-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qz1eolIURWrKehEVjvYYPbFg5kKNLiTogBzVbhs6LOGJdAotIYZg1OwC2zDWqs5/ K/rZyAi4+rUizaM87SKFDw== 0000946275-05-000663.txt : 20060823 0000946275-05-000663.hdr.sgml : 20060823 20050620103931 ACCESSION NUMBER: 0000946275-05-000663 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 20050620 DATE AS OF CHANGE: 20050812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BANCORP OF NEW JERSEY INC CENTRAL INDEX KEY: 0001330039 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 550897507 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-125957 FILM NUMBER: 05904858 BUSINESS ADDRESS: STREET 1: 365 BROAD STREET CITY: BLOOMFIELD STATE: NJ ZIP: 07003-2798 BUSINESS PHONE: 973 748-3600 MAIL ADDRESS: STREET 1: 365 BROAD STREET CITY: BLOOMFIELD STATE: NJ ZIP: 07003-2798 S-1 1 s1_061205-0147.txt FORM S-1 - AMERICAN BANCORP OF NEW JERSEY, INC. As filed with the Securities and Exchange Commission on June 20, 2005 Registration No. 333-______ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 American Bancorp of New Jersey, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) New Jersey 6035 55-0897507 - --------------------------------- ----------------- ----------------- (State or other jurisdiction (Primary SIC No.) (I.R.S. Employer of incorporation or organization) Identification No.) 365 Broad Street, Bloomfield, New Jersey 07003 (973) 748-3600 - -------------------------------------------------------------------------------- (Address and telephone number of principal executive offices) Mr. Fred G. Kowal, President and Chief Operating Officer 365 Broad Street, Bloomfield New Jersey 07003 (973) 748-3600 - -------------------------------------------------------------------------------- (Name, address and telephone number of agent for service) Please send copies of all communications to: Samuel J. Malizia, Esq. Tiffany A. Hasselman, Esq. MALIZIA SPIDI & FISCH, PC 1100 New York Ave., N.W. Suite 340 West Washington, D.C. 20005 (202) 434-4660 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------------------------------- Title of Each Amount Proposed Maximum Proposed Maximum Amount of Class of Securities to be Offering Price Aggregate Registration To Be Registered Registered Per Unit Offering Price(1) Fee - -------------------------------------------------------------------------------------------------------- Common Stock, $0.10 Par Value 14,169,642 (2) $10.00 $141,696,420 $16,677.67 Interests of participants in the 401(k) Plan 445,863 (3) $10.00 $ - $ - (4) - --------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee. (2) Includes the maximum numbers of shares that may be sold or exchanged for shares of common stock in connection with this offering. (3) These shares are included in the 14,169,642 shares being registered. (4) The $4,458,630 of participations to be registered are based upon the assets of the 401(k) Plan. Pursuant to Rule 457(h)(2) under the Securities Act of 1933, no additional fee is required with respect to the interests of participants of the 401(k) Plan. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. PROSPECTUS AMERICAN BANCORP OF NEW JERSEY, INC. (Proposed Holding Company for American Bank of New Jersey) Up to 12,321,428 Shares of Common Stock (Including up to 8,625,000 newly issued shares and up to 3,696,428 shares to be exchanged for shares of ASB Holding Company) American Bancorp of New Jersey, Inc. is offering common stock in connection with the conversion of American Savings, MHC from the mutual to the stock form of organization. The shares being offered represent the 70% ownership interest in ASB Holding Company currently owned by American Savings, MHC, its mutual holding company parent. The remaining 30% ownership interest in ASB Holding Company is owned by the public and will be exchanged for shares of American Bancorp of New Jersey, Inc.'s common stock. If you are now a stockholder of ASB Holding Company, your shares will be automatically exchanged for shares of American Bancorp of New Jersey, Inc., and the number of shares you will receive will be based on an exchange ratio which is dependent upon the number of shares we sell in our stock offering. All shares being offered for sale will be sold at a price of $10.00 per share. If you are a current or former depositor or borrower of American Bank of New Jersey as of the eligibility dates: o You have rights to purchase shares of our common stock in the subscription offering. If you are currently a stockholder of ASB Holding Company: o Each of your shares will be exchanged automatically for between 1.6396 and 2.21828 shares of American Bancorp of New Jersey, Inc. common stock. o After the exchange of shares, your percentage ownership will remain essentially equivalent to your current percentage ownership interest in ASB Holding Company. o You will have priority to purchase additional shares in the community offering to the extent shares remain available after orders are filled in the subscription offering. If you fit neither of the above categories: o You may purchase shares of American Bancorp of New Jersey, Inc. common stock in the community offering to the extent shares remain available after orders are filled in the subscription offering and after orders from current stockholders of ASB Holding Company are filled in the community offering. We are offering for sale up to 8,625,000 shares of common stock; however, we may sell up to 9,918,750 shares because of changes in the market and general financial and economic conditions without notifying prospective purchasers. We must sell a minimum of 6,375,000 shares in order to complete the conversion and stock offering. The minimum purchase is 25 shares. The stock offering is expected to terminate on ___________, 2005 at 12:00 noon, eastern time. We may extend this termination date without notice to you until ___________, 2005. Once submitted, orders are irrevocable unless the stock offering is terminated or extended beyond ___________, 2005. In no event may the stock offering be extended beyond ___________, 2007. Funds received prior to completion of the stock offering will be held in an escrow account and will earn interest at our passbook savings account rate. In the event the stock offering is terminated, funds will be promptly returned with interest. ASB Holding Company's stock is currently quoted on the OTC Bulletin Board under the symbol "ASBH." We have applied for approval from Nasdaq to have our common stock quoted on the Nasdaq National Market under the symbol "ABNJ." Keefe, Bruyette & Woods, Inc. will assist us in our selling efforts on a best efforts basis. Keefe, Bruyette & Woods, Inc. is not required to purchase any of the common stock that is being offered. This investment involves risk, including the possible loss of principal. Please read the "Risk Factors" beginning at page __.
Minimum Maximum Maximum, as Adjusted ----------- ----------- -------------------- Number of Newly Issued Shares........... 6,375,000 8,625,000 9,918,750 Total Offering and Conversion Expenses.. $ 1,376,500 $ 1,583,500 $ 1,702,525 Net Proceeds............................ $62,373,500 $84,666,500 $97,484,975 Net Proceeds Per Share.................. $ 9.78 $ 9.82 $ 9.83
These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Neither the Securities and Exchange Commission, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, nor any state securities regulator has approved or disapproved these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. For assistance, please contact the stock information center at (973) ___-____ Keefe, Bruyette & Woods, Inc. The Date of this Prospectus is ___________, 2005 TABLE OF CONTENTS Page ---- Summary......................................................................... Risk Factors......................................................................... Use of Proceeds................................................................. Dividend Policy................................................................. Market for the Stock............................................................ Capitalization.................................................................. Pro Forma Data.................................................................. Historical and Pro Forma Capital Compliance..................................... A Warning about Forward-looking Statements...................................... Selected Consolidated Financial and Other Data.................................. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ Business of American Bancorp of New Jersey, Inc................................. Business of American Bank of New Jersey ........................................ Regulation...................................................................... Taxation........................................................................ Management...................................................................... The Conversion.................................................................. The Stock Offering.............................................................. Restrictions on Acquisition of American Bancorp of New Jersey, Inc.............. Description of Capital Stock.................................................... Legal and Tax Opinions.......................................................... Experts......................................................................... Registration Requirements....................................................... Where You Can Find Additional Information....................................... Index to Consolidated Financial Statements...................................... - -------------------------------------------------------------------------------- SUMMARY This summary highlights selected information from this document and may not contain all the information that is important to you. To better understand the stock offering, you should read this entire document carefully, including the consolidated financial statements and the notes thereto beginning at page F-1 of this document. American Bancorp of New Jersey, Inc. American Bancorp of New Jersey, Inc. is a newly formed New Jersey corporation. Its principal executive offices are located at 365 Broad Street, Bloomfield, New Jersey 07003 and the telephone number is (973) 748-3600. American Bancorp of New Jersey, Inc. is conducting this stock offering in connection with the conversion of American Savings, MHC from the mutual to the stock form of organization. The shares of common stock of American Bancorp of New Jersey, Inc. to be sold represent the 70% ownership interest in ASB Holding Company, a federally chartered mid-tier stock holding company, that is currently owned by American Savings, MHC, a federally chartered mutual holding company. The remaining 30% ownership interest in ASB Holding Company is currently owned by public stockholders and will be exchanged for shares of American Bancorp of New Jersey, Inc.'s common stock based on an exchange ratio which is dependent upon the number of shares of American Bancorp of New Jersey, Inc. common stock sold in the stock offering. American Bank of New Jersey American Bank of New Jersey is currently a wholly owned subsidiary of ASB Holding Company and upon completion of the conversion and stock offering it will become a wholly owned subsidiary of American Bancorp of New Jersey, Inc. American Bank of New Jersey was originally founded in 1919 as the American-Polish Building & Loan Association of Bloomfield, New Jersey. It became a state chartered savings and loan association in 1948 and converted to a federally chartered savings bank in 1995. It changed its name from American Savings Bank of NJ to American Bank of New Jersey in 2005. The Bank has historically operated as a traditional community bank, attracting and retaining retail deposits in order to fund a variety of mortgage and consumer loan products. The Bank also invests in mortgage-backed securities and collateralized mortgage-backed obligations. Going forward, the Bank will continue its core business of offering retail banking services, one- to four-family residential mortgage loans, home equity loans and lines of credit, multi-family and commercial real estate loans, construction loans, consumer loans and commercial business, with an increased emphasis on the origination of commercial real estate loans and commercial and industrial loans. American Savings, MHC American Savings, MHC is currently the federally chartered mutual holding company parent for ASB Holding Company. American Savings, MHC's sole business activity consists of its ownership of 3,888,150 shares of ASB Holding Company's common stock, which represents 70% of its outstanding shares. At the conclusion of the conversion and stock offering, American Savings, MHC will cease to exist. - -------------------------------------------------------------------------------- 1 - -------------------------------------------------------------------------------- ASB Holding Company ASB Holding Company is currently the middle-tier federal stock holding company of American Bank of New Jersey and ASB Investment Corp. and owns all of the outstanding common stock of both entities. Currently, ASB Holding Company has 5,554,500 shares of common stock issued and outstanding. American Savings, MHC owns 3,888,150, or 70%, of these shares. The remaining shares of common stock are held by the public. At March 31, 2005, ASB Holding Company had total consolidated assets of $441.0 million and total stockholders' equity of $38.8 million. At the conclusion of the conversion and stock offering, ASB Holding Company will cease to exist and each outstanding share of ASB Holding Company, other than those held by American Savings, MHC, will be exchanged automatically for between 1.6396 and 2.21828 shares of American Bancorp of New Jersey, Inc. common stock. The exact exchange ratio is dependent upon the number of shares of American Bancorp of New Jersey, Inc. common stock sold in the stock offering. How the Ownership Structure Will Change After the Conversion The following chart shows our current structure, commonly referred to as a "two-tier" mutual holding company structure:
- ---------------------------------------- ------------------------------------------- ASB Holding Company American Savings, MHC Minority Stockholders (Public Stockholders) - ---------------------------------------- ------------------------------------------- | | | 70% | 30% | | --------------------------------------------------------------------------------------------------- ASB Holding Company --------------------------------------------------------------------------------------------------- | | | 100% | 100% | | ----------------------------------------------- -------------------------------------------- American Bank of New Jersey ASB Investment Corp. ----------------------------------------------- -------------------------------------------- | | 100% | ----------------------------------------------- American Savings Investment Corp. ----------------------------------------------- The following chart shows our ownership structure after the conversion and stock offering: ----------------------------------------------- Public Stockholders ----------------------------------------------- | | 100% | --------------------------------------------------------------------------------------------------- American Bancorp of New Jersey, Inc. --------------------------------------------------------------------------------------------------- | | | 100% | 100% | | ----------------------------------------------- -------------------------------------------- American Bank of New Jersey ASB Investment Corp. ----------------------------------------------- -------------------------------------------- | | 100% | ----------------------------------------------- American Savings Investment Corp. -----------------------------------------------
- -------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- The Stock Offering We are selling common stock which represents the 70% ownership interest in ASB Holding Company now owned by American Savings, MHC in the following order of priority. First: Depositors at American Bank of New Jersey with $50 or more on deposit as of the close of business on March 31, 2004. Second: American Bank of New Jersey's employee stock ownership plan. Third: Depositors at American Bank of New Jersey with $50 or more on deposit as of close of business on June 30, 2005. Fourth: Depositors at American Bank of New Jersey as of close of business on July 31, 2005 and borrowers as of December 27, 1995 who continue as borrowers as of the close of business on July 31, 2005. We are selling between 6,375,000 and 8,625,000 shares of American Bancorp of New Jersey, Inc. common stock, all at a price of $10.00 per share. The number of shares sold may be increased to 9,918,750. The actual number of shares we sell will depend on an appraisal performed by RP Financial, LC, an independent appraisal firm. We are also exchanging shares of ASB Holding Company, other than those held by American Savings, MHC, for shares of American Bancorp of New Jersey, Inc. based on an exchange ratio of between 1.6396 and 2.21828. The exchange ratio may be increased to as much as 2.55102 in the event the stock offering closes at the maximum, as adjusted of the valuation range. See Stock Pricing and the Number of Shares to be Offered at page __. The subscription offering will terminate at 12:00 noon, eastern time, on ___________, 2005. We may extend this expiration date without notice to you for up to 45 days, until ___________, 2005. Once submitted, your order is irrevocable unless the stock offering is extended beyond ___________, 2005. We may request permission from the Office of Thrift Supervision to extend the stock offering beyond ___________, 2005, but in no event may the stock offering be extended beyond ___________, 2007. If the stock offering is extended beyond ___________, 2005, we will be required to notify each subscriber and resolicit subscriptions. During any extension period, subscribers will have the right to modify or rescind their subscriptions, and, unless an affirmative response is received, a subscriber's funds will be returned with interest at American Bank of New Jersey's passbook savings account rate. We may cancel the stock offering at any time prior to the special meeting of members of American Savings, MHC to vote on the conversion and the special meeting of stockholders of ASB Holding Company to vote on the plan of conversion. We may also cancel the conversion and stock offering after the special meetings of members and stockholders if the OTS concurs in our decision to do so. If we cancel the conversion and stock offering, orders for common stock already submitted will be canceled and subscribers' funds will be returned with interest at American Bank of New Jersey's passbook savings account rate. Commencing concurrently with the subscription offering, we may also offer shares of common stock in a community offering. In the community offering, current stockholders of ASB Holding Company will have first preference and natural persons and trusts of natural persons who reside in the counties where American Bank of New Jersey has offices will have second preference. This part of the stock offering may terminate at any time without notice but no later than ___________, 2005. - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- Shares not sold in the subscription or community offering may be offered for sale in a syndicated community offering, which would be an offering to the general public on a best efforts basis by a syndicate of broker dealers managed by Keefe, Bruyette & Woods, Inc. This part of the stock offering may terminate at any time without notice but no later than ___________, 2005. You cannot transfer your subscription rights. If you attempt to transfer your rights, you may lose the right to purchase shares and may be subject to criminal prosecution and/or other sanctions. We may, in our sole discretion, reject orders received in the community offering and syndicated community offering either in whole or in part. If your order is rejected in part, you cannot cancel the remainder of your order. We have described the stock offering in greater detail beginning at page __. The Exchange of ASB Holding Company Common Stock If you are now a stockholder of ASB Holding Company, your shares will be automatically exchanged for shares of American Bancorp of New Jersey, Inc. The number of shares you will receive will be based on an exchange ratio. The actual number of shares you receive will depend upon the number of shares we sell in our stock offering. The following table shows how the exchange ratio will adjust based on the number of shares sold in our stock offering. The table also shows how many shares of American Bancorp of New Jersey, Inc. an owner of ASB Holding Company common stock would receive in the exchange, adjusted for the number of shares sold in the stock offering.
100 Shares of ASB Holding Company Shares of American Would be Exchanged for Bancorp of New Jersey, Total Shares the Following Number Inc. to be Exchanged of Common of Shares of Shares to be Sold for Existing Shares of Stock to be Exchange American Bancorp in the Stock Offering ASB Holding Company Outstanding Ratio of New Jersey, Inc. --------------------- ------------------- ----------- ----- ------------------- Amount Percent Amount Percent ------ ------- ------ ------- Minimum................. 6,375,000 70% 2,732,142 30% 9,107,142 1.63960% 163 Midpoint................ 7,500,000 70 3,214,285 30 10,714,285 1.92894 192 Maximum................. 8,625,000 70 3,696,428 30 12,321,428 2.21828 221 Adjusted maximum........ 9,918,750 70 4,250,892 30 14,169,642 2.55102 255
If you own your shares of ASB Holding Company in "street name," the exchange will occur automatically; you do not need to take any action. If you have shares registered in your name, you will receive a transmittal form with instructions to surrender your stock certificates after the stock offering is completed. You will receive new certificates of our common stock within five business days after we receive your properly executed transmittal form. No fractional shares of our common stock will be issued upon consummation of the conversion. Payment for fractional shares will be calculated based on the $10.00 per share offering price and will be made after the receipt of surrendered ASB Holding Company stock certificates by Registrar and Transfer Company, which is the transfer agent for our stock and will act as the exchange agent for the conversion. We have described the exchange in greater detail beginning at page __. - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- Tax Effects of the Conversion As a general matter, the conversion and stock offering, including the exchange of shares of ASB Holding Company for shares of American Bancorp of New Jersey, Inc., will not be a taxable transaction for purposes of federal or state income taxes for American Savings, MHC, ASB Holding Company, American Bancorp of New Jersey, Inc., American Bank of New Jersey and persons eligible to subscribe for stock in the offering. The same is true for existing stockholders of ASB Holding Company, except to the extent they receive cash in lieu of fractional shares; existing stockholders of ASB Holding Company will recognize gain or loss equal to the difference between the cash received and the tax basis of the fractional share. See Federal and State Tax Consequences of the Conversion at page __. Reasons for the Conversion We believe that the conversion will: o Better position us to remain viable and thrive as a full service community bank in an increasingly competitive marketplace. o Assist us to continue building shareholder value. Because a greater amount of our outstanding stock will be held by public stockholders after the conversion, we have applied to have our common stock quoted on the Nasdaq National Market. This is expected to provide additional liquidity and visibility for our common stock. o Reduce levels of interest rate risk by enhancing net portfolio value across all interest rate environments due to significant growth in equity capital. Capital growth will also enable us to pursue business strategies designed to reduce income sensitivity to movements in market interest rates that result from the existing repricing mismatch between interest-earning assets and interest- bearing liabilities. These strategies include growth and diversification into commercial lending - which tend to be shorter term and adjustable rate loans - complemented by funding strategies promoting growth in core deposits and emphasizing commercial deposit relationships. o Through the strategies noted above, help us to support and rebuild our net interest margin which underwent significant compression due to systemic asset repricing triggered by the historical interest rate lows of recent years. o Permit us to maintain capital ratios well above the regulatory requirements. The proceeds from the stock offering will provide us with additional equity capital, which will support our proposed future deposit growth and expanded operations. While we currently exceed applicable regulatory capital requirements, the sale of stock, coupled with the accumulation of earnings, less dividends or other reductions in capital, from year to year, represents a means for the orderly preservation and expansion of our capital base. o Provide us easier access, as a full stock corporation, to the capital markets through possible future equity and debt offerings. o Allow us to actively seek future acquisitions to augment our organic growth objectives. As a fully converted holding company, we will have greater strategic flexibility in connection with merger and acquisition transactions. Unlike a mutual holding company, we will have more flexibility to use stock as a form of payment for acquisitions and mergers with any other stock institution or its - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- holding company. Currently, however, we have no plans, agreements or understandings regarding any acquisition. Conditions to Complete the Conversion We cannot complete the conversion and stock offering unless: (1) it is approved by a majority of the votes eligible to be cast by members of American Savings, MHC; (2) it is approved by at least two-thirds of the votes eligible to be cast by stockholders of ASB Holding Company, including those shares held by American Savings, MHC; (3) it is approved by a majority of the votes eligible to be cast by stockholders of ASB Holding Company, excluding those shares held by American Savings, MHC; (4) we sell a minimum of 6,375,000 shares of common stock; and (5) the Office of Thrift Supervision accepts the final update of our independent valuation. We have described the conditions to complete the conversion in greater detail at page __. $10.00 Per Share Stock Pricing and the Number of Shares to be Issued in the Conversion The number of shares offered is determined by an independent appraisal of the pro forma estimated market value of American Bancorp of New Jersey, Inc.'s stock performed by RP Financial, LC divided by the purchase price of $10.00 and multiplied by 70%, the percentage of shares of ASB Holding Company that are currently held by American Savings, MHC and which are now being offered to the public. The amount of stock sold in this offering is required by regulation to be based upon an independent appraisal which is reviewed by the Office of Thrift Supervision. The independent appraiser, RP Financial, LC, has determined that as of May 31, 2005, our estimated aggregate pro forma market value was $107.1 million. Pursuant to Office of Thrift Supervision regulations, the appraiser must establish a valuation range from 15% below to 15% above the estimated pro forma market value. Accordingly, the independent appraisal resulted in a valuation range from $91.1 million to $123.2 million. Based on this valuation range and the 70% ownership of ASB Holding Company by American Savings, MHC, between 6,375,000 shares and 8,625,000 shares of common stock are being offered to the public at $10 per share. - -------------------------------------------------------------------------------- 6 The following table presents a summary of selected pricing ratios for American Bancorp of New Jersey, Inc. and for the comparable publicly traded peer group companies identified in the valuation report.
Price-to-earnings Price-to-book Price-to-tangible multiple value ratio book value ratio -------- ----------- ---------------- American Bancorp of New Jersey, Inc. (pro forma)(1) Minimum.......................................... 38.07x 96.90% 96.90% Midpoint......................................... 44.42x 103.31% 103.31% Maximum.......................................... 50.67x 108.58% 108.58% Maximum, as adjusted............................. 57.72x 113.51% 113.51% Valuation of peer group companies as of May 31, 2005(2) Average.......................................... 18.25x 148.97% 153.57% Median........................................... 15.27x 146.14% 149.16%
- ------------- (1) Based on ASB Holding Company's financial data as of and for the twelve months ended March 31, 2005. (2) Reflects earnings for the most recent 12-month period for which data was publicly available. The ratios we have presented are commonly requested by prospective investors in order to determine whether or not the stock meets the investor's investment criteria. Because of differences and important factors such as operating characteristics, location, financial performance, asset size, capital structure, and business prospects between us and other fully converted institutions, you should not rely on these comparative valuation ratios as an indication as to whether or not the stock is an appropriate investment for you. The independent valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing the common stock. Because the independent valuation is based on estimates and projections on a number of matters, all of which are subject to change from time to time, no assurance can be given that persons purchasing the common stock will be able to sell their shares at a price equal to or greater than the purchase price. See Risk Factors - You may not be able to sell your shares when you desire or for $10.00 or more per share at page __, Pro Forma Data at page __ and The Stock Offering - Stock Pricing and the Number of Shares to be Offered at page __. Based on the independent valuation, we intend to issue between a minimum of 9,107,142 shares and a maximum of 12,321,428 shares, including shares to be exchanged for existing shares of ASB Holding Company. The independent valuation must be updated and confirmed by RP Financial, LC before we may complete the stock offering. The maximum amount of common stock being offered may be increased by up to 15% without notice to persons who have subscribed for stock, so that a total of 14,169,642 shares could be issued, including shares to be exchanged for existing shares of ASB Holding Company. If the updated independent valuation would result in more than 14,169,642 shares being issued, we will be required to notify all persons who have subscribed and these persons would have the opportunity to change or cancel their subscription orders, and, unless an affirmative response is received, a subscriber's funds will be returned with interest at American Bank of New Jersey's passbook savings account rate. Limits on the Amount of Stock You May Purchase o The minimum purchase is 25 shares. - -------------------------------------------------------------------------------- 7 o The maximum number of shares of stock that any individual (or individuals through a single account) may purchase is 150,000 shares. o The maximum number of shares of stock that any individual may purchase together with any associate or group of persons acting in concert is 200,000 shares. If you are now an ASB Holding Company stockholder, the shares of American Bancorp of New Jersey, Inc. common stock that you receive in the exchange for shares of ASB Holding Company common stock, in accordance with the exchange ratio, will count against the above maximum purchase limitations. If determined to be necessary or desirable by the Board of Directors, the plan may be amended by a two-thirds vote of the full Board, with the concurrence of the Office of Thrift Supervision. Thus, we may increase or decrease the purchase limitations. In the event the maximum purchase limitation is increased, persons who subscribed for the maximum will be notified and permitted to increase their subscription. For further discussion of the purchase limits and definitions of "associate" and "acting in concert," see The Stock Offering - Limitations on Purchases of Common Stock at page __. How to Purchase Stock in the Offering If you want to place an order for shares in the stock offering, you must complete an original stock order form and send it to us together with full payment. You must sign the certification that is on the side of the stock order form. We must receive your stock order form before the end of the subscription offering or the end of the community offering, as appropriate. Once we receive your order, you cannot cancel or change it without our consent. To ensure that we properly identify your subscription rights, you must provide on your stock order form all of the information requested for each of your deposit accounts as of the eligibility dates. If you fail to do so, your subscription may be reduced or rejected if the stock offering is oversubscribed. You may pay for shares in the subscription offering or the community offering in any of the following ways: o By check or money order made payable to American Bank of New Jersey. o By authorizing withdrawal from an account at American Bank of New Jersey. To use funds in an IRA account at American Bank of New Jersey, you must transfer your account into a self-directed IRA account at an unaffiliated institution or broker. Please contact the stock information center as soon as possible for assistance. o In cash, only if delivered in person. We will pay interest on your subscription funds from the date we receive your funds at the passbook savings account rate until the stock offering is completed or terminated. All funds authorized for withdrawal from deposit accounts with us will earn interest at the applicable account rate until the stock offering is completed or terminated. If, as a result of a withdrawal from a certificate of deposit, the balance falls below the minimum balance requirement, the remaining funds will be transferred to a savings account and will earn interest at our passbook savings account rate. There will be no early withdrawal - -------------------------------------------------------------------------------- 8 - -------------------------------------------------------------------------------- penalty for withdrawals from certificates of deposit used to pay for stock. Funds received in the subscription offering will be held in a segregated deposit account at American Bank of New Jersey established to hold funds received as payment for shares. We may, at our discretion, determine during the stock offering period that it is in the best interest of American Bank of New Jersey to instead hold subscription funds in an escrow account at another insured financial institution. Proposed Stock Purchases by Management We expect our directors and executive officers, together with their associates, to subscribe for approximately 351,000 shares of common stock in the stock offering. The purchase price paid by them will be the same $10.00 per share price paid by all other persons who purchase shares of common stock in the stock offering. Purchases of common stock in the offering by our directors and executive officers, and their associates, will be counted toward the minimum of 6,375,000 shares that must be sold in order to complete the conversion and stock offering. Following the conversion and stock offering, our directors and executive officers, together with their associates, are expected to own 7.9% of our outstanding shares at the midpoint of the offering range. See Proposed Stock Purchases by Management at page __. Our Use of the Proceeds Raised from the Sale of Stock We estimate that we will receive net proceeds from the sale of the common stock of between $62.4 million at the minimum of the offering range and $84.7 million at the maximum of the offering range. American Bancorp of New Jersey, Inc. will use 50% of the net proceeds of the stock offering to make a capital contribution to American Bank of New Jersey. American Bancorp of New Jersey, Inc. will also lend the Bank's employee stock ownership plan cash to enable the plan to buy 8.0% of the shares sold in the stock offering. The balance will be used for general business purposes, which may include investment in securities, repurchase of shares of common stock or payment of cash dividends. The funds received by American Bank of New Jersey will be used for general business purposes, including funding the origination of loans and investments in securities. We may, in the near term, use a portion of the proceeds to repay overnight Federal Home Loan Bank borrowings. These borrowings have grown recently as we have leveraged our balance sheet by funding loan originations, primarily one- to-four family mortgage loans, with overnight borrowings. We intend to hire additional lenders to grow our loan portfolio. As part of our plan to diversify the loan mix by developing a separate and distinct commercial lending business unit, we have recently hired a commercial and industrial lender and intend over the next several years to hire several additional commercial real estate and commercial and industrial lenders. We also plan to hire additional one-to-four family residential lenders. We also intend to expand our branch office network. Our current business plan calls for opening de novo branches over the next several years, and we have identified several potential sites for de novo branches. Additionally, we plan in the near term to move some personnel into leased space separate from our main office. In addition to expansion of our branch network through opening de novo branches or acquiring branch offices, we intend to actively consider the acquisition of local financial institutions and/or noninterest income subsidiaries as a means to expand our banking operations. It is uncertain, however, when or if these acquisitions will occur, and we do not have any current understandings, agreements or arrangements for any acquisitions. See Use of Proceeds at page __. - -------------------------------------------------------------------------------- 9 - -------------------------------------------------------------------------------- Stock Benefit Plans for Management In order to link our officers', directors' and employees' interests closer to our stockholders' interests, we have established certain benefit plans that use our stock as compensation. At a stockholder meeting in January 2005, stockholders of ASB Holding Company approved the ASB Holding Company 2005 Stock Option Plan and the American Bank of New Jersey 2005 Restricted Stock Plan. Officers and directors of ASB Holding Company and its subsidiaries were awarded options to purchase shares of common stock under the option plan and shares of common stock under the restricted stock plan. The number of options and the exercise price will be adjusted in accordance with the exchange ratio in connection with the conversion. The restricted stock awards will also be adjusted for the exchange ratio in connection with the conversion. The vesting periods under these plans will remain unchanged. See 2005 Stock Awards at page __ for details related to these stock plans. Additionally, American Bank of New Jersey previously established an employee stock ownership plan in connection with the ASB Holding Company minority stock offering completed in October 2003, and the shares purchased by this plan will be exchanged for shares of American Bancorp of New Jersey, Inc. in the conversion in accordance with the exchange ratio. We intend to establish additional stock benefit plans in connection with and following this stock offering. The following table presents information regarding the existing stock-based benefit plans and anticipated new stock-based benefit plans. The table below assumes that 10,714,285 shares are outstanding after the stock offering, which includes the sale of 7,500,000 shares in the stock offering (the midpoint) and the issuance of 3,214,285 shares in exchange for shares of ASB Holding Company. It is assumed that the value of the stock is $10.00 per share and that the exchange of existing shares is in accordance with the exchange ratio at the midpoint of the offering range.
Percentage of Shares Existing and New Stock Benefit Plans: Estimated Outstanding After Participants Shares Value of Shares the Conversion ------------ ------ --------------- -------------- Existing Employee Stock Ownership Plan............. Employees 257,143(1) $2,571,430 2.4% New Employee Stock Ownership Plan.................. Employees 600,000 6,000,000 5.6 --------- ----------- ---- Total Employee Stock Ownership Plan............. 857,143 8,571,430 8.0% --------- ----------- ==== Directors Existing Restricted Stock Awards................... and Officers 157,499(2) 1,574,990 1.5% Directors 2.8 New Restricted Stock Awards........................ and Officers 300,000 3,000,000 --------- ----------- ---- Total Restricted Stock Awards................... 457,499 4,574,990 4.3% --------- ----------- ==== Directors Existing Stock Options............................. and Officers 525,001(3) 2,499,005(4) 4.9% Directors New Stock Options.................................. and Officers 750,000 2,557,500(5) 7.0 --------- ----------- ---- Total Stock Options............................. 1,275,001 5,056,505 11.9 --------- ----------- ==== Total................................ 2,589,643 $18,202,925 24.2% ========= =========== ====
- -------- (1) The existing employee stock ownership plan holds 133,308 shares, which at the midpoint will be exchanged for 257,143 shares. (2) A total of 81,651 shares were awarded under the existing restricted stock plan, which at the midpoint will be exchanged for 157,499 shares. (3) A total of 272,171 options were granted under the existing stock option plan, which at the midpoint will be exchanged for 525,001 options. - -------------------------------------------------------------------------------- 10 - -------------------------------------------------------------------------------- (4) Assumes that the options granted under the existing stock option plan have a value of $4.76 per option, which was determined using the Black-Scholes-Merton option pricing formula using various assumptions. See Note 12 to the Consolidated Financial Statements included in this document. (5) Assumes that the options granted under the new stock option plan have a value of $3.41 per option, which was determined using the Black-Scholes-Merton option pricing formula using various assumptions. See Pro Forma Data on page __. If the fair market value per share on the date of grant is different than $10.00, or if the assumptions used in the option pricing formula are different from those used in preparing the pro forma data, the value of the options will be different. There can be no assurance that the actual fair market value per share on the date of grant, and correspondingly the exercise price of the options, will be $10.00 per share. Stockholders will experience a reduction or dilution in ownership interest of approximately 13.92% if we use newly issued shares to fund stock options and stock awards made under these plans (or taken individually, dilution of approximately 4.67% for the current stock option plan, 6.54% for the new stock option plan, 1.45% for the current restricted stock plan, and 2.72% for the new restricted stock plan). It is our intention to fund these plans through open market purchases, however, if any options previously granted under the 2005 Stock Option Plan are exercised during the first year following the completion of this stock offering, they may be funded with newly issued shares as Office of Thrift Supervision regulations do not permit us to repurchase our shares during the first year following the completion of this stock offering except to fund the current restricted stock plan or the new restricted stock plan or under extraordinary circumstances. See Potential Stock Benefit Plans - Dilution at page __. Market For Common Stock We have applied for approval from Nasdaq to have American Bancorp of New Jersey, Inc.'s common stock quoted on the Nasdaq National Market under the symbol "ABNJ." Quotations for the common stock of ASB Holding Company currently appear on the OTC Bulletin Board under the symbol "ASBH." While it is expected that American Bancorp of New Jersey, Inc.'s common stock will be more easily tradeable than ASB Holding Company's common stock because there will be significantly more outstanding shares than before the conversion, there can be no assurance of this. Keefe, Bruyette & Woods, Inc. has advised us that it intends to be a market maker in the common stock and will assist us in obtaining additional market makers. Restrictions on Acquisition of American Bancorp of New Jersey, Inc. Our certificate of incorporation and bylaws contain provisions that may make it difficult for someone to acquire control of American Bancorp of New Jersey, Inc. These provisions may discourage takeover attempts and prevent you from receiving a premium over the market price of your shares as part of a takeover. These provisions include: o restrictions on the acquisition of our stock; o limitations on voting rights; o the election of only approximately one-fourth of our Board of Directors each year; o restrictions on the ability of stockholders to call special stockholders' meetings; o restrictions on the ability of stockholders to make stockholder proposals or nominate persons for election as directors; o the right of the Board of Directors to issue shares of preferred or common stock without stockholder approval, subject to limitations imposed by Nasdaq; and o the requirement of an 80% vote of stockholders for the approval of business combinations not approved by two-thirds of the Board of Directors. See Restrictions on Acquisition of American Bancorp of New Jersey, Inc. at page __. - -------------------------------------------------------------------------------- 11 - -------------------------------------------------------------------------------- Additionally, prior Office of Thrift Supervision approval would be required for us to be acquired within three years after the conversion. Current Office of Thrift Supervision policy is to not grant this approval. Dividend Policy Since the completion of its initial public stock offering in October 2003, ASB Holding Company has paid two dividends: a special dividend of $0.75 per share in December 2004 and a quarterly dividend of $0.09 per share in June 2005. After the conversion, American Bancorp of New Jersey, Inc. intends to pay a regular quarterly dividend, however, there can be no assurance as to the precise amount of the dividend. The dividends paid to date by ASB Holding Company were paid only to the public stockholders, holding 30% of the outstanding shares of ASB Holding Company, while American Savings, MHC waived its receipt of the dividend on the 70% of the outstanding shares it holds. Following the conversion and stock offering, however, 100% of the outstanding stock of American Bancorp of New Jersey, Inc. will be held by public stockholders and dividends, if and when paid, will be payable on all outstanding shares of common stock. The payment of dividends will depend on a number of factors, including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No assurance can be given that we will pay dividends in the future. Receiving a Prospectus and an Order Form To ensure that each purchaser receives a prospectus at least 48 hours before the applicable expiration date, in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, no prospectus will be mailed any later than five days prior to the expiration date or hand delivered any later than two days prior to the expiration date. Execution of the order form will confirm receipt or delivery in accordance with Rule 15c2-8. Order forms will only be distributed with a prospectus. For assistance, please contact the stock information center at (973)___-____ - -------------------------------------------------------------------------------- 12 RISK FACTORS In addition to the other information in this document, you should carefully consider the following risk factors in evaluating an investment in our stock. Historically, we have operated as a traditional thrift. Our new strategic plan calls for us to diversify our loan portfolio with increased emphasis on multi-family and commercial real estate loans and commercial business loans. The repayment risk related to these types of loans is considered to be greater than the risk related to one-to-four family residential loans. At March 31, 2005, our loan portfolio included multi-family and commercial real estate loans totaling $55.5 million, or 16.4% of our total portfolio. We also have a small amount, $663,000, of commercial business loans. It is our intention to significantly increase our origination of these types of loans. As part of our plan to grow and diversify the loan mix by developing a separate and distinct commercial lending business unit, we have recently hired a commercial and industrial lender and intend over the next several years to hire several additional commercial real estate and commercial and industrial lenders. We also expect that our construction lending program will expand in connection with our increasing strategic emphasis on commercial real estate lending. Multi-family and commercial real estate loans and commercial business loans are generally considered to involve a higher degree of credit risk than long-term financing of owner-occupied residential properties. The likelihood that these loans will not be repaid or will be late in paying is generally greater than with residential loans. See Lending Activities - Multi-family and Commercial Mortgage Loans and Commercial Loans on pages __. Furthermore, it may take some time for us to attract lending business sufficient to offset the increased compensation and benefit expenses that results from hiring the additional personnel we will need. There can be no assurance that the lenders we hire will successfully grow our loan portfolio. We intend to expand our franchise through de novo branching. Until the new branches attract sufficient business to offset the increased expenses incurred by de novo branching, the new branches are likely to reduce our earnings. There is no assurance, however, that we will be successful in opening de novo branches. Our current business plan calls for opening de novo branches over the next several years, and we have identified several potential sites for de novo branches. Costs for land purchase and branch construction will adversely impact earnings going forward. The expenses associated with opening new offices, in addition to the personnel and operating costs that we will have once these offices are open, will significantly increase noninterest expenses. Because these expenses are in fixed assets, they will not result in any additional earnings but will result in a substantial increase in depreciation and occupancy expense. There can be no assurance when, or if, these new offices will open or that we will be successful in executing this part of the business plan. If we are able to locate and obtain suitable sites for these branches, there is no guarantee that these de novo branches will be profitable. Additional expenses are also expected in connection with our plan to establish a new operations center; in the near term we expect to move some personnel into leased space separate from our main office. 13 Notwithstanding the unpredictability of future interest rates, we expect that changes in interest rates may have a significant, adverse impact on our net interest income because the income from our assets and the cost of our liabilities are sensitive to changes in interest rates. Our ability to make a profit largely depends on our net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between: o The interest income we earn on our interest-earning assets such as loans and securities; and o The interest expense we pay on our interest-bearing liabilities such as deposits and amounts we borrow. The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. We, like many savings institutions, have liabilities that generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility, because market interest rates change over time. In a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities. In a period of declining interest rates the interest income earned on our assets may decrease more rapidly than the interest paid on our liabilities. See Management of Interest Rate Risk and Market Risk at page __. We plan to remain independent and you should not invest in our common stock if you are anticipating our sale. It is our intention to continue operating as an independent financial institution. Our certificate of incorporation and bylaws contain provisions that may make it difficult for someone to acquire control of us. These provisions may discourage takeover attempts and prevent you from receiving a premium over the market price of your shares as part of a takeover. In addition, certain officers have employment agreements with American Bank of New Jersey providing for change in control severance payments. We also have a change in control severance policy covering our employees and a directors consultant and retirement plan that provides for payments in the event of a change in control. The officer agreements, employee severance policy and director plan will make it more expensive to acquire us. Additionally, prior Office of Thrift Supervision would be required for us to be acquired within three years after the conversion. Current Office of Thrift Supervision policy is to not grant this approval. See Restrictions on Acquisitions of American Bancorp of New Jersey, Inc. at page __. Our recently implemented stock-based benefit plans and our proposed additional stock-based benefit plans will increase our future compensation expense and dilute stockholder ownership. We adopted a stock option plan and a restricted stock plan in January 2005. In connection with this stock offering, we intend to adopt a new stock option plan that will provide for the granting of further options to purchase common stock and a new restricted stock plan that will provide for further awards of restricted stock to our eligible officers and directors. Our previously established employee stock ownership plan will make additional stock purchases in this stock offering, and it will distribute stock to all of our qualifying employees over a period of time. 14 The new restricted stock plan, the new stock option plan and the additional stock purchases by the employee stock ownership plan will increase our future costs of compensating our directors, officers, and employees. The cost of the employee stock ownership plan will vary based on our stock price over time, while the cost of the new restricted stock plan will be based on our stock price when the awards are first granted. In addition, the Financial Accounting Standards Board has announced a change in the required accounting methods applicable to stock options. Under these accounting requirements, we will be required to recognize compensation expense related to stock options outstanding based upon the fair value of the awards at the date of grant over the period that the awards are earned. These additional expenses will adversely affect our profitability and stockholders' equity. We cannot predict the actual amount of the new stock-related compensation and benefit expenses because applicable accounting standards require that they be based on the fair market value of the shares of common stock at specific points in the future; however, we expect them to be material. Stockholders will experience a reduction or dilution in ownership interest of approximately 13.92% if we use newly issued shares to fund stock options and stock awards made under these plans (or taken individually, dilution of approximately 4.67% for the current stock option plan, 6.54% for the new stock option plan, 1.45% for the current restricted stock plan, and 2.72% for the new restricted stock plan). It is our intention to fund these plans through open market purchases, however, if any options previously granted under the 2005 Stock Option Plan are exercised during the first year following the completion of this stock offering, they may be funded with newly issued shares as Office of Thrift Supervision regulations do not permit us to repurchase our shares during the first year following the completion of this stock offering except to fund a restricted stock plan or under extraordinary circumstances. See Potential Stock Benefit Plan - Dilution at page __. Our low return on equity after the conversion may negatively impact the value of our common stock. As a result of the additional capital that will be raised by us in the conversion, our ability to leverage the net proceeds from the conversion may be limited in the near future. Our return on equity is initially expected to be lower than it has been in recent years, which may negatively impact the value of our common stock. You may not be able to sell your shares when you desire or for $10.00 or more per share. Publicly traded stocks have recently experienced substantial market price volatility. This is due, in part, to investors' shifting perceptions of the effect on various industry sectors of changes and potential changes in the economy. Volatility, therefore, may be unrelated to the current operating performance of particular companies whose shares are traded. The purchase price of common stock sold in conversion transactions, including mutual-to-stock conversion transactions of mutual holding companies, is based on an independent appraisal. Independent appraisals are not intended to be, and should not be construed as, a recommendation as to the advisability of purchasing shares. After our common stock begins to trade, the trading price will be determined by the marketplace. The trading price will fluctuate because it will be influenced by many factors, including prevailing interest rates, other economic conditions, our operating performance and investor perceptions of the outlook for us and the banking industry in general. We cannot assure you that if you choose to sell shares you purchased in the stock offering, you will be able to sell them at or above the $10.00 per share offering price. 15 Our business is geographically concentrated in New Jersey and a downturn in conditions in the state could have an adverse impact on our profitability. A substantial majority of our loans are to individuals and businesses in New Jersey. Any decline in the economy of the state could have an adverse impact on our earnings. Because we have a significant amount of real estate loans, decreases in local real estate values could adversely affect the value of property used as collateral. Adverse changes in the economy and real estate values may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings. Strong competition within our market area may limit our growth and profitability. Competition in the banking and financial services industry in New Jersey is intense. In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies and brokerage and investment banking firms operating locally and elsewhere. Many of these competitors have substantially greater resources and lending limits than we do and offer services that we do not or cannot provide. This competition has made it more difficult for us to make new loans and more difficult to retain deposits. Price competition for loans might result in us originating fewer loans, or earning less on our loans, and price competition for deposits might result in us reducing our total deposits or paying more on our deposits. We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations. We are subject to extensive regulation, supervision and examination by the Office of Thrift Supervision and by the Federal Deposit Insurance Corporation. This regulation and supervision govern the activities in which a bank and its holding company may engage and are intended primarily for the protection of the insurance fund and depositors. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of a bank, the classification of assets by a bank and the adequacy of a bank's allowance for loan losses. Any change in this regulation and oversight, whether in the form of regulatory policy, regulations, or legislation could have a material impact on us and our operations. See Regulation beginning at page __. USE OF PROCEEDS We are conducting this stock offering principally to raise additional capital to support our continued growth. The net proceeds will depend on the total number of shares of stock issued in the offering, which will depend on the independent valuation and market considerations. The net proceeds will also be impacted by the expenses incurred by us in connection with the stock offering. Although the actual net proceeds from the sale of the common stock cannot be determined until the stock offering is completed, we estimate that we will receive net proceeds from the sale of common stock of between $62.4 million at the minimum and $84.7 million at the maximum of the offering range. Assuming expenses of between $1.4 million at the minimum and $1.7 million at the maximum, as adjusted, of the offering range and assuming the purchase of 8% of the shares by the employee stock ownership plan, the following table shows the manner in which we will use the net proceeds: 16
Maximum, as Minimum Midpoint Maximum Adjusted ---------------------- ------------------ ------------------- ---------------- $ % $ % $ % $ % ------- ----- ------- ----- ------- ----- ------- ----- (Dollars in thousands) Loan to employee stock ownership plan..................... $ 5,100 8.2% $ 6,000 8.2% $ 6,900 8.1% $ 7,935 8.1% Investment in American Bank of New Jersey...................... 31,187 50.0 36,760 50.0 42,333 50.0 48,743 50.0 American Bancorp of New Jersey, Inc. working capital....... 26,086 41.8 30,760 41.8 35,433 41.9 40,857 41.9 ------- ----- ------- ----- ------- ----- ------- ----- Net Proceeds.............. $62,373 100.0% $73,520 100.0% $84,666 100.0% $97,485 100.0% ======= ===== ======= ===== ======= ===== ======= =====
We will use 50% of the net proceeds of the stock offering to make a capital contribution to American Bank of New Jersey. We will also lend the Bank's employee stock ownership plan cash to enable the plan to buy up to 8% of the shares sold in the stock offering. The balance will be retained as our initial capitalization and used for general business purposes which may include investment in securities, repurchase of shares of our common stock, or payment of cash dividends. The funds received by American Bank of New Jersey from us will be used for general business purposes, including funding the origination of loans and investments in securities. The Bank may, in the near term, use a portion of the proceeds to repay overnight Federal Home Loan Bank borrowings. These borrowings have grown recently as we have leveraged our balance sheet by funding loan originations, primarily one-to-four family mortgage loans, with overnight borrowings. The Bank intends to hire additional lenders. As part of its plan to grow and diversify the loan mix by developing a separate and distinct commercial lending business unit, the Bank has recently hired a commercial and industrial lender and intends over the next several years to hire several additional commercial real estate and commercial and industrial lenders. The Bank also plans to hire additional one- to-four family residential lenders. We intend to expand the Bank's branch office network. Our current business plan calls for opening de novo branches over the next several years, and several potential sites for de novo branches have been identified. Additionally, we plan in the near term to move some personnel into leased space separate from our main office. In addition to expansion of our branch network through opening de novo branches or acquiring branch offices, we intend to actively consider the acquisition of local financial institutions and/or noninterest income subsidiaries as a means to expand our banking operations. It is uncertain, however, when or if these acquisitions will occur, and we do not have any current understandings, agreements or arrangements for any acquisitions. If the employee stock ownership plan is not able to purchase all of its common stock in the stock offering, it may purchase shares of common stock in the market after the stock offering. If the purchase price of the common stock is higher than $10.00 per share, the amount of proceeds required for the purchase by the employee stock ownership plan will increase, and the resulting stockholders' equity will decrease. The net proceeds may vary significantly because total expenses of the stock offering may be significantly more or less than those estimated at the various points of the offering range. Payments 17 for shares made through withdrawals from existing deposit accounts at American Bank of New Jersey will not result in the receipt of new funds for investment but will result in a reduction of American Bank of New Jersey's deposits and interest expense as funds are transferred from interest-bearing certificates or other deposit accounts. DIVIDEND POLICY Since the completion of its initial public stock offering in October 2003, ASB Holding Company has paid two dividends: a special dividend of $0.75 per share in December 2004 and a quarterly dividend of $0.09 per share in June 2005. After the conversion, American Bancorp of New Jersey, Inc. intends to pay a regular quarterly dividend, however, there can be no assurance as to the precise amount of the dividend. The dividends paid to date by ASB Holding Company were paid only to the public stockholders, holding 30% of the outstanding shares of ASB Holding Company, while American Savings, MHC waived its receipt of the dividend on the 70% of the outstanding shares it holds. Following the conversion and stock offering, however, 100% of the outstanding stock of American Bancorp of New Jersey, Inc. will be held by public stockholders and dividends will be payable on all outstanding shares of common stock. The payment of dividends will depend on a number of factors including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No assurance can be given that we will pay dividends in the future, or that, if paid, dividends will not be reduced or eliminated in future periods. Under New Jersey law, American Bancorp of New Jersey, Inc. may not pay dividends if, after giving effect thereto, it would be unable to pay its debts as they become due in the usual course of its business or if its total assets would be less than its total liabilities. American Bancorp of New Jersey, Inc.'s ability to pay dividends may also depend on the receipt of dividends from American Bank of New Jersey which is subject to a variety of regulatory limitations on the payment of dividends. See Regulation - Regulation of American Bank of New Jersey - Dividend and Other Capital Distribution Limitations at page __. Furthermore, as a condition to the OTS giving its authorization to conduct the stock offering, American Bancorp of New Jersey, Inc. has agreed that it will not initiate any action within one year of completion of the stock offering in the furtherance of payment of a special distribution or return of capital to stockholders of American Bancorp of New Jersey, Inc. MARKET FOR THE STOCK Quotations for ASB Holding Company's common stock currently appear on the OTC Bulletin Board under the symbol "ASBH." American Bancorp of New Jersey, Inc. is a newly formed company and has not issued capital stock. It will not have any stock outstanding until the completion of this stock offering. It is expected that there will be a more active trading market for the common stock of American Bancorp of New Jersey, Inc. than there has been for ASB Holding Company because there will be more shares outstanding to the public. We have applied for approval from Nasdaq to have our common stock quoted on the Nasdaq National Market under the symbol "ABNJ." There can be no assurance, however, that an active and liquid trading market for our common stock will develop or, if developed, be maintained. The following table sets forth the high and low sales prices for ASB Holding Company's common stock and dividends paid for the periods indicated. ASB Holding Company's common stock commenced 18 trading on October 3, 2003. The following stock price information represents inter-dealer quotations and, therefore, may not include retail markups, markdowns, or commissions and may not reflect actual transactions. As of March 31, 2005, there were 1,666,350 shares of ASB Holding Company's common stock outstanding to persons other than American Savings, MHC. In connection with the conversion, each share of ASB Holding Company common stock will be converted into shares of common stock of American Bancorp of New Jersey, Inc., based upon the exchange ratio as described under The Conversion - Share Exchange Ratio at page __. Accordingly, the information in this table should be reviewed in conjunction with the exchange ratio information.
High Low Dividends ---- --- --------- Fiscal 2004 - ----------- First Quarter (October 3, 2003 to December 31, 2003)....... $18.50 $16.20 $ - Second Quarter............................................. 17.95 16.65 - Third Quarter.............................................. 17.15 14.25 - Fourth Quarter............................................. 15.19 14.50 - Fiscal 2005 - ----------- First Quarter.............................................. 18.00 15.00 0.75 Second Quarter............................................. 18.50 16.70 - Third Quarter (through June 14, 2005)...................... 23.00 17.60 0.09
At May 17, 2005, the business day immediately preceding the public announcement of the conversion and new stock offering, and at ___________, 2005, the closing price of ASB Holding Company's common stock as reported on the OTC Bulletin Board was $18.00 per share and $_____ per share, respectively. At July 31, 2005, ASB Holding Company had ________ stockholders of record, including persons who hold stock in "street" name through various brokerage firms. 19 CAPITALIZATION Set forth below is the historical capitalization as of March 31, 2005 and the pro forma capitalization of American Bancorp of New Jersey, Inc. after giving effect to the stock offering. The table also gives effect to the assumptions set forth under Pro Forma Data at page __. A change in the number of shares sold in the stock offering may materially affect the pro forma capitalization.
Pro Forma Capitalization at March 31, 2005 --------------------------------------------------------- Maximum, Minimum Midpoint Maximum as adjusted 6,375,000 7,500,000 8,625,000 9,918,750 Actual at Shares at Shares at Shares at Shares at March 31, $10.00 $10.00 $10.00 $10.00 2005(1) per share per share per share per share(2) ------- --------- --------- --------- ------------ (In thousands) Deposits(3)............................................ $328,043 $328,043 $328,043 $328,043 $328,043 FHLB advances(4)....................................... 68,263 68,263 68,263 68,263 68,263 -------- -------- -------- -------- -------- Total deposits and borrowings.......................... $396,306 $396,306 $396,306 $396,306 $396,306 ======== ======== ======== ======== ======== Stockholders' equity: Preferred stock, $0.10 par value, 10,000,000 shares authorized (post conversion); none to be issued.................................. $ - $ - $ - $ - $ - Common stock, $0.10 par value, 20,000,000 shares authorized (post conversion); assuming shares outstanding as shown(5)..................... 555 911 1,071 1,232 1,417 Additional paid-in capital(5)(6)....................... 17,066 79,083 90,070 101,055 113,689 Retained earnings(7)................................... 24,848 24,848 24,848 24,848 24,848 Assets received from American Savings, MHC(8).......... - 100 100 100 100 Less: Accumulated other comprehensive loss, net of tax..... (950) (950) (950) (950) (950) Amount reclassified on employee stock ownership plan shares(9).......................... (312) - - - - Unearned employee stock ownership plan shares(10)........................................ (1,131) (6,231) (7,131) (8,031) (9,066) Unearned restricted stock plan shares(11)............ (1,265) (3,815) (4,265) (3,450) (3,968) ------- ------- -------- -------- -------- Total stockholders' equity............................. $38,811 $93,946 $103,743 $113,539 $124,805 ======= ======= ======== ======== ========
- ------------------ (1) Actual capitalization at March 31, 2005 consists of the existing capitalization of ASB Holding Company (2) As adjusted to give effect to an increase in the number of shares which could occur due to an increase in the independent valuation and a commensurate increase in the offering range of up to 15% to reflect changes in market and financial conditions. (3) Does not reflect withdrawals from deposit accounts for the purchase of stock in the offering. Any withdrawals would reduce pro forma deposits by an amount equal to the withdrawals. (4) We may, in the near term, use a portion of the proceeds to repay overnight Federal Home Loan Bank borrowings. At March 31, 2005, overnight borrowings totaled $14.5 million. Pro forma Federal Home Loan Bank advances would decrease if we use a portion of the proceeds to repay the overnight borrowings. (5) Pro forma common stock and additional paid-in capital reflect the number of shares of common stock to be outstanding after the stock offering. Additional paid-in capital amounts under pro forma capitalization are net of stock offering expenses. (6) No effect has been given to the issuance of additional shares of stock pursuant to the 2005 Stock Option Plan or any stock option plan that may be adopted by American Bancorp of New Jersey, Inc. and presented for approval by the stockholders after the stock offering. An amount equal to 10% of the shares of stock sold in the offering would be reserved for issuance upon the exercise of options to be granted under the new stock option plan following the stock offering. See Management - Potential Stock Benefit Plans - Stock Option Plan at page __. (7) The retained earnings of American Bank of New Jersey will be substantially restricted after the conversion. See Regulation - Regulation of American Bank of New Jersey - Dividends and Other Capital Distribution Limitations at page __. (8) Pro forma data reflects the consolidation of $100,000 of capital from American Savings, MHC. 20 (9) The amount reclassified on employee stock ownership plan shares represents the contingent repurchase obligation. At March 31, 2005, the employee stock ownership plan held 133,308 shares of ASB Holding Company's common stock and 16,913 of these shares were allocated to the accounts maintained for participants. Participants become eligible to receive payment of the vested benefits under the plan upon retirement, disability or termination of employment. Participants who elect to receive their benefit payments in the form of ASB Holding Company common stock may require ASB Holding Company to purchase the common stock distributed at fair value during two 60-day periods. The first purchase period begins on the date the benefit is paid and the second purchase period begins on the first anniversary of the payment date. This contingent repurchase obligation is reflected in the financial statements as "Common stock in ESOP subject to contingent repurchase obligation" and reduces shareholder's equity by an amount that represents the fair value of all allocated shares, without regard to whether it is likely that the shares would be distributed or that the recipients of the shares would be likely to exercise their right to require ASB Holding Company to purchase the shares. At March 31, 2005, this contingent repurchase obligation reduced stockholders' equity by $312,000. This obligation will be terminated upon completion of the conversion and stock offering as it is not applicable to Nasdaq traded stock. We anticipate that American Bancorp of New Jersey, Inc.'s common stock will be traded on Nasdaq while ASB Holding Company's common stock is traded on the OTC Bulletin Board. (10) The purchase price of unearned shares held by the employee stock ownership plan is reflected as a reduction of stockholders' equity. Includes unearned shares held currently by the existing employee stock ownership plan and assumes that 8.0% of the shares sold in the stock offering will be purchased by the new employee stock ownership plan, and that the funds used to acquire the additional employee stock ownership plan shares will be borrowed from American Bancorp of New Jersey, Inc. For an estimate of the impact of the loan on earnings, see Pro Forma Data at page __. American Bank of New Jersey intends to make scheduled discretionary contributions to the employee stock ownership plan sufficient to enable the plan to service and repay its debt over a ten year period. See Management - Employee Stock Ownership Plan at page __. If the employee stock ownership plan does not purchase stock in the stock offering and the purchase price in the open market is greater than $10.00 price per share, there will be a corresponding reduction in stockholders' equity. See The Stock Offering - Subscription Offering - Subscription Rights at page __. (11) The purchase price of unearned shares held by the restricted stock plans is reflected as a reduction of stockholders' equity. Includes shares held currently by the 2005 Restricted Stock Plan and assumes that an amount equal to 4% of the shares of stock sold in the stock offering are purchased for the new restricted stock plan following the stock offering at $10.00 per share. In addition, the 2005 Restricted Stock Plan intends to continue to make stock purchases in the open market from time to time to fund this plan after the completion of the stock offering. If the purchase price in the open market is greater than $10.00 per share, there will be a corresponding reduction in stockholders' equity. See footnote (2) to the table under Pro Forma Data at page __. See Management - Potential Stock Benefit Plans - Restricted Stock Plan at page __. PRO FORMA DATA The actual net proceeds from the sale of the stock cannot be determined until the stock offering is completed. However, investable net proceeds to American Bancorp of New Jersey, Inc. are currently estimated to be between approximately $54.8 million and $74.4 million (or $85.7 million if the independent valuation is increased by 15%) based on the following assumptions: o receipt of assets of $100,000 from American Savings, MHC; o an amount equal to the cost of purchasing 8% of the shares sold in the stock offering will be loaned to the employee stock ownership plan to fund its purchase of 8% of the shares sold in the stock offering; o an amount equal to 4% of the shares sold in the stock offering will be awarded pursuant to the restricted stock plan adopted no sooner than six months following the stock offering, funded through open market purchases; and o expenses of the stock offering are estimated to be approximately $1.4 million at the minimum of the offering range and $1.6 million at the maximum ($1.7 million if the valuation is increased by 15%). We have prepared the following table, which sets forth our historical net income and stockholders' equity prior to the stock offering and our pro forma consolidated net income and stockholders' equity 21 following the stock offering. In preparing this table, and in calculating pro forma data, we have made the following assumptions: o Pro forma earnings have been calculated assuming the stock had been sold at the beginning of the period and the net proceeds had been invested at an average yield of 3.35% for the six months ended March 31, 2005 and the year ended September 30, 2004, which approximates the yield on a one-year U.S. Treasury bill on March 31, 2005 and September 30, 2004. The yield on a one- year U.S. Treasury bill, rather than an arithmetic average of the average yield on interest-earning assets and the average rate paid on deposits, has been used to estimate income on net proceeds because it is believed that the one-year U.S. Treasury bill rate is a more accurate estimate of the rate that would be obtained on an investment of net proceeds from the stock offering. o The pro forma after-tax yield on the net proceeds is assumed to be 2.01% for the six months ended March 31, 2005 and for the year ended September 30, 2004, based on an effective tax rate of 39.94% for both periods. o We did not include any withdrawals from deposit accounts to purchase shares in the stock offering. o Historical and pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the indicated number of shares of stock, as adjusted in the pro forma net earnings per share to give effect to the purchase of shares by the employee stock ownership plan. o Pro forma stockholders' equity amounts have been calculated as if the stock had been sold on March 31, 2005 and September 30, 2004, respectively, and no effect has been given to the assumed earnings effect of the transactions. The following pro forma data rely on the assumptions we outlined above, and these data do not represent the fair market value of the common stock, the current value of assets or liabilities, or the amount of money that would be distributed to stockholders if we liquidated American Bancorp of New Jersey, Inc. The pro forma data do not predict how much we will earn in the future. You should not use the following information to predict future results of operations. The pro forma information does not take into account our anticipated future expenses in connection with de novo branching or the expenses related to our growth strategy, including the hiring of additional lenders. The historical data for the year ended September 30, 2004 does not reflect any expense for the restricted stock plan and stock option plan approved by ASB Holding Company stockholders on January 20, 2005. The historical data for the six months ended March 31, 2005 does not reflect accrual of restricted stock plan expense for the entire six month period because the restricted stock plan awards were not made until January 2005. The pro forma data for the six months ended March 31, 2005 includes an adjustment for stock option expense for those options awarded in January 2005. Please see Note 1 to the Consolidated Financial Statements for the pro forma expense disclosed and Note 12 for the Black Scholes assumptions and number of options. The following tables summarize historical data and pro forma data at or for the six months ended March 31, 2005 and at or for the year ended September 30, 2004 based on the assumptions set forth above and in the tables and should not be used as a basis for projections of market value of the stock following the stock offering. Pro forma stockholders' equity per share does not give effect to the liquidation account to be established in the conversion. See Management - Potential Stock Benefit Plans - Stock Option Plan at page __ and The Conversion - Liquidation Rights at page __. 22
At or For the Six Months Ended March 31, 2005 ------------------------------------------------------------------ 6,375,000 7,500,000 8,625,000 9,918,750 Shares Sold Shares Sold Shares Sold Shares Sold at at $10.00 at $10.00 at $10.00 $10.00 per share per share per share per share --------- --------- --------- --------- (Dollars in thousands, except per share amounts) Gross proceeds............................................... $63,750 $75,000 $86,250 $99,188 Less expenses................................................ 1,377 1,480 1,584 1,703 Plus: Assets received from American Savings, MHC............. 100 100 100 100 ------- ------- ------- ------- Estimated net proceeds.................................... 62,473 73,620 84,766 97,585 Less ESOP funded by American Bancorp of New Jersey, Inc...... (5,100) (6,000) (6,900) (7,935) Less restricted stock plan adjustment........................ (2,550) (3,000) (3,450) (3,968) ------- ------- ------- ------- Estimated investable net proceeds......................... $54,823 $64,620 $74,416 $85,682 ======= ======= ======= ======= Net Income: Historical ............................................... $1,194 $1,194 $1,194 $1,194 Pro forma income on net proceeds.......................... 552 650 749 862 Pro forma ESOP adjustment(1).............................. (153) (180) (207) (238) Pro forma restricted stock plan adjustment(2)............. (153) (180) (207) (238) Pro forma options adjustment - new options(3)............. (196) (230) (265) (304) Pro forma options adjustment - January 2005 options(4).... (54) (54) (54) (54) ------ ------ ------ ------ Pro forma net income(1)(2)(3)(4)(5)....................... $1,190 $1,200 $1,210 $1,222 ====== ====== ====== ====== Per share net income: Historical ............................................... $0.14 $0.12 $0.10 $0.09 Pro forma income on net proceeds.......................... 0.06 0.06 0.06 0.06 Pro forma ESOP adjustment(1).............................. (0.02) (0.02) (0.02) (0.02) Pro forma restricted stock plan adjustment(2)............. (0.02) (0.02) (0.02) (0.02) Pro forma options adjustment - new options(3)............. (0.02) (0.02) (0.02) (0.02) Pro forma options adjustment - January 2005 options(4).... (0.01) (0.01) (0.00) (0.00) ----- ----- ----- ----- Pro forma net income per share(1)(2)(3)(4)(5)............. $0.13 $0.11 $0.10 $0.09 ===== ===== ===== ===== Shares used in calculation of income per share (6)........... 8,622,643 10,144,285 11,665,929 13,415,817 Stockholders' equity: Historical ............................................... $38,811 $ 38,811 $ 38,811 $ 38,811 Estimated net proceeds.................................... 62,473 73,620 84,766 97,585 Plus: Elimination of ESOP reclassification............. 312 312 312 312 Less: Common Stock acquired by the ESOP(1)................ (5,100) (6,000) (6,900) (7,935) Less: Common Stock acquired by the restricted stock plan(2)....................... (2,550) (3,000) (3,450) (3,968) ------- -------- -------- -------- Pro forma stockholders' equity............................ $93,946 $103,743 $113,539 $124,805 ======= ======== ======== ======== Stockholders' equity per share: Historical ............................................... $ 4.26 $ 3.62 $ 3.15 $ 2.74 Estimated net proceeds.................................... 6.87 6.87 6.87 6.89 Plus: Elimination of ESOP reclassification............. 0.03 0.03 0.03 0.03 Less: Common Stock acquired by the ESOP(1)................ (0.56) (0.56) (0.56) (0.56) Less: Common stock acquired by the restricted stock plan(2)....................... (0.28) (0.28) (0.28) (0.28) ------ ----- ------ ------ Pro forma stockholders' equity per share.................. $10.32 $9.68 $ 9.21 $ 8.81 ====== ===== ====== ====== Offering price as a percentage of pro forma stockholders' equity per share............................. 96.90% 103.31% 108.58% 113.51% ===== ====== ====== ====== Offering price as a percentage of pro forma net income per share........................................ 38.46X 45.45X 50.00X 55.56X ===== ===== ===== ===== Shares used in calculation of stockholders' equity per share(5) 9,107,143 10,714,285 12,321,429 14,169,642 (Footnotes on following page)
23 - --------------- (1) Assumes that 8% of the shares sold in the stock offering will be purchased by the employee stock ownership plan and that the plan will borrow funds from American Bancorp of New Jersey, Inc. The stock acquired by the employee stock ownership plan is reflected as a reduction of stockholders' equity. American Bank of New Jersey intends to make annual contributions to the plan in an amount at least equal to the principal and interest requirement of the loan. This table assumes a 10 year amortization period. See Management - Employee Stock Ownership Plan at page __. The pro forma net earnings assumes: (i) that American Bank of New Jersey's contribution to the employee stock ownership plan for the principal portion of the debt service requirement for the six months ended March 31, 2005 was made at the end of the period; (ii) that 25,500, 30,000, 34,500 and 39,675 shares at the minimum, midpoint, maximum, and 15% above the maximum of the range, respectively, were committed to be released during the six months ended March 31, 2005, at an average fair value of $10.00 per share and were accounted for as a charge to expense in accordance with Statement of Position ("SOP") No. 93-6; and (iii) only the employee stock ownership plan shares committed to be released were considered outstanding for purposes of the net earnings per share calculations. All employee stock ownership plan shares were considered outstanding for purposes of the stockholders' equity per share calculations. (2) Gives effect to the restricted stock plan that may be adopted by American Bank of New Jersey following the stock offering and presented for approval at a meeting of stockholders to be held after completion of the stock offering. If the restricted stock plan is approved by the stockholders, the restricted stock plan is expected to acquire an amount of stock equal to 4% of the shares sold in the stock offering, or 255,000, 300,000, 345,000 and 396,750 shares of stock, respectively, at the minimum, midpoint, maximum and 15% above the maximum of the range through open market purchases. Funds used by the restricted stock plan to purchase shares will be contributed to the restricted stock plan by American Bank of New Jersey. In calculating the pro forma effect of the restricted stock plan, it is assumed that the required stockholder approval has been received for the plan, that the shares were acquired by the restricted stock plan at the beginning of the six months ended March 31, 2005 through open market purchases, at $10.00 per share, and that 20% of the amount contributed was amortized to expense during the six months ended March 31, 2005. The restricted stock plan will be amortized over 5 years. The issuance of authorized but unissued shares of stock to the restricted stock plan instead of open market purchases would dilute the voting interests of existing stockholders by approximately 2.72% and pro forma net income per share for the six months ended March 31, 2005 would be $0.12, $0.11, $0.11 and $0.10 at the minimum, midpoint, maximum and 15% above the maximum of the range, respectively, and pro forma stockholders' equity per share at March 31, 2005 would be $10.03, $9.42, $8.96 and $8.57 at the minimum, midpoint, maximum and 15% above the maximum of the range, respectively. There can be no assurance that stockholder approval of the restricted stock plan will be obtained, or the actual purchase price of the shares will be equal to $10.00 per share. See Management - Potential Stock Benefit Plans - Restricted Stock Plan at page __. (3) Gives effect to the stock option plan that may be adopted by American Bancorp of New Jersey, Inc. following the stock offering and presented for approval at a meeting of stockholders to be held after completion of the stock offering and assumes that the options granted under the stock option plan have a value of $3.41 per option, which was determined using the Black-Scholes-Merton option pricing formula using the following assumptions: (i) the trading price on date of grant was $10.00 per share; (ii) exercise price is equal to the trading price on the date of grant; (iii) dividend yield of 1.8%; (iv) expected life of 10 years; (v) expected volatility of 20%; and risk-free interest rate of 4.5%. The assumed expected volatility is based on the trading history of ASB Holding Company's common stock. If the fair market value per share on the date of grant is different than $10.00, or if the assumptions used in the option pricing formula are different from those used in preparing this pro forma data, the value of the options and the related expense recognized will be different. There can be no assurance that the actual fair market value per share on the date of grant, and correspondingly the exercise price of the options, will be $10.00 per share. The issuance of authorized but unissued shares of stock instead of open market purchases to fund exercises of options granted under the stock option plan would dilute the voting interests of existing stockholders by approximately 6.54%. See Management - Potential Stock Benefit Plans - Stock Option Plan on page ___. (4) The pro forma data for the six months ended March 31, 2005 includes an adjustment for stock option expense for those options awarded in January 2005. Please see Note 1 to the Consolidated Financial Statements for the pro forma expense disclosed and Note 12 for the Black Scholes assumptions and number of options. (5) Retained earnings will continue to be substantially restricted after the stock offering. See Dividend Policy at page __ and Regulation - Regulation of American Bank of New Jersey - Dividends and Other Capital Distribution Limitations at page __. (6) For purposes of calculating net income per share, only the employee stock ownership plan shares committed to be released under the plan were considered outstanding. For purposes of calculating stockholders' equity per share, all employee stock ownership shares were considered outstanding. We have also assumed that no options granted under the stock option plan were exercised during the period and that the trading price of American Bancorp of New Jersey, Inc. common stock at the end of the period was $10.00 per share. Under this assumption, using the treasury stock method, no additional shares of stock were considered to be outstanding for purposes of calculating earnings per share or stockholders' equity per share. 24
At or For the Year Ended September 30, 2004 ------------------------------------------------------------------ 6,375,000 7,500,000 8,625,000 9,918,750 Shares Sold Shares Sold Shares Sold Shares Sold at at $10.00 at $10.00 at $10.00 $10.00 per share per share per share per share --------- --------- --------- --------- (Dollars in thousands, except per share amounts) Gross proceeds............................................... $63,750 $75,000 $86,250 $99,188 Less expenses................................................ 1,377 1,480 1,584 1,703 Plus: Assets received from American Savings, MHC............. 100 100 100 100 ------- ------- ------- ------- Estimated net proceeds.................................... 62,473 73,620 84,766 97,585 Less ESOP funded by American Bancorp of New Jersey, Inc...... (5,100) (6,000) (6,900) (7,935) Less restricted stock plan adjustment........................ (2,550) (3,000) (3,450) (3,968) ------- ------- ------- ------- Estimated investable net proceeds......................... $54,823 $64,620 $74,416 $85,682 ======= ======= ======= ======= Net Income: Historical ............................................... $2,162 $2,162 $2,162 $2,162 Pro forma income on net proceeds.......................... 1,103 1,300 1,497 1,724 Pro forma ESOP adjustment(1).............................. (306) (360) (414) (477) Pro forma restricted stock plan adjustment(2)............. (306) (360) (414) (477) Pro forma option plan adjustment(3)....................... (391) (460) (529) (609) ------ ------ ------ ------ Pro forma net income(1)(2)(3)(4).......................... $2,262 $2,282 $2,302 $2,323 ====== ====== ====== ====== Per share net income: Historical ............................................... $0.25 $0.21 $0.18 $0.16 Pro forma income on net proceeds.......................... 0.13 0.13 0.13 0.13 Pro forma ESOP adjustments(1)............................. (0.04) (0.04) (0.04) (0.04) Pro forma restricted stock plan adjustment(2)............. (0.04) (0.04) (0.04) (0.04) Pro forma option plan adjustment(3)....................... (0.05) (0.05) (0.05) (0.05) ----- ----- ----- ----- Pro forma net income per share(1)(2)(3)(4)................ $0.25 $0.21 $0.18 $0.16 ===== ===== ===== ===== Shares used in calculation of income per share (5)........... 8,648,143 10,174,285 11,700,429 13,455,492 Stockholders' equity: Historical ............................................... $39,314 $ 39,314 $ 39,314 $ 39,314 Estimated net proceeds.................................... 62,473 73,620 84,766 97,585 Plus: Elimination of ESOP reclassification............. 312 312 312 312 Less: Common Stock acquired by the ESOP(1)................ (5,100) (6,000) (6,900) (7,935) Less: Common Stock acquired by the restricted stock plan(2)....................... (2,550) (3,000) (3,450) (3,968) ------- -------- -------- -------- Pro forma stockholders' equity............................ $94,449 $104,426 $114,042 $125,308 ======= ======== ======== ======== Stockholders' equity per share: Historical ............................................... $ 4.32 $ 3.67 $ 3.19 $ 2.77 Estimated net proceeds.................................... 6.86 6.87 6.88 6.89 Plus: Elimination of ESOP reclassification............. 0.03 0.03 0.03 0.02 Less: Common Stock acquired by the ESOP(1)................ (0.56) (0.56) (0.56) (0.56) Less: Common stock acquired by the restricted stock plan(2)....................... (0.28) (0.28) (0.28) (0.28) ------ ----- ------ ------ Pro forma stockholders' equity per share.................. $10.37 $9.73 $ 9.26 $ 8.84 ====== ===== ====== ====== Offering price as a percentage of pro forma stockholders' equity per share............................. 96.43% 102.77% 107.99% 113.12% ===== ====== ====== ====== Offering price as a percentage of pro forma net income per share........................................ 40.00X 47.62X 55.56X 62.50X ===== ===== ===== ===== Shares used in calculation of stockholders' equity per share(5) 9,107,143 10,714,285 12,321,429 14,169,642 (Footnotes on following page)
25 - ---------------- (1) Assumes that 8% of the shares sold in the stock offering will be purchased by the employee stock ownership plan and that the plan will borrow funds from American Bancorp of New Jersey, Inc. The stock acquired by the employee stock ownership plan is reflected as a reduction of stockholders' equity. American Bank of New Jersey intends to make annual contributions to the plan in an amount at least equal to the principal and interest requirement of the loan. This table assumes a 10 year amortization period. See Management - Employee Stock Ownership Plan at page __. The pro forma net earnings assumes: (i) that American Bank of New Jersey's contribution to the employee stock ownership plan for the principal portion of the debt service requirement for year ended September 30, 2004 was made at the end of the period; (ii) that 51,000, 60,000, 69,000 and 79,350 shares at the minimum, midpoint, maximum, and 15% above the maximum of the range, respectively, were committed to be released during the year ended September 30, 2004, at an average fair value of $10.00 per share and were accounted for as a charge to expense in accordance with Statement of Position ("SOP") No. 93- 6; and (iii) only the employee stock ownership plan shares committed to be released were considered outstanding for purposes of the net earnings per share calculations. All employee stock ownership plan shares were considered outstanding for purposes of the stockholders' equity per share calculations. (2) Gives effect to the restricted stock plan that may be adopted by American Bank of New Jersey following the stock offering and presented for approval at a meeting of stockholders to be held after completion of the stock offering. If the restricted stock plan is approved by the stockholders, the restricted stock plan is expected to acquire an amount of stock equal to 4% of the shares sold in the stock offering, or 255,000, 300,000, 345,000 and 396,750 shares of stock, respectively, at the minimum, midpoint, maximum and 15% above the maximum of the range through open market purchases. Funds used by the restricted stock plan to purchase shares will be contributed to the restricted stock plan by American Bank of New Jersey. In calculating the pro forma effect of the restricted stock plan, it is assumed that the required stockholder approval has been received for the plan, that the shares were acquired by the restricted stock plan at the beginning of the year ended September 30, 2004 through open market purchases, at $10.00 per share, and that 20% of the amount contributed was amortized to expense during the year ended September 30, 2004. The restricted stock plan will be amortized over 5 years. The issuance of authorized but unissued shares of stock to the restricted stock plan instead of open market purchases would dilute the voting interests of existing stockholders by approximately 2.72% and pro forma net income per share for the year ended September 30, 2004 would be $0.27, $0.24, $0.21 and $0.19 at the minimum, midpoint, maximum and 15% above the maximum of the range, respectively, and pro forma stockholders' equity per share at September 30, 2004 would be $10.09, $9.46, $9.00 and $8.60 at the minimum, midpoint, maximum and 15% above the maximum of the range, respectively. There can be no assurance that stockholder approval of the restricted stock plan will be obtained, or the actual purchase price of the shares will be equal to $10.00 per share. See Management - Potential Stock Benefit Plans - Restricted Stock Plan at page __. (3) Gives effect to the stock option plan that may be adopted by American Bancorp of New Jersey, Inc. following the stock offering and presented for approval at a meeting of stockholders to be held after completion of the stock offering and assumes that the options granted under the stock option plan have a value of $3.41 per option, which was determined using the Black-Scholes-Merton option pricing formula using the following assumptions: (i) the trading price on date of grant was $10.00 per share; (ii) exercise price is equal to the trading price on the date of grant; (iii) dividend yield of 1.8%; (iv) expected life of 10 years; (v) expected volatility of 20%; and risk-free interest rate of 4.5%. The assumed expected volatility is based on the trading history of ASB Holding Company's common stock. If the fair market value per share on the date of grant is different than $10.00, or if the assumptions used in the option pricing formula are different from those used in preparing this pro forma data, the value of the options and the related expense recognized will be different. There can be no assurance that the actual fair market value per share on the date of grant, and correspondingly the exercise price of the options, will be $10.00 per share. The issuance of authorized but unissued shares of stock instead of open market purchases to fund exercises of options granted under the stock option plan would dilute the voting interests of existing stockholders by approximately 6.54%. See Management - Potential Stock Benefit Plans - Stock Option Plan on page ___. (4) Retained earnings will continue to be substantially restricted after the stock offering. See Dividend Policy at __ and Regulation - Regulation of American Bank of New Jersey - Dividends and Other Capital Distribution Limitations at page __. (5) For purposes of calculating net income per share, only the employee stock ownership plan shares committed to be released under the plan were considered outstanding. For purposes of calculating stockholders' equity per share, all employee stock ownership shares were considered outstanding. We have also assumed that no options granted under the stock option plan were exercised during the period and that the trading price of American Bancorp of New Jersey, Inc. common stock at the end of the period was $10.00 per share. Under this assumption, using the treasury stock method, no additional shares of stock were considered to be outstanding for purposes of calculating earnings per share or stockholders' equity per share. 26 HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE The following table presents American Bank of New Jersey's historical and pro forma capital position and its capital requirements as of March 31, 2005. Pro forma capital levels assume receipt by American Bank of New Jersey of 50% of the net proceeds. For a discussion of the assumptions underlying the pro forma capital calculations presented below, see Use of Proceeds, Capitalization and Pro Forma Data at pages __, __ and __. The definitions of the terms used in the table are those provided in the capital regulations issued by the OTS. For a discussion of the capital standards applicable to American Bank of New Jersey, see Regulation - Regulation of American Bank of New Jersey - Regulatory Capital Requirements at page __.
Pro Forma at March 31, 2005 ------------------------------------------------------------------------------------- $99,187,500 Actual, at $63,750,000 $75,000,000 $86,250,000 Maximum, as adjusted March 31, 2005 Minimum Offering Midpoint Offering Maximum Offering Offering (1) Percentage Percentage Percentage Percentage Percentage Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) ------ ------------ ------ ------------ ------ ------------ ------ ------------ ------ ------------ (Dollars in thousands) GAAP Capital(3)........ $33,941 7.76% $57,528 12.49% $61,751 13.28% $65,974 14.06% $70,831 14.94% ======= ==== ======= ===== ======= ===== ======= ===== ======= ===== Tangible Capital: Actual or Pro Forma.. $34,856 7.96% $58,443 12.66% $62,666 13.45% $66,889 14.23% $71,746 15.10 Required............. 6,571 1.50 6,925 1.50 6,989 1.50 7,052 1.50 7,125 1.50 ------- ---- ------- ----- ------- ----- ------- ----- ------- ----- Excess............... $28,285 6.46% $51,517 11.16% $55,677 11.95% $59,837 12.73% $64,621 13.60% ======= ==== ======= ===== ======= ===== ======= ===== ======= ===== Core Capital: Actual or Pro Forma.. $34,856 7.96% $58,443 12.66% $62,666 13.45% $66,889 14.23% $71,746 15.10% Required(4).......... 17,524 4.00 18,467 4.00 18,636 4.00 18,805 4.00 18,999 4.00 ------- ---- ------- ----- ------- ----- ------- ----- ------- ----- Excess............... $17,332 3.96% $39,975 8.66% $43,030 9.45% $48,084 10.23% $52,747 11.10% ======= ==== ======= ==== ======= ==== ======= ===== ======= ===== Risk-Based Capital: Actual or Pro Forma(5)(6).... $36,545 15.34% $60,132 24.76% $64,355 26.40% $68,578 28.04% $73,435 29.91% Required............. 19,053 8.00 19,431 8.00 19,498 8.00 19,566 8.00 19,643 8.00 ------- ---- ------- ----- ------- ----- ------- ----- ------- ----- Excess............... $17,492 7.34% $40,701 16.76% $44,857 18.40% $49,012 20.04% $53,791 21.91% ======= ==== ======= ===== ======= ===== ======= ===== ======= ===== Tier 1 Risk-Based Capital: Actual or Pro Forma(5)(6).... $34,856 14.64% $58,443 24.06% $62,666 25.71% $66,889 27.35% $71,746 29.22% Required............. 9,527 4.00 9,715 4.00 9,749 4.00 9,783 4.00 9,822 4.00 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Excess............... $25,329 10.64% $48,727 20.06% $52,917 21.71% $57,106 23.35% $61,924 25.22% ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
- ----------------- (1) As adjusted to give effect to an increase in the number of shares which could occur due to an increase in the offering range of up to 15% as a result of regulatory considerations or changes in market or general financial and economic conditions following the commencement of the stock offering. (2) Tangible and core capital levels are shown as a percentage of total adjusted assets. The risk-based capital level is shown as a percentage of risk-weighted assets. (3) GAAP capital includes unrealized gain (loss) on available-for-sale securities, net, which is not included as regulatory capital. (4) The current OTS core capital requirement for savings banks is 3% of total adjusted assets for thrifts that receive the highest supervisory rating for safety and soundness and 4% to 5% for all other thrifts. See Regulation - Regulation of American Bank of New Jersey - Regulatory Capital Requirements at page __. (5) Assumes net proceeds are invested in assets that carry a 50% risk-weighing. (6) The difference between equity under GAAP and regulatory risk-based capital is attributable to the addition of $915,000 for accumulated other comprehensive (loss) and $1,690,000 for the allowance for loan losses. 27 A WARNING ABOUT FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements, which can be identified by the use of words such as "believes," "expects," "anticipates," "estimates" or similar expressions. Forward-looking statements include: o statements of our goals, intentions and expectations; o statements regarding our business plans, prospects, growth and operating strategies; o statements regarding the quality of our loan and investment portfolios; and o estimates of our risks and future costs and benefits. These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors: o general economic conditions, either nationally or in our market area, that are worse than expected; o changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments; o increased competitive pressures among financial services companies; o changes in consumer spending, borrowing and savings habits; o legislative or regulatory changes that adversely affect our business; o adverse changes in the securities markets; o our ability to successfully manage our growth; o changes in accounting policies and practices, as may be adopted by the bank regulatory agencies or the Financial Accounting Standards Board; and o our ability to enter into new markets and/or expand product offerings successfully and take advantage of growth opportunities. Any of the forward-looking statements that we make in this prospectus and in other public statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Consequently, no forward-looking statement can be guaranteed. 28 SELECTED FINANCIAL AND OTHER DATA The financial information under the captions Balance Sheet Data and Summary of Operations in this section is derived from ASB Holding Company's audited financial statements for the five fiscal years ended September 30, 2004 and unaudited financial statements for the six months ended March 31, 2005 and 2004, and should be read together with the financial statements and the notes thereto beginning on page F-1 of this document. In the opinion of management, all adjustments consisting of normal recurring adjustments that are necessary for a fair presentation of the interim periods have been reflected. The results of operations and other data presented for the six month period ended March 31, 2005 do not necessarily indicate the results that may be expected for the fiscal year ending September 30, 2005 or any other period.
