<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, 1999
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ______________ to ________________
Commission File Number: 0-25906
ASB FINANCIAL CORP.
----------------------------------------------
(Name of small business issuer in its charter)
Ohio 31-1429488
- ------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
<TABLE>
<S> <C>
503 Chillicothe Street, Portsmouth, Ohio 45662 Issuer's telephone number: (740) 354-3177
(Address of principal executive offices) (Zip Code)
</TABLE>
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
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Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Shares, without par value
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(Title of Class)
Check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No ___
Check if there is no disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for the fiscal year ended June 30, 1999
were $8.9 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 22, 1999, was approximately $3.4
million.
1,660,858 of the issuer's common shares were issued and
outstanding on September 27, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-KSB - Portions of the Annual Report to Shareholders for the
fiscal year ended June 30, 1999.
Part III of Form 10-KSB - Portions of the Proxy Statement for 1999 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,
-------------------------------------------------------------------------
1999 1998 1997
------------------- -------------------- ---------------------
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 $60,810 70.4% $55,707 70.6% $50,481 66.3%
Multifamily 3,404 3.9 5,184 6.6 7,721 10.1
Nonresidential and land 8,504 9.9 5,712 7.2 5,520 7.3
Construction 2,162 2.5 1,425 1.8 926 1.2
Home equity 4,971 5.8 4,485 5.7 3,464 4.6
Commercial 2,485 2.9 1,929 2.4 2,824 3.7
------- ----- ------- ----- ------- ------
Total real estate loans 82,336 95.4 74,442 94.3 70,936 93.2
Consumer and other loans:
Passbook 615 .7 744 .9 556 .7
Home improvement 1,103 1.3 1,286 1.6 1,462 1.9
Automobile 1,689 1.9 1,772 2.3 2,087 2.8
Other 586 .7 707 .9 1,091 1.4
------- ----- ------- ----- -------- -------
Total consumer and other loans 3,993 4.6 4,509 5.7 5,196 6.8
------ ---- ------ ---- -------- -------
Total loans 86,329 100.0% 78,951 100.0% 76,132 100.0%
===== ===== =====
Less:
Loans in process 2,966 1,452 978
Net deferred loan origination fees and
unearned discounts 200 190 198
Allowance for loan losses 733 759 820
-------- -------- -------
Total loans net $82,430 $76,550 $74,136
======== ======= =======
</TABLE>
LOAN MATURITY. The following table sets forth the contractual maturity
of American's total loans at June 30, 1999, before consideration of net items:
<TABLE>
<CAPTION>
Due during the fiscal One- to Consumer
year ending June 30, four-family (1) Multifamily (1) Nonresidential (1) (2) and other (3) Total
- -------------------- --------------- --------------- ---------------------- ------------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
2000 $ 2,177 $ 330 $ 770 $ 1,384 $ 4,661
2001 2,249 340 794 1,428 4,811
2002 2,297 353 815 1,458 4,923
2003-2004 4,695 711 1,660 2,976 10,042
2005-2009 11,963 1,844 4,325 4,203 22,335
2010-2014 12,083 188 140 - 12,411
2015 and thereafter 27,146 - - - 27,146
------- ------ ------ ------- -------
Total $62,610 $3,766 $8,504 $11,449 $86,329
======= ====== ====== ======= =======
</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, 1999, American's one- to four-family residential real estate loan portfolio,
including certain construction loans secured by one- to four-family residences,
was approximately $62.6 million, or 72.5% of total loans.
OTS regulations limit the amount which American may lend in
relationship to the appraised value of the real estate and improvements (the
"Loan-to-Value Ratio" or "LTV") at the time of loan origination. In accordance
with such regulations, American makes loans on one- to four-family residences
with LTVs of up to 95%. The principal amount of any loan which exceeds an 85%
LTV at the time of origination is usually covered by private mortgage insurance
at the expense of the borrower.
Fixed-rate loans are offered by American, currently for terms of up to
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, 1999,
American's home equity loans totaled $5.0 million, or 5.8% 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, 1999, loans secured by multifamily properties totaled
approximately $3.4 million, or 3.9% of total loans.
LOANS SECURED BY NONRESIDENTIAL REAL ESTATE AND LAND. At June 30, 1999,
approximately $8.5 million, or 9.9% 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, and a
hotel located in American's primary market area. Also included in American's
nonresidential
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real estate loan portfolio are $5.6 in participation interests which have been
purchased in loans originated by other financial institutions.
American has one land loan with a principal balance of $410,000 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, 1999, American had outstanding
nonresidential real estate construction loans with an aggregate balance of
$804,000.
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, 1999, construction loans, in the aggregate,
totaled $2.2 million, or 2.5% of American's total loans. Approximately 90% of
American's construction loans are secured by property in Scioto County.
COMMERCIAL REAL ESTATE LOANS. At June 30, 1999, approximately $2.5
million, or 2.9% 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, 1999,
American had approximately $4.0 million, or 4.6% 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
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fair market value of the real estate which will be given as security for the
loan is prepared by a fee appraiser approved by the Board of Directors. Upon the
completion of the appraisal and the receipt of information on the credit history
of the borrower, the application for a loan is submitted for review in
accordance with American's underwriting guidelines to American's Executive
Committee, the members of which are Directors Smith, Jenkins, Burke and
Schoettle. Any loan for more than $150,000 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,
---------------------------
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Loans originated:
Adjustable-rate:
One- to four-family real estate $ 3,104 $ 1,499 $ 1,385
Multifamily real estate 750 55 352
Nonresidential real estate 3,512 528 2,298
Commercial 2,381 -- --
------- ------- -------
Total adjustable-rate 9,747 2,082 4,035
Fixed-rate:
One- to four-family real estate 17,517 15,022 9,886
Nonresidential real estate 1,644 446 --
Consumer 4,296 7,563 8,582
------- ------- -------
Total fixed-rate 23,457 23,031 18,468
Loans purchased 778 2,183 773
------- ------- -------
Total loans originated and purchased 33,982 27,296 23,276
Reductions:
Principal repayments 28,170 24,815 17,697
Transfers from loans to real estate
owned and repossessed assets -- 157 --
------- ------- -------
Total reductions 28,170 24,972 17,697
Increase in other items, net (1) 68 90 102
------- ------- -------
Net increase $ 5,880 $ 2,414 $ 5,681
======= ======= =======
</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 $2.0
million to one borrower at June 30, 1999. The largest loan American had
outstanding to one borrower at June 30, 1999, was $944,000. Such loan was
secured by automobile titles, assignments of leases and a guarantee of the
leasing company and was current at June 30, 1999.
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, 1999
-------------------------------------------------------------------------------------------------------------
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 28 $1,282 1.5% -- $-- --% 13 $ 259 .3% 41 $1,541 1.8%
60-89 days 8 247 .3 -- -- -- 9 85 .1 17 332 .4
90 days and over 10 287 .3 -- -- -- 10 92 .1 20 379 .4
------ ------ ---- --- --- --- ------ ------ ---- ------ ------ ---
Total delinquent
loans 46 $1,816 2.1% -- $-- --% 32 $ 436 .5% 78 $2,252 2.6%
====== ====== ==== === === === ====== ====== ==== ====== ====== ===
</TABLE>
<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 .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>
- ------------------------------------
(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,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Non-accrual loans:
One- to four-family $ 261 $ 168 $ 87
Multifamily -- -- 862
Consumer -- -- 42
------ ------ ------
Total 261 168 991
Accruing loans delinquent
90 days or more: 118 72 154
------ ------ ------
Total nonperforming loans 379 240 1,145
Real estate acquired through foreclosure:
One- to four-family -- 157 --
------ ------ ------
Total nonperforming assets $ 379 $ 397 $1,145
====== ====== ======
Allowance for loan losses $ 733 $ 759 $ 820
====== ====== ======
Nonperforming assets as a percent
of total assets (1) .31% .34% 1.02%
Allowance for loan losses as a percent of
nonperforming loans 193.40% 316.25% 71.62%
Allowance for loan losses as a percent of
nonperforming assets 193.40% 191.18% 71.62%
</TABLE>
- ------
(1) The applicable asset totals are $123.2 million, $116.4 million and
$112.5 million for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively.
For the year ended June 30, 1999, gross interest income which would
have been recorded had non-accrual loans been current in accordance with their
original terms was $5,000 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 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.
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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,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Classified assets
Substandard $ 321 $ 993 $ 949
Doubtful -- -- --
Loss -- 8 42
------ ------ ------
Total classified assets $ 321 $1,001 $ 991
====== ====== ======
</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,
---------------------------
1999 1998 1997
----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 759 $ 820 $ 884
Charge-offs:
Residential real estate loans (1) (14) (47) (22)
Nonresidential real estate loans -- -- (64)
Consumer loans (11) (9) (6)
----- ----- -----
Total charge-offs (25) (56) (92)
Recoveries -- -- --
----- ----- -----
Net charge-offs (25) (56) (92)
----- ----- -----
Provision for (recoveries of) losses on loans (1) (5) 28
----- ----- -----
Balance at end of period $ 733 $ 759 $ 820
===== ===== =====
Ratio of net charge-offs to average loans
outstanding during the period .03% .07% .13%
</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,
------------------------------------------------------------------------------------
1999 1998 1997
----------------------- ------------------------- -------------------------
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 $ 13 95.4% $47 94.3% $216 93.2%
Consumer loans 3 4.6 11 5.7 42 6.8
Unallocated 717 - 701 - 562 -
---- ----- ---- ----- ---- -----
Total $733 100.0% $759 100.0% $820 100.0%
==== ===== ==== ===== ==== =====
</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,
-----------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- --------------------
Carrying Percent Carrying Percent Carrying Percent
Value of total Value of total Value of total
------- ----- ------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investments designated as held to maturity:
Interest-bearing deposits in other
financial institutions (1) $ 3,781 16.3% $15,399 56.5% $ 7,732 29.3%
Investments designated as available for sale:
U.S. Government agency obligations 18,133 78.3 10,766 39.5 17,960 68.0
Corporate equity securities 137 .6 128 .5 - -
FHLMC stock 1,102 4.8 941 3.5 700 2.7
------- ----- ------- ----- ------- -----
Total investments designated
as available for sale 19,372 83.7 11,835 43.5 18,660 70.7
------- ----- ------- ----- ------- -----
Total investments $23,153 100.0% $27,234 100.0% $26,392 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
- -----------------------------
(1) Includes interest-bearing deposits and certificates of deposit.
