<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, 1998
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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)
503 Chillicothe Street, Portsmouth, Ohio 45662 Issuer's telephone number:
- --------------------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code) (740) 354-3177
Securities registered pursuant to Section 12(b)
of the Exchange Act:
None
-----------------------------------------------
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Shares, without par value
--------------------------------------------------------------------
(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, 1998 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 23, 1998, was approximately $15.5
million.
1,654,788 of the issuer's common shares were issued and outstanding on
September 24, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-KSB - Portions of the Annual Report to Shareholders
for the fiscal year ended June 30, 1998. Part III of
Form 10-KSB - Portions of the Proxy Statement for 1998 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,
--------------------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
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 $55,707 70.6% $50,481 66.3% $48,302 68.0%
Multifamily 5,184 6.6 7,721 10.1 8,265 11.6
Nonresidential and land 5,712 7.2 5,520 7.3 3,401 4.8
Construction 1,425 1.8 926 1.2 2,318 3.3
Home equity 4,485 5.7 3,464 4.6 1,800 2.5
Commercial 1,929 2.4 2,824 3.7 2,412 3.4
------- ------- -------- -------- ------- --------
Total real estate loans 74,442 94.3 70,936 93.2 66,498 93.6
Consumer and other loans:
Passbook 744 .9 556 .7 586 .8
Home improvement 1,286 1.6 1,462 1.9 1,433 2.0
Automobile 1,772 2.3 2,087 2.8 2,199 3.1
Other 707 .9 1,091 1.4 350 .5
------- ------- -------- -------- ------- --------
Total consumer and other loans 4,509 5.7 5,196 6.8 4,568 6.4
------- ------- -------- -------- ------- --------
Total loans 78,951 100.00% 76,132 100.0% 71,066 100.0%
======= ======== ========
Less:
Loans in process 1,452 978 1,529
Net deferred loan origination fees and
unearned discounts 190 198 198
Allowance for loan losses 759 820 884
------- -------- -------
Total loans net $76,550 $74,136 $68,455
======= ======== =======
</TABLE>
LOAN MATURITY. The following table sets forth the contractual maturity
of American's total loans at June 30, 1998, 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>
1999 $2,237 $440 $491 $6,005 $9,173
2000 2,416 474 530 1,179 4,599
2001 2,609 512 571 890 4,582
2002-2003 5,862 1,147 1,281 1,303 9,593
2004-2008 19,292 2,611 1,750 793 24,446
2009-2013 14,093 - 1,089 753 15,935
2014 and thereafter 10,623 - - - 10,623
-------- ---------- ----------- ------------ --------
$57,132 $5,184 $5,712 $10,923 $78,951
======== ========== =========== ============ ========
</TABLE>
- -----------------------------
(1) Includes construction loans.
(2) Includes land development loans.
(3) Includes commercial and home equity loans.
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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, 1998, American's one- to four-family residential real estate loan portfolio,
including certain construction loans secured by one- to four-family residences,
was approximately $57.0 million, or 72.1% 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
30 years, however, 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, 1998,
American's home equity loans totaled $4.5 million, or 5.7% 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, 1998, loans secured by multifamily properties totaled
approximately $5.2 million, or 6.6% of total loans.
LOANS SECURED BY NONRESIDENTIAL REAL ESTATE AND LAND. At June 30, 1998,
approximately $5.7 million, or 7.2% 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
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American's nonresidential real estate loan portfolio are $895,000 in
participation interests which have been purchased in loans originated by other
financial institutions.
American has one land loan with a principal balance of $607,000 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, 1998, American had outstanding
nonresidential real estate construction loans with an aggregate balance of
$177,000.
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 and fixed rates for
terms of up to 30 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, 1998, construction loans, in the aggregate,
totaled $1.4 million, or 1.8% of American's total loans. Approximately 94% of
American's construction loans are secured by property in Scioto County.
COMMERCIAL REAL ESTATE LOANS. At June 30, 1998, approximately $1.9
million, or 2.4% 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 75%. 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, 1998,
American had approximately $4.5 million, or 5.7% 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.
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
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<PAGE> 6
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 Smith,
Jenkins, Burke and 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,
------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Loans originated:
Adjustable-rate:
One- to four-family real estate ........... $ 1,499 $ 1,385 $ 1,827
Multifamily real estate ................... 55 352 636
Nonresidential real estate ................ 528 2,298 112
-------- -------- --------
Total adjustable-rate .................... 2,082 4,035 2,575
Fixed-rate:
One- to four-family real estate ........... 15,022 9,886 11,324
Nonresidential real estate ................ 446 -- 424
Consumer .................................. 7,563 8,582 9,562
-------- -------- --------
Total fixed-rate ......................... 23,031 18,468 21,310
Loans purchased .............................. 2,183 773 1,711
-------- -------- --------
Total loans originated and purchased ..... 27,296 23,276 25,596
Reductions:
Principal repayments ...................... 24,815 17,697 18,715
Transfers from loans to real estate
owned and repossessed assets ............. 157 -- 138
-------- -------- --------
Total reductions ........................ 24,972 17,697 18,853
Increase (decrease) in other
items, net (1) ............................ 90 102 (441)
-------- -------- --------
Net increase ................................. $ 2,414 $ 5,681 $ 6,302
======== ======== ========
</TABLE>
- -----------------------------
(1) Consists of loans in process, unearned discounts and deferred loan
origination fees and allowance for loan losses.
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 the 15% limit, American was able to lend approximately $2.3
million to one borrower at June 30, 1998. The largest loan American had
outstanding to one borrower at June 30, 1998, was $1.4 million. Such loan was
secured by automobile titles, assignments of leases and a guarantee of the
leasing company and was current at June 30, 1998.
LOAN ORIGINATION AND OTHER FEES. American realizes loan origination
fees and other fee income from its lending activities and also realizes income
from late payment charges, application fees and fees for other miscellaneous
services.
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 91 as an adjustment to yield over
the life of the related loan.
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DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS.
Delinquent loans are loans for which payment has not been received within 30
days of the payment due date. Loan payments are due on the first day of the
month with the portion of the payment applicable to interest to accrue during
the current month. When loan payments have not been made by the thirtieth of the
month, late notices are sent. If payment is not received by the sixtieth day,
second notices 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, 1998
---------------------------------------------------------------------------------------------------------
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 40 $1,117 1.4% - $ - -% 13 $ 60 .1% 53 $1,177 1.5%
60-89 days 7 276 .4 - - - 4 24 - 11 300 .4
90 days and over 8 168 .2 - - - 12 72 .1 20 240 .3
------ ------- ----- ------ ------ ----- ------ ------ ----- ------ ------ ----
Total delinquent
loans 55 $1,561 2.0% - $ - -% 29 $ 156 .2% 84 $1,717 2.2%
====== ======= ===== ====== ====== ===== ====== ======= ===== ====== ====== ====
</TABLE>
<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> <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
loans 62 $3,081 4.1% - $ - - % 28 $ 166 .2% 90 $3,247 4.3%
====== ======= ===== ====== ====== ===== ====== ======= ===== ====== ====== ====
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1996
---------------------------------------------------------------------------------------------------------
Residential real estate Nonresidential real estate Consumer Total
--------------------------- ------------------------- ------------------------ ----------------------
Number Amount % (1) Number Amount % (1) Number Amount % (1) Number Amount % (1)
------ ------- ----- ------ ------ ----- ------ ------ ----- ------ ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days 42 $1,386 2.0% - $ - - % 17 $ 65 .1% 59 $1,451 2.0%
60-89 days 14 1,317 1.8 1 38 - 9 41 .1 24 1,396 2.0
90 days and over 9 1,026 1.4 1 115 .2 8 17 - 18 1,158 1.6
------ ------- ----- ------ ------ ----- ------ ------ ----- ------ ------ ----
Total delinquent
loans 65 $3,729 5.2% 2 $153 .2% 34 $ 123 .2% 101 $4,005 5.6%
====== ======= ===== ====== ====== ===== ====== ======= ===== ====== ====== ====
</TABLE>
- ------------------------------------
(1) Percentages correlate to total loans before net items.
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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,
--------------------------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Non-accrual loans:
One- to four-family $168 $ 87 $ 164
Nonresidential - - 115
Multifamily - 862 862
Consumer - 42 17
-------- -------- -------
Total 168 991 1,158
Accruing loans delinquent
90 days or more: 72 154 -
-------- -------- -------
Total nonperforming loans 240 1,145 1,158
Real estate acquired through foreclosure:
One- to four-family 157 - -
Nonresidential - - 663
Multifamily - - -
-------- -------- -------
Total real estate acquired through
foreclosure 157 - 663
-------- -------- -------
Total nonperforming assets $397 $1,145 $1,821
======== ======== =======
Allowance for loan losses $759 $ 820 $ 884
======== ======== =======
Nonperforming assets as a percent
of total assets (1) .34% 1.02% 1.61%
Allowance for loan losses as a percent of
nonperforming loans 316.25% 71.62% 76.34%
Allowance for loan losses as a percent of
nonperforming assets 191.18% 71.62% 48.54%
</TABLE>
- -----------------------------
(1) The applicable asset totals are $116.4 million, $112.5 million and
$112.9 million for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.
For the year ended June 30, 1998, gross interest income which would
have been recorded had non-accrual loans been current in accordance with their
original terms was $6,000 and no interest was 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
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<PAGE> 11
such date in maintaining the property are expensed. Costs relating to the
development and improvement of the property are capitalized to the extent of
fair value.
American classifies its own assets on a regular basis in accordance
with federal regulations. Problem assets are classified as "substandard,"
"doubtful" or "loss." "Substandard" assets have one or more defined weaknesses
and are characterized by the distinct possibility that American will sustain
some loss if the deficiencies are not corrected. "Doubtful" assets have the same
weaknesses as "substandard" assets, with the additional characteristics that (i)
the weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable and (ii) there is a high
possibility of loss. An asset classified "loss" is considered uncollectible and
of such little value that its continuance as an asset of American is not
warranted.
The aggregate amounts of American's classified assets at the dates
indicated were as follows:
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Classified assets
Substandard $ 993 $949 $1,804
Doubtful - - -
Loss 8 42 59
---------- ---------- ---------
Total classified assets $1,001 $991 $1,863
========== ========== =========
</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,
------------------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $820 $884 $893
Charge-offs:
Residential real estate loans (1) (47) (22) (9)
Nonresidential real estate loans - (64) -
Consumer loans (9) (6) -
-------- -------- --------
Total charge-offs (56) (92) (9)
Recoveries - - -
-------- -------- --------
Net charge-offs (56) (92) (9)
-------- -------- --------
Provision for (recoveries of) losses on loans (5) 28 -
-------- -------- --------
Balance at end of period $759 $820 $884
======== ======== ========
Ratio of net charge-offs to average loans
outstanding during the period .07% .13% .01%
</TABLE>
- ------------------------------
(1) Includes multifamily loans.
The following table sets forth the allocation of American's allowance
for loan losses by type of loan at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------------------------------------
1998 1997 1996
----------------------- ------------------------- -------------------------
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 $47 94.3% $216 93.2% $309 93.6%
Consumer loans 11 5.7 42 6.8 13 6.4
Unallocated 701 - 562 - 562 -
------ ------------- ------ ------------- ------ -------------
Total $759 100.0% $820 100.0% $884 100.0%
====== ============= ====== ============= ====== =============
</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,
------------------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- --------------------
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> <C>
Investments designated as held to maturity:
Interest-bearing deposits in other
financial institutions (1) $15,399 56.5% $ 7,732 29.3% $10,127 34.4%
Investments designated as available for sale:
U.S. Government agency obligations 10,766 39.5 17,960 68.0 18,771 63.8
Corporate equity securities 128 .5 - - - -
FHLMC stock 941 3.5 700 2.7 513 1.8
--------- -------- -------- -------- -------- --------
Total investments designated
as available for sale 11,835 43.5 18,660 70.7 19,284 65.6
--------- -------- -------- -------- -------- --------
Total investments $27,234 100.0% $26,392 100.0% $29,411 100.0%
========= ======== ======== ======== ======== ========
</TABLE>
- -----------------------------
(1) Includes interest-bearing deposits and certificates of deposit.
(2) At June 30, 1998, 1997 and 1996, the market value of American's investment
securities, held to maturity, totaled $15.4 million, $7.7 million and
$10.1 million, respectively.
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, 1998:
<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>
Investments designated as
held to maturity:
Certificates of deposit
in other financial
institutions $1,266 6.46% $ 738 6.36% $ - -% $ - -% $2,004 $2,004
Investments designated as
available for sale:
U.S. Government
agency obligations 995 5.53 1,500 6.24 5,166 7.06 3,068 7.25 10,729 10,766
Corporate equity - - - - - - - - 140 128
securities
FHLMC stock - - - - - - 20 941
--------- -------- --------- -------- --------- -------- --------- -------- --------- ------
Total $2,261 6.05% $2,238 6.28% $ 5,166 7.06% $3,068 7.25% $12,893 $13,839
========= ======== ========= ======== ========= ======== ========= ======== ========= ======
</TABLE>
In addition to the foregoing investment securities, American has been
an active purchaser of mortgage-backed securities. At June 30, 1998,
mortgage-backed securities totaled $8.9 million, or 7.66% 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. In addition, American does invest in collateralized mortgage
obligations ("CMOs").
-13-
<PAGE> 14
American generally purchases mortgage-backed securities at or near par
in order to avoid prepayment risk. The following table sets forth details of
American's investment in mortgage-backed securities, of which all are designated
as available for sale, at the dates indicated.
<TABLE>
<CAPTION>
At June 30, 1998 At June 30, 1997
----------------------------------------------- ----------------------------------------------
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>
Available for sale:
FHLMC participation
certificates $2,007 $ 41 $ 4 $2,044 $3,067 $34 $34 $3,067
FNMA participation
certificates 850 26 9 867 1,637 23 21 1,639
GNMA participation
certificates 4,919 86 3 5,002 3,817 61 24 3,854
Collateralized mortgage
obligations 1,014 4 7 1,011 - - - -
------ ------ ----- ------ --------- -------- ------ ---------
Total mortgage-backed
securities $8,790 $157 $ 23 $8,924 $8,521 $118 $79 $8,560
====== ==== ==== ====== ====== ==== === ======
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1996
--------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
------------ -------- -------- -----------
<S> <C> <C> <C> <C>
Available for sale:
FHLMC participation
certificates $4,119 $38 $ 57 $ 4,100
FNMA participation
certificates 2,135 30 27 2,138
GNMA participation
certificates 4,463 81 54 4,490
Collateralized mortgage
obligations - - - -
------------ -------- -------- -----------
Total mortgage-backed
securities $10,717 $149 $138 $10,728
======= ==== ==== =======
</TABLE>
-14-
<PAGE> 15
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>
1998 1997 1996
--------------------- -------------------- ----------------------
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 $7,440 8.0% $ 7,379 8.2% $ 7,225 8.7%
Demand, NOW and Super NOW
accounts 5,867 6.3 4,435 4.9 3,448 4.1
Money market deposit
accounts 7,999 8.5 7,785 8.7 9,001 10.8
-------- --------- -------- -------- -------- --------
Total transaction 21,306 22.8 19,599 21.8 19,674 23.6
accounts
Certificates of deposit:
4.00 - 4.99% 421 .5 402 .4 474 .5
5.00 - 5.99% 45,033 48.2 52,404 58.4 27,525 33.0
6.00 - 6.99% 26,630 28.5 17,265 19.2 35,638 42.7
7.00 - 7.99% 31 - 30 .1 36 .1
8.00 - 8.99% 56 - 52 .1 48 .1
-------- --------- -------- -------- -------- --------
Total certificates of
deposit 72,171 77.2 70,153 78.2 63,721 76.4
-------- --------- -------- -------- -------- --------
Total deposits $93,477 100.0% $89,752 100.0% $83,395 100.0%
======== ========= ======== ======== ======== ========
</TABLE>
-15-
<PAGE> 16
The following table sets forth the remaining maturities of American's
certificates of deposit at the dates indicated:
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------------
1998 1997 1996
---------- ---------- ---------
(In thousands)
<S> <C> <C> <C>
Less than one year $51,581 $42,468 $44,345
One to two years 18,247 22,606 10,065
Two to three years 1,928 4,095 5,748
Over three years 415 984 3,563
---------- ---------- ---------
$72,171 $70,153 $63,721
======= ======= =======
</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,
1998:
<TABLE>
<CAPTION>
At June 30, 1998
----------------------
Certificates of deposit with balances of $100,000 (In thousands) or more
maturing in quarter ending (1):
<S> <C>
September 30, 1998 $ 679
December 31, 1998 2,589
March 31, 1999 2,546
June 30, 1999 1,942
After June 30, 1999 3,764
--------
Total certificates of deposit with balances of $100,000 or more $ 11,520
========
</TABLE>
- -----------------------------
(1) Account balances over $100,000 are not insured by the FDIC.
