<PAGE> 1
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended June 30, 1996
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
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Commission File Number: 0-25906
ASB FINANCIAL CORP.
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(Name of small business issuer in its charter)
Ohio 31-1429488
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
<TABLE>
503 Chillicothe Street, Portsmouth, Ohio 45662 Issuer's telephone number: (614) 354-3177
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<S> <C>
(Address of principal executive offices) (Zip Code)
</TABLE>
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
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Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Shares, without par value
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(Title of Class)
Check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
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Check if there is no disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for the fiscal year ended June 30, 1996,
were $8,368,000.
Based upon the average bid and asked prices quoted by The
Nasdaq Stock Market, the aggregate market value of the voting stock held by
non-affiliates of the issuer on September 16, 1996, was $20,715,895.
1,713,960 of the issuer's common shares were issued and
outstanding on September 16, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-KSB - Annual Report to Shareholders for the fiscal year ended
June 30, 1996.
Part III of Form 10-KSB - Proxy Statement for 1996 Annual Meeting of
Shareholders.
Transitional Small Business Disclosure Format: Yes No X
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<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
ASB Financial Corp. ("ASB"), an Ohio corporation, is a unitary savings
and loan holding company which owns all of the issued and outstanding common
shares of American Savings Bank, fsb ("American"), a federal savings bank
chartered under the laws of the United States. On May 10, 1995, ASB acquired all
of the common shares issued by American upon its conversion from a mutual
savings association to a stock savings association (the "Conversion"). At the
time of the Conversion, American was a savings association incorporated in Ohio
under the name American Savings Association.
GENERAL
American is principally engaged in the business of originating real
estate loans secured by first mortgages on one- to four-family residential real
estate located in American's primary market area, which consists of the City of
Portsmouth and contiguous areas of Scioto County, Ohio. American also makes
loans secured by multifamily real estate (over four units) and nonresidential
real estate and secured and unsecured consumer loans. In addition, American
purchases interests in multifamily real estate and nonresidential real estate
loans originated and serviced by other lenders. American also invests in
mortgage-backed securities, U.S. Government agency obligations, obligations of
states and political subdivisions, and other investments permitted by applicable
law. Funds for lending and other investment activities are obtained primarily
from savings deposits, which are insured up to applicable limits by the Federal
Deposit Insurance Corporation (the "FDIC"), and loan principal and
mortgage-backed security repayments.
American conducts business from its office in Portsmouth, Ohio.
American's primary market area for lending consists of Scioto County, Ohio, and
for deposits consists of Scioto County and adjacent communities in the North
Central Kentucky area.
As a savings and loan holding company, ASB is subject to regulation,
supervision and examination by the Office of Thrift Supervision of the United
States Department of the Treasury (the "OTS"). As a federal savings bank,
American is subject to regulation, supervision and examination by the OTS and
the FDIC.
ASB's activities have been limited primarily to holding the common
stock of American since acquiring such common stock in connection with the
Conversion. Consequently, the following discussion focuses primarily on the
business of American.
LENDING ACTIVITIES
GENERAL. American's principal lending activity is the origination of
conventional real estate loans, including construction loans, secured by one- to
four-family homes located in American's primary market area. Loans secured by
multifamily properties containing five units or more and nonresidential
properties, including construction loans, are also offered by American. American
also purchases interests in multifamily real estate loans and nonresidential
real estate loans originated and serviced by other financial institutions.
American does not originate first mortgage loans insured by the Federal Housing
Authority or guaranteed by the Veterans Administration. In addition to real
estate lending, American originates consumer loans, including automobile loans,
loans secured by deposit accounts, home improvement loans and a limited number
of unsecured loans.
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LOAN PORTFOLIO COMPOSITION. The following table presents certain
information with respect to the composition of American's loan portfolio at the
dates indicated:
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------------------
1996 1995 1994
--------------------- ---------------------- -----------------------
Percent Percent Percent
of total of total of total
Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family residential $48,302 68.0% $45,929 71.4% $45,787 74.4%
Multifamily 8,265 11.6 8,272 12.9 7,540 12.3
Nonresidential and land 3,401 4.8 4,048 6.3 4,519 7.3
Construction 2,318 3.3 1,064 1.6 825 1.3
------- ----- ------- ----- ------- -----
Total real estate loans 62,286 87.7 59,313 92.2 58,671 95.3
Consumer and other loans:
Passbook 586 .8 617 1.0 626 1.0
Home improvement 1,433 2.0 1,477 2.3 1,097 1.8
Automobile 2,199 3.1 2,323 3.6 794 1.3
Other 4,562 6.4 575 .9 317 .6
------- ----- ------- ----- ------- -----
Total consumer and other loans 8,780 12.3 4,992 7.8 2,834 4.7
------- ----- ------- ----- ------- -----
Total loans 71,066 100.0% 64,304 100.0% 61,505 100.0%
===== ===== =====
Less:
Loans in process 1,529 1,065 832
Net deferred loan origination fees and
unearned discounts 198 194 254
Allowance for loan losses 884 893 1,115
------- ------- -------
Total loans net $68,455 $62,153 $59,304
======= ======= =======
</TABLE>
LOAN MATURITY. The following table sets forth the contractual maturity
of American's total loans at June 30, 1996, before consideration of net items:
<TABLE>
<CAPTION>
Due during the fiscal One- to
year ending June 30, four-family (1) Multifamily Nonresidential (2) Consumer Total
- -------------------- --------------- ----------- ------------------ -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
1997 $ 2,665 $ 428 $ 391 $1,276 $ 4,760
1998 2,863 464 427 1,379 5,133
1999 3,065 502 465 1,490 5,522
2000-2001 6,607 1,132 1,059 3,348 12,146
2002-2006 20,614 3,856 1,059 1,287 26,816
2007-2011 14,113 1,883 -- -- 15,996
2012 and thereafter 693 -- -- -- 693
------- ------ ------ ------ -------
$50,620 $8,265 $3,401 $8,780 $71,066
======= ====== ====== ====== =======
</TABLE>
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(1) Includes construction loans.
(2) Includes land development loans.
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<PAGE> 4
LOANS SECURED BY ONE- TO FOUR-FAMILY REAL ESTATE. The principal lending
activity of American is the origination of permanent conventional loans secured
by one- to four-family residences, primarily single-family residences, located
within American's primary market area. Each of such loans is secured by a first
mortgage on the underlying real estate and improvements thereon, if any. At June
30, 1996, American's one- to four-family residential real estate loan portfolio,
including construction loans secured by one- to four-family residences, was
approximately $50.6 million, or 71.3%, of total loans.
OTS regulations limit the amount which American may lend in
relationship to the appraised value of the real estate and improvements (the
"Loan-to-Value Ratio" or "LTV") at the time of loan origination. In accordance
with such regulations, American makes loans on one- to four-family residences
with LTVs of up to 90%. The principal amount of any loan which exceeds an 80%
LTV at the time of origination is usually covered by private mortgage insurance
at the expense of the borrower.
Fixed-rate loans are offered by American, currently for terms of up to
20 years. Although fixed-rate loans were offered by American for terms of up to
25 years prior to October 1993, most of the fixed-rate loans in American's
portfolio have terms of 15 years or less.
Adjustable-rate residential real estate loans ("ARMs") are offered by
American for terms of up to 30 years. The interest rate adjustment periods on
the ARMs are either one year or three years. The interest rate adjustments on
one-year and three-year ARMs presently originated by American are tied to the
one-year and three-year Treasury Bill rates or the Previously Occupied Homes
index published by the Federal Home Loan Bank. The maximum allowable adjustment
at each adjustment date is 2% with a maximum adjustment of 6% over the term of
the loan. The initial rate on a three-year ARM is typically higher than the
initial rate on a one-year ARM to compensate for the reduced interest rate
sensitivity.
Adjustable-rate loans decrease American's interest rate risk but
involve other risks, primarily credit risk. As interest rates rise, the payment
by the borrower rises to the extent permitted by the terms of the loan, thereby
increasing the potential for default. At the same time, the marketability of the
underlying property may be adversely affected by higher interest rates.
LOANS SECURED BY MULTIFAMILY REAL ESTATE. In addition to loans on one-
to four-family properties, American originates and purchases interests in loans
secured by multifamily properties containing over four units. Multifamily loans
originated by American have terms of up to 15 years and a maximum LTV of 75%.
Approximately 91% of the multifamily real estate loans held by American are
participation interests in loans originated and serviced by other financial
institutions and secured by real estate located in Ohio, Kentucky, Florida and
North Carolina. See "Loan Originations, Purchases and Sales."
Multifamily lending is generally considered to involve a higher degree
of risk than one- to four-family residential lending because the borrower
typically depends upon income generated by the project to cover operating
expenses and debt service. The profitability of a project can be affected by
economic conditions, government policies and other factors beyond the control of
the borrower. American attempts to reduce the risk associated with multifamily
lending by evaluating the creditworthiness of the borrower and the projected
income from the project and by obtaining personal guarantees on loans made to
corporations and partnerships. American requires that borrowers submit rent
rolls and that all borrowers submit financial statements annually to enable
American to monitor the loan.
At June 30, 1996, loans secured by multifamily properties totaled
approximately $8.3 million, or 11.6% of total loans.
LOANS SECURED BY NONRESIDENTIAL REAL ESTATE AND LAND. At June 30, 1996,
approximately $3.4 million, or 4.8%, of American's total loans, were secured by
nonresidential real estate and land. The majority of such loans have adjustable
rates and terms of up to 15 years. Among the properties securing nonresidential
real estate loans are office buildings, retail properties, warehouses, a hotel
and an automobile dealership located in American's primary market area. Also
included in American's nonresidential real estate loan portfolio are $1.5
million in participation interests which have been purchased in loans originated
by other financial institutions.
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<PAGE> 5
Land loans include five loans having an aggregate principal balance of
$148,000 secured by developed land which has been subdivided for single-family
home construction in Scioto County.
Although the loans secured by nonresidential real estate typically have
higher interest rates and shorter terms to maturity than one- to four-family
residential real estate loans, nonresidential real estate lending is generally
considered to involve a higher degree of risk than residential lending due to
the relatively larger loan amounts and the effects of general economic
conditions on the successful operation of income-producing properties. American
has endeavored to reduce such risk by evaluating the credit history and past
performance of the borrower, the location of the real estate, the financial
condition of the borrower, the quality and characteristics of the income stream
generated by the property and appraisals supporting the property's valuation.
CONSTRUCTION LOANS. Loans for the construction of single-family houses
are made to individuals for the construction and permanent financing of their
primary residences. Such loans are offered with adjustable rates for terms of up
to 30 years and fixed rates for terms of up to 20 years. During the first year,
while the residence is being constructed, the borrower is required to pay
interest only.
Loans for the construction of nonresidential real estate are
occasionally made by American. At June 30, 1996, American had no outstanding
nonresidential real estate construction loans.
Construction loans generally involve greater underwriting and default
risks than do loans secured by mortgages on existing properties. Loan funds are
advanced upon the security of the project under construction, which is more
difficult to value before the completion of construction. Moreover, because of
the uncertainties inherent in estimating construction costs, it is relatively
difficult to evaluate accurately the LTV and the total loan funds required to
complete a project. In the event a default on a construction loan occurs and
foreclosure follows, American would have to take control of the project and
attempt either to arrange for completion of construction or dispose of the
unfinished project. The increased risks inherent in construction lending are not
significant to American because construction loans, in the aggregate, comprise
only 3.3% of American's total loans at June 30, 1996. Approximately 94% of
American's construction loans are secured by property in Scioto County.
CONSUMER AND OTHER LOANS. American makes various types of consumer
loans, including loans made to depositors on the security of their passbook
accounts, automobile loans, home improvement loans and other secured loans,
including a loan to an automobile dealer leasing group, and unsecured personal
loans. Consumer loans, other than passbook loans, are made at fixed rates of
interest only and for varying terms based on the type of loan. At June 30, 1996,
American had approximately $8.8 million, or 12.3% of total loans, invested in
consumer loans.
Home improvement loans, which are the largest segment of American's
consumer loan portfolio, include loans insured by the Federal Housing
Administration. Home improvement loans typically have a five-year term and fixed
rates of interest.
Consumer loans, particularly consumer loans which are unsecured or are
secured by rapidly depreciating assets such as automobiles, may entail greater
risk than do residential real estate loans. Repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance. The risk of default on consumer loans increases during
periods of recession, high unemployment and other adverse economic conditions.
LOAN SOLICITATION AND PROCESSING. Loan originations are developed from
a number of sources, including continuing business with depositors, other
borrowers and real estate developers, solicitations by American's lending staff
and walk-in customers.
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<PAGE> 6
Loan applications for permanent real estate loans are taken by loan
personnel. American obtains a credit report, verification of employment and
other documentation concerning the creditworthiness of the borrower. An
appraisal of the fair market value of the real estate which will be given as
security for the loan is prepared by a fee appraiser approved by the Board of
Directors. Upon the completion of the appraisal and the receipt of information
on the credit history of the borrower, the application for a loan is submitted
for review in accordance with American's underwriting guidelines to American's
Executive Committee, the members of which are William J. Burke, Lee O. Fitch,
Gerald R. Jenkins and Robert M. Smith. Any loan for more than $100,000 must be
reviewed and approved by the full Board of Directors.
If a real estate loan application is approved, either an attorney's
opinion or title insurance is obtained on the real estate which will secure the
mortgage loan. Most of the loans in American's portfolio have an attorney's
opinion. Borrowers are required to carry satisfactory fire and casualty
insurance and flood insurance, if applicable, and to name American as an insured
mortgagee.
The procedure for approval of construction loans is the same as for
permanent real estate loans, except that an appraiser evaluates the building
plans, construction specifications and estimates of construction costs. American
also evaluates the feasibility of the proposed construction project and the
experience and record of the builder.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
LOAN ORIGINATIONS, PURCHASES AND SALES. Currently, American is
originating both fixed-rate and ARM loans for its portfolio and not with the
intention of selling such loans in the secondary market. The documentation for
most of the loans in American's portfolio do not conform to the secondary market
standards of the Federal Home Loan Mortgage Corporation ("FHLMC") or the Federal
National Mortgage Association (the "FNMA").
To supplement loan demand in its primary market area, American
purchases participation interests in multifamily and nonresidential real estate
loans originated and serviced by other financial institutions. See "Loans
Secured by Multifamily Real Estate" and "Loans Secured by Nonresidential Real
Estate and Land." American does not purchase participation interests through a
broker. Recent loan participations have been purchased primarily from a savings
bank and a mortgage banking affiliate of a commercial bank headquartered in
Ohio. Whole loans or participation interests purchased by American conform to
American's underwriting criteria for loans American originates. American intends
to continue to purchase loans as suitable investment opportunities become
available.
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<PAGE> 7
The following table presents American's loan origination, purchase and
sale activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Loans originated:
Adjustable-rate:
One- to four-family real estate $ 1,827 $ 1,251 $ 1,771
Multifamily real estate 636 -- 150
Nonresidential real estate 112 782 100
------- ------- -------
Total adjustable-rate 2,575 2,033 2,021
Fixed-rate:
One- to four-family real estate 11,324 5,701 11,996
Nonresidential real estate 424 686 198
Consumer 9,562 5,314 2,314
------- ------- -------
Total fixed-rate 21,310 11,701 14,508
Loans purchased 1,711 3,279 1,844
------- ------- -------
Total loans originated and purchased 25,596 17,013 18,373
Reductions:
Principal repayments 18,715 13,716 18,925
Transfers from loans to real estate
owned and repossessed assets 138 525 --
------- ------- -------
Total reductions 18,853 14,241 18,925
Increase (decrease) in other
items, net (1) (441) 77 (688)
------- ------- -------
Net increase (decrease) $ 6,302 $ 2,849 $(1,240)
======= ======= =======
</TABLE>
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(1) Consists of loans in process, unearned discounts and deferred loan
origination fees and allowance for loan losses.
OTS regulations generally limit the aggregate amount that a savings
association can lend to any one borrower to an amount equal to 15% of the
association's total capital under the OTS capital requirements. A savings
association may loan one borrower an additional amount not to exceed 10% of the
association's total capital if the additional amount is fully secured by certain
forms of "readily marketable collateral." Real estate is not considered "readily
marketable capital." In addition, the regulations require that loans to certain
related or affiliated borrowers be aggregated for the purpose of such limits.
Two exceptions to these limits permit loans to one borrower of up to $500,000
"for any purpose" and, subject to certain conditions, including OTS prior
approval, loans to one borrower for the development of domestic residential
housing units in amounts up to the lesser of $30 million, or 30% of the savings
association's total capital.
Based on such limits, American was able to lend approximately $4.5
million to one borrower at June 30, 1996. The largest loan American had
outstanding to one borrower at June 30, 1996, was $2.4 million. Such loan was
secured by automobile titles, assignments of leases and a guarantee of the
leasing company and was current at June 30, 1996.
LOAN ORIGINATION AND OTHER FEES. American realizes loan origination fee
and other fee income from its lending activities and also realizes income from
late payment charges, application fees and fees for other miscellaneous
services.
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 91 as an adjustment to yield over
the life of the related loan.
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DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS.
Delinquent loans are loans for which payment has not been received within 30
days of the payment due date. Loan payments are due on the first day of the
month with the portion of the payment applicable to interest to accrue during
the current month. When loan payments have not been made by the thirtieth of the
month, late notices are sent. If payment is not received by the sixtieth day,
second notices and telephone calls are made to the borrower. Each of the loans
bears a late payment penalty which is assessed as soon as such loan is more than
30 days delinquent. The late penalty for real estate loans is 3% and for
consumer loans is 5% of the payment due.
When a loan secured by real estate becomes delinquent more than 90
days, the Board of Directors reviews the loan and foreclosure proceedings are
normally instituted and an appraisal of the security is performed. If the
appraisal indicates that the value of the collateral is less than the book value
of the loan, a valuation allowance is established for such loan. When a consumer
loan becomes more than 90 days past due, a specific allowance for loss is
established for the amount of the loan.
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The following table reflects the amount of loans in a delinquent status
at the dates indicated:
<TABLE>
<CAPTION>
At June 30, 1996
-------------------------------------------------------------------------------------------------------
Residential real estate Nonresidential real estate Consumer Total
----------------------- -------------------------- ----------------------- -----------------------
Number Amount % (1) Number Amount % (1) Number Amount % (1) Number Amount % (1)
------ ------ ----- ------ ------ ----- ------ ------ ----- ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days 42 $1,386 2.0% -- $ -- --% 17 $ 65 .1% 59 $1,451 2.0%
60-89 days 14 1,317 1.8 1 38 -- 9 41 .1 24 1,396 2.0
90 days and over 9 1,026 1.4 1 115 .2 8 17 -- 18 1,158 1.6
--- ------ --- --- ---- --- --- ---- --- --- ------ ---
Total delinquent loans 65 $3,729 5.2% 2 $153 .2% 34 $123 .2% 101 $4,005 5.6%
=== ====== === === ==== === === ==== === === ====== ===
<CAPTION>
At June 30, 1995
-------------------------------------------------------------------------------------------------------
Residential real estate Nonresidential real estate Consumer Total
----------------------- -------------------------- ----------------------- -----------------------
Number Amount % (1) Number Amount % (1) Number Amount % (1) Number Amount % (1)
------ ------ ----- ------ ------ ----- ------ ------ ----- ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days 45 $1,469 2.3% 2 $195 .3% 10 $ 40 .1% 57 $1,704 2.7%
60-89 days 14 324 .5 1 77 .1 5 26 -- 20 427 .6
90 days and over 12 1,907 3.0 -- -- -- 5 22 -- 17 1,929 3.0
--- ------ --- --- ---- --- --- ---- --- --- ------ ---
Total delinquent loans 71 $3,700 5.8% 3 $272 .4% 20 $ 88 .1% 94 $4,060 6.3%
=== ====== === === ==== === === ==== === === ====== ===
<CAPTION>
At June 30, 1994
-------------------------------------------------------------------------------------------------------
Residential real estate Nonresidential real estate Consumer Total
----------------------- -------------------------- ----------------------- -----------------------
Number Amount % (1) Number Amount % (1) Number Amount % (1) Number Amount % (1)
------ ------ ----- ------ ------ ----- ------ ------ ----- ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days 45 $1,726 2.8% -- $ -- --% 5 $ 12 --% 50 $1,738 2.8%
60-89 days 13 321 .5 1 124 .2 5 20 -- 19 465 .7
90 days and over 10 2,127 3.5 2 767 1.1 3 19 .1 15 2,913 4.7
--- ------ --- --- ---- --- --- ---- --- --- ------ ---
Total delinquent loans 68 $4,174 6.8% 3 $891 1.3% 13 $ 51 .1% 84 $5,116 8.2%
=== ====== === === ==== === === ==== === === ====== ===
</TABLE>
- ------------------------------------
(1) Percentages have been correlated to total loans before net items.
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<PAGE> 10
Nonperforming assets include non-accrual loans, accruing loans which
are delinquent 90 days or more, restructured loans, real estate acquired by
foreclosure or by deed-in-lieu thereof and repossessed assets. Loans are placed
on non-accrual status when, in the judgment of management, the probability of
collection of interest is deemed insufficient to warrant further accrual.
The following table sets forth information with respect to the accrual
and nonaccrual status of American's loans and other nonperforming assets at the
dates indicated:
<TABLE>
<CAPTION>
At June 30,
-----------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Non-accrual loans:
One- to four-family $ 164 $ 207 $ 136
Nonresidential 115 -- 767
Multifamily 862 1,700 1,991
Consumer 17 22 19
------ ------ ------
Total 1,158 1,929 2,913
Accruing loans delinquent
90 days or more: -- -- --
------ ------ ------
Total nonperforming loans 1,158 1,929 2,913
Real estate acquired through foreclosure:
One- to four-family -- -- --
Nonresidential 663 525 --
Multifamily -- -- --
------ ------ ------
Total real estate acquired through
foreclosure 663 525 --
------ ------ ------
Total nonperforming assets $1,821 $2,454 $2,913
====== ====== ======
Allowance for loan losses $ 884 $ 893 $1,115
====== ====== ======
Nonperforming assets as a percent
of total assets (1) 1.61% 2.30% 3.10%
Allowance for loan losses as a percent
of nonperforming loans 76.34% 46.29% 38.28%
Allowance for loan losses as a percent
of nonperforming assets 48.54% 36.39% 38.28%
</TABLE>
- -----------------------------
(1) The applicable asset totals are $112.9 million, $106.9 million and
$93.9 million for the fiscal years ended June 30, 1996, 1995 and 1994,
respectively.
For the year ended June 30, 1996, gross interest income which would
have been recorded had non-accruing loans been current in accordance with their
original terms was $4,000. There was no interest recorded on such loans during
such period.
Real estate acquired by American as a result of foreclosure proceedings
is classified as real estate owned ("REO") until it is sold. When property is so
acquired it is recorded by American at the estimated fair value of the real
estate, less estimated selling expenses, at the date of acquisition, and any
write-down resulting therefrom is charged to the allowance for loan losses.
Interest accrual, if any, ceases no later than the date of acquisition of the
real estate, and all costs incurred
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<PAGE> 11
from such date in maintaining the property are expensed. Costs relating to the
development and improvement of the property are capitalized to the extent of
fair value.
American classifies its own assets on a regular basis in accordance
with federal regulations. Problem assets are classified as "substandard,"
"doubtful" or "loss." "Substandard" assets have one or more defined weaknesses
and are characterized by the distinct possibility that American will sustain
some loss if the deficiencies are not corrected. "Doubtful" assets have the same
weaknesses as "substandard" assets, with the additional characteristics that (i)
the weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable and (ii) there is a high
possibility of loss. An asset classified "loss" is considered uncollectible and
of such little value that its continuance as an asset of American is not
warranted.
The aggregate amounts of American's classified assets at the dates
indicated were as follows:
<TABLE>
<CAPTION>
At June 30,
-----------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Classified assets
Substandard $1,804 $2,432 $2,902
Doubtful -- -- --
Loss 59 22 127
------ ------ ------
Total classified assets $1,863 $2,454 $3,029
====== ====== ======
</TABLE>
American establishes general allowances for loan losses for loans
classified as substandard or doubtful. Generally, American charges off the
portion of any real estate loan deemed to be uncollectible, whereas a loss
classification and corresponding reserve is used for consumer loans.
American analyzes each classified asset on a monthly basis to determine
whether changes in the classifications are appropriate under the circumstances.
Such analysis focuses on a variety of factors, including the amount of any
delinquency and the reasons for the delinquency, if any, the use of the real
estate securing the loan, the status of the borrower and the appraised value of
the real estate. As such factors change, the classification of the asset will
change accordingly.
ALLOWANCE FOR LOAN LOSSES. Senior management, with oversight by the
Board, reviews on a monthly basis the allowance for loan losses as it relates to
a number of relevant factors including, but not limited to, trends in the level
of delinquent and nonperforming assets and classified loans, current and
anticipated economic conditions in the primary lending area, such as
unemployment data and the consumer price index, past loss experience and losses
arising from specific problem assets. To a lesser extent, management also
considers loan concentrations to single borrowers and changes in the composition
of the loan portfolio. While management believes that it uses the best
information available to determine the allowance for loan losses, unforeseen
market conditions could result in adjustments, and net earnings could be
adversely affected if circumstances differ substantially from the assumptions
used in making the final determination.
-11-
<PAGE> 12
The following table sets forth an analysis of American's allowance for
loan losses for the periods indicated:
<TABLE>
<CAPTION>
For the year ended June 30,
---------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 893 $1,115 $ 457
Charge-offs:
Residential real estate loans (1) (9) -- (246)
Nonresidential real estate loans -- (260) --
Consumer loans -- (4) (5)
----- ------ ------
Total charge-offs (9) (264) (251)
Recoveries -- 32 160
----- ------ ------
Net charge-offs (9) (232) (91)
Provision for losses on loans -- 10 749
----- ------ ------
Balance at end of period $ 884 $ 893 $1,115
===== ====== ======
Ratio of net charge-offs to average loans
outstanding during the period (.01)% (.38)% (.15)%
</TABLE>
- ------------------------------
(1) Includes multifamily loans.
The following table sets forth the allocation of American's allowance
for loan losses by type of loan at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
Percent of Percent of Percent of
loans in each loans in each loans in each
category to category to category to
Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at year end applicable to:
Real estate loans $309 87.7% $615 92.2% $ 545 95.3
Consumer loans 13 12.3 22 7.8 12 4.7
Unallocated 562 -- 256 -- 558 --
---- ----- ---- ----- ------ -----
Total $884 100.0% $893 100.0% $1,115 100.0%
==== ===== ==== ===== ====== =====
</TABLE>
INVESTMENT ACTIVITIES
OTS regulations require that American maintain a minimum amount of
liquid assets, which may be invested in U.S. Treasury obligations, securities of
various federal agencies, certificates of deposit at insured banks, bankers'
acceptances and federal funds. American is also permitted to make investments in
certain commercial paper, corporate debt securities rated in one of the four
highest rating categories by one or more nationally recognized statistical
rating organizations, and mutual funds, as well as other investments permitted
by federal regulations. See "REGULATION."
-12-
<PAGE> 13
The following table sets forth the composition of American's investments, other
than mortgage-backed securities, at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- -----------------------
Carrying Percent Carrying Percent Carrying Percent
Value of total Value of total Value of total
----- -------- ----- -------- ----- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investments designated
as held to maturity:
Interest-bearing deposits
in other financial
institutions (1) $10,127 34.4% $14,942 48.5% $14,121 61.1%
U.S. Government
agency obligations (2) -- -- 14,107 45.8 8,954 38.8
FHLMC stock -- -- -- -- 24 .1
------- ----- ------- ----- ------- -----
Total investments designated as
held to maturity (3) 10,127 94.4 29,049 94.3 23,099 100.0
Investments designated
as available for sale:
U.S. Government
agency obligations (2) 18,771 63.8 1,357 4.4 -- --
FHLMC stock 513 1.8 411 1.3 -- --
------- ----- ------- ----- ------- -----
Total investments designated
as available for sale 19,284 65.6% 1,768 5.7% -- --
------- ----- ------- ----- ------- -----
Total investments $29,411 100.0% $30,817 100.0% $23,099 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
- -----------------------------
(1) Includes interest-bearing deposits and certificates of deposit.
(2) Consists primarily of investments in FNMA and FHLB bonds.
(3) At June 30, 1996, 1995 and 1994, the market value of American's
investment securities, held to maturity, totalled $10.1 million, $29.0
million and $23.1 million, respectively.
-13-
<PAGE> 14
The following table sets forth information regarding the maturities,
book value and weighted average yields of American's investment securities,
other than mortgage-backed securities, at June 30, 1996:
<TABLE>
<CAPTION>
Less than 1 Year 1-5 Years 5-10 Years Total
--------------------- --------------------- --------------------- --------------------
Weighted Weighted Weighted
Carrying average Carrying average Carrying average Carrying Market
value yield value yield value yield value value
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments designated as
held to maturity (1):
Certificates of deposit
in other financial
institutions $5,348 6.51% $4,779 6.49% $ -- --% $10,127 $10,127
Investments designated as
available for sale (1):
U.S. Government
agency obligations 1,374 5.4 4,383 5.9 13,527 6.35 19,284 18,771
------ ---- ------ ---- ------- ---- ------- -------
Total $6,722 6.28% $9,162 6.22% $13,527 6.35% $29,411 $28,898
====== ==== ====== ==== ======= ==== ======= =======
</TABLE>
- -----------------------------
(1) American has no investment securities having a maturity of more than
ten years.