(2) At June 30, 1999, 1998 and 1997, the market value of American's
investment securities, held to maturity, totaled $3.8 million, $15.4
million and $7.7 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, 1999:
<TABLE>
<CAPTION>
Less than 1 Year 1-5 Years 5-10 Years 10-20 Years Total
------------------ ------------------ ------------------- ------------------- ------------------
Weighted Weighted Weighted Weighted
Amortized average Amortized average Amortized average Amortized average Amortized Market
cost yield cost yield cost yield cost yield cost value
--------- ------- --------- ------- --------- ------- --------- ------- --------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investments designated as
held to maturity:
Certificates of deposit
in other financial
institutions $198 7.0% $ 95 6.7% $ -- -% $ -- -% $ 293 $ 293
Investments designated as --
available for sale:
U.S. Government
agency obligations -- -- 1,000 6.0 13,283 6.4 4,481 6.9 18,764 18,133
Corporate equity
securities -- -- -- -- -- -- -- -- 169 137
FHLMC stock -- -- -- -- -- -- -- -- 19 1,102
------ --- ------ --- ------- --- ------ --- -------- -------
Total $ 198 7.0% $1,095 6.1% $13,283 6.4% $4,481 6.9% $ 19,245 $19,665
====== === ====== === ======= === ====== === ======== =======
</TABLE>
In addition to the foregoing investment securities, American has been
an active purchaser of mortgage-backed securities. At June 30, 1999,
mortgage-backed securities totaled $10.2 million, or 8.3 % 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, 1999 At June 30, 1998
------------------------------------------------- ----------------------------------------------
Gross Gross Gross Gross
Amortized unrealized unrealized Estimated Amortized unrealized unrealized Estimated
cost gains losses fair cost gains losses fair value
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
FHLMC participation
certificates $ 1,266 $18 $12 $1,272 $2,007 $ 41 $ 4 $2,044
FNMA participation
certificates 1,035 8 35 1,008 850 26 9 867
GNMA participation
certificates 3,301 35 43 3,293 4,919 86 3 5,002
Collateralized mortgage
obligations 4,649 13 3 4,659 1,014 4 7 1,011
--------- ---- ---- -------- ------ ------ ----- ------
Total mortgage-backed
securities $10,251 $74 $93 $10,232 $8,790 $157 $ 23 $8,924
======= === === ======= ====== ==== ==== ======
At June 30, 1997
-------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Available for sale:
FHLMC participation
certificates $3,067 $34 $34 $3,067
FNMA participation
certificates 1,637 23 21 1,639
GNMA participation
certificates 3,817 61 24 3,854
Collateralized mortgage
obligations - - - -
--------- -------- ------ ---------
Total mortgage-backed
securities $8,521 $118 $79 $8,560
====== ==== === ======
</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>
1999 1998 1997
--------------------- ------------------ ---------------------
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 $ 7,862 7.8% $7,440 8.0% $ 7,379 8.2%
Demand, NOW and Super NOW
accounts 6,680 6.6 5,867 6.3 4,435 4.9
Money market deposit
accounts 11,785 11.7 7,999 8.5 7,785 8.7
--------- ------ ------- ---- -------- -----
Total transaction 26,327 26.1 21,306 22.8 19,599 21.8
accounts
Certificates of deposit:
3.00 - 3.99% 278 .3 - - - -
4.00 - 4.99% 5,146 5.8 421 .5 402 .4
5.00 - 5.99% 57,094 67.8 45,033 48.2 52,404 58.4
6.00 - 6.99% 12,018 - 26,630 28.5 17,265 19.2
7.00 - 7.99% 31 - 31 - 30 .1
8.00 - 8.99% 60 - 56 - 52 .1
-------- ----- ------- ----- ------- -----
Total certificates of
deposit 74,627 73.9 72,171 77.2 70,153 78.2
-------- ----- ------- ----- ------- -----
Total deposits $100,954 100.0% $93,477 100.0% $89,752 100.0%
======== ===== ======= ===== ======= =====
</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,
----------------------------------------------------------
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Less than one year $46,943 $51,581 $42,468
One to two years 23,448 18,247 22,606
Two to three years 3,870 1,928 4,095
Over three years 366 415 984
------- ------- -------
$74,627 $72,171 $70,153
======= ======= =======
</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,
1999:
<TABLE>
<CAPTION>
At June 30, 1999
----------------
Certificates of deposit with balances of $100,000 (In thousands)
or more maturing in quarter ending (1):
<S> <C>
September 30, 1999 $ 4,526
December 31, 1999 3,175
March 31, 2000 1,495
June 30, 2000 1,440
After June 30, 2000 5,056
-------
Total certificates of deposit with balances of $100,000 or more $15,692
=======
</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,
-------------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance $ 93,477 $ 89,752 $ 83,395
Deposits 197,010 120,166 118,033
Withdrawals (193,307) (119,802) (114,836)
Interest credited 3,774 3,361 3,160
--------- --------- ---------
Ending balance $ 100,954 $ 93,477 $ 89,752
========= ========= =========
Net increase $ 7,477 $ 3,725 $ 6,357
========= ========= =========
Percent increase 8.00% 4.15% 7.62%
========= ========= =========
</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%, which matured in 1999.
-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,
----------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances $ 5,823 $ 4,354 $ 2,884
Weighted average interest rate of FHLB
advances 5.06% 5.16% 5.65%
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>
Year ended June 30,
--------------------------
1999 1998 1997
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances:
Maximum balance $5,841 $4,354 $2,889
Average balance 5,454 3,130 2,489
Weighted average interest rate 5.10% 5.90% 5.65%
Other borrowed money:
Maximum balance $2,500 $2,500 $ 500
Average balance 438 378 333
Weighted average interest rate 8.44% 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, 1999, the stock held by the service corporation had a book value of
$15,000. Additionally, ASL maintains an $18,000 investment in the Money Concepts
Financial Planning Center, bringing the total assets of ASL to approximately
$33,000 at June 30, 1999.
PERSONNEL
As of June 30, 1999, American had 21 full-time employees and 5
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 has addressed 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's primary data processing applications, which are handled by
a third-party service bureau, Intrieve, Inc., have been identified as mission
critical. Intrieve has implemented a fully Year 2000 compliant processing
system that has been fully tested as of January 1, 1999. Additionally,
American's systems were tested in November 1998 with satisfactory results.
Management has also reviewed American's ancillary equipment and implemented
the appropriate remedial measures without material cost.
American has developed a contingency plan in case Intrieve actually
fails at Year 2000 critical dates. American deems the likelihood of failure of
the service provider's efforts to renovate Year 2000 changes to the on-line
core account processing system to be remote. The contingency plan, therefore,
primarily addresses action to deal with the possibility that the service
provider's system would be down for several days or weeks upon arrival of year
2000. American can conduct and record transactions manually until the service
provider is operational.
American estimates its expenses related to the Year 2000 to be less
than $10,000.
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.
REGULATION
REGULATION
GENERAL
ASB is a savings and loan holding company within the meaning of the
Home Owners Loan Act, as amended (the "HOLA"). Consequently, ASB is subject to
regulation, examination and oversight by the OTS and must submit periodic
reports to the OTS concerning its activities and financial condition. In
addition, as a corporation organized under Ohio law, ASB is subject to
provisions of the Ohio Revised Code applicable to corporations generally.
As a savings association organized under the laws of the United States,
American is subject to regulatory oversight by the OTS. 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 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 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
-18-
<PAGE> 19
regulation by the FDIC. In addition, ASB might become subject to a different set
of holding company regulations limiting the activities in which ASB may engage
and subjecting ASB to additional regulatory requirements, including separate
capital requirements. At this time, ASB cannot predict when or whether Congress
may actually pass legislation regarding ASB's and American's regulatory
requirements or charter. Although such legislation, if enacted, may change the
activities in which ASB or American are authorized to engage, it is not
anticipated that the current activities of either ASB or American will be
materially affected by those activity limits.
OHIO CORPORATION LAW
MERGER MORATORIUM STATUTE. Chapter 1704 of the Ohio Revised Code
regulates certain takeover bids affecting certain public corporations which have
significant ties to Ohio. This statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers between an Ohio
corporation and any person who has the right to exercise, alone or with others,
10% or more of the voting power of such corporation (an "Interested
Shareholder"), for three years following the date on which such person first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested Shareholder, the
Board of Directors of the issuing corporation has approved the purchase of
shares which resulted in such person first becoming an Interested Shareholder.
After the initial three-year moratorium, such a business combination
may not occur unless (1) one of the specified exceptions applies, (2) the
holders of at least two-thirds of the voting shares, and of at least a majority
of the voting shares not beneficially owned by the Interested Shareholder,
approve the business combination at a meeting called for such purpose, or (3)
the business combination meets certain statutory criteria designed to ensure
that the issuing public corporation's remaining shareholders receive fair
consideration for their shares.
An Ohio corporation may, under certain circumstances, "opt out" of the
statute by specifically providing in its articles of incorporation that the
statute does not apply to any business combination of such corporation. However,
the statute still prohibits for twelve months any business combination that
would have been prohibited but for the adoption of such an opt-out amendment.
The statute also provides that it will continue to apply to any business
combination between a person who became an Interested Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted. ASB has
not opted 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 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 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.
-19-
<PAGE> 20
OFFICE OF THRIFT SUPERVISION
GENERAL. The OTS is an office of 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 Savings Association Insurance Fund ("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. The OTS also may initiate enforcement actions against savings
associations and certain persons affiliated with them for violations of laws or
regulations or for engaging in unsafe or unsound practices. If the grounds
provided by law exist, the OTS may appoint a conservator or receiver for a
savings association.
Savings associations are subject to regulatory oversight under various
consumer protection and fair lending laws. These laws govern, among other
things, truth-in-lending disclosures, equal credit opportunity, fair credit
reporting and community reinvestment. Failure to abide by federal laws and
regulations governing community reinvestment could limit the ability of an
association to open a new branch or engage in a merger. Community 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 that area.
REGULATORY CAPITAL REQUIREMENTS. American is required by OTS
regulations to meet certain minimum capital requirements. The tangible capital
requirement requires savings associations to maintain "tangible capital" of not
less than 1.5% of their adjusted total assets. Tangible capital is defined in
OTS regulations as core capital minus any intangible assets.
"Core capital" is comprised of common stockholders' equity (including
retained earnings), noncumulative preferred stock and related surplus, minority
interests in consolidated subsidiaries, certain nonwithdrawable accounts and
pledged deposits of mutual associations. Effective April 1, 1999, OTS
regulations require savings associations with the highest examination rating to
maintain core capital of at least 3% of their total assets. 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 at least 4%. Depending on
the association's examination rating and overall risk, OTS may require a higher
core capital ratio.
OTS regulations require that savings associations maintain "risk-based
capital" in an amount not less than 8% of their risk-weighted assets. Risk-based
capital is defined as core capital plus certain additional items of capital,
which in the case of American includes a general loan loss allowance of $733,000
at June 30, 1999.
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 the interest rate risk component, a savings association
will 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
of the OTS. If the measured interest rate risk is above the level deemed normal
under the regulation, the association will be required to deduct one-half of
such excess exposure from its total capital when determining its risk-based
capital. In general, an association with less than $300 million in assets and a
risk-based capital ratio in excess of 12% will not be subject to the interest
rate risk component. 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 individualized basis 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 more numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. 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. All undercapitalized associations must submit a
capital restoration plan to the OTS within 45 days after becoming
undercapitalized. Such associations 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
-20-
<PAGE> 21
level, except under limited circumstances. American's capital at June 30, 1999,
met the standards for the highest category, a "well-capitalized" institution.
Federal law prohibits a savings association 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 and (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.
LIQUIDITY. OTS regulations require that a savings association maintain
a minimum daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances and specified United States government, state or federal agency
obligations). During fiscal 1999, certain maturity requirements were removed,
which, in American's case, resulted in a greater eligible liquidity amount and
percentage at June 30, 1999, than at prior year ends. At December 31, 1998, such
minimum requirement was an amount 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 the
liquidity requirement. The eligible liquidity of American at June 30, 1999, was
approximately $23.2 million, or 21.4% and exceeded the 4.0% percentage liquidity
requirement by approximately $18.9 million.
QUALIFIED THRIFT LENDER TEST. Savings associations must meet one of two
possible tests in order to be a qualified thrift lender ("QTL"). The first test
requires a savings association to maintain a specified level of investments in
assets that are designated as qualifying thrift investments ("QTIs"), which are
generally related to domestic residential real estate and manufactured housing
and include credit card, student and small business loans and stock issued by
any FHLB, the FHLMC or the 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 nine out of every 12 months. The second test permits a
savings association to qualify as a QTL by meeting the definition of "domestic
building and loan association" under the Internal Revenue Code of 1986, as
amended (the "Code"). In order for an institution to meet the definition of a
"domestic building and loan association" under the Code, at least 60% of such
institution's assets must consist of specified types of property, including cash
loans secured by residential real estate or deposits, educational loans and
certain governmental obligations. The OTS may grant exceptions to the QTL tests
under certain circumstances. If a savings association fails to meet one of the
QTL tests, the association and its holding company become subject to certain
operating and regulatory restrictions. A savings association that fails to meet
one of the QTL tests will not be eligible for new FHLB advances. At June 30,
1999, American qualified as a QTL.
LENDING LIMIT. OTS regulations generally limit the aggregate amount
that a savings association can lend to one borrower to an amount equal to 15% of
the association's Lending Limit Capital. A savings association may lend to one
borrower an additional amount not to exceed 10% of the association's Lending
Limit Capital, if the additional amount is fully secured by certain forms of
"readily marketable collateral." Real estate is not considered "readily
marketable collateral." Certain types of loans are not subject to the lending
limit. A general exception to the 15% limit provides that an association may
lend to one borrower up to $500,000, for any purpose. In applying the limit on
loans to one borrower, the regulations require that loans to certain related
borrowers be aggregated. At June 30, 1999, 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 on loans to one borrower, and the total of such loans to
executive officers, directors, principal shareholders and their related
interests cannot exceed the association's Lending Limit Capital (or 200% of
Lending Limit Capital for qualifying institutions with less than $100 million in
deposits). Most loans to directors, executive officers and principal
shareholders must be approved in advance by a majority of the "disinterested"
members of the board of directors of the association, with any "interested"
director not participating. All loans to directors, executive officers and
principal shareholders must be made on terms substantially the same as offered
in comparable transactions with the general public or as offered to all
employees in a company-wide benefit program, and loans to executive officers are
subject to additional limitations. American was in compliance with such
restrictions at June 30, 1999.
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All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An
affiliate of a savings association is any company or entity that controls, is
controlled by or is under common control with the savings association. ASB is an
affiliate of American. Generally, Sections 23A and 23B of the FRA (i) limit the
extent to which a savings association or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, (ii) limit the aggregate of all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and surplus, and (iii) require that all such transactions be on terms
substantially the same, or at least as favorable to the association, as those
provided in transactions with a non-affiliate. The term "covered transaction"
includes the making of loans, purchasing 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, 1999.
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
from mutual 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 up to the
greater of (i) 100% of net income, current year-to-date, plus 50% of the amount
by which the lesser of the association's tangible, core or risk-based capital
exceeds its fully phased-in capital requirement for such capital component, as
measured at the beginning of the calendar year, and (ii) 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. American meets the requirements for a Tier 1 association and has
not been notified of any need for more than normal supervision.