Balance Sheet Data: At March 31, At September 30 --------- ------------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 -------- -------- -------- -------- -------- -------- (Dollars in thousands) Assets................................. $440,954 $424,944 $427,066 $334,879 $258,208 $258,208 Cash and cash equivalents.............. 4,841 8,034 38,365 17,330 22,109 22,109 Loans receivable, net.................. 333,252 308,970 262,844 208,374 166,322 166,322 Loans held-for-sale.................... 302 - 500 - - - Securities available-for-sale.......... 75,992 89,495 107,391 90,134 52,022 52,022 Securities held-to-maturity............ 8,526 2,794 2,839 6,970 10,187 10,187 Federal Home Loan Bank stock........... 3,513 2,890 3,150 2,200 2,300 2,300 Deposits............................... 328,043 322,716 292,826 264,587 188,828 188,828 Borrowings............................. 68,263 57,491 55,000 44,000 46,000 46,000 Equity................................. 38,811 39,314 22,339 21,872 20,155 20,155
Summary of Operations: At or For the Six Months Ended March 31, At or For the Year Ended September 30, ---------------------- --------------------------------------------- 2005 2004 2004 2003 2002 2001 2000 ------- ------- ------- ------- ------- ------- ------- (Dollars in thousands) Interest income........................ $ 9,994 $ 9,017 $18,204 $17,476 $17,578 $16,052 $15,070 Interest expense....................... 4,423 4,028 8,105 8,870 8,829 9,140 8,398 ------- ------- ------- ------- ------- ------- ------- Net interest income................. 5,571 4,989 10,099 8,606 8,749 6,912 6,672 Provision for loan losses.............. 112 54 207 254 105 2 22 ------- ------- ------- ------- ------- ------- ------- Net interest income after provision for loan losses............ 5,459 4,935 9,892 8,352 8,644 6,910 6,650 Noninterest income..................... 537 563 1,298 718 595 458 555 Noninterest expense.................... 4,111 3,769 7,657 6,862 6,274 4,923 4,338 ------- ------- ------- ------- ------- ------- ------- Income before taxes.................... 1,885 1,729 3,533 2,208 2,965 2,445 2,867 Income tax provision................... 691 668 1,371 805 1,075 888 1,039 ------- ------- ------- ------- ------- ------- ------- Net income............................. $ 1,194 $ 1,061 $ 2,162 $ 1,403 $ 1,890 $ 1,557 $ 1,828 ======= ======= ======= ======= ======= ======= ======= Actual Number of (not in thousands): Real estate loans outstanding.......... 1,919 1,795 1,871 1,744 1,535 1,330 1,234 Deposit accounts....................... 20,190 20,157 20,021 20,386 20,046 18,120 17,030 Offices(1)............................. 2 2 2 2 2 2 1
- ------- (1) All offices are full-service. 29
At or For the Six Months Ended At or For the Year Ended March 31, September 30, ------------------- ------------------------------------------------- 2005 2004 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- ---- ---- Performance Ratios(1): Return on average assets (ratio of net income to average total assets)................... 0.55% 0.54% 0.54% 0.39% 0.63% 0.68% 0.86% Return on average equity (ratio of net income to average equity)......................... 6.22% 5.73% 5.77% 6.48% 9.30% 8.28% 11.13% Net interest rate spread...................... 2.36% 2.29% 2.28% 2.14% 2.63% 2.49% 2.63% Net interest margin on average interest-earning assets..................................... 2.67% 2.61% 2.60% 2.44% 3.00% 3.10% 3.20% Average interest-earning assets to average interest-bearing liabilities............... 114.62% 115.23% 115.67% 111.69% 112.30% 115.01% 113.99% Operating expense ratio (noninterest expenses to average total assets)................... 1.91% 1.92% 1.92% 1.89% 2.09% 2.16% 2.03% Efficiency ratio (noninterest expense divided by sum of net interest income and noninterest income)........................ 67.31% 67.89% 67.18% 73.60% 67.14% 68.80% 60.03% Asset Quality Ratios: Non-performing loans to total loans........... 0.11% 0.13% 0.17% 0.20% 0.27% 0.36% 0.53% Non-performing assets to total assets......... 0.08% 0.14% 0.12% 0.12% 0.17% 0.24% 0.35% Net charge-offs to average loans outstanding.. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01% Allowance for loan losses to non-performing loans...................................... 481.48% 403.68% 304.05% 265.18% 195.96% 160.67% 128.92% Allowance for loan losses to total loans...... 0.50% 0.52% 0.50% 0.52% 0.53% 0.58% 0.68% Capital Ratios: Equity to assets at end of period............. 8.80% 9.80% 9.25% 5.23% 6.53% 7.81% 7.79% Average equity to average assets.............. 8.90% 9.42% 9.37% 5.98% 6.78% 8.24% 7.70%
- ---------------- (1) Performance ratios for the six month periods ended March 31, 2005 and 2004 are annualized where appropriate. 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on interest-bearing liabilities. It is a function of the average balances of loans and investments versus deposits and borrowed funds outstanding in any one period and the yields earned on those loans and investments and the cost of those deposits and borrowed funds. Our interest-earning assets consist primarily of residential mortgage loans, multi-family and commercial real estate mortgage loans, residential mortgage-related securities and U.S. Agency debentures. Interest-bearing liabilities consist primarily of retail deposits and borrowings from the Federal Home Loan Bank of New York. Declining interest rates in the three year period ended September 30, 2003 resulted in acceleration of asset prepayments due primarily to mortgage refinancing. The negative impact on interest income from earning assets refinancing to lower market interest rates was exacerbated during that period by the accelerated amortization of the remaining balance of net deferred origination costs and net premiums relating to these assets. This reduction in earning asset yields was partially offset by a reduction in our cost of retail deposits. However, the reduction in our overall cost of liabilities lagged that of our deposits due to our balance of higher costing, long term, fixed rate FHLB borrowings previously drawn for interest rate risk management purposes. Together, these factors resulted in a reduction of our net interest margin and net income through that period. During the fiscal year ended September 30, 2004, the general level of market interest rates increased from the historical lows of the prior three year period. These increases slowed the pace of loan refinancing, thereby reducing the rate at which earning assets prepaid. Slowing prepayments resulted in a corresponding reduction in the amortization of deferred costs and premiums, thereby increasing earning asset yields. The cost of interest-bearing liabilities lagged the upward movement in current market interest rates. After decreasing for thirteen consecutive quarters, the cost of interest-bearing liabilities remained unchanged for the quarters ended March 31, 2004 and June 30, 2004 before increasing modestly in the final quarter of the fiscal year ended September 30, 2004. As a result, we reported a 16 basis point improvement in our net interest margin to 2.60% for the year ended September 30, 2004 from 2.44% for the year ended September 30, 2003. We continued to realize improvement in our net interest margin through the first six months of fiscal 2005 when compared with that reported for fiscal 2004. We realized an 11 basis point increase in our yield on earning assets from 4.69% for the year ended September 30, 2004 to 4.80% for the six months ended March 31, 2005. This increase was attributable to a 15 basis point increase in the yield on investment securities and a 74 basis point increase in the yield on interest-bearing deposits and other earning assets. These increases were offset by a 6 basis point decline in the yield on loans for the six months ended March 31, 2005 as compared to the yield on loans for fiscal 2004. Offsetting this overall improvement in the yield on earning assets was a 2 basis point increase in the cost of interest-bearing liabilities from 2.41% to 2.43%. This increase resulted, in part, from a 10 basis point increase in the cost of interest-bearing deposits. This increase was offset by a 22 basis point decrease in the cost of borrowings due largely to increased utilization of overnight borrowings. In total, the net interest margin improved by 7 basis points to 2.67% for the six months ended March 31, 2005 from 2.60% for fiscal 2004. 31 Our results of operations also depend on our provision for loan losses, noninterest income and noninterest expense. Non-performing loans as a percentage of total assets have declined to 0.08% at March 31, 2005 from 0.12% at September 30, 2004. Consequently, loan loss provisions during the six months ended March 31, 2005 resulted primarily from the overall growth in portfolio loans. Noninterest income includes deposit service fees and charges, income on the cash surrender value of bank-owned life insurance, gains on sales of loans and securities, gains on sales of other real estate owned and loan related fees and charges. Excluding gains on sales of assets, annualized noninterest income as a percentage of average assets totaled 0.25% for the six months ended March 31, 2005 - a reduction of 2 basis points from 0.27% for fiscal 2004. A portion of this decrease was attributable to overall growth in average earning assets outpacing that of fee income from deposits and loans. Gains and losses on sales of loans, excluded in the comparison above, typically result from selling long term, fixed rate mortgage loan originations into the secondary market for interest rate risk management purposes. Demand for these loans typically fluctuates with market interest rates. As interest rates rise, market demand for long term, fixed rate mortgage loans diminishes in favor of hybrid ARMs which are retained in the portfolio rather than being sold into the secondary market. Consequently, the gains and losses on sales of loans reported will fluctuate with market conditions and have not been significant since 2003. Noninterest expense includes salaries and employee benefits, occupancy and equipment expenses and other general and administrative expenses. Generally, certain operating costs have increased since the initial public offering in the beginning of fiscal 2004. Operating as a public entity resulted in comparatively higher legal, accounting and compliance costs throughout fiscal 2004 than had been recorded in earlier years. This trend is expected to continue as we incur additional compliance costs associated with the Sarbanes-Oxley Act of 2002. Additionally, we are recording higher employee compensation and benefit expense than we had in the years preceding the minority stock offering of ASB Holding Company. Much of this increase was attributable to the implementation of an employee stock ownership plan that did not exist prior to the initial public offering. More recently, benefit costs have increased as we implement the restricted stock and stock option plans approved by shareholders at the annual meeting held on January 20, 2005. Management expects additional compensation and benefit expenses in the future in connection with the purchase by the employee stock ownership plan of 8.0% of the shares sold by American Bancorp of New Jersey, Inc. in the current stock offering as well as the new restricted stock plan and new stock option plan we intend to adopt following the current stock offering. See Management - Potential Stock Benefit Plans at page __. Our compensation and benefit expenses will also increase as a result of our overall growth strategy. In March 2005, we added to our management team a new president and chief operating officer, Mr. Fred Kowal. As part of our plan to grow and diversify the loan mix by developing a separate and distinct commercial lending business unit, we have recently hired a commercial and industrial lender and intend over the next several years to hire several additional commercial real estate and commercial and industrial lenders. We also plan to hire additional one-to four-family residential lenders. Excluding penalties for prepayment of borrowed funds, annualized noninterest expense as a percentage of average assets totaled 1.91% for the six months ended March 31, 2005 - an increase of 2 basis points from 1.89% for fiscal 2004. In part, this increase was attributable to the implementation of the restricted stock plan benefits noted above. Additionally, we are also recording higher consulting and 32 professional fees associated with evaluating and executing our balance sheet growth and diversification strategies. In relation to the rate of balance sheet growth, these sharp increases in compensation, benefit and professional service costs have been partially offset by slower increases - and in some cases reductions - in other noninterest expenses. For the six months ended March 31, 2005, both occupancy and equipment and data processing costs have been reduced from both a dollar and percentage of average assets perspective when compared with fiscal 2004. Together, reductions in these expenses totaled 0.04% which offset the 0.06% combined increase in all other noninterest expenses for the same period. In large part, these reductions resulted from lower depreciation and core processing expenses and the absence in the current period of certain non-recurring charges associated with information technology infrastructure upgrades that were performed in fiscal 2004. Management expects occupancy and equipment expense to increase in future periods as we seek to implement our de novo branching strategy. We intend to expand our branch office network. Our current business plan calls for opening de novo branches over the next several years, and we have identified several potential sites for de novo branches. Costs for land purchase and branch construction will impact earnings going forward. The expenses associated with opening new offices, in addition to the personnel and operating costs that we will have once these offices are open, will significantly increase noninterest expenses. Additional expenses are also expected in connection with our plan in the near term to move some personnel into leased space separate from our main office. Finally, we continue to evaluate the costs and benefits of incrementally restructuring our portfolio of FHLB advances in the future. One restructuring transaction already took place during fiscal 2004 when we recognized a $125,000 penalty to prepay $3.0 million of fixed rate FHLB advances with a weighted average cost of 6.28%. In the current interest rate environment, such prepayments result in one time charges to earnings in the form of FHLB prepayment penalties, assuming the advances are not replaced with similar borrowings which may result in a deferral of the prepayment penalty. When replaced by lower cost funding, however, prepayments lower the interest paid on borrowings, thereby improving the Bank's net interest spread and margin and enhancing future earnings. In total, our return on average assets increased 1 basis point to 0.55% for the six months ended March 31, 2005 from 0.54% for fiscal 2004 while return on average equity increased 45 basis points to 6.22% from 5.77%. In a stable interest rate environment, we expect that our net interest margin will continue to stabilize at the levels reported in the latter half of fiscal 2004 and the first half of fiscal 2005. However, our net interest margin may be adversely affected in either a rising or falling rate environment. A decrease in interest rates could trigger another wave of loan refinancing that could result in the margin compression previously experienced. Conversely, notwithstanding the earning asset yield improvement during fiscal 2004 and during the first six months of fiscal 2005 which resulted from interest rates rising from their historical lows, continued increases in interest rates from current levels could trigger increases in the Bank's cost of interest-bearing liabilities that outpace increases, if any, in its yield on earning assets causing further net interest margin compression. This risk is particularly noteworthy given the Bank's substantial net growth in non-maturity deposits over the past three years. Like many banks, we were successful in growing deposits while interest rates decreased to their historical lows. However, our ability to retain and grow these deposits at a reasonable cost, while a highly competitive marketplace adjusts its pricing strategies to an environment of rising interest rates, is only now beginning to be tested. Our results of operations may also be affected significantly by other economic and competitive conditions in our market area as well as changes in applicable laws, regulations or governmental policies. 33 Furthermore, because our lending activity is concentrated in loans secured by real estate located in northern New Jersey, downturns in the regional economy encompassing northern New Jersey could have a negative impact on our earnings. Critical Accounting Policies Note 1 to our Consolidated Financial Statements included in this document contains a summary of our significant accounting policies. Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. The following is a description of our critical accounting policy and an explanation of the methods and assumptions underlying its application. Allowance for Loan Losses Our policy with respect to the methodologies used to determine the allowance for loan losses is our most critical accounting policy. This policy is important to the presentation of our financial condition and results of operations, and it involves a higher degree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions and estimates could result in material differences in our results of operations or financial condition. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, peer group information, and prevailing economic conditions. Large groups of smaller balance homogeneous loans, such as residential real estate, home equity and consumer loans, are evaluated in the aggregate using historical loss factors and peer group data adjusted for current economic conditions. Large balance and/or more complex loans, such as multi-family and commercial real estate loans, are evaluated individually for impairment. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision, as more information becomes available or as projected events change. Management assesses the allowance for loan losses quarterly. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses and may require us to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses as of March 31, 2005 was maintained at a level that represented management's best estimate of losses in the loan portfolio to the extent they were both probable and reasonable to estimate. Business Strategy Our business strategy has been to operate as a well-capitalized independent financial institution dedicated to providing convenient access and quality service at competitive prices. During recent years we have experienced significant growth, with total loans receivable, net growing from $208.4 million at September 30, 2002 to $333.3 million at March 31, 2005 and total deposits growing from $264.6 million at September 30, 2002 to $328.0 million at March 31, 2005. Our current strategy seeks to continue the growth of the last several years. The highlights of our strategy include the following strategic thrusts: 34 o Grow and diversify the deposit mix by emphasizing non-maturity account relationships acquired through de novo branching and existing deposit growth. Our current business plan calls for opening de novo branches over the next several years, and we are currently negotiating agreements in connection with several potential sites for de novo branches. o Grow and diversify the loan mix by (i) enhancing the Bank's one-to-four family mortgage loan origination capacity by adding several residential lenders and (ii) developing a separate and distinct commercial lending unit by adding several commercial real estate and commercial and industrial lenders. We have recently hired our first commercial and industrial lender. Additionally, our President and Chief Operating Officer, Fred G. Kowal, who joined the Bank in March 2005, has a commercial banking background. o Grow and diversify noninterest income through supplemental deposit and lending related services and strategies. o Explore alternative loan and deposit product and service delivery channels. o Broaden and strengthen customer relationships by bolstering cross marketing strategies and tactics with a focus on multiple account/service relationships. o Utilize capital markets tools to grow capital and enhance shareholder value. Comparison of Financial Condition at March 31, 2005 and September 30, 2004 Our total assets increased by $16.1 million, or 3.8%, to $441.0 million at March 31, 2005 from $424.9 million at September 30, 2004. The increase reflected growth in loans receivable, net and securities held to maturity offset by declines in interest-bearing deposits and securities available for sale. Loans receivable, net increased by $24.3 million, or 7.9%, to $333.3 million at March 31, 2005 from $309.0 million at September 30, 2004. Our increase in loans resulted primarily from originations of multi-family and commercial real estate and one-to four-family mortgage loans. 35 Amounts reported in the following table exclude allowance for loan losses and net deferred origination costs. March 31, 2005 September 30, 2004 -------------------- --------------------- (Dollars in thousands) Percent of Percent of Type of Loans Amount Total Assets Amount Total Assets - ------------- ------ ------------ ------ ------------ Construction $ 3,913 0.89% $ 3,075 0.72% 1/1 and 3/3 ARMs 5,550 1.26 1,800 0.42 3/1 and 5/1 ARMs 101,718 23.07 89,694 21.11 5/5 and 10/10 ARMs 35,122 7.96 24,619 5.79 7/1 and 10/1 ARMs 1,754 0.40 1,675 0.40 15 year or less fixed 111,504 25.29 112,238 26.41 Greater than 15 year fixed 62,092 14.08 64,702 15.23 Home equity lines of credit 11,249 2.55 10,666 2.51 Consumer 701 0.16 746 0.18 Commercial 663 0.15 398 0.09 -------- ----- -------- ----- Total $334,266 75.81% $309,613 72.86% ======== ===== ======== ===== Adjustable rate mortgages, or "ARMs", listed in the table above are denoted by initial and subsequent rate adjustment periods, respectively. For example, a 3/1 ARM is a hybrid adjustable rate loan whose interest rate initially adjusts after a fixed rate period of three years and then adjusts every one year thereafter. Securities classified as available-for-sale decreased $13.5 million, or 15.1%, to $76.0 million at March 31, 2005 from $89.5 million at September 30, 2004 as the Bank continued to reinvest cash flows from the securities portfolio into loans rather than back into the securities portfolio. Cash and cash equivalents decreased by $3.2 million, or 40%, to $4.8 million at March 31, 2005 from $8.0 million at September 30, 2004 to provide funding for loan growth. These decreases were partially offset by an increase in securities held to maturity of $5.7 million or 203.6% to $8.5 million at March 31, 2005 from $2.8 million at September 30, 2004. The following table compares the composition of the securities portfolio by security type as a percentage of total assets at March 31, 2005 and September 30, 2004. Amounts reported exclude unrealized gains and losses on the available for sale portfolio. 36 March 31, 2005 September 30, 2004 ---------------------- ---------------------- (Dollars in thousands) Percent of Percent of Type of Security Amount Total Assets Amount Total Assets - ---------------- ------ ------------ ------ ------------ Fixed rate MBS $14,565 3.30% $15,923 3.75% ARM MBS 9,142 2.07 8,755 2.06 Fixed rate CMO 35,184 7.99 43,982 10.36 Floating rate CMO 3,150 0.71 435 0.10 ARM mutual fund 10,000 2.27 10,000 2.35 Fixed rate agency debentures 13,997 3.17 13,997 3.29 ------- ----- ------- ----- Total $86,038 19.51% $93,092 21.91% ======= ===== ======= ===== Assuming no change in interest rates, the estimated average life of the investment securities portfolio, excluding the ARM mutual fund, was 2.54 years and 2.23 years at March 31, 2005 and September 30, 2004, respectively. Assuming a hypothetical immediate and permanent increase in interest rates of 300 basis points, the estimated average life of the portfolio would hypothetically extend to 3.13 years and 3.12 years at March 31, 2005 and September 30, 2004, respectively. Total deposits increased by $5.3 million, or 1.6%, to $328 million at March 31, 2005 from $322.7 million at September 30, 2004. The increase was primarily due to increases in certificates of deposit and noninterest-bearing deposits, partially offset by a decline in savings deposits and interest-bearing checking deposits. Certificates of deposit accounts increased $17.3 million or 14.7% to $135.3 million. Savings deposits decreased by $8.8 million, or 6.1% to $134.6 million. Checking deposits, including demand, NOW and money market checking accounts, decreased $3.2 million or 5.2% to $58.1 million. The following table compares the composition of the deposit portfolio by category as a percentage of total assets at March 31, 2005 with that of September 30, 2004. March 31, 2005 September 30, 2004 ---------------------- ---------------------- (Dollars in thousands) Percent of Percent of Deposit Category Amount Total Assets Amount Total Assets - ---------------- ------ ------------ ------ ------------ Money market checking $ 20,367 4.62% $ 25,834 6.08% Other checking 37,744 8.56 35,461 8.34 Money market savings 38,804 8.80 44,880 10.56 Other savings 95,833 21.73 98,521 23.18 Certificates of deposit 135,295 30.68 118,020 27.78 -------- ----- -------- ----- Total $328,043 74.39% $322,716 75.94% ======== ===== ======== ===== FHLB advances increased $10.8 million, or 18.8%, to $68.3 million at March 31, 2005 from $57.5 million at September 30, 2004. The net increase of $10.8 million was comprised of $11.8 million drawn on an overnight line of credit which replaced $1.0 million of maturing fixed rate advances and $28,000 of amortization on fixed rate amortizing advances. 37 The following table compares the composition of the borrowing portfolio by remaining term to maturity at March 31, 2005 and September 30, 2004. Scheduled principal payments on amortizing borrowings are reported as maturities. March 31, 2005 September 30, 2004 ---------------------- ---------------------- (Dollars in thousands) Percent of Percent of Remaining Term Amount Total Assets Amount Total Assets - -------------- ------ ------------ ------ ------------ Overnight $14,500 3.29% $ 2,700 0.64% One year or less 2,057 0.47 1,057 0.25 Over one year to two years 9,061 2.05 8,060 1.90 Over two years to three years 6,064 1.38 8,062 1.90 Over three years to four years 14,068 3.19 12,065 2.84 Over four years to five years 7,513 1.70 7,547 1.77 More than five years 15,000 3.40 18,000 4.23 ------- ----- ------- ----- Total $68,263 15.48% $57,491 13.53% ======= ===== ======= ===== Equity decreased $503,000, or 1.3%, to $38.8 million at March 31, 2005 from $39.3 million at September 30, 2004. The decrease reflects a special cash dividend paid of $1.2 million and a $468,000 increase in accumulated other comprehensive loss, offset by net income of $1.2 million for the six months ended March 31, 2005. In addition, the amount reclassified on ESOP shares increased $260,000 due to a change in the fair value and the number of shares of common stock in the ESOP subject to a contingent repurchase obligation. Comparison of Operating Results for the Six Months Ended March 31, 2005 and March 31, 2004 General. Net income for the six months ended March 31, 2005 was $1.2 million, an increase of $133,000, or 12.5% from the same period in fiscal 2004. The increase in net income resulted from an increase in net interest income partially offset by a decrease in noninterest income, an increase in noninterest expense and an increase in the provision for income taxes. Interest Income. Total interest income increased 10.8% or $977,000 to $10.0 million for the six months ended March 31, 2005, from $9.0 million for the same period in fiscal 2004. For those same comparative periods, the average yield on interest-earning assets increased 8 basis points to 4.80% from 4.72% while the average balance of interest-earning assets increased $32.4 million or 8.4% to $416.7 million from $384.3 million. Interest income on loans increased $1.1 million or 14.6%, to $8.5 million for the six months ended March 31, 2005 from $7.4 million for the same period in fiscal 2004. This increase was due, in part, to a $47.8 million increase in the average balance of loans receivable to $318.5 million for the six months ended March 31, 2005 from $270.7 million for same period in fiscal 2004. The impact on interest income attributable to this growth more than offset the 14 basis point decrease in the average yield on loans which declined to 5.33% from 5.47% for those same comparative periods. The increase in the average balance of loans receivable was the result of loan originations exceeding repayments due to strong demand. The rise in interest income on loans was offset by lower interest income on securities, which decreased $137,000 to $1.5 million for the six months ended March 31, 2005 from $1.6 million for the 38 same period in fiscal 2004. The decrease was due primarily to a $16.4 million decline in the average balance of investment securities to $91.1 million for the six months ended March 31, 2005 from $107.5 million for the same period in fiscal 2004. The impact on interest income attributable to this decline was offset by a 23 basis point increase in the average yield on securities which grew to 3.18% from 2.95% for those same comparative periods. This increase in yield primarily resulted from slowing prepayments which reduced net premium amortization and higher yields on adjustable rate securities which have repriced upward in accordance with the general movement of market interest rates. Further, interest income on federal funds sold and other interest-bearing deposits increased $36,000 to $61,000 for the six months ended March 31, 2005 from $25,000 for the same period in fiscal 2004. This increase was due, in part, to an increase of $1.1 million in the average balance of these assets to $7.1 million for the six months ended March 31, 2005 from $6.0 million for the same period in fiscal 2004. The impact on interest income attributable to this growth was augmented by an 89 basis point rise in the average yield on these assets which increased to 1.72% from 0.83% for those same comparative periods. Interest Expense. Total interest expense increased by $395,000 or 9.80% to $4.4 million for the six months ended March 31, 2005 from $4.0 million for the same period in fiscal 2004. For those same comparative periods, the average cost of interest-bearing liabilities remained stable at 2.43% while the average balance of interest-bearing liabilities increased $31.9 million or 9.6% to $363.6 million from $331.7 million. Interest expense on deposits increased $419,000 or 16.1% to $3.0 million for the six months ended March 31, 2005 from $2.6 million for the same period in fiscal 2004. This increase was due, in part, to a $29.9 million increase in the average balance of interest-bearing deposits to $301.8 million for the six months ended March 31, 2005 from $271.9 million for the same period in fiscal 2004. The components of this net increase for the comparative periods include an increase of $5.2 million or 4.4% in the average balance of certificates of deposit, a $9.2 million or 7.0% increase in the average balance of savings accounts and a $15.4 million or 70.3% increase in the average balance of interest-bearing checking accounts. The impact on interest expense attributable to the net growth in these average balances was exacerbated by a 9 basis point increase in the average cost of interest-bearing deposits which rose to 2.00% for the six months ended March 31, 2005 from 1.91% for the same period in fiscal 2004. The components of this net increase for the comparative periods includes a 30 basis point increase in the average cost of certificates of deposit, and a 12 basis point increase in the average cost of interest-bearing checking accounts. The cost of savings deposits remained stable at 1.57% for the same comparative periods. Interest expense on FHLB advances decreased $24,000 to $1.40 million for the six months ended March 31, 2005 from $1.43 million for the same period in fiscal 2004. This decrease was due, in part, to a 24 basis point reduction in the average cost of advances which declined to 4.54% for the six months ended March 31, 2005 from 4.78% for the same period in fiscal 2004. The impact on expense attributable to this decline in average cost was partially offset by a $2.0 million increase in the average balance of advances to $61.8 million from $59.8 million for those same comparative periods. The lower average cost was primarily due to utilization of overnight line of credit borrowings and new term borrowings whose cost was less than those that matured or were prepaid during fiscal 2004. Net Interest Income. In total, net interest income for the six months ended March 31, 2005 increased by $582,000 or 11.7%, to $5.6 million from $5.0 million for the same period in fiscal 2004. 39 For those same comparative periods, our net interest rate spread increased 10 basis points to 2.36% from 2.26% while our net interest margin increased 7 basis points to 2.67% from 2.60%. Provision for Loan Losses. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, peer group information, and prevailing economic conditions. Large groups of smaller balance homogeneous loans, such as residential real estate, small commercial real estate, and home equity and consumer loans, are evaluated in the aggregate using historical loss factors and peer group data adjusted for current economic conditions. Large balance and/or more complex loans, such as multi-family and commercial real estate loans, are evaluated individually for impairment. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision, as more information becomes available or as projected events change. Management assesses the allowance for loan losses quarterly. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require the Bank to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses as of March 31, 2005 was maintained at a level that represented management's best estimate of losses in the loan portfolio to the extent they were both probable and reasonable to estimate. The provision for loan losses totaled $112,000 for the six months ended March 31, 2005 representing an increase of $58,000 over the same comparative period in fiscal 2004. Provisions for specific nonperforming assets and historical losses based on net charge-offs were nominal due to a history of low charge-offs and the relative stability of nonperforming asset balances. However, the application of the Bank's loan loss methodology outlined above results, in part, in historical and environmental loss factors being applied to the outstanding balance of homogeneous groups of loans to estimate probable credit losses. For example, as a result of recent loan growth, a large part of the Bank's loan portfolio is considered "unseasoned," meaning the loans were originated less than three years ago. Generally, unseasoned loans demonstrate a greater risk of credit losses than their seasoned counterparts. Moreover, in many cases, these unseasoned loans are obligations of borrowers with whom the Bank has had no prior payment experience. These risks are considered in the environmental factors used in the Bank's loss provision calculations as described above. Both historical and environmental loss factors are reviewed and updated quarterly as part of management's assessment of the allowance for loan losses. Using this methodology, incremental growth in the outstanding balance of the loans on which historical and environmental loss factors are applied results in additional loss provisions. For the six months ended March 31, 2005, total gross loan balances, excluding the allowance for loan loss, grew $24.6 million or 8.0%. The growth was primarily comprised of net increases in one-to-four family mortgages totaling $10.7 million, increases in multi-family and commercial real estate loans totaling $12.3 million, and net growth in disbursed balances of construction loans totaling $845,000. By comparison, loan growth for the six months ended March 31, 2004 totaled $11.3 million or $13.3 million less than the same comparative period in fiscal 2005. The growth in this prior comparative period was primarily comprised of net increases in one-to-four family mortgages and home equity lines of credit totaling $12.6 million, a decrease in multi-family and commercial real estate loans totaling $830,000, and net growth in disbursed balances of construction loans totaling $145,000. 40 In total, the allowance for loan losses as a percentage of gross loans outstanding decreased 2 basis points to 0.50% at March 31, 2005 from 0.52% at March 31, 2004. These ratios reflect allowance for loan loss balances of $1.7 million and $1.4 million, respectively. Furthermore, nonperforming loans as a percentage of gross loans was 0.11% at March 31, 2005 compared to 0.13% at March 31, 2004. As noted earlier, the level of the allowance is based on estimates and the ultimate losses may vary from those estimates. Noninterest Income. Noninterest income decreased $26,000 to $537,000 for the six months ended March 31, 2005 compared to the same period in fiscal 2004. The decrease was primarily the result of a decline in deposit service fees and charges totaling $29,000 largely due to reduced customer utilization of deposit services introduced in fiscal 2004. For these same comparative periods, gain on sale of loans held for sale also declined $20,000 as fewer long term, fixed rate loans were originated and sold into the secondary market. Offsetting these decreases was an $18,000 increase in income from bank-owned life insurance policies resulting from higher policy balances held and an increase of $5,000 in other noninterest income. Noninterest Expense. Noninterest expense increased $342,000, or 9.1% to $4.1 million for the six months ended March 31, 2005 from $3.8 million for the same period in fiscal 2004. The increase was primarily a result of higher expenses for salaries and benefits, advertising and other non-interest expense, offset by decreases in occupancy and equipment expense, data processing, and federal deposit insurance expense. Salaries and employee benefits increased $201,000 or 8.6% to $2.5 million for the six months ended March 31, 2005 as compared to $2.3 million for the same period in fiscal 2004. A large portion of the increase was due to $67,000 in restricted stock plan expense arising from the implementation of the plan during fiscal 2005. Additionally, salaries and wages including bonus and payroll taxes, increased $134,000. Of this increase, $75,000 was due to comparatively higher management incentive plan expense in the current quarter when compared with the same period in fiscal 2004 when significant cutbacks in management incentive plan compensation resulted from corporate performance targets not being achieved. The remaining increase of $59,000 was primarily attributable to annual increases in employee compensation. Occupancy and equipment expense decreased $32,000 to $409,000 for the six months ended March 31, 2005 as compared to $441,000 for the same period in fiscal 2004. This decrease was primarily attributable to a $37,000 decrease in computer depreciation expense. For the same comparative periods, data processing costs also decreased $41,000 to $293,000 due to the absence in the current period of non- recurring information technology conversion and upgrade expenses that were recognized during fiscal 2004. Other noninterest expenses increased $205,000 or 41.3% for the six months ended March 31, 2005 as compared to the same period in fiscal 2004. Legal fees increased $84,000 to $156,000 for the six months ended March 31, 2005 from $72,000 for the same period in fiscal 2004. A portion of the increase in legal fees was attributable to matters presented to shareholders at the annual meeting held January 20, 2005. Additionally, professional and consulting fees, including auditing and accounting fees, increased $89,000 to $166,000 for the six months ended March 31, 2005 as compared to the same period in fiscal 2004. A portion of this increase was due largely to our operation as a public company including implementation costs associated with the Sarbanes-Oxley Act of 2002. Other increases in legal, professional and consulting fees were attributable to ongoing evaluation and implementation of growth and diversification strategies relating to the execution of our business plan. 41 Provision for Income Taxes. The provision for income taxes increased $23,000 for the six months ended March 31, 2005 from the same period in fiscal 2004. The effective tax rate was 36.6% and 38.6% for the six months ended March 31, 2005 and 2004, respectively. The decrease in the effective tax rate was primarily attributable to the Bank's funding of American Savings Investment Corp. in November 2004, a wholly owned New Jersey investment subsidiary formed in August 2004 by American Bank of New Jersey. The purpose of this subsidiary is to invest in stocks, bonds, notes and all types of equity, mortgages, debentures and other investment securities. Interest income from this subsidiary is taxed by the State of New Jersey at an effective rate lower than the statutory corporate state income tax rate. Additionally, increases in the Bank's balance of bank-owned life insurance, which generates tax exempt income from growth in the cash surrender value of policies, has also contributed to reductions in the effective income tax rate. Comparison of Financial Condition at September 30, 2004 and September 30, 2003 Our total assets decreased by $2.1 million, or 0.50%, to $424.9 million at September 30, 2004 from $427.1 million at September 30, 2003. The decrease reflected a reduction in short term liquid assets resulting from refunds of stock oversubscriptions in connection with the October 3, 2003 closing of the initial public offering and a decrease in securities. These decreases were partially offset by an increase in loans. Loans receivable, net increased by $46.1 million, or 17.5%, to $309.0 million at September 30, 2004 from $262.8 million at September 30, 2003. Our increase in loans resulted from a high volume of one-to four-family mortgage loan originations reflecting continued strong demand by borrowers seeking to take advantage of historically low market interest rates in the earlier part of the year coupled with slowing loan prepayments in the latter part of the year resulting from interest rates rising from those historical lows. The following table compares the composition of the loan portfolio by loan type as a percentage of total assets at September 30, 2004 with that of September 30, 2003. Amounts reported exclude allowance for loan losses and net deferred origination costs. September 30, 2004 September 30, 2003 ------------------ ------------------ (Dollars in thousands) Percent of Percent of Type of Loans Amount Total Assets Amount Total Assets - ------------- ------ ------------ ------ ------------ Construction $ 3,075 0.72% $ 450 0.11% 1/1 and 3/3 ARMs 1,800 0.42 1,383 0.32 3/1 and 5/1 ARMs 89,694 21.11 46,357 10.85 5/5 and 10/10 ARMs 24,619 5.79 16,892 3.96 7/1 and 10/1 ARMs 1,675 0.40 2,462 0.58 15 year or less fixed 112,238 26.41 108,587 25.43 Greater than 15 year fixed 64,702 15.23 76,005 17.80 Home equity lines of credit 10,666 2.51 8,893 2.08 Consumer 746 0.18 780 0.18 Commercial 398 0.09 1,610 0.37 -------- ----- -------- ----- Total $309,613 72.86% $263,419 61.68% ======== ===== ======== ===== 42 Securities classified as available-for-sale decreased $17.9 million, or 16.7%, to $89.5 million at September 30, 2004 from $107.4 million at September 30, 2003 as we continued to reinvest cash flows from our investment securities portfolio into loans. Cash and cash equivalents decreased by $30.4 million, or 79.2%, to $8.0 million at September 30, 2004 from $38.4 million at September 30, 2003 to provide funding for refunds of stock oversubscriptions in connection with the stock offering. The following table compares the composition of the investment securities portfolio by security type as a percentage of total assets at September 30, 2004 with that of September 30, 2003. Amounts reported exclude unrealized gains and losses on the available-for-sale portfolio. September 30, 2004 September 30, 2003 ------------------ ------------------ (Dollars in thousands) Percent of Percent of Type of Security Amount Total Assets Amount Total Assets - ---------------- ------ ------------ ------ ------------ Fixed rate MBS $15,923 3.75% $15,401 3.61% ARM MBS 8,755 2.06 4,893 1.15 Fixed rate CMO 43,982 10.36 66,373 15.54 Floating rate CMO 435 0.10 699 0.16 ARM mutual fund 10,000 2.35 10,000 2.34 Fixed rate agency debentures 13,997 3.29 13,538 3.17 ------- ----- -------- ----- Total $93,092 21.91% $110,904 25.97% ======= ===== ======== ===== Assuming no change in interest rates, the estimated average life of the investment securities portfolio, excluding the ARM mutual fund, was 2.23 years and 2.80 years at September 30, 2004 and September 30, 2003, respectively. Assuming a hypothetical immediate and permanent increase in interest rates of 300 basis points, the estimated average life of the portfolio extends to 3.12 years and 3.72 years at September 30, 2004 and September 30, 2003, respectively. Total deposits increased by $29.9 million, or 10.2%, to $322.7 million at September 30, 2004 from $292.8 million at September 30, 2003. The increase was primarily due to an increase in money market checking and savings deposits, partially offset by a decline in certificates of deposit. Savings accounts increased $15.7 million or 12.3% to $143.4 million. Certificates of deposit decreased by $3.7 million, or 3.0% to $118.0 million. Checking deposits, including demand, NOW and money market checking accounts, increased $17.9 million or 41.2% to $61.3 million, primarily due to a new municipal deposit relationship established during fiscal 2004. The increase in savings accounts was primarily due to a new statement savings account product which became available during the fourth quarter of 2003. A portion of the growth in these accounts resulted from funds being transferred from other existing accounts such as maturing certificates of deposit. 43 The following table compares the composition of the deposit portfolio by category as a percentage of total assets at September 30, 2004 with that of September 30, 2003. September 30, 2004 September 30, 2003 ------------------ ------------------ (Dollars in thousands) Percent of Percent of Deposit Category Amount Total Assets Amount Total Assets - ---------------- ------ ------------ ------ ------------ Money market checking $ 25,834 6.08% $ 10,442 2.45% Other checking 35,461 8.34 32,955 7.72 Money market savings 44,880 10.56 55,498 13.00 Other savings 98,521 23.18 72,222 16.91 Certificates of deposit 118,020 27.78 121,709 28.49 -------- ----- -------- ----- Total $322,716 75.94% $292,826 68.57% ======== ===== ======== ===== FHLB advances increased $2.5 million, or 4.5%, to $57.5 million at September 30, 2004 from $55.0 million at September 30, 2003. The net increase of $2.5 million was comprised of a $2.7 million increase in an overnight line of credit and an additional $6.8 million drawn on term advances which includes a $1.8 million amortizing advance drawn to fund a commercial real estate loan on an apartment building in a moderate-income tract within the Bank's CRA assessment area. Offsetting these additions were reductions resulting from the maturity and prepayment of $4.0 million and $3.0 million of fixed rate term advances respectively. The following table compares the composition of the borrowing portfolio by remaining term to maturity as a percentage of total assets at September 30, 2004 with that of September 30, 2003. Scheduled principal payments on amortizing borrowings are reported as maturities. September 30, 2004 September 30, 2003 ------------------ ------------------ (Dollars in thousands) Percent of Percent of Remaining Term Amount Total Assets Amount Total Assets - -------------- ------ ------------ ------ ------------ Overnight $ 2,700 0.64% $ - -% One year or less 1,057 0.25 4,000 0.94 Over one year to two years 8,060 1.90 2,000 0.47 Over two years to three years 8,062 1.90 9,000 2.11 Over three years to four years 12,065 2.84 4,000 0.94 Over four years to five years 7,547 1.77 12,000 2.81 More than five years 18,000 4.23 24,000 5.61 ------- ----- ------- ----- Total $57,491 13.53% $55,000 12.88% ======= ===== ======= ===== Stockholders' equity increased $17.0 million, or 76.2%, to $39.3 million at September 30, 2004 from $22.3 million at September 30, 2003. The increase reflects the completion of the minority stock offering whereby 1,666,350 shares of common stock were sold at $10.00 per share and proceeds of $16.1 million, net of conversion costs, were received. Further, we recognized net income of $2.2 million for the year ended September 30, 2004, in addition to a $77,000 increase in accumulated other comprehensive loss for unrealized after-tax losses on securities available-for-sale. 44 Comparison of Operating Results for the Years Ended September 30, 2004 and 2003 General. Net income for the year ended September 30, 2004 was $2.2 million, an increase of $759,000, or 54.1% from 2003. The increase in net income resulted from an increase in net interest income and non-interest income, offset by increases in non-interest expense and the provision for income taxes. Interest Income. Total interest income increased by $728,000 or 4.2%, to $18.2 million for the year ended September 30, 2004 from $17.5 million for the year ended September 30, 2003. The primary factor for the increase in interest income was an increase of $36.2 million or 10.3% in the average balance of interest-earnings assets for the year ended September 30, 2004 to $388.9 million from $352.7 million for the year ended September 30, 2003. This increase in the average balance was partially offset by a 27 basis points decline in the average yield to 4.68% in fiscal 2004 from 4.95% in fiscal 2003. Interest income on loans increased $674,000 or 4.7%, to $15.0 million for the year ended September 30, 2004 from $14.3 million for the 2003 period. The average balance of loans receivable, net increased $40.2 million to $278.6 million for the year ended September 30, 2004, which more than offset the decrease in the average yield on loans receivable, net from 6.01% in fiscal 2003 to 5.39% in fiscal 2004. The increase in interest income on loans was offset by a decrease in interest income on federal funds sold and other interest-bearing deposits, which declined $153,000 or 71.2% to $62,000 for the year ended September 30, 2004. The decrease resulted from declines in the average yield and average balance of those assets. There was a 62 basis point decrease in the average yield on federal funds sold and other interest-bearing deposits from 1.60% in fiscal 2003 to 0.98% in fiscal 2004. This decrease in interest income was exacerbated by a decline in the average balance of federal funds sold and other interest-bearing deposits from $13.5 million for fiscal 2003 to $6.3 million for fiscal 2004. Interest income on securities increased $207,000 or 7.1% to $3.1 million for the year ended September 30, 2004. The average balance of securities increased $3.2 million to $104.0 million for the year ended September 30, 2004 from $100.8 million for the year ended September 30, 2003. Additionally, the average yield on securities increased 11 basis points in fiscal 2004 to 3.01% from 2.90% in fiscal 2003. Interest Expense. Total interest expense decreased by $765,000 or 8.6% to $8.1 million for the year ended September 30, 2004 from $8.9 million in 2003. For those same periods, the average cost of interest-bearing liabilities decreased 40 basis points from 2.81% to 2.41. This decline in the average cost was offset by an increase of $20.4 million in the average balance of interest-bearing liabilities to $336.2 million in fiscal 2004 from $315.8 million in fiscal 2003. The average balance of interest-bearing deposits increased $15.2 million or 5.8% for the year ended September 30, 2004. The average balance of certificates of deposit decreased $4.4 million to $116.9 million in fiscal 2004 from $121.3 million in fiscal 2003. In addition, the average cost of certificates of deposit decreased from 2.83% to 2.49%. The average cost of savings accounts decreased from 1.97% in 2003 to 1.55% in 2004, which more than offset the increase of $19.0 million or 16.3% in the average balance of savings accounts. Interest expense on FHLB advances increased $25,000 to $2.9 million as a result of an increase in the average balance from $54.9 million in fiscal 2003 to $60.1 million in fiscal 2004. This was partially 45 offset by a decrease in the average cost of advances from 5.16% in 2003 to 4.76% in 2004. The lower average cost was primarily due to utilization of overnight line of credit borrowings and new term borrowings with an average cost that was less than those that matured or were prepaid during the year. Net Interest Income. Net interest income increased by $1.5 million or 17.4%, to $10.1 million for the year ended September 30, 2004 from $8.6 million for the year ended September 30, 2003. The net interest rate spread increased 14 basis points to 2.28% in 2004 from 2.14% in 2003 while the net interest margin increased 16 basis points to 2.60% from 2.44%. Both increases reflect interest-bearing liabilities repricing downward slightly more rapidly than assets. Provision for Loan Losses. Provisions for loan losses are charged to operations at a level required to reflect probable incurred credit losses in the loan portfolio. The provision for loan losses decreased $47,000 to $207,000 for the year ended September 30, 2004 compared to $254,000 for the year ended September 30, 2003. Provisions for nonperforming assets and historical losses based on net charge-offs were nominal due to a history of low charge-offs and relative stability of nonperforming assets. However, the application of the Bank's loan loss methodology outlined earlier results, in part, in historical and environmental loss factors being applied to the outstanding balance of homogeneous groups of loans to estimate probable credit losses. For the year ended September 30, 2004, total one-to-four family mortgages increased $36.3 million representing an increase of 16.8% and reflecting the majority of the Bank's loan growth. Multi-family and commercial real estate loans increased $7.0 million or 19.3% and commercial loans decreased $1.2 million or 75.3%. Consumer loans decreased $34,000 or 4.4% and home equity loans increased $1.8 million or 19.9% while construction loans, net of loans in process, increased $2.6 million or 581.1%. As a result of recent loan growth, a large part of the Bank's loan portfolio is considered "unseasoned", meaning the loans were originated less than three years ago. Generally, unseasoned loans demonstrate a greater risk of credit losses than their seasoned counterparts. Moreover, in many cases, these unseasoned loans are obligations of borrowers with whom the Bank has had no prior payment experience. These risks are considered in the environmental factors used in the Bank's loss provision calculations as described above. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision, as more information becomes available or as projected events change. The allowance for loan losses as a percentage of gross loans outstanding declined slightly to 0.50% for September 30, 2004 compared to 0.52% at September 30, 2003 reflecting balances of $1.6 million and $1.4 million, respectively. Non-performing loans as a percentage of gross loans was 0.17% at September 30, 2004 compared to 0.20% at September 30, 2003. The level of the allowance is based on estimates and the ultimate losses may vary from those estimates. Noninterest Income. Noninterest income increased $580,000, or 80.8% to $1.3 million for the year ended September 30, 2004 compared to 2003. A significant portion of that increase resulted from the absence in 2004 of $188,000 in loss on sale of available-for-sale securities that had been recorded during 2003. Additionally, service charges on deposit accounts increased by $245,000 primarily due to the implementation of new deposit services. Gains on sale of loans held for sale decreased $124,000 to $27,000 for the year ended September 30, 2004 from $151,000 for 2003. Income from cash surrender value of life insurance decreased $20,000 for the comparative periods due to reduced yields reflecting lower market interest rates. Finally, gain on sale of other real estate owned increased $173,000 and other non-interest income increased by $118,000, due in large part to collection of comparatively higher loan prepayment penalties. 46 Noninterest Expense. Noninterest expense increased $795,000, or 11.6% to $7.7 million for the year ended September 30, 2004 from $6.9 million for the year ended September 30, 2003. The increase was primarily a result of higher expenses for salaries and employee benefits, occupancy and equipment, data processing, advertising, and other non-interest expenses. Salaries and benefits increased $305,000 or 6.8% for the year ended September 30, 2004. A large portion of the increase was due to $215,000 in employee stock ownership plan expense arising from the implementation of the plan during fiscal 2004. Medical and related benefit plan premiums increased 9.4% or $35,000 while salaries and wages including bonus and payroll taxes, increased $178,000 or 5.3% for the year ended September 30, 2004 as compared to the same period in 2003. These increases were offset by lower deferred compensation plan benefit expenses of $98,000, which had been adjusted in fiscal 2003 for a decrease in the discount rate used to calculate the liability in a lower rate environment. In addition, expense for temporary help declined $23,000 in 2004 as a result of decreased utilization of temporary services that were required in 2003 to augment loan processing and accounting staff due to strong loan origination volume and extended staff absences. Occupancy and equipment expense increased $31,000 to $853,000 for the year ended September 30, 2004 as compared to $822,000 for 2003, due to higher computer expenses primarily related to upgrades and enhancements to information technology support and security services. Data processing costs also increased $109,000 mainly due to increases in service bureau core processing costs resulting from growth in deposit and loan accounts as well as non-recurring costs associated with comprehensive system upgrades. Other non-interest expense increased $204,000 for the year ended September 30, 2004 as compared to 2003. Professional and consulting fees, including legal fees, increased $12,000 due to expenses associated with being a public company. Further, general and administrative expenses increased $74,000 consisting primarily of $38,000 in comparatively higher expenses relating to printing and the bulk purchase of brochures and forms and $25,000 in higher costs associated with new deposit service programs. Other expense increases included $4,000 for corporate insurance, $9,000 in transfer agent fees and $18,000 for regulatory fees resulting from increased regulatory assessments due to asset growth and the establishment of a holding company. These additional costs were offset by minor decreases in other miscellaneous expenses. Further, net loan processing charges increased primarily due to reduced recognition of loan modification fees offsetting related costs resulting from the deferral of such fees and costs in the current period. The Bank also recognized $125,000 in borrowed funds prepayment penalties for the year ended September 30, 2004 compared to none in fiscal 2003. This expense resulted from the prepayment of $3.0 million of FHLB advances with a weighted average cost of 6.28%. Finally, advertising expenses were higher by $18,000 in 2004 resulting from increased print, radio, and television ads, and higher agency fees. Provision for Income Taxes. The provision for income taxes increased $566,000 for the year ended September 30, 2004 from the same period in 2003. The effective tax rate was 38.8% and 36.5% for the years ended September 30, 2004 and 2003. The slight increase in the effective tax rate results primarily from an increase in nondeductible expenses related to the employee stock ownership plan. 47 Liquidity and Commitments We are required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure a safe and sound operation. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Historically, we have maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained. The Bank's short term liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. The Bank's primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. In addition, the Bank invests excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements. The Bank also generates cash through borrowings. The Bank utilizes Federal Home Loan Bank advances to leverage its capital base and provide funds for its lending and investment activities, and to enhance its interest rate risk management. Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits or U.S. Agency securities. On a longer-term basis, the Bank maintains a strategy of investing in various loan products and in securities collateralized by loans. The Bank uses its sources of funds primarily to meet its ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, to fund loan commitments and to maintain its portfolio of mortgage-backed securities and investment securities. At March 31, 2005, the total approved loan origination commitments outstanding amounted to $16.0 million. At the same date, unused lines of credit were $13.2 million and construction loans in process were $4.2 million. Management's policy is to maintain deposit rates at levels that are competitive with other local financial institutions. Based on the competitive rates and on historical experience, management believes that a significant portion of maturing deposits will remain with the Bank. In addition, the Bank has the ability at March 31, 2005 to borrow an additional $41.0 million from the FHLB of New York as a funding source to meet commitments, and for liquidity purposes. The following table discloses our contractual obligations as of March 31, 2005. Scheduled principal payments on amortizing borrowings are reported as maturities.
Less Than After Total 1 Year 1-3 Years 4-5 Years 5 Years ----- ------ --------- --------- ------- Federal Home Loan Bank advances(1).. $68,263 $16,558 $15,125 $21,580 $15,000 ------- ------- ------- ------- ------- Total........................... $68,263 $16,558 $15,125 $21,580 $15,000 ======= ======= ======= ======= =======
- ---------------- (1) At March 31, 2005 the total collateralized borrowing limit was $109.3 million of which we had $68.3 million outstanding. 48 Our commercial commitments as of March 31, 2005 included lines of credit totaling $13.2 million, construction loans in process totaling $4.2 million and other commitments to extend credit of $16.0 million. Capital Consistent with its goals to operate a sound and profitable financial organization, the Bank actively seeks to maintain a "well capitalized" institution in accordance with regulatory standards. The Bank's total equity was $33.9 million at March 31, 2005, or 7.76% of total assets on that date. As of March 31, 2005, the Bank exceeded all capital requirements of the Office of Thrift Supervision. The Bank's regulatory capital ratios at March 31, 2005 were as follows: core capital 7.96%; Tier 1 risk-based capital 14.64%; and total risk-based capital 15.34%. The regulatory capital requirements to be considered well capitalized are 5.0%, 6.0%, and 10.0%, respectively. Impact of Inflation The financial statements included in this document have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturities structures of our assets and liabilities are critical to the maintenance of acceptable performance levels. The principal effect of inflation on earnings, as distinct from levels of interest rates, is in the area of noninterest expense. Such expense items as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made. We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation. Recent Regulatory and Accounting Developments EITF 03-1, Other-Than-Temporary Impairment. In March 2004, the FASB Emerging Issues Task Force ("EITF") reached a consensus regarding EITF 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." The consensus clarifies the meaning of other-than-temporary impairment and its application to investments classified as either available-for-sale or held-to-maturity under SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," and investments accounted for under the cost method or the equity method. The recognition and measurement guidance for which the consensus was reached is to be applied to other-than-temporary impairment evaluations. In September 2004, the Financial Accounting Standards Board ("FASB") issued a final FASB Staff Position, FSP EITF Issue 03-01-1, which has delayed the effective date for the measurement and recognition guidance of EITF 03-01. The comment period is currently open related to this staff position. The implementation date is unknown until further guidance is issued by the FASB. We are currently evaluating the impact of adopting EITF 03-01. 49 FAS 123, Revised, requires all public companies to record compensation cost for stock options provided to employees in return for employee service. The cost is measured at the fair value of the options when granted, and this cost is expensed over the employee service period, which is normally the vesting period of the options. This will apply to awards granted or modified after the first quarter or year beginning after December 15, 2005. Compensation cost will also be recorded for prior option grants that vest after the date of adoption. The effect on results of operations will depend on the level of future option grants and the calculation of the fair value of the options granted at such future date, as well as the vesting periods provided, and so cannot currently be predicted. Notwithstanding options granted in the future, management has evaluated the pro forma cost of the options granted on January 20, 2005. The pro forma cost and impact on earnings per share are presented in Note 1 to the Consolidated Financial Statements. However, there will be no significant effect on the financial position for options that vest after the adoption date as total equity will not change. 50 Average Balance Sheet. The following tables set forth certain information at March 31, 2005 and for the six months ended March 31, 2005 and 2004 and for the years ended September 30, 2004, 2003 and 2002. The average yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented. Average balances are derived primarily from daily balances.
At March 31, Six Months Ended March 31, ----------------- ------------------------------------------------------------ 2005 2005 2004 ----------------- --------------------------- ---------------------------- Interest Average Interest Average Yield/ Average Earned/ Yield/ Average Earned/ Yield/ Balance Cost Balance Paid Cost Balance Paid Cost ------- ---- ------- ---- ---- ------- ---- ---- (Dollars in thousands) Interest-earning assets: Loans receivable, net(1).................. $333,554 5.36% $318,539 8,483 5.33% $270,680 7,405 5.47% Investment securities(2).................. 84,518 3.42% 91,109 1,450 3.18% 105,579 1,587 3.01% Other interest-earning assets(3).......... 5,971 3.38% 7,052 61 1.72% 5,978 25 0.84% -------- -------- ------ -------- ------ Total interest-earning assets............. 424,043 4.94% 416,700 9,994 4.80% 382,237 9,017 4.72% Noninterest-earning assets................ 16,911 14,805 ------ 11,060 ------ -------- -------- -------- Total assets.............................. $440,954 $431,505 $393,297 ======== ======== ======== Interest-bearing liabilities: NOW & money market........................ $ 34,018 1.18% $ 37,307 206 1.11% $ 21,913 109 0.99% Savings deposits(4)....................... 134,637 1.58% 140,934 1,108 1.57% 131,707 1,033 1.57% Certificates of deposit................... 135,295 2.94% 123,542 1,705 2.76% 118,306 1,458 2.46% -------- -------- ------ -------- ------ Total interest-bearing deposits........... 303,950 2.14% 301,783 3,019 2.00% 271,926 2,600 1.91% Federal Home Loan Bank advances........... 68,263 4.45% 61,780 1,404 4.54% 59,780 1,428 4.78% -------- -------- ------ -------- ------ Total interest-bearing liabilities....... 372,213 2.56% 363,563 4,423 2.43% 331,706 4,028 2.43% Noninterest-bearing deposits.............. 24,093 23,685 ------ 22,154 ------ Other noninterest-bearing liabilities..... 5,837 5,834 2,400 -------- -------- -------- Total liabilities......................... 402,143 393,082 356,260 Stockholders' equity...................... 38,811 38,423 37,037 -------- -------- -------- Total liabilities and equity.............. $440,954 $431,505 $393,297 ======== ======== ======== Net interest spread(5).................... 2.38% $5,571 2.36% $4,989 2.29% ==== ====== ==== ====== ==== Net interest margin(6).................... 2.70% 2.67% 2.61% ==== ==== ==== Interest-earning assets as a percentage of interest-bearing liabilities............ 113.92% 114.62% 115.23% ====== ====== ======
- ----------------- (1) Calculated net of deferred fees and loss reserves. Non-accruing loans have been included as loans carrying a zero yield. (2) Calculated based on amortized cost excluding FAS 115 market value adjustment. (3) Includes Federal Home Loan Bank stock at cost and term deposits with other financial institutions. (4) Includes money market savings accounts. (5) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (6) Net interest margin represents net interest income as a percentage of average interest-earning assets. 51
Year Ended September 30, --------------------------------------------------------------------------------- 2004 2003 2002 -------------------------- --------------------------- ------------------------ Interest Average Interest Average Interest Average Average Earned/ Yield/ Average Earned/ Yield/ Average Earned/ Yield/ Balance Paid Cost Balance Paid Cost Balance Paid Cost -------- ------- ---- -------- ------- ---- -------- ------- ---- (Dollars in thousands) Interest-earning assets: Loans receivable, net(1).................. $278,632 $15,017 5.39% $238,474 $14,343 6.01% $186,974 $12,907 6.90% Investment securities(2).................. 103,978 3,125 3.01% 100,787 2,918 2.90% 91,141 4,414 4.84% Other interest-earning assets(3).......... 6,302 62 0.98% 13,462 215 1.60% 13,506 257 1.90% -------- ------- -------- ------- -------- ------- Total interest-earning assets............. 388,912 18,204 4.68% 352,723 17,476 4.95% 291,621 17,578 6.03% Noninterest-earning assets................ 10,755 ------- 9,459 ------- 8,223 ------- -------- -------- -------- Total assets.............................. $399,667 $362,182 $299,844 ======== ======== ======== Interest-bearing liabilities: NOW & money market........................ $ 23,086 225 0.97% $ 22,511 290 1.29% $ 14,381 211 1.47% Savings deposits(4)....................... 136,100 2,109 1.55% 117,052 2,307 1.97% 86,475 2,196 2.54% Certificates of deposit................... 116,926 2,912 2.49% 121,310 3,439 2.83% 114,965 4,158 3.62% -------- ------- -------- ------- -------- ------- Total interest-bearing deposits........... 276,113 5,246 1.90% 260,873 6,036 2.31% 215,821 6,565 3.04% Federal Home Loan Bank advances........... 60,125 2,859 4.76% 54,923 2,834 5.16% 43,859 2,264 5.16% -------- ------- -------- ------- -------- ------- Total interest-bearing liabilities....... 336,238 8,105 2.41% 315,796 8,870 2.81% 259,680 8,829 3.40% Noninterest-bearing deposits.............. 22,080 ------- 20,303 ------- 16,333 ------- Other noninterest-bearing liabilities..... 3,884 4,441 3,507 -------- -------- -------- Total liabilities......................... 362,202 340,540 279,520 Stockholders' equity...................... 37,465 21,642 20,324 -------- -------- -------- Total liabilities and equity.............. $399,667 $362,182 $299,844 ======== ======== ======== Net interest spread(5).................... $10,099 2.28% $ 8,606 2.14% $8,749 2.63% ======= ==== ======== ==== ====== ==== Net interest margin(6).................... 2.60% 2.44% 3.00% ==== ==== ==== Interest-earning assets as a percentage of interest-bearing liabilities............ 115.67% 111.69% 112.30% ====== ====== ======
- --------------------- (1) Calculated net of deferred fees and loss reserves. Non-accruing loans have been included as loans carrying a zero yield. (2) Calculated based on amortized cost excluding FAS 115 market value adjustment. (3) Includes Federal Home Loan Bank stock at cost and term deposits with other financial institutions. (4) Includes money market savings accounts. (5) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (6) Net interest margin represents net interest income as a percentage of average interest-earning assets. 52 Rate/Volume Analysis. The following table reflects the sensitivity of our interest income and interest expense to changes in volume and in prevailing interest rates during the periods indicated. Each category reflects the: (1) changes in volume (changes in volume multiplied by old rate); (2) changes in rate (changes in rate multiplied by old volume); (3) changes in rate/volume (changes in rate multiplied by the change in volume); and (4) net change.
Six Months Ended Twelve Months Ended Twelve Months Ended March 31, September 30, September 30, -------------------------------- ---------------------------------- -------------------------------- 2005 vs. 2004 2004 vs. 2003 2003 vs. 2002 -------------------------------- ---------------------------------- -------------------------------- Increase (Decrease) Increase (Decrease) Increase (Decrease) Due to Due to Due to ------------------------- ---------------------------- ------------------------ Rate/ Rate/ Rate/ Volume Rate Volume Net Volume Rate Volume Net Volume Rate Volume Net ------ ---- ------ --- ------ ---- ------ --- ------ ---- ------ --- (Dollars in thousands) Interest and dividend income: Loans receivable, net .... $ 1,309 $(197) $ (34) $ 1,078 $ 2,416 $(1,491) $ (251) $ 674 $3,555 $(1,661) $ (458) $1,436 Investment securities ......... (218) 94 (13) (137) 91 112 4 207 466 (1,775) (187) (1,496) Other interest- earning assets ..... 4 27 5 36 (114) (83) 44 (153) -- (42) -- (42) ------- ----- ----- ------- ------- ------- ------- ------ ------ ------- ------- ------ Total interest- earning assets ..... 1,095 (76) (42) 977 2,393 (1,462) (203) 728 4,021 (3,478) (645) (102) ------- ----- ----- ------- ------- ------- ------- ------ ------ ------- ------- ------ Interest expense: NOW and money market . 76 12 9 97 7 (70) (2) (65) 119 (26) (14) 79 Savings deposits ..... 72 3 -- 75 375 (493) (80) (198) 777 (492) (174) 111 Certificates of deposit ............ 65 174 8 247 (124) (418) 15 (527) 229 (899) (49) (719) ------- ----- ----- ------- ------- ------- ------- ------ ------ ------- ------- ------ Total interest- bearing deposits ... 213 189 17 419 258 (981) (67) (790) 1,125 (1,417) (237) (529) Federal Home Loan Bank advances ....... 48 (70) (2) (24) 268 (222) (21) 25 571 (1) -- 570 ------- ----- ----- ------- ------- ------- ------- ------ ------ ------- ------- ------ Total interest- bearing liabilities.......... 261 119 15 395 526 (1,203) (88) (765) 1,696 (1,418) (237) 41 ------- ----- ----- ------- ------- ------- ------- ------ ------ ------- ------- ------ Change in net interest income ...... $ 834 $(195) $ (57) $ 582 $ 1,867 $ (259) $ (115) $1,493 $2,325 $(2,060) $ (408) $ (143) ======= ===== ===== ======= ======= ======= ======= ====== ====== ======= ======= ======
53 Management of Interest Rate Risk and Market Risk Qualitative Analysis. Because the income on the majority of our assets and the cost of the majority of our liabilities are sensitive to changes in interest rates, a significant form of market risk for us is interest rate risk, or changes in interest rates. Notwithstanding the unpredictability of future interest rates, we expect that changes in interest rates may have a significant, adverse impact on our net interest income. Our ability to make a profit largely depends on our net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between: o The interest income we earn on our interest-earning assets such as loans and securities; and o The interest expense we pay on our interest-bearing liabilities such as deposits and amounts we borrow. The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. We, like many savings institutions, have liabilities that generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility, because market interest rates change over time. In a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities. In a period of declining interest rates the interest income earned on our assets may decrease more rapidly, due to accelerated prepayments, than the interest paid on our liabilities. In addition, changes in interest rates can affect the average lives of loans and mortgage-backed and related securities. A reduction in interest rates results in increased prepayments of loans and mortgage-backed and related securities, as borrowers refinance their debt in order to reduce their borrowing cost. This causes reinvestment risk, because we are generally not able to reinvest prepayments at rates that are comparable to the rates we previously earned on the prepaid loans or securities. At March 31, 2005, 77.5% of our loan portfolio was comprised of one- to four-family mortgage loans, which experienced very high prepayment rates during recent years. Our net interest rate spread, which is the difference between the yields we receive on assets and the rates we pay on liabilities, increased during fiscal 2004 after decreasing during fiscal 2003 and continued to improve during the first half of fiscal 2005. For the year ended September 30, 2004 our net interest rate spread was 2.28%, as compared to 2.14% for the year ended September 30, 2003. Our net interest rate spread was 2.36% for the six months ended March 31, 2005. In large part, the improvement in net interest rate spread resulted from slowing asset prepayments attributable to interest rates rising from their historical lows of fiscal 2003. During fiscal 2003, decreases in market interest rates triggered rapid loan and security prepayments which caused our net interest rate spread to shrink. Our spread shrank because the decrease in the yields on our securities and loan portfolios was greater than the decrease in the rates we paid on deposits and borrowings during that year. This caused a decrease in our earnings, sometimes referred to as an "earnings squeeze" which eased somewhat in fiscal 2004. Depending upon the movement of market interest rates, our earnings may continue to be impacted by an "earnings squeeze" in the future. For example, we are vulnerable to an increase in interest rates because the majority of our loan portfolio consists of longer-term, fixed rate loans and recently originated hybrid ARMs that are fixed rate for an initial period of time. At March 31, 2005, excluding allowance 54 for loan losses and net deferred origination costs and including loans held for sale, loans totaled $334.3 million comprising 75.8% of total assets. Of those loans, fixed rate mortgages totaled $173.6 million or 39.4% of total assets while hybrid ARMs, including 3/1, 5/1, 7/1 and 10/1 ARMs totaled $144.1 million of 32.7% of total assets. In an increasing rate environment, our cost of funds may increase more rapidly than the interest earned on our loan portfolio and investment securities portfolio because our primary source of funds is deposits with substantially shorter maturities than the maturities on our loans and investment securities. Having interest-bearing liabilities that reprice more frequently than interest-earning assets will be detrimental during periods of rising interest rates and could cause our net interest rate spread to shrink because the increase in the rates we would earn on our securities and loan portfolios would be less than the increase in the rates we would pay on deposits and borrowings. This could cause a decrease in our earnings and an "earnings squeeze" just as the decrease in interest rates in prior periods had impacted our earnings. The Board of Directors has established an Asset/Liability Management Committee, comprised of Joseph Kliminski, the Bank's Chief Executive Officer, Fred Kowal, the Bank's President and Chief Operating Officer, Richard Bzdek, the Bank's Executive Vice President and Corporate Secretary, Eric Heyer, the Bank's Senior Vice President and Chief Financial Officer, Catherine Bringuier, the Bank's Senior Vice President and Chief Lending Officer, Josephine Castaldo, the Bank's Vice President of Branch Administration, and John Scognamiglio, the Bank's Vice President and Controller which is responsible for monitoring interest rate risk. The committee conducts regular, informal meetings, generally on a weekly basis, to address the day-to-day management of the assets and liabilities of the Bank, including review of the Bank's short term liquidity position; loan and deposit pricing and production volumes and alternative funding sources; current investments; average lives, durations and repricing frequencies of loans and securities; and a variety of other asset and liability management topics. The committee meets quarterly to formally review such matters. The results of the committee's quarterly review are reported to the full Board, which makes adjustments to the Bank's interest rate risk policy and strategies, as it considers necessary and appropriate. To reduce the effect of interest rate changes on net interest income, we seek to utilize various strategies aimed at improving the matching of interest-earning asset maturities to interest-bearing liability maturities. The main elements of these strategies include seeking to: (1) Originate and retain loans with adjustable rate features and fixed rate loans with shorter maturities including commercial real estate loans; (2) Originate longer term, fixed rate loans eligible for sale in the secondary market and, if warranted, sell such loans; (3) Lengthen the maturities of our liabilities through utilization of Federal Home Loan Bank advances; (4) Attract low cost checking and transaction accounts which tend to be less interest rate sensitive; and (5) Purchase short to intermediate term securities and maintain a securities portfolio that provides a stable cash flow, thereby providing investable funds in varying interest rate cycles. Quantitative Aspects of Market Risk. The following table presents American Bank of New Jersey's net portfolio value as of March 31, 2005. The net portfolio value was calculated by the Office of Thrift Supervision, based on information provided by the Bank. 55 Net Portfolio Value Net Portfolio Value as % of Present Value of Assets ------------------------ --------------------------------------- Changes in Net Portfolio Basis Point Rates(1) $ Amount $ Change % Change Value Ratio Change -------- -------- -------- -------- ----------- ------ (Dollars in thousands) +300 bp 24,991 -23,067 -48% 5.98% -468 bp +200 bp 33,146 -14,912 -31% 7.72% -293 bp +100 bp 41,117 -6,940 -14% 9.33% -132 bp 0 bp 48,058 10.66% - -100 bp 53,007 4,950 +10% 11.53% +87 bp - -200 bp 53,372 5,314 +11% 11.49% +84 bp - ---------- (1) The -300 basis points scenario is not shown due to the low prevailing interest rate environment. One basis point is 0.01% or one one-hundredth of a percent. Thus, a 100, 200 or 300 basis point change is equivalent to a change of 1.0%, 2.0% or 3.0%, respectively. Future interest rates or their effect on net portfolio value or net interest income are not predictable. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, prepayments, and deposit run-offs, and should not be relied upon as indicative of actual results. Certain shortcomings are inherent in this type of computation. Although certain assets and liabilities may have similar maturity or periods of repricing, they may react at different times and in different degrees to changes in the market interest rates. The interest rate on certain types of assets and liabilities such as demand deposits and savings accounts, may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets such as adjustable rate mortgages generally have features, which restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making calculations set forth above. Additionally, an increased credit risk may result as the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. Notwithstanding the discussion above, the qualitative interest rate analysis findings presented herein indicate that a rapid increase in interest rates would adversely affect our net interest margin and earnings. Given the low interest rates prevalent in the current marketplace, management is continuing to evaluate a variety of strategies to manage the earnings risks presented by an upward movement in interest rates. These strategies include the continued sale of longer term, fixed rate conforming loan originations into the secondary market and the use of wholesale borrowings to match fund longer term, fixed rate loan originations that are retained in portfolio. Additionally, the Bank continues to evaluate the costs and benefits of incrementally restructuring its portfolio of FHLB advances. Such a restructuring transaction took place during the 2004 fiscal year when the Bank recognized a $125,000 penalty to prepay $3.0 million of fixed rate FHLB advances with a weighted average cost of 6.28%. In the current interest rate environment, such prepayments result in one time charges to earnings in the form of FHLB prepayment penalties, assuming the advances are not replaced with similar borrowings which may result in a deferral of the prepayment penalty. When replaced by lower cost funding, however, prepayments lower the interest paid on borrowings, thereby improving the Bank's net interest spread and margin and enhancing future earnings. 56 For the purpose of managing interest rate risk, we continue to maintain a strategy of selling a portion of our long term, fixed rate mortgage loans originated into the secondary market. For the year ended September 30, 2004, we sold a total of $4.8 million of loans to the Federal National Mortgage Association. Gains on sales of mortgage loans held for sale totaled $27,000 for 2004. Such sales contributed to a 14.9% or $11.3 million reduction in the balance of fixed rate mortgage loans with original maturities exceeding fifteen years during 2004. We offer borrowers the option to lock in their interest rate prior to closing their mortgage loans. Once a loan's rate is locked, we are exposed to market value risk because the price at which we can sell the loan will vary with movements in market interest rates. To manage that risk, we may take forward commitments to sell loans at a fixed price. However, at March 31, 2005, the Bank had no outstanding contracts to sell long term, fixed rate mortgage loans to Federal National Mortgage Association. Loans sold under contracts drawn in the future may generate additional gains or losses on sale of mortgage loans in subsequent periods. BUSINESS OF AMERICAN BANCORP OF NEW JERSEY, INC. ASB Holding Company is currently the middle-tier federal stock holding company of American Bank of New Jersey and ASB Investment Corp. and owns all of the outstanding common stock of both entities. American Bank of New Jersey previously converted from a federal mutual savings bank to the mutual holding company form of organization in 1999. In 2003, ASB Holding Company was chartered as the mid-tier stock holding company for American Bank of New Jersey. Also in 2003, ASB Holding Company undertook a minority stock offering and sold 30% of its outstanding stock to the public with the remaining 70% held by American Savings, MHC, its parent mutual holding company. At the conclusion of this stock offering and the completion of the mutual-to-stock conversion of American Savings, MHC, ASB Holding Company will cease to exist, but will be succeeded by a newly formed New Jersey corporation called American Bancorp of New Jersey, Inc., which will own all of the outstanding common stock of American Bank of New Jersey and ASB Investment Corp. As of March 31, 2005, ASB Holding Company had 5,554,500 shares of common stock issued and outstanding. American Savings, MHC owns 3,888,150 shares, or 70%, of ASB Holding Company's outstanding common stock. The remaining shares of common stock are held by the public. American Bancorp of New Jersey, Inc. has not engaged in any significant business to date. Its primary activity will be to hold all of the stock of American Bank of New Jersey and ASB Investment Corp., a wholly owned subsidiary engaged in offering insurance and securities products. American Bancorp of New Jersey, Inc. will invest the proceeds of the stock offering as discussed under Use of Proceeds at page __. In the future, it may pursue other business activities, including mergers and acquisitions, investment alternatives and diversification of operations. There are, however, no current understandings or agreements for these activities. American Bancorp of New Jersey, Inc. will not maintain offices separate from those of American Bank of New Jersey or employ any persons other than certain of American Bank of New Jersey's officers. Officers of American Bancorp of New Jersey, Inc. will not be separately compensated for their service. 57 BUSINESS OF AMERICAN BANK OF NEW JERSEY General American Bank of New Jersey was originally founded in 1919 as the American-Polish Building & Loan Association of Bloomfield, New Jersey. It became a state-chartered savings and loan association in 1948 and converted to a federally chartered savings bank in 1995. It changed its name from American Savings Bank of NJ to American Bank of New Jersey in 2005. The Bank's deposits are federally insured by the Savings Association Insurance Fund as administered by the Federal Deposit Insurance Corporation. American Bank of New Jersey is regulated by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. Our core business is attracting and retaining retail deposits in order to fund a variety of mortgage and consumer loan products. We operate as a traditional community bank, offering retail banking services, one- to four-family residential mortgage loans, home equity loans and lines of credit, multi-family and non-residential mortgage loans and consumer loans. We also invest in mortgage-backed securities and collateralized mortgage-backed obligations. The principal source of funds for our lending and investing activities is deposits, supplemented with Federal Home Loan Bank borrowings. Our principal source of income is interest earned on loans and securities. Our principal expense is interest paid on deposits and borrowings. Market Area Our main office is located in Bloomfield, New Jersey, and our branch office is located in Cedar Grove, New Jersey. Our lending is concentrated in northern New Jersey, and our predominant sources of deposits are the communities in which our two offices are located as well as the neighboring communities. Our business of attracting deposits and making loans is primarily conducted within our market area. A downturn in the local economy could reduce the amount of funds available for deposit and the ability of borrowers to repay their loans. As a result, our profitability could decrease. Competition We face substantial competition in our attraction of deposits, which are our primary source of funds for lending, and in the origination of loans. Many of our competitors are significantly larger institutions and have greater financial and managerial resources. Our ability to compete successfully is a significant factor affecting our profitability. Our competition for deposits and loans historically has come from other insured financial institutions such as local and regional commercial banks, savings institutions, and credit unions located in our primary market area. We also compete with mortgage banking companies for real estate loans, and commercial banks and savings institutions for consumer loans; and face competition for funds from investment products such as mutual funds, short-term money funds and corporate and government securities. Lending Activities General. We have traditionally focused on the origination of one-to-four family loans, which comprise a significant majority of the total loan portfolio. We also provide financing on multi-family dwellings, mixed-use properties and other commercial real estate. Commercial business loans, generally 58 secured by real estate, construction loans, home equity loans and consumer loans make up the rest of the total loan portfolio. We have experienced substantial loan growth over the last several years, with total loans receivable increasing from $146.9 million at September 30, 2000 to $338.5 million at March 31, 2005, a 130% increase. 59 Loan Portfolio Composition. The following tables analyzes the composition of our loan portfolio by loan category at the dates indicated.
At March 31, At September 30 ----------------- ---------------------------------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 ---------------- --------------- --------------- ---------------- ---------------- --------------- Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- (Dollars in thousands) Type of Loans: Mortgage loans: One-to-four family real estate(1)........... $262,286 77.49% $251,531 80.17% $215,984 81.59% $167,564 79.06% $131,513 76.18% $108,678 73.97% Multi-family and commercial real estate........ 55,454 16.38 43,197 13.77 36,202 13.68 29,503 13.92 24,903 14.42 21,867 14.88 Construction............ 8,132 2.40 7,175 2.29 1,233 0.47 4,875 2.30 9,402 5.45 10,697 7.28 Consumer................ 701 0.21 746 0.24 780 0.29 795 0.38 540 0.31 547 0.37 Home equity............. 11,249 3.32 10,666 3.40 8,893 3.36 6,904 3.26 5,863 3.40 4,903 3.34 Commercial.............. 663 0.20 398 0.13 1,610 0.61 2,298 1.08 417 0.24 238 0.16 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total loans receivable....... 338,485 100.00% 313,713 100.00% 264,702 100.00% 211,939 100.00% 172,638 100.00% 146,930 100.00% ====== ====== ====== ====== ====== ====== Less: Allowance for loan losses......... (1,689) (1,578) (1,371) (1,117) (1,009) (1,003) Net deferred origination costs... 977 935 796 673 532 400 Loans in process...... (4,219) (4,100) (783) (3,121) (5,839) (5,369) -------- -------- -------- -------- -------- -------- Total loans receivable, net.. $333,554 $308,970 $263,344 $208,374 $166,322 $140,958 ======== ======== ======== ======== ======== ========
- -------------- (1) Includes loans held for sale of $302,000, $500,000 and $452,000 at March 31, 2005, September 30, 2003 and September 30, 2000, respectively. 60 Loan Maturity Schedule. The following table sets forth the maturity of our loan portfolio at March 31, 2005. Demand loans, loans having no stated maturity, and overdrafts are shown as due in one year or less. This table shows contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.
At March 31, 2005 -------------------------------------------------------------------------------------------- Multi-family One- to Four- and Family Commercial Real Estate Real Estate Construction Consumer Home Equity Commercial Total ----------- ----------- ------------ -------- ----------- ---------- ----- (In thousands) Amounts Due: Within 1 Year................... $ 536 $ 1,125 $3,715 $ 692 $ 17 $527 $ 6,612 -------- -------- ------ ----- ------- ---- -------- After 1 year: Over 1 year to 5 years........ 2,358 1,454 4,417 9 50 71 8,359 Over 5 years to 10 years...... 31,584 5,100 - - 1,997 65 38,746 Over 10 years to 15 years..... 58,619 15,442 - - 7,957 - 82,018 Over 15 years................. 169,189 32,333 - - 1,228 - 202,750 -------- ------- ------ ----- ------- ---- -------- Total due after one year........ 261,750 54,329 4,417 9 11,232 136 331,873 -------- ------- ------ ----- ------- ---- -------- Total amount due................ $262,286 $55,454 $8,132 $ 701 $11,249 $663 $338,485 ======== ======= ====== ===== ======= ==== ========
61 The following table sets forth the maturity of our loan portfolio at September 30, 2004. Demand loans, loans having no stated maturity, and overdrafts are shown as due in one year or less. This table shows contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.
At September 30, 2004 -------------------------------------------------------------------------------------------- Multi-family One- to Four- and Family Commercial Real Estate Real Estate Construction Consumer Home Equity Commercial Total ----------- ----------- ------------ -------- ----------- ---------- ----- (In thousands) Amounts Due: Within 1 Year................... $ 789 $ 276 $1,025 $740 $ 19 $ 152 $ 3,001 - -------- ------- ------ ---- ------- ------- -------- After 1 year: Over 1 year to 5 years........ 2,369 1,627 6,150 6 108 174 10,434 Over 5 years to 10 years...... 33,641 4,502 - - 1,765 72 39,980 Over 10 years to 15 years..... 58,483 12,934 - - 8,025 - 79,442 Over 15 years................. 156,249 23,858 - - 749 - 180,856 -------- ------- ------ ---- ------- ------- -------- Total due after one year........ 250,742 42,921 6,150 6 10,647 246 310,712 -------- ------- ------ ---- ------- ------- -------- Total amount due................ $251,531 $43,197 $7,175 $746 $10,666 $ 398 $313,713 ======== ======= ====== ==== ======= ======= ========
62 The following table sets forth the dollar amount of all loans at March 31, 2005 due after March 31, 2006, which have fixed interest rates and which have floating or adjustable interest rates.
Floating or Fixed Rates Adjustable Rates Total ----------- ---------------- ----- (In thousands) One-to-four family real estate................. $153,365 $108,385 $261,750 Multi-family and commercial real estate........ 19,695 34,634 54,329 Construction................................... - 4,417 4,417 Consumer....................................... 9 - 9 Home equity.................................... - 11,232 11,232 Commercial..................................... 33 103 136 -------- -------- -------- Total........................................ $173,102 $158,771 $331,873 ======== ======== ========
The following table sets forth the dollar amount of all loans at September 30, 2004 due after September 30, 2005, which have fixed interest rates and which have floating or adjustable interest rates.
Floating or Fixed Rates Adjustable Rates Total ----------- ---------------- ----- (In thousands) One-to-four family real estate................. $156,752 $93,990 $250,742 Multi-family and commercial real estate........ 19,399 23,522 42,921 Construction................................... - 6,150 6,150 Consumer....................................... 6 - 6 Home equity.................................... - 10,647 10,647 Commercial..................................... 125 121 246 -------- -------- -------- Total........................................ $176,282 $134,430 $310,712 ======== ======== ========
One- to Four-Family Mortgage Loans. Our primary lending activity historically has consisted of the origination of one- to four-family mortgage loans, most of which are secured by property located in northern New Jersey. Going forward, this type of loan will continue to be the most significant component of our total loan portfolio, however, we will also emphasize the origination of commercial real estate loans, including construction loans, and commercial and industrial loans. We will generally originate a one- to four-family mortgage loan in an amount up to 80% of the lesser of the appraised value or the purchase price of a mortgaged property. For loans exceeding this guideline, private mortgage insurance on the loan is typically required. Our residential loans are originated with fixed or adjustable rates and have terms of ten to thirty years. We also offer mortgage loans with bi-weekly payments. The majority of our adjustable rate loan products provide for an interest rate that is tied to the one-year Constant Maturity U.S. Treasury index and have terms of up to thirty years with initial fixed rate periods of one, three, five, seven, or ten years according to the terms of the loan. We also offer an adjustable rate loan with a rate that adjusts every three years to the three-year Constant Maturity U.S. Treasury index. The fixed rate mortgage loans that we originate generally meet the secondary mortgage market standards of the Federal National Mortgage Association. For the purposes of interest rate risk management, we sell qualifying one- to four-family residential mortgages in the secondary market to the 63 Federal National Mortgage Association and other investors without recourse and with servicing retained, and we have entered into a master selling and servicing agreement with the Federal National Mortgage Association under which the Bank sold $4.8 million in the year ended September 30, 2004 and $9.4 million in the year ended September 30, 2003. Loan sales totaled $142,400 during the six months ended March 31, 2005. Loan sales may increase or decrease in the future in connection with interest rate risk management. Substantially all of our residential mortgages include "due on sale" clauses, which are provisions giving us the right to declare a loan immediately payable if the borrower sells or otherwise transfers an interest in the property to a third party. Property appraisals on real estate securing our one- to four-family residential loans are made by state certified or licensed independent appraisers approved by the Board of Directors. Appraisals are performed in accordance with applicable regulations and policies. We require title insurance policies on all first mortgage real estate loans originated. Homeowners, liability, fire and, if required, flood insurance policies are also required. Multi-family and Commercial Mortgage Loans. We also originate loans on multi-family and commercial real estate properties, including loans on apartment buildings, retail/service properties, and other income-producing properties such as mixed-use properties combining residential and commercial space. We generally require no less than a 25% down payment or equity position for these mortgage loans. Typically these loans are made with amortization terms of up to twenty-five years. The majority of these loans are on properties located within northern New Jersey and all are within the state. The multi-family and commercial mortgage loan portfolio grew from $21.9 million at September 30, 2000 to $55.5 million at March 31, 2005, a 153% increase. However, the growth of one- to four-family loans has kept pace so multi-family and commercial mortgage loans as a percentage of the total loan portfolio has remained fairly constant, increasing only 1.5% during that time. We are currently pursuing strategies to grow this portfolio and intend to hire several commercial real estate lenders to focus on this goal. Multi-family and commercial mortgage loans generally are considered to entail significantly greater risk than that which is involved with one- to four-family real estate lending. The repayment of these loans typically is dependent on the successful operations and income stream of the borrower and the real estate securing the loan as collateral. These risks can be significantly affected by economic conditions. In addition, commercial loans may carry larger balances to single borrowers or related groups of borrowers than one- to four-family loans. Furthermore, this type of real estate lending generally requires substantially greater evaluation and oversight efforts compared to one-to-four family mortgage lending. Construction Lending. Essentially all of our construction lending is in northern New Jersey. Our construction lending includes loans to individuals for construction of a primary residence as well as loans to builders and developers for single family, multi-unit and multi-house projects. We have no formal limits as to the number of projects a builder may have under construction or development, and make a case by case determination on loans to builders and developers who have multiple projects under development. We generally do not make construction loans to builders on a speculative basis. However, we will allow a model unit without a contract in place. In some cases, we convert a construction loan to the permanent end mortgage loan upon completion of construction. We do not require, however, that construction loans be converted to permanent end mortgage loans upon completion of construction. Construction lending is generally considered to involve a higher degree of credit risk than long-term permanent financing of residential properties. If the estimate of construction cost proves to be 64 inaccurate, we may be compelled to advance additional funds to complete the construction with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If we are forced to foreclose on a project prior to completion, there is no assurance that we will be able to recover all of the unpaid portion of the loan. In addition, we may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time. For several years preceding fiscal 2004, the outstanding principal balance of our construction loan portfolio experienced a significant reduction. This resulted from our decision during that time to reduce our origination of construction loans following the retirement of the loan officer who had primarily overseen this portfolio. However, with the Bank's increasing strategic emphasis in commercial real estate lending and our intention to hire several lenders dedicated to the development of a commercial real estate portfolio, we expect that our construction lending program will be fully reinstated. We will seek to grow this portfolio, particularly with respect to construction loans to builders and developers for multi-unit or multi-house projects. Consumer Loans. Consumer loans consist of savings secured loans and unsecured consumer loans. We will generally lend up to 90% of the account balance on a savings secured loan. At March 31, 2005, the majority of the $701,000 of consumer loans consisted of savings secured loans. Consumer loans generally have shorter terms and higher interest rates than residential loans. The consumer loan market can be helpful in improving the spread between the average loan yield and the cost of funds and at the same time improve the matching of rate sensitive assets and liabilities. Unsecured consumer loans, and consumer loans secured by collateral other than savings accounts, entail greater risks than residential mortgage loans. Consumer loan repayment is dependent on the borrower's continuing financial stability and is more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Finally, the application of various federal laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on consumer loans in the event of a default. Our underwriting standards for consumer loans include a determination of the applicant's credit history and an assessment of the applicant's ability to meet existing obligations and payments on the proposed loan. The stability of the applicant's monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. Home Equity Loans. Our home equity loan portfolio includes home equity lines of credit and second mortgage term loans. Home equity lines of credit are prime-based loans that are adjusted monthly. Home equity loans are primarily originated in our market area and are generally made in amounts of up to 80% of value on term loans and up to 80% of value on home equity lines of credit. During 2001, we began offering home equity loans on investment properties in addition to loans on primary residences. Loans on investment properties are made in amounts of up to 65% of value on term loans and up to 60% of value of home equity lines of credit. Generally, our second mortgage loans have fixed rates for terms of up to fifteen years. Collateral value is determined through a drive-by appraisal. Second mortgages and home equity lines of credit do not require title insurance but do require homeowner, liability, fire and, if required, flood insurance policies. 65 Commercial Loans. We also originate commercial and industrial business loans to a variety of professionals, sole proprietorships and small businesses, primarily in our market area. These loans are generally secured by real estate. We generally require the personal guarantee of the business owner. Commercial lending products include term loans and lines of credit. Our commercial term loans generally have terms from one to five years and are mostly fixed rate loans. Our commercial lines of credit have terms from one to three years and are mostly adjustable rate loans. The commercial loan portfolio has grown slightly, from $238,000 at September 30, 2000 to $663,000 at March 31, 2005. As part of our plan to grow and diversify the loan mix by developing a separate and distinct commercial lending business unit, we have recently hired a commercial and industrial lender and intend over the next several years to hire several additional commercial real estate and commercial business lenders. Unlike single-family residential mortgage loans, which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself and the general economic environment. Commercial business loans, therefore, have greater credit risk than residential mortgage loans. In addition, commercial loans may carry larger balances to single borrowers or related groups of borrowers than one- to four-family loans. In addition, commercial lending generally requires substantially greater evaluation and oversight efforts compared to residential or non-residential real estate lending. Loans to One Borrower. Under federal law, savings institutions have, subject to certain exemptions, lending limits to one borrower or a group of related borrowers in an amount equal to the greater of $500,000 or 15% of the institution's unimpaired capital and surplus. Accordingly, as of March 31, 2005, our loans to one borrower limit was approximately $5.4 million. At March 31, 2005, our largest group of related borrowers had an aggregate balance of approximately $5.0 million, representing six loans on condominium units, nine loans secured by multi- family properties and one single-family residential loan. At the same date, our second largest group of related borrowers had an aggregate balance of approximately $3.0 million, representing four loans secured by apartment buildings ranging from six units to 58 units. Our third largest group of related borrowers at that date had an aggregate balance of approximately $2.7 million, representing two loans secured by apartment buildings, one loan on a mixed use commercial and residential property, one loan on a multi- family property, one single-family residential loan and one home equity line of credit. At March 31, 2005, we had four additional lending relationships exceeding $2.0 million, with outstanding balances at that date ranging from $2.1 million to $2.5 million. All of these lending relationships were current and performing in accordance with the terms of their loan agreements as of March 31, 2005. Our loans to one borrower limit will increase significantly following the stock offering as we will have significantly greater capital. Loan Originations, Purchases, Sales, Solicitation and Processing. Our customary sources of loan applications include repeat customers, referrals from realtors and other professionals, and "walk-in" customers. A majority of our loan originations currently is produced by the Bank's one loan officer, whose referral base consists of a variety of sources, including customers, realtors, lawyers, title companies and accountants. As discussed above, however, we intend to hire additional residential, commercial real 66 estate and commercial and industrial lenders over the next several years. We have recently hired our first commercial and industrial lender. We primarily originate our own loans and retain them in our portfolio. Gross loan originations totaled $111.8 million for the year ended September 30, 2004. Net of principal repayments, loan growth totaled approximately $46.1 million for the fiscal year ended September 30, 2004. During the year ended September 30, 2004 we purchased a total of $3.3 million of adjustable rate mortgage loans. The Bank purchased no whole loans during the years ended September 30, 2003 and 2002. During the year ended September 30, 2004, we sold 23 loans for $4.8 million. During the years ended September 30, 2003 and 2002 we sold loans totaling $9.6 million and $258,000, respectively. During the six months ended March 31, 2005, we sold loans totaling $142,400 and did not purchase any whole loans. Loan sales are part of our interest rate risk management strategy and may increase or decrease in the future. We generally sell loans on a non-recourse basis, with servicing retained. At March 31, 2005, loans serviced for the benefit of others totaled $15.9 million. We occasionally purchase participations in loans originated through other lending institutions including the Thrift Institutions Community Investment Corporation of New Jersey ("TICIC"). At March 31, 2005, we had participations totaling $5.0 million from a New Jersey thrift institution and $1.6 from TICIC, and our participations through these entities were secured by one-to-four family properties as well as multi-family or other non-one- to-four family properties, such as assisted living facilities. We may also sell participation interests in multi-family, commercial and other real estate loans or construction loans if the total loan would otherwise exceed our loans-to-one borrower limit. Loan Commitments. We give written commitments to prospective borrowers on all residential and non-residential mortgage loans. The total amount of commitments to extend credit for mortgage and consumer loans as of March 31, 2005, was approximately $16.0 million, excluding commitments on unused lines of credit of $13.2 million and undisbursed portions of construction loans totaling $4.2 million. Loan Approval Procedures and Authority. Our lending policies and loan approval limits are recommended by senior management and approved by the Board of Directors. Our loan origination underwriter has loan authority to approve one-to four-family loans up to $359,600, the Federal National Mortgage Association conforming loan limit. Our loan origination Manager has loan authority to approve one-to four-family loans up to $500,000 with Federal National Mortgage Association automated underwriting approvals. Our Loan Committee consists of Officers Kliminski, Kowal, Bzdek and Bringuier. Each of these officers has authority to approve one-to four-family loans up to $750,000. One-to-four family loans between $750,000 and $1,000,000 require two signatures from members of the Loan Committee. One-to four-family loans greater than $1,000,000 require the approval of the Board of Directors. Loans other than one-to four-family loans up to $750,000 require two signatures from members of Loan Committee. Approval of a separate loan sub-committee of the Board is required for non one-to four- family loans over $750,000, or when aggregate exposure exceeds $1.5 million. Asset Quality Loan Delinquencies and Collection Procedures. The borrower is notified by both mail and telephone when a loan is sixteen days past due. If the delinquency continues, subsequent efforts are made to contact the delinquent borrower and additional collection notices and letters are sent. When a loan is ninety days delinquent, it is referred to an attorney for repossession or foreclosure. All reasonable 67 attempts are made to collect from borrowers prior to referral to an attorney for collection. In certain instances, we may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his financial affairs, and we attempt to work with the borrower to establish a repayment schedule to cure the delinquency. As to mortgage loans, if a foreclosure action is taken and the loan is not reinstated, paid in full or refinanced, the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the debt. Any property acquired as the result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until it is sold or otherwise disposed of. When real estate owned is acquired, it is recorded at the lower of the unpaid principal balance of the related loan or its fair market value less estimated selling costs. The initial writedown of the property is charged to the allowance for loan losses. Adjustments to the carrying value of the properties that result from subsequent declines in value are charged to operations in the period in which the declines occur. At March 31, 2005, we held no real estate owned. Loans are reviewed on a regular basis and are placed on non-accrual status when they are more than ninety days delinquent. Loans may be placed on a non-accrual status at any time if, in the opinion of management, the collection of additional interest is doubtful. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectibility of the loan. At March 31, 2005, we had approximately $352,000 of loans that were held on a non-accrual basis. 68 Non-Performing Assets. The following table provides information regarding our non-performing loans and other non-performing assets as of the dates indicated.
