<PAGE> 1
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[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, 1997
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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________________
Commission File Number: 0-25906
ASB FINANCIAL CORP.
----------------------------------------------
(Name of small business issuer in its charter)
Ohio 31-1429488
- ------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
<TABLE>
<S> <C>
503 Chillicothe Street, Portsmouth, Ohio 45662 Issuer's telephone number: (614) 354-3177
------------------------------------------------ --------------
(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
--- ---
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, 1997
were $8.8 million.
Based upon the average of the bid and asked prices quoted by
the Nasdaq National Market, the aggregate market value of the voting stock held
by non-affiliates of the issuer on September 24, 1997, was $17.5 million.
1,721,412 of the issuer's common shares were issued and
outstanding on September 24, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-KSB - Portions of the Annual Report to Shareholders for the
fiscal year ended June 30, 1997.
Part III of Form 10-KSB - Portions of the Proxy Statement for 1997 Annual
Meeting of Shareholders.
<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").
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
state 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 residential real estate 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,
--------------------------------------------------------------------------
1997 1996 1995
------------------- -------------------- ----------------------
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 $50,481 66.3% $48,302 68.0% $45,929 71.4%
Multifamily 7,721 10.1 8,265 11.6 8,272 12.9
Nonresidential and land 5,520 7.3 3,401 4.8 4,048 6.3
Construction 926 1.2 2,318 3.3 1,064 1.6
Home equity 3,464 4.6 1,800 2.5 - -
Commercial 2,824 3.7 2,412 3.4 946 1.5
------- ------- ------- ------- ------- -------
Total real estate loans 70,936 93.2 66,498 93.6 60,259 93.7
Consumer and other loans:
Passbook 556 .7 586 .8 617 1.0
Home improvement 1,462 1.9 1,433 2.0 1,477 2.3
Automobile 2,087 2.8 2,199 3.1 1,377 2.1
Other 1,091 1.4 350 .5 575 .9
------- ------- ------- ------- ------- -------
Total consumer and other loans 5,196 6.8 4,568 6.4 4,046 6.3
------- ------- ------- ------- ------- -------
Total loans 76,132 100.0% 71,066 100.0% 64,305 100.0%
======= ======= =======
Less:
Loans in process 978 1,529 1,065
Net deferred loan origination fees and
unearned discounts 198 198 194
Allowance for loan losses 820 884 893
------- ------- -------
Total loans net $74,136 $68,455 $62,153
======= ======= =======
</TABLE>
LOAN MATURITY. The following table sets forth the contractual maturity
of American's total loans at June 30, 1997, before consideration of net items:
<TABLE>
<CAPTION>
Due during the fiscal One- to Consumer
year ending June 30, four-family (1) Multifamily Nonresidential (2) and other (3) Total
- -------------------- --------------- ------------ ------------------ ------------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
1998 $ 2,536 $1,044 $ 792 $ 3,235 $ 7,607
1999 2,746 1,127 930 1,986 6,789
2000 2,971 1,215 972 1,899 7,057
2001-2002 6,694 2,725 1,683 3,110 14,212
2003-2007 21,858 1,610 1,143 1,254 25,865
2008-2012 12,484 - - - 12,484
2013 and thereafter 2,118 - - - 2,118
------- ------ ------ -------- -------
$51,407 $7,721 $5,520 $11,484 $76,132
======= ====== ====== ======= =======
<FN>
- -----------------------------
(1) Includes construction loans.
(2) Includes land development loans.
(3) Includes commercial loans.
</TABLE>
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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 homes, 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, 1997, American's one- to four-family residential real estate loan portfolio,
including construction loans secured by one- to four-family residences, was
approximately $51.4 million, or 67.5% 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 95%. The principal amount of any loan which exceeds an 85%
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 U.S. Treasury securities rates or the Previously
Occupied Homes index published by the Federal Home Loan Bank (the "FHLB"). 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.
American also offers home equity loans for current mortgage customers
on one- to four-family residences with LTV's of up to 100%. At June 30, 1997,
American's home equity loans totaled $3.5 million, or 4.6% of total loans.
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 70% 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, 1997, loans secured by multifamily properties totaled
approximately $7.7 million, or 10.1% of total loans.
LOANS SECURED BY NONRESIDENTIAL REAL ESTATE AND LAND. At June 30, 1997,
approximately $5.5 million, or 7.3% 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 $1.7
million in participation interests which have been purchased in loans originated
by other financial institutions.
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American has one land loan with a principal balance of $725,000 secured
by developed land which has been subdivided for single-family home construction
in Scioto County. Loans for the construction of nonresidential real estate are
occasionally made by American. At June 30, 1997, American had no outstanding
nonresidential real estate construction loans.
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.
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. At June 30, 1997, construction loans, in the aggregate,
totaled $926,000, or 1.2% of American's total loans. Approximately 80% of
American's construction loans are secured by property in Scioto County.
COMMERCIAL REAL ESTATE LOANS. At June 30, 1997, approximately $2.8
million, or 3.7% of American's total loans were secured by commercial real
estate. American originates commercial loans for a maximum term of 15 years and
which are secured by real estate with a LTV of up to 80%. These extensions of
credit are typically secured by office buildings, retail stores and other
commercial properties.
CONSUMER AND OTHER LOANS. American makes various types of consumer
loans, including loans made to depositors on the security of their deposit
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 loans on deposits, are made at fixed rates of
interest only and for varying terms based on the type of loan. At June 30, 1997,
American had approximately $1.1 million, or 1.4% of total loans, invested in
consumer and other loans.
Home improvement loans 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 Directors Gerald Jenkins, Robert
Smith, William Burke and Louis Schoettle. 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 does not conform to the secondary
market standards of the Federal Home Loan Mortgage Corporation ("FHLMC") or the
Federal National Mortgage Association (" 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
brokers. 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 originated by American. American
intends to continue to purchase loans as suitable investment opportunities
become available.
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The following table presents American's loan origination, purchase and
sale activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Loans originated:
Adjustable-rate:
One- to four-family real estate $ 1,385 $ 1,827 $ 1,251
Multifamily real estate 352 636 -
Nonresidential real estate 2,298 112 782
------- ------- -------
Total adjustable-rate 4,035 2,575 2,033
Fixed-rate:
One- to four-family real estate 9,886 11,324 5,701
Nonresidential real estate - 424 686
Consumer 8,582 9,562 5,314
-------- ------- -------
Total fixed-rate 18,468 21,310 11,701
Loans purchased 773 1,711 3,279
------- ------- -------
Total loans originated and purchased 23,276 25,596 17,013
Reductions:
Principal repayments 17,697 18,715 13,716
Transfers from loans to real estate
owned and repossessed assets - 138 525
------- ------- -------
Total reductions 17,697 18,853 14,241
Increase (decrease) in other
items, net (1) 102 (441) 77
------- ------- -------
Net increase $ 5,681 $ 6,302 $ 2,849
======= ======= =======
<FN>
- -----------------------------
(1) Consists of loans in process, unearned discounts and deferred loan
origination fees and allowance for loan losses.
</TABLE>
FEDERAL LENDING LIMIT. OTS regulations impose a lending limit on 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 for risk-based capital
purposes plus any loan reserves not already included in total capital (the
"Lending Limit Capital"). A savings association may loan to one borrower an
additional amount not to exceed 10% of the association's Lending Limit Capital,
if the additional amount is fully secured by certain forms of "readily
marketable collateral." Real estate is not considered "readily marketable
capital." In applying this limit, the regulations require that loans to certain
related or affiliated borrowers be aggregated. An exception to this limit
permits loans of any type to one borrower of up to $500,000. In addition, the
OTS, under certain circumstances, may permit exceptions to the lending limit on
a case-by-case basis.
Based on such limits, American was able to lend approximately $2.1
million to one borrower at June 30, 1997. The largest loan American had
outstanding to one borrower at June 30, 1997, was $2.5 million. At the time of
its origination, this loan was within the applicable loans-to-one-borrower
limitations and, as such, is exempt from the current limitation. Such loan was
secured by automobile titles, assignments of leases and a guarantee of the
leasing company and was current at June 30, 1997.
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
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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.
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 are sent and telephone calls are made to the borrower. Each loan
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 collateral 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, 1997
-------------------------------------------------------------------------------------------------------
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>
Loans delinquent for:
30-59 days 39 $1,199 1.6% - $- - % 10 $41 .1% 49 $1,240 1.7%
60-89 days 17 830 1.1 - - - 8 32 -- 25 862 1.1
90 days and over 6 1,052 1.4 - - - 10 93 .1 16 1,145 1.5
-- ------ --- - --- --- -- ---- -- -- ------ ---
Total delinquent 62 $3,081 4.1% - $- - % 28 $166 .2 90 $3,247 4.3%
loans == ====== === = === === == ==== == == ====== ===
<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 65 $3,729 5.2% 2 $153 .2% 34 $123 .2% 101 $4,005 5.6%
loans == ====== === = === === == ==== == === ====== ===
<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 71 $3,700 5.8% 3 $272 .4% 20 $88 .1% 94 $4,060 6.3%
loans == ====== === = ==== == == === == == ====== ===
<FN>
- ------------------------------------
(1) Percentages correlate to total loans before net items.
</TABLE>
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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,
------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Non-accrual loans:
One- to four-family $87 $164 $207
Nonresidential - 115 -
Multifamily 862 862 1,700
Consumer 42 17 22
------ ------ ------
Total 991 1,158 1,929
Accruing loans delinquent
90 days or more: 154 - -
------ ------ ------
Total nonperforming loans 1,145 1,158 1,929
Real estate acquired through foreclosure:
One- to four-family - - -
Nonresidential - 663 525
Multifamily - - -
------ ------ ------
Total real estate acquired through
foreclosure - 663 525
------ ------ ------
Total nonperforming assets $1,145 $1,821 $2,454
====== ====== ======
Allowance for loan losses $820 $884 $893
====== ====== ======
Nonperforming assets as a percent
of total assets (1) 1.02% 1.61% 2.30%
Allowance for loan losses as a percent of
nonperforming loans 71.62% 76.34% 46.29%
Allowance for loan losses as a percent of
nonperforming assets 71.62% 48.54% 36.39%
<FN>
- ----------
(1) The applicable asset totals are $112.5 million, $112.9 million and $106.9
million for the fiscal years ended June 30, 1997, 1996 and 1995,
respectively.
</TABLE>
For the year ended June 30, 1997, gross interest income which would
have been recorded had non-accrual loans been current in accordance with their
original terms was $9,000. 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 from such date in
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<PAGE> 11
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,
------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Classified assets
Substandard $949 $1,804 $2,432
Doubtful - - -
Loss 42 59 22
---- ------ ------
Total classified assets $991 $1,863 $2,454
==== ====== ======
</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 of Directors, 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 American's 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,
-----------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $884 $893 $1,115
Charge-offs:
Residential real estate loans (1) (22) (9) -
Nonresidential real estate loans (64) - (260)
Consumer loans (6) - (4)
----- ----- -------
Total charge-offs (92) (9) (264)
Recoveries - - 32
----- ----- -------
Net charge-offs (92) (9) (232)
-------
Provision for losses on loans 28 - 10
----- ----- -------
Balance at end of period $820 $884 $893
===== ===== =======
Ratio of net charge-offs to average loans
outstanding during the period .13% .01% .38%
<FN>
(1) Includes multifamily loans.
</TABLE>
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,
------------------------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ------------------------
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 $216 84.9% $309 87.7% $615 92.2%
Consumer loans 42 15.1 13 12.3 22 7.8
Unallocated 562 - 562 - 256 -
---- ----- ---- ----- ---- -----
Total $820 100.0% $884 100.0% $893 100.0%
==== ===== ==== ===== ==== =====
</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,
---------------------------------------------------------------------------
1997 1996 1995
---------------------- --------------------- ----------------------
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) $ 7,732 29.3% $10,127 34.4% $14,942 48.5%
U.S. Government
agency obligations - - - - 14,107 45.8
------- ----- ------- ----- ------- -----
Total investments designated as
held to maturity (2) 7,732 29.3 10,127 34.4 29,049 94.3
Investments designated
as available for sale:
U.S. Government
agency obligations 17,960 68.0 18,771 63.8 1,357 4.4
FHLMC stock 700 2.7 513 1.8 411 1.3
------- ----- ------- ----- ------- -----
Total investments designated
as available for sale 18,660 70.7 19,284 65.6 1,768 5.7
------- ----- ------- ----- ------- -----
Total investments $ 26,392 100.0% $29,411 100.0% $30,817 100.0%
======= ===== ======= ===== ======= =====
<FN>
- -----------------------------
(1) Includes interest-bearing deposits and certificates of deposit.
(2) At June 30, 1997, 1996 and 1995, the market value of American's
investment securities, held to maturity, totaled $7.7 million, $10.1
million and $29.0 million, respectively.