The following table sets forth American's deposit account balance
activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------------------------
1998 1997 1996
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance ......... $ 89,752 $ 83,395 $ 78,888
Deposits .................. 120,166 118,033 91,423
Withdrawals ............... (119,802) (114,836) (89,410)
Interest credited ......... 3,361 3,160 2,494
--------- --------- ---------
Ending balance ............ $ 93,477 $ 89,752 $ 83,395
========= ========= =========
Net increase .............. $ 3,725 $ 6,357 $ 4,507
========= ========= =========
Percent increase .......... 4.15% 7.62% 5.71%
========= ========= =========
</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 American's advances from the FHLB, ASB has borrowed money at June
30, 1998 and 1997, totaling $2.5 million and $500,000 at respective interest
rates of 8.50% and 8.88%, maturing in 1999 and 2001, respectively.
-16-
<PAGE> 17
The following table sets forth certain information as to American's
FHLB advances and ASB's other borrowings at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------------------
1998 1997 1996
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances $4,354 $2,884 $2,413
Weighted average interest rate of FHLB
advances 5.16% 5.65% 4.95%
Other borrowed money $2,500 $500 -
Weighted average interest rate of other
borrowed money 8.50% 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>
At June 30,
-----------------------------------------------------
1998 1997 1996
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances:
Maximum balance $4,354 $2,889 $2,413
Average balance 3,130 2,489 684
Weighted average interest rate 5.90% 5.65% 5.12%
Other borrowed money:
Maximum balance $2,500 $500 -
Average balance 378 333 -
Weighted average interest rate 8.84% 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, 1998, 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
Center, bringing the total assets of ASL to approximately $33,000 at June 30,
1998.
PERSONNEL
As of June 30, 1998, American had 20 full-time employees and 4
part-time employees. American believes that relations with its employees are
excellent. American offers health, disability and life benefits and has
established the ASB
-17-
<PAGE> 18
Financial Corp. Employee Stock Ownership Plan. None of the employees of American
are represented by a collective bargaining unit.
YEAR 2000
As with most providers of financial services, American's operations are
heavily dependent on information technology systems. American is addressing the
potential problems associated with the possibility that the computers that
control or operate American's information technology system and infrastructure
may not be programmed to read four-digit date codes and, upon arrival of the
year 2000, may recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data. American is working
with the companies that supply or service its information technology systems to
identify and remedy any year 2000 related problems.
ASB's primary data processing applications are handled by a third-party
service bureau which has advised ASB that it has transferred to a fully year
2000-compliant processing system that will be fully tested by January 1, 1999.
Management has also reviewed ASB's ancillary equipment and is in the process of
providing the appropriate remedial measures without material cost.
As a result of the foregoing, ASB has not identified any material
specific expenses that are reasonably likely to be incurred by American in
connection with this issue and does not expect to incur significant expense to
implement the necessary corrective measures. No assurance can be given, however,
that significant expense will not be incurred in future periods. In the event
that American is ultimately required to purchase replacement computer systems,
programs and equipment, or incur substantial expense to make American's current
systems, programs and equipment year 2000 compliant, ASB's net earnings and
financial condition could be adversely affected. While American is endeavoring
to ensure that its computer-dependent operations are year 2000 compliant, no
assurance can be given that some year 2000 problems will not occur.
In addition to possible expense related to its own systems, ASB could
incur losses if year 2000 issues adversely affect American's depositors or
borrowers. Such problems could include delayed loan payments due to year 2000
problems affecting any significant borrowers or impairing the payroll systems of
large employers in American's primary market area. Because American's loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses and American's primary market area is not significantly dependent
upon one employer or industry, American does not expect any significant or
prolonged difficulties that will affect net earnings or cash flow.
REGULATION
GENERAL. ASB, as the holding company of American, is subject to
regulation, examination and oversight by the OTS and is required to submit
periodic reports to the OTS. As a savings association organized under the laws
of the United States, American is also subject to regulatory oversight by the
OTS, and, because American's deposits are insured by the FDIC, American is also
subject to examination and regulation by the FDIC. American must file periodic
reports with the OTS concerning its activities and financial condition.
Examinations are conducted periodically by the OTS and the FDIC to determine
whether American is in compliance with various regulatory requirements and is
operating in a safe and sound manner. American is a member of the FHLB of
Cincinnati.
Congress is considering legislation to eliminate the federal savings
and loan charter and the separate federal regulation of savings and loan
associations. Pursuant to such legislation, Congress may eliminate the OTS and
American may be regulated under federal law as a bank or may 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 form of holding company regulation which may limit the activities
in which ASB may engage and subject ASB to additional regulatory requirements,
including separate capital requirements. ASB cannot predict when or whether
Congress may actually pass legislation regarding the Company's and American's
regulatory requirements or charter. Although such legislation may change the
activities in which ASB and American may engage, it is not anticipated that the
current activities of either ASB or American will be materially affected by
those activity limits.
-18-
<PAGE> 19
OFFICE OF THRIFT SUPERVISION. The OTS is an office in the Department of
the Treasury and is responsible for the regulation and supervision of all
federally chartered savings associations and all other savings associations, the
deposits of which are insured by the FDIC in the SAIF. The OTS issues
regulations governing the operation of savings associations, regularly examines
such associations and imposes assessments on savings associations based on their
asset size to cover the costs of general supervision and examination. It also
promulgates regulations that prescribe the permissible investments and
activities of federally chartered savings associations, including the type 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.
Federally chartered savings associations are subject to regulatory
oversight under various consumer protection and fair lending laws. These laws
govern, among other things, truth-in-lending disclosure, equal credit
opportunity, fair credit reporting and community reinvestment. Failure to abide
by federal laws and regulations governing community reinvestment could limit the
ability of an association to open a new branch or engage in a merger
transaction. Community reinvestment regulations evaluate how well and to what
extent an institution lends and invests in its designated service area, with
particular emphasis on low-to-moderate income communities and borrowers in such
areas. American has received a "satisfactory" examination rating under those
regulations.
OTS REGULATORY CAPITAL REQUIREMENTS. American is required by OTS
regulations to meet certain minimum capital requirements. The following table
sets forth the amount and percentage level of regulatory capital of American at
June 30, 1998, and the amount by which it exceeds the minimum capital
requirements. Tangible and core capital are reflected as a percentage of
adjusted total assets. Total (or risk-based) capital, which consists of core and
supplementary capital, is reflected as a percentage of risk-weighted assets.
Assets are weighted at percentage levels ranging from 0% to 100% depending on
their relative risk.
<TABLE>
<CAPTION>
At June 30, 1998
------------------------------------
Amount Percent
-------- -----
(In thousands)
<S> <C> <C>
Tangible capital $14,690 12.8%
Requirement 1,725 1.5
-------- -----
Excess $12,965 11.3%
======== =====
Core capital $14,690 12.8%
Requirement 3,451 3.0
-------- -----
Excess $11,239 9.8%
======== =====
Total capital $15,391 27.5%
Risk-based requirement 4,479 8.0
-------- -----
Excess $10,912 19.5%
======== =====
</TABLE>
Current capital requirements call for tangible capital (which for
American is equity capital under generally accepted accounting principles less
the unrealized gain on available-for-sale securities) of 1.5% of adjusted total
assets, core capital (which for American consists of tangible capital) of 3.0%
of adjusted total assets and risk-based capital (which for American consists of
core capital plus general valuation reserves of $701,000) of 8% of risk-weighted
assets. The OTS has proposed to amend the core capital requirement so that those
associations that do not have the highest examination rating and exceed an
acceptable level of risk will be required to maintain core capital of from 4% to
5%, depending on the association's examination rating and overall risk. American
does not anticipate that it will be adversely affected if the core capital
requirement regulation is amended as proposed. American's current core capital
level is 12.8% of adjusted total assets.
The OTS has adopted an interest rate risk component to the risk-based
capital requirement, though the implementation of that component has been
delayed. Pursuant to that requirement, a savings association would have to
measure the effect of an immediate 200 basis point change in interest rates on
the value of its portfolio, as determined under the methodology established by
the OTS. If the measured interest rate risk is above the level deemed normal
under the
-19-
<PAGE> 20
regulation, the association will be required to deduct one-half of that excess
exposure from its total capital when determining its level of risk-based
capital. In general, an association with less than $300 million in assets and a
risk-based capital ratio of greater than 12% will not be subject to the interest
rate risk component. American does not currently qualify for such exemption.
Pending implementation of the interest rate risk component, the OTS has the
authority to impose a higher individualized capital requirement on any savings
association it deems to have excess interest rate risk. The OTS also may adjust
the risk-based capital requirement on an individual basis for any association to
take into account risks due to concentrations of credit and non-traditional
activities.
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
associations. At each successively lower defined capital category, an
association is subject to more restrictive and numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. The OTS has defined
these capital levels as follows: (1) well-capitalized associations must have
total risk-based capital of at least 10%, core risk-based capital (consisting
only of items that qualify for inclusion in core capital) of at least 6% and
core capital of at least 5%; (2) adequately capitalized associations are those
that meet the regulatory minimum of total risk-based capital of at least 8%,
core risk-based capital (consisting only of items that qualify for inclusion in
core capital) of at least 4% and core capital of at least 4% (except for
associations receiving the highest examination rating and with an acceptable
level of risk, in which case the level is at least 3%); (3) undercapitalized
associations are those that do not meet regulatory limits, but that are not
significantly undercapitalized; (4) significantly undercapitalized associations
have total risk-based capital of less than 6%, core risk-based capital
(consisting only of items that qualify for inclusion in core capital) of less
than 3% or core capital of less than 3%; and (5) critically undercapitalized
associations are those with tangible equity of less than 2% of total assets. In
addition, the OTS generally can downgrade an association's capital category,
notwithstanding its capital level, if, after notice and opportunity for hearing,
the association 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 association
must submit a capital restoration plan to the OTS within 45 days after it
becomes undercapitalized. Such an association will be subject to increased
monitoring and asset growth restrictions and will be required to obtain prior
approval for acquisitions, branching and engaging in new lines of business.
Furthermore, critically undercapitalized institutions must be placed in
conservatorship or receivership within 90 days of reaching that capitalization
level, except under limited circumstances. American's capital at June 30, 1998,
meets the standards for a well-capitalized institution.
Federal law prohibits an insured institution from making a capital
distribution to anyone or paying management fees to any person having control of
the association if, after such distribution or payment, the association would be
undercapitalized. In addition, each company controlling an undercapitalized
association must guarantee that the association will comply with its capital
plan until the association has been adequately capitalized on an average during
each of four preceding calendar quarters and must provide adequate assurances of
performance. The aggregate liability pursuant to such guarantee is limited to
the lesser of (a) an amount equal to 5% of the association's total assets at the
time the institution became undercapitalized or (b) the amount that is necessary
to bring the association into compliance with all capital standards applicable
to such association at the time the association fails to comply with its capital
restoration plan.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various
restrictions or requirements on the ability of associations to make capital
distributions, including dividend payments. An association which has converted
to stock form is prohibited from declaring or paying any dividends or from
repurchasing any of its stock if, as a result, the net worth of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. 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 capital requirement for such capital component, as measured at the
beginning of the calendar year, or the amount authorized for a Tier 2
association. 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. Tier
2 consists of associations that before and after the proposed distribution meet
their current minimum, but not fully phased-in, capital requirements, as such
requirements are defined by OTS regulations. Associations in this category may
make capital distributions of up to 75%
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of net income over the four most recent quarters. Tier 3 associations do not
meet current minimum capital requirements and must obtain OTS approval of any
capital distribution.
American meets the requirements for a Tier 1 Association and has not
been notified of any need for more than normal supervision. As a subsidiary of
the Company, American is required to give the OTS 30 days notice prior to
declaring any dividend on its common shares. The OTS may object to the dividend
during that 30-day period based on safety and soundness concerns. Moreover, the
OTS may prohibit any capital distribution otherwise permitted by regulation if
the OTS determines that such distribution would constitute an unsafe or unsound
practice. American paid no dividends to ASB during fiscal 1998.
In January 1998, the OTS issued a proposal to amend the capital
distribution limits. Under that proposal, an association owned by a holding
company would still be required to provide either a notice or an application to
the OTS, although under certain circumstances a savings association without a
holding company having an examination rating of 1 or 2 could make a capital
distribution without notice to the OTS, if it would remain adequately
capitalized after the distribution is made.
LIQUIDITY. OTS regulations require that each savings association
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 4% 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 eligible liquidity of American, as computed under current
regulations, at June 30, 1998, was approximately $19.6 million, or 19.8% and
exceeded the 4.0% liquidity requirement by approximately $15.6 million.
QUALIFIED THRIFT LENDER TEST. Savings associations are required to meet
the Qualified Thrift Lender ("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 stock issued by any FHLB, the FHLMC or the 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 may also 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, 1998,
American met the QTL Test.
LENDING LIMIT. OTS regulations generally limit the aggregate amount
that a savings association may lend to one borrower (the "Lending Limit") to an
amount equal to 15% of the savings association's total capital under the
regulatory capital requirements plus any additional loan reserve not included in
total capital (the "Lending Limit Capital"). A savings association may loan to
one borrower an additional amount not to exceed 10% of total capital plus
additional reserves if the additional loan 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.
In applying these limits, loans to certain borrowers may be aggregated.
Notwithstanding the specified limits, an association may lend to one borrower up
to $500,000 "for any purpose." At June 30, 1998, American was in compliance with
this lending limit.
TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to executive officers,
directors and principal shareholders and their related interests must conform to
the Lending Limit, and the total of such loans cannot exceed the association's
Lending Limit Capital. Most loans to directors, executive officers and principal
shareholders must be approved in advance by a majority of the "disinterested"
members of 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. Loans to executive officers are subject to
additional restrictions. American was in compliance with such restrictions at
June 30, 1998.
All transactions between savings associations and their affiliates must
comport with Sections 23A and 23B of the Federal Reserve Act ("FRA"). An
affiliate of a savings association is any company or entity that controls, is
controlled by or
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is under common control with the savings association. ASB is an affiliate of
American. Generally, Sections 23A and 23B of the FRA (i) limit the extent to
which a savings association or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, (ii) limit the aggregate of all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and surplus, and (iii) require that all such transactions be on terms
substantially the same, or at least as favorable to the association, as those
provided in transactions with a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
other similar types of transactions. In addition to the limits in Sections 23A
and 23B, a savings association 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. American was in
compliance with these requirements and restrictions at June 30, 1998.
FEDERAL DEPOSIT INSURANCE CORPORATION REGULATIONS. The FDIC is an
independent federal agency that insures the deposits of federally insured banks
and thrifts, up to prescribed statutory limits, and safeguards the safety and
soundness of the banking and thrift industries. The FDIC administers two
separate insurance funds, the Bank Insurance Fund ("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 banks were reduced significantly below the level
paid by healthy savings associations effective in mid-1995. 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.
American had $83.8 million in deposits at March 31, 1995, and paid a special
assessment of $551,000, which was accounted for and recorded as of September 30,
1996. BIF assessments for healthy banks in 1997 were $.013 per $100 in deposits
and SAIF assessments for healthy institutions in 1997 were $.064 per $100 in
deposits. American paid $57,000 in SAIF assessments in fiscal 1998 compared to
$114,000 in fiscal 1997, exclusive of the special assessment.
FRB RESERVE REQUIREMENTS. FRB regulations currently require that
reserves of 3% of net transaction accounts (primarily NOW accounts) up to $47.8
million (subject to an exemption of up to $4.7 million), and of 10% of net
transaction accounts in excess of $47.8 million. At June 30, 1998, American was
in compliance with its reserve requirements.