At March 31, At September 30, --------- --------------------------------------------------------- 2005 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- ---- (Dollars in thousands) Loans accounted for on a non-accrual basis: One-to-four family real estate.......................... $ 261 $ 445 $ 147 $ 147 $ 309 $ 374 Multi-family and commercial real estate................. 74 74 369 423 287 343 Construction............................................ - - - - - - Consumer................................................ - - 1 - 21 - Home equity............................................. 17 - - - 11 61 Commercial.............................................. - - - - - - ------ ------ ------ ----- ----- ----- Total................................................ $ 352 $ 519 $ 517 570 628 778 Accruing loans contractually past due 90 days or more..... - - - - - - ------ ------ ------ ----- ----- ----- Total non-performing loans................................ 352 519 517 570 628 778 Real estate owned......................................... - - - - - - Other non-performing assets............................... - - - - - - ------ ------ ------ ----- ----- ----- Total non-performing assets............................... $ 352 $ 519 $ 517 $ 570 $ 628 $ 778 ====== ====== ====== ===== ===== ===== Allowance for loan losses to non-performing loans......... 480.66% 304.05% 265.18% 195.96% 160.67% 128.92% Total non-performing loans to total loans................. 0.11% 0.17% 0.20% 0.27% 0.36% 0.53% Total non-performing loans to total assets................ 0.08% 0.12% 0.12% 0.17% 0.24% 0.35% Total non-performing assets to total assets............... 0.08% 0.12% 0.12% 0.17% 0.24% 0.35%
69 During the year ended September 30, 2004, gross interest income of $53,000 would have been recorded on loans accounted for on a non-accrual basis if those loans had been current, and $39,000 of interest on such loans was included in income for the year ended September 30, 2004. During the six months ended March 31, 2005, gross interest income of $14,000 would have been recorded on loans accounted for on a non-accrual basis if those loans had been current, and $0 of interest on such loans was included in income for the six months ended March 31, 2005. Classified Assets. Management, in compliance with Office of Thrift Supervision ("OTS") guidelines, has instituted an internal loan review program, whereby non-performing loans are classified as substandard, doubtful or loss. It is our policy to review the loan portfolio, in accordance with regulatory classification procedures, on at least a quarterly basis. When a loan is classified as substandard or doubtful, management evaluates the loan for impairment. When management classifies a portion of a loan as loss, a reserve equal to 100% of the loss amount is allocated against the loan. An asset is considered "substandard" if it is inadequately protected by the paying capacity and net worth of the obligor or the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions, and values. Assets, or portions thereof, classified as "loss" are considered uncollectible and of so little value that their continuance as assets without the allocation of an impairment reserve is not warranted. Assets which do not currently expose the insured institution to a sufficient degree of risk to warrant classification in one of the aforementioned categories but which have credit deficiencies or potential weaknesses are required to be designated "special mention" by management. Management's classification of assets is reviewed by the Board on a regular basis and by the regulatory agencies as part of their examination process. The following table discloses our classification of assets and designation of certain loans as special mention as of March 31, 2005. At March 31, 2005, all of the classified assets and special mention designated assets were loans. At March 31, 2005 ------------ (In thousands) Special Mention........................ $1,366 Substandard............................ 268 Doubtful............................... 258 Loss................................... - ------ Total................................ $1,892 ====== At March 31, 2005, approximately $17,000 of the loans classified as "special mention," $261,000 of loans classified as "substandard" and $74,000 of the loans classified as "doubtful" are included in the table under non-performing assets. Allowance for Loan Losses. The allowance for loan losses is a valuation account that reflects our estimation of the losses in our loan portfolio to the extent they are both probable and reasonable to estimate. The allowance is maintained through provisions for loan losses that are charged to income in the 70 period they are established. We charge losses on loans against the allowance for loan losses when we believe the collection of loan principal is unlikely. Recoveries on loans previously charged-off are added back to the allowance. Our methodology for calculating the allowance for lease and loan losses is based upon FAS 5 and FAS 114. Under FAS 114, we identify and analyze certain loans for impairment. If an impairment is identified on a specific loan, a loss allocation is recorded in the amount of that impairment. Loan types subject to FAS 114 are construction loans, multi-family mortgage loans, non-residential mortgage loans and commercial (non-mortgage) loans. We also conduct a separate review of all loans on which the collectibility of principal may not be reasonably assured. We evaluate all classified loans individually and base our determination of a loss factor on the likelihood of collectibility of principal including consideration of the value of the underlying collateral securing the loan. Under our implementation of FAS 5, we segregate loans by loan category and evaluate homogeneous loans as a group. The loss characteristics of aggregated homogeneous loans are examined using two sets of factors: (1) annual historical loss experience factors that consider the net charge-off history of both the Bank and that of its regional peer group and (2) environmental factors. Although there may be other factors that also warrant consideration, we consider the following environmental factors: o levels and trends of delinquencies and impaired loans; o levels and trends of charge-offs and recoveries; o trends in volume and terms of loans; o changes to lending policies, procedures and practices; o experience, ability and depth of lending management and staff; o national, regional and local economic trends and conditions; o industry conditions; and o changes in credit concentration. In recent years, our charge-offs have been low and, consequently, our estimation of the amount of losses in the loan portfolio both probable and reasonable to estimate has been more reflective of other factors. Our allowance estimation methodology utilizes historical loss experience and environmental factors such as the local and national economy, loan growth rate, trends in delinquencies and non-performing loans, experience of lending personnel, and other similar factors. However, we have had significant growth in the past three years, part of which is attributable to the new branch office opened in 2001. As a result of the significant loan growth, a large portion of our loan portfolio is considered "unseasoned," meaning that the loans were originated less than three years ago. Generally, unseasoned loans demonstrate a greater risk of credit losses than their seasoned counterparts. Moreover, in many cases, these unseasoned loans are obligations of borrowers with whom the Bank has had no prior payment experience. In the absence of adequate historical loss experience upon which the Bank can base its allowance calculations, the Bank includes peer group information in its evaluation of the allowance. The peer group information utilized by the Bank is that of OTS regulated thrifts in the northeast region. Management believes that the majority of thrifts in the northeast region have similar loan portfolio composition. This estimation is inherently subjective as it requires estimates and assumptions that are susceptible to significant revisions as more information becomes available or as future events change. Future additions to the allowance for loan losses may be necessary if economic and other conditions in the future differ substantially from the current operating environment. In addition, the OTS as an integral part of its 71 examination process, periodically reviews our loan and foreclosed real estate portfolios and the related allowance for loan losses and valuation allowance for foreclosed real estate. The OTS may require the allowance for loan losses or the valuation allowance for foreclosed real estate to be increased based on its review of information available at the time of the examination, which would negatively affect our earnings. 72 The following table sets forth information with respect to our allowance for loan losses for the periods indicated:
Six Months Ended Year Ended March 31, September 30, -------------------- ------------------------------------------------------- 2005 2004 2004 2003 2002 2001 2000 -------- -------- -------- --------- -------- -------- -------- (Dollars in thousands) Allowance balance at beginning of period.......... $ 1,578 $ 1,371 $ 1,371 $ 1,117 $ 1,009 $ 1,003 $ 999 Provision for loan losses......................... 112 54 207 254 105 2 22 Charge-offs: One-to-four family real estate.................. - - - - - - (19) Consumer........................................ - - - - (1) - - -------- -------- -------- --------- -------- -------- -------- Total charge-offs............................ - - - - (1) - (19) -------- -------- -------- --------- -------- -------- -------- Recoveries: Consumer........................................ - - - - 4 4 1 -------- -------- -------- --------- -------- -------- -------- Total recoveries............................. - - - - 4 4 1 -------- -------- -------- --------- -------- -------- -------- Net (charge-offs) recoveries...................... - - - - 3 4 (18) -------- -------- -------- --------- -------- -------- -------- Allowance balance at end of period................ $ 1,690 $ 1,425 $ 1,578 $ 1,371 $ 1,117 $ 1,009 $ 1,003 ======== ======== ======== ========= ======== ======== ======== Total loans outstanding at end of period.......... $338,485 $275,774 $313,713 $264,702 $211,939 $172,638 $146,930 ======== ======== ======== ======== ======== ======== ======== Average loans outstanding during period........... $318,539 $270,680 $278,632 $238,474 $186,974 $150,938 $128,463 ======== ======== ======== ======== ======== ======== ======== Allowance as a % of total loans................... 0.50% 0.52% 0.50% 0.52% 0.53% 0.58% 0.68% Net loans charge-offs as a % of average loans..... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01%
73 Allocation of Allowance for Loan Losses. The following table sets forth the allocation of our allowance for loan losses by loan category and the percent of loans in each category to total loans receivable, net, at the dates indicated. The portion of the loan loss allowance allocated to each loan category does not represent the total available for future losses which may occur within the loan category since the total loan loss allowance is a valuation allocation applicable to the entire loan portfolio.
At March 31, At September 30, ------------------- --------------------------------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 Percent Percent Percent Percent Percent Percent of Loans of Loans of Loans of Loans of Loans of Loans to Total to Total to Total to Total to Total to Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- (Dollars in thousands) At end of period allocated to: One-to-four family real estate............ $ 783 77.49% $ 777 80.17% $ 685 81.59% $ 531 79.06% $ 366 76.18% $ 315 73.97% Multi-family and commercial real estate....... 749 16.38 680 13.77 566 13.68 452 13.92 463 14.42 481 14.88 Construction........ 43 2.40 21 2.29 3 0.47 13 2.30 55 5.45 124 7.28 Consumer............ 4 0.21 4 0.24 3 0.29 3 0.38 2 0.31 2 0.37 Home equity......... 52 3.32 43 3.40 37 3.36 29 3.26 36 3.40 39 3.34 Commercial.......... 15 0.20 9 0.13 34 0.61 46 1.08 11 0.24 5 0.16 Unallocated......... 44 - 44 - 43 - 43 - 76 - 37 - ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total allowance.. $1,690 100.00% $1,578 100.00% $1,371 100.00% $1,117 100.00% $1,009 100.00% $1,003 100.00% ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
74 Securities Portfolio General. Federally chartered savings banks have the authority to invest in various types of liquid assets. The investments authorized by the Bank's board approved investment policy include U.S. government and government agency obligations, mortgage-related securities of various U.S. government agencies or government-sponsored entities and private corporate issuers (including securities collateralized by mortgages), certificates of deposits of insured banks and savings institutions and municipal securities. Our policy does not permit corporate non-residential mortgage related securities. Our investment securities portfolio at March 31, 2005 did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity, excluding those issued by the United States Government or its agencies, other than an investment in an adjustable rate mortgage mutual fund with a carrying value of approximately $9.8 million at March 31, 2005. Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," requires that securities be categorized as "held-to-maturity," "trading securities" or "available-for-sale," based on management's intent as to the ultimate disposition of each security. Statement No. 115 allows debt securities to be classified as "held-to-maturity" and reported in financial statements at amortized cost only if the reporting entity has the positive intent and ability to hold these securities to maturity. Securities that might be sold in response to changes in market interest rates, changes in the security's prepayment risk, increases in loan demand, or other similar factors cannot be classified as "held-to-maturity." We do not currently use or maintain a trading account. Securities not classified as "held-to-maturity" are classified as "available-for-sale." These securities are reported at fair value, and unrealized gains and losses on the securities are excluded from earnings and reported, net of deferred taxes, as a separate component of equity. All of our securities carry market risk insofar as changes in market rates of interest may cause a decrease in their market value. Investments in securities are made based on certain considerations, which include the interest rate, tax considerations, yield, settlement date and maturity of the security, our liquidity position, and anticipated cash needs and sources. The effect that the proposed security would have on our credit and interest rate risk and risk-based capital is also considered. We purchase securities to provide necessary liquidity for day-to-day operations, to aid in the management of interest rate risk and when investable funds exceed loan demand. Our investment policy, which is approved by the Board of Directors, is designed to foster earnings and liquidity within prudent interest rate risk guidelines, while complementing our lending activities. Generally, our investment policy is to invest funds in various categories of securities and maturities based upon our liquidity needs, asset/liability management policies, investment quality, marketability and performance objectives. The Asset/Liability Management Committee, comprised of Joseph Kliminski, the Bank's Chief Executive Officer, Fred Kowal, the Bank's President and Chief Operating Officer, Richard Bzdek, the Bank's Executive Vice President and Corporate Secretary, Eric Heyer, the Bank's Senior Vice President and Chief Financial Officer, Catherine Bringuier, the Bank's Senior Vice President and Chief Lending Officer, Josephine Castaldo, the Bank's Vice President of Branch Administration, and John Scognamiglio, the Bank's Vice President and Controller, is responsible for the administration of the securities portfolio. This committee conducts regular, informal meetings, generally on a weekly basis, and meets quarterly to formally review the Bank's securities portfolio. The results of the committee's quarterly review are reported to the full Board, which makes adjustment to the investment policy and strategies as it considers necessary and appropriate. 75 We do not currently participate in hedging programs, interest rate caps, floors or swaps, or other activities involving the use of off-balance sheet derivative financial instruments, but we may do so in the future as part of our interest rate risk management. Further, we do not invest in securities which are not rated investment grade. Actual maturities of the securities held by us may differ from contractual maturities because issuers may have the right to call or prepay obligations with and without prepayment penalties. At March 31, 2005, we had $14.0 million of agency debenture securities in our portfolio of which $2.0 million may be called prior to their maturity. Mortgage-related Securities. Mortgage-related securities represent a participation interest in a pool of one- to four-family or multi-family mortgages, although we focus primarily on mortgage-related securities secured by one- to four-family mortgages. Our mortgage-related securities portfolio includes mortgage-backed securities and collateralized mortgage obligations issued by U.S. government agencies or government-sponsored entities, such as Federal Home Loan Mortgage Corporation, the Government National Mortgage Association, and the Federal National Mortgage Association, as well as by private corporate issuers. The portfolio also includes an investment in an adjustable rate mortgage mutual fund, with a carrying value of approximately $9.8 million at March 31, 2005. The mortgage originators use intermediaries (generally government agencies and government-sponsored enterprises, but also a variety of private corporate issuers) to pool and repackage the participation interests in the form of securities, with investors such as us receiving the principal and interest payments on the mortgages. Securities issued or sponsored by U.S. government agencies and government-sponsored entities are guaranteed as to the payment of principal and interest to investors. Privately issued securities typically offer rates above those paid on government agency issued or sponsored securities, but lack the guaranty of those agencies and are generally less liquid investments. In the absence of an agency guarantee, our policy requires that we purchase only privately-issued mortgage-related securities that have been assigned the highest credit rating (AAA) by the applicable securities rating agencies. Limiting our purchases of privately-issued mortgage-related securities to those with a AAA rating reduces our added credit risk in purchasing non-agency guaranteed securities. Moreover, because there is a robust secondary market for AAA-rated privately-issued mortgage-related securities, much of the liquidity risk otherwise associated with our investment in non-agency securities is mitigated. Mortgage-backed securities are pass-through securities typically issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a specific range and have varying maturities. The life of a mortgage-backed security thus approximates the life of the underlying mortgages. Mortgage-backed securities generally yield less than the mortgage loans underlying the securities. The characteristics of the underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder. Mortgage-backed securities are generally referred to as mortgage participation certificates or pass-through certificates. Collateralized mortgage obligations are mortgage-derivative products that aggregate pools of mortgages and mortgage-backed securities and create different classes of securities with varying maturities and amortization schedules as well as a residual interest with each class having different risk characteristics. The cash flows from the underlying collateral are usually divided into "tranches" or classes whereby tranches have descending priorities with respect to the distribution of principal and interest repayment of the underlying mortgages and mortgage-backed securities as opposed to pass through mortgage-backed securities where cash flows are distributed pro rata to all security holders. Unlike 76 mortgage-backed securities from which cash flow is received and prepayment risk is shared pro rata by all securities holders, cash flows from the mortgages and mortgage-backed securities underlying collateralized mortgage obligations are paid in accordance with a predetermined priority to investors holding various tranches of the securities or obligations. A particular tranche or class may carry prepayment risk which may be different from that of the underlying collateral and other tranches. Investing in collateralized mortgage obligations allows us to better manage the prepayment and extension risk associated with conventional mortgage-related securities. Management believes collateralized mortgage obligations represent attractive alternatives relative to other investments due to the wide variety of maturity, repayment and interest rate options available. At March 31, 2005, collateralized mortgage obligations comprised $37.8 million of our securities portfolio. Other Securities. In addition, at March 31, 2005 we held an approximate investment of $3.5 million in Federal Home Loan Bank of New York common stock (this amount is not shown in the securities portfolio). As a member of the Federal Home Loan Bank of New York, ownership of Federal Home Loan Bank of New York common shares is required. The following table sets forth the carrying value of our securities portfolio at the dates indicated. Securities that are held-to-maturity are shown at our amortized cost, and securities that are available-for- sale are shown at the current market value.
At March 31, At September 30, ------------ ------------------------------------------- 2005 2004 2003 2002 ------- ------- -------- ------- (In thousands) Securities Held-to-Maturity: U.S. government and federal agency obligations...... $ 2,000 $ - $ - $ - Collateralized mortgage non-agency obligations...... 2,785 - - - Collateralized mortgage agency obligations.......... 90 107 193 3,076 Government National Mortgage Association............ 278 327 476 711 Federal Home Loan Mortgage Corporation.............. 445 490 657 986 Federal National Mortgage Association............... 2,928 1,870 1,513 2,197 ------- ------- -------- ------- Total securities held-to-maturity................. 8,526 2,794 2,839 6,970 ------- ------- -------- ------- Securities Available-for-Sale: U.S. government and federal agency obligation....... 11,740 13,840 13,484 - Collateralized mortgage non-agency obligations...... 599 1,234 4,962 19,177 Collateralized mortgage agency obligations.......... 34,311 42,870 61,685 57,346 Government National Mortgage Association............ 177 202 320 513 Federal Home Loan Mortgage Corporation.............. 4,854 5,219 346 885 Federal National Mortgage Association............... 14,482 16,261 16,664 2,213 Mutual fund......................................... 9,829 9,869 9,930 10,000 ------- ------- -------- ------- Total securities available-for-sale............... 75,992 89,495 107,391 90,134 ------- ------- -------- ------- Total............................................. $84,518 $92,289 $110,230 $97,104 ======= ======= ======== =======
77 The following table sets forth certain information regarding the carrying values, weighted average yields and maturities of our investment and mortgage- backed securities portfolio at March 31, 2005. This table shows contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.
At March 31, 2005 --------------------------------------------------------------------------------------------------- More than More than More than One Year Five Years Ten Years One Year or Less to Five Years to Ten Years More than Total Securities ---------------- ----------------- ----------------- ----------------- --------------------------- Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market Value Yield Value Yield Value Yield Value Yield Value Yield Value ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- (Dollars in thousands) U.S. Government and Federal Agency....................... $3,952 2.18% $ 9,788 2.50% $ - -% $ - -% $13,740 2.37% $13,701 Mortgage-backed non-agency obligations................. - - - - - - 3,384 4.02 3,384 4.02 3,318 Government National Mortgage Association................. - - 7 6.47 - - 1,733 2.87 1,740 2.88 1,742 Federal Home Loan Mortgage Association................. - - 1,477 3.26 8,297 3.15 18,533 3.46 28,307 3.32 28,308 Federal National Mortgage Association................. - - - - 13,899 3.55 13,619 3.65 27,518 3.51 27,486 ------ ------- ------- ------- ------- ------- Total...................... $3,952 2.18% $11,272 2.61% $22,196 3.40% $37,269 3.56% $74,689 3.24% $74,555 ====== ======= ======= ======= ======= =======
78 The following table sets forth certain information regarding the carrying values, weighted average yields and maturities of our investment and mortgage- backed securities portfolio at September 30, 2004. This table shows contractual maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.
At September 30, 2004 --------------------------------------------------------------------------------------------------- More than More than More than One Year Five Years Ten Years One Year or Less to Five Years to Ten Years More than Total Securities ---------------- ----------------- ----------------- ----------------- --------------------------- Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market Value Yield Value Yield Value Yield Value Yield Value Yield Value ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- (Dollars in thousands) U.S. Government and Federal Agency $ - -% $13,840 2.39% $ - -% $ - -% $13,840 2.37% $13,840 Mortgage-backed non-agency obligations.................... - - - - - - 1,234 3.42 1,234 3.42 1,234 Government National Mortgage Association.................... - - 16 6.97 - - 513 3.60 529 3.70 532 Federal Home Loan Mortgage Association.................... 1 5.30 1,706 3.27 10,101 3.13 21,969 3.41 33,777 3.32 33,781 Federal National Mortgage Association.................... - - - - 15,666 3.40 17,374 3.36 33,040 3.38 33,045 ------ ------- ------- ------- ------- ------- Total.........................$ 1 5.30% $15,562 2.50% $25,767 3.30% $41,090 3.39% $82,420 3.19% $82,432 ====== ======= ======= ======= ======= =======
79 Sources of Funds General. Deposits are our major source of funds for lending and other investment purposes. In addition, we derive funds from loan and mortgage-backed securities principal repayments, and proceeds from the maturity, call and sale of mortgage-backed securities and investment securities. Loan and securities payments are a relatively stable source of funds, while deposit inflows are significantly influenced by general interest rates and money market conditions. Borrowings (principally from the Federal Home Loan Bank) are also used to supplement the amount of funds for lending and investment. Deposits. Our current deposit products include checking, savings, money market, club accounts, certificates of deposit accounts ranging in terms from thirty days to ten years, and individual retirement accounts. Deposit account terms vary, primarily as to the required minimum balance amount, the amount of time that the funds must remain on deposit and the applicable interest rate. Deposits are obtained primarily from within New Jersey. Traditional methods of advertising are used to attract new customers and deposits, including print media, cable television, direct mail and inserts included with customer statements. We have not in the past utilized the services of deposit brokers, however, our current growth strategy includes a modest brokered CD program. Although we did offer special savings programs in connection with the opening of our Cedar Grove branch office, premiums or incentives for opening accounts are generally not offered. We periodically select particular certificate of deposit maturities for promotion. The determination of interest rates is based upon a number of factors, including: (1) our need for funds based on loan demand, current maturities of deposits and other cash flow needs; (2) a current survey of general market rates and rates of a selected group of competitors' rates for similar products; (3) our current cost of funds and yield on assets; and (4) the alternate cost of funds on a wholesale basis, in particular the cost of advances from the Federal Home Loan Bank. Interest rates are reviewed by senior management on a weekly basis. At March 31, 2005, 41.2% our deposits were in certificates of deposit. Our liquidity could be reduced if a significant amount of certificates of deposit, maturing within a short period of time, were not renewed. Historically, a significant portion of the certificates of deposit remain with us after they mature and we believe that this will continue. However, the need to retain these time deposits could result in an increase in our cost of funds. At March 31, 2005, we had approximately $18.0 million of municipal deposits at the Bank. Subsequent to March 31, 2005, a municipality with $14.5 million deposited with the Bank requested bids from other institutions for this $14.5 million of deposits. Even if our bid wins and we retain these deposits, the deposits will decrease over time because $9.3 million of that municipality's total deposits are for a school construction project for which the municipality will be withdrawing funds as construction proceeds. 80 The following table sets forth the distribution of deposits at the Bank at the dates indicated and the weighted average nominal interest rates for each period on each category of deposits presented.
At March 31, At September 30, -------------------------- ------------------------------------------------------------------------------- 2005 2004 2003 2002 -------------------------- ------------------------- --------------------------- ----------------------- Weighted Weighted Weighted Weighted Percent Average Percent Average Percent Average Percent Average of Total Nominal of Total Nominal of Total Nominal of Total Nominal Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate ------ -------- ---- ------ -------- ---- ------ -------- ---- ------ -------- ---- (Dollars in thousands) Noninterest- bearing demand deposits........... $ 24,093 7.34% -% $ 22,599 7.00% -% $ 21,676 7.40% -% $ 16,816 6.36% -% Interest- bearing demand deposits........... 34,018 10.37 1.18 38,696 11.99 1.06 21,721 7.42 0.98 27,733 10.48 1.55 Time deposits......... 135,295 41.24 2.94 143,401 44.44 1.60 127,720 43.62 1.60 118,605 44.82 3.14 Savings deposits...... 134,637 41.05 1.58 118,020 36.57 2.65 121,709 41.56 2.55 101,433 38.34 2.30 -------- ------ ---- -------- ------ ---- -------- ------ ---- -------- ------ ---- Total deposits... $328,043 100.00% 1.98% $322,716 100.00% 1.81% $292,826 100.00% 1.79% $264,587 100.00% 2.45% ======== ====== ==== ======== ====== ==== ======== ====== ==== ======== ====== ====
81 The following table sets forth the time deposits at the Bank classified by interest rate as of the dates indicated.
At March 31, At September 30, ------------------- ---------------------------------------------------------------------- 2005 2004 2003 2002 ------------------- ----------------------- -------------------- --------------------- Percent Percent Percent Percent Amount of Total Amount of Total Amount of Total Amount of Total ------ -------- ------ -------- ------ -------- ------ -------- (Dollars in thousands) Interest Rate 0.00% - 0.99%...... $ - -% $ - -% $ 240 0.20% $ - -% 1.00% - 1.99%...... 36,415 26.92 51,664 43.78 56,504 46.43 498 0.42 2.00% - 2.99%...... 32,971 24.37 20,848 17.66 18,576 15.26 66,213 55.82 3.00% - 3.99%...... 34,763 25.69 16,353 13.86 23,047 18.94 28,792 24.28 4.00% - 4.99%...... 19,369 14.32 19,198 16.27 18,414 15.13 16,557 13.96 5.00% - 5.99%...... 11,334 8.38 9,494 8.04 3,941 3.24 5,129 4.32 6.00% - 6.99%...... 443 0.33 463 0.39 987 0.81 1,383 1.17 7.00% - 7.99%...... - - - - - - 33 0.03 -------- ------ -------- ------ -------- ------ -------- ------ Total............ $135,295 100.00% $118,020 100.00% $121,709 100.00% $118,605 100.00% ======== ====== ======== ====== ======== ====== ======== ======
The following table sets forth the amount and maturities of time deposits at the Bank at March 31, 2005.
Amount Due ------------------------------------------------------------------------------- After March 31, March 31, March 31, March 31, March 31, March 31, Interest Rate 2006 2007 2008 2009 2010 2010 --------- --------- --------- --------- --------- --------- (In thousands) 0.00% - 0.99%........ $ - $ - $ - $ - $ - $ - 1.00% - 1.99%........ 28,541 6 - - - - 2.00% - 2.99%........ 13,033 4,345 84 - - - 3.00% - 3.99%........ 5,382 14,268 3,570 3,162 667 63 4.00% - 4.99%........ 93 692 6,192 3,481 1,796 1,826 5.00% - 5.99%........ 392 185 3,204 186 66 7,601 6.00% - 6.99%........ 36,410 - 50 - - - ------- ------- ------- ------ ------ ------ Total............ $83,851 $19,496 $13,100 $6,829 $2,529 $9,490 ======= ======= ======= ====== ====== ======
82 The following table shows the amount of our certificates of deposit of $100,000 or more by time remaining until maturity as of March 31, 2005. Remaining Time Until Maturity Amount ----------------------------- ------ (In thousands) Within three months....................... $8,515 Three through six months.................. 8,364 Six through twelve months................. 8,491 Over twelve months........................ 18,030 ------- Total $43,400 ======= The following table shows the amount of our certificates of deposit of $100,000 or more by time remaining until maturity as of September 30, 2004. Remaining Time Until Maturity Amount ----------------------------- ------ (In thousands) Within three months....................... $ 5,313 Three through six months.................. 3,380 Six through twelve months................. 9,864 Over twelve months........................ 16,880 ------- Total $35,437 ======= Borrowings. To supplement our deposits as a source of funds for lending or investment, we borrow funds in the form of advances from the Federal Home Loan Bank. We regularly make use of Federal Home Loan Bank advances as part of our interest rate risk management, primarily to extend the duration of funding to match the longer term fixed rate loans held in the loan portfolio as part of our growth strategy. Advances from the Federal Home Loan Bank are typically secured by the Federal Home Loan Bank stock we own and a portion of our residential mortgage loans and may be secured by other assets, mainly securities which are obligations of or guaranteed by the U.S. government. At March 31, 2005, our borrowing limit with the Federal Home Loan Bank was approximately $109.3 million. Additional information regarding our Federal Home Loan Bank advances is included under Note 8 of the Notes to the Financial Statements. The Bank will continue to evaluate the costs and benefits of incrementally restructuring its portfolio of FHLB advances. Such a restructuring transaction took place during the 2004 fiscal year when the Bank prepaid $3.0 million of fixed rate FHLB advances at a cost of 6.28%. In the current interest rate environment, such prepayments result in one time charges to earnings in the form of FHLB prepayment penalties, assuming the advances are not replaced with similar borrowings which may result in a deferral of the prepayment penalty. When replaced by lower cost funding, however, prepayments lower the interest paid on borrowings, thereby improving the Bank's net interest spread and margin and enhancing future earnings. 83 The following table sets forth certain information regarding our borrowed funds.
At or For the At or For the Year Ended September 30, Six Months Ended ------------------------ March 31, 2005 2004 2003 2002 -------------- ----------- ---------- ---------- (Dollars in thousands) Federal Home Loan Bank Advances: Average balance outstanding.................. $ 61,780 $ 60,125 $ 54,923 $ 43,859 Maximum amount outstanding at any month-end during the period......... $ 68,263 $ 65,500 $ 61,800 $ 48,500 Balance outstanding at end of period......... $ 68,263 $ 57,491 $ 55,000 $ 44,000 Weighted average interest rate during the period................................ 4.54% 4.76% 5.16% 5.16% Weighted average interest rate at end of period................................. 4.45% 4.72% 5.13% 5.59%
Subsidiary Activity In addition to American Bank of New Jersey, ASB Holding Company has one service corporation subsidiary, ASB Investment Corp., a New Jersey corporation, which was organized in June 2003 for the purpose of selling insurance and investment products, including annuities, to customers of the Bank and the general public through a third party networking arrangement. There has been very little activity at this subsidiary and sales are currently limited to the sale of fixed rate annuities. American Bank of New Jersey has one subsidiary, American Savings Investment Corp., which was formed in August 2004 under New Jersey law as an investment company subsidiary. The purpose of this subsidiary is to invest in stocks, bonds, notes and all types of equity, mortgages, debentures and other investment securities. Holding investment securities in this subsidiary reduces our New Jersey state income tax rate. Personnel As of March 31, 2005, we had 53 full-time employees and 16 part-time employees. The employees are not represented by a collective bargaining unit. We believe our relationship with our employees is satisfactory. Properties and Equipment At March 31, 2005, our net investment in property and equipment totaled $4.1 million. We use an outside service company for data processing. The following table sets forth the location of our main office, separate drive-up facility and branch office, the year opened for each and the net book value of each. Additionally, at March 31, 2005, we had security deposits totaling $408,000 in connection with de novo branch site acquisitions. 84 Year Facility Leased or Net Book Value at Office Location Opened Owned March 31, 2005 - --------------- ------ ----- -------------- (In thousands) Main Office 365 Broad Street Bloomfield, New Jersey 07003 1965 Owned $1,377 Main Office Drive Up Facility 16 Pitt Street Bloomfield, New Jersey 07003 1998 Owned $346 Full Service Branch 310 Pompton Avenue Cedar Grove, New Jersey 07009 2001 Owned $1,928 Legal Proceedings ASB Holding Company and its subsidiaries, from time to time, are a party to routine litigation, which arises in the normal course of business, such as claims to enforce liens, condemnation proceedings on properties in which American Bank of New Jersey holds security interests, claims involving the making and servicing of real property loans, and other issues incident to the business of American Bank of New Jersey. There were no lawsuits pending or known to be contemplated against us at March 31, 2005 that would have a material effect on our operations or income. REGULATION Set forth below is a brief description of certain laws that relate to the regulation of American Bank of New Jersey and American Bancorp of New Jersey, Inc. The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations. We operate in a highly regulated industry. This regulation and supervision establishes a comprehensive framework of activities in which a federal savings bank may engage and is intended primarily for the protection of the deposit insurance fund and depositors. Any change in applicable statutory and regulatory requirements, whether by the OTS, the FDIC or the United States Congress, could have a material adverse impact on the operations of American Bancorp of New Jersey, Inc. and American Bank of New Jersey. The adoption of regulations or the enactment of laws that restrict the operations of American Bank of New Jersey and/or American Bancorp of New Jersey, Inc. or impose burdensome requirements upon one or both of them could reduce their profitability and could impair the value of American Bank of New Jersey's franchise which could hurt the trading price of American Bancorp of New Jersey, Inc. common stock. Regulation of American Bank of New Jersey General. As a federally-chartered, SAIF-insured savings bank, American Bank of New Jersey is subject to extensive regulation by the OTS and the FDIC. This regulatory structure gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies regarding the classification of assets and the level of the allowance 85 for loan losses. The activities of federal savings banks are subject to extensive regulation including restrictions or requirements with respect to loans to one borrower, the percentage of non-mortgage loans or investments to total assets, capital distributions, permissible investments and lending activities, liquidity management, transactions with affiliates and community reinvestment. Federal savings banks are also subject to reserve requirements of the Federal Reserve System. A federal savings bank's relationship with its depositors and borrowers is regulated by both state and federal law, especially in such matters as the ownership of savings accounts and the form and content of the bank's mortgage documents. American Bank of New Jersey must file regular reports with the OTS and the FDIC concerning its activities and financial condition, and must obtain regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions. The OTS regularly examines American Bank of New Jersey and prepares reports to American Bank of New Jersey's Board of Directors on deficiencies, if any, found in its operations. Insurance of Deposit Accounts. The FDIC administers two separate deposit insurance funds. Generally, the Bank Insurance Fund ("BIF") insures the deposits of commercial banks and the Savings Association Insurance Fund ("SAIF") insures the deposits of savings institutions. The FDIC is authorized to increase deposit insurance premiums if it determines increases are appropriate to maintain the reserves of either the BIF or SAIF or to fund the administration of the FDIC. In addition, the FDIC is authorized to levy emergency special assessments on BIF and SAIF members. The assessment rate for most savings institutions, including American Bank of New Jersey, is currently 0%. In addition, all FDIC-insured institutions are required to pay assessments to the FDIC at an annual rate of approximately .0212% of insured deposits to fund interest payments on bonds issued by the Financing Corporation ("FICO"), an agency of the Federal government established to recapitalize the predecessor to the SAIF. These assessments will continue until the FICO bonds mature in 2017. Regulatory Capital Requirements. OTS capital regulations require savings institutions to meet three capital standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2) "Tier 1" or "core" capital equal to at least 4% (3% if the institution has received the highest possible rating on its most recent examination) of total adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted assets. For American Bank of New Jersey's compliance with these regulatory capital standards, see Historical and Pro Forma Capital Compliance at page__. In addition, the OTS may require that a savings institution that has a risk-based capital ratio of less than 8%, a ratio of Tier 1 capital to risk-weighted assets of less than 4% or a ratio of Tier 1 capital to total adjusted assets of less than 4% (3% if the institution has received the highest rating on its most recent examination) take certain action to increase its capital ratios. If the savings institution's capital is significantly below the minimum required levels of capital or if it is unsuccessful in increasing its capital ratios, the OTS may restrict its activities. For purposes of the OTS capital regulations, tangible capital is defined as core capital less all intangible assets except for certain mortgage servicing rights. Tier 1 or core capital is defined as common stockholders' equity, non-cumulative perpetual preferred stock and related surplus, minority interests in the equity accounts of consolidated subsidiaries, and certain non-withdrawable accounts and pledged deposits of mutual savings banks. American Bank of New Jersey does not have any non-withdrawable accounts or pledged deposits. Tier 1 and core capital are reduced by an institution's intangible assets, with limited exceptions for certain mortgage and non-mortgage servicing rights and purchased credit card relationships. Both core and tangible capital are further reduced by an amount equal to the savings 86 institution's debt and equity investments in "non-includable" subsidiaries engaged in activities not permissible to national banks other than subsidiaries engaged in activities undertaken as agent for customers or in mortgage banking activities and subsidiary depository institutions or their holding companies. The risk-based capital standard for savings institutions requires the maintenance of total capital of 8% of risk-weighted assets. Total capital equals the sum of core and supplementary capital. The components of supplementary capital include, among other items, cumulative perpetual preferred stock, perpetual subordinated debt, mandatory convertible subordinated debt, intermediate-term preferred stock, the portion of the allowance for loan losses not designated for specific loan losses and up to 45% of unrealized gains on equity securities. The portion of the allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is limited to 100% of core capital. For purposes of determining total capital, a savings institution's assets are reduced by the amount of capital instruments held by other depository institutions pursuant to reciprocal arrangements and by the amount of the institution's equity investments (other than those deducted from core and tangible capital) and its high loan-to-value ratio land loans and non-residential construction loans. A savings institution's risk-based capital requirement is measured against risk-weighted assets, which equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance- sheet item after being multiplied by an assigned risk weight. These risk weights range from 0% for cash to 100% for delinquent loans, property acquired through foreclosure, commercial loans, and other assets. OTS rules require a deduction from capital for savings institutions with certain levels of interest rate risk. The OTS calculates the sensitivity of an institution's net portfolio value based on data submitted by the institution in a schedule to its quarterly Thrift Financial Report and using the interest rate risk measurement model adopted by the OTS. The amount of the interest rate risk component, if any, deducted from an institution's total capital is based on the institution's Thrift Financial Report filed two quarters earlier. The OTS has indefinitely postponed implementation of the interest rate risk component, and American Bank of New Jersey has not been required to determine whether it will be required to deduct an interest rate risk component from capital. Prompt Corrective Regulatory Action. Under the OTS Prompt Corrective Action regulations, the OTS is required to take supervisory actions against undercapitalized institutions, the severity of which depends upon the institution's level of capital. Generally, a savings institution that has total risk-based capital of less than 8.0%, or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0%, is considered to be undercapitalized. A savings institution that has total risk-based capital less than 6.0%, a Tier 1 core risk-based capital ratio of less than 3.0% or a leverage ratio that is less than 3.0% is considered to be "significantly undercapitalized." A savings institution that has a tangible capital to assets ratio equal to or less than 2.0% is deemed to be "critically undercapitalized." Generally, the banking regulator is required to appoint a receiver or conservator for an institution that is "critically undercapitalized." The regulation also provides that a capital restoration plan must be filed with the OTS within forty-five days of the date an institution receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." In addition, numerous mandatory supervisory actions become immediately applicable to the institution, including, but not limited to, restrictions on growth, investment activities, capital distributions, and affiliate transactions. The OTS may also take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the issuance of a capital directive and the replacement of senior executive officers and directors. 87 Dividend and Other Capital Distribution Limitations. The OTS imposes various restrictions or requirements on the ability of savings institutions to make capital distributions, including cash dividends. A savings institution that is a subsidiary of a savings and loan holding company, such as American Bank of New Jersey, must file an application or a notice with the OTS at least thirty days before making a capital distribution. A savings institution must file an application for prior approval of a capital distribution if: (i) it is not eligible for expedited treatment under the applications processing rules of the OTS; (ii) the total amount of all capital distributions, including the proposed capital distribution, for the applicable calendar year would exceed an amount equal to the savings bank's net income for that year to date plus the institution's retained net income for the preceding two years; (iii) it would not adequately be capitalized after the capital distribution; or (iv) the distribution would violate an agreement with the OTS or applicable regulations. American Bank of New Jersey is required to file a capital distribution notice or application with the OTS before paying any dividend to American Bancorp of New Jersey, Inc. However, capital distributions by American Bancorp of New Jersey, Inc., as a savings and loan holding company, will not be subject to the OTS capital distribution rules. The OTS may disapprove a notice or deny an application for a capital distribution if: (i) the savings institution would be undercapitalized following the capital distribution; (ii) the proposed capital distribution raises safety and soundness concerns; or (iii) the capital distribution would violate a prohibition contained in any statute, regulation or agreement. In addition, a federal savings institution cannot distribute regulatory capital that is required for its liquidation account. See The Conversion - Liquidation Rights at page __. Qualified Thrift Lender Test. Federal savings institutions must meet a qualified thrift lender ("QTL") test or they become subject to the business activity restrictions and branching rules applicable to national banks. To qualify as a QTL, a savings institution must either (i) be deemed a "domestic building and loan association" under the Internal Revenue Code by maintaining at least 60% of its total assets in specified types of assets, including cash, certain government securities, loans secured by and other assets related to residential real property, educational loans and investments in premises of the institution or (ii) satisfy the statutory QTL test set forth in the Home Owners' Loan Act by maintaining at least 65% of its "portfolio assets" in certain "Qualified Thrift Investments" (defined to include residential mortgages and related equity investments, certain mortgage-related securities, small business loans, student loans and credit card loans, and 50% of certain community development loans). For purposes of the statutory QTL test, portfolio assets are defined as total assets minus intangible assets, property used by the institution in conducting its business, and liquid assets equal to 20% of total assets. A savings institution must maintain its status as a QTL on a monthly basis in at least nine out of every twelve months. American Bank of New Jersey met the QTL test as of March 31, 2005 and in each of the last twelve months and, therefore, qualifies as a QTL. Transactions with Affiliates. Generally, federal banking law requires that transactions between a savings institution or its subsidiaries and its affiliates must be on terms as favorable to the savings institution as comparable transactions with non-affiliates. In addition, certain types of these transactions are restricted to an aggregate percentage of the savings institution's capital. Collateral in specified amounts must usually be provided by affiliates in order to receive loans from the savings institution. In addition, a savings institution may not extend credit to any affiliate engaged in activities not permissible for a bank 88 holding company or acquire the securities of any affiliate that is not a subsidiary. The OTS has the discretion to treat subsidiaries of savings institutions as affiliates on a case-by-case basis. Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"), every insured depository institution, including American Bank of New Jersey, has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA requires the OTS to assess the depository institution's record of meeting the credit needs of its community and to take this record into account in its evaluation of certain applications by the institution, such as a merger or the establishment of a branch office by American Bank of New Jersey. An unsatisfactory CRA examination rating may be used as the basis for the denial of an application by the OTS. Federal Home Loan Bank System. American Bank of New Jersey is a member of the FHLB of New York, which is one of twelve regional FHLBs. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by financial institutions and proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members pursuant to policies and procedures established by the board of directors of the FHLB. As a member, American Bank of New Jersey is required to purchase and maintain stock in the FHLB of New York in an amount equal to the greater of 1% of our aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of FHLB advances. We are in compliance with this requirement. The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate related collateral to 30% of a member's capital and limiting total advances to a member. The FHLBs are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of FHLB dividends paid and could continue to do so in the future. Federal Reserve System. The Federal Reserve System requires all depository institutions to maintain non-interest-bearing reserves at specified levels against their checking accounts and non-personal certificate accounts. The balances maintained to meet the reserve requirements imposed by the Federal Reserve System may be used to satisfy the OTS liquidity requirements. Savings institutions have authority to borrow from the Federal Reserve System "discount window," but Federal Reserve System policy generally requires savings institutions to exhaust all other sources before borrowing from the Federal Reserve System. The USA Patriot Act. American Bank of New Jersey is subject to Office of Thrift Supervision regulations implementing the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA Patriot Act. The USA Patriot Act gives the federal government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act, Title III of the USA Patriot Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial 89 institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the Commodity Exchange Act. As of March 31, 2005, management of American Bank of New Jersey believes all required actions to be taken by American Bank of New Jersey under the USA Patriot Act have been completed. Among other requirements, Title III of the USA Patriot Act and the related regulations of the Office of Thrift Supervision impose the following requirements with respect to financial institutions: o Establishment of anti-money laundering programs that include, at minimum: (i) internal policies, procedures, and controls; (ii) specific designation of an anti-money laundering compliance officer; (iii) ongoing employee training programs; and (iv) an independent audit function to test the anti-money laundering program. o Establishment of a program specifying procedures for obtaining identifying information from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time. o Establishment of appropriate, specific, and, where necessary, enhanced due diligence policies, procedures, and controls designed to detect and report money laundering. o Prohibitions on establishing, maintaining, administering or managing correspondent accounts for foreign shell banks (foreign banks that do not have a physical presence in any country), and compliance with certain record keeping obligations with respect to correspondent accounts of foreign banks. Bank regulators are directed to consider effectiveness in combating money laundering when ruling on Bank Merger Act applications. Regulation of American Bancorp of New Jersey, Inc. General. Upon completion of the conversion, American Bancorp of New Jersey, Inc., the newly formed New Jersey corporation, will be a savings and loan holding company, subject to regulation and supervision by the OTS. In addition, the OTS will have enforcement authority over American Bancorp of New Jersey, Inc. and any non-savings institution subsidiaries. This permits the OTS to restrict or prohibit activities that it determines to be a serious risk to American Bank of New Jersey. This regulation is intended primarily for the protection of the depositors and not for the benefit of stockholders of American Bancorp of New Jersey, Inc. Activities Restrictions. As a savings and loan holding company formed after May 4, 1999, American Bancorp of New Jersey, Inc. will not be a grandfathered unitary savings and loan holding company under the Gramm-Leach-Bliley Act (the "GLB Act"). As a result, American Bancorp of New Jersey, Inc. and its non-savings institution subsidiaries will be subject to statutory and regulatory restrictions on their business activities. Under the Home Owners' Loan Act, as amended by the GLB Act, the non-banking activities of American Bancorp of New Jersey, Inc. will be restricted to certain activities specified by OTS regulation, which include performing services and holding properties used by a savings institution subsidiary, activities authorized for savings and loan holding companies as of March 5, 1987, and non-banking activities permissible for bank holding companies pursuant to the Bank Holding Company Act of 1956 (the "BHC Act") or authorized for financial holding companies pursuant to the GLB Act. Furthermore, no company may acquire control of American Bank of New Jersey unless the acquiring 90 company was a unitary savings and loan holding company on May 4, 1999 (or became a unitary savings and loan holding company pursuant to an application pending as of that date) or the company is only engaged in activities that are permitted for multiple savings and loan holding companies or for financial holding companies under the BHC Act as amended by the GLB Act. Mergers and Acquisitions. American Bancorp of New Jersey, Inc. must obtain approval from the OTS before acquiring more than 5% of the voting stock of another savings institution or savings and loan holding company or acquiring such a savings institution or savings and loan holding company by merger, consolidation or purchase of its assets. In evaluating an application for American Bancorp of New Jersey, Inc. to acquire control of a savings institution, the OTS would consider the financial and managerial resources and future prospects of American Bancorp of New Jersey, Inc. and the target institution, the effect of the acquisition on the risk to the insurance funds, the convenience and the needs of the community and competitive factors. Sarbanes-Oxley Act of 2002. On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002, or the Act, which implemented legislative reforms intended to address corporate and accounting fraud. In addition to the establishment of a new accounting oversight board that will enforce auditing, quality control and independence standards and will be funded by fees from all publicly traded companies, the Act places certain restrictions on the scope of services that may be provided by accounting firms to their public company audit clients. Any non-audit services being provided to a public company audit client will require preapproval by the company's audit committee. In addition, the Act makes certain changes to the requirements for partner rotation after a period of time. The Act requires chief executive officers and chief financial officers, or their equivalent, to certify to the accuracy of periodic reports filed with the Securities and Exchange Commission, subject to civil and criminal penalties if they knowingly or willingly violate this certification requirement. In addition, under the Act, counsel will be required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or its chief legal officer, and, if that officer does not appropriately respond, to report the evidence to the audit committee or other similar committee of the board of directors or the board itself. Under the Act, longer prison terms will apply to corporate executives who violate federal securities laws; the period during which certain types of suits can be brought against a company or its officers is extended; and bonuses issued to top executives prior to restatement of a company's financial statements are now subject to disgorgement if the restatement was due to corporate misconduct. Executives are also prohibited from insider trading during retirement plan "blackout" periods, and loans to company executives (other than loans by financial institutions permitted by federal rules and regulations) are restricted. In addition, a provision of the Act directs that civil penalties levied by the Securities and Exchange Commission as a result of any judicial or administrative action under the Act be deposited to a fund for the benefit of harmed investors. The Federal Accounts for Investor Restitution provision also requires the Securities and Exchange Commission to develop methods of improving collection rates. The legislation accelerates the time frame for disclosures by public companies, as they must immediately disclose any material changes in their financial condition or operations. Directors and executive officers must also provide information for most changes in ownership in a company's securities within two business days of the change. The Act also increases the oversight of, and codifies certain requirements relating to audit committees of public companies and how they interact with the company's "registered public accounting firm." Audit committee members must be independent and are absolutely barred from accepting consulting, advisory or other compensatory fees from the issuer. In addition, companies must disclose whether at least 91 one member of the committee is a "financial expert" (as this term is defined by the Securities and Exchange Commission) and if not, why not. Under the Act, a company's registered public accounting firm is prohibited from performing statutorily mandated audit services for a company if the company's chief executive officer, chief financial officer, comptroller, chief accounting officer or any person serving in equivalent positions had been employed by the accounting firm and participated in the audit of the company during the one-year period preceding the audit initiation date. The Act also prohibits any officer or director of a company or any other person acting under their direction from taking any action to fraudulently influence, coerce, manipulate or mislead any independent accountant engaged in the audit of the company's financial statements for the purpose of rendering the financial statements materially misleading. The Act also requires the Securities and Exchange Commission to prescribe rules requiring inclusion of any internal control report and assessment by management in the annual report to stockholders. The Act requires the company's registered public accounting firm that issues the audit report to attest to and report on management's assessment of the company's internal controls. We anticipate that we will incur additional expense in complying with the provisions of the Act and the resulting regulations. TAXATION Federal Taxation Savings institutions are subject to the Internal Revenue Code of 1986, as amended (the "Code"), in the same general manner as other corporations. All thrift institutions are now subject to the same provisions as banks with respect to deductions for bad debts. Thrift institutions that are treated as "small banks" (the average adjusted bases for all assets of the institution equals $500 million or less) under the Code may account for bad debts by using the experience method for determining additions to their bad debt reserve. Thrift institutions that are not treated as small banks must now use the specific charge-off method. American Bancorp of New Jersey, Inc. may exclude from its income 100% of dividends received from American Bank of New Jersey as a member of the same affiliated group of corporations. A 70% dividends received deduction generally applies with respect to dividends received from corporations that are not members of the same affiliated group. ASB Holding Company's and American Bank of New Jersey's federal income tax returns have not been audited by the IRS during the past five years. State Taxation ASB Holding Company and its subsidiaries file New Jersey income tax returns and are subject to a state income tax that is calculated based on federal taxable income, subject to certain adjustments. In July 2002, New Jersey eliminated the 3% tax rate formerly applicable to thrift institutions located in New Jersey, and these institutions are now subject to the 9% tax rate applicable to New Jersey corporations. This change was retroactive to January 1, 2002. Our state tax rate has been reduced by holding investment securities in American Savings Investment Corp., a wholly owned subsidiary of American Bank of New Jersey, formed in August 2004. 92 The state income tax returns of ASB Holding Company and its subsidiaries have not been audited during the past five years. MANAGEMENT Directors and Executive Officers of American Bancorp of New Jersey, Inc. American Bancorp of New Jersey, Inc.'s Board of Directors is composed of eight members each of whom serves for a term of four years. American Bancorp of New Jersey, Inc.'s certificate of incorporation requires that directors be divided into four classes, as nearly equal in number as possible, with approximately one-fourth of the directors elected each year. American Bancorp of New Jersey, Inc.'s executive officers are appointed annually by the Board and serve at the Board's discretion. The following table sets forth information with respect to the directors and executive officers of American Bancorp of New Jersey, Inc.
Age at Current September 30, Director Term Name 2004 Position Since(1) Expires - ---- ---- -------- -------- ------- Robert A. Gaccione 63 Director 2003 2007 Joseph Kliminski 61 Chief Executive Officer and 1986 2009 Director Fred G. Kowal 51 President, Chief Operating Officer 2005 2009 and Director H. Joseph North 72 Director 1991 2006 Stanley Obal 82 Director 1981 2008 W. George Parker 79 Chairman of the Board 1967 2006 Vincent S. Rospond 72 Director 1981 2008 James H. Ward, III 55 Vice Chairman of the Board 1991 2007 Richard M. Bzdek 51 Executive Vice President and N/A N/A Secretary Eric B. Heyer 42 Senior Vice President, Chief N/A N/A Financial Officer and Treasurer Catherine M. Bringuier 41 Senior Vice President and Chief N/A N/A Lending Officer
- ---------------------- (1) Indicates the year the individual first became a director of American Bank of New Jersey or ASB Holding Company. Each current director of ASB Holding Company is an initial director of the newly formed American Bancorp of New Jersey, Inc. The business experience of each of our directors and executive officers is set forth below. Each has held his or her present position for at least the past five years, except as otherwise indicated. Robert A. Gaccione has been a member of the Board since 2003. He has been a senior partner of the law firm of Gaccione, Pomaco & Malanga, P.C. in Belleville, New Jersey for thirty years. He is a former Federal Bureau of Investigation agent. Mr. Gaccione also serves as an Essex County Tax Board Commissioner. He served as a director of Franklin Community Bank, a commercial bank located in Nutley, New Jersey for three years. Mr. Gaccione is a member and the past president of the Belleville Rotary Club, is the president of the Clara Maass Foundation and is a member of the Belleville Foundation. Joseph Kliminski has been a member of the Board since 1986. He has been employed by the Bank since 1967 and became President and Chief Executive Officer of the Bank in 1987 and President and Chief 93 Executive Officer of ASB Holding Company upon its formation in June 2003. Mr. Fred Kowal succeeded Mr. Kliminski as President of the Bank and ASB Holding Company in 2005. Mr. Kliminski continues to serve as Chief Executive Officer of the Bank and ASB Holding Company and will also hold this position for American Bancorp of New Jersey, Inc. Mr. Kliminski is a member and past president of the Bloomfield Lions Club, is president of the Advisory Board to the Bloomfield Town Council, chairman of the Bloomfield Education Foundation, and former chairman of the Deborah Hospital Children of the World Golf Tournament. Mr. Kliminski also serves on the Executive Committee of the Bloomfield Center Alliance, and is a member and former president of the Board of Trustees of the Bloomfield Public Library. He is also a former member of the Board of Governors of the New Jersey League of Community Bankers and past president of the Essex County Savings League. Fred G. Kowal was appointed as President and Chief Operating Officer of the Bank in March 2005 and was appointed as a member of the Board of ASB Holding Company at the same time. In May 2005, he was appointed as President and Chief Operating Officer of ASB Holding Company. He will serve in these same capacities as an officer of American Bancorp of New Jersey, Inc. Mr. Kowal was previously Chairman and Chief Executive Officer of Warwick Community Bancorp, Inc. until its merger into Provident Bancorp, Inc. in October 2004. He joined Warwick Community Bancorp, Inc. in 1999 and also served as Chairman of the Board of Directors of The Warwick Savings Bank and as Chairman of the Board, President and Chief Executive Officer of The Towne Center Bank, a de novo commercial bank formed by Warwick Community Bancorp, Inc. in 1999. Prior to joining Warwick, he served as Senior Vice President of First Union National Bank, where he worked for 16 years, and as Senior Vice President of PNC Bank. H. Joseph North has been a member of the Board since 1991. Mr. North retired in 1987 as Town Administrator of Bloomfield, New Jersey after 20 years of service as the municipality's Chief Administrative Officer. Mr. North began his service to the Town of Bloomfield in 1958 as Town Clerk where his duties included that of Corporation Secretary to the Municipality and Executive Secretary to the Planning Board and Zoning Board of Adjustment. Mr. North is a past president and a lifetime member of the New Jersey Municipal Management Association and is a former member of the International City Management Association. Mr. North is also a former president of the Bloomfield Lions Club, Bloomfield Fifth Quarter Club and Bloomfield Tennis Federation and a former member of the Board of Trustees of Bloomfield College. Stanley Obal has been a member of the Board since 1981. Mr. Obal retired in 1982 and was the owner of Obal's Inn, a tavern and restaurant in Bloomfield, New Jersey. W. George Parker has been a member of the Board since 1967 and Chairman since 1990. Mr. Parker is the owner, president and chief executive officer of Adco Chemical Company, located in Newark, New Jersey. Vincent S. Rospond has been a member of the Board since 1981. He is an attorney and the majority stockholder of the law firm of Rospond, Rospond & Conte, P.A. in Bloomfield, New Jersey. Rospond, Rospond & Conte serves as general counsel to the Bank. Mr. Rospond is the president and a trustee of United Way of Bloomfield, is a member and the former legal counsel of Bloomfield Chamber of Commerce, and is a member and the treasurer of North Jersey Manufacturer's & Businessmen Association. He is also a member of the Cornell Club of New Jersey, the Essex County Bar Association, the Newark Art Museum, the Bloomfield Music Federation and the New Jersey Bar Association. 94 James H. Ward, III has been a member of the Board since 1991 and Vice Chairman since 2003. From 1998 to 2000, he was the majority stockholder and Chief Operating Officer of Rylyn Group, which operated a restaurant in Indianapolis, Indiana. Prior to that, he was the majority stockholder and Chief Operating Officer of Ward and Company, an insurance agency in Springfield, New Jersey, where he was employed from 1968 to 1998. He is now a retired investor. Richard M. Bzdek is the Bank's Executive Vice President and Secretary and became Executive Vice President and Secretary of the ASB Holding Company upon its formation in June 2003. He will serve in these same capacities as an officer of American Bancorp of New Jersey, Inc. He has been employed by the Bank since 1975. Mr. Bzdek is the former president and a current director of the Bloomfield Chamber of Commerce. He is a member of the Financial Managers Society and serves as Vice Chairman on the Operations and Technology Committee of the New Jersey League of Community Bankers. He is also the treasurer and a trustee of United Way of Bloomfield and is a director and co-founder of the Bloomfield Center Alliance. Eric B. Heyer has served as Senior Vice President, Treasurer and Chief Financial Officer for the Bank since 1997 and was appointed to these same positions for ASB Holding Company upon its formation in June 2003. He will serve in these same capacities as an officer of American Bancorp of New Jersey, Inc. Mr. Heyer has been employed by the Bank since 1993. He was previously the chief financial officer of Monarch Savings Bank in Kearny, New Jersey, where he was employed from 1986 to 1993. Mr. Heyer is a member of the Financial Managers Society. He has previously served as a trustee of Kingston United Methodist Church and currently serves as vice chairman of the stewardship and finance committee of Princeton United Methodist Church. Mr. Heyer also serves as a board member of the Mental Health Clinic of Passaic in Clifton, New Jersey. Catherine M. Bringuier has been the Bank's Senior Vice President and Chief Lending Officer since January 2003. She has also served as the CRA Officer since February 1993. Ms. Bringuier has been employed by the Bank since March 1990. She has previously held the position of compliance officer, internal loan review officer, and Vice President of Lending Officer for commercial, residential and consumer lending. Ms. Bringuier currently serves as a member of the Commercial Lending Committee, Loan Servicing Committee, and the Residential Lending & Affordable Housing Committee of the New Jersey League of Community Bankers. Ms. Bringuier was also appointed to the Mortgage Steering Committee of the New Jersey League. Ms. Bringuier is a member of the Commercial Loan Committee and the Residential Lending Committee of the Mortgage Bankers Association of New Jersey. She is a member and prior Vice President of Sunny Acres Civic & Improvement Association in Cranford, New Jersey and is an Assistant Den Leader for Cub Scout Pack 103, in Cranford, New Jersey. Meetings and Committees of the Board of Directors The Board of Directors conducts its business through meetings of the Board and through activities of its committees. During the fiscal year ended September 30, 2004, the Board of Directors met twenty-seven times, including regularly scheduled and special meetings. No director attended fewer than 75% of the total aggregate meetings of the Board of Directors plus meetings of committees on which he served during the year ended September 30, 2004. The Board maintains a Compensation Committee consisting of all directors who are independent under the rules of the Nasdaq Stock Market. This committee meets annually and as needed through the year. The responsibilities of this committee include appraisal of the performance of officers of the Bank, administration of management incentive compensation plans and review of the directors' compensation. 95 This committee reviews industry compensation surveys and reviews the recommendations of senior management on employee compensation matters. The Audit Committee consists of Directors Parker, North and Ward, each of whom is independent under the rules of the Nasdaq Stock Market. Each member of the Audit Committee is qualified under the rules of the Nasdaq Stock Market to serve as a member of the Audit Committee, however, none qualifies as an audit committee financial expert within the meaning of the regulations of the Securities and Exchange Commission. This committee meets quarterly and as needed with the internal auditor and the external auditors. This committee's main responsibilities include oversight of the internal auditor and the external auditors and monitoring of management and staff compliance with the Board's audit policies, and applicable laws and regulations. Director Compensation Board Fees. Directors are currently paid a fee of $225 per meeting attended. No fees are paid for committee meetings other than audit committee meetings, for which directors receive a fee of $225 per committee meeting. For fiscal year 2004, each director received additional annual retainers of $25,000 for serving on the Board of American Bank of New Jersey and $2,500 for serving on the Board of ASB Holding Company. Directors who also serve as employees do not receive compensation as directors. Directors Consultant and Retirement Plan. The Directors Consultant and Retirement Plan provides retirement benefits to directors on their retirement date. "Retirement date" means the date of termination of service as a director following a participant's completion of not less than twelve years of service as a director, or not less than six years of service following a change in control; provided however, the retirement date with regard to directors serving as of August 27, 1996 who have completed not less than five years of service as of August 27, 1996 shall be the date of termination of service as a director without regard to whether the twelve years of service requirement has been fulfilled. Upon death or disability, a director shall be deemed to have terminated service as of that date. If a director agrees to become a consulting director to our board upon retirement, he will receive a monthly payment for 144 months equal to 0.0833 times the average of the annual retainers paid (exclusive of payment of fees for meetings) for the highest three yearly periods during the immediately prior ten-year period. In the event of a change in control, all directors will be presumed to have reached the retirement date and each director will receive a lump sum payment equal to the present value of future benefits payable. Other Director Compensation. ASB Holding Company has adopted the 2005 Stock Option Plan and the 2005 Restricted Stock Plan, and stockholders of ASB Holding Company approved these plans at the annual meeting held in January 2005. Each non-employee director of ASB Holding Company was awarded options to purchase shares of common stock under the option plan and shares of common stock under the restricted stock plan. The number of options and the exercise price will be adjusted in accordance with the exchange ratio in connection with the conversion. The restricted stock awards will also be adjusted for the exchange ratio in connection with the conversion. See 2005 Stock Awards at page __ for details related to these stock plans. Executive Compensation Summary Compensation Table. The following table sets forth the compensation awarded to or earned by ASB Holding Company's Chief Executive Officer and certain other executive officers of ASB 96 Holding Company and Bank for the three fiscal years ended September 30, 2004. Mr. Fred Kowal's employment commenced during the fiscal year ending September 30, 2005, and thus no compensation is shown for him in the following table.
Annual Compensation ------------------- Fiscal Year Ended All Other Name and Principal Position September 30, Salary Bonus Compensation - --------------------------- ------------- ------ ----- ------------ Joseph Kliminski, Chief Executive Officer 2004 $250,000 $ 0 $188,101(1) 2003 242,255 73,228 212,140 2002 197,447 35,455 90,427 Richard M. Bzdek, Executive 2004 $164,147 $ 0 $ 44,290(2) Vice President and Secretary 2003 162,244 30,492 46,498 2002 156,047 29,698 24,525 Eric B. Heyer, Senior Vice 2004 $145,000 $ 0 $ 32,617(3) President, Treasurer and Chief 2003 139,615 50,322 31,019 Financial Officer 2002 122,308 24,283 15,724 Catherine M. Bringuier, Senior Vice 2004 $133,800 $ 25,000 $ 30,329(4) President and Chief Lending Officer 2003 123,269 45,478 20,910 2002 100,692 18,601 9,107
- -------------- (1) For 2004, consists of (i) an accrual of $162,804 under Mr. Kliminski's executive salary continuation agreement, (ii) an employer matching contribution to the 401(k) Plan for Mr. Kliminski of $6,123, (iii) an employer contribution to the Profit Sharing Plan for Mr. Kliminski of $13,943, and (iv) the award of 292 shares under the ESOP as of December 31, 2003 based on the last reported sales price of the Common Stock of $17.90 on the date of the award. (2) For 2004, consists of (i) an accrual of $21,249 under Mr. Bzdek's executive salary continuation agreement, (ii) an employer matching contribution to the 401(k) Plan for Mr. Bzdek of $4,647, (iii) an employer contribution to the Profit Sharing Plan for Mr. Bzdek of $13,943, and (iv) the award of 249 shares under the ESOP as of December 31, 2003 based on the last reported sales price of the Common Stock of $17.90 on the date of the award. (3) For 2004, consists of (i) an accrual of $10,636 under Mr. Heyer's executive salary continuation agreement, (ii) an employer matching contribution to the 401(k) Plan for Mr. Heyer of $4,120, (iii) an employer contribution to the Profit Sharing Plan for Mr. Heyer of $13,943, and (iv) the award of 219 shares under the ESOP as of December 31, 2003 based on the last reported sales price of the Common Stock of $17.90 on the date of the award. (4) For 2004, consists of (i) an accrual of $9,942 under Ms. Bringuier's executive salary continuation agreement, (ii) an employer matching contribution to the 401(k) Plan for Ms. Bringuier of $4,764, (iii) an employer contribution to the Profit Sharing Plan for Ms. Bringuier of $12,118 and (iv) the award of 195 shares under the ESOP as of December 31, 2003 based on the last reported sales price of the Common Stock of $17.90 on the date of the award. Employment Agreements. The Bank has entered into employment agreements with Mr. Kliminski, Mr. Kowal, Mr. Bzdek, Mr. Heyer and Ms. Bringuier. Mr. Kliminski's, Mr. Kowal's, Mr. Bzdek's. Mr. Heyer's and Ms. Bringuier's current base salaries are $258,750, $225,000, $169,892, $150,075, and $139,932, respectively. Mr. Kliminski's and Mr. Kowal's employment agreements have a term of three years while Mr. Bzdek's, Mr. Heyer's and Ms. Bringuier's agreements have a term of two years. Each of the agreements provides for an annual one-year extension of the term of the agreement upon determination of the Board of Directors that the executive's performance has met the requirements and standards of the Board, so that the remaining term of the agreement continues to be three years, in the case of Mr. Kliminski and Mr. Kowal, and two years, in the case of Mr. Bzdek, Mr. Heyer and Ms. Bringuier. If the Bank terminates Mr. Kliminski or Mr. Kowal without "just cause"as defined in the agreement, they will be entitled to a continuation of their salary from the date of termination through the remaining term of their agreement, but in no event for a period of less than two years. If the Bank terminates Mr. Bzdek, 97 Mr. Heyer or Ms. Bringuier without "just cause" as defined in the agreement, they will be entitled to a continuation of their salary from the date of termination through the remaining term of their agreement. Mr. Kliminski's and Mr. Kowal's employment agreements provide that if their employment is terminated without just cause within twenty-four months of a change in control, they will be paid an amount equal to 2.999 times their five-year average annual taxable cash compensation in either a lump sum or, at their option, in periodic payments over a three-year period or the remaining term of the agreement, whichever is less. Mr. Bzdek's, Mr. Heyer's and Ms. Bringuier's employment agreements provide that if their employment is terminated without just cause within twelve months of a change in control, they will be paid an amount equal to 2.0 times their five-year average annual taxable cash compensation in either a lump sum or, at their option, in periodic payments over a two-year period or the remaining term of the agreement, whichever is less. If change in control payments had been made under the agreements as of March 31,2005, the payments would have equaled approximately $792,311, $674,775, $347,630, $285,919 and $260,667 to Mr. Kliminski, Mr. Kowal, Mr. Bzdek, Mr. Heyer and Ms. Bringuier, respectively. ASB Holding Company has entered into an employment agreement with Mr. Kliminski, the terms of which are substantially the same as Mr. Kliminski's employment agreement with the Bank. The agreement with ASB Holding Company provides that if Mr. Kliminski's employment is terminated without "just cause" as defined in the agreement, he will be entitled to a continuation of his salary for three years from the date of termination. Any payments to Mr. Kliminski under the employment agreement with ASB Holding Company will be reduced to the extent that payments are made to Mr. Kliminski under his agreement with the Bank. It is anticipated that American Bancorp of New Jersey, Inc. will enter into a similar agreement with Mr. Kliminski. Executive Salary Continuation Agreements. The Bank has implemented executive salary continuation agreements for the benefit of Officers Kliminski, Bzdek, Heyer and Bringuier. The executive salary continuation agreements will provide benefits at age 65 that would be comparable to approximately 50% of Mr. Kliminski's average base salary based upon the average of the three highest out of the last five years of employment, and 30% of average salary for Officers Bzdek, Heyer and Bringuier. The benefits will be paid in equal monthly installments until the death of the participant. If a participant terminates employment prior to age 65, then the retirement benefit equals the then accrued balance of the participant's liability reserve account, and the benefit is paid in equal monthly installments until the death of the participant. Upon disability, the participant will receive the then accrued balance of the participant's liability reserve account, and the benefit is payable either in a lump sum or in 180 monthly installments. Upon a change in control of the Bank, and the participant's termination, the participant will be deemed to reach age 65 and will receive full retirement benefits. As long as the agreement remains in effect, upon the death of a participant, the participant's beneficiary will be paid a death benefit under the terms of the Endorsement Method Split Dollar Life Insurance Agreement between the participant and the Bank. For fiscal 2004, we accrued $162,804 under Mr. Kliminski's executive salary continuation agreement, $21,249 under Mr. Bzdek's executive salary continuation agreement, $10,636 under Mr. Heyer's executive salary continuation agreement and $9,942 under Ms. Bringuier's executive salary continuation agreement. These accruals reflect the scheduled accruals under the plan in order for the retirement benefit provided by the plan to be fully accrued at the expected retirement date. The accrual for Mr. Kliminski is higher than for that for the other officers due to the fewer number of months left to accrue the full retirement benefit that will be payable to Mr. Kliminski at his expected retirement date and also reflects a higher average base salary for Mr. Kliminski and a higher percentage of the base provided under the plan, 50% versus 30% for the other officers. When the plans were established for each officer, there were 78 months until the expected retirement date for Mr. Kliminski, compared to 196 months, 300 98 months and 298 months for Officers Bzdek, Heyer and Bringuier. The amounts required to accrue the present value of the retirement benefit provided for each individual are based upon assumptions for discount rate, salary projections and life expectancy. These assumptions are reviewed at least annually and provide the basis upon which monthly benefit accruals are recorded. These accruals are generally recorded in equal amounts from month to month with changes made to these amounts as required by assumption changes. 401(k) Savings and Profit Sharing Plan. American Bank of New Jersey sponsors a tax-qualified defined contribution savings plan for the benefit of its employees. Employees become eligible to participate under the 401(k) Plan on the first day of any month following the completion of twelve months of service. Under the 401(k) Plan, employees may voluntarily elect to defer between 1% and 50% of compensation, not to exceed applicable limits under the Internal Revenue Code. In calendar year 2004, an employee could defer up to the lower of $13,000 or 50% of his salary. Employees age 50 and over may make catch-up contributions ($3,000 in 2004). In addition, the 401(k) Plan provides for matching contributions up to a maximum of 3% of a person's salary for each participant under the 401(k) Plan. Employee contributions are immediately fully vested under the 401(k) Plan and matching contributions are vested at a rate of 20% per year after two years and completely vested after six years of service. Participants under the 401(k) Plan are currently able to direct 401(k) Plan assets to be invested in the stock of ASB Holding Company and will also be able direct 401(k) Plan assets to be invested in shares of American Bancorp of New Jersey, Inc. in and following the stock offering. It is intended that the 401(k) Plan will operate in compliance with the provisions of the Employee Retirement Income Security Act of 1974, as amended, and the requirements of Section 401(a) of the Internal Revenue Code. Contributions to the 401(k) Plan for employees may be reduced in the future or eliminated as a result of contributions made to the Employee Stock Ownership Plan. See Management - Potential Stock Benefit Plans - Employee Stock Ownership Plan on page __. Employee Stock Ownership Plan American Bank of New Jersey has previously established an employee stock ownership plan for the exclusive benefit of participating employees of American Bank of New Jersey. We intend to continue this plan after the conversion. Participating employees are employees who have completed one year of service and have attained the age of 21. An application for a letter of determination as to the tax-qualified status of the employee stock ownership plan has been received by the IRS. The employee stock ownership plan is funded by contributions made by American Bank of New Jersey in cash or common stock. Benefits may be paid either in shares of the common stock or in cash. In addition to the common stock previously acquired by the plan with funds borrowed by American Bank of New Jersey, with an outstanding loan balance at March 31, 2005 of $1,163,945, we intend for the plan trust to borrow additional funds with which to acquire up to 8% of the common stock to be issued in the stock offering, or 600,000 shares at the midpoint of the offering range, requiring a loan of $6.0 million. The employee stock ownership plan intends to borrow the funds for the new stock purchase and to refinance the existing plan trust debt. The combined outstanding balance of the new debt and the refinanced debt will total $7.2 million. The new loan is expected to be for a term of ten years at an annual interest rate equal to the prime rate as published in The Wall Street Journal. The loan will be secured by the shares purchased and earnings of employee stock ownership plan assets. Shares purchased with loan proceeds will be held in a suspense account for allocation among participants as the loan is repaid. It is anticipated that all contributions will be tax-deductible. This loan is expected to be fully repaid in approximately ten years. 99 Contributions to the employee stock ownership plan and shares released from the suspense account will be allocated among participants on the basis of total compensation. All participants must be employed at least 1,000 hours in a plan year, or have terminated employment following death, disability or retirement, in order to receive an allocation. Participant benefits become fully vested in plan allocations following five years of service. Employment before the adoption of the employee stock ownership plan shall be credited for the purposes of vesting. Contributions to the employee stock ownership plan by American Bank of New Jersey and its subsidiaries are discretionary and may cause a reduction in other forms of compensation, including our 401(k) Plan. As a result, benefits payable under this plan cannot be estimated. The Board of Directors appointed all non-employee directors to serve as ESOP Trustees and as members of the ESOP Plan Committee. The ESOP Plan Committee directs the vote of all unallocated shares and all shares allocated to participants for which timely voting directions are not received. 2005 Stock Awards Directors and officers have been awarded options to purchase shares of common stock under the ASB Holding Company 2005 Stock Option Plan, at an exercise price equal to the fair market value of the Common Stock on the date of grant. Each non-employee director has been awarded 15,650 options. Chief Executive Officer Kliminski was awarded 64,640 options. Officers Bzdek, Heyer and Bringuier were awarded 31,980, 29,258 and 29,258 options, respectively. These options are first exercisable at a rate of 20% one year after the date of grant and 20% annually thereafter during continued service as an employee, director or director emeritus. Upon disability, death, or a change in control, these awards become 100% exercisable. The number of options and the exercise price will be adjusted in accordance with the exchange ratio in connection with the conversion. Directors and officers have also been awarded shares of restricted stock under the American Bank of New Jersey 2005 Restricted Stock Plan. Each non-employee director has been awarded 4,899 shares of restricted stock. Chief Executive Officer Kliminski was awarded 19,596 shares of restricted stock. Officers Bzdek, Heyer and Bringuier were awarded 9,798, 8,982 and 8,982 shares of restricted stock, respectively. Restricted stock awards are earned at the rate of 20% one year after the date of grant and 20% annually thereafter during periods of service as an employee, director or director emeritus. All awards become immediately 100% vested upon death or disability or termination of service following a change in control. The restricted stock awards will be adjusted for the exchange ratio in connection with the conversion. The 2005 Restricted Stock Plan intends to continue to make stock purchases in the open market from time to time to fund this plan after the completion of the stock offering. Potential Stock Benefit Plans Stock Option Plan. We intend to adopt a new stock option plan for the benefit of directors and officers following the passage of at least one year from the completion of the conversion. We may, however, decide to adopt the stock option plan sooner than one year following the conversion, but in no event will the plan be adopted sooner than six months subsequent to the completion of the conversion. If the stock option plan is implemented within one year of the completion of the conversion, it will comply with the OTS regulations related to stock option plans, including limitations on vesting and allocation of awards. Any plan adopted within one year of the completion of the conversion will be subject to stockholder approval at a meeting of stockholders held no sooner than six months subsequent to the completion of the conversion. The stock option plan may reserve an amount of common stock equal to up to 10% of the shares sold in the stock offering for awards under the plan. No determinations have been 100 made as to the time of implementation of the stock option plan, the specific terms of the plan or any allocation of awards that may be made under the plan. The purpose of the stock option plan will be to attract and retain qualified personnel in key positions, provide officers and directors with a proprietary interest in American Bancorp of New Jersey, Inc. as an incentive to contribute to our success and reward directors and officers for outstanding performance. Although the terms of the stock option plan have not yet been determined, it is expected that the stock option plan will provide for the grant of: (1) options to purchase the common stock intended to qualify as incentive stock options under the Code (incentive stock options); and (2) options that do not so qualify (non-statutory stock options). Any stock option plan would be in effect for up to ten years from the earlier of adoption by the Board of Directors or approval by the stockholders. Options would expire no later than 10 years from the date granted and would expire earlier if the option committee so determines or in the event of termination of employment. Options would be granted based upon several factors, including length of service, job duties and responsibilities and job performance. Restricted Stock Plan. We also intend to establish a new restricted stock plan to provide our directors and officers with an additional proprietary interest in American Bancorp of New Jersey, Inc. We intend to adopt the restricted stock plan after the passage of at least one year from the completion of the conversion. We may, however, decide to adopt the restricted stock plan sooner than one year following the conversion, but in no event will the plan be adopted sooner than six months subsequent to the completion of the conversion. If the restricted stock plan is implemented within one year of the completion of the conversion, it will comply with the Office of Thrift Supervision regulations related to restricted stock plans, including limitations on vesting and allocation of awards. Any plan adopted within one year of the completion of the conversion will be subject to stockholder approval at a meeting of stockholders held no sooner than six months subsequent to the completion of the conversion. The restricted stock plan is expected to provide for the award of common stock, subject to vesting restrictions, to eligible directors and officers. We expect to contribute funds to the restricted stock plan to acquire, in the aggregate, up to 4% of the shares sold in the stock offering, provided, however, that, pursuant to the regulations of the OTS, the plan will be limited to up to 3% if the plan is established within one year of the conversion and if American Bank of New Jersey does not have in excess of 10% tangible capital following the conversion. Shares used to fund the restricted stock plan may be acquired through open market purchases or provided from authorized but unissued shares. No determinations have been made as to the specific terms of the restricted stock plan or any allocation of awards that may be made under the plan. Dilution. While our intention is to fund the existing and new stock option plans and restricted stock plans through open market purchases, stockholders will experience a reduction or dilution in ownership interest if the plans are instead funded with newly-issued shares. The issuance of authorized but unissued shares of stock to the new restricted stock plan instead of open market purchases would dilute the voting interests of existing stockholders by approximately 2.72%. If the 2005 Restricted Stock Plan is also funded with newly issued shares instead of open market purchases, the aggregate dilution from both restricted stock plans would be approximately 4.17% The issuance of authorized but unissued shares of stock to the stock option plan instead of open market purchases would dilute the voting interests of existing stockholders by approximately 6.54%. If the 2005 Stock Option Plan is also funded with newly issued shares instead of open market purchases, the aggregate dilution from both stock option plans would be approximately 11.21%. 101 As of July 31, 2005, we have no exercisable options outstanding. Options previously granted under the 2005 Stock Option Plan are first exercisable in January 2006. If any options are exercised during the first year following the completion of the stock offering, they may be funded with newly-issued shares as Office of Thrift Supervision regulations do not permit us to repurchase our shares during the first year following the completion of the stock offering except to fund the restricted stock plan or under extraordinary circumstances. Transactions with Management and Others Other than as disclosed below, no directors, officers or their immediate family members were engaged in transactions with American Bancorp of New Jersey, Inc., ASB Holding Company, American Bank of New Jersey or any subsidiary involving more than $60,000 (other than through a loan with the Bank) during either of the two years ended September 30, 2004. Director Vincent S. Rospond is the majority stockholder of the law firm of Rospond, Rospond & Conte, P.A., which serves as general counsel to American Bank of New Jersey and to which the Bank paid approximately $40,000 and $25,000 in legal fees during the years ended September 30, 2004 and 2003. In addition, the Bank engages this law firm in connection with residential loan closings, and fees paid by borrowers in loan closings handled by this law firm totaled approximately $48,000 and $86,000 during fiscal 2004 and 2003. Director Robert A. Gaccione is a senior partner of the law firm of Gaccione, Pomaco & Malanga, P.C. to which the Bank paid approximately $11,000 and $24,000 in legal fees during the years ended September 30, 2004 and 2003, respectively. In addition, the Bank engages this law firm in connection with commercial loan closings, and fees paid by borrowers in loan closings handled by this law firm totaled approximately $38,000 and $37,000 during fiscal 2004 and 2003, respectively. Management believes that the transactions described above were on terms at least as favorable to American Bank of New Jersey as the Bank would have received in transactions with an unrelated party. American Bank of New Jersey makes loans to its officers, directors and employees in the ordinary course of business. The Bank waives its application fee for mortgages to officers and employees on single-family owner-occupied homes or second homes. It also reduces its application fee for mortgages on two- to four-family owner-occupied homes by the amount of the application fee for single family home mortgages and reduces its modification fee for one-to-four family owner-occupied home mortgages or second home mortgages by the amount of the application fee for single family home mortgages. Other than these application fee waivers and reductions to officers and employees, these loans are on substantially the same terms and conditions as those of comparable transactions prevailing at the time with other persons. These loans also do not include more than the normal risk of collectibility or present other unfavorable features. Security Ownership of Certain Beneficial Owners and Management The following table sets forth, as of July 31, 2005, the ownership of American Savings, MHC, the ownership of American Bank of New Jersey's employee stock ownership plan and the ownership of our executive officers and directors, individually and as a group. Other than as set forth in the table, management knows of no person or group that owns more than 5% of the outstanding shares of common stock at July 31, 2005. Information regarding the planned purchases of common stock in the stock offering by our directors and executive officers (including in each case all "associates" of the directors and 102 executive officers) is set forth under Proposed Stock Purchases by Management at page ____. The business address of each owner shown below is 365 Broad Street, Bloomfield, New Jersey 07003.
Name and Address Percent of Shares of of Beneficial Owner Number of Shares(1)(2) Common Stock Outstanding - ------------------- ---------------------- ------------------------ American Savings, MHC 3,888,150 70.0% American Bank of New Jersey Bank Employee Stock Ownership Plan Trust (the "ESOP") 133,308(3) 2.4 Robert A. Gaccione 15,000 * Joseph Kliminski 41,531 * Fred G. Kowal - * H. Joseph North 2,000 * Stanley Obal 10,000 * W. George Parker 38,044 * Vincent S. Rospond 40,800 * James H. Ward, III 56,635 1.0 Richard M. Bzdek 35,407 * Eric B. Heyer 12,768 * Catherine M. Bringuier 6,754 * ------- --- All directors and executive officers 258,939 4.7% ======= === as a group (11 persons)
- -------------------------- * Less than 1%. (1) Includes shares of common stock held directly as well as by spouses or minor children, in trust and other indirect ownership. (2) Does not include shares underlying options and shares of restricted stock. The option shares and restricted stock do not become exercisable or vested within 60 days of July 31, 2005. See 2005 Stock Awards at page __. (3) These shares are held in a suspense account and are allocated among participants annually on the basis of compensation as the ESOP debt is repaid. As of July 31, 2005, 16,913 shares have been allocated to ESOP participants. The Board of Directors appointed all non-employee directors to serve as ESOP Trustees and as members of the ESOP Plan Committee. The ESOP Plan Committee directs the vote of all unallocated shares and shares allocated to participants for which timely voting directions are not received. Proposed Stock Purchases by Management The table below sets forth, for each of our directors and executive officers the following information: (1) the number of exchange shares to be held upon consummation of the conversion, based upon their beneficial ownership of ASB Holding Company common stock as of July 31, 2005; (2) the proposed purchases of subscription shares, assuming sufficient shares are available to satisfy their subscriptions; and (3) the total amount of our common stock to be held upon consummation of the conversion. The table below assumes that 10,714,285 shares are outstanding after the stock offering, which includes the sale of 7,500,000 shares in the stock offering (the midpoint) and the issuance of 3,214,285 103 shares in exchange for shares of ASB Holding Company. See The Stock Offering - Limitations on Common Stock Purchases at page __. The table does not take into account any stock benefit plans to be adopted following the stock offering. See Management - Potential Stock Benefit Plans at page __.
Proposed Total Common Stock Held After the Stock Offering ------------------------ Number of Proposed Number of Exchange Shares to be Number Shares to be Purchased in of % of Name Held(2) the Stock Offering(1) Shares Total ---- ------- --------------------- ------ ----- Robert A. Gaccione 28,934 12,500 41,434 * % Joseph Kliminski 80,110 40,000 120,110 1.1 Fred G. Kowal - 40,000 40,000 * H. Joseph North 3,857 1,000 4,857 * Stanley Obal 19,289 2,500 21,789 * W. George Parker 73,384 100,000 173,384 1.6 Vincent S. Rospond 78,700 40,000 118,700 1.1 James H. Ward, III 109,245 90,000 199,245 1.9 Richard M. Bzdek 68,297 10,000 78,297 * Eric B. Heyer 24,628 5,000 29,628 * Catherine M. Bringuier 13,028 10,000 23,028 * ------- ------- ------- --- Total 316,000 351,000 850,472 7.9% ======= ======= ======= ===
- ------------------- * Less than 1%. (1) Includes proposed subscriptions, if any, by associates. Does not include the subscription order by the employee stock ownership plan. Purchases by the employee stock ownership plan are expected to be 8% of the shares sold in the stock offering. (2) Does not include shares underlying options and shares of restricted stock. Option shares and restricted stock do not become exercisable or vested within 60 days of July 31, 2005. See 2005 Stock Awards at page __. THE CONVERSION The Board of Directors adopted the plan authorizing the conversion on May 17, 2005, subject to the approval of the OTS, members of American Savings, MHC, stockholders of ASB Holding Company and the satisfaction of certain other conditions. We received authorization from the OTS to conduct the conversion on ___________, 2005. OTS authorization does not constitute a recommendation or endorsement of an investment in our stock by the OTS. General On May 17, 2005, the Board of Directors adopted the plan of conversion, which was subsequently amended. In accordance with the plan, American Savings, MHC will convert from a mutual holding company to a full stock corporation. Public stockholders currently own 30% of ASB Holding Company and the remaining 70% is owned by American Savings, MHC. Upon consummation of the conversion, American Savings, MHC will cease to exist. The stock held by the public stockholders of ASB Holding Company will be converted into shares of American Bancorp of New Jersey, Inc., a newly formed New Jersey corporation. After the conversion, American Bank of New Jersey and ASB Investment Corp. will be wholly owned subsidiaries of American Bancorp of New Jersey, Inc. 104 Share Exchange Ratio OTS regulations provide that in a conversion of a mutual holding company to stock form, the minority stockholders of ASB Holding Company will be entitled to exchange their shares of common stock for common stock of the converted holding company, provided that the Bank and the mutual holding company demonstrate to the satisfaction of the OTS that the basis for the exchange is fair and reasonable. Each publicly-held share of ASB Holding Company common stock will, on the date of completion of the conversion, be automatically converted into and become the right to receive a number of exchange shares determined pursuant to the exchange ratio. The public stockholders of ASB Holding Company common stock will own the same percentage of American Bancorp of New Jersey, Inc. after the conversion as they currently hold in ASB Holding Company, subject to additional purchases, or the receipt of cash in lieu of fractional shares. Based on the independent valuation, the 70% of the outstanding shares of ASB Holding Company common stock held by American Savings, MHC as of the date of the independent valuation and the 30% public ownership interest of ASB Holding Company, the following table sets forth, at the minimum, mid- point, maximum, and adjusted maximum of the offering range: o the total number of subscription shares and exchange shares to be issued in the conversion; o the total shares of common stock outstanding after the conversion; o the exchange ratio; and o the number of shares an owner of ASB Holding Company will receive in the exchange, adjusted for the number of shares sold in the stock offering.
