ASB
FINANCIAL
CORP.
2000
ANNUAL
REPORT
TO
SHAREHOLDERS
<PAGE>
Dear Fellow Shareholder:
I am pleased to present this Annual Report to our Shareholders which reflects
another year of solid earnings and growth for ASB Financial.
The completion of our first fiscal year in the new millennium reflected positive
results that will strengthen our ability to sustain continued success and
prosperity. Specifically, we have expanded our product lines and services,
increased our accessibility to the community, and developed a comprehensive
strategic plan focused on maintaining your Corporation's common stock as a
strong and sound investment into the future.
Net earnings for the fiscal year ended June 30, 2000, totaled $1.1 million, or
$.70 per diluted share, which represents an increase of $4,000 compared to the
net earnings reported for fiscal 1999. More importantly, diluted earnings per
share increased by 5% during the year. Total assets amounted to $131.9 million
at June 30, 2000, an increase of $8.7 million, or 7.0% over June 30, 1999. The
loan portfolio grew by a record $12.7 million, or 15.4%, during fiscal 2000,
while deposits increased by a record $ 9.1 million, or 9.0%, during the year.
Your Corporation was able to report stable earnings by posting strong growth in
loans, funded by competitively priced deposit products, which resulted in a
10.4% increase in net interest income and a 13.7% increase in the return on
equity during the year. Our increased earnings per share and return on equity
can be attributed to our successful treasury share repurchase program and our
$1.00 per share special dividend paid during the year. The continued improvement
of these key operating statistics is a constant goal of your Corporation's
management and directors.
Our corporate focus for fiscal 2001 and beyond is a continuing commitment to
growth and service to our community, while embracing the benefits of new
technology in our business. ASB Financial and American Savings Bank have long
stood for the promotion of our local community, and this operating objective
will continue as we meet the needs of our customers through new products,
services and the expansion of our already successful loan, deposit and
investment products. The growth of our business will be accomplished through the
tireless efforts of our employees, without whom we could not have built a
valuable franchise.
We remain committed to the enhancement of shareholder value, as most recently
evidenced by a 10% increase in our quarterly dividends paid per share during
fiscal 2001 from $.10 to $.11, which was reflected in the dividends you received
in July 2000.
We wish to thank you as always for your continued support and patronage and look
forward to our continued successes together in 2001 and beyond.
Very truly yours,
ASB FINANCIAL CORP.
/s/Robert M. Smith
Robert M. Smith
President
<PAGE>
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 1,569,558 common shares of ASB outstanding on September 6, 2000, held
of record by approximately 821 shareholders. Price information for ASB's common
shares is quoted on the Nasdaq National Market ("Nasdaq") under the symbol
"ASBP."
2
<PAGE>
The table below sets forth the high and low closing prices for the common shares
of ASB, as quoted by Nasdaq, together with dividends declared per share, for
each quarter of fiscal 2000 and 1999.
<TABLE>
<CAPTION>
Cash dividends
Quarter Ended High Close Low Close declared
<S> <C> <C> <C>
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
Fiscal 2000
September 30, 1999 $12.75 $10.13 $1.10
December 31, 1999 $11.25 $ 9.00 $ .10
March 31, 2000 $10.00 $ 7.19 $ .10
June 30, 2000 $10.75 $ 7.88 $ .11
</TABLE>
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.
Under the 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 regulations) that is equal to or greater than
the amount of its "well-capitalized" capital requirement, is generally
permitted, without OTS approval (but subsequent to 30 days' prior notice of the
planned dividend to the OTS) to make capital distributions during a calendar
year in an amount not to exceed its net income for that year to date plus its
retained net income for the preceding two years. Savings associations which have
total capital in excess of the "well-capitalized" capital requirement, and which
have been notified by the OTS that they are in need of more than normal
supervision can be subject to greater restrictions on dividends. In addition, 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 the definition of a "well-capitalized"
institution and, unless the OTS determines that American is an institution
requiring more than normal supervision, may pay dividends in accordance with the
foregoing provisions of the OTS regulations.
3
<PAGE>
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: -------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(In thousands)
Total amount of:
<S> <C> <C> <C> <C> <C>
Assets $131,898 $123,248 $116,437 $112,469 $112,922
Cash and cash equivalents (1) 5,069 7,566 13,890 3,850 3,836
Certificates of deposit in other financial - 293 2,004 4,258 6,702
institutions
Investment securities available for sale - at market 19,112 19,372 11,835 18,660 19,284
Mortgage-backed securities available for sale - at
market 8,616 10,232 8,924 8,560 10,728
Loans receivable - net 95,084 82,430 76,550 74,136 68,455
Real estate acquired through foreclosure - net - - 157 - 663
Deposits 110,007 100,954 93,477 89,752 83,395
Advances from the FHLB 7,790 5,823 4,354 2,884 2,413
Shareholders' equity, restricted (2) 12,581 15,040 14,490 17,701 25,613
</TABLE>
------------------------------
(1) Consists of cash and due from banks and interest-bearing deposits in other
financial institutions.
(2) At June 30, 2000, 1999, 1998, 1997 and 1996, includes $(592,000), $265,000,
$714,000, $412,000 and $124,000, respectively, of unrealized (losses) 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>
<TABLE>
<CAPTION>
Selected consolidated operating Year ended June 30,
data: ---------------------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $9,257 $8,580 $8,541 $8,393 $8,173
Interest expense 5,427 5,112 4,961 4,686 4,310
----- ----- ----- ----- -----
Net interest income 3,830 3,468 3,580 3,707 3,863
Provision for (recoveries of) losses on loans 1 (1) (5) 28 -
----- ----- ----- ----- -----
Net interest income after provision for
(recoveries of) losses on loans 3,829 3,469 3,585 3,679 3,863
Other income 354 330 281 364 195
General, administrative and other expense 2,673 2,286 2,345 3,054 2,373
----- ----- ----- ----- -----
Earnings before income taxes 1,510 1,513 1,521 989 1,685
Federal income taxes 426 433 445 322 574
----- ----- ----- ----- -----
Net earnings $1,084 $1,080 $1,076 $ 667 $1,111
===== ===== ===== ===== =====
Earnings per share
Basic $.70 $.68 $.68 $.42 $.69
=== === === === ===
Diluted $.70 $.67 $.67 $.41 $.69
=== === === === ===
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Year ended June 30,
Selected financial ratios: 2000 1999 1998 1997 1996
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Return on average assets .86% .90% .95% .59% 1.01%
Average interest rate spread during period 2.74 2.54 2.46 2.41 2.55
Net interest margin 3.15 3.04 3.25 3.39 3.69
Return on average equity 8.21 7.22 6.38 3.15 4.30
Equity to total assets at end of period 9.54 12.20 12.44 15.74 22.68
Average interest-earning assets to average
interest-bearing liabilities 109.25 111.02 117.41 122.77 127.55
Net interest income to general, administrative
and other expense 143.28 151.71 152.67 121.38 162.79
General, administrative and other expense to
average total assets 2.13 1.91 2.08 2.70 2.16
Nonperforming assets to total assets .21 .31 .34 1.02 1.61
Loan loss allowance to nonperforming loans 257.30 193.40 316.25 71.62 76.34
Dividend payout ratio 201.43 58.82 352.94 1,285.71 47.10
</TABLE>
<PAGE>
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, 1999 TO JUNE 30, 2000
ASB's total assets amounted to $131.9 million at June 30, 2000, an increase of
$8.7 million, or 7.0%, over 1999 levels. The increase in total assets was funded
primarily from a $9.1 million increase in deposits and a $2.0 million increase
in FHLB advances.
