements concerning financial instruments and contingencies identify important
risk factors that could cause actual results to differ significantly from those
contained in the forward-looking statements.
Earnings Per Share
Earnings per common share were computed by dividing net income available to
common stockholders by the weighted average number of shares of common stock
outstanding during each year presented. The weighted average number of common
shares has not been adjusted, as there exist no options, warrants or other
potentially dilutive securities.
Reclassification
Certain amounts in 1997 and 1998 have been reclassified to conform to the 1999
presentation.
(17)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
3. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Management has not yet fully evaluated the effects on this change in its
operations. The Company, should it acquire such derivative instruments or should
it engage in such hedging activities, will adopt SFAS 133 as required for its
year ended September 30, 2001.
4. Statement of Cash Flows
The Company reports on a net basis its cash receipts and cash payments for time
deposits accepted and repayments of those deposits and loans made to customers
and principal collection on those loans.
The Company uses the indirect method to present cash flows from operating
activities. Other supplemental cash flow information is presented as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash transactions:
Interest expense paid $ 12,939 $ 12,962 $ 9,081
=============== =============== ==============
Federal income tax paid $ 16 $ 16 $ 763
=============== =============== ==============
Noncash transactions:
Net acquisition of other real estate owned $ 4,186 $ 2,648 $ 859
=============== =============== ==============
</TABLE>
(18)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
5. Loans Held for Investment and Allowance for Loan Losses
Loans receivable at September 30, 1999 and 1998 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
First mortgage loans (principally conventional):
Real estate $ 108,493 $ 105,145
Construction 63,723 57,658
---------------- ----------------
172,216 162,803
---------------- ----------------
Consumer and other loans:
Commercial 15,275 15,516
Other 26,111 12,007
---------------- ----------------
41,386 27,523
---------------- ----------------
Factored receivables 9,247 7,909
---------------- ----------------
222,849 198,235
Unearned income (9,363) (10,808)
Allowance for loan losses (3,379) (3,659)
---------------- ----------------
$ 210,107 $ 183,768
================ ================
</TABLE>
The Company grants loans to customers primarily within the Dallas/Fort Worth,
Texas metropolitan area. Also, the Company purchases loans, in the ordinary
course of business, which have been originated in various other areas of the
United States. Although the Company has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon the general economic conditions of the area. At September 30,
1999 and 1998, substantially all of the Company's loans are collateralized with
real estate or automobiles.
(19)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
An analysis of the allowance for possible loan losses for the years ended
September 30, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance at beginning of year $ 3,659 $ 2,707
Provision (credit) for loan losses (3) 2,140
Loans charged to the allowance, net (277) (1,188)
--------------- ---------------
Balance at end of year $ 3,379 $ 3,659
=============== ===============
</TABLE>
Impairment of loans with a recorded investment of approximately $4,562,000 and
$9,541,000 at September 30, 1999 and 1998, respectively, has been recognized in
conformity with SFAS 114 as amended by SFAS 118. The average recorded investment
in impaired loans during 1999 was approximately $7,052,000. The total allowance
for loan losses related to these loans was approximately $1,493,000 and
$1,362,000 at September 30, 1999 and 1998, respectively. No material amount of
interest income on impaired loans was recognized for cash payments received in
1999 and 1998.
6. Other Real Estate Owned
An analysis of the allowance for possible losses on other real estate owned for
the years ended September 30, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance at beginning of year $ 19 $ 253
Provision for losses 51 56
Charge-offs (37) (290)
--------------- ---------------
$ 33 $ 19
=============== ===============
</TABLE>
(20)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
7. Premises and Equipment
Bank premises and equipment at September 30, 1999 and 1998 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land $ 381 $ 376
Building 1,302 174
Leasehold improvements 304 215
Furniture and equipment 1,230 861
Automobiles 55 55
---------------- ----------------
3,272 1,681
Less accumulated depreciation (1,006) (814)
---------------- ----------------
$ 2,266 $ 867
================ ================
</TABLE>
Depreciation expense of approximately $192,000 in 1999, $180,000 in 1998 and
$124,000 in 1997 is included in occupancy and equipment expense in the
accompanying consolidated statement of income.
(21)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
8. Deposits
Deposits at September 30, 1999 and 1998 are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Noninterest bearing
demand accounts $ 10,493 4.6% $ 10,303 4.3%
Interest bearing demand
accounts 1,471 0.6 938 0.4
Savings accounts 417 0.1 351 0.1
Limited access money
market accounts 14,166 6.2 9,962 4.2
Certificates of deposit,
less than $100,000 176,683 77.1 188,422 78.6
Certificates of deposit,
$100,000 and greater 26,056 11.4 29,712 12.4
------------- ------- ------------- -------
$ 229,286 100.0% $ 239,688 100.0%
============= ======= ============= =======
</TABLE>
The weighted average interest rates on deposits at September 30, 1999 and 1998
were approximately 5.2% and 5.2%, respectively.