Tier 2 consists of associations that, before and after the proposed
distribution, meet their current minimum, but not fully phased-in, capital
requirements. Associations in this category may make capital distributions of up
to 75% of net income over the most recent four quarters. Tier 3 associations do
not meet current minimum capital requirements and must obtain OTS approval of
any capital distribution. Tier 2 associations that propose to make a capital
distribution in excess of the noted safe harbor level must also obtain OTS
approval. Tier 2 associations proposing to make a capital distribution within
the safe harbor provisions and Tier 1 associations proposing to make any capital
distribution need only submit written notice to the OTS 30 days prior to such
distribution.
As a subsidiary of ASB, American is required to give the OTS 30 days'
notice prior to declaring any dividend on its stock. The OTS may object to the
distribution during such 30-day period based on safety and soundness concerns.
American paid dividends to ASB totaling $3.5 million during fiscal 1999.
HOLDING COMPANY REGULATION. ASB is a savings and loan holding company
within the meaning of the HOLA. As such, ASB has registered with the OTS and is
subject to OTS regulations, examination, supervision and reporting requirements.
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 ASB.
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 holding company's stock may also acquire control of any
savings institution, other than a subsidiary institution, or any other savings
and loan holding company.
As a unitary savings and loan holding company, ASB generally has no
restrictions on its activities. Such companies are the only financial
institution holding companies which may engage in any commercial, securities and
insurance activities without restriction. Congress is considering legislation
which may limit ASB's ability to engage in these activities. It cannot
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be predicted whether and in what form these proposals might become law. However,
such limits would not impact ASB's current activities, which consist solely of
holding stock of American. The broad latitude to engage in activities under
current law can be restricted. If the OTS determines that there is reasonable
cause to believe that the continuation by a savings and loan holding company of
an activity constitutes a serious risk to the financial safety, soundness or
stability of its subsidiary savings association, the OTS may impose such
restrictions as deemed necessary to address such risk, including limiting (i)
payment of dividends by the savings association, (ii) transactions between the
savings association and its affiliates, and (iii) any activities of the savings
association that might create a serious risk that the liabilities of ASB 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, 1999, American met both those tests.
If ASB acquired 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 was an
emergency thrift acquisition and each subsidiary savings association met 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 OTS may approve acquisitions resulting in the formation of a
multiple savings and loan holding company that controls savings associations in
more than one state only if the multiple savings and loan holding company
involved controls a savings association that operated a home or branch office in
the state of the association to be acquired as of March 5, 1987, or if the laws
of the state in which the institution to be acquired is located specifically
permit institutions to be acquired by state-chartered institutions or savings
and loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
institutions). As under prior law, the OTS may approve an acquisition resulting
in a multiple savings and loan holding company controlling savings associations
in more than one state in the case of certain emergency thrift acquisitions.
Bank holding companies have had more expansive authority to make interstate
acquisitions than savings and loan holding companies since August 1995.
FEDERAL REGULATION OF ACQUISITIONS OF CONTROL OF ASB AND AMERICAN. In
addition to the Ohio law limitations on the merger with, and acquisition of,
ASB, federal limitations generally require regulatory approval of acquisitions
at specified levels. Under pertinent federal law and regulations, no person,
directly or indirectly, or acting in concert with others, may acquire control of
American or ASB without 60 days' prior notice to the OTS. "Control" is generally
defined as having more than 25% ownership or voting power; however, ownership or
voting power of more than 10% may be deemed "control" if certain factors are in
place. If the acquisition of control is by a company, the acquiror must obtain
approval, rather than give notice, of the acquisition as a savings and loan
holding company.
In addition, any merger of American must be approved by the OTS as well
as the Superintendent. Further, any merger of ASB in which ASB is not the
resulting company must also be approved by both the OTS and the Superintendent.
FEDERAL DEPOSIT INSURANCE CORPORATION
DEPOSIT INSURANCE AND ASSESSMENTS. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
federally insured banks and savings and loan associations and safeguards the
safety and soundness of the banking and savings and loan 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 the
SAIF and in the BIF. 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.
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Prior to September 1996, the SAIF's ratio of reserves to insured
deposits was significantly below the level required by law, while the BIF's
ratio was above the required level. As a result, institutions with SAIF-insured
deposits were paying higher deposit insurance assessments than institutions with
BIF-insured deposits. Federal legislation providing for the recapitalization of
the SAIF became effective in September 1996 and included a special assessment of
$.657 per $100 of SAIF-insured deposits held at March 31, 1995. American had
approximately $83.8 million in deposits at March 31, 1995, and paid a special
assessment of $551,000.
FEDERAL RESERVE REQUIREMENTS
FRB regulations require savings associations to maintain reserves of 3%
of net transaction accounts (primarily NOW accounts) up to $46.5 million
(subject to an exemption of up to $4.9 million), and of 10% of net transaction
accounts in excess of $46.5 million. At June 30, 1999, American was in
compliance with the reserve requirements.
FEDERAL HOME LOAN BANKS
The Federal Home Loan Banks 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 the FHLB of Cincinnati 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 of Cincinnati.
American was in compliance with this requirement with an investment in stock of
the FHLB of Cincinnati of $778,000 at June 30, 1999.
FHLB advances to member institutions who meet the QTL Test are
generally limited to the lower of (i) 25% of the member's assets or (ii) 20
times the member's investment in FHLB stock. At June 30, 1999, American's
maximum limit on advances was approximately 30.6 million. The granting of
advances is also subject to the FHLB's collateral and credit underwriting
guidelines.
Upon the origination or renewal of a loan or advance, the FHLB 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 FHLB, if such collateral has a readily ascertainable value and the FHLB can
perfect its security interest in the collateral.
The FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances. The standards take into account a member's performance under the
Community Reinvestment Act and its record of lending to first-time home buyers.
All long-term advances by the FHLB must be made only to provide funds for
residential housing finance.
TAXATION
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 an alternative minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on "alternative
minimum taxable income" (which is the sum of a corporation's regular taxable
income, with certain adjustments, and tax preference items), less any available
exemption. Such tax preference items include interest on certain tax-exempt
bonds issued after August 7, 1986. In addition, 75% of the amount by which a
corporation's "adjusted current earnings" exceeds its alternative minimum
taxable income computed without regard to this preference item and prior to
reduction by net operating losses, is included in alternative minimum taxable
income. Net operating losses can offset no more than 90% of alternative minimum
taxable income. The alternative minimum tax is imposed to the extent it exceeds
the corporation's regular income tax. Payments of alternative minimum tax may be
used as credits against regular tax liabilities in future years. However, the
Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain
"small corporations" for tax years beginning after December 31, 1997. A
corporation initially qualifies as a small corporation if it had average gross
receipts of $5,000,000 or less for the three tax years ending
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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 June 30, 1999, is $8.8 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 payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for
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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, 1999, the pre-1988 reserves of American for
tax purposes totaled approximately $1.9 million. American believes it had
approximately $2.7 million of accumulated earnings and profits for tax purposes
as of June 30, 1999, which would be available for dividend distributions,
provided regulatory restrictions applicable to the payment of dividends are met.
No representation can be made as to whether American will have current or
accumulated earnings and profits in subsequent years.
The tax returns of American have been audited or closed without audit
through fiscal year 1995. 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.
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 taxable 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 taxable book net worth and for tax
year 2000 and years thereafter the tax will be 1.3% of the taxable 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, 1999, the net
book value of the main office property was $540,000, and American's office
premises and equipment had a total net book value of $1.0 million. 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 $300,000. The properties
were purchased in November 1994 and April 1997. American is currently
constructing a drive-through and ATM facility on the properties.
ITEM 3. LEGAL PROCEEDINGS
Neither ASB nor American is presently involved in any legal
proceedings of a material nature. From time to time, American is a party to
legal proceedings incidental to its business to enforce its security interest in
collateral pledged to secure loans made by American.
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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, 1999 (the "Annual
Report"), under the caption "Market Price of ASB's Common Shares and Related
Shareholder Matters" is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in the Annual Report under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" is incorporated herein by reference.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements contained in the Annual
Report and the opinion of Grant Thornton LLP, dated July 21, 1999, 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 1999 Annual Meeting of Shareholders of ASB Financial Corp. (the "Proxy
Statement") under the captions "Board of Directors," "Executive Officers" and
"Voting Securities and Ownership of Certain Beneficial Owners and Management" is
incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement under the
caption "Compensation of Executive Officers and Directors" is incorporated
herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Proxy Statement under the
caption "Voting Securities and Ownership of Certain Beneficial Owners and
Management" is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation (incorporated by
reference)
3.2 Code of Regulations (incorporated by
reference)
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<PAGE> 28
10.1 ASB Financial Corp. 1995 Stock Option and
Incentive Plan (incorporated by reference)
10.2 American Savings Bank, fsb Management
Recognition and Retention Plan and Trust
Agreement (incorporated by reference)
13 Annual Report (the following parts of which
are incorporated herein by reference:
"Market Price of ASB Common Shares and
Related Shareholder Matters;" "Management's
Discussion and Analysis of Financial
Condition and Results of Operations;" and
Consolidated Financial Statements.)
20 Proxy Statement
21 Subsidiaries of ASB Financial Corp.
(incorporated by reference)
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the last
quarter of the fiscal year covered by this Report.
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<PAGE> 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 24, 1999
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 24, 1999 Date: September 24, 1999
By /s/ William J. Burke By /s/ Louis M. Schoettle
------------------------------------- -----------------------------------
William J. Burke Louis M. Schoettle
Director Director
Date: September 24, 1999 Date: September 24, 1999
-29-
<PAGE> 30
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
3.1 Articles of Incorporation of ASB Financial Corp. Incorporated by reference to the Form
10-KSB for fiscal year ended June 30,
1995 filed by ASB on September 28, 1995
(the "1995 Form 10-KSB") with the
Securities and Exchange Commission (the
"SEC"), Exhibit 3.3
3.4 Code of Regulations of ASB Financial Corp. Incorporated by reference to the Form
10-KSB, Exhibit 3.5
10.1 ASB Financial Corp. 1995 Stock Option and Incentive 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 1999 Annual Report to Shareholders
20 Proxy Statement for 1999 Annual Meeting
21 Subsidiaries of ASB Financial Corp. Incorporated by reference to the 1995
Form 10-KSB, Exhibit 21
27 Financial Data Schedule
</TABLE>
-30-
<PAGE> 1
Exhibit 13
ASB
FINANCIAL
CORP.
1999
ANNUAL
REPORT
TO
SHAREHOLDERS
<PAGE> 2
Dear Fellow Shareholder:
As we rapidly approach the twenty-first century, I am pleased to report on yet
another year of solid earnings and asset growth for ASB Financial.
Net earnings for the fiscal year ended June 30, 1999 totaled $1.1 million, or
$.67 per diluted share, which represents as increase of $4,000 compared to net
earnings reported for fiscal 1998. Your Corporation reported stable earnings
despite the payment of a $2.00 special dividend in June 1998, which reduced
interest-earning assets by $3.3 million heading into fiscal 1999. The reduction
in net interest income of $112,000 as a result of this special dividend was
offset by an increase in other income and a decrease in general and
administrative expenses.
Total assets amounted to $123.2 million at June 30, 1999, an increase of $6.8
million, or 5.8%, over June 30, 1998. The loan portfolio grew during fiscal 1999
by $5.9 million, or 7.7%, and deposit growth totaled $7.5 million, representing
an 8.0% increase during the year.
Your Corporation will continue to focus on the strategic objectives of
continuing asset growth, maintaining a community focus, and providing
personalized service for our valued customers. We believe that projects such as
the new and expanded drive-up walk-up facility at 907 Chillicothe Street and the
additional delivery channels we have provided our customers through ATM machines
at Speedeemart of Wheelersburg and Country Store Foods at South Webster and
Lucasville-Minford Roads, will provide the potential for similar growth in the
future.
Your Corporation's focus in fiscal 2000 will be to enhance earnings through
additional fee income, particularly from the increase in sales of alternative
financial products and services, as well as to continue our efforts to increase
our net interest margin through the origination of business and commercial
lending products. We are determined to improve our critical operating ratios
such as return on equity, return on assets and earnings per share.
The Board and management of your Corporation believe that small cap stocks in
general, and ASB Financial in particular, have undeservedly lagged the overall
market. ASB Financial has outperformed most of its financial institution
competitors without a commensurate increase in our share price. Therefore, since
dividends are another source of rewarding our shareholders, your Corporation
declared and paid a $1.00 special dividend on August 31, 1999.
As always, we remain committed to maximizing the return on your investment and
thank you for your continued support of ASB Financial.
Sincerely,
Robert M. Smith
President
<PAGE> 3
BUSINESS OF ASB FINANCIAL CORP.