Cash, interest-bearing deposits and certificates of deposit totaled $5.1 million
at June 30, 2000, a decrease of $2.8 million, or 35.5%, from 1999 levels.
Investment securities totaled $19.1 million at June 30, 2000, a decrease of
$260,000, or 1.3%, from the balance at June 30, 1999. Mortgage-backed securities
decreased by $1.6 million, or 15.8%, due primarily to principal repayments
totaling $1.3 million.
Loans receivable increased by $12.7 million, or 15.4%, to a total of $95.1
million at June 30, 2000, compared to $82.4 million at June 30, 1999. Loan
disbursements of $30.0 million and purchases of $1.9 million exceeded principal
repayments of $19.2 million during fiscal 2000. Growth in loans secured by
residential real estate totaled $5.1 million, or 8.1%, while the nonresidential
portfolio increased by $3.2 million, or 37.5%, and the consumer loan portfolio
increased by $4.4 million, or 38.0%.
At June 30, 2000, American's allowance for loan losses totaled $723,000,
representing .74% of total loans and 257.3% of nonperforming loans. At June 30,
1999, the allowance for loan losses totaled $733,000, or .85% of total loans and
193.4% of nonperforming loans. Nonperforming loans amounted to $281,000 and
$379,000 at June 30, 2000 and 1999, respectively. Although management believes
that its allowance for loan losses at June 30, 2000, was adequate based on the
available facts and circumstances, there can be no assurances that additions to
such allowance will not be necessary in future periods, which could adversely
affect ASB's results of operations.
Deposits increased by $9.1 million, or 9.0%, during fiscal 2000 to a total of
$110.0 million at June 30, 2000. The increase resulted primarily from
management's continuing efforts to maintain growth in deposits through marketing
and pricing strategies. Borrowings increased by $2.0 million, or 33.8%, during
fiscal 2000, compared to 1999. Proceeds from advances and growth in deposits
were generally used to fund new loan originations.
6
<PAGE>
Shareholders' equity totaled $12.6 million at June 30, 2000, a decrease of $2.5
million, or 16.3%, from June 30, 1999 levels. The decrease resulted primarily
from dividends paid of $2.1 million, treasury stock repurchases of $949,000, and
an $857,000 decline in unrealized gains on available for sale securities, which
were partially offset by net earnings of $1.1 million.
COMPARISON OF OPERATING RESULTS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
General. Net earnings amounted to $1.1 million for the fiscal year ended June
30, 2000, an increase of $4,000, or .4%, over fiscal 1999. The increase in
earnings resulted primarily from a $362,000 increase in net interest income, a
$24,000 increase in other income and a $7,000 decrease in the provision for
federal income taxes, which were substantially offset by a $387,000 increase in
general, administrative and other expense.
Net Interest Income. Total interest income amounted to $9.3 million for the
fiscal year ended June 30, 2000, an increase of $677,000, or 7.9%, over fiscal
1999. Interest income on loans totaled $7.2 million in fiscal 2000, an increase
of $759,000, or 11.9%. This increase was due primarily to an $8.0 million, or
10.1%, increase in the weighted-average balance of loans outstanding, coupled
with a 13 basis point increase in the average yield year to year. Interest
income on mortgage-backed securities decreased by $108,000, or 15.2%, as a
result of an $854,000, or 8.0%, decrease in the weighted-average balance
outstanding and a 52 basis point decline in yield year to year. Interest income
on investment securities and interest-bearing deposits increased by $26,000, or
1.8%, due primarily to a 7 basis point increase in the weighted-average yield
and a $125,000, or .5%, increase in the weighted-average balance outstanding
year to year.
Interest expense totaled $5.4 million for the fiscal year ended June 30, 2000,
an increase of $315,000, or 6.2%, over the $5.1 million total recorded in fiscal
1999. Interest expense on deposits increased by $236,000, or 4.9%, due primarily
to a $7.3 million, or 7.5%, increase in the weighted-average balance
outstanding, which was partially offset by a 12 basis point decrease in the
weighted-average cost of deposits year to year. Interest expense on borrowings
increased by $79,000, or 25.1%, due primarily to a $1.0 million, or 17.5%,
increase in the weighted-average balance outstanding and a 34 basis point
increase in the average cost of borrowings, to 5.72% in fiscal 2000.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $362,000, or 10.4%, to a total of $3.8 million
for the fiscal year ended June 30, 2000, compared to $3.5 million in fiscal
1999. The interest rate spread increased by 20 basis points to 2.74% in fiscal
2000 from 2.54% in fiscal 1999, and the net interest margin increased to 3.15%
in 2000 from 3.04% in 1999.
Provision for Losses on Loans. American charges a provision for losses on loans
to earnings to bring the total allowance for loan losses to a level considered
appropriate by management based on historical experience, the volume and type of
lending conducted by American, the status of past due principal and interest
payments, general economic conditions, particularly as such conditions relate to
American's market area, and other factors related to the collectibility of
American's loan portfolio. As a result of such analysis, management determined
that the allowance for loan losses was adequate and elected to record only a
minimal provision for losses on loans for the fiscal year ended June 30, 2000.
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.
7
<PAGE>
Other Income. Other income totaled $354,000 for the fiscal year ended June 30,
2000, an increase of $24,000, or 7.3%, over the $330,000 recorded in fiscal
1999. The increase resulted primarily from an increase of $73,000 in other
operating income, which was partially offset by a $52,000 decrease in the gain
on sale of investment securities year to year. The increase in other operating
income was comprised of a $35,000, or 53.8%, increase in revenues related to
sales of non-deposit investment products through an agency arrangement with a
third-party vendor, coupled with an increase in fees on loans and deposits
transactions.