In addition to the foregoing investment securities, American has been
an active purchaser of mortgage-backed securities. At June 30, 1996,
mortgage-backed securities totalled $10.7 million, or 9.5% of total assets. All
of the mortgage-backed securities in American's portfolio are
government-guaranteed securities, primarily participations or pass-through
securities, issued by the Government National Mortgage Association ("GNMA") or
the FNMA. Although American's investment policy does not prohibit investment in
collateralized mortgage obligations ("CMOs") or real estate mortgage investment
conduits ("REMICs"), it has been American's practice generally not to purchase
CMOs, REMICs or other forms of derivative instruments.
-14-
<PAGE> 15
American generally purchases such securities at or near par in order to
avoid prepayment risk. All of American's mortgage-backed securities are
fixed-rate securities. Although fixed-rate securities generally have a higher
yield at the time of origination than adjustable-rate securities, the interest
rate risk associated with fixed-rate securities is higher. The following table
sets forth details of American's investment in mortgage-backed securities,
including those designated as available for sale, at the dates indicated.
<TABLE>
<CAPTION>
At June 30, 1996 At June 30, 1995
--------------------------------------------- ---------------------------------------------
Gross Gross Gross Gross
Amortized unrealized unrealized Estimated Amortized unrealized unrealized Estimated
cost gains losses fair value cost gains losses fair value
---- ----- ------ ---------- ---- ----- ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity:
FHLMC participation certificates $ -- $ -- $ -- $ -- $ 4,227 $ 27 $114 $ 4,140
GNMA participation certificates -- -- -- -- 2,089 36 15 2,110
FNMA participation certificates -- -- -- -- 1,519 21 2 1,538
FHLMC REMIC -- -- -- -- -- -- -- --
------- ---- ---- ------- ------- ---- ---- -------
Total -- -- -- -- 7,835 84 131 7,788
Available for sale:
FHLMC participation certificates 4,119 38 57 4,100 -- -- -- --
FNMA participation certificates 2,135 30 27 2,138 -- -- -- --
GNMA participation certificates 4,463 81 54 4,490 2,276 24 -- 2,300
------- ---- ---- ------- ------- ---- ---- -------
Total mortgage-backed securities $10,717 $149 $138 $10,728 $10,111 $108 $131 $10,088
======= ==== ==== ======= ======= ==== ==== =======
<CAPTION>
At June 30, 1994
------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
---- ----- ------ ----------
(In thousands)
<S> <C> <C> <C> <C>
Held to maturity:
FHLMC participation certificates $4,162 $42 $184 $4,020
GNMA participation certificates 2,668 10 77 2,602
FNMA participation certificates 369 2 2 368
FHLMC REMIC 1,025 9 5 1,029
------ --- ---- ------
Total 8,224 63 268 8,019
Available for sale:
FHLMC participation certificates -- -- -- --
FNMA participation certificates -- -- -- --
GNMA participation certificates -- -- -- --
------ --- ---- ------
Total mortgage-backed securities $8,224 $63 $268 $8,019
====== === ==== ======
</TABLE>
-15-
<PAGE> 16
DEPOSITS AND BORROWINGS
GENERAL. Deposits are the primary source of American's funds for use in
lending and other investment activities. In addition to deposits, American
derives funds from interest payments and principal repayments on loans and
mortgage-backed securities and income on interest-earning assets. Loan payments
are a relatively stable source of funds, while deposit inflows and outflows
fluctuate more in response to changes in general interest rates and money market
conditions.
DEPOSITS. Deposits are attracted principally from within American's
primary market area through the offering of a broad selection of deposit
instruments, including NOW accounts, demand deposit accounts, money market
deposit accounts, money market checking accounts, regular passbook savings
accounts, Christmas Club accounts, term certificate accounts and individual
retirement accounts ("IRAs"). Interest rates paid, maturity terms, service fees
and withdrawal penalties for the various types of accounts are established
periodically by management of American based on American's liquidity
requirements, growth goals and interest rates paid by competitors. American does
not use brokers to attract deposits. The amount of deposits from outside
American's primary market area is not significant.
At June 30, 1996, American's certificates of deposit totaled $63.7
million, or 76.4% of total deposits. Of such amount, approximately $44.3 million
in certificates of deposit mature within one year. Based on past experience and
American's prevailing pricing strategies, management believes that a substantial
percentage of such certificates will renew with American at maturity. If there
is a significant deviation from historical experience, American can utilize
excess liquidity and borrowings from the FHLB of Cincinnati as alternatives to
this source of funds.
The following table sets forth the dollar amount of deposits in the
various types of accounts offered by American at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- -----------------------
Percent Percent Percent
of total of total of total
Amount deposits Amount deposits Amount deposits
------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts:
Passbook accounts $ 7,225 8.7% $ 7,278 9.2% $ 9,095 11.0%
Demand, NOW and Super NOW
accounts 3,448 4.2 2,471 3.1 3,563 4.3
Money market deposit
accounts 9,001 10.8 8,319 10.5 14,847 18.0
------- ----- ------- ----- ------- -----
Total transaction accounts 19,674 23.6 18,068 22.8 27,505 33.3
Certificates of deposit:
2.00 - 2.99% -- -- -- -- 71 .1
3.00 - 3.99% -- -- -- -- 10,116 12.3
4.00 - 4.99% 474 .5 723 .9 18,035 21.9
5.00 - 5.99% 27,525 33.0 40,949 52.0 18,201 22.1
6.00 - 6.99% 35,638 42.7 19,068 24.1 6,872 8.3
7.00 - 7.99% 36 .1 35 .1 1,182 1.4
8.00 - 8.99% 48 .1 45 .1 532 .6
------- ----- ------- ----- ------- -----
Total certificates of
deposit 63,721 76.4 60,820 77.2 55,009 66.7
------- ----- ------- ----- ------- -----
Total deposits $83,395 100.0% $78,888 100.0% $82,514 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
-16-
<PAGE> 17
The following table sets forth the remaining maturities of American's
certificates of deposit at the dates indicated:
<TABLE>
<CAPTION>
June 30,
-----------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Less than one year $44,345 $32,815 $31,592
One to two years 10,065 21,663 15,179
Two to three years 5,748 3,269 5,229
Over three years 3,563 3,073 3,009
------- ------- -------
$63,721 $60,820 $55,009
======= ======= =======
</TABLE>
The following table presents the amount of American's certificates of
deposit of $100,000 or more by the time remaining until maturity at June 30,
1996:
<TABLE>
<CAPTION>
At June 30, 1996
----------------
(In thousands)
<S> <C>
Certificates of deposit with balances of $100,000
or more maturing in quarter ending (1):
September 30, 1996 $1,983
December 31, 1996 1,464
March 31, 1997 1,677
June 30, 1997 1,535
After June 30, 1997 2,136
------
Total certificates of deposit with balances over $100,000 $8,795
======
</TABLE>
- -----------------------------
(1) Account balances over $100,000 are not insured by the FDIC.
The following table sets forth American's deposit account balance
activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance $ 78,888 $ 82,514 $ 81,404
Deposits 91,423 107,396 77,731
Withdrawals (89,410) (113,796) (79,025)
Interest credited 2,494 2,774 2,404
-------- --------- --------
Ending balance $ 83,395 $ 78,888 $ 82,514
======== ========= ========
Net increase (decrease) $ 4,507 $ (3,626) $ 1,110
======== ========= ========
Percent increase (decrease) 5.71% (4.39)% 1.36%
======== ========= ========
</TABLE>
BORROWINGS. American's other sources of funds include advances from the
FHLB. As a member of the FHLB, American is required to own capital stock in the
FHLB and is authorized to apply for advances from the FHLB. Each FHLB credit
program has its own interest rate, which may be fixed or variable, and range of
maturity. The FHLB may prescribe the acceptable uses for these advances, as well
as limitations on the size of the advances and repayment provisions.
-17-
<PAGE> 18
The following table sets forth certain information as to American's
FHLB advances at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
-----------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances $2,413 $ 442 $ 469
Weighted average interest rate of
FHLB advances 4.95% 3.16% 3.16%
</TABLE>
The following table sets forth the maximum balance and average balance
of FHLB advances during the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Maximum Balance:
FHLB advances $2,413 $466 $493
Average Balance:
FHLB advances 684 460 480
Weighted average interest
rate of FHLB advances 5.12% 3.16% 3.16%
</TABLE>
-18-
<PAGE> 19
YIELDS EARNED AND RATES PAID
The following table sets forth certain information relating to
American's average balance sheet information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the periods indicated. Such yields and costs are derived by dividing income or
expense by the average monthly balance of interest-earning assets or
interest-bearing liabilities, respectively, for the periods presented. Average
balances are derived from month-end balances, which include non-accruing loans
in the loan portfolio, net of the allowance for loan losses. Management does not
believe that the use of month-end balances instead of daily balances has caused
any material differences in the information presented.
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------------------------------------
1996 1995
-------------------------------- -------------------------------
Average Interest Average Interest
outstanding earned/ Yield outstanding earned/ Yield/
balance paid rate balance paid rate
------- ---- ---- ------- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 66,152 $5,498 8.31% $60,395 $4,865 8.06%
Mortgage-backed securities 10,555 750 7.11 7,913 532 6.72
Investment securities and other
interest-earning assets 27,886 1,925 6.90 26,553 1,615 6.08
-------- ------ ------ ------- ------ ------
Total interest-earning assets 104,593 8,173 7.81 94,861 7,012 7.39
Non-interest earning assets 5,332 5,027
-------- -------
Total assets $109,925 $99,888
======== =======
Interest-bearing liabilities:
Deposits $ 81,114 4,267 5.26 $84,858 3,870 4.56
Borrowings 889 43 4.84 457 23 5.03
-------- ------ ------ ------- ------ ------
Total interest-bearing liabilities 82,003 4,310 5.26 85,315 3,893 4.56
------ ------ ------ ------
Non interest-bearing liabilities 2,086 3,826
-------- -------
Total liabilities 84,089 89,141
Shareholders' equity(1) 25,836 10,747
-------- -------
Total liabilities and shareholders'
equity $109,925 $99,888
======== =======
Net interest income $3,863 $3,119
====== ======
Interest rate spread 2.55% 2.83%
====== ======
Net interest margin (net interest
income as a percent of average
interest-earning assets) 3.69% 3.29%
====== ======
Average interest-earning assets to
interest-bearing liabilities 127.55% 111.19%
====== ======
<CAPTION>
Year ended June 30,
-------------------------------
1994
-------------------------------
Average Interest
outstanding earned/ Yield/
balance paid rate
------- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable $60,884 $4,989 8.19%
Mortgage-backed securities 7,469 554 7.42
Investment securities and other
interest-earning assets 21,106 1,094 5.18
------- ------ ------
Total interest-earning assets 89,459 6,637 7.42
Non-interest earning assets 3,618
-------
Total assets $93,077
=======
Interest-bearing liabilities:
Deposits $81,373 3,287 4.04
Borrowings 482 20 4.15
------- ------ ------
Total interest-bearing liabilities 81,855 3,307 4.04
------ ------
Non interest-bearing liabilities 1,878
-------
Total liabilities 83,733
Shareholders' equity(1) 9,344
-------
Total liabilities and shareholders'
equity $93,077
=======
Net interest income $3,330
======
Interest rate spread 3.38%
======
Net interest margin (net interest
income as a percent of average
interest-earning assets) 3.72%
======
Average interest-earning assets to
interest-bearing liabilities 109.29%
======
</TABLE>
- ------------------------------------
(1) Consists solely of retained earnings for the year ended June 30, 1994.
-19-
<PAGE> 20
The following table sets forth the weighted average yields earned on
American's interest-earning assets, the weighted average interest rates paid on
interest-bearing liabilities and the interest rate spread between the weighted
average yields and rates at the dates indicated. Non-accruing loans have been
included in the table as having a yield of zero.
<TABLE>
<CAPTION>
At June 30,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted-average yield on:
Loans receivable 8.14% 8.23% 8.02%
Mortgage-backed securities 7.61 7.77 8.19
Investment securities 6.89 6.43 5.27
Other interest-earning assets 6.27 6.54 5.25
Combined weighted-average yield on
interest-earning assets 7.74 7.66 7.37
Weighted-average rate paid on:
Deposits 5.20 5.15 4.07
Borrowings 4.95 3.16 3.16
Combined weighted-average rate
paid on interest-bearing
liabilities 5.18 5.14 4.06
Interest rate spread 2.56 2.52 3.31
</TABLE>
-20-
<PAGE> 21
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
changes in volume (i.e., changes in volume multiplied by the old rate) and
changes in rate (i.e., changes in rate multiplied by the old volume). For
purposes of this table, changes attributable to both rate and volume, which
cannot be segregated, have been allocated proportionately based on the absolute
value of the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year ended June 30,
-----------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
------------------------------ ------------------------------
Increase Increase
(decrease) (decrease)
due to due to
------------------ ------------------
Volume Rate Total Volume Rate Total
------ ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 478 $ 155 $ 633 $ (40) $ (84) $ (124)
Mortgage-backed securities 186 32 218 32 (54) (22)
Investments and interest-
bearing deposits 84 226 310 211 310 521
------ ------ ------ ------ ------ ------
Total interest-earning
assets 748 413 1,161 203 172 375
------ ------ ------ ------ ------ ------
Interest-bearing liabilities:
Deposits (177) 574 397 145 438 583
Borrowings 21 (1) 20 (1) 4 3
------ ------ ------ ------ ------ ------
Total interest-bearing
liabilities (156) 573 417 144 442 586
------ ------ ------ ------ ------ ------
Increase (decrease) in net
interest income $ 904 $ (160) $ 744 $ 59 $ (270) $ (211)
====== ====== ====== ====== ====== ======
</TABLE>
ASSET AND LIABILITY MANAGEMENT
American's interest rate spread is the principal determinant of
American's income. The interest rate spread, and therefore net interest income,
can vary considerably over time because asset and liability repricing do not
coincide. Moreover, the long-term and cumulative effect of interest rate changes
can be substantial. Interest rate risk is defined as the sensitivity of an
institution's earnings and net asset values to changes in interest rates. The
management and Board of Directors attempt to manage American's exposure to
interest rate risk in a manner to maintain the projected four-quarter percentage
change in net interest income and the projected change in the market value of
portfolio equity within limits established by the Board of Directors, assuming a
permanent and instantaneous parallel shift in interest rates.
American, like other financial institutions, is subject to interest
rate risk to the extent that its interest-earning assets reprice differently
than its interest-bearing liabilities. As a part of its effort to monitor its
interest rate risk, American reviews the reports of the OTS which set forth the
application of the "net portfolio value" ("NPV") methodology adopted by the OTS
as part of its final rules related to revisions in the risk-based capital
regulations. Although American is not currently subject to the NPV regulation,
the application of the NPV methodology may illustrate American's interest rate
risk.
Generally, NPV is the discounted present value of the difference
between incoming cash flows on interest-earning and other assets and outgoing
cash flows on interest-bearing liabilities. The application of the methodology
attempts to quantify interest rate risk as the change in the NPV which would
result from a theoretical 200 basis point (1 basis point equals .01%) change in
market interest rates. Both a 200 basis point increase in market interest rates
and a 200 basis point decrease in market interest rates are considered. If the
NPV would decrease in an amount greater than 2% of the present value of the
institution's assets with either an increase or a decrease in market rates, the
institution must deduct 50% of the amount of the decrease in excess of such 2%
in the calculation of the institution's risk-based capital.
-21-
<PAGE> 22
At March 31, 1996, (the latest date as of which data was available) 2%
of the present value of American's assets was approximately $2.0 million.
Because the interest rate risk of a 200 basis point increase in market interest
rates (which was greater than the interest rate risk of a 200 basis point
decrease) was $3.4 million at March 31, 1996, American would have been required
to deduct $700,000 (50% of the $1.4 million difference) from its capital in
determining whether American met its risk-based capital requirement. Regardless
of such reduction, however, American's risk-based capital at June 30, 1996,
would still have exceeded the regulatory requirement by approximately $13.5
million.
The following table presents, at March 31, 1996 (the latest date as of
which data was available), an analysis of the interest rate risk of American, as
measured by changes in NPV for instantaneous and sustained parallel shifts of
100 basis point movements in market interest rates. The table also contains the
policy limits set by the Board of Directors of American as the maximum change in
NPV that the Board of Directors deems advisable in the event of various changes
in interest rates. Such limits have been established with consideration of the
dollar impact of various rate changes and the strong capital position of
American.
<TABLE>
<CAPTION>
March 31, 1996
---------------------------------------------------------------
Change in
interest rate Board limit $ Change % Change
(basis points) % change in NPV in NPV
-------------- ----------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
+300 (40)% $(5,152) (26)%
+200 (30) (3,395) (17)
+100 (20) (1,634) ( 8)
0 0 - -
-100 20 1,309 7
-200 30 2,189 11
-300 40 2,887 15
</TABLE>
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the NPV approach. For example, although certain
assets and liabilities may have similar maturities or periods of repricing, they
may react in different degrees to changes in market interest rates. Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates. Further, in the event of a change in
interest rates, expected rates of prepayment on loans and mortgage-backed
securities and early withdrawal levels from certificates of deposit would likely
deviate significantly from those assumed in making the risk calculations.
In the event that interest rates continue to rise, American's net
interest income could be expected to be negatively affected. Moreover, rising
interest rates could negatively affect American's earnings due to diminished
loan demand.
COMPETITION
American competes for deposits with other savings banks, savings
associations, commercial banks and credit unions and with the issuers of
commercial paper and other securities, such as shares in money market mutual
funds. The primary factors in competing for deposits are interest rates and
convenience of office location. In making loans, American competes with other
savings banks, savings associations, commercial banks, consumer finance
companies, credit unions, leasing companies and other lenders. American competes
for loan originations primarily through the interest rates and loan fees it
charges and through the efficiency and quality of services it provides to
borrowers. Competition is intense and is affected by, among other things, the
general availability of lendable funds, general and local economic conditions,
current interest rate levels and other factors which are not readily
predictable.
The size of financial institutions competing with American is likely to
increase as a result of changes in statutes and regulations eliminating various
restrictions on interstate and inter-industry branching and acquisitions. Such
increased competition may have an adverse effect upon American. In addition,
disparities with respect to the deposit assessments for banks and savings
associations may have an adverse affect upon American. See "REGULATION Federal
Deposit Insurance Corporation - Assessments."
-22-
<PAGE> 23
SUBSIDIARY ACTIVITIES
American has one wholly-owned subsidiary, A.S.L. Services, Inc., which
owns stock in Intrieve, Inc., American's data processing service provider. At
June 30, 1996, the stock held by the service corporation had a book value of
$15,000.
PERSONNEL
As of June 30, 1996, American had 22 full-time employees and 2
part-time employees. American believes that relations with its employees are
excellent. American offers health, disability and life benefits and has
established the ASB Financial Corp. Employee Stock Ownership Plan. None of the
employees of American are represented by a collective bargaining unit.
REGULATION
GENERAL
ASB is a savings and loan holding company within the meaning of the
Home Owners Loan Act of 1933, as amended (the "HOLA"). Consequently, ASB is
subject to regulation, examination and oversight by the OTS and must submit
periodic reports thereto. Because ASB is a corporation organized under Ohio law,
it is subject to provisions of the Ohio Revised Code applicable to corporations
generally.
As a federal savings bank, American is subject to regulation,
examination and oversight by the OTS. American became a federal savings bank on
July 21, 1995. Prior to that it had been an Ohio savings and loan association
since February 1, 1995, when it converted from an Ohio savings bank. Because
American's deposits are insured by the FDIC, American is also subject to
regulation and examination by the FDIC. American must file periodic reports with
the OTS concerning its activities and financial condition. Examinations are
conducted periodically by both the OTS and the FDIC to determine whether
American is in compliance with various regulatory requirements and is operating
in a safe and sound manner. Because it accepts federally insured deposits and
offers transaction accounts, American is also subject to certain regulations
issued by the Board of Governors of the Federal Reserve System ("FRB"). American
is a member of the FHLB of Cincinnati.
OFFICE OF THRIFT SUPERVISION
GENERAL. The OTS is an office in the Department of the Treasury and is
subject to the general oversight of the Secretary of the Treasury. The Director
of the OTS is responsible for the regulation and supervision of all federally
chartered savings associations and all other savings associations, the deposits
of which are insured by the FDIC through the Savings Association Insurance Fund
(the "SAIF") and all federally chartered savings institutions. The OTS issues
regulations governing the operation of savings associations, regularly examines
such associations and imposes assessments on savings associations based on their
asset size to cover the cost of general supervision and examination. The OTS
charters federally chartered associations, such as American, and prescribes
their permissible investments and activities, including the types of loans and
investments in real estate, subsidiaries and securities they may make. The OTS
has authority over mergers and acquisitions of control of federally chartered
savings and loan associations. The OTS also may initiate enforcement actions
against savings associations and certain persons affiliated with them for
violations of laws or regulations or for engaging in unsafe or unsound
practices. If the grounds provided by law exist, the OTS may appoint a
conservator or receiver for a savings association.
Savings associations are subject to regulatory oversight under various
consumer protection and fair lending laws. These laws govern, among other
things, truth-in-lending disclosure, equal credit opportunity, fair credit
reporting and community reinvestment. Failure to abide by federal laws and
regulations governing community reinvestment could limit the ability of an
association to open a new branch or engage in a merger. Community investment
regulations focus on how well and to what extent an institution meets in its
last examination the credit needs in its community, particularly in
low-to-moderate income areas. American received an "outstanding" rating under
these regulations.
REGULATORY CAPITAL REQUIREMENTS. American is required by OTS
regulations to meet certain minimum capital requirements, which requirements
must be generally as stringent as the requirements established for banks.
Current capital
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requirements call for tangible capital of 1.5% of adjusted total assets, core
capital (which for American consists solely of tangible capital) of 3.0% of
adjusted total assets and risk-based capital (which for American consists of
core capital and certain general valuation allowances) of 8% of risk-weighted
assets (assets are weighted at percentage levels ranging from 0% to 100%
depending on their relative risk). The OTS has proposed to amend the core
capital requirement so that those associations that do not have the highest
examination rating and an acceptable level of risk will be required to maintain
core capital of from 4% to 5%, depending on the association's examination rating
and overall risk. American does not anticipate that it will be adversely
affected if the core capital requirements regulation is amended as proposed.
The following table sets forth the amount and percentage level of
regulatory capital of American at June 30, 1995, and the amount by which it
exceeds minimum requirements. Tangible and core capital are reflected as a
percentage of adjusted total assets. Risk-based (or total) capital, which
consists of core and supplementary capital, is reflected as a percentage of
risk-weighted assets.
<TABLE>
<CAPTION>
At June 30, 1996
--------------------------
Amount Percent
------- -------
(In thousands)
<S> <C> <C>
Tangible capital $17,402 16.3%
Requirement 1,604 1.5
------- ----
Excess $15,798 14.8%
======= ====
Core capital $17,402 16.3%
Requirement 3,209 3.0
------- ----
Excess $14,193 13.3%
======= ====
Risk-based capital $18,000 37.6%
Risk-based requirement 3,833 8.0
------- ----
Excess $14,167 29.6%
======= ====
</TABLE>
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
associations. At each successively lower defined capital category, an
association is subject to more restrictive and numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. The OTS has defined
these capital levels as follows: (i) well-capitalized associations must have
total risk-based capital of at least 10%, core risk-based capital (consisting
only of items that qualify for inclusion in core capital) of at least 6% and
core capital of at least 5%; (ii) adequately capitalized associations are those
that meet the regulatory minimum of total risk-based capital of 8%, core
risk-based capital of 4% and core capital of 4% (except for associations
receiving the highest examination rating, in which case the level is 3%) but are
not well-capitalized; (iii) undercapitalized associations are those that do not
meet regulatory limits, but that are not significantly undercapitalized; (iv)
significantly undercapitalized associations have total risk-based capital of
less than 6%, core risk-based capital of less than 3% or core capital of less
than 3%; and (v) critically undercapitalized associations are those with
tangible capital of less than 2% of total assets. In addition, the OTS generally
can downgrade an association's capital category, notwithstanding its capital
level, based on less than satisfactory examination ratings in areas other than
capital or, after notice and opportunity for hearing, if the association is
deemed to be in an unsafe or unsound condition or to be engaging in an unsafe or
unsound practice. Each undercapitalized association must submit a capital
restoration plan to the OTS within 45 days after it becomes undercapitalized.
Such institution will be subject to increased monitoring and asset growth
restrictions and will be required to obtain prior approval for acquisitions,
branching and engaging in new lines of business. Furthermore, critically
undercapitalized institutions must be placed in conservatorship or receivership
within 90 days of reaching that capitalization level, except under limited
circumstances. American's capital at June 30, 1996, meets the standards for a
well-capitalized institution.
Federal law prohibits an insured institution from making a capital
distribution to anyone or paying management fees to any person having control of
the institution if, after such distribution or payment, the institution would be
undercapitalized. In addition, each company controlling an undercapitalized
institution must guarantee that the institution will comply with its capital
plan until the institution has been adequately capitalized on an average during
each of four preceding calendar quarters and must provide adequate assurances of
performance. The aggregate liability pursuant to such
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guarantee is limited to the lesser of (i) an amount equal to 5% of the
institution's total assets at the time the institution became undercapitalized
or (ii) the amount that is necessary to bring the institution into compliance
with all capital standards applicable to such association at the time the
institution fails to comply with its capital restoration plan.
LIQUIDITY. OTS regulations require that savings associations maintain
an average daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances and specified United States government, state or federal agency
obligations) equal to a monthly average of not less than 5% of its net
withdrawable savings deposits plus borrowings payable in one year or less.
Federal regulations also require each association to maintain an average daily
balance of short-term liquid assets at a specified percentage, currently 1%, of
the total of its net withdrawable savings accounts and borrowings payable in one
year or less. Monetary penalties may be imposed upon associations failing to
meet liquidity requirements. The eligible liquidity of American, as computed
under current regulations, at June 30, 1996, was approximately $15.6 million, or
18.3%, and exceeded the then applicable 5.0% liquidity requirement by
approximately $11.4 million, or 13.3%.
QUALIFIED THRIFT LENDER TEST. Savings associations are required to
maintain a specified level of investments in assets that are designated as
qualifying thrift investments. Such investments are generally related to
domestic residential real estate and manufactured housing and include stock
issued by any FHLB, the FHLMC or the FNMA. The QTL test, as amended by the
Improvement Act, requires that 65% of an institution's "portfolio assets" (total
assets less goodwill and other intangibles, property used to conduct business
and 20% of liquid assets) consist of qualified thrift investments on a monthly
average basis in 9 out of every 12 months. The OTS may grant exceptions to the
QTL test under certain circumstances. If a savings association fails to meet the
QTL Test, the association and its holding company will be subject to certain
operating and regulatory restrictions. A savings association that fails to meet
the QTL Test will not be eligible for new FHLB advances. See "Federal Home Loan
Banks." At June 30, 1996, American had QTL investments equal to approximately
87.72% of its total portfolio assets.
LENDING LIMIT. OTS regulations generally limit the aggregate amount
that a savings association can lend to one borrower or group of related
borrowers to an amount equal to 15% of the association's unimpaired capital
which is defined for OTS purposes as total capital for regulatory purposes. A
savings association may loan to one borrower an additional amount not to exceed
10% of the association's unimpaired capital, if the additional amount is fully
secured by certain forms of "readily marketable collateral." Real estate is not
considered "readily marketable collateral." Notwithstanding the level of
unimpaired capital and surplus, a savings association may lend up to $500,000 to
any one borrower or group of related borrowers. At June 30, 1996, American was
in compliance with this lending limit. See "Lending Activities - Loan
Originations, Purchases and Sales."
TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to executive officers,
directors and principal shareholders and their related interests must conform to
the lending limit, and the total of such loans to executive officers, directors,
principal shareholders and their related interests cannot exceed the
association's Unimpaired Capital (or 200% of Unimpaired Capital for qualifying
institutions with less than $100 million in assets). Most loans to directors,
executive officers and principal shareholders must be approved in advance by a
majority of the "disinterested" members of the board of directors of the
association with any "interested" director not participating. All loans to
directors, executive officers and principal shareholders must be made on terms
substantially the same as offered in comparable transactions with the general
public, and loans to executive officers are subject to additional limitations.
American was in compliance with such restrictions at June 30, 1996.
All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act ("FRA"). An
affiliate of a savings association is any company or entity that controls, is
controlled by or is under common control with the savings association. ASB is an
affiliate of American. Generally, Sections 23A and 23B of the FRA (i) limit the
extent to which a savings association or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, (ii) limit the aggregate of all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and surplus, and (iii) require that all such transactions be on terms
substantially the same, or at least as favorable to the association, as those
provided in transactions with a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
other similar types of transactions. American was in compliance with these
requirements and restrictions at June 30, 1996.
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LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various
restrictions or requirements on the ability of associations to make capital
distributions according to ratings of associations based on their capital level
and supervisory condition. Capital distributions, for purposes of such
regulation, include, without limitation, payments of cash dividends, repurchases
and certain other acquisitions by an association of its shares and payments to
stockholders of another association in an acquisition of such other association.
