FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission File Number: 0-25906
ASB FINANCIAL CORP.
-------------------------------------
(Name of small business issuer in its charter)
Ohio 31-1429488
------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
503 Chillicothe Street, Portsmouth, Ohio 45662
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (740) 354-3177
--------------
Securities registered pursuant to Section 12(b) of the Exchange Act:
None None
----------------------------- -----------------------------
(Title of each class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Shares, without par value
----------------------------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for the fiscal year ended June 30, 2000, were $9.6
million.
Based upon the average of the bid and asked prices quoted by the Nasdaq
National Market, the aggregate market value of the voting stock held by
non-affiliates of the issuer on September 25, 2000, was approximately $10.6
million.
1,569,558 of the issuer's common shares were issued and outstanding on
September 25, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
PartII of Form 10-KSB - Portions of the Annual Report to Shareholders for the
fiscal year ended June 30, 2000.
Part III of Form 10-KSB - Portions of the Proxy Statement for the 2000 Annual
Meeting of Shareholders.
<PAGE>
PART I
Item 1. Description of Business
General
ASB Financial Corp. ("ASB"), an Ohio corporation, is a unitary savings
and loan holding company which owns all of the issued and outstanding common
shares of American Savings Bank, fsb ("American"), a federal savings bank. On
May 10, 1995, ASB acquired all of the common shares issued by American upon its
conversion from a mutual savings association to a stock savings association (the
"Conversion").
American is principally engaged in the business of originating real
estate loans secured by first mortgages on one- to four-family residential real
estate located in American's primary market area, which consists of the City of
Portsmouth and contiguous areas of Scioto County, Ohio. American also makes
loans secured by multifamily real estate (over four units) and nonresidential
real estate and secured and unsecured consumer loans. In addition, American
purchases interests in multifamily real estate and nonresidential real estate
loans originated and serviced by other lenders. American also invests in
mortgage-backed securities, U.S. Government agency obligations, obligations of
state and political subdivisions, and other investments permitted by applicable
law. Funds for lending and other investment activities are obtained primarily
from savings deposits, which are insured up to applicable limits by the Federal
Deposit Insurance Corporation (the "FDIC"), and loan principal and
mortgage-backed security repayments.
American conducts business from its office in Portsmouth, Ohio.
American's primary market area for lending consists of Scioto County, Ohio, and
for deposits consists of Scioto County and adjacent communities in the North
Central Kentucky area.
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.
ASB's activities have been limited primarily to holding the common
stock of American since the Conversion. Consequently, the following discussion
focuses primarily on the business of American.
Lending Activities
General. American's principal lending activity is the origination of
conventional real estate loans, including construction loans, secured by one- to
four-family residential real estate located in American's primary market area.
American also offers loans secured by multifamily properties containing five
units or more and nonresidential properties, including construction loans.
American also purchases interests in multifamily real estate loans and
nonresidential real estate loans originated and serviced by other financial
institutions. American does not originate first mortgage loans insured by the
Federal Housing Authority or guaranteed by the Veterans Administration. In
addition to real estate lending, American originates commercial loans, consumer
loans, including automobile loans, loans secured by deposit accounts, home
improvement loans and a limited number of unsecured loans.
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<PAGE>
Loan Portfolio Composition. The following table presents certain
information regarding the composition of American's loan portfolio at the dates
indicated:
<TABLE>
<CAPTION>
At June 30,
2000 1999 1998
------ ------ -----
Percent Percent Percent
of total of total of total
Amount loans Amount loans Amount loans
------ ------ ------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family residential $65,618 67.5% $60,810 70.4% $55,707 70.6%
Multifamily 3,160 3.3 3,404 3.9 5,184 6.6
Nonresidential and land 11,691 12.0 8,504 9.9 5,712 7.2
Construction 992 1.0 2,162 2.5 1,425 1.8
Home equity 5,863 6.0 4,971 5.8 4,485 5.7
Commercial 5,842 6.0 2,485 2.9 1,929 2.4
------ ----- ------ ----- ------ -----
Total real estate loans 93,166 95.8 82,336 95.4 74,442 94.3
Consumer and other loans:
Passbook 834 .9 615 .7 744 .9
Home improvement 1,277 1.3 1,103 1.3 1,286 1.6
Automobile 1,666 1.7 1,689 1.9 1,772 2.3
Other 322 .3 586 .7 707 .9
------ ----- ------ ----- ------ -----
Total consumer and other loans 4,099 4.2 3,993 4.6 4,509 5.7
------ ----- ------ ----- ------ ----
Total loans 97,265 100.0% 86,329 100.0% 78,951 100.0%
===== ===== =====
Less:
Loans in process 1,255 2,966 1,452
Net deferred loan origination fees and
unearned discounts 203 200 190
Allowance for loan losses 723 733 759
------ ------ ------
Total loans net $95,084 $82,430 $76,550
====== ====== ======
</TABLE>
Loan Maturity. The following table sets forth the contractual maturity
of American's total loans at June 30, 2000, before consideration of net items:
<TABLE>
<CAPTION>
Due during the fiscal One- to Consumer
year ending June 30, four-family (1)(3) Multifamily (1) Nonresidential (1) (2) and other Total
-------------------- ------------------ --------------- ---------------------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
2001 $ 4,190 $ 262 $ 770 $ 904 $ 6,126
2002 4,303 267 978 968 6,516
2003 4,406 275 996 980 6,657
2004 - 2005 9,567 557 2,368 1,031 13,523
2006 - 2010 20,317 1,391 2,333 216 24,257
2011 - 2015 20,233 408 2,528 - 23,169
2016 and thereafter 9,457 - 7,560 - 17,017
------ ----- ------ ----- ------
Total $72,473 $3,160 $17,533 $4,099 $97,265
====== ===== ====== ===== ======
</TABLE>
-----------------------------
(1) Includes construction loans.
(2) Includes land development and commercial loans.
(3) Includes home equity loans.
-3-
<PAGE>
Loans Secured by One- to Four-Family Real Estate. The principal lending
activity of American is the origination of permanent conventional loans secured
by one- to four-family residences, primarily single-family homes, located within
American's primary market area. A first mortgage on the underlying real estate
and any improvements thereon secures each of such loans. At June 30, 2000,
American's one- to four-family residential real estate loan portfolio, including
certain construction loans secured by one- to four-family residences, was
approximately $65.6 million, or 67.5% of total loans.
OTS regulations limit the amount which American may lend in
relationship to the appraised value of the real estate and improvements (the
"Loan-to-Value Ratio" or "LTV") at the time of loan origination. In accordance
with the OTS regulations, American makes loans on one- to four-family residences
with LTVs of up to 95%. Private mortgage insurance usually covers the principal
amount of any loan which exceeds an 85% LTV at the time of origination, at the
expense of the borrower.
American offers fixed-rate loans, currently for terms of up to 30
years. Most of the fixed-rate loans in American's portfolio, however, have terms
of 15 years or less.
American offers adjustable-rate residential real estate loans ("ARMs")
for terms of up to 30 years. The interest rate adjustment periods on the ARMs
are either one year or three years. The interest rate adjustments on one-year
and three-year ARMs presently originated by American are tied to the one-year
and three-year U.S. Treasury securities rates or the Previously Occupied Homes
index published by the Federal Home Loan Bank (the "FHLB"). The maximum
allowable adjustment at each adjustment date is 2% with a maximum adjustment of
6% over the term of the loan. The initial rate on a three-year ARM is typically
higher than the initial rate on a one-year ARM to compensate for the reduced
interest rate sensitivity.
Adjustable-rate loans decrease American's interest rate risk but
involve other risks, primarily credit risk. As interest rates rise, the payment
by the borrower rises to the extent permitted by the terms of the loan, thereby
increasing the potential for default. At the same time, the marketability of the
underlying property may be adversely affected by higher interest rates.
American also offers home equity loans for current mortgage customers
on one- to four-family residences with LTV's of up to 100%. At June 30, 2000,
American's home equity loans totaled $5.9 million, or 6.0% of total loans.