</TABLE>
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, 1997:
<TABLE>
<CAPTION>
Less than 1 Year 1-5 Years 5-10 Years 10-20 Years Total
------------------ ------------------ ------------------ ------------------ ----------------
Weighted Weighted Weighted Weighted
Amortized average Amortized average Amortized average Amortized average Amortized Market
cost yield cost yield cost yield cost yield cost value
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investments designated as
held to maturity:
Certificates of deposit
in other financial
institutions $2,545 6.00% $1,713 6.63% $ - -% $ - -% $ 4,258 $ 4,258
Investments designated as
available for sale:
U.S. Government
agency obligations 350 5.27 3,758 6.34 11,029 7.32 2,918 7.84 18,055 17,960
FHLMC stock - - - - 20 700
------ ---- ------ ---- ------- ---- ------ ---- ------- -------
Total $2,895 5.91 $5,471 6.42 $11,029 7.32 $2,918 7.84 $22,333 $22,918
====== ==== ====== ==== ======= ==== ====== ==== ======= =======
</TABLE>
-13-
<PAGE> 14
In addition to the foregoing investment securities, American has been
an active purchaser of mortgage-backed securities. At June 30, 1997,
mortgage-backed securities totaled $8.6 million, or 7.6% 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"), the FHLMC 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 mortgage-backed 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, 1997 At June 30, 1996
---------------------------------------------- --------------------------------------------------
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 $ - $ - $ - $ - $ - $ - $ - $ -
GNMA participation -
certificates - - - - - - -
FNMA participation -
certificates - - - - - - -
FHLMC REMIC - - - - - - - -
------ ---- --- ------ ------- ---- ---- -------
Total - - - - - - - -
Available for sale:
FHLMC participation
certificates 3,067 34 34 3,067 4,119 38 57 4,100
FNMA participation
certificates 1,637 23 21 1,639 2,135 30 27 2,138
GNMA participation
certificates 3,817 61 24 3,854 4,463 81 54 4,490
------ ---- --- ------ ------- ---- ---- -------
Total mortgage-backed
securities $8,521 $118 $79 $8,560 $10,717 $149 $138 $10,728
====== ==== === ====== ======= ==== ==== =======
<CAPTION>
At June 30, 1995
----------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------- ---- ---- -------
<S> <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 - - - -
FNMA participation
certificates - - - -
GNMA participation
certificates 2,276 24 - 2,300
------- ---- ---- -------
Total mortgage-backed
securities $10,111 $108 $131 $10,088
======= ==== ==== =======
</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.
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>
1997 1996 1995
-------------------- -------------------- ---------------------
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 $ 7,379 8.2% $ 7,225 8.7% $ 7,278 9.2%
Demand, NOW and Super NOW
accounts 4,435 4.9 3,448 4.2 2,471 3.1
Money market deposit
accounts 7,785 8.7 9,001 10.8 8,319 10.5
------- ----- ------- ----- ------- -----
Total transaction 19,599 21.8 19,674 23.6 18,068 22.8
accounts
Certificates of deposit:
4.00 - 4.99% 402 .4 474 .5 723 .9
5.00 - 5.99% 52,404 58.4 27,525 33.0 40,949 52.0
6.00 - 6.99% 17,265 19.2 35,638 42.7 19,068 24.1
7.00 - 7.99% 30 .1 36 .1 35 .1
8.00 - 8.99% 52 .1 48 .1 45 .1
------- ----- ------- ----- ------- -----
Total certificates of
deposit 70,153 78.2 63,721 76.4 60,820 77.2
------- ----- ------- ----- ------- -----
Total deposits $89,752 100.0% $83,395 100.0% $78,888 100.0%
======= ===== ======= ===== ======= =====
</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,
----------------------------------------------
1997 1996 1995
------ ------- ----
(In thousands)
<S> <C> <C> <C>
Less than one year $42,468 $44,345 $32,815
One to two years 22,606 10,065 21,663
Two to three years 4,095 5,748 3,269
Over three years 984 3,563 3,073
------- ------- -------
$70,153 $63,721 $60,820
======= ======= =======
</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,
1997:
<TABLE>
<CAPTION>
At June 30,1997
---------------
<S> <C>
Certificates of deposit with balances of $100,000 (In thousands)
or more maturing in quarter ending (1):
September 30, 1997 $ 2,214
December 31, 1997 961
March 31, 1998 1,506
June 30, 1998 1,457
After June 30, 1998 4,361
--------
Total certificates of deposit with balances of $100,000 or more $10,499
=======
- -----------------------------
<FN>
(1) Account balances over $100,000 are not insured by the FDIC.
</TABLE>
The following table sets forth American's deposit account balance
activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
1997 1996 1995
--------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance $ 83,395 $ 78,888 $ 82,514
Deposits 118,033 91,423 107,396
Withdrawals (114,836) (89,410) (113,796)
Interest credited 3,160 2,494 2,774
--------- -------- ---------
Ending balance $ 89,752 $ 83,395 $ 78,888
========= ======== =========
Net increase (decrease) $ 6,357 $ 4,507 $ (3,626)
========= ======== =========
Percent increase (decrease) 7.62% 5.71% (4.39)%
==== ==== =====
</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
maturities. The FHLB may prescribe the acceptable uses for these advances, as
well as limitations on the size of the advances and repayment provisions. In
addition to advances from the FHLB, American has borrowed money totaling
$500,000 at an interest rate of 8.88% maturing in 2001.
-17-
<PAGE> 18
The following table sets forth certain information as to American's
FHLB advances and other borrowings at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
--------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances $2,884 $2,413 $442
Weighted average interest rate of FHLB
advances 5.65% 4.95% 3.16%
Other borrowed money $500 - -
Weighted average interest rate of other -
borrowed money 8.88% -
</TABLE>
The following table sets forth the maximum balance and average balance
of FHLB advances and other borrowings during the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances:
Maximum balance $2,889 $2,413 $466
Average balance 2,514 684 460
Weighted average interest rate 5.65% 5.12% 3.16%
Other borrowed money:
Maximum balance $500 - -
Average balance 333 - -
Weighted average interest rate 8.88% - -
==== ====
</TABLE>
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.
SUBSIDIARY ACTIVITIES
American has one wholly-owned subsidiary, A.S.L. Services, Inc.
("ASL"), which owns stock in American's data processing service provider. At
June 30, 1997, the stock held by the service corporation had a book value of
$15,000. Additionally, during the year ended June 30, 1996, American distributed
$18,000 to ASL which was invested in the Money Concepts Financial Planning
Centre, bringing the total assets of ASL to approximately $33,000 at June 30,
1997.
PERSONNEL
As of June 30, 1997, 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
-18-
<PAGE> 19
Financial Corp. Employee Stock Ownership Plan. None of the employees
of American are represented by a collective bargaining unit.
REGULATION
GENERAL
As a savings and loan holding company within the meaning of the Home
Owners' Loan Act of 1933, as amended (the "HOLA"), ASB is subject to regulation,
examination and oversight by the OTS. American is also subject to regulation,
examination and oversight by the OTS and the FDIC. ASB and American must file
periodic reports with these governmental agencies concerning their activities
and financial condition. American is also subject to certain regulations
promulgated by the Board of Governors of the Federal Reserve System ("FRB").
Congress is considering legislation to eliminate the federal savings
and loan charter and the separate federal regulation of savings and loan
associations, and the Department of the Treasury is preparing a report for
Congress on the development of a common charter for all federally-chartered
financial institutions. Pursuant to such legislation, Congress may eliminate the
OTS and American may be regulated under federal law as a bank or be required to
change its charter. Such change in regulation or charter would likely change the
range of activities in which American may engage and would probably subject
American to more regulation by the FDIC. In addition, ASB might become subject
to a different set of holding company regulations limiting the activities in
which ASB may engage and subjecting ASB to additional regulatory requirements,
including separate capital requirements. At this time, ASB cannot predict when
or whether Congress may actually pass legislation regarding ASB's and American's
regulatory requirements or charter. Although such legislation may change the
activities in which ASB or American are authorized to engage, it is not
anticipated that the current activities of either ASB or American will be
materially affected by those activity limits.
OTS REGULATION
SUPERVISION AND EXAMINATION. The OTS is responsible for the regulation
and supervision of all savings associations, including American. American must
undergo a full-scope, on-site examination by the OTS at least (a) once every
twelve months, if it has total assets of $250 million or more, or (b) once every
eighteen months, if it has total assets of less than $250 million and satisfies
other specified criteria.
The OTS issues regulations governing the operations of savings
associations, regularly examines such institutions and imposes assessments on
savings associations based on their asset size to cover the costs of this
supervision and examination. It also promulgates regulations that prescribe
permissible activities for federally chartered associations, including the types
of lending that such associations may engage in and the investments in real
estate, subsidiaries and securities they may make. 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
institution to open a new branch or engage in a merger transaction.
LIQUIDITY. OTS regulations require that American 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 of not less than 1% of the total of its net
withdrawable savings deposits plus borrowings payable in one year or less.
Monetary penalties may be imposed upon associations failing to meet liquidity
requirements. The average eligible liquidity of American, as computed under
current regulations, was approximately $4.7 million, or 11.1%, for the month of
June 1997, and exceeded the applicable 5% liquidity requirement by approximately
$2.6 million.
-19-
<PAGE> 20
QUALIFIED THRIFT LENDER TEST. Savings associations are required to meet
the QTL test. Prior to September 30, 1996, the QTL test required savings
associations to maintain a specified level of investments in assets that are
designated as qualifying thrift investments ("QTI"), which are generally related
to domestic residential real estate and manufactured housing and include credit
card, student and small business loans, and stock issued by any FHLB, the FHLMC
or the Federal National Mortgage Association ("FNMA"). Under this test 65% of an
institution's "portfolio assets" (total assets less goodwill and other
intangibles, property used to conduct business and 20% of liquid assets) must
consist of QTI on a monthly average basis in 9 out of every 12 months. Congress
created a second QTL test, effective September 30, 1996, pursuant to which a
savings association will qualify as a QTL thrift if at least 60% of the
institution's assets (on a tax basis) consist of specified assets (generally
loans secured by residential real estate or deposits, educational loans, cash
and certain governmental obligations). 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 become 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. At June 30, 1997,
American met the QTL test.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various
restrictions or requirements on the ability of associations, including American,
to make capital distributions, including dividend payments. OTS regulations also
establish a three-tier system limiting capital distributions according to
ratings of associations based on their capital level and supervisory condition.
Tier 1 consists of associations that, before and after the proposed
distribution, meet their fully phased-in capital requirements. Associations in
this category may make capital distributions during any calendar year equal to
the greater of 100% of 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 75% of its net income over
the most recent four-quarter period. A Tier 1 association deemed to be in need
of more than normal supervision by the OTS may be downgraded to a Tier 2 or 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. Tier 1
associations proposing to make any capital distribution need only submit written
notice to the OTS 30 days prior to such distribution. The OTS may object to the
distribution during that 30-day period based on safety and soundness concerns.
Tier 2 associations, which before and after the proposed distribution
meet their current minimum, but not fully phased-in, capital requirements, may
make capital distributions of up to 75% of net income over the most recent
four-quarter period. Tier 3 associations do not meet current minimum capital
requirements and must obtain OTS approval of any capital distribution.
LENDING LIMITS. OTS regulations generally limit the aggregate amount
that American can lend to one borrower to an amount equal to 15% of its Lending
Limit Capital. A savings association may lend to one borrower an additional
amount not to exceed 10% of the association's Lending Limit Capital, if the
additional amount is fully secured by certain forms of "readily marketable
collateral." Real estate is not considered "readily marketable collateral."
Certain types of loans are not subject to these limits. Notwithstanding the
specified limits, an association may lend to one borrower up to $500,000 for any
purpose. In applying these limits, the regulations require that loans to certain
related borrowers be aggregated. At June 30, 1997, American was in compliance
with these lending limits, with its largest extension of credit to one borrower
being $2.5 million.
REGULATORY CAPITAL REQUIREMENTS. American is required by applicable law
and regulations to meet certain minimum capital requirements. The capital
standards include a leverage limit, or core capital requirement, a tangible
capital requirement, and a risk-based capital requirement.
The leverage limit requires "core capital" of at least 3% of total
assets. "Core capital" is comprised of common stockholders' equity (including
retained earnings), noncumulative perpetual preferred stock and related surplus,
minority interests in consolidated subsidiaries, certain nonwithdrawable
accounts and pledged deposits of mutual associations and certain purchased
mortgage servicing rights.
The tangible capital requirement provides that American must maintain
"tangible capital" of not less than 1.5% of its adjusted total assets. "Tangible
capital" is defined as core capital minus any "intangible assets."
Pursuant to the risk-based capital requirement, American must maintain
total capital, which consists of core or Tier 1 capital and certain general
valuation reserves of 8% of risk-weighted assets. For purposes of computing
risk-based capital,
-20-
<PAGE> 21
assets and certain off-balance sheet items are weighted at percentage levels
ranging from 0% to 100%, depending on their relative risk.
The following tables present certain information regarding compliance
by American with applicable regulatory capital requirements at June 30, 1997:
<TABLE>
<CAPTION>
At June 30, 1997
-----------------------------------------------------------------------------------
Actual capital Regulatory requirement Excess capital
----------------------- --------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $13,321 12.1% $1,650 1.5% $11,671 10.6%
Core Capital 13,321 12.1 3,300 3.0 10,021 9.1
Risk-based capital 13,855 26.9 4,123 8.0 9,732 18.9
</TABLE>
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
association. At each successively lower defined capital category, an institution
is subject to more restrictive and numerous mandatory or discretionary
regulatory actions or limits, and the applicable agency has less flexibility in
determining how to resolve the problems of the institution. In addition, the OTS
generally can downgrade an institution's capital category, notwithstanding its
capital level, if, after notice and opportunity for hearing, the institution is
deemed to be engaging in an unsafe or unsound practice, because it has not
corrected deficiencies that resulted in it receiving a less than satisfactory
examination rating on matters other than capital or it is deemed to be in an
unsafe or unsound condition.
An undercapitalized institution 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 levels at June 30, 1997, met the standards for the highest category, a
"well-capitalized" institution.