100 Shares of ASB Holding Company Shares of American Would be Exchanged for Bancorp of New Jersey, Total Shares the Following Number Inc. to be Exchanged of Common of Shares of Shares to be Sold for Existing Shares of Stock to be Exchange American Bancorp in the Stock Offering ASB Holding Company Outstanding Ratio of New Jersey, Inc. --------------------- ------------------- ----------- ----- ------------------- Amount Percent Amount Percent ------ ------- ------ ------- Minimum............ 6,375,000 70% 2,732,142 30% 9,107,142 1.63960% 163 Midpoint........... 7,500,000 70 3,214,285 30 10,714,285 1.92894 192 Maximum............ 8,625,000 70 3,696,428 30 12,321,428 2.21828 221 Adjusted maximum... 9,918,750 70 4,250,892 30 14,169,642 2.55102 255
Options to purchase shares of ASB Holding Company common stock will be converted into options to purchase shares of American Bancorp of New Jersey, Inc. common stock. Additionally, restricted stock awards of ASB Holding Company will also be converted into restricted shares of American Bancorp of New Jersey, Inc. common stock. At March 31, 2005 there were outstanding options to purchase 272,171 shares of ASB Holding Company common stock and there were 81,651 restricted stock awards of ASB Holding Company common stock outstanding. The number of shares of common stock to be received upon exercise of these options will be determined pursuant to the exchange ratio. The aggregate exercise price, duration, and vesting schedule of these options and restricted stock awards will not be affected. 105 Effect of the Conversion on Minority Stockholders Effect on Stockholders' Equity Per Share of the Shares Exchanged. The conversion will increase the stockholders' equity of the public stockholders of ASB Holding Company common stock. At March 31, 2005, the stockholders' equity per share of ASB Holding Company common stock was $6.99, including shares held by American Savings, MHC. As set forth under the pro forma information set forth for March 31, 2005, under Pro Forma Data at page __, pro forma stockholders' equity per share is $10.28, $9.65, $9.19, and $8.79, respectively, at the minimum, midpoint, maximum and adjusted maximum, respectively, of the offering range. Effect on Earnings per Share of the Shares Exchanged. The conversion will also affect the public stockholders of ASB Holding Company common stock pro forma earnings per share. For the six months ended March 31, 2005, basic and diluted earnings per share of ASB Holding Company common stock was $0.22, including shares held by American Savings, MHC. As set forth under the pro forma information set forth for the six months ended March 31, 2005 under Pro Forma Data at page __, pro forma earnings per share range from $0.13 to $0.08 for the minimum to the adjusted maximum of the offering range. Dissenters' and Appraisal Rights. Under OTS regulations, dissenters' rights of appraisal are available to holders of common stock in connection with the conversion. Effects of the Conversion on Depositors, Borrowers and Members Continuity. The stock offering will not have any effect on American Bank of New Jersey's present business of accepting deposits and investing its funds in loans and other investments permitted by law. The stock offering will not result in any change in the existing services provided to depositors and borrowers, or in existing offices, management, and staff. After the stock offering, American Bank of New Jersey will continue to be subject to regulation, supervision, and examination by the OTS and the FDIC. Deposits and Loans. Each holder of a deposit account in American Bank of New Jersey at the time of the stock offering will continue as an account holder in American Bank of New Jersey after the stock offering, and the stock offering will not affect the deposit balance, interest rate, or other terms. Each deposit account will be insured by the FDIC to the same extent as before the stock offering. Depositors will continue to hold their existing certificates, savings records, checkbooks, and other evidence of their accounts. The stock offering will not affect the loans of any borrower from American Bank of New Jersey. The amount, interest rate, maturity, security for, and obligations under each loan will remain contractually fixed as they existed prior to the stock offering. Voting Rights of Members. At present, all depositors of American Bank of New Jersey are members of, and have voting rights in, American Savings, MHC as to all matters requiring membership action. Upon completion of the conversion, depositors and borrowers will cease to be members of American Savings, MHC and will no longer be entitled to vote at meetings of American Savings, MHC. Upon completion of the conversion, American Bancorp of New Jersey, Inc. will be the sole stockholder of American Bank of New Jersey and have all voting rights in American Bank of New Jersey. Stockholders of American Bancorp of New Jersey, Inc. will have exclusive voting rights in the corporation. Depositors of American Bank of New Jersey will not have voting rights after the conversion except to the extent that they become our stockholders through the purchase of common stock. 106 Tax Effects. We have received an opinion from Malizia Spidi & Fisch, PC and an opinion from Crowe Chizek and Company LLC with regard to federal and state income taxation, respectively, to the effect that the adoption and implementation of the plan of conversion will not be taxable for federal or state income tax purposes to American Bancorp of New Jersey, Inc., ASB Holding Company, American Savings, MHC, the minority stockholders, members of American Savings, MHC, eligible account holders, supplemental eligible account holders or American Bank of New Jersey. See Federal and State Tax Consequences of the Conversion at page __. Effect on Liquidation Rights. Each depositor in American Bank of New Jersey has both a deposit account in American Bank of New Jersey and a pro rata ownership interest in the net worth of American Savings, MHC based upon the balance in his or her account. This interest may only be realized in the event of a complete liquidation of American Savings, MHC and American Bank of New Jersey. However, this ownership interest is tied to the depositor's account and has no tangible market value separate from the deposit account. Any depositor who opens a deposit account obtains a pro rata ownership interest in American Savings, MHC without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all of the balance in the deposit account but nothing for his or her ownership interest in the net worth of American Savings, MHC, which is lost to the extent that the balance in the account is reduced or closed. Consequently, depositors in a stock subsidiary of a mutual holding company normally have no way of realizing the value of their ownership interest, which has realizable value only in the unlikely event that American Savings, MHC and American Bank of New Jersey are liquidated. If this occurs, the depositors of record at that time, as owners, would share pro rata in any residual surplus and reserves of American Savings, MHC after other claims, including claims of depositors to the amounts of their deposits, are paid. In the unlikely event that American Bank of New Jersey were to liquidate after the conversion, all claims of creditors, including those of depositors, also would be paid first, followed by distribution of the "liquidation account" to depositors as of March 31, 2004 and June 30, 2005 who continue to maintain their deposit accounts as of the date of liquidation, with any assets remaining thereafter distributed to American Bancorp of New Jersey, Inc. as the holder of American Bank of New Jersey's capital stock. Pursuant to the rules and regulations of the Office of Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets or similar combination or transaction with another insured savings institution would not be considered a liquidation, and the liquidation account would be assumed by the surviving institution. See Liquidation Rights at page __. Federal and State Tax Consequences of the Conversion We have received opinions from Malizia Spidi & Fisch, PC, and from Crowe Chizek and Company LLC federal and New Jersey tax consequences, respectively, of the stock offering. The opinions have been filed as exhibits to the registration statement of which this prospectus is a part and cover those federal tax matters that are material to the transaction. The opinions are made in reliance upon various statements, representations and declarations as to matters of fact made by us, as detailed in the opinions. The opinions provide that: The transactions qualify as statutory mergers and each merger required by the Plan qualifies as a reorganization within the meaning of Code Section 368(a)(1)(A). American Savings, MHC, American Bancorp of New Jersey, Inc., ASB Holding Company, and American Bank of New Jersey will be a party to a "reorganization" as defined in Code Section 368(b). 107 o American Savings, MHC will not recognize any gain or loss on the transfer of its assets to American Bank of New Jersey in exchange for American Bank of New Jersey liquidation interests for the benefit of American Savings, MHC members who remain depositors of American Bank of New Jersey. o No gain or loss will be recognized by American Bank of New Jersey upon the receipt of the assets of American Savings, MHC in exchange for the transfer to the members of American Bank of New Jersey liquidation interests. o No gain or loss will be recognized by American Bank of New Jersey upon the receipt of the assets of Interim Bank #2 (ASB Holding Company) and Interim Bank #3 pursuant to the conversion. o No gain or loss will be recognized by Interim Bank #2 (ASB Holding Company following its conversion to a federal stock savings bank) pursuant to the conversion. o The reorganization of American Bancorp of New Jersey, Inc. as the holding company of American Bank of New Jersey qualifies as a reorganization within the meaning of Code Section 368(a)(1)(A) by virtue of Code Section 368(a)(2)(E). Therefore, American Bank of New Jersey, American Bancorp of New Jersey, Inc., and Interim Bank #3 will each be a party to a reorganization, as defined in Code Section 368(b). o No gain or loss will be recognized by Interim Bank #3 upon the transfer of its assets to American Bank of New Jersey pursuant to the conversion. o Members will recognize no gain or loss upon the receipt of American Bank of New Jersey liquidation interests. o No gain or loss will be recognized by American Bancorp of New Jersey, Inc. upon the receipt of Bank Stock solely in exchange for stock of American Bancorp of New Jersey, Inc. o Current stockholders of ASB Holding Company will not recognize any gain or loss upon their exchange of common stock solely for shares of stock of American Bancorp of New Jersey, Inc. o Each stockholder's aggregate basis in shares of stock of American Bancorp of New Jersey, Inc. received in the exchange will be the same as the aggregate basis of common stock surrendered in the exchange before giving effect to any payment of cash in lieu of fractional shares. o No gain or loss will be recognized by American Bancorp of New Jersey, Inc. on the receipt of money in exchange for stock of American Bancorp of New Jersey, Inc. sold in the stock offering. o No gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members upon the distribution to them of the non-transferable subscription rights to purchase shares of stock of American Bancorp of New Jersey, Inc. 108 The opinion in the last bullet above is predicated on representations from American Bank of New Jersey, American Bancorp of New Jersey, Inc., ASB Holding Company and American Savings, MHC that no person shall receive any payment, whether in money or property, in lieu of the issuance of subscription rights. The opinion in the last bullet above is based on the position that the subscription rights to purchase shares of common stock received by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members have a fair market value of zero. In reaching their opinion stated in the second bullet above, Malizia Spidi & Fisch, PC has noted that the subscription rights will be granted at no cost to the recipients, will be legally non-transferable and of short duration, and will provide the recipients with the right only to purchase shares of common stock at the same price to be paid by members of the general public in any community offering. Malizia Spidi & Fisch, PC believes that it is more likely than not that the fair market value of the subscription rights to purchase common stock is zero. If the non-transferable subscription rights to purchase common stock are subsequently found to have a fair market value, income may be recognized by various recipients of the subscription rights (in certain cases, whether or not the rights are exercised), and we may be taxed on the distribution of the subscription rights. We are also subject to New Jersey income taxes and have received an opinion from Crowe Chizek and Company LLC that the stock offering will be treated for New Jersey state tax purposes similarly to the treatment of the stock offering for federal tax purposes. Unlike a private letter ruling from the IRS, the federal and state tax opinions have no binding effect or official status, and no assurance can be given that the conclusions reached in any of those opinions would be sustained by a court if contested by the IRS or the New Jersey tax authorities. Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are encouraged to consult with their own tax advisers as to the tax consequences in the event the subscription rights are determined to have any market value. Liquidation Rights In the unlikely event of a complete liquidation of ASB Holding Company prior to the conversion, all claims of creditors of ASB Holding Company, including those of depositors to the extent of their deposit balances, would be paid first. Thereafter, if there were any assets of ASB Holding Company remaining, these assets would be distributed to stockholders, including American Savings, MHC. In the unlikely event that American Savings, MHC and ASB Holding Company are liquidated prior to the conversion, all claims of creditors would be paid first. Then, if there were any assets of American Savings, MHC remaining, members of American Savings, MHC would receive those remaining assets, pro rata, based upon the deposit balances in their deposit account in American Bank of New Jersey immediately prior to liquidation. In the unlikely event that American Bank of New Jersey were to liquidate after the conversion, all claims of creditors, including those of depositors, would be paid first, followed by distribution of the "liquidation account" to certain depositors, with any assets remaining thereafter distributed to American Bancorp of New Jersey, Inc. as the holder of American Bank of New Jersey capital stock. Pursuant to the rules and regulations of the Office of Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets or similar combination or transaction with another insured savings institution would not be considered a liquidation and, in these types of transactions, the liquidation account would be assumed by the surviving institution. The plan of conversion provides for the establishment, upon the completion of the conversion, of a special "liquidation account" for the benefit of Eligible Account Holders and Supplemental Eligible 109 Account Holders (as those terms are defined in the plan of conversion) in an amount equal to the greater of: (1) American Savings, MHC's ownership interest in the retained earnings of ASB Holding Company as of the date of its latest balance sheet contained in this prospectus; or (2) the retained earnings of American Bank of New Jersey at the time that American Bank of New Jersey reorganized into the mutual holding company form of organization in 1999. The purpose of the liquidation account is to provide Eligible Account Holders and Supplemental Eligible Account Holders who maintain their deposit accounts with American Bank of New Jersey after the conversion with an interest in the unlikely event of the complete liquidation of American Bank of New Jersey after the conversion. Each Eligible Account Holder and Supplemental Eligible Account Holder that continues to maintain his or her deposit account at American Bank of New Jersey, would be entitled, on a complete liquidation of American Bank of New Jersey after the conversion, to an interest in the liquidation account prior to any payment to the stockholders of American Bancorp of New Jersey, Inc. Each Eligible Account Holder and Supplemental Eligible Account Holder would have an initial interest in the liquidation account for each deposit account, including savings accounts, checking accounts, money market deposit accounts, and certificates of deposit, with a balance of $50 or more held in American Bank of New Jersey as of the close of business on March 31, 2004, or June 30, 2005. Each Eligible Account Holder and Supplemental Eligible Account Holder would have a pro rata interest in the total liquidation account for each such deposit account, based on the proportion that the balance of each such deposit account on March 31, 2004 or June 30, 2005 bears to the balance of all deposit accounts in American Bank of New Jersey on these dates. If, however, on any September 30 annual closing date commencing after the completion of the conversion, the amount in any deposit account is less than the amount in that deposit account on March 31, 2004 or June 30, 2005 or any other annual closing date, then the interest in the liquidation account relating to that deposit account would be reduced from time to time by the proportion of the reduction, and the interest will cease to exist if the deposit account is closed. In addition, no interest in the liquidation account would ever be increased despite any subsequent increase in the related deposit account. Payment pursuant to liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders would be separate and apart from the payment of any insured deposit accounts to a depositor. Any assets remaining after the above liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders are satisfied would be distributed to American Bancorp of New Jersey, Inc. as the sole stockholder of American Bank of New Jersey. Amendment or Termination of the Plan of Conversion If deemed necessary or desirable by the Board of Directors, the plan may be substantively amended, as a result of comments from regulatory authorities or otherwise, at any time prior to the solicitation of proxies from members and stockholders to vote on the plan and at any time thereafter with the concurrence of the OTS. Any amendment to the plan made after approval by the members and stockholders with the concurrence of the OTS shall not necessitate further approval by the members or stockholders unless otherwise required by the OTS. The plan shall terminate if the sale of all shares of stock is not completed within 24 months from the date of the special meeting of members. Prior to the earlier of the special meeting of members and the stockholders' meeting, the plan may be terminated by the Board of Directors without approval of the OTS; after the special meeting or the stockholders' meeting, the Board of Directors may terminate the plan only with the approval of the OTS. 110 Conditions to the Conversion We cannot complete our conversion and our stock offering unless: (1) We sell a minimum of 6,375,000 shares of common stock; (2) The plan of conversion is approved by a majority of the votes eligible to be cast by members of American Savings, MHC; (3) The plan of conversion is approved by at least two-thirds of the votes eligible to be cast by stockholders of ASB Holding Company, including those shares held by American Savings, MHC; and (4) The plan of conversion is approved by a majority of the votes eligible to be cast by stockholders of ASB Holding Company, excluding those shares held by American Savings, MHC. The plan of conversion must also be approved by the OTS, which has given its conditional approval. If these conditions are not met before we complete the stock offering, all funds received will be promptly returned with interest at American Bank of New Jersey's passbook savings account rate and all withdrawal authorizations will be canceled. The stock purchases of our officers and directors will be counted for purposes of meeting the minimum number of shares. American Savings, MHC intends to vote its 70% ownership interest in favor of the conversion. In addition, as of July 31, 2005, directors and executive officers of ASB Holding Company and their associates beneficially own _______ shares of ASB Holding Company, or ___% of the total outstanding shares. They intend to vote those shares in favor of the conversion. Non-employee directors serve as the trustee committee for American Bank of New Jersey 2005 Restricted Stock Plan and will direct the voting of 81,651 shares held in the plan trust. Additionally, all non-employee directors of ASB Holding Company serve as employee stock ownership plan trustees and in their fiduciary capacity as trustees will vote the 116,395 unallocated shares held by the American Bank of New Jersey employee stock ownership plan. The trustees will also vote the 16,913 allocated shares of the employee stock ownership plan for which no timely voting directions have been received from plan participants. THE STOCK OFFERING The Board of Directors adopted the plan authorizing the conversion on May 17, 2005, subject to the approval of the OTS. We received authorization from the OTS to conduct the stock offering on ___________, 2005. OTS authorization does not constitute a recommendation or endorsement of an investment in our stock by the OTS. General On May 17, 2005, the Board of Directors adopted the plan of conversion, which was subsequently amended, pursuant to which American Bancorp of New Jersey, Inc. will sell shares of common stock to eligible depositors of American Bank of New Jersey in a subscription offering and, if necessary, to the general public if a community and/or a syndicated community offering is held. The Board of Directors unanimously adopted the plan after consideration of the advantages and the disadvantages of the stock offering. After we receive the required authorization from the OTS, the stock will be issued. The stock 111 offering will be accomplished in accordance with the procedures set forth in the plan, the requirements of applicable laws and regulations, and the policies of the OTS. We are offering between a minimum of 6,375,000 shares and a maximum of 8,625,000 shares of common stock in the offering (subject to adjustment to up to 9,918,750 shares if our estimated pro forma market value has increased at the conclusion of the stock offering), which will expire at 12:00 noon, eastern time, on ___________, 2005, unless extended. See Deadlines for Purchasing Stock at page __. The minimum purchase is 25 shares of common stock (minimum investment of $250). Our common stock is being offered at a fixed price of $10.00 per share in the stock offering. In accordance with Rule 15c2-4 of the Securities Exchange Act of 1934, pending completion or termination of the stock offering, subscription funds received by us will be invested only in investments permissible under Rule 15c2-4. Conduct of the Stock Offering Subject to the limitations of the plan of stock issuance adopted by our Board of Directors, shares of common stock are being offered in descending order of priority in the subscription offering to: o Eligible Account Holders (depositors at the close of business on March 31, 2004 with deposits of at least $50.00); o the employee stock ownership plan; o Supplemental Eligible Account Holders (depositors at the close of business on June 30, 2005 with deposits of at least $50.00); and o Other Members (depositors at the close of business on July 31, 2005 and borrowers as of December 27, 1995, who continue as borrowers as of the close of business on July 31, 2005). To the extent that shares remain available and depending on market conditions at or near the completion of the subscription offering, we may conduct a community offering and possibly a syndicated community offering. The community offering, if any, may commence simultaneously with, during or subsequent to the completion of the subscription offering. A syndicated community offering, if we conduct one, would commence just prior to, or as soon as practicable after, the termination of the subscription offering. In any community offering or syndicated community offering, we will first fill orders for our common stock in an equitable manner as determined by the Board of Directors in order to achieve a wide distribution of the stock. If an oversubscription occurs in the stock offering by Eligible Account Holders, the employee stock ownership plan may, in whole or in part, fill its order through open market purchases subsequent to the closing of the stock offering, subject to any required regulatory approval. Shares sold above the maximum of the offering range may be sold to the employee stock ownership plan before satisfying remaining unfilled orders of Eligible Account Holders to fill the plan's subscription, or the plan may purchase some or all of the shares covered by its subscription after the stock offering in the open market, subject to any required regulatory approval. 112 Subscription Offering Subscription Rights. Non-transferable subscription rights to subscribe for the purchase of common stock have been granted under the plan of stock issuance to the following persons: Priority 1: Eligible Account Holders. Each Eligible Account Holder shall be given the opportunity to purchase, combined with shares received by existing stockholders pursuant to the exchange ratio in the conversion, and subject to the overall limitations described under The Stock Offering - Limitations on Purchases of Stock, up to the greater of (i) the maximum purchase limitation in the community offering (i.e., 150,000 shares or $1,500,000), (ii) one-tenth of 1% of the total offering of shares of common stock offered in the subscription offering, and (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock offered in the subscription offering by a fraction, of which the numerator is the amount of the qualifying deposits of the Eligible Account Holder and the denominator is the total amount of all qualifying deposits of all Eligible Account Holders. If there are insufficient shares available to satisfy all subscriptions of Eligible Account Holders, shares will be allocated to Eligible Account Holders so as to permit each subscribing Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares ordered. Thereafter, unallocated shares will be allocated to remaining subscribing Eligible Account Holders whose subscriptions remain unfilled in the same proportion that each subscriber's qualifying deposit bears to the total amount of qualifying deposits of all subscribing Eligible Account Holders, in each case on March 31, 2004, whose subscriptions remain unfilled. Subscription rights received by officers and directors, based on their increased deposits in American Bank of New Jersey in the one year preceding the eligibility record date will be subordinated to the subscription rights of other eligible account holders. To ensure proper allocation of stock, each Eligible Account Holder must list on his or her order form all accounts in which he or she had an ownership interest as of the Eligibility Record Date. Priority 2: The Employee Plans. The tax qualified employee plans may be given the opportunity to purchase in the aggregate up to 10% of the common stock issued in the subscription offering. It is expected that the employee stock ownership plan will purchase up to 8% of the common stock issued in the stock offering. If an oversubscription occurs in the stock offering by Eligible Account Holders, the employee stock ownership plan may, in whole or in part, fill its order through open market purchases subsequent to the closing of the stock offering, subject to any required regulatory approval. Priority 3: Supplemental Eligible Account Holders. If there are sufficient shares remaining after satisfaction of subscriptions by Eligible Account Holders and the employee stock ownership plan and other tax-qualified employee stock benefit plans, each Supplemental Eligible Account Holder shall have the opportunity to purchase, combined with shares received by existing stockholders pursuant to the exchange ratio in the conversion, and subject to the overall limitations described under The Stock Offering - Limitations on Purchases of Common Stock, up to the greater of (i) the maximum purchase limitation in the community offering (i.e., 150,000 shares or $1,500,000), (ii) one-tenth of 1% of the total offering of shares of common stock offered in the subscription offering, and (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of common stock offered in the subscription offering by a fraction, of which the numerator is the amount of the qualifying deposits of the Eligible Account Holder and the denominator is the total amount of all qualifying deposits of all Eligible Account Holders. If Supplemental Eligible Account Holders subscribe for a number of shares which, when added to the shares subscribed for by Eligible Account Holders and the employee stock ownership plan and other tax-qualified employee stock benefit plans, if any, is in excess of the total number of shares offered in the stock offering, the shares of common stock will be allocated among 113 subscribing Supplemental Eligible Account Holders first so as to permit each subscribing Supplemental Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares ordered. Thereafter, unallocated shares will be allocated to each subscribing Supplemental Eligible Account Holder whose subscription remains unfilled in the same proportion that each subscriber's qualifying deposits bear to the total amount of qualifying deposits of all subscribing Supplemental Eligible Account Holders, in each case on June 30, 2005, whose subscriptions remain unfilled. To ensure proper allocation of stock, each Supplemental Eligible Account Holder must list on his or her order form all accounts in which he or she had an ownership interest as of the Supplemental Eligibility Record Date. Priority 4: Other Members. To the extent that there are shares remaining after satisfaction of subscriptions by Eligible Account Holders, our tax-qualified employee stock benefit plans, and Supplemental Eligible Account Holders, each member of American Savings, MHC (depositors and certain borrowers of American Bank of New Jersey) on the voting record date of July 31, 2005 who is not an Eligible Account Holder or Supplemental Eligible Account Holder ("Other Members") will receive, without payment therefor, nontransferable subscription rights to purchase up to the greater of 150,000 shares of common stock or one-tenth of 1% of the total offering of shares of common stock offered in the subscription offering, subject to the overall purchase limitations. See Limitations on Purchases of Common Stock at page __. If there are not sufficient shares available to satisfy all subscriptions, available shares will be allocated on a pro rata basis based on the size of the order of each Other Member. Restrictions on Transfer of Subscription Rights and Shares. The plan of stock issuance prohibits any person with subscription rights, including Eligible Account Holders and Supplemental Eligible Account Holders, from transferring or entering into any agreement or understanding to transfer the legal or beneficial ownership of the subscription rights or the shares of common stock to be issued when subscription rights are exercised. Subscription rights may be exercised only by the person to whom they are granted and only for his or her account. Each person subscribing for shares will be required to certify that he or she is purchasing shares solely for his or her own account and that he or she has no agreement or understanding regarding the sale or transfer of the shares. The regulations also prohibit any person from offering or making an announcement of an offer or intent to make an offer to purchase subscription rights or shares of common stock before the completion of the stock offering. We will pursue any and all legal and equitable remedies in the event we become aware of the transfer of subscription rights and will not honor orders that we determine involve the transfer of subscription rights. Deadlines for Purchasing Stock The subscription offering will terminate at 12:00 noon, eastern time, on ___________, 2005. We may extend this expiration date without notice to you for up to 45 days, until ___________, 2005. Once submitted, your order is irrevocable unless the stock offering is extended beyond ___________, 2005. We may request permission from the Office of Thrift Supervision to extend the stock offering beyond ___________, 2005, and the Office of Thrift Supervision may grant one or more extensions of the stock offering of up to 90 days per extension, but in no event may the stock offering be extended beyond ___________, 2007. If the stock offering is extended beyond ___________, 2005, we will be required to notify each subscriber and resolicit subscriptions. During any extension period, subscribers will have the right to modify or rescind their subscriptions, and, unless an affirmative response is received, a subscriber's funds will be returned with interest at American Bank of New Jersey's passbook savings 114 account rate. A community offering and a syndicated community offering, if these offerings are conducted, may terminate at any time without notice but no later than ___________, 2005. We may cancel the conversion and stock offering at any time prior to the special meeting of members of American Savings, MHC to vote on the plan of conversion and the special meeting of stockholders of ASB Holding Company to vote on the plan of conversion. We may also cancel the conversion and stock offering after the special meetings of members and stockholders if the OTS concurs in our decision to do so. If we cancel the conversion and stock offering, orders for common stock already submitted will be canceled and subscribers' funds will be returned with interest at American Bank of New Jersey's passbook savings account rate. Community Offering and Syndicated Community Offering Community Offering. If less than the total number of shares of common stock to be subscribed for in the stock offering are sold in the subscription offering and depending on market conditions at or near the completion of the subscription offering, shares remaining unsubscribed may be made available for purchase in the community offering to certain members of the general public. The maximum amount of common stock that any person may purchase in the community offering, subject to the overall purchase limitations described under The Stock Offering - Limitations on Purchases of Common Stock at page __, is 150,000 shares, or $1,500,000. In the community offering, if any, shares will be available for purchase by the general public, and preference may be given first to existing stockholders and second to natural persons and trusts of natural persons residing in counties in which American Bank of New Jersey has branch offices. We will attempt to issue the shares in a manner that would promote a wide distribution of common stock. If purchasers in the community offering, whose orders would otherwise be accepted, subscribe for more shares than are available for purchase, the shares available to them will be allocated among persons submitting orders in the community offering in an equitable manner we determine. The community offering, if any, may commence simultaneously with, during or subsequent to the completion of the subscription offering. The community offering, if any, must be completed within 45 days after the completion of the subscription offering unless otherwise extended by the OTS. We, in our absolute discretion, reserve the right to reject any or all orders in whole or in part which are received in the community offering, at the time of receipt or as soon as practicable following the completion of the community offering. Syndicated Community Offering. If shares remain available after the subscription offering, and depending on market conditions at or near the completion of the subscription offering, we may offer shares to selected persons through a syndicated community offering on a best-efforts basis conducted through Keefe, Bruyette & Woods, Inc. in accordance with such terms, conditions and procedures as may be determined by our Board of Directors. A syndicate of broker-dealers (selected dealers) may be formed to assist in the syndicated community offering. A syndicated community offering, if we conduct one, would commence just prior to, or as soon as practicable after, the termination of the subscription offering. Orders received in connection with the syndicated community offering, if any, will receive a lower priority than orders received in the subscription offering and community offering. Common stock sold in the syndicated community offering will be sold at the same price as all other shares in the subscription offering. A syndicated community offering would be open to the general public beyond the local 115 community, however, we have the right to reject orders, in whole or in part, in our sole discretion in the syndicated community offering. No person will be permitted, subject to the overall purchase limitations described under The Stock Offering - Limitations on Purchases of Common Stock on page __, to purchase more than 150,000 shares, or $1,500,000, of common stock in the syndicated community offering. The date by which orders must be received in the syndicated community offering will be set by us at the time the syndicated community offering commences; but if the syndicated community offering is extended beyond ___________, 2005, each purchaser will have the opportunity to maintain, modify, or rescind his or her order. In that event, all funds received in the syndicated community offering will be promptly returned with interest at American Bank of New Jersey's passbook savings account rate to each purchaser unless he or she requests otherwise. Limitations on Purchases of Common Stock The following additional limitations have been imposed on purchases of shares of common stock: 1. The maximum number of shares which may be purchased in the stock offering by any individual (or individuals through a single account) shall not exceed 150,000 shares, or $1,500,000, including shares received by existing stockholders pursuant to the exchange ratio in the conversion. This limit applies to stock purchases in total in the subscription, community and syndicated community offerings. 2. The maximum number of shares that may be purchased by any individual together with any associate or group of persons acting in concert is 200,000 shares, or $2,000,000, including shares received by existing stockholders pursuant to the exchange ratio in the conversion. This limit applies to stock purchases in total in the subscription, community and syndicated community offerings. This limit does not apply to our employee stock benefit plans, which in the aggregate may subscribe for up to 10% of the common stock issued in the stock offering. 3. The maximum number of shares which may be purchased in all categories in the stock offering by our officers and directors and their associates in the aggregate shall not exceed 26% of the total number of shares issued in the stock offering. 4. The minimum order is 25 shares, or $250. 5. If the number of shares otherwise allocable to any person or that person's associates would be in excess of the maximum number of shares permitted as set forth above, the number of shares allocated to that person shall be reduced to the lowest limitation applicable to that person, and then the number of shares allocated to each group consisting of a person and that person's associates shall be reduced so that the aggregate allocation to that person and his or her associates complies with the above maximums, and the maximum number of shares shall be reallocated among that person and his or her associates in proportion to the shares subscribed by each (after first applying the maximums applicable to each person separately). 6. Depending on market or financial conditions, we may decrease or increase the purchase limitations, provided that the maximum purchase limitations may not be increased to a 116 percentage in excess of 5% of the stock offering. If we increase the maximum purchase limitations, we are only required to resolicit persons who subscribed for the maximum purchase amount and may, in our sole discretion, resolicit certain other large subscribers. 7. If the total number of shares offered increases in the stock offering due to an increase in the maximum of the estimated valuation range of up to 15% (the adjusted maximum) the additional shares will be used in the following order of priority: (a) to fill the employee stock ownership plan's subscription up to 8% of the adjusted maximum (unless the employee stock ownership plan elects to purchase stock subsequent to the stock offering in the open market); (b) if there is an oversubscription at the Eligible Account Holder level, to fill unfilled subscriptions of Eligible Account Holders exclusive of the adjusted maximum unless the employee stock ownership plan elects to purchase stock subsequent to the stock offering in the open market); (c) if there is an oversubscription at the Supplemental Eligible Account Holder level, to fill unfilled subscriptions of Supplemental Eligible Account Holders exclusive of the adjusted maximum; (d) if there is an oversubscription at the Other Members level, to fill unfilled subscriptions of Other Members exclusive of the adjusted maximum; (e) to fill orders received in a community offering exclusive of the adjusted maximum, with preference given to persons who live in the local community; and (f) to fill orders received in the syndicated community offering exclusive of the adjusted maximum. 8. No person will be allowed to purchase any stock if that purchase would be illegal under any federal law or state law or regulation or would violate regulations or policies of the National Association of Securities Dealers, Inc., particularly those regarding free riding and withholding. We and/or our representatives may ask for an acceptable legal opinion from any purchaser regarding the legality of the purchase and may refuse to honor any purchase order if that opinion is not timely furnished. 9. We have the right to reject any order submitted by a person whose representations we believe are untrue or who we believe is violating, circumventing, or intends to violate, evade, or circumvent the terms and conditions of the plan of stock issuance, either alone or acting in concert with others. 10. The above restrictions also apply to purchases by persons acting in concert under applicable regulations of the OTS. Under regulations of the OTS, our directors are not considered to be affiliates or a group acting in concert with other directors solely as a result of membership on our Board of Directors. 11. In addition, in any community offering or syndicated community offering, we must first fill orders for our common stock up to a maximum of 2% of the total shares issued in the stock offering in a manner that will achieve a wide distribution of the stock, and thereafter any remaining shares will be allocated on an equal number of shares per order basis, until all orders have been filled or the shares have been exhausted. The term "associate" of a person is defined in the plan of stock issuance to mean: (1) any corporation or organization of which a person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities; 117 (2) any trust or other estate in which a person has a substantial beneficial interest or as to which a person serves as trustee or in a similar fiduciary capacity; or (3) any relative or spouse of a person or any relative of a spouse, who has the same home as that person. For example, a corporation for which a person serves as an officer would be an associate of that person and all shares purchased by that corporation would be included with the number of shares which that person individually could purchase under the above limitations. The term "acting in concert" means: (1) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (2) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A person or company which acts in concert with another person or company ("other party") shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any tax-qualified employee stock benefit plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated. We will presume that certain persons are acting in concert based upon various facts, including the fact that persons have joint account relationships or the fact that persons have filed joint Schedules 13D with the Securities and Exchange Commission with respect to other companies. We reserve the right to make an independent investigation of any facts or circumstances brought to our attention that indicate that one or more persons acting independently or as a group acting in concert may be attempting to violate or circumvent the regulatory prohibition on the transferability of subscription rights. We have the right, in our sole discretion, to determine whether prospective purchasers are "associates" or "acting in concert." These determinations are in our sole discretion and may be based on whatever evidence we believe to be relevant, including joint account relationships or shared addresses on the records of American Bank of New Jersey. Each person purchasing shares of the common stock in the stock offering will be considered to have confirmed that his or her purchase does not conflict with the maximum purchase limitation. If the purchase limitation is violated by any person or any associate or group of persons affiliated or otherwise acting in concert with that person, we will have the right to purchase from that person at the $10.00 purchase price per share all shares acquired by that person in excess of that purchase limitation or, if the excess shares have been sold by that person, to receive the difference between the purchase price per share paid for the excess shares and the price at which the excess shares were sold by that person. Our right to purchase the excess shares will be assignable. Common stock purchased in the stock offering will be freely transferable, except for shares purchased by our directors and executive officers. For certain restrictions on the common stock purchased by our directors and executive officers, see Restrictions on Transferability by Directors and Executive Officers at page __. 118 Ordering and Receiving Common Stock Use of Order Forms. Rights to subscribe may only be exercised by completion of an order form. Any person receiving an order form who desires to subscribe for shares of common stock must do so prior to the applicable expiration date by delivering by mail or in person a properly executed and completed order form, together with full payment of the purchase price for all shares for which subscription is made; provided, however, that if the employee plans subscribe for shares during the subscription offering, the employee plans will not be required to pay for the shares at the time they subscribe but rather may pay for the shares upon completion of the stock offering. All subscription rights will expire on the expiration date, whether or not we have been able to locate each person entitled to subscription rights. Once tendered, subscription orders cannot be revoked without our consent. If a stock order form: o is not delivered and is returned to us by the United States Postal Service or we are unable to locate the addressee; o is not received or is received after the applicable expiration date; o is not completed correctly or executed; or o is not accompanied by the full required payment for the shares subscribed for, including instances where a savings account or certificate balance from which withdrawal is authorized is unavailable, uncollected or insufficient to fund the required payment, but excluding subscriptions by the employee plans, then the subscription rights for that person will lapse as though that person failed to return the completed order form within the time period specified. However, we may, but will not be required to, waive any irregularity on any order form or require the submission of corrected order forms or the remittance of full payment for subscribed shares by a date that we may specify. The waiver of an irregularity on an order form in no way obligates us to waive any other irregularity on any other order form. Waivers will be considered on a case by case basis. We will not accept orders received on photocopies or facsimile order forms, or for which payment is to be made by wire transfer or payment from private third parties. Our interpretation of the terms and conditions of the plan of stock issuance and of the acceptability of the order forms will be final, subject to the authority of the OTS. To ensure that each purchaser receives a prospectus at least 48 hours before the applicable expiration date, in accordance with Rule 15c2-8 of the Securities Exchange Act of 1934, no prospectus will be mailed any later than five days prior to the expiration date or hand delivered any later than two days prior to the expiration date. Execution of the order form will confirm receipt or delivery in accordance with Rule 15c2-8. Order forms will only be distributed with a prospectus. Payment for Shares. For subscriptions to be valid, payment for all subscribed shares will be required to accompany all properly completed order forms on or prior to the expiration date specified on the order form unless we extend the date. Employee plans subscribing for shares during the subscription offering may pay for those shares upon completion of the stock offering. Payment for shares of common stock may be made: 119 o by check or money order made payable to American Bank of New Jersey; o for shares subscribed for in the subscription offering, by authorization of withdrawal from deposit accounts maintained with American Bank of New Jersey; or o in cash, only if delivered in person. In accordance with Rule 15c2-4 of the Securities Exchange Act of 1934, subscribers' checks must be made payable to American Bank of New Jersey, and checks received by the stock information center will be transmitted by noon of the following business day directly to the segregated deposit account at American Bank of New Jersey established to hold funds received as payment for shares. We may, at our discretion, determine during the stock offering period that it is in the best interest of American Bank of New Jersey to instead hold subscription funds in an escrow account at another insured financial institution. Appropriate means by which account withdrawals may be authorized are provided on the order form. Once a withdrawal has been authorized, none of the designated withdrawal amount may be used by a subscriber for any purpose other than to purchase the common stock for which a subscription has been made until the stock offering has been completed or terminated. In the case of payments authorized to be made through withdrawal from savings accounts, all sums authorized for withdrawal will continue to earn interest at the contract rate until the stock offering has been completed or terminated. Interest penalties for early withdrawal applicable to certificate accounts will not apply to withdrawals authorized for the purchase of shares, however, if a partial withdrawal results in a certificate account with a balance less than the applicable minimum balance requirement, the certificate shall be canceled at the time of withdrawal, without penalty, and the remaining balance will earn interest at the passbook savings account rate subsequent to the withdrawal. In the case of payments made in cash or by check or money order, funds will be placed in a segregated account and interest will be paid by American Bank of New Jersey at the passbook savings account rate from the date payment is received until the stock offering is completed or terminated. An executed order form, once we receive it, may not be modified, amended, or rescinded without our consent, unless the stock offering is not completed within 45 days after the conclusion of the subscription offering, in which event subscribers may be given the opportunity to increase, decrease, or rescind their subscription for a specified period of time. If the stock offering is not completed for any reason, all funds submitted pursuant to the offerings will be promptly refunded with interest as described above. Owners of self-directed IRAs may use the assets of their IRAs to purchase shares of common stock in the offerings, provided that their IRAs are not maintained on deposit at American Bank of New Jersey. Persons with IRAs maintained at American Bank of New Jersey must have their accounts transferred to an unaffiliated institution or broker to purchase shares of common stock in the offerings. There is no early withdrawal or IRS interest penalties for these transfers. Instructions on how to transfer self-directed IRAs maintained at American Bank of New Jersey can be obtained from the stock information center. Depositors interested in using funds in a American Bank of New Jersey IRA to purchase common stock should contact the stock information center as soon as possible so that the necessary forms may be forwarded, executed and returned prior to the expiration date. Federal regulations prohibit American Bank of New Jersey from lending funds or extending credit to any person to purchase the common stock in the stock offering. 120 Stock Information Center. Our stock information center is located at 365 Broad Street, Bloomfield, New Jersey 07003. The telephone number is (973) ___-____. The stock information center's hours of operation are 9:00 a.m. to 5:00 p.m., eastern time, Monday through Friday. Exchange of Stock Certificates of Minority Stockholders The conversion of common stock into shares of American Bancorp of New Jersey, Inc. common stock will occur automatically on the date of completion of the conversion. After this date, former holders of common stock will have no further equity interest in ASB Holding Company, other than as stockholders of American Bancorp of New Jersey, Inc., and there will be no further transfers of shares of ASB Holding Company common stock on the stock transfer records of ASB Holding Company. As soon as practicable after the completion of the conversion, the exchange agent will send a transmittal form to each stockholder of ASB Holding Company. The transmittal forms are expected to be mailed within five business days after the date of the completion of the conversion and will contain instructions with respect to the surrender of certificates representing ASB Holding Company common stock to be exchanged into American Bancorp of New Jersey, Inc. common stock. It is expected that certificates for shares of American Bancorp of New Jersey, Inc. common stock will be distributed within five business days after the receipt of properly executed transmittal forms and other required documents. Stockholders should not forward their stock certificates to the exchange agent until they have received transmittal forms. Until the certificates representing ASB Holding Company common stock are surrendered for exchange after consummation of the conversion, in compliance with the terms of the transmittal form, holders of these certificates will not receive new certificates for shares of American Bancorp of New Jersey, Inc. All shares of American Bancorp of New Jersey, Inc. common stock issued upon exchange of shares of ASB Holding Company common stock shall be deemed to have been issued in full satisfaction of all rights pertaining to shares of ASB Holding Company common stock. No fractional shares of our common stock will be issued to any stockholder upon consummation of the conversion. For each fractional share that would otherwise be issued, we will pay by check an amount equal to the product obtained by multiplying the fractional share interest to which the holder would otherwise be entitled by the subscription price. Payment for fractional shares will be made as soon as practicable after the receipt by the exchange agent of surrendered ASB Holding Company stock certificates. If a certificate for ASB Holding Company common stock has been lost, stolen or destroyed, the exchange agent will issue the consideration properly payable upon receipt of appropriate evidence as to the loss, theft or destruction, appropriate evidence as to the ownership of the certificate by the claimant, and appropriate and customary indemnification. Delivery of Stock Certificates of American Bancorp of New Jersey, Inc. Certificates representing common stock of American Bancorp of New Jersey, Inc. issued in the stock offering, to all persons other than minority stockholders of ASB Holding Company, will be mailed to the persons entitled thereto at the address noted on the order form as soon as practicable following consummation of the stock offering. Any certificates returned as undeliverable will be held until claimed by persons legally entitled thereto or otherwise disposed of in accordance with applicable law. Until certificates for the common stock are available and delivered to subscribers, subscribers may not be able to sell the shares of stock for which they subscribed. 121 Restrictions on Repurchase of Shares Generally, during the first year following the stock offering, we will not be permitted to repurchase shares of our stock unless we can show extraordinary circumstances. If extraordinary circumstances exist and if we can show a compelling and valid business purpose for the repurchase, the OTS may approve repurchases of up to 5% of the outstanding stock during the first year after the stock offering. We anticipate that 2005 restricted stock plan, if adopted during the first year following the stock offering, will be funded with repurchases, subject to OTS approval. After the first year following the stock offering, we can repurchase any amount of stock so long as the repurchase would not cause us to become undercapitalized. If, in the future, the rules and regulations regarding the repurchase of stock are liberalized, we may utilize the rules and regulations then in effect. How We Determined the $10.00 Per Share Price and the Number of Shares to Be Issued in the Stock Offering The plan of stock issuance requires that the purchase price of the common stock must be based on the appraised pro forma market value of American Bancorp of New Jersey, Inc. and American Bank of New Jersey, as determined on the basis of an independent valuation. RP Financial, LC, a financial services industry consulting firm whose members collectively have over 100 years of experience in valuing financial institutions for conversions and stock offerings, has been retained to make this valuation. We selected RP Financial, LC based upon its experience and reputation in valuing stock offerings by issuers such as American Bancorp of New Jersey, Inc. We have no prior relationship with RP Financial, LC. For its services in making this appraisal, RP Financial, LC's fees are estimated to be $45,000 and it will be reimbursed for out-of-pocket expenses not to exceed $5,000. We have agreed to indemnify RP Financial, LC and any employees of RP Financial, LC who act for or on behalf of RP Financial, LC in connection with the appraisal against any and all loss, cost, damage, claim, liability or expense of any kind, including claims under federal and state securities laws, arising out of any misstatement, untrue statement of a material fact or omission to state a material fact in the information supplied by us to RP Financial, LC, unless RP Financial, LC is determined to be negligent or otherwise at fault. RP Financial, LC made its appraisal in reliance upon the information contained in this prospectus, including the financial statements. RP Financial, LC also considered the following factors, among others: o the present and projected operating results and financial condition of American Bancorp of New Jersey, Inc. and American Bank of New Jersey, which were prepared by the Bank and then adjusted by RP Financial, LC to reflect the net proceeds of this stock offering and the economic and demographic conditions in the Bank's existing marketing area as prepared by RP Financial, LC; o certain historical, financial and other information relating to American Bank of New Jersey prepared by the Bank; and o the impact of the stock offering on our net worth and earnings potential as calculated by RP Financial, LC. The appraisal also incorporated an analysis of a peer group of publicly-traded companies that RP Financial, LC considered to be comparable to us. The peer group analysis conducted by RP Financial, LC included a total of 11 publicly-traded thrift holding companies with total assets of more than $100 million and less than $1 billion. RP Financial, LC excluded two companies which otherwise met the 122 foregoing criteria due to the lack of seasoned trading history and reported financial statements as a publicly-traded company, or other factors deemed relevant by RP Financial, LC. The analysis of comparable publicly traded institutions included an evaluation of the average and median price-to-earnings and price-to-book value ratios indicated by the market prices of the peer companies. RP Financial, LC applied the peer group's pricing ratios, as adjusted for certain qualitative valuation factors to account for differences between us and the peer group, to our pro forma earnings and book value to derive our estimated pro forma market value. The Board of Directors reviewed the methodologies and the appropriateness of the assumptions used by RP Financial, LC in addition to the factors listed above, and the Board of Directors believes that these assumptions were reasonable. On the basis of the foregoing, RP Financial, LC has advised us that in its opinion, dated May 31, 2005, the estimated pro forma market value of American Bancorp of New Jersey, Inc. following the conversion of American Savings, MHC from the mutual holding company to the stock form of organization ranged from a minimum of $91.1 million to a maximum of $123.2 million with a midpoint of $107.1 million. Our Board of Directors determined that the common stock should be sold at $10.00 per share. Based on the estimated valuation and the $10.00 per share price, the number of shares of common stock that American Bancorp of New Jersey, Inc. will issue, including shares issued in exchange for shares of ASB Holding Company, will range from a minimum of 9,107,142 shares to a maximum of 12,321,428 shares, with a midpoint of 10,714,285 shares. The estimated valuation range may be amended with the approval of the Office of Thrift Supervision or if necessitated by subsequent developments in our financial condition or market conditions generally. In the event the estimated valuation range is updated to amend the value of American Bancorp of New Jersey, Inc. below $91.1 million, which is the minimum of the estimated valuation range, or above $141.7 million, which is the maximum of the estimated valuation range, as adjusted by 15%, a new appraisal will be filed with the Office of Thrift Supervision. Based upon current market and financial conditions and recent practices and policies of the Office of Thrift Supervision, if we receive orders for common stock in excess of $86,250,000 (the maximum of the estimated valuation range of shares to be sold to the public) and up to $99,187,500 (the maximum of the estimated valuation range of shares to be sold to the public, as adjusted by 15%), the Office of Thrift Supervision may require us to accept all of these orders. We cannot guarantee, however, that we will receive orders for common stock in excess of the maximum of the estimated valuation range of shares to be sold to the public or that, if such orders are received, that all of these orders will be accepted because our final valuation and the number of shares to be issued are subject to the receipt of an updated appraisal from RP Financial, LC which reflects this an increase in the valuation and the approval of an increase by the Office of Thrift Supervision. In addition, an increase in the number of shares to be sold above 8,625,000 shares will first be used, if necessary, to fill the order of the employee stock ownership plan. There is no obligation or understanding on the part of management to take and/or pay for any shares in order to complete the stock offering. The following table presents a summary of selected pricing ratios for the peer group companies and the pricing ratios for American Bancorp of New Jersey, Inc. reflecting the pro forma impact of the stock offering. Compared to the median pricing ratios of the peer group, American Bancorp of New Jersey, Inc.'s pro forma pricing ratios at the midpoint of the offering range indicated a premium of 190.9% on a price-to-earnings basis and a discount of 30.7% on a price-to-tangible book value basis. The estimated appraised value and the resulting premiums or discounts took into consideration the potential financial impact of the stock offering. 123
Price-to-earnings Price-to-book Price-to-tangible multiple value ratio book value ratio -------- ----------- ---------------- American Bancorp of New Jersey, Inc. (pro forma)(1) Minimum.................................................. 38.07x 96.90% 96.90% Midpoint................................................. 44.42x 103.31% 103.31% Maximum.................................................. 50.67x 108.58% 108.58% Maximum, as adjusted..................................... 57.72x 113.51% 113.51% Valuation of peer group companies as of May 31, 2005(2) Average.................................................. 18.25% 148.97% 153.57% Median................................................... 15.27x 146.14% 149.16%
- ------------- (1) Based on ASB Holding Company's financial data as of and for the twelve months ended March 31, 2005. (2) Reflects earnings for the most recent 12-month period for which data was publicly available. RP Financial, LC's valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of American Bancorp of New Jersey, Inc. RP Financial, LC did not independently verify the consolidated financial statements and other information we provided to them, nor did RP Financial, LC value independently our assets or liabilities. The valuation considers American Bancorp of New Jersey, Inc. as a going concern and should not be considered as an indication of the liquidation value of American Bancorp of New Jersey, Inc. Moreover, because this valuation is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons purchasing common stock in the offerings will thereafter be able to sell their shares at prices at or above the purchase price or in the range of the valuation described above. No sale of shares of common stock in the stock offering may be completed unless RP Financial, LC confirms that nothing of a material nature has occurred which would cause it to conclude that the aggregate value of the common stock to be issued is materially incompatible with the estimate of our pro forma market value. If this confirmation is not received, we may cancel the stock offering, extend the stock offering period and establish a new estimated valuation and offering range and/or estimated price range, extend, reopen or hold a new stock offering or take any other action the Office of Thrift Supervision may permit. Depending upon market or financial conditions following the start of the subscription offering, the total number of shares of common stock to be issued may be increased or decreased without a resolicitation of subscribers, provided that the product of the total number of shares issued times the purchase price is not below the minimum or more than 15% above the maximum of the estimated valuation range. If market or financial conditions change so as to cause the aggregate value of the common stock to be issued to be below the minimum of the estimated valuation range or more than 15% above the maximum of this range, purchasers will be resolicited and be permitted to continue their orders, in which case they will need to reconfirm their subscriptions prior to the expiration of the resolicitation offering or their subscription funds will be promptly refunded with interest, or be permitted to modify or rescind their subscriptions. Any change in the estimated valuation range must be approved by the Office of Thrift Supervision. An increase in the number of shares of common stock to be issued as a result of an increase in the estimated pro forma market value would decrease both a subscriber's ownership interest and American Bancorp of New Jersey, Inc.'s pro forma net income and stockholders' equity on a per share basis while increasing pro forma net income and stockholders' equity on an aggregate basis. A decrease in the number 124 of shares of common stock to be issued would increase both a subscriber's ownership interest and American Bancorp of New Jersey, Inc.'s pro forma net income and stockholders' equity on a per share basis while decreasing pro forma net income and stockholders' equity on an aggregate basis. Copies of the appraisal report of RP Financial, LC, including any amendments, and the detailed report of the appraiser setting forth the method and assumptions for the appraisal are available for inspection at the main office of American Bank of New Jersey and the other locations specified under Where You Can Find More Information. In addition, the appraisal report is an exhibit to the registration statement of which this prospectus is a part. The registration statement is available on the SEC's website at www.sec.gov. Plan of Distribution/Marketing Arrangements We have retained Keefe, Bruyette & Woods, Inc., to consult with and to advise and assist us, on a best efforts basis, in the distribution of our common stock in this stock offering. The services that Keefe, Bruyette & Woods, Inc. will provide include, but are not limited to: o training the employees of American Bank of New Jersey who will perform certain ministerial functions in the subscription offering and direct community offering regarding the mechanics and regulatory requirements of the stock offering process; o managing the stock information center by assisting interested stock subscribers and by keeping records of all stock orders; and o preparing marketing materials. For its services, Keefe, Bruyette & Woods, Inc., will receive a management fee of $50,000 and a success fee of 1.00% of the aggregate purchase price, less any shares of common stock sold to directors, officers, and employees and the Tax-Qualified Employee Plans. The success fee paid to Keefe, Bruyette & Woods, Inc., will be reduced by the amount of the management fee. In the event that selected dealers are used to assist in the sale of our common stock in the direct community offering, these dealers will be paid a fee of up to 5.5% of the total purchase price of the shares sold by the dealers. We have agreed to indemnify Keefe, Bruyette & Woods, Inc., against certain claims or liabilities, including certain liabilities under the Securities Act of 1933, as amended, and will contribute to payments Keefe, Bruyette & Woods, Inc. may be required to make in connection with any such claims or liabilities. In addition, Keefe, Bruyette & Woods, Inc., will be reimbursed for the fees of its legal counsel in an amount not to exceed $40,000 and other reasonable out-of-pocket expenses not to exceed $30,000. Sales of shares of our common stock will be made by registered representatives affiliated with Keefe, Bruyette & Woods, Inc., or by the broker-dealers managed by Keefe, Bruyette & Woods, Inc. Keefe, Bruyette & Woods, Inc. has undertaken that our common stock will be sold in a manner that will ensure that the distribution standards of the Nasdaq National Market will be met. A stock information center will be established at the main office of American Bank of New Jersey located at 365 Broad Street, Bloomfield, New Jersey. We will rely on Rule 3a4-1 of the Securities Exchange Act of 1934 and sales of our common stock will be conducted within the requirements of this rule, so as to permit officers, directors and employees to participate in the sale of our common stock in those states where the law permits. No officer, director or employee of ASB Holding Company, American Bank of New Jersey or American Bancorp of New Jersey, Inc. will be compensated directly or indirectly by the payment of commissions or other remuneration in connection with his or her participation in the sale of common stock. 125 Restrictions on Transferability by Directors and Executive Officers Shares of the common stock purchased by our directors or executive officers cannot be sold for a period of one year following completion of the stock offering, except for a disposition of shares after death. To ensure this restriction is upheld, shares of the common stock issued to directors and executive officers will bear a legend restricting their sale. Any shares issued to directors and executive officers as a stock dividend, stock split, or otherwise with respect to restricted stock will be subject to the same restriction. For a period of three years following the stock offering, our directors and executive officers and their associates may not, without the prior approval of the OTS, purchase our common stock except from a broker or dealer registered with the SEC. This prohibition does not apply to negotiated transactions for more than 1% of our common stock or purchases made for tax qualified or non-tax qualified employee stock benefit plans which may be attributable to individual directors or executive officers. Restrictions on Agreements or Understandings Regarding Transfer of Common Stock to be Purchased in the Stock Offering Before the completion of the stock offering, no depositor may transfer or enter into an agreement or understanding to transfer any subscription rights or the legal or beneficial ownership of the shares of common stock to be purchased in the stock offering. Depositors who submit an order form will be required to certify that their purchase of common stock is solely for their own account and there is no agreement or understanding regarding the sale or transfer of their shares. We intend to pursue any and all legal and equitable remedies after we become aware of any agreement or understanding, and will not honor orders we reasonably believe to involve an agreement or understanding regarding the sale or transfer of shares. RESTRICTIONS ON ACQUISITION OF AMERICAN BANCORP OF NEW JERSEY, INC. General The principal federal regulatory restrictions that affect the ability of any person, firm or entity to acquire American Bancorp of New Jersey, Inc., American Bank of New Jersey or their respective capital stock are described below. Also discussed are certain provisions in American Bancorp of New Jersey, Inc.'s certificate of incorporation and bylaws which may be deemed to affect the ability of a person, firm or entity to acquire American Bancorp of New Jersey, Inc. Statutory and Regulatory Restrictions on Acquisition The Change in Bank Control Act provides that no person, acting directly or indirectly or through or in concert with one or more other persons, may acquire control of a savings institution unless the Office of Thrift Supervision has been given 60 days prior written notice. The Home Owners' Loan Act provides that no company may acquire "control" of a savings institution without the prior approval of the Office of Thrift Supervision. Any company that acquires control of a savings institution becomes a savings and loan holding company subject to registration, examination and regulation by the Office of Thrift Supervision. Pursuant to federal regulations, control of a savings institution is conclusively deemed to have been acquired by, among other things, the acquisition of more than 25% of any class of voting stock of the institution or the ability to control the election of a majority of the directors of an institution. Moreover, control is presumed to have been acquired, subject to rebuttal, upon the acquisition of more 126 than 10% of any class of voting stock, or of more than 25% of any class of stock of a savings institution, where certain enumerated "control factors" are also present in the acquisition. The Office of Thrift Supervision may prohibit an acquisition of control if: o it would result in a monopoly or substantially lessen competition; o the financial condition of the acquiring person might jeopardize the financial stability of the institution; or o the competence, experience or integrity of the acquiring person indicates that it would not be in the interest of the depositors or of the public to permit the acquisition of control by the acquiring person. These restrictions do not apply to the acquisition of a savings institution's capital stock by one or more tax-qualified employee stock benefit plans, provided that the plans do not have beneficial ownership of more than 25% of any class of equity security of the savings institution. For a period of three years following completion of the conversion of ASB Holding Company from the mutual to the stock form of organization, Office of Thrift Supervision regulations generally prohibit any person from acquiring or making an offer to acquire beneficial ownership of more than 10% of the stock of American Bancorp of New Jersey, Inc. or American Bank of New Jersey without Office of Thrift Supervision approval. Certificate of Incorporation and Bylaws of American Bancorp of New Jersey, Inc. The following discussion is a summary of certain provisions of the certificate of incorporation and bylaws of American Bancorp of New Jersey, Inc. that relate to corporate governance. The description is necessarily general and qualified by reference to the certificate of incorporation and bylaws. Certain of these provisions, in addition to discouraging a takeover attempt which a majority of our stockholders might determine to be in their best interest or in which our stockholders might receive a premium over the current market prices for their shares, may have the effect of rendering the removal of our management more difficult. Classified Board of Directors. The Board of Directors of American Bancorp of New Jersey, Inc. is required by the certificate of incorporation to be divided into four staggered classes which are as equal in size as is possible. One class is required to be elected annually for four-year terms, and classes are elected in series. A classified board promotes continuity and stability of management of American Bancorp of New Jersey, Inc., but makes it more difficult for stockholders to change a majority of the directors because it generally takes at least three annual elections of directors for this to occur. Authorized but Unissued Shares of Capital Stock. Following the stock offering, American Bancorp of New Jersey, Inc. will have authorized but unissued shares of preferred stock and common stock. See Description of Capital Stock at page __. These shares could be used by the Board of Directors to make it more difficult or to discourage an attempt to obtain control of American Bancorp of New Jersey, Inc. through a merger, tender offer, proxy contest or otherwise. Special Meetings of Stockholders. American Bancorp of New Jersey, Inc.'s certificate of incorporation provides that special meetings of stockholders may be called only by American Bancorp of 127 New Jersey, Inc.'s President or by its Board of Directors, except as provided by the New Jersey Business Corporation Act. Prohibition on Cumulative Voting. American Bancorp of New Jersey, Inc.'s certificate of incorporation provides that there will not be cumulative voting by stockholders for the election of American Bancorp of New Jersey, Inc.'s directors. This could prevent minority stockholder representation on American Bancorp of New Jersey, Inc.'s Board of Directors. Restrictions on Acquisition of Shares and Vote Sterilization. American Bancorp of New Jersey, Inc.'s certificate of incorporation provides that for a period of five years from the date of completion of the conversion, no person may offer to acquire or acquire the beneficial ownership of more than 10% of any class of equity security of American Bancorp of New Jersey, Inc. In addition, all shares owned over the 10% limit may not be voted in any matter submitted to stockholders for a vote. Procedures for Stockholder Nominations. American Bancorp of New Jersey, Inc.'s bylaws provide that any stockholder wanting to make a nomination for the election of directors or a proposal for new business at a meeting of stockholders must send written notice to the Secretary of American Bancorp of New Jersey, Inc. at least 60 days before the anniversary date of the prior year's annual meeting. The bylaws further provide that the Board of Directors may reject any nominations or proposals for new business that do not follow the prescribed procedures. Management believes that it is in the best interests of American Bancorp of New Jersey, Inc. and its stockholders to provide enough time for management to disclose to stockholders information about a dissident slate of nominations for directors. This advance notice requirement may also give management time to solicit its own proxies in an attempt to defeat any dissident slate of nominations if management thinks it is in the best interest of stockholders generally. Similarly, adequate advance notice of stockholder proposals will give management time to study these proposals and to determine whether to recommend to the stockholders that these proposals be adopted. Procedures for Business Combinations. Our certificate of incorporation prohibits any merger, consolidation, sale, liquidation, or dissolution (each, a business combination) of American Bancorp of New Jersey, Inc. with any "interested stockholder" for a period of five years following the interested stockholder's stock acquisition date unless the business combination is approved by a two-thirds vote of the Board prior to the stock acquisition date. An interested stockholder is any person who, directly or indirectly, has the right to vote or to sell 10% or more of the outstanding shares. Affiliates and associates of an interested shareholder are also considered to be interested shareholders. In addition, our certificate of incorporation requires that at least one of the following conditions be met to engage in a business combination with an interested stockholder: (i) approval by a vote of two-thirds of the Board prior to the interested stockholder's stock acquisition date and thereafter approved by stockholders; (ii) approval by the affirmative vote of the holders of at least 80% of the voting shares not beneficially owned by that interested stockholder at a meeting called for that purpose; or (iii) satisfaction of certain minimum price conditions, as set forth in our certificate of incorporation. In addition to the interested shareholder restrictions, our certificate of incorporation also requires the affirmative vote of at least 80% of the outstanding shares in order for us to enter into any merger, consolidation, sale, liquidation, or dissolution of us, unless the transaction is approved by two-thirds of our Board of Directors. Director Qualification Provisions. American Bancorp of New Jersey, Inc.'s bylaws provide several qualification provisions applicable to members of its Board of Directors that serve to ensure the 128 loyalty and professional integrity of each individual director. In particular, the bylaws provide that each director reside, at all times, within New Jersey within a 100 mile radius of a branch office of American Bank of New Jersey. In addition, the bylaws provide that each director be a shareholder of American Bancorp of New Jersey, Inc. and, at all times, hold a minimum of 2,500 shares of its stock. American Bancorp of New Jersey, Inc.'s bylaws also prohibit a person from serving as a director if that individual is currently serving as a management official of another depository institution or depository holding company, as those terms are defined by the regulations of the OTS. Further, to ensure the integrity and good character of American Bancorp of New Jersey, Inc.'s directors, the bylaws prohibit an individual who has been subject to conviction for a criminal offense involving dishonesty or breach of trust or who has, within the past ten years, been subject to a cease and desist order for similar conduct, or who has been found by a regulatory agency or a court to have breached a fiduciary duty involving personal profit or to have committed certain willful violations of the law from serving as a director or from nominating a person to serve as a director. American Bancorp of New Jersey, Inc.'s bylaws also prohibit a person from serving as a director if that individual has a conflict of interest by virtue of concurrently serving as an officer, director, advisor or consultant, or in any similar capacity, to another financial institution which maintains an office in New Jersey. In addition to discouraging a takeover attempt which a majority of our public stockholders might determine to be in their best interest or in which our stockholders might receive a premium over the current market prices for their shares, the effect of these provisions may render the removal of our management more difficult. Amendment to Certificate of Incorporation and Bylaws. Amendments to our certificate of incorporation must be approved by our Board of Directors and also by the holders of a majority of the shares. Approval by at least 80% of the shares is required to amend provisions relating to preemptive rights; stockholder meetings; cumulative voting; proxies; stockholder proposals and nominations; directors; removal of directors; restrictions on the acquisition and voting of more than 10% of the common stock; approval of business combinations with interested stockholders; directors' and officers' liability; and indemnification of officers and directors; amendment of the bylaws; and amendment of the certificate of incorporation. Our bylaws may be amended by a two-thirds vote of our Board of Directors or by the holders of at least 80% of the shares. DESCRIPTION OF CAPITAL STOCK General American Bancorp of New Jersey, Inc. is a newly formed New Jersey incorporated company. It is authorized to issue 20,000,000 shares of common stock, par value $0.10 per share and 10,000,000 shares of serial preferred stock, par value $0.10 per share. Upon payment of the purchase price shares of common stock issued in the stock offering will be fully paid and non-assessable. Each share of common stock will have the same relative rights as, and will be identical in all respects with, each other share of common stock. The common stock will represent non-withdrawable capital, will not be an account of insurable type and will not be insured by the FDIC or any other governmental agency. The Board of Directors can, without stockholder approval, issue additional shares of common stock. 129 Common Stock Distributions. American Bancorp of New Jersey, Inc. can pay dividends if, as and when declared by its Board of Directors, subject to compliance with limitations that are imposed by law. See Dividend Policy at page __. The holders of common stock of American Bancorp of New Jersey, Inc. will be entitled to receive and share equally in dividends as may be declared by the Board of Directors of American Bancorp of New Jersey, Inc. out of funds legally available therefor. If American Bancorp of New Jersey, Inc. issues preferred stock, the holders thereof may have a priority over the holders of the common stock with respect to dividends. Voting Rights. The holders of common stock will possess exclusive voting rights in American Bancorp of New Jersey, Inc. The holder of shares of common stock will be entitled to one vote for each share held on all matters subject to stockholder vote and will not have any right to cumulate votes in the election of directors. Liquidation Rights. In the event of any liquidation, dissolution, or winding-up of American Bancorp of New Jersey, Inc., the holders of the common stock generally would be entitled to receive, after payment of all debts and liabilities of American Bancorp of New Jersey, Inc. (including all debts and liabilities of American Bank of New Jersey and distribution of the balance in the special liquidation account of American Bank of New Jersey to eligible account holders and supplemental eligible account holders), all assets of American Bancorp of New Jersey, Inc. available for distribution. If preferred stock is issued, the holders thereof may have a priority over the holders of the common stock in the event of liquidation or dissolution. Preemptive Rights; Redemption. Because the holders of the common stock do not have any preemptive rights with respect to any shares that may be issued by American Bancorp of New Jersey, Inc., the Board of Directors may sell shares of capital stock of American Bancorp of New Jersey, Inc. without first offering these shares to existing stockholders. The common stock will not be subject to any redemption provisions. Preferred Stock We are authorized to issue up to 10,000,000 shares of serial preferred stock and to fix and state voting powers, designations, preferences, or other special rights of preferred stock and the qualifications, limitations and restrictions of those shares as the Board of Directors may determine in its discretion. Preferred stock may be issued in distinctly designated series, may be convertible into common stock and may rank prior to the common stock as to dividend rights, liquidation preferences, or both, and may have full or limited voting rights. The issuance of preferred stock could adversely affect the voting and other rights of holders of common stock. The authorized but unissued shares of preferred stock and the authorized but unissued and unreserved shares of common stock will be available for issuance in future mergers or acquisitions, in future public offerings or private placements. Except as otherwise required to approve the transaction in which the additional authorized shares of preferred stock would be issued, no stockholder approval generally would be required for the issuance of these shares. 130 LEGAL AND TAX OPINIONS The legality of the issuance of the common stock being offered and certain matters relating to the stock offering and federal and state taxation will be passed upon for us by Malizia Spidi & Fisch, PC, Washington, D.C. and Crowe Chizek and Company LLC, Livingston, New Jersey. Certain legal matters will be passed upon for Keefe, Bruyette & Woods, Inc. by Silver, Freedman & Taff, L.L.P., Washington D.C. EXPERTS The consolidated financial statements of ASB Holding Company at September 30, 2004 and for the three years ended September 30, 2004 have been included in this prospectus in reliance upon the report of Crowe Chizek and Company LLC, Livingston, New Jersey, appearing elsewhere in this prospectus, and upon the authority of said firm as experts in accounting and auditing. RP Financial, LC has consented to the publication in this document of a summary of its letter to American Bancorp of New Jersey, Inc. setting forth its conclusion as to the estimated pro forma market value of the common stock and has also consented to the use of its name and statements with respect to it appearing in this document. REGISTRATION REQUIREMENTS Our common stock will be registered with the SEC pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We will be subject to the information, proxy solicitation, insider trading restrictions, tender offer rules, periodic reporting and other requirements of the SEC under the Exchange Act. We will not deregister the common stock under the Exchange Act for a period of at least three years following the stock offering. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933, as amended, with respect to the common stock offered in this document. As permitted by the rules and regulations of the SEC, this document does not contain all the information set forth in the registration statement. This information can be examined without charge at the public reference facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of the registration materials can be obtained from the SEC at prescribed rates. You may obtain information on the operation of the Public Reference Room by calling 1-800-SEC-0330. The SEC also maintains an Internet address ("web site") that contains reports, proxy and information statements and other information regarding registrants, including ASB Holding Company, that file electronically with the SEC. The address for this web site is "http://www.sec.gov." The statements contained in this document as to the contents of any contract or other document filed as an exhibit to the Form S-1 are, of necessity, brief descriptions, and each statement is qualified by reference to the complete contract or document. Copies of the plan of conversion are also available without charge. 131 ASB HOLDING COMPANY Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm F-1 Consolidated Statements of Financial Condition F-2 Consolidated Statements of Income F-3 Consolidated Statements of Changes in Equity F-4 Consolidated Statements of Cash Flows F-8 Notes to Consolidated Financial Statements F-10 Other schedules are omitted as they are not required or are not applicable or the required information is shown in the consolidated financial statements or related notes. Financial statements of American Bancorp of New Jersey, Inc. have not been provided because it has conducted no operations. 132 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors ASB Holding Company Bloomfield, New Jersey We have audited the accompanying consolidated statements of financial condition of ASB Holding Company and subsidiaries as of September 30, 2004 and 2003, and the related consolidated statements of income, changes in equity, and cash flows for the three years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 financial position of ASB Holding Company and subsidiaries as of September 30, 2004 and 2003, and the results of its operations and its cash flows for the three years then ended in conformity with U.S. generally accepted accounting principles. /s/Crowe Chizek and Company LLC Crowe Chizek and Company LLC June 10, 2005 Livingston, New Jersey F-1 ASB HOLDING COMPANY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION March 31, 2005 (unaudited) and September 30, 2004 and 2003 (In thousands except share data) - --------------------------------------------------------------------------------
March 31, September 30, ---------------------- 2005 2004 2003 ---- ---- ---- (unaudited) ASSETS Cash and cash equivalents Cash and due from banks $ 2,383 $ 2,256 $ 1,206 Interest-bearing deposits 2,458 5,778 31,259 Federal funds sold -- -- 5,900 --------- --------- --------- Total cash and cash equivalents 4,841 8,034 38,365 Securities available-for-sale 75,992 89,495 107,391 Securities held-to-maturity (fair value: 2005 - $8,392, 2004 - $2,806, 2003 - $2,864) 8,526 2,794 2,839 Loans receivable, net of allowance for loan losses 2005 - $1,690; 2004 - $1,578; 2003 - $1,371 333,252 308,970 262,844 Loans held for sale 302 -- 500 Premises and equipment 4,059 3,910 3,939 Federal Home Loan Bank stock, at cost 3,513 2,890 3,150 Cash surrender value of life insurance 7,375 6,242 5,028 Accrued interest receivable 1,471 1,359 1,255 Other assets 1,623 1,250 1,755 --------- --------- --------- Total assets $ 440,954 $ 424,944 $ 427,066 ========= ========= ========= LIABILITIES AND EQUITY Deposits Non-interest-bearing $ 24,093 $ 22,599 $ 21,676 Interest-bearing 303,950 300,117 271,150 --------- --------- --------- Total deposits 328,043 322,716 292,826 Stock subscriptions received -- -- 52,137 Advance payments by borrowers for taxes and insurance 2,491 2,322 2,079 Federal Home Loan Bank advances 68,263 57,491 55,000 Accrued expenses and other liabilities 3,034 3,049 2,685 Common Stock in ESOP subject to contingent repurchase obligation 312 52 -- --------- --------- --------- Total liabilities 402,143 385,630 404,727 Commitments and contingent liabilities Equity Preferred stock $.10 par value; 5,000,000 shares authorized -- -- -- Common stock $.10 par value; 20,000,000 shares authorized; 5,554,500 shares issued and outstanding 555 555 -- Additional paid in capital 17,066 15,687 100 Unearned ESOP shares (1,131) (1,200) -- Unearned RSP shares (1,265) -- -- Retained earnings 24,848 24,806 22,644 Accumulated other comprehensive (loss) (950) (482) (405) Amount reclassified on ESOP shares (312) (52) -- --------- --------- --------- Total equity 38,811 39,314 22,339 --------- --------- --------- Total liabilities and equity $ 440,954 $ 424,944 $ 427,066 ========= ========= =========
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. F-2 ASB HOLDING COMPANY CONSOLIDATED STATEMENTS OF INCOME Six months ended March 31, 2005 and 2004 (unaudited) and years ended September 30, 2004, 2003 and 2002 (In thousands except share data) - --------------------------------------------------------------------------------
Six Months Ended Years Ended March 31, September 30, -------------------- -------------------------------- 2005 2004 2004 2003 2002 ---- ---- ---- ---- ---- (unaudited) Interest and dividend income Loans, including fees $ 8,483 $ 7,405 $ 15,017 $ 14,343 $ 12,907 Securities 1,450 1,587 3,125 2,918 4,414 Federal funds sold and other 61 25 62 215 257 -------- -------- -------- -------- -------- Total interest income 9,994 9,017 18,204 17,476 17,578 Interest expense NOW and money market 206 109 225 290 211 Savings 1,108 1,033 2,109 2,307 2,196 Certificates of deposit 1,705 1,458 2,912 3,439 4,158 Federal Home Loan Bank advances 1,404 1,428 2,859 2,834 2,264 -------- -------- -------- -------- -------- Total interest expense 4,423 4,028 8,105 8,870 8,829 -------- -------- -------- -------- -------- Net interest income 5,571 4,989 10,099 8,606 8,749 Provision for loan losses 112 54 207 254 105 -------- -------- -------- -------- -------- Net interest income after provision for loan losses 5,459 4,935 9,892 8,352 8,644 Noninterest income Deposit service fees and charges 320 349 697 452 240 Income from cash surrender value of life insurance 133 115 207 227 102 Gain on sale of loans 1 21 27 151 -- Loss on sales of securities available-for-sale -- -- -- (188) -- Gain on sale of other real estate owned -- -- 176 3 -- Other 83 78 191 73 253 -------- -------- -------- -------- -------- Total noninterest income 537 563 1,298 718 595 Noninterest expense Salaries and employee benefits 2,545 2,344 4,812 4,507 3,969 Occupancy and equipment 409 441 853 822 737 Data processing 293 334 652 543 486 Advertising 140 129 247 229 394 Federal deposit insurance 22 24 46 43 36 Borrowed funds prepayment penalty -- -- 125 -- -- Other 702 497 922 718 652 -------- -------- -------- -------- -------- Total noninterest expense 4,111 3,769 7,657 6,862 6,274 -------- -------- -------- -------- -------- Income before provision for income taxes 1,885 1,729 3,533 2,208 2,965 Provision for income taxes 691 668 1,371 805 1,075 -------- -------- -------- -------- -------- Net income $ 1,194 $ 1,061 $ 2,162 $ 1,403 $ 1,890 ======== ======== ======== ======== ======== Earnings per share: Basic and diluted $ 0.22 $ 0.20 $ 0.40 $ 0.36 $ 0.49
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. F-3
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Six months ended March 31, 2005 and 2004 (unaudited) and years ended September 30, 2004, 2003, and 2002 (In thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated Amount Other Reclassified Additional Unearned Unearned Compre- on Compre- Common Paid-in ESOP RSP Retained hensive ESOP Total hensive Stock Capital Shares Shares Earnings Income Shares Equity Income ----- ------- ------ ------ -------- ------ ------ ------ ------ Balance at September 30, 2001 $ -- $ -- $ -- $ -- $ 19,451 $ 704 $ -- $ 20,155 Comprehensive income Net income -- -- -- -- 1,890 -- -- 1,890 Change in unrealized gain on securities available-for-sale, net of taxes -- -- -- -- -- (173) -- (173) Total comprehensive income -- -- -- -- -- -- -- -- $ 1,717 ------ ------ ------ ------- -------- -------- ------- -------- ======= Balance at September 30, 2002 $ -- $ -- $ -- $ -- $ 21,341 $ 531 $ -- $ 21,872 Initial funding of ASB Holding Company -- 100 -- -- (100) -- -- -- Comprehensive income Net income -- -- -- -- 1,403 -- -- 1,403 Change in unrealized gain on securities available-for-sale, net of taxes -- -- -- -- -- (936) -- (936) Total comprehensive income -- -- -- -- -- -- -- -- $ 467 ------ ------ ------ ------ -------- -------- ------- -------- ======= Balance at September 30, 2003 $ -- $ 100 $ -- $ -- $ 22,644 $ (405) $ -- $ 22,339 ====== ====== ====== ====== ======== ======== ======= ========
- -------------------------------------------------------------------------------- (Continued) F-4
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Six months ended March 31, 2005 and 2004 (unaudited) and years ended September 30, 2004, 2003, and 2002 (In thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated Amount Other Reclassified Additional Unearned Unearned Compre- on Compre- Common Paid-in ESOP RSP Retained hensive ESOP Total hensive Stock Capital Shares Shares Earnings Income Shares Equity Income ----- ------- ------ ------ -------- ------ ------ ------ ------ Balance at September 30, 2003 $ -- $ 100 $ -- $ -- $ 22,644 $ (405) $ -- $ 22,339 Issuance of common stock, net of issuance costs 555 15,506 (1,333) -- -- -- -- 14,728 ESOP shares earned -- 81 133 -- -- -- -- 214 Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation -- -- -- -- -- -- (52) (52) Comprehensive income Net income -- -- -- -- 2,162 -- -- 2,162 Change in unrealized gain on securities available-for-sale, net of taxes -- -- -- -- -- (77) -- (77) Total comprehensive income -- -- -- -- -- -- $ 2,085 ------ ------- ------- ------ -------- -------- ------- -------- ======= Balance at September 30, 2004 $ 555 $15,687 $(1,200) $ -- $ 24,806 $ (482) $ (52) $ 39,314 ====== ======= ======= ====== ======== ========= ======= ========
- -------------------------------------------------------------------------------- (Continued) F-5
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Six months ended March 31, 2005 and 2004 (unaudited) and years ended September 30, 2004, 2003, and 2002 (In thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated Amount Other Reclassified Additional Unearned Unearned Compre- on Compre- Common Paid-in ESOP RSP Retained hensive ESOP Total hensive Stock Capital Shares Shares Earnings Income Shares Equity Income ----- ------- ------ ------ -------- ------ ------ ------ ------ Balance at September 30, 2004 $ 555 $15,687 $(1,200) $ -- $ 24,806 $ (482) $ (52) $ 39,314 RSP stock grants -- 1,332 -- (1,332) -- -- -- -- RPS shares earned -- -- -- 67 -- -- -- 67 ESOP shares earned -- 47 69 -- -- -- -- 116 Cash dividends paid - $0.75 per share -- -- -- -- (1,152) -- -- (1,152) Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation -- -- -- -- -- -- (260) (260) Comprehensive income Net income -- -- -- -- 1,194 -- -- 1,194 Change in unrealized gain on securities available-for-sale, net of taxes -- -- -- -- -- (468) -- (468) Total comprehensive income -- -- -- -- -- -- -- -- $ 726 ------ ------- ------- ------ -------- --------- ------- -------- ======= Balance at March 31, 2005 $ 555 $17,066 $(1,131) (1,265) $ 24,848 $ (950) $ (312) $ 38,811 ====== ======= ======= ====== ======== ========= ======= ========
- -------------------------------------------------------------------------------- (Continued) F-6
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Six months ended March 31, 2005 and 2004 (unaudited) and years ended September 30, 2004, 2003, and 2002 (In thousands) - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated Amount Other Reclassified Additional Unearned Unearned Compre- on Compre- Common Paid-in ESOP RSP Retained hensive ESOP Total hensive Stock Capital Shares Shares Earnings Income Shares Equity Income ----- ------- ------ ------ -------- ------ ------ ------ ------ Balance at September 30, 2003 $ -- $ 100 $ -- $ -- $ 22,644 $ (405) $ -- $ 22,339 Issuance of common stock, net of issuance costs 555 15,506 (1,333) -- -- -- -- 14,728 ESOP shares earned -- 46 67 -- -- -- -- 113 Reclassification due to change in fair value of common stock in ESOP subject to contingent repurchase obligation -- -- -- -- -- -- (57) (57) Comprehensive income Net income -- -- -- -- 1,061 -- -- 1,061 Change in unrealized gain on securities available-for-sale, net of taxes -- -- -- -- -- 511 -- 511 Total comprehensive income -- -- -- -- -- -- -- -- $ 1,572 ------ ------- ------- ------ -------- --------- ------- -------- ======= Balance at March 31, 2004 $ 555 $15,652 $(1,266) $ -- $ 23,705 $ 106 $ (57) $ 38,695 ====== ======= ======= ====== ======== ========= ======= ========
- -------------------------------------------------------------------------------- (Continued) F-7
ASB HOLDING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended March 31, 2005 and 2004 (unaudited) and years ended September 30, 2004, 2003 and 2002 (In thousands) - --------------------------------------------------------------------------------------------------------------------------- Six Months Ended Years Ended March 31, September 30, ---------------------- ----------------------------------- 2005 2004 2004 2003 2002 ---- ---- ---- ---- ---- (unaudited) Cash flows from operating activities Net income $ 1,194 $ 1,061 $ 2,162 $ 1,403 $ 1,890 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 180 216 417 371 378 Net amortization of premiums and discounts 66 175 292 1,036 422 Losses on sales of securities available-for-sale -- -- -- 188 -- ESOP compensation expense 116 113 214 -- -- RSP compensation expense 67 -- -- -- -- Provision for loan losses 112 54 207 254 105 Increase in cash surrender value of life insurance (133) (115) (207) (227) (102) Gain on sale of other real estate owned -- -- (176) (3) -- Gain on sale of loans (1) (21) (27) (151) (7) Proceeds from sales of loans 144 2,137 4,774 9,561 265 Net change in loans held for sale (302) 99 500 (500) -- Decrease (increase) in accrued interest receivable (112) 17 (104) 58 (165) Decrease (increase) in other assets (104) 396 591 (979) 184 Change in deferred income taxes (20) 9 (34) 142 (126) Increase (decrease) in other liabilities (15) (125) 364 (22) 840 --------- --------- --------- --------- --------- Net cash provided by operating activities 1,192 4,016 8,973 11,131 3,684 Cash flows from investing activities Net increase in loans receivable (24,537) (13,728) (51,289) (64,194) (42,415) Purchases of securities held-to-maturity (6,227) (756) (922) -- -- Principal paydowns on securities held-to-maturity 490 606 954 4,133 3,231 Purchases of securities available-for-sale -- (9,016) (21,459) (111,503) (58,906) Sales of securities available-for-sale -- -- -- 21,026 -- Calls of securities available-for-sale 2,000 -- 13,560 -- -- Principal paydowns on securities available-for-sale 10,725 18,238 25,387 70,435 20,143 Purchase of Federal Home Loan Bank stock (1,828) (745) (2,222) (1,660) (225) Redemption of Federal Home Loan Bank stock 1,205 1,025 2,482 710 325 Purchase of bank-owned life insurance (1,000) -- (1,007) (324) (4,375) Purchase of premises and equipment (329) (301) (388) (524) (355) Proceeds from sale of other real estate owned -- -- 385 63 -- --------- --------- --------- --------- --------- Net cash used in investing activities (19,501) (4,677) (34,519) (81,838) (82,577) Cash flows from financing activities Net increase in deposits 5,327 970 29,890 28,239 75,759 Stock subscriptions held for parent received (refunded) -- (52,137) (52,137) 52,137 -- Net change in advance payments by borrowers for taxes and insurance 169 141 243 366 355 Repayment of Federal Home Loan Bank of New York advances (1,028) (2,000) (7,009) (4,000) (14,000) Federal Home Loan Bank of New York advances -- -- 6,800 15,000 12,000
- -------------------------------------------------------------------------------- (Continued) F-8
CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended March 31, 2005 and 2004 (unaudited) and years ended September 30, 2004, 2003 and 2002 (Tables in thousands) - -------------------------------------------------------------------------------- Six Months Ended Years Ended March 31, September 30, ---------------------- -------------------------------- 2005 2004 2004 2003 2002 ---- ---- ---- ---- ---- (unaudited) Net change in Federal Home Loan Bank of New York overnight lines of credit $ 11,800 $ 4,400 $ 2,700 $ -- $ -- Net proceeds from stock issuance -- 14,728 14,728 -- -- Cash dividends paid (1,152) -- -- -------- -------- -------- -------- -------- Net cash provided by financing activities 15,116 (33,898) (4,785) 91,742 74,114 -------- -------- -------- -------- -------- Net change in cash and cash equivalents (3,193) (34,559) (30,331) 21,035 (4,779) Cash and cash equivalents at beginning of period 8,034 38,365 38,365 17,330 22,109 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period $ 4,841 $ 3,806 $ 8,034 $ 38,365 $ 17,330 ======== ======== ======== ======== ======== Supplemental cash flow information: Cash paid during the period for Interest $ 4,422 $ 4,023 $ 8,101 $ 8,839 $ 8,790 Income taxes, net of refunds 910 626 1,166 1,049 1,031 Supplemental disclosures of noncash investing transactions: Conversion of loans to other real estate owned $ -- $ -- $ 209 $ 60 $ -- Transfer stock subscriptions received and deposits to capital -- 14,728 -- -- --
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. F-9 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations and Principles of Consolidation: ASB Holding Company is a - ----------------------------------------------------- federally chartered corporation organized in June 2003 that was formed for the purpose of acquiring all of the capital stock of American Savings Bank of NJ, which was previously owned by American Savings, MHC, a federally-chartered mutual holding company. American Savings Bank of NJ converted from a mutual to a stock savings bank in a mutual holding company reorganization in 1999 in which no stock was sold to any person other than American Savings, MHC. Currently all of the outstanding stock of American Savings Bank of NJ is held by ASB Holding Company. The MHC holds 70% of the outstanding stock of ASB Holding Company stock with the remaining 30% held by the public. The consolidated financial statements include the accounts of ASB Holding Company ("the Company") and its wholly owned subsidiaries, American Bank of New Jersey (formerly American Savings Bank of NJ) ("the Bank") and ASB Investment Corp. ("the Investment Corp."), together referred to as "the Company." Intercompany transactions and balances are eliminated in consolidation. References to "we", "us", or "our" refer to the Bank or Company, or both, as the context indicates. The Bank's name change to American Bank of New Jersey was effective March 31, 2005. The only business of the Company is the ownership of the Bank and the Investment Corp. The Bank provides a full range of banking services to individual and corporate customers in New Jersey. The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. The Investment Corp was organized for the purpose of selling insurance and investment products, including annuities, to customers of the Bank and the general public, with initial activities limited to the sale of fixed rate annuities. The Investment Corp has had limited activity to date. The accounting and reporting policies of the Company are based upon accounting principles generally accepted in the United States of America and conform to predominant practices within the banking industry. Significant accounting polices followed by the Company are presented below. Use of Estimates: In preparing the financial statements, management is required - ---------------- to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheets and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for losses on loans, prepayment speed assumptions related to mortgage-backed securities and collateralized mortgage obligations, and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. - -------------------------------------------------------------------------------- (Continued) F-10 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) A substantial portion of the Bank's loans are secured by real estate in the New Jersey market. In addition, a substantial portion of real estate owned is located in that same market. Accordingly, as with most financial institutions in the market area, the ultimate collectibility of a substantial portion of the Bank's loan portfolio and the recovery of the carrying amount of real estate owned are susceptible to changes in market conditions. Cash and Cash Equivalents: For purposes of the statements of cash flows, cash - -------------------------- and cash equivalents include cash on hand and in banks; interest-bearing deposits; and federal funds sold, which are generally sold for one-day periods. Securities: Securities are classified as held-to-maturity and carried at - ---------- amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available-for-sale when they might be sold before maturity. Securities available-for-sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. Interest income includes amortization of purchase premium or discount. Premiums and discounts are amortized using the level yield method. Gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value when a decline in fair value is other than temporary. Loans: Mortgages on real estate and other loans are stated at the outstanding - ----- principal amount of the loans, net of deferred loan fees and the allowance for loan losses. Interest income on loans is accrued and credited to interest income as earned. Loans are generally placed on nonaccrual status when they become delinquent 90 days or more as to principal or interest or when it appears that principal or interest is uncollectible. Past due status is based on the contractual terms of the loan. Interest accrued prior to a loan being placed on nonaccrual status is subsequently reversed. Interest income on nonaccrual loans is recognized only in the period in which it is ultimately collected. Loans are returned to an accrual status when factors indicating doubtful collectibility no longer exist. The Bank defines the population of impaired loans to be all nonaccrual commercial real estate, multi-family, and land loans. Impaired loans are individually assessed to determine whether the loan's carrying value is not in excess of the fair value of the collateral or the present value of the loan's expected future cash flows. Smaller balance homogeneous loans that may be collectively evaluated for impairment such as residential mortgage loans and installment loans, are specifically excluded from the impaired loan portfolio. - -------------------------------------------------------------------------------- (Continued) F-11 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loans Held-For-Sale: Loans held-for-sale are carried at the lower of cost or - -------------------- market, using the aggregate method. Gains and losses on sales of mortgage loans are recognized at the time of sale. Allowance For Loan Losses: The allowance for loan losses is a valuation - --------------------------- allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, peer group information, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off. Loan losses are charged against the allowance when management believes that the uncollectibility of a loan balance is confirmed. A loan is impaired when full payment under the loan terms is not expected. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flow using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Loan Fees: Loan fees and certain direct loan origination costs for originating - --------- mortgage loans are deferred and the net fee or cost is recognized into interest income using the interest method over the contractual lives of the loans. Real Estate Owned: When properties are acquired through foreclosure, they are - ----------------- transferred at the lower of the book value or estimated fair value and any required write-downs are charged to the allowance for loan losses. Subsequently, such properties are carried at the lower of the adjusted cost or fair value less estimated selling costs. Estimated fair value of the property is generally based on an appraisal. The Bank maintains an allowance for real estate owned losses for subsequent declines in estimated fair value. Expenses of holding foreclosed properties, net of other income, are charged to operations as incurred. Gains and losses from sales of such properties are recognized as incurred. Premises and Equipment: Land is carried at cost. Office properties and equipment - ---------------------- are carried at cost, less accumulated depreciation. Office buildings and improvements are depreciated using the straight-line method with useful lives ranging from 20 to 40 years. Furniture, fixtures, and equipment are depreciated using the straight-line method with useful lives ranging from 3 to 10 years. - -------------------------------------------------------------------------------- (Continued) F-12 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Mortgage Servicing Rights: Servicing assets represent the allocated value of - --------------------------- retained servicing rights on loans sold. Servicing assets are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the assets, using groupings of the underlying loans as to interest rates and then, secondarily, as to prepayment characteristics. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Any impairment of a grouping is reported as a valuation allowance. Mortgage servicing rights totaled $71,714, $80,930 and $70,289 at March 31, 2005, September 30, 2004 and 2003 and are included with other assets on the balance sheet. Income Taxes: The provision for income taxes is the total of the current year - ------------- income tax due or refundable and the change in the deferred tax assets and liabilities. Deferred tax assets and liabilities are the estimated future tax consequences attributable to differences between the financial statements' carrying amounts of existing assets and liabilities and their respective tax bases, computed using enacted tax rates. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not likely to be realized. Management believes, based upon current facts, that it is more likely than not there will be sufficient taxable income in future years to realize the deferred tax assets. Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but not - -------------------------------- yet allocated to participants, is shown as a reduction of shareholders' equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares reduce debt and accrued interest. Participants may put their ESOP shares back to the Company upon termination, and an amount of equity equal to these shares times current market price is reclassified out of shareholders' equity. Stock-Based Compensation: Employee compensation expense under stock options is - ------------------------- reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation. - -------------------------------------------------------------------------------- (Continued) F-13 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) ---March 31, 2005--- (unaudited) Net income as reported $ 1,194 Deduct: Stock-based compensation expense determined under fair value based method 54 --------- Pro forma net income $ 1,140 ========= Basic earnings per share as reported $ 0.22 Pro forma basic earnings per share $ 0.21 Diluted earnings per share as reported $ 0.22 Pro forma diluted earnings per share $ 0.21 Earnings Per Common Share: Basic earnings per common share is net income divided - ------------------------- by the weighted average number of common shares outstanding during the period. ESOP shares are considered outstanding for this calculation unless unearned. The weighted average common shares outstanding were 5,438,940 and 5,424,565 for the six months ended March 31, 2005 and 2004 (unaudited) and were 5,427,906, 3,888,150 and 3,888,150 for the years ended September 30, 2004, 2003 and 2002. There were no potentially dilutive securities for the six month periods ended March 31, 2005 and 2004 (unaudited) or the years ended September 30, 2004, 2003 and 2002. Earnings per share for the years ended September 30, 2003 and 2002 has been restated to reflect the conversion of 100 shares of Bank stock into 3,188,150 shares of Company stock representing 100% ownership of the Bank prior to the minority stock offering. Comprehensive Income: Comprehensive income consists of net income and other - --------------------- comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available-for-sale, which are also recognized as separate components of equity. Loss Contingencies: Loss contingencies, including claims and legal actions - ------------------- arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements. Reclassifications: Some items in the prior year financial statements were - ----------------- reclassified to conform to the current presentation. - -------------------------------------------------------------------------------- (Continued) F-14 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Unaudited Periods: Balances as of March 31, 2005 and for the six months ended - ------------------ March 31, 2005 and 2004 have not been audited. In the opinion of management, all adjustments consisting of normal recurring adjustments that are necessary for a fair presentation of the unaudited periods have been reflected. NOTE 2 - MINORITY OFFERING On October 3, 2003, the Company completed a minority stock offering and sold 1,666,350 shares of common stock in a subscription offering at $10 per share and received proceeds of $16,060,000 net of offering costs of $603,000. The Company contributed $9,616,000 or approximately 60% of the net proceeds to the Bank in the form of a capital contribution. The Company loaned $1,333,000 to the Bank's employee stock ownership plan and the ESOP used those funds to acquire 133,000 shares of common stock at $10 per share. After the sale of the stock, the MHC holds 70%, or 3,888,150 shares, of the outstanding stock of the Company, with the remaining 30% or, 1,666,350 shares held by persons other than the MHC. The Company holds 100% of the Bank's outstanding common stock. The Bank may not pay dividends to the Company if the dividends would cause the Bank to fall below the "well capitalized" capital threshold. The Company had stock subscriptions received totaling $52,137,000 at September 30, 2003 pending completion of the Company's initial public offering. At the time of closing on October 3, 2003, gross proceeds of $15,330,000 became capital of the Company with the remainder returned on oversubscriptions. - -------------------------------------------------------------------------------- (Continued) F-15 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 3 - SECURITIES The fair value of securities available-for-sale was as follows:
Gross Gross Fair Unrealized Unrealized Value Gains Losses ----- ----- ------ March 31, 2005 (unaudited) -------------------------- U.S. government and federal agency $ 11,740 $ - $ (257) Mortgage-backed FHLMC 4,854 11 (39) FNMA 14,482 34 (550) GNMA 177 1 (1) Collateralized mortgage obligations Agency 34,311 6 (553) Non-agency 599 - (1) Mutual fund 9,829 - (171) ------------ --------- --------- $ 75,992 $ 52 $ (1,572) ============ ========= ========= September 30, 2004 ------------------ U.S. government and federal agency $ 13,840 $ - $ (157) Mortgage-backed FHLMC 5,219 20 (26) FNMA 16,261 54 (359) GNMA 202 1 - Collateralized mortgage obligations Agency 42,870 41 (246) Non-agency 1,234 3 (3) Mutual fund 9,869 - (131) ------------ --------- --------- $ 89,495 $ 119 $ (922) ============ ========= ========= September 30, 2003 ------------------ U.S. government and federal agency $ 13,484 $ 6 $ (60) Mortgage-backed FHLMC 346 - (3) FNMA 16,664 20 (341) GNMA 320 7 - Collateralized mortgage obligations Agency 61,685 201 (403) Non-agency 4,962 - (31) Mutual fund 9,930 - (70) ------------ --------- --------- $ 107,391 $ 234 $ (908) ============ ========= =========
- -------------------------------------------------------------------------------- (Continued) F-16 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 3 - SECURITIES (Continued) The amortized cost and fair value of securities held-to-maturity were as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- March 31, 2005 (unaudited) -------------------------- U.S. government and federal agency $ 2,000 $ - $ (40) $ 1,960 Mortgage-backed FHLMC 445 1 - 446 FNMA 2,928 6 (38) 2,896 GNMA 278 2 - 280 Collateralized mortgage obligations Agency 90 1 - 91 Non-agency 2,785 - (66) 2,719 ---------- --------- ---------- --------- $ 8,526 $ 10 $ (144) $ 8,392 ========== ========= ========= ========= September 30, 2004 ------------------ Mortgage-backed FHLMC $ 490 $ 2 $ (1) $ 491 FNMA 1,870 11 (6) 1,875 GNMA 327 3 - 330 Collateralized mortgage obligations Agency 107 3 - 110 ---------- --------- --------- --------- $ 2,794 $ 19 $ (7) $ 2,806 ========== ========= ========= ========= September 30, 2003 ------------------ Mortgage-backed FHLMC $ 657 $ 3 $ (1) $ 659 FNMA 1,513 7 (4) 1,516 GNMA 476 14 - 490 Collateralized mortgage obligations Agency 193 6 - 199 ---------- --------- --------- --------- $ 2,839 $ 30 $ (5) $ 2,864 ========== ========= ========= =========
There were no securities sales during the six months ended March 31, 2005 or 2004 (unaudited). There were no securities sales during the year ended September 30, 2004 or 2002. Proceeds from sales of securities amounted to $21,026,000 during the year ended September 30, 2003 resulting gross gains of $0 and gross losses of $188,000. - -------------------------------------------------------------------------------- (Continued) F-17 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 3 - SECURITIES (Continued) The fair value of debt securities and carrying amount, if different, by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.