Loans Secured by Multifamily Real Estate. American originates and
purchases interests in loans secured by multifamily properties containing over
four units. American originates multifamily loans with terms of up to 15 years
and a maximum LTV of 75%. Approximately 70% of the multifamily real estate loans
held by American are participation interests in loans originated and serviced by
other financial institutions and secured by real estate located in Ohio,
Kentucky, Florida and North Carolina. See "Loan Originations, Purchases and
Sales."
Multifamily lending is generally considered to involve a higher degree
of risk than one- to four-family residential lending because the borrower
typically depends upon income generated by the project to cover operating
expenses and debt service. The profitability of a project can be affected by
economic conditions, government policies and other factors beyond the control of
the borrower. American attempts to reduce the risk associated with multifamily
lending by evaluating the creditworthiness of the borrower and the projected
income from the project and by obtaining personal guarantees on loans made to
corporations and partnerships. American requires that borrowers submit rent
rolls and that all borrowers submit financial statements annually to enable
American to monitor the loan.
At June 30, 2000, loans secured by multifamily properties totaled
approximately $3.2 million, or 3.3% of total loans, of which $2.2 million are
participation interests purchased in loans originated by other financial
institutions.
Loans Secured by Nonresidential Real Estate and Land. At June 30, 2000,
approximately $11.7 million, or 12.0% of American's total loans, were secured by
nonresidential real estate and land. The majority of such loans have adjustable
rates and terms of up to 15 years. Among the properties securing nonresidential
real estate loans are office buildings, retail properties, warehouses, and a
hotel located in American's primary market area. Also included in American's
nonresidential real estate loan portfolio is $2.2 million in participation
interests which have been purchased in loans originated by other financial
institutions.
-4-
<PAGE>
American has one land loan with a principal balance of $405,000 secured
by developed land which has been subdivided for single-family home construction
in Scioto County, Ohio. American occasionally originates loans for the
construction of nonresidential real estate. At June 30, 2000, American had
outstanding nonresidential real estate construction loans with an aggregate
balance of $264,000.
Although the loans secured by nonresidential real estate typically have
higher interest rates and shorter terms to maturity than one- to four-family
residential real estate loans, nonresidential real estate lending is generally
considered to involve a higher degree of risk than residential lending due to
the relatively larger loan amounts and the effects of general economic
conditions on the successful operation of income-producing properties. American
has endeavored to reduce such risk by evaluating the credit history and past
performance of the borrower, the location of the real estate, the financial
condition of the borrower, the quality and characteristics of the income stream
generated by the property and appraisals supporting the property's valuation.
Construction Loans. American makes loans to individuals for the
construction and permanent financing of their primary residences. These
construction loans are offered with adjustable and fixed rates for terms of up
to 30 years. During the first year, while the residence is being constructed,
the borrower is required to pay interest only.
Construction loans generally involve greater underwriting and default
risks than do loans secured by mortgages on existing properties. Loan funds are
advanced upon the security of the project under construction, which is more
difficult to value before the completion of construction. Moreover, because of
the uncertainties inherent in estimating construction costs, it is relatively
difficult to evaluate accurately the LTV and the total loan funds required to
complete a project. In the event a default on a construction loan occurs and
foreclosure follows, American would have to take control of the project and
attempt either to arrange for completion of construction or dispose of the
unfinished project. At June 30, 2000, construction loans, in the aggregate,
totaled $1.0 million, or 1.0% of American's total loans. Approximately 71% of
American's construction loans are secured by property in Scioto County, Ohio.
Commercial Real Estate Loans. At June 30, 2000, approximately $5.8
million, or 6.0%, of American's total loans were secured by commercial real
estate. American originates commercial loans for a maximum term of 15 years and
which are secured by real estate with a LTV of up to 75%. These extensions of
credit are typically secured by office buildings, retail stores, other
commercial properties, inventory and accounts receivable.
Consumer and Other Loans. American makes various types of consumer
loans, including loans made to depositors on the security of their deposit
accounts, automobile loans, home improvement loans and unsecured personal loans,
and secured commercial loans, including a loan to an automobile dealer leasing
group. Consumer loans, other than loans on deposits, are made at fixed rates of
interest only and for varying terms based on the type of loan. At June 30, 2000,
American had approximately $4.1 million, or 4.2% of total loans, invested in
consumer and other loans.
Home improvement loans include loans insured by the Federal Housing
Administration. Home improvement loans typically have a five-year term and fixed
rates of interest.
Consumer loans, particularly consumer loans which are unsecured or are
secured by rapidly depreciating assets such as automobiles, may entail greater
risk than do residential real estate loans. Repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance. The risk of default on consumer loans increases during
periods of recession, high unemployment and other adverse economic conditions.
Loan Solicitation and Processing. American develops loan originations
from a number of sources, including continuing business with depositors, other
borrowers and real estate developers, solicitations by American's lending staff
and walk-in customers.
American's loan personnel take all loan applications for permanent real
estate loans. American obtains a credit report, verification of employment and
other documentation concerning the creditworthiness of the borrower. An
appraisal of the fair market value of the real estate which will be given as
security for the loan is prepared by a fee appraiser approved by the Board of
Directors. Upon the completion of the appraisal and the receipt of information
on the credit history of the borrower, the application for a loan is submitted
for review in accordance with American's underwriting guidelines to American's
Executive Committee, the members of which are Directors Smith, Jenkins, Burke
and Schoettle. Any loan for more than $150,000 must be reviewed and approved by
the full Board of Directors.
-5-
<PAGE>
If a real estate loan application is approved, either an attorney's
opinion or title insurance is obtained on the real estate which will secure the
mortgage loan. Most of the loans in American's portfolio have an attorney's
opinion. American requires borrowers to carry satisfactory fire and casualty
insurance and flood insurance, if applicable, and to name American as an insured
mortgagee.
The procedure for approval of construction loans is the same as for
permanent real estate loans, except that an appraiser evaluates the building
plans, construction specifications and estimates of construction costs. American
also evaluates the feasibility of the proposed construction project and the
experience and record of the builder.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
Loan Originations, Purchases and Sales. Currently, American is
originating both fixed-rate and ARM loans for its portfolio and not with the
intention of selling such loans in the secondary market. The documentation for
most of the loans in American's portfolio does not conform to the secondary
market standards of the Federal Home Loan Mortgage Corporation ("FHLMC") or the
Federal National Mortgage Association ("FNMA").
To supplement loan demand in its primary market area, American
purchases participation interests in multifamily and nonresidential real estate
loans originated and serviced by other financial institutions. See "Loans
Secured by Multifamily Real Estate" and "Loans Secured by Nonresidential Real
Estate and Land." American does not purchase participation interests through
brokers. Recent loan participations have been purchased primarily from a savings
bank and a mortgage banking affiliate of a commercial bank headquartered in
Ohio. Whole loans or participation interests purchased by American conform to
American's underwriting criteria for loans originated by American. American
intends to continue to purchase loans as suitable investment opportunities
become available.
-6-
<PAGE>
The following table presents American's loan origination, purchase and
sale activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Loans originated:
Adjustable-rate:
One- to four-family real estate $ 1,683 $ 3,104 $ 1,499
Multifamily real estate 640 750 55
Nonresidential real estate 1,577 3,512 528
Commercial 4,311 2,381 -
------ ------ ------
Total adjustable-rate 8,211 9,747 2,082
Fixed-rate:
One- to four-family real estate 18,048 17,517 15,022
Nonresidential real estate 821 1,644 446
Consumer 2,885 4,296 7,563
------ ------ ------
Total fixed-rate 21,754 23,457 23,031
Loans purchased 1,875 778 2,183
------ ------ ------
Total loans originated and purchased 31,840 33,982 27,296
Reductions:
Principal repayments 19,232 28,170 24,815
Transfers from loans to real estate
owned and repossessed assets - - 157
------ ------ ------
Total reductions 19,232 28,170 24,972
Increase in other items, net (1) 46 68 90
------ ------ ------
Net increase $12,654 $ 5,880 $ 2,414
====== ====== ======
</TABLE>
------------------------------
(1) Consists of loans in process, unearned discounts and deferred loan
origination fees and allowance for loan losses.