The first rating category is Tier 1, consisting of associations that,
before and after the proposed capital distribution, meet their fully phased-in
capital requirement. Associations in this category may make capital
distributions during any calendar year equal to the greater of 100% of its net
income, current year-to-date, plus 50% of the amount by which the lesser of the
association's tangible, core or risk-based capital exceeds its fully phased-in
capital requirement for such capital component, as measured at the beginning of
the calendar year, or the amount authorized for a Tier 2 association. The second
category, Tier 2, consists of associations that, before and after the proposed
capital distribution, meet their current minimum, but not fully phased-in
capital requirement. Associations in this category may make capital
distributions up to 75% of their net income over the most recent four quarters.
Tier 3 associations do not meet their current minimum capital requirement and
must obtain OTS approval of any capital distribution. A Tier 1 association
deemed to be in need of more than normal supervision by the OTS may be treated
as a Tier 2 or a Tier 3 association.
American meets the requirements for a Tier 1 association and has not
been notified of any need for more than normal supervision. As a subsidiary of
ASB, American is required to give the OTS 30 days notice prior to declaring any
dividend on its common shares. The OTS may object to the dividend during that 30
day period based on safety and soundness concerns. Moreover, the OTS may
prohibit any capital distribution otherwise permitted by regulation if the OTS
determines that such distribution would constitute an unsafe or unsound
practice.
HOLDING COMPANY REGULATION. ASB is a savings and loan holding company
within the meaning of the HOLA. The HOLA generally prohibits a savings and loan
holding company from controlling any other savings association or savings and
loan holding company, without prior approval of the Director of the OTS, or from
acquiring or retaining more than 5% of the voting shares of a savings
association or holding company thereof, which is not a subsidiary. Under certain
circumstances, a savings and loan holding company is permitted to acquire, with
the approval of the OTS, up to 15% of the previously unissued voting shares of
an undercapitalized savings association for cash without such savings
association being deemed to be controlled by the holding company. Except with
the prior approval of the Director of the OTS, no director or officer of a
savings and loan holding company or person owning or controlling by proxy or
otherwise more than 25% of such company's stock may also acquire control of any
savings institution, other than a subsidiary institution, or any other savings
and loan holding company.
ASB is a unitary savings and loan holding company. Under current law,
there are generally no restrictions on the activities of a unitary savings and
loan holding company and such companies are the only financial institution
holding companies which may engage in any commercial, securities and insurance
activities. U.S. Congressional legislative proposals that have been introduced
or are under consideration might limit the authorities of unitary savings and
loan holding companies or expand the activities of bank and multiple savings and
loan holding companies. ASB cannot predict if and in what form these proposals
might become law. The broad latitude to engage in activities under current law
can be restricted, if the OTS determines that there is reasonable cause to
believe that the continuation by a savings and loan holding company of an
activity constitutes a serious risk to the financial safety, soundness or
stability of its subsidiary savings association. The OTS may impose such
restrictions as deemed necessary to address such risk, including limiting (i)
payment of dividends by the savings association, (ii) transactions between the
savings association and its affiliates, and (iii) any activities of the savings
association that might create a serious risk that the liabilities of the holding
company and its affiliates may be imposed on the savings association.
Notwithstanding the foregoing rules as to permissible business activities of a
unitary savings and loan holding company, if the savings association subsidiary
of a holding company fails to meet the QTL Test, then such unitary holding
company would become subject to the activities restrictions applicable to
multiple holding companies. At June 30, 1996, American met the QTL Test.
If ASB were to acquire control of another savings institution, other
than through a merger or other business combination with American, ASB would
become a multiple savings and loan holding company. Unless the acquisition is an
emergency thrift acquisition and each subsidiary savings association meets the
QTL Test, the activities of ASB and any of its subsidiaries (other than American
or other subsidiary savings associations) would thereafter be subject to
activity restrictions. The HOLA provides that, among other things, no multiple
savings and loan holding company or subsidiary thereof that is not a savings
institution shall commence or continue for a limited period of time after
becoming a multiple
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<PAGE> 27
savings and loan holding company or subsidiary thereof, any business activity
other than (i) furnishing or performing management services for a subsidiary
savings institution, (ii) conducting an insurance agency or escrow business,
(iii) holding, managing or liquidating assets owned by or acquired from a
subsidiary savings institution, (iv) holding or managing properties used or
occupied by a subsidiary savings institution, (v) acting as trustee under deeds
of trust, (vi) those activities previously directly authorized by federal
regulation as of March 5, 1987, to be engaged in by multiple holding companies,
or (vii) those activities authorized by the FRB as permissible for bank holding
companies, unless the OTS by regulation prohibits or limits such activities for
savings and loan holding companies. Those activities described in (vii) above
must also be approved by the OTS prior to being engaged in by a multiple holding
company.
The OTS may approve acquisitions resulting in the formation of a
multiple savings and loan holding company that controls savings associations in
more than one state, only if the multiple savings and loan holding company
involved controls a savings association that operated a home or branch office in
the state of the association to be acquired as of March 5, 1987, or if the laws
of the state in which the institution to be acquired is located specifically
permit institutions to be acquired by state-chartered institutions or savings
and loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
institutions). As under prior law, the OTS may approve an acquisition resulting
in a multiple savings and loan holding company controlling savings associations
in more than one state in the case of certain emergency thrift acquisitions.
Bank holding companies have had more expansive authority to make interstate
acquisitions than savings and loan holding companies since August 1995.
No subsidiary savings association of a savings and loan holding company
may declare or pay a dividend on its permanent or nonwithdrawable stock unless
it first gives the Director of the OTS 30 days' notice of such declaration and
payment. Any dividend declared during such period or without the giving of such
notice shall be invalid.
FEDERAL REGULATION OF ACQUISITIONS OF CONTROL OF ASB AND AMERICAN. In
addition to the Ohio law limitations on the merger and acquisition of ASB
previously discussed, federal limitations generally require regulatory approval
of acquisitions at specified levels. Under pertinent federal law and
regulations, no person, directly or indirectly, or acting in concert with
others, may acquire control of American or ASB without 60 days prior notice to
the OTS. "Control" is generally defined as having more than 25% ownership or
voting power; however, ownership or voting power of more than 10% may be deemed
"control" if certain factors are in place. If the acquisition of control is by a
company, the acquiror must obtain approval, rather than give notice, of the
acquisition as a savings and loan holding company.
In addition, any merger of American or of ASB must either be approved
by the OTS, or is subject to prior notification of the OTS.
FEDERAL DEPOSIT INSURANCE CORPORATION.
DEPOSIT INSURANCE. The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of federally insured
banks and thrifts and safeguards the safety and soundness of the bank and thrift
industries. The FDIC administers two separate insurance funds, the Bank
Insurance Fund (the "BIF") for commercial banks and state savings banks and the
SAIF for savings associations and banks that have acquired deposits from savings
associations. The FDIC is required to maintain designated levels of reserves in
each fund. The reserves of the SAIF are below the level required by law because
a significant portion of the assessments paid into the fund are used to pay the
cost of prior thrift failures. The reserves of the BIF met the level required by
law in May 1995.
Depository institutions are generally prohibited from converting from
one insurance fund to the other until the SAIF meets its designated reserve
level, except with the prior approval of the FDIC in certain limited cases,
provided applicable exit and entrance fees are paid. The insurance fund
conversion provisions do not prohibit a SAIF member from converting to a bank
charter or merging with a bank during the moratorium, as long as the resulting
bank continues to pay the applicable insurance assessments to the SAIF during
that period and certain other conditions are met.
American is a member of the SAIF and its deposit accounts are insured
by the FDIC up to the prescribed limits. The FDIC has examination authority over
all insured depository institutions, including American, and has authority to
initiate enforcement actions against federally insured savings associations if
the FDIC does not believe the OTS has taken appropriate action to safeguard
safety and soundness and the deposit insurance fund.
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ASSESSMENTS. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance each for members of the BIF and the SAIF.
The FDIC may increase assessment rates for either fund if necessary to restore
the fund's ratio of reserves to insured deposits to its target level within a
reasonable time and may decrease such rates if such target level has been met.
The reserves of the SAIF are below the level required by law because a
significant portion of the assessments paid into the SAIF are used to pay the
cost of prior thrift failures.
BIF has, however, met its required reserve level. The assessments paid
by healthy savings associations exceeded those paid by healthy BIF members by
approximately $.19 per $100 in deposits for 1995, and no BIF assessments are
required of healthy commercial banks in 1996 except a $2,000 minimum fee. The
disparity between the premiums paid by savings associations and commercial banks
could have a negative competitive impact on American and other savings
associations.
Congress is considering legislation to recapitalize the SAIF and to
eliminate the significant premium disparity between the SAIF and the BIF by
imposing a special assessment on SAIF members to increase SAIF reserves to the
level required by law. Currently, the special assessment is estimated to be
approximately $.71 per $100 of SAIF deposits held at March 31, 1995. In
addition, the proposed legislation provides that the cost of prior thrift
failures currently assessed against the SAIF would be shared by the BIF or
certain government sponsored entities. This recapitalization plan also provides
for the merger of the SAIF and BIF on January 1, 1998. As currently proposed,
the SAIF recapitalization legislation provides for an elimination of the thrift
charter or of the separate federal regulation of thrifts prior to the merger of
the deposit insurance funds. If such proposal is adopted, ASB would be required
to become a bank holding company and would be subject to more restrictive
activity limits and to capital requirements similar to those imposed on
American.
American had $83.9 million in deposits at March 31, 1995. If the
special assessment is $.71 per $100 in deposits, American will pay an additional
assessment of $596,000 within 60 days of the enactment of the recapitalization
plan. This assessment should be tax-deductible, but it will reduce earnings and
capital for the quarter in which it is recorded. It is expected that quarterly
SAIF assessments would then be reduced thereafter, but could never be reduced
below the level set for BIF institutions.
No assurance can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. In addition, ASB can give no
assurance that the disparity between BIF and SAIF assessments will be eliminated
and that the impact of ASB being regulated as a bank holding company will not be
material until the legislation requiring such changes is enacted.
FRB REGULATIONS
RESERVE REQUIREMENTS. FRB regulations require savings associations to
maintain reserves of 3% of net transaction accounts (primarily NOW accounts) up
to $52 million (subject to an exemption of $4.3 million), and 10% of net
transaction accounts over $52 million. At June 30, 1996, American was in
compliance with the FRB's reserve requirements.
FEDERAL HOME LOAN BANKS
The FHLBs provide credit to their members in the form of advances.
American is a member of the FHLB of Cincinnati and must maintain an investment
in the capital stock of that FHLB in an amount equal to the greater of 1.0% of
the aggregate outstanding principal amount of its residential mortgage loans,
home purchase contracts and similar obligations at the beginning of each year,
or 5% of its advances from the FHLB. American is in compliance with this
requirement with an investment in stock of the FHLB of Cincinnati of $667,000 at
June 30, 1996.
Upon the origination or renewal of a loan or advance, the FHLB of
Cincinnati is required by law to obtain and maintain a security interest in
collateral in one or more of the following categories: fully disbursed, whole
first mortgage loans on improved residential property or securities representing
a whole interest in such loans; securities issued, insured or guaranteed by the
United States government or an agency thereof; deposits in any FHLB; or other
real estate related collateral (up to 30% of the member association's capital)
acceptable to the applicable FHLB, if such collateral has a readily
ascertainable value and the FHLB can perfect its security interest in the
collateral.
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Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLBs. The standards take into account a member's performance
under the Community Reinvestment Act and its record of lending to first-time
home buyers. All long-term advances by each FHLB must be made only to provide
funds for residential housing finance. The FHLB has established an "Affordable
Housing Program" to subsidize the interest rate of advances to member
associations engaged in lending for long-term, low- and moderate-income,
owner-occupied and affordable rental housing at subsidized rates. The FHLB of
Cincinnati reviews and accepts proposals for subsidies under that program twice
a year. American has participated in this program.
OHIO CORPORATION LAW
MERGER MORATORIUM STATUTE. Chapter 1704 of the Ohio Revised Code
regulates certain takeover bids affecting certain public corporations which have
significant ties to Ohio. This statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers between such an Ohio
corporation and any person who has the right to exercise, alone or with others,
10% or more of the voting power of such corporation (an "Interested
Shareholder"), for three years following the date on which such person first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested Shareholder, the
Board of Directors of the issuing corporation has approved the purchase of
shares which resulted in such person first becoming an Interested Shareholder.
After the initial three-year moratorium, such a business combination
may not occur unless (1) one of the specified exceptions applies, (2) the
holders of at least two-thirds of the voting shares, and of at least a majority
of the voting shares not beneficially owned by the Interested Shareholder,
approve the business combination at a meeting called for such purpose, or (3)
the business combination meets certain statutory criteria designed to ensure
that the issuing public corporation's remaining shareholders receive fair
consideration for their shares.
An Ohio corporation may, under certain circumstances, "opt out" of the
statute by specifically providing in its articles of incorporation that the
statute does not apply to any business combination of such corporation. However,
the statute still prohibits for twelve months any business combination that
would have been prohibited but for the adoption of such an opt-out amendment.
The statute also provides that it will continue to apply to any business
combination between a person who became an Interested Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted. Neither
the Articles of Incorporation of ASB nor American opt out of the protection
afforded by Chapter 1704.
CONTROL SHARE ACQUISITION. Section 1701.831 of the Ohio Revised Code
(the "Control Share Acquisition Statute") requires that certain acquisitions of
voting securities which would result in the acquiring shareholder owning 20%,
33-1/3%, or 50% of the outstanding voting securities of ASB (a "Control Share
Acquisition") must be approved in advance by the holders of at least a majority
of the outstanding voting shares represented at a meeting at which a quorum is
present and a majority of the portion of the outstanding voting shares
represented at such a meeting, excluding the voting shares owned by the
acquiring shareholder. The Control Share Acquisition Statute was intended, in
part, to protect shareholders of Ohio corporations from coercive tender offers.
TAKEOVER BID STATUTE. Ohio law also contains a statute regulating
takeover bids for any Ohio corporation. Such statute provides that no offeror
may make a takeover bid unless (i) at least 20 days prior thereto the offeror
announces publicly the terms of the proposed takeover bid and files with the
Ohio Division of Securities (the "Securities Division") and provides the target
company with certain information in respect of the offeror, his ownership of the
company's shares and his plans for the company, and (ii) within ten days
following such filing either (a) no hearing is required by the Securities
Division, (b) a hearing is requested by the target company within such time but
the Securities Division finds no cause for hearing exists, or (c) a hearing is
ordered and upon such hearing the Securities Division adjudicates that the
offeror proposes to make full, fair and effective disclosure to offerees of all
information material to a decision to accept or reject the offer.
The takeover bid statute also states that no offeror shall make a
takeover bid if he owns 5% or more of the issued and outstanding equity
securities of any class of the target company, any of which were purchased
within one year before the proposed takeover bid, and the offeror, before making
any such purchase, failed to announce his intention to gain control of the
target company, or otherwise failed to make full and fair disclosure of such
intention to the persons from
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whom he acquired such securities. The United States District Court for the
Southern District of Ohio has determined that the Ohio takeover bid statute is
preempted by federal regulation.
TAXATION
FEDERAL TAXATION
ASB and American are both subject to the federal tax laws and
regulations which apply to corporations generally. Prior to the enactment of the
Small Business Jobs Protection Act, which was signed into law on August 21,
1996, certain thrift institutions such as American were allowed deductions for
bad debts under methods more favorable than those granted to other taxpayers.
Qualified thrift institutions could compute deductions for bad debts using
either the specific charge off method of Section 166 of the Code or the reserve
method of Section 593 of the Internal Revenue Code of 1986, as amended (the
"Code").
Under Section 593 of the Code, a thrift institution annually could
elect to deduct bad debts under either (i) the "percentage of taxable income"
method applicable only to thrift institutions, or (ii) the "experience" method
that also was available to small banks. Under the "percentage of taxable income"
method, a thrift institution generally was allowed a deduction for an addition
to its bad debt reserve equal to 8% of its taxable income (determined without
regard to this deduction and with additional adjustments). Under the experience
method, a thrift institution was generally allowed a deduction for an addition
to its bad debt reserve equal to the greater of (i) an amount based on its
actual average experience for losses in the current and five preceding taxable
years, or (ii) an amount necessary to restore the reserve to its balance as of
the close of the base year. A thrift institution could elect annually to compute
its allowable addition to bad debt reserves for qualifying loans either under
the experience method or the percentage of taxable income method. For tax years
1993, 1992 and 1991, American used the percentage of taxable income method
because such method provided a higher bad debt deduction than the experience
method.
Section 1616(a) of the Small Business Job Protection Act repealed the
Section 593 reserve method of accounting for bad debts by thrift institutions,
effective for taxable years beginning after 1995. Thrift institutions that are
treated as small banks are allowed to utilize the experience method applicable
to such institutions, while thrift institutions that are treated as large banks
are required to use only the specific charge off method. The percentage of
taxable income method of accounting for bad debts is no longer available for any
financial institution.
A thrift institution required to change its method of computing
reserves for bad debt will treat such change as a change in the method of
accounting initiated by the taxpayers and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires certain
amounts to be recaptured with respect to such change. Generally, the amount to
be recaptured will be determined solely with respect to the "applicable excess
reserves" of the taxpayer. The amount of the applicable excess reserves will be
taken into account ratably over a six taxable year period, beginning with the
first taxable year beginning after 1995, subject to the residential loan
requirement described below. In the case of a thrift institution that is treated
as a large bank, the amount of the institution's applicable excess reserves
generally is the excess of (i) the balances of its reserve for losses on
qualifying real property loans (generally loans secured by improved real estate)
and its reserve for losses on nonqualifying loans (all other types of loans) as
of the close of its last taxable year beginning before January 1, 1996, over
(ii) the balances of such reserves as of the close of its last taxable year
beginning before January 1, 1988 (the "pre-1988 reserves"). In the case of a
thrift institution that is treated as a small bank, like American, the amount of
the institution's applicable excess reserves generally is the excess of (i) the
balances of its reserve for losses on qualifying real property loans and its
reserve for losses on nonqualifying loans as of the close of its last taxable
year beginning before January 1, 1996, over (ii) the greater of the balance of
(a) its pre-1988 reserves or (b) what American's reserves would have been at the
close of its last tax year beginning before January 1, 1996, had American always
used the experience method.
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996.
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<PAGE> 31
A residential loan is a loan as described in Section 7701(a)(19)(C)(v)
(generally a loan secured by residential or church property and certain mobile
homes), but only to the extent that the loan is made to the owner of the
property to acquire, construct, or improve the property.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e) as modified by the Small Business Job Protection Act which
requires recapture in the case of certain excessive distributions to
shareholders. The pre-1988 reserves may not be utilized for payment of cash
dividends or other distributions to a shareholder (including distributions in
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). Distribution of a cash dividend by a thrift institution to a
shareholder is treated as made: first, out of the institution's post-1951
accumulated earnings and profits; second, out of the pre-1988 reserves; and
third, out of such other accounts as may be proper. To the extent a distribution
by American to ASB is deemed paid out of its pre-1988 reserves under these
rules, the pre-1988 reserves would be reduced and American's gross income for
tax purposes would be increased by the amount which, when reduced by the income
tax, if any, attributable to the inclusion of such amount in its gross income,
equals the amount deemed paid out of the pre-1988 reserves. As of June 30, 1996,
American's pre-1988 reserves for tax purposes totaled approximately $1.9
million. American believes it had approximately $8.4 million of accumulated
earnings and profits for tax purposes as of June 30, 1996, which would be
available for dividend distributions, provided regulatory restrictions
applicable to the payment of dividends are met. No representation can be made as
to whether American will have current or accumulated earnings and profits in
subsequent years.
In addition to the regular income tax, ASB and American are subject to
a minimum tax. An alternative minimum tax is imposed at a minimum tax rate of
20% on "alternative minimum taxable income" (which is the sum of a corporation's
regular taxable income, with certain adjustments, and tax preference items),
less any available exemption. Such tax preference items include interest on
certain tax-exempt bonds issued after August 7, 1986. In addition, 75% of the
amount by which a corporation's "adjusted current earnings" exceeds its
alternative minimum taxable income computed without regard to this preference
item and prior to reduction by net operating losses, is included in alternative
minimum taxable income. Net operating losses can offset no more than 90% of
alternative minimum taxable income. The alternative minimum tax is imposed to
the extent it exceeds the corporation's regular income tax. Payments of
alternative minimum tax may be used as credits against regular tax liabilities
in future years. In addition, for taxable years after 1986 and before 1996, ASB
and American are also subject to an environmental tax equal to 0.12% of the
excess of alternative minimum taxable income for the taxable year (determined
without regard to net operating losses and the deduction for the environmental
tax) over $2.0 million.
The tax returns of American have been audited or closed without audit
through fiscal year 1992. In the opinion of management, any examination of open
returns would not result in a deficiency which could have a material adverse
effect on the financial condition of American.
OHIO TAXATION
ASB is subject to the Ohio corporation franchise tax, which, as applied
to ASB, is a tax measured by both net earnings and net worth. The rate of tax is
the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and
8.9% of computed Ohio taxable income in excess of $50,000 or (ii) 0.582% times
taxable net worth.
In computing its tax under the net worth method, ASB may exclude 100%
of its investment in the capital stock of American after the Conversion, as
reflected on the balance sheet of ASB, in computing its taxable net worth as
long as it owns at least 25% of the issued and outstanding capital stock of ASB.
The calculation of the exclusion from net worth is based on the ratio of the
excludable investment (net of any appreciation or goodwill included in such
investment) to total assets multiplied by the net value of the stock. As a
holding company, ASB may be entitled to various other deductions in computing
taxable net worth that are not generally available to operating companies.
A special litter tax is also applicable to all corporation, including
ASB, subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.
American is a "financial institution" for State of Ohio tax purposes.
As such, it is subject to the Ohio corporate franchise tax on "financial
institutions," which is imposed annually at a rate of 1.5% of American's book
net worth
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<PAGE> 32
determined in accordance with generally accepted accounting principles. As a
"financial institution," American is not subject to any tax based upon net
income or net profits imposed by the State of Ohio.
ITEM 2. DESCRIPTION OF PROPERTY
American owns the property at 503 Chillicothe Street, Portsmouth, Ohio,
on which its main office is located. At June 30, 1996, the net book value of the
main office property was $541,000, and American's office premises and equipment
had a total net book value of $940,000. For additional information regarding
American's office premises and equipment, see Notes A-6 and E of Notes to
Consolidated Financial Statements.
American also owns a parcel of real estate in downtown Portsmouth,
Ohio, with a book value of $126,000. The property was purchased in November
1994. American plans to construct a new drive-through and ATM facility on the
property.
ITEM 3. LEGAL PROCEEDINGS
Neither ASB nor American is presently involved in any legal proceedings
of a material nature. From time to time, American is a party to legal
proceedings incidental to its business to enforce its security interest in
collateral pledged to secure loans made by American.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained in the ASB Financial Corp. Annual Report to
Shareholders for the fiscal year ended June 30, 1996 (the "Annual Report"),
under the caption "Market Price of ASB's Common Shares and Related Shareholder
Matters" is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in the Annual Report under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" is incorporated herein by reference.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements contained in the Annual Report
and the opinion of Grant Thornton LLP, dated July 12, 1996 (except for Note J,
as to which the date is August 20, 1996), are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information contained in the definitive Proxy Statement for the
1996 Annual Meeting of Shareholders of ASB Financial Corp. (the "Proxy
Statement") under the captions "Board of Directors," "Executive Officers" and
"Voting Securities and Ownership of Certain Beneficial Owners and Management" is
incorporated herein by reference.
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<PAGE> 33
ITEM 10. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement under the caption
"Compensation of Executive Officers and Directors" is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Proxy Statement under the caption
"Voting Securities and Ownership of Certain Beneficial Owners and Management" is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation (incorporated by reference)
3.2 Code of Regulations (incorporated by reference)
10.1 ASB Financial Corp. 1995 Stock Option and Incentive Plan
10.2 American Savings Bank, fsb Management Recognition and
Retention Plan and Trust Agreement
13 Annual Report (the following parts of which are incorporated
herein by reference: "Market Price of ASB Common Shares and
Related Shareholder Matters;" "Management's Discussion and
Analysis of Financial Condition and Results of Operations;"
and Consolidated Financial Statements.)
20 Proxy Statement
21 Subsidiaries of ASB Financial Corp.
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the last quarter of
the fiscal year covered by this Report.
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<PAGE> 34
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ASB FINANCIAL CORP.
By /s/ Gerald R. Jenkins
------------------------------
Gerald R. Jenkins
President
(Principal Executive Officer)
Date: September 23, 1996
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By /s/ Gerald R. Jenkins By /s/ Robert M. Smith
----------------------------- -----------------------------------
Gerald R. Jenkins Robert M. Smith
President and Director Vice President and Director
(Principal Financial Officer)
Date: September 23, 1996 Date: September 23, 1996
By /s/ William J. Burke By /s/ Lee O. Fitch
----------------------------- -----------------------------------
William J. Burke Lee O. Fitch
Director Director
Date: September 23, 1996 Date: September 23, 1996
By /s/ Victor W. Morgan By /s/ Louis M. Schoettle
----------------------------- -----------------------------------
Victor W. Morgan Louis M. Schoettle
Director Director
Date: September 23, 1996 Date: September 23, 1996
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<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
3.1 Articles of Incorporation of ASB Financial Corp. Incorporated by reference to the Form
10-KSB for fiscal year ended June 30,
1995 filed by ASB on September 28, 1995
(the "Form 10-KSB") with the Securities
and Exchange Commission (the "SEC"),
Exhibit 3.3
3.4 Code of Regulations of ASB Financial Corp. Incorporated by reference to the Form
10-KSB, Exhibit 3.5
10.1 ASB Financial Corp. 1995 Stock Option and Incentive Plan
10.2 American Savings Bank, fsb Recognition and Retention Plan
and Trust Agreement
13 1996 Annual Report to Shareholders
20 Proxy Statement
21 Subsidiaries of ASB Financial Corp. Incorporated by reference to the Form
10-KSB, Exhibit 21
27 Financial Data Schedule
</TABLE>
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<PAGE> 1
Exhibit 10.1
ASB FINANCIAL CORP.
1995 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE. The purpose of the ASB Financial Corp. 1995 Stock Option and
Incentive Plan (this "Plan") is to promote and advance the interests of ASB
Financial Corp. (the "Company") and its shareholders by enabling the Company to
attract, retain and reward directors, managerial and other key employees of the
Company and any Subsidiary (hereinafter defined), and to strengthen the
mutuality of interests between such directors and employees and the Company's
shareholders, by providing such persons with a proprietary interest in pursuing
the long-term growth, profitability and financial success of the Company.
2. DEFINITIONS. For purposes of this Plan, the following terms shall
have the meanings set forth below:
(a) "Award" or "Awards" means an award or grant made to a Participant
under Section 6 of this Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended, or
any successor thereto, together with rules, regulations and
interpretations promulgated thereunder.
(d) "Committee" means the Committee of the Board constituted as
provided in Section 3 of this Plan.
(e) "Common Shares" means the common shares, without par value, of
the Company or any security of the Company issued in substitution, in
exchange or in lieu thereof.
(f) "Company" means ASB Financial Corp., an Ohio corporation, or any
successor corporation.
(g) "Employment" means regular employment with the Company or a
Subsidiary and does not include service as a director only.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
(i) "Fair Market Value" shall be determined as follows:
<PAGE> 2
(i) If the Common Shares are traded on a national securities
exchange at the time of grant of the Stock Option, then the Fair Market
Value shall be the average of the highest and the lowest selling price on
such exchange on the date such Stock Option is granted or, if there were
no sales on such date, then on the next prior business day on which there
was a sale.
(ii) If the Common Shares are not listed on a national
securities exchange at the time of the grant of the Stock Option, then the
Fair Market Value shall be the mean between the closing high bid and low
asked quotation with respect to a Common Share on such date on The Nasdaq
Stock Market.
(iii) If the Common Shares are not traded on a national
securities exchange or quoted on The Nasdaq Stock Market, then the Fair
Market Value shall be as determined by the Committee.
(j) "Incentive Stock Option" means any Stock Option granted pursuant
to the provisions of Section 6 of this Plan that is intended to be and is
specifically designated as an "incentive stock option" within the meaning
of Section 422 of the Code.
(k) "Non-Qualified Stock Option" means any Stock Option granted
pursuant to the provisions of Section 6 of this Plan that is not an
Incentive Stock Option.
(l) "OTS" means the Office of Thrift Supervision, Department of the
Treasury.
(m) "Participant" means an employee or director of the Company or a
Subsidiary who is granted an Award under this Plan. Notwithstanding the
foregoing, for the purposes of the granting of any Incentive Stock Option
under this Plan, the term "Participant" shall include only employees of
the Company or a Subsidiary.
(n) "Plan" means the ASB Financial Corp. 1995 Stock Option and
Incentive Plan, as set forth herein and as it may be hereafter amended
from time to time.
(o) "Stock Option" means an Award to purchase Common Shares granted
pursuant to the provisions of Section 6 of this Plan.
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<PAGE> 3
(p) "Subsidiary" means any corporation or entity in which the Company
directly or indirectly controls 50% or more of the total voting power of
all classes of its stock having voting power, and includes, without
limitation, American Savings Bank, fsb.
(q) "Terminated for Cause" has the meaning set forth in Section 12(c)
of this Plan.
3. ADMINISTRATION.
(a) This Plan shall be administered by the Committee to be
comprised of not less than three of the members of the Board who are not
employees of the Company, to be appointed from time to time by the Board.