FEDERAL HOME LOAN BANKS. The FHLBs provide credit to their members in
the form of advances. American is a member of the FHLB of Cincinnati and must
maintain an investment in the capital stock of that FHLB in an amount equal to
the greater of 1.0% of the aggregate outstanding principal amount of American's
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each year, or 5% of its advances from the FHLB. American is in
compliance with this requirement with an investment in stock of the FHLB of
Cincinnati of $725,000 at June 30, 1998.
Upon the origination or renewal of a loan or advance, the FHLB of
Cincinnati is required by law to obtain and maintain a security interest in
collateral in one or more of the following categories: fully disbursed, whole
first mortgage loans on improved residential property or securities representing
a whole interest in such loans; securities issued, insured or guaranteed by the
United States government or an agency thereof; deposits in any FHLB; or other
real estate related collateral (up to 30% of the member association's capital)
acceptable to the applicable FHLB, if such collateral has a readily
ascertainable value and the FHLB can perfect its security interest in the
collateral.
Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLBs. The standards take into account a member's performance
under
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the Community Reinvestment Act and its record of lending to first-time home
buyers. All long-term advances by each FHLB must be made only to provide funds
for residential housing finance.
HOLDING COMPANY REGULATION. ASB is a unitary savings and loan holding
company within the meaning of the Home Owners' Loan Act (the "HOLA"). As such,
ASB is registered with the OTS and is subject to OTS regulations, examination,
supervision and reporting requirements.
There are generally no restrictions on the activities of unitary
savings and loan holding companies and such companies are the only financial
institution holding companies that may engage in commercial, securities and
insurance activities without limitation. The broad latitude to engage in
activities under current law can be restricted if the OTS determines that there
is reasonable cause to believe that the continuation of an activity by a savings
and loan holding company constitutes a serious risk to the financial safety,
soundness or stability of its subsidiary savings association. The OTS may impose
such restrictions as deemed necessary to address such risk, including limiting
(i) payment of dividends by the savings association, (ii) transactions between
the savings association and its affiliates, and (iii) any activities of the
savings association that might create a serious risk that the liabilities of the
holding company and its affiliates may be imposed on the savings association.
Notwithstanding the foregoing rules as to permissible business activities of a
unitary savings and loan holding company, if the savings association subsidiary
of a holding company fails to meet the QTL Test, then such unitary holding
company would become subject to the activities restrictions applicable to
multiple holding companies. At June 30, 1998, American met the QTL Test.
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings association or savings and loan holding company,
without prior approval of the OTS, or from acquiring or retaining more than 5%
of the voting shares of a savings association or holding company thereof, which
is not a subsidiary. Under certain circumstances, a savings and loan holding
company is permitted to acquire, with the approval of the OTS, up to 15% of the
previously unissued voting shares of an undercapitalized savings association for
cash without such savings association being deemed to be controlled by the
holding company. Except with the prior approval of the 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.
If ASB were to acquire control of another savings institution, other
than through a merger or other business combination with American, ASB would
become a multiple savings and loan holding company. Unless the acquisition is an
emergency thrift acquisition and each subsidiary savings association meets the
QTL Test, the activities of ASB and any of its subsidiaries (other than American
or other subsidiary savings associations) would thereafter be subject to
activity restrictions. The HOLA provides that, among other things, no multiple
savings and loan holding company or subsidiary thereof that is not a savings
institution shall commence or continue for a limited period of time after
becoming a multiple savings and loan holding company or subsidiary thereof, any
business activity other than (i) furnishing or performing management services
for a subsidiary savings institution, (ii) conducting an insurance agency or
escrow business, (iii) holding, managing or liquidating assets owned by or
acquired from a subsidiary savings institution, (iv) holding or managing
properties used or occupied by a subsidiary savings institution, (v) acting as
trustee under deeds of trust, (vi) those activities previously directly
authorized by federal regulation as of March 5, 1987, to be engaged in by
multiple holding companies, or (vii) those activities authorized by the FRB as
permissible for bank holding companies, unless the OTS by regulation prohibits
or limits such activities for savings and loan holding companies. Those
activities described in (vii) above must also be approved by the OTS prior to
being engaged in by a multiple holding company.
The OTS may approve acquisitions resulting in the formation of a
multiple savings and loan holding company that controls savings associations in
more than one state only if the multiple savings and loan holding company
involved controls a savings association that operated a home or branch office in
the state of the association to be acquired as of March 5, 1987, or if the laws
of the state in which the institution to be acquired is located specifically
permit institutions to be acquired by state-chartered institutions or savings
and loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
institutions). 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.
MERGER MORATORIUM STATUTE. Chapter 1704 of the Ohio Revised Code
regulates certain takeover bids affecting certain public corporations with
significant ties to Ohio. The statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers
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between such an Ohio corporation and any person who has the right to exercise,
alone or with others, 10% or more of the voting power of such corporation (an
"Interested Shareholder"), for three years following the date on which such
person first becomes an Interested Shareholder. Such a business combination is
permitted only if, prior to the time such person first becomes an Interested
Shareholder, the Board of Directors of the issuing corporation has approved the
purchase of shares that resulted in such person first becoming an Interested
Shareholder.
After the initial three-year moratorium, such a business combination
may not occur unless (1) an exception specifically enumerated in the statute is
applicable to the combination, (2) the combination is approved, at a meeting
held for such purpose, by the affirmative vote of the holders of the issuing
public corporation entitling them to exercise at least two-thirds of the voting
power of the issuing public corporation in the election of directors or of such
different proportion as the articles may provide, provided the combination is
also approved by the affirmative vote of the holders of at least a majority of
the disinterested shares, or (3) the business combination meets certain
statutory criteria designed to ensure that the issuing public corporation's
remaining shareholders receive fair consideration for their shares.
An Ohio corporation may, under certain circumstances, "opt out" of the
statute by specifically providing in its articles of incorporation that the
statute does not apply to any business combination of such corporation. However,
the statute still prohibits for twelve months any business combination that
would have been prohibited but for the adoption of such an opt-out amendment.
The statute also provides that it will continue to apply to any business
combination between a person who became an Interested Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted. The
Articles of Incorporation of ASB do not opt out of the protection afforded by
Chapter 1704.
CONTROL SHARE ACQUISITION. Section 1701.831 of the Ohio Revised Code
(the "Control Share Acquisition Statute") requires that, with certain
exceptions, acquisitions of voting securities which would result in the
acquiring shareholder owning 20%, 33 1/3%, or 50% of the outstanding voting
securities of an Ohio corporation (a "Control Share Acquisition") must be
approved in advance by (a) the holders of at least a majority of the outstanding
voting shares of such corporation represented at a meeting at which a quorum is
present, and (b) a majority of the portion of the outstanding voting shares
represented at such a meeting excluding the voting shares owned by the acquiring
shareholder, by certain other persons who acquire or transfer voting shares
after public announcement of the acquisition or by certain officers of the
corporation or directors of the corporation who are employees of the
corporation. The Control Share Acquisition Statute was intended, in part, to
protect shareholders of Ohio corporations from coercive tender offers.
TAKEOVER BID STATUTE. Ohio law provides that an offeror may not make a
tender offer or request or invitation for tenders that would result in the
offeror beneficially owning more than ten percent of any class of the target
company's equity securities unless such offeror files certain information with
the Ohio Division of Securities (the "Securities Division") and provides such
information to the target company and the offerees within Ohio. The Securities
Division may suspend the continuation of the control bid if the Securities
Division determines that the offeror's filed information does not provide full
disclosure to the offerees of all material information concerning the control
bid. The statute also provides that an offeror may not acquire any equity
security of a target company within two years of the offeror's previous
acquisition of any equity security of the same target company pursuant to a
control bid unless the Ohio offerees may sell such security to the offeror on
substantially the same terms as provided by the previous control bid. The
statute does not apply to a transaction if either the offeror or the target
company is a savings and loan holding company and the proposed transaction
requires federal regulatory approval.
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 the alternative minimum tax which
is imposed at a minimum tax rate of 20% on "alternative minimum taxable income"
(which is the sum of a corporation's regular taxable income, with certain
adjustments, and tax preference items), less any available exemption. Such tax
preference items include interest on certain tax-exempt bonds issued after
August 7, 1986. In addition, 75% of the amount by which a corporation's
"adjusted current earnings" exceeds its alternative minimum taxable income
computed without regard to this preference item and prior to reduction by net
operating losses, is included in alternative minimum taxable income. Net
operating losses can offset no more than 90% of alternative minimum taxable
income. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax. Payments of alternative minimum tax may be
used as credits against regular tax liabilities in future years. 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
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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.
American's average gross receipts for the three tax years ending on
December 31, 1997, is approximately $8.6 million and as a result, American does
not qualify as a small corporation exempt from the alternative minimum tax.
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, such as American , were allowed deductions for bad debts under
methods more favorable than those granted to other taxpayers. Qualified thrift
institutions could compute deductions for bad debts using either the specific
charge-off method of Section 166 of the Code or one of 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 1995, 1994, and
1993, American used the percentage of taxable income method.
The Act eliminated the percentage of taxable income method of
accounting for bad debts by thrift institutions, effective for taxable years
beginning after 1995. Thrift institutions that are treated as small banks are
allowed to utilize the experience method applicable to such institutions, while
thrift institutions that are treated as large banks are required to use only the
specific charge off method.
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 is treated
as a large bank, the amount of the institution's applicable excess reserves
generally is the excess of (i) the balances of its reserve for losses on
qualifying real property loans (generally loans secured by improved real estate)
and its reserve for losses on nonqualifying loans (all other types of loans) as
of the close of its last taxable year beginning before January 1, 1996, over
(ii) the balances of such reserves as of the close of its last taxable year
beginning before January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of
a thrift institution that is treated as a small bank, like American, the amount
of the institution's applicable excess reserves generally is the excess of (i)
the balances of its reserve for losses on qualifying real property loans and its
reserve for losses on nonqualifying loans as of the close of its last taxable
year beginning before January 1, 1996, over (ii) the greater of the balance of
(a) its pre-1988 reserves or (b) what 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 than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential or church property and certain mobile homes), but only to the extent
that the loan is made to the owner of the property.
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
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payment of cash dividends or other distributions to a shareholder (including
distributions in dissolution or liquidation) or for any other purpose (except to
absorb bad debt losses). Distribution of a cash dividend by a thrift institution
to a shareholder is treated as made: first, out of the institution's post-1951
accumulated earnings and profits; second, out of the pre-1988 reserves; and
third, out of such other accounts as may be proper. To the extent a distribution
by American to ASB is deemed paid out of its pre-1988 reserves under these
rules, the pre-1988 reserves would be reduced and the gross income of American
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, 1998, the pre-1988 reserves of American for tax purposes totaled
approximately $1.9 million. American believes it had approximately $2.2 million
of accumulated earnings and profits for tax purposes as of June 30, 1998, which
would be available for dividend distributions, provided regulatory restrictions
applicable to the payment of dividends are met. See Notes A and N to the
financial statements. No representation can be made as to whether American will
have current or accumulated earnings and profits in subsequent years.
The tax returns of American have been audited or closed without audit
through fiscal year 1994. In the opinion of management, any examination of open
returns would not result in a deficiency which could have a material adverse
effect on the financial condition of American .
OHIO TAXATION
ASB is subject to the Ohio corporation franchise tax, which, as applied
to ASB, is a tax measured by both net earnings and net worth. The rate of tax is
the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and
8.9% of computed Ohio taxable income in excess of $50,000 or (ii) 0.582% times
taxable net worth. 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.
In computing its tax under the net worth method, ASB may exclude 100%
of its investment in the capital stock of American , as reflected on the balance
sheet of ASB in computing its taxable net worth as long as it owns at least 25%
of the issued and outstanding capital stock of American . The calculation of the
exclusion from net worth is based on the ratio of the excludable investment (net
of any appreciation or goodwill included in such investment) to total assets
multiplied by the net value of the stock. As a holding company, ASB may be
entitled to various other deductions in computing taxable net worth that are not
generally available to operating companies.
A special litter tax is also applicable to all 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 the 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, 1998, the net
book value of the main office property was $520,000, and American's office
premises and equipment had a total net book value of $932,000. 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.
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ITEM 3. LEGAL PROCEEDINGS
Neither ASB nor American is presently involved in any legal
proceedings of a material nature. From time to time, American is a party to
legal proceedings incidental to its business to enforce its security interest in
collateral pledged to secure loans made by American.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained in the ASB Financial Corp. Annual
Report to Shareholders for the fiscal year ended June 30, 1998 (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 14, 1998, 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 1998 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.
-27-
<PAGE> 28
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation (incorporated by
reference)
3.2 Code of Regulations (incorporated by
reference)
10.1 ASB Financial Corp. 1995 Stock Option and
Incentive Plan (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.
-28-
<PAGE> 29
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/ Robert M. Smith
-----------------------------
Robert M. Smith
President and Director
(Principal Executive Officer
and Principal Financial Officer)
Date: September 28, 1998
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/ Lee O. Fitch
---------------------------------- -----------------------
Gerald R. Jenkins Lee O. Fitch
Director and Chairman of the Board Director
Date: September 28, 1998 Date: September 28, 1998
By /s/ William J. Burke By /s/ Louis M. Schoettle
---------------------------------- -----------------------
William J. Burke Louis M. Schoettle
Director Director
Date: September 28, 1998 Date: September 28, 1998
By /s/ Victor W. Morgan
----------------------------------
Victor W. Morgan
Director
Date: September 28, 1998
-29-
<PAGE> 30
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <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 Plan Incorporated by reference to the Form
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 Retention Plan Incorporated by reference to the 1996
and Trust Agreement Form 10-KSB, Exhibit 10.2
13 1998 Annual Report to Shareholders
20 Proxy Statement for 1998 Annual Meeting
21 Subsidiaries of ASB Financial Corp. Incorporated by reference to the 1995
Form 10-KSB, Exhibit 21
27 Financial Data Schedule
</TABLE>
-29-
<PAGE> 1
Exhibit 13
ASB
FINANCIAL
CORP.
1998
ANNUAL
REPORT
TO
SHAREHOLDERS
<PAGE> 2
Dear Fellow Shareholder:
It is with a great deal of pleasure that we present ASB Financial
Corp.'s Fourth Annual Report to Shareholders covering the fiscal year ended June
30, 1998.
Your Corporation continues to vigorously pursue its primary strategic
objective of maintaining solid asset growth by providing a full line of
financial service products to our customers in Scioto and surrounding counties.
The pursuit of this growth strategy was facilitated in fiscal 1998 by continuing
consolidation in the financial services industry. We have been able to hire
excellent commercial banking personnel who have spear-headed our current year
product line expansion into business and commercial banking services. Our
broadened marketing efforts have also been bolstered by our market position as
the only remaining locally owned and financial service provider in Scioto
County. It is our belief that consumers prefer personal financial service over
dealing with depersonalized "call centers" in distant geographic locations.
The adherence to our operating plan culminated in another year of solid
earnings performance for ASB Financial during fiscal 1998. Net earnings for the
year ended June 30, 1998 totaled $1.1 million, or $.68 per basic share,
representing a $409,000, or 61.3%, increase over the $667,000 of net earnings
reported in fiscal 1997. The growth in earnings is primarily attributable to a
$709,000 reduction in general and administrative expense (of which $551,000 of
the decline is attributable to the one-time SAIF charge in fiscal 1997) which
more than offset a $127,000, or 3.4%, decrease in net interest income. The
decline in our net interest income is primarily attributable to the $10.0
million reduction of interest-earning assets as a result of the $7.71 per share
in cash distributions over the last eighteen months.
Your Board and management believed that ASB Financial remained
overcapitalized in fiscal 1998 and that financial institutions stock prices
could possibly be at their peak. Therefore, we sought to lower investment risk
in our stock by paying out another $2.40 in cash distributions during the
current fiscal year. This strategy has apparently worked as ASB Financial's
stock price has outperformed most of our peers during the markets recent
downturn in financial institutions stocks in the first quarter of fiscal 1999.