Federal Lending Limit. OTS regulations impose a lending limit on the
aggregate amount that a savings association can lend to any one borrower to an
amount equal to 15% of the association's total capital for risk-based capital
purposes plus any loan reserves not already included in total capital (the
"Lending Limit Capital"). A savings association may loan to one borrower an
additional amount not to exceed 10% of the association's Lending Limit Capital,
if the additional amount is fully secured by certain forms of "readily
marketable collateral." Real estate is not considered "readily marketable
capital." In applying this limit, the regulations require that loans to certain
related or affiliated borrowers be aggregated. An exception to this limit
permits loans of any type to one borrower of up to $500,000. In addition, the
OTS, under certain circumstances, may permit exceptions to the lending limit on
a case-by-case basis.
Based on the 15% limit, American was able to lend approximately $1.6
million to one borrower at June 30, 2000. The largest loan American had
outstanding to one borrower at June 30, 2000, was $870,000. Such loan was
secured by non-residential real estate and was current at June 30, 2000.
Loan Origination and Other Fees. American realizes loan origination
fees and other fee income from its lending activities, including late payment
charges, application fees and fees for other miscellaneous services.
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 91 as an adjustment to yield over
the life of the related loan.
-7-
<PAGE>
Delinquent Loans, Nonperforming Assets and Classified Assets.
Delinquent loans are loans for which payment has not been received within 30
days of the payment due date. Loan payments are due on the first day of the
month with the portion of the payment applicable to interest to accrue during
the current month. When loan payments have not been made by the thirtieth of the
month, late notices are sent. If payment is not received by the sixtieth day,
second notices are sent and telephone calls are made to the borrower. Each loan
bears a late payment penalty which is, for real estate loans, assessed as soon
as such loan is more than 30 days delinquent, and for consumer loans, assessed
as soon as such loan is more than 15 days delinquent. The late penalty for real
estate loans is 3% and for consumer loans is 5% of the payment due.
When a loan secured by real estate becomes delinquent more than 90
days, the Board of Directors reviews the loan and foreclosure proceedings are
normally instituted and an appraisal of the collateral is performed. If the
appraisal indicates that the value of the collateral is less than the book value
of the loan, a valuation allowance is established for such loan. When a consumer
loan becomes more than 90 days past due, American establishes a specific
allowance for loss for the amount of the loan.
-8-
<PAGE>
The following table reflects the amount of loans in a delinquent status
at the dates indicated:
<TABLE>
<CAPTION>
At June 30, 2000
Residential real estate Nonresidential real estate (2) Consumer and other Total
---------------------- --------------------------- ------------------------ ---------------------
Number Amount % (1) Number Amount % (1) Number Amount % (1) Number Amount % (1)
------ ------ ---- ------ ------ ---- ------ ------ ---- ----- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days 30 $1,426 1.5% 1 $41 -% 15 $282 .3% 46 $1,749 1.8%
60-89 days 8 317 .3 - - - 5 68 .1 13 385 .4
90 days and over 4 266 .3 - - - 6 15 - 10 281 .3
-- ----- --- -- -- -- --- --- -- -- ----- ---
Total delinquent
loans 42 $2,009 2.1% 1 $41 -% 26 $365 .4% 69 $2,415 2.5%
== ===== === == == == == === == == ===== ===
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1999
Residential real estate Nonresidential real estate (2) Consumer and other Total
---------------------- --------------------------- ------------------------ ---------------------
Number Amount % (1) Number Amount % (1) Number Amount % (1) Number Amount % (1)
------ ------ ---- ------ ------ ---- ------ ------ ---- ----- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days 28 $1,282 1.5% - $ - -% 13 $259 .3% 41 $1,541 1.8%
60-89 days 8 247 .3 - - - 9 85 .1 17 332 .4
90 days and over 10 287 .3 - - - 10 92 .1 20 379 .4
-- ----- --- -- -- -- -- --- -- -- ----- ---
Total delinquent
loans 46 $1,816 2.1% - $ - -% 32 $436 .5% 78 $2,252 2.6%
== ===== === == == == == === == == ===== ===
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1998
Residential real estate Nonresidential real estate (2) Consumer and other Total
---------------------- --------------------------- ------------------------ ---------------------
Number Amount % (1) Number Amount % (1) Number Amount % (1) Number Amount % (1)
------ ------ ---- ------ ------ ---- ------ ------ ---- ----- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days 40 $1,117 1.4% - $ - -% 13 $ 60 .1% 53 $1,177 1.5%
60-89 days 7 276 .4 - - - 4 24 - 11 300 .4
90 days and over 8 168 .2 - - - 12 72 .1 20 240 .3
--- ----- --- -- --- -- --- --- --- --- ----- ---
Total delinquent
loans 55 $1,561 2.0% - $ - -% 29 $156 .2% 84 $1,717 2.2%
=== ===== === == === == === === === === ===== ===
</TABLE>
----------------------------
(1) Percentages correlate to total loans before net items.
(2) Includes land loans.
-9-
<PAGE>
Nonperforming assets include non-accrual loans, accruing loans which
are delinquent 90 days or more, restructured loans, real estate acquired by
foreclosure or by deed-in-lieu thereof and repossessed assets. Loans are placed
on non-accrual status when, in the judgment of management, the probability of
collection of interest is deemed insufficient to warrant further accrual.
The following table sets forth information with respect to the accrual
and nonaccrual status of American's loans and other nonperforming assets at the
dates indicated:
<TABLE>
<CAPTION>
At June 30,
2000 1999 1998
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Non-accrual loans $229 $261 $168
Accruing loans delinquent
90 days or more 52 118 72
--- --- ---
Total nonperforming loans 281 379 240
Real estate acquired through foreclosure - - 157
--- --- ---
Total nonperforming assets $281 $379 $397
=== === ===
Allowance for loan losses $723 $733 $759
=== === ===
Nonperforming assets as a percent
of total assets .21% .31% .34%
Allowance for loan losses as a percent of
nonperforming loans 257.30% 193.40% 316.25%
Allowance for loan losses as a percent of
nonperforming assets 257.30% 193.40% 191.18%
</TABLE>
For the year ended June 30, 2000, gross interest income which American
would have recorded had non-accrual loans been current in accordance with their
original terms was $3,000, and American recorded $1,000 in interest on
non-accrual loans during such period.
American classifies real estate it acquires as a result of foreclosure
proceedings as real estate owned ("REO") until it is sold. When American
acquires a property, it records the property at its estimated fair value, less
estimated selling expenses, at the date of acquisition, and any write-down
resulting therefrom is charged to the allowance for loan losses. Interest
accrual, if any, ceases no later than the date of acquisition of the real
estate, and American expenses all costs incurred from such date in maintaining
the property. American capitalizes, to the extent of fair value, costs relating
to the development and improvement of the property.
American classifies its own assets on a regular basis in accordance
with federal regulations. Problem assets are classified as "substandard,"
"doubtful" or "loss." "Substandard" assets have one or more defined weaknesses
and are characterized by the distinct possibility that American will sustain
some loss if the deficiencies are not corrected. "Doubtful" assets have the same
weaknesses as "substandard" assets, with the additional characteristics that (i)
the weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable and (ii) there is a high
possibility of loss. American considers an asset classified "loss" as
uncollectible and of such little value that its continuance as an asset of
American is not warranted.
-10-
<PAGE>
The aggregate amounts of American's classified assets at the dates
indicated were as follows:
<TABLE>
<CAPTION>
At June 30,
2000 1999 1998
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Classified assets
Substandard $245 $321 $ 993
Loss - - 8
--- --- -----
Total classified assets $245 $321 $1,001
=== === =====
</TABLE>
American establishes general allowances for loan losses for loans
classified as substandard or doubtful. Generally, American charges off the
portion of any real estate loan deemed to be uncollectible, whereas it uses a
loss classification and corresponding reserve for consumer loans.
American analyzes each classified asset on a monthly basis to determine
whether changes in the classifications are appropriate under the circumstances.
This classification analysis focuses on a variety of factors, including the
amount of any delinquency and the reasons for the delinquency, the use of the
real estate securing the loan, the status of the borrower and the appraised
value of the real estate. As such factors change, American changes the
classification of the asset accordingly.