Members of the Committee shall serve at the pleasure of the Board, and the
Board may from time to time remove members from, or add members to, the
Committee. A majority of the members of the Committee shall constitute a
quorum for the transaction of business. Action approved in writing by the
unanimous consent of the members of the Committee then serving shall be fully
as effective as if the action had been taken by unanimous vote at a meeting
duly called and held.
(b) The Committee is authorized to construe and interpret this Plan;
to promulgate, amend and rescind rules and regulations relating to the
implementation of this Plan; and to make all other determinations necessary or
advisable for the administration of this Plan. The Committee may designate
persons other than members of the Committee to carry out its responsibilities
under such conditions and limitations as it may prescribe. Any determination,
decision or action of the Committee in connection with the construction,
interpretation, administration, or application of this Plan shall be final,
conclusive and binding upon all persons participating in this Plan and any
person validly claiming under or through persons participating in this Plan.
The Company shall effect the granting of Awards under this Plan in accordance
with the determinations made by the Committee, by execution of instruments in
writing in such form as approved by the Committee.
4. DURATION OF, AND COMMON SHARES SUBJECT TO, THIS PLAN.
(a) Term. This Plan shall terminate on the date which is ten (10)
years from the date on which this Plan is adopted by the Board, except with
respect to Awards then outstanding. Notwithstanding the foregoing, no Incentive
Stock Option may be granted under this Plan after the date which is ten (10)
years from the date on which this Plan is adopted by the Board or the
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<PAGE> 4
date on which this Plan is approved by the shareholders of the Company,
whichever is earlier.
(b) Common Shares Subject to Plan. The maximum number of Common
Shares in respect of which Awards may be granted under this Plan, subject to
adjustment as provided in Section 9 of this Plan, shall be ten percent (10%) of
the total Common Shares sold in connection with the conversion of American
Savings Bank, fsb (formerly known as American Savings Association) from mutual
to stock form. In addition, no more than 25% of the shares subject to Awards
may be awarded to any individual, no more than 5% of such shares may be awarded
to any non-employee director and no more than 30% of such shares may be awarded
to non-employee directors in the aggregate.
For the purpose of computing the total number of Common Shares
available for Awards under this Plan, there shall be counted against the
foregoing limitations the number of Common Shares subject to issuance upon
exercise or settlement of Awards as of the dates on which such Awards are
granted. If any Awards are forfeited, terminated, expire unexercised, or
exchanged for other Awards, the Common Shares which were theretofore subject to
such Awards shall again be available for Awards under this Plan to the extent
of such forfeiture or expiration of such Awards.
Common Shares which may be issued under this Plan may be either
authorized and unissued shares or issued shares which have been reacquired by
the Company. No fractional shares shall be issued under this Plan.
5. ELIGIBILITY AND GRANTS. Persons eligible for Awards under this Plan
shall consist of directors and managerial and other key employees of the
Company or a Subsidiary who hold positions with significant responsibilities or
whose performance or potential contribution, in the judgment of the Committee,
will benefit the future success of the Company or a Subsidiary. In selecting
the directors and employees to whom Stock Options will be awarded and the
number of shares subject to such Stock Options, the Committee shall consider
the position, duties and responsibilities of the eligible directors and
employees, the value of their services to the Company and the Subsidiaries and
any other factors the Committee may deem relevant.
6. STOCK OPTIONS. Stock Options granted under this Plan may be in the
form of Incentive Stock Options or Non-Qualified Stock Options, and such Stock
Options shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the express
provisions of this Plan, as the Committee shall deem desirable:
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<PAGE> 5
(a) Grant. Stock Options may be granted under this Plan on terms and
conditions not inconsistent with the provisions of this Plan and in such
form as the Committee may from time to time approve.
(b) Stock Option Price. The option exercise price per Common Share
purchasable under a Stock Option shall be determined by the Committee at
the time of grant; provided, however, that in no event shall the exercise
price of a Stock Option be less than one hundred percent (100%) of the
Fair Market Value of the Common Shares on the date of the grant of such
Stock Option. Notwithstanding the foregoing, in the case of a Participant
who owns Common Shares representing more than ten percent (10%) of the
outstanding Common Shares at the time the Incentive Stock Option is
granted, the option exercise price shall in no event be less than one
hundred and ten percent (110%) of the Fair Market Value of the Common
Shares at the time the Incentive Stock Option is granted.
(c) Stock Option Terms. Subject to the right of the Company to
provide for earlier termination in the event of any merger, acquisition
or consolidation involving the Company, the term of each Stock Option
shall be fixed by the Committee; except that the term of Incentive Stock
Options will not exceed ten (10) years after the date the Incentive Stock
Option is granted; provided, however, that in the case of a Participant
who owns a number of Common Shares representing more than ten percent
(10%) of the Common Shares outstanding at the time the Incentive Stock
Option is granted, the term of the Incentive Stock Option shall not
exceed five (5) years.
(d) Exercisability. Except as set forth in Section 6(f) of this Plan,
Stock Options awarded under this Plan shall become exercisable at the rate
of one-fifth of the Award per year commencing on the date that is one year
after the date of the grant of the Award and shall be subject to such
other terms and conditions as shall be determined by the Committee at the
date of grant.
(e) Method of Exercise. A Stock Option may be exercised, in whole
or in part, by giving written notice of exercise to the Company
specifying the number of Common Shares to be purchased. Such notice shall
be accompanied by payment in full of the purchase price in cash or, if
acceptable to the Committee in its sole discretion, in Common Shares
already owned by the Participant, or by surrendering outstanding Awards.
The Committee may also
-5-
<PAGE> 6
permit Participants, either on a selective or aggregate basis, to
simultaneously exercise Options and sell Common Shares thereby acquired,
pursuant to a brokerage or similar arrangement, approved in advance by the
Committee, and use the proceeds from such sale as payment of the purchase
price of such shares.
(f) Special Rule for Incentive Stock Options. With respect to Stock
Options granted under this Plan, to the extent the aggregate Fair Market
Value (determined as of the date the Incentive Stock Option is granted) of
the number of shares with respect to which Incentive Stock Options are
exercisable under all plans of the Company or a Subsidiary for the first
time by a Participant during any calendar year exceeds One Hundred
Thousand Dollars ($100,000) or such other limit as may be required by the
Code, such Stock Options shall be Non-Qualified Stock Options to the
extent of such excess.
7. TERMINATION OF EMPLOYMENT OR DIRECTORSHIP. Except in the event of the
death or disability of a Participant, upon the resignation, removal of
retirement from the Board of Directors of any Participant who is a director of
the Company or any Subsidiary or upon the termination of Employment of a
Participant who is not a director of the Company or any Subsidiary, any option
which has not yet become exercisable shall thereupon terminate and be of no
further force or effect.
8. NON-TRANSFERABILITY OF AWARDS. No Award under this Plan, and no
rights or interests therein, shall be assignable or transferable by a
Participant except by will or the laws of descent and distribution. During the
lifetime of a Participant, Stock Options are exercisable only by, and payments
in settlement of Awards will be payable only to, the Participant or his or her
legal representative.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) The existence of this Plan and the Awards granted hereunder
shall not affect or restrict in any way the right or power of the Board or the
shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger, acquisition or consolidation of the
Company, any issuance of bonds, debentures, preferred or prior preference
stocks ahead of or affecting the Company's capital stock or the rights thereof,
the dissolution or liquidation of the Company or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
including any merger or acquisition which would result in the exchange of cash,
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<PAGE> 7
stock of another company or options to purchase the stock of another company for
any Stock Option outstanding at the time of such corporate transaction or which
would involve the termination of all Stock Options outstanding at the time of
such corporate transaction.
(b) In the event of any change in capitalization affecting the Common
Shares of the Company, such as a stock dividend, stock split, recapitalization,
merger, consolidation, split-up, combination or exchange of shares or other form
of reorganization, or any other change affecting the Common Shares, such
proportionate adjustments, if any, as the Board in its discretion may deem
appropriate to reflect such change shall be made with respect to the aggregate
number of Common Shares for which Awards in respect thereof may be granted under
this Plan, the maximum number of Common Shares which may be sold or awarded to
any Participant, the number of Common Shares covered by each outstanding Award,
and the price per share in respect of outstanding Awards.
(c) The Committee may also make such adjustments in the number of
shares covered by, and the price or other value of, any outstanding Awards in
the event of a spin-off or other distribution (other than normal cash dividends)
of Company assets to shareholders. In the event that another corporation or
business entity is being acquired by the Company, and the Company agrees to
assume outstanding employee stock options and/or the obligation to make future
grants of options or rights to employees of the acquired entity, the aggregate
number of Common Shares available for Awards under Section 4 of this Plan may be
increased accordingly.
10. AMENDMENT AND TERMINATION OF THIS PLAN. Without further approval
of the shareholders, the Board may at any time terminate this Plan, or may
amend it from time to time in such respects as the Board may deem advisable,
except that the Board may not, without approval of the shareholders, make any
amendment which would (a) increase the aggregate number of Common Shares which
may be issued under this Plan (except for adjustments pursuant to Section 9 of
this Plan), (b) materially modify the requirements as to eligibility for
participation in this Plan, or (c) materially increase the benefits accruing to
Participants under this Plan. The above notwithstanding, the Board may amend
this Plan to take into account changes in applicable securities, federal income
tax and other applicable laws.
11. MODIFICATION OF OPTIONS. The Board may authorize the Committee to
direct the execution of an instrument providing for the modification of any
outstanding Stock Option which the Board believes to be in the best interests of
the Company;
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<PAGE> 8
provided, however, that no such modification, extension or renewal shall
confer on the holder of such Stock Option any right or benefit which could not
be conferred on him by the grant of a new Stock Option at such time and shall
not materially decrease the Participant's benefits under the Stock Option
without the consent of the holder of the Stock Option, except as otherwise
permitted under this Plan.
12. MISCELLANEOUS.
(a) Tax Withholding. The Company shall have the right to deduct
from any settlement, including the delivery or vesting of Common Shares, made
under this Plan any federal, state or local taxes of any kind required by law
to be withheld with respect to such payments or to take such other action as
may be necessary in the opinion of the Company to satisfy all obligation for
the payment of such taxes. If Common Shares are used to satisfy tax
withholding, such shares shall be valued based on the Fair Market Value when
the tax withholding is required to be made.
(b) No Right to Employment. Neither the adoption of this Plan nor
the granting of any Award shall confer upon any employee of the Company or a
Subsidiary any right to continued employment with the Company or any
Subsidiary, as the case may be, nor shall it interfere in any way with the
right of the Company or a Subsidiary to terminate the employment of any of its
employees at any time, with or without cause.
(c) Annulment of Awards. The grant of any Award under this Plan
payable in cash is provisional until cash is paid in settlement thereof. The
grant of any Award payable in Common Shares is provisional until the
Participant becomes entitled to the certificate in settlement thereof. In the
event the Employment or the directorship of a Participant is Terminated for
Cause (hereinafter defined), any Award which is provisional shall be annulled
as of the date of such termination for cause. For the purpose of this Section
12(c), the term "Terminated for Cause" means any removal of a director or
discharge of an employee for the personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profits, intentional
failure to perform stated duties, willful violation of a material provision of
any law, rule or regulation (other than traffic violations or similar
offenses), a material violation of a final cease-and-desist order or any other
action of a director or employee which results in a substantial financial loss
to the Company or a Subsidiary.
(d) Other Company Benefit and Compensation Programs. Payments and
other benefits received by a Participant under an
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<PAGE> 9
Award made pursuant to this Plan shall not be deemed a part of a Participant's
regular, recurring compensation for purposes of the termination indemnity or
severance pay law of any country and shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit plan
or similar arrangement provided by the Company or a Subsidiary unless expressly
so provided by such other plan or arrangements, or except where the Committee
expressly determines that an Award or portion of an Award should be included to
accurately reflect competitive compensation practices or to recognize that an
Award has been made in lieu of a portion of competitive annual cash
compensation. Awards under this Plan may be made in combination with or in
tandem with, or as alternatives to, grants, awards or payments under any other
Company or Subsidiary plans. This Plan notwithstanding, the Company or any
Subsidiary may adopt such other compensation programs and additional
compensation arrangements as it deems necessary to attract, retain and reward
directors and employees for their service with the Company and its Subsidiaries.
(e) Securities Law Restrictions. No Common Shares shall be issued
under this Plan unless counsel for the Company shall be satisfied that such
issuance will be in compliance with applicable federal and state securities
laws. Certificates for Common Shares delivered under this Plan may be subject
to such stock-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Shares are then listed, and any applicable federal or state securities law. The
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(f) Award Agreement. Each Participant receiving an Award under
this Plan shall enter into an agreement with the Company in a form specified by
the Committee agreeing to the terms and conditions of the Award and such
related matters as the Committee shall, in its sole discretion, determine.
(g) Cost of Plan. The costs and expenses of administering this
Plan shall be borne by the Company.
(h) Governing Law. This Plan and all actions taken hereunder
shall be governed by and construed in accordance with the laws of the State of
Ohio, except to the extent that federal law shall be deemed applicable.
(i) Effective Date. This Plan shall be effective upon the later
of adoption by the Board and approval by the Company's shareholders.
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<PAGE> 1
AMERICAN SAVINGS BANK, fsb
MANAGEMENT RECOGNITION PLAN
AND TRUST AGREEMENT
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 American Savings Bank, fsb (the "Association"), hereby establishes
a Management Recognition Plan and Trust upon the terms and subject to the
conditions set forth in this Management Recognition Plan and Trust Agreement
(this "Agreement").
1.02 The Trustee (hereinafter defined) hereby accepts the Trust
(hereinafter defined) and agrees to hold the Trust assets existing on the date
of this Agreement (hereinafter defined) and all additions and accretions
thereto upon the terms and conditions of this Agreement.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan (hereinafter defined) is to reward and
retain the directors of the Association and employees of the Association and
the Subsidiaries (hereinafter defined) who are in key positions of
responsibility by providing such directors and employees with an equity
interest in the Corporation (hereinafter defined) as reasonable compensation
for their contributions to the Association and the Subsidiaries.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Agreement with an
initial capital letter shall have the meanings set forth below, unless the
context clearly indicates otherwise. Wherever appropriate, the masculine
pronoun shall include the feminine pronoun and the singular shall include the
plural:
3.01 "Agreement" means the American Savings Bank, fsb Management
Recognition Plan and Trust Agreement.
3.02 "Association" means American Savings Bank, fsb, a federal savings
bank.
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3.03 "Award" means a right granted to a Director or an Employee under this
Plan to receive Plan Shares.
3.04 "Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under this Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's estate.
3.05 "Board" means the Board of Directors of the Association.
3.06 "Change of Control" means the acquisition of the beneficial ownership
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the "1934
Act")) of twenty-five percent (25%) or more of the voting securities of the
Corporation by any person or by persons acting as a group within the meaning of
Section 13(d) of the 1934 Act.
3.07 "Committee" means the Management Recognition Plan Committee appointed
by the Board pursuant to Article IV hereof.
3.08 "Common Shares" means common shares of the Corporation.
3.09 "Conversion" means the conversion of the Association from mutual to
stock form.
3.10 "Corporation" means ASB Financial Corp., a savings and loan holding
company incorporated under the laws of the State of Ohio for the purpose of
acquiring all of the common shares of the Association to be issued by the
Association in connection with the Conversion.
3.11 "Director" means any person who is a member of the Board of Directors
of the Corporation, the Association or a Subsidiary.
3.12 "Employee" means any person who is employed by the Corporation, the
Association or a Subsidiary.
3.13 "Person" means an individual, corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.
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3.14 "Plan" means the Management Recognition Plan established by this
Agreement.
3.15 "Plan Shares" means the Common Shares held pursuant to the Trust and
which are awarded or issuable to a Recipient pursuant to the Plan.
3.16 "Plan Share Reserve" means the Common Shares held by the Trustee
pursuant to Sections 5.03 and 5.04 of this Agreement.
3.17 "Recipient" means any Director or Employee who receives an Award under
the Plan.
3.18 "Subsidiaries" means subsidiaries of the Association which, with the
consent of the Board, agree to participate in the Plan.
3.19 "Trust" means the trust established by this Agreement.
3.20 "Trustee(s)" means the person(s) or entity nominated by the Committee
and approved by the Board pursuant to Sections 4.01 and 4.02 to hold legal title
to the Plan assets for the purposes set forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 ROLE OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, which shall consist of not less than three (3)
members of the Board who are not employees of the Association. The Committee
shall have all of the powers set forth in this Plan. The interpretation and
construction by the Committee of any provisions of this Agreement or of any
Award granted hereunder shall be final, conclusive and binding, subject to the
role of the Board pursuant to Section 4.02 of this Agreement. The Committee
shall act by the vote of a majority of its members. Action approved in writing
by the unanimous consent of the members of the Committee then serving shall be
fully as effective as if the action had been taken by unanimous vote at a
meeting duly called and held. Subject to the express provisions and limitations
of this Agreement, the Committee may adopt such rules, regulations and
procedures as the Committee deems appropriate for the conduct of its affairs.
The Committee shall report actions and decisions with respect to the Plan to the
Board at appropriate times, but in no event less than one time per calendar
year. The Committee shall recommend to the Board
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<PAGE> 4
one or more persons or entities to act as Trustee(s) in accordance with the
provisions of the Plan and the Trust and the terms of Article VIII of this
Agreement.
4.02 ROLE OF THE BOARD. The members of the Committee and the Trustee(s)
shall be appointed or approved by and will serve at the pleasure of the Board.
The Board may in its discretion from time to time remove members from or add
members to the Committee and may remove, replace or add Trustee(s). The Board,
in its absolute discretion, may take any action under or with respect to the
Plan which the Committee is authorized to take and may reverse or override any
action taken or decision made by the Committee under or with respect to the Plan
or take any other action reserved to the Board under this Agreement; provided,
however, that the Board may not revoke any Award already granted under this
Agreement. All decisions, determinations and interpretations of the Board shall
be final, conclusive and binding upon all parties having an interest in the
Plan.
4.03 LIMITATION ON LIABILITY. No member of the Board or the Committee, nor
any Trustee, shall be liable for any determination made in good faith with
respect to the Plan or any Plan Shares or Awards granted under the Plan. If a
member of the Board or of the Committee or any Trustee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of anything done or not done by such member in such capacity under or
with respect to this Plan, the Association shall indemnify such member against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such member in connection with
such action, suit or proceeding if such member acted in good faith and in a
manner such member reasonably believed to be in or not opposed to the best
interests of the Association and the Subsidiaries and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such member's
conduct was unlawful.
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall determine the
amounts (or the method of computing the amounts) to be contributed by the
Association to the Trust. Such amounts shall be paid to the Trustee at the time
of contribution. No contributions to the Trust by Employees shall be permitted.
5.02 INITIAL INVESTMENT. Any funds held by the Trust before purchasing
Common Shares shall be invested by the Trustee in such interest-bearing account
or accounts at the Association as the Trustee shall determine to be appropriate.
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<PAGE> 5
5.03 INVESTMENT OF TRUST ASSETS IN COMMON SHARES. The Trustee shall invest
all of the Trust's assets, after providing for any required withholding as
needed for tax purposes, exclusively in Common Shares; provided, however, that
the Trust shall not purchase a number of Common Shares equal to more than three
percent (3%) of the number of Common Shares issued in connection with the
Conversion, except that if the Association's tangible capital exceeds 10%, the
Trust may purchase a number of Common Shares equal to up to four percent (4%) of
the Common Shares issued in connection with the Conversion. After such
investment, the Common Shares shall be held by the Trustee in the Plan Share
Reserve until such Common Shares are subject to one or more Awards.
5.04. EFFECT OF ALLOCATIONS, RETURNS AND FORFEITURES UPON PLAN SHARE
RESERVES. Upon the allocation of Awards under Section 6.02 of this Agreement, or
the decision of the Committee to return Plan Shares to the Corporation, the Plan
Share Reserve shall be reduced by the number of Plan Shares so allocated or
returned. Any Plan Shares subject to an Award which is subject to a forfeiture
by the Recipient pursuant to Section 7.01 of this Agreement shall be retained in
the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 ELIGIBILITY. Directors and Employees are eligible to receive Awards
within the sole discretion of the Committee, subject to review and approval or
rejection by the Board.
6.02 ALLOCATIONS. The Committee will determine which of the Directors and
Employees will be granted Awards and the number of Plan Shares covered by each
Award; provided, however, that the aggregate number of Plan Shares covered by
Awards to any one Director or Employee shall not exceed 25% of the total number
of Plan Shares, no more than 5% of the Plan Shares may be awarded to any
non-employee Director and no more than 30% of the Plan Shares may be awarded to
non-employee Directors in the aggregate. The number of Plan Shares covered by
such Awards may not exceed the number of Plan Shares in the Plan Share Reserve
immediately before the grant of such Awards. In no event shall any Awards be
made in a manner by which the Charter, Bylaws or Plan of Conversion of the
Association, the Articles of Incorporation, Code of Regulations or Bylaws of the
Corporation or any applicable federal or state law or regulation will be
violated. In the event Plan Shares are forfeited for any reason or additional
Plan Shares are purchased by the Trustee, the Committee may, from time to time,
determine which of the Employees will be granted additional Awards to be awarded
from forfeited or additional Plan Shares.
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<PAGE> 6
In selecting the Directors and Employees to whom Awards will be granted and
the number of shares covered by such Awards, the Committee shall consider the
position, duties and responsibilities of the eligible Directors and Employees,
the value of their services to the Association and the Subsidiaries and any
other factors the Committee may deem relevant. All allocations by the Committee
shall be subject to review and approval or rejection by the Board.
6.03 FORM OF ALLOCATION. As promptly as practicable after a determination
is made pursuant to Section 6.02 of this Agreement that an Award is to be made,
the Committee shall notify the Recipient in writing of the grant of the Award,
the number of Plan Shares covered by the Award and the terms upon which the Plan
Shares subject to the Award may be earned. The date on which the Committee
determines that an Award is to be made or a later date designated by the
Committee shall be considered the date of grant of the Awards. The Committee
shall maintain records as to all grants of Awards under the Plan.
6.04 ALLOCATIONS NOT REQUIRED. Notwithstanding anything to the contrary
in Sections 6.01 and 6.02 of this Agreement, all Awards shall be made by the
Committee and shall be subject to review and approval or rejection by the Board.
None of the Directors or Employees, either individually or as a group, shall
have any right or entitlement to receive an Award under the Plan. The Committee
may, with the approval of the Board, and shall, if so directed by the Board,
return all Common Shares in the Plan Share Reserve to the Corporation at any
time and thereafter cease issuing Awards.
6.05 SHAREHOLDER APPROVAL. Notwithstanding anything to the contrary in this
Agreement, no Awards may be granted hereunder until the shareholders of the
Corporation approve this Agreement.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(a) GENERAL RULES. Unless the Committee shall specifically
state to the contrary at the time an Award is granted and subject to Section
6.05 of this Agreement, one-fifth of the Plan Shares subject to each Award shall
be earned and non-forfeitable by a Recipient on the date which is one year after
the date of the grant of such Award; one-fifth of the Plan Shares subject to
each Award shall be earned and non-forfeitable by a Recipient on the date which
is two years after the date of the grant of such
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Award; one-fifth of the Plan Shares subject to each Award shall be earned and
non-forfeitable by a Recipient on the date which is three years after the date
of the grant of such Award; one-fifth of the Plan Shares subject to each Award
shall be earned and non-forfeitable by a Recipient on the date which is four
years after the date of grant of such Award; and one-fifth of the Plan Shares
subject to each Award shall be earned and non-forfeitable by a Recipient on the
date which is five years after the date of grant of such Award.
(b) REVOCATION. Notwithstanding anything herein to the contrary,
Plan Shares that have not been earned and are not non-forfeitable in accordance
with Section 7.01(a) of this Agreement shall be forfeited in the event that (i)
a Recipient who is a director of the Association ceases to serve on the Board of
Directors of the Association or (ii) a Recipient who is not a director of the
Association ceases to be an Employee of the Association, except as otherwise
provided in subsection (c) of this Section 7.01.
(c) EXCEPTION FOR TERMINATIONS DUE TO DEATH OR DISABILITY.
Notwithstanding Section 7.01(a) of this Agreement and subject to Section 6.05 of
this Agreement, all Plan Shares subject to an Award held by a Recipient whose
service as a Director or Employee of the Association or a Subsidiary terminates
due to (i) death or (ii) disability (as determined by the Committee) shall be
deemed fully earned and non-forfeitable as of the later of the Recipient's last
day of service as a Director or as an Employee and shall be distributed as soon
as practicable thereafter.
7.02 DISTRIBUTION OF PLAN SHARES.
(a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Except as
otherwise provided in this Agreement, Plan Shares shall be distributed to the
Recipient or his Beneficiary, as the case may be, as soon as practicable after
they have been earned. Notwithstanding the foregoing, no Plan Shares shall be
distributed before the date which is five years from the effective date of the
Conversion to the extent the Recipient or Beneficiary, as the case may be,
would, after the receipt of such Plan Shares, own in excess of ten percent (10%)
of the issued and outstanding Common Shares. Any Plan Shares remaining
undistributed solely by reason of the operation of this provision shall be
distributed to the Recipient or his Beneficiary on the date which is five years
from the effective date of the Conversion.
(b) FORM OF DISTRIBUTION. All distributions of Plan Shares,
together with any shares representing stock dividends, shall be distributed in
the form of Common Shares. No fractional shares shall be distributed. Payments
representing cash dividends (and earnings thereon) shall be made in cash.
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(c) WITHHOLDING. The Trustee may withhold from any cash payment
made under this Plan sufficient amounts to cover any applicable withholding and
employment taxes and, if the amount of such cash payment is not sufficient, the
Trustee may require the Recipient or Beneficiary to pay to the Trustee the
amount required to be withheld as a condition of delivering the Plan Shares. The
Trustee shall pay over to the Association or the Subsidiary which employs or
employed such Recipient or which the Recipient serves or served as a Director,
any such amount withheld from or paid by the Recipient or Beneficiary.
(d) REGULATORY EXCEPTIONS. Notwithstanding anything to the
contrary in this Agreement, no Plan Shares, upon becoming fully earned and
non-forfeitable, shall be distributed unless and until all of the requirements
of all applicable laws and regulations shall have been met.
7.03 VOTING OF PLAN SHARES. After an Award has been granted, the Recipient
shall be entitled to direct the Trustee as to the voting of the Plan Shares
which are covered by the Award and which have not yet been earned and
distributed to him pursuant to Section 7.02 of this Agreement, subject to rules
and procedures adopted by the Committee for this purpose and provided that no
Recipient shall be permitted, before the date which is five years from the
effective date of the Conversion, to direct the voting of Plan Shares which have
not yet been distributed to him to the extent the Recipient or Beneficiary, as
the case may be, would, if permitted to direct the voting of such Plan Shares,
be deemed to own in excess of ten percent (10%) of the issued and outstanding
Common Shares. All Common Shares held by the Trustee in the Plan Share Reserve
and as to which Recipients are not entitled to direct, or have not directed, the
voting, shall be voted by the Trustee as directed by the Committee.
ARTICLE VIII
TRUST
8.01 TRUST. The Trustee shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and the Trust and the applicable directions, rules, regulations,
procedures and policies established by the Committee pursuant to this Agreement.
8.02 MANAGEMENT OF TRUST. The Trustee shall have complete authority and
discretion with respect to the management, control and investment of the Trust,
and the Trustee shall invest all assets of the Trust, except those attributable
to cash dividends paid with respect to Plan Shares not held in the Plan Share
Reserve, in Common Shares to the fullest extent practicable, and except to the
extent that the Trustee determines that the holding of monies in cash or cash
equivalents is necessary to meet the
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obligations of the Trust. In performing his duties, the Trustee shall have the
power to do all things and execute such instruments as may be deemed necessary
or proper, including the following powers:
(a) To invest up to one hundred percent (100%) of all Trust
assets in Common Shares without regard to any law now or hereafter in
force limiting investments for Trustees or other fiduciaries. The
investment authorized herein may constitute the only investment of the
Trust, and, in making such investment, the Trustee is authorized to
purchase Common Shares from the Corporation or from any other source.
Such Common Shares so purchased may be outstanding, newly issued or
Treasury shares;
(b) To invest any Trust assets not otherwise invested in
accordance with Section 8.02(a) of this Agreement in such deposit
accounts and certificates of deposit (including those issued by the
Association), obligations of the United States government or its
agencies or such other investments as shall be considered the
equivalent of cash;
(c) To sell, exchange or otherwise dispose of any
property, other than Common Shares, at any time held or acquired by
the Trust;
(d) To cause stocks, bonds or other securities to be
registered in the name of a nominee, without the addition of words
indicating that such security is an asset of the Trust (but accurate
records shall be maintained showing that such security is an asset of
the Trust);
(e) To hold cash without interest in such amounts as
may be reasonable, in the opinion of the Trustee, for the proper
operation of the Plan and the Trust;
(f) To employ brokers, agents, custodians, consultants
and accountants;
(g) To hire counsel to render advice with respect to the
Trustee's rights, duties and obligations hereunder, and such other
legal services or representation as the Trustee may deem desirable; and
(h) To hold funds and securities representing the amounts to
be distributed to a Recipient or his Beneficiary as a consequence of a
dispute as to the disposition thereof, whether in a segregated account
or held in common with other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustee shall not
be required to make any inventory, appraisal or
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settlement or report to any court, or to secure any order of court for the
exercise of any power herein contained, or to give bond.