At September 30, 1999, scheduled maturities of certificates of deposit were as
follows (in thousands):
<TABLE>
<CAPTION>
2000 2001 2002 Thereafter Total
---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C>
4.00% to 4.99% $ 14,025 $ 1,846 $ 35 $ 314 $ 16,220
5.00% to 5.99% 108,040 30,818 4,378 1,023 144,259
6.00% to 6.99% 12,352 8,902 9,167 5,080 35,501
7.00% to 7.99% 6,759 - - - 6,759
--------------- --------------- --------------- --------------- ---------------
$ 141,176 $ 41,566 $ 13,580 $ 6,417 $ 202,739
=============== =============== =============== =============== ===============
</TABLE>
(22)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
9. Line of Credit
The Company executed a $2,000,000 line of credit note with an unrelated
commercial bank on September 1, 1998. The note is secured by 100% of the common
stock of ASB Delaware and the Bank. There have been no amounts advanced on the
note as of September 30, 1999. The note matured on September 30, 1999 and was
not renewed.
10. Related Party Transactions
In the ordinary course of business, the Company has transactions, including
borrowings, with its employees, directors and their affiliates. In the opinion
of management, such transactions are on the same terms, including interest rates
and collateral requirements, as those prevailing at the time for comparable
transactions with unaffiliated persons. The aggregate amount of such loans was
approximately $3,864,000 and $1,628,000 at September 30, 1999 and 1998,
respectively. During the period ended September 30, 1999, repayments of loans
totaled approximately $395,000 and new loans funded totaled approximately
$2,631,000. During the period ended September 30, 1998, repayments of loans
totaled approximately $2,459,000 and new loans funded totaled approximately
$6,000.
11. Commitments and Contingencies
The Company is involved in certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters is not expected to have a material effect on the
consolidated financial position or results of operations of the Company.
At September 30, 1999, the Company was obligated under noncancelable operating
leases for office space. Net rent expense under operating leases, included in
occupancy and equipment expense, was approximately $366,000, $282,000 and
$188,000 for the years ended September 30, 1999, 1998 and 1997, respectively.
The projected minimum rental payments under leases having initial or remaining
noncancelable lease terms in excess of one year at September 30, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
2000 $ 382
2001 246
2002 204
2003 204
2004 204
-----------
$ 1,240
===========
</TABLE>
(23)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
12. Advances from the Federal Home Loan Bank
At September 30, 1999 and 1998, advances from the FHLB were due as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Due within one year $ - $ -
Due within two years 24 -
Due within five years 394 531
Due within seven years 169 1,500
Due within ten years 741 998
Due within twenty years 3,102 1,594
---------------- ----------------
$ 4,430 $ 4,623
================ ================
</TABLE>
Pursuant to collateral agreements, the advances from the FHLB, with interest
rates ranging from 5.3% to 6.8%, are secured by approximately $52,722,000 of
collateral value (as defined) in qualifying first mortgage loans at September
30, 1999.
13. Income Taxes
The provision for income taxes consists of the following components for the
years ended September 30, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current - Federal $ - $ - $ 514
Deferred - Federal - - 910
Current - State 111 55 243
Deferred - State - - 99
----------------- ---------------- ----------------
$ 111 $ 55 $ 1,766
================= ================ ================
</TABLE>
As discussed in Note 1, the Company changed its tax status from taxable to
nontaxable effective January 1, 1997. The deferred tax liability recorded at
September 30, 1999 and 1998 is related to the Company's future taxable income
due primarily to the recapture (for tax return purposes) of the reserve for loan
losses and certain built in gains primarily associated with purchased loan
pools, which may be taxable at the corporate level in future years.
(24)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The effect of the change in tax status as of January 1, 1997 was to reduce the
deferred tax asset by approximately $458,000 and record a deferred tax liability
of approximately $551,000 resulting in $1,009,000 charge to the deferred tax
provision during the year ended September 30, 1997.
A deferred tax provision of $551,000, related to loans, is recorded in other
liabilities at September 30, 1999 and 1998.
14. Employee Stock Ownership Plan
In 1988, the Company established an employee stock ownership plan (Plan) which
was a noncontributory plan established to acquire shares of the Company's common
stock for the benefit of substantially all employees of the Company. No
contributions were made to the Plan in 1998 and 1997. The Plan was terminated as
of June 30, 1997 and liquidated December 1997.
15. Employee Benefit Plan
The Company has a 401(k) defined contribution plan covering substantially all of
its employees. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974. The Plan allows eligible employees' contributions
to be limited so as to meet the nondiscriminatory test of Section 401(m) of the
Internal Revenue Code.
The Company's matching contribution percentage is approximately 50% of up to 6%
of a participant's compensation. Contributions by the Company in 1999, 1998 and
1997 totaled approximately $45,000, $37,000 and $27,000, respectively.
16. Financial Instruments
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the balance
sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of these
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
(25)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At September 30, 1999 and 1998, the approximate amounts of these financial
instruments were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to fund loans $ 57,721 $ 68,891
Standby letters of credit 435 183
---------------- ----------------
$ 58,156 $ 69,074
================ ================
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount and type of collateral obtained,
if deemed necessary by the Company upon extension of credit, varies and is based
on management's credit evaluation of the counterparty. The Company has not
incurred any significant losses on its commitments in either the year ending
September 30, 1999, 1998 or 1997.