General, Administrative and Other Expense. General, administrative and other
expense totaled $2.7 million for the fiscal year ended June 30, 2000, an
increase of $387,000, or 16.9%, over the total recorded in fiscal 1999. The
increase resulted primarily from a $315,000, or 26.1%, increase in employee
compensation and benefits, a $31,000, or 27.9%, increase in occupancy and
equipment expense, a $55,000, or 22.5%, increase in data processing costs and a
$14,000, or 3.0%, increase in other operating expense. The increase in employee
compensation and benefits was due primarily to an increase in staffing levels
year to year and an increase in expense related to employee benefit plans,
coupled with a decrease in deferred loan origination costs resulting from the
decrease in loan volume in fiscal 2000. The increase in occupancy and equipment
expense resulted primarily from depreciation expense associated with capital
additions in 1999 and 2000. The increase in data processing was due primarily to
American's overall growth year to year, coupled with costs related to enhanced
computer programs for loan underwriting and item-processing.
Federal Income Taxes. The provision for federal income taxes totaled $426,000
for the fiscal year ended June 30, 2000, a decrease of $7,000, or 1.6%, from the
$433,000 recorded in fiscal 1999. The decrease was due primarily to the effects
of tax credits realized from American's investment in a low income housing
project. ASB's effective tax rates were 28.2% and 28.6% for the fiscal years
ended June 30, 2000 and 1999, respectively.
8
<PAGE>
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 substantially 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, 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 partially 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. 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 years ended June 30, 1999 and
1998.
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
9
<PAGE>
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 an
$8,000, or .5%, decrease in pretax earnings year to year, coupled with the
effects of 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.
10
<PAGE>
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,
---------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------- ------------------------------- -------------------------------
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 $ 87,363 $7,153 8.19% $ 79,368 $6,394 8.06% $ 78,868 $6,363 8.07%
Mortgage-backed
securities 9,779 601 6.15 10,633 709 6.67 8,118 594 7.32
Investment securities and
other interest-earning
assets 24,351 1,503 6.17 24,226 1,477 6.10 23,177 1,584 6.83
------- ----- ---- ------- ----- ---- ------- ----- ----
Total interest-earning
assets 121,493 9,257 7.62 114,227 8,580 7.51 110,163 8,541 7.75
Non-interest-earning assets 3,951 5,710 2,824
------- ------- -------
Total assets $125,444 $119,937 $112,987
======= ======= =======
Interest-bearing liabilities:
Deposits $104,324 5,033 4.82 $ 97,032 4,797 4.94 $ 90,317 4,726 5.23
Borrowings 6,884 394 5.72 5,857 315 5.38 3,508 235 6.70
------- ----- ---- ------- ----- ---- ------- ----- ----
Total interest-bearing
liabilities 111,208 5,427 4.88 102,889 5,112 4.97 93,825 4,961 5.29
----- ---- ----- ---- ----- ----
Non-interest-bearing
liabilities 1,032 2,088 2,289
------- ------- -------
Total liabilities 112,240 104,977 96,114
Shareholders' equity 13,204 14,960 16,873
------- ------- -------
Total liabilities and
shareholders' equity $125,444 $119,937 $112,987
======= ======= =======
Net interest income $3,830 $3,468 $3,580
===== ===== =====
Interest rate spread 2.74% 2.54% 2.46%
==== ==== ====
Net interest margin (net
interest income as a
percent of average
interest-earning assets) 3.15% 3.04% 3.25%
==== ==== ====
Average interest-earning
assets to average interest-
bearing liabilities 109.25% 111.02% 117.41%
====== ====== ======
</TABLE>
-----------------------------------
11
<PAGE>
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,
2000 vs. 1999 1999 vs. 1998
-------------------------- --------------------------
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 $652 $107 $759 $ 40 $ (9) $ 31
Mortgage-backed securities (54) (54) (108) 174 (59) 115
Investment securities and interest -
bearing assets 8 18 26 67 (174) (107)
--- --- --- ---- --- ----
Total interest-earning assets 606 71 677 281 (242) 39
--- --- --- ---- --- ----
Interest-bearing liabilities:
Deposits 353 (117) 236 341 (270) 71
Borrowings 83 (4) 79 117 (37) 80
--- --- --- ---- --- ----
Total interest-bearing liabilities 436 (121) 315 458 (307) 151
--- --- --- ---- --- ----
Increase (decrease) in net interest
income $170 $192 $362 $(177) $ 65 $(112)
=== === === ==== === ====
</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.
The following table presents, at June 30, 2000 and 1999, 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
12
<PAGE>
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, 2000 At June 30, 1999
------------------------- -------------------------
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)% $(5,088) (41)% $(3,945) (26)%
+200 (30) (3,358) (27) (2,489) (16)
+100 (20) (1,633) (13) (1,109) (7)
- - - - - -
-100 20 1,224 10 560 4
-200 30 1,613 13 837 5
-300 40 2,066 17 1,345 9
</TABLE>
While the model reflects a 41% decline in NPV assuming a 300 basis point
increase in interest rates, which would exceed the Board approved limit of 40%
by 1%, management has taken steps to ensure immediate compliance with the policy
during the first quarter of fiscal 2001.
In the event that interest rates should rise from current 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>
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, 2000, 1999, and 1998:
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Net cash from operating activities $ 1,554 $ 1,323 $ 1,145
Net cash from investing activities (12,065) (13,629) 6,618
Net cash from financing activities 8,014 5,982 2,277
------ ------ ------
Net change in cash and cash equivalents (2,497) (6,324) 10,040
Cash and cash equivalents at the beginning of the year 7,566 13,890 3,850
------ ------ ------
Cash and cash equivalents at the end of the year $ 5,069 $ 7,566 $13,890
====== ====== ======
</TABLE>
American generally strives to maintain liquidity (defined as cash,
interest-bearing deposits and investment securities with terms of less than five
years) in a range of 10% to 25% of total assets. OTS regulations require that a
savings association maintain an average daily balance of liquid assets (cash,
certain time deposits and specified United States Government, state or federal
agency obligations) equal to a monthly average of not less than 4% of its net
withdrawable savings deposits plus borrowings payable in one year or less.
Federal regulations also require each association to maintain an average daily
balance of short-term liquid assets at a specified percentage, currently 1%, of
the total of its net withdrawable savings accounts and borrowings payable in one
year or less. Monetary penalties may be imposed upon associations failing to
meet liquidity requirements. At June 30, 2000, eligible liquidity of American,
as computed under current regulations, was approximately $23.6 million, or
20.5%, and exceeded the then applicable 4.0% liquidity requirement by
approximately $19.0 million, or 16.5%.