Available- Held-to-Maturity for-Sale Carrying Fair Fair Amount Value Value ------ ----- ----- March 31, 2005 (unaudited) Due from one to five years $ 2,000 $ 1,960 $ 11,740 Mortgage-backed 6,526 6,432 54,423 Mutual fund - - 9,829 ------------ ------------ ------------ Total $ 8,526 $ 8,392 $ 75,992 ============ ============ ============ September 30, 2004 Due from one to five years $ - $ - $ 13,840 Mortgage-backed 2,794 2,806 65,786 Mutual fund - - 9,869 ------------ ------------ ------------ Total $ 2,794 $ 2,806 $ 89,495 ============ ============ ============
Securities with carrying values of $11,759,692 (unaudited), $11,386,213, and $4,481,971 at March 31, 2005 and September 30, 2004 and 2003, respectively, were pledged to secure public deposits and advances as required or permitted by law. Available-for-sale securities with unrealized losses not recognized in income are presented below by length of time the securities have been in an unrealized loss position:
-------------------------------March 31, 2005------------------------------- -------------- Less than 12 Months 12 Months or More Total ------------------- ----------------- ----- Fair Unrealized Fair Unrealized Fair Unrealized Description of Securities Value Loss Value Loss Value Loss - ------------------------- ----- ---- ----- ---- ----- ---- U.S. government and federal agency $ 3,920 $ (80) $ 7,820 $ (177) $ 11,740 $ (257) Mortgage backed 12,071 (135) 7,442 (409) 19,513 (544) Collateralized mortgage obligations 30,726 (486) 4,184 (62) 34,910 (548) Mutual fund - - 9,829 (171) 9,829 (171) --------- ---------- ---------- ---------- ---------- ----------- Total temporarily impaired $ 46,717 $ (701) $ 29,275 $ (819) $ 75,992 $ (1,520) ========= ========== ========== ========== ========== ===========
- -------------------------------------------------------------------------------- (Continued) F-18 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 3 - SECURITIES (Continued)
-----------------------------September 30, 2004----------------------------- ------------------ Less than 12 Months 12 Months or More Total ------------------- ----------------- ----- Fair Unrealized Fair Unrealized Fair Unrealized Description of Securities Value Loss Value Loss Value Loss - ------------------------- ----- ---- ----- ---- ----- ---- U.S. government and federal agency $ 8,885 $ (112) $ 4,955 $ (45) $ 13,840 $ (157) Mortgage backed 6,520 (80) 8,649 (305) 15,169 (385) Collateralized mortgage obligations 29,307 (209) 4,831 (40) 34,138 (249) Mutual fund - - 9,869 (131) 9,869 (131) --------- ---------- ---------- ---------- ---------- ----------- Total temporarily impaired $ 44,712 $ (401) $ 28,304 $ (521) $ 73,016 $ (922) ========= ========== ========== ========== ========== ===========
Held-to-maturity securities with unrealized losses not recognized in income are as follows:
-------------------------------March 31, 2005------------------------------- -------------- Less than 12 Months 12 Months or More Total ------------------- ----------------- ----- Fair Unrealized Fair Unrealized Fair Unrealized Description of Securities Value Loss Value Loss Value Loss - ------------------------- ----- ---- ----- ---- ----- ---- U.S. government and federal agency $ 1,960 $ (40) $ - $ - $ 1,960 $ (40) Mortgage-backed 3,540 (29) 82 (1) 3,622 (30) Collateralized mortgage obligations 2,810 (65) - - 2,810 (65) --------- ----------- ---------- ---------- ---------- ------------ Total temporarily impaired $ 8,310 $ (134) $ 82 $ (1) $ 8,392 $ (135) ========= ========== ========== ========== ========== ===========
-----------------------------September 30, 2004----------------------------- ------------------ Less than 12 Months 12 Months or More Total ------------------- ----------------- ----- Fair Unrealized Fair Unrealized Fair Unrealized Description of Securities Value Loss Value Loss Value Loss - ------------------------- ----- ---- ----- ---- ----- ---- Mortgage-backed $ 562 $ (6) $ 117 $ (1) $ 679 $ (7) --------- ---------- ---------- ---------- ---------- ----------- Total temporarily impaired $ 562 $ (6) $ 117 $ (1) $ 679 $ (7) ========= ========== ========== ========== ========== ===========
- -------------------------------------------------------------------------------- (Continued) F-19 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 3 - SECURITIES (Continued) The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer's financial condition, the Company may consider whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer's financial condition. At March 31, 2005 and September 30, 2004, securities with unrealized losses had depreciated only 2.0% and 1.3% from the Company's amortized cost basis. These unrealized losses related principally to changes in interest rates. As the Company has the ability to hold these securities for the foreseeable future since they are classified as either available-for-sale or held-to-maturity, no declines were deemed to be other than temporary. NOTE 4 - LOANS Loans at period-end were as follows:
March 31, --------September 30,------- 2005 2004 2003 ---- ---- ---- (unaudited) Mortgage loans: One-to-four-family $ 261,986 $ 251,531 $ 215,484 Multi-family and commercial 55,454 43,197 36,202 Construction 8,132 7,175 1,233 Consumer 701 746 780 Home equity 11,249 10,666 8,893 Commercial 663 398 1,610 ------------ ------------ ------------ Total loans 338,185 313,713 264,202 Allowance for loan losses (1,690) (1,578) (1,371) Net deferred loan costs 975 935 796 Loans in process (4,219) (4,100) (783) ------------ ------------ ------------ Loans, net $ 333,251 $ 308,970 $ 262,844 ============ ============ ============
- -------------------------------------------------------------------------------- (Continued) F-20 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 4 - LOANS (Continued) Certain directors and officers of the Bank and companies with which they are affiliated have obtained loans from the Bank on various occasions. A summary of such loans made by the Bank is as follows:
March 31, ---------------September 30,------------- 2005 2004 2003 2002 ---- ---- ---- ---- (unaudited) Beginning balance $ 1,007 $ 1,142 $ 520 $ 285 New loans - 3 624 307 Effect of changes in related parties - 32 265 - Repayments (44) (170) (267) (72) ----------- ----------- ----------- ----------- Ending balance $ 963 $ 1,007 $ 1,142 $ 520 =========== =========== =========== ===========
Activity in the allowance for loan losses was as follows:
Six Months Ended Years Ended ---------March 31,-------- ---------------September 30,-------------- 2005 2004 2004 2003 2002 ---- ---- ---- ---- ---- (unaudited) Balance at beginning of year $ 1,578 $ 1,371 $ 1,371 $ 1,117 $ 1,009 Provision charged to income 112 54 207 254 105 Charge-offs - - - - (1) Recoveries - - - - 4 ----------- ----------- ----------- ----------- ----------- Balance at end of year $ 1,690 $ 1,425 $ 1,578 $ 1,371 $ 1,117 =========== =========== =========== =========== ===========
Mortgage loans serviced for others are not included in the accompanying financial statements. At March 31, 2005 and September 30, 2004 and 2003, the unpaid principal balances of these loans totaled $15,864,921 (unaudited), $16,936,826, and $16,103,798, respectively. Impaired loans were as follows:
March 31, -------September 30,------ 2005 2004 2003 ---- ---- ---- (unaudited) Period-end loans with no allocated allowance for loan losses $ - $ - $ 294 Period-end loans with allocated allowance for loan losses 258 259 250 ----------- ----------- ----------- Total $ 258 $ 259 $ 544 =========== =========== ===========
- -------------------------------------------------------------------------------- (Continued) F-21 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 4 - LOANS (Continued)
March 31, -------September 30,------ 2005 2004 2003 2002 ---- ---- ---- ---- (unaudited) Amount of the allowance for loan losses allocated $129 $129 $125 $ 88 Average of impaired loans during the period 259 398 623 695 Interest income recognized during impairment 5 19 18 26 Cash-basis interest income recognized 5 19 18 26
Nonperforming loans were as follows:
March 31, -------September 30,------ 2005 2004 2003 ---- ---- ---- (unaudited) Loans past due over 90 days still on accrual $ - $ - $ - Nonaccrual loans 351 519 517
Nonperforming loans and impaired loans are defined differently. Some loans may be included in both categories, whereas other loans may only be included in one category. NOTE 5 - ACCRUED INTEREST RECEIVABLE Accrued interest receivable is summarized as follows:
March 31, -------September 30,------ 2005 2004 2003 ---- ---- ---- (unaudited) Securities $ 292 $ 307 $ 352 Loans receivable 1,179 1,052 903 ----------- ----------- ----------- $ 1,471 $ 1,359 $ 1,255 =========== =========== ===========
- -------------------------------------------------------------------------------- (Continued) F-22 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 6 - PREMISES AND EQUIPMENT Premises and equipment are summarized as follows:
March 31, -------September 30,------ 2005 2004 2003 ---- ---- ---- (unaudited) Land $ 840 $ 840 $ 840 Office buildings and improvements 3,700 3,413 3,248 Furniture and equipment 3,570 3,528 3,305 ----------- ----------- ----------- 8,110 7,781 7,393 Less accumulated depreciation 4,051 3,871 3,454 ----------- ----------- ----------- Total $ 4,059 $ 3,910 $ 3,939 =========== =========== ===========
An agreement dated February 22, 2004 to purchase real estate was signed for the acquisition of a future branch site in Essex County. Total purchase price is $1,700,000. The above amounts include $206,905 incurred for a deposit on the contract of sale and professional fees in connection with the acquisition. The balance of $1,530,000 is due at closing. NOTE 7 - DEPOSITS Deposit accounts are summarized as follows:
March 31, -------September 30,------ 2005 2004 2003 ---- ---- ---- (unaudited) Demand deposits $ 24,093 $ 22,599 $ 21,676 NOW and money market accounts 34,018 38,696 21,721 Savings accounts 134,637 143,401 127,720 Certificates of deposit 135,295 118,020 121,709 ------------ ------------ ------------ Total deposits $ 328,043 $ 322,716 $ 292,826 ============ ============ ============
- -------------------------------------------------------------------------------- (Continued) F-23 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 7 - DEPOSITS (Continued) Certificates of deposit accounts with balances over $100,000 totaled $39,200,209 (unaudited), $31,536,775, and $27,756,666 at March 31, 2005 and September 30, 2004 and 2003, respectively. All other deposit accounts with balances over $100,000 totaled $90,655,046 (unaudited), $97,668,361, and $70,174,744 at March 31, 2005 and September 30, 2004 and 2003, respectively. Deposit balances over $100,000 are not federally insured. Scheduled maturities of certificates of deposit were as follows: March 31, 2005 -------------- (unaudited) 2006 $ 83,851 2007 19,496 2008 13,100 2009 6,829 2010 and thereafter 12,019 ------------ $ 135,295 ============ September 30, 2004 ------------------ 2005 $ 72,752 2006 11,717 2007 14,777 2008 6,324 2009 and thereafter 12,450 ------------ $ 118,020 ============ - -------------------------------------------------------------------------------- (Continued) F-24 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 8 - FEDERAL HOME LOAN BANK OF NEW YORK ADVANCES The Bank has multiple advances with the Federal Home Loan Bank with maturities through 2013 and rates ranging from 3.01% to 6.19% at March 31, 2005 (unaudited) and 2.80% to 6.19% at September 30, 2004. One $2.0 million advance with a coupon of 5.797% maturing in 2008 is callable in 2005. Another advance for $1.8 million with a coupon of 4.57% has a five year final maturity in June 2009, with a twenty year amortization schedule. The remaining $64.5 million of Federal Home Loan Bank advances are non-callable. In addition, there is an overnight line of credit borrowing of $2.7 million as of September 30, 2004 with a coupon of 2.04% which matures October 1, 2004. The overnight line of credit borrowing at March 31, 2005 totaled $14.5 million with a coupon of 3.01%. Scheduled repayments and maturities of fixed rate advances from the Federal Home Loan Bank are as follows:
Weighted ---------Average Rate------- March 31, September 30, March 31, September 30, 2005 2004 2005 2004 2003 ---- ---- ---- ---- ---- (unaudited) (unaudited) Maturing in 2004 -% -% $ - $ - $ 4,000 Maturing in 2005 4.57 5.48 29 1,057 2,000 Maturing in 2006 3.51 3.51 8,060 8,060 9,000 Maturing in 2007 4.39 4.39 8,062 8,062 4,000 Maturing in 2008 5.51 5.51 12,065 12,065 12,000 Maturing in 2009 4.88 4.88 7,547 7,547 6,000 Maturing in 2010 5.15 5.15 6,000 6,000 6,000 Maturing in 2011 5.18 5.18 6,000 6,000 6,000 Maturing in 2012 5.22 5.22 5,000 5,000 5,000 Maturing in 2013 4.79 4.79 1,000 1,000 1,000 Overnight line of credit 3.01 2.04 14,500 2,700 - ----------- ----------- ----------- 4.45% 4.72% $ 68,263 $ 57,491 $ 55,000 =========== =========== ===========
At March 31, 2005 and September 30, 2004, the advances are secured primarily by mortgage loans totaling $84,277,032 and $90,957,818 and all stock in the Federal Home Loan Bank totaling $3,513,000 and $2,890,000 under a blanket collateral agreement for the amount of the note outstanding. At March 31, 2005, the Bank's borrowing limit with the Federal Home Loan Bank was approximately $109.3 million. - -------------------------------------------------------------------------------- (Continued) F-25 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 9 - INCOME TAXES An analysis of the provision for income taxes is as follows:
Six Months Ended Years Ended -------March 31,------ ------------September 30,---------- 2005 2004 2004 2003 2002 ---- ---- ---- ---- ---- (unaudited) Current $ 671 $ 677 $ 1,382 $ 663 $ 1,201 Deferred 20 (9) (11) 142 (126) --------- --------- --------- --------- -------- $ 691 $ 668 $ 1,371 $ 805 $ 1,075 ========= ========= ========= ========= ========
A reconciliation of income tax expense at the statutory federal income tax rate and the actual income tax expense was as follows:
Six Months Ended Years Ended -------March 31,------ ------------September 30,---------- 2005 2004 2004 2003 2002 ---- ---- ---- ---- ---- (unaudited) Federal income tax expense at statutory rate $ 641 $ 588 $ 1,201 $ 751 $ 1,008 Increase in taxes resulting from State income taxes, net of federal benefit 74 99 204 120 154 Tax-exempt income from life insurance (45) (39) (70) (77) (35) Nondeductible ESOP expense 16 16 28 - 12 Other, net 5 4 8 11 (64) --------- --------- --------- --------- -------- Income tax expense $ 691 $ 668 $ 1,371 $ 805 $ 1,075 ========= ========= ========= ========= ========
- -------------------------------------------------------------------------------- (Continued) F-26 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 9 - INCOME TAXES (Continued) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
March 31, -------September 30,------ 2005 2004 2003 ---- ---- ---- (unaudited) Deferred tax assets Unrealized loss on securities available-for-sale $ 569 $ 321 $ 269 Provision for loan losses 675 630 527 Deferred loan origination fees 3 3 9 Accrued expenses and other liabilities 708 693 620 ----------- ----------- ----------- Total gross deferred tax assets 1,955 1,647 1,425 Deferred tax liabilities Depreciation 203 203 148 Deferred loan origination costs 665 623 535 Other 66 198 182 ----------- ----------- ----------- Total gross deferred tax liabilities 934 1,024 865 ----------- ----------- ----------- Net deferred tax asset $ 1,021 $ 623 $ 560 =========== =========== ===========
Retained earnings includes allocations for federal income tax purposes representing tax bad debt deductions of approximately $1,500,000 through March 31, 2005 (unaudited) and September 30, 2004 on which no tax has been paid and no deferred federal income taxes have been provided. The related amount of deferred tax liability is approximately $599,000. Reductions of amounts so allocated for purposes other than tax bad debt losses will create income for tax purposes only, which will be subject to the then current corporate income tax rate. NOTE 10 - BENEFIT PLANS The Bank has a directors' retirement plan that provides retirement benefits to all members of the Board of Directors vested under the plan in accordance with the plan document. During the six months ended March 31, 2005 and 2004 and the years ended September 30, 2004, 2003, and 2002 the Bank accrued expenses related to the plan totaling $15,069 (unaudited) and $29,080 (unaudited) and $55,179, $124,404, and $185,613 respectively. - -------------------------------------------------------------------------------- (Continued) F-27 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 10 - BENEFIT PLANS (Continued) The Bank has a 401(k) profit sharing plan covering substantially all employees. Contributions to the plan are made at the discretion of the Board of Directors and charged to expense annually. The plan also allows participant salary deferrals into the plan along with a matching contribution provided by the Bank. Total expenses related to the plan, including employer match and profit sharing contributions, were $119,376 (unaudited) and $116,696 (unaudited) and $248,163, $242,450, and $205,477 for the six months ended March 31, 2005 and 2004, and the years ended September 30, 2004 , 2003, and 2002. During 2002, the Bank implemented a supplemental executive retirement plan that provides benefits to certain key officers in accordance with the plan document. During the six months ended March 31, 2005 and 2004, and the years ended September 30, 2004, 2003 and 2002, Bank expenses related to the plan totaled $117,661 (unaudited) and $102,316 (unaudited) and $204,632, $233,332, and $86,770. During 2002, the Bank also purchased bank-owned life insurance on the individuals covered by the supplemental executive retirement plan. In December 2002, the Bank and four of the Bank's officers entered into employment agreements commencing on January 1, 2003. The Chief Executive Officer's agreement was for a three-year term and the others were for two-year terms. In the event of the involuntary termination of the officer's employment following any change in control of the Bank or ASB Holding Company, absent just cause, the officer shall be paid an amount equal to two times, or three times in the case of the Chief Executive Officer, the officer's five-year average annual taxable cash compensation. In the event the officer's employment is terminated by the Bank without just cause, the Bank is obligated to continue to pay the salary up to the date of termination of the remaining term of the agreement. The Company has also entered into an employment agreement with the Chief Executive Officer with terms of which are substantially the same as the employment agreement with the Bank. However, it provides that if employment is terminated without just cause as defined in the agreement, he will be entitled to a continuation of his salary for three years from the date of termination. NOTE 11 - ESOP PLAN Employees participate in an employee stock option plan (ESOP). The ESOP borrowed from the Company to purchase 133,308 shares of stock at $10.00 per share. The Company makes discretionary contributions to the ESOP, as well as pays dividends on unallocated shares to the ESOP, and the ESOP uses funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation and expense is recorded. Dividends on allocated shares increase participant accounts. - -------------------------------------------------------------------------------- (Continued) F-28 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 11 - ESOP PLAN (Continued) Participants receive the shares at the end of employment. Under the terms of the plan and in accordance with ERISA regulation, a participant may require stock received to be repurchased unless the stock is traded on an established market. The Over The Counter Bulletin Board is not considered to be an established market for purposes of this regulation and a liability has been established to reflect this repurchase obligation. There were no discretionary contributions to the ESOP during the period ended March 31, 2005 or the year ended September 30, 2004. Expense for period ended March 31, 2005 and for the year ended September 30, 2004 was $113,978 and $215,237, respectively. Shares held by the ESOP were as follows:
March 31, September 30, 2005 2004 ---- ---- (unaudited) Allocated to participants 16,913 3,333 Unearned 116,395 129,975 ----------- ----------- Total ESOP shares 133,308 133,308 ----------- ----------- Fair value of unearned shares $ 2,147 $ 2,015 =========== =========== Fair value of allocated shares subject to repurchase obligation $ 312 $ 52 =========== ===========
NOTE 12 - STOCK-BASED COMPENSATION At the annual meeting held on January 20, 2005, stockholders of ASB Holding Company approved the ASB Holding Company 2005 Stock Option Plan and the American Savings Bank of NJ 2005 Restricted Stock Plan. Subject to regulatory approval, 272,171 shares of common stock were made available under the 2005 Stock Option Plan of which all received regulatory approval for award. On January 20, 2005, 259,923 options were awarded at a strike price of $17.37 with the remaining 12,248 shares awarded on May 6, 2005. Also subject to regulatory approval, 108,868 shares of common stock were made available under the 2005 Restricted Stock Plan of which 81,651 received regulatory approval for award. On January 20, 2005, 76,752 shares of restricted stock were awarded with the remaining 4,899 shares awarded on May 6, 2005. - -------------------------------------------------------------------------------- (Continued) F-29 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 12 - STOCK-BASED COMPENSATION (Continued) Shares of common stock issuable pursuant to outstanding options under the 2005 Stock Option Plan will be considered outstanding for purposes of calculating earnings per share on a diluted basis. The Financial Accounting Standards Board has announced a change in the required accounting methods applicable to stock options effective after June 15, 2005, which the Securities and Exchange Commission delayed for six months. Under such accounting requirements, the Company will be required to recognize compensation expense related to stock options outstanding based upon the fair value of such awards at the date of grant over the period that such awards are earned. For accounting purposes, the Bank is recognizing compensation expense for shares of common stock awarded under the 2005 Restricted Stock Plan. Expense is being recognized over the vesting period of five years from the date of award at the fair market value of the shares on the date they were awarded. The fair value of options granted are computed using the Black-Scholes option pricing model, using the following weighted-average assumptions as of grant date. January 20, 2005 (unaudited) Risk free interest rate 3.67% Expected option life 5.0 Expected stock price volatility 22.00% Dividend yield 0.00% Weighted average fair value of options granted during year $4.75 NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to fund loans and previously approved unused lines of credit. The Bank's exposure to credit loss in the event of nonperformance by the parties to these financial instruments is represented by the contractual amount of the instruments. The Bank uses the same credit policy for commitments as it uses for on-balance-sheet items. - -------------------------------------------------------------------------------- (Continued) F-30 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Continued) The contract amount of these financial instruments is summarized as follows: March 31, -------September 30,------ 2005 2004 2003 ---- ---- ---- (unaudited) Commitments to extend credit $ 16,032 $ 14,771 $ 11,590 Unused lines of credit 13,206 13,130 10,286 Construction loans in process 4,219 4,100 783 Fixed rate loan commitments totaled $3,461,400 at March 31, 2005 and have interest rates ranging from 4.625% to 6.125%. Since many commitments expire without being used, the amounts above do not necessarily represent future cash commitments. Collateral may be obtained upon exercise of a commitment. The amount of collateral is determined by management and may include commercial and residential real estate and other business and consumer assets. NOTE 14 - REGULATORY CAPITAL REQUIREMENTS ASB Holding Company as a unitary thrift holding company is not subject to specific regulatory capital guidelines. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. - -------------------------------------------------------------------------------- (Continued) F-31 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 14 - REGULATORY CAPITAL REQUIREMENTS (Continued) The Bank's actual and required capital amounts and ratios are presented below.
To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action -------------------- -------------------- -------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of March 31, 2005 (unaudited) Total capital (to risk-weighted assets) $ 36,546 15.34% $ 19,053 8.0% $ 23,817 10.0% Tier I capital (to risk-weighted) assets) 34,856 14.64 9,527 4.0 14,290 6.0 Tier I (core) capital (to adjusted total assets) 34,856 7.96 17,524 4.0 21,905 5.0 As of September 30, 2004 Total capital (to risk-weighted assets) $ 34,857 15.93% $ 17,505 8.0% $ 21,881 10.0% Tier I capital (to risk-weighted) assets) 33,279 15.21 8,752 4.0 13,129 6.0 Tier I (core) capital (to adjusted total assets) 33,279 7.89 16,865 4.0 21,081 5.0 As of September 30, 2003 Total capital (to risk-weighted assets) $ 24,015 11.9% $ 16,124 8.0% $ 20,155 10.0% Tier I capital (to risk-weighted) assets) 22,644 11.2 8,062 4.0 12,093 6.0 Tier I (core) capital (to adjusted total assets) 22,644 5.3 17,099 4.0 21,374 5.0
As of March 31, 2005 (unaudited) and September 30, 2004, the most recent notification from the Office of Thrift Supervision categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank's category. The following is a reconciliation of the Bank's equity under accounting principles generally accepted in the United States of America ("GAAP") to regulatory capital as of the dates indicated: - -------------------------------------------------------------------------------- (Continued) F-32 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 14 - REGULATORY CAPITAL REQUIREMENTS (Continued)
March 31, -------September 30,------ 2005 2004 2003 ---- ---- ---- (unaudited) GAAP equity $ 33,941 $ 32,818 $ 22,239 Accumulated other comprehensive loss 915 461 405 ----------- ----------- ----------- Tier I capital 34,856 33,279 22,644 General regulatory allowance for loan losses 1,690 1,578 1,371 ----------- ----------- ----------- Total capital $ 36,546 $ 34,857 $ 24,015 =========== =========== ===========
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount and estimated fair value of financial instruments were as follows:
March 31, 2005 -------------------September 30,----------------- ---- (unaudited) 2004 2003 ---- ---- Estimated Estimated Estimated Carrying Fair Carrying Fair Carrying Fair Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- Financial assets Cash and cash equivalents $ 4,841 $ 4,841 $ 8,034 $ 8,034 $ 38,365 $ 38,365 Securities available-for-sale 75,992 75,992 89,495 89,495 107,391 107,391 Securities held-to-maturity 8,526 8,392 2,794 2,806 2,839 2,864 Loans receivable, net 333,251 328,137 308,970 309,268 262,844 266,169 Loans held for sale 302 295 - - 500 500 Federal Home Loan Bank stock 3,513 3,513 2,890 2,890 3,150 3,150 Accrued interest receivable 1,471 1,471 1,359 1,359 1,255 1,255 Financial liabilities Deposits 328,043 327,524 322,716 323,434 292,826 294,690 Stock subscriptions received - - - - 52,137 52,137 Advance payments by borrowers for taxes and insurance 2,490 2,490 2,322 2,322 2,079 2,079 Federal Home Loan Bank advances 68,263 69,167 57,491 59,959 55,000 59,490 Accrued interest payable 276 276 264 264 260 260
- -------------------------------------------------------------------------------- (Continued) F-33 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) - The methods and assumptions used to estimate fair value are described as follows: Carrying amount is the estimated fair value for cash and cash equivalents, Federal Home Loan Bank stock, accrued interest receivable and payable, demand deposits, stock subscriptions received, short-term debt, and variable rate loans or deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes and, if no such information is available, on the rate and term of the security and information about the issuer. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of debt, including Federal Home Loan Bank advances, is based on current rates for similar financing. The fair value of off- balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements. The fair value of these off-balance-sheet items is not material. NOTE 16 - OTHER COMPREHENSIVE LOSS Other comprehensive loss components and related taxes were as follows.
Six Months Ended Years Ended -------March 31,------ ------------September 30,---------- 2005 2004 2004 2003 2002 ---- ---- ---- ---- ---- (unaudited) Unrealized holding losses on available- for-sale securities $ (717) $ 851 $ (129) $ (1,746) $ (215) Reclassification adjustments for losses later recognized in income - - - 188 - --------- --------- --------- --------- -------- Net unrealized gains and losses (717) 851 (129) (1,558) (215) Tax effect 249 340 52 622 42 --------- --------- --------- --------- -------- Other comprehensive income (loss) $ (468) $ 511 $ (77) $ (936) $ (173) ========= ========= ========= ========= =========
- -------------------------------------------------------------------------------- (Continued) F-34 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 17 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Interest Net Interest Net Earnings per Share ------------------ Income Income Income Basic and Fully Diluted ------ ------ ------ ----------------------- 2005 - ---- First quarter $ 5,089 $ 2,846 $ 584 $ 0.11 Second quarter 4,905 2,725 610 0.11 2004 - ---- First quarter $ 4,453 $ 2,367 $ 474 $ 0.09 Second quarter 4,564 2,622 587 0.11 Third quarter 4,471 2,510 537 0.10 Fourth quarter 4,716 2,600 564 0.10 2003 - ---- First quarter $ 4,437 $ 2,184 $ 364 $ 0.09 Second quarter 4,405 2,154 269 0.07 Third quarter 4,413 2,227 500 0.13 Fourth quarter 4,220 2,042 270 0.07 2002 - ---- First quarter $ 4,236 $ 1,858 $ 282 $ 0.07 Second quarter 4,384 2,250 539 0.14 Third quarter 4,443 2,313 563 0.14 Fourth quarter 4,515 2,328 506 0.13
NOTE 18 - ADOPTION OF PLAN OF CONVERSION AND REORGANIZATION (UNAUDITED) On May 17, 2005, the Board of Directors of the MHC and the Bank adopted a plan to form a new state-chartered stock holding company, American Bancorp of New Jersey, Inc. ("Holding Company"). Under the plan, the existing shares of the Company's common stock owned by Public Stockholders will be converted pursuant to an exchange ratio into shares of common stock of the Holding Company ("Holding Company Common Stock"). Simultaneously, with the Conversion and Reorganization, the Holding Company will conduct a stock offering which represents the 70% ownership interest in ASB Holding Company now owned by American Savings, MHC. The Conversion will result in the Bank being wholly owned by a state-chartered stock holding company which is owned by public stockholders. Shares of conversion stock will be offered in a subscription offering in descending order of priority to - -------------------------------------------------------------------------------- (Continued) F-35 ASB HOLDING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002 (Tables in Thousands) - -------------------------------------------------------------------------------- NOTE 18 - ADOPTION OF PLAN OF CONVERSION AND REORGANIZATION (UNAUDITED) (Continued) eligible deposit account holders, the Bank's tax qualified employee benefit plan, then to other members of the Bank. Any shares of the Stock Holding Company's common stock not sold in the subscription offering will be offered for sale to the general public, giving preference to the bank's market area. Upon completion of the plan, the public will own 100% of the outstanding stock of the Holding Company. The Holding Company will own 100% of the Bank. The Bank may not pay dividends to the Holding Company if the dividends would cause the Bank to fall below the "well capitalized" capital threshold. The Holding Company intends to contribute approximately 50% of the proceeds of the offering to the Bank. The balance will be retained as the Holding Company's initial capitalization and may be used for general business purposes including investment in securities, repurchasing shares of its common stock and paying dividends. The funds received by the Bank will be used for general business purposes including originating loans and purchasing securities and may also be used for growth through expansion of the branch office network. Offering costs will be deferred and deducted from the proceeds of the shares sold in the stock offering. If the offering is not completed, all costs will be charged to expense. At March 31, 2005 (unaudited), no costs have been incurred. - -------------------------------------------------------------------------------- F-36 You should rely only on the information contained in this document or to that to which we have referred you. We have not authorized anyone to provide you with information that is different. This document does not constitute an offer to sell, or the solicitation of an offer to buy, any of the securities offered hereby to any person in any jurisdiction in which an offer or solicitation would be unlawful. The affairs of American Bancorp of New Jersey, Inc. and of ASB Holding Company and its subsidiaries may change after the date of this prospectus. Delivery of this document and the sales of shares made hereunder does not mean otherwise. AMERICAN BANCORP OF NEW JERSEY, INC. Proposed Holding Company for American Bank of New Jersey Up to 12,321,428 Shares of Common Stock (Including up to 8,625,000 newly issued shares and up to 3,696,428 shares to be exchanged for shares of ASB Holding Company) ------------ PROSPECTUS ------------ Keefe, Bruyette & Woods, Inc. , 2005 ---------- Until the later of ___________, 2005, or 25 days after commencement of the stock offering, all dealers effecting transactions in these securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of the dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. PART II: INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution * Legal Fees................................................ $ 175,000 * Accounting Fees........................................... 80,000 * Appraisal Fees and reimbursable expenses.................. 52,500 * Business Plan Fees and reimbursable expenses.............. 65,000 * Underwriter's Reimbursable Expenses....................... 70,000 * Underwriting Fees......................................... 902,525 * Nasdaq Entry and Filing Fees.............................. 105,000 * Conversion Agent Fees..................................... 40,000 * Transfer and Exchange Agent Fees.......................... 20,000 * Printing Fees and Expenses................................ 60,000 * Postage and Mailing Expenses.............................. 40,000 * Stock Certificate Expenses................................ 5,000 OTS Filing Fees........................................... 12,000 SEC Filing Fee............................................ 16,700 * EDGAR Expenses............................................ 25,000 NASD Regulation, Inc. Filing Fee.......................... 14,700 * Other..................................................... 19,100 ---------- Total............................................. $1,702,525 ========== - ----------------- * Estimated, at supermax. Item 14. Indemnification of Directors and Officers Article XVIII of the Certificate of Incorporation of American Bancorp of New Jersey, Inc. (the "Company") sets forth circumstances under which directors, officers, employees and agents of the Company may be insured or indemnified against liability which they incur in their capacities as such. ARTICLE XVIII ------------- Indemnification --------------- A. Indemnification. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, including actions by or in the right of the Corporation, whether civil, criminal, administrative, arbitrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or of any constituent corporation absorbed by the Corporation in a consolidation or merger, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, sole proprietorship, trust or other enterprise, against expenses (including attorneys' fees), judgements, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent permissible under New Jersey law. B. Advance Payment. The Corporation may pay in advance any expenses (including attorneys' fees) which may become subject to indemnification under Section A of this Article XVIII if the II-1 person receiving the payment undertakes in writing to repay the same if it is ultimately determined that he or she is not entitled to indemnification by the Corporation under New Jersey law. C. Nonexclusive. The indemnification and advancement of expenses provided by Sections A and B of this Article XVIII or otherwise granted pursuant to New Jersey law shall not be exclusive of any other rights to which a person may be entitled by law, bylaw, agreement, vote of stockholders, or disinterested directors, or otherwise. D. Continuation. The indemnification and advance payment provided by Sections A and B of this Article XVIII shall continue as to a person who has ceased to hold a position named in Section A and shall inure to his or her heirs, executors and administrators. In addition, any repeal or modification of this Article XVIII by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation hereunder or otherwise with respect to any act or omission occurring before such repeal or modification is effective. E. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who holds or who has held any position named in Section A of this Article XVIII, against any liability incurred by him or her in any such position, or arising out of his or her status as such, whether or not the Corporation would have power to indemnify him or her against such liability under this Article XVIII and New Jersey law. F. Savings Clause. If this Article XVIII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer, employee, and agent of the Corporation as to costs, charges, and expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit, or proceeding, whether civil, criminal, administrative, arbitrative or investigative, including an action by or in the right of the Corporation to the full extent permitted by any applicable portion of this Article XVIII that shall not have been invalidated and to the full extent permitted by applicable law. Item 15. Recent Sales of Unregistered Securities. Not Applicable Item 16. Exhibits and Financial Statement Schedules. The exhibits and financial statement schedules filed as part of this Registration Statement are as follows: (a) Exhibits: 1 Form of Sales Agency Agreement with Keefe, Bruyette & Woods, Inc.* 2 Plan of Conversion and Reorganization 3(i) Certificate of Incorporation of American Bancorp of New Jersey, Inc. 3(ii) Bylaws of American Bancorp of New Jersey, Inc. 4 Specimen Stock Certificate of ASB Holding Company 5 Opinion of Malizia Spidi & Fisch, PC regarding legality of securities registered 8.1 Federal Tax Opinion of Malizia Spidi & Fisch, PC II-2 8.2 State Tax Opinion of Crowe Chizek and Company LLC 10.1 Employment Agreement between American Bank of New Jersey and Joseph Kliminski(1) 10.2 Employment Agreement between American Bank of New Jersey and Richard M. Bzdek(1) 10.3 Employment Agreement between American Bank of New Jersey and Eric B. Heyer(1) 10.4 Form of Executive Salary Continuation Agreement(1) 10.5 Employment Agreement between ASB Holding Company and Joseph Kliminski(2) 10.6 Employment Agreement between American Bank of New Jersey and Catherine M. Bringuier 10.7 Employment Agreement between American Bank of New Jersey and Fred G. Kowal(3) 10.8 ASB Holding Company 2005 Stock Option Plan(4) 10.9 American Savings Bank of NJ 2005 Restricted Stock Plan(4) 23.1 Consent of Crowe Chizek and Company LLC 23.2 Consent of RP Financial, LC 23.3 Consent of Malizia Spidi & Fisch, PC (contained in its opinions filed as Exhibits 5.1 and 8.1) 24 Power of Attorney (set forth on the signature page) 99.1 Prospectus Supplement for Interests in the 401(K) Employees' Savings and Profit Sharing Plan and Trust 99.2 Letter of RP Financial, LC as to the value of subscription rights 99.3 Conversion Valuation Appraisal Report prepared by RP Financial, LC 99.4 Marketing Materials* 99.5 Stock Order Form* 99.6 Proxy Statement for Special Meeting of Stockholders of ASB Holding Company(5) - -------------- * To be filed by amendment. (1) Incorporated by reference to the Registration Statement of ASB Holding Company on Form SB-2 (File No. 333-105472) filed with the SEC on May 22, 2003. American Savings Bank of NJ changed its name to American Bank of New Jersey subsequent to entering into these agreements. (2) Incorporated by reference to ASB Holding Company's Annual Report on Form 10-KSB (File No. 000-31789) filed with the SEC on December 24, 2003. (3) Incorporated by reference to the Form 8-K of ASB Holding Company (File No. 000-31789) filed with the SEC on April 18, 2005. (4) Incorporated by reference to the Definitive Proxy Statement of ASB Holding Company for the 2005 Annual Meeting of Stockholders (File No. 000-31789) filed with the SEC on December 28, 2004. American Savings Bank of NJ changed its name to American Bank of New Jersey subsequent to adopting the restricted stock plan. (5) Incorporated by reference to the Preliminary Proxy Statement of ASB Holding Company for the Special Meeting of Stockholders (File No. 000-31789) filed with the SEC on June 17, 2005. (b) Financial Statement Schedules: No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or the notes thereto. II-3 Item 17. Undertakings The undersigned registrant hereby undertakes: (1) To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 ("Securities Act"); (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, the undersigned registrant shall treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) The undersigned registrant shall file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (4) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. (5) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Bloomfield, New Jersey on June 20, 2005. American Bancorp of New Jersey, Inc. By: /s/ Fred G. Kowal --------------------------------------- Fred G. Kowal President and Chief Operating Officer (Duly Authorized Representative) We the undersigned directors and officers of American Bancorp of New Jersey, Inc. do hereby severally constitute and appoint Fred G. Kowal our true and lawful attorney and agent, to do any and all things and acts in our names in the capacities indicated below and to execute all instruments for us and in our names in the capacities indicated below which said Fred G. Kowal may deem necessary or advisable to enable American Bancorp of New Jersey, Inc. to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-1 relating to the offering of American Bancorp of New Jersey, Inc. common stock, including specifically but not limited to, power and authority to sign for us or any of us, in our names in the capacities indicated below, the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby ratify and confirm all that Fred G. Kowal shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on June 20, 2005. /s/ W. George Parker /s/ Joseph Kliminski - -------------------------------------- ------------------------------------- W. George Parker Joseph Kliminski Chairman and Director Chief Executive Officer and Director (Principal Executive Officer) /s/ Eric B. Heyer /s/ Vincent S. Rospond - -------------------------------------- ------------------------------------- Eric B. Heyer Vincent S. Rospond Senior Vice President, Treasurer and Director Chief Financial Officer (Principal Financial and Accounting Officer) /s/ H. Joseph North /s/ James H. Ward, III - -------------------------------------- ------------------------------------- H. Joseph North James H. Ward, III Director Vice Chairman and Director /s/ Stanley Obal /s/ Robert Gaccione - -------------------------------------- ------------------------------------- Stanley Obal Robert Gaccione Director Director /s/ Fred G. Kowal - -------------------------------------- Fred G. Kowal President, Chief Operating Officer and Director II-5 EX-2 2 ex2.txt PLAN OF CONVERSION AND REORGANIZATION - -------------------------------------------------------------------------------- PLAN OF CONVERSION AND REORGANIZATION of AMERICAN SAVINGS, MHC and PLANS OF MERGER between AMERICAN SAVINGS, MHC, ASB HOLDING COMPANY and AMERICAN BANK OF NEW JERSEY ADOPTED ON MAY 17, 2005 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Section Number Page - ------ ---- 1. Introduction........................................................... 1 2. Definitions............................................................ 3 3. General Procedure for Conversion and Reorganization.................... 9 4. Total Number of Shares and Purchase Price of Conversion Stock..................................................... 11 5. Subscription Rights of Eligible Account Holders (First Priority)....... 13 6. Subscription Rights of the Tax-Qualified Employee Stock Benefit Plans (Second Priority)...................................... 14 7. Subscription Rights of Supplemental Eligible Account Holders (Third Priority)..................................................... 14 8. Subscription Rights of Other Members (Fourth Priority)................. 15 9. Community Offering..................................................... 15 10. Syndicated Community Offering/Underwritten Public Offering............. 16 11. Limitations on Subscriptions and Purchases of Conversion Stock......... 17 12. Timing of Subscription Offering; Manner of Exercising Subscription Rights and Order Forms.................................. 19 13. Payment for Conversion Stock........................................... 21 14. Account Holders in Nonqualified States or Foreign Countries............ 22 15. Dissenters' Rights..................................................... 22 16. Voting Rights of Stockholders.......................................... 22 17. Liquidation Account.................................................... 22 18. Transfer of Deposit Accounts........................................... 24 19. Requirements Following Conversion and Reorganization for Registration, Market Making and Stock Exchange Listing............... 24 20. Directors and Officers of the Bank and the Holding Company............. 24 21. Requirements for Stock Purchases by Directors and Officers Following the Conversion and Reorganization........................... 25 22. Restrictions on Transfer of Stock...................................... 25 23. Restrictions on Acquisition of Stock of the Holding Company............ 26 24. Tax Rulings or Opinions................................................ 26 25. Stock Compensation Plans............................................... 27 26. Dividend and Repurchase Restrictions on Stock.......................... 27 27. Payment of Fees to Brokers............................................. 28 28. Effective Date......................................................... 28 29. Amendment or Termination of the Plan................................... 28 30. Interpretation of the Plan............................................. 28
Appendix A - MHC Plan of Merger between Interim Bank No. 1 (formerly the Mutual Holding Company) and the Bank Appendix B - Middle Tier Plan of Merger between Interim Bank No. 2 (formerly Middle Tier Holding Company) and the Bank Appendix C - Bank Plan of Merger between Interim Bank No. 3 (subsidiary of the Holding Company) and the Bank i PLAN OF CONVERSION AND REORGANIZATION 1. INTRODUCTION ------------ For purposes of this section, all capitalized terms have the meaning ascribed to them in Section 2. In 1999, American Bank of New Jersey, formerly American Savings Bank of NJ (the "Bank"), a federally chartered mutual savings bank reorganized into the mutual holding company form of organization and converted to a federal stock savings bank (the "MHC Reorganization"). Subsequent to the MHC Reorganization, in October 2003, ASB Holding Company, a federally chartered corporation which owns all of the stock of the Bank ("Middle Tier Holding Company"), sold 1,666,350 shares (or approximately 30%) of its common stock in a subscription offering at $10.00 per share and issued the remaining 70% to American Savings, MHC. A total of 5,554,500 shares of common stock of ASB Holding Company ("Middle Tier Holding Company Common Stock") were issued in connection with the MHC Stock Offering. Upon completion of these transactions, the Bank remained the wholly owned subsidiary of ASB Holding Company. As of March 31, 2005, the MHC and the Public Stockholders own an aggregate of 3,888,150 (70%) and 1,666,350 (30%) of the outstanding Middle Tier Holding Company Common Stock, respectively. Pursuant to this Plan of Conversion, the Bank will form a new state-chartered stock holding company, ASB Holding Company ("Holding Company") and the existing shares of Middle Tier Holding Company Common Stock owned by Public Stockholders will be converted pursuant to an Exchange Ratio into shares of common stock of the Holding Company ("Holding Company Common Stock"). The Boards of Directors of the Mutual Holding Company, the Middle Tier Holding Company, the Holding Company and the Bank believe that a conversion of the Mutual Holding Company to stock form pursuant to this Plan of Conversion is in the best interests of the Mutual Holding Company and the Bank, as well as the best interests of their respective Members and Stockholders. The Boards of Directors have determined that this Plan of Conversion equitably provides for the interests of Members through the granting of subscription rights and the establishment of a liquidation account. The Conversion will result in the Bank being wholly owned by a state-chartered stock holding company which is owned by public stockholders, which is a more common structure and form of ownership than a mutual holding company. In addition, the Conversion will result in the raising of additional capital for the Bank and the Holding Company to make investments and acquisitions and should result in a more active and liquid market for the Holding Company Common Stock than currently exists for Middle Tier Holding Company Common Stock. The proceeds of the Conversion will enable the Bank to continue to grow its assets and branch office structure, while still maintaining a high level of regulatory capital. Finally, the Conversion is designed to enable the Bank and the Holding Company to compete more effectively in a market which is consolidating. 1 In the current transaction, (i) the Middle Tier Holding Company will convert into an interim federal stock savings bank, which will merge with and into the Bank, and (ii) the Mutual Holding Company will convert into an interim federal stock savings bank and merge with and into the Bank, pursuant to which merger Mutual Holding Company will cease to exist and the shares of Middle Tier Holding Company Stock held by the Mutual Holding Company will be canceled. The Mutual Holding Company will cease to exist and a liquidation account will be established for the benefit of depositor Members as of specified dates. Shares of Middle Tier Holding Company Common Stock held by Public Stockholders shall be automatically converted into the right to receive shares of Holding Company Common Stock based on an Exchange Ratio plus cash in lieu of any fractional share interest. In connection with the Conversion and Mergers, the Holding Company will offer shares of Conversion Stock in the Offerings as provided herein. Shares of Conversion Stock will be offered in a Subscription Offering in descending order of priority to Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders and Other Members. Any shares of Conversion Stock remaining unsold after the Subscription Offering will be offered for sale to the public through a Community Offering and/or Syndicated Community Offering and/or Underwritten Public Offering, as determined by the Boards of Directors of the Holding Company and the Bank in their sole discretion. The Conversion is intended to raise capital and provide support to the Bank's lending and investment activities and thereby enhance the Bank's capabilities to serve the borrowing and other financial needs of the communities it serves. The use of the Holding Company will provide greater organizational flexibility and facilitate acquisitions and the opening and/or purchase of additional branch offices. This Plan is subject to the approval of the OTS and also must be approved by (1) at least a majority of the total number of votes eligible to be cast by Voting Members of the Mutual Holding Company at the Special Meeting, (2) the vote of at least two-thirds of the outstanding shares of Middle Tier Holding Company Common Stock at the Stockholders' Meeting and (3) the vote at the Stockholders' Meeting of at least a majority of the shares of Middle Tier Holding Company Common Stock held by the Public Stockholders. After the Conversion, the Bank will continue to be regulated by the OTS, as its chartering authority, and by the FDIC, which insures the Bank's deposits. In addition, the Bank will continue to be a member of the Federal Home Loan Bank System, and all insured savings deposits will continue to be insured by the FDIC up to the maximum amount provided by law. 2 2. DEFINITIONS ----------- As used in this Plan, the terms set forth below have the following meanings: Account Holder means any person holding a Deposit Account in the Bank. -------------- Acting in Concert. The term Acting in Concert means (i) knowing ------------------ participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; or (ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A person or company which acts in concert with another person or company ("other party") shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any tax-qualified employee stock benefit plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated. The Holding Company and the Bank may determine, in their sole discretion, whether purchasers are "acting in concert" based upon joint account relationships and/or shared addresses on the records of the Bank. Actual Purchase Price means the price per share at which the Conversion --------------------- Stock is ultimately sold by the Holding Company in the Offerings in accordance with the terms hereof. Affiliate means a Person who, directly or indirectly, through one or --------- more intermediaries, controls or is controlled by or is under common control with the Person specified. Associate, when used to indicate a relationship with any Person, means --------- (i) a corporation or organization (other than the Holding Company, the Mutual Holding Company, the Middle Tier Holding Company, the Bank, a majority-owned subsidiary of the Holding Company, Bank or the Middle Tier Holding Company) of which such Person is a director, officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities, (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, provided, however, that such term shall not include any Tax-Qualified Employee Stock Benefit Plan of the Holding Company or the Bank in which such Person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person or who is a director or officer of the Holding Company, the Mutual Holding Company, the Middle Tier Holding Company or the Bank or any of the subsidiaries of the foregoing. Bank means American Bank of New Jersey (formerly American Savings Bank ---- of NJ) in its current stock form as a subsidiary of the Middle Tier Holding Company or American Bank as a subsidiary of the Holding Company following consummation of the Conversion and Reorganization, as the context of the reference indicates. 3 Bank Common Stock means the common stock of the Bank, par value $0.10 ----------------- per share, which stock is not and will not be insured by the FDIC or any other governmental authority. Bank Merger means the merger of Interim Bank No. 3, a subsidiary of the ----------- Holding Company, with and into the Bank. Code means the Internal Revenue Code of 1986, as amended. ---- Community Offering means the offering for sale by the Holding Company ------------------- of any shares of Conversion Stock not subscribed for in the Subscription Offering to (i) Public Stockholders, (ii) natural persons residing in the Local Community, and (iii) such other Persons within or without the State of New Jersey as may be selected by the Holding Company and the Bank within their sole discretion. Control (including the terms "controlling," "controlled by," and "under ------- common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Conversion and Reorganization means (i) the conversion of the Mutual ------------------------------- Holding Company to an interim federal stock savings bank and the subsequent merger, pursuant to which the Mutual Holding Company will cease to exist, (ii) the conversion of Middle Tier Holding Company to an interim federal stock savings bank and merger into Bank, and (iii) the issuance of Conversion Stock by the Holding Company in the Offerings as provided herein. Conversion Stock means the Holding Company Common Stock to be issued ----------------- and sold in the Offerings pursuant to the Plan of Conversion. Deposit Account means savings and demand accounts, including passbook --------------- accounts, money market deposit accounts and negotiable order of withdrawal accounts, and certificates of deposit and other authorized accounts of the Bank held by a Member. Director, Officer and Employee means the terms as applied respectively ------------------------------- to any person who is a director, officer or employee of the Mutual Holding Company, the Bank, the Middle Tier Holding Company, the Holding Company or any subsidiary thereof. Effective Date means the effective date of the Conversion and ---------------- Reorganization, as set forth in Section 28 hereof. Eligible Account Holder means any Person holding a Qualifying Deposit ------------------------ on the Eligibility Record Date for purposes of determining subscription rights and establishing subaccount balances in the liquidation account to be established pursuant to the provision herein. Eligibility Record Date means the date for determining Qualifying ------------------------- Deposits of Eligible Account Holders and is the close of business on March 31, 2004. 4 Estimated Price Range means the range of the estimated aggregate pro ---------------------- forma market value of the Conversion Stock to be issued in the Offerings, as determined by the Independent Appraiser in accordance with Section 4 hereof. Exchange Ratio means the rate at which shares of Holding Company Common -------------- Stock will be received by the Public Stockholders in exchange for their Middle Tier Holding Company Common Stock. The exact rate shall be determined by the Mutual Holding Company and the Holding Company in order to ensure that upon consummation of the Conversion and Reorganization, the Public Stockholders will own in the aggregate approximately the same percentage of the Holding Company Common Stock to be outstanding upon completion of the Conversion and Reorganization as the percentage of Middle Tier Holding Company Common Stock owned by them in the aggregate on the Effective Date, but before giving effect to (a) cash paid in lieu of any fractional interests of Middle Tier Holding Company Common Stock and (b) any shares of Conversion Stock purchased by the Public Stockholders in the Offerings or tax- qualified employee stock benefit plans thereafter. No fractions of a share of Holding Company Common Stock shall be issued; such fractional share interests shall instead be automatically converted into cash based upon the Actual Purchase Price. Exchange Shares means the shares of Holding Company Common Stock to be ---------------- issued to the Public Stockholders in connection with the merger of Interim Bank No. 1 (formerly Mutual Holding Company ("MHC Merger") with and into the Bank. FDIC means the Federal Deposit Insurance Corporation or any successor ---- thereto. Holding Company means ASB Holding Company, a corporation newly ---------------- organized under the laws of the State of New Jersey or any other state selected by the Boards of Directors of the Holding Company and the Bank. At the completion of the Reorganization, the Bank will become a wholly owned subsidiary of the Holding Company. Holding Company Common Stock means the Common Stock of the Holding ------------------------------- Company, par value $.10 per share, which stock cannot and will not be insured by the FDIC or any other governmental authority. Independent Appraiser means the independent investment banking or ---------------------- financial consulting firm retained by the Holding Company and the Bank to prepare an appraisal of the estimated pro forma market value of the Conversion Stock. Initial Purchase Price means the price per share to be paid initially ------------------------ by Participants for shares of Conversion Stock subscribed for in the Subscription Offering and by Public Stockholders and other Persons for shares of Conversion Stock ordered in the Community Offering and/or Syndicated Community Offering. Interim Bank No. 1 means the interim federal stock savings bank that ------------------ will be formed as a result of the conversion of American Savings, MHC into the stock form of organization. 5 Interim Bank No. 2 means the interim federal stock savings bank that ------------------ will be formed as a result of the conversion of Middle Tier Holding Company into an interim federal stock savings bank. Interim Bank No. 3 mean an interim federal stock savings bank wholly ------------------ owned by the Holding Company, which will be merged with and into the Bank. Local Community means all counties in which the Bank has its home ---------------- office or a branch office. Member means any Person qualifying as a member of the Mutual Holding ------ Company in accordance with its mutual charter and bylaws and the laws of the United States. Mergers means the completion of the MHC Merger, the Middle Tier Merger, ------- and the Bank Merger. MHC Merger means the merger of Interim Bank No. 1 (formerly Mutual ----------- Holding Company) with and into the Bank. Middle Tier Merger means the merger of Interim Bank No. 2 (formerly -------------------- Middle Tier Holding Company) with and into the Bank. Middle Tier Holding Company means ASB Holding Company, a corporation ------------------- organized under the laws of the United States that, since the completion of the MHC Reorganization in 1999, has held all of the outstanding capital stock of the Bank. Middle Tier Holding Company Common Stock means the Common Stock of the ----------------------------------------- Middle Tier Holding Company, par value $.10 per share, which stock cannot and will not be insured by the FDIC or any other governmental authority. Mutual Holding Company means American Savings, MHC prior to its ------------------------ conversion into an interim federal stock savings bank. Offerings means the Subscription Offering, the Community Offering, the --------- Syndicated Community Offering and Underwritten Public Offering, if applicable. Officer means the president, chief executive officer, executive vice ------- presidents, senior vice presidents in charge of principal business functions, secretary, treasurer or principal financial officer, comptroller or principal accounting officer and any other person performing similar functions with respect to any organization whether incorporated or unincorporated. Order Form means the form or forms provided by the Holding Company, ---------- containing all such terms and provisions as set forth herein, to a Participant or other Person by which Conversion Stock may be ordered in the Offerings. 6 Other Member means a Voting Member who is not an Eligible Account ------------- Holder or a Supplemental Eligible Account Holder. OTS means the Office of Thrift Supervision or any successor thereto. --- Participant means any Eligible Account Holder, Tax-Qualified Employee ----------- Stock Benefit Plan, Supplemental Eligible Account Holder and Other Member. Person means an individual, a corporation, a partnership, an ------ association, a joint-stock company, a limited liability company, a trust, an unincorporated organization, or a government or political subdivision of a government. Plan and Plan of Conversion mean this Plan of Conversion and ------------------------------- Reorganization and Plan of Merger as adopted by the Boards of Directors of the Mutual Holding Company, the Middle Tier Holding Company and the Bank and any amendments hereto approved as provided herein. The Board of Directors of Interim No. 1, Interim No. 2 and Interim No. 3 shall adopt the Plans of Merger included as Appendices hereto as soon as practicable following their organization. Primary Parties means the Middle Tier Holding Company, Mutual Holding --------------- Company, the Bank and the Holding Company. Prospectus means the one or more documents to be used in offering the ---------- Conversion Stock in the Offerings. Public Stockholders means those Persons who own shares of Middle Tier -------------------- Holding Company Common Stock, excluding the Mutual Holding Company, as of the Stockholder Voting Record Date. Qualifying Deposit means the aggregate balance of all Deposit Accounts ------------------- in the Bank of (i) an Eligible Account Holder at the close of business on the Eligibility Record Date, provided such aggregate balance is not less than $50, and (ii) a Supplemental Eligible Account Holder at the close of business on the Supplemental Eligibility Record Date, provided such aggregate balance is not less than $50. Resident means any person who, on the date designated for that category -------- of subscriber in the Plan, maintained a bona fide residence within the Local Community and has manifested an intent to remain within the Local Community for a period of time. The designated dates for Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are the Eligibility Record Date, the Supplemental Eligibility Record Date and the Voting Record Date, respectively. To the extent the person is a corporation or other business entity, the principal place of business or headquarters must be within the Local Community in order to qualify as a Resident. To the extent the person is a personal benefit plan, the circumstances of the beneficiary shall apply with respect to this definition. In the case of all other benefit plans, circumstances of the trustee shall be examined for purposes of this definition. The Bank may utilize deposit or loan records or such other evidence provided to it to make a determination as to whether a person is a bona fide 7 resident of the Local Community. Subscribers in the Community Offering who are natural persons also will have a purchase preference if they were residents of the Local Community on the date of the Prospectus. In all cases, however, such determination shall be in the sole discretion of the Bank and the Holding Company. SEC means the Securities and Exchange Commission. --- Special Meeting means the Special Meeting of Members of the Mutual ---------------- Holding Company called for the purpose of submitting this Plan to the Members for their approval, including any adjournments of such meeting. Stockholders means those Persons who own shares of Holding Company ------------ Common Stock. Stockholders' Meeting means the annual or special meeting of ----------------------- stockholders of Middle Tier Holding Company called for the purpose of submitting this Plan to the Stockholders for their approval, including any adjournments of such meeting. Stockholder Voting Record Date means the date for determining the --------------------------------- Public Stockholders of the Middle Tier Holding Company eligible to vote at the Stockholders' Meeting. Subscription Offering means the offering of the Conversion Stock to ---------------------- Participants. Subscription Rights means nontransferable rights to subscribe for -------------------- Conversion Stock granted to Participants pursuant to the terms of this Plan. Supplemental Eligible Account Holder means any Person holding a --------------------------------------- Qualifying Deposit at the close of business on the Supplemental Eligibility Record Date. Supplemental Eligibility Record Date, if applicable, means the date for ------------------------------------ determining Qualifying Deposits of Supplemental Eligible Account Holders and shall be required if the Eligibility Record Date is more than 15 months prior to the date of the latest amendment to the Application for Conversion filed by the Mutual Holding Company prior to approval of such application by the OTS. If applicable, the Supplemental Eligibility Record Date shall be the close of business last day of the calendar quarter preceding OTS approval of the Application for Conversion submitted by the Mutual Holding Company pursuant to this Plan of Conversion. Syndicated Community Offering means the offering for sale by a ------------------------------- syndicate of broker- dealers to the general public of shares of Conversion Stock not purchased in the Subscription Offering and the Community Offering. Tax-Qualified Employee Stock Benefit Plan means any defined benefit -------------------------------------------- plan or defined contribution plan, such as an employee stock ownership plan, stock bonus plan, profit-sharing plan or other plan, which is established for the benefit of the employees of the Holding Company and the Bank and which, with its related trust, meets the requirements to be "qualified" under Section 401 of the Code as from time to time in effect. A "Non-Tax-Qualified Employee Stock Benefit 8 Plan" is any defined benefit plan or defined contribution stock benefit plan which is not so qualified. Underwritten Public Offering means the offering of Holding Company ------------------------------ Common Stock following or concurrently with the Subscription Offering and any Community or Syndicated Community Offering by one or more underwriters on a firm commitment basis. Underwriter means one or more investment banking firms that agree in ----------- connection with the Conversion to purchase from the Holding Company and sell to the public in an Underwritten Public Offering shares of Holding Company Common Stock not subscribed for in the Subscription Offering, the Community Offering or any Syndicated Community Offering. Voting Member means a Person who at the close of business on the Voting ------------- Record Date is entitled to vote as a Member of the Mutual Holding Company in accordance with its mutual charter and bylaws. Voting Record Date means the date or dates for determining the -------------------- eligibility of Members to vote at the Special Meeting. 3. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION --------------------------------------------------- A. An Application for the Conversion and Reorganization, including the Plan and all other requisite material (the "Application for Conversion"), shall be submitted to the OTS for approval. The Mutual Holding Company, the Middle Tier Holding Company and the Bank also will cause notice of the adoption of the Plan by the Boards of Directors of the Mutual Holding Company, the Middle Tier Holding Company and the Bank to be given by publication in a newspaper having general circulation in each community in which an office of the Bank is located and will cause copies of the Plan to be made available at each office of the Mutual Holding Company, the Middle Tier Holding Company and the Bank for inspection by Members and Stockholders. The Mutual Holding Company, the Middle Tier Holding Company and the Bank will cause to be published, in accordance with the requirements of applicable regulations of the OTS, a notice of the filing with the OTS of an application to convert the Mutual Holding Company from mutual to stock form. B. Promptly following receipt of requisite approval of the OTS, this Plan will be submitted to the Members for their consideration and approval at the Special Meeting. The Mutual Holding Company may, at its option, mail to all Members as of the Voting Record Date, at their last known address appearing on the records of the Mutual Holding Company and the Bank, a proxy statement in either long or summary form describing the Plan which will be submitted to a vote of the Members at the Special Meeting. The Holding Company also shall mail to all such Members (as well as other Participants) either a Prospectus and Order Form for the purchase of Conversion Stock or a letter informing them of their right to receive a Prospectus and Order Form and a postage prepaid card to request such materials, subject to the provisions herein. The Plan must be approved by the affirmative vote of at least a majority of the total number of votes eligible to be cast by Voting Members at the Special Meeting. 9 C. Subscription Rights to purchase shares of Conversion Stock will be issued without payment therefor to Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders and Other Members. D. The Middle Tier Holding Company shall file preliminary proxy materials with the OTS in order to seek the approval of the Plan by its Stockholders. Promptly following clearance of such proxy materials and the receipt of any other requisite approval of the OTS, the Middle Tier Holding Company will mail definitive proxy materials to all Stockholders as of the Stockholder Voting Record Date, at their last known address appearing on the records of the Middle Tier Holding Company, for their consideration and approval of this Plan at the Stockholders' Meeting. The Plan must be approved by (a) the vote of at least two-thirds of the outstanding shares of Middle Tier Holding Company Common Stock as of the Stockholder Voting Record Date and (b) the vote of at least a majority of the shares of Middle Tier Holding Company Common Stock held by the Public Stockholders as of the Stockholder Voting Record Date. E. The Mutual Holding Company shall apply to convert to a federal interim stock savings bank. F. The Middle Tier Holding Company shall apply to convert to a federal interim stock savings bank. G. The Holding Company shall file a Registration Statement with the SEC to register the Holding Company Common Stock to be issued in the Conversion and Merger under the Securities Act of 1933, as amended, and shall register such Holding Company Common Stock under any applicable state securities laws. Upon registration and after the receipt of all required regulatory approvals, the Conversion Stock shall be first offered for sale in a Subscription Offering to Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders and Other Members. It is anticipated that any shares of Conversion Stock remaining unsold after the Subscription Offering will be sold through a Community Offering and/or a Syndicated Community Offering. The purchase price per share for the Conversion Stock shall be a uniform price determined in accordance with the provisions herein. The Holding Company shall contribute to the Bank an amount of the net proceeds received by the Holding Company from the sale of Conversion Stock as shall be determined by the Boards of Directors of the Holding Company and the Bank and as shall be approved by the OTS. H. The Effective Date of the Conversion and Reorganization shall be the date set forth in Section 28 hereof. Upon the Effective Date, the following transactions shall occur: (i) The Bank will establish the Holding Company as a first-tier state-chartered stock holding company subsidiary. (ii) The Holding Company will form an interim corporation ("Interim Bank No. 3"), a new, wholly owned first-tier subsidiary with an interim federal stock savings bank charter. 10 (iii) Middle Tier Holding Company will adopt an interim federal stock savings bank charter to be known as Interim Bank No. 2; Interim Bank No. 2 will then merge with and into the Bank ("Middle Tier Merger"), with the Bank as the surviving entity. The Mutual Holding Company will receive, and Minority Stockholders will constructively receive, shares of Bank common stock in exchange for their Middle Tier Holding Company common stock. (iv) Immediately following the Middle Tier Merger, the Mutual Holding Company will convert into an interim federal stock savings bank to be known as Interim Bank No. 1. Then, Interim Bank No. 1, formerly the Mutual Holding Company, will merge with and into the Bank with the Bank as the surviving entity ("MHC Merger"). The shares of Bank Common Stock previously held by the Mutual Holding Company (now Interim Bank No. 1) will be canceled. Eligible members of the Mutual Holding Company as of certain specified dates will be granted interests in a liquidation account to be established by the Bank. The amount in the liquidation account will be the greater of (a) 100% of retained earnings as of March 31, 2003 (the date of the latest statement of financial condition contained in the final offering circular utilized in the Bank's initial stock offering), or (b) 70% of Middle Tier Holding Company's total shareholders' equity as reflected in its latest statement of financial condition. (v) Immediately following the MHC Merger, Interim Bank No. 3 will merge with and into the Bank, with the Bank as the surviving entity ("Bank Merger"). As a result of the Bank Merger, Bank stock deemed held by Public Stockholders will be converted into Holding Company Common Stock based upon the Exchange Ratio which is designed to ensure that the same Public Stockholders will own, approximately the same percentage of Holding Company Common Stock as the percentage of Middle Tier Holding Company Common Stock owned by them immediately prior to the Conversion and Reorganization before giving effect to (a) cash paid in lieu of fractional shares and (b) any shares of Holding Company stock purchased by Public Stockholders in the Offering. (vi) Immediately after the Bank Merger, the Holding Company shall sell the Conversion Stock in the Offerings, as provided herein. I. The Primary Parties may retain and pay for the services of financial and other advisors and investment bankers to assist in connection with any or all aspects of the Conversion and Reorganization, including in connection with the Offerings, the payment of fees to brokers and investment bankers for assisting Persons in completing and/or submitting and/or processing Order Forms and staffing and managing the stock sales center. All fees, expenses, retainers and similar items shall be reasonable. 4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION ------------------------------------------------------- STOCK ----- A. The aggregate price at which shares of Conversion Stock shall be sold in the Offerings shall be based on a pro forma valuation of the aggregate market value of the Conversion 11 Stock prepared by the Independent Appraiser. The valuation shall be based on financial information relating to the Primary Parties, market, financial and economic conditions, a comparison of the Primary Parties with selected publicly held financial institutions and holding companies such other factors as the Independent Appraiser may deem to be important. The valuation shall be stated in terms of an Estimated Price Range, the maximum of which shall generally be no more than 15% above the average of the minimum and maximum of such price range and the minimum of which shall generally be no more than 15% below such average. As mandated by OTS regulations, the amount of Conversion Stock is based upon an independent valuation, which is not approved or otherwise determined by the Holding Company or the Board of Directors. The valuation shall be updated during the Conversion as market and financial conditions warrant and as may be required by the OTS. B. Based upon the independent valuation, the Initial Purchase Price and the number (or range) of shares of Conversion Stock ("Offering Range") to be offered in the Offerings shall be established. The Actual Purchase Price and the total number of shares of Conversion Stock to be issued in the Offerings shall be determined upon conclusion of the Offerings, subject to review by the OTS and in consultation with the Independent Appraiser. C. Subject to the approval of the OTS, the Estimated Price Range may be increased or decreased prior to completion of the Conversion to reflect changes in market, financial and economic conditions since the commencement of the Offerings, and under such circumstances the total number of shares of Conversion Stock to be issued in the Conversion may correspondingly be increased or decreased, to reflect any such change. Notwithstanding anything to the contrary contained in this Plan, no resolicitation of subscribers shall be required and subscribers shall not be permitted to modify or cancel their subscriptions unless the aggregate funds received from the offer of the Conversion Stock in the Conversion are less than the minimum or (excluding purchases, if any, by the Holding Company's and the Bank's Tax-Qualified Employee Stock Benefit Plans) more than 15% above the maximum of the Estimated Price Range set forth in the Prospectus. In the event of an increase in the total number of shares offered in the Conversion due to an increase in the Estimated Price Range, the priority of share allocation shall be as set forth in this Plan, provided, however, that such priority will have no effect whatsoever on the ability of the Tax-Qualified Employee Stock Benefit Plans to purchase additional shares pursuant to Section 4.D. D. (i) In the event that Tax-Qualified Employee Stock Benefit Plans are unable to purchase the number of shares subscribed for by such Tax-Qualified Employee Stock Benefit Plans due to an oversubscription for shares of Conversion Stock pursuant to Section 5 hereof, Tax- Qualified Employee Stock Benefit Plans may (unless the Tax-Qualified Employee Stock Benefit Plans elect to purchase stock subsequent to the Offerings in the open market) purchase from the Holding Company, and the Holding Company may sell to the Tax-Qualified Employee Stock Benefit Plans, such additional shares ("Additional Shares") of Holding Company Common Stock necessary to fill the subscriptions of the Tax-Qualified Employee Stock Benefit Plans, provided that such Additional Shares may not exceed 8% of the total number of shares of Conversion Stock sold in the Conversion. The sale of Additional Shares, if necessary, will occur contemporaneously with the sale of the Conversion Stock. The sale of Additional Shares to Tax-Qualified Employee 12 Stock Benefit Plans by the Holding Company is conditioned upon receipt by the Holding Company of a letter from the Independent Appraiser to the effect that such sale would not have a material effect on the Conversion and Reorganization or the Actual Purchase Price and the approval of the OTS. The ability of the Tax-Qualified Employee Stock Benefit Plans to purchase up to an additional 8% of the total number of shares of Conversion Stock sold in the Conversion shall not be affected or limited in any manner by the priorities or purchase limitations otherwise set forth in this Plan of Conversion. (ii) Notwithstanding anything to the contrary contained in this Plan, if the final valuation of the Conversion Stock exceeds the maximum of the Estimated Price Range, up to 8% of the total number of shares of Conversion Stock sold in the Conversion may be sold to Tax- Qualified Stock Benefit Plans prior to filling any other orders for Conversion Stock from such shares in excess of the maximum of the Estimated Price Range. However, at the election of the Holding Company, the Tax-Qualified Stock Benefit Plans may, in whole or in part, fill their orders through open market purchases subsequent to the closing of the Offerings. 5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS ----------------------------------------------- (FIRST PRIORITY) ---------------- A. Each Eligible Account Holder shall receive, without payment, nontransferable Subscription Rights to purchase, subject to the further limitations of Section 11 hereof, up to the greater of (i) the maximum purchase limitation set forth in Section 9 hereof, (ii) one-tenth of 1% of the total offering of shares of Conversion Stock in the Subscription Offering, and (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Conversion Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposit of the Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Eligible Account Holders, subject to Section 14 hereof. B. In the event of an oversubscription for shares of Conversion Stock pursuant to the provisions herein, available shares shall be allocated among subscribing Eligible Account Holders so as to permit each such Eligible Account Holder, to the extent possible, to purchase a number of shares which will make his total allocation equal to the lesser of the number of shares subscribed for or 100 shares. Any available shares remaining after each such subscribing Eligible Account Holder has been allocated the lesser of the number of shares subscribed for or 100 shares shall be allocated among the subscribing Eligible Account Holders in the proportion which the Qualifying Deposit of each such subscribing Eligible Account Holder bears to the total Qualifying Deposits of all such subscribing Eligible Account Holders whose orders are unfilled, provided that no fractional shares shall be issued. Subscription Rights of Eligible Account Holders who are also Directors or Officers and their Associates shall be subordinated to those of other Eligible Account Holders to the extent that they are attributable to increased deposits during the one-year period preceding the Eligibility Record Date. 13 6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE STOCK ------------------------------------------------------- BENEFIT PLANS (SECOND PRIORITY) ------------------------------- Notwithstanding the purchase limitations discussed below, Tax-Qualified Employee Stock Benefit Plans of the Holding Company and the Bank shall receive, without payment, Subscription Rights to purchase in the aggregate up to 10% of the Conversion Stock, including first priority to purchase any shares of Conversion Stock to be issued in the Conversion and Reorganization as a result of an increase in the Estimated Price Range after commencement of the Subscription Offering and prior to completion of the Conversion and Reorganization. The Tax-Qualified Employee Stock Benefit Plans may, in whole or in part, fill their orders through open market purchases subsequent to the closing of the Offering. The Tax-Qualified Employee Stock Benefit Plans shall not be deemed to be Associates or Affiliates of or Persons Acting in Concert with any Director or Officer of the Mutual Holding Company, the Holding Company or the Bank. Consistent with applicable laws, regulations, policies and practices of the OTS, Tax-Qualified Employee Stock Benefit Plans may use funds contributed by the Holding Company or the Bank and/or borrowed from an independent third party to exercise such Subscription Rights, and the Holding Company and the Bank may make scheduled discretionary contributions thereto, provided that such contributions do not cause the Holding Company or the Bank to fail to meet any applicable regulatory capital requirement. 7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT ---------------------------------------------------- HOLDERS (THIRD PRIORITY) ------------------------ A. In the event that the Eligibility Record Date is more than 15 months prior to the date of the latest amendment to the Application for Conversion filed prior to OTS approval, then, and only in that event, a Supplemental Eligibility Record Date shall be set and each Supplemental Eligible Account Holder shall, subject to the further limitations of Section 11 hereof, receive, without payment, Subscription Rights to purchase up to the greater of (i) the maximum purchase limitation set forth in Section 9 hereof, (ii) one-tenth of 1% of the total offering of shares of Conversion Stock in the Subscription Offering, and (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Conversion Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposits of the Supplemental Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Supplemental Eligible Account Holders, subject to Section 13 hereof and the availability of shares of Conversion Stock for purchase after taking into account the shares of Conversion Stock purchased by Eligible Account Holders and Tax-Qualified Employee Stock Benefit Plans though the exercise of Subscription Rights under Sections 5 and 6 hereof. B. In the event of an oversubscription for shares of Conversion Stock, available shares shall be allocated among subscribing Supplemental Eligible Account Holders so as to permit each such Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his total allocation (including the number of shares, if any, allocated in accordance with Section 5.A) equal to the lesser of the number of shares subscribed for or 100 shares. Any remaining available shares shall be allocated among subscribing Supplemental 14 Eligible Account Holders in the proportion that the Qualifying Deposits of each bears to the total amount of the Qualifying Deposits of all such subscribing Supplemental Eligible Account Holders whose orders are unfilled, provided that no fractional shares shall be issued. 8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY) ------------------------------------------------------ A. Each Other Member shall, subject to the further limitations of Section 11 hereof, receive, without payment, Subscription Rights to purchase up to the greater of (i) the maximum purchase limitation set forth in Section 9 hereof and (ii) one-tenth of 1% of the total offering of shares of Conversion Stock in the Subscription Offering, in each case subject to Section 14 hereof and the availability of shares of Conversion Stock for purchase after taking into account the shares of Conversion Stock purchased by Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans, and Supplemental Eligible Account Holders, if any, through the exercise of Subscription Rights under Sections 5, 6 and 7 hereof. B. If, pursuant to this Section, Other Members subscribe for a number of shares of Conversion Stock in excess of the total number of shares of Conversion Stock remaining, available shares shall be allocated among subscribing Other Members so as to permit each such Other Members, to the extent possible, to purchase a number of shares sufficient to make his total allocation equal to the lesser of the number of shares subscribed or 100 shares. Any remaining available shares shall be allocated among subscribing Other Members on a pro rata basis in the same proportion as each such Other Member's subscription bears to the total subscriptions of all such subscribing Other Members whose orders are unfilled, provided that no fractional shares shall be issued. 9. COMMUNITY OFFERING ------------------ A. If less than the total number of shares of Conversion Stock are sold in the Subscription Offering, it is anticipated that all remaining shares of Conversion Stock shall, if practicable, be sold in a Community Offering. Subject to the requirements set forth herein, the manner in which the Conversion Stock is sold in the Community Offering shall have as the objective the achievement of a wide distribution of such stock, subject to the right of the Primary Parties, in their absolute discretion, to accept or reject in whole or in part all orders in the Community Offering. B. In the event of a Community Offering, all shares of Conversion Stock which are not subscribed for in the Subscription Offering shall be offered for sale by means of a direct community marketing program, which may provide for the use of brokers, dealers or investment banking firms experienced in the sale of financial institution securities. Any available shares in excess of those not subscribed for in the Subscription Offering will be available for purchase by members of the general public to whom a Prospectus is delivered by the Holding Company or on its behalf, with preference first given to Public Stockholders as of the Stockholder Voting Record Date and then to natural persons who are Residents of the Local Community ("Preferred Subscribers"). 15 C. A Prospectus and Order Form shall be furnished to such Persons as the Primary Parties may select in connection with the Community Offering, and each order for Conversion Stock in the Community Offering shall be subject to the absolute right of the Primary Parties to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable following completion of the Community Offering. Available shares will be allocated first to each Preferred Subscriber whose order is accepted in an amount equal to the lesser of 100 shares or the number of shares subscribed for by each such Preferred Subscriber, if possible. Thereafter, unallocated shares shall be allocated among the Preferred Subscribers whose accepted orders remain unsatisfied in an equitable manner as determined by the Board of Directors. If there are any shares remaining after all accepted orders by Preferred Subscribers have been satisfied, any remaining shares shall be allocated to other members of the general public who place orders in the Community Offering, applying the same allocation described above for Preferred Subscribers. D. The maximum amount of Conversion Stock that any Person may purchase in the Community Offering shall, subject to the further limitations of Section 11 hereof, not exceed $1,500,000, provided, however, that this amount may be decreased or increased to up to 5% of the total offering of shares in the Conversion and Reorganization, subject to any required regulatory approval but without the further approval of Members of the Mutual Holding Company or the Stockholders of the Middle Tier Holding Company, subject to the preferences set forth in Section 9.B and 9.C of this Plan. The Primary Parties may commence the Community Offering concurrently with, at any time during, or as soon as practicable after the end of, the Subscription Offering, and the Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Primary Parties with any required regulatory approval. 10. SYNDICATED COMMUNITY OFFERING/UNDERWRITTEN PUBLIC ------------------------------------------------- OFFERING. --------- A. Subject to such terms, conditions and procedures as may be determined by the Primary Parties, all shares of Conversion Stock not subscribed for in the Subscription Offering or ordered in the Community Offering may be sold by a syndicate of broker-dealers to the general pubic in a Syndicated Community Offering and/or Underwritten Public Offering . Each order for Conversion Stock in the Syndicated Community Offering or Underwritten Public Offering shall be subject to the absolute right of the Primary Parties to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable after completion of the Syndicated Community Offering or Underwritten Public Offering . The amount of Conversion Stock that any Person may purchase in the Syndicated Community Offering or Underwritten Public Offering shall, subject to the further limitations of Section 11 hereof, not exceed $1,500,000, provided, however, that this amount may be decreased or increased to up to 5% of the total offering of shares in the Conversion and Reorganization, subject to any required regulatory approval but without the further approval of Members of the Mutual Holding Company or the Stockholders of the Middle Tier Holding Company. The Primary Parties may commence the Syndicated Community Offering or Underwritten Public Offering concurrently with, at any time during, or as soon as practicable after the end of, the Subscription Offering and/or the 16 Community Offering. The Syndicated Community Offering or Underwritten Public Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Primary Parties with any required regulatory approval. B. If for any reason a Syndicated Community Offering and/or Underwritten Public Offering of shares of Conversion Stock not sold in the Subscription Offering and the Community Offering cannot be effected, or in the event that any insignificant residue of shares of Conversion Stock is not sold in the Subscription Offering, Community Offering, Syndicated Community Offering or Underwritten Public Offering, the Primary Parties shall use their best efforts to obtain other purchasers for such shares in such manner and upon such conditions as may be satisfactory to the OTS. C. In addition, in any Community Offering, Syndicated Community Offering or Underwritten Public Offering, orders shall first be filled up to a maximum of 2% of the total shares issued in the Offering in a manner that will achieve a wide distribution of the Holding Company Common Stock, and thereafter any remaining shares will be allocated on an equal number of shares per order basis, until all orders have been filled or the shares have been exhausted. 11. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION -------------------------------------------------------- STOCK ----- The following limitations shall apply to all purchases of Conversion Stock: A. The number of shares of Conversion Stock which may be purchased by any Person (or persons through a single account) or persons Acting in Concert, in the First Priority, Third Priority and Fourth Priority in the Subscription Offering shall not exceed such number of shares of Conversion Stock that when combined with Exchange Shares received shall equal $1,500,000 of Holding Company Common Stock, except for Tax-Qualified Employee Stock Benefit Plans, which in the aggregate may subscribe for up to 8% of the Conversion Stock. B. The number of shares of Conversion Stock which may be purchased by any Person in the Public Stockholders, the Community, the Syndicated Community Offerings and/or Underwritten Public Offering shall not exceed such number of shares of Conversion Stock that when combined with Exchange Shares received shall equal $1,500,000 of Holding Company Common Stock. C. Except for the Tax-Qualified Employee Stock Benefit Plans, the maximum number of shares of Conversion Stock which may be purchased in all of the combined categories of the Conversion and Reorganization by any Person (or persons through a single account) together with any Associate or group of persons Acting in Concert shall not exceed such number of shares of Conversion Stock that when combined with Exchange Shares shall equal $2,000,000 of Holding Company Common Stock. 17 D. The number of shares of Conversion Stock which Directors and Officers and their Associates may purchase in the aggregate in the Offering shall not exceed 26% of the total number of shares of Conversion Stock sold in the Offerings, including any shares which may be issued in the event of an increase in the maximum of the Estimated Price Range to reflect changes in market, financial and economic conditions after commencement of the Subscription Offering and prior to completion of the Offerings. E. No Person may purchase fewer than 25 shares of Conversion Stock in the Offerings, to the extent such shares are available; provided, however, that if the Actual Purchase Price is greater than $20.00 per share, such minimum number of shares shall be adjusted so that the aggregate Actual Purchase Price for such minimum shares will not exceed $500.00. F. For purposes of the foregoing limitations and the determination of Subscription Rights, (i) Directors, Officers and Employees shall not be deemed to be Associates or a group acting in concert solely as a result of their capacities as such, (ii) shares purchased by Tax- Qualified Employee Stock Benefit Plans shall not be attributable to the individual trustees or beneficiaries of any such plan for purposes of determining compliance with the limitations set forth in this Section, (iii) shares purchased by Non-Tax-Qualified Employee Stock Benefit Plans shall not be attributable to the individual trustees or beneficiaries of any such plan for purposes of determining compliance with the limitation set forth in this Section, and (iv) Exchange Shares shall be valued at the Actual Purchase Price. G. Subject to any required regulatory approval and the requirements of applicable laws and regulations, but without further approval of the Members of the Mutual Holding Company or the Stockholders of the Middle Tier Holding Company, the Primary Parties may increase or decrease the individual or overall purchase limitations set forth herein to a percentage which does not exceed 5% of the total shares of Holding Company Common Stock issued in the Conversion and Reorganization whether prior to, during or after the Subscription Offering, Community Offering and/or Syndicated Community Offering. Notwithstanding the foregoing, the maximum purchase limitation may be increased up to 9.99%, provided that orders for exceeding 5% of the shares being offered shall not exceed, in the aggregate, 10% of the total offering. In the event that the individual or overall purchase limitations are increased after commencement of the Subscription Offering or any other offering, the Primary Parties shall permit any Person who subscribed for the maximum number of shares of Conversion Stock (plus certain large subscribers as determined in the sole discretion of the Primary Parties) to purchase an additional number of shares, so that such Person shall be permitted to subscribe for the then maximum number of shares permitted to be subscribed for by such Person, subject to the rights and preferences of any Person who has priority Subscription Rights. In the event that the individual or overall purchase limitations are decreased after commencement of the Subscription Offering or any other offering, the orders of any Person who subscribed for more than the new purchase limitation shall be decreased by the minimum amount necessary so that such Person shall be in compliance with the then maximum number of shares permitted to be subscribed for by such Person. H. The Primary Parties shall have the right to take all such action as they may, in their sole discretion, deem necessary, appropriate or advisable in order to monitor and enforce the 18 terms, conditions, limitations and restrictions contained in this Section and elsewhere in this Plan and the terms, conditions and representations contained in the Order Form, including, but not limited to, the absolute right (subject only to any necessary regulatory approvals or concurrences) to reject, limit or revoke acceptance of any subscription or order and to delay, terminate or refuse to consummate any sale of Conversion Stock which they believe might violate, or is designed to, or is any part of a plan to, evade or circumvent such terms, conditions, limitations, restrictions and representations. Any such action shall be final, conclusive and binding on all persons, and the Primary Parties and their respective Boards shall be free from any liability to any Person on account of any such action. I. Notwithstanding anything to the contrary contained in this Plan, except as may otherwise be required by the OTS, the Public Stockholders will generally not have to sell any Mid- Tier Common Stock or be limited in receiving Exchange Shares even if their ownership of Mid- Tier Common Stock when converted into Exchange Shares pursuant to the MHC Merger would exceed an applicable purchase limitation; however, they might be precluded from purchasing any Conversion Stock in the Offerings. 12. TIMING OF SUBSCRIPTION OFFERING; MANNER OF EXERCISING ----------------------------------------------------- SUBSCRIPTION RIGHTS AND ORDER FORMS ----------------------------------- A. The Subscription Offering may be commenced concurrently with or at any time after the mailing to Voting Members of the Mutual Holding Company and Stockholders of the Middle Tier Holding Company of the proxy statement(s) to be used in connection with the Special Meeting and the Stockholders' Meeting. The Subscription Offering may be closed before the Special Meeting and the Stockholders' Meeting, provided that the offer and sale of the Conversion Stock shall be conditioned upon the approval of the Plan by the Voting Members of the Mutual Holding Company and the Stockholders of the Middle Tier Holding Company at the Special Meeting and the Stockholders' Meeting, respectively. B. The exact timing of the commencement of the Subscription Offering shall be determined by the Primary Parties in consultation with the Independent Appraiser and any financial or advisory or investment banking firm retained by them in connection with the Conversion. The Primary Parties may consider a number of factors, including, but not limited to, their current and projected future earnings, local and national economic conditions, and the prevailing market for stocks in general and stocks of financial institutions in particular. The Primary Parties shall have the right to withdraw, terminate, suspend, delay, revoke or modify any such Subscription Offering, at any time and from time to time, as they in their sole discretion may determine, without liability to any Person, subject to compliance with applicable securities laws and any necessary regulatory approval or concurrence. C. The Primary Parties shall, promptly after the SEC has declared the Registration Statement, which includes the Prospectus, effective and all required regulatory approvals have been obtained, distribute or make available the Prospectus, together with Order Forms for the purchase of Conversion Stock, to all Participants for the purpose of enabling them to exercise their 19 respective Subscription Rights, subject to Section 14 hereof. The Primary Parties may elect to mail a Prospectus and Order Form only to those Participants who request such materials by returning a postage-paid card to the Primary Parties by a date specified in the letter informing them of their Subscription Rights. Under such circumstances, the Subscription Offering shall not be closed until the expiration of 30 days after the mailing by the Primary Parties of the postage- paid card to Participants. D. A single Order Form for all Deposit Accounts maintained with the Bank by an Eligible Account Holder, Supplemental Eligible Account Holder and any Other Member may be furnished, irrespective of the number of Deposit Accounts maintained with the Bank on the Eligibility Record Date and Supplemental Eligibility Record Date and the Voting Record Date, respectively. E. The recipient of an Order Form shall have no less than 20 days and no more than 45 days from the date of mailing of the Order Form (with the exact termination date to be set forth on the Order Form) to properly complete and execute the Order Form and deliver it to the Primary Parties. The Primary Parties may extend such period by such amount of time as they determine is appropriate. Failure of any Participant to deliver a properly executed Order Form to the Primary Parties, along with payment (or authorization for payment by withdrawal) for the shares of Conversion Stock subscribed for, within time limits prescribed, shall be deemed a waiver and release by such person of any rights to subscribe for shares of Conversion Stock. Each Participant shall be required to confirm to the Primary Parties by executing an Order Form that such Person has fully complied with all of the terms, conditions, limitations and restrictions in the Plan. F. The Primary Parties shall have the absolute right, in their sole discretion and without liability to any Participant or other Person, to reject any Order Form, including, but not limited to, any Order Form that is (i) improperly completed or executed; (ii) not timely received; (iii) not accompanied by the proper payment (or authorization of withdrawal for payment) or, in the case of institutional investors in the Community Offering, not accompanied by an irrevocable order together with a legally binding commitment to pay the full amount of the purchase price prior to 48 hours before the completion of the Offerings; or (iv) submitted by a Person whose representations the Primary Parties believe to be false or who they otherwise believe, either alone, or acting in concert with others, is violating, evading or circumventing, or intends to violate, evade or circumvent, the terms and conditions of the Plan. The Primary Parties may, but will not be required to, waive any irregularity on any Order Form or may require the submission of corrected Order Forms or the remittance of full payment for shares of Conversion Stock by such date as they may specify. The interpretation of the Primary Parties of the terms and conditions of the Order Forms shall be final and conclusive. 20 13. PAYMENT FOR CONVERSION STOCK ---------------------------- A. Payment for shares of Conversion Stock subscribed for by Participants in the Subscription Offering and payment for shares of Conversion Stock ordered by Public Stockholders and other Persons in the Community Offering and Syndicated Community Offering (if applicable) shall be equal to the Initial Purchase Price multiplied by the number of shares which are being subscribed for or ordered, respectively. Such payment may be made in cash, if delivered in person, or by check or money order at the time the Order Form is delivered to the Primary Parties. In addition, the Primary Parties may elect to provide Participants and/or other Persons who have a Deposit Account with the Bank the opportunity to pay for shares of Conversion Stock by authorizing the Bank to withdraw from such Deposit Account an amount equal to the aggregate Purchase Price of such shares. If the Actual Purchase Price is less than the Initial Purchase Price, the Primary Parties shall refund the difference to all Participants and other Persons, unless the Primary Parties choose to provide Participants and other Persons the opportunity on the Order Form to elect to have such difference applied to the purchase of additional whole shares of Conversion Stock. If the Actual Purchase Price is more than the Initial Purchase Price, the Primary Parties shall reduce the number of shares of Conversion Stock ordered by Participants and other Persons and refund any remaining amount which is attributable to a fractional share interest, unless the Primary Parties choose to provide Participants and other Persons the opportunity to increase the amount of funds submitted to pay for their shares of Conversion Stock. B. Consistent with applicable laws and regulations and policies and practices of the OTS, payment for shares of Conversion Stock subscribed for by Tax-Qualified Employee Stock Benefit Plans may be made with funds contributed by the Holding Company and/or funds obtained pursuant to a loan from an independent third party pursuant to a loan commitment which is in force from the time that any such plan submits an Order Form until the closing of the transactions contemplated hereby. C. If a Participant or other Person authorizes the Bank to withdraw the amount of the Initial Purchase Price from his Deposit Account, the Bank shall have the right to make such withdrawal or to freeze funds equal to the aggregate Initial Purchase Price upon receipt of the Order Form. Notwithstanding any regulatory provisions regarding penalties for early withdrawals from certificate accounts, the Bank may allow payment by means of withdrawal from certificate accounts without the assessment of such penalties. In the case of an early withdrawal of only a portion of such account, the certificate evidencing such account shall be canceled if any applicable minimum balance requirement ceases to be met. In such case, at the sole discretion of the Bank, the remaining balance will be either returned to the depositor or will earn interest at the savings account rate subsequent to the withdrawal. However, where any applicable minimum balance is maintained in such certificate account, the rate of return on the balance of the certificate account shall remain the same as prior to such early withdrawal. This waiver of the early withdrawal penalty applies only to withdrawals made in connection with the purchase of Conversion Stock and is entirely within the discretion of the Primary Parties. D. The Bank shall pay interest, at not less than the passbook rate, for all amounts paid in cash, by check or money order to purchase shares of Conversion Stock in the Subscription 21 Offering and the Community Offering from the date payment is received until the date the Conversion and Reorganization is completed or terminated. E. The Bank shall not knowingly loan funds or otherwise extend credit to any Participant or other Person to purchase Conversion Stock. F. Each share of Conversion Stock shall be non-assessable upon payment in full of the Actual Purchase Price. 14. ACCOUNTHOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES ---------------------------------------------------------- The Primary Parties shall make reasonable efforts to comply with the securities laws of all jurisdictions in the United States in which Participants reside. However, no Participant will be offered or receive any Conversion Stock under the Plan if such Participant resides in a foreign country or resides in a jurisdiction of the United States with respect to which: (a) there are few Participants otherwise eligible to subscribe for shares under this Plan who reside in such jurisdiction; or (b) the granting of Subscription Rights or the offer or sale of shares of Conversion Stock to such Participants would require any of the Primary Parties or their respective Directors and Officers, under the laws of such jurisdiction, to register as a broker-dealer, salesman or selling agent or to register or otherwise qualify the Conversion Stock for sale in such jurisdiction, or any of the Primary Parties would be required to qualify as a foreign corporation or file a consent to service of process in such jurisdiction; and (c) such registration, qualification or filing in the judgment of the Primary Parties would be impracticable or unduly burdensome for reasons of cost or otherwise. 15. DISSENTERS' RIGHTS ------------------ The stockholders of the Middle Tier Holding Company shall have dissenter and appraisal rights in connection with their vote on the Conversion and Reorganization to the extent required by Section 552.14 of the Regulations Applicable to All Savings Associations, or any successor thereto. 16. VOTING RIGHTS OF STOCKHOLDERS ----------------------------- Following consummation of the Conversion and Reorganization, voting rights with respect to the Bank shall be held and exercised exclusively by the Holding Company as holder of all of the Bank's outstanding voting capital stock, and voting rights with respect to the Holding Company shall be held and exercised exclusively by the holders of the Holding Company's voting capital stock. 17. LIQUIDATION ACCOUNT ------------------- A. At the time of the MHC Merger, the Bank shall establish a liquidation account in an amount equal to the greater of (i) the retained earnings of the Bank as of the date of the latest statement of financial condition contained in the final offering circular utilized in the Bank's initial 22 Minority Stock Offering (i.e., March 31, 2003), or (ii) 70% of the Middle Tier Holding Company's total stockholders' equity as reflected in its latest statement of financial condition contained in the final Prospectus utilized in the Conversion and Reorganization. The function of the liquidation account will be to preserve the rights of certain holders of Deposit Accounts in the Bank who maintain such accounts in the Bank following the Conversion and Reorganization to priority to distributions in the unlikely event of a liquidation of the Bank subsequent to the Conversion and Reorganization. B. The liquidation account shall be maintained for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders, if any, who maintain their Deposit Accounts in the Bank after the Conversion and Reorganization. Each such account holder will, with respect to each Deposit Account held, have a related inchoate interest in a portion of the liquidation account balance, which interest will be referred to in this Section as the "subaccount balance." All Deposit Accounts having the same social security number will be aggregated for purposes of determining the initial subaccount balance with respect to such Deposit Accounts, except as provided in this Section. C. In the event of a complete liquidation of the Bank subsequent to the Conversion and Reorganization (and only in such event), each Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall be entitled to receive a liquidation distribution from the liquidation account in the amount of the then current subaccount balances for Deposit Accounts then held (adjusted as described below) before any liquidation distribution may be made with respect to the capital stock of the Bank. No merger, consolidation, sale of bulk assets or similar combination transaction with another FDIC-insured institution in which the Bank is not the surviving entity shall be considered a complete liquidation for this purpose. In any merger or consolidation transaction, the liquidation account shall be assumed by the surviving entity. D. The initial subaccount balance for a Deposit Account held by an Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall be determined by multiplying the opening balance in the liquidation account by a fraction, of which the numerator is the amount of the Qualifying Deposits of such account holder and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible Account Holders, if any. For Deposit Accounts in existence at both the Eligibility Record Date and the Supplemental Eligibility Record Date, if any, separate initial subaccount balances shall be determined on the basis of the Qualifying Deposits in such Deposit Accounts on each such record date. Initial subaccount balances shall not be increased, and shall be subject to downward adjustment as provided below. E. If the aggregate deposit balance in the Deposit Account(s) of any Eligible Account Holder or Supplemental Eligible Account Holder, if any, at the close of business on any June 30 annual closing date is less than the lesser of (a) the aggregate deposit balance in such Deposit Account(s) at the close of business on any other annual closing date subsequent to such record dates or (b) the aggregate deposit balance in such Deposit Account(s) as of the Eligibility Record Date or the Supplemental Eligibility Record Date, the subaccount balance for such Deposit Accounts(s) shall be adjusted by reducing such subaccount balance in an amount proportionate to 23 the reduction in such deposit balance. In the event of such a downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any subsequent increase in the deposit balance of the related Deposit Account(s). The subaccount balance of an Eligible Account Holder or Supplemental Eligible Account Holder, if any, will be reduced to zero if the Account Holder ceases to maintain a Deposit Account at the Bank that has the same social security number as appeared on his Deposit Account(s) at the Eligibility Record Date or, if applicable, the Supplemental Eligibility Record Date. F. Subsequent to the Conversion and Reorganization, the Bank may not pay cash dividends generally on deposit accounts and/or capital stock of the Bank, if such dividend or repurchase would reduce the Bank's regulatory capital below the aggregate amount of the then current subaccount balances for Deposit Accounts then held; otherwise, the existence of the liquidation account shall not operate to restrict the use or application of any of the net worth accounts of the Bank. G. For purposes of this Section, a Deposit Account includes a predecessor or successor account which is held by an Account Holder with the same social security number. 