================================================================================
ASB Financial Corp. ("ASB" or the "Corporation"), 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" or the "Savings Bank"), a savings bank chartered under the laws of
the United States. ASB was formed in 1995 in connection with the conversion of
American from a mutual savings association to a stock savings association (the
"Conversion") which was completed in May 1995. 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 located 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"), and from borrowings from
the Federal Home Loan Bank (the "FHLB") of Cincinnati.
ASB is subject to regulation, supervision and examination by the Office of
Thrift Supervision of the United States Department of the Treasury (the "OTS").
American is subject to regulation, supervision and examination by the OTS and
the FDIC. American is also a member of 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 1,746,924 common shares of ASB outstanding on September 10, 1999,
held of record by approximately 836 shareholders. Price information for 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 trading prices for the common shares
of ASB, as quoted by Nasdaq, together with dividends declared per share, for
each quarter of fiscal 1999 and 1998.
Cash dividends
Quarter Ended High Trade Low Trade declared
- ------------- ---------- --------- --------
FISCAL 1998
September 30, 1997 $13.38 $11.75 $ .10
December 31, 1997 $13.50 $13.00 $ .10
March 31, 1998 $14.63 $13.25 $ .10
June 30, 1998 $16.75 $12.63 $2.10
FISCAL 1999
September 30, 1998 $13.38 $10.88 $ .10
December 31, 1998 $12.75 $ 9.81 $ .10
March 31, 1999 $12.38 $10.88 $ .10
June 30, 1999 $12.75 $10.38 $ .10
The income of ASB consists of interest and dividends 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.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL At June 30,
CONDITION DATA: ----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets $123,248 $116,437 $112,469 $112,922 $106,861
Cash and cash equivalents (1) 7,566 13,890 3,850 3,836 5,926
Certificates of deposit in other
financial institutions 293 2,004 4,258 6,702 9,301
Investment securities available for
sale - at market 19,372 11,835 18,660 19,284 1,768
Investment securities held to maturity -
at amortized cost -- -- -- -- 14,107
Mortgage-backed securities available
for sale - at market 10,232 8,924 8,560 10,728 2,300
Mortgage-backed securities held to
maturity - at amortized cost -- -- -- -- 7,835
Loans receivable - net 82,430 76,550 74,136 68,455 62,153
Real estate acquired through
foreclosure - net -- 157 -- 663 525
Deposits 100,954 93,477 89,752 83,395 78,888
Advances from the FHLB 5,823 4,354 2,884 2,413 442
Shareholders' equity, restricted (2) 15,040 14,490 17,701 25,613 26,058
</TABLE>
- ------------------------
(1) Consists of cash and due from banks and interest-bearing deposits in other
financial institutions.
(2) At June 30, 1999, 1998, 1997 and 1996, includes $265,000, $714,000,
$412,000 and $124,000, 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: -------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $ 8,580 $ 8,541 $ 8,393 $ 8,173 $ 7,012
Interest expense 5,112 4,961 4,686 4,310 3,893
------- ------- ------- ------- -------
Net interest income 3,468 3,580 3,707 3,863 3,119
Provision for (recoveries of) losses on
loans (1) (5) 28 -- 10
------- ------- ------- ------- -------
Net interest income after provision for
(recoveries of) losses on loans 3,469 3,585 3,679 3,863 3,109
Other income 330 281 364 195 143
General, administrative and other
expense 2,286 2,345 3,054 2,373 1,726
------- ------- ------- ------- -------
Earnings before income taxes 1,513 1,521 989 1,685 1,526
Federal income taxes 433 445 322 574 518
------- ------- ------- ------- -------
Net earnings $ 1,080 $ 1,076 $ 667 $ 1,111 $ 1,008
======= ======= ======= ======= =======
Earnings per share
Basic $ .68 $ .68 $ .42 $ .69 N/A
======= ======= ======= ======= =======
Diluted $ .67 $ .67 $ .41 $ .69 N/A
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------------
SELECTED FINANCIAL RATIOS: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Return on average assets .90% .95% .59% 1.01% 1.00%
Average interest rate spread during
period 2.54 2.46 2.41 2.55 2.83
Net interest margin 3.04 3.25 3.39 3.69 3.29
Return on average equity 7.22 6.38 3.15 4.30 9.38
Equity to total assets at end of period 12.20 12.44 15.74 22.68 24.38
Average interest-earning assets to
average interest-bearing liabilities 111.02 117.41 122.77 127.55 111.19
Net interest income to general,
administrative and other expense 151.71 152.67 121.38 162.79 180.71
General, administrative and other
expense to average total assets 1.91 2.08 2.70 2.16 1.72
Nonperforming assets to total
assets .31 .34 1.02 1.61 2.30
Loan loss allowance to nonperforming
loans 193.40 316.25 71.62 76.34 46.29
Dividend payout ratio 58.82 352.94 1,285.71 47.10 N/A
</TABLE>
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
GENERAL
- --------------------------------------------------------------------------------
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. The following discussion and analysis of the
consolidated financial condition and results of operations of ASB and American
should be read in conjunction with and with reference to the consolidated
financial statements, and the notes thereto, presented in this Annual Report.
CHANGES IN FINANCIAL CONDITION
FROM JUNE 30, 1998 TO JUNE 30, 1999
- --------------------------------------------------------------------------------
ASB's total assets amounted to $123.2 million at June 30, 1999, an increase of
$6.8 million, or 5.8%, over 1998 levels. The increase in total assets was funded
primarily from a $7.5 million increase in deposits and a $1.5 million increase
in FHLB advances, which were partially offset by repayments of other borrowed
money totaling $2.5 million.
Cash, interest-bearing deposits and certificates of deposit totaled $7.9 million
at June 30, 1999, a decrease of $8.0 million, or 50.6%, from 1998 levels.
Investment securities totaled $19.4 million at June 30, 1999, an increase of
$7.5 million, or 63.7%, from the balance at June 30, 1998. During fiscal 1998,
management purchased $19.3 million of investment securities, primarily
intermediate- and long-term U.S. Government agency securities. Such purchases
were partially offset by maturities and sales totaling $11.3 million.
Mortgage-backed securities increased by $1.3 million, or 14.7%, as purchases
totaling $5.6 million exceeded principal repayments of $3.2 million and proceeds
from sales of $838,000.
Loans receivable increased by $5.9 million, or 7.7%, to a total of $82.4 million
at June 30, 1999, compared to $76.6 million at June 30, 1998. Loan disbursements
of $33.2 million and purchases of $778,000 exceeded principal repayments of
$28.2 million during fiscal 1999. Loan origination volume during fiscal 1999
exceeded the volume of disbursements in fiscal 1998 by $8.1 million, or 32.2%.
Growth in loans secured by residential real estate totaled $4.1 million, or
6.5%, while the nonresidential portfolio increased by $2.8 million, or 48.9%.
At June 30, 1999, American's allowance for loan losses totaled $733,000,
representing .85% of total loans and 193.4% of nonperforming loans. At June 30,
1998, the allowance for loan losses totaled $759,000, or .96% of total loans and
316.3% of nonperforming loans. Nonperforming loans amounted to $379,000 and
$240,000 at June 30, 1999 and 1998, respectively, and represented .3% and .2% of
total assets at those respective dates. Although management believes that its
allowance for loan losses at June 30, 1999, 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.
6
<PAGE> 8
Deposits increased by $7.5 million, or 8.0%, during fiscal 1999 to a total of
$101.0 million at June 30, 1999. The increase resulted primarily from
management's continuing efforts to maintain growth in deposits through marketing
and pricing strategies. Borrowings decreased by $1.0 million, or 15.0%, during
fiscal 1999, compared to 1998, as other borrowed money totaling $2.5 million was
repaid during fiscal 1999, while advances from the FHLB increased by $1.5
million. Proceeds from advances and growth in deposits were generally used to
fund new loan originations.
Shareholders' equity totaled $15.0 million at June 30, 1999, an increase of
$550,000, or 3.8%, from June 30, 1998 levels. The increase resulted primarily
from net earnings of $1.1 million, which were partially offset by dividends of
$463,000.
COMPARISON OF OPERATING RESULTS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
GENERAL. Net earnings amounted to $1.1 million for the fiscal year ended June
30, 1999, an increase of $4,000, or .4%, over fiscal 1998. The increase in
earnings resulted primarily from a $49,000 increase in other income, a $59,000
decrease in general, administrative and other expense and a $12,000 decrease in
the provision for federal income taxes, which were partially offset by a
$112,000 decrease in net interest income.
NET INTEREST INCOME. Total interest income amounted to $8.6 million for the
fiscal year ended June 30, 1999, an increase of $39,000, or .5%, over fiscal
1998. Interest income on loans totaled $6.4 million in fiscal 1999, an increase
of $31,000, or .5%. This increase was due primarily to a $500,000, or .6%,
increase in the weighted-average balance of loans outstanding in 1999. Interest
income on mortgage-backed securities increased by $115,000, or 19.4%, as a
result of a $2.5 million, or 31.0%, increase in the weighted-average balance
outstanding, which was partially offset by a 65 basis point decline in yield.
Interest income on investment securities and interest-bearing deposits decreased
by $107,000, or 6.8%, due primarily to a 73 basis point decrease in the
weighted-average yield from year to year, which was partially offset by a $1.0
million increase in the weighted-average balance outstanding year to year.
Interest expense totaled $5.1 million for the fiscal year ended June 30, 1999,
an increase of $151,000, or 3.1%, over the $5.0 million total recorded in fiscal
1998. Interest expense on deposits increased by $71,000, or 1.5%, due primarily
to a $6.7 million, or 7.4%, increase in the weighted-average balance outstanding
year to year, which was partially offset by a 29 basis point decrease in the
weighted-average yield from year to year. Interest expense on borrowings
increased by $80,000, or 34.0%, due primarily to a $2.3 million increase in the
weighted-average balance outstanding, which was offset by a 132 basis point
decrease in the average cost of borrowings, to 5.38% in fiscal 1999.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $112,000, or 3.1%, to a total of $3.5 million
for the fiscal year ended June 30, 1999, compared to $3.6 million in fiscal
1998. The interest rate spread increased by eight basis points to 2.54% in
fiscal 1999 from 2.46% in fiscal 1998, while the net interest margin decreased
to 3.04% in 1999 from 3.25% in 1998.
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
7
<PAGE> 9
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 years ended
June 30, 1999 and 1998. 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.
The foregoing statement is a "forward-looking" statement within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Factors that could affect the
adequacy of the loan loss allowance include, but are not limited to, the
following: (1) changes in the national and local economy which may negatively
impact the ability of borrowers to repay their loans and which may cause the
value of real estate and other properties that secure outstanding loans to
decline; (2) unforeseen adverse changes in circumstances with respect to certain
large 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 $330,000 for the fiscal year ended June 30,
1999, an increase of $49,000, or 17.4%, over the $281,000 recorded in fiscal
1998. The increase resulted primarily from an increase of $39,000 in gain on
sale of investment securities year to year, coupled with an increase of $13,000
in other operating income.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and other
expense totaled $2.3 million for the fiscal year ended June 30, 1999, a decrease
of $59,000, or 2.5%, from the total recorded in fiscal 1998. The decrease
resulted primarily from a $44,000, or 3.5%, decrease in employee compensation
and benefits, coupled with a $43,000, or 17.6% decline in franchise taxes and a
$14,000, or 2.9%, decrease in other operating expense, which were partially
offset by a $48,000, or 24.5%, 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 1999. The decrease in
franchise taxes resulted from ASB's decrease in equity capital due to its
dividend distributions in fiscal 1998 and 1997, coupled with a decrease in
franchise tax rates. The increase in data processing was due primarily to
American's overall growth year to year.
FEDERAL INCOME TAXES. The provision for federal income taxes totaled $433,000
for the fiscal year ended June 30, 1999, a decrease of $12,000, or 2.7%, from
the $445,000 recorded in fiscal 1998. The decrease was due primarily to a
$8,000, or .5%, decrease in pretax earnings year to year, coupled with tax
credits realized from American's investment in a low income housing project.
ASB's effective tax rates were 28.6% and 29.3% for the fiscal years ended June
30, 1999 and 1998, respectively.
8
<PAGE> 10
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. As a result of an analysis of American's
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, 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.
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.
9
<PAGE> 11
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.