8.03 RECORDS AND ACCOUNTS. The Trustee shall maintain accurate and detailed
records and accounts of all transactions of the Trust, which shall be available
at all reasonable times for inspection by any legally entitled person or entity
to the extent required by applicable law, or any other person determined by the
Committee.
8.04 EARNINGS. All earnings, gains and losses with respect to Trust assets
shall be allocated in accordance with a reasonable procedure adopted by the
Committee to bookkeeping accounts for Recipients or to the general account of
the Trust, depending on the nature and allocation of the assets generating such
earnings, gains and losses. Without limiting the generality of the foregoing,
any earnings on cash dividends received with respect to Common Shares shall be
allocated to accounts for Recipients, if such shares are the subject of
outstanding Awards, or otherwise to the Plan Share Reserve.
8.05 EXPENSES. All costs and expenses incurred in the operation and
administration of the Plan shall be paid by the Association.
ARTICLE IX
MISCELLANEOUS
9.01 ADJUSTMENTS FOR CAPITAL CHANGES. The aggregate number of Plan
Shares available for issuance pursuant to the Awards and the number of Plan
Shares to which any Award relates shall be proportionately adjusted for any
increase or decrease in the total number of outstanding Common Shares issued
subsequent to the effective date of the Plan if such increase or decrease
resulted from any split, subdivision or consolidation of shares or other capital
adjustment, or other increase or decrease in such shares effected without
receipt or payment of consideration by the Corporation.
9.02 AMENDMENT AND TERMINATION OF PLAN. The Board may, by resolution, at
any time amend or terminate the Plan. The power to amend or terminate the Plan
shall include the power to direct the Trustee to return to the Corporation or
the Association all or any part of the assets of the Trust, including Common
Shares held in the Plan Share Reserve, as well as Common Shares and other assets
subject to Awards which are not yet earned by the Directors or Employees to whom
they are allocated; provided, however, that the termination of the Trust shall
not affect a Recipient's right to earn Awards and to the distribution of Common
Shares relating thereto, including earnings thereon, in
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accordance with the terms of this Agreement and the grant by the Committee or
the Board.
9.03 NONTRANSFERABLE. Awards and rights to Plan Shares shall not be
transferable by a Recipient. During the lifetime of the Recipient, Plan Shares
may only be earned by and paid to the Recipient who was notified in writing of
the Award by the Committee pursuant to Section 6.03 of this Agreement. No
Recipient or Beneficiary shall have any right in or claim to any assets of the
Plan or the Trust, nor shall the Corporation, the Association or any Subsidiary
be subject to any claim for benefits hereunder.
9.04 DIRECTORSHIP RIGHTS. Neither this Agreement nor any grant of an Award
of Plan Shares hereunder nor any action taken by the Trustee, the Committee or
the Board in connection with the Plan shall create any right, either express or
implied, on the part of any Director to continue to serve as a Director of the
Association or a Subsidiary.
9.05 EMPLOYMENT RIGHTS. Neither this Agreement nor any grant of an
Award of Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right,
either express or implied, on the part of any Employee to continue in the employ
of the Association or a Subsidiary.
9.06 VOTING AND DIVIDEND RIGHTS. No Recipient shall have any voting or
dividend rights or other rights of a shareholder in respect of any Plan Shares
covered by an Award, except as expressly provided in Sections 7.02 and 7.03 of
this Agreement, prior to the time such Plan Shares are actually distributed to
such Recipient.
9.07 GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of Ohio, except to the extent that federal law shall be
deemed applicable.
9.08 EFFECTIVE DATE. Subject to Section 6.05 of this Agreement, this
Agreement shall be effective as of the 15th day of November, 1995.
9.09 TERM OF PLAN. The Plan shall remain in effect until the earlier of (a)
the termination by the Board or (b) the distribution of all assets from the
Trust. The termination of the Plan shall not affect any Awards previously
granted and such Awards shall remain valid and in effect until they have been
earned and paid or by their terms expire or are forfeited.
9.10 TAX STATUS OF TRUST. It is intended that the trust established hereby
be treated as a grantor trust of the Association under the provisions of Section
671, ET SEQ., of the
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Internal Revenue Code of 1986, as amended (26 U.S.C. ss. 671 et seq.).
IN WITNESS WHEREOF, the following Trustees execute this Agreement,
accepting and binding themselves to undertake and perform the obligations and
duties of the Trustee hereunder and consenting to the foregoing Agreement
effective the 15th day of November, 1995.
By: Lee O. Fitch (Trustee)
---------------------------
By: ___________________________(Trustee)
IN WITNESS WHEREOF, the Association has caused this Agreement to be
executed by its duly authorized officer and duly attested, all as of the 15th
day of November, 1995.
AMERICAN SAVINGS BANK, fsb
By: Gerald R. Jenkins
-----------------------
Gerald R. Jenkins
its President
ATTEST:
Robert M. Smith
- --------------------------
Robert M. Smith
its Secretary
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EXHIBIT 13
ASB
FINANCIAL
CORP.
1996
ANNUAL
REPORT
TO
SHAREHOLDERS
<PAGE> 2
To Our Shareholders and Valued Customers:
It is with great pleasure that we present ASB Financial Corp.'s Second
Annual Report to Shareholders covering the fiscal year ended June 30, 1996.
We were very satisfied with our fiscal 1996 operating results. Net
earnings for the fiscal year totaled $1.1 million, or $.69 per share,
representing a $103,000, or 10.2%, increase over fiscal 1995 net earnings of
$1.0 million. We posted a respectable level of asset growth for the fourth
consecutive year. Total assets reached an unprecedented level of $112.9 million
at June 30, 1996, reflecting a growth rate of 5.7% for fiscal 1996. We believe
that our growth during the 1996 fiscal year is indicative of the consumer's
preference for personalized banking services provided by community-based
financial institutions. More importantly, this rate of growth in the past year
has been attained without sacrificing our asset quality, as nonperforming assets
declined during fiscal 1996 by $600,000, or 23.2%.
We are also pleased with the performance of ASB Financial's common
stock since our conversion in May 1995. ASB was honored by The Cleveland Plain
Dealer as one of the top 100 performing publicly traded companies in Ohio. On
June 25, 1996, Governor George Voinovich presented the "Best Initial Public
Offering" (IPO) award to ASB for showing "the biggest change in its stock price
of any IPO in the state". The market price for our common shares on September 6,
1996, was $14.50, representing a 45% increase over the $10.00 initial offering
price in the first sixteen months of trading. We believe that our fiscal 1996
earnings performance, as well as a 25% increase in dividend yield, contributed
to the increase in market price over the period.
Notwithstanding our accomplishments during the year, we continue to
operate at a competitive disadvantage to our commercial banking competitors as a
result of the significant disparity in the amount of federal deposit insurance
expense. Specifically, in fiscal 1996, our Savings Bank subsidiary paid
approximately $180,000 more in deposit premiums than a comparable commercial
bank. We are cautiously optimistic that this significant competitive
disadvantage will be eliminated during fiscal 1997, but there is no assurance
that favorable legislation will be enacted.
In conclusion, the financial services landscape continues to rapidly
evolve as the distinctions between banks, thrifts and securities firms blur.
However, please be assured that your Board and management are committed to
successfully adapting to such changes while meeting our primary goal of
maximizing the return on your investment. We thank you very much for your
continued support during the past year.
Very truly yours,
ASB FINANCIAL CORP.
Gerald R. Jenkins
President
<PAGE> 3
BUSINESS OF ASB FINANCIAL CORP.
===============================================================================
ASB Financial Corp. ("ASB"), a unitary savings and loan holding company
incorporated under the laws of the State of Ohio, owns all of the issued and
outstanding common stock of American Savings Bank, fsb ("American"), a savings
bank chartered under the laws of the United States. In May 1995, ASB acquired
all of the common stock issued by American upon its conversion from a mutual
savings association to a stock savings association (the "Conversion"). Other
than investing excess funds from the Conversion in investment and
mortgage-backed and related securities, ASB's activities have been limited
primarily to holding the common shares of American.
Serving the Portsmouth, Ohio, area since 1892, American conducts business from
its office at 503 Chillicothe Street in Portsmouth, Ohio. The principal business
of American is the origination of loans secured by one- to four-family
residential real estate located in American's primary market area, which
consists of the City of Portsmouth and contiguous areas of Scioto County, Ohio.
American also originates loans secured by multifamily residences (over four
units) and nonresidential real estate and purchases interests in loans
originated by other lenders secured by multifamily real estate and
nonresidential real estate outside of American's primary market area. In
addition to real estate lending, American invests in mortgage-backed securities,
U.S. Government and agency obligations and other investments permitted by
applicable law. Funds for lending and other investment activities are obtained
primarily from savings deposits, which are insured up to applicable limits by
the Federal Deposit Insurance Corporation (the "FDIC").
As a savings and loan holding company, ASB is subject to regulation, supervision
and examination by the Office of Thrift Supervision of the United States
Department of the Treasury (the "OTS"). As a savings bank chartered under the
laws of the United States, American is subject to regulation, supervision and
examination by the OTS and the FDIC. American is also a member of the Federal
Home Loan Bank (the "FHLB") of Cincinnati.
ASB's office is located at 503 Chillicothe Street, Portsmouth, Ohio 45662. The
telephone number is (614) 354-3177.
MARKET PRICE OF ASB'S
COMMON SHARES AND RELATED SHAREHOLDER MATTERS
===============================================================================
There were 1,713,960 common shares of ASB outstanding on September 6, 1996, held
of record by approximately 958 shareholders. Price information with respect to
ASB's common shares is quoted on the Nasdaq National Market ("Nasdaq") under the
symbol "ASBP."
-----
2
<PAGE> 4
The table below sets forth the high and low bid prices for the common shares of
ASB, together with the respective dividends declared per share, for each quarter
of fiscal 1996 and the quarter ended June 30, 1995. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
<TABLE>
<CAPTION>
Cash dividends
High Bid Low Bid declared
-------- ------- --------
<S> <C> <C> <C>
FISCAL 1995
Quarter Ended:
June 30, 1995 $14.00 $11.25 $.075
FISCAL 1996
Quarter Ended:
September 30, 1995 14.00 11.50 .075
December 31, 1995 16.75 13.50 .075
March 31, 1996 16.50 15.25 .075
June 30, 1996 16.00 14.00 .100
</TABLE>
The income of ASB consists of interest on investment and mortgage-backed and
related securities and dividends which may periodically be declared and paid by
the Board of Directors of American on the common shares of American held by ASB.
In addition to certain federal income tax considerations, OTS regulations impose
limitations on the payment of dividends and other capital distributions by
savings associations.
Under OTS regulations applicable to converted savings associations, American is
not permitted to pay a cash dividend on its common shares if American's
regulatory capital would, as a result of the payment of such dividend, be
reduced below the amount required for the liquidation account established in
connection with the Conversion or applicable regulatory capital requirements
prescribed by the OTS.
OTS regulations applicable to all savings associations provide that a savings
association which immediately prior to, and on a pro forma basis after giving
effect to, a proposed capital distribution (including a dividend) has total
capital (as defined by OTS regulations) that is equal to or greater than the
amount of its capital requirements is generally permitted without OTS approval
(but subsequent to 30 days' prior notice to the OTS) to make capital
distributions, including dividends, during a calendar year in an amount not to
exceed the greater of (1) 100% of its net earnings to date during the calendar
year, plus an amount equal to one-half the amount by which its total capital to
assets ratio exceeded its required capital to assets ratio at the beginning of
the calendar year, or (2) 75% of its net earnings for the most recent
four-quarter period. Savings associations with total capital in excess of the
capital requirements that have been notified by the OTS that they are in need of
more than normal supervision will be subject to restrictions on dividends. A
savings association that fails to meet current minimum capital requirements is
prohibited from making any capital distributions without the prior approval of
the OTS.
American currently meets all of its regulatory capital requirements and, unless
the OTS determines that American is an institution requiring more than normal
supervision, American may pay dividends in accordance with the foregoing
provisions of the OTS regulations.
-----
3
<PAGE> 5
SELECTED CONSOLIDATED
FINANCIAL INFORMATION AND OTHER DATA
===============================================================================
The following tables set forth certain information concerning the consolidated
financial condition, earnings and other data regarding ASB at the dates and for
the periods indicated. Information prior to the year ended June 30, 1995, the
year in which the Conversion was completed, is for American only.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL At June 30,
CONDITION DATA: 1996 1995 1994 1993 1992
-------- -------- -------- -------- ------
(In thousands)
Total amount of:
<S> <C> <C> <C> <C> <C>
Assets $112,922 $106,861 $ 93,931 $ 91,336 $ 84,951
Cash and cash equivalents (1) 3,836 5,926 5,969 7,198 5,602
Certificates of deposit in other
financial institutions 6,702 9,301 8,324 7,170 4,581
Investment securities available for
sale - at market 19,284 1,768 -- -- --
Investment securities - at amortized -- 14,107 8,978 6,373 4,847
cost
Mortgage-backed securities available
for sale - at market 10,728 2,300 -- -- --
Mortgage-backed securities - at
amortized cost -- 7,835 8,224 7,218 7,961
Loans receivable - net 68,455 62,153 59,304 60,544 59,701
Real estate acquired through
foreclosure - net 663 525 -- 561 281
Deposits 83,395 78,888 82,514 81,404 76,705
Advances from the FHLB 2,413 442 469 496 --
Shareholders' equity, restricted (2) (3) 25,613 26,058 9,740 8,950 7,758
- -----------------------------
</TABLE>
(1) Consists of cash and due from banks and interest-bearing deposits in
other financial institutions.
(2) Consists solely of retained earnings at June 30, 1992 through 1994,
inclusive.
(3) At June 30, 1996 and 1995, includes $124,000 and $272,000,
respectively, of unrealized gains on securities designated as available
for sale, net of related tax effects, pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 115. No such unrealized
gains or losses were reflected as a component of shareholders' equity
as of any of the other dates presented.
-----
4
<PAGE> 6
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED OPERATING Year ended June 30
DATA: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $8,173 $7,012 $6,637 $7,058 $7,352
Interest expense 4,310 3,893 3,307 3,712 4,662
------ ------ ------ ------ ------
Net interest income 3,863 3,119 3,330 3,346 2,690
Provision for losses on loans -- 10 749 272 130
------ ------ ------ ------ ------
Net interest income after provision
for losses on loans 3,863 3,109 2,581 3,074 2,560
Other income 195 143 451 134 169
General, administrative and other
expense 2,373 1,726 2,044 1,407 1,340
------ ------ ------ ------ ------
Earnings before income taxes 1,685 1,526 988 1,801 1,389
Federal income taxes 574 518 199 609 461
------ ------ ------ ------ ------
Net earnings $1,111 $1,008 $ 789 $1,192 $ 928
====== ====== ====== ====== ======
Earnings per share $ .69 N/A N/A N/A N/A
======
</TABLE>
<TABLE>
<CAPTION>
At or for the year ended June 30,
---------------------------------
SELECTED FINANCIAL RATIOS: 1996 1995 1994 1993 1992
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Return on average assets 1.01% 1.00% .85% 1.35% 1.12%
Average interest rate spread during
period 2.55 2.83 3.38 3.51 2.83
Net interest margin 3.69 3.29 3.72 3.89 3.31
Return on average equity 4.30 9.38 8.44 14.27 12.72
Equity to total assets at end of period 22.68 24.38 10.37 9.80 9.13
Average interest-earning assets to
average interest-bearing liabilities 127.55 111.19 109.29 108.70 108.40
Net interest income to general,
administrative and other expense 162.79 180.71 162.92 237.81 200.74
General, administrative and other
expense to average total assets 2.16 1.72 2.21 1.60 1.62
Nonperforming assets to total
assets 1.61 2.30 3.10 2.56 2.57
Loan loss allowance to nonperforming
loans 76.34 46.29 38.28 25.75 16.86
</TABLE>
-----
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
===============================================================================
GENERAL
- -------------------------------------------------------------------------------
The following discussion and analysis of the consolidated financial conditions
and results of operations of ASB and American should be read in conjunction with
and with reference to the consolidated financial statements, and the notes
thereto, presented in this Annual Report.
ASB was incorporated for the purpose of owning all of the outstanding common
shares of American following the Conversion. As a result, the discussion and
analysis that follows focuses primarily on the financial condition and results
of operations of American.
American is primarily engaged in the business of attracting savings deposits
from the general public and investing such funds in mortgage loans secured by
one- to four-family residential real estate located primarily in Scioto County,
Ohio. Loans secured by multifamily real estate (over four units) or
nonresidential real estate and consumer loans, including passbook and home
improvement loans, are also originated by American. In addition, American
purchases interests in multifamily real estate and nonresidential real estate
loans originated by other lenders outside of American's primary market area.
American also invests in U.S. Government agency obligations, interest-bearing
deposits in other financial institutions, mortgage-backed securities and other
investments permitted by applicable law.
American's profitability is primarily dependent upon its net interest income,
which is the difference between interest income on its loan and investment
portfolios and interest paid on deposits and borrowed funds. Net interest income
is directly affected by the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on such
amounts. American's profitability is also affected by the provision for losses
on loans and the level of other income and general and administrative expenses.
Other income consists primarily of service charges and gains on the sale of
assets. General, administrative and other expense include salaries and employee
benefits, occupancy of premises, federal deposit insurance premiums, state
franchise taxes and other operating expenses.
The operating results of American are also affected by general economic
conditions, the monetary and fiscal policies of federal agencies and the
regulatory policies of agencies that regulate financial institutions. American's
cost of funds is influenced by interest rates on competing investments and
general market rates of interest. Lending activities are influenced by the
demand for real estate loans and other types of loans, which is in turn affected
by the interest rates at which such loans are made, general economic conditions
affecting loan demand and the availability of funds for lending activities.
-----
6
<PAGE> 8
CHANGES IN FINANCIAL CONDITION
- -------------------------------------------------------------------------------
ASB's total assets amounted to $112.9 million at June 30, 1996, an increase of
$6.1 million, or 5.7%, from 1995 levels. The increase in total assets was funded
primarily by growth in deposits of $4.5 million, an increase in advances from
the FHLB of $2.0 million, and by undistributed net earnings of $554,000.
Cash, interest-bearing deposits and certificates of deposit totaled $10.5
million at June 30, 1996, a decline of $4.7 million, or 30.8%, from 1995 levels.
This decrease resulted from management's decision to redeploy excess liquidity
into higher yielding investment securities and into loan originations.
Investment securities totaled $19.3 million at June 30, 1996, an increase of
$3.4 million, or 21.5%, over the balance at June 30, 1995. During fiscal 1996,
management purchased $12.2 million of investment securities, primarily
intermediate- and long-term U.S. Government agency securities. Such purchases
were partially offset by maturities totaling $9.1 million. Mortgage-backed
securities increased by $593,000, or 5.9%, as purchases during fiscal 1996 of
$3.5 million exceeded principal repayments of $2.8 million.
Loans receivable increased by $6.3 million, or 10.1%, to a total of $68.5
million at June 30, 1996, compared to $62.2 million at June 30, 1995. Loan
disbursements of $23.9 million and purchases of $1.7 million exceeded principal
repayments of $18.7 million during fiscal 1996. Loan disbursements during fiscal
1996 exceeded those of fiscal 1995 by $8.6 million, or 50.4%. Growth in loans
secured by residential real estate totaled $3.6 million, or 6.6%, and growth in
the consumer loan portfolio amounted to $3.8 million, or 75.9%, year to year.
At June 30, 1996, American's allowance for loan losses totaled $884,000,
representing 1.2% of total loans and 76.3% of nonperforming loans. At June 30,
1995, the allowance for loan losses totaled $893,000, or 1.4% of total loans and
46.3% of nonperforming loans. Nonperforming loans amounted to $1.2 million and
$1.9 million at June 30, 1996 and 1995, respectively, and represented 1.0% and
1.8% of total assets at those dates. Although management believes that its
allowance for loan losses at June 30, 1996, was adequate based on facts and
circumstances available to it, there can be no assurances that additions to such
allowance will not be necessary in future periods, which could adversely affect
ASB's results of operations.
Savings deposits increased by $4.5 million, or 5.7%, during fiscal 1996 to a
total of $83.4 million at June 30, 1996. The increase resulted primarily from
management's continuing efforts to maintain a moderate rate of growth through
marketing and pricing strategies.
COMPARISON OF OPERATING RESULTS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
- -------------------------------------------------------------------------------
GENERAL. Net earnings amounted to $1.1 million for the fiscal year ended June
30, 1996, an increase of $103,000, or 10.2%, over the $1.0 million in net
earnings recorded in fiscal 1995. The increase in net earnings resulted
primarily from an increase in net interest income of $744,000, an increase in
other income of $52,000 and a decline in the provision for losses on loans of
$10,000, which were partially offset by an increase in general, administrative
and other expense of $647,000 and an increase in the provision for federal
income taxes of $56,000.
-----
7
<PAGE> 9
NET INTEREST INCOME. Total interest income amounted to $8.2 million for the
fiscal year ended June 30, 1996, an increase of $1.2 million, or 16.6%, over
fiscal 1995. Interest income on loans totaled $5.5 million in fiscal 1996, an
increase of $633,000, or 13.0%. This increase was due primarily to an increase
in the weighted-average balance outstanding of $5.8 million and an increase in
yield of 25 basis points to 8.31% in 1996. Interest income on mortgage-backed
securities increased by $218,000, or 41.0%, as a result of a $2.6 million
increase in the weighted-average balance outstanding coupled with a 39 basis
point increase in yield to 7.11% in fiscal 1996. Interest income on investment
securities and interest-bearing deposits increased by $310,000, or 19.2%, due
primarily to an 82 basis point increase in yield to 6.90% in fiscal 1996 coupled
with a $1.3 million increase in the weighted-average balance outstanding year to
year.
Interest expense totaled $4.3 million for the fiscal year ended June 30, 1996,
an increase of $417,000, or 10.7%, over the $3.9 million total recorded in
fiscal 1995. Interest expense on deposits increased by $397,000, or 10.3%, due
primarily to a 70 basis point increase in the cost of funds to 5.26% in fiscal
1996, which was partially offset by a $3.7 million, or 4.4%, decline in the
weighted-average balance outstanding year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $744,000, or 23.9%, to a total of $3.9 million
for the fiscal year ended June 30, 1996, as compared to $3.1 million in fiscal
1995. The interest rate spread declined by 28 basis points to 2.55% in fiscal
1996 from 2.83% in fiscal 1995, while the net interest margin increased to 3.69%
in 1996 from 3.29% in 1995.
PROVISION FOR LOSSES ON LOANS. A provision for losses on loans is charged to
earnings to bring the total allowance for loan losses to a level considered
appropriate by management based on historical experience, the volume and type of
lending conducted by American, the status of past due principal and interest
payments, general economic conditions, particularly as such conditions relate to
American's market area, and other factors related to the collectibility of
American's loan portfolio. As a result of such analysis, as well as the
aforementioned decline in nonperforming loans, management concluded that the
allowance for loan losses was adequate and, as a result, no provision for losses
on loans was established during fiscal 1996. There can be no assurance that the
loan loss allowance will be adequate to absorb losses on known nonperforming
assets or that the allowance will be adequate to cover losses on nonperforming
assets in the future.
OTHER INCOME. Other income totaled $195,000 for the fiscal year ended June 30,
1996, an increase of $52,000, or 36.4%, over the $143,000 recorded in fiscal
1995. The increase resulted primarily from a $25,000 increase in rental income
received on a parcel of real estate acquired through foreclosure and from
$13,000 received from the sale of non-deposit investment products under an
agency arrangement with Money Concepts, Inc.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and other
expense totaled $2.4 million for the fiscal year ended June 30, 1996, an
increase of $647,000, or 37.5%, over the $1.7 million recorded in fiscal 1995.
The increase resulted primarily from a $374,000, or 43.7%, increase in employee
compensation and benefits, a $75,000, or 56.0%, increase in franchise taxes and
a $172,000, or 60.1%, increase in other operating expense. The increase in
employee compensation and benefits was due primarily to increased costs related
to employee stock benefit plans and normal merit increases. The increase in
franchise taxes resulted from ASB's increase in equity capital due to the common
stock offering. The increase in other operating expense was due to increased
costs related to the reporting requirements of a public company, an increase in
expenses for real estate acquired through foreclosure and pro-rata increases in
operating costs attendant to ASB's growth year to year.
-----
8
<PAGE> 10
Congress is considering legislation to recapitalize the Savings Association
Insurance Fund (the "SAIF") and eliminate the significant premium disparity
between the SAIF and the Bank Insurance Fund (the "BIF"). Currently, that
recapitalization plan provides for a special assessment ranging from
approximately $.69 to $.85 per $100 of SAIF deposits held at March 31, 1995, in
order to increase SAIF reserves to the level required by law. American had $83.9
million deposits at March 31, 1995. If the special assessment level is finalized
at $.85 per $100 in deposits, American will pay an assessment of $713,000. This
assessment should be tax deductible, but it will reduce earnings and capital for
the quarter in which it is recorded.
No assurances can be given that the SAIF recapitalization plan will be enacted
into law or in what form it may be enacted. In addition, American can give no
assurances that the disparity between BIF and SAIF assessments will be
eliminated.
FEDERAL INCOME TAXES. The provision for federal income taxes totaled $574,000
for the fiscal year ended June 30, 1996, an increase of $56,000, or 10.8%, over
the $518,000 recorded in fiscal 1995. The increase was due primarily to a
$159,000, or 10.4%, increase in pretax earnings year to year. ASB's effective
tax rates were 34.1% and 33.9% for the fiscal years ended June 30, 1996 and
1995, respectively.
COMPARISON OF OPERATING RESULTS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
- -------------------------------------------------------------------------------
GENERAL. Net earnings amounted to $1.0 million for the fiscal year ended June
30, 1995, an increase of $219,000, or 27.8%, over the $789,000 in net earnings
for the fiscal year ended June 30, 1994. The increase in net earnings resulted
primarily from a $739,000 decline in the provision for losses on loans and a
$318,000 decline in general, administrative and other expense, which were
partially offset by a $211,000 decline in net interest income, a $308,000
decline in other income and a $319,000 increase in the provision for federal
income taxes.
NET INTEREST INCOME. Interest income on loans and mortgage-backed securities
decreased by $146,000, or 2.6%, to a total of $5.4 million for the fiscal year
ended June 30, 1995, compared to 1994. The decrease resulted primarily from a
decline in yield from 8.11% in 1994, to 7.90% in 1995. Interest income on
investment securities and interest-bearing deposits increased by $521,000, or
47.6%, for the fiscal year ended June 30, 1995, compared to 1994. This increase
generally reflects the return on the $15.2 million in net proceeds from ASB's
offering of common shares which was completed in May 1995.
Interest expense on deposits and borrowings increased by $586,000, or 17.7%, for
the fiscal year ended June 30, 1995, compared to fiscal 1994. This increase
resulted primarily from an increase in the average cost of funds year to year
from 4.04% in 1994 to 4.56% in 1995, generally reflecting the increase in
interest rates in the economy over the year.
As a result of the foregoing changes in interest income and interest expense,
net interest income declined during fiscal 1995 by $211,000, or 6.3%, to a total
of $3.1 million, compared to $3.3 million for fiscal 1994.
PROVISION FOR LOSSES ON LOANS. The provision for losses on loans amounted to
$10,000 for the fiscal year ended June 30, 1995, compared to $749,000 for fiscal
1994, a decline of $739,000. ASB provides for additions to the loan loss
allowance based upon management's overall assessment of current and anticipated
economic conditions applied to the loan portfolio. The decline in the fiscal
1995 provision generally reflects the reduction in nonperforming loans year
-----
9
<PAGE> 11
to year. Nonperforming loans declined during fiscal 1995 to $1.9 million,
compared to $2.9 million at June 30, 1994.
OTHER INCOME. Other income amounted to $143,000 for the fiscal year ended June
30, 1995, compared to $451,000 for fiscal 1994, a decrease of $308,000, or
68.3%. The decline resulted primarily from the recognition during 1994 of a gain
on sale of real estate acquired through foreclosure of $95,000 and net proceeds
from insurance on the life of an officer of $211,000. Other operating income
declined by $2,000, or 1.4%, year to year.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and other
expense totaled $1.7 million for the fiscal year ended June 30, 1995, compared
to $2.0 million for fiscal 1994, a decrease of $318,000, or 15.6%. The decrease
was primarily attributable to a $310,000, or 26.6%, decline in employee
compensation and benefits and a $27,000, or 8.6%, decline in other operating
expense, which were partially offset by a $26,000, or 24.1%, increase in
franchise taxes. The decrease in employee compensation and benefits resulted
primarily from the recognition during fiscal 1994 of a charge of $330,000 for
enhanced benefits under American's salary continuation agreements with certain
key members of management. The decline in other operating expense resulted
primarily from a decrease in professional and consulting fees year to year,
while the increase in franchise taxes resulted from ASB's growth in equity over
the period.
FEDERAL INCOME TAXES. The provision for federal income taxes totaled $518,000
for the fiscal year ended June 30, 1995, compared to $199,000 for fiscal 1994,
an increase of $319,000, or 160.3%. The increase resulted primarily from a
$538,000, or 54.5%, increase in net earnings before taxes, coupled with the
absence in 1995 of nontaxable life insurance proceeds recognized in 1994
earnings. The effective tax rates were 33.9% and 20.1% for fiscal 1995 and 1994,
respectively.