18. TRANSFER OF DEPOSIT ACCOUNTS ---------------------------- Each Deposit Account in the Bank at the time of the consummation of the Conversion and Reorganization shall become, without further action by the holder, a Deposit Account in the Bank equivalent in withdrawable amount to the withdrawal value (as adjusted to give effect to any withdrawal made for the purchase of Conversion Stock), and subject to the same terms and conditions (except as to voting and liquidation rights) as such Deposit Account in the Bank immediately preceding consummation of the Conversion and Reorganization. Holders of Deposit Accounts in the Bank shall not, as such holders, have any voting rights. 19. REQUIREMENTS FOLLOWING CONVERSION AND REORGANIZATION FOR -------------------------------------------------------- REGISTRATION, MARKET MAKING AND STOCK EXCHANGE LISTING ------------------------------------------------------ In connection with the Conversion and Reorganization, the Holding Company shall register the Holding Company Common Stock pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended, and shall undertake not to deregister such stock for a period of three years thereafter. The Holding Company also shall use its best efforts to (i) encourage and assist a market maker to establish and maintain a market for the Holding Company Common Stock and (ii) list the Holding Company Common Stock on a national or regional securities exchange or to have quotations for such stock disseminated on the National Association of Securities Dealers Automated Quotation System. 20. DIRECTORS AND OFFICERS OF THE BANK AND THE HOLDING COMPANY ---------------------------------------------------------- Each person serving as a Director or Officer of the Bank or the Middle Tier Holding Company at the time of the Conversion and Reorganization shall continue to serve as a Director or Officer of the Bank or the Holding Company for the balance of the term for which the person 24 was elected prior to the Conversion and Reorganization, and until a successor is elected and qualified. 21. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS ---------------------------------------------------------- FOLLOWING THE CONVERSION AND REORGANIZATION ------------------------------------------- For a period of three years following the Conversion and Reorganization, the Directors and Officers of the Holding Company and the Bank and their Associates may not purchase, without the prior written approval of the OTS, Holding Company Common Stock except from a broker- dealer registered with the SEC. This prohibition shall not apply, however, to (i) a negotiated transaction arrived at by direct negotiation between buyer and seller and involving more than 1% of the outstanding Holding Company Common Stock and (ii) purchases of stock made by and held by any Tax-Qualified Employee Stock Benefit Plan (and purchases of stock made by and held by any Non-Tax-Qualified Employee Stock Benefit Plan following the receipt of stockholder approval of such plan) which may be attributable to individual officers or directors. The foregoing restriction on purchases of Holding Company Common Stock shall be in addition to any restrictions that may be imposed by federal and state securities laws. 22. RESTRICTIONS ON TRANSFER OF STOCK --------------------------------- All shares of the Conversion Stock which are purchased by Persons other than Directors and Officers shall be transferable without restriction, except in connection with a transaction proscribed by Section 23 of this Plan. Shares of Conversion Stock (excluding Exchange Shares) purchased by Directors and Officers of the Holding Company and the Bank on original issue from the Holding Company (by subscription or otherwise) shall be subject to the restriction that such shares shall not be sold or otherwise disposed of for value for a period of one year following the date of purchase, except for any disposition of such shares following the death of the original purchaser or pursuant to any merger or similar transaction approved by the OTS. The shares of Conversion Stock (excluding Exchange Shares) issued by the Holding Company to Directors and Officers shall bear the following legend giving appropriate notice of such one-year restriction. The shares of stock evidenced by this Certificate are restricted as to transfer for a period of one year from the date of this Certificate pursuant to Part 563b of the Rules and Regulations of the Office of Thrift Supervision. These shares may not be transferred during such one-year period without a legal opinion of counsel for the Company that said transfer is permissible under the provisions of applicable law and regulation. This restrictive legend shall be deemed null and void after one year from the date of this Certificate. The restriction on disposition of Conversion Stock set forth above shall not apply to the following: (1) any exchange of such shares in connection with a merger or acquisition involving the Bank or the Holding Company, as the case may be, which has been approved by the appropriate federal regulatory agency; and (2) any disposition of such shares following the death of the person to whom such shares were initially sold under the terms of the Plan. 25 In addition, the Holding Company shall give appropriate instructions to the transfer agent for the Holding Company Common Stock with respect to the applicable restrictions relating to the transfer of restricted stock. Any shares issued at a later date as a stock dividend, stock split or otherwise with respect to any such restricted stock shall be subject to the same holding period restrictions as may then be applicable to such restricted stock. The foregoing restriction on transfer shall be in addition to any restrictions on transfer that may be imposed by federal and state securities laws. 23. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY ----------------------------------------------------------- The certificate of incorporation of the Holding Company shall prohibit any Person together with Associates or groups of Persons acting in concert from offering to acquire or acquiring, directly or indirectly, beneficial ownership of more than 10% of any class of equity securities of the Holding Company, or of securities convertible into more than 10% of any such class, for five years following completion of the Conversion and Reorganization. The certificate of incorporation of the Holding Company also shall provide that all equity securities beneficially owned by any Person in excess of 10% of any class of equity securities during such five-year period shall be considered "excess shares," and that excess shares shall not be counted as shares entitled to vote and shall not be voted by any Person or counted as voting shares in connection with any matters submitted to the stockholders for a vote. The foregoing restrictions shall not apply to (i) any offer with a view toward public resale made exclusively to the Holding Company by underwriters or a selling group acting on this behalf, (ii) the purchase of shares by a Tax-Qualified Employee Stock Benefit Plan established for the benefit of the employees of the Holding Company and its subsidiaries which is exempt from approval requirements under 12 C.F.R. ss. 574.3(c)(1)(vi) or any successor thereto, and (iii) any offer or acquisition approved in advance by the affirmative vote of two-thirds of the entire Board of Directors of the Holding Company. Directors, Officers or Employees of the Holding Company or the Bank or any subsidiary thereof shall not be deemed to be Associates or a group acting in concert with respect to their individual acquisition of any class of equity securities of the Holding Company solely as a result of their capacities as such. 24. TAX RULINGS OR OPINIONS ----------------------- Consummation of the Conversion and Reorganization is conditioned upon prior receipt by the Primary Parties of either a ruling or an opinion of counsel with respect to federal tax laws, and either a ruling or an opinion of counsel with respect to New Jersey tax laws, to the effect that consummation of the transactions contemplated hereby will not result in a taxable reorganization under the provisions of the applicable codes or otherwise result in any material adverse tax consequences to the Primary Parties or to account holders receiving Subscription Rights before or after the Conversion and Reorganization, except in each case to the extent, if any, that Subscription Rights are deemed to have fair market value on the date such rights are issued. 26 25. STOCK COMPENSATION PLANS ------------------------ A. By voting in favor of this Agreement, the Holding Company shall have approved adoption of the Middle Tier Holding Company's Employee Stock Ownership Plan, 2003 Stock Option Plan, 2003 Restricted Stock Plan, and Employees' Savings & Profit Sharing Plan and Trust (collectively, the "Plans") as plans of the Holding Company and shall have agreed to issue Holding Company Common Stock in lieu of Middle Tier Holding Company Common Stock pursuant to the terms of such Plans. As of the Effective Date, rights outstanding under the Plans shall be assumed by the Holding Company and thereafter shall be rights only for shares of Holding Company Common Stock, with each such right being for a number of shares of Holding Company Common Stock equal to the number of shares of Middle Tier Holding Company Common Stock that were available thereunder immediately prior to the Effective Date times the Exchange Ratio, as defined in the Plan of Conversion, and the price of each such right shall be adjusted to reflect the Exchange Ratio and so that the aggregate purchase price of the right is unaffected, but with no change in any other term or condition of such right. The Holding Company shall make appropriate amendments to the Plans to reflect the adoption of the Plans by the Holding Company without adverse effect upon the rights outstanding thereunder. B. The Holding Company and the Bank are authorized to adopt Tax-Qualified Employee Stock Benefit Plans in connection with the Conversion and Reorganization, including without limitation an employee stock ownership plan. C. The Holding Company and the Bank also are authorized to adopt stock option plans, restricted stock grant plans and other Non-Tax-Qualified Employee Stock Benefit Plans, provided that no stock options shall be granted, and no shares of Conversion Stock shall be purchased, pursuant to any of such plans prior to the earlier of (i) the one-year anniversary of the consummation of the Conversion and Reorganization or (ii) the receipt of stockholder approval of such plans at either the annual or special meeting of stockholders of the Holding Company to be held not earlier than six months after the completion of the Conversion and Reorganization. D. Existing as well as any newly created Tax-Qualified Employee Stock Benefit Plans may purchase shares of Conversion Stock in the Offerings or in the open market subsequent to the Offerings, to the extent permitted by the terms of such benefit plans and this Plan. 26. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK --------------------------------------------- A. Except as may otherwise may be permitted by the OTS, the Holding Company may not repurchase any shares of its capital stock during the first year following consummation of the Conversion and Reorganization. B. The Bank may not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause the regulatory capital of the Bank to be reduced below the amount required for the liquidation account. Any dividend declared or paid on, or repurchase of, the Bank's capital stock also shall be in compliance with Sections 563.140-146 of the Regulations Applicable to All Savings Associations, or any successor thereto. 27 C. Notwithstanding anything to the contrary set forth herein, the Holding Company may repurchase its capital stock to the extent and subject to the requirements set forth in Section 563b.510 of the Regulations Applicable to All Savings Associations, or any successor thereto, or as otherwise may be approved by the OTS. 27. PAYMENT OF FEES TO BROKERS -------------------------- The Primary Parties may elect to offer to pay fees on a per share basis to securities brokers who assist purchasers of Conversion Stock and may elect to engage an investment banking firm as a financial advisor and marketing agent in connection with the Offerings. 28. EFFECTIVE DATE -------------- The Effective Date of the Conversion and Reorganization shall be the date upon which the last of the following actions occurs: (i) the filing of Articles of Combination with the OTS with respect to the Mergers, (ii) the closing of the issuance of the shares of Conversion Stock in the Offerings. The filing of Articles of Combination relating to the Mergers and the closing of the issuance of shares of Conversion Stock in the Offerings shall not occur until all requisite regulatory, Member and Stockholder approvals have been obtained, all applicable waiting periods have expired and sufficient subscriptions and orders for the Conversion Stock have been received. It is intended that the closing of the Mergers and the sale of shares of Conversion Stock in the Offerings shall occur consecutively and substantially simultaneously. 29. AMENDMENT OR TERMINATION OF THE PLAN ------------------------------------ If deemed necessary or desirable by the Boards of Directors of the Primary Parties, this Plan, including the Certificate of Incorporation of the Holding Company and the Charter of the Bank, may be substantively amended, as a result of comments from regulatory authorities or otherwise, at any time prior to the solicitation of proxies from members and Stockholders to vote on the Plan and at any time thereafter with the concurrence of the OTS. Any amendment to this Plan made after approval by the Members and Stockholders with the concurrence of the OTS shall not necessitate further approval by the Members or Stockholders unless otherwise required by the OTS. This Plan shall terminate if the sale of all shares of Conversion Stock is not completed within 24 months from the date of the Special Meeting. Prior to the earlier of the Special Meeting and the Stockholders' Meeting, this Plan may be terminated by the Boards of Directors of the Primary Parties without approval of the OTS; after the Special Meeting or the Stockholder's Meeting, the Boards of Directors may terminate this Plan only with the approval of the OTS. 30. INTERPRETATION OF THE PLAN -------------------------- All interpretations of this Plan and application of its provisions to particular circumstances by a majority of each of the Boards of Directors of the Primary Parties shall be final, subject to the authority of the OTS. 28 APPENDIX A MHC MERGER Plan of Merger Between American Interim Bank No. 1 (Formerly MHC) and the Bank PLAN OF MERGER, dated as of ______________, 2005 ("Plan of Merger") by and between American Interim Bank No. 1, an interim federal stock savings bank, which was formerly American Savings, MHC ("American Interim Bank No. 1" or "Interim Bank No. 1") and American Bank of New Jersey, a federal stock savings bank (the "Bank"). Unless otherwise noted, defined terms shall have the same meaning as those set forth in the Plan of Conversion and Reorganization of American Savings, MHC (the "Mutual Holding Company") and Plans of Merger between the Mutual Holding Company, ASB Holding Company ("Middle Tier Holding Company") and the Bank ("Plan") (of which this Plan of Merger is Appendix A thereto). WITNESSETH: WHEREAS, In 1999, American Bank of New Jersey (formerly "American Savings Bank of NJ") (the "Mutual Association"), a federally chartered mutual savings institution reorganized into the mutual holding company form of organization whereby (i) the Mutual Association converted into a federally chartered, stock savings bank, American Bank (the "Bank"), as a wholly owned subsidiary of the Middle Tier Holding Company, a Federal stock corporation, (ii) the Mutual Association reorganized itself into a federally chartered Mutual Holding Company, which owns a majority of the shares of the Middle Tier Holding Company, and (iii) subsequently, in October 2003, a minority of the shares of Middle Tier Holding Company Common Stock were sold to the public in a Minority Stock Offering; WHEREAS, the Board of Directors of the Mutual Holding Company has determined that it is in the best interests of the Mutual Holding Company and its members to convert from the mutual to stock form of organization; WHEREAS, the Bank is currently a wholly owned subsidiary of the Middle Tier Holding Company, which is currently a majority owned subsidiary of the Mutual Holding Company; WHEREAS, pursuant to the Plan, the Mutual Holding Company will convert into an interim federal stock savings bank to be known as Interim Bank No. 1; WHEREAS, the Mutual Holding Company will receive, and the Minority Stockholders will constructively receive, shares of Bank common stock in exchange for shares of Middle Tier Holding Company common stock; WHEREAS, Middle Tier Holding Company will adopt an interim federal stock savings bank charter to be known as Interim Bank No. 2, which will then merge with and into the Bank ("Middle Tier Merger"), with the Bank as the surviving entity; WHEREAS, immediately following the Middle Tier Merger, Interim Bank No. 1, formerly the Mutual Holding Company, will merge with and into the Bank, with the Bank as the surviving entity ("MHC Merger"). The shares of Bank Common Stock previously held by the Mutual Holding Company (now Interim Bank No. 1) will be canceled. Eligible members of the Mutual Holding Company as of certain specified dates will be granted interests in a Liquidation Account to be established by the Bank; WHEREAS, the Holding Company will form an interim corporation ("Interim Bank No. 3"), a new, wholly-owned first-tier subsidiary with an interim federal stock savings bank charter, and immediately following the MHC Merger, Interim Bank No. 3 will merge with and into the Bank, with the Bank as the surviving entity ("Bank Merger"). As a result of the Bank Merger, Bank stock deemed held by Public Stockholders will be converted into Holding Company Common Stock based upon the Exchange Ratio which is designed to ensure that the same Public Stockholders will own approximately the same percentage of Holding Company Common Stock as the percentage of Middle Tier Holding Company Common Stock owned by them immediately prior to the Conversion. NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, and in accordance with federal law, Interim Bank No. 1 and the Bank hereby agree that, subject to the conditions hereinafter set forth, the Mutual Holding Company shall convert to a federal interim stock savings bank, and Interim Bank No. 1 shall then be merged with and into the Bank with Bank as the surviving entity. The terms and conditions of such merger shall be as follows: 1. Regulatory Approvals. The merger shall not become effective until receipt of approval of the OTS and any other agency having jurisdiction over the merger, if any. 2. Identity and Name of Resulting Bank. The resulting bank in the Merger shall be the Bank, American Bank of New Jersey. 3. Offices of Resulting Bank. The home office of the Bank, as the resulting company, shall be the Bank's office located at 365 Broad Street, Bloomfield, New Jersey. The locations of the branch offices of the resulting savings bank shall be those of the Bank in existence on the date of this Plan of Merger. 4. The Bank's Federal Charter and Bylaws. The federal stock charter and bylaws of the Bank as in effect immediately prior to the effectiveness of the Merger shall be amended as necessary to accomplish the Merger. 5. Effective Date. The effective date of the Conversion and Merger ("Effective Date") shall be the date as soon as practicable after the issuance and/or execution by the OTS and any other federal or state regulatory agencies, of all approvals, certificates and documents as may be required in order to cause the Conversion and the Merger to become effective. A-2 6. Middle Tier Holding Company Stockholder Approval. The affirmative vote of at least two-thirds of the outstanding shares of Middle Tier Holding Company Common Stock and at least a majority of the shares of Middle Tier Holding Company Common Stock which are not held by the Mutual Holding Company shall be required to approve this Plan of Merger. 7. Bank Stockholder Approval. The affirmative vote of the holders of two-thirds of the outstanding shares of the Bank shall be required to approve this Plan of Merger. 8. Mutual Holding Company Approval. The approval of a majority of the members of the Mutual Holding Company, as of a specified date, shall be required to approve this Plan of Merger. 9. Cancellation of Middle Tier Holding Company Common Stock held by the Mutual Holding Company and Member Interests; Liquidation Account. (a) On the Effective Date, (i) each share of Middle Tier Holding Company Common Stock issued and outstanding immediately prior to the Effective Date and held by the Mutual Holding Company shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be canceled, (ii) the interests in the Mutual Holding Company of any person, firm or entity who or which qualified as a member of the Mutual Holding Company in accordance with its mutual charter and bylaws and the laws of the United States prior to the Mutual Holding Company's conversion from mutual to stock form (the "Members") shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be canceled, and (iii) the Bank shall establish a Liquidation Account on behalf of each depositor member of the Mutual Holding Company, as defined in the Plan, in accordance with Section 16 of the Plan. (b) At or after the Effective Date and prior to the Merger, each certificate or certificates theretofore evidencing issued and outstanding shares of Middle Tier Holding Company Common Stock, other than any such certificate or certificates held by the Mutual Holding Company, which shall be canceled, shall be converted into outstanding shares of Holding Company Common Stock based upon the Exchange Ratio which is designed to provide Public Stockholders approximately a percentage of Holding Company Common Stock as Middle Tier Holding Company Stock owned by them before the Conversion and Merger. 10. Dissenting Shares. No Member of the Mutual Holding Company or stockholder of Middle Tier Holding Company or the Bank shall have any dissenter or appraisal rights in connection with the MHC Merger. 11. Deposits of the Bank. All deposit accounts of the Bank shall remain without change in their respective terms, interest rates, maturities, minimum required balances or withdrawal values. After the Effective Date, the resulting savings bank will continue to issue deposit accounts on the same basis as immediately prior to the Effective Date. 12. Effect of Merger. Upon the Effective Date of the Merger, all assets and property (real, personal and mixed, tangible and intangible, chooses in action, rights and credits) then A-3 owned by Interim Bank No. 1 would inure to it, shall immediately by operation of law and without any conveyance, transfer or further action, become the property of the Bank, which shall have, hold and enjoy them in its own right as fully and to the same extent as they were possessed, held and enjoyed by the Bank immediately prior to the Effective Date of the Merger. The resulting bank shall be deemed to be a continuation of the entity of both Interim Bank No. 1 and the Bank and all of the rights and obligations of Interim Bank No. 1 shall remain unimpaired; and the resulting bank, upon the Effective Date of the Merger, shall succeed to all those rights and obligations and the duties and liabilities connected therewith. 13. Directors and Executive Officers. The persons who are the current officers and directors of the Bank will be the directors and officers of the resulting bank and such terms or positions will be unchanged. 14. Abandonment of Plan of Merger. This Plan of Merger may be abandoned by either Interim Bank No. 1 or the Bank at any time before the Effective Date in the manner set forth in Section 28 of the Plan. 15. Amendment of this Plan of Merger. This Plan of Merger may be amended or modified at any time by mutual agreement of the Boards of Directors of Interim Bank No. 1 and the Bank in the manner set forth in Section 28 of the Plan. 16. Governing Law. This Plan of Merger is made pursuant to, and shall be construed and be governed by, the laws of the United States, and the rules and regulations promulgated thereunder, including without limitation, the rules and regulations of the OTS. 17. All Terms Included. This Plan of Merger sets forth all terms, conditions, agreements and understandings of the Mutual Holding Company, Interim Bank No. 1 and the Bank with respect to the Conversion. 18. Counterparts. This Plan of Merger may be executed in several identical counterparts, each of which when executed by the Parties and delivered shall be an original, but all of which together shall constitute a single instrument. In making proof of this Plan of Merger, it shall not be necessary to produce or account for more than one such counterpart. A-4 IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be executed by their duly authorized officers as of the date first above written. AMERICAN SAVINGS, MHC Attest: By: ----------------------------- ----------------------------- Richard M. Bzdek Joseph Kliminski Secretary President AMERICAN INTERIM BANK NO. 1 Attest: By: ----------------------------- ------------------------------ Richard M. Bzdek Joseph Kliminski Secretary President AMERICAN BANK OF NEW JERSEY Attest: By: ----------------------------- ------------------------------ Richard M. Bzdek Joseph Kliminski Secretary Chairman of the Board A-5 APPENDIX B MIDDLE TIER MERGER Plan of Merger Between American Interim Bank No. 2 (Formerly Middle Tier Holding Company) and the Bank PLAN OF MERGER, dated as of _______________, 2005 ("Plan of Merger") by and between American Interim Bank No. 2, an interim federal stock savings bank, which was formerly ASB Holding Company ("Interim Bank No. 2") and American Bank of New Jersey, a federal stock savings bank (the "Bank"). Unless otherwise noted, defined terms shall have the same meaning as those set forth in the Plan of Conversion and Reorganization of American Savings, MHC (the "Mutual Holding Company") and Plans of Merger between the Mutual Holding Company, the Middle Tier Holding Company and the Bank ("Plan") (of which this Plan of Merger is Appendix B thereto). WITNESSETH: WHEREAS, In 1999, American Bank of New Jersey (formerly "American Savings Bank of NJ") (the "Mutual Association"), a federally chartered mutual savings institution reorganized into the mutual holding company form of organization whereby (i) the Mutual Association converted into a federally chartered, stock savings bank, American Bank (the "Bank"), as a wholly owned subsidiary of the Middle Tier Holding Company, a Federal stock corporation, (ii) the Mutual Association reorganized itself into a federally chartered Mutual Holding Company, which owns a majority of the shares of the Middle Tier Holding Company, and (iii) subsequently, in October 2003, a minority of the shares of Middle Tier Holding Company Common Stock were sold to the public in a Minority Stock Offering; WHEREAS, the Board of Directors of the Mutual Holding Company has determined that it is in the best interests of the Mutual Holding Company and its members to convert from the mutual to stock form of organization; WHEREAS, the Bank is currently a wholly owned subsidiary of the Middle Tier Holding Company, which is currently a majority owned subsidiary of the Mutual Holding Company; WHEREAS, pursuant to the Plan, the Mutual Holding Company will convert into an interim federal stock savings bank to be known as Interim Bank No. 1; WHEREAS, the Mutual Holding Company will receive, and the Minority Stockholders will constructively receive, shares of Bank common stock in exchange for shares of Middle Tier Holding Company common stock. WHEREAS, Middle Tier Holding Company will adopt an interim federal stock savings bank charter to be known as Interim Bank No. 2, which will then merge with and into the Bank ("Middle Tier Merger"), with the Bank as the surviving entity; WHEREAS, immediately following the Middle Tier Merger, Interim Bank No. 1, formerly the Mutual Holding Company, will merge with and into the Bank with the Bank as the surviving entity ("MHC Merger"). The shares of Bank Common Stock previously held by the Mutual Holding Company (now Interim Bank No. 1) will be canceled. Eligible members of the Mutual Holding Company as of certain specified dates will be granted interests in a Liquidation Account to be established by the Bank; WHEREAS, the Holding Company will form an interim corporation ("Interim Bank No. 3"), a new, wholly owned first-tier subsidiary with an interim federal stock savings bank charter, and immediately following the MHC Merger, Interim Bank No. 3 will merge with and into the Bank, with the Bank as the surviving entity ("Bank Merger"). As a result of the Bank Merger, Bank stock deemed held by Public Stockholders will be converted into Holding Company Common Stock based upon the Exchange Ratio which is designed to ensure that the same Public Stockholders will own approximately the same percentage of Holding Company Common Stock as the percentage of Middle Tier Holding Company Common Stock owned by them immediately prior to the Conversion. NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, and in accordance with federal law, Interim Bank No. 2 and the Bank hereby agree that, subject to the conditions hereinafter set forth, the Middle Tier Holding Company will adopt a federal interim stock savings bank charter, and Interim Bank No. 2 shall then be merged with and into the Bank with Bank as the surviving entity. The terms and conditions of such merger shall be as follows: 1. Regulatory Approvals. The merger shall not become effective until receipt of approval of the OTS and any other agency having jurisdiction over the merger, if any. 2. Identity and Name of Resulting Bank. The resulting bank in the Merger shall be the Bank, American Bank of New Jersey. 3. Offices of Resulting Bank. The home office of Bank, as the resulting company, shall be the Bank's office located at 365 Broad Street, Bloomfield, New Jersey. The locations of the branch offices of the resulting savings bank shall be those of the Bank in existence on the date of this Plan of Merger. 4. The Bank's Federal Charter and Bylaws. The federal stock charter and bylaws of the Bank as in effect immediately prior to the effectiveness of the Merger shall be amended as necessary to accomplish the Merger. 5. Effective Date. The effective date of the Conversion and Merger ("Effective Date") shall be the date as soon as practicable after the issuance and/or execution by the OTS and any other federal or state regulatory agencies, of all approvals, certificates and documents as may be required in order to cause the Conversion and the Merger to become effective. B-2 6. Middle Tier Holding Company Stockholder Approval. The affirmative vote of at least two-thirds of the outstanding shares of Middle Tier Holding Company Common Stock and at least a majority of the shares of Middle Tier Holding Company Common Stock which are not held by the Mutual Holding Company shall be required to approve this Plan of Merger. 7. Bank Stockholder Approval. The affirmative vote of the holders of two-thirds of the outstanding shares of the Bank shall be required to approve this Plan of Merger. 8. Mutual Holding Company Approval. The approval of a majority of the members of the Mutual Holding Company, as of a specified date shall be required to approve this Plan of Merger. 9. Cancellation of Middle Tier Holding Company Common Stock held by the Mutual Holding Company and Member Interests; Liquidation Account. (a) On the Effective Date, (i) each share of Middle Tier Holding Company Common Stock issued and outstanding immediately prior to the Effective Date and held by the Mutual Holding Company shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be canceled, (ii) the interests in the Mutual Holding Company of any person, firm or entity who or which qualified as a member of the Mutual Holding Company in accordance with its mutual charter and bylaws and the laws of the United States prior to the Mutual Holding Company's conversion from mutual to stock form (the "Members") shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be canceled, and (iii) the Bank shall establish a Liquidation Account on behalf of each depositor member of the Mutual Holding Company, as defined in the Plan, in accordance with Section 16 of the Plan. (b) At or after the Effective Date and prior to the Merger, each certificate or certificates theretofore evidencing issued and outstanding shares of Middle Tier Holding Company Common Stock, other than any such certificate or certificates held by the Mutual Holding Company, which shall be canceled, shall be converted into outstanding shares of Holding Company Common Stock based upon the Exchange Ratio which is designed to provide Public Stockholders approximately a percentage of Holding Company Common Stock as Middle Tier Holding Company Stock owned by them before the Conversion and Merger. 10. Dissenting Shares. The stockholders of the Middle Tier Holding Company shall have dissenter and appraisal rights in connection with their vote on the Conversion and Reorganization to the extent required by Section 552.14 of the Regulations Applicable to All Savings Associations, or any successor thereto. 11. Deposits of the Bank. All deposit accounts of the Bank shall remain without change in their respective terms, interest rates, maturities, minimum required balances or withdrawal values. After the Effective Date, the resulting savings bank will continue to issue deposit accounts on the same basis as immediately prior to the Effective Date. B-3 12. Effect of Merger. Upon the Effective Date of the Merger, all assets and property (real, personal and mixed, tangible and intangible, chooses in action, rights and credits) then owned by Interim Bank No. 2 would inure to it, shall immediately by operation of law and without any conveyance, transfer or further action, become the property of the Bank, which shall have, hold and enjoy them in its own right as fully and to the same extent as they were possessed, held and enjoyed by the Bank immediately prior to the Effective Date of the Merger. The resulting bank shall be deemed to be a continuation of the entity of both Interim Bank No. 2 and the Bank and all of the rights and obligations of Interim Bank No. 2 shall remain unimpaired; and the resulting bank, upon the Effective Date of the Merger, shall succeed to all those rights and obligations and the duties and liabilities connected therewith. 13. Directors and Executive Officers. The persons who are the current officers and directors of the Bank will be the directors and officers of the resulting bank and such terms or positions will be unchanged. 14. Abandonment of Plan of Merger. This Plan of Merger may be abandoned by either Interim Bank No. 2 or the Bank at any time before the Effective Date in the manner set forth in Section 28 of the Plan. 15. Amendment of this Plan of Merger. This Plan of Merger may be amended or modified at any time by mutual agreement of the Boards of Directors of Interim Bank No. 2 and the Bank in the manner set forth in Section 28 of the Plan. 16. Governing Law. This Plan of Merger is made pursuant to, and shall be construed and be governed by, the laws of the United States, and the rules and regulations promulgated thereunder, including without limitation, the rules and regulations of the OTS. 17. All Terms Included. This Plan of Merger sets forth all terms, conditions, agreements and understandings of the Middle Tier Holding Company, Interim Bank No. 2 and the Bank with respect to the Conversion. 18. Counterparts. This Plan of Merger may be executed in several identical counterparts, each of which when executed by the Parties and delivered shall be an original, but all of which together shall constitute a single instrument. In making proof of this Plan of Merger, it shall not be necessary to produce or account for more than one such counterpart. B-4 IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be executed by their duly authorized officers as of the date first above written. AMERICAN SAVINGS, MHC Attest: By: --------------------------- ----------------------------- Richard M. Bzdek Joseph Kliminski Secretary President AMERICAN INTERIM BANK NO. 2 Attest: By: --------------------------- ----------------------------- Richard M. Bzdek Joseph Kliminski Secretary President AMERICAN BANK OF NEW JERSEY Attest: By: --------------------------- ----------------------------- Richard M. Bzdek Joseph Kliminski Secretary Chairman of the Board B-5 APPENDIX C BANK MERGER Plan of Merger Between American Interim Bank No. 3 (Subsidiary of the Holding Company) and the Bank PLAN OF MERGER, dated as of _______________, 2005 ("Plan of Merger") by and between American Interim Bank No. 3, an interim federal stock savings bank ("Interim Bank No. 3") that is a wholly owned subsidiary of ASB Holding Company (the "Holding Company"), and American Bank of New Jersey, a federal stock savings bank (the "Bank"). Unless otherwise noted, defined terms shall have the same meaning as those set forth in the Plan of Conversion and Reorganization of American Savings, MHC (the "Mutual Holding Company") and Plans of Merger between the Mutual Holding Company, ASB Holding Company ("Middle Tier Holding Company") and the Bank ("Plan") (of which this Plan of Merger is Appendix C thereto). WITNESSETH: WHEREAS, In 1999, American Bank of New Jersey (formerly "American Savings Bank of NJ") (the "Mutual Association"), a federally chartered mutual savings institution reorganized into the mutual holding company form of organization whereby (i) the Mutual Association converted into a federally chartered, stock savings bank, American Bank (the "Bank"), as a wholly owned subsidiary of the Middle Tier Holding Company, a Federal stock corporation, (ii) the Mutual Association reorganized itself into a federally chartered Mutual Holding Company, which owns a majority of the shares of the Middle Tier Holding Company, and (iii) subsequently, in October 2003, a minority of the shares of Middle Tier Holding Company Common Stock were sold to the public in a Minority Stock Offering; WHEREAS, the Board of Directors of the Mutual Holding Company has determined that it is in the best interests of the Mutual Holding Company and its members to convert from the mutual to stock form of organization; WHEREAS, the Bank is currently a wholly owned subsidiary of the Middle Tier Holding Company, which is currently a majority owned subsidiary of the Mutual Holding Company; WHEREAS, pursuant to the Plan, the Mutual Holding Company will convert into an interim federal stock savings bank to be known as Interim Bank No. 1; WHEREAS, the Mutual Holding Company will receive, and the Minority Stockholders will constructively receive, shares of Bank common stock in exchange for shares of Middle Tier Holding Company common stock. WHEREAS, Middle Tier Holding Company will adopt an interim federal stock savings bank charter to be known as Interim Bank No. 2, which will then merge with and into the Bank ("Middle Tier Merger"), with the Bank as the surviving entity; C-1 WHEREAS, immediately following the Middle Tier Merger, Interim Bank No. 1, formerly the Mutual Holding Company, will merge with and into the Bank with the Bank as the surviving entity ("MHC Merger"). The shares of Bank Common Stock previously held by the Mutual Holding Company (now Interim Bank No. 1) will be canceled. Eligible members of the Mutual Holding Company as of certain specified dates will be granted interests in a Liquidation Account to be established by the Bank; WHEREAS, Holding Company will form an interim corporation ("Interim Bank No. 3"), a new, wholly owned first-tier subsidiary with an interim federal stock savings bank charter, and immediately following the MHC Merger, Interim Bank No. 3 will merge with and into the Bank, with the Bank as the surviving entity ("Bank Merger"). As a result of the Bank Merger, Bank stock deemed held by Public Stockholders will be converted into Holding Company Common Stock based upon the Exchange Ratio which is designed to ensure that the same Public Stockholders will own approximately the same percentage of Holding Company Common Stock as the percentage of Middle Tier Holding Company Common Stock owned by them immediately prior to the Conversion. NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, and in accordance with federal law, Interim Bank No. 3 and the Bank hereby agree that, subject to the conditions hereinafter set forth, the Holding Company will form as a wholly owned subsidiary, a federal interim stock savings bank, and Interim Bank No. 3 shall then be merged with and into the Bank with Bank as the surviving entity. The terms and conditions of such merger shall be as follows: 1. Regulatory Approvals. The merger shall not become effective until receipt of approval of the OTS and any other agency having jurisdiction over the merger, if any. 2. Identity and Name of Resulting Bank. The resulting bank in the Merger shall be the Bank, American Bank of New Jersey. 3. Offices of Resulting Bank. The home office of Bank, as the resulting company, shall be the Bank's office located at 365 Broad Street, Bloomfield, New Jersey. The locations of the branch offices of the resulting savings bank shall be those of the Bank in existence on the date of this Plan of Merger. 4. The Bank's Federal Charter and Bylaws. The federal stock charter and bylaws of the Bank as in effect immediately prior to the Conversion and Merger shall be amended as necessary to accomplish the Merger. 5. Effective Date. The effective date of the Conversion and Merger ("Effective Date") shall be the date as soon as practicable after the issuance and/or execution by the OTS and any other federal or state regulatory agencies, of all approvals, certificates and documents as may be required in order to cause the Conversion and the Merger to become effective. C-2 6. Middle Tier Holding Company Stockholder Approval. The affirmative vote of at least two-thirds of the outstanding shares of Middle Tier Holding Company Common Stock and at least a majority of the shares of Middle Tier Holding Company Common Stock which are not held by the Mutual Holding Company shall be required to approve this Plan of Merger. 7. Bank/Interim Stockholder Approval. The affirmative vote of the holders of two- thirds of the outstanding shares of the Bank and Interim Bank No. 3 shall be required to approve this Plan of Merger. 8. Mutual Holding Company Approval. The approval of a majority of the members of the Mutual Holding Company, as of a specified date shall be required to approve this Plan of Merger. 9. Cancellation of Middle Tier Holding Company Common Stock held by the Mutual Holding Company and Member Interests; Liquidation Account. (a) On the Effective Date, (i) each share of Middle Tier Holding Company Common Stock issued and outstanding immediately prior to the Effective Date and held by the Mutual Holding Company shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be canceled, (ii) the interests in the Mutual Holding Company of any person, firm or entity who or which qualified as a member of the Mutual Holding Company in accordance with its mutual charter and bylaws and the laws of the United States prior to the Mutual Holding Company's conversion from mutual to stock form (the "Members") shall, by virtue of the Reorganization and without any action on the part of the holder thereof, be canceled, and (iii) the Bank shall establish a Liquidation Account on behalf of each depositor member of the Mutual Holding Company, as defined in the Plan, in accordance with Section 16 of the Plan. (b) At or after the Effective Date and prior to the Merger, each certificate or certificates theretofore evidencing issued and outstanding shares of Middle Tier Holding Company Common Stock, other than any such certificate or certificates held by the Mutual Holding Company, which shall be canceled, shall be converted into outstanding shares of Holding Company Common Stock based upon the Exchange Ratio which is designed to provide Public Stockholders approximately a percentage of Holding Company Common Stock as Middle Tier Holding Company Stock owned by them before the Conversion and Merger. 10. Dissenting Shares. The stockholders of the Middle Tier Holding Company shall have dissenter and appraisal rights in connection with their vote on the Conversion and Reorganization to the extent required by Section 552.14 of the Regulations Applicable to All Savings Associations, or any successor thereto. 11. Deposits of the Bank. All deposit accounts of the Bank shall remain without change in their respective terms, interest rates, maturities, minimum required balances or withdrawal values. After the Effective Date, the resulting savings bank will continue to issue deposit accounts on the same basis as immediately prior to the Effective Date. C-3 12. Effect of Merger. Upon the Effective Date of the Merger, all assets and property (real, personal and mixed, tangible and intangible, chooses in action, rights and credits) then owned by Interim Bank No. 3 would inure to it, shall immediately by operation of law and without any conveyance, transfer or further action, become the property of the Bank, which shall have, hold and enjoy them in its own right as fully and to the same extent as they were possessed, held and enjoyed by the Bank immediately prior to the Effective Date of the Merger. The resulting bank shall be deemed to be a continuation of the entity of both Interim Bank No. 3 and the Bank and all of the rights and obligations of Interim Bank No. 3 shall remain unimpaired; and the resulting bank, upon the Effective Date of the Merger, shall succeed to all those rights and obligations and the duties and liabilities connected therewith. 13. Directors and Executive Officers. The persons who are the current officers and directors of the Bank will be the directors and officers of the resulting bank and such terms or positions will be unchanged. 14. Abandonment of Plan of Merger. This Plan of Merger may be abandoned by either Interim Bank No. 3 or the Bank at any time before the Effective Date in the manner set forth in Section 28 of the Plan. 15. Amendment of this Plan of Merger. This Plan of Merger may be amended or modified at any time by mutual agreement of the Boards of Directors of Interim Bank No. 3 and the Bank in the manner set forth in Section 28 of the Plan. 16. Governing Law. This Plan of Merger is made pursuant to, and shall be construed and be governed by, the laws of the United States, and the rules and regulations promulgated thereunder, including without limitation, the rules and regulations of the OTS. 17. All Terms Included. This Plan of Merger sets forth all terms, conditions, agreements and understandings of the Holding Company, Interim Bank No. 3 and the Bank with respect to the Conversion. 18. Counterparts. This Plan of Merger may be executed in several identical counterparts, each of which when executed by the Parties and delivered shall be an original, but all of which together shall constitute a single instrument. In making proof of this Plan of Merger, it shall not be necessary to produce or account for more than one such counterpart. C-4 IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be executed by their duly authorized officers as of the date first above written. AMERICAN SAVINGS, MHC Attest: By: ---------------------------- -------------------------------- Richard M. Bzdek Joseph Kliminski Secretary President AMERICAN INTERIM BANK NO. 3 Attest: By: ---------------------------- ------------------------------- Richard M. Bzdek Joseph Kliminski Secretary President AMERICAN BANK OF NEW JERSEY Attest: By: ---------------------------- ------------------------------- Richard M. Bzdek Joseph Kliminski Secretary Chairman of the Board C-5 EX-3.(I) 3 ex3-i.txt CERTIFICATE OF INCORPORATION CERTIFICATE OF INCORPORATION OF AMERICAN BANCORP OF NEW JERSEY, INC. ARTICLE I Name ---- The name of the corporation is American Bancorp of New Jersey, Inc. (herein the "Corporation"). ARTICLE II Registered Office ----------------- The address of the Corporation's registered office in the State of New Jersey is 365 Broad Street, Bloomfield, New Jersey 07003 in the County of Essex. The name of the Corporation's registered agent at such address is Richard M. Bzdek. ARTICLE III Powers ------ The purpose of the Corporation is to engage in any activity within the purposes for which corporations may be organized under 14A:2-7 of the New Jersey Business Corporation Act. ARTICLE IV Term ---- The Corporation is to have perpetual existence. ARTICLE V Incorporator ------------ The name and mailing address of the Incorporator is as follows: Name Mailing Address ---- --------------- Joseph Kliminski 365 Broad Street Bloomfield, New Jersey 07003 ARTICLE VI Initial Directors ----------------- The number of directors constituting the initial board of directors of the Corporation is eight (8) and the names and addresses of the persons who are to serve as directors until their successors are elected and qualified, are: Name Mailing Address ---- --------------- Robert A. Gaccione 365 Broad Street Bloomfield, New Jersey 07003 Joseph Kliminski 365 Broad Street Bloomfield, New Jersey 07003 Fred G. Kowal 365 Broad Street Bloomfield, New Jersey 07003 H. Joseph North 365 Broad Street Bloomfield, New Jersey 07003 Stanley Obal 365 Broad Street Bloomfield, New Jersey 07003 W. George Parker 365 Broad Street Bloomfield, New Jersey 07003 Vincent S. Rospond 365 Broad Street Bloomfield, New Jersey 07003 James H. Ward, III 365 Broad Street Bloomfield, New Jersey 07003 ARTICLE VII Capital Stock ------------- The aggregate number of shares of all classes of capital stock which the Corporation has authority to issue is 30,000,000, of which 20,000,000 are to be shares of common stock, $.10 par value per share, and of which 10,000,000 are to be shares of serial preferred stock, $.10 par value per share. The shares may be issued by the Corporation without the approval of stockholders except as otherwise provided in this Article VII or the rules of a national securities exchange, if applicable. The consideration for the issuance of the shares shall be paid to or received by the Corporation in full before their issuance and shall not be less than the par value per share. The consideration for the issuance of the shares shall be cash, services rendered, personal property (tangible or intangible), real property, leases of real property or any combination of the foregoing. In the absence of actual fraud in the transaction, the judgment of the board of directors as to the value of such consideration shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, the part of the surplus of the Corporation which is transferred to stated capital upon the issuance of shares as a stock dividend shall be deemed to be the consideration for their issuance. 2 A description of the different classes and series (if any) of the Corporation's capital stock, and a statement of the relative powers, designations, preferences and rights of the shares of each class and series (if any) of capital stock, and the qualifications, limitations or restrictions thereof, are as follows: A. Common Stock. Except as provided in this Certificate, the holders of ------------ the common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holders. Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and sinking fund or retirement fund or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock, and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends, but only when as declared by the board of directors of the Corporation. In the event of any liquidation, dissolution or winding up of the Corporation, after there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class having preference over the common stock, the full preferential amounts to which they are respectively entitled, the holders of the common stock and of any class or series of stock entitled to participate therewith, in whole or in part, as to distribution of assets shall be entitled, after payment or provision for payment of all debts and liabilities of the Corporation, to receive the remaining assets of the Corporation available for distribution, in cash or in kind. Each share of common stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all the other shares of common stock of the Corporation. B. Serial Preferred Stock. Except as provided in this Certificate, the ---------------------- board of directors of the Corporation is authorized, by resolution or resolutions from time to time adopted, to provide for the issuance of serial preferred stock in series and to fix and state the powers, designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, including, but not limited to determination of any of the following: (1) the distinctive serial designation and the number of shares constituting such series; (2) the dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends; (3) the voting powers, full or limited, if any, of the shares of such series; (4) whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions upon which, such shares may be redeemed; (5) the amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; 3 (6) whether the shares of such series shall be entitled to the benefits of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and, if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemed or purchased through the application of such funds; (7) whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation and, if so convertible or exchangeable, the conversion price or prices, or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (8) the subscription or purchase price and form of consideration for which the shares of such series shall be issued; and (9) whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock. Each share of each series of serial preferred stock shall have the same relative powers, preferences and rights as, and shall be identical in all respects with, all the other shares of the Corporation of the same series. ARTICLE VIII Preemptive Rights ----------------- No holder of any of the shares of any class or series of capital stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series, or any unissued bonds, certificates of indebtedness, debentures of other securities convertible into or exchangeable for stock of any class or series or carrying any right to purchase stock of any class or series; but any such unissued stock, bonds, certificates or indebtedness, debentures or other securities convertible into or exchangeable for stock or carrying any right to purchase stock may be issued pursuant to resolution of the board of directors of the Corporation to such persons, firms, corporations or associations, whether or not holders thereof, and upon such terms as may be deemed advisable by the board of directors in the exercise of its sole discretion. ARTICLE IX Repurchase of Shares -------------------- The Corporation may from time to time, pursuant to authorization by the board of directors of the Corporation and without action by the stockholders, purchase or otherwise acquire shares of capital stock of any class, bonds, debentures, notes, script, warrants, obligations, evidences of indebtedness, or other securities of the Corporation in such manner, upon such terms, and in such amounts as the board of directors shall determine; subject, however, to such limitations or restrictions, if any, as are contained in the express terms of any class of shares of the Corporation outstanding at the time of the purchase or acquisition or as are imposed by law or regulation. 4 ARTICLE X Meetings of Stockholders; Cumulative Voting; Proxies ---------------------------------------------------- A. Notwithstanding any other provision of this Certificate or the Bylaws of the Corporation, any action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, if all stockholders entitled to vote thereon consent thereto in writing. The power of stockholders to take action by non-unanimous consent is specifically denied. In the case of a merger, consolidation, acquisition of all capital shares of the Corporation or sale of assets, such action may be taken without a meeting only if all stockholders consent in writing, or if all stockholders entitled to vote consent in writing and all other stockholders are provided the advance notification required by Section 14A:5-6(2)(b) of the New Jersey Business Corporation Act. B. Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Chairman of the Board of the Corporation, the President of the Corporation, by a majority of the board of directors of the Corporation, or by a committee of the board of directors which has been duly designated by the board of directors and whose powers and authorities, as provided in a resolution of the board of directors or in the Bylaws of the Corporation, include the power and authority to call such meetings, but no other person or persons may call a special meeting of the stockholders except as provided by the New Jersey Business Corporation Act. C. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after eleven months from its date, unless the proxy provides for a longer period. To be valid, a proxy must be executed and authorized as required or permitted by law. Without limiting the manner in which a stockholder may authorize another person or persons to act for him or her as proxy, the following shall constitute a valid means by which a stockholder may grant such authority. 1. A stockholder may execute a writing authorizing another person or persons to act for him or her as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature. 2. A stockholder may authorize another person or persons to act for him or her as proxy by transmitting or authorizing the transmission of a facsimile telecommunication, telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such facsimile telecommunication, telegram, cablegram or other means of electronic transmission, must either set forth or be submitted with information from which it can be determined that the facsimile telecommunication, telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such facsimile telecommunications, telegrams, cablegrams or other electronic transmission are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. 5 3. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this section may be substituted or used in lieu of the original writing or transmission for any or all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. D. There shall be no cumulative voting by stockholders of any class or series in the election of directors of the Corporation. E. Meetings of stockholders may be held within or outside the State of New Jersey, as the Bylaws may provide. F. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of voting stock shall constitute a quorum at a meeting of stockholders. ARTICLE XI Notice for Nominations and Proposals ------------------------------------ Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation. ARTICLE XII Directors --------- A. Number; Vacancies. The number of directors of the Corporation shall ------------------ be such number as shall be provided from time to time in or in accordance with the Bylaws, provided that a decrease in the number of directors shall not have the effect of shortening the term of any incumbent director, and provided further that no action shall be taken to decrease or increase the number of directors from time to time unless at least two-thirds of the directors then in office shall concur in said action. Vacancies in the board of directors of the Corporation, however caused, and newly-created directorships shall be filled by a vote of a majority of the directors then in office, whether or not a quorum, or by a sole remaining director, and any director so chosen shall hold office for a term expiring at the next annual meeting of stockholders. B. Classified Board. The board of directors of the Corporation shall be ---------------- divided into four classes of directors, which shall be designated Class I, Class II, Class III and Class IV. The members of each class shall be elected for a term of four years and until their successors are elected and qualified. Such classes shall be as nearly equal in number as the then total number of directors constituting the entire board of directors shall permit, with the terms of office of all members of one class expiring each year. At the first annual meeting of stockholders, directors in Class I shall be elected to hold office for a term expiring at the fourth succeeding annual meeting thereafter, directors of Class II shall be elected to hold office for a term expiring at the third succeeding meeting thereafter, directors of Class III shall be elected to hold office for a term expiring at the second succeeding annual meeting thereafter, and directors of Class IV shall be elected to hold office for a term expiring at the first succeeding annual meeting thereafter. Directors whose term shall expire at any annual meeting shall continue to serve until such time as his or her successor shall have been duly elected and shall have qualified unless his or her position on the board of directors shall have been abolished by action taken to reduce the size of the board of directors prior to said meeting. 6 If the number of directors of the Corporation is reduced, the directorship(s) eliminated shall be allocated among classes as appropriate so that the number of directors in each class is as specified in the immediately preceding paragraph. The board of directors shall designate, by the name of the incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. If the number of directors of the Corporation is increased, the additional directorships shall be allocated among classes as appropriate so that the number of directors in each class is as specified in the immediately preceding paragraph. Whenever the holders of any one or more series of preferred stock of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the board of directors shall consist of said directors so elected in addition to the number of directors fixed as provided above in this Article XII. Notwithstanding the foregoing, and except as otherwise may be required by law, whenever the holders of any one or more series of preferred stock of the Corporation shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the terms of the director or directors elected by such holders shall expire at the next succeeding annual meeting of stockholders. ARTICLE XIII Removal of Directors -------------------- Notwithstanding any other provision of this Certificate or the Bylaws of the Corporation, any director or the entire board of directors of the Corporation may be removed for cause, at any time, by the affirmative vote of the holders of at least 80% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose. In addition, the board of directors shall have the power to remove directors for cause and to suspend directors pending a final determination that cause exists for removal. ARTICLE XIV Certain Limitations on Voting Rights ------------------------------------ A. Limitations. Notwithstanding any other provision of this Certificate ----------- of Incorporation, in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit. The number of votes which may be cast by any record owner by virtue of the provisions hereof in respect of Common Stock beneficially owned by such person owning shares in excess of the Limit shall be a number equal to the total number of votes which a single record owner of all Common Stock owned by such person would be entitled to cast, multiplied by a fraction, the numerator of which is the number of shares of such class or series which are both beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such person owning shares in excess of the Limit. Further, for a period of five years from the completion of the conversion of American Savings, MHC from mutual to stock form, no person shall directly or indirectly Offer to acquire or acquire the beneficial ownership of more than 10% of any class of any equity security of the Corporation. 7 B. Exclusions. The provisions of the foregoing Section A of this ---------- Article XIV shall not apply to: (1) the acquisition of more than 10% of any class of equity security by any tax-qualified defined benefit plan or defined contribution plan of the Corporation or its subsidiaries; (2) the purchase of shares by underwriters in connection with a public offering; or (3) the Offer to acquire or the acquisition of more than 10% of any class of equity security of the Corporation if such Offer to acquire or acquisition has been approved by two-thirds of those members of the Board of Directors who were directors prior to the Offer to acquire or acquisition. C. Definitions. The following definitions shall apply to this Article ----------- XIV. 1. "Beneficial Ownership" (including "Beneficially Owned") shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or provision thereto, pursuant to said Rule 13d-3 as in effect on the date of filing of this Certificate of Incorporation; provided, however, that a person shall, in any event, also be deemed the "beneficial owner" of any Common Stock: (a) which such person or any of its affiliates (as defined in Article XV) beneficially owns, directly or indirectly; (b) which such person or any of its affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the Beneficial Owner of any Voting Shares (as defined in Article XV) solely by reason of an agreement, contract, or other arrangement with this Corporation to effect any transaction which is described in any one or more of sections of Article XV) or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the Beneficial Owner of any Voting Shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such affiliate is otherwise deemed the Beneficial Owner); or (c) which are Beneficially Owned, directly or indirectly, by any other person with which such first mentioned person or any of its affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of this Corporation; and provided further, however, that (1) no director or officer of this Corporation (or any affiliate of any such director or officer) shall, solely by reason of any or all of such Directors or Officers acting in their capacities as such, be deemed, for any purposes hereof, to Beneficially Own any Common Stock Beneficially Owned 8 by any other such director or officer (or any affiliate thereof), and (2) neither any employee stock ownership or similar plan of this Corporation or any subsidiary of this Corporation, nor any trustee with respect thereto or any affiliate of such trustee (solely by reason of such capacity of such trustee), shall be deemed, for any purposes hereof, to Beneficially Own any Common Stock held under any such plan. For purposes of computing the percentage Beneficial Ownership of Common Stock of a person, the outstanding Common Stock shall include shares deemed owned by such person through application of this subsection but shall not include any other Common Stock that may be issuable by this Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the outstanding Common Stock shall include only Common Stock then outstanding and shall not include any Common Stock which may be issuable by this Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise. 2. The term "Offer" shall mean every written offer to buy or acquire, solicitation of an offer to sell, tender offer or request or invitation for tender of, a security or interest in a security for value; provided that the term "Offer" shall not include (i) inquiries directed solely to the management of the Corporation and not intended to be communicated to stockholders which are designed to elicit an indication of management's receptivity to the basic structure of a potential acquisition with respect to the amount of cash and/or securities, manner of acquisition and formula for determining price, or (ii) non-binding expressions of understanding or letters of intent with the management of the Corporation regarding the basic structure of a potential acquisition with respect to the amount of cash and/or securities, manner of acquisition and formula for determining price. 3. "Person" shall mean any individual, firm, corporation, or other entity. D. Board Determinations. The Board of Directors shall have the power to -------------------- construe and apply the provisions of this Article XIV and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (i) the number of shares of Common Stock Beneficially Owned by any person, (ii) whether a person is an affiliate of another, (iii) whether a person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (iv) the application of any other definition or operative provision of Article XIV to the given facts, or (v) any other matter relating to the applicability or effect of this Article XIV. Any constructions, applications, or determinations made by the directors pursuant to this Article XIV in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its stockholders. E. Demand for Information; Investigation. The Board of Directors shall -------------------------------------- have the right to demand that any person who is reasonably believed to Beneficially Own Common Stock in excess of the Limit (or holders of record of Common Stock Beneficially Owned by any person in excess of the Limit) ("Holder in Excess") supply the Corporation with complete information as to (i) the record owner(s) of all shares Beneficially Owned by such person who is reasonably believed to own shares in excess of the Limit and (ii) any other factual matter relating to the applicability or effect of this Article XIV as may reasonably be requested of such person. The Board of Directors shall further have the right to receive from any Holder in Excess reimbursement for all expenses incurred by the Board in connection with its investigation of any matters relating to the applicability or effect of this section on such Holder in Excess, to the extent such investigation is deemed appropriate by the Board of Directors as a result of the Holder in Excess refusing to supply the Corporation with the information described in the previous sentence. F. Quorum Requirements. Except as otherwise provided by law or -------------------- expressly provided in this Article XIV, the presence in person or by proxy, of the holders of record of shares of capital stock of the 9 Corporation entitling the holders thereof to cast a majority of the votes (after giving effect, if required, to the provisions of this Article XIV) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in this Certificate of Incorporation to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock. G. Enforceability. In the event any provision (or portion thereof) of -------------- this Article XIV shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Article XIV shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken here from or otherwise rendered inapplicable, it being the intent of this Corporation and its stockholders that each such remaining provision (or portion thereof) of this Article XIV remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including stockholders owning an amount of stock over the Limit, notwithstanding any such finding. ARTICLE XV Approval of Business Combinations --------------------------------- A. Definitions and Related Matters. For the purposes of this Article XV ------------------------------- and as otherwise expressly referenced hereto in this Certificate of Incorporation: 1. "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date of filing of this Certificate. 2. "Announcement date" when used in reference to any Business Combination, means the date of the first public announcement of the final, definitive proposal for that Business Combination. 3. "Associate" when used to indicate a relationship with any person, means (1) any corporation or organization of which that person is an officer or partner or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of Voting Shares, (2) any trust or other estate in which that person has a substantial beneficial interest or as to which that person serves as trustee or in a similar fiduciary capacity, or (3) any relative or spouse of that person, or any relative of that spouse, who has the same home as that person. 4. "Beneficial Owner," when used with respect to any stock, means a person: (1) that, individually or with or through any of its affiliates or associates, beneficially owns that stock, directly or indirectly; (2) that, individually or with or through any of its affiliates or associates, has (a) the right to acquire that stock (whether that right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a person shall not be deemed the Beneficial Owner of stock tendered pursuant to a tender or exchange offer made by that person or any of that person's affiliates or associates until that tendered stock is accepted for purchase or exchange; or (b) the right to vote that stock pursuant to any agreement, arrangement or understanding 10 (whether or not in writing); provided, however, that a person shall not be deemed the Beneficial Owner of any stock under this subparagraph if the agreement, arrangement or understanding to vote that stock (i) arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made in accordance with the applicable rules and regulations under the Exchange Act, and (ii) is not then reportable on a Schedule 13D under the Exchange Act (or any comparable or successor report); or (3) that has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in subparagraph (b) of paragraph (2) of this subsection, or disposing of that stock with any other person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, that stock. 5. "Business Combination" when used in reference to the Corporation and any Interested Stockholder of the Corporation, means: (1) any merger or consolidation of the Corporation or any subsidiary of the Corporation with (a) that Interested Stockholder or (b) any other corporation (whether or not it is an Interested Stockholder of the Corporation) which is, or after a merger or consolidation would be, an affiliate or associate of that Interested Stockholder; (2) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with that Interested Stockholder or any affiliate or associate of that Interested Stockholder of assets of the Corporation or any subsidiary of the Corporation (a) having an aggregate market value equal to 10% or more of the aggregate market value of all the assets, determined on a consolidated basis, of the Corporation, (b) having an aggregate market value equal to 10% or more of the aggregate market value of all the outstanding stock of the Corporation, or (c) representing 10% or more of the earnings power or income, determined on a consolidated basis, of the Corporation; (3) the issuance or transfer by the Corporation or any subsidiary of the Corporation (in one transaction or a series of transactions) of any stock of the corporation or any subsidiary of the Corporation which has an aggregate market value equal to 5% or more of the aggregate market value of all the outstanding stock of the Corporation to that Interested Stockholder or any affiliate or associate of that Interested Stockholder, except pursuant to the exercise of warrants or rights to purchase stock offered, or a dividend or distribution paid or made, pro rata to all stockholders of the Corporation; (4) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by, on behalf of or pursuant to any agreement, arrangement or understanding (whether or not in writing) with that Interested Stockholder or any affiliate or associate of that Interested Stockholder; (5) any reclassification of securities (including, without limitation, any stock split, stock dividend, or other distribution of stock in respect of stock, or any reverse stock split), or recapitalization of the corporation, or any merger or consolidation of the Corporation with any subsidiary of the Corporation, or any other transaction (whether or not with, or into, or otherwise involving that Interested Stockholder), proposed by, on behalf of or pursuant to any agreement, arrangement or understanding (whether or not in writing) with that Interested Stockholder or any affiliate or associate of that Interested Stockholder, which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class or series of stock or securities convertible into Voting Shares of the Corporation or any subsidiary of the Corporation which is directly or indirectly owned by that Interested Stockholder or any affiliate or 11 associate of that Interested Stockholder, except as a result of immaterial changes due to fractional share adjustments; or (6) any receipt by that Interested Stockholder or any affiliate or associate of that Interested Stockholder of the benefit, directly or indirectly (except proportionately as a stockholder of the Corporation), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by or through the Corporation; provided, however, that the term "Business Combination" shall not be deemed to include the receipt of any of the foregoing benefits by the Corporation or any of the Corporation's affiliates arising from transactions (such as intercompany loans or tax sharing arrangements) between the Corporation and its affiliates in the ordinary course of business. 6. "Common Stock" means any stock other than preferred stock. 7. "Consummation date" with respect to any Business Combination, means the date of consummation of that Business Combination. 8. "Control," including the terms "controlling," "controlled by" and "under common control with," means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of Voting Shares, by contract, or otherwise. A person's beneficial ownership of 10% or more of the voting power of the Corporation's Voting Shares shall create a presumption that person has control of the Corporation. Notwithstanding the foregoing in this subsection, a person shall not be deemed to have control of a corporation if that person holds voting power, in good faith and not for the purpose of circumventing this section, as an agent, bank, broker, nominee, custodian or trustee for one or more Beneficial Owners who do not individually or as a group have control of the Corporation. 9. "Exchange Act" means the "Securities Exchange Act of 1934" (15 U.S.C. ss. 78a et seq.), as the same has been or hereafter may be amended from time to time. 10. "Interested Stockholder" when used in reference to the Corporation, means any person (other than the Corporation or any subsidiary of the Corporation) that: (1) is the Beneficial Owner, directly or indirectly, of 10% or more of the voting power of the outstanding Voting Shares of the Corporation; (2) is an affiliate or associate of the Corporation and at any time within the five-year period immediately prior to the date in question was the Beneficial Owner, directly or indirectly, of 10% or more of the voting power of the then outstanding stock of the Corporation. For the purpose of determining whether a person is an Interested Stockholder pursuant to this subsection, the number of shares of Voting Shares of the Corporation deemed to be outstanding shall include shares deemed to be Beneficially Owned by the person through application of subsection A.4 of this Article XV but shall not include any other unissued shares of voting stock of the Corporation which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise; or (3) is an assignee of or has otherwise succeeded to any shares of Voting Shares which were at any time within the two-year period immediately prior to the date in question Beneficially Owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. 12 11. "Market value" when used in reference to property of the Corporation, means: (1) in the case of stock, the highest closing sales price of the stock during the 30 day period immediately preceding the date in question, on the principal United States securities exchange registered under the Exchange Act on which that stock is listed, or, if that stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of that stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotation System, or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of the Corporation's stock as determined by the board of directors of the Corporation in good faith; and (2) in the case of property other than cash or stock, the fair market value of that property on the date in question as determined by the board of directors of the Corporation in good faith. 12. "Stock" means: (1) any stock or similar security, any certificate of interest, any participation in any profit sharing agreement, any voting trust certificate, or any certificate of deposit for stock; and (2) any security convertible, with or without consideration, into stock, or any warrant, call or other option or privilege of buying stock without being bound to do so, or any other security carrying any right to acquire, subscribe to or purchase stock. 13. "Stock acquisition date" with respect to any person and the Corporation, means the date that such person first becomes an Interested Stockholder of the Corporation. 14. "Subsidiary" of the Corporation means any other corporation of which voting stock having a majority of the votes entitled to be cast is owned, directly or indirectly, by the Corporation. 15. "Voting Shares" shall mean any shares of the authorized stock of the Corporation entitled to vote generally in the election of directors. B. Approval of Business Combinations. --------------------------------- The Corporation shall not engage in a Business Combination with any Interested Stockholder for a period of five years following that Interested Stockholder's stock acquisition date unless the Business Combination is approved by a vote of two-thirds of the board of directors prior to the Interested Stockholder's stock acquisition date. In addition, the Corporation shall not engage in any Business Combination with any Interested Stockholder of the Corporation at any time unless one of the following three conditions are met: 1. the Business Combination is approved by a vote of two-thirds of the board of directors of the Corporation prior to that Interested Stockholder's stock acquisition date and thereafter approved by stockholders in accordance with applicable law. 13 2. the Business Combination is approved by the affirmative vote of the holders of at least 80% of the Voting Shares not Beneficially Owned by that Interested Stockholder at a meeting called for such purpose. 3. the Business Combination meets all of the following conditions: (1) the aggregate amount of the cash and the market value, as of the consummation date, of consideration other than cash to be received per share by holders of outstanding shares of common stock of the Corporation in that Business Combination is at least equal to the higher of the following: (a) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by that Interested Stockholder for any shares of common stock of the same class or series acquired by it (i) within the five-year period immediately prior to the announcement date with respect to that Business Combination, or (ii) within the five-year period immediately prior to, or in, the transaction in which that Interested Stockholder became an Interested Stockholder, whichever is higher; plus, in either case, interest compounded annually from the earliest date on which that highest per share acquisition price was paid through the consummation date at the rate for one-year United States Treasury obligations from time to time in effect; less the aggregate amount of any cash dividends paid, and the market value of any dividends paid other than in cash, per share of common stock since that earliest date, up to the amount of that interest; and (b) the market value per share of common stock on the announcement date with respect to that Business Combination or on that Interested Stockholder's stock acquisition date, whichever is higher; plus interest compounded annually from that date through the consummation date at the rate for one-year United States Treasury obligations from time to time in effect; less the aggregate amount of any cash dividends paid, and the market value of any dividends paid other than in cash, per share of common stock since that date, up to the amount of that interest; (2) the aggregate amount of the cash and the market value as of the consummation date of consideration other than cash to be received per share by holders of outstanding shares of any class or series of stock, other than common stock, of the Corporation is at least equal to the highest of the following (whether or not that Interested Stockholder has previously acquired any shares of that class or series of stock): (a) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by that Interested Stockholder for any shares of that class or series of stock acquired by it (i) within the five-year period immediately prior to the announcement date with respect to that Business Combination, or (ii) within the five-year period immediately prior to, or in, the transaction in which that Interested Stockholder became an Interested Stockholder, whichever is higher; plus, in either case, interest compounded annually from the earliest date on which the highest per share acquisition price was paid through the consummation date at the rate for one-year United States Treasury obligations from time to time in effect; less the aggregate amount of any cash dividends paid, and the market value of any dividends paid other than in cash, per share of that class or series of stock since that earliest date, up to the amount of that interest; (b) the highest preferential amount per share to which the holders of shares of that class or series of stock are entitled in the event of any liquidation, dissolution or winding up of the Corporation, plus the aggregate amount of any dividends declared or due at to which those holders are 14 entitled prior to payment of dividends on some other class or series of stock (unless the aggregate amount of those dividends is included in that preferential amount); and (c) the market value per share of that class or series of stock on the announcement date with respect to that Business Combination or on that Interested Stockholder's stock acquisition date, whichever is higher; plus interest compounded annually from that date through the consummation date at the rate for one-year United States Treasury obligations from time to time in effect; less the aggregate amount of any cash dividends paid, and the market value of any dividends paid other than in cash, per share of that class or series of stock since that date, up to the amount of that interest; (3) the consideration to be received by holders of a particular class or series of outstanding stock (including common stock) of the Corporation in that Business Combination is in cash or in the same form as the Interested Stockholder has used to acquire the largest number of shares of that class or series of stock previously acquired by it; (4) the holders of all outstanding shares of stock of the Corporation not Beneficially Owned by that Interested Stockholder immediately prior to the consummation of that Business Combination are entitled to receive in that Business Combination in cash or other consideration for those shares in compliance with paragraphs (1), (2) and (3) of this subsection; and (5) after that Interested Stockholder's stock acquisition date and prior to the consummation date with respect to that Business Combination, that Interested Stockholder has not become the Beneficial Owner of any additional shares of stock of the Corporation, except: (a) as part of the transaction which resulted in that Interested Stockholder becoming an Interested Stockholder; (b) by virtue of proportionate stock splits, stock dividends or other distributions of stock in respect of stock not constituting a Business Combination as defined in subsection A.5(5) of this Article XV; (c) through a Business Combination meeting all of the conditions of paragraph (3) and this paragraph; or (d) through the purchase by that Interested Stockholder at any price which, if that price had been paid in an otherwise permissible Business Combination, the announcement date and consummation date of which was the date of that purchase, would have satisfied the requirements of paragraphs (1), (2) and (3) of this subsection. (6) Exceptions. The provisions of this Article XV shall not ---------- apply to any Business Combination of the Corporation with an Interested Stockholder of the Corporation which became an Interested Stockholder inadvertently, if such Interested Stockholder (i) as soon as practicable divests itself, himself or herself of a sufficient amount of the Voting Shares of the Corporation so that it, he or she no longer is the Beneficial Owner, directly or indirectly, of 10% or more of the voting power of the outstanding Voting Shares of the Corporation or a subsidiary corporation, and (ii) would not at any time within the five- year period preceding the announcement date with respect to that Business Combination have been an Interested Stockholder but for that inadvertent acquisition. Nothing contained in this Article XV shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. 15 C. Evaluation of Business Combinations. In connection with the exercise ----------------------------------- of its judgment in determining what is in the best interests of the Corporation and of the stockholders, when evaluating a Business Combination or a tender or exchange offer, the board of directors of the Corporation shall, in addition to considering the adequacy of the amount to be paid in connection with any such transaction, consider all of the following factors and any other factors which it deems relevant: (i) the social and economic effects of entering into the transaction on the Corporation and its subsidiaries, and its present and future employees, depositors, loan and other customers, creditors and other elements of the communities in which the Corporation and its subsidiaries operate or are located; (ii) the business and financial condition and earnings prospects of the acquiring person or entity, including, but not limited to, debt service and other existing financial obligations, financial obligations to be incurred in connection with the acquisition, and other likely financial obligations of the acquiring person or entity, and the possible effect of such conditions upon the Corporation and its subsidiaries and the other elements of the communities in which the Corporation and its subsidiaries operate or are located; and (iii) the competence, experience, and integrity of the acquiring person or entity and its or their management. ARTICLE XVI Stockholder Approval of Certain Transactions -------------------------------------------- A. Stockholder Vote. Any merger, consolidation, liquidation, or ----------------- dissolution of the Corporation or any action that would result in the sale or other disposition of all or substantially all of the assets of the Corporation ("Transaction") shall require the affirmative vote of the holders of at least eighty percent (80%) of the outstanding shares of capital stock of the Corporation eligible to vote at a legal meeting. B. Board Approval. The provisions of Section A of this Article XVI --------------- shall not apply to a particular Transaction, and such Transaction shall require only such stockholder vote, if any, as would be required under the New Jersey Business Corporation Act, if such Transaction is approved by two-thirds of the entire Board of Directors of the Corporation. ARTICLE XVII Elimination of Directors' and Officers' Liability ------------------------------------------------- Directors and officers of the Corporation shall have no personal liability to the Corporation or its stockholders for damages for breach of any duty owed to the Corporation or its stockholders, provided that this Article XVII shall not relieve a director or officer from liability for any breach of duty based upon an act or omission (i) in breach of the director's or officer's duty of loyalty to the Corporation or its stockholders, (ii) not in good faith or involving a knowing violation of law, or (iii) resulting in receipt by such person of an improper personal benefit. Any repeal or modification of this Article XVII by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation hereunder or otherwise with respect to any act or omission occurring before such repeal or modification is effective. If the New Jersey Business Corporation Act is amended to further limit the personal liability of directors and officers, then such liability will be limited to the fullest extent permitted under the law. 16 ARTICLE XVIII Indemnification --------------- A. Indemnification. The Corporation shall indemnify any person who was --------------- or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, including actions by or in the right of the Corporation, whether civil, criminal, administrative, arbitrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or of any constituent corporation absorbed by the Corporation in a consolidation or merger, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, sole proprietorship, trust or other enterprise, against expenses (including attorneys' fees), judgements, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent permissible under New Jersey law. B. Advance Payment. The Corporation may pay in advance any expenses ---------------- (including attorneys' fees) which may become subject to indemnification under Section A of this Article XVIII if the person receiving the payment undertakes in writing to repay the same if it is ultimately determined that he or she is not entitled to indemnification by the Corporation under New Jersey law. C. Nonexclusive. The indemnification and advancement of expenses ------------ provided by Sections A and B of this Article XVIII or otherwise granted pursuant to New Jersey law shall not be exclusive of any other rights to which a person may be entitled by law, bylaw, agreement, vote of stockholders, or disinterested directors, or otherwise. D. Continuation. The indemnification and advance payment provided by ------------ Sections A and B of this Article XVIII shall continue as to a person who has ceased to hold a position named in Section A and shall inure to his or her heirs, executors and administrators. In addition, any repeal or modification of this Article XVIII by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation hereunder or otherwise with respect to any act or omission occurring before such repeal or modification is effective. E. Insurance. The Corporation may purchase and maintain insurance on --------- behalf of any person who holds or who has held any position named in Section A of this Article XVIII, against any liability incurred by him or her in any such position, or arising out of his or her status as such, whether or not the Corporation would have power to indemnify him or her against such liability under this Article XVIII and New Jersey law. F. Savings Clause. If this Article XVIII or any portion hereof shall be -------------- invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director, officer, employee, and agent of the Corporation as to costs, charges, and expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit, or proceeding, whether civil, criminal, administrative, arbitrative or investigative, including an action by or in the right of the Corporation to the full extent permitted by any applicable portion of this Article XVIII that shall not have been invalidated and to the full extent permitted by applicable law. 17 ARTICLE XIX Amendment of Bylaws ------------------- In furtherance and not in limitation of the powers conferred by statute, the board of directors of the Corporation is expressly authorized to make, repeal, alter, amend and rescind the Bylaws of the Corporation by a vote of two-thirds of the board of directors present at a legal meeting held in accordance with the provisions of the Bylaws. Notwithstanding any other provision of this Certificate or the Bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law), the Bylaws shall not be made, repealed, altered, amended or rescinded by the stockholders of the Corporation except by the vote of the holders of not less than 80% of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose (provided that notice of such proposed adoption, repeal, alteration, amendment or rescission is included in the notice of such meeting), or, as set forth above, by the board of directors. ARTICLE XX Amendment of Certificate of Incorporation ----------------------------------------- The Corporation reserves the right to repeal, alter, amend or rescind any provision contained in this Certificate in the manner now or hereafter prescribed by law, and all rights conferred on stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in Articles VIII, X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII, XIX and this Article XX of this Certificate may not be repealed, altered, amended or rescinded in any respect unless such action is approved by the affirmative vote of the holders of not less than 80% of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as a single class) cast at a meeting of the stockholders called for that purpose (provided that notice of such proposed adoption, repeal, alteration, amendment or rescission is properly included in the notice of such meeting). 18 EX-3.(II) 4 ex3-ii.txt BYLAWS BYLAWS OF AMERICAN BANCORP OF NEW JERSEY, INC. ARTICLE I - Home Office The home office of American Bancorp of New Jersey, Inc. (the "Corporation") shall be located in Bloomfield, New Jersey. The Corporation may also have offices at such other places within or outside of the State of New Jersey as the board of directors shall from time to time determine. ARTICLE II - Shareholders Section 1. Place of Meetings. All annual and special meetings of shareholders shall be held at the home office of the Corporation or at such other convenient place as the board of directors may determine. Section 2. Annual Meeting. A meeting of the shareholders of the Corporation for the election of directors and for the transaction of any other business of the Corporation shall be held annually at such date and time as the board of directors may determine. Section 3. Special Meetings. Special meetings of the shareholders for any purpose or purposes may be called only in accordance with the provisions of the Corporation's Certificate of Incorporation. Notwithstanding any other provision of the Certificate of Incorporation or these Bylaws of the Corporation, any action required to be taken or which may be taken at any annual or special meeting of shareholders of the Corporation may be taken without a meeting, only as provided in the Certificate of Incorporation. Section 4. Conduct of Meetings. Annual and special meetings shall be conducted in accordance with rules and procedures adopted by the board of directors. Section 5. Notice of Meetings. Written notice stating the place, day, and hour of the meeting and the purpose(s) for which the meeting is called shall be delivered not fewer than ten nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the chairman of the board, the president, or the secretary, or the directors calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the mail, addressed to the shareholder at the address as it appears on the stock transfer books or records of the Corporation as of the record date prescribed in Section 6 of this Article II with postage prepaid. When any shareholders' meeting, either annual or special, is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for less than 30 days or of the business to be transacted at the meeting, other than an announcement at the meeting at which such adjournment is taken. Section 6. Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as the record date for any such determination of shareholders. Such date in any case shall be not more than 60 days and, in case of a meeting of shareholders, not fewer than ten (10) days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section 6, such determination shall apply to any adjournment. Section 7. Voting Lists. A list of shareholders shall be kept on file at the home office of the Corporation and shall be subject to inspection, for a proper purpose and upon five days written demand, by any shareholder who has been a shareholder of record for at least six months preceding his or her demand or by any person holding, or so authorized in writing by the holders of, at least five percent (5%) of the outstanding shares. A list of shareholders shall be available for inspection by a shareholder during any meeting of shareholders in accordance with Section 14A:5-8 of the New Jersey Business Corporation Act. Section 8. Quorum. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares is represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time, subject to the notice requirements of Section 5 of this Article II. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to constitute less than a quorum. Section 9. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed by the shareholder in the manner provided by the Certificate of Incorporation. Proxies solicited on behalf of the management shall be voted as directed by the shareholder or, in the absence of such direction, as determined by a majority of the board of directors. No proxy shall be valid more than eleven months from the date of its execution unless otherwise provided in the proxy. Section 10. Voting. At each election for directors, every shareholder entitled to vote at such election shall be entitled to one vote for each share of stock held by him or her. Directors shall be elected by a plurality of votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Unless otherwise provided in the Certificate of Incorporation, by statute, or by these Bylaws, in matters other than the election of directors, a majority of the shares present in person or represented by proxy at a lawful meeting and entitled to vote on the subject matter, shall be sufficient to pass on a transaction or matter. Section 11. Voting of Shares in the Name of Two or More Persons. When ownership of stock stands in the name of two or more persons, in the absence of written directions to the Corporation to the contrary, at any meeting of the shareholders of the Corporation, any one or more of such shareholders may cast, in person or by proxy, all votes to which such ownership is entitled. In the event an attempt is made to cast conflicting votes, in person or by proxy, by the several persons in whose names shares of stock stand, the vote or votes to which those persons are entitled shall be cast as directed by a majority of those holding such and present in person or by proxy at such meeting, but no votes shall be cast for such stock if a majority cannot agree. Section 12. Voting of Shares of Certain Holders. Shares standing in the name of another corporation may be voted by any officer, agent, or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. Shares held by an administrator, executor, guardian, or conservator may be voted by him or her, either in person or by proxy, without a transfer of such shares into his or her name. Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her without a transfer of such shares into his or her name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer into his or her name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed. -2- A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter, the pledgee shall be entitled to vote the shares so transferred. Neither treasury shares of its own stock held by the Corporation nor shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting. Section 13. Inspectors of Election. In advance of any meeting of shareholders, the board of directors may appoint any persons other than nominees for office as inspectors of election to act at such meeting or any adjournment. The number of inspectors shall be either one or three. Any such appointment shall not be altered at the meeting. If inspectors of election are not so appointed, the chairman of the board or the president may, or on the request of not fewer than ten percent (10%) of the votes represented at the meeting shall, make such appointment at the meeting. If appointed at the meeting, the majority of the votes present shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the board of directors in advance of the meeting or at the meeting by the chairman of the board or the president. Unless otherwise prescribed by resolution of the board of directors, the duties of such inspectors shall include: determining the number of shares and the voting power of each share, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; receiving votes, ballots, or consents; hearing and determining all challenges and questions in any way arising in connection with the rights to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all shareholders. Section 14. Nominating Committee. The board of directors shall appoint a nominating committee of at least three directors for selecting the management nominees for election as directors. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the nominating committee shall deliver written nominations to the secretary at least 20 days prior to the date of the annual meeting. Provided that such committee makes such nominations, no nominations for directors except those made by the nominating committee shall be voted upon at the annual meeting unless other nominations by shareholders are made in writing and delivered to the secretary of the Corporation in accordance with the provisions of Article II, Section 15 of these Bylaws. Section 15. Notice for Nominations and Proposals. Nominations of candidates for election as directors at any annual meeting of shareholders may be made (a) by, or at the direction of, a majority of the board of directors or (b) by any shareholder entitled to vote at such annual meeting. Only persons nominated in accordance with the procedures set forth in this Section 15 shall be eligible for election as directors at an annual meeting. Ballots bearing the names of all the persons who have been nominated for election as directors at an annual meeting in accordance with the procedures set forth in this Section 15 shall be provided for use at the annual meeting. Nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Section 15. To be timely, a shareholder's notice shall be delivered to, or mailed and received at, the principal office of the Corporation not less than 60 days prior to the anniversary date of the immediately preceding annual meeting of shareholders of the Corporation; provided, however, that with respect to the first scheduled annual -3- meeting, notice by the shareholder must be so delivered or received no later than the close of business on the tenth day following the day on which notice of the date of the scheduled meeting must be delivered or received no later than the close of business on the fifth day preceding the date of the meeting. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director and as to the shareholder giving the notice (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of Corporation stock which are Beneficially Owned (as defined in Article XIV of the Certificate of Incorporation) by such person on the date of such shareholder notice, and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies with respect to nominees for election as directors, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, but not limited to, information required to be disclosed by Items 4, 5, 6 and 7 of Schedule 14A to be filed with the Securities and Exchange Commission (or any successors of such items or schedule); and (b) as to the shareholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such shareholder and any other shareholders known by such shareholder to be supporting such nominees and (ii) the class and number of shares of Corporation stock which are Beneficially Owned by such shareholder on the date of such shareholder notice and, to the extent known, by any other shareholders known by such shareholder to be supporting such nominees on the date of such shareholder notice. At the request of the board of directors, any person nominated by, or at the direction of, the board for election as a director at an annual meeting shall furnish to the Secretary of the Corporation that information required to be set forth in a shareholder's notice of nomination which pertains to the nominee. Nominations for directors to be elected at an annual meeting of shareholders, except those made by the board of directors of the Corporation, must also be accompanied by a certification, under oath before a notary public, by each nominee that he meets the eligibility requirements to be a director as set forth in Article III of these Bylaws. Proposals, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Section 15. For shareholder proposals to be included in the Corporation's proxy materials, the shareholder must comply with all the timing and informational requirements of Rule 14a-8 of the Exchange Act (or any successor regulation). With respect to shareholder proposals to be considered at the annual meeting of shareholders but not included in the Corporation's proxy materials, the shareholder's notice shall be delivered to, or mailed and received at, the principal office of the Corporation not less than 60 days prior to the anniversary date of the immediately preceding annual meeting of shareholders of the Corporation. Such shareholder's notice shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business and, to the extent known, any other shareholders known by such shareholder to be supporting such proposal, (c) the class and number of shares of the Corporation stock which are Beneficially Owned by the shareholder on the date of such shareholder notice and, to the extent known, by any other shareholders known by such shareholder to be supporting such proposal on the date of such shareholder notice, and (d) any financial interest of the shareholder in such proposal (other than interests which all shareholders would have). The board of directors may reject any nomination by a shareholder or shareholder proposal not timely or properly made in accordance with the requirements of this Section 15. If the board of directors, or a designated committee thereof, determines that the information provided in a shareholder's notice does not satisfy the informational requirements of this Section 15 in any material respect, the Secretary of the Corporation shall notify such shareholder of the deficiency in the notice. The shareholder shall have an -4- opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed five days from the date such deficiency notice is given to the shareholder, as the board of directors or such committee shall reasonably determine. If the deficiency is not cured within such period, or if the board of directors or such committee reasonably determines that the additional information provided by the shareholder, together with information previously provided, does not satisfy the requirements of this Section 15 in any material respect, then the board of directors may reject such shareholder's nomination or proposal. The Secretary of the Corporation shall notify a shareholder in writing whether his or her nomination or proposal has been made in accordance with the time and informational requirements of this Section 15. Notwithstanding the procedures set forth in this paragraph, if neither the board of directors nor such committee makes a determination as to the validity of any nominations or proposals by a shareholder, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether the nomination or proposal was made in accordance with the terms of this Section 15. If the presiding officer determines that a nomination or proposal was made in accordance with the terms of this Section 15, he shall so declare at the annual meeting and ballots shall be provided for use at the meeting with respect to such nominee or proposal. If the presiding officer determines that a nomination or proposal was not made in accordance with the terms of this Section 15, he shall so declare at the annual meeting and the defective nomination or proposal shall be disregarded. ARTICLE III - Board of Directors Section 1. General Powers. The business and affairs of the Corporation shall be under the direction of its board of directors. The board of directors shall annually elect a chairman of the board and a president from among its members and shall designate, when present, either the chairman of the board or the president to preside at its meetings. Section 2. Number, Term and Election. The board of directors shall consist of eight (8) persons, be divided into four classes as nearly equal in number as possible. The board of directors shall be classified in accordance with the provisions of the Corporation's Certificate of Incorporation. The members of each class shall be elected for a term of four years and until their successors are elected and qualified. Directors are to be elected by a plurality of votes cast by the shares entitled to vote in the election at a meeting of shareholders at which a quorum is present. The board of directors may increase the number of members of the board of directors but in no event shall the number of directors be increased in excess of fifteen persons. Section 3. Place of Meeting. All annual and special meetings of the board of directors shall be held at the principal office of the Corporation or at such other place within or outside the State in which the principal office of the Corporation is located as the board of directors may determine and as designated in the notice of such meeting. Section 4. Regular Meetings. A regular meeting of the board of directors shall be held without other notice than this Bylaw at such time and date as the board of directors may determine. Section 5. Special Meetings. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the president, or one-third of the directors. The persons authorized to call special meetings of the board of directors may fix any place, within or outside of the State of New Jersey, as the place for holding any special meeting of the board of directors called by such persons. -5- Members of the board of directors may participate in special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person. Section 6. Notice of Special Meeting. Written notice (which includes notice provided by facsimile transmission or by electronic mail) of at least 24 hours regarding any special meeting of the board of directors or of any committee designated thereby shall be given to each director in accordance with these Bylaws, although such notice may be waived by the director. The attendance of such director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors need be specified in the notice of waiver of notice of such meeting. Section 7. Quorum. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time. Notice of any adjourned meeting shall be given in the same manner as prescribed by Section 6 of this Article III. Section 8. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is prescribed by these Bylaws, the Certificate of Incorporation or the laws of New Jersey. Section 9. Action Without a Meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors. Section 10. Resignation. Any director may resign at any time by sending a written notice of such resignation to the home office of the Corporation addressed to the chairman of the board or the president. Unless otherwise specified, such resignation shall take effect upon receipt by the chairman of the board or the president. More than three consecutive absences from regular meetings of the board of directors, unless excused by resolution of the board of directors, shall automatically constitute a resignation, effective when such resignation is accepted by the board of directors. Section 11. Vacancies. Any vacancy occurring on the board of directors may be filled by the affirmative vote of a majority of the remaining directors, although less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected to serve until the next election of directors by the shareholders. Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the board of directors for a term of office continuing only until the next election of directors by the shareholders. Section 12. Compensation. Directors, as such, may receive a stated salary or retainer for their services or may receive a reasonable fixed sum, and reasonable expenses of attendance, if any, for attendance at each regular or special meeting of the board of directors. Members of either standing or special committees may be allowed such compensation for attendance at committee meetings as the board of directors may determine. Section 13. Presumption of Assent. A director of the Corporation who is present at a meeting of the board of directors at which action on any Corporation matter is taken shall be presumed to have -6- assented to the action taken unless his or her dissent or abstention shall be entered in the minutes of the meeting or unless he or she shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Corporation within five days after the date a copy of the minutes of the meeting is received. Such right to dissent shall not apply to a director who voted in favor of such action. Section 14. Removal of Directors. Directors of the Corporation may be removed only in accordance with the Corporation's Certificate of Incorporation. Section 15. Residency Requirement. Each director of the Corporation must, at all times, reside within the State of New Jersey within a 100 mile radius of a branch office of American Bank of New Jersey. Section 16. Minimum Share Requirement. Each director of the Corporation must be a shareholder of the Corporation and own at least two thousand five hundred (2,500) shares of the Corporation's Common Stock. Section 17. Affiliations With Other Depository Institutions. A person is not eligible to serve as a director of the Corporation if he is a "management official" of another "depository institution" or "depository holding company" as those terms are defined in Section 563f.2 of the Regulations of the Office of Thrift Supervision, 12 U.S.C. ss. 563f.2. If elected director of the Corporation, a person may not thereafter serve or agree to serve as a management official of another depository institution or depository holding company unless and until his or her term as director of the Corporation has expired. Section 18. Eligibility Requirement. A person is not eligible to serve as director if he: (1) is under indictment for, or has ever been convicted of, a criminal offense that involves dishonesty or breach of trust and for which the penalty could be imprisonment for more than one year; (2) is a person against whom a federal or state bank regulatory agency has within the past ten years issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal; (3) has been found either by any federal or state regulatory agency whose decision is final and not subject to appeal or by a court to have (a) committed a wilful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency or (b) breached a fiduciary duty involving personal profit; or (4) has been nominated by a person who would be disqualified from serving as a director of this Corporation under clauses (1), (2) or (3) of this Section 18. Section 19. Conflict of Interest Qualification. No person may serve as a Director of the Corporation if he concurrently serves as an officer, director, advisor or consultant, or in any similar capacity, to another financial institution (including its parent company and/or majority owned subsidiaries) which maintains an office in the State of New Jersey. As used herein, the term "financial institution" shall mean any financial services enterprise (including but not limited to a savings and loan association, bank, credit union, mortgage company or insurance company). ARTICLE IV - Executive And Other Committees Section 1. Appointment. The board of directors, by resolution adopted by a majority of the full board, may designate the chief executive officer, the chairman of the board and one or more of the other directors to constitute an executive committee. The designation of any committee pursuant to this Article IV and the delegation of authority shall not operate to relieve the board of directors, or any director, of any responsibility imposed by law or regulation. -7- Section 2. Authority. The executive committee, when the board of directors is not in session, shall have and may exercise all of the authority of the board of directors except to the extent, if any, that such authority shall be limited by the resolution appointing the executive committee; and except also that the executive committee shall not have the authority of the board of directors with reference to: the declaration of dividends; the amendment of the Certificate of Incorporation or these Bylaws of the Corporation, or recommending to the shareholders a plan of merger, consolidation, or conversion; the sale, lease, or other disposition of all or substantially all of the property and assets of the Corporation otherwise than in the usual and regular course of its business; a voluntary dissolution of the Corporation; a revocation of any of the foregoing; or the approval of a transaction in which any member of the executive committee, directly or indirectly, has any material beneficial interest. Section 3. Tenure. Subject to the provisions of Section 8 of this Article IV, each member of the executive committee shall hold office until the next regular annual meeting of the board of directors following his or her designation and until a successor is designated as a member of the executive committee. Section 4. Meetings. Regular meetings of the executive committee may be held without notice at such times and places as the executive committee may fix from time to time by resolution. Special meetings of the executive committee may be called by any member thereof upon not less than one day's notice stating the place, date, and hour of the meeting, which notice may be written or oral. Any member of the executive committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the executive committee need not state the business proposed to be transacted at the meeting. Section 5. Quorum. A majority of the members of the executive committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the executive committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present. Section 6. Action Without a Meeting. Any action required or permitted to be taken by the executive committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the executive committee. Section 7. Vacancies. Any vacancy in the executive committee may be filled by a resolution adopted by a majority of the full board of directors. Section 8. Resignations and Removal. Any member of the executive committee may be removed at any time with or without cause by resolution adopted by a majority of the full board of directors. Any member of the executive committee may resign from the executive committee at any time by giving written notice to the chairman, president or secretary of the Corporation. Unless otherwise specified, such resignation shall take effect upon its receipt; the acceptance of such resignation shall not be necessary to make it effective. Section 9. Procedure. The chairman of the board shall be the presiding officer of the executive committee, and the executive committee may fix its own rules of procedure which shall not be inconsistent with these Bylaws. It shall keep regular minutes of its proceedings and report the same to the board of directors for its information at the meeting held next after the proceedings shall have occurred. -8- Section 10. Other Committees. The board of directors may by resolution establish any other committee composed of directors as they may determine to be necessary or appropriate for the conduct of the business of the Corporation and may prescribe the duties, constitution, and procedures thereof. ARTICLE V - Officers Section 1. Positions. The officers of the Corporation shall include a chief executive officer, a president, one or more vice presidents, a secretary, and a treasurer or comptroller, each of whom shall be elected by the board of directors. The board of directors may also designate the chairman of the board or vice chairman of the board as an officer. The offices of the secretary and treasurer may be held by the same person and a vice president may also be either the secretary or the treasurer or comptroller. The board of directors may designate one or more vice presidents as executive vice president or senior vice president. The board of directors may also elect or authorize the appointment of such other officers as the business of the Corporation may require. The officers shall have such authority and perform such duties as the board of directors may from time to time authorize or determine. In the absence of action by the board of directors, the officers shall have such powers and duties as generally pertain to their respective offices. Section 2. Election and Term of Office. The officers of the Corporation shall be elected annually at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as possible. Each officer shall hold office until a successor has been duly elected and qualified or until the officer's death, resignation, or removal in the manner hereinafter provided. Election or appointment of an officer, employee, or agent shall not of itself create contractual rights. The board of directors may authorize the Corporation to enter into an employment contract with any officer, but no such contract shall impair the right of the board of directors to remove any officer at any time in accordance with Section 3 of this Article V. Section 3. Removal. Any officer may be removed by the board of directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal, other than for cause, shall be without prejudice to the contractual rights, if any, of the person so removed. Section 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or otherwise may be filled by the board of directors for the unexpired portion of the term. Section 5. Remuneration. The remuneration of the officers shall be fixed from time to time by the board of directors, by employment contracts or otherwise. ARTICLE VI - Contracts, Loans, Checks, and Deposits Section 1. Contracts. Except as otherwise prescribed by these Bylaws with respect to certificates for shares, the board of directors may authorize any officer, employee, or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances. Section 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the board of directors. Such authority may be general or confined to specific instances. -9- Section 3. Checks, Drafts, Etc. All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the Corporation shall be signed by one or more officers, employees, or agents of the Corporation, which may include facsimile signatures, in such manner as shall from time to time be determined by the board of directors. Section 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in any duly authorized depositories as the board of directors may select ARTICLE VII - Certificates for Shares and Their Transfer Section 1. Certificates for Shares. Certificates representing shares of capital stock of the Corporation shall be in such form as shall be determined by the board of directors. Such certificates shall be signed by the chief executive officer or by any other officer of the Corporation authorized by the board of directors, attested by the secretary or an assistant secretary, and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar other than the Corporation itself or one of its employees. Each certificate for shares of capital stock shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares has been surrendered and canceled, except that in the case of a lost or destroyed certificate, a new certificate may be issued upon such terms and indemnity to the Corporation as the board of directors may prescribe. Section 2. Transfer of Shares. Transfer of shares of capital stock of the Corporation shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record or by his or her legal representative, who shall furnish proper evidence of such authority, or by his or her attorney authorized by a duly executed power of attorney and filed with the Corporation. Such transfer shall be made only on surrender for cancellation of the certificate for such shares. The person in whose name shares of capital stock stand on the books of the Corporation shall be deemed by the Corporation to be the owner for all purposes. Section 3. Payment for Shares. No certificate shall be issued for any shares until such share is fully paid. Section 4. Form of Payment for Shares. The consideration for the issuance of shares shall be paid in accordance with the provisions of New Jersey law. Section 5. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the shareholders entitled to examine the stock ledger, the list required by Section 7 of Article II of these Bylaws or the books of the Corporation, or to vote in person or by proxy at any meeting of shareholders. Section 6. Lost Certificates. The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, -10- or destroyed certificate, or his or her legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. Section 7. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VIII - Fiscal Year; Annual Audit The fiscal year of the Corporation shall end on the 30th day of September of each year. The Corporation shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the board of directors. ARTICLE IX - Dividends Subject only to the terms of the Corporation's Certificate of Incorporation and applicable law, the board of directors may, from time to time, declare and the Corporation may pay, dividends on its outstanding classes of capital stock which are eligible for dividends. ARTICLE X - Corporate Seal The board of directors shall provide a corporate seal, which shall be two concentric circles between which shall be the name of the Corporation. The year of incorporation or an emblem may appear in the center. ARTICLE XI - Amendments These Bylaws may be amended only as specified in the Corporation's Certificate of Incorporation. -11- EX-4 5 ex4-1.txt SPECIMEN OF STOCK CERTIFICATE