10
<PAGE> 12
AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA
- --------------------------------------------------------------------------------
The following table sets forth certain information relating to ASB's average
balance sheet 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,
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------- ------------------------------
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 $ 79,368 $ 6,394 8.06% $ 78,868 $6,363 8.07% $ 71,260 $5,882 8.25%
Mortgage-backed
securities 10,633 709 6.67 8,118 594 7.32 9,487 680 7.17
Investment securities and
other interest-earning
assets 24,226 1,477 6.10 23,177 1,584 6.83 28,664 1,831 6.39
-------- ------- ------ -------- ------ ------ -------- ------ ------
Total interest-earning
assets 114,227 8,580 7.51 110,163 8,541 7.75 109,411 8,393 7.67
Non-interest-earning assets 5,710 2,824 3,662
-------- --------- --------
Total assets $119,937 $112,987 $113,073
======== ======== ========
Interest-bearing liabilities:
Deposits $ 97,032 4,797 4.94 $ 90,317 4,726 5.23 $ 86,296 4,519 5.24
Borrowings 5,857 315 5.38 3,508 235 6.70 2,822 167 5.92
-------- ------- ------ -------- ------ ------ -------- ------ ------
Total interest-bearing
liabilities 102,889 5,112 4.97 93,825 4,961 5.29 89,118 4,686 5.26
-------- ------- ------ ------ ------ ------ ------
Non-interest-bearing
liabilities 2,088 2,289 2,752
-------- -------- --------
Total liabilities 104,977 96,114 91,870
Shareholders' equity 14,960 16,873 21,203
-------- -------- --------
Total liabilities and
shareholders' equity $119,937 $112,987 $113,073
======== ======== ========
Net interest income $ 3,468 $3,580 $3,707
======= ====== ======
Interest rate spread 2.54% 2.46% 2.41%
====== ====== ======
Net interest margin (net
interest income as a
percent of average
interest-earning assets) 3.04% 3.25% 3.39%
====== ====== ======
Average interest-earning
assets to average interest-
bearing liabilities 111.02% 117.41% 122.77%
====== ====== ======
</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,
--------------------------------------------------
1999 vs. 1998 1998 vs. 1997
----------------- ----------------------
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 $ 40 $ (9) $ 31 $ 612 $(131) $ 481
Mortgage-backed securities 174 (59) 115 (100) 14 (86)
Investment securities and interest -
bearing assets 67 (174) (107) (368) 121 (247)
----- ----- ----- ----- ----- -----
Total interest-earning assets 281 (242) 39 144 4 148
----- ----- ----- ----- ----- -----
Interest-bearing liabilities:
Deposits 341 (270) 71 213 (6) 207
Borrowings 117 (37) 80 44 24 68
----- ----- ----- ----- ----- -----
Total interest-bearing liabilities 458 (307) 151 257 18 275
----- ----- ----- ----- ----- -----
Increase (decrease) in net interest
income $(177) $ 65 $(112) $(113) $ (14) $(127)
===== ===== ===== ===== ===== =====
</TABLE>
ASSET AND LIABILITY MANAGEMENT
- --------------------------------------------------------------------------------
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.
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. See "Liquidity and Capital Resources."
12
<PAGE> 14
At June 30, 1999, 2% of the present value of American's assets was approximately
$2.5 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 $2.5 million at June 30, 1999, American would have
been required to deduct $12,000 (50% of the $24,000 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,
1999, would still have exceeded the regulatory requirement by approximately
$10.9 million.
The following table presents, at June 30, 1999 and 1998, 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, 1999 At June 30, 1998
------------------ ----------------
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>
+300 (40)% $(3,945) (26)% $(4,335) (25)%
+200 (30) (2,489) (16) (2,706) (16)
+100 (20) (1,109) (7) (1,189) (7)
0 0 0 0 0 0
-100 20 560 4 743 4
-200 30 837 5 1,249 7
-300 40 1,345 9 1,973 11
</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, 1999, 1998, and 1997:
Year ended June 30,
------------------------------
1999 1998 1997
---- ---- ----
(In thousands)
Net cash from operating
activities $ 1,323 $ 1,145 $ 1,113
Net cash from investing
activities (13,629) 6,618 723
Net cash from financing activities 5,982 2,277 (1,822)
-------- -------- --------
Net change in cash and cash
equivalents (6,324) 10,040 14
Cash and cash equivalents at the
beginning of the year 13,890 3,850 3,836
-------- -------- --------
Cash and cash equivalents at the
end of the year $ 7,566 $ 13,890 $ 3,850
======== ======== ========
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, 1999, was approximately $23.2 million, or
21.4%, and exceeded the then applicable 4.0% liquidity requirement by
approximately $18.9 million, or 17.4%.
At June 30, 1999, American had outstanding commitments of approximately $1.2
million to originate loans and $1.3 million to purchase loans. Additionally,
American was obligated under unused lines and letters of credit totaling $4.1
million. In the opinion of management, all loan commitments had interest rates
which equaled or exceeded market interest rates as of June 30, 1999, 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, 1999, 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, 1999, 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, 1999
REGULATORY CURRENT
CAPITAL REQUIREMENT
----------------- ---------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tangible capital $12,769 10.4% greater than or equal to $1,833 greater than or equal to 1.5%
Core capital $12,769 10.4% greater than or equal to $3,666 greater than or equal to 3.0%
Risk-based capital $13,502 21.3% greater than or equal to $5,069 greater than or equal to 8.0%
</TABLE>
<TABLE>
<CAPTION>
EXCESS OF
REGULATORY CAPITAL
OVER CURRENT
REQUIREMENT
------------------------------------------------------------------
AMOUNT PERCENT
<S> <C> <C>
Tangible capital greater than or equal to $10,936 greater than or equal to 8.9%
Core capital greater than or equal to $ 9,103 greater than or equal to 7.4%
Risk-based capital greater than or equal to $ 8,433 greater than or equal to 13.3%
</TABLE>
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 established 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. 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.
Management adopted SFAS No. 130 effective July 1, 1998, as required, without
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 changed 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 established 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. Management adopted SFAS No. 131 effective July 1, 1998, as
required, without 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
15
<PAGE> 17
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 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 contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133, as amended by SFAS no. 137, is effective for fiscal years
beginning after June 15, 2000. 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 has addressed 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's primary data processing applications, which are handled by a
third-party service bureau, Intrieve, Inc., have been identified as mission
critical. Intrieve has advised American that it has implemented a fully Year
2000 compliant processing system that has been fully tested as of January 1,
1999. Additionally, American's systems were tested in November 1998 with
satisfactory results. Management has also reviewed American's ancillary
equipment and implemented the appropriate remedial measures without material
cost.
American has developed a contingency plan in case Intrieve actually fails at
Year 2000 critical dates. American deems the likelihood of failure of the
service provider's efforts to renovate Year 2000 changes to the on-line core
account processing system to be remote. The contingency plan, therefore,
primarily addresses action to deal with the possibility that the service
provider's system would be down for several days or weeks upon arrival of Year
2000. American can conduct and record transactions manually until the service
provider is operational.
American estimates its expenses related to the Year 2000 to be less than
$10,000.
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.
16
<PAGE> 18
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS AND
CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 18
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 19
CONSOLIDATED STATEMENTS OF EARNINGS 20
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 21
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 22
CONSOLIDATED STATEMENTS OF CASH FLOWS 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 25
17
<PAGE> 19
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, 1999 and 1998, and the related
consolidated statements of earnings, comprehensive income, shareholders' equity,
and cash flows for each of the three years ended June 30, 1999, 1998 and 1997.
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, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the years ended June 30, 1999, 1998
and 1997, in conformity with generally accepted accounting principles.
Cincinnati, Ohio
July 21, 1999
18
<PAGE> 20
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
Cash and due from banks $ 4,078 $ 495
Interest-bearing deposits in other financial institutions 3,488 13,395
--------- ---------
Cash and cash equivalents 7,566 13,890
Certificates of deposit in other financial institutions 293 2,004
Investment securities available for sale - at market 19,372 11,835
Mortgage-backed securities available for sale - at market 10,232 8,924
Loans receivable - net 82,430 76,550
Office premises and equipment - at depreciated cost 1,047 932
Real estate acquired through foreclosure - net -- 157
Federal Home Loan Bank stock - at cost 778 725
Accrued interest receivable on loans 78 125
Accrued interest receivable on mortgage-backed securities 66 70
Accrued interest receivable on investments and
interest-bearing deposits 290 308
Prepaid expenses and other assets 714 665
Prepaid federal income taxes 200 222
Deferred federal income tax assets 182 30
--------- ---------
Total assets $ 123,248 $ 116,437
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 100,954 $ 93,477
Advances from the Federal Home Loan Bank 5,823 4,354
Other borrowed money -- 2,500
Advances by borrowers for taxes and insurance 168 169
Accrued interest payable 93 118
Other liabilities 1,170 1,329
--------- ---------
Total liabilities 108,208 101,947
Commitments -- --
Shareholders' equity
Preferred stock, 1,000,000 shares authorized, no par value;
no shares issued -- --
Common stock, 4,000,000 shares authorized, no par value;
1,740,854 shares issued -- --
Additional paid-in capital 8,427 8,304
Retained earnings, restricted 8,909 8,292
Shares acquired by stock benefit plans (1,418) (1,677)
Unrealized gains on securities designated as available for sale,
net of related tax effects 265 714
Less 86,066 shares of treasury stock - at cost (1,143) (1,143)
--------- ---------
Total shareholders' equity 15,040 14,490
--------- ---------
Total liabilities and shareholders' equity $ 123,248 $ 116,437
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE> 21
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
For the year ended June 30,
(In thousands, except share data)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Interest income
Loans $ 6,394 $ 6,363 $ 5,882
Mortgage-backed securities 709 594 680
Investment securities 1,405 1,390 1,494
Interest-bearing deposits and other 72 194 337
------- ------- -------
Total interest income 8,580 8,541 8,393
Interest expense
Deposits 4,797 4,726 4,519
Borrowings 315 235 167
------- ------- -------
Total interest expense 5,112 4,961 4,686
------- ------- -------
Net interest income 3,468 3,580 3,707
Provision for (recoveries of) losses on loans (1) (5) 28
------- ------- -------
Net interest income after provision
for (recoveries of) losses on loans 3,469 3,585 3,679
Other income
Gain on sale of investment securities 61 22 104
Other operating 272 259 260
Loss on sale of real estate acquired through foreclosure (3) -- --
------- ------- -------
Total other income 330 281 364
General, administrative and other expense
Employee compensation and benefits 1,207 1,251 1,360
Occupancy and equipment 111 116 122
Federal deposit insurance premiums 56 57 665
Franchise taxes 202 245 227
Data processing 244 196 179
Other operating 466 480 501
------- ------- -------
Total general, administrative and other expense 2,286 2,345 3,054
------- ------- -------
Earnings before income taxes 1,513 1,521 989
Federal income taxes
Current 355 438 309
Deferred 78 7 13
------- ------- -------
Total federal income taxes 433 445 322
------- ------- -------
NET EARNINGS $ 1,080 $ 1,076 $ 667
======= ======= =======
EARNINGS PER SHARE
Basic $ .68 $ .68 $ .42
======= ======= =======
Diluted $ .67 $ .67 $ .41
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 22
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net earnings $ 1,080 $ 1,076 $ 667
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period, net of tax of $210, $163 and
$184 in 1999, 1998 and 1997, respectively (409) 317 357
Reclassification adjustment for realized gains
included in earnings, net of tax of $21, $7 and
$75 in 1999, 1998 and 1997, respectively (40) (15) (69)
------- ------- -------
Comprehensive income $ 631 $ 1,378 $ 955
======= ======= =======
Accumulated comprehensive income $ 265 $ 714 $ 412
======= ======= =======
</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, 1999, 1998 and 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
SHARES UNREALIZED GAINS
ACQUIRED (LOSSES) ON
ADDITIONAL BY STOCK SECURITIES
COMMON PAID-IN RETAINED BENEFIT DESIGNATED AS
STOCK CAPITAL EARNINGS PLANS AVAILABLE FOR SALE
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1996 $ - $ 16,496 $ 11,173 $ (2,180) $ 124
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 - - - - 288
---- -------- -------- -------- --------
Balance at June 30, 1997 - 8,023 11,187 (1,921) 412
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 - - - - 302
---- -------- -------- -------- --------
Balance at June 30, 1998 - 8,304 8,292 (1,677) 714
Amortization of expense related to stock benefit plans - 123 - 259 -
Net earnings for the year ended June 30, 1999 - - 1,080 - -
Cash dividends of $.40 per share - - (463) - -
Unrealized losses on securities designated as
available for sale, net of related tax effects - - - - (449)
---- -------- -------- -------- --------
Balance at June 30, 1999 $ - $ 8,427 $ 8,909 $ (1,418) $ 265
==== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
TREASURY
STOCK TOTAL
<S> <C> <C>
Balance at July 1, 1996 $ - $ 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
-------- --------
Balance at June 30, 1997 - 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
-------- --------
Balance at June 30, 1998 (1,143) 14,490
Amortization of expense related to stock benefit plans - 382
Net earnings for the year ended June 30, 1999 - 1,080
Cash dividends of $.40 per share - (463)
Unrealized losses on securities designated as
available for sale, net of related tax effects - (449)
-------- --------
Balance at June 30, 1999 $ (1,143) $ 15,040
======== ========
</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>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year $ 1,080 $ 1,076 $ 667
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 38 33 30
Amortization of deferred loan origination fees (67) (85) (64)
Amortization of expense related to stock benefit plans 382 329 290
Depreciation and amortization 66 73 78
Provision for losses (recoveries) on loans (1) (5) 28
Gain on sale of investment securities (61) (22) (104)
Loss on sale of real estate acquired through foreclosure 3 - -
Federal Home Loan Bank stock dividends (53) (50) (48)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 47 (30) 25
Accrued interest receivable on mortgage-backed securities 4 8 31
Accrued interest receivable on investments and
interest-bearing deposits 18 48 123
Prepaid expenses and other assets (49) (61) (18)
Accrued interest payable (25) 6 (3)
Other liabilities (159) (22) 132
Federal income taxes
Current 22 (160) (67)
Deferred 78 7 13
-------- -------- --------
Net cash provided by operating activities 1,323 1,145 1,113
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 11,264 13,970 4,650
Proceeds from sale of investment securities 60 1,007 3,576
Purchase of investment securities (19,259) (7,768) (7,057)
Purchase of mortgage-backed securities (5,625) (3,327) -
Proceeds from sale of mortgage-backed securities 838 119 -
Principal repayments on mortgage-backed securities 3,221 2,905 2,133
Purchase of loans (778) (2,183) (773)
Loan principal repayments 28,170 24,815 17,697
Loan disbursements (33,204) (25,113) (22,503)
Purchase of office premises and equipment (181) (61) (91)
Proceeds from sale of office premises and equipment - - 9
Proceeds from sale of real estate acquired through foreclosure 154 - 598
Redemption of Federal Home Loan Bank stock - - 40
Decrease in certificates of deposit in other financial
institutions - net 1,711 2,254 2,444
-------- -------- --------
Net cash provided by (used in) investing activities (13,629) 6,618 723
-------- -------- --------
Net cash provided by (used in) operating and investing
activities (subtotal carried forward) (12,306) 7,763 1,836
-------- -------- --------
</TABLE>
23
<PAGE> 25
ASB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
Net cash provided by (used in) operating and investing activities
(subtotal brought forward) $(12,306) $ 7,763 $ 1,836
<S> <C> <C> <C>
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 7,477 3,725 6,357
Proceeds from Federal Home Loan Bank advances 2,000 4,000 2,500
Proceeds from other borrowed money - 2,500 3,500
Repayment of Federal Home Loan Bank advances (531) (2,530) (2,029)
Repayment of other borrowed money (2,500) (500) (3,000)
Advances by borrowers for taxes and insurance (1) - 7
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 (463) (3,971) (9,260)
-------- -------- --------
Net cash provided by (used in) financing activities 5,982 2,277 (1,822)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (6,324) 10,040 14
Cash and cash equivalents at beginning of year 13,890 3,850 3,836
-------- -------- --------
Cash and cash equivalents at end of year $ 7,566 $ 13,890 $ 3,850
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 377 $ 618 $ 383
======== ======== ========
Interest on deposits and borrowings $ 5,137 $ 4,955 $ 4,689
======== ======== ========
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired
through foreclosure $ - $ 157 $ -
======== ======== ========
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (449) $ 302 $ 288
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE> 26
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999, 1998 and 1997
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> 27
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. Investment Securities and Mortgage-Backed Securities (continued)
----------------------------------------------------
At June 30, 1999 and 1998, the Corporation's shareholders' equity reflected
a net unrealized gain on securities designated as available for sale of
$265,000 and $714,000, 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> 28
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
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, 1999 and 1998, the Savings Bank's investment in impaired loans,
as defined, totaled approximately $459,000 and $464,000, respectively. The
Savings Bank maintained an allowance for credit losses related to such
impaired loans of $46,000 at those respective dates.