Further, we were able to capitalize on the market's recent weakness by
completing a 5% repurchase of our common shares.
The decision to repurchase our shares exemplifies our confidence in ASB
Financial's future. We believe that we have taken the requisite steps to remain
successful. We are committed to maximizing the return on your investment and
thank you for your continued support of ASB Financial.
Very truly yours,
ASB FINANCIAL CORP.
Robert M. Smith
President
<PAGE> 3
BUSINESS OF ASB FINANCIAL CORP.
==============================================================================
ASB Financial Corp. ("ASB"), a unitary savings and loan holding company
incorporated under the laws of the State of Ohio, owns all of the issued and
outstanding common 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 stock issued by American upon its conversion from a mutual
savings association to a stock savings association (the "Conversion"). Other
than investing excess funds from the Conversion in investment and
mortgage-backed and related securities, ASB's activities have been limited
primarily to holding the common shares of American.
Serving the Portsmouth, Ohio, area since 1892, American conducts business from
its office at 503 Chillicothe Street in Portsmouth, Ohio. The principal business
of American is the origination of loans secured by one- to four-family
residential real estate located in American's primary market area, which
consists of the City of Portsmouth and contiguous areas of Scioto County, Ohio.
American also originates loans secured by multifamily residences (over four
units) and nonresidential real estate and purchases interests in loans
originated by other lenders secured by multifamily real estate and
nonresidential real estate outside of American's primary market area. In
addition to real estate lending, American invests in mortgage-backed securities,
U.S. Government and agency obligations and other investments permitted by
applicable law. Funds for lending and other investment activities are obtained
primarily from savings deposits, which are insured up to applicable limits by
the Federal Deposit Insurance Corporation (the "FDIC").
As a savings and loan holding company, ASB is subject to regulation, supervision
and examination by the Office of Thrift Supervision of the United States
Department of the Treasury (the "OTS"). As a savings bank chartered under the
laws of the United States, American is subject to regulation, supervision and
examination by the OTS and the FDIC. American is also a member of the Federal
Home Loan Bank (the "FHLB") of Cincinnati.
ASB's office is located at 503 Chillicothe Street, Portsmouth, Ohio 45662. The
telephone number is (740) 354-3177.
MARKET PRICE OF ASB'S
COMMON SHARES AND RELATED SHAREHOLDER MATTERS
==============================================================================
There were 1,654,788 common shares of ASB outstanding on August 31, 1998, held
of record by approximately 897 shareholders. Price information with respect to
ASB's common shares is quoted on the Nasdaq National Market ("Nasdaq") under the
symbol "ASBP."
2
<PAGE> 4
The table below sets forth the high and low bid prices for the common shares of
ASB, together with the respective dividends declared per share, for each quarter
of fiscal 1998, 1997 and 1996. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
<TABLE>
<CAPTION>
Cash dividends
Quarter Ended High Bid Low Bid declared
- ------------- -------- ------- --------
<S> <C> <C> <C>
FISCAL 1996
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 $.10
FISCAL 1997
September 30, 1996 $14.50 $13.75 $.10
December 31, 1996 $18.50 $12.25 $5.10
March 31, 1997 $12.00 $11.50 $.10
June 30, 1997 $12.50 $11.75 $.10
FISCAL 1998
September 30, 1997 $13.50 $13.00 $.10
December 31, 1997 $13.88 $13.13 $.10
March 31, 1998 $12.00 $11.50 $.10
June 30, 1998 $16.75 $12.63 $2.10
</TABLE>
The income of ASB consists of interest on investment and mortgage-backed and
related securities and dividends which may periodically be declared and paid by
the Board of Directors of American on the common shares of American held by ASB.
In addition to certain federal income tax considerations, OTS regulations impose
limitations on the payment of dividends and other capital distributions by
savings associations. Under OTS regulations applicable to converted savings
associations, American is not permitted to pay a cash dividend on its common
shares if American's regulatory capital would, as a result of the payment of
such dividend, be reduced below the amount required for the liquidation account
established in connection with the Conversion or applicable regulatory capital
requirements prescribed by the OTS.
OTS regulations applicable to all savings associations provide that a savings
association which immediately prior to, and on a pro forma basis after giving
effect to, a proposed capital distribution (including a dividend) has total
capital (as defined by OTS regulations) that is equal to or greater than the
amount of its capital requirements is generally permitted without OTS approval
(but subsequent to 30 days' prior notice to the OTS) to make capital
distributions, including dividends, during a calendar year in an amount not to
exceed the greater of (1) 100% of its net earnings to date during the calendar
year, plus an amount equal to one-half the amount by which its total capital to
assets ratio exceeded its required capital to assets ratio at the beginning of
the calendar year, or (2) 75% of its net earnings for the most recent
four-quarter period. Savings associations with total capital in excess of the
capital requirements that have been notified by the OTS that they are in need of
more than normal supervision will be subject to restrictions on dividends. A
savings association that fails to meet current minimum capital requirements is
prohibited from making any capital distributions without the prior approval of
the OTS.
American currently meets all of its regulatory capital requirements and, unless
the OTS determines that American is an institution requiring more than normal
supervision, American may pay dividends in accordance with the foregoing
provisions of the OTS regulations.
3
<PAGE> 5
SELECTED CONSOLIDATED
FINANCIAL INFORMATION AND OTHER DATA
===============================================================================
The following table sets forth certain information concerning the consolidated
financial condition, earnings and other data regarding ASB at the dates and for
the periods indicated. As the Conversion was completed on May 10, 1995,
information prior to the year ended June 30, 1995, is for American.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL At June 30,
CONDITION DATA: ----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets $116,437 $112,469 $112,922 $106,861 $93,931
Cash and cash equivalents (1) 13,890 3,850 3,836 5,926 5,969
Certificates of deposit in other
financial institutions 2,004 4,258 6,702 9,301 8,324
Investment securities available for
sale - at market 11,835 18,660 19,284 1,768 -
Investment securities - at amortized - - - 14,107 8,978
cost
Mortgage-backed securities available
for sale - at market 8,924 8,560 10,728 2,300 -
Mortgage-backed securities - at
amortized cost - - - 7,835 8,224
Loans receivable - net 76,550 74,136 68,455 62,153 59,304
Real estate acquired through
foreclosure - net 157 - 663 525 -
Deposits 93,477 89,752 83,395 78,888 82,514
Advances from the FHLB 4,354 2,884 2,413 442 469
Shareholders' equity, restricted (2) 14,490 17,701 25,613 26,058 9,740
</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, 1994. At June 30,
1998, 1997, 1996 and 1995, includes $714,000 $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.
4
<PAGE> 6
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED OPERATING Year ended June 30,
DATA: ----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $8,541 $8,393 $8,173 $7,012 $6,637
Interest expense 4,961 4,686 4,310 3,893 3,307
----- ----- ----- ----- ------
Net interest income 3,580 3,707 3,863 3,119 3,330
Provision for (recoveries of) losses
on loans (5) 28 - 10 749
-------- ------ ------ ------- -------
Net interest income after provision
for recoveries of losses on loans 3,585 3,679 3,863 3,109 2,581
Other income 281 364 195 143 451
General, administrative and other
expense 2,345 3,054 2,373 1,726 2,044
----- ----- ----- ----- -----
Earnings before income taxes 1,521 989 1,685 1,526 988
Federal income taxes 445 322 574 518 199
------ ------ ------ ------- -------
Net earnings $1,076 $ 667 $1,111 $1,008 $ 789
====== ====== ====== ====== ======
Earnings per share
Basic $ .68 $ .42 $ .69 N/A N/A
====== ====== ======
Diluted $ .67 $ .41 $ .69 N/A N/A
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL RATIOS: Year ended June 30,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Return on average assets .95% .59% 1.01% 1.00% .85%
Average interest rate spread during
period 2.46 2.41 2.55 2.83 3.38
Net interest margin 3.25 3.39 3.69 3.29 3.72
Return on average equity 6.38 3.15 4.30 9.38 8.44
Equity to total assets at end of period 12.44 15.74 22.68 24.38 10.37
Average interest-earning assets to
average interest-bearing liabilities 117.41 122.77 127.55 111.19 109.30
Net interest income to general,
administrative and other expense 152.67 121.38 162.79 180.71 162.92
General, administrative and other
expense to average total assets 2.08 2.70 2.16 1.72 2.21
Nonperforming assets to total
assets .34 1.02 1.61 2.30 3.10
Loan loss allowance to nonperforming
loans 316.25 71.62 76.34 46.29 38.28
</TABLE>
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
===============================================================================
GENERAL
- -------------------------------------------------------------------------------
The following discussion and analysis of the consolidated financial 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.
ASB was incorporated for the purpose of owning all of the outstanding common
shares of American following the Conversion. As a result, the discussion and
analysis that follows focuses primarily on the financial condition and results
of operations of American.
American is primarily engaged in the business of attracting savings deposits
from the general public and investing such funds in mortgage loans secured by
one- to four-family residential real estate located primarily in Scioto County,
Ohio. Loans secured by multifamily real estate (over four units) or
nonresidential real estate and consumer loans, including passbook and home
improvement loans, are also originated by American. In addition, American
purchases interests in multifamily real estate and nonresidential real estate
loans originated by other lenders outside of American's primary market area.
American also invests in U.S. Government agency obligations, interest-bearing
deposits in other financial institutions, mortgage-backed securities and other
investments permitted by applicable law.
American's profitability is primarily dependent upon its net interest income,
which is the difference between interest income on its loan and investment
portfolios and interest paid on deposits and borrowed funds. Net interest income
is directly affected by the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on such
amounts. American's profitability is also affected by the provision for losses
on loans and the level of other income and general and administrative expenses.
Other income consists primarily of service charges and gains on the sale of
assets. General, administrative and other expense includes employee compensation
and benefits, occupancy of premises, federal deposit insurance premiums, state
franchise taxes and other operating expenses.
The operating results of American are also affected by general economic
conditions, the monetary and fiscal policies of federal agencies and the
regulatory policies of agencies that regulate financial institutions. American's
cost of funds is influenced by interest rates on competing investments and
general market rates of interest. Lending activities are influenced by the
demand for real estate loans and other types of loans, which is in turn affected
by the interest rates at which such loans are made, general economic conditions
affecting loan demand and the availability of funds for lending activities.
6
<PAGE> 8
CHANGES IN FINANCIAL CONDITION
FROM JUNE 30, 1997 TO JUNE 30, 1998
===============================================================================
ASB's total assets amounted to $116.4 million at June 30, 1998, an increase of
$4.0 million, or 3.5%, over 1997 levels. The increase in total assets was funded
primarily from a $3.7 million increase in deposits, a $1.5 million increase in
FHLB advances and a $2.0 million increase in other borrowed money, which were
partially offset by cash distributions on common shares totaling $4.0 million.
Cash, interest-bearing deposits and certificates of deposit totaled $15.9
million at June 30, 1998, an increase of $7.8 million, or 96.0%, from 1997
levels. Investment securities totaled $11.8 million at June 30, 1998, a decrease
of $6.8 million, or 36.6%, from the balance at June 30, 1997. During fiscal
1997, management purchased $7.8 million of investment securities, primarily
intermediate- and long-term U.S. Government agency securities. Such purchases
were partially offset by maturities and sales totaling $15.0 million.
Mortgage-backed securities increased by $364,000, or 4.3%, as purchases totaling
$3.3 million exceeded principal repayments of $2.9 million.
Loans receivable increased by $2.4 million, or 3.3%, to a total of $76.6 million
at June 30, 1998, compared to $74.1 million at June 30, 1997. Loan disbursements
of $25.1 million and purchases of $2.2 million exceeded principal repayments of
$24.8 million during fiscal 1998. Loan disbursements volume during fiscal 1998
exceeded the volume of disbursements in fiscal 1997 by $2.6 million, or 11.6%.
Growth in loans secured by residential real estate totaled $3.2 million, or
15.4%, while the nonresidential portfolio increased by $192,000, or 3.5%.
At June 30, 1998, American's allowance for loan losses totaled $759,000,
representing .96% of total loans and 316.3% of nonperforming loans. At June 30,
1997, the allowance for loan losses totaled $820,000, or 1.08% of total loans
and 71.6% of nonperforming loans. Nonperforming loans amounted to $240,000 and
$1.1 million at June 30, 1998 and 1997, respectively, and represented .2% and
1.0% of total assets at those respective dates. Although management believes
that its allowance for loan losses at June 30, 1998, 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.
Deposits increased by $3.7 million, or 4.2%, during fiscal 1998 to a total of
$93.5 million at June 30, 1998. The increase resulted primarily from
management's continuing efforts to maintain growth in deposits through marketing
and pricing strategies.
Borrowings increased by $3.5 million, or 102.5%, during fiscal 1998, compared to
1997, as management elected to fund capital distributions and growth in the loan
portfolio through such borrowing. Shareholders' equity totaled $14.5 million at
June 30, 1998, a decrease of $3.2 million, or 18.1%, from June 30, 1997 levels.
The decrease resulted primarily from dividends of $4.0 million, which were
partially offset by net earnings of $1.1 million.
<PAGE> 9
COMPARISON OF OPERATING RESULTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
===============================================================================
GENERAL. Net earnings amounted to $1.1 million for the fiscal year ended June
30, 1998, an increase of $409,000, or 61.3%, over the $667,000 in net earnings
recorded in fiscal 1997. The increase in net earnings resulted primarily from
the absence of a $551,000 charge recorded in fiscal 1997 as a result of the
one-time Savings Association Insurance Fund ("SAIF") recapitalization
assessment, coupled with a $158,000 decrease in general, administrative and
other expense, which were partially offset by a $127,000 decrease in net
interest income, an $83,000 decrease in other income and a $123,000 increase in
the provision for federal income taxes.
NET INTEREST INCOME. Total interest income amounted to $8.5 million for the
fiscal year ended June 30, 1998, an increase of $148,000, or 1.8%, over fiscal
1997. Interest income on loans totaled $6.4 million in fiscal 1998, an increase
of $481,000, or 8.2%. This increase was due primarily to a $7.6 million, or
10.7%, increase in the weighted-average balance of loans outstanding, which was
partially offset by a decrease in yield of 18 basis points to 8.07% in 1998.
Interest income on mortgage-backed securities decreased by $86,000, or 12.6%, as
a result of a $1.4 million decrease in the weighted-average balance outstanding
in fiscal 1998. Interest income on investment securities and interest-bearing
deposits decreased by $247,000, or 13.5%, due primarily to a $5.5 million
decrease in the weighted-average balance outstanding year to year.
Interest expense totaled $5.0 million for the fiscal year ended June 30, 1998,
an increase of $275,000, or 5.9%, over the $4.7 million total recorded in fiscal
1997. Interest expense on deposits increased by $207,000, or 4.6%, due primarily
to a $4.0 million, or 4.7%, increase in the weighted-average balance outstanding
year to year. Interest expense on borrowings increased by $68,000, or 40.7%, due
primarily to a $686,000 increase in the weighted-average balance outstanding and
a 78 basis point increase in the average cost of borrowings, to 6.70%, in fiscal
1998.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $127,000, or 3.4%, to a total of $3.6 million
for the fiscal year ended June 30, 1998, compared to $3.7 million in fiscal
1997. The interest rate spread increased by five basis points to 2.46% in fiscal
1998 from 2.41% in fiscal 1997, while the net interest margin decreased to 3.25%
in 1998 from 3.39% in 1997.
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 determined
that the allowance for loan losses was adequate and elected to record no
provision for losses on loans for the fiscal year ended June 30, 1998, while
realizing a $5,000 recovery on loan losses, as compared to a $28,000 provision
for losses on loans recorded during the fiscal year ended June 30, 1997. There
can be no assurance that the loan loss allowance will be adequate to absorb
losses on known nonperforming assets or that the allowance will be adequate to
cover losses on nonperforming assets in the future.