At June 30, 2000, American had outstanding commitments of approximately $1.3
million to originate loans. Additionally, American was obligated under unused
lines and letters of credit totaling $4.3 million. In the opinion of management,
all loan commitments had interest rates which equaled or exceeded market
interest rates as of June 30, 2000, 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, 2000, 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, 2000, 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>
<TABLE>
<CAPTION>
June 30, 2000
Excess of
regulatory capital
Regulatory Current over current
capital requirement requirement
----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $10,265 7.9% $1,949 1.5% $8,316 6.4%
Core capital $10,265 7.9% $5,196 4.0% $5,069 3.9%
Risk-based capital $10,988 15.1% $5,824 8.0% $5,164 7.1%
</TABLE>
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
requires entities to recognize all derivatives in their financial statements as
either assets or liabilities measured at fair value. SFAS No. 133 also specifies
new methods of accounting for hedging transactions, prescribes the items and
transactions that may be hedged, and specifies detailed criteria to be met to
qualify for hedge accounting.
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It 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. The Corporation adopted SFAS No. 133 as of July 1, 2000,
as required, without material effect on financial condition or results of
operations.
15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS AND
CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 17
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 18
CONSOLIDATED STATEMENTS OF EARNINGS 19
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 20
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 21
CONSOLIDATED STATEMENTS OF CASH FLOWS 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24
16
<PAGE>
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, 2000 and 1999, and the related
consolidated statements of earnings, comprehensive income, shareholders' equity
and cash flows for each of the three years ended June 30, 2000, 1999 and 1998.
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, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the years ended June 30, 2000, 1999
and 1998, in conformity with generally accepted accounting principles.
/s/GRANT THORNTON LLP
Cincinnati, Ohio
August 21, 2000
17
<PAGE>
ASB Financial Corp.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands, except share data)
ASSETS 2000 1999
<S> <C> <C>
Cash and due from banks $ 917 $ 466
Interest-bearing deposits in other financial institutions 4,152 7,100
------- -------
Cash and cash equivalents 5,069 7,566
Certificates of deposit in other financial institutions - 293
Investment securities available for sale - at market 19,112 19,372
Mortgage-backed securities available for sale - at market 8,616 10,232
Loans receivable - net 95,084 82,430
Office premises and equipment - at depreciated cost 1,366 1,047
Federal Home Loan Bank stock - at cost 733 778
Accrued interest receivable on loans 63 78
Accrued interest receivable on mortgage-backed securities 59 66
Accrued interest receivable on investments and
interest-bearing deposits 355 290
Prepaid expenses and other assets 542 714
Prepaid federal income taxes 228 200
Deferred federal income tax assets 671 182
------- -------
Total assets $131,898 $123,248
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $110,007 $100,954
Advances from the Federal Home Loan Bank 7,790 5,823
Advances by borrowers for taxes and insurance 173 168
Accrued interest payable 89 93
Other liabilities 1,258 1,170
------- -------
Total liabilities 119,317 108,208
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; 1,746,924 and
1,740,854 shares issued at June 30, 2000 and 1999, respectively - -
Additional paid-in capital 8,454 8,306
Retained earnings, restricted 7,870 8,909
Shares acquired by stock benefit plans (1,059) (1,297)
Accumulated comprehensive income (loss), unrealized gains (losses) on securities
designated as available for sale, net of related tax effects (592) 265
Less 177,366 and 86,066 shares of treasury stock - at cost (2,092) (1,143)
------- -------
Total shareholders' equity 12,581 15,040
------- -------
Total liabilities and shareholders' equity $131,898 $123,248
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
ASB Financial Corp.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
For the year ended June 30,
(In thousands, except share data)
2000 1999 1998
<S> <C> <C> <C>
Interest income
Loans $7,153 $6,394 $6,363
Mortgage-backed securities 601 709 594
Investment securities 1,491 1,405 1,390
Interest-bearing deposits and other 12 72 194
----- ----- -----
Total interest income 9,257 8,580 8,541
Interest expense
Deposits 5,033 4,797 4,726
Borrowings 394 315 235
----- ----- -----
Total interest expense 5,427 5,112 4,961
----- ----- -----
Net interest income 3,830 3,468 3,580
Provision for (recoveries of) losses on loans 1 (1) (5)
----- ----- -----
Net interest income after provision
for (recoveries of) losses on loans 3,829 3,469 3,585
Other income
Gain on sale of investment securities 9 61 22
Loss on sale of real estate acquired through foreclosure - (3) -
Other operating 345 272 259
----- ----- -----
Total other income 354 330 281
General, administrative and other expense
Employee compensation and benefits 1,522 1,207 1,251
Occupancy and equipment 142 111 116
Federal deposit insurance premiums 40 56 57
Franchise taxes 190 202 245
Data processing 299 244 196
Other operating 480 466 480
----- ----- -----
Total general, administrative and other expense 2,673 2,286 2,345
----- ----- -----
Earnings before income taxes 1,510 1,513 1,521
Federal income taxes
Current 474 355 438
Deferred (48) 78 7
----- ----- -----
Total federal income taxes 426 433 445
----- ----- -----
NET EARNINGS $1,084 $1,080 $1,076
===== ===== =====
EARNINGS PER SHARE
Basic $.70 $.68 $.68
=== === ===
Diluted $.70 $.67 $.67
=== === ===
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
ASB Financial Corp.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the year ended June 30,
(In thousands)
2000 1999 1998
<S> <C> <C> <C>
Net earnings $1,084 $1,080 $1,076
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period, net of tax of $(437), $(210) and $163
in 2000, 1999 and 1998, respectively (851) (409) 317
Reclassification adjustment for realized gains
included in earnings, net of tax of $3, $21 and $7
in 2000, 1999 and 1998, respectively (6) (40) (15)
----- ----- -----
Comprehensive income $ 227 $ 631 $1,378
===== ===== =====
Accumulated comprehensive income (loss) $ (592) $ 265 $ 714
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
ASB Financial Corp.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended June 30, 2000, 1999 and 1998
(In thousands, except share data)
Unrealized
gains (losses)
Shares on securities
Additional acquired designated as
Common paid-in Retained by stock available Treasury
stock capital earnings benefit plans for sale stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1997 $ - $8,023 $11,187 $(1,921) $ 412 $ - $17,701
Amortization of expense related to stock