27
<PAGE> 29
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
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> 30
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
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 $19,000, $10,000 and $33,000 for the fiscal years ended June 30,
1999, 1998 and 1997, 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 $172,000, $274,000 and
$296,000 for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively.
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,
1999, 48,302 shares had been awarded. Common stock awarded under the MRP
vests ratably over a five year period, commencing with the date of the
award. Expense recognized under the MRP plan totaled approximately $167,000,
$153,000 and $137,000 for the fiscal years ended June 30, 1999, 1998 and
1997, respectively.
11. Earnings Per Share and Dividends Per Share
------------------------------------------
Basic earnings per share for the fiscal years ended June 30, 1999, 1998 and
1997 is based upon the weighted-average shares outstanding during the year,
less 62,795, 77,756 and 126,541 unallocated ESOP shares, respectively.
Weighted-average common shares deemed outstanding totaled 1,584,451,
1,586,217 and 1,591,703 for the fiscal years ended June 30, 1999, 1998 and
1997, 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
1,611,751, 1,615,737 and 1,625,981 for the fiscal years ended June 30, 1999,
1998 and 1997, respectively. Incremental shares related to the assumed
exercise of stock options included in the computation of diluted earnings
per share totaled 27,300, 29,520 and 34,278 for the fiscal years ended June
30, 1999, 1998 and 1997, respectively.
29
<PAGE> 31
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. Earnings Per Share and Dividends Per Share (continued)
------------------------------------------------------
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 determined 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,
1999 and 1998:
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.
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.
30
<PAGE> 32
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. Fair Value of Financial Instruments (continued)
-----------------------------------------------
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, 1999 and 1998, the
difference between the fair value and notional amount of loan
commitments was not material.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments at June 30 are as follows:
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(In thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 7,566 $ 7,566 $ 13,890 $ 13,890
Certificates of deposit in other financial
institutions 293 293 2,004 2,004
Investment securities 19,372 19,372 11,835 11,835
Mortgage-backed securities 10,232 10,232 8,924 8,924
Loans receivable 82,430 82,127 76,550 77,895
Federal Home Loan Bank stock 778 778 725 725
-------- -------- -------- --------
$120,671 $120,368 $113,928 $115,273
======== ======== ======== ========
Financial liabilities
Deposits $100,954 $101,403 $ 93,477 $ 93,605
Advances from the Federal Home Loan Bank 5,823 5,750 4,354 4,493
Other borrowed money - - 2,500 2,509
Escrow deposits 168 168 169 169
-------- -------- -------- --------
$106,945 $107,321 $100,500 $100,776
======== ======== ======== ========
</TABLE>
31
<PAGE> 33
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
13. Comprehensive Income
--------------------
The Corporation adopted SFAS No. 130, "Reporting Comprehensive Income," as
of July 1, 1998. The Statement established standards for reporting and
presentation of comprehensive income and its components in a full set of
general-purpose financial statements. It 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 presented
with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital. Financial statements for earlier periods have
been restated for comparative purposes. Accumulated comprehensive income
consists solely of the change in unrealized gains and losses on securities
designated as available for sale in accordance with SFAS No. 115.
14. Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and interest-bearing deposits due from other financial
institutions with original maturities of less than ninety days.
15. Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the 1999
consolidated financial statement presentation.
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, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999
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 $18,764 $ 33 $ 664 $18,133
FHLMC stock 19 1,083 - 1,102
Corporate equity securities 169 1 33 137
------- ------- ------- -------
$18,952 $ 1,117 $ 697 $19,372
======= ======= ======= =======
</TABLE>
32
<PAGE> 34
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
<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>
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>
1999 1998
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
Due after three years through
five years 1,000 983 - -
Due after five years 17,764 17,150 8,734 8,784
------- ------- ------- -------
$18,764 $18,133 $10,729 $10,766
======= ======= ======= =======
</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, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
AVAILABLE FOR SALE: (In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation participation certificates $ 1,266 $ 18 $ 12 $ 1,272
Government National Mortgage
Association participation certificates 3,301 35 43 3,293
Federal National Mortgage Association
participation certificates 1,035 8 35 1,008
Collateralized mortgage obligations 4,649 13 3 4,659
------- ------- ------- -------
Total mortgage-backed securities $10,251 $ 74 $ 93 $10,232
======= ======= ======= =======
</TABLE>
33
<PAGE> 35
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
<TABLE>
<CAPTION>
1998
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
AVAILABLE FOR SALE: (In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation participation certificates $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>
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.
JUNE 30,
1999 1998
(In thousands)
Due within three years $ 88 $ 460
Due in three to five years - 126
Due in five to ten years 701 480
Due in ten to twenty years 2,052 2,412
Due after twenty years 7,410 5,312
------- -------
$10,251 $ 8,790
======= =======
Proceeds from sales of investment and mortgage-backed securities amounted to
$898,000 and $1.1 million during the years ended June 30, 1999 and 1998,
respectively, and resulted in gross realized gains totaling $61,000 and
$22,000, for those respective periods.
34
<PAGE> 36
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at June 30 is as follows:
<TABLE>
<CAPTION>
1999 1998
(In thousands)
<S> <C> <C>
Residential real estate
One- to four- family $60,810 $55,707
Multi-family 3,404 5,184
Construction 2,162 1,425
Nonresidential real estate and land 8,504 5,712
Consumer and other 11,449 10,923
------- -------
86,329 78,951
Less:
Undisbursed portion of loans in process 2,966 1,452
Deferred loan origination fees 200 190
Allowance for loan losses 733 759
------- -------
$82,430 $76,550
======= =======
</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 $63.4 million, or 77%, of the total loan portfolio at June 30,
1999, and $60.9 million, or 80%, of the total loan portfolio at June 30,
1998. 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 were previously
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. However, recent regulations now permit officers and
directors to receive the same terms through benefit or compensation plans
that are widely available to other employees, as long as the director or
officer is not given preferential treatment compared to other participating
employees. The aggregate dollar amount of loans outstanding to directors and
officers totaled approximately $514,000 and $340,000 at June 30, 1999 and
1998, respectively.
35
<PAGE> 37
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
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>
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 759 $ 820 $ 884
Provision for (recoveries of) losses on loans (1) (5) 28
Charge-offs of loans (25) (56) (92)
----- ----- -----
Balance at end of year $ 733 $ 759 $ 820
===== ===== =====
</TABLE>
As of June 30, 1999, 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 $379,000, $240,000
and $1.1 million at June 30, 1999, 1998 and 1997, respectively.
During the years ended June 30, 1999, 1998 and 1997, interest income of
approximately $5,000, $6,000 and $9,000, 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>
1999 1998
(In thousands)
<S> <C> <C>
Land and improvements $ 376 $ 376
Office buildings and improvements 1,358 1,205
Furniture, fixtures and equipment 479 451
------ ------
2,213 2,032
Less accumulated depreciation and
amortization 1,166 1,100
------ ------
$1,047 $ 932
====== ======
</TABLE>
36
<PAGE> 38
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE F - DEPOSITS
Deposits consist of the following major classifications at June 30:
DEPOSIT TYPE AND WEIGHTED-
AVERAGE INTEREST RATE 1999 1998
(In thousands)
NOW accounts
1999 - 2.03% $ 6,680
1998 - 1.96% $ 5,867
Passbook
1999 - 2.94% 7,862
1998 - 2.94% 7,440
Money market deposit accounts
1999 - 3.85% 11,785
1998 - 3.60% 7,999
-------- --------
Total demand, transaction and
passbook deposits 26,327 21,306
Certificates of deposit
Original maturities of:
Less than 12 months
1999 - 4.60% 6,182
1998 - 5.39% 6,893
12 months to 24 months
1999 - 5.37% 40,671
1998 - 5.88% 36,727
30 months to 36 months
1999 - 5.53% 6,324
1998 - 5.76% 8,535
More than 36 months
1999 - 6.05% 923
1998 - 6.13% 1,196
Individual retirement accounts
1999 - 5.57% 14,690
1998 - 6.08% 14,589
Jumbo accounts
1999 - 5.26% 5,837
1998 - 5.85% 4,231
-------- --------
Total certificates of deposit 74,627 72,171
-------- --------
Total deposit accounts $100,954 $ 93,477
======== ========
At June 30, 1999 and 1998, the Corporation had certificate of deposit accounts
with balances greater than $100,000 totaling $15.7 million and $8.1 million,
respectively.
37
<PAGE> 39
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE F - DEPOSITS (continued)
Interest expense on deposits for the year ended June 30 is summarized as
follows:
1999 1998 1997
(In thousands)
Passbook $ 224 $ 212 $ 214
NOW and money market deposit
accounts 489 376 402
Certificates of deposit 4,084 4,138 3,903
------ ------ ------
$4,797 $4,726 $4,519
====== ====== ======
Maturities of outstanding certificates of deposit at June 30 are summarized
as follows:
1999 1998
(In thousands)
Less than one year $46,943 $51,581
One to three years 27,318 20,175
Over three years 366 415
------- -------
$74,627 $72,171
======= =======
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at June 30, 1999 by
pledges of certain residential mortgage loans totaling $8.7 million and the
Savings Bank's investment in Federal Home Loan Bank stock, are summarized as
follows:
MATURING
YEAR ENDING JUNE 30,
INTEREST RATE JUNE 30, 1999 1998
(Dollars in thousands)
5.70% 1999 $ - $ 500
6.15% 2000 500 500
4.40% 2004 1,000 -
3.16% - 5.17% 2008 3,323 3,354
4.80% 2009 1,000 -
----- -----
$5,823 $4,354
====== ======
Weighted-average interest rate 5.06% 5.16%
====== ======
38
<PAGE> 40
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE H - OTHER BORROWED MONEY
At June 30, 1998, other borrowed money consisted of a note payable to a
financial institution bearing interest at a rate of 8.50% and was secured by
the Corporation's investment in the common stock of the Savings Bank. The
note was repaid during fiscal 1999.