Further, management believes the Company will not incur material losses as a
result of the commitments existing at September 30, 1999.
(26)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
17. Fair Values of Financial Instruments
The estimated fair values of the Company's financial instruments as of September
30, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 11,933 $ 11,933 $ 3,666 $ 3,666
Loans held for sale, net 32,763 32,763 75,071 75,071
Loans receivable, net 210,107 212,407 183,768 184,891
Accrued interest receivable 1,501 1,501 1,883 1,883
FHLB stock 1,211 1,211 1,089 1,089
Financial liabilities:
Deposits $ 229,286 $ 228,947 $ 239,688 $ 240,632
Advances from FHLB 4,430 4,430 4,623 4,623
Accrued interest payable 490 490 586 586
</TABLE>
18. Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by
federal agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Company's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities, and certain off-
balance sheet items as calculated under regulatory accounting practices must be
met. The Company's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures, established by regulation to ensure capital adequacy,
require the maintaining of minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of September 30, 1999, that the
Company and Bank meet all capital adequacy requirements to which they are
subject.
As of September 30, 1999 and 1998, the Bank is considered "well capitalized"
under the regulatory framework for prompt corrective action. To be categorized
as "well capitalized," the Bank must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios as set forth in the table.
(27)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Bank's actual capital amounts and ratios are presented in the following
table (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
September 30, 1999:
Total capital (to risk weighted assets) $ 27,960 12.1% $ 18,420 8.0% $ 23,024 10.0%
Tier I capital (to risk weighted assets) 27,388 11.9 9,210 4.0 13,815 6.0
Tier I capital (to adjusted total assets) 27,388 10.4 10,564 4.0 13,206 5.0
September 30, 1998:
Total capital (to risk weighted assets) $ 23,460 10.6% $ 17,752 8.0% $ 22,190 10.0%
Tier I capital (to risk weighted assets) 22,626 10.2 8,876 4.0 13,314 6.0
Tier I capital (to adjusted total assets) 22,626 8.4 10,774 4.0 13,467 5.0
</TABLE>
19. Supplementary Income and Expense Information
The following amounts are included in other noninterest income and noninterest
expense in the accompanying consolidated statement of income for the years ended
September 30, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Noninterest income
------------------
Factoring fee income $ 844 $ 766 $ 521
All other 259 165 137
---------------- ---------------- ----------------
$ 1,103 $ 931 $ 658
================ ================ ================
Noninterest expense
-------------------
Loan and collection expense $ 219 $ 257 $ -
FDIC assessment 136 114 113
All other 2,629 1,684 1,866
---------------- ---------------- ----------------
$ 2,984 $ 2,055 $ 1,979
================ ================ ================
</TABLE>
(28)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
20. Acquisition
Effective August 10, 1999, the Company entered into an Agreement and Plan of
Reorganization with Southwest Securities Group, Inc. (SWS) whereby SWS expects
to acquire 100% of the outstanding shares of common stock of the Company in a
transaction accounted for as a pooling of interests. The transaction is expected
to occur in early 2000, subject to regulatory and stockholder approval.
21. Condensed Financial Statements of ASBI Holdings, Inc. (Parent)
Presented below are the condensed statements of income, balance sheet and
statement of cash flows for ASBI Holdings, Inc., the Parent Company.
ASBI HOLDINGS, INC.
Balance Sheets
September 30, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
------
Noninterest bearing deposits in subsidiary banks $ 984 $ 192
Investment in subsidiaries 26,432 22,021
--------------- --------------
Total assets $ 27,416 $ 22,213
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Common stock 27 27
Additional paid-in capital 238 238
Retained earnings 27,151 21,948
--------------- --------------
Total stockholders' equity 27,416 22,213
--------------- --------------
Total liabilities and stockholders' equity $ 27,416 $ 22,213
=============== ==============
</TABLE>
(29)
<PAGE>
ASBI HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
ASBI HOLDINGS, INC.
Statements of Income
For the Years Ended September 30, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue - Equity earnings in subsidiary $ 12,233 $ 10,399 $ 6,311
Expenses - Other 10 5 3
--------------- --------------- --------------
Income before income taxes 12,223 10,394 6,308
Income tax - - -
--------------- --------------- --------------
Net income $ 12,223 $ 10,394 $ 6,308
=============== =============== ==============
</TABLE>
ASBI HOLDINGS, INC.
Statements of Cash Flows
For the Years Ended September 30, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 12,223 $ 10,394 $ 6,308
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of subsidiary (12,233) (10,399) (7,951)
--------------- -------------- ---------------
Net cash used in operating activities (10) (5) (1,643)
--------------- -------------- ---------------
Cash flows from investing activities - Dividends received
from subsidiaries 7,822 4,878 4,559
--------------- -------------- ---------------
Cash flows from financing activities - Dividends paid (7,020) (4,878) (2,919)
--------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents 792 (5) (3)
Cash and cash equivalents at beginning of year 192 197 200
--------------- -------------- ---------------
Cash and cash equivalents at end of year $ 984 $ 192 $ 197
=============== ============== ===============
</TABLE>
(30)