8
<PAGE> 10
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 of the borrower with
respect to certain large loan borrowers; (3) decrease in the value of collateral
securing consumer loans to amounts equal to less than the outstanding balances
of the consumer loans; and (4) determinations by various regulatory agencies
that the Savings Bank 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 $281,000 for the fiscal year ended June 30,
1998, a decrease of $83,000, or 22.8%, from the $364,000 recorded in fiscal
1997. The decrease resulted primarily from a decrease of $82,000 in gain on sale
of investment securities.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and other
expense totaled $2.3 million for the fiscal year ended June 30, 1998, a decrease
of $709,000, or 23.2%, from the $3.1 million total recorded in fiscal 1997. The
decrease resulted primarily from a $551,000 charge recorded during fiscal 1997
in connection with the SAIF recapitalization, coupled with a $109,000, or 8.0%,
decrease in employee compensation and benefits, a $57,000, or 50.0% decline in
federal deposit insurance premiums (after consideration of the special
assessment) and a $21,000, or 4.2%, decrease in other operating expense, which
were partially offset by an $18,000, or 7.9%, increase in franchise taxes and a
$17,000, or 9.5%, increase in data processing costs. The decrease in employee
compensation and benefits was due primarily to a decline in staffing levels year
to year, coupled with an increase in deferred loan origination costs resulting
from the increase in loan volume in fiscal 1998. The decrease in federal deposit
insurance premiums was due to a decline in premium rates following the
recapitalization assessment. The decrease in other operating expenses was due
primarily to nonrecurring professional fees recorded in fiscal 1997 related to
the return of capital distribution, which was partially offset by expenses
recognized related to American's investment in a low-income housing development.
These expenses were more than offset by federal income tax credits.
The increase in franchise taxes resulted from ASB's increase in equity capital.
The increase in data processing was due to American's overall growth year to
year.
FEDERAL INCOME TAXES. The provision for federal income taxes totaled $445,000
for the fiscal year ended June 30, 1998, an increase of $123,000, or 38.2%, over
the $322,000 recorded in fiscal 1997. The increase was due primarily to a
$532,000, or 53.8%, increase in pretax earnings year to year, which was
partially offset by tax credits realized from American's investment in a low
income housing project. ASB's effective tax rates were 29.3% and 32.6% for the
fiscal years ended June 30, 1998 and 1997, respectively.
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 general, administrative and
other expense, a $156,000 decrease in net interest income and a $28,000
9
<PAGE> 11
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-bearing deposits 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%, increase 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 cost of funds.
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, 1997, as 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 for fiscal 1997 was attributed primarily to growth in the
loan portfolio.
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, coupled with 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. 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.
10
<PAGE> 12
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.
AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA
- -------------------------------------------------------------------------------
The following table sets forth certain information relating to ASB's average
balance sheet information and reflects the average yield on interest-earning
assets and the average cost of interest-bearing liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average monthly balance of interest-earning assets or interest-bearing
liabilities, respectively, for the periods presented. Average balances are
derived from average monthly balances, which include nonaccruing loans in the
loan portfolio, net of the allowance for loan losses.
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- -------------------------- ----------------------------
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 $ 78,868 $6,363 8.07% $ 71,260 $5,882 8.25% $ 66,152 $5,498 8.31%
Mortgage-backed 8,118 594 7.32 9,487 680 7.17 10,555 750 7.11
securities
Investment
securities and
other interest-
earning assets 23,177 1,584 6.83 28,664 1,831 6.39 27,886 1,925 6.90
-------- ----- -------- -------- ----- ---- ------- ------- --------
Total interest-
earning assets 110,163 8,541 7.75 109,411 8,393 7.67 104,593 8,173 7.81
Non-interest-earning
assets 2,824 3,662 5,332
--------- -------- -------
Total assets $112,987 $113,073 $109,925
======= ======== =======
Interest-bearing
liabilities:
Deposits $ 90,317 4,726 5.23 $ 86,296 4,519 5.24 $81,114 4,267 5.26
Borrowings 3,508 235 6.70 2,822 167 5.92 889 43 4.84
--------- ------ -------- ------- ------ ---- -------------------------
Total interest-bearing
liabilities 93,825 4,961 5.29 89,118 4,686 5.26 82,003 4,310 5.26
----- -------- ----- ---- ----- ----
Non-interest-bearing
liabilities 2,289 2,752 2,086
--------- -------- -------
Total liabilities 96,114 91,870 84,089
Shareholders' equity 16,873 21,203 25,836
-------- -------- -------
Total liabilities and
shareholders' equity $112,987 $113,073 $109,925
======= ======= =======
Net interest income $3,580 $3,707 $3,863
===== ===== =====
Interest rate spread 2.46% 2.41% 2.55%
==== ==== ====
Net interest margin
(net interest income
as a percent of
average interest-
earning assets) 3.25% 3.39% 3.69%
==== ==== ====
Average interest-
earning assets to
average interest-
bearing
liabilities 117.41% 122.77% 127.55%
====== ====== ======
</TABLE>
11
<PAGE> 13
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected ASB's interest income and expense during the years indicated. For
each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (change
in volume multiplied by prior year rate), (ii) changes in rate (change in rate
multiplied by prior year volume) and (iii) total changes in rate and volume. The
combined effects of changes in both volume and rate, which cannot be separately
identified, have been allocated proportionately to the change due to volume and
the change due to rate:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
------------------------ ------------------------
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 $ 612 $(131) $ 481 $424 $ (40) $ 384
Mortgage-backed securities (100) 14 (86) (76) 6 (70)
Investment securities and interest-
bearing assets (368) 121 (247) 53 (147) (94)
---- ---- ---- ----- ---- -----
Total interest-earning assets 144 4 148 401 (181) 220
---- ------ ---- ---- ---- ----
Interest-bearing liabilities:
Deposits 213 (6) 207 270 (18) 252
Borrowings 44 24 68 112 12 124
----- ----- ----- ----- ----- ----
Total interest-bearing liabilities 257 18 275 382 (6) 376
---- ----- ---- --- ----- ----
Increase (decrease) in net interest
income $(113) $ (14) $(127) $ 19 $ (175) $(156)
==== ===== ==== ===== ====== =====
</TABLE>
ASSET AND LIABILITY MANAGEMENT
- --------------------------------------------------------------------------------
American's interest rate spread is the principal determinant of American's
income. The interest rate spread, and therefore net interest income, can vary
considerably over time because asset and liability repricing do not coincide.
Moreover, the long-term and cumulative effect of interest rate changes can be
substantial. Interest rate risk is defined as the sensitivity of an
institution's earnings and net asset values to changes in interest rates. The
management and Board of Directors attempt to manage American's exposure to
interest rate risk in a manner to maintain the projected four-quarter percentage
change in net interest income and the projected change in the market value of
portfolio equity within limits established by the Board of Directors, assuming a
permanent and instantaneous parallel shift in interest rates.
American, like other financial institutions, is subject to interest rate risk to
the extent that its interest-earning assets reprice differently than its
interest-bearing liabilities. As a part of its effort to monitor its interest
rate risk, American reviews the reports of the OTS which set forth the
application of the "net portfolio value" ("NPV") methodology adopted by the OTS
as part of its risk-based capital regulations. Although American is not
currently subject to the NPV regulation, the application of the NPV methodology
may illustrate American's interest rate risk.
12
<PAGE> 14
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing liabilities. The application of the methodology attempts to
quantify interest rate risk as the change in the NPV which would result from a
theoretical 200 basis point (1 basis point equals .01%) change in market
interest rates. Both a 200 basis point increase in market interest rates and a
200 basis point decrease in market interest rates are considered. If the NPV
would decrease more than 2% of the present value of the institution's assets
with either an increase or a decrease in market rates, the institution must
deduct 50% of the amount of the decrease in excess of such 2% in the calculation
of the institution's risk-based capital.
At June 30, 1998, 2% of the present value of American's assets was approximately
$2.4 million. Because the interest rate risk of a 200 basis point increase in
market interest rates (which was greater than the interest rate risk of a 200
basis point decrease) was $2.7 million at June 30, 1998, American would have
been required to deduct $174,000 (50% of the $347,000 difference) from its
capital in determining whether American met its risk-based capital requirement.
Regardless of such reduction, however, American's risk-based capital at June 30,
1998, would still have exceeded the regulatory requirement by approximately
$10.7 million.
The following table presents, at June 30, 1998 and 1997, an analysis of the
interest rate risk of American, as measured by changes in NPV for instantaneous
and sustained parallel shifts of 100 basis point movements in market interest
rates. The table also contains the policy limits set by the Board of Directors
of American as the maximum change in NPV that the Board of Directors deems
advisable in the event of various changes in interest rates. Such limits have
been established with consideration of the dollar impact of various rate changes
and the strong capital position of American.
<TABLE>
<CAPTION>
At June 30, 1998 At June 30, 1997
----- ------------------ ----------------------
Changes in interest rate Board limit $ change % change $ change % change
(basis points) % changes in NPV in NPV in NPV in NPV
- ------------------------ ----------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
+300 (40)% $(4,335) (25)% $(6,813) (42)%
+200 (30) (2,706) (16) (4,567) (28)
+100 (20) (1,189) (7) (2,862) (14)
0 0 0 0 0 0
-100 20 743 4 1,933 12
-200 30 1,249 7 3,322 20
-300 40 1,973 11 4,667 29
</TABLE>
In the event that interest rates should rise from recent levels, American's net
interest income could be expected to be negatively affected. Moreover, rising
interest rates could negatively affect American's earnings due to diminished
loan demand.
13
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
================================================================================
Liquidity refers to the ability of an institution to generate sufficient cash to
fund current loan demand, meet deposit withdrawals and pay operating expenses.
Liquidity is influenced by financial market conditions, fluctuations in interest
rates, general economic conditions and regulatory requirements. ASB's liquidity,
primarily represented by cash equivalents, interest-bearing deposits in other
financial institutions and investment securities, is a result of the operating,
investing and financing activities of American. These activities are summarized
below on a consolidated basis for the years ended June 30, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------------------
1998 1997 1996
------------- ------------- ----------
(In thousands)
<S> <C> <C> <C>
Net cash from operating
activities $ 1,145 $ 1,113 $ 1,286
Net cash from investing
activities 6,618 723 (8,124)
Net cash from financing activities 2,277 (1,822) 4,748
-------- -------- --------
Net change in cash and cash
equivalents 10,040 14 (2,090)
Cash and cash equivalents at the
beginning of the year 3,850 3,836 5,926
-------- -------- --------
Cash and cash equivalents at the
end of the year $13,890 $ 3,850 $ 3,836
======= ======== ========
</TABLE>
American generally strives to maintain liquidity (defined as cash,
interest-bearing deposits and investment securities with terms of less than five
years) in a range of 10 to 25% of total assets. OTS regulations require that a
savings association maintain an average daily balance of liquid assets (cash,
certain time deposits and specified United States Government, state or federal
agency obligations) equal to a monthly average of not less than 4% 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, 1998, was approximately $19.6 million, or
19.8%, and exceeded the then applicable 4.0% liquidity requirement by
approximately $15.6 million, or 15.8%.
At June 30, 1998, American had outstanding commitments of approximately $384,000
to originate loans. Additionally, American was obligated under unused lines of
credit totaling $2.5 million. In the opinion of management, all loan commitments
had interest rates which equaled or exceeded market interest rates as of June
30, 1998, and will be funded from existing excess liquidity and normal cash flow
from operations.
American is required by OTS regulations to maintain specified minimum amounts of
capital. At June 30, 1998, 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, 1998, and the minimum requirement
amounts. Tangible and core capital are reflected as a percentage of adjusted
total assets. Risk-based (or total) capital, which consists of core and
supplementary capital, is reflected as a percentage of risk-weighted assets.
14
<PAGE> 16
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
---------------- -------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tangible capital $14,690 12.8% greater than or equal to $1,725 greater than or equal to 1.5%
Core capital $14,690 12.8% greater than or equal to $3,451 greater than or equal to 3.0%
Risk-based capital $15,391 27.5% greater than or equal to $4,479 greater than or equal to 8.0%
<CAPTION>
AS OF JUNE 30, 1998
TO BE "WELL-
CAPITALIZED" UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
----------------------------------------------------------------
AMOUNT RATIO
<S> <C> <C>
Tangible capital greater than or equal to $5,751 greater than or equal to 5.0%
Core capital greater than or equal to $6,901 greater than or equal to 6.0%
Risk-based capital greater than or equal to $5,599 greater than or equal to 10.0%
</TABLE>
The OTS requires every savings association with more than normal interest rate
risk exposure to deduct from its total capital, for purposes of determining
compliance with the risk-based capital requirement, an amount equal to 50% of
its interest-rate risk exposure multiplied by the present value of its assets.
This exposure is a measure of the potential decline in the net portfolio value
of a savings association, greater than 2% of the present value of its assets,
based upon a hypothetical 200 basis point increase or decrease in interest rates
(whichever results in a greater decline). The rule provides for a two quarter
lag between calculating interest rate risk and recognizing any deduction from
capital. The rule will not become effective until the OTS evaluates the process
by which savings associations may appeal an interest rate risk deduction
determination. It is uncertain as to when this evaluation may be completed. Any
savings association with less than $300 million in assets and a total capital
ratio in excess of 12% is exempt from this requirement unless the OTS determines
otherwise. American currently qualifies for this exemption.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
================================================================================
In June 1996, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments 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
15
<PAGE> 17
or net servicing loss and are subject to subsequent assessments for impairment
based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1997, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management adopted SFAS No. 125 during fiscal 1998, as required, without
material effect on ASB's consolidated financial position or results of
operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. SFAS No. 130 is not expected to
have a material impact on ASB's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about
the way that management organizes the segments within the enterprise for making
operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 is not expected to have a material impact on
ASB's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions that may be
hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It
16
<PAGE> 18
generally requires no significant initial investment and can be settled net or
by delivery of an asset that is readily convertible to cash. SFAS No. 133
applies to derivatives embedded in other contacts, unless the underlying of the
embedded derivative is clearly and closely related to the host contract.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. On
adoption, entities are permitted to transfer held-to-maturity debt securities to
the available-for-sale or trading category without calling into question their
intent to hold other debt securities to maturity in the future. SFAS No. 133 is
not expected to have a material impact on ASB's financial statements.
YEAR 2000 COMPLIANCE MATTERS
================================================================================
As with most providers of financial services, American's operations are heavily
dependent on information technology systems. American is addressing the
potential problems associated with the possibility that the computers that
control or operate American's information technology system and infrastructure
may not be programmed to read four-digit date codes and, upon arrival of the
year 2000, may recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data. American is working
with the companies that supply or service its information technology systems to
identify and remedy any year 2000 related problems.
American's primary data processing applications are handled by a third-party
service bureau. The service bureau has advised American that it has migrated to
a fully Year 2000 compliant processing system that will be fully tested by
January 1, 1999. Management has also reviewed American's ancillary equipment and
is in the process of providing the appropriate remedial measures without
material cost.
American has developed an estimate of specific expenses that are reasonably
likely to be incurred by American in connection with this issue. As of the date
of this Annual Report, American does not expect to incur significant expense to
implement the necessary corrective measures. No assurance can be given, however,
that significant expense will not be incurred in future periods. In the unlikely
event that the Savings Bank is ultimately required to purchase replacement
computer systems, programs and equipment, or incur substantial expense to make
the Savings Bank's current systems, programs and equipment year 2000 compliant,
the Savings Bank's net earnings and financial condition could be adversely
affected.
In addition to possible expense related to its own systems, American could incur
losses if loan payments are delayed due to year 2000 problems affecting any
major borrowers in American's primary market area. Because American's loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses and American's primary market area is not significantly dependent
upon one employer or industry, American does not expect any significant or
prolonged difficulties that will affect net earnings or cash flow.
17
<PAGE> 19
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS AND
CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 19
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 20
CONSOLIDATED STATEMENTS OF EARNINGS 21
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 22
CONSOLIDATED STATEMENTS OF CASH FLOWS 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 25
18
<PAGE> 20
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, 1998 and 1997, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years ended June 30, 1998, 1997 and 1996. 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, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the years ended June 30, 1998, 1997
and 1996, in conformity with generally accepted accounting principles.