Allowance for Loan Losses. Senior management, with oversight by the
Board of Directors, reviews on a monthly basis the allowance for loan losses as
it relates to a number of relevant factors including, but not limited to, trends
in the level of delinquent and nonperforming assets and classified loans,
current and anticipated economic conditions in American's primary lending area,
such as unemployment data and the consumer price index, past loss experience and
losses arising from specific problem assets. To a lesser extent, management also
considers loan concentrations to single borrowers and changes in the composition
of the loan portfolio. While management believes that it uses the best
information available to determine the allowance for loan losses, unforeseen
market conditions could result in adjustments, and net earnings could be
adversely affected if circumstances differ substantially from the assumptions
used in making the final determination.
-11-
<PAGE>
The following table sets forth an analysis of American's allowance for
loan losses for the periods indicated:
<TABLE>
<CAPTION> For the year ended June 30,
2000 1999 1998
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $733 $759 $820
Charge-offs:
Residential real estate loans (1) (1) (14) (47)
Consumer loans (10) (11) (9)
--- --- ---
Total charge-offs (11) (25) (56)
Provision for (recoveries of) losses on loans 1 (1) (5)
--- --- ---
Balance at end of period $723 $733 $759
=== === ===
Ratio of net charge-offs to average loans
outstanding during the period .01% .03% .07%
</TABLE>
------------------------------
(1) Includes multifamily loans.
The following table sets forth the allocation of American's allowance
for loan losses by type of loan at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
2000 1999 1998
---- ---- ----
Percent of Percent of Percent of
loans in each loans in each loans in each
category to category to category to
Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at year end applicable to:
Real estate loans $ 12 95.8% $ 13 95.4% $47 94.3%
Consumer and other loans 16 4.2 3 4.6 11 5.7
Unallocated 695 - 717 - 701 -
--- ----- --- ----- --- -----
Total $723 100.0% $733 100.0% $759 100.0%
=== ===== === ===== === =====
</TABLE>
Investment Activities
OTS regulations require that American maintain a minimum amount of
liquid assets, which may be invested in U.S. Treasury obligations, securities of
various federal agencies, certificates of deposit at insured banks, bankers'
acceptances and federal funds. American is also permitted to make investments in
certain commercial paper, corporate debt securities rated in one of the four
highest rating categories by one or more nationally recognized statistical
rating organizations, and mutual funds, as well as other investments permitted
by federal regulations. See "REGULATION."
-12-
<PAGE>
The following table sets forth the composition of American's
investments, other than mortgage-backed securities, at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
2000 1999 1998
---- ---- ----
Carrying Percent Carrying Percent Carrying Percent
Value of total Value of total Value of total
----- -------- ----- -------- ----- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investments designated as held to maturity:
Interest-bearing deposits in other
financial institutions (1) $ 4,152 17.9% $ 7,393 27.6% $15,399 56.5%
Investments designated as available for sale:
U.S. Government agency obligations 18,263 78.5 18,133 67.8 10,766 39.5
Corporate equity securities 120 .5 137 .5 128 .5
FHLMC stock 729 3.1 1,102 4.1 941 3.5
------ ----- ------ ----- ------ -----
Total investments designated
as available for sale 19,112 82.1 19,372 72.4 11,835 43.5
------ ----- ------ ----- ------ -----
Total investments $23,264 100.0% $26,765 100.0% $27,234 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
-----------------------------
(1) Includes interest-bearing deposits and certificates of deposit.
The following table sets forth information regarding the maturities,
book value and weighted average yields of American's investment securities,
other than mortgage-backed securities, at June 30, 2000:
<TABLE>
<CAPTION>
Maturing in Maturing in
5-10 Years 10-20 Years Total
Weighted Weighted
Amortized average Amortized average Amortized Market
cost yield cost yield cost value
------- ------- ------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investments designated as
available for sale:
U.S. Government
agency obligations $13,786 6.37% $5,746 7.14% $19,532 $18,263
Corporate equity securities - - - - 169 120
FHLMC stock - - - - 18 729
------ ---- ----- ---- ------- ------
Total $13,786 6.37% $5,746 7.14% $19,719 $19,112
====== ==== ===== ==== ====== ======
</TABLE>
In addition to the foregoing investment securities, American has been
an active purchaser of mortgage-backed securities. At June 30, 2000,
mortgage-backed securities totaled $8.6 million, or 6.5 % of total assets. All
of the mortgage-backed securities in American's portfolio are
government-guaranteed securities, including participations or pass-through
securities issued by the Government National Mortgage Association ("GNMA"), the
FHLMC or the FNMA, and collateralized mortgage obligations ("CMOs").
-13-
<PAGE>
American generally purchases mortgage-backed securities at or near par
in order to avoid prepayment risk. The following table sets forth details of
American's investment in mortgage-backed securities, of which all are designated
as available for sale, at the dates indicated.
<TABLE>
<CAPTION>
At June 30, 2000 At June 30, 1999
-------------------------------------------------- -----------------------------------------------
Gross Gross Gross Gross
Amortized unrealized unrealized Estimated Amortized unrealized unrealized Estimated
cost gains losses fair value cost gains losses fair value
---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
FHLMC participation
certificates $1,020 $ 5 $ 9 $1,016 $ 1,266 $18 $12 $ 1,272
FNMA participation
certificates 931 3 37 897 1,035 8 35 1,008
GNMA participation
certificates 2,596 15 56 2,555 3,301 35 43 3,293
Collateralized mortgage
obligations 4,359 - 211 4,148 4,649 13 3 4,659
----- -- --- ----- ------ -- -- ------
Total mortgage-backed
securities $8,906 $23 $313 $8,616 $10,251 $74 $93 $10,232
===== == === ===== ====== == == ======
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1998
--------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
---------- ---------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Available for sale:
FHLMC participation
certificates $2,007 $ 41 $ 4 $2,044
FNMA participation
certificates 850 26 9 867
GNMA participation
certificates 4,919 86 3 5,002
Collateralized mortgage
obligations 1,014 4 7 1,011
----- ---- --- -----
Total mortgage-backed
securities $8,790 $157 $ 23 $8,924
===== === === =====
</TABLE>
-14-
<PAGE>
Deposits and Borrowings
General. American's primary source of funds for use in lending and
other investment activities is deposits. In addition to deposits, American
derives funds from interest payments and principal repayments on loans and
mortgage-backed securities and income on interest-earning assets. Loan payments
are a relatively stable source of funds, while deposit inflows and outflows
fluctuate more in response to changes in general interest rates and money market
conditions.
Deposits. American attracts deposits principally from within its
primary market area through the offering of a broad selection of deposit
instruments, including NOW accounts, demand deposit accounts, money market
deposit accounts, money market checking accounts, passbook savings accounts,
term certificate accounts and individual retirement accounts ("IRAs").
American's management periodically establishes the interest rates paid, maturity
terms, service fees and withdrawal penalties for the various types of accounts
based on American's liquidity requirements, growth goals and interest rates paid
by competitors. American does not use brokers to attract deposits. The amount of
deposits from outside American's primary market area is not significant.