FEDERAL DEPOSIT INSURANCE CORPORATION
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 banking and thrift industries. The
FDIC administers two separate insurance funds, the BIF for commercial banks and
state savings banks and the SAIF for savings associations. 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.
The FDIC is required to maintain designated levels of reserves in each
fund. 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 FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary based on the risk the
institution poses to its deposit insurance fund. The risk level is determined
based on the institution's capital level and the FDIC's level of supervisory
concern about the institution.
Because of the differing reserve levels of the funds, deposit insurance
assessments paid by healthy savings associations were reduced significantly
below the level paid by healthy savings associations effective in mid-1995.
Assessments paid by healthy savings associations exceeded those paid by healthy
commercial banks by approximately $.19 per $100 in deposits in late 1995. Such
excess equaled approximately $.23 per $100 in deposits beginning in 1996. This
premium disparity had a negative competitive impact on American and other
institutions in the SAIF.
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<PAGE> 22
Federal legislation, which was effective September 30, 1996, provided
for the recapitalization of the SAIF by means of a special assessment of $.657
per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF
reserves to the level required by law. Certain banks holding SAIF-insured
deposits were required to pay the same special assessment on 80% of deposits at
March 31, 1995. In addition, part of the cost of prior thrift failures, which
had previously been paid only by SAIF members, will be paid by BIF members. As a
result, BIF assessments for healthy banks in 1997 will be $.013 per $100 in
deposits and SAIF assessments for healthy institutions in 1997 will be $.064 per
$100 in deposits.
American had $83.9 million in deposits at March 31, 1995. American paid
a special assessment of $551,000 in November 1996, which was accounted for and
recorded as of September 30, 1996. This assessment was tax-deductible, but
reduced earnings for the year June 30, 1997.
TRANSACTIONS WITH AFFILIATES AND INSIDERS
Loans to executive officers, directors and principal shareholders and
their related interests must conform to the lending limit on loans to one
borrower, and the total of such loans to executive officers, directors,
principal shareholders and their related interests cannot exceed the
association's Lending Limit Capital (or 200% of Lending Limit Capital for
qualifying institutions with less than $100 million in deposits). 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 or as offered to all employees in a company-wide benefit program,
and loans to executive officers are subject to additional limitations. American
was in compliance with such restrictions at June 30, 1997.
All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An
affiliate is any company or entity which controls, is controlled by or is under
common control with the financial institution. In a holding company context, the
parent holding company of a savings association and any companies that are
controlled by such parent holding company are affiliates of the institution.
Generally, Sections 23A and 23B of the FRA (i) limit the extent to which a
financial institution 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 for any one affiliate and 20% of such capital stock and
surplus for the aggregate of such transactions with all affiliates, and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or the subsidiary, as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar types of transactions.
In addition to limits in Sections 23A and 23B, American may not make any loan or
other extension of credit to an affiliate unless the affiliate is engaged only
in activities permissible for a bank holding company and may not purchase or
invest in securities of any affiliate, except shares of a subsidiary. Exemptions
from Sections 23A or 23B of the FRA may be granted only by the FRB. American was
in compliance with these requirements at June 30, 1997.
CHANGE IN CONTROL
The Federal Deposit Insurance Act (the "FDIA") provides that no person,
acting directly or indirectly or in concert with one or more persons, shall
acquire control of any insured depository institution or holding company, unless
60-days prior written notice has been given to the primary federal regulator for
that institution and such regulator has not issued a notice disapproving the
proposed acquisition. Control, for purposes of the FDIA, means the power,
directly or indirectly, alone or acting in concert, to direct the management or
policies of an insured institution or to vote 25% or more of any class of
securities of such institution. Control exists in situations in which the
acquiring party has direct or indirect voting control of at least 25% of the
institution's voting shares, controls in any manner the election of a majority
of the directors of such institution or is determined to exercise a controlling
influence over the management or policies of such institution. In addition,
control is presumed to exist, under certain circumstances, where the acquiring
party (which includes a group "acting in concert") has voting control of at
least 10% of the institution's voting stock. These restrictions do not apply to
holding company acquisitions. See "Holding Company Regulation".
HOLDING COMPANY REGULATION
ASB is a unitary savings and loan holding company subject to the
regulatory oversight, examination and enforcement authority of the OTS. ASB is
required to register and file periodic reports with the OTS. If the OTS
determines that the continuation of a particular activity by a savings and loan
holding company constitutes a serious threat to the financial condition of its
subsidiary institutions, the OTS may impose restrictions on the holding company.
Such restrictions may include limiting
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<PAGE> 23
the payment of dividends, transactions with affiliates or any other activities
deemed to pose a serious threat to the subsidiary institutions.
Generally, no savings and loan holding company may (i) acquire or
retain control of a savings association or another savings and loan holding
company or control the assets thereof or (ii) acquire or retain more than 5% of
the voting shares of a savings association or holding company thereof, which is
not a subsidiary, without the prior written approval of the Director of the OTS.
Additionally, under certain circumstances a savings and loan holding company is
permitted to acquire, with the approval of the Director 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.
The Director of the OTS may approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which 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 Director of 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.
Federal law provides that an insured institution shall be liable for
any loss incurred by the FDIC in connection with the default or potential
default of, or federal assistance provided to, an insured institution which is
controlled by the same holding company. Such loss would be apportioned among all
of the insured institutions controlled by the holding company.
FEDERAL RESERVE REQUIREMENTS
FRB regulations currently require savings associations to maintain
reserves of 3% of net transaction accounts (primarily NOW accounts) up to $49.3
million (subject to an exemption of up to $4.4 million), and of 10% of net
transaction accounts in excess of $49.3 million. At June 30, 1997, American was
in compliance with its reserve requirements.
FEDERAL HOME LOAN BANK SYSTEM
The FHLBs provide credit to their members in the form of advances. As
members of the FHLB of Cincinnati, American is required to maintain an
investment in the capital stock of the FHLB of Cincinnati in an amount equal to
the greater of 1.0% of the aggregate outstanding principal amount of their
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each year, or 5% of their advances from the FHLB of Cincinnati.
ASB is in compliance with this requirement with an aggregate investment by
American in FHLB of Cincinnati stock of $675,000 at June 30, 1997.
Upon the origination or renewal of a loan or advance, the FHLB of
Cincinnati is required to obtain and to 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'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.
FEDERAL TAXATION
ASB and American are each subject to the federal tax laws and
regulations which apply to corporations generally. In addition to the regular
income tax, ASB and American may be 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
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<PAGE> 24
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. However, the
Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain
"small corporations" for tax years beginning after December 31, 1997. A
corporation initially qualifies as a small corporation if it had average gross
receipts of $5,000,000 or less for the three tax years ending with its first
tax year beginning after December 31, 1996. Once a corporation is recognized as
a small corporation, it will continue to be exempt from the alternative minimum
tax for as long as its average gross receipts for the prior three-year period
does not exceed $7,500,000. In determining if a corporation meets this
requirement, the first year that it achieved small corporation status is not
taken into consideration.
Prior to the enactment of the Small Business Jobs Protection Act (the
"Act"), which was signed into law on August 21, 1996, certain thrift
institutions, including 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 one of the two reserve methods
of Section 593 of the Code. The reserve methods under Section 593 of the Code
permitted a thrift institution annually to 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 1994, 1993 and
1992 ASB used the percentage of taxable income method because such method
provided a higher bad debt deduction than the experience method.
The Act eliminated the percentage of taxable income reserve method of
accounting for bad debts by thrift institutions, effective for taxable years
beginning after 1995. Thrift institutions that would be 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.
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 taxpayer, 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 amounts 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 becomes 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 (i.e., the "pre-1988 reserves"). In the case of a thrift
institution that becomes a small 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 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 the thrift's reserves would have been at the close of its
last year beginning before January 1, 1996, had the thrift 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 then 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. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential real and church property and certain mobile homes), but only to the
extent that the loan is made to the owner of the property.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e) as modified by the Act which require 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
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<PAGE> 25
any other purpose (excess 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, 1997, American's pre-1988 reserves for tax purposes
totaled approximately $1.9 million. ASB believes American had approximately $4.0
million of accumulated earnings and profits for tax purposes as of June 30,
1997, which would be available for dividend distributions, provided regulatory
restrictions applicable to the payment of dividends are met. See "REGULATION -
OTS Regulations -- Limitations on Capital Distributions." No representation can
be made as to whether American will have current or accumulated earnings and
profits in subsequent years.
The tax returns of ASB 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 ASB.
OHIO TAXATION
The 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. For tax years beginning after December 31,
1998, the rate of tax is the greater of (i) 5.1% on the first $50,000 of
computed Ohio taxable income and 8.5% of computed Ohio taxable income in excess
of $50,000 or (ii) .400% times taxable net worth.
A special litter tax is also applicable to all corporations, 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 the book net
worth of American determined in accordance with generally accepted accounting
principles. For tax year 1999, however, the franchise tax on financial
institutions will be 1.4% of the book net worth and for tax year 2000 and years
thereafter the tax will be 1.3% of book net worth. 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, 1997, the net
book value of the main office property was $517,000, and American's office
premises and equipment had a total net book value of $944,000. For additional
information regarding American's office premises and equipment, see Notes A and
E of Notes to Consolidated Financial Statements.
American also owns two parcels of real estate in downtown
Portsmouth, Ohio, with a book value of approximately $200,000. The properties
were purchased in November 1994 and April 1997. American plans to construct or
expand a drive-through and ATM facility on the properties.
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.
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<PAGE> 26
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, 1997 (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 August 6, 1997, 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 1997 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.
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)
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<PAGE> 27
3.2 Code of Regulations (incorporated by
reference)
10.1 ASB Financial Corp. 1995 Stock Option and
Incentive Plan (incorporated by reference)
10.2 American Savings Bank, fsb Management
Recognition and Retention Plan and Trust
Agreement (incorporated by reference)
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.
(incorporated by reference)
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> 28
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 22, 1997
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 22, 1997 Date: September 22, 1997
By /s/ William J. Burke By /s/ Lee O. Fitch
------------------------------ ------------------------------
William J. Burke Lee O. Fitch
Director Director
Date: September 22, 1997 Date: September 22, 1997
By /s/ Victor W. Morgan By /s/ Louis M. Schoettle
------------------------------ ------------------------------
Victor W. Morgan Louis M. Schoettle
Director Director
Date: September 22, 1997 Date: September 22, 1997
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<PAGE> 29
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 "1995 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 Incorporated by reference to the Form
Plan 10-KSB for the fiscal year ended June 30,
1996 filed with the SEC on September 30,
1996, (the "1996 Form 10-KSB") Exhibit
10.1
10.2 American Savings Bank, fsb Recognition and Incorporated by reference to the 1996
Retention Planand Trust Agreement Form 10-KSB, Exhibit 10.2
13 1997 Annual Report to Shareholders
20 Proxy Statement
21 Subsidiaries of ASB Financial Corp. Incorporated by reference to the 1995
Form 10-KSB, Exhibit 21
27 Financial Data Schedule
</TABLE>
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<PAGE> 1
Exhibit 13
[Cover of Annual Report]
[On the far left side of the cover, there is an inch strip of marbleized blue]
[Logo of ASB Financial Corp. appears in blue]
ANNUAL
1997
REPORT
<PAGE> 2
To our shareholders and valued customers:
Several significant developments distinguish the 1997 fiscal year of
ASB Financial Corp. In December 1996, we distributed $5.00 per share to our
shareholders in a special capital distribution, enabling us to reduce ASB's
excess capital position by $8.6 million to help ASB achieve a better return on
equity and enhance the value of your investment.
Despite having paid the $8.6 million capital distribution, ASB's asset
size was not significantly diminished. Total assets were $112.5 million at June
30, 1997, a reduction of only $453,000 from June 30, 1996. Deposits increased
approximately $6.4 million during the year, offsetting the reduction in
shareholders' equity attributable to the capital distribution. ASB used these
new funds to originate loans, as a result of which loans receivable increased
$5.7 million.
The entire thrift industry was affected by legislation enacted in
September 1996 to fully capitalize the Savings Association Insurance Fund.
American Savings Bank, fsb, our SAIF-insured subsidiary, paid a special
assessment to the Federal Deposit Insurance Corporation in the first quarter of
the 1997 fiscal year of $551,000. Although this one-time assessment adversely
affected net earnings for 1997, which declined $444,000 compared to the 1996
fiscal year, our annual federal deposit insurance premiums have been
significantly reduced which should favorably impact earnings in the 1998 fiscal
year.
As we look ahead to 1998, this will be the last annual report in which
I address you as President of ASB. I have informed the Board of Directors that I
plan to retire from my positions as President and Chief Executive Officer of ASB
and American Savings in January 1998. I will continue to serve ASB and American
Savings as Chairman of the Board, but the offices of President and Chief
Executive Officer of ASB and American Savings will pass into the capable and
experienced hands of Robert M. Smith. With over 30 years of service to American
Savings, Bob has played a major role in our growth and prosperity, and we are
fortunate to have someone of his caliber to guide ASB and American Savings into
the 21st century.
I would like to express my deepest gratitude to my colleagues on the
board and the staff of ASB and American Savings for the support and friendship
they have given me over the years. The many milestones and accomplishments that
mark the years I have spent here would not have been possible without their
wisdom and talents. I also thank our customers for giving us the privilege of
serving your banking needs. Finally, I would like to thank our shareholders for
your support. The confidence you have placed in us through your investment in
ASB is very gratifying.