Grant Thornton LLP
Cincinnati, Ohio
August 14, 1998
19
<PAGE> 21
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 495 $ 376
Interest-bearing deposits in other financial institutions 13,395 3,474
--------- ---------
Cash and cash equivalents 13,890 3,850
Certificates of deposit in other financial institutions 2,004 4,258
Investment securities available for sale - at market 11,835 18,660
Mortgage-backed securities available for sale - at market 8,924 8,560
Loans receivable - net 76,550 74,136
Office premises and equipment - at depreciated cost 932 944
Real estate acquired through foreclosure - net 157 --
Federal Home Loan Bank stock - at cost 725 675
Accrued interest receivable on loans 125 95
Accrued interest receivable on mortgage-backed securities 70 78
Accrued interest receivable on investments and
interest-bearing deposits 308 356
Prepaid expenses and other assets 665 604
Prepaid federal income taxes 222 62
Deferred federal income tax assets 30 191
--------- ---------
Total assets $ 116,437 $ 112,469
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 93,477 $ 89,752
Advances from the Federal Home Loan Bank 4,354 2,884
Other borrowed money 2,500 500
Advances by borrowers for taxes and insurance 169 169
Accrued interest payable 118 112
Other liabilities 1,329 1,351
--------- ---------
Total liabilities 101,947 94,768
Commitments -- --
Shareholders' equity
Preferred stock, 1,000,000 shares authorized, no par value;
no shares issued -- --
Common stock, 4,000,000 no par value shares authorized; 1,740,854 and
1,721,412 shares issued at June 30, 1998 and 1997 -- --
Additional paid-in capital 8,304 8,023
Retained earnings, restricted 8,292 11,187
Shares acquired by stock benefit plans (1,677) (1,921)
Unrealized gains on securities designated as available for sale,
net of related tax effects 714 412
Less 86,066 shares of treasury stock - at cost (1,143) --
--------- ---------
Total shareholders' equity 14,490 17,701
--------- ---------
Total liabilities and shareholders' equity $ 116,437 $ 112,469
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 22
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
For the year ended June 30,
(In thousands, except share data)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Interest income
Loans $ 6,363 $ 5,882 $ 5,498
Mortgage-backed securities 594 680 750
Investment securities 1,390 1,494 1,426
Interest-bearing deposits and other 194 337 499
------- ------- -------
Total interest income 8,541 8,393 8,173
Interest expense
Deposits 4,726 4,519 4,267
Borrowings 235 167 43
------- ------- -------
Total interest expense 4,961 4,686 4,310
------- ------- -------
Net interest income 3,580 3,707 3,863
Provision for (recoveries of) losses on loans (5) 28 --
------- ------- -------
Net interest income after provision
for (recoveries of) losses on loans 3,585 3,679 3,863
Other income
Gain on sale of investment securities 22 104 --
Other operating 259 260 195
------- ------- -------
Total other income 281 364 195
General, administrative and other expense
Employee compensation and benefits 1,251 1,360 1,229
Occupancy and equipment 116 122 120
Federal deposit insurance premiums 57 665 188
Franchise taxes 245 227 209
Data processing 196 179 169
Other operating 480 501 458
------- ------- -------
Total general, administrative and other expense 2,345 3,054 2,373
------- ------- -------
Earnings before income taxes 1,521 989 1,685
Federal income taxes
Current 438 309
587
Deferred 7 13 (13)
------- ------- -------
Total federal income taxes 445 322 574
------- ------- -------
NET EARNINGS $ 1,076 $ 667 $ 1,111
======= ======= =======
EARNINGS PER SHARE
Basic $ .68 $ .42 $ .69
======= ======= =======
Diluted $ .67 $ .41 $ .69
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 23
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended June 30, 1998, 1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
SHARES
ADDITIONAL ACQUIRED
COMMON PAID-IN RETAINED BY STOCK
STOCK CAPITAL EARNINGS BENEFIT PLANS
---- ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance at July 1, 1995 $-- $ 16,437 $ 10,619 $ (1,270)
Purchase of shares for stock benefit plans -- -- -- (1,062)
Amortization of expense related to stock benefit plans -- 59 -- 152
Net earnings for the year ended June 30, 1996 -- -- 1,111 --
Cash dividends of $.325 per common share -- -- (557) --
Unrealized losses on securities designated as
available for sale, net of related tax effects -- -- -- --
---- -------- -------- --------
Balance at June 30, 1996 -- 16,496 11,173 (2,180)
Amortization of expense related to stock benefit plans -- 31 -- 259
Issuance of shares under stock option plan -- 103 -- --
Net earnings for the year ended June 30, 1997 -- -- 667 --
Capital distributions of $5.40 per share -- (8,607) (653) --
Unrealized gains on securities designated as
available for sale, net of related tax effects -- -- -- --
---- -------- -------- --------
Balance at June 30, 1997 -- 8,023 11,187 (1,921)
Amortization of expense related to stock benefit plans -- 85 -- 244
Issuance of shares under stock option plan -- 196 -- --
Net earnings for the year ended June 30, 1998 -- -- 1,076 --
Cash dividends of $2.40 per share -- -- (3,971) --
Purchase of treasury shares - at cost -- -- -- --
Unrealized gains on securities designated as
available for sale, net of related tax effects -- -- -- --
---- -------- -------- --------
Balance at June 30, 1998 $-- $ 8,304 $ 8,292 $ (1,677)
==== ======== ======== ========
<CAPTION>
UNREALIZED GAINS
(LOSSES) ON
SECURITIES
DESIGNATED AS TREASURY
AVAILABLE FOR SALE STOCK TOTAL
------------------ ---------- ----------
<S> <C> <C> <C>
Balance at July 1, 1995 $ 272 $ -- $ 26,058
Purchase of shares for stock benefit plans -- -- (1,062)
Amortization of expense related to stock benefit plans -- -- 211
Net earnings for the year ended June 30, 1996 -- -- 1,111
Cash dividends of $.325 per common share -- -- (557)
Unrealized losses on securities designated as
available for sale, net of related tax effects (148) -- (148)
-------- -------- --------
Balance at June 30, 1996 124 -- 25,613
Amortization of expense related to stock benefit plans -- -- 290
Issuance of shares under stock option plan -- -- 103
Net earnings for the year ended June 30, 1997 -- -- 667
Capital distributions of $5.40 per share -- -- (9,260)
Unrealized gains on securities designated as
available for sale, net of related tax effects 288 -- 288
-------- -------- --------
Balance at June 30, 1997 412 -- 17,701
Amortization of expense related to stock benefit plans -- -- 329
Issuance of shares under stock option plan -- -- 196
Net earnings for the year ended June 30, 1998 -- -- 1,076
Cash dividends of $2.40 per share -- -- (3,971)
Purchase of treasury shares - at cost -- (1,143) (1,143)
Unrealized gains on securities designated as
available for sale, net of related tax effects 302 -- 302
-------- -------- --------
Balance at June 30, 1998 $ 714 $ (1,143) $ 14,490
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE> 24
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year $ 1,076 $ 667 $ 1,111
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 33 30 76
Amortization of deferred loan origination fees (85) (64) (52)
Amortization of expense related to stock benefit plans 329 290 211
Depreciation and amortization 73 78 79
Provision for losses (recoveries) on loans (5) 28 -
Gain on sale of investment securities (22) (104) -
Federal Home Loan Bank stock dividends (50) (48) (44)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (30) 25 (54)
Accrued interest receivable on mortgage-backed securities 8 31 (10)
Accrued interest receivable on investments and
interest-bearing deposits 48 123 (45)
Prepaid expenses and other assets (61) (18) (145)
Accrued interest payable 6 (3) (40)
Other liabilities (22) 132 174
Federal income taxes
Current (160) (67) 38
Deferred 7 13 (13)
------- ------- --------
Net cash provided by operating activities 1,145 1,113 1,286
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 13,970 4,650 9,121
Proceeds from sale of investment securities 1,007 3,576 -
Purchase of investment securities (7,768) (7,057) (12,237)
Purchase of mortgage-backed securities (3,327) - (3,544)
Proceeds from sale of mortgage-backed securities 119 - -
Principal repayments on mortgage-backed securities 2,905 2,133 2,848
Purchase of loans (2,183) (773) (1,711)
Loan principal repayments 24,815 17,697 18,715
Loan disbursements (25,113) (22,503) (23,885)
Purchase of office premises and equipment (61) (91) (18)
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 -
Purchase of Federal Home Loan Bank stock - - (12)
Decrease in certificates of deposit in other financial
institutions - net 2,254 2,444 2,599
------- ------- --------
Net cash provided by (used in) investing activities 6,618 723 (8,124)
------- ------- --------
Net cash provided by (used in) operating and investing
activities (subtotal carried forward) 7,763 1,836 (6,838)
------- ------- --------
</TABLE>
23
<PAGE> 25
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net cash provided by (used in) operating and investing activities
(subtotal brought forward) $ 7,763 $ 1,836 $ (6,838)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 3,725 6,357 4,507
Proceeds from Federal Home Loan Bank advances 4,000 2,500 2,000
Proceeds from other borrowed money 2,500 3,500 -
Repayment of Federal Home Loan Bank advances (2,530) (2,029) (29)
Repayment of other borrowed money (500) (3,000) -
Advances by borrowers for taxes and insurance - 7 (111)
Shares acquired by stock benefit plans - - (1,062)
Proceeds from issuance of shares under stock option plan 196 103 -
Purchase of treasury stock (1,143) - -
Capital distributions and dividends paid on common stock (3,971) (9,260) (557)
------- ----- --------
Net cash provided by (used in) financing activities 2,277 (1,822) 4,748
------- ----- -------
Net increase (decrease) in cash and cash equivalents 10,040 14 (2,090)
Cash and cash equivalents at beginning of year 3,850 3,836 5,926
------- ----- -------
Cash and cash equivalents at end of year $13,890 $ 3,850 $ 3,836
====== ===== =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 618 $ 383 $ 552
======= ====== ========
Interest on deposits and borrowings $ 4,955 $ 4,689 $ 4,350
======= ===== =======
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired
through foreclosure $ 157 $ - $ 138
======= ===== ========
Transfers of investments and mortgage-backed securities
to an available for sale classification $ - $ - $ 22,486
======= ===== ======
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ 302 $ 288 $ (148)
======= ====== ========
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE> 26
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net cash provided by (used in) operating and investing activities
(subtotal brought forward) $ 7,763 $ 1,836 $ (6,838)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 3,725 6,357 4,507
Proceeds from Federal Home Loan Bank advances 4,000 2,500 2,000
Proceeds from other borrowed money 2,500 3,500 -
Repayment of Federal Home Loan Bank advances (2,530) (2,029) (29)
Repayment of other borrowed money (500) (3,000) -
Advances by borrowers for taxes and insurance - 7 (111)
Shares acquired by stock benefit plans - - (1,062)
Proceeds from issuance of shares under stock option plan 196 103 -
Purchase of treasury stock (1,143) - -
Capital distributions and dividends paid on common stock (3,971) (9,260) (557)
------- ----- --------
Net cash provided by (used in) financing activities 2,277 (1,822) 4,748
------- ----- -------
Net increase (decrease) in cash and cash equivalents 10,040 14 (2,090)
Cash and cash equivalents at beginning of year 3,850 3,836 5,926
------- ----- -------
Cash and cash equivalents at end of year $13,890 $ 3,850 $ 3,836
====== ===== =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 618 $ 383 $ 552
======== ====== ========
Interest on deposits and borrowings $ 4,955 $ 4,689 $ 4,350
======= ===== =======
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired
through foreclosure $ 157 $ - $ 138
======== ===== ========
Transfers of investments and mortgage-backed securities
to an available for sale classification $ - $ - $ 22,486
======= ===== ======
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ 302 $ 288 $ (148)
======== ====== ========
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE> 27
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ASB Financial Corp. (the "Corporation") is a savings and loan holding
company whose activities are primarily limited to holding the stock of
American Savings Bank, fsb (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, and its subsidiary A.S.L. Services,
Inc. All significant intercompany balances and transactions have been
eliminated.
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 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.
25
<PAGE> 28
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES (CONTINUED)
In November 1995, the Financial Accounting Standards Board (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, 1998 and 1997, the Corporation's shareholders' equity
reflected a net unrealized gain on securities designated as available for
sale of $714,000 and $412,000, 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.
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.
26
<PAGE> 29
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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).
The Savings Bank accounts for impaired loans in accordance with SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," which 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.
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, 1998 and 1997, the Savings Bank's investment in impaired loans,
as defined, totaled approximately $464,000 and $1.3 million, respectively.
The Savings Bank maintained an allowance for credit losses related to such
impaired loans of $46,000 and $262,000 at those respective dates.
27
<PAGE> 30
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
8. FEDERAL INCOME TAXES
The Corporation accounts for federal income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes." Pursuant to the
provisions of SFAS No. 109, a deferred tax liability or deferred tax asset
is computed by applying the current statutory tax rates to net taxable or
deductible differences between the tax basis of an asset or liability and
its reported amount in the consolidated financial statements that will
result in taxable or deductible amounts in future periods. Deferred tax
assets are recorded only to the extent that the amount of net deductible
temporary differences or carryforward attributes may be utilized against
current period earnings, carried back against prior years earnings, offset
against taxable temporary differences reversing in future periods, or
utilized to the extent of management's estimate of future taxable income. A
valuation allowance is provided for deferred tax assets to the extent that
the value of net deductible temporary differences and carryforward
attributes exceeds management's estimates of taxes payable on future taxable
income. Deferred tax liabilities are provided on the total amount of net
temporary differences taxable in the future.
The Corporation's principal temporary differences between pretax financial
income and taxable income result from different methods of accounting for
deferred loan origination fees and costs, Federal Home Loan Bank stock
dividends, the general loan loss allowance, deferred compensation, and
percentage of earnings bad debt deductions. Additional temporary differences
result from depreciation computed using accelerated methods for tax
purposes.
28
<PAGE> 31
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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. Recognition
of compensation expense related to these salary continuation agreements
totaled $10,000, $33,000 and $8,000 for the fiscal years ended June 30,
1998, 1997 and 1996, respectively.
10. BENEFIT PLANS
The Corporation has an Employee Stock Ownership Plan ("ESOP") which 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 $274,000 for the year
ended June 30, 1998, and $296,000 for each of the years ended June 30, 1997
and 1996.
The Corporation also has a Management Recognition Plan ("MRP") which
provides for the issuance and grant of 68,558 shares to members of the board
of directors and management. During fiscal 1996, the MRP purchased 68,558
shares of the Corporation's common stock in the open market. At June 30,
1998, 49,537 shares had been granted. Expense recognized under the MRP plan
totaled approximately $153,000, $137,000 and $120,000 for the fiscal years
ended June 30, 1998, 1997 and 1996, respectively. Common stock granted under
the MRP vests ratably over a five year period, commencing with the date of
the award.
11. EARNINGS PER SHARE AND DIVIDENDS PER SHARE
Basic earnings per share for the fiscal years ended June 30, 1998, 1997 and
1996 is based upon the weighted-average shares outstanding during the year,
less 77,756, 126,541 and 111,760 unallocated ESOP shares, respectively.
Weighted-average common shares deemed outstanding totaled 1,586,217,
1,591,703 and 1,602,200 for the fiscal years ended June 30, 1998, 1997 and
1996, respectively.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under
the Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
1,615,737, 1,625,981 and 1,610,259 for the fiscal years ended June 30, 1998,
1997 and 1996, respectively.
29
<PAGE> 32
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. EARNINGS PER SHARE AND DIVIDENDS PER SHARE (continued)
Effective during the fiscal year ended June 30, 1998, the Corporation began
presenting earnings per share pursuant to the provisions of SFAS No. 128,
"Earnings Per Share." Accordingly, the fiscal 1997 and 1996 earnings per
share presentation has been revised to conform to SFAS No. 128.
During fiscal 1997, 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 to stock form and was deemed
by management to constitute a return of excess capital. Accordingly, the
Corporation charged the return of capital distribution to additional
paid-in-capital. Management estimated that approximately $5.17 of the 1997
fiscal year distributions constituted a tax-free return of capital.
12. 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, 1998 and 1997:
CASH AND CASH EQUIVALENTS: The financial statement carrying
amounts for cash and cash equivalents are deemed to
approximate fair value.
CERTIFICATES OF DEPOSIT IN OTHER FINANCIAL INSTITUTIONS: The
financial statement carrying amounts for certificates of
deposit in other financial institutions are deemed to
approximate fair value.