The following table sets forth the dollar amount of deposits in the
various types of accounts offered by American at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
2000 1999 1998
---- ---- ----
Percent Percent Percent
of total of total of total
Amount deposits Amount deposits Amount deposits
------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts:
Passbook accounts $ 7,735 7.0% $ 7,862 7.8% $ 7,440 8.0%
Demand, NOW and Super NOW
accounts 7,237 6.6 6,680 6.6 5,867 6.3
Money market deposit
accounts 15,790 14.4 11,785 11.7 7,999 8.5
------- ----- ------- ----- ------ -----
Total transaction 30,762 28.0 26,327 26.1 21,306 22.8
accounts
Certificates of deposit:
3.00 - 3.99% - - 278 .3 - -
4.00 - 4.99% 310 .3 5,146 5.1 421 .5
5.00 - 5.99% 76,022 69.1 57,094 56.6 45,033 48.2
6.00 - 6.99% 2,818 2.6 12,018 11.9 26,630 28.5
7.00 - 7.99% 30 - 31 - 31 -
8.00 - 8.99% 65 - 60 - 56 -
------- ----- -------- ----- ------ -----
Total certificates of
deposit 79,245 72.0 74,627 73.9 72,171 77.2
------- ----- ------- ----- ------ -----
Total deposits $110,007 100.0% $100,954 100.0% $93,477 100.0%
======= ===== ======= ===== ====== =====
</TABLE>
-15-
<PAGE>
The following table sets forth the remaining maturities of American's
certificates of deposit at the dates indicated:
<TABLE>
<CAPTION>
June 30,
2000 1999 1998
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Less than one year $52,822 $46,943 $51,581
One to two years 25,108 23,448 18,247
Two to three years 1,091 3,870 1,928
Over three years 224 366 415
------ ------ ------
$79,245 $74,627 $72,171
====== ====== ======
</TABLE>
The following table presents the amount of American's certificates of
deposit of $100,000 or more by the time remaining until maturity at June 30,
2000:
<TABLE>
<CAPTION>
At June 30, 2000
----------------
<S> <C>
Certificates of deposit with balances of $100,000 (In thousands)
or more maturing in quarter ending (1):
September 30, 2000 $ 1,717
December 31, 2000 3,748
March 31, 2001 1,277
June 30, 2001 2,590
After June 30, 2001 3,966
------
Total certificates of deposit with balances of $100,000 or more $13,298
======
</TABLE>
----------------------------
(1) Account balances over $100,000 are not insured by the FDIC.
The following table sets forth American's deposit account balance
activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance $100,954 $ 93,477 $ 89,752
Deposits 277,401 197,010 120,166
Withdrawals (272,254) (193,307) (119,802)
Interest credited 3,906 3,774 3,361
------- ------- -------
Ending balance $110,007 $100,954 $ 93,477
======= ======= =======
Net increase $ 9,053 $ 7,477 $ 3,725
======= ======= =======
Percent increase 9.00% 8.00% 4.15%
==== ==== ====
</TABLE>
Borrowings. American's other sources of funds include advances from the
FHLB. As a member of the FHLB of Cincinnati, American is required to own capital
stock in the FHLB of Cincinnati and is authorized to apply for advances from the
FHLB. Each FHLB credit program has its own interest rate, which may be fixed or
variable, and range of maturities. The FHLB may prescribe the acceptable uses
for these advances, as well as limitations on the size of the advances and
repayment provisions.
-16-
<PAGE>
The following table sets forth certain information as to American's
FHLB advances and ASB's other borrowings at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
2000 1999 1998
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
FHLB advances $7,790 $5,823 $4,354
Weighted average interest rate of FHLB
advances 5.85% 5.06% 5.16%
Other borrowed money $ - $ - $2,500
Weighted average interest rate of other
borrowed money -% -% 8.50%
</TABLE>
The following table sets forth the maximum balance and average balance
of FHLB advances and other borrowings during the periods indicated:
<TABLE>
<CAPTION>
Year ended June 30,
2000 1999 1998
---- ---- ----
(Dollars in thousands)
FHLB advances:
<S> <C> <C> <C>
Maximum balance $7,807 $5,841 $4,354
Average balance $6,884 $5,454 $3,130
Weighted average interest rate 5.72% 5.10% 5.90%
Other borrowed money:
Maximum balance $ - $2,500 $2,500
Average balance $ - $ 438 $ 378
Weighted average interest rate -% 8.44% 8.84%
</TABLE>
Competition
American competes for deposits with other savings banks, savings
associations, commercial banks and credit unions and with the issuers of
commercial paper and other securities, such as shares in money market mutual
funds. The primary factors in competing for deposits are interest rates and
convenience of office location. In making loans, American competes with other
savings banks, savings associations, commercial banks, consumer finance
companies, credit unions, leasing companies and other lenders. American competes
for loan originations primarily through the interest rates and loan fees it
charges and through the efficiency and quality of services it provides to
borrowers. Competition is intense and is affected by, among other things, the
general availability of lendable funds, general and local economic conditions,
current interest rate levels and other factors which are not readily
predictable.
Subsidiary Activities
American has one wholly-owned subsidiary, A.S.L. Services, Inc.
("ASL"), which owns stock in American's data processing service provider. At
June 30, 2000, the stock held by the service corporation had a book value of
$15,000. Additionally, ASL maintains an $18,000 investment in the Money Concepts
Financial Planning Center, bringing the total assets of ASL to approximately
$33,000 at June 30, 2000.
Personnel
As of June 30, 2000, American had 23 full-time employees and eight
part-time employees. American believes that relations with its employees are
excellent. American offers health, disability and life benefits and retirement
plan benefits. None of the employees of American are represented by a collective
bargaining unit.
-17-
<PAGE>
REGULATION
General
As a savings and loan holding company within the meaning of the Home
Owners Loan Act, as amended (the "HOLA"). ASB is subject to regulation,
examination and oversight by the OTS and must submit periodic reports to the OTS
concerning its activities and financial condition. In addition, as a corporation
organized under Ohio law, ASB is subject to provisions of the Ohio Revised Code
applicable to corporations generally.
As a federal savings association, American is subject to regulatory
oversight by the OTS and, because American's deposits are insured by the FDIC,
American is also subject to examination and regulation by the FDIC. American
must file periodic reports with the OTS concerning its activities and financial
condition. Examinations are conducted periodically by the OTS and the FDIC to
determine whether American is in compliance with various regulatory requirements
and is operating in a safe and sound manner. American is a member of the FHLB of
Cincinnati.
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was
enacted into law. The GLB Act repealed prior laws that had generally prevented
banks from affiliating with securities and insurance firms and made other
significant changes in the financial services in which various types of
financial institutions may engage.
Prior to the GLB Act, unitary savings and loan holding companies which
met certain requirements were the only financial institution holding companies
that were permitted to engage in any type of business activity, whether or not
the activity was a financial service. The GLB Act continues those broad powers
for unitary thrift holding companies in existence on May 4, 1999, including ASB.
Any thrift holding company formed after May 4, 1999, however, will be subject to
the same restrictions as multiple thrift holding companies, which generally are
limited to activities that are considered incidental to banking. The GLB Act
authorizes a new "financial holding company," which can own banks and thrifts
and which is also permitted to engage in a variety of financial activities,
including insurance and securities underwriting and agency activities, as long
as the depository institutions it owns are well capitalized, well managed and
meet certain other tests.
The GLB Act is not expected to have a material effect on the activities
in which ASB and American currently engage, except to the extent that
competition from other types of financial institutions may increase as they
engage in activities not permitted prior to enactment of the GLB Act.
Office of Thrift Supervision
Regulatory Capital Requirements. American is required by OTS
regulations to meet certain minimum capital requirements. The tangible capital
requirement requires savings associations to maintain "tangible capital" of not
less than 1.5% of their adjusted total assets. Tangible capital is defined in
OTS regulations as core capital minus any intangible assets.
"Core capital" is comprised of common stockholders' equity (including
retained earnings), noncumulative preferred stock and related surplus, minority
interests in consolidated subsidiaries, certain nonwithdrawable accounts and
pledged deposits of mutual associations. OTS regulations require savings
associations to maintain core capital of at least 4% of their adjusted total
assets, except for associations with the highest examination rating and
acceptable levels of risk.
OTS regulations require that savings associations maintain "risk-based
capital" in an amount not less than 8% of their risk-weighted assets. Risk-based
capital is defined as core capital plus certain additional items of capital,
which in the case of American includes a general loan loss allowance of $723,000
at June 30, 2000. The OTS may adjust the risk-based capital requirement on an
individualized basis to take into account risks due to concentrations of credit
and non-traditional activities.
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
associations. At each successively lower defined capital category, an
association is subject to more restrictive and more numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. In addition, the OTS
-18-
<PAGE>
generally can downgrade an association's capital category, notwithstanding its
capital level, if, after notice and opportunity for hearing, the association is
deemed to be engaging in an unsafe or unsound practice because it has not
corrected deficiencies that resulted in it receiving a less than satisfactory
examination rating on matters other than capital or it is deemed to be in an
unsafe or unsound condition. American's capital at June 30, 2000, met the
standards for the highest category, a "well-capitalized" institution.