benefit plans - 85 - 244 - - 329
Issuance of shares under stock option plan - 196 - - - - 196
Net earnings for the year ended June 30, 1998 - - 1,076 - - - 1,076
Cash dividends of $2.40 per share - - (3,971) - - - (3,971)
Purchase of treasury shares - at cost - - - - - (1,143) (1,143)
Unrealized gains on securities designated as
available for sale, net of related tax effects - - - - 302 - 302
--- ----- ------- ------ --- ------ ------
Balance at June 30, 1998 - 8,304 8,292 (1,677) 714 (1,143) 14,490
Amortization of expense related to stock
benefit plans - 2 - 380 - - 382
Net earnings for the year ended June 30, 1999 - - 1,080 - - - 1,080
Cash dividends of $.40 per share - - (463) - - - (463)
Unrealized losses on securities designated as
available for sale, net of related tax effects - - - - (449) - (449)
--- ----- ------- ------ --- ------ ------
Balance at June 30, 1999 - 8,306 8,909 (1,297) 265 (1,143) 15,040
Amortization of expense related to stock
benefit plans - 87 - 238 - - 325
Net earnings for the year ended June 30, 2000 - - 1,084 - - - 1,084
Cash dividends of $1.41 per share - - (2,123) - - - (2,123)
Purchase of treasury shares - at cost - - - - - (949) (949)
Issuance of shares under stock option plan - 61 - - - - 61
Unrealized losses on securities designated as
available for sale, net of related tax effects - - - - (857) - (857)
--- ----- ----- ------ ---- ------ ------
Balance at June 30, 2000 $ - $8,454 $7,870 $(1,059) $(592) $(2,092) $12,581
=== ===== ===== ====== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE>
ASB Financial Corp.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended June 30,
(In thousands)
2000 1999 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year $ 1,084 $ 1,080 $ 1,076
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 32 38 33
Amortization of deferred loan origination fees (47) (67) (85)
Amortization of expense related to stock benefit plans 325 382 329
Depreciation and amortization 86 66 73
Provision for (recoveries of) losses on loans 1 (1) (5)
Gain on sale of investment securities (9) (61) (22)
Loss on sale of real estate acquired through foreclosure - 3 -
Federal Home Loan Bank stock dividends (55) (53) (50)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 15 47 (30)
Accrued interest receivable on mortgage-backed securities 7 4 8
Accrued interest receivable on investments and
interest-bearing deposits (65) 18 48
Prepaid expenses and other assets 172 (49) (61)
Accrued interest payable (4) (25) 6
Other liabilities 88 (159) (22)
Federal income taxes
Current (28) 22 (160)
Deferred (48) 78 7
------ ------ ------
Net cash provided by operating activities 1,554 1,323 1,145
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 350 11,264 13,970
Proceeds from sale of investment securities 1,011 60 1,007
Purchase of investment securities (2,116) (19,259) (7,768)
Purchase of mortgage-backed securities - (5,625) (3,327)
Proceeds from sale of mortgage-backed securities - 838 119
Principal repayments on mortgage-backed securities 1,310 3,221 2,905
Purchase of loans (1,875) (778) (2,183)
Loan principal repayments 19,232 28,170 24,815
Loan disbursements (29,965) (33,204) (25,113)
Purchase of office premises and equipment (405) (181) (61)
Proceeds from sale of real estate acquired through foreclosure - 154 -
Redemption of Federal Home Loan Bank stock 100 - -
Decrease in certificates of deposit in other financial
institutions - net 293 1,711 2,254
------ ------ ------
Net cash provided by (used in) investing activities (12,065) (13,629) 6,618
------ ------ ------
Net cash provided by (used in) operating and investing
activities (subtotal carried forward) (10,511) (12,306) 7,763
------ ------ ------
</TABLE>
22
<PAGE>
ASB Financial Corp.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the year ended June 30,
(In thousands)
2000 1999 1998
<S> <C> <C> <C>
Net cash provided by (used in) operating and investing activities
(subtotal brought forward) $(10,511) $(12,306) $ 7,763
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 9,053 7,477 3,725
Proceeds from Federal Home Loan Bank advances 9,500 2,000 4,000
Proceeds from other borrowed money - - 2,500
Repayment of Federal Home Loan Bank advances (7,533) (531) (2,530)
Repayment of other borrowed money - (2,500) (500)
Advances by borrowers for taxes and insurance 5 (1) -
Proceeds from issuance of shares under stock option plan 61 - 196
Purchase of treasury stock (949) - (1,143)
Dividends paid on common stock (2,123) (463) (3,971)
------- ------- ------
Net cash provided by financing activities 8,014 5,982 2,277
------- ------- ------
Net increase (decrease) in cash and cash equivalents (2,497) (6,324) 10,040
Cash and cash equivalents at beginning of year 7,566 13,890 3,850
------- ------- ------
Cash and cash equivalents at end of year $ 5,069 $ 7,566 $13,890
======= ======= ======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 547 $ 377 $ 618
======= ======= ======
Interest on deposits and borrowings $ 5,431 $ 5,137 $ 4,955
======= ======= ======
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 $ (857) $ (449) $ 302
======= ======= ======
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000, 1999 and 1998
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.
24
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. Investment Securities and Mortgage-Backed Securities (continued)
At June 30, 2000, the Corporation's shareholders' equity reflected a net
unrealized loss on securities designated as available for sale of $592,000,
compared to a net unrealized gain of $265,000 at June 30, 1999.
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.
25
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Allowance for Loan Losses
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 multi-family and nonresidential loans, and its
evaluation of impairment thereof, 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, 2000 and 1999, the Savings Bank's investment in impaired loans,
as defined, totaled approximately $454,000 and $459,000, respectively. The
Savings Bank maintained an allowance for credit losses related to such
impaired loans of $46,000 at each of those respective dates.
26
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
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.
27
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
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 $26,000, $19,000 and $10,000 for the fiscal years ended June 30,
2000, 1999 and 1998, 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 $270,000, $172,000 and
$274,000 for the fiscal years ended June 30, 2000, 1999 and 1998,
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,
2000, 48,302 shares had been awarded. Common shares awarded under the MRP
vest ratably over a five year period, commencing with the date of the award.
Expense recognized under the MRP plan totaled approximately $132,000,
$167,000 and $153,000 for the fiscal years ended June 30, 2000, 1999 and
1998, respectively.
11. Earnings Per Share
Basic earnings per share for the fiscal years ended June 30, 2000, 1999 and
1998 is based upon the weighted-average shares outstanding during the year,
less 49,633, 62,795 and 77,756 unallocated ESOP shares, respectively.