CERTIFICATE No. [LOGO] COMMON STOCK PAR VALUE $0.10 SHARES INCORPORATED UNDER THE LAWS OF THE STATE OF NEW JERSEY SEE REVERSE FOR CERTAIN DEFINITIONS THIS CUSIP No. ________________ CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.10 PER SHARE, OF AMERICAN BANCORP OF NEW JERSEY, INC. The shares represented by this certificate are transferable only on the stock transfer books of the Company by the holder of record hereof, or by his duly authorized attorney or legal representative, upon the surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation of the Company and Bylaws and any amendments thereto (copies of which are on file with the Secretary of the Company), and to all of these provisions the holder by acceptance hereof, assents. This certificate is not valid unless countersigned and registered by the Company's transfer agent and registrar. THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED In Witness Whereof, American Bancorp of New Jersey, Inc. has caused this certificate to be executed by the facsimile signatures of its duly authorized officers and has caused its facsimile corporate seal to be hereunto affixed. DATED: - ----------------------------------- -------------------------------- PRESIDENT SECRETARY SEAL Incorporated 2005 AMERICAN BANCORP OF NEW JERSEY, INC. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF TRANS MIN ACT -_______________Custodian_______________ (Cus) (Minor) TEN ENT - as tenants by the entireties under Uniform Transfers to Minors JT TEN - as joint tenants with right of survivorship and not as tenants Act ___________________________ in common (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED ________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shares of the Common Stock represented by the within Certificate and do hereby irrevocably constitute and appoint - -------------------------------------------------------------------------------- Attorney to transfer the said Stock on the books of the within named Corporation with full power of substitution in the premises. Dated ------------------------ -------------------------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the Certificate in every particular, without alteration or enlargement or any change whatever. THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED
EX-5 6 ex5.txt OPINION OF MALIZIA SPIDI & FISCH, PC Malizia Spidi & Fisch, PC ATTORNEYS AT LAW 1100 New York Avenue, N.W. 1900 South Atherton Street Suite 340 West Suite 101 Washington, D.C. 20005 State College, PA 16801 (202) 434-4660 (814) 272-3502 Facsimile: (202) 434-4661 Facsimile: (814) 272-3514 June 15, 2005 Board of Directors American Bancorp of New Jersey, Inc. 365 Broad Street Bloomfield, New Jersey 07003 Re: Registration Statement Under the Securities Act of 1933 ------------------------------------------------------- Gentlemen: This opinion is rendered in connection with the Registration Statement on Form S-1 filed with the Securities and Exchange Commission under the Securities Act of 1933 relating to the offer and sale of up to 14,169,642 shares of common stock, par value $0.10 per share (the "Common Stock"), of American Bancorp of New Jersey, Inc. (the "Company"). The Common Stock is proposed to be issued pursuant to the Plan of Conversion and Reorganization of American Savings, MHC ("Plan of Conversion and Reorganization"). As special counsel to the Company, we have reviewed the corporate proceedings relating to the Plan of Conversion and Reorganization and such other legal matters as we have deemed appropriate for the purpose of rendering this opinion. Based on the foregoing, we are of the opinion that the shares of Common Stock of the Company covered by the aforesaid Registration Statement will, when issued in accordance with the terms of the Plan of Conversion and Reorganization against full payment therefor and upon the declaration of the effectiveness of the Registration Statement on Form S-1, be legally issued, fully paid, and non-assessable shares of Common Stock of the Company. We assume no obligation to advise you of any event that may hereafter be brought to our attention that may affect any statement made in the foregoing paragraph after the declaration of effectiveness of the Registration Statement on Form S-1. We hereby consent to the use of this opinion and to the reference to our firm appearing in the Company's Prospectus. We also consent to any references to our legal opinion in the Prospectus. Very truly yours, /s/ Malizia Spidi & Fisch, PC MALIZIA SPIDI & FISCH, PC EX-8 7 ex8-1.txt FEDERAL TAX OPINION OF MALIZIA SPIDI & FISCH, PC MALIZIA SPIDI & FISCH, PC ATTORNEYS AT LAW 1100 NEW YORK AVENUE, N.W. 1900 SOUTH ATHERTON STREET SUITE 340 WEST SUITE 101 WASHINGTON, D.C. 20005 STATE COLLEGE, PA 16801 (202) 434-4660 (814) 272-3502 FACSIMILE: (202) 434-4661 FACSIMILE: (814) 272-3514 June 13, 2005 Boards of Directors American Bank of New Jersey 365 Broad Street Bloomfield, New Jersey 07003 Dear Board Members: You have asked that we provide you our opinion in regard to the material federal income tax matters relating to the Plan of Conversion and Reorganization of American Savings, MHC and Plans of Merger between American Savings, MHC, ASB Holding Company and American Bank of New Jersey adopted on May 17, 2005 (the "Plan") (collectively referred to herein as the "Conversion and Reorganization"). We have examined the Plan and certain other documents as we deemed necessary in order to provide our opinions. Unless otherwise defined, all terms used in this letter have the meanings given to them in the Plan. In our examination, we assumed that original documents were authentic, copies were accurate and signatures were genuine. We have further assumed the absence of adverse facts not apparent from the face of the instruments and documents we examined. In rendering our opinion, we have relied upon certain written representations of American Bank of New Jersey (the "Savings Bank"), American Savings, MHC (the "MHC"), and ASB Holding Company (the "Mid-Tier") (collectively referred to herein as the "Representations") which are attached hereto. We assumed that the Plan has been or will be duly and validly authorized and approved and adopted and that all parties will comply with the terms and conditions of the Plan, and that the various representations and warranties which have been provided to us are accurate, complete, true and correct. Accordingly, we express no opinion concerning the effect, if any, of variations from the foregoing. In issuing the opinions set forth below, we have referred solely to existing provisions of (1) the Internal Revenue Code of 1986, as amended (the "Code"), and existing and proposed Treasury Regulations thereunder; and (2) current administrative rulings, notices and procedures and court decisions. Such laws, regulations, administrative rulings, notices and procedures and court decisions are subject to change at any time. Any such change could affect the continuing validity of the opinions set forth below. This opinion is as of the date hereof, and we disclaim any obligation to advise you of any change after the date hereof. MALIZIA SPIDI & FISCH, PC Boards of Directors American Bank of New Jersey American Savings, MHC ASB Holding Company June 13, 2005 Page 2 There can be no assurance that our opinions would be adopted by the Internal Revenue Service (the "Service") or a court. The outcome of litigation cannot be predicted. We have, however, attempted in good faith to opine as to the merits of each tax issue with respect to which an opinion was requested. STATEMENT OF FACTS In 1999, American Bank of New Jersey, formerly American Savings Bank of NJ, a federally chartered mutual savings bank reorganized into the mutual holding company form of organization and converted to a federal stock savings bank (the "MHC Reorganization"). Subsequent to the MHC Reorganization, in October 2003, ASB Holding Company, a federally chartered corporation which owns all of the stock of the Savings Bank ("Middle Tier Holding Company"), sold 1,666,350 shares (or approximately 30%) of its common stock in a subscription offering at $10.00 per share and issued the remaining 70% to American Savings, MHC. A total of 5,554,500 shares of common stock of ASB Holding Company ("Middle Tier Holding Company Common Stock") were issued in connection with the MHC Stock Offering. Upon completion of these transactions, the Savings Bank remained the wholly owned subsidiary of ASB Holding Company. As of March 31, 2005, the MHC and the Public Stockholders own an aggregate of 3,888,150 (70%) and 1,666,350 (30%) of the outstanding Middle Tier Holding Company Common Stock, respectively. Pursuant to the Plan, the Savings Bank will form a new New Jersey stock holding company, American Bancorp of New Jersey, Inc. ("Holding Company") and the existing shares of Middle Tier Holding Company Common Stock owned by Public Stockholders will be converted pursuant to an Exchange Ratio into shares of common stock of the Holding Company ("Holding Company Common Stock"). The MHC uses the accrual method of accounting and files its tax return on a September 30 fiscal year basis. As a federal chartered mutual holding company, the MHC does not have stockholders and has no authority to issue capital stock. Instead, the MHC (in its mutual form) has a unique equity structure, in that the MHC is owned by its members (the "Members"). The MHC's primary asset is 3,888,150 shares of Mid-Tier Common Stock, which represents 70% of the shares of Mid-Tier Common Stock outstanding as of March 31, 2005. The Savings Bank is a federally chartered stock savings bank that was organized in 1999, as a subsidiary of the MHC, in connection with the MHC Reorganization. The Mid-Tier has no other material business or activities other than acting as the holding company of the Savings Bank and holding certain equity securities. Pursuant to the Conversion and Reorganization, the Mid- Tier will, after a series of transactions, merge with the Savings Bank, with the Savings Bank as the survivor, and the Mid-Tier will cease to exist. MALIZIA SPIDI & FISCH, PC Boards of Directors American Bank of New Jersey American Savings, MHC ASB Holding Company June 13, 2005 Page 3 American Bancorp of New Jersey, Inc. (the "Holding Company") will be a savings and loan holding company, which was organized as a New Jersey corporation in May, 2005 at the direction of the Board of Directors of the Savings Bank and will acquire and hold all of the outstanding Savings Bank common stock ("Bank Stock") after the Conversion and Reorganization. Pursuant to regulations promulgated by the Office of Thrift Supervision (the "OTS"), consummation of the Conversion and Reorganization is conditioned upon the approval of the Plan by the OTS, certain Members of the MHC, and the stockholders of the Mid-Tier. Following the Conversion and Reorganization, the Holding Company's outstanding stock will be 100% publicly owned. The Boards of Directors of the MHC, the Mid-Tier, and the Savings Bank believe that a conversion of the MHC to stock form pursuant to the Plan is in the best interests of the MHC, the Mid-Tier, and the Savings Bank, as well as the best interests of their respective Members and stockholders. The Boards of Directors have determined that the Plan equitably provides for the interests of Members through the granting of subscription rights and the establishment of a liquidation account. The Conversion and Reorganization will result in the Savings Bank being wholly owned by a stock holding company which is owned by public stockholders, which is a more common structure and form of ownership than a mutual holding company. In addition, the Conversion and Reorganization will result in the raising of additional capital for the Savings Bank and the Holding Company to make investments and acquisitions and should result in a more active and liquid market for the Holding Company common stock ("HC Stock") than currently exists for the Mid-Tier Common Stock. The proceeds of the Conversion will enable the Bank to continue to grow its assets and branch office structure, while still maintaining a high level of regulatory capital. Finally, the Conversion and Reorganization is designed to enable the Savings Bank and Holding Company to compete more effectively in a market which is consolidating. For valid business reasons, the present corporate structure of the MHC, the Mid-Tier, and the Savings Bank will be changed pursuant to the following proposed transactions: (i) The Savings Bank will establish the Holding Company as a first-tier state-chartered stock holding company subsidiary. (ii) The Holding Company will form an interim corporation ("Interim Bank No. 3"), a new, wholly owned first-tier subsidiary with an interim federal stock savings bank charter. (iii) Middle Tier Holding Company will adopt an interim federal stock savings bank charter to be known as Interim Bank No. 2; Interim Bank No. 2 will then merge with and into the Savings Bank (the "Middle Tier Merger"), with the Savings Bank as the surviving entity. The MALIZIA SPIDI & FISCH, PC Boards of Directors American Bank of New Jersey American Savings, MHC ASB Holding Company June 13, 2005 Page 4 MHC will receive, and Minority Stockholders will constructively receive, shares of Bank common stock in exchange for their Middle Tier Holding Company common stock. (iv) Immediately following the the Middle Tier Merger, the MHC will convert into an interim federal stock savings bank to be known as Interim Bank No. 1. Then, Interim Bank No. 1, formerly the MHC, will merge with and into the Savings Bank with the Savings Bank as the surviving entity ("MHC Merger"). The shares of Bank Common Stock previously held by the MHC (now Interim Bank No. 1) will be canceled. Eligible members of the MHC as of certain specified dates will be granted interests in a liquidation account to be established by the Savings Bank. The amount in the liquidation account will be the greater of (a) 100% of retained earnings as of March 31, 2003 (the date of the latest statement of financial condition contained in the final offering circular utilized in the Savings Bank's initial stock offering), or (b) 70% of Middle Tier Holding Company's total shareholders' equity as reflected in its latest statement of financial condition. (v) Immediately following the MHC Merger, Interim Bank No. 3 will merge with and into the Savings Bank, with the Savings Bank as the surviving entity ("Bank Merger"). As a result of the Bank Merger, Bank Stock deemed held by Public Stockholders will be converted into Holding Company Common Stock based upon the Exchange Ratio which is designed to ensure that the same Public Stockholders will own, approximately the same percentage of Holding Company Common Stock as the percentage of Middle Tier Holding Company Common Stock owned by them immediately prior to the Conversion and Reorganization before giving effect to (a) cash paid in lieu of fractional shares and (b) any shares of Holding Company stock purchased by Public Stockholders in the Offering. (vi) Immediately after the Bank Merger, the Holding Company shall sell the Conversion Stock in the Offerings. (vii) Members of the MHC possessing Savings Bank Liquidation Interests as a result of the MHC Merger will continue to maintain such interests upon the completion of the MHC Merger and the Bank Merger. MALIZIA SPIDI & FISCH, PC Boards of Directors American Bank of New Jersey American Savings, MHC ASB Holding Company June 13, 2005 Page 5 ANALYSIS AND OPINION Code Section 354 provides that no gain or loss shall be recognized by stockholders who exchange common stock in a corporation, which is a party to a reorganization, solely for common stock in another corporation which is a party to the reorganization. Code Section 356 provides that stockholders shall recognize gain to the extent they receive money as part of a reorganization, such as money received in lieu of fractional shares. Code Section 358 provides that, with certain adjustments for money received in a reorganization, a stockholder's basis in the common stock he or she receives in a reorganization shall equal the basis of the common stock which he or she surrendered in the transaction. Code Section 1223(1) states that, where a stockholder receives property in an exchange which has the same basis as the property surrendered, he or she shall be deemed to have held the property received for the same period as the property exchanged, provided that the property exchanged had been held as a capital asset. Code Section 361 provides that no gain or loss shall be recognized to a corporation which is a party to a reorganization on any transfer of property pursuant to a plan of reorganization. Code Section 362 provides that if property is acquired by a corporation in connection with a reorganization, then the basis of such property shall be the same as it would be in the hands of the transferor immediately prior to the transfer. Code Section 1223(2) states that where a corporation will have a carryover basis in property received from another corporation which is a party to a reorganization, the holding period of such assets in the hands of the acquiring corporation shall include the period for which such assets were held by the transferor, provided that the property transferred had been held as a capital asset. Code Section 1032 states that no gain or loss shall be recognized to a corporation on the receipt of property in exchange for common stock. Code Section 368(a)(1)(F) provides that a mere change in identity, form, or place of organization, however effected, is a reorganization. When MHC converts itself from a federal mutual holding company to a federal interim stock savings bank, the changes at the corporate level will be insubstantial. Similarly, when the Mid-Tier adopts a federal charter and subsequently converts itself into a federal stock savings bank, the changes at the corporate level will be insubstantial. In addition, Rev. Rul. 80-105 provides that the conversion of a federal mutual savings and loan association to a state or federal stock savings and loan association, and the conversion of a state chartered mutual savings and loan association to a stock savings and loan association in the same state are reorganizations under Code Section 368(a)(1)(F). Therefore, the change in the form of operation of the MHC and the Mid-Tier should constitute reorganizations within the meaning of Code Section 368(a)(1)(F). MALIZIA SPIDI & FISCH, PC Boards of Directors American Bank of New Jersey American Savings, MHC ASB Holding Company June 13, 2005 Page 6 Code Section 368(a)(1)(A) defines the term "reorganization" to include a "statutory merger or consolidation" of corporations. Code Section 368(a)(2)(E) provides that a transaction otherwise qualifying as a merger under Code Section 368(a)(1)(A), shall not be disqualified by reason of the fact that common stock of a corporation which before the merger was in control of the merged corporation, is used in the transaction if (i) after the transaction, the corporation surviving the merger holds substantially all of its properties and the properties of the merged corporation; and (ii) former stockholders of the surviving corporation exchanged, for an amount of voting common stock of the controlling corporation, an amount of common stock in the surviving corporation which constitutes control of such corporation. In order to qualify as a reorganization under Code Section 368(a)(1)(A), a transaction must constitute a merger or consolidation effected pursuant to the corporation laws of the United States or a state. The Middle Tier Merger, the MHC Merger and the Bank Merger will be consummated in accordance with applicable federal and state laws. In addition, a transaction qualifying as a reorganization under Code Section 368(a)(1)(A) must satisfy the "continuity of interest doctrine" which requires that the continuing common stock interest of the former owners of an acquired corporation, considered in the aggregate, represents a "substantial part" of the value of their former interest and provides them with a "definite and substantial interest" in the affairs of the acquiring corporation or a corporation in control of the acquiring corporation. Helvering v. Minnesota Tea -------------------------- Co., 296 U.S. 378 (1935); Southwest Natural Gas Co. v. Comm'r., 189 F.2d - --- --------------------------------------- 332 (5th Cir. 1951), cert. denied, 342 U.S. 860 (1951). Treasury Regulation Section 1.368-1(b) and (e) provides that "Continuity of interest requires that in substance a substantial part of the value of the proprietary interests in the target corporation be preserved in the reorganization. A proprietary interest in the target corporation is preserved if, in a potential reorganization, it is exchanged for a proprietary interest in the issuing corporation, it is exchange by the acquiring corporation for a direct interest in the target corporation enterprise, or it otherwise continues as a proprietary interest in the target corporation." As a result of the Middle Tier Merger, the shareholders of the Mid-Tier receive a continuing proprietary interest in the Savings Bank which will subsequently be converted into a continuing proprietary interest in the Holding Company. Consequently, the continuity of interest doctrine should be satisfied with regard to the Middle Tier Merger. MALIZIA SPIDI & FISCH, PC Boards of Directors American Bank of New Jersey American Savings, MHC ASB Holding Company June 13, 2005 Page 7 With regard to the MHC Merger, the MHC, as a federal chartered mutual holding company, does not have stockholders and has no authority to issue capital stock. Instead, the Members are accorded a variety of proprietary rights such as voting rights and certain rights in the unlikely event of liquidation. Prior to the MHC Merger, certain depositors in the Savings Bank have both a deposit account in the institution and a pro rata inchoate proprietary interest in the net worth of the MHC based upon the balance in his account in the Savings Bank, an interest which may only be realized in the event of a liquidation of the MHC. However, this inchoate proprietary interest is tied to the depositor's account and has no tangible market value separate from such deposit account. A depositor who reduces or closes his account receives a portion or all of the balance in the account but nothing for his ownership interest in the net worth of the MHC, which is lost to the extent that the balance in the account is reduced. In accordance with the Plan, the Members will receive Savings Bank Liquidation Interests and continue their inchoate proprietary interests in the Savings Bank following the MHC Merger. Although the Savings Bank Liquidation Interests would not allow the Members the right to vote or the right to pro rata distributions of earnings, they would be entitled to share in the distribution of assets upon the liquidation of the Savings Bank following the MHC Merger. The Members' Savings Bank Liquidation Interests in the Savings Bank is substantially similar to their current ownership interest in the MHC (a liquidation interest in the MHC). Because the Members are not in effect "cashing out" their inchoate proprietary interests in the MHC, they would continue to maintain an inchoate proprietary interest in the Savings Bank upon the consummation of the MHC Merger. Such payments to be received as Savings Bank Liquidation Interests are not guaranteed and can only be received by Members who continue to maintain deposit accounts in the Savings Bank following the Middle Tier Merger. Therefore, it would seem that the exchange of the Members' equity interests in the MHC for Savings Bank Liquidation Interests should not violate the continuity of interest requirement of Section 1.368-1(b) and (e) of the Treasury Regulations. Consequently, the continuity of interest doctrine should be satisfied with regard to the MHC Merger. As a result of the Bank Merger, the shareholders of the Savings Bank will receive a continuing proprietary interest in the Holding Company, the sole shareholder of the Savings Bank. Consequently, the continuity of interest doctrine should be satisfied with regard to the Bank Merger. One of the requirements of Code Section 368(a)(2)(E) is that subsequent to the transaction, the corporation surviving the merger must hold substantially all of its properties and the properties of the merged corporation. The Savings Bank has represented that, following the Bank Merger, it will hold at least 90% of the fair market value of its net assets and at least 70% of the fair MALIZIA SPIDI & FISCH, PC Boards of Directors American Bank of New Jersey American Savings, MHC ASB Holding Company June 13, 2005 Page 8 market value of its gross assets, and at least 90% of the fair-market value of Interim Bank #3's net assets and at least 70% of the fair market value of Interim Bank #3's gross assets held immediately prior to the Bank Merger. Based upon representations received from the Savings Bank's management, the Savings Bank will clearly satisfy this requirement of Code Section 368(a)(2)(E). Pursuant to Code Section 368(a)(2)(E), the Holding Company must also acquire control of the Savings Bank in the Bank Merger. Control is defined as at least 80% of the total combined voting power of all classes of stock entitled to vote, and at least 80% of the total number of shares. Subsequent to the Bank Merger, the Holding Company will hold all of the Bank Stock. However, there is an issue as to whether the Savings Bank Liquidation Interests must be taken into account for purposes of the "control" test. If the Savings Bank Liquidation Interests are to be included in determining whether the Holding Company acquired control of the Savings Bank in the Bank Merger, it would be necessary to recognize such interests as another class of Bank Stock. Although the Savings Bank Liquidation Interests may be compared to the equity interests held by Members, which afforded Members an equity/ownership interest in the MHC, these interests in the Savings Bank are too remote to qualify as a separate class of Bank Stock. Therefore, the Savings Bank Liquidation Interests should be disregarded in determining whether the Holding Company acquires control of the Savings Bank in the Bank Merger. In addition to the requirements discussed above, there is a judicially created substance over form concept often referred to as the "step transaction doctrine" which applies throughout tax law, including the corporate reorganization area. The step transaction doctrine is an extremely amorphous concept. Often, application of the doctrine hinges on whether a court finds that a particular series of transactions runs counter to a significant tax policy. Notwithstanding years of litigation and hundreds of cases, the exact contours of the step transaction doctrine, and even its proper formulation, are still the subject of intense debate. Consequently, it often will be difficult to determine with a high degree of certainty whether a series of related transactions will be stepped together in some fashion for tax purposes. The courts over the years have developed three distinct verbal formulations of the doctrine: (i) the binding commitment test, (ii) the end result test, and (iii) the interdependence test. While the courts nominally apply one or more of these three tests, a careful reading of the relevant cases indicates that the courts, as a preliminary matter, in deciding whether to apply the step transaction doctrine, tend to focus primarily on two key factors: intent and temporal proximity. However, case law and the Service's pronouncements indicate that there are limitations on the ability to assert the step transaction doctrine, regardless of (i) the taxpayer's intent at the time of the first transaction to engage in the later transactions, and (ii) the short period of time that elapses between the transactions. MALIZIA SPIDI & FISCH, PC Boards of Directors American Bank of New Jersey American Savings, MHC ASB Holding Company June 13, 2005 Page 9 Case law and the Service's pronouncements indicate that if two or more transactions carried out pursuant to an overall plan have economic significance independent of each other, the transactions generally will not be stepped together. The Service's most significant pronouncement regarding independent economic significance is Rev. Rul. 79-250. In that ruling, the Service asserted that: the substance of each of a series of steps will be recognized and the step transaction doctrine will not apply, if each such step demonstrates independent economic significance, is not subject to attack as a sham, and was undertaken for valid business purposes and not mere avoidance of taxes. The parties to the MHC Merger maintain a separate and distinct business purpose for consummating the MHC Merger (e.g., allowing for the conversion of the MHC from mutual to stock form). Immediately after the consummation of the MHC Merger, the Savings Bank will no longer be controlled by the MHC but will instead be controlled by its public stockholders. The facts indicate that the merger of MHC with and into the Savings Bank will result in a real and substantial change in the form of ownership of the Savings Bank that is sufficient to conclude that the MHC Merger comports with the underlying purposes and assumptions of a reorganization under Code Section 368(a)(1)(A). In addition, we believe that, because the various steps contemplated by the Plan were necessitated by the requirements of the Office of Thrift Supervision, each of the Middle Tier Merger, the MHC Merger and the Bank Merger has a business purpose and independent significance and, as a result, the step transaction doctrine should not be applied to these transactions. However, our opinion is not binding upon the Service, and there can be no assurance that the Service will not assert a contrary position. Revenue Ruling 72-405 involved Corporation X which formed a wholly owned subsidiary, merged an unrelated corporation Y into the subsidiary and then liquidated the subsidiary. The Service held that the overall plan for the transactions was the acquisition of Corporation Y assets by Corporation X and that the transitory existence of the subsidiary did not have independent economic significance. As a result, the step transaction doctrine was applied, the transitory existence of the subsidiary was ignored and the transaction was treated as a direct acquisition of Corporation Y assets by Corporation X. It is possible that the Service could assert, based upon reasoning similar to that which was applied in Revenue Ruling 72-405, that the overall plan of the transactions contemplated by the Plan is the maintenance of the Savings Bank's holding company structure and the merger of MHC into Bank and that, as a result, the step transaction doctrine should be applied and the transitory MALIZIA SPIDI & FISCH, PC Boards of Directors American Bank of New Jersey American Savings, MHC ASB Holding Company June 13, 2005 Page 10 elimination of the holding company structure in the Middle Tier Merger and re-creation of the holding company structure in the Bank Merger should be ignored for tax purposes. If the Service were successful with such an assertion, the transaction would be treated as a direct merger of MHC into the Savings Bank which may not qualify as a tax free reorganization resulting in taxable gain to the parties to the transaction. The Service is currently reviewing the question of whether certain downstream mergers of a parent corporation into its subsidiary (where the parent does not own 80% or more of its subsidiary before a downstream merger) or inversion transactions, where a parent and its subsidiary reverse positions, which otherwise qualify for tax-free treatment nevertheless should be treated as taxable transactions because they circumvent the repeal of the "General Utilities doctrine." The MHC currently owns 70% of the Mid-Tier and we do not believe that the transactions undertaken pursuant to the Plan constitute the type of transactions which circumvent the "General Utilities doctrine." Based upon the foregoing, and assuming the Middle Tier Merger, the MHC Merger, and the Bank Merger are consummated as described herein and in the Plan, we are of the opinion that: 1. The transactions qualify as statutory mergers and each merger required by the Plan qualifies as a reorganization within the meaning of Code Section 368(a)(1)(A). Each of the MHC, the Mid-Tier, and the Savings Bank will be a party to a "reorganization" as defined in Code Section 368(b). 2. The MHC will not recognize any gain or loss on the transfer of its assets to the Savings Bank in exchange for Savings Bank Liquidation Interests for the benefit of Members who remain Members. 3. No gain or loss will be recognized by the Savings Bank upon the receipt of the assets of the MHC in exchange for the transfer to the Members of the Savings Bank Liquidation Interests. 4. No gain or loss will be recognized by the Savings Bank upon the receipt of the assets of Interim Bank #2 and Interim Bank #3 pursuant to the Conversion and Reorganization. 5. No gain or loss will be recognized by Interim Bank #2 (the Mid-Tier following its conversion to a federal stock savings bank) pursuant to the Conversion and Reorganization. MALIZIA SPIDI & FISCH, PC Boards of Directors American Bank of New Jersey American Savings, MHC ASB Holding Company June 13, 2005 Page 11 6. The reorganization of the Holding Company as the holding company of the Savings Bank qualifies as a reorganization within the meaning of Code Section 368(a)(1)(A) by virtue of Code Section 368(a)(2)(E). Therefore, the Savings Bank, the Holding Company, and Interim Bank #3 will each be a party to a reorganization, as defined in Code Section 368(b). 7. No gain or loss will be recognized by Interim Bank #3 upon the transfer of its assets to the Savings Bank pursuant to the Conversion and Reorganization. 8. Members will recognize no gain or loss upon the receipt of Savings Bank Liquidation Interests. 9. No gain or loss will be recognized by the Holding Company upon the receipt of Bank Stock solely in exchange for HC Stock. 10. Current stockholders of Mid-Tier will not recognize any gain or loss upon their exchange of Mid-Tier Common Stock solely for shares of HC Stock. 11. Each stockholder's aggregate basis in shares of HC Stock received in the exchange will be the same as the aggregate basis of Mid-Tier Common Stock surrendered in the exchange before giving effect to any payment of cash in lieu of fractional shares. 12. It is more likely than not that the fair market value of the subscription rights to purchase HC Stock is zero. Accordingly, no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members upon the distribution to them of the nontransferable subscription rights to purchase shares of HC Stock. Gain realized, if any, by the Eligible Account Holders, Supplemental Eligible Account Holders and Other Members on the distribution to them of nontransferable subscription rights to purchase shares of HC Stock will be recognized but only in an amount not in excess of the fair market value of such subscription rights (Code Section 356(a)). Eligible Account Holders, Supplemental Eligible Account Holders and Other Members will not realize any taxable income as a result of the exercise by them of the nontransferable subscription rights (Rev. Rul. 56-572, 1956-2 C.B. 182). Our opinion under paragraph 12 above is predicated on the representation that no person shall receive any payment, whether in money or property, in lieu of the issuance of subscription rights. Our opinion under paragraph 12 is based on the conclusion that the subscription rights to purchase shares of HC Stock received by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members have a fair market value of zero. We note that the subscription rights will be granted at no cost to the recipients, will be legally non-transferable and MALIZIA SPIDI & FISCH, PC Boards of Directors American Bank of New Jersey American Savings, MHC ASB Holding Company June 13, 2005 Page 12 of short duration, and will provide the recipient with the right only to purchase shares of HC Stock at the same price to be paid by members of the general public in any Community Offering. We note that we are not aware of the Service claiming in any similar transaction that subscription rights have any market value. In that there are no judicial opinions or official Service positions on this issue, however, our opinion related to subscription rights comes to a reasoned conclusion instead of an absolute conclusion on these issues. Our conclusion is supported by a letter from RP Financial, LC, which states that the subscription rights do not have any value when they are distributed or exercised. If the Service disagrees with this valuation of subscription rights and determines that such subscription rights have value, income may be recognized by recipients of these rights, in certain cases whether or not the rights are exercised. This income may be capital gain or ordinary income, and the Holding Company could recognize gain on the distribution of these rights. Based on the foregoing, we believe it is more likely than not that the nontransferable subscription rights to purchase HC Stock have no value. 13. No gain or loss will be recognized by the Holding Company on the receipt of money in exchange for HC Stock sold in the offering. SCOPE OF OPINION Our opinion is limited to the federal income tax matters of the transaction proposed as it relates to the Savings Bank, MHC, Mid-Tier and Holding Company and the recipients of subscription rights to purchase the Company Stock as described above and does not address any other federal income tax considerations or any state, local, foreign, or other tax considerations. If any of the information on which we have relied is incorrect, or if changes in the relevant facts occur after the date hereof, our opinion could be affected thereby. Moreover, our opinion is based on the Code, applicable Treasury regulations promulgated thereunder, and Service rulings, procedures, and other pronouncements published by the Service. These authorities are all subject to change, and such change may be made with retroactive effect. We can give no assurance that, after such change, our opinion would not be different. We undertake no responsibility to update or supplement our opinion. This opinion is not binding on the Service, and there can be no assurance, and none is hereby given, that the Service will not take a position contrary to one or more of the positions reflected in the foregoing opinion, or that our opinion will be upheld by the courts if challenged by the Service. However, we believe that a court, if such issues were litigated, is more likely than not to concur with our opinion. Further, the opinions set forth above represent our conclusions based upon the documents reviewed by us and the facts presented to us. Any material amendments to such documents or changes in any significant fact would affect the opinions expressed herein. MALIZIA SPIDI & FISCH, PC Boards of Directors American Bank of New Jersey American Savings, MHC ASB Holding Company June 13, 2005 Page 13 USE OF OPINION This opinion is given solely for the benefit of the parties to the Plan, the stockholders of the Mid-Tier, and Eligible Account Holders, Supplemental Eligible Account Holders and Other Members who purchase stock pursuant to the Plan, and may not be relied upon by any other party or entity or referred to in any document without our express written consent. CONSENT We hereby consent to the filing of this opinion as an exhibit to the Registration Statement on Form S-1 ("Form S-1") to be filed by the Holding Company with the Securities and Exchange Commission, and as an exhibit to the MHC's Application for Conversion on Form AC as filed with the OTS ("Form AC"), and to the references to our firm in the Prospectus that is part of both the Form S-1 and the Form AC. Very truly yours, /s/Malizia Spidi & Fisch, PC ---------------------------- Malizia Spidi & Fisch, PC EX-8 8 ex8-2.txt STATE TAX OPINION OF CROWE CHIZEK AND COMPANY LLC [LOGO] CROWE 354 Eisenhower Parkway, Plaza I Crowe Chizek and Company LLC Livingston, New Jersey 07039-1027 Member Horwath International Tel 973.422.2420 Fax 973.422.4520 www.crowechizek.com June 13, 2005 Board of Directors American Bank of New Jersey 365 Broad Street Bloomfield, New Jersey 07003 Re: New Jersey Income Tax Consequences of MHC Step 2 Reorganization To the Members of the Board of Directors: In accordance with your request, we render our opinion relating to the material New Jersey income tax consequences of the proposed Plan of Conversion and Reorganization of American Savings, MHC (the "MHC") and Plans of Merger between the MHC, ASB Holding Company and American Bank of New Jersey (the "Plan") (collectively referred to herein as the "Conversion and Reorganization"). Pursuant to the Conversion and Reorganization, American Bank of New Jersey will be wholly owned by a stock holding company which will be owned completely by public shareholders. STATEMENT OF FACTS ------------------ The facts and circumstances surrounding the Conversion and Reorganization are quite detailed and are described at length in the Plan adopted on May 17, 2005, by the Board of Directors of ASB Holding Company (the "Middle Tier Holding Company"), American Bank of New Jersey (the "Savings Bank"), and the MHC and in the federal tax opinion dated June 13, 2005 by Malizia Spidi & Fisch, PC (the "Federal Tax Opinion"). However, a summary of the Plan is as follows: The Bank is a federal stock savings bank. The Company is a federal stock holding company that owns 100% of the outstanding Bank stock. The MHC is a federally chartered mutual holding company that owns 70% of the outstanding common stock of the Company. Public shareholders own the remaining 30% of the outstanding common stock of the Company. Pursuant to the Plan and for what are stated to be valid business reasons, the Company proposes to reorganize so that 100% of its outstanding stock will be publicly owned. Pursuant to the Plan, the Savings bank will form a new New Jersey stock holding Company, American Bancorp of New Jersey, Inc. ("Holding Company") and the existing shares of Middle Tier Holding Company common stock owned by public shareholders will be converted pursuant to an exchange ratio into shares of common stock of the Holding company. Board of Directors American Savings Bank of NJ June 13 2005 Page 2 The Conversion and Reorganization will be effected, pursuant to the Plan , as follows: (i) The Savings Bank will establish the Holding Company as a first-tier state-chartered stock holding company subsidiary. (ii) The Holding Company will form an interim corporation ("Interim Bank No. 3"), a new, wholly owned first-tier subsidiary with an interim federal stock savings bank charter. (iii) Middle Tier Holding Company will adopt an interim federal stock savings bank charter to be known as Interim Bank No. 2; Interim Bank No. 2 will then merge with and into the Savings Bank (the "Middle Tier Merger"), with the Savings Bank as the surviving entity. The MHC will receive, and Minority Stockholders will constructively receive, shares of Bank common stock in exchange for their Middle Tier Holding Company common stock. (iv) Immediately following the Middle Tier Merger, the MHC will convert into an interim federal stock savings bank to be known as Interim Bank No. 1. Then, Interim Bank No. 1, formerly the MHC, will merge with and into the Savings Bank with the Savings Bank as the surviving entity ("MHC Merger"). The shares of Bank Common Stock previously held by the MHC (now Interim Bank No. 1) will be canceled. Eligible members of the MHC as of certain specified dates will be granted interests in a liquidation account to be established by the Savings Bank. The amount in the liquidation account will be the greater of (a) 100% of retained earnings as of March 31, 2003 (the date of the latest statement of financial condition contained in the final offering circular utilized in the Savings Bank's initial stock offering), or (b) 70% of Middle Tier Holding Company's total shareholders' equity as reflected in its latest statement of financial condition. (v) Immediately following the MHC Merger, Interim Bank No. 3 will merge with and into the Savings Bank, with the Savings Bank as the surviving entity ("Bank Merger"). As a result of the Bank Merger, Bank Stock deemed held by Public Stockholders will be converted into Holding Company Common Stock based upon the Exchange Ratio which is designed to ensure that the same Public Stockholders will own, approximately the same percentage of Holding Company Common Stock as the percentage of Middle Tier Holding Company Common Stock owned by them immediately prior to the Conversion and Reorganization before giving effect to (a) cash paid in lieu of fractional shares and (b) any shares of Holding Company stock purchased by Public Stockholders in the Offering. (vi) Immediately after the Bank Merger, the Holding Company shall sell the Conversion Stock in the Offerings. (vii) Members of the MHC possessing Savings Bank Liquidation Interests as a result of the MHC Merger will continue to maintain such interests upon the completion of the MHC Merger and the Bank Merger. Board of Directors American Savings Bank of NJ June 13 2005 Page 3 OPINION ------- You have provided us with a copy of the Federal Tax Opinion of the transactions prepared by Malizia Spidi & Fisch, PC, dated June 13, 2005 (the "Federal Tax Opinion") in which they have opined, inter alia, that the transactions will be tax-free reorganizations described in Section 368(a)(1)(A) and 368(a)(2)(E). Our opinion regarding the New Jersey income tax consequences is based on the facts and incorporates the capitalized terms contained in the Federal Tax Opinion. Our opinion on the New Jersey income tax consequences assumes that the final federal income tax consequences of the transaction will be those outlined in the Federal Tax Opinion. Should it finally be determined that the facts and the federal income tax consequences are not as outlined in the Federal Tax Opinion, the New Jersey income tax consequences and our New Jersey tax opinion will differ from what is contained herein. Our opinion is based on the current New Jersey tax law, which is subject to change. Our opinion adopts and relies upon the facts, assumptions, representations, and conclusions as set forth in the Federal Tax Opinion. Based upon that information, we render the following opinion with respect to the material New Jersey income tax consequences of the transaction. 1. The transactions qualify as statutory mergers and each merger required by the Plan qualifies as a reorganization within the meaning of Code Section 368(a)(1)(A). Each of the MHC, the Mid-Tier, and the Savings Bank will be a party to a "reorganization" as defined in Code Section 368(b). (Revised Statutes of New Jersey Sec. 54:10A-4(k)). 2. The MHC will not recognize any gain or loss on the transfer of its assets to the Savings Bank in exchange for Savings Bank Liquidation Interests for the benefit of Members who remain Members of Savings Bank. (Revised Statutes of New Jersey Sec. 54:10A-4(k)). 3. No gain or loss will be recognized by the Savings Bank upon the receipt of the assets of the MHC in exchange for the transfer to the Members of the Savings Bank Liquidation Interests. (Revised Statutes of New Jersey Sec. 54:10A-4(k)). 4. No gain or loss will be recognized by the Savings Bank upon the receipt of the assets of Interim Bank #2 and Interim Bank #3 pursuant to the Conversion and Reorganization. (Revised Statutes of New Jersey Sec. 54:10A-4(k)). 5. No gain or loss will be recognized by Interim Bank #2 (the Mid-Tier following its conversion to a federal stock savings bank) pursuant to the Conversion and Reorganization. (Revised Statutes of New Jersey Sec. 54:10A-4(k)). Board of Directors American Savings Bank of NJ June 13 2005 Page 4 6. The reorganization of the Holding Company as the holding company of the Savings Bank qualifies as a reorganization within the meaning of Code Section 368(a)(1)(A) by virtue of Code Section 368(a)(2)(E). Therefore, the Savings Bank, the Holding Company, and Interim Bank #3 will each be a party to a reorganization, as defined in Code Section 368(b). (Revised Statutes of New Jersey Sec. 54:10A-4(k) and Sec. 54A:5-1c). 7. No gain or loss will be recognized by Interim Bank #3 upon the transfer of its assets to the Savings Bank pursuant to the Conversion and Reorganization. (Revised Statutes of New Jersey Sec. 54:10A-4(k)). 8. Members will recognize no gain or loss upon the receipt of Savings Bank Liquidation Interests. (Revised Statutes of New Jersey Sec. 54:10A-4(k) and Sec. 54A:5-1c). 9. No gain or loss will be recognized by the Holding Company upon the receipt of Bank Stock solely in exchange for HC Stock. (Revised Statutes of New Jersey Sec. 54:10A-4(k)). 10. Current stockholders of Mid-Tier Holding Company will not recognize any gain or loss upon their exchange of Mid-Tier Holding Company Common Stock solely for shares of HC Stock. (Revised Statutes of New Jersey Sec. 54:10A-4(k) and Sec. 54A:5-1c). 11. Each stockholder's aggregate basis in shares of HC Stock received in the exchange will be the same as the aggregate basis of Mid-Tier Holding Company Common Stock surrendered in the exchange before giving effect to any payment of cash in lieu of fractional shares. (Revised Statutes of New Jersey Sec. 54:10A-4(k) and Sec. 54A:5-1c). 12. It is more likely than not that the fair market value of the subscription rights to purchase HC Stock is zero. Accordingly, no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members upon the distribution to them of the nontransferable subscription rights to purchase shares of HC Stock. Gain realized, if any, by the Eligible Account Holders, Supplemental Eligible Account Holders and Other Members on the distribution to them of nontransferable subscription rights to purchase shares of HC Stock will be recognized but only in an amount not in excess of the fair market value of such subscription rights (Code Section 356(a)). Eligible Account Holders, Supplemental Eligible Account Holders and Other Members will not realize any taxable income as a result of the exercise by them of the nontransferable subscription rights (Rev. Rul. 56-572, 1956-2 C.B. 182). Our opinion under paragraph 12 above is based on the presumption that the subscription rights to purchase shares of Company Stock received by Eligible Account Holders and Supplemental Eligible Account Holders and Other Members have a fair market value of zero. Such subscription rights will be granted at no cost to the recipients, will be legally non-transferable and of short duration, and will provide the recipient with the right only to purchase shares of Company Stock at the same price to be paid by members of the general public in any Board of Directors American Savings Bank of NJ June 13 2005 Page 5 Community Offering. We understand that you have received a letter from RP Financial, LC, which states that the subscription rights do not have any value when they are distributed or exercised. In the Federal Tax Opinion, Malizia Spidi & Fisch, PC opined that it is more likely than not the subscription rights have no value. We express no view regarding the valuation of the subscription rights. LIMITATIONS OF OPINION ---------------------- Our opinion is based upon legal authorities currently in effect, which authorities are subject to modification or challenge at any time and perhaps with retroactive effect. Further, no opinion is expressed under the provisions of any of the other sections of the Revised Statues of New Jersey and Income Tax Regulations which may also be applicable thereto, or to the tax treatments of any conditions existing at the time of, or effects resulting from, the transaction which are not specifically covered by the opinions set forth above. Our opinion is not binding on the New Jersey Division of Taxation, and the New Jersey Division of Taxation could disagree with the conclusions reached in the opinion. In the event of such disagreement, there can be no assurance that the New Jersey Division of Taxation would not prevail in a judicial proceeding, although we believe that the positions expressed in our opinion would prevail if the matters were challenged. If any fact contained in this opinion letter or the Federal Tax Opinion changes to alter the federal tax treatment, it is imperative that we be notified in order to determine the effect on the New Jersey income tax consequences, if any. This opinion is given solely for the benefit of the parties to the Plan, the Eligible Account Holders and Supplemental Eligible Account Holders and those who purchase stock pursuant to the Plan, and may not be relied upon by any other party or entity or referred to in any document without our express written consent. Board of Directors American Savings Bank of NJ June 13 2005 Page 6 We hereby consent to the filing of this opinion as an exhibit to the Registration Statement on Form S-1 ("Form S-1") to be filed by the Holding Company with the Securities and Exchange Commission, and as an exhibit to the MHC's Application for Conversion on Form AC ("Form AC") as filed with the OTS, and to the references to our firm in the Prospectus that is part of both the Form S-1 and the Form AC. Very Truly Yours, /s/Crowe Chizek and Company LLC Crowe Chizek and Company LLC EX-10.6 9 ex10-6.txt EMPLOYMENT AGREEMENT - CATHERINE M. BRINGUIER EMPLOYMENT AGREEMENT THIS AGREEMENT, is entered into this 1st day of January 2003, ("Effective Date") by and between American Savings Bank of NJ (the "Savings Bank") and Catherine M. Bringuier (the "Executive"). WITNESSETH WHEREAS, the Executive has heretofore been employed by the Savings Bank as the Vice President and Chief Lending Officer and is experienced in all phases of the business of the Savings Bank; and WHEREAS, the Savings Bank desires to be ensured of the Executive's continued active participation in the business of the Savings Bank; and WHEREAS, in order to induce the Executive to remain in the employ of the Savings Bank and in consideration of the Executive's agreeing to remain in the employ of the Savings Bank, the parties desire to specify the continuing employment relationship between the Savings Bank and the Executive. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereby agree as follows: 1. Employment. The Savings Bank hereby employs the Executive in the ---------- capacity of Vice President and Chief Lending Officer. The Executive hereby accepts said employment and agrees to render such administrative and management services to the Savings Bank and to any to-be-formed parent holding company ("Parent") as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Executive shall promote the business of the Savings Bank and Parent. The Executive's other duties shall be such as the Board of Directors for the Savings Bank (the "Board of Directors" or "Board") may from time to time reasonably direct, including normal duties as an officer of the Savings Bank. The Executive's employment shall be for no definite period of time, and the Executive or the Bank may terminate such employment relationship at any time for any reason or no reason. The employment at-will relationship remains in full force and effect regardless of any statements to the contrary made by company personnel or set forth in any documents other than those explicitly made to the contrary and signed by the President or the Chairman of the Bank. 2. Term of Agreement. The term of this Agreement shall be for the ------------------ period commencing on the Effective Date and ending December 31, 2004 thereafter ("Term"). Additionally, on, or before, each annual anniversary date from the Effective Date, the Term of this Agreement shall be extended for up to an additional period beyond the then effective expiration date upon a determination and resolution of the Board of Directors that the performance of the Executive has met the requirements and standards of the Board, and that the Term of such Agreement shall be extended. References herein to the Term of this Agreement shall refer both to the initial term and successive terms. 3. Compensation, Benefits and Expenses. ----------------------------------- (a) Base Salary. The Savings Bank shall compensate and pay the Executive during the Term of this Agreement a minimum base salary at the rate of $130,000 per annum ("Base Salary"), payable in cash not less frequently than monthly; provided, that the rate of such salary shall be reviewed by the Board of Directors not less often than annually, and the Executive shall be entitled to receive increases at such percentages or in such amounts as determined by the Board of Directors. (b) Discretionary Bonus. The Executive shall be entitled to participate in an equitable manner with all other senior management employees of the Savings Bank in discretionary bonuses that may be authorized and declared by the Board of Directors to its senior management executives from time to time. No other compensation provided for in this Agreement shall be deemed a substitute for the Executive's right to participate in such discretionary bonuses when and as declared by the Board. (c) Participation in Benefit and Retirement Plans. The Executive shall be entitled to participate in and receive the benefits of any plan of the Savings Bank which may be or may become applicable to senior management relating to pension or other retirement benefit plans, profit-sharing, stock options or incentive plans, or other plans, benefits and privileges given to employees and executives of the Savings Bank, to the extent commensurate with her then duties and responsibilities, as fixed by the Board of Directors of the Savings Bank. (d) Participation in Medical Plans and Insurance Policies. The Executive shall be entitled to participate in and receive the benefits of any plan or policy of the Savings Bank which may be or may become applicable to senior management relating to life insurance, short and long term disability, medical, dental, eye-care, prescription drugs or medical reimbursement plans. Additionally, Executive's dependent family shall be eligible to participate in medical and dental insurance plans sponsored by the Savings Bank or Parent with 70% of the cost of such premiums paid by the Savings Bank. (e) Vacations and Sick Leave. The Executive shall be entitled to paid annual vacation leave in accordance with the policies as established from time to time by the Board of Directors. The Executive shall also be entitled to an annual sick leave benefit as established by the Board for senior management employees of the Savings Bank. The Executive shall not be entitled to receive any additional compensation from the Savings Bank for failure to take a vacation or sick leave, nor shall she be able to accumulate unused vacation or sick leave from one year to the next, except to the extent authorized by the Board of Directors. (f) Expenses. The Savings Bank shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of, or in 2 connection with the business of the Savings Bank, including, but not by way of limitation, automobile and traveling expenses, and all reasonable entertainment expenses, subject to such reasonable documentation and other limitations as may be established by the Board of Directors of the Savings Bank. If such expenses are paid in the first instance by the Executive, the Savings Bank shall reimburse the Executive therefor. (g) Changes in Benefits. The Savings Bank shall not make any changes in such plans, benefits or privileges previously described in Section 3(c), (d) and (e) which would adversely affect the Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Savings Bank and does not result in a proportionately greater adverse change in the rights of, or benefits to, the Executive as compared with any other executive officer of the Savings Bank. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 3(a) hereof. 4. Loyalty; Noncompetition. ----------------------- (a) The Executive shall devote her full time and attention to the performance of her employment under this Agreement. During the term of the Executive's employment under this Agreement, the Executive shall not engage in any business or activity contrary to the business affairs or interests of the Savings Bank or Parent. (b) Nothing contained in this Section 4 shall be deemed to prevent or limit the right of Executive to invest in the capital stock or other securities of any business dissimilar from that of the Savings Bank or Parent, or, solely as a passive or minority investor, in any business. 5. Standards. During the term of this Agreement, the Executive shall --------- perform her duties in accordance with such reasonable standards expected of executives with comparable positions in comparable organizations and as may be established from time to time by the Board of Directors. 6. Termination and Termination Pay. The Executive's employment under -------------------------------- this Agreement shall be terminated upon any of the following occurrences: (a) The death of the Executive during the term of this Agreement, in which event the Executive's estate shall be entitled to receive the compensation due the Executive through the last day of the calendar month in which Executive's death shall have occurred. (b) The Bank may terminate the Executive's employment at any time with or without Just Cause within its sole discretion. This Agreement shall not be deemed to give Executive any right to be retained in the employment or service of the Bank, or to interfere with the right of the Bank to terminate the employment of the Executive at any time, but any termination by the Bank other than termination for Just Cause, shall not prejudice the Executive's right to compensation or other benefits under the Agreement. The Executive shall have no right to receive compensation or other benefits for any period after termination for Just Cause. The 3 Bank may within its sole discretion, acting in good faith, terminate the Executive for Just Cause and shall notify such Executive accordingly. Termination for "Just Cause" shall include termination because of the Executive's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the Agreement. (c) Except as provided pursuant to Section 9 hereof, in the event Executive's employment under this Agreement is terminated by the Bank without Just Cause, the Savings Bank shall be obligated to continue to pay the Executive the salary provided pursuant to Section 3(a) herein, up to the date of termination of the remaining Term of this Agreement, and the cost of Executive obtaining all health, life, disability, and other benefits which the Executive would be eligible to participate in through such date based upon the benefit levels substantially equal to those being provided Executive at the date of termination of employment. The provisions of this Section 6(c) shall survive the expiration of this Agreement. (d) The voluntary termination by the Executive during the term of this Agreement with the delivery of no less than 60 days written notice to the Board of Directors, other than pursuant to Section 9(b), in which case the Executive shall be entitled to receive only the compensation, vested rights, and all employee benefits up to the date of such termination. 7. Regulatory Exclusions. --------------------- (a) If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Savings Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under the Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Savings Bank may within its discretion (i) pay the Executive all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate any of its obligations which were suspended. (b) If the Executive is removed and/or permanently prohibited from participating in the conduct of the Savings Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under this Agreement shall terminate, as of the effective date of the order, but the vested rights of the parties shall not be affected. (c) If the Savings Bank is in default (as defined in Section 3(x)(1) of FDIA) all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (d) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Savings Bank: (i) by the Director of the Office of Thrift Supervision ("Director of OTS"), or his designee, at the time that the Federal Deposit Insurance Corporation ("FDIC") enters into an 4 agreement to provide assistance to or on behalf of the Savings Bank under the authority contained in Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his designee, at the time that the Director of the OTS, or his designee approves a supervisory merger to resolve problems related to operation of the Savings Bank or when the Savings Bank is determined by the Director of the OTS to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. (e) Notwithstanding anything herein to the contrary, any payments made to the Executive pursuant to the Agreement, or otherwise, shall be subject to and conditioned upon compliance with 12 USC ss.1828(k) and any regulations promulgated thereunder. 8. Disability. If the Executive shall become disabled or incapacitated ---------- to the extent that she is unable to perform her duties hereunder, by reason of medically determinable physical or mental impairment, as determined by a doctor engaged by the Board of Directors, Executive shall continue to receive the compensation and benefits in accordance with the terms of any plans or policies of the Savings Bank relating to short and long term disability. Such benefits shall be reduced by any benefits otherwise provided to the Executive during such period under the provisions of disability insurance coverage in effect for Savings Bank employees. Thereafter, Executive shall be eligible to receive benefits provided by the Savings Bank under the provisions of any disability insurance coverage in effect for Savings Bank employees. Upon returning to active full-time employment, the Executive's full compensation as set forth in this Agreement shall be reinstated as of the date of commencement of such activities. In the event that the Executive returns to active employment on other than a full-time basis, then her compensation (as set forth in Section 3(a) of this Agreement) shall be reduced in proportion to the time spent in said employment, or as shall otherwise be agreed to by the parties. 9. Change in Control. ----------------- (a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of Executive's employment during the term of this Agreement following any Change in Control of the Savings Bank or Parent, or within twelve (12) months thereafter of such Change in Control, absent Just Cause, Executive shall be paid an amount equal to the product of two (2) times the Executive's "base amount" as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and regulations promulgated thereunder. Said sum shall be paid, at the option of Executive, either in one (1) lump sum as of the date of such termination of service or in periodic payments over the next 24 months or the remaining term of this Agreement, whichever is less, as if Executive's employment had not been terminated, and such payments shall be in lieu of any other future payments which the Executive would be otherwise entitled to receive under Section 6 of this Agreement. Notwithstanding the forgoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder when aggregated with all other payments to be made to the Executive by the Savings Bank or the Parent shall be deemed an "excess parachute payment" in accordance with Section 280G of the Code and be subject to the excise tax provided at Section 4999(a) of the Code. The term "Change in Control" shall refer to (i) the control of voting proxies whether related to stockholders or mutual members by any person, other than the Board of Directors of the Savings 5 Bank, to direct more than 25% of the outstanding votes of the Savings Bank, the control of the election of a majority of the Savings Bank's directors, or the exercise of a controlling influence over the management or policies of the Savings Bank by any person or by persons acting as a group within the meaning of Section 13(d) of the Exchange Act, (ii) an event whereby the OTS, FDIC or any other department, agency or quasi-agency of the federal government cause or bring about, without the consent of the Savings Bank, a change in the corporate structure or organization of the Savings Bank; (iii) an event whereby the OTS, FDIC or any other agency or quasi-agency of the federal government cause or bring about, without the consent of the Savings Bank, a taxation or involuntary distribution of retained earnings or proceeds from the sale of securities to depositors, borrowers, any government agency or organization or civic or charitable organization; or (iv) a merger or other business combination between the Savings Bank and another corporate entity whereby the Savings Bank is not the surviving entity. In the event that the Savings Bank shall convert in the future from mutual-to-stock form, the term "Change in Control" shall also refer to: (i) the sale of all, or a material portion, of the assets of the Savings Bank or the Parent; (ii) the merger or recapitalization of the Savings Bank or the Parent whereby the Savings Bank or the Parent is not the surviving entity; (iii) a change in control of the Savings Bank or the Parent, as otherwise defined or determined by the Office of Thrift Supervision or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Savings Bank or the Parent by any person, trust, entity or group. The term "person" means an individual other than the Executive, or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The provisions of this Section 9(a) shall survive the expiration of this Agreement occurring after a Change in Control. (b) Notwithstanding any other provision of this Agreement to the contrary, Executive may voluntarily terminate her employment during the term of this Agreement following a Change in Control of the Savings Bank or Parent, or within twelve (12) months following such Change in Control, and upon the occurrence, or within 120 days thereafter, of any of the following events, which have not been consented to in advance by the Executive in writing: (i) if Executive would be required to move her personal residence or perform her principal executive functions more than forty (40) miles from the Executive's primary office as of the signing of this Agreement; or (ii) if the Savings Bank should fail to maintain Executive's base compensation in effect as of the date of the Change in Control and the existing employee benefits plans, including material fringe and retirement plans. Upon such voluntary termination of employment by the Executive in accordance with this subsection, Executive shall thereupon be entitled to receive the payments described in Section 9(a) of this Agreement. The provisions of this Section 9(b) shall survive the expiration of this Agreement occurring after a Change in Control. 10. Withholding. All payments required to be made by the Savings Bank ----------- hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Savings Bank may reasonably determine should be withheld pursuant to any applicable law or regulation. 6 11. Successors and Assigns. ---------------------- (a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Savings Bank or Parent which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Savings Bank or Parent. (b) Since the Savings Bank is contracting for the unique and personal skills of the Executive, the Executive shall be precluded from assigning or delegating her rights or duties hereunder without first obtaining the written consent of the Savings Bank. 12. Amendment; Waiver. No provisions of this Agreement may be modified, ----------------- waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Savings Bank to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13. Governing Law. The validity, interpretation, construction and -------------- performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of New Jersey. 14. Nature of Obligations. Nothing contained herein shall create or ---------------------- require the Savings Bank to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Savings Bank hereunder, such right shall be no greater than the right of any unsecured general creditor of the Savings Bank. 15. Headings. The section headings contained in this Agreement are for -------- reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 16. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. 17. Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement, or the breach thereof, shall be settled exclusively by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Savings Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. The provisions of this Section 17 shall survive the expiration of this Agreement. 7 18. Confidential Information. The Executive acknowledges that during ------------------------- her employment she will learn and have access to confidential information regarding the Savings Bank and the Parent and its customers and businesses ("Confidential Information"). The Executive agrees and covenants not to disclose or use for her own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Savings Bank or the Parent consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Executive shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Savings Bank, the Parent, or any subsidiaries or affiliates, or to any of the businesses operated by them, and the Executive confirms that such information constitutes the exclusive property of the Savings Bank and the Parent. The Executive shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Savings Bank or the Parent, or its subsidiaries, or affiliates, or (b) in a manner which is inimical or contrary to the interests of the Savings Bank or the Parent. Executive acknowledges and agrees that the existence of this Agreement and its terms and conditions constitutes Confidential Information of the Savings Bank, and the Executive agrees not to disclose the Agreement or its contents without the prior written consent of the Savings Bank. Notwithstanding the foregoing, the Savings Bank reserves the right in its sole discretion to make disclosure of this Agreement as it deems necessary or appropriate in compliance with its regulatory reporting requirements. Notwithstanding anything herein to the contrary, failure by the Executive to comply with the provisions of this Section may result in the immediate termination of the Agreement within the sole discretion of the Savings Bank, disciplinary action against the Executive taken by the Savings Bank, including but not limited to the termination of employment of the Executive for breach of the Agreement and the provisions of this Section, and other remedies that may be available in law or in equity. 19. Entire Agreement. This Agreement together with any understanding or ---------------- modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto. 8 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first hereinabove written. AMERICAN SAVINGS BANK OF NJ By: /s/ W. George Parker ------------------------- W. George Parker Chairman ATTEST: /s/ Richard M. Bzdek Secretary /s/ Catherine M. Bringuier ------------------------------------- Catherine M. Bringuier, Executive EX-23 10 ex23-1.txt CONSENT OF CROWE CHIZEK AND COMPANY LLC CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the use in this Registration Statement on Form S-1 filed with the Securities and Exchange Commission and Form H-(e)1-S filed with the Office of Thrift Supervision on June 20, 2005 of our report dated June 10, 2005 on the financial statements of ASB Holding Company for the year ended September 30, 2004. We also consent to the references to us under the headings "Effects of the Conversion on Depositors, Borrowers and Members", "Federal and State Tax Consequences of the Conversion", "Legal and Tax Opinions" and "Experts" in this Registration Statement on Form S-1 and Form AC and H-(e)1-S. /s/ Crowe Chizek and Company LLC Crowe Chizek and Company LLC Livingston, New Jersey June 20, 2005 EX-23 11 ex23-2.txt CONSENT OF RP FINANCIAL, LC RP Financial, LC. - --------------------------------------- Financial Services Industry Consultants June 15, 2005 Board of Directors American Savings, MHC ASB Holding Company American Bancorp of New Jersey, Inc. American Bank of New Jersey 365 Broad Street Bloomfield, New Jersey 07003 Members of the Boards of Directors: We hereby consent to the use of our firm's name in the Form AC Application for Conversion, the Holding Company H-(e)1-S Application and in the Form S-1 Registration Statement, and any amendments thereto, for American Bancorp of New Jersey, Inc. We also hereby consent to the inclusion of, summary of and references to our Appraisal in such filings including the prospectus of American Bancorp of New Jersey, Inc. Sincerely, RP FINANCIAL, LC. /s/James P. Hennessey James P. Hennessey Senior Vice President - -------------------------------------------------------------------------------- Washington Headquarters Rosslyn Center Telephone: (703) 528-1700 1700 North Moore Street, Suite 2210 Fax No.: (703) 528-1788 Arlington, VA 22209 Toll-Free No.: (866) 723-0594 www.rpfinancial.com E-Mail: mail@rpfinancial.com EX-99 12 ex99-1.txt PROSPECTUS SUPPLEMENT Interests in American Bank of New Jersey Employees' Savings and Profit Sharing Plan and Trust and Offering of 445,863 Shares of Common Stock, $.10 par value per share, of American Bancorp of New Jersey, Inc. This Prospectus Supplement relates to the offer and sale to participants in the American Bank of New Jersey Employees' Savings and Profit Sharing Plan and Trust of participation interests and shares of American Bancorp of New Jersey, Inc. In connection with the initial public offering of common stock of American Bancorp of New Jersey, Inc., a New Jersey corporation, you may invest in the stock of American Bancorp of New Jersey, Inc. Your eligibility to purchase stock utilizing your 401(k) Plan assets is determined based upon your stock subscription rights as a depositor of American Bank of New Jersey. Participation in the 401(k) Plan does not give you any special rights to purchase stock in the initial public offering. You may direct the trustee of the plan to purchase the stock with plan assets which are attributable to you as a participant (other than amounts you presently have invested in the Employer Stock Fund). This prospectus supplement relates to your decision whether or not to invest all or a portion of your plan funds in American Bancorp of New Jersey, Inc. common stock. If you direct the trustee to invest all or a portion of your plan funds in American Bancorp of New Jersey, Inc. common stock in the initial public offering (other than amounts you presently have invested in the Employer Stock Fund), the price paid for such shares will be $10.00 per share. This price is the price that will be paid by all other persons who purchase shares of American Bancorp of New Jersey, Inc. stock in the initial public offering. If you direct the trustee to invest all or a portion of your plan funds in American Bancorp of New Jersey, Inc. common stock after the initial public offering, shares purchased for your account in open market transactions, and the price paid for such shares, will be the market price at the time of the purchase, which may be more or less than the initial public offering price of $10.00 per share. The prospectus of American Bancorp of New Jersey, Inc. dated ________, 2005, which is attached to this prospectus supplement, includes detailed information regarding American Bancorp of New Jersey, Inc. common stock, and the financial condition, results of operation, and business of American Bancorp of New Jersey, Inc. and Subsidiaries. This prospectus supplement provides information regarding the plan. You should read this prospectus supplement together with the prospectus and keep both for future reference. Please refer to Risk Factors beginning on page __ of the prospectus. These securities have not been approved or disapproved by the Securities and Exchange Commission, the Office of Thrift Supervision, or any other federal agency or any state securities commission, nor has such commission, office, or other agency or any state securities commission passed upon the accuracy or adequacy of this prospectus supplement. Any representation to the contrary is a criminal offense. These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The date of this prospectus supplement is ___________, 2005. TABLE OF CONTENTS
The Offering...............................................................................1 Securities Offered................................................................1 Election to Purchase Stock in the Initial Offering................................1 Value of Participation Interests..................................................1 Purchase Price of American Bancorp of New Jersey, Inc. Common Stock...............1 Method of Directing Investments...................................................2 Time for Directing Investment.....................................................2 Irrevocability of Investment Direction............................................2 Direction to Purchase the Stock After the Initial Offering........................2 Nature of Each Participant's Interest in American Bancorp of New Jersey, Inc. Common Stock........................3 Voting and Tender Rights of the Stock.............................................3 Minimum Investment................................................................3 Description of the Plan....................................................................3 General...........................................................................3 Eligibility and Participation.....................................................4 Contributions and Benefits Under the Plan.........................................4 Limitations on Contributions......................................................4 Investment of Plan Assets.........................................................5 Performance of Previous Funds.....................................................7 Performance of Employer Stock Fund................................................7 Benefits Under the Plan.......................................................... 8 Withdrawals and Distributions From the Plan...................................... 8 Administration of the Plan....................................................... 9 Reports to Plan Participants.....................................................10 Amendment and Termination....................................................... 10 Merger, Consolidation, or Transfer.............................................. 10 Federal Income Tax Consequences..................................................11 Restrictions on Resale...........................................................11 SEC Reporting and Short-Swing Profit Liability...................................11 Additional Information...........................................................12 Legal Opinions............................................................................12 Investment Election Form..........................................................Appendix-A Change of Investment Allocation Form..............................................Appendix-B Special Tax Notice Regarding Plan Payments........................................Appendix-C
THE OFFERING Securities Offered The securities offered in connection with this prospectus supplement are participation interests in the plan and shares of American Bancorp of New Jersey, Inc. common stock. At June 15, 2005, there were sufficient funds in the Plan to purchase up to 445,863 shares of American Bancorp of New Jersey, Inc. common stock in the offering. This includes the new shares of American Bancorp of New Jersey, Inc. which may be received in exchange for all of the shares of ASB Holding Company common stock presently held in the plan. The shares of common stock currently held in the plan will be exchanged for shares of American Bancorp of New Jersey, Inc. pursuant to an exchange ratio, as is more fully discussed in the "Conversion" section of the prospectus. Only employees of American who meet the eligibility requirements under the plan may participate. Information with regard to the plan is contained in this prospectus supplement and information with regard to the stock offering and the financial condition, results of operation, and business of American is contained in the attached prospectus. Election to Purchase Stock in the Initial Offering Your eligibility to purchase stock utilizing your 401(k) Plan assets is determined based upon your stock subscription rights as a depositor of American Bank of New Jersey. Participation in the 401(k) Plan does not give you any special rights to purchase stock in the initial public offering. You may direct the trustee of the plan to invest all or part of the funds in your account in the Employer Stock Fund. Funds that are presently invested in the Employer Stock Fund shall be exchanged for shares in the Employer Stock Fund in accordance with the exchange of shares in the Conversion. Based upon your election, the trustees of the plan will subscribe for American Bancorp of New Jersey, Inc. shares in the initial offering. You also will be permitted to direct ongoing purchases of the stock under the plan after the initial offering. See "Direction to Purchase Stock After the Initial Offering." The plan's trustee will follow your investment directions. Amounts not transferred to the Employer Stock Fund will remain invested in the other investment funds of the plan as directed by you. See "Investment of Plan Assets." Value of Participation Interests As of June 15, 2005, the total market value of the assets of the plan equaled $4,458,632. The plan administrator has informed each participant of the value of his or her account in the plan as of ________, 2005. The value of the plan assets represents your past contributions to the plan, employer matching contributions, profit-sharing contributions, plus or minus earnings or losses on contributions, less withdrawals and loans. You may direct up to 100% of the value of your account assets to invest in the Employer Stock Fund (other than amounts you presently have invested in the Employer Stock Fund). However, in connection with the initial offering of the stock, if you elect to purchase the stock, you will be required to invest a minimum amount of your account assets in the Employer Stock Fund. Purchase Price of American Bancorp of New Jersey, Inc. Common Stock The funds transferred to the Employer Stock Fund for the purchase of the stock issued in the initial offering will be used by the trustee to purchase shares of American Bancorp of New Jersey, Inc. common 1 stock. The price paid for such shares of the stock will be $10.00. This price is the price that will be paid by all other persons who purchase shares of the stock in the initial offering. Your account assets directed for investment in the Employer Stock Fund after the initial offering shall be invested by the trustee to purchase shares of American Bancorp of New Jersey, Inc. common stock in open market transactions. The price paid by the trustee for shares of the American Bancorp of New Jersey, Inc. common stock in the initial offering, or otherwise, will not exceed "adequate consideration" as defined in Section 3(18) of the Employee Retirement Income Security Act. Method of Directing Investments Appendix A of this prospectus supplement includes an investment election form for you to direct a transfer to the Employer Stock Fund in the initial offering of all or a portion of your account under the plan. Appendix B of this prospectus supplement includes Pentegra's change of investment allocation form which is to be used to direct future contributions to the Employer Stock Fund after the initial offering. If you wish to invest all or part of your account in the Employer Stock Fund in the initial offering you need to complete Appendix A. Additionally, you may indicate the directed investment of future contributions under the plan for investment in the Employer Stock Fund. If you wish to direct investment of future contributions in the Employer Stock Fund, you need to complete Appendices A and B. If you do not wish to make an investment election, you do not need to take any action and your current elections will remain in effect. Time for Directing Investment The deadline for submitting your direction to invest funds in the Employer Stock Fund in order to purchase the stock issued in the initial offering is noon on _______, 2005. If you want to invest in the Employer Stock Fund, you must return the attached form to Ms. Josephine Castaldo of American by noon on __________, 2005. After the initial offering, you will still be able to direct the investment of your account under the plan in the Employer Stock Fund and in other investment alternatives. Irrevocability of Investment Direction The direction to invest your plan funds in the Employer Stock Fund in the initial offering cannot be changed after you have turned in your forms. However, you will be able to direct your account to purchase the stock after the initial offering by directing amounts in your account into the Employer Stock Fund. Direction to Purchase the Stock After the Stock Offering Following completion of the stock offering, you will be permitted to direct that a certain percentage of your interest in the trust fund (up to 100%) be transferred to the Employer Stock Fund and invested in American Bancorp of New Jersey, Inc. common stock, or to the other investment funds available under the plan. Alternatively, you may direct that a certain percentage of your interest in the Employer Stock Fund be transferred to the trust fund to be invested in the other investment funds available in accordance 2 with the terms of the plan. You can direct future contributions made to the plan by you or on your behalf to be invested in the Employer Stock Fund. Following your initial election, the allocation of your interest in the Employer Stock Fund may be changed daily by filing a change of investment allocation form with the plan administrator or by calling Pentegra's voice response unit at (800) 433-4422 and changing your investment allocation by phone or by Internet at www.Pentegra.com. Nature of Each Participant's Interest in American Bancorp of New Jersey, Inc. Common Stock The trustee will hold American Bancorp of New Jersey, Inc. common stock in the name of the plan. Each participant has an allocable interest in the investment funds of the plan but not in any particular assets of the plan. Accordingly, a specific number of shares of the stock will not be directly attributable to the account of any individual participant. Dividend rights associated with the stock held by the Employer Stock Fund will be allocated to the Employer Stock Fund. Any increase (or decrease) in the value of the fund as a result of dividend rights will be reflected in each participant's allocable interest in the Employer Stock Fund. Voting and Tender Rights of the Stock You will direct the trustee of the plan about how to vote your American Bancorp of New Jersey, Inc. shares. If you do not give voting instruction or tender instruction to the trustee, the trustee will vote or tender those shares within its discretion as a fiduciary under the plan or as directed by the plan administrator. Minimum Investment The minimum investment of assets directed by a participant for the purchase of the stock in the initial offering is $250.00, and investments must be in increments of $10.00. Funds may be directed for the purchase of the stock attributable to your account regardless of whether your account assets are 100% vested at the time of your investment election. There is no minimum level of investment after the initial offering for investment in the Employer Stock Fund. DESCRIPTION OF THE PLAN General American adopted a 401(k) plan effective January 1, 2003. Effective April 1, 2003, American amended and restated its old plan into the new plan in order to include the Employee Stock Fund as an investment alternative. The plan is a deferred compensation arrangement established in accordance with the requirements under Section 401(a) and Section 401(k) of the Internal Revenue Code. The plan received a determination letter from the IRS that the plan is qualified under Section 401(a) of the Internal Revenue Code and that its trust is qualified under Section 501(a) of the Internal Revenue Code. American intends for the plan, in operation, to comply with the requirements under Section 401(a) and Section 401(k) of the Internal Revenue Code. American expects to adopt any amendments to the plan that may be necessary to ensure the continued qualified status of the plan under the Internal Revenue Code and other federal regulations. 3 Employee Retirement Income Security Act. The plan is an "individual ------------------------------------------ account plan" other than a "money purchase pension plan" within the meaning of the Employee Retirement Income Security Act. As such, the plan is subject to all of the provisions of Title I (Protection of Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code Relating to Retirement Plans) of the act, except the funding requirements contained in Part 3 of Title I of the act, which do not apply to an individual account plan (other than a money purchase plan). The plan is not subject to Title IV (Plan Termination Insurance) of the act. Neither the funding requirements contained in Part 3 of Title I of the act nor the plan termination insurance provisions contained in Title IV of the act will be extended to participants or beneficiaries under the plan. Federal tax law imposes substantial restrictions on your right to withdraw amounts held under the plan before your termination of employment with American. Federal law may also impose a 10% excise tax on withdrawals you make from the plan before you reach the age of 59 1/2, regardless of whether the withdrawal occurs during or after your employment with American. Full Text of Plan. The following portions of this prospectus supplement ----------------- are summaries of provisions in the plan. They are not complete and are qualified in their entirety by the full text of the plan. You may obtain copies of the full plan by sending a request to Ms. Josephine Castaldo at American. You should carefully read the full text of the plan document to understand your rights and obligations under the plan. Eligibility and Participation You may participate in the plan on the first day of the month after completing 1,000 hours of service during a 12-month period with American. As of _________, 2005, there were ___ employees eligible to participate in the plan and ____ employees had elected to participate. The plan year is January 1 to December 31. Contributions and Benefits Under the Plan Plan Participant Contributions. You can contribute to the plan on a -------------------------------- pretax basis. Contributions are automatically deducted from your salary each pay period. When you contribute on a pretax basis, you pay no federal income tax on your eligible deferrals until you withdraw money from the plan. You are permitted to contribute amounts of not less than 1% and not more than 50% of your taxable compensation reported on Form W-2. You may change the amount of your contributions at any time and your changes will be effective on the first day of the following pay period. American Contributions. American may match your contribution to the ----------------------- plan, but we are not obligated to match your contributions. American currently matches 50% of your contributions up to 6% of your salary. American contributions are subject to revision by us. Limitation on Contributions Limitation on Employee Salary Deferral. Although you may contribute up -------------------------------------- to 50% of your pay to the plan, federal tax law limits the dollar amount of your annual contribution to $14,000 in 2005. If you are age 50 or more you can make catch-up contributions of $4,000 in 2005. The Internal Revenue Service periodically adjusts this limit for inflation. Contributions in excess of this limit and earnings on 4 those contributions generally will be returned to you by April 15 of the year following your contribution, and they will be subject to regular federal income taxes. Limitation on Annual Additions and Benefits. Under federal tax law, ---------------------------------------------- your contributions and our contributions to the plan may not exceed the lesser of 100% of your annual pay, or $42,000. Contributions that we make to any other retirement program that we sponsor may also count against these limits. Special Rules About Highly-Paid Employees. Special provisions of the ------------------------------------------ Internal Revenue Code limit contributions by employees who receive annual pay greater than $95,000. If you are in this category, some of your contribution may be returned if your contribution, when measured as a percentage of your pay, is substantially higher than the contributions made by other employees. If your annual pay is less than $135,000, we may be required to make a minimum contribution to the plan of 3% of your annual pay if the plan is considered to be a "top heavy" plan under federal tax law. The plan is considered "top heavy" if, in any year, the value of the plan accounts of employees making more than $135,000 represent more than 60 percent of the value of all accounts. Investment of Plan Assets All amounts credited to your plan account are held in trust. A trustee appointed by American 's Board of Directors administers the trust and invests the plan assets. The plan offers the following investment choices: S&P 500 Stock Fund: Invests in the stocks of a broad array of established U.S. companies. Its objective is long-term: to earn higher returns by investing in the largest companies in the U.S. economy. Stable Value Fund: Invests primarily in Guaranteed Investment Contracts and Synthetic Guaranteed Investment Contracts. Its objective is short-to-intermediate term: to achieve a stable return over short to intermediate periods of time while preserving the value of a participant's investment. S&P MidCap Stock Fund: Invests in the stocks of mid-sized U.S. companies. Its objective is long- term: to earn higher returns which reflect the growth potential of such companies. Money Market Fund: Invests in a broad range of high-quality short-term instruments. Its objective is short-term: to achieve competitive short-term rates of return while preserving the value of the participant's principal. Government Bond Fund: Invests in U.S. Treasury bonds with maturities of 20 years or more. Its objective is long-term: to earn a higher level of income along with the potential for capital appreciation. Income Plus Asset Allocation Fund: Invests approximately 80% of its portfolio in a combination of stable value investments and U.S. bonds. The balance is invested in U.S. and international stocks. Its objective is intermediate-term: to preserve the value of a participant's investment over short periods of time and to offer some potential for growth. 