Liquidity. OTS regulations require that a savings association maintain
a minimum daily balance of liquid assets (such as cash, certain time deposits,
bankers' acceptances and specified United States government, state or federal
agency obligations) of not less than 4% of its net withdrawable savings deposits
plus borrowings payable in one year or less computed as of the end of the prior
quarter or based on the average daily balance during the prior quarter. Monetary
penalties may be imposed upon associations failing to meet these liquidity
requirements. The eligible liquidity of American at June 30, 2000, was
approximately $23.6 million, or 20.5%, and exceeded the applicable 4.0%
percentage liquidity requirement by approximately $19.0 million.
Qualified Thrift Lender Test. Savings associations must meet one of two
tests in order to be a qualified thrift lender ("QTL"). The first test requires
a savings association to maintain a specified level of investments in assets
that are designated as qualifying thrift investments ("QTIs"). Generally, QTIs
are assets related to domestic residential real estate and manufactured housing
and include credit card, student and small business loans and stock issued by
any FHLB, the FHLMC or the FNMA. Under the QTL test, 65% of an institution's
"portfolio assets" (total assets less goodwill and other intangibles, property
used to conduct business and 20% of liquid assets) must consist of QTI on a
monthly average basis in nine out of every 12 months. The second test permits a
savings association to qualify as a QTL by meeting the definition of "domestic
building and loan association" under the Internal Revenue Code of 1986, as
amended (the "Code"). In order for an institution to meet the definition of a
"domestic building and loan association" under the Code, at least 60% of such
institution's assets must consist of specified types of property, including cash
loans secured by residential real estate or deposits, educational loans and
certain governmental obligations. The OTS may grant exceptions to the QTL tests
under certain circumstances. If a savings association fails to meet one of the
QTL tests, the association and its holding company become subject to certain
operating and regulatory restrictions. A savings association that fails to meet
one of the QTL tests will not be eligible for new FHLB advances. At June 30,
2000, American qualified as a QTL.
Lending Limit. OTS regulations generally limit the aggregate amount
that a savings association can lend to one borrower to an amount equal to 15% of
the association's Lending Limit Capital. A savings association may lend to one
borrower an additional amount not to exceed 10% of the association's Lending
Limit Capital, if the additional amount is fully secured by certain forms of
"readily marketable collateral." Real estate is not considered "readily
marketable collateral." Certain types of loans are not subject to the lending
limit. A general exception to the 15% limit provides that an association may
lend to one borrower up to $500,000, for any purpose. In applying the limit on
loans to one borrower, the regulations require that loans to certain related
borrowers be aggregated. At June 30, 2000, American was in compliance with this
lending limit.
Transactions with Insiders and Affiliates. Loans to executive officers,
directors and principal shareholders and their related interests must conform to
the lending limit on loans to one borrower, and the total of such loans to
executive officers, directors, principal shareholders and their related
interests cannot exceed the association's Lending Limit Capital (or 200% of
Lending Limit Capital for qualifying institutions with less than $100 million in
deposits). Most loans to directors, executive officers and principal
shareholders must be approved in advance by a majority of the "disinterested"
members of the board of directors of the association, with any "interested"
director not participating. All loans to directors, executive officers and
principal shareholders must be made on terms substantially the same as offered
in comparable transactions with the general public or as offered to all
employees in a company-wide benefit program, and loans to executive officers are
subject to additional limitations. American was in compliance with such
restrictions at June 30, 2000.
All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An
affiliate of a savings association is any company or entity that controls, is
controlled by or is under common control with the savings association. ASB is an
affiliate of American. Generally, Sections 23A and 23B of the FRA (i) limit the
extent to which a savings association or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, (ii) limit the aggregate of all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and surplus, and (iii) require that all such transactions be on terms
substantially the same, or at least as favorable to the association, as those
provided in transactions with a non-affiliate. The term "covered transaction"
includes the making of loans, purchasing of assets, issuance of a guarantee and
other similar types of transactions. In addition to the limits in Sections 23A
and 23B, a savings association may not make any loan or other extension of
credit to an affiliate unless the affiliate is engaged only in activities
permissible for a bank holding company and may not purchase or invest in
securities of any affiliate except shares of a subsidiary. American was in
compliance with these requirements and restrictions at June 30, 2000.
-19-
<PAGE>
Limitations on Capital Distributions. The OTS imposes various
restrictions or requirements on the ability of associations to make capital
distributions. Capital distributions include, without limitation, payments of
cash dividends, repurchases and certain other acquisitions by an association of
its shares and payments to stockholders of another association in an acquisition
of such other association.
An application must be submitted and approval from the OTS must be
obtained by a subsidiary of a savings and loan holding company (i) if the
proposed distribution would cause total distributions for the calendar year to
exceed net income for that year to date plus the savings association's retained
net income for that year to date plus the retained net income for the preceding
two years; (ii) if the savings association will not be at least adequately
capitalized following the capital distribution; (iii) if the proposed
distribution would violate a prohibition contained in any applicable statute,
regulation or agreement between the savings association and the OTS (or the
FDIC), or violate a condition imposed on the savings association in an
OTS-approved application or notice. If a savings association subsidiary of a
holding company is not required to file an application, it must file a 30-day
notice of the proposed capital distribution with the OTS.
Holding Company Regulation. As a savings and loan holding company
within the meaning of the HOLA, ASB has registered with the OTS and is subject
to OTS regulations, examination, supervision and reporting requirements.
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings association or savings and loan holding company,
without prior approval of the OTS, or from acquiring or retaining more than 5%
of the voting shares of a savings association or holding company thereof, which
is not a subsidiary. Under certain circumstances, a savings and loan holding
company is permitted to acquire, with the approval of the OTS, up to 15% of the
previously unissued voting shares of an undercapitalized savings association for
cash without such savings association being deemed to be controlled by ASB.
Except with the prior approval of the OTS, no director or officer of a savings
and loan holding company or person owning or controlling by proxy or otherwise
more than 25% of such holding company's stock may also acquire control of any
savings institution, other than a subsidiary institution, or any other savings
and loan holding company.
As a unitary savings and loan holding company in existence on May 4,
1999, ASB generally has no restrictions on its activities. If the OTS determines
that there is reasonable cause to believe that the continuation by a savings and
loan holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings association, however,
the OTS may impose such restrictions as deemed necessary to address such risk,
including limiting (i) payment of dividends by the savings association, (ii)
transactions between the savings association and its affiliates, and (iii) any
activities of the savings association that might create a serious risk that the
liabilities of ASB and its affiliates may be imposed on the savings association.
Notwithstanding the foregoing rules as to permissible business activities of a
unitary savings and loan holding company, if the savings association subsidiary
of a holding company fails to meet the QTL test, then such unitary savings and
loan holding company would become subject to the activities restrictions
applicable to multiple holding companies. At June 30, 2000, American met the QTL
test.
Federal Regulation of Acquisitions of Control of ASB and American. In
addition to the Ohio law limitations on the merger and acquisition of ASB,
federal limitations generally require regulatory approval of acquisitions at
specified levels. Under pertinent federal law and regulations, no person,
directly or indirectly, or acting in concert with others, may acquire control of
American or ASB without 60 days' prior notice to the OTS. "Control" is generally
defined as having more than 25% ownership or voting power; however, ownership or
voting power of more than 10% may be deemed "control" if certain factors are in
place. If the acquisition of control is by a company, the acquiror must obtain
approval, rather than give notice, of the acquisition.
Federal Deposit Insurance Corporation
Deposit Insurance and Assessments. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
federally insured banks and savings and loan associations and safeguards the
safety and soundness of the banking and savings and loan industries. The FDIC
administers two separate insurance funds, the Bank Insurance Fund ("BIF") for
commercial banks and state savings banks and the SAIF for savings associations.