Very truly yours,
Gerald R. Jenkins
<PAGE> 3
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<PAGE> 4
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 shares 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 shares issued by American upon its conversion from a mutual
savings association to a stock savings association (the "Conversion"). ASB's
business 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 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") in
the Savings Association Insurance Fund (the "SAIF").
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.
MARKET PRICE OF ASB'S
COMMON SHARES AND RELATED SHAREHOLDER MATTERS
There were 1,721,412 common shares of ASB outstanding on September 5, 1997, held
of record by approximately 1,034 shareholders. Price information with respect to
ASB's common shares is quoted on the Nasdaq National Market ("Nasdaq") under the
symbol "ASBP."
1
<PAGE> 5
The table below sets forth the high and low bid prices for the common shares of
ASB, together with the dividends declared per share, for each quarter of fiscal
1997 and 1996. Price 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 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
FISCAL 1997
Quarter ended:
September 30, 1996 14.375 13.875 .100
December 31, 1996 (1) 18.000 14.25 .100
March 31, 1997 12.750 11.500 .100
June 30, 1997 11.75 11.75 .100
</TABLE>
- ----------
(1) Additionally, in December 1996, ASB paid a $5.00 cash per share return of
capital distribution.
Dividends are subject to determination and declaration by the Board of Directors
of ASB, which takes into account ASB's financial condition, results of
operations, tax considerations, industry standards, economic conditions,
regulatory restrictions and other factors which affect the payment of dividends.
2
<PAGE> 6
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 fiscal 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: ----------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets $112,469 $112,922 $106,861 $ 93,931 $ 91,336
Cash and cash equivalents (1) 3,850 3,836 5,926 5,969 7,198
Certificates of deposit in other
financial institutions 4,258 6,702 9,301 8,324 7,170
Investment securities available for
sale - at market 18,660 19,284 1,768 -- --
Investment securities - at amortized cost -- -- 14,107 8,978 6,373
Mortgage-backed securities available
for sale - at market 8,560 10,728 2,300 -- --
Mortgage-backed securities - at amortized cost
-- -- 7,835 8,224 7,218
Loans receivable - net 74,136 68,455 62,153 59,304 60,544
Real estate acquired through
foreclosure - net -- 663 525 -- 561
Deposits 89,752 83,395 78,888 82,514 81,404
Advances from the FHLB 2,884 2,413 442 469 496
Shareholders' equity, restricted (2) (3) 17,701 25,613 26,058 9,740 8,950
</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, 1993 and 1994.
(3) At June 30, 1997, 1996 and 1995, shareholders' equity includes $412,000,
$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.
3
<PAGE> 7
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED OPERATING For the year ended June 30,
DATA: --------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $8,393 $8,173 $7,012 $6,637 $7,058
Interest expense 4,686 4,310 3,893 3,307 3,712
------ ------ ------ ------ ------
Net interest income 3,707 3,863 3,119 3,330 3,346
Provision for losses on loans 28 -- 10 749 272
------ ------ ------ ------ ------
Net interest income after provision for losses
on loans 3,679 3,863 3,109 2,581 3,074
Other income 364 195 143 451 134
General, administrative and other expense
3,054 2,373 1,726 2,044 1,407
------ ------ ------ ------ ------
Earnings before income taxes 989 1,685 1,526 988 1,801
Federal income taxes 322 574 518 199 609
------ ------ ------ ------ ------
Net earnings $ 667 $1,111 $1,008 $ 789 $1,192
====== ====== ====== ====== ======
Earnings per share (1) $ .42 $ .69 N/A N/A N/A
====== ======
<CAPTION>
At or for the year ended June 30,
--------------------------------------------------
SELECTED FINANCIAL RATIOS: 1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Return on average assets .59% 1.01% 1.00% .85% 1.35%
Return on average equity 3.15 4.30 9.38 8.44 14.27
Equity to total assets at end of period 15.74 22.68 24.38 10.37 9.80
Average interest-earning assets to average
interest-bearing liabilities 122.77 127.55 111.19 109.30 108.70
Average interest rate spread during period
2.41 2.55 2.83 3.38 3.51
Net interest margin 3.39 3.69 3.29 3.72 3.89
Net interest income to general, administrative
and other expense 121.38 162.79 180.71 162.92 237.81
General, administrative and other expense to
average total assets 2.70 2.16 1.72 2.21 1.60
Nonperforming assets to total
assets 1.02 1.61 2.30 3.10 2.56
Allowance for loan losses to nonperforming
loans 71.62 76.34 46.29 38.28 25.75
</TABLE>
- ----------
(1) Earnings per share is based upon 1,591,703 and 1,602,200 weighted-average
shares outstanding for the fiscal years ended June 30, 1997 and 1996,
respectively. Earnings per share is not applicable to the fiscal years ended
June 30, 1993 through 1995, inclusive, as ASB did not issue stock prior to
April 1995.
4
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
ASB was incorporated for the purpose of owning all of American's outstanding
common shares. As a result, the discussion and analysis that follows focuses
primarily on the financial condition and results of operations of American. The
following discussion and analysis of the consolidated financial condition 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.
CHANGES IN FINANCIAL CONDITION
ASB's total assets amounted to $112.5 million at June 30, 1997, a decrease of
$453,000, or .4%, from 1996 levels. The decrease in total assets resulted
primarily from a $5.00 cash per share, or $8.6 million, return of capital
distribution, which was partially offset by a $6.4 million increase in deposits,
a $471,000 increase in FHLB advances and a $500,000 increase in other borrowed
money.
Cash, interest-bearing deposits and certificates of deposit in other financial
institutions totaled $8.1 million at June 30, 1997, a decline of $2.4 million,
or 23.1%, from 1996 levels. Investment securities totaled $18.7 million at June
30, 1997, a decrease of $624,000, or 3.2%, over the balance at June 30, 1996.
During fiscal 1997, management purchased $7.1 million of investment securities,
primarily intermediate and long-term U.S. Government agency securities. Such
purchases were offset by maturities and sales totaling $8.2 million.
Mortgage-backed securities decreased by $2.2 million, or 20.2%, due primarily to
principal repayments of $2.1 million. The overall decline in investments and
liquid assets reflects management's use of these funds to finance the return of
capital distribution.
Loans receivable increased by $5.7 million, or 8.3%, to a total of $74.1 million
at June 30, 1997, compared to $68.5 million at June 30, 1996. Loan disbursements
of $22.5 million and purchases of $773,000 exceeded principal repayments of
$17.7 million during fiscal 1997. Growth in loans secured by residential real
estate totaled $243,000, or .4%, while growth in the nonresidential real estate
and consumer loan portfolios amounted to $2.1 million and $2.7 million,
respectively.
At June 30, 1997, American's allowance for loan losses totaled $820,000,
representing 1.1% of total loans and 71.6% of nonperforming loans. At June 30,
1996, the allowance for loan losses totaled $884,000, or 1.2% of total loans and
76.3% of nonperforming loans.
5
<PAGE> 9
Deposits increased by $6.4 million, or 7.6%, during fiscal 1997 to a total of
$89.8 million at June 30, 1997. The increase resulted primarily from
management's continuing efforts to maintain growth in deposits through marketing
and pricing strategies.
Borrowings increased by $971,000, or 40.2%, during fiscal 1997, compared to
fiscal 1996.
Shareholders' equity totaled $17.7 million at June 30, 1997, a decrease of $7.9
million, or 30.9%, from June 30, 1996 levels. The decrease resulted primarily
from the $5.00 per share, or $8.6 million, return of capital distribution paid
in December 1996, coupled with regular quarterly dividends of $689,000, which
were partially offset by net earnings of $667,000 and a $288,000 increase in
unrealized gains on securities designated as available for sale.
COMPARISON OF OPERATING RESULTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
GENERAL. Net earnings amounted to $667,000 for the fiscal year ended June 30,
1997, a decrease of $444,000, or 40.0%, from the $1.1 million in net earnings
recorded in fiscal 1996. The decrease in net earnings resulted primarily from a
$551,000 charge recorded as a result of the one-time SAIF recapitalization
assessment, coupled with a $130,000 increase in additional general,
administrative and other expenses, a $156,000 decrease in net interest income
and a $28,000 increase in the provision for losses on loans, which were
partially offset by a $169,000 increase in other income and a $252,000 decrease
in the provision for federal income taxes.
NET INTEREST INCOME. Total interest income amounted to $8.4 million for the
fiscal year ended June 30, 1997, an increase of $220,000, or 2.7%, over fiscal
1996. Interest income on loans totaled $5.9 million in fiscal 1997, an increase
of $384,000, or 7.0%. This increase was due primarily to a $5.1 million increase
in the weighted-average balance of loans outstanding, which was partially offset
by a decrease in yield of six basis points to 8.25% in 1997. Interest income on
mortgage-backed securities decreased by $70,000, or 9.3%, as a result of a $1.1
million decrease in the weighted-average balance outstanding in fiscal 1997.
Interest income on investment securities and interest-earning assets decreased
by $94,000, or 4.9%, due primarily to a 51 basis point decrease in yield to
6.39% in fiscal 1997, which was partially offset by a $778,000 increase in the
weighted-average balance outstanding year to year.
Interest expense totaled $4.7 million for the fiscal year ended June 30, 1997,
an increase of $376,000, or 8.7%, over the $4.3 million total recorded in fiscal
1996. Interest expense on deposits increased by $252,000, or 5.9%, due primarily
to a $5.2 million, or 6.4%, in the weighted-average balance outstanding year to
year. Interest expense on borrowings increased by $124,000, or 288.4%, due
primarily to a $1.9 million increase in the weighted-average balance outstanding
and a 108 basis point increase in the average rate.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $156,000, or 4.0%, to a total of $3.7 million
for the fiscal year ended June 30,
6
<PAGE> 10
1997, compared to $3.9 million in fiscal 1996. The interest rate spread declined
by 14 basis points to 2.41% in fiscal 1997 from 2.55% in fiscal 1996, while the
net interest margin decreased to 3.39% in 1997 from 3.69% in 1996.
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, management recorded a
$28,000 provision for losses on loans during the fiscal year ended June 30,
1997. The provision was attributable primarily to growth in the nonresidential
real estate and consumer loan portfolios. Although management believes that its
allowance for loan losses at June 30, 1997, was adequate based on the available
facts and circumstances, 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.
The foregoing statement is a "forward-looking" statement within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Factors that could affect the
adequacy of the loan loss allowance include, but are not limited to, the
following: (1) changes in the national and local economy which may negatively
impact the ability of borrowers to repay their loans and which may cause the
value of real estate and other properties that secure outstanding loans to
decline; (2) unforeseen adverse changes in circumstances with respect to certain
large loans; (3) decrease in the value of collateral securing consumer loans to
amounts less than the outstanding balances of the consumer loans; and (4)
determinations by various regulatory agencies that American must recognize
additions to its loan loss allowance based on such regulators' judgment of
information available to them at the time of their examinations.
OTHER INCOME. Other income totaled $364,000 for the fiscal year ended June 30,
1997, an increase of $169,000, or 86.7%, over the $195,000 recorded in fiscal
1996. The increase resulted primarily from a $104,000 gain on sale of investment
securities coupled with a $42,000 increase in rental income received on a parcel
of real estate acquired through foreclosure.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and other
expense totaled $3.1 million for the fiscal year ended June 30, 1997, an
increase of $681,000, or 28.7%, over the $2.4 million total recorded in fiscal
1996. The increase resulted primarily from a $551,000 charge recorded during the
year in connection with the SAIF recapitalization, a $131,000, or 10.7%,
increase in employee compensation and benefits, an $18,000, or 8.6%, increase in
franchise taxes and a $43,000, or 9.4%, increase in other operating expense. The
increase in employee compensation and benefits was due primarily to increased
costs related to stock benefit plans and normal merit increases. The increase in
franchise taxes resulted from ASB's increase in equity capital during fiscal
1996. The increase in other operating expense was due to an increase in expenses
related to the return of capital and pro-rata increases in overall operating
costs attendant to ASB's growth year to year.
7
<PAGE> 11
FEDERAL INCOME TAXES. The provision for federal income taxes totaled $322,000
for the fiscal year ended June 30, 1997, a decrease of $252,000, or 43.9%, from
the $574,000 recorded in fiscal 1996. The decrease was due primarily to a
$696,000, or 41.3%, decrease in pretax earnings year to year. ASB's effective
tax rates were 32.6% and 34.1% for the fiscal years ended June 30, 1997 and
1996, respectively.
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.
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. Based upon management's overall assessment of the
impact of economic conditions as applied to the loan portfolio, as well as the
decline in nonperforming loans from $1.9 million to $1.2 million at June 30,
1995 and 1996, respectively, management concluded
8
<PAGE> 12
that the allowance for loan losses was adequate and, as a result, no provision
for losses on loans was established during fiscal 1996.
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.
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.