-----
10
<PAGE> 12
AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA
- -------------------------------------------------------------------------------
The following table sets forth certain information relating to ASB's average
balance sheet information and reflects the average yield on interest-earning
assets and the average cost of interest-bearing liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average monthly balance of interest-earning assets or interest-bearing
liabilities, respectively, for the periods presented. Average balances are
derived from average monthly balances, which include nonaccruing loans in the
loan portfolio, net of the allowance for loan losses.
<TABLE>
<CAPTION>
Year ended June 30,
1996 1995 1994
----------------------------- ---------------------------- -----------------------------
Average Interest Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate balance paid rate
------- ---- ---- ------- ---- ---- ----------- ---- ----
(Dollars in thousands)
Interest-earning
assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable $ 66,152 $5,498 8.31% $60,395 $4,865 8.06% $60,884 $4,989 8.19%
Mortgage-backed
securities 10,555 750 7.11 7,913 532 6.72 7,469 554 7.42
Investment
securities and
other interest-
earning assets 27,886 1,925 6.90 26,553 1,615 6.08 21,106 1,094 5.18
---------- ------- -------- -------- ------- ------ -------- ------- ------
Total interest-
earning
assets 104,593 8,173 7.81 94,861 7,012 7.39 89,459 6,637 7.42
Non-interest-earning
asset 5,332 5,027 3,618
------- ------- ------
Total assets $109,925 $99,888 $93,077
======== ======== =======
Interest-bearing
liabilities:
Deposits $ 81,114 4,267 5.26 $84,858 3,870 4.56 $81,373 3,287 4.04
Borrowings 889 43 4.84 457 23 5.03 482 20 4.15
--------- ------- ----- ------- ------ ----- ------- ------ -----
Total
interest-bearing
liabilities 82,003 4,310 5.26 85,315 3,893 4.56 81,855 3,307 4.04
------- -------- ----- ------ ----- ----- ------ ----- ----
Non-interest-bearing
liabilities 2,086 3,826 1,878
------- ------ ------
Total liabilities 84,089 89,141 83,733
Shareholders'
equity (1) 25,836 10,747 9,344
------- ------- ------
Total liabilities
and
shareholders'
equity $109,925 $99,888 $93,077
======== ======= =======
Net interest
income $3,863 $3,119 $3,330
====== ====== ======
Interest rate
spread 2.55% 2.83% 3.38%
==== ===== =====
Net interest
margin (net
interest income
as a percent of
average
interest-earning
assets) 3.69% 3.29% 3.72%
==== ===== =====
Average
interest-earning
assets to
interest-bearing
liabilities 127.55% 111.19% 109.29%
====== ====== ======
-----------------------------------
<FN>
(1) Consists solely of retained earnings for the year ended June 30, 1994.
</TABLE>
-----
11
<PAGE> 13
- -------------------------------------------------------------------------------
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected ASB's interest income and expense during the years indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume multiplied by prior year rate), (ii) changes in rate (change in rate
multiplied by prior year volume) and (iii) total changes in rate and volume. The
combined effects of changes in both volume and rate, which cannot be separately
identified, have been allocated proportionately to the change due to volume and
the change due to rate:
<TABLE>
<CAPTION>
Year ended June 30,
1996 vs. 1995 1995 vs. 1994
------------------------- --------------------------
Increase Increase
(decrease) (decrease)
due to due to
--------------- --------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable $ 478 $ 155 $ 633 $ (40) $ (84) $ (124)
Mortgage-backed securities 186 32 218 32 (54) (22)
Investment securities and interest-
earning assets 84 226 310 211 310 521
------ ------ ------ ------ ------ ------
Total interest-earning assets 748 413 1,161 203 172 375
------ ------ ------ ------ ------ ------
Interest-bearing liabilities:
Deposits (177) 574 397 145 438 583
Borrowings 21 (1) 20 (1) 4 3
------ ------ ------ ------ ------ ------
Total interest-bearing (156) 573 417 144 442 586
liabilities ------ ------ ------ ------ ------ ------
Increase (decrease) in net interest
income $ 904 $ (160) $ 744 $ 59 $ (270) $ (211)
====== ====== ====== ====== ====== ======
</TABLE>
ASSET AND LIABILITY MANAGEMENT
- -------------------------------------------------------------------------------
American's interest rate spread is the principal determinant of American's
income. The interest rate spread, and therefore net interest income, can vary
considerably over time because asset and liability repricing do not coincide.
Moreover, the long-term and cumulative effect of interest rate changes can be
substantial. Interest rate risk is defined as the sensitivity of an
institution's earnings and net asset values to changes in interest rates. The
management and Board of Directors attempt to manage American's exposure to
interest rate risk in a manner to maintain the projected four-quarter percentage
change in net interest income and the projected change in the market value of
portfolio equity within limits established by the Board of Directors, assuming a
permanent and instantaneous parallel shift in interest rates.
American, like other financial institutions, is subject to interest rate risk to
the extent that its interest-earning assets reprice differently than its
interest-bearing liabilities. As a part of its effort to monitor its interest
rate risk, American reviews the reports of the OTS which set forth the
application of the "net portfolio value" ("NPV") methodology adopted by the OTS
as part of its final rules related to revisions in the risk-based capital
regulations. Although American is not currently subject to the NPV regulation,
the application of the NPV methodology may illustrate American's interest rate
risk.
-----
12
<PAGE> 14
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing liabilities. The application of the methodology attempts to
quantify interest rate risk as the change in the NPV which would result from a
theoretical 200 basis point (1 basis point equals .01%) change in market
interest rates. Both a 200 basis point increase in market interest rates and a
200 basis point decrease in market interest rates are considered. If the NPV
would decrease in an amount greater than 2% of the present value of the
institution's assets with either an increase or a decrease in market rates, the
institution must deduct 50% of the amount of the decrease in excess of such 2%
in the calculation of the institution's risk-based capital.
At March 31, 1996, (the latest date as of which data was available) 2% of the
present value of American's assets was approximately $2.0 million. Because the
interest rate risk of a 200 basis point increase in market interest rates (which
was greater than the interest rate risk of a 200 basis point decrease) was $3.4
million at June 30, 1996, American would have been required to deduct $1.7
million (50% of the $3.4 million difference) from its capital in determining
whether American met its risk-based capital requirement. Regardless of such
reduction, however, American's risk-based capital at June 30, 1996, would still
have exceeded the regulatory requirement by approximately $12.9 million.
The following table presents, at March 31, 1996 (the latest date as of which
data was available) and at June 30, 1995, an analysis of the interest rate risk
of American, as measured by changes in NPV for instantaneous and sustained
parallel shifts of 100 basis point movements in market interest rates. The table
also contains the policy limits set by the Board of Directors of American as the
maximum change in NPV that the Board of Directors deems advisable in the event
of various changes in interest rates. Such limits have been established with
consideration of the dollar impact of various rate changes and the strong
capital position of American.
<TABLE>
<CAPTION>
At March 31, 1996 At June 30, 1995
------------------------ ----------------------
Changes in interest rate Board limit $ change % change $ change % change
(basis points) % changes in NPV in NPV in NPV in NPV
-------------- --------- ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
+300 (40)% $(5,152) (26)% $(3,656) (33)%
+200 (30) (3,395) (17) (2,376) (22)
+100 (20) (1,634) (8) (1,132) (10)
0 0 0 0 0 0
-100 20 1,309 7 978 8
-200 30 2,189 11 1,673 15
-300 40 2,887 15 2,475 23
</TABLE>
In the event that interest rates continue to rise from recent levels, American's
net interest income could be expected to be negatively affected. Moreover,
rising interest rates could negatively affect American's earnings due to
diminished loan demand.
-----
13
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------------------------------------------------------
Liquidity refers to the ability of an institution to generate sufficient cash to
fund current loan demand, meet deposit withdrawals and pay operating expenses.
Liquidity is influenced by financial market conditions, fluctuations in interest
rates, general economic conditions and regulatory requirements. ASB's liquidity,
primarily represented by cash equivalents, interest-bearing deposits in other
financial institutions and investment securities, is a result of the operating,
investing and financing activities of American. These activities on a
consolidated basis, are summarized below for the years ended June 30, 1996,
1995, and 1994:
Year ended June 30,
-------------------
1996 1995 1994
-------- -------- --------
(In thousands)
Net cash from operating
activities $ 1,286 $ 1,413 $ 1,458
Net cash used in investing
activities (8,124) (12,860) (3,724)
Net cash provided by
financing activities 4,748 11,404 1,037
-------- -------- --------
Net change in cash and cash
equivalents (2,090) (43) (1,229)
Cash and cash equivalents at the
beginning of the period 5,926 5,969 7,198
-------- -------- --------
Cash and cash equivalents at the
end of the period $ 3,836 $ 5,926 $ 5,969
======== ======== ========
American generally strives to maintain liquidity (defined as cash,
interest-bearing deposits and investment securities with terms of less than five
years) in a range of 10 to 25% of total assets. OTS regulations require that
savings associations maintain an average daily balance of liquid assets (cash,
certain time deposits and specified United States Government, state or federal
agency obligations) equal to a monthly average of not less than 5% of its net
withdrawable savings deposits plus borrowings payable in one year or less.
Federal regulations also require each association to maintain an average daily
balance of short-term liquid assets at a specified percentage, currently 1%, of
the total of its net withdrawable savings accounts and borrowings payable in one
year or less. Monetary penalties may be imposed upon associations failing to
meet liquidity requirements. The eligible liquidity of American, as computed
under current regulations, at June 30, 1996, was approximately $13.4 million, or
18.3%, and exceeded the then applicable 5.0% liquidity requirement by
approximately $9.8 million, or 13.3%.
At June 30, 1996, American had outstanding commitments of approximately $138,000
to originate loans. Additionally, American was obligated under unused lines of
credit totaling $1.3 million. In the opinion of management, all loan commitments
had interest rates which equaled or exceeded market interest rates as of June
30, 1996, and will be funded from existing excess liquidity and normal cash flow
from operations.
American is required by OTS regulations to maintain specified minimum amounts of
capital. At June 30, 1996, American exceeded all applicable minimum capital
requirements. The following table sets forth the amount and percentage level of
regulatory capital of American at June 30, 1996, and the amount by which it
exceeded minimum requirements. Tangible and core capital
-----
14
<PAGE> 16
are reflected as a percentage of adjusted total assets. Risk-based (or total)
capital, which consists of core and supplementary capital, is reflected as a
percentage of risk-weighted assets.
<TABLE>
<CAPTION>
At June 30, 1996
------------------------------------
Amount Percent of Assets
------ -----------------
(Dollars in thousands)
<S> <C> <C>
Tangible capital $17,402 16.3%
Requirement 1,604 1.5
------- ----
Excess $15,798 14.8%
======= ====
Core capital $17,402 16.3%
Requirement 3,209 3.0
------- ----
Excess $14,193 13.3%
======= ====
Risk-based capital $18,000 37.6%
Requirement 3,833 8.0
------- ----
Excess $14,617 29.6%
======= ====
</TABLE>
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
- -------------------------------------------------------------------------------
In December 1991, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." SFAS No.
107 requires ASB to disclose the fair value of its financial instruments, which
includes the majority of ASB's balance sheet accounts in addition to selected
off-balance sheet items. SFAS No. 107 became effective for ASB in fiscal 1996
because ASB has less than $150 million in total assets. Earlier adoption was
required for entities with assets in excess of $150 million. SFAS No. 107
focuses only on disclosure of fair values in the financial statements and,
therefore, has no effect on consolidated financial position or results of
operations.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 specifies that allowances for loan losses on
impaired loans should be determined using the present value of estimated future
cash flows of the loan, discounted at the loan's effective interest rate. A loan
is impaired when it is probable that all principal and interest amounts will not
be collected according to the loan contract. SFAS No. 114 is effective for
fiscal years beginning after December 15, 1994, which, for ASB, is the 1996
fiscal year. Management adopted SFAS No. 114 on July 1, 1995, without material
impact on consolidated financial position or results of operations. In October
1994, the FASB amended certain of the revenue recognition provisions of SFAS No.
114 by the issuance of SFAS No. 118. Such revisions similarly had no material
effect on the consolidated financial condition or results of operations of ASB.
In October 1994, the FASB issued SFAS No. 119, "Disclosure About Derivative
Financial Instruments and Fair Value of Financial Instruments." SFAS No. 119
requires financial statement disclosure of certain derivative financial
instruments, defined as futures, forwards, swaps, option contracts, or other
financial instruments with similar characteristics. In the opinion of
management, the disclosure requirements of SFAS No. 119 will have no material
effect on ASB's consolidated financial condition or results of operations, as
ASB does not invest in derivative financial instruments, as defined. As a
result, the applicability of SFAS No. 119
-----
15
<PAGE> 17
relates solely to disclosure requirements pertaining to fixed-rate and
adjustable-rate loan commitments.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued Statement of Position ("SOP 93-6") on
Employers' Accounting for Employee Stock Ownership Plans (an "ESOP"). SOP 93-6,
among other things, changes the measure of compensation expense recorded by
employers from the cost of ESOP shares to the fair value of ESOP shares. To the
extent that fair value of ASB's ESOP shares differs from the cost of such
shares, compensation expense must be recorded in ASB's financial statements for
the fair value of ESOP shares allocated to participants for a reporting period.
SOP 93-6 was adopted by ASB during fiscal 1995, without a material adverse
effect on consolidated financial condition or results of operations.
In May 1995, the FASB promulgated SFAS No. 122, "Accounting for Mortgage
Servicing Rights." SFAS No. 122 requires that ASB recognize as separate assets
rights to service mortgage loans for others, regardless of how those servicing
rights were acquired. An institution that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and sells those
loans with servicing rights retained would allocate some of the cost of the
loans to the mortgage servicing rights. SFAS No. 122 also requires that an
enterprise allocate the cost of purchasing or originating the mortgage loans
between the mortgage servicing rights and the loans when mortgage loans are
securitized, if it is practicable to estimate the fair value of mortgage
servicing rights. Additionally, SFAS No. 122 requires that capitalized mortgage
servicing rights and capitalized excess servicing receivables be assessed for
impairment. Impairment would be measured based on fair value. SFAS No. 122 was
applied prospectively to ASB's fiscal year beginning July 1, 1996, to
transactions in which an entity acquires mortgage servicing rights and to
impairment evaluations of all capitalized mortgage servicing rights and
capitalized excess servicing receivables whenever acquired. Retroactive
application is prohibited. On July 1, 1996, management adopted SFAS No. 122
without effect on ASB's consolidated financial position or results of
operations.
In October 1994, the FASB issued SFAS No. 123 entitled "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes a fair value based method of
accounting for stock-based compensation paid to employees. SFAS No. 123
recognizes the fair value of an award of stock or stock options on the grant
date and is effective for transactions occurring after December 1995. Management
has determined that ASB will continue to account for stock-based compensation
pursuant to Accounting Principles Board Opinion No. 25, and, therefore, adoption
of SFAS No. 123 will not have a material effect on ASB's consolidated financial
condition or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets, Servicing Rights, and Extinguishment of Liabilities", that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, the
financial components approach, provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements, and transfers of
receivables with recourse.
-----
16
<PAGE> 18
An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitizations of assets, and all the securitized assets are retained and
classified as held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value. Servicing assets
and liabilities are amortized in proportion to and over the period of estimated
net servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management does not believe that adoption of SFAS No. 125 will have a material
adverse effect on ASB's consolidated financial position or results of
operations.
IMPACT OF INFLATION AND CHANGING PRICES
- -------------------------------------------------------------------------------
The consolidated financial statements and notes thereto included herein have
been prepared in accordance with generally accepted accounting principles, which
require ASB to measure financial position and results of operations in terms of
historical dollars without considering changes in the relative purchasing power
of money over time because of inflation.
In management's opinion, changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
rate of inflation. While interest rates are greatly influenced by changes in the
inflation rate, they do not change at the same rate or in the same magnitude as
the inflation rate. Rather, interest rate volatility is based on changes in the
expected rate of inflation, as well as on changes in monetary and fiscal
policies.
-----
17
<PAGE> 19
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS AND
CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 19
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 20
CONSOLIDATED STATEMENTS OF EARNINGS 22
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 23
CONSOLIDATED STATEMENTS OF CASH FLOWS 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 26
-----
18
<PAGE> 20
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors
ASB Financial Corp. and Subsidiary
We have audited the accompanying consolidated statements of financial condition
of ASB Financial Corp. and Subsidiary as of June 30, 1996 and 1995, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years ended June 30, 1996, 1995 and 1994. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ASB Financial
Corp. and Subsidiary as of June 30, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the years ended June 30, 1996,
1995 and 1994, in conformity with generally accepted accounting principles.
As more fully discussed in Note A-2, the Corporation changed its method of
accounting for certain investment and mortgage-backed securities as of July 1,
1994.
Grant Thornton
Cincinnati, Ohio
July 12, 1996 (except for Note J, as to which the date is August 20, 1996)
-----
19
<PAGE> 21
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30,
(In thousands, except share data)
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 411 $ 285
Interest-bearing deposits in other financial institutions 3,425 5,641
--------- ---------
Cash and cash equivalents 3,836 5,926
Certificates of deposit in other financial institutions 6,702 9,301
Investment securities available for sale - at market 19,284 1,768
Investment securities - at amortized cost, approximate
market value of $14,071 as of June 30, 1995 - 14,107
Mortgage-backed securities available for sale - at market 10,728 2,300
Mortgage-backed securities - at amortized cost,
approximate market value of $7,788 as of June 30, 1995 - 7,835
Loans receivable - net 68,455 62,153
Office premises and equipment - at depreciated cost 940 1,001
Real estate acquired through foreclosure - net 663 525
Federal Home Loan Bank stock - at cost 667 611
Accrued interest receivable on loans 120 66
Accrued interest receivable on mortgage-backed securities 110 100
Accrued interest receivable on investments and
interest-bearing deposits 479 434
Prepaid expenses and other assets 586 441
Prepaid federal income taxes - 33
Deferred federal income taxes 352 260
---------- ----------
Total assets $112,922 $106,861
======= =======
</TABLE>
-----
20
<PAGE> 22
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
<S> <C> <C>
Deposits $ 83,395 $ 78,888
Advances from the Federal Home Loan Bank 2,413 442
Advances by borrowers for taxes and insurance 162 273
Accrued interest payable 115 155
Other liabilities 1,219 1,045
Accrued federal income taxes 5 -
--------- --------
Total liabilities 87,309 80,803
Commitments - -
Shareholders' equity
Preferred stock, 1,000,000 shares authorized, no par value;
no shares issued - -
Common stock, 4,000,000 shares authorized, no par value;
1,713,960 shares issued and outstanding at June 30, 1996 and 1995 - -
Additional paid-in capital 16,496 16,437
Retained earnings, restricted 11,173 10,619
Shares acquired by stock benefit plans (2,180) (1,270)
Unrealized gains on securities designated as available for sale,
net of related tax effects 124 272
-------- --------
Total shareholders' equity 25,613 26,058
-------- --------
Total liabilities and shareholders' equity $112,922 $106,861
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
-----
21
<PAGE> 23
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
For the year ended June 30,
(In thousands, except share data)
<TABLE>
<CAPTION>
1996 1995 1994
Interest income
<S> <C> <C> <C>
Loans $ 5,498 $ 4,865 $ 4,989
Mortgage-backed securities 750 532 554
Investment securities 1,426 577 572
Interest-bearing deposits and other 499 1,038 522
------- ------- -------
Total interest income 8,173 7,012 6,637
Interest expense
Deposits 4,267 3,870 3,287
Borrowings 43 23 20
------- ------- -------
Total interest expense 4,310 3,893 3,307
------- ------- -------
Net interest income 3,863 3,119 3,330
Provision for losses on loans -- 10 749
------- ------- -------
Net interest income after provision
for losses on loans 3,863 3,109 2,581
Other income
Gain on sale of real estate acquired through foreclosure -- -- 95
Net proceeds from insurance on life of officer -- -- 211
Other operating 195 143 145
------- ------- -------
Total other income 195 143 451
General, administrative and other expense
Employee compensation and benefits 1,229 855 1,165
Occupancy and equipment 120 121 124
Federal deposit insurance premiums 188 190 185
Franchise taxes 209 134 108
Data processing 169 140 149
Other operating 458 286 313
------- ------- -------
Total general, administrative and
other expense 2,373 1,726 2,044
------- ------- -------
Earnings before income taxes 1,685 1,526 988
Federal income taxes
Current 661 587 391
Deferred (13) 127 (462)
------- ------- -------
Total federal income taxes 574 518 199
------- ------- -------
NET EARNINGS $ 1,111 $ 1,008 $ 789
======= ======= =======
EARNINGS PER SHARE $ .69 N/A N/A
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
-----
22
<PAGE> 24
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended June 30, 1996, 1995 and 1994
(In thousands, except share data)
<TABLE>
<CAPTION>
UNREALIZED GAINS
SHARES GAINS(LOSSES)ON
ADDITIONAL ACQUIRED SECURITIES
COMMON PAID-IN RETAINED BY EMPLOYEE DESIGNATED AS
STOCK CAPITAL EARNINGS BENEFIT PLANS AVAILABLE FOR SALE TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1993 $-- $ -- $ 8,951 $ -- $- $ 8,951
Net earnings for the year ended June 30, 1994 -- -- 789 -- -- 789
---- -------- -------- -------- -------- --------
Balance at June 30, 1994 -- -- 9,740 -- -- 9,740
Designation of securities as available for sale upon
adoption of SFAS No. 115 -- -- -- -- 224 224
Net proceeds from issuance of common stock -- 16,437 -- (1,270) -- 15,167
Net earnings for the year ended June 30, 1995 -- -- 1,008 -- -- 1,008
Dividends of $.075 per common share -- -- (129) -- -- (129)
Unrealized gains on securities designated as
available for sale, net of related tax effects -- -- -- -- 48 48
---- -------- -------- -------- -------- --------
Balance at June 30, 1995 -- 16,437 10,619 (1,270) 272 26,058
Purchase of shares for Management Recognition Plan -- -- -- (1,062) -- (1,062)
Amortization of expense related to stock benefit plans -- 59 -- 152 -- 211
Net earnings for the year ended June 30, 1996 -- -- 1,111 -- -- 1,111
Dividends of $.325 per common share -- -- (557) -- -- (557)
Unrealized losses on securities designated as
available for sale, net of related tax effects -- -- -- -- (148) (148)
---- -------- -------- -------- -------- --------
Balance at June 30, 1996 $-- $ 16,496 $ 11,173 $ (2,180) $ 124 $ 25,613
==== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-----
23
<PAGE> 25
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings for the year $ 1,111 $ 1,008 $ 789
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of discounts and premiums on loans,
investments and mortgage-backed securities - net 76 88 91
Amortization of deferred loan origination fees (52) (86) (59)
Amortization of expense related to stock benefit plans 211 -- --
Depreciation and amortization 79 64 72
Provision for losses on loans -- 10 749
Gain on sale of real estate acquired through foreclosure -- -- (95)
Federal Home Loan Bank stock dividends (44) (40) (30)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (54) 22 21
Accrued interest receivable on mortgage-backed securities (10) (4) (42)
Accrued interest receivable on investments and
interest-bearing deposits (45) (183) (50)
Prepaid expenses and other assets (145) 115 (215)
Accrued interest payable (40) 96 (7)
Other liabilities 174 150 795
Federal income taxes
Current 38 46 (99)
Deferred (13) 127 (462)
-------- -------- --------
Net cash provided by operating activities 1,286 1,413 1,458
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 9,121 300 1,250
Purchase of investment securities designated as available for sale (12,237) (1,004) --
Purchase of investment securities designated as held-to-maturity -- (5,786) (3,855)
Purchase of mortgage-backed securities designated as available for sale (3,544) (2,312) --
Purchase of mortgage-backed securities designated as held-to-maturity -- (2,128) (3,780)
Principal repayments on mortgage-backed securities 2,848 2,447 2,681
Purchase of loans (1,711) (3,279) (1,844)
Loan principal repayments 18,715 13,716 18,925
Loan disbursements (23,885) (13,734) (16,530)
Purchase of office premises and equipment (18) (171) (73)
Proceeds from sale of real estate acquired through foreclosure -- -- 656
Redemption of Federal Home Loan Bank stock -- 68 --
Purchase of Federal Home Loan Bank stock (12) -- --
Increase (decrease) in certificates of deposit in other financial
institutions - net 2,599 (977) (1,154)
-------- -------- --------
Net cash used in investing activities (8,124) (12,860) (3,724)
-------- -------- --------
Net cash used in operating and investing
activities (subtotal carried forward) (6,838) (11,447) (2,266)
-------- -------- --------
</TABLE>
-----
24
<PAGE> 26
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the year ended June 30,
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net cash used in operating and investing activities
(subtotal brought forward) $ (6,838) $(11,447) $(2,266)
Cash flows provided by financing activities:
Net increase (decrease) in deposit accounts 4,507 (3,626) 1,110
Net proceeds from the issuance of common stock - 16,437 -
Shares acquired by the stock benefit plans (1,062) (1,270) -
Proceeds from Federal Home Loan Bank advances 2,000 - -
Repayment of Federal Home Loan Bank advances (29) (27) (26)
Advances by borrowers for taxes and insurance (111) 19 (47)
Dividends on common shares (557) (129) -
-------- --------- -----
Net cash provided by financing activities 4,748 11,404 1,037
------- ------- ------
Net decrease in cash and cash equivalents (2,090) (43) (1,229)
Cash and cash equivalents at beginning of year 5,926 5,969 7,198
------- -------- ------
Cash and cash equivalents at end of year $ 3,836 $ 5,926 $ 5,969
======= ======== ======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 552 $ 343 $ 665
======== ========= =======
Interest on deposits and borrowings $ 4,350 $ 3,797 $ 3,314
======= ======== ======
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired
through foreclosure $ 138 $ 525 $ -
======== ========= ======
Transfers of investments and mortgage-backed securities
to an available for sale classification $22,486 $ 350 $ -
====== ========= ======
Unrealized gain on securities designated as available
for sale, net of related tax effects $ 148 $ 272 $ -
======== ========= =====
</TABLE>
The accompanying notes are an integral part of these statements.
-----
25
<PAGE> 27
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
During fiscal 1994, the Board of Directors of American Savings Bank, fsb
(the Savings Bank) adopted a plan of conversion (the Plan) whereby the
Savings Bank would convert to the stock form of ownership (the Conversion),
followed by the issuance of all of the Savings Bank's outstanding stock to a
newly formed holding company, ASB Financial Corp. (the Corporation), and the
issuance of common shares of the Corporation to subscribing members of the
Savings Bank. The conversion to the stock form of ownership was completed on
May 10, 1995, and resulted in the Corporation's sale of 1,713,960 common
shares. Condensed financial statements of the Corporation as of and for the
periods ended June 30, 1996 and 1995 are presented in Note L. Future
references are made to either the Corporation or the Savings Bank as
applicable.
The Corporation is a savings and loan holding company whose activities are
primarily limited to holding the stock of the Savings Bank. The Savings Bank
conducts a general banking business in southeastern Ohio which consists of
attracting deposits from the general public and primarily applying those
funds to the origination of loans for residential, consumer and
nonresidential purposes. The Savings Bank's profitability is significantly
dependent on net interest income which is the difference between interest
income generated from interest-earning assets (i.e. loans and investments)
and the interest expense paid on interest-bearing liabilities (i.e. customer
deposits and borrowed funds). Net interest income is affected by the
relative amount of interest-earning assets and interest-bearing liabilities
and the interest received or paid on these balances. The level of interest
rates paid or received by the Savings Bank can be significantly influenced
by a number of environmental factors, such as governmental monetary policy,
that are outside of management's control.
The consolidated financial information presented herein has been prepared in
accordance with generally accepted accounting principles (GAAP) and general
accounting practices within the financial services industry. In preparing
consolidated financial statements in accordance with GAAP, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from such
estimates.
The following is a summary of the Corporation's significant accounting
policies which have been consistently applied in the preparation of the
accompanying consolidated financial statements.
1. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Corporation and the Savings Bank. All significant intercompany balances and
transactions have been eliminated.
-----
26
<PAGE> 28
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. Investment Securities and Mortgage-Backed Securities
----------------------------------------------------
Prior to July 1, 1994, investment securities and mortgage-backed securities
were carried at cost, adjusted for amortization of premiums and accretion of
discounts. The investments and mortgage-backed securities were carried at
cost, as it was management's intent and the Savings Bank had the ability to
hold the securities until maturity. Investment securities and
mortgage-backed securities held for indefinite periods of time, or which
management utilized as part of its asset/liability management strategy, or
that would be sold in response to changes in interest rates, prepayment
risk, or the perceived need to increase regulatory capital were classified
as held for sale at the point of purchase and carried at the lower of cost
or market.
In May 1993, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for
Certain Investments in Debt and Equity Securities". SFAS No. 115 requires
that investments in debt and equity securities be categorized as
held-to-maturity, trading, or available for sale. Securities classified as
held-to-maturity are to be carried at cost only if the Corporation has the
positive intent and ability to hold these securities to maturity. Trading
securities and securities designated as available for sale are carried at
fair value with resulting unrealized gains or losses recorded to operations
or shareholders' equity, respectively. The Savings Bank adopted SFAS No. 115
for the fiscal year beginning July 1, 1994. The initial effect of adoption
was to increase retained earnings by approximately $224,000 on the date of
adoption, representing the unrealized market value appreciation on
securities designated as available for sale, net of applicable tax effects.