American is a member of the SAIF and its deposit accounts are insured by the
FDIC up to the prescribed limits. The FDIC has examination authority over all
insured depository institutions, including American, and has authority to
initiate enforcement actions against federally-insured savings associations if
the FDIC does not believe the OTS has taken appropriate action to safeguard
safety and soundness and the deposit insurance fund.
-20-
<PAGE>
The FDIC is required to maintain designated levels of reserves in the
SAIF and in the BIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such rates if such target
level has been met. The FDIC has established a risk-based assessment system for
both SAIF and BIF members. Under this system, assessments vary based on the risk
the institution poses to its deposit insurance fund. The risk level is
determined based on the institution's capital level and the FDIC's level of
supervisory concern about the institution.
Federal Reserve Requirements
FRB regulations require savings associations to maintain reserves of 3%
of net transaction accounts (primarily NOW accounts) up to $44.3 million
(subject to an exemption of up to $5.0 million), and of 10% of net transaction
accounts in excess of $44.3 million. At June 30, 2000, American was in
compliance with the reserve requirements.
Federal Home Loan Banks
The FHLBs provide credit to their members in the form of advances.
American is a member of the FHLB of Cincinnati and must maintain an investment
in the capital stock of the FHLB of Cincinnati in an amount equal to the greater
of 1.0% of the aggregate outstanding principal amount of American's residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year, or 5% of its advances from the FHLB of Cincinnati. American was in
compliance with this requirement with an investment in stock of the FHLB of
Cincinnati of $733,000 at June 30, 2000.
Upon the origination or renewal of a loan or advance, the FHLB is
required by law to obtain and maintain a security interest in collateral in one
or more specified categories.
Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances. The standards take into account a member's performance under the
Community Reinvestment Act and its record of lending to first-time home buyers.
All long-term advances by the FHLB must be made only to provide funds for
residential housing finance.
Ohio Corporation Law
Merger Moratorium Statute. Chapter 1704 of the Ohio Revised Code
regulates certain takeover bids affecting certain public corporations which have
significant ties to Ohio. This statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers between an Ohio
corporation and any person who has the right to exercise, alone or with others,
10% or more of the voting power of such corporation (an "Interested
Shareholder"), for three years following the date on which such person first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested Shareholder, the
Board of Directors of the issuing corporation has approved the purchase of
shares which resulted in such person first becoming an Interested Shareholder.
After the initial three-year moratorium, such a business combination
may not occur unless (1) one of the specified exceptions applies, (2) the
holders of at least two-thirds of the voting shares, and of at least a majority
of the voting shares not beneficially owned by the Interested Shareholder,
approve the business combination at a meeting called for such purpose, or (3)
the business combination meets certain statutory criteria designed to ensure
that the issuing public corporation's remaining shareholders receive fair
consideration for their shares.
An Ohio corporation may, under certain circumstances, "opt out" of the
statute by specifically providing in its articles of incorporation that the
statute does not apply to any business combination of such corporation. However,
the statute still prohibits for twelve months any business combination that
would have been prohibited but for the adoption of such an opt-out amendment.
The statute also provides that it will continue to apply to any business
combination between a person who became an Interested Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted. ASB has
not opted out of the protection afforded by Chapter 1704.
Control Share Acquisition. Section 1701.831 of the Ohio Revised Code
(the "Control Share Acquisition Statute") requires that, with certain
exceptions, acquisitions of voting securities which would result in the
acquiring shareholder owning 20%, 33-1/3% or 50% of the outstanding voting
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securities of an Ohio corporation (a "Control Share Acquisition") must be
approved in advance by the holders of at least a majority of the outstanding
voting shares of such corporation represented at a meeting at which a quorum is
present and a majority of the portion of the outstanding voting shares
represented at such a meeting excluding the voting shares owned by the acquiring
shareholder, by certain other persons who acquire or transfer voting shares
after public announcement of the acquisition or by certain officers of the
corporation or directors of the corporation who are employees of the
corporation. The Control Share Acquisition Statute was intended, in part, to
protect shareholders of Ohio corporations from coercive tender offers.
Takeover Bid Statute. Ohio law provides that an offeror may not make a
tender offer or request or invitation for tenders that would result in the
offeror beneficially owning more than ten percent of any class of the target
company's equity securities unless such offeror files certain information with
the Ohio Division of Securities (the "Securities Division") and provides such
information to the target company and the offerees within Ohio. The Securities
Division may suspend the continuation of the control bid if the Securities
Division determines that the offeror's filed information does not provide full
disclosure to the offerees of all material information concerning the control
bid. The statute also provides that an offeror may not acquire any equity
security of a target company within two years of the offeror's previous
acquisition of any equity security of the same target company pursuant to a
control bid unless the Ohio offerees may sell such security to the offeror on
substantially the same terms as provided by the previous control bid. The
statute does not apply to a transaction if either the offeror or the target
company is a savings and loan holding company and the proposed transaction
requires federal regulatory approval.
TAXATION
Federal Taxation
ASB and American are each subject to the federal tax laws and
regulations which apply to corporations generally. In addition to the regular
income tax, ASB and American may be subject to an alternative minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on "alternative
minimum taxable income" (which is the sum of a corporation's regular taxable
income, with certain adjustments, and tax preference items), less any available
exemption. Such tax preference items include interest on certain tax-exempt
bonds issued after August 7, 1986. In addition, 75% of the amount by which a
corporation's "adjusted current earnings" exceeds its alternative minimum
taxable income computed without regard to this preference item and prior to
reduction by net operating losses, is included in alternative minimum taxable
income. Net operating losses can offset no more than 90% of alternative minimum
taxable income. The alternative minimum tax is imposed to the extent it exceeds
the corporation's regular income tax. Payments of alternative minimum tax may be
used as credits against regular tax liabilities in future years. However, the
Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain
"small corporations" for tax years beginning after December 31, 1997. A
corporation initially qualifies as a small corporation if it had average gross
receipts of $5,000,000 or less for the three tax years ending with its first tax
year beginning after December 31, 1996. Once a corporation is recognized as a
small corporation, it will continue to be exempt from the alternative minimum
tax for as long as its average gross receipts for the prior three-year period
does not exceed $7,500,000. In determining if a corporation meets this
requirement, the first year that it achieved small corporation status is not
taken into consideration.
American's average gross receipts for the three tax years ending on
June 30, 2000, is $9.1 million, and, as a result, American does not qualify as a
small corporation exempt from the alternative minimum tax.
Prior to the enactment of the Small Business Jobs Protection Act (the
"Act"), which was signed into law on August 21, 1996, certain thrift
institutions, such as American, were allowed deductions for bad debts under
methods more favorable than those granted to other taxpayers. Qualified thrift
institutions could compute deductions for bad debts using either the specific
charge-off method of Section 166 of the Code or one of two reserve methods of
Section 593 of the Code. The reserve methods under Section 593 of the Code
permitted a thrift institution annually to elect to deduct bad debts under
either (i) the "percentage of taxable income" method applicable only to thrift
institutions, or (ii) the "experience" method that also was available to small
banks. Under the "percentage of taxable income" method, a thrift institution
generally was allowed a deduction for an addition to its bad debt reserve equal
to 8% of its taxable income (determined without regard to this deduction and
with additional adjustments). Under the "experience" method, a thrift
institution was generally allowed a deduction for an addition to its bad debt
reserve equal to the greater of (i) an amount based on its actual average
experience for losses in the current and five preceding taxable years, or (ii)
an amount necessary to restore the reserve to its balance as of the close of the
base year. A thrift institution could elect annually to compute its allowable
addition to bad debt reserves for qualifying loans either under the experience
method or the percentage of taxable income method. For tax years 1995, 1994, and
1993, American used the percentage of taxable income method.
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The Act eliminated the percentage of taxable income method of
accounting for bad debts by thrift institutions, effective for taxable years
beginning after 1995. Thrift institutions that are treated as small banks are
allowed to utilize the experience method applicable to such institutions, while
thrift institutions that are treated as large banks are required to use only the
specific charge off method.