9
<PAGE> 13
AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA
The following table sets forth 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,
------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 71,260 $ 5,882 8.25% $ 66,152 $ 5,498 8.31% $ 60,395 $ 4,865 8.06%
Mortgage-backed
securities 9,487 680 7.17 10,555 750 7.11 7,913 532 6.72
Investment securities
and other
interest-earning
assets 28,664 1,831 6.39 27,886 1,925 6.90 26,553 1,615 6.08
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total interest-earning
assets 109,411 8,393 7.67 104,593 8,173 7.81 94,861 7,012 7.39
Non-interest-earning assets 3,662 5,332 5,027
-------- -------- --------
Total assets $113,073 $109,925 $ 99,888
======== ======== ========
Interest-bearing liabilities:
Deposits $ 86,296 4,519 5.24 $ 81,114 4,267 5.26 $ 84,858 3,870 4.56
Borrowings 2,822 167 5.92 889 43 4.84 457 23 5.03
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities 89,118 4,686 5.26 82,003 4,310 5.26 85,315 3,893 4.56
-------- -------- -------- -------- -------- -------- --------
Non-interest-bearing
liabilities 2,752 2,086 3,826
-------- -------- --------
Total liabilities 91,870 84,089 89,141
Shareholders' equity 21,203 25,836 10,747
-------- -------- --------
Total liabilities and
shareholders' equity $113,073 $109,925 $ 99,888
======== ======== ========
Net interest income $ 3,707 $ 3,863 $ 3,119
======== ======== ========
Interest rate spread 2.41% 2.55% 2.83%
======== ======== ========
Net interest margin 3.39% 3.69% 3.29%
======== ======== ========
Average interest-earning
assets to interest-bearing
liabilities 122.77% 127.55% 111.19%
======== ======== ========
</TABLE>
10
<PAGE> 14
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>
For the year ended June 30,
-------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
---------------------------- ----------------------------
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 $ 424 $ (40) $ 384 $ 478 $ 155 $ 633
Mortgage-backed securities (76) 6 (70) 186 32 218
Investment securities and
interest-earning assets 53 (147) (94) 84 226 310
------ ------ ------ ------ ------ ------
Total interest-earning assets 401 (181) 220 748 413 1,161
------ ------ ------ ------ ------ ------
Interest-bearing liabilities:
Deposits 270 (18) 252 (177) 574 397
Borrowings 112 12 124 21 (1) 20
------ ------ ------ ------ ------ ------
Total interest-bearing liabilities 382 (6) 376 (156) 573 417
------ ------ ------ ------ ------ ------
Increase (decrease) in net
interest income $ 19 $ (175) $ (156) $ 904 $ (160) $ 744
====== ====== ====== ====== ====== ======
</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
11
<PAGE> 15
portfolio equity within limits established by the Board of Directors, assuming a
permanent and instantaneous parallel shift in interest rates.
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.
Presented below is an analysis of the interest rate risk of American, at June
30, 1997, as measured by changes in NPV for instantaneous and sustained parallel
shifts of 100 basis point movements in market interest rates. 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 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 June 30, 1997
------------------------
Changes in interest rate Board limit $ change % change
(basis points) % changes in NPV in NPV
-------------- --------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
+300 (40)% $(6,813) (42)%
+200 (30) (4,567) (28)
+100 (20) (2,862) (14)
0 0 0 0
-100 20 1,933 12
-200 30 3,322 20
-300 40 4,667 29
</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.
12
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. 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. Liquidity is a result of the operating, investing and financing
activities of ASB. These activities on a consolidated basis, are summarized
below for the years ended June 30, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net cash from operating
activities $ 1,113 $ 1,286 $ 1,413
Net cash from investing
activities 723 (8,124) (12,860)
Net cash from financing activities (1,822) 4,748 11,404
-------- -------- --------
Net change in cash and cash
equivalents 14 (2,090) (43)
Cash and cash equivalents at the
beginning of the period 3,836 5,926 5,969
-------- -------- --------
Cash and cash equivalents at the
end of the period $ 3,850 $ 3,836 $ 5,926
======== ======== ========
</TABLE>
American generally strives to maintain liquidity (defined as cash,
interest-bearing deposits and investment securities with terms of less then five
years) in a range of 10 to 25% of total assets. OTS regulations require that
savings associations maintain an average daily balance of cash, certain time
deposits and investments in 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, 1997, was approximately $10.4 million, or
13.1%, and exceeded the then applicable 5.0% liquidity requirement by
approximately $7.6 million, or 8.1%.
At June 30, 1997, American had outstanding commitments of approximately $151,000
to originate loans. Additionally, American was obligated under unused lines of
credit totaling $2.0 million. In the opinion of management, all loan commitments
had interest rates which equaled or exceeded market interest rates as of June
30, 1997, and will be funded from existing excess liquidity and normal cash flow
from operations.
13
<PAGE> 17
CAPITAL RESOURCES. American is required by OTS regulations to maintain specified
minimum amounts of capital. OTS capital standards include a tangible capital
requirement, a core capital requirement and a risk-based capital requirement.
The tangible capital requirement requires savings associations to maintain
"tangible capital" of not less than 1.5% of the association's adjusted total
assets. Tangible capital is defined in OTS regulations as core capital minus any
intangible assets.
"Core capital" is comprised of common shareholders' equity (including retained
earnings), noncumulative preferred stock and related surplus, minority interests
in consolidated subsidiaries, certain nonwithdrawable accounts and pledged
deposits of mutual associations. OTS regulations require savings associations to
maintain core capital of at least 3% of the association's total assets. The OTS
has proposed to increase such requirement to 4% or 5%, except for those
associations with the highest examination rating and acceptable levels of risk.
OTS regulations require that savings associations maintain "risk-based capital"
in an amount not less than 8% of risk-weighted assets. Risk-based capital is
defined as core capital plus certain additional items of capital, which in the
case of American includes its general allowance for loan losses.
At June 30, 1997, 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, 1997, and the amount by which it exceeded
minimum requirements:
<TABLE>
<CAPTION>
Excess of regulatory
capital over current
Regulatory capital Current Requirement requirement
------------------- --------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $13,321 12.1% $1,650 1.5% $11,671 10.6%
Core capital 13,321 12.1 3,300 3.0 10,021 9.1
Risk-based capital 13,855 26.9 4,123 8.0 9,732 18.9
</TABLE>
14
<PAGE> 18
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation," establishing financial
accounting and reporting standards for stock-based compensation plans. SFAS No.
123 encourages all entities to adopt a new method of accounting to measure the
compensation cost of all stock compensation plans based on the estimated fair
value of the award at the date it is granted. Companies are, however, allowed to
continue to measure compensation cost for those plans using the intrinsic value
based method of accounting, which generally does not result in compensation
expense recognition for most plans. Companies that elect to remain with the
existing accounting are required to disclose in a footnote to the financial
statements pro forma net earnings and, if presented, earnings per share, as if
SFAS No. 123 had been adopted. The accounting requirements of SFAS No. 123 are
effective for transactions entered into during fiscal years that begin after
December 15, 1995; however, companies are required to disclose information for
awards granted in their first fiscal year beginning after December 15, 1994.
Management has determined that ASB will continue to account for stock-based
compensation pursuant to Accounting Principles Board Opinion No. 25, and,
therefore, the disclosure provisions of SFAS No. 123 will have no effect on its
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.
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 securitization 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.
15
<PAGE> 19
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, 1997, 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.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which
requires companies to present basic earnings per share and, if applicable,
diluted earnings per share, instead of primary and fully diluted earnings per
share, respectively. Basic earnings per share is computed without including
potential common shares. Diluted earnings per share is computed taking into
consideration common shares outstanding and potentially dilutive common shares,
including options, warrants, convertible securities and contingent stock
agreements. SFAS No. 128 is effective for periods ending after December 15,
1997. Early application is not permitted. Based upon the provisions of SFAS No.
128, ASB's basic and diluted earnings per share for the fiscal year ended June
30, 1997, would have been $.42 and $.39, respectively. Basic and diluted
earnings per share for the fiscal year ended June 30, 1996, would have been
$.69.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which requires entities presenting a complete set of financial statements to
include details of comprehensive income that arise in the reporting period.
Comprehensive income consists of net income or loss for the current period and
other comprehensive income , expense, gains and losses that bypass the income
statement and are reported in a separate component of equity, i.e., unrealized
gains and losses on certain investment securities. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The adoption of SFAS No. 130
relates solely to disclosure provisions and therefore will not have a material
effect on ASB's consolidated financial position or results of operations.
16
<PAGE> 20
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS AND
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 18
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 19
CONSOLIDATED STATEMENTS OF EARNINGS 20
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 21
CONSOLIDATED STATEMENTS OF CASH FLOWS 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24
17
<PAGE> 21
[GRANT THORNTON LETTERHEAD]
Report of Independent Certified Public Accountants
Board of Directors
ASB Financial Corp.
We have audited the accompanying consolidated statements of financial condition
of ASB Financial Corp. as of June 30, 1997 and 1996, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years ended June 30, 1997, 1996 and 1995. 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. as of June 30, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the years ended June 30, 1997, 1996
and 1995, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Cincinnati, Ohio
August 6, 1997
18
<PAGE> 22
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1997 1996
--------- ---------
<S> <C> <C>
Cash and due from banks $ 376 $ 411
Interest-bearing deposits in other financial institutions 3,474 3,425
--------- ---------
Cash and cash equivalents 3,850 3,836
Certificates of deposit in other financial institutions 4,258 6,702
Investment securities available for sale - at market 18,660 19,284
Mortgage-backed securities available for sale - at market 8,560 10,728
Loans receivable - net 74,136 68,455
Office premises and equipment - at depreciated cost 944 940
Real estate acquired through foreclosure - net -- 663
Federal Home Loan Bank stock - at cost 675 667
Accrued interest receivable on loans 95 120
Accrued interest receivable on mortgage-backed securities 78 110
Accrued interest receivable on investments and interest-bearing deposits 356 479
Prepaid expenses and other assets 604 586
Prepaid federal income taxes 62 --
Deferred federal income taxes 191 352
--------- ---------
Total assets $ 112,469 $ 112,922
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 89,752 $ 83,395
Advances from the Federal Home Loan Bank 2,884 2,413
Other borrowed money 500 --
Advances by borrowers for taxes and insurance 169 162
Accrued interest payable 112 115
Other liabilities 1,351 1,219
Accrued federal income taxes -- 5
--------- ---------
Total liabilities 94,768 87,309
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; 1,721,412 and
1,713,960 shares issued and outstanding at June 30, 1997 and 1996 -- --
Additional paid-in capital 8,023 16,496
Retained earnings, restricted 11,187 11,173
Shares acquired by stock benefit plans (1,921) (2,180)
Unrealized gains on securities designated as available for sale,
net of related tax effects 412 124
--------- ---------
Total shareholders' equity 17,701 25,613
--------- ---------
Total liabilities and shareholders' equity $ 112,469 $ 112,922
========= =========
</TABLE>
19
<PAGE> 23
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
For the year ended June 30,
(In thousands, except share data)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Interest income
Loans $ 5,882 $ 5,498 $ 4,865
Mortgage-backed securities 680 750 532
Investment securities 1,494 1,426 577
Interest-bearing deposits and other 337 499 1,038
------- ------- -------
Total interest income 8,393 8,173 7,012
Interest expense
Deposits 4,519 4,267 3,870
Borrowings 167 43 23
------- ------- -------
Total interest expense 4,686 4,310 3,893
------- ------- -------
Net interest income 3,707 3,863 3,119
Provision for losses on loans 28 -- 10
------- ------- -------
Net interest income after provision
for losses on loans 3,679 3,863 3,109
Other income
Gain on sale of investment securities 104 -- --
Other operating 260 195 143
------- ------- -------
Total other income 364 195 143
General, administrative and other expense
Employee compensation and benefits 1,360 1,229 855
Occupancy and equipment 122 120 121
Federal deposit insurance premiums 665 188 190
Franchise taxes 227 209 134
Data processing 179 169 140
Other operating 501 458 286
------- ------- -------
Total general, administrative and other expense 3,054 2,373 1,726
------- ------- -------
Earnings before income taxes 989 1,685 1,526
Federal income taxes
Current 309 587 391
Deferred 13 (13) 127
------- ------- -------
Total federal income taxes 322 574 518
------- ------- -------
NET EARNINGS $ 667 $ 1,111 $ 1,008
======= ======= =======
EARNINGS PER SHARE $ .42 $ .69 N/A
======= ======= =======
</TABLE>
20
<PAGE> 24
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended June 30, 1997, 1996 and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
UNREALIZED GAINS
SHARES (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, 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 stock benefit plans -- -- -- (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
Amortization of expense related to stock benefit plans -- 31 -- 259 -- 290
Issuance of shares under stock option plan -- 103 -- -- -- 103
Net earnings for the year ended June 30, 1997 -- -- 667 -- -- 667
Dividends of $5.40 per share -- (8,607) (653) -- -- (9,260)
Unrealized gains on securities designated as
available for sale, net of related tax effects -- -- -- -- 288 288
----- -------- -------- -------- -------- --------
Balance at June 30, 1997 $ -- $ 8,023 $ 11,187 $ (1,921) $ 412 $ 17,701
===== ======== ======== ======== ======== ========
</TABLE>
21
<PAGE> 25
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year $ 667 $ 1,111 $ 1,008
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 30 76 88
Amortization of deferred loan origination fees (64) (52) (86)
Amortization of expense related to stock benefit plans 290 211 --
Depreciation and amortization 78 79 64
Provision for losses on loans 28 -- 10
Gain on sale of investment securities (104) -- --
Federal Home Loan Bank stock dividends (48) (44) (40)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 25 (54) 22
Accrued interest receivable on mortgage-backed securities 31 (10) (4)
Accrued interest receivable on investments and
interest-bearing deposits 123 (45) (183)
Prepaid expenses and other assets (18) (145) 115
Accrued interest payable (3) (40) 96
Other liabilities 132 174 150
Federal income taxes
Current (67) 38 46
Deferred 13 (13) 127
-------- -------- --------
Net cash provided by operating activities 1,113 1,286 1,413
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 4,650 9,121 300
Proceeds from sale of investment securities 3,576 -- --
Purchase of investment securities designated as available for sale (7,057) (12,237) (1,004)
Purchase of investment securities designated as held-to-maturity -- -- (5,786)
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)
Principal repayments on mortgage-backed securities 2,133 2,848 2,447
Purchase of loans (773) (1,711) (3,279)
Loan principal repayments 17,697 18,715 13,716
Loan disbursements (22,503) (23,885) (13,734)
Purchase of office premises and equipment (91) (18) (171)
Proceeds from sale of office premises and equipment 9 -- --
Proceeds from sale of real estate acquired through foreclosure 598 -- --
Redemption of Federal Home Loan Bank stock 40 -- 68
Purchase of Federal Home Loan Bank stock -- (12) --
(Increase) decrease in certificates of deposit in other financial
institutions - net 2,444 2,599 (977)
-------- -------- --------
Net cash provided by (used in) investing activities 723 (8,124) (12,860)
-------- -------- --------
Net cash provided by (used in) operating and investing
activities (subtotal carried forward) 1,836 (6,838) (11,447)
-------- -------- --------
</TABLE>
22
<PAGE> 26
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net cash provided by (used in) operating and investing activities
(subtotal brought forward) $ 1,836 $ (6,838) $(11,447)
Cash flows provided by financing activities:
Net increase (decrease) in deposit accounts 6,357 4,507 (3,626)
Proceeds from Federal Home Loan Bank advances 2,500 2,000 --
Proceeds from other borrowed money 3,500 -- --
Repayment of Federal Home Loan Bank advances (2,029) (29) (27)
Repayment of other borrowed money (3,000) -- --
Advances by borrowers for taxes and insurance 7 (111) 19
Net proceeds from the issuance of common stock -- -- 16,437
Shares acquired by the stock benefit plans -- (1,062) (1,270)
Proceeds from issuance of shares under stock option plan 103 -- --
Distributions paid on common stock (9,260) (557) (129)
-------- -------- --------
Net cash provided by (used in) financing activities (1,822) 4,748 11,404
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 14 (2,090) (43)
Cash and cash equivalents at beginning of year 3,836 5,926 5,969
-------- -------- --------
Cash and cash equivalents at end of year $ 3,850 $ 3,836 $ 5,926
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 383 $ 552 $ 343
======== ======== ========
Interest on deposits and borrowings $ 4,689 $ 4,350 $ 3,797
======== ======== ========
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 gains (losses) on securities designated as available
for sale, net of related tax effects $ 288 $ (148) $ 272
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE> 27
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, 1996 and 1995
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, 1997 and 1996 are
presented in Note M. 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.