In November 1995, the FASB issued a Special Report on Implementation of SFAS
No. 115 (the Special Report), which provided for the reclassification of
securities between the held-to-maturity, available for sale and trading
portfolios during a forty-five day period, without calling into question
management's prior intent with respect to such securities. Management
elected to restructure the Corporation's securities portfolio pursuant to
the Special Report, and transferred approximately $22.5 million of
investment and mortgage-backed securities from the held-to-maturity
portfolio to an available for sale portfolio. At June 30, 1996, the
Corporation's shareholders' equity reflected a net unrealized gain of
$124,000 in securities designated as available for sale.
Realized gains and losses on sales of securities are recognized using the
specific identification method.
-----
27
<PAGE> 29
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3. Loans Receivable
----------------
Loans receivable are stated at the principal amount outstanding, adjusted
for deferred loan origination fees and the allowance for loan losses.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. Interest on loans that are contractually past due is charged off, or
an allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all
interest previously accrued, and income is subsequently recognized only to
the extent that cash payments are received until, in management's judgment,
the borrower's ability to make periodic interest and principal payments has
returned to normal, in which case the loan is returned to accrual status. If
the ultimate collectibility of the loan is in doubt, in whole or in part,
all payments received on nonaccrual loans are applied to reduce principal
until such doubt is eliminated.
4. Loan Origination Fees
---------------------
The Savings Bank accounts for loan origination fees in accordance with SFAS
No. 91 "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Cost of Leases". Pursuant
to the provisions of SFAS No. 91, origination fees received from loans, net
of direct origination costs, are deferred and amortized to interest income
using the level-yield method, giving effect to actual loan prepayments.
Additionally, SFAS No. 91 generally limits the definition of loan
origination costs to the direct costs of originating a loan, i.e.,
principally actual personnel costs. Fees received for loan commitments that
are expected to be drawn upon, based on the Savings Bank's experience with
similar commitments, are deferred and amortized over the life of the loan
using the level-yield method. Fees for other loan commitments are deferred
and amortized over the loan commitment period on a straight-line basis.
5. Allowance for Losses on Loans
-----------------------------
It is the Savings Bank's policy to provide valuation allowances for
estimated losses on loans based on past loss experience, trends in the level
of delinquent and problem loans, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying
collateral and current and anticipated economic conditions in the primary
lending area. When the collection of a loan becomes doubtful, or otherwise
troubled, the Savings Bank records a loan charge-off equal to the difference
between the fair value of the property securing the loan and the loan's
carrying value. Major loans (including development projects) and major
lending areas are reviewed periodically to determine potential problems at
an early date. The allowance for loan losses is increased by charges to
earnings and decreased by charge-offs (net of recoveries).
In June 1993, the FASB adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan". SFAS No. 114 was effective as to the Corporation in
fiscal 1996, requires that impaired loans be measured based upon the present
value of expected future cash flows discounted at the loan's effective
interest rate or, as an alternative, at the loan's observable market price
or fair value of the collateral. The Savings Bank's current procedures for
evaluating impaired loans result in carrying such loans at the lower of cost
or fair value.
-----
28
<PAGE> 30
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Allowance for Losses on Loans (continued)
-----------------------------------------
The Savings Bank adopted SFAS No. 114, as subsequently amended, on July 1,
1995, without material effect on consolidated financial condition or results
of operations.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Savings Bank
considers its investment in one- to four-family residential loans and
consumer installment loans to be homogeneous and therefore excluded from
separate identification for evaluation of impairment. With respect to the
Savings Bank's investment in impaired multi-family and nonresidential loans,
such loans are collateral dependent, and as a result, are carried as a
practical expedient at the lower of cost or fair value.
It is the Savings Bank's policy to charge off unsecured credits that are
more than ninety days delinquent. Similarly, collateral dependent loans
which are more than ninety days delinquent are considered to constitute more
than a minimum delay in repayment and are evaluated for impairment under
SFAS No. 114 at that time.
At June 30, 1996, the Savings Bank had no loans that would be defined as
impaired under SFAS No. 114.
6. Office Premises and Equipment
-----------------------------
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and
minor renewals are expensed as incurred. For financial reporting,
depreciation and amortization are provided on the straight-line and
accelerated methods over the useful lives of the assets, estimated to be
forty years for buildings, ten to forty years for building improvements, and
five to ten years for furniture and equipment. An accelerated method is used
for tax reporting purposes.
7. Real Estate Acquired Through Foreclosure
----------------------------------------
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are
recorded if the properties' fair value subsequently declines below the
amount determined at the recording date. In determining the lower of cost or
fair value at acquisition, costs relating to development and improvement of
property are capitalized. Costs relating to holding real estate acquired
through foreclosure, net of rental income, are charged against earnings as
incurred.
-----
29
<PAGE> 31
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
8. Federal Income Taxes
--------------------
The Corporation accounts for federal income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109
established financial accounting and reporting standards for the effects of
income taxes that result from the Corporation's activities within the
current and previous years. It requires an asset and liability approach for
financial accounting and reporting for income taxes. Pursuant to the
provisions of SFAS No. 109, a deferred tax liability or deferred tax asset
is computed by applying the current statutory tax rates to net taxable or
deductible differences between the tax basis of an asset or liability and
its reported amount in the consolidated financial statements that will
result in taxable or deductible amounts in future periods. Deferred tax
assets are recorded only to the extent that the amount of net deductible
temporary differences or carryforward attributes may be utilized against
current period earnings, carried back against prior years earnings, offset
against taxable temporary differences reversing in future periods, or
utilized to the extent of management's estimate of future taxable income. A
valuation allowance is provided for deferred tax assets to the extent that
the value of net deductible temporary differences and carryforward
attributes exceeds management's estimates of taxes payable on future taxable
income. Deferred tax liabilities are provided on the total amount of net
temporary differences taxable in the future.
The Corporation's principal temporary differences between pretax financial
income and taxable income result from different methods of accounting for
deferred loan origination fees and costs, Federal Home Loan Bank stock
dividends, the general loan loss allowance, deferred compensation, and
percentage of earnings bad debt deductions. Additional temporary differences
result from depreciation computed using accelerated methods for tax
purposes.
9. Salary Continuation Agreement
-----------------------------
The Savings Bank has entered into salary continuation agreements with
certain key members of management. These agreements provide for payments of
up to fifteen years of compensation under certain circumstances.
Compensation expense under the salary continuation plan totaled $8,000,
$18,000 and $593,000 for the years ended June 30, 1996, 1995 and 1994. The
significant difference in the amount of the fiscal 1994 expense relates to
the fact that such agreements contained contingencies that significantly
restricted the Savings Bank's responsibility to pay benefits under the
agreements. In recognition of the potential inequities caused by such
payment constraints, the Savings Bank is revising the agreements to remove
the contractual contingencies. In addition, one of the Savings Bank's
employees became partially vested under the initial agreement during fiscal
1994.
-----
30
<PAGE> 32
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
10. Retirement Plans and Stock Option Plans
---------------------------------------
In conjunction with the Conversion, the Corporation implemented an Employee
Stock Ownership Plan (ESOP). The ESOP provides retirement benefits for
substantially all employees who have completed one year of service and have
attained the age of 21. The Corporation accounts for the ESOP in accordance
with Statement of Position (SOP) 93-6, "Employers' Accounting for Employee
Stock Ownership Plans". SOP 93-6 requires that compensation expense recorded
by employers equal the fair value of ESOP shares allocated to participants
during a given fiscal year. Expense related to the ESOP totaled
approximately $296,000 and $38,000 for the years ended June 30, 1996 and
1995, respectively.
The Corporation also has a Management Recognition Plan (MRP). Subsequent to
the offering of common shares by the Corporation, the MRP purchased 68,558
shares of the common stock in the open market. One-half of the shares
available under the plan were granted to the Corporation's directors and
executive officers. Common stock granted under the MRP vests ratably over a
five year period, commencing in October 1995. A provision of $64,000 related
to the MRP was charged to operations in fiscal 1996.
Also, the Board of Directors adopted the ASB Financial Corp. 1995 Stock
Option and Incentive Plan (the Stock Option Plan) that provided for the
issuance of 171,396 shares of authorized, but unissued shares of common
stock at fair market value at the date of grant. In November 1995, the
Corporation granted options to purchase 145,684 shares at the fair value of
$13.875 per share. The Stock Option Plan provides for one-fifth of the
shares granted to be exercisable on each of the first five anniversaries of
the date of the Plan, commencing in November 1995. As of June 30, 1996, none
of the stock options granted were eligible for exercise.
11. Earnings Per Share
------------------
Primary earnings per share for fiscal 1996 is based upon the
weighted-average shares outstanding during the period plus those stock
options that are dilutive, less shares in the ESOP that are unallocated and
not committed to be released. Weighted-average common shares deemed
outstanding during fiscal 1996 totaled 1,602,200 shares.
The provisions of Accounting Principles Board Opinion No. 15 "Earnings Per
Share" are not applicable to the fiscal years ended June 30, 1995 and 1994,
as the Corporation completed its conversion from mutual to stock form in
April 1995.
12. Investment in Subsidiary
------------------------
The Savings Bank has a wholly-owned subsidiary, A.S.L. Services, Inc., which
was incorporated for the sole purpose of owning stock in the Savings Bank's
data processor. The subsidiary's assets at June 30, 1996 and 1995 are
limited to a $15,000 investment in such stock. As a result, the subsidiary
has not been consolidated based on materiality.
-----
31
<PAGE> 33
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
13. Fair Value of Financial Instruments
-----------------------------------
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of the fair value of financial instruments, both assets
and liabilities whether or not recognized in the consolidated statement of
financial condition, for which it is practicable to estimate that value. For
financial instruments where quoted market prices are not available, fair
values are based on estimates using present value and other valuation
methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair
values presented may not represent amounts that could be realized in an
exchange for certain financial instruments.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments at June 30,
1996:
CASH AND CASH EQUIVALENTS: The carrying amounts presented in
the consolidated statement of financial condition for cash and
cash equivalents are deemed to approximate fair value.
CERTIFICATES OF DEPOSIT IN OTHER FINANCIAL INSTITUTIONS: The
carrying amounts presented in the consolidated statement of
financial condition for certificates of deposit in other
financial institutions are deemed to approximate fair value.
INVESTMENT AND MORTGAGE-BACKED SECURITIES: For investment and
mortgage-backed securities, fair value is deemed to equal the
quoted market price.
LOANS RECEIVABLE: The loan portfolio has been segregated into
categories with similar characteristics, such as one- to
four-family residential, multi-family residential and
nonresidential real estate. These loan categories were further
delineated into fixed-rate and adjustable-rate loans. The fair
values for the resultant loan categories were computed via
discounted cash flow analysis, using current interest rates
offered for loans with similar terms to borrowers of similar
credit quality. For loans on deposit accounts and consumer and
other loans, fair values were deemed to equal the historic
carrying values. The historical carrying amount of accrued
interest on loans is deemed to approximate fair value.
FEDERAL HOME LOAN BANK STOCK: The carrying amount presented in
the consolidated statement of financial condition is deemed to
approximate fair value.
-----
32
<PAGE> 34
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
13. Fair Value of Financial Instruments (continued)
-----------------------------------------------
DEPOSITS: The fair value of NOW accounts, passbook accounts,
money market demand and escrow deposits is deemed to
approximate the amount payable on demand. Fair values for
fixed-rate certificates of deposit have been estimated using a
discounted cash flow calculation using the interest rates
currently offered for deposits of similar remaining
maturities.
ADVANCES FROM FEDERAL HOME LOAN BANK: The fair value of these
advances is estimated using the rates currently offered for
similar advances of similar remaining maturities.
COMMITMENTS TO EXTEND CREDIT: For fixed-rate and
adjustable-rate loan commitments, the fair value estimate
considers the difference between current levels of interest
rates and committed rates. At June 30, 1996, the difference
between the stated and fair value of loan commitments was not
material.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments at June 30, 1996, are as
follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
(In thousands)
Financial assets
<S> <C> <C>
Cash and cash equivalents $ 3,836 $ 3,836
Certificates of deposit in other financial
institutions 6,702 6,702
Investment securities 19,284 19,284
Mortgage-backed securities 10,728 10,728
Loans receivable 68,455 67,977
Stock in Federal Home Loan Bank 667 667
---------- ----------
$109,672 $109,194
======= =======
Financial liabilities
Deposits $ 83,395 $ 80,751
Advances from the Federal Home Loan Bank 2,413 2,406
Escrow deposits 162 162
---------- ----------
$ 85,970 $ 83,319
======== ========
</TABLE>
14. Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and interest-bearing deposits due from other financial
institutions with original maturities of less than ninety days.
-----
33
<PAGE> 35
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
15. Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the 1996
consolidated financial statement presentation.
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES
Amortized cost and approximate market values of investment securities at
June 30, 1996 and 1995 (including those designated as held-to-maturity) are
summarized as follows:
<TABLE>
<CAPTION>
1996
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Government agency
obligations $19,084 $ 14 $327 $18,771
FHLMC stock 24 489 - 513
--------- --- -- --------
$19,108 $503 $327 $19,284
====== === === ======
1995
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
HELD TO MATURITY:
U.S. Government agency
obligations $14,107 $ 47 $ 83 $14,071
====== ==== ==== ======
AVAILABLE FOR SALE:
U.S. Government agency
obligations $1,354 $ 9 $ 6 $1,357
FHLMC stock 24 387 - 411
------- --- -- ------
$1,378 $396 $ 6 $1,768
===== === ===== =====
</TABLE>
-----
34
<PAGE> 36
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost and market value of U.S. Government agency obligations by
contractual term to maturity at June 30 are shown below:
<TABLE>
<CAPTION>
1996 1995
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
(In thousands)
<S> <C> <C> <C> <C>
Due in three years or less $ 2,320 $ 2,303 $ 5,126 $ 5,122
Due after three years through
five years 3,238 3,232 4,146 4,121
Due after five years 13,526 13,236 6,189 6,185
------ ------ ------- -------
$19,084 $18,771 $15,461 $15,428
====== ====== ====== ======
</TABLE>
The amortized cost, gross unrealized gains, gross unrealized losses and
market values of mortgage-backed securities at June 30, 1996 and 1995
(including those designated as held-to-maturity) are summarized as follows:
<TABLE>
<CAPTION>
1996
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
AVAILABLE FOR SALE: (In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation
participation certificates $ 4,119 $ 38 $ 57 $ 4,100
Government National
Mortgage Association
participation certificates 4,463 81 54 4,490
Federal National
Mortgage Association
participation certificates 2,135 30 27 2,138
------- ---- ---- -------
Total mortgage-backed securities $10,717 $149 $138 $10,728
====== === === ======
</TABLE>
-----
35
<PAGE> 37
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
<TABLE>
<CAPTION>
1995
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
HELD TO MATURITY: (In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation
participation certificates $ 4,227 $ 27 $114 $ 4,140
Government National
Mortgage Association
participation certificates 2,089 36 15 2,110
Federal National
Mortgage Association
participation certificates 1,519 21 2 1,538
------- ---- ----- -------
Total mortgage-backed
securities held-to-maturity 7,835 84 131 7,788
AVAILABLE FOR SALE:
Government National
Mortgage Association
participation certificates 2,276 24 - 2,300
------- ---- -- -------
Total mortgage-backed
securities $10,111 $108 $131 $10,088
====== === === ======
</TABLE>
The amortized cost of mortgage-backed securities, by contractual terms to
maturity, are shown below. Based on materiality, contractual maturities of
mortgage-backed securities designated as available for sale have been
combined with those designated as held-to-maturity. Expected maturities will
differ from contractual maturities because borrowers may generally prepay
obligations without prepayment penalties.
<TABLE>
<CAPTION>
JUNE 30,
1996 1995
<S> <C> <C>
Due within three years $ 1,756 $ 2,103
Due in three to five years 1,115 455
Due in five to ten years 1,980 668
Due in ten to twenty years 2,041 1,986
Due after twenty years 3,825 4,899
------- -------
$10,717 $10,111
====== ======
</TABLE>
-----
36
<PAGE> 38
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at June 30 is as follows:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Residential real estate
One- to four-family $48,302 $45,929
Multi-family 8,265 8,272
Construction 2,318 1,064
Nonresidential real estate and land 3,401 4,048
Consumer and other 8,780 4,991
------- -------
71,066 64,304
Less:
Undisbursed portion of loans in process 1,529 1,065
Deferred loan origination fees 198 193
Allowance for loan losses 884 893
-------- --------
$68,455 $62,153
====== ======
</TABLE>
The Savings Bank's lending efforts have historically focused on one- to
four-family and multi-family residential real estate loans, which comprise
approximately $56.3 million, or 82%, of the total loan portfolio at June 30,
1996, and $53.1 million, or 85%, of the total loan portfolio at June 30,
1995. Generally, such loans have been underwritten on the basis of no more
than an 80% loan-to-value ratio, which has historically provided the Savings
Bank with adequate collateral coverage in the event of default.
Nevertheless, the Savings Bank, as with any lending institution, is subject
to the risk that real estate values could deteriorate in its primary lending
area of southeastern Ohio, thereby impairing collateral values. However,
management is of the belief that residential real estate values in the
Savings Bank's primary lending area are presently stable.
In the normal course of business, the Savings Bank has made loans to some of
its directors, officers and employees. Related party loans are made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with unrelated
persons and do not involve more than the normal risk of collectibility. The
aggregate dollar amount of loans outstanding to directors, officers and
employees totaled approximately $353,000 and $263,000 at June 30, 1996 and
1995.
-----
37
<PAGE> 39
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended June 30:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $893 $1,115 $ 457
Provision for loan losses - 10 749
Charge-offs of loans (9) (264) (251)
Recoveries - 32 160
-- ------- ------
Balance at end of year $884 $ 893 $1,115
=== ====== =====
</TABLE>
As of June 30, 1996, the Savings Bank's allowance for loan losses was solely
general in nature, and is includible as a component of regulatory risk-based
capital, subject to certain percentage limitations.
Nonperforming and nonaccrual loans for which interest has been reduced
totaled approximately $1.2 million, $1.9 million and $2.9 million at June
30, 1996, 1995 and 1994, respectively.
During the years ended June 30, 1996, 1995 and 1994, interest income of
approximately $4,000, $38,000 and $81,000, respectively, would have been
recognized had nonperforming and nonaccrual loans been performing in
accordance with contractual terms.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment at June 30 are comprised of the following:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Land and improvements $ 325 $ 288
Office buildings and improvements 1,143 1,152
Furniture, fixtures and equipment 421 431
------ ------
1,889 1,871
Less accumulated depreciation and
amortization 949 870
------ ------
$ 940 $1,001
====== =====
</TABLE>
-----
38
<PAGE> 40
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE F - DEPOSITS
Deposits consist of the following major classifications at June 30:
<TABLE>
<CAPTION>
DEPOSIT TYPE AND WEIGHTED-
AVERAGE INTEREST RATE 1996 1995
(In thousands)
NOW accounts
<S> <C> <C>
1996 - 2.36% $ 3,448
1995 - 2.39% $ 2,471
Passbook
1996 - 2.94% 7,225
1995 - 2.94% 7,278
Money market deposit accounts
1996 - 3.49% 9,001
1995 - 3.49% 8,319
------- -------
Total demand, transaction and
passbook deposits 19,674 18,068
Certificates of deposit
Original maturities of:
Less than 12 months
1996 - 5.10% 7,517
1995 - 5.82% 9,630
12 months to 24 months
1996 - 5.88% 21,371
1995 - 5.69% 17,700
30 months to 36 months
1996 - 5.95% 16,006
1995 - 5.66% 17,385
More than 36 months
1996 - 5.69% 2,448
1995 - 6.00% 2,525
Individual retirement accounts
1996 - 6.43% 13,384
1995 - 6.16% 12,094
Jumbo accounts
1996 - 5.52% 2,995
1995 - 5.57% 1,486
------- -------
Total certificates of deposit 63,721 60,820
------- -------
Total deposit accounts $83,395 $78,888
======= =======
</TABLE>
-----
39
<PAGE> 41
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE F - DEPOSITS (continued)
Interest expense on deposits for the year ended June 30 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Passbook $ 212 $ 295 $ 247
NOW and money market deposit
accounts 421 467 577
Certificates of deposit 3,634 3,108 2,463
----- ----- -----
$4,267 $3,870 $3,287
===== ===== =====
</TABLE>
Maturities of outstanding certificates of deposit at June 30 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Less than one year $44,345 $32,815
One to three years 15,813 24,932
Over three years 3,563 3,073
------- -------
$63,721 $60,820
======= =======
</TABLE>
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at June 30, 1996 by
pledges of certain residential mortgage loans totaling $3.6 million, and the
Savings Bank's investment in Federal Home Loan Bank stock, are summarized as
follows:
<TABLE>
<CAPTION>
MATURING
YEAR ENDING
INTEREST RATE JUNE 30, 1996 1995
(In thousands)
<S> <C> <C> <C> <C>
5.25% 1997 $1,000 $-
5.40% 1997 1,000 -
3.16% 2008 413 442
------ ---
$2,413 $442
===== ===
Weighted-average interest rate 4.95% 3.16%
==== ====
</TABLE>
-----
40
<PAGE> 42
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE H - FEDERAL INCOME TAXES
Federal income taxes differ from the amounts computed at the statutory
corporate tax rate as follows:
<TABLE>
<CAPTION>
JUNE 30,
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Federal income taxes computed at
statutory rate $ 573 $ 519 $ 336
Increase (decrease) in taxes resulting from:
Proceeds from life insurance not
subject to tax -- -- (136)
Other 1 (1) (1)
----- ----- -----
Federal income tax provision per consolidated
statements of earnings $ 574 $ 518 $ 199
===== ===== =====
</TABLE>
The composition of the Corporation's net deferred tax asset at June 30 is as
follows:
<TABLE>
<CAPTION>
1996 1995
(In thousands)
Taxes (payable) refundable on temporary
differences at estimated corporate tax rate:
Deferred tax assets:
<S> <C> <C>
General loan loss allowance $ 301 $ 337
Deferred loan origination fees -- 25
Deferred compensation 471 416
Employee stock benefit plans 41 --
----- -----
Total deferred tax assets 813 778
Deferred tax liabilities:
Percentage of earnings bad debt deduction (265) (262)
Book/tax depreciation (25) (21)
Federal Home Loan Bank stock dividends (108) (93)
Unrealized gain on securities designated as
available for sale (63) (142)
----- -----
Total deferred tax liabilities (461) (518)
----- -----
Net deferred tax asset $ 352 $ 260
===== =====
</TABLE>
-----
41
<PAGE> 43
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE H - FEDERAL INCOME TAXES (continued)
The Savings Bank is allowed a special bad debt deduction, generally limited
to 8% of otherwise taxable income, and subject to certain limitations based
on aggregate loans and deposit account balances at the end of the year. If
the amounts that qualify as deductions for federal income taxes are later
used for purposes other than bad debt losses, including distributions in
liquidation, such distributions will be subject to federal income taxes at
the then current corporate income tax rate. Retained earnings at June 30,
1996 include approximately $2.7 million for which federal income taxes have
not been provided. The approximate amount of unrecognized deferred tax
liability relating to the cumulative bad debt deduction was approximately
$660,000 at June 30, 1996. See Note J for additional information regarding
subsequent period developments related to the percentage of earnings bad
debt deduction.
NOTE I - LOAN COMMITMENTS
The Savings Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of their
customers including commitments to extend credit. Such commitments involve,
to varying degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the statement of financial condition. The contract
or notional amounts of the commitments reflect the extent of the Savings
Bank's involvement in such financial instruments.
The Savings Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
is represented by the contractual notional amount of those instruments. The
Savings Bank uses the same credit policies in making commitments and
conditional obligations as those utilized for on-balance-sheet instruments.
At June 30, 1996, the Savings Bank had outstanding commitments of
approximately $138,000 to originate loans. In addition, the Savings Bank was
obligated under unused lines of credit totaling $1.3 million. In the opinion
of management all loan commitments equaled or exceeded prevalent market
interest rates as of June 30, 1996, and will be funded from normal cash flow
from operations.
-----
42
<PAGE> 44
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE J - SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL
The Savings Bank is subject to minimum regulatory capital requirements
promulgated by the Office of Thrift Supervision (OTS). Such minimum capital
standards generally require the maintenance of regulatory capital sufficient
to meet each of three tests, hereinafter described as the tangible capital
requirement, the core capital requirement and the risk-based capital
requirement. The tangible capital requirement provides for minimum tangible
capital (defined as shareholders' equity less all intangible assets) equal
to 1.5% of adjusted total assets. The core capital requirement provides for
minimum core capital (tangible capital plus certain forms of supervisory
goodwill and other qualifying intangible assets such as capitalized mortgage
servicing rights) equal to 3.0% of adjusted total assets. A recent OTS
proposal, if adopted in present form, would increase the core capital
requirement to a range of 4% - 5% of adjusted total assets for substantially
all savings institutions. Management anticipates no material change to the
Savings Bank's present excess regulatory capital position as a result of
this change in the regulatory capital requirement. The risk-based capital
requirement provides for the maintenance of core capital plus general loss
allowances equal to 8.0% of risk-weighted assets. In computing risk-weighted
assets, the Savings Bank multiplies the value of each asset on its statement
of financial condition by a defined risk-weighting factor, e.g., one-to-four
family residential loans carry a risk-weighted factor of 50%.
As of June 30, 1996, the Savings Bank's regulatory capital exceeded all
minimum regulatory capital requirements as shown in the following table:
<TABLE>
REGULATORY CAPITAL
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL PERCENT CAPITAL PERCENT CAPITAL
PERCENT
(In thousands)
Capital under generally accepted
<S> <C> <C> <C>
accounting principles $17,578 $17,578 $17,578
Unrealized gains on securities
designated as available for sale (176) (176) (176)
Additional capital items
General valuation allowances -
limited - - 598
------- ------- --------
Regulatory capital computed 17,402 16.3 17,402 16.3 18,000 37.6
Minimum capital requirement 1,604 1.5 3,209 3.0 3,833 8.0
------- ----- ------- ----- ------- -----
Regulatory capital - excess $15,798 14.8 $14,193 13.3 $14,617 29.6
====== ==== ====== ==== ====== ====
</TABLE>
-----
43
<PAGE> 45
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE J - SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL (continued)
The deposit accounts of the Savings Bank and of other savings associations
are insured by the FDIC in the Savings Association Insurance Fund ("SAIF").
The reserves of the SAIF are below the level required by law, because a
significant portion of the assessments paid into the fund are used to pay
the cost of prior thrift failures. The deposit accounts of commercial banks
are insured by the FDIC in the Bank Insurance Fund ("BIF"), except to the
extent such banks have acquired SAIF deposits. The reserves of the BIF met
the level required by law in May 1995. As a result of the respective reserve
levels of the funds, deposit insurance assessments paid by healthy savings
associations exceeded those paid by healthy commercial banks by
approximately $.19 per $100 in deposits in fiscal 1996. In fiscal 1997, no
BIF assessments will be required for healthy commercial banks except for a
$2,000 minimum fee. A continuation of this premium disparity could have a
negative competitive impact on the Savings Bank and other institutions with
SAIF deposits.
Congress is considering legislation to recapitalize the SAIF and eliminate
the significant premium disparity. Currently, that recapitalization plan
provides for a special assessment ranging from approximately $.69 to $.85
per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF
reserves to the level required by law. In addition, the cost of prior thrift
failures would be shared by both the SAIF and the BIF. This would likely
increase BIF assessments by $.02 to $.025 per $100 in deposits. SAIF
assessments would initially be set at the same level as BIF assessments and
could never be reduced below the level for BIF assessments. These projected
assessment levels may change if commercial banks holding SAIF deposits are
provided some relief from the special assessment or are allowed to transfer
SAIF deposits to the BIF.
A component of the recapitalization plan provides for the merger of the SAIF
and BIF on January 1, 1998. However, the SAIF recapitalization legislation
currently provides for an elimination of the thrift charter or of the
separate federal regulation of thrifts prior to the merger of the deposit
insurance funds. As a result, the Savings Bank would be regulated as a bank
under federal laws which would subject it to the more restrictive activity
limits imposed on national banks. Under separate legislation recently
enacted into law, the Savings Bank is required to recapture as taxable
income approximately $780,000 of its bad debt reserve, which represents the
post-1987 additions to the reserve, and will be unable to utilize the
percentage of earnings method to compute its reserve in the future. The
Savings Bank has provided deferred taxes for this amount and will be
permitted by such legislation to amortize the recapture of its bad debt
reserve over six years.
The Savings Bank had $83.9 million in deposits at March 31, 1995. If the
special assessment level is finalized at the upper range of $.85 per $100 in
deposits, the Savings Bank will pay an assessment of $713,000. This
assessment will be tax deductible, but it will reduce earnings and capital
for the quarter in which it is recorded.
-----
44
<PAGE> 46
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE J - SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL (continued)
No assurances can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. In addition, the Savings
Bank can give no assurances that the disparity between BIF and SAIF
assessments will be eliminated.
NOTE K - CORPORATE REORGANIZATION AND CONVERSION TO STOCK FORM
During fiscal 1994, the Savings Bank's Board of Directors adopted a plan of
conversion and reorganization (the Plan) whereby the Savings Bank would
convert to the stock form of ownership, followed by the issuance of all of
the Savings Bank's outstanding stock to a newly formed holding company, ASB
Financial Corp. Pursuant to the Plan, the Savings Bank offered for sale up
to 1.7 million common shares to its depositors and members of the community.