30
<PAGE> 33
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
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 statements of financial condition is deemed
to approximate fair value.
DEPOSITS: The fair values of NOW accounts, passbook accounts,
money market demand accounts and advances by borrowers are
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 THE 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, 1998 and 1997, the
difference between the fair value and notional amount of loan
commitments was not material.
31
<PAGE> 34
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
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>
1998 1997
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(In thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 13,890 $ 13,890 $ 3,850 $ 3,850
Certificates of deposit in other financial
institutions 2,004 2,004 4,258 4,258
Investment securities 11,835 11,835 18,660 18,660
Mortgage-backed securities 8,924 8,924 8,560 8,560
Loans receivable 76,550 77,895 74,136 71,492
Stock in Federal Home Loan Bank 725 725 675 675
-------- -------- -------- --------
$113,928 $115,273 $110,139 $107,495
======== ======== ======== ========
Financial liabilities
Deposits $ 93,477 $ 93,605 $ 89,752 $ 90,037
Advances from the Federal Home Loan Bank 4,354 4,493 2,884 2,872
Other borrowed money 2,500 2,509 500 504
Escrow deposits 169 169 169 169
-------- -------- -------- --------
$100,500 $100,776 $ 93,305 $ 93,582
======== ======== ======== ========
</TABLE>
13. 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.
14. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1998
consolidated financial statement presentation.
32
<PAGE> 35
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of investment securities designated as available for
sale at June 30, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Government agency
obligations $10,729 $ 69 $ 32 $10,766
FHLMC stock 20 921 - 941
Corporate equity securities 140 - 12 128
------- -- ---- -------
$10,889 $990 $ 44 $11,835
====== === ==== ======
</TABLE>
<TABLE>
<CAPTION>
1997
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(In thousands)
<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
====== === === ======
</TABLE>
33
<PAGE> 36
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
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>
1998 1997
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
(In thousands)
<S> <C> <C> <C> <C>
Due in three years or less $ 1,995 $ 1,982 $ 1,604 $ 1,596
Due after three years through
five years - - 2,504 2,488
Due after five years 8,734 8,784 13,947 13,876
------- ------- ------ ------
$10,729 $10,766 $18,055 $17,960
====== ====== ====== ======
</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, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE: (In thousands)
Federal Home Loan Mortgage
Corporation participation certificates $2,007 $ 41 $ 4 $2,044
Government National Mortgage
Association participation certificates 4,919 86 3 5,002
Federal National Mortgage Association
participation certificates 850 26 9 867
Collateralized mortgage obligations 1,014 4 7 1,011
----- ----- --- -----
Total mortgage-backed securities $8,790 $157 $23 $8,924
===== === == =====
</TABLE>
34
<PAGE> 37
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
<TABLE>
<CAPTION>
1997
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE: (In thousands)
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>
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,
1998 1997
(In thousands)
<S> <C> <C>
Due within three years $ 460 $1,085
Due in three to five years 126 173
Due in five to ten years 480 566
Due in ten to twenty years 2,412 3,126
Due after twenty years 5,312 3,571
----- -----
$8,790 $8,521
===== =====
</TABLE>
35
<PAGE> 38
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE C - LOANS RECEIVABLE
<TABLE>
<CAPTION>
The composition of the loan portfolio at June 30 is as follows:
1998 1997
(In thousands)
<S> <C> <C>
Residential real estate
One- to four- family $55,707 $50,481
Multi-family 5,184 7,721
Construction 1,425 926
Nonresidential real estate and land 5,712 5,520
Consumer and other 10,923 11,484
------ ------
78,951 76,132
Less:
Undisbursed portion of loans in process 1,452 978
Deferred loan origination fees 190 198
Allowance for loan losses 759 820
-------- --------
$76,550 $74,136
====== ======
</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 $60.9 million, or 80%, of the total loan portfolio at June 30,
1998, and $58.2 million, or 78%, of the total loan portfolio at June 30,
1997. 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 and officers
totaled approximately $340,000 and $316,000 at June 30, 1998 and 1997,
respectively.
36
<PAGE> 39
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
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>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $820 $884 $893
Provision for (recoveries of) loan losses (5) 28 -
Charge-offs of loans (56) (92) (9)
---- ---- -----
Balance at end of year $759 $820 $884
=== === ===
</TABLE>
As of June 30, 1998, 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 $240,000, $1.1
million and $1.2 million at June 30, 1998, 1997 and 1996, respectively.
During the years ended June 30, 1998, 1997 and 1996, interest income of
approximately $6,000, $9,000 and $4,000, 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>
1998 1997
(In thousands)
<S> <C> <C>
Land and improvements $ 376 $ 376
Office buildings and improvements 1,205 1,161
Furniture, fixtures and equipment 451 434
------ ------
2,032 1,971
Less accumulated depreciation and
amortization 1,100 1,027
----- -----
$ 932 $ 944
====== ======
</TABLE>
37
<PAGE> 40
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE F - DEPOSITS
Deposits consist of the following major classifications at June 30:
<TABLE>
<CAPTION>
DEPOSIT TYPE AND WEIGHTED-
AVERAGE INTEREST RATE 1998 1997
(In thousands)
<S> <C> <C>
NOW accounts
1998 - 1.96% $ 5,867
1997 - 2.24% $ 4,435
Passbook
1998 - 2.94% 7,440
1997 - 2.94% 7,379
Money market deposit accounts
1998 - 3.60% 7,999
1997 - 3.49% 7,785
--------- --------
Total demand, transaction and
passbook deposits 21,306 19,599
Certificates of deposit
Original maturities of:
Less than 12 months
1998 - 5.39% 6,893
1997 - 5.22% 5,774
12 months to 24 months
1998 - 5.88% 36,727
1997 - 5.89% 34,303
30 months to 36 months
1998 - 5.76% 8,535
1997 - 5.90% 10,293
More than 36 months
1998 - 6.13% 1,196
1997 - 5.86% 1,723
Individual retirement accounts
1998 - 6.08% 14,589
1997 - 6.03% 14,052
Jumbo accounts
1998 - 5.85% 4,231
1997 - 5.82% 4,008
------- -------
Total certificates of deposit 72,171 70,153
------- ------
Total deposit accounts $93,477 $89,752
======= ======
</TABLE>
At June 30, 1998 and 1997, the Corporation had certificates of deposit accounts
with balances greater than $100,000 totaling $8.1 million and $6.9 million,
respectively.
38
<PAGE> 41
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE F - DEPOSITS (continued)
Interest expense on deposits for the year ended June 30 is summarized as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Passbook $ 212 $ 214 $ 212
NOW and money market deposit
accounts 376 402 421
Certificates of deposit 4,138 3,903 3,634
----- ----- -----
$4,726 $4,519 $4,267
===== ===== =====
</TABLE>
Maturities of outstanding certificates of deposit at June 30 are summarized
as follows:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Less than one year $51,581 $42,468
One to three years 20,175 26,701
Over three years 415 984
-------- --------
$72,171 $70,153
======= =======
</TABLE>
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at June 30, 1998 by
pledges of certain residential mortgage loans totaling $6.5 million, and the
Savings Bank's investment in Federal Home Loan Bank stock, are summarized as
follows:
<TABLE>
<CAPTION>
MATURING
YEAR ENDING JUNE 30,
INTEREST RATE JUNE 30, 1998 1997
(Dollars in thousands)
<S> <C> <C> <C>
5.77% 1998 $ - $2,000
5.70% 1999 500 -
6.15% 2000 500 -
7.10% 2002 - 500
3.16% - 5.17% 2008 3,354 384
----- ------
$4,354 $2,884
===== =====
Weighted-average interest rate 5.16% 5.65%
==== ====
</TABLE>
39
<PAGE> 42
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE H - OTHER BORROWED MONEY
Other borrowed money, secured at June 30, 1998, by the Corporation's
investment in the common stock of the Savings Bank, consists of the
following:
<TABLE>
<CAPTION>
INTEREST MATURING YEAR ENDING JUNE 30,
RATE JUNE 30, 1998 1997
(In thousands)
<S> <C> <C> <C> <C>
8.88% 2001 $ - $500
8.50% 1999 2,500 -
----- -
$2,500 $500
===== ===
</TABLE>
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,
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Federal income taxes computed at statutory rate $517 $336 $573
Increase (decrease) in taxes resulting from:
Low income housing investment tax credits (70) - -
Nontaxable interest income (2) (9) -
Other - (5) 1
-- ----- -----
Federal income tax provision per consolidated
financial statements $445 $322 $574
=== === ===
</TABLE>
The composition of the Corporation's net deferred tax asset at June 30 is as
follows:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
Taxes (payable) refundable on temporary differences at estimated corporate
tax rate:
<S> <C> <C>
Deferred tax assets:
General loan loss allowance $258 $279
Deferred compensation 502 501
Employee stock benefit plans 67 58
Book/tax depreciation 1 -
----- ----
Total deferred tax assets 828 838
Deferred tax liabilities:
Percentage of earnings bad debt deduction (265) (265)
Book/tax depreciation - (4)
Deferred loan origination costs (33) (49)
Federal Home Loan Bank stock dividends (134) (117)
Unrealized gain on securities designated as available for sale (366) (212)
--- ---
Total deferred tax liabilities (798) (647)
--- ---
Net deferred tax asset $ 30 $191
==== ===
</TABLE>
40
<PAGE> 43
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
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,
1998 includes 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, 1998. See Note M 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 consolidated 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, 1998, the Savings Bank had outstanding commitments to originate
loans totaling approximately $384,000. In addition, the Savings Bank was
obligated under unused lines of credit totaling $2.5 million. In the opinion
of management, all loan commitments equaled or exceeded prevalent market
interest rates as of June 30, 1998, and will be funded from normal cash flow
from operations.
41
<PAGE> 44
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
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, 1998 and 1997, management believes that the Savings Bank
met all capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
--------------- -------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tangible capital $14,690 12.8% greater than or equal to $1,725 greater than or equal to 1.5%
Core capital $14,690 12.8% greater than or equal to $3,451 greater than or equal to 3.0%
Risk-based capital $15,391 27.5% greater than or equal to $4,479 greater than or equal to 8.0%
<CAPTION>
AS OF JUNE 30, 1998
TO BE "WELL-
CAPITALIZED" UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
-----------------------------------------------------------------
AMOUNT RATIO
<S> <C> <C>
Tangible capital greater than or equal to $5,751 greater than or equal to 5.0%
Core capital greater than or equal to $6,901 greater than or equal to 6.0%
Risk-based capital greater than or equal to $5,599 greater than or equal to 10.0%
</TABLE>
42
<PAGE> 45
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE K - REGULATORY CAPITAL (continued)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
---------------- -----------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tangible capital $13,321 12.1% greater than or equal to $1,650 greater than or equal to 1.5%
Core capital $13,321 12.1% greater than or equal to $3,300 greater than or equal to 3.0%
Risk-based capital $13,855 26.9% greater than or equal to $4,123 greater than or equal to 8.0%
<CAPTION>
AS OF JUNE 30, 1997
TO BE "WELL-
CAPITALIZED" UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
------------------------------------------------------------------
AMOUNT RATIO
<S> <C> <C>
Tangible capital greater than or equal to $5,500 greater than or equal to 5.0%
Core capital greater than or equal to $6,600 greater than or equal to 6.0%
Risk-based capital greater than or equal to $5,153 greater than or equal to 10.0%
</TABLE>
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 - STOCK OPTION PLAN
During fiscal 1996 the Board of Directors adopted the ASB Financial Corp.
Stock Option and Incentive Plan (the "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 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.
In 1996, the Corporation adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which contains a fair value-based method for valuing
stock-based compensation that entities may use, which measures compensation
cost at the grant date based on the fair value of the award. Compensation is
then recognized over the service period, which is usually the vesting
period. Alternatively, SFAS No. 123 permits entities to continue to account
for stock options and similar equity instruments under Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities that continue to account for stock options using APB Opinion No. 25
are required to make pro forma disclosures of net earnings and earnings per
share, as if the fair value-based method of accounting defined in SFAS No.
123 had been applied.
43
<PAGE> 46
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE L - STOCK OPTION PLAN (continued)
The Corporation applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized for the Plan. Had
compensation cost for the Corporation's stock option plan been determined
based on the fair value at the grant dates for awards under the Plan
consistent with the accounting method utilized in SFAS No. 123, the
Corporation's net earnings and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C> <C>
Net earnings (In thousands) As reported $1,076 $667 $1,111
===== === =====
Pro-forma $1,076 $667 $1,081
===== === =====
Earnings per share
Basic As reported $.68 $.42 $.69
=== === ===
Pro-forma $.68 $.42 $.67
=== === ===
Diluted As reported $.67 $.41 $.69
=== === ===
Pro-forma $.67 $.41 $.67
=== === ===
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the modified Black-Scholes options-pricing model with the following
weighted-average assumptions used for grants in fiscal 1996: dividend yield
of 5.5%, expected volatility of 20.0%, a risk-free interest rate of 6.5% and
expected lives of ten years.
A summary of the status of the Corporation's stock option plan as of June
30, 1998, 1997 and 1996, and changes during the periods ending on those
dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 138,282 $10.08 145,684 $13.875 - -
Adjustment for return of capital
distribution - - - (3.795) - -
Granted - - - - 145,684 $13.875
Exercised 19,442 10.08 7,452 10.08 - -
Forfeited - - - - - -
--------- ------ --------- ------ --------- -----
Outstanding at end of year 118,840 $10.08 138,232 $10.08 145,684 $13.875
======= ===== ======= ===== ======= ======
Options exercisable at year-end 31,380 $10.08 21,685 $10.08 - -
======== ===== ======== ===== ========= ======
Weighted-average fair value of
options granted during the year $- $- $2.70
== == ====
</TABLE>
44
<PAGE> 47
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE L - STOCK OPTION PLAN (continued)
The following information applies to options outstanding at June 30, 1998:
Number outstanding 118,840
Range of exercise prices $10.08
Weighted-average exercise price $10.08
Weighted-average remaining contractual life 7.42 years
NOTE M - 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.
45
<PAGE> 48
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE N - CONDENSED FINANCIAL STATEMENTS OF ASB FINANCIAL CORP.
The following condensed financial statements summarize the financial
position of ASB Financial Corp. as of June 30, 1998 and 1997, and the
results of its operations and its cash flows for the fiscal years ended June
30, 1998, 1997 and 1996.
ASB FINANCIAL CORP.
STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
Interest-bearing deposits in American Savings Bank, fsb $ 377 $ 693
Interest-bearing deposits in other financial institutions 283 2,378
Investment securities 128 -
Loan receivable from ESOP 819 959
Investment in American Savings Bank, fsb 15,412 13,733
Prepaid expenses and other 136 104
------- -------
Total assets $17,155 $17,867
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $ 165 $ 172
Borrowed money 2,500 -
------- -------
Total liabilities 2,665 172
Shareholders' equity
Common stock and additional paid-in capital 8,304 8,023
Retained earnings 8,292 11,181
Shares acquired by stock benefit plans (1,677) (1,921)
Treasury shares (1,143) -
Unrealized gains on securities designated as available for sale, net 714 412
------- -------
Total shareholders' equity 14,490 17,695
------- -------
Total liabilities and shareholders' equity $17,155 $17,867
======= =======
</TABLE>
46
<PAGE> 49
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE N - CONDENSED FINANCIAL STATEMENTS OF ASB FINANCIAL CORP. (continued)
<TABLE>
<CAPTION>
ASB FINANCIAL CORP.
STATEMENTS OF EARNINGS
Year ended June 30,
(In thousands)
1998 1997 1996
<S> <C> <C> <C>
Revenue
Interest income $ 163 $292 $ 455
Equity in earnings of American Savings Bank, fsb 1,034 631 887
----- --- ------
Total revenue 1,197 923 1,342
General and administrative expenses 103 248 122
------ --- ------
Earnings before income taxes 1,094 675 1,220
Federal income tax 18 15 109
------- ---- ------
NET EARNINGS $1,076 $660 $1,111
===== === =====
</TABLE>
47
<PAGE> 50
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE N - CONDENSED FINANCIAL STATEMENTS OF ASB FINANCIAL CORP.
(continued)
ASB FINANCIAL CORP.