Weighted-average common shares deemed outstanding totaled 1,548,144,
1,584,451 and 1,586,217 for the fiscal years ended June 30, 2000, 1999 and
1998, 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
1,548,144, 1,611,751 and 1,615,737 for the fiscal years ended
28
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. Earnings Per Share (continued)
June 30, 2000, 1999 and 1998, respectively. Incremental shares related to
the assumed exercise of stock options included in the computation of diluted
earnings per share totaled 27,300 and 29,520 for the fiscal years ended June
30, 1999 and 1998, respectively. Options to purchase 164,557 shares of
common stock with a weighted-average exercise price of $10.08 were
outstanding at June 30, 2000, but were excluded from the computation of
common stock equivalents because their exercise price was higher than the
average market price of the common stock.
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,
2000 and 1999:
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.
29
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
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: The fair value of
these advances are estimated using the rates currently offered
for similar advances with 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, 2000 and 1999, 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>
2000 1999
Carrying Fair Carrying Fair
value value value value
(In thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 5,069 $ 5,069 $ 7,566 $ 7,566
Certificates of deposit in other financial
institutions - - 293 293
Investment securities 19,112 19,112 19,372 19,372
Mortgage-backed securities 8,616 8,616 10,232 10,232
Loans receivable 95,084 91,278 82,430 82,127
Federal Home Loan Bank stock 733 733 778 778
------- ------- ------- -------
$128,614 $124,808 $120,671 $120,368
======= ======= ======= =======
Financial liabilities
Deposits $110,007 $110,135 $100,954 $101,403
Advances from the Federal Home Loan Bank 7,790 7,748 5,823 5,750
Escrow deposits 173 173 168 168
------- ------- ------- -------
$117,970 $118,056 $106,945 $107,321
======= ======= ======= =======
</TABLE>
30
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
13. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and interest-bearing deposits due from other financial
institutions with original maturities of less than ninety days.
14. Advertising
Advertising costs are expensed when incurred. The Corporation's advertising
expense totaled $46,000, $41,000 and $44,000 for the fiscal years ended June
30, 2000, 1999 and 1998, respectively.
15. Reclassifications
Certain prior year amounts have been reclassified to conform to the 2000
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, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
2000
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 $19,532 $ 4 $1,273 $18,263
FHLMC stock 18 711 - 729
Corporate equity securities 169 - 49 120
------ --- ----- ------
$19,719 $715 $1,322 $19,112
====== === ===== ======
</TABLE>
<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>
31
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost and estimated fair value of U.S. Government agency
obligations by contractual term to maturity at June 30 are shown below:
<TABLE>
<CAPTION>
2000 1999
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
<S> <C> <C> <C> <C>
Due after three years through
five years $ - $ - $ 1,000 $ 983
Due after five years 19,532 18,263 17,764 17,150
------ ------ ------ ------
$19,532 $18,263 $18,764 $18,133
====== ====== ====== ======
</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, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
2000
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 $1,020 $ 5 $ 9 $1,016
Government National Mortgage
Association participation certificates 2,596 15 56 2,555
Federal National Mortgage Association
participation certificates 931 3 37 897
Collateralized mortgage obligations 4,359 - 211 4,148
----- --- --- -----
Total mortgage-backed securities $8,906 $ 23 $313 $8,616
===== === === =====
</TABLE>
<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>
32
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost of mortgage-backed securities, by contractual terms to
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may generally prepay obligations without
prepayment penalties.
<TABLE>
<CAPTION>
June 30,
2000 1999
(In thousands)
<S> <C> <C>
Due within three years $ 33 $ 88
Due in three to five years 116 -
Due in five to ten years 431 701
Due in ten to twenty years 1,795 2,052
Due after twenty years 6,531 7,410
----- ------
$8,906 $10,251
===== ======
</TABLE>
Proceeds from sales of investment and mortgage-backed securities amounted to
$1.0 million, $898,000 and $1.1 million during the years ended June 30,
2000, 1999 and 1998, respectively, and resulted in gross realized gains
totaling $9,000, $61,000 and $22,000, for those respective periods.
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at June 30 is as follows:
<TABLE>
<CAPTION>
2000 1999
(In thousands)
<S> <C> <C>
Residential real estate
One- to four- family $65,618 $60,810
Multi-family 3,160 3,404
Construction 992 2,162
Nonresidential real estate and land 11,691 8,504
Consumer and other 15,804 11,449
------ ------
97,265 86,329
Less:
Undisbursed portion of loans in process 1,255 2,966
Deferred loan origination fees 203 200
Allowance for loan losses 723 733
------ ------
$95,084 $82,430
====== ======
</TABLE>
33
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE C - LOANS RECEIVABLE (continued)
The Savings Bank's lending efforts have historically focused on one- to
four-family and multi-family residential real estate loans, which comprise
approximately $68.5 million, or 72%, of the total loan portfolio at June 30,
2000, and $63.4 million, or 77%, of the total loan portfolio at June 30,
1999. 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 did not involve more than the normal risk of
collectibility. However, 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 $474,000 and $514,000 at June 30, 2000 and 1999,
respectively.
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>
2000 1999 1998
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $733 $759 $820
Provision for (recoveries of) losses on loans 1 (1) (5)
Charge-offs of loans (11) (25) (56)
--- --- ---
Balance at end of year $723 $733 $759
=== === ===
</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.
34
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE D - ALLOWANCE FOR LOAN LOSSES (continued)
Nonperforming and nonaccrual loans totaled approximately $281,000, $379,000
and $240,000 at June 30, 2000, 1999 and 1998, respectively.
During the years ended June 30, 2000, 1999 and 1998, interest income of
approximately $3,000, $5,000 and $6,000, 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>
2000 1999
(In thousands)
<S> <C> <C>
Land and improvements $ 389 $ 376
Office buildings and improvements 1,581 1,358
Furniture, fixtures and equipment 648 479
----- -----
2,618 2,213
Less accumulated depreciation and
amortization 1,252 1,166
----- -----
$1,366 $1,047
===== =====
</TABLE>
35
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE F - DEPOSITS
Deposits consist of the following major classifications at June 30:
<TABLE>
<CAPTION>
Deposit type and weighted-
average interest rate 2000 1999
(In thousands)
<S> <C> <C>
NOW accounts
2000 - 2.06% $ 7,237
1999 - 2.03% $ 6,680
Passbook
2000 - 2.94% 7,735
1999 - 2.94% 7,862
Money market deposit accounts
2000 - 3.31% 15,790
1999 - 3.85% 11,785
------- -------
Total demand, transaction and
passbook deposits 30,762 26,327
Certificates of deposit
Original maturities of:
Less than 12 months
2000 - 5.74% 6,935
1999 - 4.60% 6,182
12 months to 24 months
2000 - 5.80% 44,778
1999 - 5.37% 40,671
30 months to 36 months
2000 - 5.56% 6,612
1999 - 5.53% 6,324
More than 36 months
2000 - 5.85% 612
1999 - 6.05% 923
Individual retirement accounts
2000 - 5.90% 14,991
1999 - 5.57% 14,690
Jumbo accounts
2000 - 5.28% 5,317
1999 - 5.26% 5,837
------- -------
Total certificates of deposit 79,245 74,627
------- -------
Total deposit accounts $110,007 $100,954
======= =======
</TABLE>
At June 30, 2000 and 1999, the Corporation had certificate of deposit accounts
with balances greater than $100,000 totaling $10.3 million and $15.7 million,
respectively.