The stock offering was completed on May 10, 1995, culminating in the sale of
1,713,960 common shares and the receipt of $15.2 million of net equity
capital.
At the completion of the conversion to stock form, the Savings Bank
established a liquidation account in an amount equal to retained earnings
contained in the final offering circular. The liquidation account will be
maintained for the benefit of eligible savings account holders who maintain
deposit accounts in the Savings Bank after conversion.
In the event of a complete liquidation (and only in such event), each
eligible savings account holder will be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then current
adjusted balance of deposit accounts held, before any liquidation
distribution may be made with respect to common stock. Except for the
repurchase of stock and payment of dividends by the Savings Bank, the
existence of the liquidation account will not restrict the use or
application of such retained earnings. The Savings Bank may not declare, pay
a cash dividend on, or repurchase any of its common stock, if the effect
thereof would cause retained earnings to be reduced below either the amount
required for the liquidation account or the regulatory capital requirements
for SAIF insured institutions.
-----
45
<PAGE> 47
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE L - CONDENSED FINANCIAL STATEMENTS OF ASB FINANCIAL CORP.
The following condensed financial statements summarize the financial
position of ASB Financial Corp. as of June 30, 1996 and 1995, and the
results of its operations for the fiscal year ended June 30, 1996, and the
two month period ended June 30, 1995.
ASB FINANCIAL CORP.
STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Interest-bearing deposits in American Savings Bank $ 1,075 $ 1,193
Interest-bearing deposits in other financial institutions 2,500 4,500
Investment securities 3,420 1,500
Loan receivable from ESOP 1,118 1,270
Investment in American Savings Bank, fsb 17,578 17,637
Prepaid expenses and other 93 87
--------- ---------
Total assets $25,784 $26,187
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $ 171 $ 129
Shareholders' equity
Common stock and additional paid-in capital 24,843 25,694
Retained earnings 646 92
Unrealized gain on securities designated as available
for sale, net 124 272
-------- --------
Total shareholders' equity 25,613 26,058
------ ------
Total liabilities and shareholders' equity $25,784 $26,187
====== ======
</TABLE>
ASB FINANCIAL CORP.
STATEMENTS OF EARNINGS
Period ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1996 1995
Revenue
<S> <C> <C>
Interest income $ 455 $ 87
Equity in earnings of American Savings Bank 887 134
------ ---
Total revenue 1,342 221
General and administrative expenses (122) -
------ -
Earnings before income taxes 1,220 221
Federal income taxes (109) -
------ -
NET EARNINGS $1,111 $221
===== ===
</TABLE>
-----
46
<PAGE> 48
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
June 30, 1996, 1995 and 1994
NOTE L - CONDENSED FINANCIAL STATEMENTS OF ASB FINANCIAL CORP. (continued)
ASB FINANCIAL CORP.
STATEMENTS OF CASH FLOWS
Period ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1996 1995
Cash provided by (used in) operating activities:
<S> <C> <C>
Net earnings for the period $1,111 $ 221
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities
Undistributed earnings of consolidated subsidiary (887) (134)
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets 20 (87)
Other liabilities 43 129
------- --------
Net cash provided by operating activities 287 129
Cash flows provided by (used in) investing activities:
Proceeds from repayment of loan 152 -
Proceeds from maturities of investment securities 1,500 -
Purchase of investment securities (3,500) (1,500)
Purchase of common shares of American Savings Bank - (6,704)
Issuance of loan to ESOP - (1,270)
----- -------
Net cash used in investing activities (1,848) (9,474)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common shares - 15,167
Payment of dividends on common stock (557) (129)
------ --------
Net cash provided by (used in) financing activities (557) 15,038
------ ------
Net increase (decrease) in cash and cash equivalents (2,118) 5,693
Cash and cash equivalents at beginning of year 5,693 -
----- ------
Cash and cash equivalents at end of year $3,575 $ 5,693
===== =======
</TABLE>
-----
47
<PAGE> 49
ASB FINANCIAL CORP.
DIRECTORS AND OFFICERS
================================================================================
Gerald R. Jenkins Director and President
President and Managing Officer
American Savings Bank, fsb
Robert M. Smith Director and Vice President
Executive Vice President
and Chief Financial Officer
American Savings Bank, fsb
William J. Burke Director
Director and Chief Executive Officer
OSCO Industries, Inc.
Lee O. Fitch Director
Shareholder and Director
Miller, Searl & Fitch, L.P.A.
Victor W. Morgan Director
Morgan Brothers, Inc.
Retired
Louis M. Schoettle, M.D. Director
Physician
Retired
M. Kathryn Scott Secretary
Secretary
American Savings Bank, fsb
Carlisa R. Baker Treasurer
Treasurer
American Savings Bank, fsb
AMERICAN SAVINGS BANK, FSB
DIRECTORS AND OFFICERS
===============================================================================
Gerald R. Jenkins Director and President
Robert M. Smith Director and Executive Vice President
William J. Burke Director
Lee O. Fitch Director and Attorney
Victor W. Morgan Director
Louis M. Schoettle, M.D. Director
Jack A. Stephenson Vice President
M. Kathryn Scott Secretary
Carlisa R. Baker Treasurer
-----
48
<PAGE> 50
SHAREHOLDER SERVICES
===============================================================================
The Fifth Third Bank serves as transfer agent and dividend disbursing agent for
ASB's shares. Communications regarding change of address, transfer of shares,
lost certificates and dividends should be sent to:
The Fifth Third Bank
Stock Transfer Department
Mail Drop 1090F5
38 Fountain Square Plaza
Cincinnati, Ohio 45263
(513) 579-5320
(800) 837-2755
ANNUAL MEETING
===============================================================================
The Annual Meeting of Shareholders of ASB Financial Corp. will be held on
October 23, 1996, at 11:00 a.m., Eastern Time, at Holiday Inn, U.S. Route 23
North, Portsmouth, Ohio. Shareholders are cordially invited to attend.
ANNUAL REPORT ON FORM 10-KSB
===============================================================================
A copy of ASB's Annual Report on Form 10-KSB, as filed with the Securities and
Exchange Commission, will be available at no charge to shareholders upon written
request to:
American Savings Bank, fsb
503 Chillicothe Street
Portsmouth, Ohio 45662
Attention: Gerald R. Jenkins, President
-----
49
<PAGE> 1
Exhibit 20
ASB FINANCIAL CORP.
503 CHILLICOTHE STREET
PORTSMOUTH, OHIO 45662
(614) 354-3177
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the 1996 Annual Meeting of Shareholders of
ASB Financial Corp. ("ASB") will be held at the Holiday Inn, U.S. Route 23
North, Portsmouth, Ohio 45662, on October 23, 1996 at 11:00 a.m., local time
(the "Annual Meeting"), for the following purposes, all of which are more
completely set forth in the accompanying Proxy Statement:
1. To elect three directors of ASB for terms
expiring in 1998;
2. To ratify the selection of Grant Thornton LLP as
the auditors of ASB for the current fiscal year;
and
3. To transact such other business as may properly
come before the Annual Meeting or any
adjournments thereof.
Only shareholders of ASB of record at the close of business on
September 6, 1996, will be entitled to receive notice of and to vote at the
Annual Meeting and at any adjournments thereof. Whether or not you expect to
attend the Annual Meeting, we urge you to consider the accompanying Proxy
Statement carefully and to SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY SO
THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND THE PRESENCE OF
A QUORUM MAY BE ASSURED. The giving of a Proxy does not affect your right to
vote in person in the event you attend the Annual Meeting.
By Order of the Board of Directors
Portsmouth, Ohio Gerald R. Jenkins, President
September 20, 1996
<PAGE> 2
ASB FINANCIAL CORP.
503 CHILLICOTHE STREET
PORTSMOUTH, OHIO 45662
(614) 354-3177
PROXY STATEMENT
PROXIES
The enclosed Proxy is being solicited by the Board of Directors of ASB
Financial Corp. ("ASB") for use at the 1996 Annual Meeting of Shareholders of
ASB to be held at the Holiday Inn, U.S. Route 23 North, Portsmouth, Ohio 45662,
on October 23, 1996, at 11:00 a.m., local time, and at any adjournments thereof
(the "Annual Meeting"). Without affecting any vote previously taken, the Proxy
may be revoked by a shareholder executing a later dated proxy which is received
by ASB before the Proxy is exercised or by giving notice of revocation to ASB in
writing or in open meeting before the Proxy is exercised. Attendance at the
Annual Meeting will not, of itself, revoke a Proxy.
Each properly executed Proxy received prior to the Annual Meeting and
not revoked will be voted as specified thereon or, in the absence of specific
instructions to the contrary, will be voted:
FOR the reelection of Messrs. Victor W. Morgan and Robert M.
Smith and Dr. Louis M. Schoettle as directors of ASB for terms
expiring in 1998; and
FOR the ratification of the selection of Grant Thornton LLP
("Grant Thornton") as the auditors of ASB for the current
fiscal year.
Proxies may be solicited by the directors, officers and other employees
of ASB and American Savings Bank, fsb ("American"), in person or by telephone,
telegraph or mail only for use at the Annual Meeting. Such Proxies will not be
used for any other meeting. The cost of soliciting Proxies will be borne by ASB.
Only shareholders of record as of the close of business on September 6,
1996 (the "Voting Record Date"), are entitled to vote at the Annual Meeting.
Each such shareholder will be entitled to cast one vote for each share owned.
ASB's records disclose that, as of the Voting Record Date, there were 1,713,960
votes entitled to be cast at the Annual Meeting.
This Proxy Statement is first being mailed to shareholders of ASB on or
about September 20, 1996.
VOTE REQUIRED
ELECTION OF DIRECTORS
Under Ohio law and ASB's Code of Regulations (the "Regulations"), the
three nominees receiving the greatest number of votes will be elected as
directors. Shares as to which the authority to vote is withheld are not counted
toward the election of directors or toward the election of the individual
nominees specified on the Proxy. If the accompanying Proxy is signed and dated
by the shareholder but no vote is specified thereon, the shares held by such
shareholder will be voted FOR the reelection of the three nominees.
RATIFICATION OF SELECTION OF AUDITORS
The affirmative vote of the holders of a majority of the shares
represented in person or by proxy at the Annual Meeting is necessary to ratify
the selection of Grant Thornton as the auditors of ASB for the current fiscal
year. The effect of an abstention is the same as a vote against ratification. If
the accompanying Proxy is signed and dated by the shareholder but no vote is
specified thereon, the shares held by such shareholder will be voted FOR the
ratification of the selection of Grant Thornton as auditors.
-1-
<PAGE> 3
VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
only person known to ASB to own beneficially more than five percent of the
outstanding common shares of ASB as of August 31, 1996:
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name and Address Beneficial Ownership Shares Outstanding
- ---------------- -------------------- ------------------
<S> <C> <C>
First Bankers Trust, N.A. 126,960 (1) 7.41%
1201 Broadway
Quincy, Illinois 62301
<FN>
- ---------------------------
(1) Consists of the shares held by First Bankers Trust, N.A. as the Trustee
for the ASB Financial Corp. Employee Stock Ownership Plan (the "ESOP").
</TABLE>
The following table sets forth certain information with respect to the
number of common shares of ASB beneficially owned by each director of ASB and by
all directors and executive officers of ASB as a group as of August 31, 1996:
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership
------------------------------------------
Sole Voting and Shared Voting and Percent of
Name and Address(1) Investment Power Investment Power Shares Outstanding
- ------------------- ---------------- ---------------- ------------------
<S> <C> <C> <C>
William J. Burke 14,408 16,361 1.80%
Lee O. Fitch 89,569(2) 7,265 5.65
Gerald R. Jenkins 12,708 18,719 1.83
Victor W. Morgan 15,372 15,269 1.79
Louis M. Schoettle, M.D. - 32,215 1.88
Robert M. Smith 6,879 14,944 1.27
All directors and executive officers of ASB
as a group (9 persons) 141,314 118,899 15.12%
- -----------------------------
<FN>
(1) Each of the persons listed in this table may be contacted at the
address of ASB.
(2) This number includes 68,588 shares held by the American Savings Bank,
fsb Management Recognition Plan and Trust Agreement (the "MRP"), with
respect to which Mr. Fitch has sole voting power as Trustee of the MRP.
</TABLE>
-2-
<PAGE> 4
BOARD OF DIRECTORS
ELECTION OF DIRECTORS
The Regulations provide for a Board of Directors consisting of six
persons. Each of the directors of ASB is also a director of American.
In accordance with Section 2.03 of the Regulations, nominees for
election as directors may be proposed only by the directors or by a shareholder
entitled to vote for directors if such shareholder has submitted a written
nomination to the Secretary of ASB by the later of the August 15th immediately
preceding the annual meeting of shareholders or the sixtieth day before the
first anniversary of the most recent annual meeting of shareholders held for the
election of directors. Each such written nomination must state the name, age,
business or residence address of the nominee, the principal occupation or
employment of the nominee, the number of common shares of ASB owned either
beneficially or of record by each such nominee and the length of time such
shares have been so owned.
The Board of Directors proposes the reelection of the following persons
to terms which will expire in 1998:
<TABLE>
<CAPTION>
Director Director
of ASB of American
Name Age(1) Position(s) Held Since (2) Since
---- ------ ---------------- --------- ----------
<S> <C> <C> <C> <C>
Victor W. Morgan 69 Director 1995 1978
Louis M. Schoettle, M.D. 70 Director 1995 1975
Robert M. Smith 50 Director and Vice President 1995 1985
- -----------------------------
<FN>
(1) As of September 15, 1996.
(2) Each nominee became a director of ASB in connection with the conversion
of American from mutual to stock form (the "Conversion") and the
formation of ASB as the holding company for American.
</TABLE>
If any nominee is unable to stand for election, any Proxies granting authority
to vote for such nominee will be voted for such substitute as the Board of
Directors recommends.
The following directors will continue to serve after the Annual Meeting
for the terms indicated:
<TABLE>
<CAPTION>
Director Director of
of ASB American
Name Age(1) Position(s) Held Since (2) Since Term Expires
- ---- ------ ---------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
William J. Burke 55 Director 1995 1977 1997
Lee O. Fitch 80 Director 1995 1979 1997
Gerald R. Jenkins 61 Director and President 1995 1968 1997
- -----------------------------
<FN>
(1) As of September 15, 1996.
(2) Each director became a director of ASB in connection with the
Conversion.
</TABLE>
MR. BURKE is a director, the chief executive officer and the marketing
manager of OSCO Industries, Inc., a manufacturing company which has its
principal place of business in Portsmouth, Ohio. He has been employed by OSCO
Industries, Inc., since 1977.
-3-
<PAGE> 5
MR. FITCH is a shareholder and director of the law firm of Miller,
Searl and Fitch, L.P.A. He has practiced law with Miller, Searl and Fitch since
1950.
MR. JENKINS, the President and Chief Executive Officer of ASB and
American, has been employed by American since 1967. Prior to becoming President
in 1983, he held various positions at American including Secretary and Vice
President.
MR. MORGAN retired in 1990 after over 40 years with Morgan Brothers,
Inc., a retail jewelry business in Portsmouth. At the time of his retirement, he
was President of Morgan Brothers, Inc.
DR. SCHOETTLE is a physician. He retired from active practice in 1994
after over 35 years of practicing medicine in Portsmouth. Dr. Schoettle also
owns and operates a 1,100 acre farm.
MR. SMITH has been employed by American since 1966 and is currently the
Executive Vice President and chief financial officer of American, positions he
has held since 1988. He also currently serves ASB as Vice President. Prior
positions held by Mr. Smith with American include Secretary and Treasurer.
MEETINGS OF DIRECTORS
The Board of Directors of ASB met 10 times for regularly scheduled and
special meetings. Each director attended at least 75% of the aggregate of such
meetings and all committee meetings of which such director was a member.
Each director of ASB is also a director of American. The Board of
Directors of American met 13 times for regularly scheduled and special meetings
during the fiscal year ended June 30, 1996. Each director attended at least 75%
of the aggregate of such meetings and all meetings of committees of the Board of
Directors of which such director was a member.
COMMITTEES OF DIRECTORS
The Board of Directors of ASB has an Audit Committee and a Stock Option
Committee. The Board of Directors of ASB does not have a Nominating Committee.
The Audit Committee recommends audit firms to the full Board of
Directors and reviews and approves the annual independent audit report. The
members of the Audit Committee are Messrs. Burke and Morgan and Dr. Schoettle.
The Audit Committee met once during the fiscal year ended June 30, 1996.
The Stock Option Committee is responsible for administering the Stock
Option Plan, including interpreting the Stock Option Plan and awarding options
pursuant to its terms. Its members are Messrs. Burke, Fitch and Morgan. The
Stock Option Committee met once during the fiscal year ended June 30, 1996.
The Board of Directors of American has an Executive Committee, an Audit
Committee, a Finance Committee and a MRP Committee.
The members of the Executive Committee are Messrs. Burke, Fitch,
Jenkins and Smith. The Executive Committee serves as a loan approval committee
and is authorized to act on behalf of the Board of Directors between regular
meetings of the Board of Directors. The Executive Committee met ten times during
the fiscal year ended June 30, 1996.
The Audit Committee is responsible for reviewing the annual independent
audit report of ASB. The members of the Audit Committee are Messrs. Burke and
Morgan and Dr. Schoettle. The Audit Committee met once during the 1996 fiscal
year.
The Finance Committee is comprised of Messrs. Fitch, Jenkins and
Morgan. The function of the Finance Committee is to determine compensation for
American's executive officers and to make recommendations to the Board of
Directors regarding employee compensation matters. The Finance Committee met
once during the fiscal year ended June 30, 1996.
-4-
<PAGE> 6
The MRP Committee administers the MRP. Such committee consists of
Messrs. Burke, Fitch and Morgan. The MRP Committee met once during the 1996
fiscal year.
EXECUTIVE OFFICERS
In addition to Mr. Jenkins, the President of both ASB and American, and
Mr. Smith, the Vice President of ASB and the Executive Vice President of
American, the following persons are executive officers of ASB and American and
hold the designated positions:
<TABLE>
<CAPTION>
Name Age(1) Position(s) Held
- ---- ------- ----------------
<S> <C> <C>
Carlisa R. Baker 34 Treasurer of American and ASB
M. Kathryn Scott 45 Secretary of American and ASB
Jack A. Stephenson 44 Vice President/Lending of American
- ----------------------------------
<FN>
(1) As of September 15, 1996.
</TABLE>
MS. BAKER has been employed by American since 1979. In 1993, she was
promoted to her present position as Treasurer. In that capacity, she is
responsible for American's accounting department. Ms. Baker has served as the
Treasurer of ASB since November 1995.
MS. SCOTT has been employed by American since 1984. She is responsible
for American's deposit activities. She has also served as American's corporate
Secretary since 1993 and ASB's corporate Secretary since January 1995.
MR. STEPHENSON has been employed by American since 1987. Since 1988 he
has served as American's Vice President responsible for lending activities.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to Gerald R.
Jenkins, the President of ASB and American, for the fiscal years ended June 30,
1996, 1995 and 1994. No other executive officer of ASB earned salary and bonus
in excess of $100,000 during such periods.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation Long Term Compensation All Other
Compensation(1)
-------------------------------------------------------------------------------------------------------------------
Awards
----------------------------------------
Name and Principal Year Salary ($) Bonus ($) Restricted Securities
Position Stock Awards Underlying
($) Options/SARs (#)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Jenkins 1996 $94,400 $ 9,210 - 42,849 (2) $15,900
President 1995 $89,900 $13,200 - - $13,200
1994 $87,700 $13,200 - - $17,455
--------------------------
(Footnotes on next page)
</TABLE>
-5-
<PAGE> 7
(1) Does not include amounts attributable to miscellaneous
benefits received by Mr. Jenkins, the cost of which was less
than 10% of Mr. Jenkins' annual salary and bonus. The amounts
reported consist of directors fees and a contribution to the
account of Mr. Jenkins under American's Simplified Employee
Pension Plan.
(2) Represents the number of common shares of ASB underlying
options granted to Mr. Jenkins pursuant to the Stock Option
Plan.
American maintains a non-qualified retirement plan (the "Salary Plan")
for the benefit of its five executive officers. The Plan provides for continued
monthly compensation to an employee, or his or her beneficiary, for 180 months
following the employee's retirement from American at age 65, provided the
employee has completed 15 consecutive years of service to American. The Salary
Plan provides for a reduced benefit if the employee retires after age 55 and
before age 65. If the employee's employment is terminated prior to the employee
attaining age 55 for any reason other than total disability or death, the
employee is not entitled to receive any benefits under the Salary Plan. The
benefit payable to Mr. Jenkins under the Salary Plan, assuming his retirement at
age 65, is $5,000 per month for 180 months.
STOCK OPTION PLAN
At the 1995 Annual Meeting of Shareholders of ASB, the Shareholders
approved the Stock Option Plan. Pursuant to the Stock Option Plan, 171,396
common shares were reserved for issuance by ASB upon the exercise of options to
be granted to certain directors, officers and employees of American and ASB from
time to time under the Stock Option Plan. Options to purchase 145,684 common
shares of ASB were awarded pursuant to the Stock Option Plan during the 1996
fiscal year.
The Stock Option Committee may grant options under the Stock Option
Plan at such times as they deem most beneficial to American and ASB on the basis
of the individual participant's responsibility, tenure and future potential to
American and ASB.
Options granted to the officers and employees under the Stock Option
Plan may be "incentive stock options" ("ISOs") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"). Options granted
under the Stock Option Plan to directors who are not employees of ASB or
American will not qualify under the Code and thus will not be incentive stock
options ("Non-Qualified Stock Options").
The option exercise price of each option granted under the Stock Option
Plan will be determined by the Committee at the time of option grant, with the
exception that the exercise price for an option must not be less than 100% of
the fair market value of the shares on the date of the grant. In addition, the
exercise price of an ISO may not be less than 110% of the fair market value of
the shares on the date of the grant if the recipient owns more than 10% of ASB's
outstanding common shares. The Committee shall fix the term of each option,
except that an ISO shall not be exercisable after the expiration of ten years
from the date it is granted; provided, however, that if a recipient of an ISO
owns a number of shares representing more than 10% of the ASB shares outstanding
at the time the ISO is granted, the term of the ISO shall not exceed five years.
One-fifth of such stock options awarded under the Stock Option Plan will become
exercisable on each of the first five anniversaries of the date of the award. If
the fair market value of shares awarded pursuant to ISOs exercisable for the
first time by a participant under the Stock Option Plan during any calendar year
exceeds $100,000, however, the ISOs will be considered Non-Qualified Stock
Options to the extent of such excess.
An option recipient cannot transfer or assign an option other than by
will or in accordance with the laws of descent and distribution. Termination for
cause, as defined in the Stock Option Plan, will result in the annulment of any
outstanding exercisable options and any options which have not yet become
exercisable shall terminate upon the resignation, removal or retirement of a
director of ASB or American, or upon the termination of employment of an officer
or employee of ASB or American, except in the case of death or disability.
-6-
<PAGE> 8
The following table sets forth information regarding all grants of
options to purchase common shares of ASB made to Mr. Jenkins during the 1996
fiscal year:
Option/SAR Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
- ----------------------------------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options/SARs Granted
Options/SARs to Employees in Exercise or Base Expiration
Name Granted (#) 1996 Fiscal Year Price ($/Share) Date
- ---- ------------ --------------------- ----------------- ---------
<S> <C> <C> <C> <C>
Gerald R. Jenkins 42,849 (1) 38.5% $13.875 November 15, 2005
- ----------------------------
<FN>
(1) The option was granted on November 15, 1995, and is first exercisable
with respect to one-fifth of the shares subject to the option on each
anniversary of the date of grant of the option commencing November 15,
1996. The option is intended to quality as an ISO to the extent
permitted by applicable regulations.
</TABLE>
The following table sets forth information regarding the number and
value of unexercised options held by Mr. Jenkins at June 30, 1996:
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and 6/30/96 Option /SAR Values
----------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised In-the-Money
Options/SARs at 6/30/96 (#) Options/SARs at 6/30/96 ($)(1)
Name Shares Acquired on Value
Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------------- --------------------- -------------- -------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Gerald R. Jenkins -0- N/A -0-/42,849 -0-/$16,068
- -----------------------------
<FN>
(1) An option is "in-the-money" if the fair market value of the underlying
stock exceeds the exercise price of the option. For purposes of this
table, the value of the option was determined by multiplying the number
of unexercised options by the difference between the $13.875 exercise
price and the fair market value of ASB's common shares, which was
$14.25 on June 28, 1996, based on the closing bid price reported by the
Nasdaq National Market.
</TABLE>
MANAGEMENT RECOGNITION PLAN
At the 1995 Annual Meeting of the Shareholders of ASB, the shareholders
approved the MRP. With funds contributed by American, the MRP purchased 68,558
common shares, 31,535 of which were awarded to directors and executive officers
of ASB and American during the 1996 fiscal year.
The MRP is administered the MRP Committee. The MRP Committee determines
which directors and employees of American will be awarded shares under the MRP
and the number of shares awarded; provided, however, that the aggregate number
of shares covered by awards to any one director or employee shall not exceed 25%
of the shares held pursuant to the MRP and directors who are not employees of
American may not receive more than 5% of such shares individually or 30% in the
aggregate.
-7-
<PAGE> 9
Unless the MRP Committee specifies a longer time period at the time of
an award of shares, one-fifth of such shares will be earned and non-forfeitable
on each of the first five anniversaries of the date of the award. Until shares
awarded are earned by the participant, such shares will be forfeited in the
event that the participant cases to be either a director or an employee of
American, except that in the event of the death or disability of a participant,
the participant's shares will be deemed to be earned and nonforfeitable.
The shares will be distributed as soon as practicable after they are
earned. A participant may direct the voting of all shares awarded to him or her
prior to such shares being earned and will be entitled to the benefit of any
dividends or other distributions paid on such shares. However, a participant
will not be allowed, for five years from the effective date of the Conversion,
to direct the voting of common shares awarded, but not yet earned and
distributed, if such participant would, if permitted to vote such awarded
shares, be deemed to own in excess of ten percent (10%) of all issued and
outstanding common shares of ASB. Shares that have been awarded, but not earned,
may not be transferred.
DIRECTOR COMPENSATION
Each director currently receives a fee of $250 per month for service as
a director of ASB and a fee of $1,200 per month for service as a director of
American. In addition, each member of American's Audit Committee also receives
$50 per committee meeting attended. During fiscal 1996, a total of $95,500 was
paid in directors' fees.
In December 1981 American instituted a deferred compensation benefit
plan pursuant to which the directors could defer payment of their director's
fees. Effective April 14, 1995, each of the six directors entered into
agreements with American which restated such plan, transferred all amounts
previously deferred to a trust, and provided that all future deferred amounts be
contributed to the trust. The amounts deferred will be used to purchase stock of
ASB at various times throughout the year. Dividends on ASB stock, to the extent
permitted by law and regulations governing ASB's operations, shall be reinvested
in ASB shares. One month after the director ceases to be an active director of
American, American shall pay the director's deferred amount in a lump sum, or at
the director's option, in equal monthly payments for a period of not less than
five nor more than ten years. The deferred amount shall be paid in common stock
of American unless American shall deem it prudent to convert the stock into
cash.
If a director dies while serving as a director of American, equal
monthly payments for a period of ten years will be made to the director's
beneficiary. Such death benefit payments will total the amount the director
would have received if he had retired on the day of his death.
SELECTION OF AUDITORS
The Board of Directors has selected Grant Thornton as the auditors of
ASB for the current fiscal year and recommends that the shareholders ratify the
selection. Management expects that a representative of Grant Thornton will be
present at the Annual Meeting, will have the opportunity to make a statement if
he or she so desires and will be available to respond to appropriate questions.
-8-
<PAGE> 10
PROPOSALS OF SHAREHOLDERS AND OTHER MATTERS
Any proposals of shareholders intended to be included in ASB's proxy
statement for the 1997 Annual Meeting of Shareholders should be sent to ASB by
certified mail and must be received by ASB not later than May 23, 1997.
Management knows of no other business which may be brought before the
Annual Meeting. It is the intention of the persons named in the enclosed Proxy
to vote such Proxy in accordance with their best judgment on any other matters
which may be brought before the Annual Meeting.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO FILL IN, SIGN AND
RETURN THE PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.
By Order of the Board of Directors
Gerald R. Jenkins, President
September 20, 1996
-9-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 411
<INT-BEARING-DEPOSITS> 10,127
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,012
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 68,455
<ALLOWANCE> 884
<TOTAL-ASSETS> 112,922
<DEPOSITS> 83,395
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,219
<LONG-TERM> 2,413
<COMMON> 0
0
0
<OTHER-SE> 25,613
<TOTAL-LIABILITIES-AND-EQUITY> 112,922
<INTEREST-LOAN> 5,498
<INTEREST-INVEST> 2,675
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,173
<INTEREST-DEPOSIT> 4,267
<INTEREST-EXPENSE> 4,310
<INTEREST-INCOME-NET> 3,863
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,373
<INCOME-PRETAX> 1,685
<INCOME-PRE-EXTRAORDINARY> 1,685
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,111
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
<YIELD-ACTUAL> 7.81
<LOANS-NON> 296
<LOANS-PAST> 862
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 893
<CHARGE-OFFS> 9
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 884
<ALLOWANCE-DOMESTIC> 884
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 562
</TABLE>