NOTE I - FEDERAL INCOME TAXES
Federal income taxes differ from the amounts computed at the statutory
corporate tax rate for the year ended June 30 as follows:
1999 1998 1997
(In thousands)
Federal income taxes computed at
statutory rate $ 514 $ 517 $ 336
Increase (decrease) in taxes resulting from
Low income housing investment tax credits (79) (70) -
Nontaxable interest income (2) (2) (9)
Other - - (5)
----- ----- -----
Federal income tax provision per consolidated
financial statements $ 433 $ 445 $ 322
===== ===== =====
The composition of the Corporation's net deferred tax asset at June 30 is as
follows:
1999 1998
(In thousands)
Taxes (payable) refundable on temporary
differences at estimated corporate tax rate:
Deferred tax assets:
General loan loss allowance $ 251 $ 258
Deferred compensation 503 502
Employee stock benefit plans 42 67
Book/tax depreciation 12 1
----- -----
Total deferred tax assets 808 828
Deferred tax liabilities:
Percentage of earnings bad debt deduction (220) (265)
Deferred loan origination costs (118) (33)
Federal Home Loan Bank stock dividends (152) (134)
Unrealized gain on securities designated as
available for sale (136) (366)
----- -----
Total deferred tax liabilities (626) (798)
----- -----
Net deferred tax asset $ 182 $ 30
===== =====
39
<PAGE> 41
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
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,
1999 includes approximately $2.6 million for which federal income taxes have
not been provided. The amount of unrecognized deferred tax liability
relating to the cumulative bad debt deduction was approximately $660,000 at
June 30, 1999. 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, 1999, the Savings Bank had outstanding commitments to originate
and to purchase loans totaling approximately $1.2 million and $1.3 million,
respectively. In addition, the Savings Bank was obligated under unused lines
and letters of credit totaling $4.1 million. In the opinion of management,
all loan commitments equaled or exceeded prevalent market interest rates as
of June 30, 1999, and will be funded from normal cash flow from operations.
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.
40
<PAGE> 42
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE K - REGULATORY CAPITAL (continued)
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, 1999 and 1998, management believes that the Savings Bank met
all capital adequacy requirements to which it was subject.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
---------------- ---------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tangible capital $12,769 10.4% greater than or equal to $1,833 greater than or equal to 1.5%
Core capital $12,769 10.4% greater than or equal to $3,666 greater than or equal to 3.0%
Risk-based capital $13,502 21.3% greater than or equal to $5,069 greater than or equal to 8.0%
</TABLE>
<TABLE>
<CAPTION>
TO BE "WELL-
CAPITALIZED" UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
------------------------------------------------------------------
AMOUNT RATIO
<S> <C> <C>
Tangible capital greater than or equal to $6,110 greater than or equal to 5.0%
Core capital greater than or equal to $7,332 greater than or equal to 6.0%
Risk-based capital greater than or equal to $6,336 greater than or equal to 10.0%
</TABLE>
<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%
</TABLE>
<TABLE>
<CAPTION>
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>
41
<PAGE> 43
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE K - REGULATORY CAPITAL (continued)
The Savings Bank's management believes that, under the current regulatory
capital regulations, the Savings Bank will continue to meet its minimum
capital requirements in the foreseeable future. However, events beyond the
control of the Savings Bank, such as increased interest rates or a downturn
in the economy in the Savings Bank's market area, could adversely affect
future earnings and, consequently, the ability to meet future minimum
regulatory capital requirements.
NOTE L - 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 an exercise price equal to 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.
The Corporation accounts for the Plan in accordance with 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.
The Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plan. Accordingly, no compensation cost has
been recognized for the Plan. The pro-forma disclosures required under SFAS
No. 123 are not applicable, as the Corporation made no stock option grants
during the fiscal years ended June 30, 1999, 1998 and 1997.
42
<PAGE> 44
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE L - STOCK OPTION PLAN (continued)
A summary of the status of the Corporation's stock option plan as of June
30, 1999, 1998 and 1997, and changes during the periods ending on those
dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
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 170,627 $10.08 190,069 $10.08 145,684 $13.875
Adjustment for return of capital
distribution - - - - 51,837 (3.795)
Granted - - - - - -
Exercised - - (19,442) 10.08 (7,452) 10.08
Forfeited - - - - - -
------- ------ ------- ------ ------- -------
Outstanding at end of year 170,627 $10.08 170,627 $10.08 190,069 $ 10.08
======= ====== ======= ====== ======= =======
Options exercisable at year-end 90,498 $10.08 50,438 $10.08 29,817 $ 10.08
======= ====== ======= ====== ======= =======
The following information applies to options outstanding at June 30, 1999:
Number outstanding 170,627
Range of exercise prices $10.08
Weighted-average exercise price $10.08
Weighted-average remaining contractual life 6.4 years
</TABLE>
NOTE M - LEGISLATIVE MATTERS
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.
43
<PAGE> 45
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE M - LEGISLATIVE MATTERS (continued)
Legislation which was enacted during fiscal 1997 to recapitalize the SAIF
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 approximate $551,000, or $364,000 after-tax,
charge to operations in fiscal 1997.
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 amortize the recapture of the bad
debt reserve in taxable income over a six year period, which commenced in
fiscal 1998.
44
<PAGE> 46
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
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, 1999 and 1998, and the
results of its operations and its cash flows for the fiscal years ended June
30, 1999, 1998 and 1997.
ASB FINANCIAL CORP.
STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
Interest-bearing deposits in American Savings Bank, fsb $ 429 $ 377
Interest-bearing deposits in other financial institutions 639 283
Investment securities 138 128
Loan receivable from ESOP 679 819
Investment in American Savings Bank, fsb 13,055 15,412
Prepaid expenses and other 265 136
-------- --------
Total assets $ 15,205 $ 17,155
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $ 165 $ 165
Borrowed money - 2,500
-------- --------
Total liabilities 165 2,665
Shareholders' equity
Common stock and additional paid-in capital 8,427 8,304
Retained earnings 8,909 8,292
Shares acquired by stock benefit plans (1,418) (1,677)
Treasury shares (1,143) (1,143)
Unrealized gains on securities designated as available for sale, net 265 714
-------- --------
Total shareholders' equity 15,040 14,490
-------- --------
Total liabilities and shareholders' equity $ 15,205 $ 17,155
======== ========
</TABLE>
ASB FINANCIAL CORP.
STATEMENTS OF EARNINGS
Year ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenue
Interest income $ 90 $ 163 $ 292
Equity in earnings of American Savings Bank, fsb 1,199 1,034 631
------- ------- -------
Total revenue 1,289 1,197 923
General and administrative expenses 272 103 248
------- ------- -------
Earnings before income taxes (credits) 1,017 1,094 675
Federal income taxes (credits) (63) 18 15
------- ------- -------
NET EARNINGS $ 1,080 $ 1,076 $ 660
======= ======= =======
</TABLE>
45
<PAGE> 47
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
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>
1999 1998 1997
<S> <C> <C> <C>
Cash provided by (used in) operating activities:
Net earnings for the year $ 1,080 $ 1,076 $ 660
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities
(Undistributed earnings of) excess of distributions
from consolidated subsidiary 2,303 (1,034) 4,369
Loss on sale of investment securities - - 9
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets (122) (32) (36)
Other liabilities - (7) 1
------- ------- -------
Net cash provided by operating activities 3,261 3 5,003
Cash flows provided by (used in) investing activities:
Proceeds from repayment of loan 140 140 159
Proceeds from return of capital on investment securities 21 - -
Proceeds from sale of investment securities - - 3,491
Purchase of investment securities (51) (136) -
------- ------- -------
Net cash provided by investing activities 110 4 3,650
Cash flows provided by (used in) financing activities:
Proceeds from borrowed money - 2,500 -
Proceeds from exercise of stock options - 196 103
Repayment of borrowed money (2,500) - -
Payment of dividends on common stock (463) (3,971) (9,260)
Purchase of treasury shares - (1,143) -
------- ------- -------
Net cash used in financing activities (2,963) (2,418) (9,157)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 408 (2,411) (504)
Cash and cash equivalents at beginning of year 660 3,071 3,575
------- ------- -------
Cash and cash equivalents at end of year $ 1,068 $ 660 $ 3,071
======= ======= =======
</TABLE>
46
<PAGE> 48
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
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 $4.6 million to the
Corporation at June 30, 1999.
NOTE O - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Corporation's quarterly results for the
fiscal years ended June 30, 1999 and 1998. Certain amounts, as previously
reported, have been reclassified to conform to the 1999 presentation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1999: (In thousands, except per share data)
<S> <C> <C> <C> <C>
Total interest income $ 2,149 $ 2,120 $ 2,136 $ 2,175
Total interest expense 1,322 1,287 1,269 1,234
------- ------- ------- -------
Net interest income 827 833 867 941
Provision for (recoveries of) losses on loans - (1) - -
Other income 59 100 97 74
General, administrative and other expense 542 573 586 585
------- ------- ------- -------
Earnings before income taxes 344 361 378 430
Federal income taxes 101 103 103 126
------- ------- ------- -------
Net earnings $ 243 $ 258 $ 275 $ 304
======= ======= ======= =======
Earnings per share
Basic $ .16 $ .16 $ .17 $ .19
======= ======= ======= =======
Diluted $ .15 $ .16 $ .17 $ .19
======= ======= ======= =======
</TABLE>
47
<PAGE> 49
ASB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999, 1998 and 1997
NOTE O - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (continued)
<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>
48
<PAGE> 50
ASB FINANCIAL CORP.
DIRECTORS AND OFFICERS
================================================================================
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.
Louis M. Schoettle, M.D. Director
Physician
Retired
M. Kathryn Scott Secretary
Secretary
American Savings Bank, fsb
Carlisa R. Baker Treasurer
Treasurer
American Savings Bank, fsb
AMERICAN SAVINGS BANK, fsb
DIRECTORS AND OFFICERS
================================================================================
Gerald R. Jenkins Director and Chairman of the Board
Robert M. Smith Director, President and CEO
William J. Burke Director
Lee O. Fitch Director and Attorney
Louis M. Schoettle, M.D. Director
Jack A. Stephenson Vice President
Carlisa R. Baker Treasurer
M. Kathryn Scott Secretary
49
<PAGE> 51
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 27, 1999, at 11:00 a.m., Eastern Time, at Best Western Motor Inn of
Portsmouth, U.S. Route 23 North, Portsmouth, Ohio. Shareholders are cordially
invited to attend.
ANNUAL REPORT ON FORM 10-KSB
================================================================================
A copy of ASB's Annual Report on Form 10-KSB, as filed with the Securities and
Exchange Commission, will be available at no charge to shareholders upon written
request to:
American Savings Bank, fsb
503 Chillicothe Street
Portsmouth, Ohio 45662
Attention: Robert M. Smith, President
50
<PAGE> 1
ASB FINANCIAL CORP.
503 CHILLICOTHE STREET
PORTSMOUTH, OHIO 45662
(740) 354-3177
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The 1999 Annual Meeting of Shareholders of ASB Financial Corp. ("ASB")
will be held in the Best Western Motor Inn of Portsmouth, U.S. Route 23 North,
Portsmouth, Ohio 45662, on October 27, 1999, 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, 1999, 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 17, 1999
<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 1999 Annual Meeting of Shareholders of
ASB to be held in the Best Western Motor Inn of Portsmouth, U.S. Route 23 North,
Portsmouth, Ohio 45662, on October 27, 1999, at 11:00 a.m., local time, and at
any adjournments thereof (the "Annual Meeting"). Without affecting any vote
previously taken, the Proxy may be revoked by a shareholder executing a later
dated proxy which is received by ASB before the Proxy is exercised or by giving
notice of revocation to ASB in writing or in open meeting before the Proxy is
exercised. Attendance at the Annual Meeting will not, of itself, revoke a Proxy.
Each properly executed Proxy received prior to the Annual Meeting and
not revoked will be voted as specified thereon or, in the absence of specific
instructions to the contrary, will be voted:
FOR the reelection of William J. Burke, Lee O. Fitch and
Gerald R. Jenkins as directors of ASB for terms expiring in
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,
1999 (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 1,746,924
votes entitled to be cast at the Annual Meeting.
This Proxy Statement is first being mailed to shareholders of ASB on or
about September 17, 1999.
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.