36
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE F - DEPOSITS (continued)
Interest expense on deposits for the year ended June 30 is summarized as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
(In thousands)
<S> <C> <C> <C>
Passbook $ 230 $ 224 $ 212
NOW and money market deposit
accounts 611 489 376
Certificates of deposit 4,192 4,084 4,138
----- ----- -----
$5,033 $4,797 $4,726
===== ===== =====
</TABLE>
Maturities of outstanding certificates of deposit at June 30 are summarized
as follows:
<TABLE>
<CAPTION>
2000 1999
(In thousands)
<S> <C> <C>
Less than one year $52,822 $46,943
One to three years 26,199 27,318
Over three years 224 366
------ ------
$79,245 $74,627
====== ======
</TABLE>
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at June 30, 2000 by
pledges of certain residential mortgage loans totaling $11.7 million and the
Savings Bank's investment in Federal Home Loan Bank stock, are summarized as
follows:
<TABLE>
<CAPTION>
Maturing
year ending June 30,
Interest rate June 30, 2000 1999
(Dollars in thousands)
<S> <C> <C> <C>
6.15% 2000 $ - $ 500
6.10% 2001 2,500 -
4.40% - 6.12% 2004 1,000 1,000
3.16% - 6.18% 2008 3,290 3,323
4.80% - 5.53% 2009 1,000 1,000
----- -----
$7,790 $5,823
===== =====
Weighted-average interest rate 5.85% 5.06%
==== ====
</TABLE>
37
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE H - FEDERAL INCOME TAXES
Federal income taxes differ from the amounts computed at the statutory
corporate tax rate for the years ended June 30 as follows:
<TABLE>
<CAPTION>
2000 1999 1998
(In thousands)
<S> <C> <C> <C>
Federal income taxes computed at
statutory rate $513 $514 $517
Increase (decrease) in taxes resulting from
Low income housing investment tax credits (79) (79) (70)
Nontaxable interest income (3) (2) (2)
Other (5) - -
--- --- ---
Federal income tax provision per consolidated
financial statements $426 $433 $445
=== === ===
</TABLE>
The composition of the Corporation's net deferred tax asset at June 30 is as
follows:
<TABLE>
<CAPTION>
2000 1999
(In thousands)
<S> <C> <C>
Taxes (payable) refundable on temporary
differences at estimated corporate tax rate:
Deferred tax assets:
General loan loss allowance $ 246 $251
Deferred compensation 516 503
Employee stock benefit plans 36 42
Book/tax depreciation 15 12
Unrealized loss on securities designated as
available for sale 305 -
----- ---
Total deferred tax assets 1,118 808
Deferred tax liabilities:
Percentage of earnings bad debt deduction (151) (220)
Deferred loan origination costs (125) (118)
Federal Home Loan Bank stock dividends (171) (152)
Unrealized gain on securities designated as
available for sale - (136)
----- ---
Total deferred tax liabilities (447) (626)
----- ---
Net deferred tax asset $ 671 $182
===== ===
</TABLE>
38
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE H - 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 qualified 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,
2000 includes approximately $2.3 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, 2000. 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 continue to amortize the recapture of the bad debt reserve in taxable
income over a six year period, which commenced in fiscal 1998.
NOTE I - LOAN COMMITMENTS
The Savings Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of 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, 2000, the Savings Bank had outstanding commitments to originate
loans totaling approximately $1.3 million. In addition, the Savings Bank was
obligated under unused lines and letters of credit totaling $4.3 million. In
the opinion of management, all loan commitments equaled or exceeded
prevalent market interest rates as of June 30, 2000, and will be funded from
normal cash flow from operations.
NOTE J - 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,
39
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE J - REGULATORY CAPITAL (continued)
the Savings Bank must meet specific capital guidelines that involve
quantitative measures of the Savings Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Savings Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors.
The minimum capital standards of the OTS generally require the maintenance
of regulatory capital sufficient to meet each of three tests, hereinafter
described as the tangible capital requirement, the core capital requirement
and the risk-based capital requirement. The tangible capital requirement
provides for minimum tangible capital (defined as shareholders' equity less
all intangible assets) equal to 1.5% of adjusted total assets. The core
capital requirement provides for minimum core capital (tangible capital plus
certain forms of supervisory goodwill and other qualifying intangible
assets) generally equal to 4.0% of adjusted total assets except for those
associations with the highest examination rating and acceptable levels of
risk. The risk-based capital requirement provides for the maintenance of
core capital plus general loss allowances equal to 8.0% of risk-weighted
assets. In computing risk-weighted assets, the Savings Bank multiplies the
value of each asset on its statement of financial condition by a defined
risk-weighting factor, e.g., one- to four-family residential loans carry a
risk-weighted factor of 50%.
During the 2000 fiscal year, the Savings Bank was notified from its
regulator that it was categorized as "well-capitalized" under the regulatory
framework for prompt corrective action. To be categorized as
"well-capitalized" the Savings Bank must maintain minimum capital ratios as
set forth in the following tables.
As of June 30, 2000 and 1999, management believes that the Savings Bank met
all capital adequacy requirements to which it was subject.
<TABLE>
<CAPTION>
As of June 30, 2000
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $10,265 7.9% =>$1,949 =>1.5% =>$6,495 => 5.0%
Core capital $10,265 7.9% =>$5,196 =>4.0% =>$7,794 => 6.0%
Risk-based capital $10,988 15.1% =>$5,824 =>8.0% =>$7,280 =>10.0%
</TABLE>
40
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE J - REGULATORY CAPITAL (continued)
<TABLE>
<CAPTION>
As of June 30, 1999
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $12,769 10.4% =>$1,833 =>1.5% =>$6,110 => 5.0%
Core capital $12,769 10.4% =>$4,888 =>4.0% =>$7,332 => 6.0%
Risk-based capital $13,502 21.3% =>$5,069 =>8.0% =>$6,336 =>10.0%
</TABLE>
The Savings Bank's management believes that, under the current regulatory
capital regulations, the Savings Bank will continue to meet its minimum
capital requirements in the foreseeable future. However, events beyond the
control of the Savings Bank, such as increased interest rates or a downturn
in the economy in the Savings Bank's market area, could adversely affect
future earnings and, consequently, the ability to meet future minimum
regulatory capital requirements.