STATEMENTS OF CASH FLOWS
Year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash provided by (used in) operating activities:
Net earnings for the year $1,076 $ 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 (1,034) 4,369 (887)
Loss on sale of investment securities - 9 -
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets (32) (36) 20
Other liabilities (7) 1 43
-------- -------- -------
Net cash provided by operating activities 3 5,003 287
Cash flows provided by (used in) investing activities:
Proceeds from repayment of loan 140 159 152
Proceeds from maturities of investment securities - - 1,500
Proceeds from sale of investment securities - 3,491 -
Purchase of investment securities (136) - (3,500)
------ ----- -----
Net cash provided by (used in) investing activities 4 3,650 (1,848)
Cash flows provided by (used in) financing activities:
Proceeds from borrowed money 2,500 - -
Proceeds from exercise of stock options 196 103 -
Payment of dividends on common stock (3,971) (9,260) (557)
Purchase of treasury shares (1,143) - -
----- ----- ----
Net cash used in financing activities (2,418) (9,157) (557)
----- ----- ------
Net decrease in cash and cash equivalents (2,411) (504) (2,118)
Cash and cash equivalents at beginning of year 3,071 3,575 5,693
----- ----- -----
Cash and cash equivalents at end of year $ 660 $3,071 $3,575
====== ===== =====
</TABLE>
48
<PAGE> 51
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE N - 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 $2.2 million to the
Corporation at June 30, 1998.
NOTE O - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Corporation's quarterly results for
the fiscal years ended June 30, 1998 and 1997. Certain amounts, as
previously reported, have been reclassified to conform to the 1998
presentation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998: (In thousands, except per share data)
<S> <C> <C> <C> <C>
Total interest income $2,164 $2,124 $2,123 $2,130
Total interest expense 1,249 1,225 1,238 1,249
----- ----- ----- -----
Net interest income 915 899 885 881
Provision for (recoveries of) losses on loans - (4) (8) 7
Other income 65 74 57 85
General, administrative and other expense 612 599 535 599
------ ------ ------ ------
Earnings before income taxes 368 378 415 360
Federal income taxes 122 124 139 60
------ ------ ------ -------
Net earnings $ 246 $ 254 $ 276 $ 300
====== ====== ====== =====
Earnings per share
Basic $.16 $.16 $.18 $.18
=== === === ===
Diluted $.16 $.16 $.18 $.17
=== === === ===
</TABLE>
49
<PAGE> 52
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998, 1997 and 1996
NOTE O - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (continued)
<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 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
Basic $(.11) $.19 $.14 $.20
===== ==== ==== ====
Diluted N/A $.19 $.14 $.19
=== ==== ==== ====
</TABLE>
50
<PAGE> 53
ASB FINANCIAL CORP.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
=============================================================================================
<S> <C>
Gerald R. Jenkins Director and Chairman of the Board
Robert M. Smith Director and President
President and Chief Executive 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
</TABLE>
<TABLE>
<CAPTION>
AMERICAN SAVINGS BANK, fsb
DIRECTORS AND OFFICERS
=============================================================================================
<S> <C>
Gerald R. Jenkins Director and Chairman of the Board
Robert M. Smith Director, President and CEO
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
Carlisa R. Baker Treasurer
M. Kathryn Scott Secretary
</TABLE>
51
<PAGE> 54
SHAREHOLDER SERVICES
==============================================================================
The Fifth Third Bank serves as transfer agent and dividend distributing 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 28, 1998, at 11:00 a.m., Eastern Time, in the Micklethwaite Room at
Shawnee State University, Portsmouth, Ohio. Shareholders are cordially invited
to attend.
ANNUAL REPORT ON FORM 10-KSB
==============================================================================
A copy of ASB's Annual Report on Form 10-KSB, as filed with the Securities and
Exchange Commission, will be available at no charge to shareholders upon written
request to:
American Savings Bank, fsb
503 Chillicothe Street
Portsmouth, Ohio 45662
Attention: Robert M. Smith, President
52
<PAGE> 1
Exhibit 20
ASB FINANCIAL CORP.
503 CHILLICOTHE STREET
PORTSMOUTH, OHIO 45662
(740) 354-3177
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The 1998 Annual Meeting of Shareholders of ASB Financial Corp. ("ASB")
will be held in the Micklethwaite Room at Shawnee State University, Portsmouth,
Ohio 45662, on October 28, 1998, 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
2000;
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
31, 1998, 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 Robert M. Smith, President
September 28, 1998
<PAGE> 2
ASB FINANCIAL CORP.
503 CHILLICOTHE STREET
PORTSMOUTH, OHIO 45662
(740) 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 1998 Annual Meeting of Shareholders of
ASB to be held in the Micklethwaite Room at Shawnee State University,
Portsmouth, Ohio 45662, on October 28, 1998, 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 Victor W. Morgan, Louis M. Schoettle,
M.D. and Robert M. Smith as directors of ASB for terms
expiring in 2000; 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 31,
1998 (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 1,654,788
votes entitled to be cast at the Annual Meeting.
This Proxy Statement is first being mailed to shareholders of ASB on or
about October 1, 1998.
VOTE REQUIRED
ELECTION OF DIRECTORS
Under Ohio law and ASB's Code of Regulations (the "Regulations"), the
three nominees receiving the greatest number of votes will be elected as
directors. Shares as to which the authority to vote is withheld 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, 1998:
<TABLE>
<CAPTION>
Amount and nature of Percent of
Name and Address beneficial ownership (1) shares outstanding
- ---------------------------------- -------------------------- --------------------
<S> <C> <C>
ASB Financial Corp. Employee Stock
Ownership Plan
1201 Broadway 159,205 (2) 9.62%
Quincy, Illinois 62301
Lee O. Fitch (3) 87,681(4) 5.29%
</TABLE>
- ---------------------------
(1) All shares are owned directly with sole voting or investment power
unless otherwise indicated by footnote.
(2) Includes 77,756 unallocated shares with respect to which First Bankers
Trust Company, N.A. (the "ESOP Trustee"), as the Trustee for the ASB
Financial Corp. Employee Stock Ownership Plan (the "ESOP") has sole
voting power over shares. The ESOP Trustee has shared investment power
all 159,205 shares.
(3) May be contacted at the address of ASB.
(4) Includes 3,712 shares which may be acquired upon the exercise of an
option, 7,738 shares as to which Mr. Fitch has shared voting and
investment power and 53,747 shares held by the American Savings Bank,
fsb Management Recognition Plan and Trust Aagreement (the "MRP") as to
which Mr. Fitch has shared voting power as a Trustee of the MRP.
-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, 1998:
<TABLE>
<CAPTION>
Amount and nature of Percent of
Name and Address (1) beneficial ownership (2) shares outstanding (3)
- -------------------- ------------------------- ----------------------
<S> <C> <C>
William J. Burke 36,848 (4) 2.22%
Lee O. Fitch 87,681 (5) 5.29
Gerald R. Jenkins 72,699 (6) 4.36
Victor W. Morgan 36,806 (7) 2.22
Louis M. Schoettle, M.D. 36,791 (8) 2.22
Robert M. Smith 46,615 (9) 2.80
All directors and executive
officers of ASB
as a group (9 persons) 339,846 (10) 19.97%
</TABLE>
- -----------------------------
(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 1,654,788 common shares outstanding, plus the number
of shares such person or group has the right to acquire within 60 days,
if any.
(4) Includes 4,712 shares which may be acquired upon the exercise of an
option and 17,956 shares as to which Mr. Burke shares voting and
investment power.
(5) Includes 3,712 shares which may be acquired upon the exercise of an
option, 7,738 shares as to which Mr. Fitch has shared voting and
investment power and 53,747 shares held by the MRP as to which Mr.
Fitch has shared voting power as a Trustee of the MRP.
(6) Includes 13,567 shares which may be acquired upon the exercise of an
option, 1,462 shares owned by Mr. Jenkins' spouse and 21,296 shares as
to which Mr. Jenkins has shared voting and investment power.
(7) Includes 337 shares which may be acquired upon the exercise of an
option and 36,464 shares as to which Mr. Morgan has shared voting and
investment power.
(8) Includes 4,712 shares which may be acquired upon the exercise of an
option and 32,079 shares as to which Dr. Schoettle has shared voting
and investment power.
(9) Includes 11,824 shares which may be acquired upon the exercise of an
option, 3,533 shares owned by Mr. Smith's spouse and 31,258 shares as
to which Mr. Smith has shared voting and investment power.
(Footnotes continued on next page)
-3-
<PAGE> 5
(10) Includes 47,276 shares which may be acquired upon the exercise of
options, 53,747 shares held by the MRP as to which Mr. Fitch has shared
voting power as Trustee of the MRP and 146,791shares as to which the
officers and directors of ASB have shared voting and investment power.
BOARD OF DIRECTORS
ELECTION OF DIRECTORS
The 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 2000
and until their successors are duly elected and qualified or until their earlier
resignation, removal from office or death:
<TABLE>
<CAPTION>
Director of
Name Age (1) Position(s) held ASB since
- ---- ------- ---------------- ---------
<S> <C> <C> <C>
Victor W. Morgan 71 Director 1995
Louis M. Schoettle, M.D. 72 Director 1995
Robert M. Smith 52 Director and President 1995
</TABLE>
- -----------------------------
(1) As of September 15, 1998.
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
Name Age (1) Position(s) held ASB since Term expires
- ---- ------- ---------------- ---------- ------------
<S> <C> <C> <C> <C>
William J. Burke 57 Director 1995 1999
Lee O. Fitch 82 Director 1995 1999
Gerald R. Jenkins 63 Chairman of the Board 1995 1999
</TABLE>
- -----------------------------
(1) As of September 15, 1998.
-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 retired as the President and Chief Executive Officer of ASB
and American effective January 1998. Prior to becoming President in 1983, he
held various positions at American including Secretary and Vice President.
MR. MORGAN retired in 1990 after over 40 years with Morgan Brothers,
Inc., a retail jewelry business in Portsmouth. At the time of his retirement, he
was President of Morgan Brothers, Inc.
DR. SCHOETTLE is a physician. He retired from active practice in 1994
after over 35 years of practicing medicine in Portsmouth. Dr. Schoettle also
owns and operates a 1,100 acre farm.
MR. SMITH has been employed by American since 1966 and is currently the
President and Chief Executive Officer of American. In 1998, he was also named
the President of ASB. Prior positions held by Mr. Smith with American include
Secretary, Treasurer and Executive Vice President.
MEETINGS OF DIRECTORS
The Board of Directors of ASB met 12 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, 1998.
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, 1998.
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, 1998.
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. Smith, Jenkins,
Burke and Dr. Schoettle. The Executive Committee serves as a loan approval
committee and is authorized to act on behalf of the Board of Directors between
regular meetings of the Board of Directors. The Executive Committee met seven
times during the fiscal year ended June 30, 1998.
-5-
<PAGE> 7
The Finance Committee is comprised of Messrs. Smith, Burke and Dr.
Schoettle. 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, 1998.
The MRP Committee administers the MRP. Such committee consists of
Messrs. Burke, Morgan and Fitch. The MRP Committee met once during the 1998
fiscal year.
EXECUTIVE OFFICERS
In addition to Mr. Smith, the President of both ASB and 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 36 Treasurer of American and ASB
M. Kathryn Scott 47 Secretary of American and ASB
Jack A. Stephenson 46 Vice President/Lending of American
</TABLE>
- -----------------------------
(1) As of September 15, 1998.
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 Chairman of the Board of ASB and American, and to Robert M. Smith,
the President of ASB and American, for the fiscal years ended June 30, 1998,
1997 and 1996. No other executive officer of ASB earned salary and bonus in
excess of $100,000 during such periods.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual compensation Long term compensation All other
compensation (1)
- -------------------------------------------------------------------------------------------------------------------------
Awards
- -------------------------------------------------------------------------------------------------------------------------
Name and principal Year Salary ($) Bonus ($) Restricted Securities
position stock awards underlying
($) options/SARs (#)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Jenkins 1998 $73,250 $4,000 -- 48,917 $46,255 (3)
Chairman of the 1997 $99,100 $6,800 -- 58,917 (4) $54,061 (5)
Board (2) 1996 $94,400 $9,210 $92,953 (6) 42,849 (7) $15,900
Robert M. Smith 1998 $83,800 $3,100 -- 44,634 $40,582 (8)
President 1997 78,750 5,200 -- 47,134 (4) $45,513 (9)
1996 72,150 7,040 $83,295 (6) 34,279 (7) $15,900
</TABLE>
-------------------------
(1) Does not include amounts attributable to other miscellaneous
benefits received by Messrs. Jenkins and Smith, the cost of which
was less than 10% of their annual salary and bonus.
(2) Mr. Jenkins retired as President of ASB and American effective
January 1998, and was succeeded by Mr. Smith.
(3) Consists of directors' fees of $18,900 and the $27,355
value of allocations to Mr. Jenkins' account under the ESOP.
(4) 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.
(5) Consists of directors' fees of $17,700 and the $36,361 value of
allocation to Mr. Jenkin's account under the ESOP.
(Footnotes continued on next page)
-7-
<PAGE> 9
(6) 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, 1998, the shares which have
been awarded to Mr. Jenkins and Mr. Smith under the MRP had an
aggregate market value of approximately $88,258 and, $79,439,
respectively, based on the $12.875 closing bid for ASB shares. 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.
(7) 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, 1997.
(8) Consists of directors' fees of $18,900 and the $21,682 aggregate
value of allocations to Mr. Smith's account under the ESOP.
(9) Consists of directors' fees of $17,000 and the $27,813 aggregate
value of allocations to Mr. Smith's account under the ESOP.
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 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 $5,000 per month for 180 months.
STOCK OPTION PLAN
At the 1995 Annual Meeting of Shareholders of ASB, the Shareholders
approved the Stock Option Plan. Pursuant to the Stock Option Plan, 171,396
common shares were reserved for issuance by ASB upon the exercise of options to
be granted to certain directors, officers and employees of American and ASB from
time to time under the Stock Option Plan. Options to purchase 145,684 common
shares of ASB have been granted and not forfeited under the Stock Option Plan.
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.
-8-
<PAGE> 10
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").
ASB will receive no monetary consideration for the granting of options
under the Stock Option Plan. Upon the exercise of options, ASB will receive
payment of cash, or if acceptable to the Stock Option Committee, ASB common
shares or outstanding awarded stock options.
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, 1998:
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and 6/30/98 Option /SAR Values
----------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs at In-the-Money Options/SARs
Shares Acquired Value 6/30/98 (#) at 6/30/98 ($)(1)
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------- ------------------- -------------- ---------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Gerald R. Jenkins 5,000 $28,350 13,567/35,350 $44,703/$116,478
Robert M. Smith 2,500 $12,625 11,824/32,810 $38,961/$108,110
</TABLE>
- -----------------------------
(1) For purposes of this table, the value of the unexercised 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 $13.375 on
June 30, 1998, based on the closing bid price reported by the Nasdaq
National Market.
(2) The value realized is the difference between the $10.08 exercise price
and the fair market value of ASB common shares, which was $15.25 per
share on June 2, 1998, the date of exercise, based on the closing bid
price reported by the Nasdaq National Market.
(3) The value realized is the difference between the $10.08 exercise price
and the fair market value of ASB common shares, which was $15.75 per
share on June 8, 1998, the date of exercise, based on the closing bid
price reported by the Nasdaq National Market.
-9-
<PAGE> 11
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.
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. Shares awarded
pursuant to the MRP, along with any dividends and other distributions paid on
such shares and earnings thereon, are distributed to recipients as soon as
practicable after such shares become earned. Recipients are not permitted to
transfer or direct the voting of shares awarded under the MRP until they become
earned.
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.
DIRECTOR COMPENSATION
Each director currently receives a fee of $400 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, 1998, a
total of $113,400 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 deferred amount shall be paid in
common shares of ASB unless American shall deem it prudent to convert the shares
into cash.
-10-
<PAGE> 12
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 1999 Annual Meeting of Shareholders should be sent to ASB by
certified mail and must be received by ASB not later than May 31, 1999.
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
September 28, 1998 Robert M. Smith, President
-11-
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0
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<TABLE> <S> <C>
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0
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