24
<PAGE> 28
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. Investment Securities and Mortgage-Backed Securities
The Corporation accounts for investment and mortgage-backed securities in
accordance with 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.
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, 1997 and 1996, the
Corporation's shareholders' equity reflected a net unrealized gain on
securities designated as available for sale of $412,000 and $124,000,
respectively.
Realized gains and losses on sales of securities are recognized using the
specific identification method.
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.
25
<PAGE> 29
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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". This promulgation, which was amended by SFAS No. 118
as to certain income recognition and disclosure provisions and 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.
26
<PAGE> 30
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
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, 1997 and 1996, the Savings Bank had two loans totaling $1.3
million that were defined as impaired under SFAS No. 114. The Savings Bank
maintained an allowance for credit losses of $262,000 related to these loans
for each of the years ended June 30, 1997 and 1996.
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.
27
<PAGE> 31
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
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. 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 $33,000,
$8,000 and $18,000 for the years ended June 30, 1997, 1996 and 1995,
respectively.
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 for each of the years ended June 30, 1997 and 1996,
and $38,000 for the year ended June 30, 1995.
28
<PAGE> 32
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
10. Retirement Plans and Stock Option Plans (continued)
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. Expense recognized under the
MRP plan totaled approximately $137,000 and $120,000 for the years ended
June 30, 1997 and 1996, respectively.
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. During fiscal 1997, a
total of 7,452 stock options granted were exercised. At June 30, 1997, a
total of 138,232 shares were subject to exercise at an exercise price of
$10.08 per share. The exercise price was adjusted in fiscal 1997 to give
effect to the return of capital distribution.
11. Earnings Per Share
Primary earnings per share for the years ended June 30, 1997 and 1996 is
based upon the weighted-average shares outstanding during the period, less
126,541 and 111,760 shares, respectively, in the ESOP that are unallocated
and not committed to be released. Weighted-average common shares deemed
outstanding totaled 1,591,703 and 1,602,200 for the years ended June 30,
1997 and 1996, respectively. There was no material dilutive effect related
to the Corporation's stock option plan for any of the periods presented.
The provisions of Accounting Principles Board Opinion No. 15, "Earnings Per
Share," are not applicable to the fiscal year ended June 30, 1995, as the
Corporation completed its conversion from mutual to stock form in April
1995.
During fiscal 1996, the Corporation declared dividends of $5.40 per common
share. Of this amount, $5.00 per share was paid in December 1996 from funds
retained by the Corporation in the conversion and was deemed by management
to constitute a return of excess capital. Accordingly, the Corporation
charged the return of capital dividend to additional paid-in-capital.
Management believes that approximately $5.17 of the current fiscal year
dividends constitute a tax-free return of capital.
29
<PAGE> 33
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 1997 and 1996 were
limited to a $15,000 investment in such stock. As a result, the subsidiary
has not been consolidated based on materiality.
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,
1997 and 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.
30
<PAGE> 34
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
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 and Other Borrowed Money:
The fair value of these advances and borrowings are estimated
using the rates currently offered for similar advances and
borrowings 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, 1997 and 1996, the
difference between the fair value and notional amount 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 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(In thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 3,850 $ 3,850 $ 3,836 $ 3,836
Certificates of deposit in other financial
institutions 4,258 4,258 6,702 6,702
Investment securities 18,660 18,660 19,284 19,284
Mortgage-backed securities 8,560 8,560 10,728 10,728
Loans receivable 74,136 71,492 68,455 67,977
Stock in Federal Home Loan Bank 675 675 667 667
---------- ---------- ---------- ----------
$ 110,139 $ 107,495 $ 109,672 $ 109,194
========== ========== ========== ==========
Financial liabilities
Deposits $ 89,752 $ 90,037 $ 83,395 $ 80,751
Advances from the Federal Home Loan Bank 2,884 2,872 2,413 2,406
Other borrowed money 500 504 -- --
Escrow deposits 169 169 162 162
---------- ---------- ---------- ----------
$ 93,305 $ 93,582 $ 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.
31
<PAGE> 35
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
15. Reclassifications
Certain prior year amounts have been reclassified to conform to the 1997
consolidated financial statement presentation.
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES
Amortized cost and estimated fair values of investment securities designated
as available for sale at June 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Government agency
obligations $ 18,055 $ 33 $ 128 $ 17,960
FHLMC stock 20 680 -- 700
--------- ----- ----- --------
$ 18,075 $ 713 $ 128 $ 18,660
========= ===== ===== ========
1996
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
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
========= ===== ===== ========
</TABLE>
32
<PAGE> 36
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost and estimated fair value of U.S. Government agency
obligations by contractual term to maturity at June 30 are shown below:
<TABLE>
<CAPTION>
1997 1996
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
(In thousands)
<S> <C> <C> <C> <C>
Due in three years or less $ 1,604 $ 1,596 $ 2,320 $ 2,303
Due after three years through
five years 2,504 2,488 3,238 3,232
Due after five years 13,947 13,876 13,526 13,236
-------- -------- -------- --------
$ 18,055 $ 17,960 $ 19,084 $ 18,771
======== ======== ======== ========
</TABLE>
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of mortgage-backed securities designated as available
for sale at June 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
AVAILABLE FOR SALE: (In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation
participation certificates $3,067 $ 34 $ 34 $3,067
Government National
Mortgage Association
participation certificates 3,817 61 24 3,854
Federal National
Mortgage Association
participation certificates 1,637 23 21 1,639
----- ----- ----- ------
Total mortgage-backed securities $8,521 $ 118 $ 79 $8,560
====== ===== ===== ======
</TABLE>
33
<PAGE> 37
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
<TABLE>
<CAPTION>
1996
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
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>
The amortized cost of mortgage-backed securities, by contractual terms to
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may generally prepay obligations without
prepayment penalties.
<TABLE>
<CAPTION>
JUNE 30,
1997 1996
<S> <C> <C>
Due within three years $ 1,085 $ 1,756
Due in three to five years 173 1,115
Due in five to ten years 566 1,980
Due in ten to twenty years 3,126 2,041
Due after twenty years 3,571 3,825
------- -------
$ 8,521 $10,717
======= =======
</TABLE>
34
<PAGE> 38
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at June 30 is as follows:
<TABLE>
<CAPTION>
1997 1996
(In thousands)
<S> <C> <C>
Residential real estate
One- to four- family $ 50,481 $ 48,302
Multi-family 7,721 8,265
Construction 926 2,318
Nonresidential real estate and land 5,520 3,401
Consumer and other 11,484 8,780
-------- --------
76,132 71,066
Less:
Undisbursed portion of loans in process 978 1,529
Deferred loan origination fees 198 198
Allowance for loan losses 820 884
-------- --------
$ 74,136 $ 68,455
======== ========
</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 $57.1 million, or 77%, of the total loan portfolio at June 30,
1997, and $56.3 million, or 82%, of the total loan portfolio at June 30,
1996. 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 $316,000 and $353,000 at June 30, 1997 and
1996, respectively.
35
<PAGE> 39
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
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>
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 884 $ 893 $ 1,115
Provision for loan losses 28 -- 10
Charge-offs of loans (92) (9) (264)
Recoveries -- -- 32
------- ------- -------
Balance at end of year $ 820 $ 884 $ 893
======= ======= =======
</TABLE>
As of June 30, 1997, 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 totaled approximately $1.1 million, $1.2
million and $1.9 million at June 30, 1997, 1996 and 1995, respectively.
During the years ended June 30, 1997, 1996 and 1995, interest income of
approximately $9,000, $4,000 and $38,000, respectively, would have been
recognized had such 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>
1997 1996
(In thousands)
<S> <C> <C>
Land and improvements $ 376 $ 325
Office buildings and improvements 1,161 1,143
Furniture, fixtures and equipment 434 421
------- -------
1,971 1,889
Less accumulated depreciation and
amortization 1,027 949
------- -------
$ 944 $ 940
======= =======
</TABLE>
36
<PAGE> 40
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE F - DEPOSITS
Deposits consist of the following major classifications at June 30:
<TABLE>
<CAPTION>
DEPOSIT TYPE AND WEIGHTED-
AVERAGE INTEREST RATE 1997 1996
(In thousands)
<S> <C> <C>
NOW accounts
1997 - 2.24% $ 4,435
1996 - 2.36% $ 3,448
Passbook
1997 - 2.94% 7,379
1996 - 2.94% 7,225
Money market deposit accounts
1997 - 3.49% 7,785
1996 - 3.49% 9,001
-------- --------
Total demand, transaction and
passbook deposits 19,599 19,674
Certificates of deposit
Original maturities of:
Less than 12 months
1997 - 5.22% 5,774
1996 - 5.10% 7,517
12 months to 24 months
1997 - 5.89% 34,303
1996 - 5.88% 21,371
30 months to 36 months
1997 - 5.90% 10,293
1996 - 5.95% 16,006
More than 36 months
1997 - 5.86% 1,723
1996 - 5.69% 2,448
Individual retirement accounts
1997 - 6.03% 14,052
1996 - 6.43% 13,384
Jumbo accounts
1997 - 5.82% 4,008
1996 - 5.52% 2,995
-------- --------
Total certificates of deposit 70,153 63,721
-------- --------
Total deposit accounts $ 89,752 $ 83,395
======== ========
</TABLE>
At June 30, 1997 and 1996, the Corporation had deposit accounts with balances
greater than $100,000 totaling $8.8 million and $8.2 million, respectively.
37
<PAGE> 41
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE F - DEPOSITS (continued)
Interest expense on deposits for the year ended June 30 is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Passbook $ 214 $ 212 $ 295
NOW and money market deposit
accounts 402 421 467
Certificates of deposit 3,903 3,634 3,108
------- ------- -------
$ 4,519 $ 4,267 $ 3,870
======= ======= =======
</TABLE>
Maturities of outstanding certificates of deposit at June 30 are summarized
as follows:
<TABLE>
<CAPTION>
1997 1996
(In thousands)
<S> <C> <C>
Less than one year $ 42,468 $ 44,345
One to three years 26,701 15,813
Over three years 984 3,563
-------- --------
$ 70,153 $ 63,721
======== ========
</TABLE>
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at June 30, 1997 by
pledges of certain residential mortgage loans totaling $4.3 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, 1997 1996
(In thousands)
<S> <C> <C> <C>
5.25% 1997 $ -- $1,000
5.40% 1997 -- 1,000
5.77% 1998 2,000 --
7.10% 2002 500 --
3.16% 2008 384 413
------ ------
$2,884 $2,413
====== ======
Weighted-average interest rate 5.65% 4.95%
====== ======
</TABLE>
38
<PAGE> 42
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE H - OTHER BORROWED MONEY
At June 30, 1997, other borrowed money consisted of a $500,000 note, bearing
interest at a rate of 8.88% and maturing in 2001.