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<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, 1999:
Amount and nature of Percent of
Name and Address beneficial ownership shares outstanding
- ---------------- -------------------- ------------------
ASB Financial Corp. Employee
Stock Ownership Plan
1201 Broadway 157,407 (1) 9.01%
Quincy, Illinois 62301
- ---------------------------
(1) Includes 88,824 unallocated shares with respect to which First Bankers
Trust, N.A., as the Trustee for the ASB Financial Corp. Employee Stock
Ownership Plan (the "ESOP"), has sole voting power. First Bankers Trust
Company, N.A. (the "ESOP Trustee"), has shared investment power over
all shares held in the ESOP Trust and sole voting power over shares
held in the ESOP Trust which have not been allocated to the accounts of
ESOP participants.
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<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, 1999:
Amount and nature of Percent of
Name and Address (1) beneficial ownership (2) shares outstanding (3)
- -------------------- ------------------------- ----------------------
William J. Burke 21,250 (4) 1.21%
Lee O. Fitch 48,592 (5) 2.77
Gerald R. Jenkins 60,597 (6) 3.42
Louis M. Schoettle, M.D. 30,961 (7) 1.77
Robert M. Smith 49,146 (8) 2.77
All directors and executive
officers of ASB
as a group (8 persons) 234,940 (9) 12.84%
- -----------------------------
(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 1,746,924 common shares outstanding, plus the number of
shares such person or group has the right to acquire within 60 days, if
any.
(4) Includes 7,070 shares which may be acquired upon the exercise of an option.
(5) Includes 6,070 shares which may be acquired upon the exercise of an option
and 19,021 shares held by the MRP as to which Mr. Fitch has shared voting
power as a Trustee of the MRP.
(6) Includes 23,475 shares which may be acquired upon the exercise of an
option, 1,499 shares owned by Mr. Jenkins' spouse and 21,029 shares as to
which Mr. Jenkins has shared voting and investment power.
(7) Includes 7,070 shares which may be acquired upon the exercise of an option
and 21,883 shares as to which Dr. Schoettle has shared voting and
investment power.
(8) Includes 24,726 shares which may be acquired upon the exercise of an
option, 3,533 shares owned by Mr. Smith's spouse and 14,008 shares as to
which Mr. Smith has shared voting and investment power.
(9) Includes 82,293 shares which may be acquired upon the exercise of options,
19,021 shares held by the MRP as to which Mr. Fitch has shared voting power
as Trustee of the MRP and 62,441 shares as to which the officers and
directors of ASB have shared voting and investment power.
BOARD OF DIRECTORS
ELECTION OF DIRECTORS
Prior to the death of Victor W. Morgan, a director of ASB from 1995 to
October 1998, the Board of Directors consisted of six directors divided into two
classes. The Board has amended the Regulations to reduce the
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<PAGE> 5
number of directors to five and, pursuant to Ohio law, there is now only a
single class of directors who must be reelected annually beginning in the year
2000. 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:
Director
of ASB
Name Age (1) Position(s) held since
- ---- ------- ---------------- -----
William J. Burke 58 Director 1995
Lee O. Fitch 83 Director 1995
Gerald R. Jenkins 64 Chairman of the Board 1995
- -----------------------------
(1) As of September 15, 1999.
If any nominee is unable to stand for election, any Proxies granting
authority to vote for such nominee will be voted for such substitute as the
Board of Directors recommends.
The following directors will continue to serve after the Annual Meeting
for the terms indicated:
<TABLE>
<CAPTION>
Director
of ASB
Name Age (1) Position(s) held since Term expires
- ---- ------- ---------------- ------ ------------
<S> <C> <C> <C> <C>
Louis M. Schoettle, M.D. 73 Director 1995 2000
Robert M. Smith 53 Director and President 1995 2000
</TABLE>
- -----------------------------
(1) As of September 15, 1999.
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.
-4-
<PAGE> 6
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 10 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, 1999.
COMMITTEES OF DIRECTORS
The Board of Directors of ASB has an Audit Committee, a Compensation
Committee and an Executive 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 Mr. Fitch and Dr. Schoettle. The Audit
Committee met once during the fiscal year ended June 30, 1999.
The Compensation Committee is comprised of Mr. Fitch 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, to administer the ASB
Financial Corp. Stock Option and Incentive Plan (the "Stock Option Plan") and to
administer the MRP.
The members of the Executive Committee are Messrs. Burke, Fitch and
Smith and Dr. Schoettle. The Executive Committee is authorized to act on behalf
of the Board of Directors between regular meetings of the Board. The Executive
Committee met seven times during the fiscal year ended June 30, 1999.
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:
Name Age (1) Position(s) held
---- ------- ----------------
Carlisa R. Baker 37 Treasurer of American and ASB
Mary Kathryn Fish 48 Secretary of American and ASB
Jack A. Stephenson 47 Vice President/Lending of American
-----------------------------
(1) As of September 15, 1999.
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<PAGE> 7
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. FISH has been employed by American since 1984. She is responsible
for American's deposit activities. She has also served as American's corporate
Secretary since 1993 and ASB's corporate Secretary since January 1995.
MR. STEPHENSON has been employed by American since 1987. Since 1988 he
has served as American's Vice President responsible for lending activities.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to Robert M.
Smith, the President of ASB and American, for the fiscal years ended June 30,
1999, 1998 and 1997. 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>
Robert M. Smith 1999 $96,750 $5,000 -- -- $47,451 (2)
President 1998 $83,800 $3,100 -- 44,634 (3) $40,582 (4)
1997 78,750 5,200 -- 47,134 (5) $45,513 (6)
</TABLE>
-------------------------
(1) Does not include amounts attributable to other miscellaneous benefits
received by Mr. Smith, the cost of which was less than 10% of their
annual salary and bonus.
(2) Consists of directors' fees of $19,500 and the $27,951 aggregate
value of allocations to Mr. Smith's account under the ESOP.
(3) Represents the number of common shares of ASB underlying options
granted to Mr. Smith pursuant to the Stock Option Plan during the
fiscal year ended June 30, 1997.
(Footnotes continued on next page)
-6-
<PAGE> 8
(4) Consists of directors' fees of $18,900 and the $21,692 aggregate
value of allocations to Mr. Smith's account under the ESOP.
Represents an adjustment to the number of common shares of ASB
underlying options granted to 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. 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 $17,000 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 Messrs. Jenkins and Smith and a retired employee of American.
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. 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 were awarded pursuant to the Stock Option Plan during the 1996
fiscal year. No options were awarded pursuant to the Stock Option Plan during
the 1998 and 1999 fiscal years.
The Stock Option Committee may grant options under the Stock Option
Plan at such times as they deem most beneficial to American and ASB on the basis
of the individual participant's responsibility, tenure and future potential to
American and ASB.
Options granted to the officers and employees under the Stock Option
Plan may be "incentive stock options" ("ISOs") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"). Options granted
under the Stock Option Plan to directors who are not employees of ASB or
American will not qualify under the Code and thus will not be incentive stock
options ("Non-Qualified Stock Options").
The option exercise price of each option granted under the Stock Option
Plan will be determined by the Committee at the time of option grant, with the
exception that the exercise price for an option must not be less than 100% of
the fair market value of the shares on the date of the grant. In addition, the
exercise price of an ISO may not be less than 110% of the fair market value of
the shares on the date of the grant if the recipient owns more than 10% of ASB's
outstanding common shares. The Committee shall fix the term of each option,
except that an ISO shall not be exercisable after the expiration of ten years
from the date it is granted; provided, however, that if a recipient of an ISO
owns a number of shares representing more than 10% of the ASB shares outstanding
at the time the ISO is granted, the term of the ISO shall not exceed five years.
One-fifth of such stock options awarded under the Stock Option Plan will become
exercisable on each of the first five anniversaries of the date of the award.
-7-
<PAGE> 9
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. Smith at June 30, 1999:
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and 6/30/99 Option /SAR Values
----------------------------------------------------------------------------------
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options/SARs at
Name Shares Acquired Value Options/SARs at 6/30/99 (#) 6/30/99 ($)(1)
on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------- --------------------- ------------------ ------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Robert M. Smith 0 N/A 24,726/19,908 $66,018/$53,154
</TABLE>
- --------------------------
(1) For purposes of this table, the value of the option was determined by
multiplying the number of shares subject to the unexercised option by
the difference between the $10.08 exercise price and the fair market
value of ASB's common shares, which was $12.75 on June 30, 1999, based
on the closing bid price reported by the Nasdaq National Market.
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 Compensation Committee. The Compensation
Committee determines which directors and employees of American will be awarded
shares under the MRP and the number of shares awarded; provided, however, that
the aggregate number of shares covered by awards to any one director or employee
shall not exceed 25% of the shares held pursuant to the MRP and directors who
are not employees of American may not receive more than 5% of such shares
individually or 30% in the aggregate.
Unless the Compensation Committee specifies a longer time period at the
time of an award of shares, one-fifth of such shares will be earned and
non-forfeitable on each of the first five anniversaries of the date of the
award. Until shares awarded are earned by the participant, such shares will be
forfeited in the event that the participant cases to be either a director or an
employee of American, except that in the event of the death or disability of a
participant, the participant's shares will be deemed to be earned and
nonforfeitable.
The shares will be distributed as soon as practicable after they are
earned. A participant may direct the voting of all shares awarded to him or her
prior to such shares being earned and will be entitled to the benefit of any
dividends or other distributions paid on such shares. However, a participant
will not be allowed, for five years from the effective date of the Conversion,
to direct the voting of common shares awarded, but not yet earned and
distributed, if such participant would, if permitted to vote such awarded
shares, be deemed to own in excess of ten
-8-
<PAGE> 10
percent (10%) of all issued and outstanding common shares of ASB. Shares that
have been awarded, but not earned, may not be transferred.
EMPLOYEE STOCK OWNERSHIP PLAN
ASB established the ESOP for the benefit of employees of ASB and its
subsidiaries, including American, who are age 21 or older and who have completed
at least one year of service with ASB and its subsidiaries. The ESOP provides an
ownership interest in ASB to all full-time employees of ASB and its
subsidiaries.
Contributions to the ESOP and shares released from the suspense account
are allocated among participants on the basis of compensation. Except for
participants who retire, become disabled, or die during the plan year, all other
participants must have completed as least 1,000 hours of service in order to
receive an allocation. Benefits become fully vested after five years. Employees
of ASB and American were given credit for vesting purposes for years of service
to American prior to the effective date of the ESOP. Vesting is accelerated upon
retirement at or after age 65, death, disability or termination of the ESOP.
Shares allocated to the account of a participant whose employment by American
terminates prior to having satisfied the vesting requirement will be forfeited.
Forfeitures will be reallocated among remaining participating employees.
Benefits may be paid either in ASB's common shares or in cash. Benefits may be
payable upon retirement, death, disability or separation from service. Benefits
payable under the ESOP cannot be estimated.
ASB common shares and other ESOP funds are held and invested by the
ESOP Trustee. The ESOP Trustee must vote all allocated shares held in the ESOP
in accordance with the instructions of participating employees. The ESOP Trustee
has no authority to vote allocated shares in respect of which no instructions
are received from the participating employee. Unallocated shares are voted by
the ESOP Trustee in its sole discretion.
As of August 31, 1999, 68,583 of the 157,407 common shares of the
Company held in the ESOP Trust had been allocated to the accounts of
participants.
DIRECTOR COMPENSATION
Each director currently receives a fee of $450 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.
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.
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.
-9-
<PAGE> 11
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 2000 Annual Meeting of Shareholders should be sent to ASB by
certified mail and must be received by ASB not later than May 31, 2000.
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 17, 1999 Robert M. Smith, President
-10-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 4,078
<INT-BEARING-DEPOSITS> 3,488
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,604
<INVESTMENTS-CARRYING> 293
<INVESTMENTS-MARKET> 293
<LOANS> 82,430
<ALLOWANCE> 733
<TOTAL-ASSETS> 123,248
<DEPOSITS> 100,954
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,431
<LONG-TERM> 5,823
0
0
<COMMON> 0
<OTHER-SE> 15,040
<TOTAL-LIABILITIES-AND-EQUITY> 123,248
<INTEREST-LOAN> 6,394
<INTEREST-INVEST> 2,144
<INTEREST-OTHER> 72
<INTEREST-TOTAL> 8,580
<INTEREST-DEPOSIT> 4,797
<INTEREST-EXPENSE> 5,112
<INTEREST-INCOME-NET> 3,468
<LOAN-LOSSES> (1)
<SECURITIES-GAINS> 61
<EXPENSE-OTHER> 2,286
<INCOME-PRETAX> 1,513
<INCOME-PRE-EXTRAORDINARY> 1,080
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,080
<EPS-BASIC> .68
<EPS-DILUTED> .67
<YIELD-ACTUAL> 3.04
<LOANS-NON> 261
<LOANS-PAST> 118
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 759
<CHARGE-OFFS> 25
<RECOVERIES> 0
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</TABLE>