NOTE K - 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
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 number of option shares granted and the
exercise price were adjusted during fiscal 1997 to give effect to the return
of capital distribution. The Plan provides for one-fifth of the shares
granted to be exercisable on each of the first five anniversaries of the
date of grant.
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.
41
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE K - STOCK OPTION PLAN (continued)
The Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for the 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, 2000, 1999 and 1998.
A summary of the status of the Corporation's Plan as of June 30, 2000, 1999
and 1998, and changes during the periods ending on those dates is presented
below:
<TABLE>
<CAPTION>
2000 1999 1998
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 $10.08 170,627 $10.08 190,069 $10.08
Granted - - - - - -
Exercised (6,070) 10.08 - - (19,442) 10.08
Forfeited - - - - - -
------- ----- ------- ----- ------- ------
Outstanding at end of year 164,557 $10.08 170,627 $10.08 170,627 $10.08
======= ===== ======= ===== ======= =====
Options exercisable at year-end 125,052 $10.08 91,618 $10.08 52,114 $10.08
======= ===== ======= ===== ======= =====
</TABLE>
The following information applies to options outstanding at June 30, 2000:
Number outstanding 164,557
Range of exercise prices $10.08
Weighted-average exercise price $10.08
Weighted-average remaining contractual life 5.4 years
42
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE L - CONDENSED FINANCIAL STATEMENTS OF ASB FINANCIAL CORP.
The following condensed financial statements summarize the financial
position of the Corporation as of June 30, 2000 and 1999, and the results of
its operations and its cash flows for the fiscal years ended June 30, 2000,
1999 and 1998.
ASB Financial Corp.
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands)
ASSETS 2000 1999
<S> <C> <C>
Interest-bearing deposits in American Savings Bank, fsb $ 497 $ 429
Interest-bearing deposits in other financial institutions 724 639
Investment securities 1,106 138
Loan receivable from ESOP 539 679
Investment in American Savings Bank, fsb 9,716 13,055
Prepaid expenses and other 172 265
------ ------
Total assets $12,754 $15,205
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $ 173 $ 165
Shareholders' equity
Common stock and additional paid-in capital 8,454 8,306
Retained earnings 7,870 8,909
Shares acquired by stock benefit plans (1,059) (1,297)
Treasury shares (2,092) (1,143)
Unrealized gains (losses) on securities designated as available for sale, net (592) 265
------ ------
Total shareholders' equity 12,581 15,040
------ ------
Total liabilities and shareholders' equity $12,754 $15,205
====== ======
</TABLE>
ASB Financial Corp.
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS
Year ended June 30,
(In thousands)
2000 1999 1998
<S> <C> <C> <C>
Revenue
Interest income $ 82 $ 90 $ 163
Equity in earnings of American Savings Bank, fsb 1,171 1,199 1,034
----- ----- -----
Total revenue 1,253 1,289 1,197
General and administrative expenses 225 272 103
----- ----- -----
Earnings before income taxes (credits) 1,028 1,017 1,094
Federal income taxes (credits) (56) (63) 18
----- ----- -----
NET EARNINGS $1,084 $1,080 $1,076
===== ===== =====
</TABLE>
43
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE L - CONDENSED FINANCIAL STATEMENTS OF ASB FINANCIAL CORP.
(continued)
ASB Financial Corp.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year ended June 30,
(In thousands)
2000 1999 1998
<S> <C> <C> <C>
Cash provided by (used in) operating activities:
Net earnings for the year $1,084 $1,080 $1,076
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities
(Undistributed earnings of) excess of distributions
from consolidated subsidiary 1,828 2,303 (1,034)
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets 104 (122) (32)
Other liabilities 8 - (7)
----- ----- -----
Net cash provided by operating activities 3,024 3,261 3
Cash flows provided by (used in) investing activities:
Proceeds from repayment of loan 140 140 140
Proceeds from return of capital on investment securities - 21 -
Purchase of investment securities - (51) (136)
----- ----- -----
Net cash provided by investing activities 140 110 4
Cash flows provided by (used in) financing activities:
Proceeds from borrowed money - - 2,500
Proceeds from exercise of stock options 61 - 196
Repayment of borrowed money - (2,500) -
Payment of dividends on common stock (2,123) (463) (3,971)
Purchase of treasury shares (949) - (1,143)
----- ----- -----
Net cash used in financing activities (3,011) (2,963) (2,418)
----- ----- -----
Net increase (decrease) in cash and cash equivalents 153 408 (2,411)
Cash and cash equivalents at beginning of year 1,068 660 3,071
----- ----- -----
Cash and cash equivalents at end of year $1,221 $1,068 $ 660
===== ===== =====
Supplemental disclosure of cash flow information:
Dividend received from subsidiary in the form of
investment securities designated as available for sale $1,000 $ - $ -
===== ===== =====
</TABLE>
44
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE L - 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. Generally, the Savings Bank's payment of dividends is limited,
without prior OTS approval, to net income for the current calendar year plus
the two preceding calendar years, less capital distributions paid over the
comparable time period. Insured institutions are required to file an
application with the OTS for capital distributions in excess of this
limitation. During fiscal 2000, the Savings Bank distributed $4.0 million to
the Corporation, which exceeds the above described limitation. As a result,
the Savings Bank will be required to request OTS approval for any dividends
payable through December 31, 2000.
NOTE M - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Corporation's quarterly results for the
fiscal years ended June 30, 2000 and 1999. Certain amounts, as previously
reported, have been reclassified to conform to the 2000 presentation.
<TABLE>
<CAPTION>
Three Months Ended
September 30, December 31, March 31, June 30,
2000: (In thousands, except per share data)
<S> <C> <C> <C> <C>
Total interest income $2,221 $2,295 $2,350 $2,391
Total interest expense 1,289 1,318 1,399 1,421
----- ----- ----- -----
Net interest income 932 977 951 970
Provision for losses on loans 1 - - -
Other income 72 77 69 136
General, administrative and other expense 625 689 685 674
----- ----- ----- -----
Earnings before income taxes 378 365 335 432
Federal income taxes 105 106 90 125
----- ----- ----- -----
Net earnings $ 273 $ 259 $ 245 $ 307
===== ===== ===== =====
Earnings per share
Basic $.17 $.17 $.16 $.20
=== === === ===
Diluted $.17 $.17 $.16 $.20
=== === === ===
</TABLE>
45
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000, 1999 and 1998
NOTE M - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (continued)
<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
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>
46
<PAGE>
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 Fish 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 Fish Secretary
47
<PAGE>
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 25, 2000, 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
48