NOTE I - FEDERAL INCOME TAXES
Federal income taxes differ from the amounts computed at the statutory
corporate tax rate as follows:
<TABLE>
<CAPTION>
JUNE 30,
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Federal income taxes computed at
statutory rate $ 336 $ 573 $ 519
Increase (decrease) in taxes resulting from:
Nontaxable interest income (9) -- --
Other (5) 1 (1)
----- ----- -----
Federal income tax provision per consolidated
financial statements $ 322 $ 574 $ 518
===== ===== =====
</TABLE>
The composition of the Corporation's net deferred tax asset at June 30 is as
follows:
<TABLE>
<CAPTION>
1997 1996
(In thousands)
<S> <C> <C>
Taxes (payable) refundable on temporary differences at estimated corporate
tax rate:
Deferred tax assets:
General loan loss allowance $ 279 $ 301
Deferred compensation 501 471
Employee stock benefit plans 58 41
----- -----
Total deferred tax assets 838 813
Deferred tax liabilities:
Percentage of earnings bad debt deduction (265) (265)
Book/tax depreciation (4) (25)
Deferred loan origination costs (49) --
Federal Home Loan Bank stock dividends (117) (108)
Unrealized gain on securities designated as
available for sale (212) (63)
----- -----
Total deferred tax liabilities (647) (461)
----- -----
Net deferred tax asset $ 191 $ 352
===== =====
</TABLE>
39
<PAGE> 43
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE I - FEDERAL INCOME TAXES (continued)
The Savings Bank was 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,
1997 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, 1997. See Note L for additional information regarding
future percentage of earnings bad debt deductions.
NOTE J - 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 its
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, 1997, the Savings Bank had outstanding commitments to originate
and purchase loans totaling approximately $151,000 and $1.0 million,
respectively. In addition, the Savings Bank was obligated under unused lines
of credit totaling $2.0 million. In the opinion of management all loan
commitments equaled or exceeded prevalent market interest rates as of June
30, 1997, and will be funded from normal cash flow from operations.
40
<PAGE> 44
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE K - REGULATORY CAPITAL
The Savings Bank is subject to minimum regulatory capital standards
promulgated by the Office of Thrift Supervision (the "OTS"). Failure to meet
minimum capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Savings Bank must meet specific capital guidelines
that involve quantitative measures of the Savings Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Savings Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
The minimum capital standards of the OTS 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) equal to 3.0% of adjusted total assets. An OTS proposal, if adopted
in present form, would increase the core capital requirement to a range of
4.0% - 5.0% of adjusted total assets for substantially all savings
associations. Management anticipates no material change to the Savings
Bank's excess regulatory capital position as a result of this proposed
change in the regulatory capital requirement. The risk-based capital
requirement currently 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, 1997, management believes that the Savings Bank met all
capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
---------------- ------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $13,321 12.1% >/=$1,650 >/=1.5% >/=$5,500 >/= 5.0%
Core capital $13,321 12.1% >/=$3,300 >/=3.0% >/=$6,600 >/= 6.0%
Risk-based capital $13,855 26.9% >/=$4,123 >/=8.0% >/=$5,153 >/=10.0%
</TABLE>
41
<PAGE> 45
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE K - REGULATORY CAPITAL (continued)
The Savings Bank's management believes that, under the current regulatory
capital regulations, the Savings Bank will continue to meet its minimum
capital requirements in the foreseeable future. However, events beyond the
control of the Savings Bank, such as increased interest rates or a downturn
in the economy in the Savings Bank's market area, could adversely affect
future earnings and, consequently, the ability to meet future minimum
regulatory capital requirements.
NOTE L - LEGISLATIVE DEVELOPMENTS
The deposit accounts of the Savings Bank and of other savings associations
are insured by the Federal Deposit Insurance Corporation ("FDIC") through
the Savings Association Insurance Fund ("SAIF"). The reserves of the SAIF
were below the level required by law, because a significant portion of the
assessments paid into the fund were used to pay the cost of prior thrift
failures. The deposit accounts of commercial banks are insured by the FDIC
through 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 1995. In fiscal 1996 and 1997, no BIF assessments were
required for healthy commercial banks except for a $2,000 minimum fee.
Legislation was enacted to recapitalize the SAIF that provided for a special
assessment totaling $.657 per $100 of SAIF deposits held at March 31, 1995,
in order to increase SAIF reserves to the level required by law. The Savings
Bank held $83.8 million in deposits at March 31, 1995, resulting in an
assessment of approximately $551,000, or $364,000 after-tax, which was
charged to operations in fiscal 1997.
A component of the recapitalization plan provided for the merger of the SAIF
and BIF on January 1, 1999. 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. In the opinion of management, such
activity limit restrictions would not have a material effect on the
Corporation's financial position or results of operations.
Under separate legislation related to the recapitalization plan, the Savings
Bank is required to recapture as taxable income approximately $780,000 of
its tax 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 bad debt deduction in the future. The Savings Bank has provided
deferred taxes for this amount and will be permitted to amortize the
recapture of the bad debt reserve in taxable income over six years.
42
<PAGE> 46
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE M - CONDENSED FINANCIAL STATEMENTS OF ASB FINANCIAL CORP.
The following condensed financial statements summarize the financial
position of ASB Financial Corp. as of June 30, 1997 and 1996, and the
results of its operations and its cash flows for the fiscal years ended June
30, 1997 and 1996.
<TABLE>
<CAPTION>
ASB FINANCIAL CORP.
STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands)
ASSETS 1997 1996
<S> <C> <C>
Interest-bearing deposits in American Savings Bank $ 693 $ 1,075
Interest-bearing deposits in other financial institutions 2,378 2,500
Investment securities -- 3,420
Loan receivable from ESOP 959 1,118
Investment in American Savings Bank, fsb 13,733 17,578
Prepaid expenses and other 104 93
--------- ---------
Total assets $ 17,867 $ 25,784
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $ 172 $ 171
Shareholders' equity
Common stock and additional paid-in capital 8,023 16,496
Retained earnings 11,181 11,173
Shares acquired by stock benefit plans (1,921) (2,180)
Unrealized gains on securities designated as available
for sale, net 412 124
--------- ---------
Total shareholders' equity 17,695 25,613
--------- ---------
Total liabilities and shareholders' equity $ 17,867 $ 25,784
========= =========
<CAPTION>
ASB FINANCIAL CORP.
STATEMENTS OF EARNINGS
Year ended June 30,
(In thousands)
1997 1996
<S> <C> <C>
Revenue
Interest income $ 292 $ 455
Equity in earnings of American Savings Bank 631 887
--------- ---------
Total revenue 923 1,342
General and administrative expenses 248 122
--------- ---------
Earnings before income taxes 675 1,220
Federal income tax 15 109
--------- ---------
NET EARNINGS $ 660 $ 1,111
========= =========
</TABLE>
43
<PAGE> 47
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE M - CONDENSED FINANCIAL STATEMENTS OF ASB FINANCIAL CORP.
(continued)
ASB FINANCIAL CORP.
STATEMENTS OF CASH FLOWS
Year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash provided by (used in) operating activities:
Net earnings for the year $ 660 $ 1,111
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities
(Undistributed earnings of) excess of distributions
from consolidated subsidiary 4,369 (887)
Loss on sale of investment securities 9 --
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets (36) 20
Other liabilities 1 43
-------- --------
Net cash provided by operating activities 5,003 287
Cash flows provided by (used in) investing activities:
Proceeds from repayment of loan 159 152
Proceeds from maturities of investment securities -- 1,500
Proceeds from sale of investment securities 3,491 --
Purchase of investment securities -- (3,500)
-------- --------
Net cash provided by (used in) investing activities 3,650 (1,848)
Cash flows provided by (used in) financing activities:
Proceeds from exercise of stock options 103 --
Payment of dividends on common stock (9,260) (557)
-------- --------
Net cash used in financing activities (9,157) (557)
-------- --------
Net decrease in cash and cash equivalents (504) (2,118)
Cash and cash equivalents at beginning of year 3,575 5,693
-------- --------
Cash and cash equivalents at end of year $ 3,071 $ 3,575
======== ========
</TABLE>
The financial statements of ASB Financial Corp. above reflect the effects of
a $7,000 after-tax loss on an intercompany sale of securities to the Savings
Bank. Such loss has been eliminated in the consolidated financial
statements.
44
<PAGE> 48
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE M - CONDENSED FINANCIAL STATEMENTS OF ASB FINANCIAL CORP.
(continued)
As a condition to regulatory approval of the stock conversion and
reorganization to the holding company form of ownership, the Savings Bank
agreed to limit the amount of dividends payable to the Corporation.
Regulations of the Office of Thrift Supervision (OTS) impose limitations on
the payment of dividends and other capital distributions by savings
associations. Under such regulations, a savings association that,
immediately prior to, and on a pro forma basis after giving effect to, a
proposed capital distribution, has total capital (as defined by OTS
regulation) that is equal to or greater than the amount of its fully
phased-in capital requirement is generally permitted without OTS approval
(but subsequent to 30 days prior notice to the OTS of the planned dividend)
to make capital distributions during a calendar year in the amount of up to
the greater of (i) 100% of its net earnings to date during the year plus an
amount equal to one-half of the amount by which its total capital-to-assets
ratio exceeded its fully phased-in capital-to-assets ratio at the beginning
of the year or (ii) 75% of its net earnings for the most recent four
quarters. Pursuant to such OTS dividend regulations, the Savings Bank had
the ability to pay dividends of approximately $2.9 million to the
Corporation at June 30, 1997.
NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Corporation's quarterly results for the
fiscal years ended June 30, 1997 and 1996. Certain amounts, as previously
reported, have been reclassified to conform to the 1997 presentation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997: (In thousands, except per share data)
<S> <C> <C> <C> <C>
Total interest income $ 2,065 $ 2,148 $ 2,079 $ 2,101
Total interest expense 1,143 1,156 1,188 1,199
------- ------- ------- -------
Net interest income 922 992 891 902
Provision for losses on loans 22 -- -- 6
Other income (expense) 52 162 67 83
General, administrative and other expense 1,219 677 606 552
------- ------- ------- -------
Earnings (loss) before income taxes (credits) (267) 477 352 427
Federal income taxes (credits) (91) 164 117 132
------- ------- ------- -------
Net earnings (loss) $ (176) $ 313 $ 235 $ 295
======= ======= ======= =======
Earnings (loss) per share $ (.11) $ .19 $ .14 $ .20
======= ======= ======= =======
</TABLE>
45
<PAGE> 49
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997, 1996 and 1995
NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (continued)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996: (In thousands, except per share data)
<S> <C> <C> <C> <C>
Total interest income $ 2,026 $ 2,016 $ 2,036 $ 2,095
Total interest expense 1,061 1,069 1,086 1,094
------- ------- ------- -------
Net interest income 965 947 950 1,001
Provision for losses on loans -- -- -- --
Other income 42 31 50 72
General, administrative and other expense 559 551 654 609
------- ------- ------- -------
Earnings before income taxes 448 427 346 464
Federal income taxes 150 150 116 158
------- ------- ------- -------
Net earnings $ 298 $ 277 $ 230 $ 306
======= ======= ======= =======
Earnings per share $ .19 $ .17 $ .14 $ .19
======= ======= ======= =======
</TABLE>
NOTE O - 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 deposit 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 deposit 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.
46
<PAGE> 50
ASB FINANCIAL CORP.
DIRECTORS AND EXECUTIVE 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
47
<PAGE> 51
AMERICAN SAVINGS BANK, FSB
DIRECTORS AND EXECUTIVE 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> 52
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 22, 1997, at 11:00 a.m., Eastern Time, at the 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 1997 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
ASB FINANCIAL CORP.
503 CHILLICOTHE STREET
PORTSMOUTH, OHIO 45662
(614) 354-3177
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The 1997 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 22, 1997, 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 1999;
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 August 29,
1997, 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 19, 1997
<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 1997 Annual Meeting of Shareholders of
ASB to be held at the Holiday Inn, U.S. Route 23 North, Portsmouth, Ohio 45662,
on October 22, 1997, 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 William J. Burke, Lee O. Fitch and Gerald R.
Jenkins as directors of ASB for terms expiring in 1999; 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. The 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 August 29,
1997 (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 1,721,412
votes entitled to be cast at the Annual Meeting.
This Proxy Statement is first being mailed to shareholders of ASB on or
about September 19, 1997.
VOTE REQUIRED
ELECTION OF DIRECTORS
Under Ohio law and ASB's Code of Regulations (the "ASB 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 will not be
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.
-1-
<PAGE> 3
RATIFICATION OF SELECTION OF AUDITORS
The affirmative vote of the holders of a majority of the shares of ASB
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.
VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
only persons known to ASB to own beneficially more than five percent of the
outstanding common shares of ASB as of August 31, 1997:
<TABLE>
<CAPTION>
Amount and nature of
beneficial ownership
--------------------------------------------
Name and Address Sole voting and/or Shared voting and/or Percent of
- ---------------- investment power investment power shares outstanding
---------------- ---------------- ------------------
<S> <C> <C> <C>
First Bankers Trust, N.A.
1201 Broadway
Quincy, Illinois 62301 126,542 (1) 33,081 7.38%
Lee O. Fitch (2) 23,154 (3) 69,158 5.36%
- ---------------------------
<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"). First Bankers Trust
Company, N.A. (the "ESOP Trustee"), has shared investment power over all shares held
in the ESOP Trust and sole voting power over shares held in the ESOP Trust which have
not been allocated to the accounts of ESOP participants.
(2) May be contacted at the address of ASB.
(3) Includes 61,702 shares held by the American Savings Bank, fsb Management Recognition
Plan and Trust Agreement (the "MRP"). Mr. Fitch is a trustee of the MRP and as such
has shared voting power over such shares.