A thrift institution required to change its method of computing
reserves for bad debt will treat such change as a change in the method of
accounting, initiated by the taxpayer and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires certain
amounts to be recaptured with respect to such change. Generally, the amounts to
be recaptured will be determined solely with respect to the "applicable excess
reserves" of the taxpayer. The amount of the applicable excess reserves will be
taken into account ratably over a six-taxable year period, beginning with the
first taxable year beginning after 1995, subject to the residential loan
requirement described below. In the case of a thrift institution that is treated
as a large bank, the amount of the institution's applicable excess reserves
generally is the excess of (i) the balances of its reserve for losses on
qualifying real property loans (generally loans secured by improved real estate)
and its reserve for losses on nonqualifying loans (all other types of loans) as
of the close of its last taxable year beginning before January 1, 1996, over
(ii) the balances of such reserves as of the close of its last taxable year
beginning before January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of
a thrift institution that is treated as a small bank, like American, the amount
of the institution's applicable excess reserves generally is the excess of (i)
the balances of its reserve for losses on qualifying real property loans and its
reserve for losses on nonqualifying loans as of the close of its last taxable
year beginning before January 1, 1996, over (ii) the greater of the balance of
(a) its pre-1988 reserves or (b) what the thrift's reserves would have been at
the close of its last year beginning before January 1, 1996, had the thrift
always used the experience method.
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential or church property and certain mobile homes), but only to the extent
that the loan is made to the owner of the property.
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential or church property and certain mobile homes), but only to the extent
that the loan is made to the owner of the property.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e), as modified by the Act, which require recapture in the case of
certain excessive distributions to shareholders. The pre-1988 reserves may not
be utilized for payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for any
other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits; second, out of
the pre-1988 reserves; and third, out of such other accounts as may be proper.
To the extent a distribution by American to ASB is deemed paid out of its
pre-1988 reserves under these rules, the pre-1988 reserves would be reduced and
the gross income of American for tax purposes would be increased by the amount
which, when reduced by the income tax, if any, attributable to the inclusion of
such amount in its gross income, equals the amount deemed paid out of the
pre-1988 reserves. As of June 30, 2000, the pre-1988 reserves of American for
tax purposes totaled approximately $1.9 million. American believes it had
approximately $3.9 million of accumulated earnings and profits for tax purposes
as of June 30, 2000, which would be available for dividend distributions,
provided regulatory restrictions applicable to the payment of dividends are met.
No representation can be made as to whether American will have current or
accumulated earnings and profits in subsequent years.
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The tax returns of American have been audited or closed without audit
through fiscal year 1996. In the opinion of management, any examination of open
returns would not result in a deficiency which could have a material adverse
effect on the financial condition of American.
Ohio Taxation
ASB is subject to the Ohio corporation franchise tax, which, as applied
to ASB, is a tax measured by both net earnings and net worth. For tax years
beginning after December 31, 1998, the rate of tax is the greater of (i) 5.1% on
the first $50,000 of computed Ohio taxable income and 8.5% of computed Ohio
taxable income in excess of $50,000 or (ii) .400% times taxable net worth.
In computing its tax under the net worth method, ASB may exclude 100%
of its investment in the capital stock of American, as reflected on the balance
sheet of ASB in computing its taxable net worth as long as it owns at least 25%
of the issued and outstanding capital stock of American. The calculation of the
exclusion from net worth is based on the ratio of the excludable investment (net
of any appreciation or goodwill included in such investment) to total assets
multiplied by the net value of the stock. As a holding company, ASB may be
entitled to various other deductions in computing taxable net worth that are not
generally available to operating companies.
A special litter tax is also applicable to all corporations, including
ASB, subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.
American is a "financial institution" for State of Ohio tax purposes.
As such, it is subject to the Ohio corporate franchise tax on "financial
institutions," which is imposed annually at a rate of 1.4% of the taxable book
net worth, and for tax year 2000 and years thereafter, the tax will be 1.3% of
the taxable book net worth. As a "financial institution," American is not
subject to any tax based upon net income or net profits imposed by the State of
Ohio.
Item 2. Description of Property
American owns the properties at 503 and 907 Chillicothe
Street, Portsmouth, Ohio, on which its main and branch offices are located. At
June 30, 2000, the net book value of these properties, including the buildings
was $805,000, and American's office premises and equipment had a total net book
value of $1.4 million. For additional information regarding American's office
premises and equipment, see Notes A and E of Notes to Consolidated Financial
Statements.
Item 3. Legal Proceedings
Neither ASB nor American is presently involved in any legal
proceedings of a material nature. From time to time, American is a party to
legal proceedings incidental to its business to enforce its security interest in
collateral pledged to secure loans made by American.
PART II
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Item 5. Market for Common Equity and Related Stockholder Matters
The information contained in the ASB Financial Corp. Annual
Report to Shareholders for the fiscal year ended June 30, 2000 (the "Annual
Report"), under the caption "Market Price of ASB's Common Shares and Related
Shareholder Matters" is incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
The information contained in the Annual Report under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" is incorporated herein by reference.
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Item 7. Consolidated Financial Statements
The Consolidated Financial Statements contained in the Annual
Report and the opinion of Grant Thornton LLP, dated August 21, 2000, are
incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The information contained in the definitive Proxy Statement
for the 2000 Annual Meeting of Shareholders of ASB Financial Corp. (the "Proxy
Statement") under the captions "Board of Directors," "Executive Officers" and
"Voting Securities and Ownership of Certain Beneficial Owners and Management" is
incorporated herein by reference.
Item 10. Executive Compensation
The information contained in the Proxy Statement under the
caption "Compensation of Executive Officers and Directors" is incorporated
herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information contained in the Proxy Statement under the
caption "Voting Securities and Ownership of Certain Beneficial Owners and
Management" is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
Not applicable.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation (incorporated by
reference)
3.2 Code of Regulations (incorporated by
reference)
10.1 ASB Financial Corp. 1995 Stock Option and
Incentive Plan (incorporated by reference)
10.2 American Savings Bank, fsb Management
Recognition and Retention Plan and Trust
Agreement (incorporated by reference)
13 Annual Report (the following parts of which
are incorporated herein by reference:
"Market Price of ASB Common Shares and
Related Shareholder Matters;" "Management's
Discussion and Analysis of Financial
Condition and Results of Operations;" and
Consolidated Financial Statements.)
20 Proxy Statement
21 Subsidiaries of ASB Financial Corp.
(incorporated by reference)
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the
last quarter of the fiscal year covered by this
Report.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ASB FINANCIAL CORP.
By /s/ Robert M. Smith
---------------------------------
Robert M. Smith
President and Director
(Principal Executive Officer and Principal
Financial Officer)
Date: September 26, 2000
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By /s/ Gerald R. Jenkins By /s/ Lee O. Fitch
------------------------------------ ------------------
Gerald R. Jenkins Lee O. Fitch
Director and Chairman of the Board Director
Date: September 26, 2000 Date: September 26, 2000
By /s/ William J. Burke By /s/ Louis M. Schoettle
------------------------------------ -----------------------
William J. Burke Louis M. Schoettle
Director Director
Date: September 26, 2000 Date: September 26, 2000
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C> <C>
3.1 Articles of Incorporation of ASB Financial Corp. Incorporated by reference to the Form
10-KSB for fiscal year ended June 30,
1995 filed by ASB on September 28, 1995
(the "1995 Form 10-KSB") with the
Securities and Exchange Commission (the
"SEC"), Exhibit 3.3
3.4 Code of Regulations of ASB Financial Corp. Incorporated by reference to the Form
10-KSB, Exhibit 3.5
10.1 ASB Financial Corp. 1995 Stock Option and Incentive Plan Incorporated by reference to the Form
10-KSB for the fiscal year ended June 30,
1996 filed with the SEC on September 30,
1996, (the "1996 Form 10-KSB") Exhibit
10.1
10.2 American Savings Bank, fsb Recognition and Retention Plan Incorporated by reference to the 1996
and Trust Agreement Form 10-KSB, Exhibit 10.2
13 2000 Annual Report to Shareholders
20 Proxy Statement for 2000 Annual Meeting
21 Subsidiaries of ASB Financial Corp. Incorporated by reference to the 1995
Form 10-KSB, Exhibit 21
27 Financial Data Schedule
</TABLE>