</TABLE>
-2-
<PAGE> 4
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, 1997:
<TABLE>
<CAPTION>
Amount and nature of Percent of
Name and Address (1) beneficial ownership (2) shares outstanding (3)
- -------------------- --------------------------- ----------------------
<S> <C> <C>
William J. Burke 34,753 (4) 2.02%
Lee O. Fitch 92,312 (5) 5.36
Gerald R. Jenkins 44,710 (6) 2.59
Victor W. Morgan 33,433 (7) 1.94
Louis M. Schoettle, M.D. 33,456 (8) 1.94
Robert M. Smith 32,385 (9) 1.87
All directors and executive
officers of ASB
as a group (9 persons) 280,088 (10) 16.00%
- -----------------------------
<FN>
(1) Each of the persons listed in this table may be contacted at the address of ASB.
(2) All shares are owned directly with sole voting or investment power unless otherwise
indicated by footnote.
(3) Assumes a total of 1,721,412 common shares outstanding, plus the number of shares such
person or group has the right to acquire within 60 days, if any.
(4) Includes 2,356 shares which may be acquired upon the exercise of an option and 17,303
shares as to which Mr. Burke shares voting and investment power.
(5) Includes 2,356 shares which may be acquired upon the exercise of an option, 7,456 shares
as to which Mr. Fitch has shared voting and investment power and 61,702 shares held by the
MRP as to which Mr. Fitch has shared voting power as a Trustee of the MRP.
(6) Includes 4,907 shares which may be acquired upon the exercise of an option, 1,419 shares
owned by Mr. Jenkins' spouse and 24,562 shares as to which Mr. Jenkins has shared voting
and investment power.
(7) Includes 981 shares which may be acquired upon the exercise of an option and 32,452 shares
as to which Mr. Morgan has shared voting and investment power.
(8) Includes 2,356 shares which may be acquired upon the exercise of an option and 31,100
shares as to which Dr. Schoettle has shared voting and investment power.
(9) Includes 8,372 shares which may be acquired upon the exercise of an option, 3,533 shares
owned by Mr. Smith's spouse and 13,607 shares as to which Mr. Smith has shared voting and
investment power.
(10) Includes 28,868 shares which may be acquired upon the exercise of options, 61,702 shares
held by the MRP as to which Mr. Fitch has shared voting power as Trustee of the MRP and
130,796 shares as to which the officers and directors of ASB have shared voting and
investment power.
</TABLE>
-3-
<PAGE> 5
BOARD OF DIRECTORS
ELECTION OF DIRECTORS
The ASB Regulations provide for a Board of Directors consisting of six
persons divided into two classes. 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.
Each of the directors of ASB is also a director of American. 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.
The Board of Directors proposes the reelection of the following persons
to serve as directors of ASB until the annual meeting of shareholders in 1999
and until their successors are duly elected and qualified or until their earlier
resignation, removal from office or death:
<TABLE>
<CAPTION>
Director
of ASB
Name Age (1) Position(s) held since
- ---- ------- ---------------- -------
<S> <C> <C> <C>
William J. Burke 56 Director 1995
Lee O. Fitch 81 Director 1995
Gerald R. Jenkins 62 Director and President 1995
- -------------------------
<FN>
(1) As of September 15, 1997.
</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
of ASB
Name Age (1) Position(s) held since Term expires
- ---- ------- ---------------- ------ ------------
<S> <C> <C> <C> <C>
Victor W. Morgan 70 Director 1995 1998
Louis M. Schoettle, M.D 71 Director 1995 1998
Robert M. Smith 51 Director and Vice 1995 1998
President
- -----------------------------
<FN>
(1) As of September 15, 1997.
</TABLE>
-4-
<PAGE> 6
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.
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. Jenkins has informed the Board of Directors that he expects to
retire from his positions as President and Chief Executive Officer of ASB and
American effective January 1998. It is expected that Mr. Jenkins will continue
to serve ASB and American as Chairman of the Board and that Mr. Smith will
assume the duties of President and Chief Executive Officer of ASB and American.
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 13 times for regularly scheduled and
special meetings.
Each director of ASB is also a director of American. The Board of
Directors of American met 12 times for regularly scheduled and special meetings
during the fiscal year ended June 30, 1996.
COMMITTEES OF DIRECTORS
The Board of Directors of ASB has an Audit Committee and a Stock Option
Committee. The full Board of Directors serves as 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. Morgan, Burke and Fitch. The Audit Committee met
twice during the fiscal year ended June 30, 1997.
The Stock Option Committee is responsible for administering the ASB
Financial Corp. Stock Option and Incentive Plan (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, 1997.
The Board of Directors of American has an Executive Committee, a Finance
Committee and a MRP Committee.
The members of the Executive Committee are Messrs. Jenkins, Smith and
Burke and Dr. Schoettle. The Executive Committee serves as a loan approval
committee and is authorized to act on behalf of the Board of
-5-
<PAGE> 7
Directors between regular meetings of the Board of Directors. The Executive
Committee met eight times during the fiscal year ended June 30, 1997.
The Finance Committee is comprised of Messrs. Jenkins, Fitch 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
twice during the fiscal year ended June 30, 1997.
The MRP Committee administers the MRP. Such committee consists of Messrs.
Burke, Morgan and Fitch. The MRP Committee met once during the 1997 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 35 Treasurer of American and ASB
M. Kathryn Scott 46 Secretary of American and ASB
Jack A. Stephenson 45 Vice President/Lending of American
- ----------------------------------
<FN>
(1) As of September 15, 1997.
</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.
-6-
<PAGE> 8
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, and to Robert M. Smith, the
Executive Vice President of ASB and Chief Financial Officer of American, for the
fiscal years ended June 30, 1997, 1996 and 1995. No other executive officer of
ASB earned salary and bonus in excess of $100,000 during such periods.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Annual compensation Long term compensation All other
compensation
-----------------------------------------------------------------------------------------------------------------------
Awards
-------------------------------------
Name and principal Year Salary($) Bonus($) Restricted Securities
position stock awards underlying
($) options/SARs (#)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Jenkins 1997 $99,100 $ 6,800 -- 58,917 (1) $54,061 (2)
President 1996 $94,400 $ 9,210 $92,953 (3) 42,849 (4) $15,900
1995 $89,900 $13,200 -- -- $13,200
Robert M. Smith 1997 $78,750 $ 5,200 -- 47,134 (1) $45,513 (5)
Vice President 1996 72,150 7,040 $83,295 (3) 34,279 (4) $15,900
1995 68,700 10,100 -- -- $13,200
-------------------------
<FN>
(1) Represents an adjustment to the number of common shares of ASB underlying options granted to Mr. Jenkins and
Mr. Smith during the year ended June 30, 1996. Pursuant to the terms of the Stock Option Plan, the Board of
Directors adjusted the number of shares covered by, and the exercise price of, the options granted to Mr.
Jenkins and Mr. Smith in fiscal 1996 in connection with the tax free return of capital paid by ASB in fiscal
1997.
(2) Consists of directors' fees of $17,700 and the $36,361 value of allocations to Mr. Jenkins' account under the
ESOP. Does not include amounts attributable to miscellaneous benefits received by Mr. Jenkins, the cost of
which was less than 10% of his annual salary and bonus.
(3) On November 15, 1995, Mr. Jenkins and Mr. Smith were awarded 6,855 and 6,170 common shares, respectively,
pursuant to the MRP. Mr. Jenkins and Mr. Smith paid no consideration for such shares. Such shares are earned
and non-forfeitable at the rate of one-fifth per year on the anniversary of the date of the award, beginning on
November 15, 1996, assuming continued employment with, or service on, the Board of Directors of American. The
market price of ASB's shares on November 15, 1995, determined by reference to the closing bid for ASB's shares
on the Nasdaq National Market ("Nasdaq") on such date, was $13.50 per share. The aggregate market value of the
shares awarded to Mr. Jenkins and Mr. Smith under the MRP, as of such date, was $92,543 and $83,295,
respectively. As of June 30, 1997, the shares which have been awarded to Mr. Jenkins and Mr. Smith under the
MRP had an aggregate market value of approximately $80,546 and, $72,498, respectively. In addition, dividends
and other distributions paid on such shares and earnings on such dividends and distributions will be
distributed to Mr. Jenkins and Mr. Smith according to the vesting schedule.
(Footnotes continued on next page)
</TABLE>
-7-
<PAGE> 9
(4) Represents the number of common shares of ASB underlying options
granted to Mr. Jenkins and Mr. Smith pursuant to the Stock Option
Plan during the fiscal year ended June 30, 1996.
(5) Consists of directors' fees of $17,700 and the $27,813 aggregate
value of allocations to Mr. Smith's account under the ESOP. Does
not include amounts attributable to miscellaneous benefits
received by Mr. Smith, the cost of which was less than 10% of his
annual salary and bonus.
SALARY 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. The benefit payable to Mr. Smith
under the Salary Plan, assuming his retirement at age 65, is $4,000 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. No options were awarded pursuant to the Stock Option Plan during
the 1997 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.
-8-
<PAGE> 10
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 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.
The following table sets forth information regarding the number and value
of unexercised options held by Mr. Jenkins and Mr. Smith at June 30, 1997:
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and 6/30/97 Option /SAR Values
----------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs at In-the-Money Options/SARs at
Name Shares Acquired Value 6/30/97 (#) 6/30/97 ($)(2)
on Exercise (#) Realized ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gerald R. Jenkins 5,000 $18,125 6,783/47,134 $11,328/$78,714
Robert M. Smith 766 $ 2,777 8,661/37,707 $14,464/$62,971
- -----------------------------
<FN>
(1) The value realized is the difference between the $13.875 exercise price
and the fair market value of ASB common shares, which was $17.50 per
share on December 5, 1996, the date of exercise, based on the closing
bid price reported by the Nasdaq National Market.
(2) For purposes of this table, the value of the option was determined by
multiplying the number of shares subject to the unexercised option by
the difference between the $10.08 exercise price and the fair market
value of ASB's common shares, which was $11.75 on June 30, 1997, 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, 34,963 of which were awarded to directors and executive officers
of ASB and American during the 1996 fiscal year.
The MRP is administered by 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.
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.
-9-
<PAGE> 11
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.
EMPLOYEE STOCK OWNERSHIP PLAN
ASB established the ESOP for the benefit of employees of ASB and its
subsidiaries, including American, who are age 21 or older and who have completed
at least one year of service with ASB and its subsidiaries. The ESOP provides an
ownership interest in ASB to all full-time employees of ASB and its
subsidiaries.
Contributions to the ESOP and shares released from the suspense account
are allocated among participants on the basis of compensation. Except for
participants who retire, become disabled, or die during the plan year, all other
participants must have completed as least 1,000 hours of service in order to
receive an allocation. Benefits become fully vested after five years. Employees
of ASB and American were given credit for vesting purposes for years of service
to American prior to the effective date of the ESOP. Vesting is accelerated upon
retirement at or after age 65, death, disability or termination of the ESOP.
Shares allocated to the account of a participant whose employment by American
terminates prior to having satisfied the vesting requirement will be forfeited.
Forfeitures will be reallocated among remaining participating employees.
Benefits may be paid either in ASB's common shares or in cash. Benefits may be
payable upon retirement, death, disability or separation from service. Benefits
payable under the ESOP cannot be estimated.
ASB common shares and other ESOP funds are held and invested by the ESOP
Trustee. The ESOP Trustee must vote all allocated shares held in the ESOP in
accordance with the instructions of participating employees. The ESOP Trustee
has no authority to vote allocated shares in respect of which no instructions
are received from the participating employee. Unallocated shares are voted by
the ESOP Trustee in its sole discretion.
As of August 31, 1997, 33,081 of the 126,960 common shares of the
Company held in the ESOP Trust had been allocated to the accounts of
participants.
DIRECTOR COMPENSATION
Each director currently receives a fee of $300 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 receives $50
per committee meeting attended. During the fiscal year ended June 30, 1997, a
total of $106,200 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 common
shares of ASB at various times throughout the year. Dividends on ASB shares, to
the extent permitted by law and regulations governing ASB's operations, shall be
reinvested in ASB shares. One month after a 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
-10-
<PAGE> 12
deferred amount shall be paid in common shares of ASB unless American shall deem
it prudent to convert the shares 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.
PROPOSALS OF SHAREHOLDERS AND OTHER MATTERS
Any proposals of shareholders intended to be included in ASB's proxy
statement for the 1998 Annual Meeting of Shareholders should be sent to ASB by
certified mail and must be received by ASB not later than May 22, 1998.
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 19, 1997
-11-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 376
<INT-BEARING-DEPOSITS> 7,732
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,220
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 74,136
<ALLOWANCE> 820
<TOTAL-ASSETS> 112,469
<DEPOSITS> 89,752
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,632
<LONG-TERM> 3,384
<COMMON> 0
0
0
<OTHER-SE> 17,701
<TOTAL-LIABILITIES-AND-EQUITY> 112,469
<INTEREST-LOAN> 5,882
<INTEREST-INVEST> 2,174
<INTEREST-OTHER> 337
<INTEREST-TOTAL> 8,393
<INTEREST-DEPOSIT> 4,519
<INTEREST-EXPENSE> 4,686
<INTEREST-INCOME-NET> 3,707
<LOAN-LOSSES> 28
<SECURITIES-GAINS> 104
<EXPENSE-OTHER> 3,054
<INCOME-PRETAX> 989
<INCOME-PRE-EXTRAORDINARY> 667
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 667
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
<YIELD-ACTUAL> 2.41
<LOANS-NON> 991
<LOANS-PAST> 154
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 884
<CHARGE-OFFS> 92
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 820
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 820
</TABLE>