5 Growth and Income Asset Allocation Fund: Invests in U.S. domestic and international stocks, U.S. domestic bonds, and stable value investments. Its objective is intermediate-term: to provide a balance between the pursuit of growth and protection from risk. Growth Asset Allocation Fund: Invests the majority of its assets in stocks -- domestic as well as international. Its objective is long-term: to pursue high growth of a participant's investment over time. International Stock Fund: Invests in over 1,000 foreign stocks in 20 countries. Its objective is long-term: to offer the potential return of investing in the stocks of established non-U.S. companies, as well as the potential risk-reduction of broad diversification. Russell 2000 Stock Fund: Invests in most, or all, of the same stocks held in the Russell 2000 Index. Its objective is long-term: to earn high returns in smaller U.S. companies by matching its benchmark, the Russell 2000 Index. S&P 500/Growth Stock Fund: Invests in most, or all, of the stocks held in the S&P/BARRA Growth Index which are large-capitalization growth stocks. Its objective is long-term: to match its benchmark, the S&P/BARRA Growth Index. S&P 500/Value Stock Fund: Invests in most, or all, of the stocks held in the S&P/BARRA Value Index which are large-capitalization value stocks. Its objective is long-term: to match its benchmark, the S&P/BARRA Value Index. Nasdaq 100 Stock Fund: The fund is intended for long-term investors seeking to capture the growth potential of the 100 largest and most actively traded non-financial companies on the Nasdaq Stock Market. The Fund's benchmark is the Nasdaq 100 Index. The U.S. REIT Index Fund. The U.S. REIT Index Fund invests in a portfolio of publicly traded Real Estate Investment Trusts designed to track the Morgan Stanley REIT Index, which represents over 90% of the total U.S. real estate equities market. The U.S. REIT Index Fund offers investors exposure to a diverse set of real estate holdings across property types and geographic markets. Equity REITs are the most common type of REIT, and generate earnings from the rental income received on their holdings and capital gains from the sale of properties. Employer Stock Fund. The Employer Stock Fund consists primarily of investments in common stock of ASB Holding Company. ASB Holding Company is a majority-owned subsidiary of American Savings, MHC, a federally chartered mutual holding company, along with cash. Following the offering, American Bancorp of New Jersey, Inc. will be 100% owned by its public shareholders, including American Bancorp of New Jersey, Inc.'s tax-qualified plans. Shares of ASB Holding Company which were held in the Employer Stock Fund prior to the offering will be converted into shares of common stock of American Bancorp of New Jersey, Inc., in accordance with the exchange ratio. The trustee will use all amounts reallocated to the Employer Stock Fund in the special election to acquire shares in the offering. After the offering, the trustee will, to the extent practicable, use all amounts held by it in the Employer Stock Fund, including cash dividends paid on common stock held in the Employer Stock Fund, to purchase shares of common stock of American Bancorp of New Jersey, Inc. It is expected that all purchases will be made at prevailing market prices. Under certain circumstances, the trustee may be required to limit 6 the daily volume of shares purchased. Pending investment in common stock, amounts allocated towards the purchase of shares in the offering will be held in the Employer Stock Fund in an interest-bearing account. In the event of an oversubscription, any earnings that result therefrom will be reinvested among the other funds of the plan in accordance with your then existing investment election (in proportion to your investment direction allocation percentages). Performance of Previous Funds The annual percentage return on these funds for calendar years 2004, 2003 and 2002 was approximately: Assumes all dividends are re-invested and does not take into effect fund expenses which would reduce average annual returns. Fund 2004 2003 2002 ---- ---- ---- ---- Money Market Fund 1.0% 0.9% 1.6% Stable Value Fund 3.6% 4.3% 5.3% Government Bond Fund 8.4% 1.3% 16.4% S&P 500 Stock Fund 10.2% 28.0% (22.4%) S&P MidCap Stock Fund 16.0% 35.1% (15.0%) International Stock Fund 19.6% 37.1% (18.5%) Income Plus Asset Allocation Fund 6.6% 11.7% (2.6%) Growth Asset Allocation Fund 12.7% 28.3% (18.8%) Growth & Income Asset Allocation Fund 9.8% 19.7% (10.3%) Russell 2000 Stock Fund 17.7% 46.0% (20.7%) S&P 500/Growth Stock Fund 5.5% 24.9% (24.0%) S&P 500/Value Stock Fund 15.1% 30.6% (21.2%) Nasdaq 100 Stock Fund 9.9% 48.3% (37.6%) US REIT Index Fund 30.3% N/A N/A Employer Stock Fund 1.5% 4.4%* N/A * Employer Stock Fund began trading on October 8, 2003. Performance of the Employer Stock Fund Performance of the Employer Stock Fund will be dependent upon a number of factors, including the financial condition and profitability of American Bancorp of New Jersey, Inc. and its subsidiaries and 7 market conditions for the common stock generally. An investment in the fund is not insured or guaranteed by the FDIC or any other government agency. It is possible to lose money by investing in the fund. Please note that investment in the Employer Stock Fund is not an investment in a savings account or certificate of deposit, and such investment in American Bancorp of New Jersey, Inc. common stock through the Employer Stock Fund is not insured by the FDIC or any other regulatory agency. Further, no assurances can be given with respect to the price at which the stock may be sold in the future. Investments in the Employer Stock Fund may involve certain special risks relating to investments in the common stock of American Bancorp of New Jersey, Inc. For a discussion of these risk factors, see "Risk Factors" beginning on page __ of the prospectus. Benefits Under the Plan Vesting. The contributions that you make in the plan are fully vested ------- and cannot be forfeited. You vest in our matching contributions according to the following schedule: Number of Full Years of Service Vested Percentage ------------------------------- ----------------- Less than 2 0% 2 20% 3 40% 4 60% 5 80% 6 or more 100% Withdrawals and Distributions From the Plan Withdrawals Before Termination of Employment. Your plan account ------------------------------------------------ provides you with a source of retirement income. But, while you are employed by American, if you need funds from your account before retirement, you may be eligible to receive either an in-service withdrawal, or (from your pre-tax contributions) a hardship distribution or a loan. You can apply for a hardship distribution or a loan from the plan by contacting Ms. Josephine Castaldo at American. In order to qualify for a hardship withdrawal, you must have an immediate and substantial need to meet certain expenses, like a mortgage payment or medical bill, and have no other reasonably available resources to meet your financial need. If you qualify for a hardship distribution, the trustee will make the distribution proportionately from the investment funds in which you have invested your account balance. Hardship withdrawals (except for medical expenses exceeding 7.5% of your adjusted gross income) and in-service withdrawals are subject to a 10% early distribution penalty. Loans are not subject to a 10% early distribution penalty. Distributions Upon Termination for Any Other Reason. If you terminate ---------------------------------------------------- employment with American for any reason other than retirement, disability or death and your account balance exceeds $500, the trustee will distribute your benefits to you the later of the April 1 of the calendar year after you turn age 70 1/2 or when you retire, unless you request otherwise. You may elect to maintain your account balance in the plan for as long as American maintains the plan or you may elect one or more of the forms of distribution available under the plan. If your account balance does not exceed $500, the trustee will 8 generally distribute your benefits to you as soon as administratively practicable following termination of employment. Distributions Upon Disability. If you can no longer work because of a ------------------------------ disability, as defined in the plan, you may withdraw your total account balance under the plan and have that amount paid to you in accordance with the terms of the plan. If you later become reemployed after you have withdrawn some or all of your account balance, you may not repay to the plan any withdrawn amounts. Distributions Upon Death. If you die before your benefits are paid from ------------------------ the plan, your benefits will be paid to your surviving spouse or designated beneficiary. Form of Benefits. Payment of your benefits upon your retirement, ----------------- disability, or other termination of employment will be made in a lump sum payment, installments, or an annuity. If you die before receiving benefits pursuant to your retirement, disability, or termination of employment, your beneficiary will receive a lump sum payment, unless the payment would exceed $500 and an election is made for annual installments up to 5 years. Your spouse can receive payments for up to 10 years. Nonalienation of Benefits. Except with respect to federal income tax -------------------------- withholding and as provided with respect to a qualified domestic relations order, as defined in the Internal Revenue Code, benefits payable under the plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the plan shall be void. Plan Loans. You may borrow money from the vested portion of your ----------- account. The minimum amount you may borrow is $1,000. The maximum amount is 50% of your vested account balance. You may never borrow more than $50,000 minus the highest outstanding balance on any individual loan during the last 12 months. You may take up to five years to repay a general purpose loan. If you are using the loan to purchase your primary residence, a repayment period of 15 years is permissible. You must repay the loan through payroll deductions. If you fail to make any loan repayment when due, your loan will be in default. The full amount of the loan will be due and payable by the last day of the calendar quarter following the calendar quarter which contains the due date of the last monthly installment payment. If the outstanding balance of the loan is in default and is not repaid in the aforementioned time period, you will be considered to have received a distribution of said amount. Administration of the Plan American is the plan administrator. The Bank of New York will serve as trustee and custodian for all investment funds under the plan except the Employer Stock Fund. Joseph Kliminski, Richard Bzdek, and Josephine Castaldo, will serve as trustees with respect to the Employer Stock Fund during the 9 initial public offering by American Bancorp of New Jersey, Inc. After the stock of American Bancorp of New Jersey, Inc. begins trading, the Bank of New York also will be the trustee for the Employer Stock Fund. The plan administrator is responsible for the administration of the plan, interpretation of the provisions of the plan, prescribing procedures for filing applications for benefits, preparation and distribution of information explaining the plan, maintenance of plan records, books of account and all other data necessary for the proper administration of the plan, and preparation and filing of all returns and reports relating to the plan which are required to be filed with the U.S. Department of Labor and the IRS, and for all disclosures required to be made to participants, beneficiaries and others under the Employee Retirement Income Security Act. The trustee receives and holds the contributions to the plan in trust and distributes them to participants and beneficiaries in accordance with the terms of the plan and the directions of the plan administrator. The trustee is responsible for investment of the assets of the trust. The address of the plan administrator and the trustee for the Employer Stock Fund is 365 Broad Street, Bloomfield, New Jersey 07003. The address of the Bank of New York is One Wall Street, New York, New York, 10286. Reports to Plan Participants The plan administrator will furnish to each participant a statement at least quarterly showing: o the balance in your account as of the end of that period; o the amount of contributions allocated to your account for that period; and o the adjustments to your account to reflect earnings or losses (if any). If you invest in the Employer Stock Fund, you will also receive a copy of American Bancorp of New Jersey, Inc.'s Annual Report to Stockholders and a proxy statement related to stockholder meetings. Amendment and Termination It is the intention of American to continue the plan indefinitely. Nevertheless, American, within its sole discretion, may terminate the plan at any time. If the plan is terminated in whole or in part, then regardless of other provisions in the plan, you will have a fully vested interest in your accounts. American reserves the right to make, from time to time, any amendment or amendments to the plan that do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries; provided, however, that American may make any amendment it determines necessary or desirable, with or without retroactive effect, to comply with the Employee Retirement Income Security Act. Merger, Consolidation, or Transfer In the event of the merger or consolidation of the plan with another plan, or the transfer of the trust assets to another plan, the plan requires that each participant would (if either the plan or the other plan then be terminated) receive a benefit immediately after the merger, consolidation, or transfer that is equal to 10 or greater than the benefit he or she would have been entitled to receive immediately before the merger, consolidation, or transfer (if the plan had then terminated). Federal Income Tax Consequences The following discussion is only a brief summary of certain federal income tax aspects of the plan. You should not rely on this summary as a complete or definitive description of the material federal income tax consequences relating to the plan. At the time you receive a distribution from the plan, you will receive a tax notice which conforms to the IRS safe harbor explanation of the distribution in accordance with IRS Notice 2002-3. The tax rules that affect your benefits under the plan change frequently and may vary based on your individual situation. This summary also does not discuss how state or local tax laws affect your plan benefits. We urge you to consult your tax advisor with respect to any distribution from the plan and transactions involving the plan. Federal tax law provides the participants under the plan with a number of special benefits: (1) you pay no current income tax on your contributions or American contributions; and (2) the earnings on your plan accounts are not taxable until you receive a distribution. These benefits are conditioned on the plan's compliance with special requirements of federal tax law. We intend to satisfy all of the rules that apply to the plan. However, if the rules are not satisfied, the special tax benefits available to the plan may be lost. Special Distribution Rules. If you turned 50 before 1986, you may be eligible to spread the taxes on the distribution over as much as 10 years. You should consult with your tax advisor to determine if you are eligible for this special tax benefit and whether it is appropriate to your financial needs. Distributions: Rollovers and Direct Transfers to Another Qualified Plan or to an IRA. You may roll over virtually all distributions from the plan to retirement programs sponsored by other employers or to an individual retirement account. We will provide you with detailed information on how to roll over a distribution when you are eligible to receive benefits under the plan. Restrictions on Resale If you are an "affiliate" of American Bancorp of New Jersey, Inc. or American Bank of New Jersey, you may be subject to special rules under federal securities laws that affect your ability to sell shares you hold in the Employer Stock Fund. Directors, officers and substantial shareholders of American Bancorp of New Jersey, Inc. are generally considered "affiliates." Any person who may be an "affiliate" of American may wish to consult with counsel before transferring any common stock they own. If you are not considered an "affiliate" of American you may freely sell any shares of American Bancorp of New Jersey, Inc. common stock distributed to you under the plan, either publicly or privately. 11 SEC Reporting and Short-Swing Profit Liability If you are an officer, director or more than 10% owner of American Bancorp of New Jersey, Inc., you may be required to report purchases and sales of American Bancorp of New Jersey, Inc. common stock through the plan to the Securities and Exchange Commission. In addition, you may be subject to special rules that provide for the recovery by American Bancorp of New Jersey, Inc. of profits realized by an officer, director or a more than 10% owner from the purchase and sale or sale and purchase of the common stock within any six-month period. However, the rules except many transactions involving the plan from the reporting and profit recovery rules. You should consult with us regarding the impact of these rules on your transactions involving American Bancorp of New Jersey, Inc. common stock. Additional Information This prospectus supplement dated _______, 2005 is part of the prospectus of American Bancorp of New Jersey, Inc. dated ________, 2005. This prospectus supplement shall be delivered to plan participants together with the prospectus and is not complete unless it is accompanied by the prospectus. LEGAL OPINIONS The validity of the issuance of the common stock will be passed upon by Malizia Spidi & Fisch, PC, Washington, D.C., which acted as special counsel for American Bancorp of New Jersey, Inc. in connection with the initial public offering by American Bancorp of New Jersey, Inc. 12 Appendix-A: Investment Election Form ------------------------------------ American Bank of New Jersey Employees' Savings and Profit Sharing Plan and Trust -------------------------- Participant Voluntary Investment Election Form -------------------------- Name of Plan Participant: ------------------------------------------ Social Security Number: ------------------------------------------ 1. Instructions. ------------ In connection with the initial public offering of American Bancorp of New Jersey, Inc., American has adopted the American Bank of New Jersey Employees' Savings and Profit Sharing Plan and Trust to permit plan participants to direct all, or a portion, of the assets attributable to their participant accounts into a new fund: the Employer Stock Fund. The assets attributable to a participant's account that are transferred at the direction of the participant into the Employer Stock Fund will be used to purchase shares of common stock of American Bancorp of New Jersey, Inc. to be issued in the initial stock offering of American Bancorp of New Jersey, Inc. To direct a transfer of all or a part of the funds credited to your account to the Employer Stock Fund, you should complete this form and return it to Josephine Castaldo, at 365 Broad Street, Bloomfield, New Jersey 07003 who will retain this form and return a copy to you. If you need any assistance in completing this form, please contact Josephine Castaldo at (973) 748-3600. If you do not complete and return this form by __________, 2005, at noon, the funds credited to your account under the plan will continue to be invested in accordance with your prior investment direction, or in accordance with the terms of the plan if no investment direction has been provided. 2. Investment Directions. --------------------- As a participant in the plan, I hereby voluntarily elect to direct the trustee of the plan to invest the below indicated dollar sum of my participant account balance under the plan as indicated below. I hereby voluntarily elect and request to direct investment of the below indicated dollar amount of my participant account funds for the purchase of the common stock to be issued in American Bancorp of New Jersey, Inc.'s initial offering (minimum investment of $250.00; rounded to the nearest $10.00 increment; maximum investment permissible is 150,000 shares of common stock or $1,500,000 when combined with exchange shares of ASB Holding Company): $___________. Enter your $ level of requested purchase through the plan. Such amount may not exceed the vested portion of assets held under the plan for you. Please note that the actual number of shares of common stock purchased on your behalf under the plan may be limited or reduced in accordance with the plan of stock issuance of American Bancorp of New Jersey, Inc. based upon the total number of shares of common stock subscribed for by other parties. On the attached Appendix-B, please indicate from which funds such investments should be transferred. Only available funds may be used for purchase. All other funds in my participant account will remain invested as previously requested. All future contributions under the plan will continue to be invested as previously requested or as revised by me at a later date. 3. Acknowledgment. -------------- I fully understand that this self-directed portion of my participant account does not share in the overall net earnings, gains, losses, and appreciation or depreciation in the value of assets held by the plan's other investment funds, but only in my account's allocable portion of such items from the directed investment account invested in the common stock. I understand that the plan's trustee, in complying with this election and in following my directions for the investment of my account, is not responsible or liable in any way for the expenses or losses that may be incurred by my account assets invested in common stock under the Employer Stock Fund. I further understand that this one time election shall become irrevocable by me upon execution and submission of this Investment Form. Only ---- properly signed forms delivered to the plan trustee on or before __________, - -------------------------------------------------------------------------------- 2005, at noon, will be honored. - ------------------------------- The undersigned participant acknowledges that he or she has received the prospectus of American Bancorp of New Jersey, Inc., dated _________, 2005, the prospectus supplement dated _________, 2005, regarding the American Bank of New Jersey Employees' Savings and Profit Sharing Plan and Trust as adopted by American Bank of New Jersey and this Investment Form. The undersigned hereby acknowledges that the shares of common stock to be purchased with the funds noted above are not savings accounts or deposits and are not insured by the Federal Deposit Insurance Corporation, Bank Insurance Fund, the Savings Association Insurance Fund, or any other governmental agency. Investment in the common stock will expose the undersigned to the investment risks and potential fluctuations in the market price of the common stock. Investment in the common stock does not offer any guarantees regarding maintenance of the principal value of such investment or any projections or guarantees associated with future value or dividend payments with respect to the common stock. The undersigned hereby voluntarily makes and consents to this investment election and voluntarily signed his (her) name as of the date listed below. If you so elect, you may choose not to make any investment decision at this time. I UNDERSTAND THAT BY EXECUTING THIS ORDER I DO NOT WAIVE ANY RIGHTS AFFORDED TO ME BY THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934. - ----------------- ---------- ------------------------ --------- Witness Date Participant Date For the Trustee For the Plan Administrator - ----------------- ---------- ------------------------ --------- Date Date 2 Appendix-B Change of Investment Allocation Form ----------------------------------------------- American Bank of New Jersey CHANGE OF INVESTMENT ALLOCATION - ------------------------------- 1. Member Data - -------------------------------------------------------------------------------- Print your full name above (Last, first, middle initial) Social Security Number - -------------------------------------------------------------------------------- Street Address City State Zip 2. Instructions American Bank of New Jersey Employees' Savings and Profit Sharing Plan and Trust is giving members a special opportunity to invest their 401(k) account balances in a new investment fund - the Employer Stock Fund - which is comprised primarily of common stock issued by American Bancorp of New Jersey, Inc. in connection with the initial stock offering of American Bancorp of New Jersey, Inc. The percentage of a member's account transferred at the direction of the member into the Employer Stock Fund will be used to purchase shares of the common stock during the initial offering of American Bancorp of New Jersey, Inc. Please review the prospectus and the prospectus supplement before making any decision. In the event of an oversubscription in the offering so that the total amount you allocate to the Employer Stock Fund can not be used by the trustee to purchase the common stock, your account will be reinvested in the other funds of the plan as previously directed in your last investment election. If no investment election is provided, your account will be invested in the Money Market Fund. Investing in the common stock entails some risks, and we encourage you to discuss this investment decision with your spouse and investment advisor. The plan trustee and the plan administrator are not authorized to make any representations about this investment other than what appears in the prospectus and prospectus supplement, and you should not rely on any information other than what is contained in the prospectus and prospectus supplement. For a discussion of certain factors that should be considered by each member in deciding whether to invest in the common stock, see "Risk Factors" beginning on page __ of the prospectus. Any shares purchased by the plan pursuant to your election will be subject to the conditions or restrictions otherwise applicable to the common stock, as discussed in the prospectus and prospectus supplement. 3. Investment Directions (Applicable to Accumulated Balances Only) To direct a transfer of all or part of the funds credited to your accounts to the Employer Stock Fund, you should complete and file this form with Josephine Castaldo, Vice President of American Bank of New Jersey no later than __________, 2005 at noon. If you need any assistance in completing this form, please contact Ms. Castaldo at (973) 748-3600. If you do not complete and return this form to Ms. Castaldo by __________, 2005 at noon, the funds credited to your account under the plan will continue to be invested in accordance with your prior investment direction, or in accordance with the terms of the plan if no investment direction has been provided by you. notwithstanding the election made in Appendix-A for purchases of the Employer Stock Fund, your purchase of American Bancorp of New Jersey, Inc. Stock will be limited to the amounts available in the following funds. No purchases of the Employer Stock Fund will be made with insufficient funds in any funds. I hereby revoke any previous investment direction and now direct that the market value of the units that I have invested in the following funds, to the extent permissible, be transferred out of the specified fund and invested in the Employer Stock Fund as follows: Percentage to be Fund transferred ---- ----------- S&P 500 Stock Fund.................................... ____ % Russell 2000 Stock Fund............................... ____ % S&P 500/Growth Stock Fund............................. ____ % S&P 500/Value Stock Fund.............................. ____ % Stable Value Fund..................................... ____ % S&P MidCap Stock Fund................................. ____ % Money Market Fund..................................... ____ % Government Bond Fund.................................. ____ % International Stock Fund.............................. ____ % Income Plus Fund...................................... ____ % Growth & Income Fund.................................. ____ % Growth Fund........................................... ____ % Nasdaq 100 Stock Fund................................. ____ % U.S. REIT Index Fund.................................. ____ % Total (Important!).......................... 100 % Note:The total amount transferred may not exceed the total value of your accounts. 4. Investment Directions (Applicable to Future Contributions Only) I hereby revoke any previous investment instructions and now direct that any future contributions and/or loan repayments, if any, made by me or on my behalf by American Bancorp of New Jersey, Inc. including those contributions and/or repayments received by American Bank of New Jersey Employees' Savings and Profit Sharing Plan and Trust during the same reporting period as this form, be invested in the following funds (in whole percentages). If I elect to invest in the common stock of American Bancorp of New Jersey, Inc., such future contributions or loan repayments, if any, will be invested in the Employer Stock Fund the month 2 following the conclusion of the stock offering. Please read "Notes" on the following page before completing. ------ Fund Percentage ---- ---------- S&P 500 Stock Fund................................... ____ % Russell 2000 Stock Fund.............................. ____ % S&P 500/Growth Stock Fund............................ ____ % S&P 500/Value Stock Fund............................. ____ % Stable Value Fund.................................... ____ % S&P MidCap Stock Fund................................ ____ % Money Market Fund.................................... ____ % Government Bond Fund................................. ____ % International Stock Fund............................. ____ % Income Plus Fund..................................... ____ % Growth & Income Fund................................. ____ % Growth Fund.......................................... ____ % Employer Stock Fund.................................. ____ % Nasdaq 100 Stock Fund................................ ____ % U.S. REIT Index Fund................................. ____ % Total (Important!)............................ 100 % Notes: No amounts invested in the Stable Value Fund may be transferred directly to the Money Market Fund. Stable Value Fund amounts invested in the S&P 500 Stock Fund, Russell 2000 Stock Fund, S&P 500/Growth Stock Fund, S&P 500/Value Stock Fund, S&P MidCap Stock Fund, Government Bond Fund, International Stock Fund, Income Plus Fund, Growth & Income Fund, Growth Fund, Nasdaq 100 Stock Fund and/or Employer Stock Fund, for a period of three months may be transferred to the Money Market Fund upon the submission of a separate Change of Investment Allocation Form. The percentage that can be transferred to the Money Market Fund may be limited by any amounts previously transferred from the Stable Value Fund that have not satisfied the equity wash requirement. Such amounts will remain in either the S&P 500 Stock Fund, Russell 2000 Stock Fund, S&P 500/Growth Stock Fund, S&P 500/Value Stock Fund, S&P MidCap Stock Fund, Government Bond Fund, International Stock Fund, Income Plus Fund, Growth & Income Fund, Growth Fund, Nasdaq 100 Stock Fund and/or Employer Stock Fund and a separate direction to transfer them to the Money Market Fund will be required when they become available. 3 5. Participant Signature and Acknowledgment - Required By signing this Change of Investment Allocation form, I authorize and direct the plan administrator and trustee to carry out my instructions. If investing in the Employer Stock Fund, I acknowledge that I have been provided with and read a copy of the prospectus and prospectus supplement relating to the issuance of the common stock. I am aware of the risks involved in the investment in the common stock, and understand that the trustee and plan administrator are not responsible for my choice of investment. 4 MEMBER'S SIGNATURE I understand that the above directed change(s) will be processed within one to five days of the form being received by Pentegra. I further understand that if I do not complete either Section 3 or Section 4, no change will be made to my current directions for future contributions or accumulated balances, respectively. - --------------------------------------- -------------- Signature of Member Date Pentegra Services, Inc. is hereby authorized to make the above listed change(s) to this member's record. On behalf of the above named member, I certify that the signature above is that of the participant making this request. - --------------------------------------- -------------- Signature of American Bank of New Jersey Date Authorized Representative Please complete and return by noon on __________, 2005. 5 Appendix-C: Special Tax Notice Regarding Plan Payments ------------------------------------------------------ SPECIAL TAX NOTICE REGARDING PLAN PAYMENTS This notice explains how you can continue to defer federal income tax on your retirement savings in the American Bank of New Jersey Employees' Savings and Profit Sharing Plan and Trust (the "Plan") and contains important information you will need before you decide how to receive your Plan benefits. This notice is provided to you by American Bank of New Jersey (your "Plan Administrator") because all or part of the payment that you will soon receive from the Plan may be eligible for rollover by you or your Plan Administrator to a traditional IRA or an eligible employer plan. A rollover is a payment by you or the Plan Administrator of all or part of your benefit to another plan or IRA that allows you to continue to postpone taxation of that benefit until it is paid to you. Your payment cannot be rolled over to a Roth IRA, a SIMPLE IRA, or a Coverdell Education Savings Account (formerly known as an education IRA). An "eligible employer plan" includes a plan qualified under section 401(a) of the Internal Revenue Code, including a 401(k) plan, profit-sharing plan, defined benefit plan, stock bonus plan, and money purchase plan; a section 403(a) annuity plan; a section 403(b) tax-sheltered annuity; and an eligible section 457(b) plan maintained by a governmental employer (governmental 457 plan). An eligible employer plan is not legally required to accept a rollover. Before you decide to roll over your payment to another employer plan, you should find out whether the plan accepts rollovers and, if so, the types of distributions it accepts as a rollover. You should also find out about any documents that are required to be completed before the receiving plan will accept a rollover. Even if a plan accepts rollovers, it might not accept rollovers of certain types of distributions, such as after-tax amounts. If this is the case, and your distribution includes after-tax amounts, you may wish instead to roll your distribution over to a traditional IRA or split your rollover amount between the employer plan in which you will participate and a traditional IRA. If an employer plan accepts your rollover, the plan may restrict subsequent distributions of the rollover amount or may require your spouse's consent for any subsequent distribution. A subsequent distribution from the plan that accepts your rollover may also be subject to different tax treatment than distributions from this Plan. Check with the administrator of the plan that is to receive your rollover prior to making the rollover. If you have additional questions after reading this notice, you can contact your plan administrator at (973) 748-3600. SUMMARY There are two ways you may be able to receive a Plan payment that is eligible for rollover: (1) Certain payments can be made directly to a traditional IRA that you establish or to an eligible employer plan that will accept it and hold it for your benefit ("DIRECT ROLLOVER"); or (2) The payment can be PAID TO YOU. If you choose a DIRECT ROLLOVER: * Your payment will not be taxed in the current year and no income tax will be withheld. 1 * You choose whether your payment will be made directly to your traditional IRA or to an eligible employer plan that accepts your rollover. Your payment cannot be rolled over to a Roth IRA, a SIMPLE IRA, or a Coverdell Education Savings Account because these are not traditional IRAs. * The taxable portion of your payment will be taxed later when you take it out of the traditional IRA or the eligible employer plan. Depending on the type of plan, the later distribution may be subject to different tax treatment than it would be if you received a taxable distribution from this Plan. If you choose to have a Plan payment that is eligible for rollover PAID TO YOU: * You will receive only 80% of the taxable amount of the payment, because the Plan Administrator is required to withhold 20% of that amount and send it to the IRS as income tax withholding to be credited against your taxes. * The taxable amount of your payment will be taxed in the current year unless you roll it over. Under limited circumstances, you may be able to use special tax rules that could reduce the tax you owe. However, if you receive the payment before age 59 1/2, you may have to pay an additional 10% tax. * You can roll over all or part of the payment by paying it to your traditional IRA or to an eligible employer plan that accepts your rollover within 60 days after you receive the payment. The amount rolled over will not be taxed until you take it out of the traditional IRA or the eligible employer plan. * If you want to roll over 100% of the payment to a traditional IRA or an eligible employer plan, you must find other money to replace the 20% of the taxable portion that was withheld. If you roll over only the 80% that you received, you will be taxed on the 20% that was withheld and that is not rolled over. YOUR RIGHT TO WAIVE THE 30-DAY NOTICE PERIOD. Generally, neither a direct rollover nor a payment can be made from the Plan until at least 30 days after your receipt of this notice. Thus, after receiving this notice, you have at least 30 days to consider whether or not to have your withdrawal directly rolled over. If you do not wish to wait until this 30-day notice period ends before your election is processed, you may waive the notice period by making an affirmative election indicating whether or not you wish to make a direct rollover. Your withdrawal will then be processed in accordance with your election as soon as practical after it is received by the Plan Administrator. MORE INFORMATION I. PAYMENTS THAT CAN AND CANNOT BE ROLLED OVER II. DIRECT ROLLOVER III. PAYMENT PAID TO YOU IV. SURVIVING SPOUSES, ALTERNATE PAYEES, AND OTHER BENEFICIARIES 2 I. PAYMENTS THAT CAN AND CANNOT BE ROLLED OVER Payments from the Plan may be "eligible rollover distributions." This means that they can be rolled over to a traditional IRA or to an eligible employer plan that accepts rollovers. Payments from a plan cannot be rolled over to a Roth IRA, a SIMPLE IRA, or a Coverdell Education Savings Account. Your Plan Administrator should be able to tell you what portion of your payment is an eligible rollover distribution. The following types of payments cannot be rolled over: PAYMENTS SPREAD OVER LONG PERIODS. You cannot roll over a payment if it is part of a series of equal (or almost equal) payments that are made at least once a year and that will last for: * your lifetime (or a period measured by your life expectancy), or * your lifetime and your beneficiary's lifetime (or a period measured by your joint life expectancies), or * a period of 10 years or more. REQUIRED MINIMUM PAYMENTS. Beginning when you reach age 70 1/2 or retire, whichever is later, a certain portion of your payment cannot be rolled over because it is a "required minimum payment" that must be paid to you. Special rules apply if you own more than 5% of your employer. HARDSHIP DISTRIBUTIONS. A hardship distribution cannot be rolled over. CORRECTIVE DISTRIBUTIONS. A distribution that is made to correct a failed nondiscrimination test or because legal limits on certain contributions were exceeded cannot be rolled over. LOANS TREATED AS DISTRIBUTIONS. The amount of a plan loan that becomes a taxable deemed distribution because of a default cannot be rolled over. However, a loan offset amount is eligible for rollover, as discussed in Part III below. Ask the Plan Administrator of this Plan if distribution of your loan qualifies for rollover treatment. The Plan Administrator of this Plan should be able to tell you if your payment includes amounts which cannot be rolled over. II. DIRECT ROLLOVER A DIRECT ROLLOVER is a direct payment of the amount of your Plan benefits to a traditional IRA or an eligible employer plan that will accept it. You can choose a DIRECT ROLLOVER of all or any portion of your payment that is an eligible rollover distribution, as described in Part I above. You are not taxed on any taxable portion of your payment for which you choose a DIRECT ROLLOVER until you later take it out of the traditional IRA or eligible employer plan. In addition, no income tax withholding is required for any taxable portion of your Plan benefits for which you choose a DIRECT ROLLOVER. This Plan might not let you choose a DIRECT ROLLOVER if your distributions for the year are less than $200. 3 DIRECT ROLLOVER to a Traditional IRA. You can open a traditional IRA to receive the direct rollover. If you choose to have your payment made directly to a traditional IRA, contact an IRA sponsor (usually a financial institution) to find out how to have your payment made in a direct rollover to a traditional IRA at that institution. If you are unsure of how to invest your money, you can temporarily establish a traditional IRA to receive the payment. However, in choosing a traditional IRA, you may wish to make sure that the traditional IRA you choose will allow you to move all or a part of your payment to another traditional IRA at a later date, without penalties or other limitations. See IRS Publication 590, Individual Retirement Arrangements, for more information on traditional IRAs (including limits on how often you can roll over between IRAs). DIRECT ROLLOVER to a Plan. If you are employed by a new employer that has an eligible employer plan, and you want a direct rollover to that plan, ask the plan administrator of that plan whether it will accept your rollover. An eligible employer plan is not legally required to accept a rollover. Even if your new employer's plan does not accept a rollover, you can choose a DIRECT ROLLOVER to a traditional IRA. If the employer plan accepts your rollover, the plan may provide restrictions on the circumstances under which you may later receive a distribution of the rollover amount or may require spousal consent to any subsequent distribution. Check with the plan administrator of that plan before making your decision. DIRECT ROLLOVER of a Series of Payments. If you receive a payment that can be rolled over to a traditional IRA or an eligible employer plan that will accept it, and it is paid in a series of payments for less than 10 years, your choice to make or not make a DIRECT ROLLOVER for a payment will apply to all later payments in the series until you change your election. You are free to change your election for any later payment in the series. CHANGE IN TAX TREATMENT RESULTING FROM A DIRECT ROLLOVER. The tax treatment of any payment from the eligible employer plan or traditional IRA receiving your DIRECT ROLLOVER might be different than if you received your benefit in a taxable distribution directly from the Plan. For example, if you were born before January 1, 1936, you might be entitled to ten-year averaging or capital gain treatment, as explained below. However, if you have your benefit rolled over to a section 403(b) tax-sheltered annuity, a governmental 457 plan, or a traditional IRA in a DIRECT ROLLOVER, your benefit will no longer be eligible for that special treatment. See the sections below entitled "Additional 10% Tax if You Are under Age 59 1/2" and "Special Tax Treatment if You Were Born before January 1, 1936." III. PAYMENT PAID TO YOU If your payment can be rolled over (see Part I above) and the payment is made to you in cash, it is subject to 20% federal income tax withholding on the taxable portion (state tax withholding may also apply). The payment is taxed in the year you receive it unless, within 60 days, you roll it over to a traditional IRA or an eligible employer plan that accepts rollovers. If you do not roll it over, special tax rules may apply. 4 Income Tax Withholding: MANDATORY WITHHOLDING. If any portion of your payment can be rolled over under Part I above and you do not elect to make a DIRECT ROLLOVER, the Plan is required by law to withhold 20% of the taxable amount. This amount is sent to the IRS as federal income tax withholding. For example, if you can roll over a taxable payment of $10,000, only $8,000 will be paid to you because the Plan must withhold $2,000 as income tax. However, when you prepare your income tax return for the year, unless you make a rollover within 60 days (see "Sixty-Day Rollover Option" below), you must report the full $10,000 as a taxable payment from the Plan. You must report the $2,000 as tax withheld, and it will be credited against any income tax you owe for the year. There will be no income tax withholding if your payments for the year are less than $200. VOLUNTARY WITHHOLDING. If any portion of your payment is taxable but cannot be rolled over under Part I above, the mandatory withholding rules described above do not apply. In this case, you may elect not to have withholding apply to that portion. If you do nothing, an amount will be taken out of this portion of your payment for federal income tax withholding. To elect out of withholding, ask the Plan Administrator for the election form and related information. SIXTY-DAY ROLLOVER OPTION. If you receive a payment that can be rolled over under Part I above, you can still decide to roll over all or part of it to a traditional IRA or to an eligible employer plan that accepts rollovers. If you decide to roll over, you must contribute the amount of the payment you received to a traditional IRA or eligible employer plan within 60 days after you receive the payment. The portion of your payment that is rolled over will not be taxed until you take it out of the traditional IRA or the eligible employer plan. You can roll over up to 100% of your payment that can be rolled over under Part I above, including an amount equal to the 20% of the taxable portion that was withheld. If you choose to roll over 100%, you must find other money within the 60-day period to contribute to the traditional IRA or the eligible employer plan, to replace the 20% that was withheld. On the other hand, if you roll over only the 80% of the taxable portion that you received, you will be taxed on the 20% that was withheld. EXAMPLE: The taxable portion of your payment that can be rolled over under Part I above is $10,000, and you choose to have it paid to you. You will receive $8,000, and $2,000 will be sent to the IRS as income tax withholding. Within 60 days after receiving the $8,000, you may roll over the entire $10,000 to a traditional IRA or an eligible employer plan. To do this, you roll over the $8,000 you received from the Plan, and you will have to find $2,000 from other sources (your savings, a loan, etc.). In this case, the entire $10,000 is not taxed until you take it out of the traditional IRA or an eligible employer plan. If you roll over the entire $10,000, when you file your income tax return you may get a refund of part or all of the $2,000 withheld. If, on the other hand, you roll over only $8,000, the $2,000 you did not roll over is taxed in the year it was withheld. When you file your income tax return, you may get a refund of part of the $2,000 withheld. (However, any refund is likely to be larger if you roll over the entire $10,000.) ADDITIONAL 10% TAX IF YOU ARE UNDER AGE 59 1/2. If you receive a payment before you reach age 59 1/2 and you do not roll it over, then, in addition to the regular income tax, you may have to pay an extra tax equal to 10% of the taxable portion of the payment. The additional 10% tax generally does not apply to (1) payments that are paid after you separate from service with your employer during or after 5 the year you reach age 55, (2) payments that are paid because you retire due to disability, (3) payments that are paid as equal (or almost equal) payments over your life or life expectancy (or your and your beneficiary's lives or life expectancies), (4) dividends paid with respect to stock by an employee stock ownership plan (ESOP) as described in Code section 404(k), (5) payments that are paid directly to the government to satisfy a federal tax levy, (6) payments that are paid to an alternate payee under a qualified domestic relations order, or (7) payments that do not exceed the amount of your deductible medical expenses. See IRS Form 5329 for more information on the additional 10% tax. SPECIAL TAX TREATMENT IF YOU WERE BORN BEFORE JANUARY 1, 1936. If you receive a payment from a plan qualified under section 401(a) or a section 403(a) annuity plan that can be rolled over under Part I and you do not roll it over to a traditional IRA or an eligible employer plan, the payment will be taxed in the year you receive it. However, if the payment qualifies as a "lump sum distribution," it may be eligible for special tax treatment. (See also "Employer Stock or Securities", below.) A lump sum distribution is a payment, within one year, of your entire balance under the Plan (and certain other similar plans of the employer) that is payable to you after you have reached age 59 1/2 or because you have separated from service with your employer (or, in the case of a self-employed individual, after you have reached age 59 1/2 or have become disabled). For a payment to be treated as a lump sum distribution, you must have been a participant in the Plan for at least five years before the year in which you received the distribution. The special tax treatment for lump sum distributions that may be available to you is described below. TEN-YEAR AVERAGING. If you receive a lump sum distribution and you were born before January 1, 1936, you can make a one-time election to figure the tax on the payment by using "10-year averaging" (using 1986 tax rates). Ten-year averaging often reduces the tax you owe. There are other limits on the special tax treatment for lump sum distributions. For example, you can generally elect this special tax treatment only once in your lifetime, and the election applies to all lump sum distributions that you receive in that same year. You may not elect this special tax treatment if you rolled amounts into this Plan from a 403(b) tax-sheltered annuity contract, a governmental 457 plan, or from an IRA not originally attributable to a qualified employer plan. If you have previously rolled over a distribution from this Plan (or certain other similar plans of the employer), you cannot use this special averaging treatment for later payments from the Plan. If you roll over your payment to a traditional IRA, governmental 457 plan, or 403(b) tax-sheltered annuity, you will not be able to use special tax treatment for later payments from that IRA, plan, or annuity. Also, if you roll over only a portion of your payment to a traditional IRA, governmental 457 plan, or 403(b) tax-sheltered annuity, this special tax treatment is not available for the rest of the payment. See IRS Form 4972 for additional information on lump sum distributions and how you elect the special tax treatment. EMPLOYER STOCK OR SECURITIES. There is a special rule for a payment from the Plan that includes employer stock (or other employer securities). To use this special rule, 1) the payment must qualify as a lump sum distribution, as described above, except that you do not need five years of plan participation, or 2) the employer stock included in the payment must be attributable to "after-tax" employee contributions, if any. Under this special rule, you may have the option of not paying tax on the "net unrealized appreciation" of the stock until you sell the stock. Net unrealized appreciation generally is the increase in the value of the employer stock while it was held by the Plan. For example, if employer stock was contributed to your Plan account when the stock was worth $1,000 but the stock was worth $1,200 when you received it, you would not have to pay tax on the $200 increase in value until you later sold the stock. 6 You may instead elect not to have the special rule apply to the net unrealized appreciation. In this case, your net unrealized appreciation will be taxed in the year you receive the stock, unless you roll over the stock. The stock can be rolled over to a traditional IRA or another eligible employer plan, either in a direct rollover or a rollover that you make yourself. Generally, you will no longer be able to use the special rule for net unrealized appreciation if you roll the stock over to a traditional IRA or another eligible employer plan. If you receive only employer stock in a payment that can be rolled over, no amount will be withheld from the payment. If you receive cash or property other than employer stock, as well as employer stock, in a payment that can be rolled over, the 20% withholding amount will be based on the entire taxable amount paid to you (including the value of the employer stock determined by excluding the net unrealized appreciation). However, the amount withheld will be limited to the cash or property (excluding employer stock) paid to you. If you receive employer stock in a payment that qualifies as a lump sum distribution, the special tax treatment for lump sum distributions described above (such as 10-year averaging) also may apply. See IRS Form 4972 for additional information on these rules. REPAYMENT OF PLAN LOANS. If your employment ends and you have an outstanding loan from your Plan, your employer may reduce (or "offset") your balance in the Plan by the amount of the loan you have not repaid. The amount of your loan offset is treated as a distribution to you at the time of the offset and will be taxed unless you roll over an amount equal to the amount of your loan offset to another qualified employer plan or a traditional IRA within 60 days of the date of the offset. If the amount of your loan offset is the only amount you receive or is treated as having received, no amount will be withheld from it. If you receive other payments of cash or property from the Plan, the 20% withholding amount will be based on the entire amount paid to you, including the amount of the loan offset. The amount withheld will be limited to the amount of other cash or property paid to you (other than any employer securities). The amount of a defaulted plan loan that is a taxable deemed distribution cannot be rolled over. IV. SURVIVING SPOUSES, ALTERNATE PAYEES, AND OTHER BENEFICIARIES In general, the rules summarized above that apply to payments to employees also apply to payments to surviving spouses of employees and to spouses or former spouses who are "alternate payees." You are an alternate payee if your interest in the Plan results from a "qualified domestic relations order," which is an order issued by a court, usually in connection with a divorce or legal separation. If you are a surviving spouse or an alternate payee, you may choose to have a payment that can be rolled over, as described in Part I above, paid in a DIRECT ROLLOVER to a traditional IRA or to an eligible employer plan or paid to you. If you have the payment paid to you, you can keep it or roll it over yourself to a traditional IRA or to an eligible employer plan. Thus, you have the same choices as the employee. If you are a beneficiary other than a surviving spouse or an alternate payee, you cannot choose a direct rollover, and you cannot roll over the payment yourself. If you are a surviving spouse, an alternate payee, or another beneficiary, your payment is generally not subject to the additional 10% tax described in Part III above, even if you are younger than age 59 1/2. 7 If you are a surviving spouse, an alternate payee, or another beneficiary, you may be able to use the special tax treatment for lump sum distributions and the special rule for payments that include employer stock, as described in Part III above. If you receive a payment because of the employee's death, you may be able to treat the payment as a lump sum distribution if the employee met the appropriate age requirements, whether or not the employee had 5 years of participation in the Plan. HOW TO OBTAIN ADDITIONAL INFORMATION This notice summarizes only the federal (not state or local) tax rules that might apply to your payment. The rules described above are complex and contain many conditions and exceptions that are not included in this notice. Therefore, you may want to consult with the Plan Administrator or a professional tax advisor before you take a payment of your benefits from your Plan. Also, you can find more specific information on the tax treatment of payments from qualified employer plans in IRS Publication 575, Pension and Annuity Income, and IRS Publication 590, Individual Retirement Arrangements. These publications are available from your local IRS office, on the IRS's Internet Web Site at www.irs.gov, or by calling 1-800-TAX-FORMS. 8 EX-99 13 ex99-2.txt LETTER OF RP FINANCIAL, LC RP(R) FINANCIAL, LC. - --------------------------------------- Financial Services Industry Consultants June 15, 2005 Board of Directors American Savings, MHC ASB Holding Company American Bancorp of New Jersey, Inc. American Bank of New Jersey 365 Broad Street Bloomfield, New Jersey 07003 Re: Plan of Conversion American Savings, MHC American Bancorp of New Jersey, Inc. American Bank of New Jersey Members of the Boards of Directors: All capitalized terms not otherwise defined in this letter have the meanings given such terms in the Plan of Conversion (the "Plan") adopted by the Board of Directors of American Savings, MHC (the "Mutual Holding Company") American Bancorp of New Jersey, Inc. (the "Company") and American Bank of New Jersey (the "Bank"). The Plan provides for the conversion of the Mutual Holding Company into the capital stock form of organization. Pursuant to the Plan, the Mutual Holding Company, upon consummation of the conversion, will cease to exist. As part of the Plan, the Company, a newly formed New Jersey Corporation, will sell shares of common stock in an offering that will represent the ownership interest now owned by the Mutual Holding Company. We understand that in accordance with the Plan, subscription rights to purchase shares of common stock in the Company are to be issued to: (1) Eligible Account Holders; (2) the Employee Plans; (3) Supplemental Eligible Account Holders; and, (4) Other Members. Based solely upon our observation that the subscription rights will be available to such parties without cost, will be legally non-transferable and of short duration, and will afford such parties the right only to purchase shares of common stock at the same price as will be paid by members of the general public in the community offering, but without undertaking any independent investigation of state or federal law or the position of the Internal Revenue Service with respect to this issue, we are of the belief that, as a factual matter: (1) the subscription rights will have no ascertainable market value; and, (2) the price at which the subscription rights are exercisable will not be more or less than the pro forma market value of the shares upon issuance. Changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the Company's value alone. Accordingly, no assurance can be given that persons who subscribe to shares of common stock in the subscription offering will thereafter be able to buy or sell such shares at the same price paid in the subscription offering. Sincerely, /s/RP FINANCIAL, LC. RP(R) FINANCIAL, LC. - -------------------------------------------------------------------------------- Washington Headquarters Rosslyn Center Telephone: (703) 528-1700 1700 North Moore Street, Suite 2210 Fax No.: (703) 528-1788 Arlington, VA 22209 Toll-Free No.: (866) 723-0594 www.rpfinancial.com E-Mail: mail@rpfinancial.com EX-99 14 ex99-3.txt CONVERSION VALUATION APPRAISAL REPORT - -------------------------------------------------------------------------------- PRO FORMA VALUATION REPORT ASB HOLDING COMPANY HOLDING COMPANY FOR AMERICAN BANK OF NEW JERSEY Bloomfield, New Jersey Dated As Of: May 31, 2005 - -------------------------------------------------------------------------------- Prepared By: RP(R) Financial, LC. 1700 North Moore Street Suite 2210 Arlington, Virginia 22209 RP(R) Financial, LC. - --------------------------------------- Financial Services Industry Consultants May 31, 2005 Board of Directors American Savings, MHC ASB Holding Company American Bank of New Jersey 365 Broad Street Bloomfield, New Jersey 07003 Members of the Boards of Directors: At your request, we have completed and hereby provide an independent appraisal ("Appraisal") of the estimated pro forma market value of the common stock to be issued by American Bancorp of New Jersey, Inc., Bloomfield, New Jersey ("Company") in connection with the mutual-to-stock conversion of American Savings, MHC (the "MHC"). The MHC currently has a majority ownership interest in, and its principal asset consists of, approximately 70% of the common stock of ASB Holding Company (the "MHC Shares"), the mid-tier holding company for American Bank of New Jersey, Bloomfield, New Jersey (the "Bank"). The remaining 30% of ASB Holding Company's ("ASB") common stock is owned by public stockholders. ASB, which was formed in June 2003, owns 100% of the common stock of the Bank. It is our understanding that ASB will offer its stock, representing the majority ownership interest held by the MHC, in a subscription offering to Eligible Account Holders, Supplemental Eligible Account Holders and Other Members. To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, the shares may be offered for sale in a community offering to members of the local community and the public at large. This Appraisal is furnished pursuant to the requirements of the Code of Federal Regulations 563b.7 and has been prepared in accordance with the "Guidelines for Appraisal Reports for the Valuation of Savings and Loan Associations Converting from Mutual to Stock Form of Organization" of the Office of Thrift Supervision ("OTS"), which have been adopted in practice by the Federal Deposit Insurance Corporation ("FDIC"). Plan of Conversion and Reorganization - ------------------------------------- On May 18, 2005, the respective Boards of Directors of the MHC, ASB and the Bank adopted the plan of conversion and reorganization (the "Plan"), pursuant to which the MHC will be merged into the Bank and the MHC will no longer exist. Pursuant to the Plan, the Bank will establish a New Jersey chartered stock holding company named American Bancorp of New Jersey, Inc., and the shares of the ASB's stock that are currently owned by public stockholders - -------------------------------------------------------------------------------- Washington Headquarters Rosslyn Center Telephone: (703) 528-1700 1700 North Moore Street, Suite 2210 Fax No.: (703) 528-1788 Arlington, VA 22209 Toll-Free No.: (866) 723-0594 www.rpfinancial.com E-Mail: mail@rpfinancial.com RP(R) Financial, LC. Board of Directors May 31, 2005 Page 2 will be converted, based on an exchange ratio, into shares of American Bancorp of New Jersey, Inc. stock. The MHC will be eliminated and the Bank will become a wholly-owned subsidiary of American Bancorp of New Jersey, Inc., which will be owned entirely by public stockholders. As part of the conversion and reorganization, the Company will sell shares of common stock in an offering that will represent the ownership interest in ASB currently owned by the MHC. As of March 31, 2005, the MHC's ownership interest in ASB approximated 70.00%. The Company will also issue shares of its common stock to the public stockholders of ASB pursuant to an exchange ratio that will result in the public shareholders owning the same aggregate percentage of the newly issued ASB common stock as owned immediately prior to the conversion. As of March 31, 2005, the public stockholders' ownership interest in ASB approximated 30.00%. RP(R) Financial, LC. - -------------------- RP(R) Financial, LC. ("RP Financial") is a financial consulting firm serving the financial services industry nationwide that, among other things, specializes in financial valuations and analyses of business enterprises and securities, including the pro forma valuation for savings institutions converting from mutual-to-stock form. The background and experience of RP Financial is detailed in Exhibit V-1. We believe that, except for the fee we will receive for our appraisal, we are independent of the Company, the Bank, the MHC and the other parties engaged by the Bank or the Company to assist in the stock conversion process. Valuation Methodology - --------------------- In preparing our Appraisal, we have reviewed the regulatory applications of ASB, the Bank and the MHC, including the prospectus as filed with the OTS and the Securities and Exchange Commission ("SEC"). We have conducted a financial analysis of ASB, the Bank and the MHC that has included a review of audited financial information for fiscal years ended September 30, 2000 through 2004 and interim financial results through March 31, 2005, and due diligence related discussions with ASB's management; Crowe Chizek and Company LLC, ASB's independent auditor; Malizia Spidi & Fisch, P.C., ASB's conversion counsel; and Keefe, Bruyette & Woods, Inc., the Bank's financial and marketing advisors in connection with the Company's stock offering. All assumptions and conclusions set forth in the Appraisal were reached independently from such discussions. In addition, where appropriate, we have considered information based on other available published sources that we believe are reliable. While we believe the information and data gathered from all these sources are reliable, we cannot guarantee the accuracy and completeness of such information. We have investigated the competitive environment within which ASB operates and have assessed ASB's relative strengths and weaknesses. We have kept abreast of the changing regulatory and legislative environment for financial institutions and analyzed the potential RP(R) Financial, LC. Board of Directors May 31, 2005 Page 3 impact on ASB and the industry as a whole. We have analyzed the potential effects of the stock conversion on ASB's operating characteristics and financial performance as they relate to the pro forma market value of ASB. We have analyzed the assets held by the MHC, which will be consolidated with ASB's assets and equity pursuant to the completion of conversion. We have reviewed the economic and demographic characteristics of the Company's primary market area. We have compared ASB's financial performance and condition with selected publicly-traded thrifts in accordance with the Valuation Guidelines, as well as all publicly-traded thrifts and thrift holding companies. We have reviewed the current conditions in the securities markets in general and the market for thrift stocks in particular, including the market for existing thrift issues, initial public offerings by thrifts and thrift holding companies, and second-step conversion offerings. We have excluded from such analyses thrifts subject to announced or rumored acquisition, and/or institutions that exhibit other unusual characteristics. The Appraisal is based on ASB's representation that the information contained in the regulatory applications and additional information furnished to us by ASB and its independent auditor, legal counsel and other authorized agents are truthful, accurate and complete. We did not independently verify the financial statements and other information provided by ASB, or its independent auditor, legal counsel and other authorized agents nor did we independently value the assets or liabilities of ASB. The valuation considers ASB only as a going concern and should not be considered as an indication of ASB's liquidation value. Our appraised value is predicated on a continuation of the current operating environment for ASB and for all thrifts and their holding companies. Changes in the local, state and national economy, the legislative and regulatory environment for financial institutions and mutual holding companies, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the value of ASB's stock alone. It is our understanding that there are no current plans for selling control of ASB following completion of the second-step stock offering. To the extent that such factors can be foreseen, they have been factored into our analysis. The estimated pro forma market value is defined as the price at which ASB's common stock, immediately upon completion of the second-step stock offering, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. Valuation Conclusion - -------------------- It is our opinion that, as of May 31, 2005, the estimated aggregate pro forma valuation of the shares to be issued in the conversion of the MHC, including: (1) newly-issued shares representing the MHC's ownership interest in ASB, and (2) exchange shares issued to existing public shareholders of ASB, was $107,142,850 at the midpoint. Based on this valuation and the approximate 70.00% ownership interest being sold in the public offering, the midpoint value of RP(R) Financial, LC. Board of Directors May 31, 2005 Page 4 the Company's stock offering is $75,000,000, equal to 7,500,000 shares at a per share value of $10.00. Pursuant to conversion guidelines, the 15% offering range indicates a minimum offering value of $63,750,000 and a maximum offering value of $86,250,000. Based on the $10.00 per share offering price, this valuation range equates to an offering of 6,375,000 shares at the minimum and 8,625,000 shares at the maximum. In the event the appraised value is subject to an increase, the offering range may be increased up to a supermaximum value of $99,187,500 without requiring a resolicitation. Based on the $10.00 per share offering price, the supermaximum value would result in an offering of 9,918,750 shares. Establishment of the Exchange Ratio - ----------------------------------- OTS regulations provide that in a conversion of a mutual holding company, the minority stockholders are entitled to exchange the public shares for newly issued shares of ASB stock as a fully converted company. The Board of Directors of the MHC has independently determined the exchange ratio. The determined exchange ratio has been designed to preserve the current aggregate percentage ownership in ASB equal to 30.00% as of March 31, 2005. The exchange ratio to be received by the existing minority shareholders of ASB will be determined at the end of the offering, based on the total number of shares sold in the subscription and community offerings. Based upon this calculation, and the valuation conclusion and offering range concluded above, The exchange ratio to be received by the existing minority shareholders of ASB will be determined at the end of the offering, based on the total number of shares sold in the subscription and community offerings. Based upon this calculation, and the valuation conclusion and offering range concluded above, the exchange ratio would be 1.63960 shares, 1.92894 shares, 2.21828 shares and 2.55102 shares of newly issued shares of ASB stock for each share of stock held by the public shareholders at the minimum, midpoint, maximum and supermaximum of the offering range, respectively. RP Financial expresses no opinion on the proposed exchange of newly issued Company shares for the shares held by the public stockholders or on the proposed exchange ratio. Limiting Factors and Considerations - ----------------------------------- Our valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of the common stock. Moreover, because such valuation is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of common stock in the conversion will thereafter be able to buy or sell such shares at prices related to the foregoing valuation of the estimated pro forma market value thereof. The appraisal reflects only a valuation range as of this date for the pro forma market value of ASB immediately upon issuance of the stock and does not take into account any trading activity with respect to the purchase and sale of common stock in the secondary market following the completion of the second-step offering. RP(R) Financial, LC. Board of Directors May 31, 2005 Page 5 RP Financial's valuation was based on the financial condition, operations and shares outstanding of ASB as of March 31, 2005, the date of the financial data included in the prospectus. The proposed exchange ratio to be received by the current public stockholders of ASB and the exchange of the public shares for newly issued shares of ASB common stock as a full public company was determined independently by the Boards of Directors of the MHC, ASB and the Bank. RP Financial expresses no opinion on the proposed exchange ratio to public stockholders or the exchange of public shares for newly issued shares. RP Financial is not a seller of securities within the meaning of any federal and state securities laws and any report prepared by RP Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities. RP Financial maintains a policy which prohibits RP Financial, its principals or employees from purchasing stock of its client institutions. This valuation will be updated as provided for in the conversion regulations and guidelines. These updates will consider, among other things, any developments or changes in the financial performance and condition of ASB, management policies, and current conditions in the equity markets for thrift shares, both existing issues and new issues. These updates may also consider changes in other external factors which impact value including, but not limited to: various changes in the legislative and regulatory environment for financial institutions, the stock market and the market for thrift stocks, and interest rates. Should any such new developments or changes be material, in our opinion, to the valuation of the shares, appropriate adjustments to the estimated pro forma market value will be made. The reasons for any such adjustments will be explained in the update at the date of the release of the update. The valuation will also be updated at the completion of ASB's stock offering. Respectfully submitted, RP(R) FINANCIAL, LC. /s/Ronald S. Riggins Ronald S. Riggins President /s/James P. Hennessey James P. Hennessey Senior Vice President RP(R) Financial, LC. TABLE OF CONTENTS ASB HOLDING COMPANY Bloomfield, New Jersey
PAGE DESCRIPTION NUMBER ----------- ------ CHAPTER ONE OVERVIEW AND FINANCIAL ANALYSIS - ----------- Plan of Conversion and Reorganization 1.1 Strategic Overview 1.2 Balance Sheet Trends 1.6 Income and Expense Trends 1.10 Interest Rate Risk Management 1.15 Lending Activities and Strategy 1.16 Asset Quality 1.20 Funding Composition and Strategy 1.21 Subsidiaries and Other Activities 1.22 Legal Proceedings 1.22 CHAPTER TWO MARKET AREA ANALYSIS - ----------- Introduction 2.1 Market Area Demographics 2.2 Summary of Local Economy and Workforce 2.4 Market Area Deposit Characteristics 2.6 CHAPTER THREE PEER GROUP ANALYSIS - ------------- Peer Group Selection 3.1 Financial Condition 3.7 Income and Expense Components 3.9 Loan Composition 3.12 Credit Risk 3.14 Interest Rate Risk 3.16 Summary 3.16
RP(R) Financial, LC. TABLE OF CONTENTS ASB HOLDING COMPANY Bloomfield, New Jersey (continued)
PAGE DESCRIPTION NUMBER ----------- ------ CHAPTER FOUR VALUATION ANALYSIS - ------------ Introduction 4.1 Appraisal Guidelines 4.1 RP Financial Approach to the Valuation 4.1 Valuation Analysis 4.2 1. Financial Condition 4.3 2. Profitability, Growth and Viability of Earnings 4.4 3. Asset Growth 4.5 4. Primary Market Area 4.5 5. Dividends 4.6 6. Liquidity of the Shares 4.8 7. Marketing of the Issue 4.9 A. The Public Market 4.9 B. The New Issue Market 4.14 C. The Acquisition Market 4.17 D. Trading in ASB Holding Company's Stock 4.17 8. Management 4.18 9. Effect of Government Regulation and Regulatory Reform 4.18 Summary of Adjustments 4.19 Valuation Approaches 4.19 Comparison to Recent Conversions 4.22 Valuation Conclusion 4.23 Establishment of the Exchange Ratio 4.23
RP(R) Financial, LC. LIST OF TABLES ASB HOLDING COMPANY Bloomfield, New Jersey
TABLE NUMBER DESCRIPTION PAGE - ------ ----------- ---- 1.1 Historical Balance Sheets 1.7 1.2 Historical Income Statements 1.11 2.1 Map of Branch Locations 2.2 2.2 Summary Demographic Data 2.3 2.3 Estimated and Projected Employment 2.5 2.4 Market Area Unemployment Trends 2.6 2.5 Essex County Deposit Detail 2.8 3.1 Peer Group of Publicly-Traded Thrifts 3.3 3.2 Balance Sheet Composition and Growth Rates 3.8 3.3 Income as a Percent of Average Assets and Yields, Costs, Spreads 3.10 3.4 Loan Portfolio Composition and Related Information 3.13 3.5 Credit Risk Measures and Related Information 3.15 3.6 Interest Rate Risk Measures and Net Interest Income Volatility 3.17 4.1 Peer Group Market Area Comparative Analysis 4.7 4.2 Pricing Characteristics and After-Market Trends 4.15 4.3 Public Market Pricing 4.25
RP(R) Financial, LC. Page 1.1 I. OVERVIEW AND FINANCIAL ANALYSIS American Bank of New Jersey ("American" or the "Bank") is a federally-chartered stock savings bank headquartered in Bloomfield, New Jersey. American conducts retail banking operations in northern New Jersey out of a main office and administrative facility located in Bloomfield, New Jersey, and a branch office in Cedar Grove, New Jersey. The Company's offices are located approximately 15 miles west of New York City. The Bank is a member of the Federal Home Loan Bank ("FHLB") system and its deposits are insured up to the maximum allowable amount by the Federal Deposit Insurance Corporation ("FDIC"). ASB Holding Company ("ASB" or the "Company") is a federal corporation that commenced operations in June 2003, for the purpose of being a holding company for the Bank in conjunction with the mutual holding company reorganization and minority stock issuance. Specifically, on October 3, 2003, the Company sold 1,666,350 shares of common stock to the public, reflecting a 30% ownership, while the remaining shares (3,888,150) were retained by American Savings, MHC (the "MHC"). The public shares were issued at $10.00 per share resulting in gross proceeds of $16.7 million, and net proceeds after expenses of $16.1 million. The publicly-held shares have traded on the Over-The-Counter Bulletin Board ("OTC BB") under the ticket "ASBH" since the initial public offering ("IPO"). As of the valuation date, ASB's stock price closed at $23.00 per share. ASB's stock has historically had limited trading volume since the IPO, often with periods of several days of no trades, which is typical for stocks with a small public market capitalization. Plan of Conversion and Reorganization - ------------------------------------- On May 18, 2005, the respective Boards of Directors of the MHC, the Company and the Bank adopted a plan of conversion and reorganization (the "Plan"), pursuant to which the organization will convert from the two-tier mutual holding company structure to the full stock holding company structure and undertake a second-step conversion offering. The MHC will be merged into the Bank and the MHC will no longer exist. Pursuant to the Plan of Conversion and Reorganization (the "Plan"), the Bank will establish a New Jersey-chartered stock holding RP(R) Financial, LC. Page 1.2 company named American Bancorp of New Jersey, Inc. ("Bancorp"), and the shares of the ASB's stock that are currently owned by public stockholders will be converted, based on an exchange ratio, into shares of Bancorp stock. The MHC will be eliminated and the Bank will become a wholly-owned subsidiary of Bancorp, which will be owned entirely by public stockholders. It is anticipated that the offering shares will be offered in a Subscription Offering to the Bank's Eligible Account Holders, Tax-Qualified Plans, including the employee stock ownership plan (the "ESOP"), Supplemental Eligible Account Holders and Other Members. To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the Subscription Offering, the shares may be offered for sale in a Community Offering. After completion of the offering, Bancorp is expected to downstream 50% of the net offering proceeds. The net proceeds retained by Bancorp will be used to extend a loan to the employee stock ownership plan ("ESOP") and for deposit in the subsidiary bank. Hereinafter, the historical operations of ASB and the prospective operations of Bancorp as the successor will be collectively referred to as "ASB" or the "Company" unless specifically stated otherwise. Strategic Overview - ------------------ The Company has historically emphasized community-oriented banking operations through the Bank, its wholly-owned and principal operating subsidiary. In this regard, the Company has emphasized providing financial services that meet the borrowing and savings needs of its local customer base. The Company has historically maintained an operating strategy that is consistent with a traditional thrift operating strategy, in which 1-4 family residential mortgage loans and retail deposits constitute the principal components of the Company's assets and liabilities, respectively. Beyond 1-4 family permanent mortgage loans (including home equity loans), the Company's lending diversification has been comparatively modest, consisting primarily of commercial real estate and multi-family loans and, to a lesser extent, construction and non-mortgage consumer and commercial and industrial ("C&I") lending. As will be discussed in the following analysis, the Company's future operations are expected to be focused RP(R) Financial, LC. Page 1.3 more heavily upon the building of commercial loan and deposit relationships through an expanded retail branch structure. Investments have served as a supplement to the Company's lending activities and the investment portfolio is considered to be indicative of a low credit risk investment philosophy. The investment portfolio is comprised primarily of mortgage-backed securities ("MBS") and collateralized mortgage obligations ("CMOs") as well as an adjustable rate mortgage ("ARM") mutual fund and U.S. agency securities. The majority of the Company's investment portfolio is classified as available for sale ("AFS"), while a small balance is classified as held-to-maturity ("HTM"). The Company also currently maintains a moderate balance of cash and cash equivalents for liquidity purposes. Retail deposits have consistently served as the primary interest-bearing funding source for the Company. Deposit growth has generally been adequate enough to fund most of the Company's asset growth, with such growth consisting of a mixture of certificates of deposit ("CDs") and transaction and savings accounts. The Company has relatively large balances of non-CD accounts (savings and interest-bearing demand accounts) which have increased modestly as a ratio of total deposits in recent years. The Company utilizes borrowings as a supplemental funding source to facilitate management of funding costs (i.e., to limit the requirement to pay aggressively to attract deposit funds to meet established growth objectives) and interest rate risk. FHLB advances constitute the Company's principal source of borrowings with many advances consisting of fixed term fixed rate or fixed rate amortizing borrowings. The Company's earnings base has historically been dependent upon net interest income and operating expense levels, reflecting the Company's traditional thrift operating strategy. In this regard, the Company's recent earnings have been favorably impacted by balance sheet growth trends, which have facilitated growth of net interest income and improvements to the Company's operating efficiency. The pro forma increase capital is expected to facilitate growth and leveraging opportunities, but the implementation of the de novo branching and lending staff expansion plans will limit improvement in operating efficiency over the next couple of years. In summary, the Company has historically pursued a portfolio residential lending strategy with a moderate diversification into construction lending and commercial and multi-family real RP(R) Financial, LC. Page 1.4 estate mortgage lending. In the first half of fiscal 2005, the Company employed a new President and Chief Operating Officer ("COO") with the objective of pursuing a commercial focus, given his substantial experience in commercial lending and executive management in several larger regional banking organizations. In addition, the Bank is in the process of hiring locally-based commercial lenders. ASB plans to gradually restructure the loan portfolio to include a greater proportion of commercial real estate and non-mortgage loans, multi-family loans, as well as construction loans. In this regard, the Company will seek to emphasize high quality and flexible service, capitalizing on its local orientation and expanded array of products and services. Accordingly, in the future, ASB's portfolio lending operations consists of two principal segments as follows: (1) residential mortgage lending; and (2) multi-family and commercial mortgage lending, C&I lending and construction lending. Moreover, the Company will also seek to more actively participate in secondary market loan origination and sales, with the dual objectives of generating fee and mortgage loan servicing income while offering a broader array of long term fixed rate residential mortgage loan products without incurring undue interest rate risk exposure. The Company plans to add up to three additional loan officers in this regard. The Company is seeking to develop the related infrastructure required to undertake more diversified lending. In this regard, management is in the process of developing extensive policies and procedures pertaining to credit standards and the administration of commercial accounts and construction loans. Additionally, the Company anticipates employing up to six additional commercial loan officers over the next three years with the objective of developing and maintaining commercial account relationships, while additional support personnel are also expected to meet the targeted growth and lending objectives. Importantly, the employment of experienced commercial account officers and support personnel is expected to increase overhead during the near term until offsetting revenues can be generated through the related lending activities. ASB is planning to undertake, several major initiatives to enhance its infrastructure and office facilities, primarily including significant capital investments in fixed assets. In order to support anticipated growth, particularly in the area of commercial account relationships, the Company's business plan calls for the opening of a new branch office every six months for a total of five over the next three year period. While definitive locations have not been identified RP(R) Financial, LC. Page 1.5 in all locations, new offices are expected to be situated in nearby areas of northern New Jersey and will be sited with the objective of supporting the anticipated growth in commercial account relationships. Given the cost of land and construction in ASB's northern New Jersey market, the total capital investment in each of these offices is expected to be in the range of $3 million each, including land, construction and furniture and fixtures investments. In addition to these new branch facilities, the Company is seeking to lease new office space to house additional personnel to be employed to support targeted growth. Thus, the employment of additional staff for the de novo branches, lending expansion and administrative support will increase personnel costs in the short-run without a commensurate increase in revenues. The capital realized from the stock offering will increase the operating flexibility and overall financial strength of ASB, as well as support the de novo branching and lending diversification initiatives. In addition, the increase may facilitate the opportunity to expand through acquisitions of other commercial banks or thrifts or other financial service providers. The projected use of stock proceeds is highlighted below. o Company. The Company is expected to retain up to 50% of the net ------- offering proceeds. At present, Company funds, net of the loan to the ESOP, are expected to be placed into short to intermediate term investment securities. Over time, Company funds are anticipated to be utilized for various corporate purposes, possibly including acquisitions, infusing additional equity into the Bank, repurchases of common stock, and the payment of regular and/or special cash dividends. o Bank. At least 50% of the net offering proceeds will be infused into ---- the Bank in exchange for all of the Bank's newly-issued stock. The increase in the Bank's capital will be less than the 50% of the net offering proceeds infused, as the amount to be borrowed by the ESOP to fund an 8% stock purchase will be accounted for as a contra-equity. Cash proceeds (i.e., net proceeds less deposits withdrawn to fund stock purchases) infused into the Bank are anticipated to become part of general operating funds, and are expected to initially be invested in short-term investments pending longer term deployment, i.e., repaying overnight borrowings, funding lending activities and for general corporate purposes. Overall, it is the Company's objective to pursue growth that will serve to increase returns. At the same time, the Company has acknowledged that it intends to operate with excess capital RP(R) Financial, LC. Page 1.6 in the near term, operating with a below market return on equity ("ROE"), until such time as the new capital can be leveraged in a safe and sound manner over an extended period of time. Balance Sheet Trends - -------------------- Over the last 5 years, the Company has sought to expand the balance sheet primarily on a retail basis through expansion of the loan portfolio funded predominantly by growth of deposits as well as through borrowed funds on a supplemental basis. One of the objectives of the foregoing growth strategy has been to leverage the capital raised in the Company's minority stock offering completed as of October 3, 2003. The Company's growth strategy is evidenced in the summary balance sheet data set forth in Table 1.1, which shows that total assets increased 16.3% annually from $223.5 million at the end of fiscal 2000, to $441.0 million as of March 31, 2005. The most significant portion of the balance sheet growth realized in recent periods has been achieved in the portfolio of residential mortgage loans, including both fixed rate and adjustable rate loans. The Company has sought to emphasize adjustable rate and/or hybrid loans (i.e., loans which are fixed for an initial period typically ranging from five or seven years and then converts to an adjustable rate loan). However, demand for adjustable rate and hybrid loans has historically been limited in the Company's market, particularly as long-term interest rates diminished to historically low levels over the last couple of years. Accordingly, a significant portion of the loan growth has been realized in fixed rate residential mortgage loans. Management has sought to partially mitigate the interest rate risk associated with long term fixed rate mortgage loans by partially funding a portion of the growth through fixed rate borrowings. While the terms on the Company's recent borrowings are shorter than the terms of the fixed rate loans placed into portfolio, management has indicated it is willing to incur what it perceives to be a manageable level of interest rate risk to enhance overall earnings levels, particularly in view of the non-interest bearing capital which will be raised in the second step stock offering. Deposits have always comprised the majority of funding liabilities, increasing at an annual rate of 17.4% since 2000. Recent deposit growth has been attributable to several factors, including the opening of the Cedar Grove branch in fiscal 2001 and the recent success in attracting several large municipal accounts. Borrowings have increased at a 10.4% compounded RP(R) Financial, LC. Page 1.7 Table 1.1 ASB Holding Company Historical Balance Sheets (Amount and Percent of Assets)
Compounded As of the Fiscal Year Ended September 30, Annual ------------------------------------------------------------------------------------- As of Growth 2000 2001 2002 2003 2004 March 31, 2005 Rate ---------------- ---------------- --------------- ---------------- --------------- ---------------- -------- Amount Pct Amount Pct Amount Pct Amount Pct Amount Pct Amount Pct Pct ------ --- ------ --- ------ --- ------ --- ------ --- ------ --- --- ($000) (%) ($000) (%) ($000) (%) ($000) (%) ($000) (%) ($000) (%) (%) Total Amount of: Assets $223,521 100.00% $258,208 100.00% $334,879 100.00% $427,066 100.00% $424,944 100.00% $440,954 100.00% 16.30% Cash and cash equivalents 4,152 1.86% 22,109 8.56% 17,330 5.18% 38,365 8.98% 8,034 1.89% 4,841 1.10% 3.47% Loans receivable (net) 139,906 62.59% 166,322 64.41% 208,374 62.22% 262,844 61.55% 308,970 72.71% 333,252 75.58% 21.27% Loans held for sale 452 0.20% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 302 0.07% -8.57% Securities - AFS 14,887 6.66% 52,022 20.15% 90,134 26.92% 107,391 25.15% 89,495 21.06% 75,992 17.23% 43.66% Securities - HTM 56,627 25.33% 10,187 3.95% 6,970 2.08% 2,839 0.66% 2,794 0.66% 8,526 1.93% -34.34% Federal Home Loan Bank stock 2,260 1.01% 2,300 0.89% 2,200 0.66% 3,150 0.74% 2,890 0.68% 3,513 0.80% 10.30% Deposits 159,302 71.27% 188,828 73.13% 264,587 79.01% 292,826 68.57% 322,716 75.94% 328,043 74.39% 17.41% Total borrowings 43,700 19.55% 46,000 17.82% 44,000 13.14% 55,000 12.88% 57,491 13.53% 68,263 15.48% 10.42% Total equity 17,077 7.64% 20,155 7.81% 21,872 6.53% 22,339 5.23% 39,314 9.25% 38,811 8.80% 20.01% Loans/Deposits 87.82% 88.08% 78.75% 89.76% 95.74% 101.59%
Source: ASB Holding Company's audited financial statements and prospectus. RP(R) Financial, LC. Page 1.8 annual pace over this period as such funds have been used for certain asset-liability management strategies as well as to support balance sheet expansion. In the future, management has indicated that it will be seeking to continue to grow the Company's loan and deposit portfolios, with an increased focus on commercial deposits and loans. At the same time, ASB will continue to offer a broad mix of residential mortgage and consumer loan and deposit products to serve its traditional customer base. Annual equity growth equaled 20.01% since the end of fiscal 2000, reflecting the impact of retained earnings over the period and the infusion of $16.1 million of net offering proceeds from the minority stock offering completed as of October 2003. The post-offering equity growth rate is expected to initially fall below historical levels given the increased equity, the initial anticipated low return on the net offering proceeds in the current interest rate environment as well as the incremental cost of the stock benefit plans and planned expansion. Over the longer term, as the new equity is leveraged through growth, the ROE is expected to improve. Loans Receivable ---------------- As described above, the Company's loan portfolio has increased at a comparatively rapid pace over the last five fiscal years, increasing at a 21.3% compounded annual growth rate. The Company's historical emphasis on 1-4 family lending is reflected in its loan portfolio composition, as 77.5% of total loans receivable consisted of 1-4 family mortgage loans at March 31, 2005, which reflects a modest increase from the 74.0% ratio maintained at September 30, 2000. The increase in the ratio of 1-4 family mortgage loans has been largely due to an increase in the balance of 1-4 family loans outstanding, as opposed to a reduction of other types of loans. The Company has engaged in home equity lending on a moderate basis, with such loans combined to total 3.2% of total loans as of March 31, 2005. Commercial real estate/multi-family loans represent the most significant area of lending diversification for the Company, with such loans equaling 16.4% of total loans outstanding as of March 31, 2005. The Company's diversification into construction and non-mortgage consumer and commercial types of lending has been limited and there has been little change in the outstanding balance of those loans since year end 2000. RP(R) Financial, LC. Page 1.9 Cash, Investments and Mortgage-Backed Securities ------------------------------------------------ The intent of the Company's investment policy is to provide adequate liquidity, to generate a favorable return on excess investable funds and to support the established credit rate risk objectives of the Company. The ratio of cash, investments and MBS to assets has diminished since the end of fiscal 2000 as ASB has focused on building the loan portfolio with the objective of enhancing overall yield and earnings. Investment securities and MBS equaled $84.5 million, or 19.2% of total assets, as of March 31, 2005, while cash and equivalents totaled $4.8 million, or 1.1% of assets. As of March 31, 2005, the cash and investments portfolio consisted of cash, interest-earning deposits in other financial institutions, issued by Ginnie Mae, Fannie Mae or Freddie Mac, U.S. government agency obligations, and other high quality investments including mutual fund investments (see Exhibit I-3 for the investment portfolio composition). Additionally, the Company maintains permissible equity investments such as FHLB stock. The majority of the Company's investment securities are classified as available for sale ("AFS"), $76.0 million or 17.2% of assets, while the balance is classified as held-to-maturity ("HTM"), $8.5 million or 1.9% of assets. No major changes to the composition and practices with respect to the management of the investment portfolio are anticipated over the near term. The level of cash and investments is anticipated to increase initially following the second step stock offering, pending gradual redeployment into higher yielding loans. Funding Structure ----------------- Since fiscal year-end 2000, deposits have grown 17.4% annually. ASB's deposit composition has remained relatively stable over this with time deposits fluctuating around 40% of deposits with the balance of deposit funds consisting of savings and transaction accounts. Although the balance of borrowed funds has increased, the ratio of borrowings-to-assets has diminished since the end of fiscal 2000, from 19.6% to 15.5%. As of March 31, 2005, borrowed funds totaled $68.3 million (in the form of FHLB borrowings). The Company typically utilizes borrowings: (1) when such funds are priced attractively relative to deposits; (2) to lengthen the duration of liabilities; (3) to enhance earnings when attractive revenue RP(R) Financial, LC. Page 1.10 enhancement opportunities arise; and (4) to generate additional liquid funds, if required. Additionally, a portion of the Company's recent borrowings growth has been undertaken in conjunction with management's efforts to "pre-fund" the second step conversion offering with such "overnight" borrowings to be repaid with the infusion of the stock proceeds. Capital ------- Annual capital growth for the Company has been relatively strong, equal to 20.0% on a compounded annual basis. The relatively strong growth rate primarily reflects the impact of the completion of the minority stock offering in fiscal 2004, which resulted in $16.1 million of net proceeds after expenses to bolster the Company's capital. Additionally, ASB's capital has been positively impacted by the retention of earnings, net of dividends paid to minority shareholders since 2004. As of March 31, 2005, the Company's equity totaled $38.8 million, or 8.80% of total assets. The Bank maintained capital surpluses relative to its regulatory capital requirements at March 31, 2005, and thus qualified as a "well capitalized" institution. The offering proceeds will serve to further strengthen the Bank's regulatory capital position and support further growth. The equity growth rate is expected to slow for the Bank on a post-offering basis given the pro forma increase in equity, low reinvestment yields currently available and the potential dividend policy over the long term. Income and Expense Trends - ------------------------- Table 1.2 shows the Company's historical income statements for the past five fiscal years and for the 12 months ended March 31, 2005. The Company reported positive earnings over the past five and one-half years, ranging from a low of $1.4 million, equal to 0.40% of average assets during fiscal 2003, to a high of $2.3 million, or 0.55% of average assets reported for the 12 months ended March 31, 2005. Consistent with the historical traditional thrift operating strategy, net interest income and operating expenses have been the dominant components of the Company's earnings. Non-interest operating income derived from retail banking activities has been a limited contributor to the Company's earnings. Loan loss provisions, as well as non-operating income items, have had only a modest impact on the Company's earnings over the past five and one-half fiscal years. RP(R) Financial, LC. Page 1.11 Table 1.2 ASB Holding Company Historical Income Statements
For the Fiscal Year Ended September 30, For the 12 ------------------------------------------------------------------------------------- Months Ended ` 2000 2001 2002 2003 2004 March 31, 2005 ----------------- --------------- ---------------- ---------------- ---------------- ---------------- Amount Pct(1) Amount Pct(1) Amount Pct(1) Amount Pct(1) Amount Pct(1) Amount Pct(1) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ($000) (%) ($000) (%) ($000) (%) ($000) (%) ($000) (%) ($000) (%) Interest Income $15,070 7.09% $16,052 7.01% $ 17,578 5.86% $17,476 4.86% $18,204 4.55% $19,181 4.56% Interest Expense (8,398) -3.95% (9,140) -3.99% (8,829)-2.94% (8,870) -2.47% (8,105) -2.02% (8,500) -2.02% ------- ---- ------- ---- -------- ---- ------- ---- ------- ---- ------- ---- Net Interest Income $6,672 3.14% $6,912 3.02% $8,749 2.92% $8,606 2.39% $10,099 2.52% $10,681 2.54% Provision for Loan Losses (22) -0.01% (2) 0.00% (105)-0.04% (254) -0.07% (207) -0.05% (265) -0.06% ------- ---- ------- ---- -------- ---- ------- ---- ------- ---- ------- ---- Net Interest Income after Provisions $6,650 3.13% $6,910 3.02% $8,644 2.88% $8,352 2.32% $9,892 2.47% $10,416 2.47% Other Operating Income 555 0.26% 458 0.20% 595 0.20% 752 0.21% 1,095 0.27% 1,089 0.26% Operating Expense (4,338) -2.04% (4,923) -2.15% (6,274)-2.09% (6,862) -1.91% (7,657) -1.91% (7,999) -1.90% ------- ---- ------- ---- -------- ---- ------- ---- ------- ---- ------- ---- Net Operating Income $ 2,867 1.35% $ 2,445 1.07% $ 2,965 0.99% $ 2,242 0.62% $ 3,330 0.83% $ 3,506 0.83% Net Gain(Loss) on Sale of Investments $ - 0.00% $ - 0.00% $ - 0.00% $ (188) -0.05% $ - 0.00% $ 0 0.00% Net Gain(Loss) on Sale of Loans - 0.00% - 0.00% - 0.00% 151 0.04% 27 0.01% 7 0.00% Other Gains and Losses - 0.00% - 0.00% - 0.00% 3 0.00% 176 0.04% 176 0.04% ------- ---- ------- ---- -------- ---- ------- ---- ------- ---- ------- ---- Total Non-Operating Income/(Expense) $ - 0.00% $ - 0.00% $ - 0.00% $ (34) -0.01% $ 203 0.05% $ 183 0.04% Net Income Before Tax $ 2,867 1.35% $ 2,445 1.07% $ 2,965 0.99% $ 2,208 0.61% $ 3,533 0.88% $ 3,689 0.88% Income Taxes (1,039) -0.49% (888) -0.39% (1,075)-0.36% (805) -0.22% (1,371) -0.34% (1,394) -0.33% ------- ---- ------- ---- -------- ---- ------- ---- ------- ---- ------- ---- Net Income (Loss) Before Extraord. Items $ 1,828 0.86% $ 1,557 0.68% $ 1,890 0.63% $ 1,403 0.39% $ 2,162 0.54% $ 2,295 0.55% Estimated Core Net Income - ------------------------- Net Income $ 1,828 0.86% $ 1,557 0.68% $ 1,890 0.63% $ 1,403 0.39% $ 2,162 0.54% $ 2,295 0.55% Addback(Deduct): Non-Recurring (Inc)/Exp - 0.00% - 0.00% - 0.00% 34 0.01% (203) -0.05% (183) -0.04% Tax Effect (2) - 0.00% - 0.00% - 0.00% (14) 0.00% 81 0.02% 73 0.02% ------- ---- ------- ---- -------- ---- ------- ---- ------- ---- ------- ---- Estimated Core Net Income $ 1,828 0.86% $ 1,557 0.68% $ 1,890 0.63% $ 1,423 0.40% $ 2,040 0.51% $ 2,185 0.52% Memo: Expense Coverage Ratio (3) 153.80% 140.40% 139.45% 125.42% 131.89% 133.53% Efficiency Ratio (4) 60.02% 66.80% 67.14% 73.33% 68.40% 67.96% Effective Tax Rate 36.24% 36.32% 36.26% 36.46% 38.81% 37.79%
(1) Percent of average assets. (2) Assumes a marginal tax rate of 40%. (3) Net interest income divided by operating expenses. (4) Operating expenses as a percent of the sum of net interest income and other operating income (excluding gains on sale). Source: ASB Holding Company's audited financial statements and prospectus. RP(R) Financial, LC. Page 1.12 Net Interest Income ------------------- Net interest income has historically been at modest levels relative to industry averages, reflecting both the conservative nature of the investment portfolio and the high ratio of residential mortgage loans. Net interest income reflects a growth trend over the past five fiscal periods, both as a result of balance sheet growth and the increase in the loans/assets ratio. Specifically, net interest income has increased from $6.7 million, equal to 3.14% of average assets, for the fiscal year ended September 30, 2000, to $10.7 million, equal to 2.54% of average assets for the 12 month ended March 31, 2005. Specifically, the Company's interest rate spread decreased from 2.63% in fiscal 2002 to 2.14% in fiscal 2003, as assets repriced downward more rapidly than liabilities in the declining interest rate environment prevailing through the period, reflecting the high rate of mortgage refinancing which impacted the average yields on the loan portfolio and portfolio of mortgage-related securities (details regarding the Company's yields, costs and spreads are included as Exhibit I-4). ASB's spreads increased modestly in fiscal 2004 and for the six months ended March 31, 2005, primarily owing to an increase in the Company's average asset yield. While there may be further improvements in ASB's asset yields as the Company seeks to increase the loan portfolio, particularly with respect to commercial loans, further potential short-term rate increases by the Federal Reserve coupled with ASB's deposit growth targets will place upward pressures on funding costs as well. Further, while the initial reinvestment of the offering proceeds should increase net interest income, the initial reinvestment yields are expected to depress asset yields and the net interest income ratio. Loan Loss Provisions -------------------- Over the past five and one-half years, credit quality related losses generally have not been a material factor in the Company's earnings, a characteristic which has been supported by maintenance of generally favorable credit quality measures and a loan portfolio composition that consists of a high concentration of relatively low risk 1-4 family permanent mortgage loans and home equity loans. The highest amount of loan loss provisions established by the Company over the past five and one-half years was in fiscal 2002, in which loan loss provisions established equaled $265,000, or 0.07% of average assets, with the increase relative to the prior fiscal years RP(R) Financial, LC. Page 1.13 primarily attributable to ongoing growth of the loan portfolio which necessitated an increase to the reserve levels in accordance with the Company's policies and procedures. Going forward, the Company will continue to evaluate the adequacy of the level of general valuation allowances ("GVAs"), and establish additional loan loss provisions in accordance with the Company's asset classification and loss reserve policies. To the extent that commercial mortgage and C&I loans account for a significant portion of the Company's future growth, the level of periodic loan loss provisions may likely increase in response to the heightened credit risk profile. Non-Interest Income ------------------- Consistent with the Company's adherence to a traditional thrift operating philosophy and limited revenue diversification, sources of non-interest operating income have been a somewhat modest contributor to earnings. Throughout the period shown in Table 1.2, non-interest operating income increased modestly and equaled $1.1 million, or 0.26% of average assets, for the 12 months ended March 31, 2005. Sources of non-interest operating income consist substantially of fees and service charges generated from the retail customer base, with the general upward trend in the non-interest operating income ratio supported by growth of transaction accounts, which have generated higher levels of deposit-related service charges, as well as elevated loan prepayment fees due to high loan refinancing activity. The Company has not sold loans in the secondary market historically, although this activity may increase in the future to realize servicing income and gains on sale. The Company will be seeking to build the level of non-interest income primarily in three ways. First, the development of commercial accounts relationships is expected to generate higher levels of fee income, both from the lending and deposit perspective. Second, the ASB will also be seeking to expand the level of secondary market loan sales with the objective of increasing revenues from marketing gains and mortgage loan servicing income. Third, over the long term, ASB will seek to build revenues from annuity sales and other non-traditional sources. Over the near term however, the Company's earnings can be expected to remain highly dependent upon the net interest margin and non-interest income can be expected to be a limited contributor to overall earnings. RP(R) Financial, LC. Page 1.14 Operating Expenses ------------------ The Company's operating expenses have increased in recent years due to expanded business volumes which have resulted in growth of both the retail deposit base and loan portfolio. In this regard, such key elements of ASB's operating expenses including salary and employee benefits, occupancy and equipment, data processing and other miscellaneous expenses have all been subject to increase. Furthermore, employee benefit costs have been subject to increase after the Company adopted stock-related benefit plans in conjunction with its minority stock issuance in October 2003. However, the increases in the Company's overhead costs have been comparatively modest in relation to asset growth, which has resulted in a reduction in ASB's ratio of operating expenses to average assets, from 2.15% of average assets in fiscal 2001 to 1.90% for the 12 months ended March 31, 2005. Operating expenses and the operating expense ratio are expected to increase following the second step stock offering as a result of the expense of the stock-related benefit plans and the long-term plans to continue to expand the branch network and commercial lending functions. Non-Operating Income/Expense ---------------------------- Non-operating income and expenses have had a limited impact on earnings over the last five fiscal years, particularly as secondary market loan sales have been limited. For the 12 months ended March 31, 2005, non-operating income was comprised of gains on the sale of loans equal to $7,000 and gains on the sale of other real estate owned of $176,000, equal to 0.06% of average assets. Overall, non-operating income for the 12 months ended March 31, 2005, equaled $183,000, or 0.04% of average assets. Taxes ----- The Company's average tax rate has fluctuated in a range of 36% to 39% over the last five fiscal years and equaled 37.79% for the 12 months ended March 31, 2005. During fiscal 2004, the Bank formed a subsidiary known as American Savings Investment Corp., which holds the majority of the Bank's investment securities. Investment RP(R) Financial, LC. Page 1.15 income generated by this special purpose investment subsidiary is not included in the Bank's New Jersey taxable income, but is separately taxed at a reduced effective rate. Efficiency Ratio ---------------- The Company's efficiency ratio reflects improvement over the several years largely owing to expansion of net interest income, which is attributable to both balance sheet growth and improving spreads, while the ratio of the Company's operating expenses and non-interest income to average assets has remained relatively unchanged. Specifically, the efficiency ratio diminished from 73.3% in fiscal 2003, to 68.0% for the 12 months ended March 31, 2005. On a post-offering basis, the efficiency ratio is expected to initially show some improvement as the net interest ratio increases with the reinvestment of proceeds, although the increased operating expenses due to the stock plans, de novo branch and lending diversification may limit or negate such improvement. Interest Rate Risk Management - ----------------------------- The Company's balance sheet is liability-sensitive in the short-term (less than one year) and, thus, the net interest margin will typically be adversely affected during periods of rising and higher interest rates. As of March 31, 2005, the Net Portfolio Value ("NPV") analysis provided by the Office of Thrift Supervision ("OTS") indicated that a 200 basis point instantaneous and permanent increase in interest rates would result in a 293 basis point reduction in the NPV ratio, and result in a post-shock NPV ratio equal to 7.72% of assets (see Exhibit I-5). These rate shock simulations indicate a moderate level of risk exposure pursuant to OTS definitions. By way of comparison, OTS estimates NPV data on a regional and national basis. Based on OTS estimates incorporating December 31, 2004, financial data and market rate information, assuming a positive 200 basis point instantaneous and permanent rate shock, the post-shock NPV ratio for all thrifts with total assets between $100 million and $1 billion equaled 12.40%, which reflects a 138 basis point decline relative to the base scenario. The NPV analysis is an indicator to the risk of earnings in a volatile interest rate environment as it incorporates changing assumptions with respect to maturity and repricing of assets and liabilities. The OTS NPV analysis indicates that the Company has a lower post-shock RP(R) Financial, LC. Page 1.16 NPV ratio and higher interest sensitivity measure (i.e., the change in the post-shock NPV ratio is greater) pursuant to a rising interest rate scenario, which is typically the more adverse scenario for a thrift institution. In this regard, the Company's interest rate risk exposure is primarily the result of the large balance of permanent long-term fixed rate mortgage which predominate the loan portfolio, which are primarily funded by comparatively short term deposits and borrowed funds. Overall, the data suggests that the Company's earnings would be adversely impacted by increasing interest rates. On a pro forma basis, the Company's interest rate risk position is expected to improve as the proceeds from the second step stock offering are reinvested into interest earning assets. Lending Activities and Strategy - ------------------------------- The Company's historical lending activities have traditionally emphasized 1-4 family permanent mortgage loans, and such loans continue to comprise the largest concentration of the loan portfolio. Beyond 1-4 family loans, lending diversification by the Company primarily includes commercial and multi-family real estate mortgage loans, and to a lesser extent, loans secured by properties under construction as well as non-mortgage commercial and consumer loans. Details regarding the Company's loan portfolio composition and characteristics are included in Exhibits I-6, I-7 and I-8. As of March 31, 2005, permanent first and second mortgage loans secured by residential properties totaled $262.3 million, equal to 77.5% of total loans, while home equity lines of credit totaled $11.2 million, or 3.3% of loans. Commercial real estate and multi-family mortgage loans together totaled $55.5 million, equal to 16.4% of total loans, while the modest remaining balance of the loan portfolio was comprised of construction loans and various types of non-mortgage and unsecured consumer and commercial credit. In the future, the Company will be seeking to achieve a more diversified mix of residential, commercial mortgage and non-mortgage loans as well as construction loans. Importantly, growth in this regard will be gradual as the Company employs experienced commercial loan officers and builds out the branch infrastructure which will facilitate the realization of the established goals for the loan portfolio composition. RP(R) Financial, LC. Page 1.17 Residential Lending ------------------- At March 31, 2005, the Company's loan portfolio was concentrated in 1-4 family residential mortgage loans totaling $262.3 million, or 77.5% of loans receivable. The Company originates permanent first mortgage loans (both fixed and adjustable rate or hybrid loans) for portfolio. Residential loans are originated with fixed or adjustable rates and typically have terms of ten to thirty years. The Company also offers mortgage loans with bi-weekly payments. The majority of ASB's adjustable rate loan products provide for an interest rate that is tied to the one-year Constant Maturity U.S. Treasury index and have terms of up to thirty years with initial fixed rate periods of one, three, five, seven, or ten years according to the terms of the loan. The Company also offers an adjustable rate loan with a rate that adjusts every three years to the three-year Constant Maturity U.S. Treasury index. The fixed rate mortgage loans originated by the Company generally meet the secondary mortgage market standards of Fannie Mae. For the purposes of interest rate risk management, the Company occasionally sells qualifying 1-4 family residential mortgages in the secondary market to Fannie Mae and other investors without recourse and with servicing retained. However, sales have typically been limited and totaled only $4.8 million in fiscal 2004. As a complement to the 1-4 family permanent mortgage lending activities, the Company also offers home equity loans including fixed rate amortizing term loans ("HELs") as well as variable rate lines of credit ("HELOCs"). Such loans typically have shorter maturities and higher interest rates than traditional 1-4 family lending and are consistent with the Company's residential lending orientation. Adjustable rate home equity lines of credit are tied to the prime rate of interest and carry a 20 year term. Fixed rate home equity loans generally have 5 to 15 year terms. The maximum loan amount is $500,000 for home equity loans, with a maximum LTV of 75%. This type of lending will continue to be emphasized by the Company in the future, due to the comparatively higher yields and perceived moderate credit risk associated with these loans, along with the benefits in terms of interest rate risk (the loans either change with any change in the prime rate of interest, or have fixed rates for fixed terms which average 15 years). During 2001, ASB began offering home equity loans on investment properties in addition to loans on primary residences. Loans on investment properties are made in amounts of up to 65% of value on term loans and up to 60% of value of home equity lines of credit. As of RP(R) Financial, LC. Page 1.18 March 31, 2005, home equity lines of credit and home equity loans totaled $11.2 million (3.3% of loans). Multi-Family and Commercial Mortgage Lending -------------------------------------------- The Company has historically been a moderately active originator of commercial and multi-family/mixed use commercial real estate loans. Typically, these properties are small commercial buildings (i.e., offices, retail shops, etc.), the majority of which are non-owner occupied. Over the last five fiscal years, the portfolio of multi-family and commercial mortgage loans has increased at approximately the same rate as the loan portfolio overall, and thus have maintained their relative proportion to the total loan portfolio. As of March 31, 2005, multi-family and commercial mortgage loans totaled $55.5 million, equal to 16.4% of total loans receivable. Multi-family and commercial mortgage loans are typically offered with adjustable rates of interest, which typically adjust every 5 years based on changes in the 5 Year Constant Maturity U.S. Treasury Index. Such loans typically possess amortization periods of up to 25 years, and loan-to-value ratios of up to 75%, and target a debt-coverage ratio of at least 1.2 times. The majority of the Company's multi-family and commercial mortgage loans are secured by properties in northern New Jersey and all the collateral properties are within the State of New Jersey. In the future, the Company will seek to generate commercial loans (both mortgage and C&I loans) through an active officer call program. Most loans will be originated to businesses or secured by properties within the State of New Jersey. Most C&I loans will be originated to businesses with total revenues of $20 million or less while the size of the typical real estate loan will be in the range of $1 million to $4 million. Larger relationships may likely be developed with a portion of the credit participated out to other lenders based on the Bank's regulatory loans-to-one borrower limit and other factors. Management believes its efforts to build commercial account relationships will be enhanced by planned branch expansion, which will provide the Company with a broader retail footprint. RP(R) Financial, LC. Page 1.19 Construction Loans ------------------ ASB also originates construction loans on local residential property, as a strategy to enhance the overall yield of the loan portfolio, shorten the term to maturity of the loan portfolio, and increase the Company's presence in the local market area in connection with builders and real estate agents. ASB maintains no formal limits as to the number of projects a builder has under construction or development but makes a case by case determination on loans to builders and developers who have multiple projects under development. The Company generally does not make construction loans to builders on a speculative basis. However, the Company will allow a model unit without a contract in place. In some cases, ASB converts a construction loan to the permanent end mortgage loan upon completion of construction. Construction loan terms include a maximum LTV of 75%, and terms of no more than 24 months The balance of construction loans declined from fiscal 2000 through end of fiscal 2003 as the Company elected to reduce construction lending following the retirement of the loan officer who had previously managed this portfolio. However, the Company will be seeking to be more active in the construction lending arena in the future in concert with the expansion of its community bank operating strategy. In this regard, the nature of the ASB's lending, which will primarily be focused on residential construction lending will be unchanged. However, it is expected that total volumes and the potential size of the loan relationships will be larger. Non-Mortgage Lending -------------------- The Company's commercial lending emphasis has historically centered on the development of real estate secured relationships, as non-mortgage C&I lending remains limited. As of March 31, 2005, commercial business loans totaled $663,000, equal to 0.20% of total loans. The Company offers commercial loans to sole proprietorships, professional partnerships and various other small businesses. The types of commercial loans offered include lines of credit and business term loans. Most line of credit and business term loans are secured by real estate and other assets such as inventory, equipment or accounts receivable. ASB's commercial term loans generally have terms from one to five years and are typically fixed rate loans. Commercial lines of credit have terms from one to three years and are typically adjustable rate loans. RP(R) Financial, LC. Page 1.20 Consumer lending by the Company (other than home equity lending referenced above) is relatively modest and primarily consists of lending on the security of a deposit account. The Company also offers unsecured personal loans and checking overdraft loans. Such lending has been relatively limited historically and is expected to remain limited over the foreseeable future. As of March 31, 2005, consumer loans excluding HELs and HELOCs totaled $701,000, equal to 0.21% of total loans. Loan Originations, Purchases and Sales -------------------------------------- ASB primarily has historically been a portfolio lender. Gross loan originations totaled $111.8 million for the year ended September 30, 2004, the majority of which were permanent first and second mortgage loans secured by 1-4 family residential properties ($84.4 million). Net of principal repayments, net loan growth totaled approximately $46.1 million for fiscal 2004, as compared to the modest level of purchases which totaled $3.3 million, consisting of adjustable rate mortgage loans. During fiscal 2004, the Company sold 23 loans with a principal balance of $4.8 million; loan sales have principally been undertaken on a non-recourse basis with the objective of managing the Company's interest rate risk exposure. The Company will occasionally purchase participations in loans originated through other lending institutions including the Thrift Institutions Community Investment Corporation of New Jersey ("TICIC"). At March 31, 2005, participations through such entities were secured by one-to-four family properties as well as multi-family or other non-one- to-four family properties, such as assisted living facilities. The aggregate balance of TICIC participations at March 31, 2005 was $1.6 million. ASB may also sell participation interests in multi-family, commercial and other real estate loans or construction loans if the total loan would otherwise exceed the loans-to-one borrower limit. The balance of all other loan participations totaled $5.1 million at March 31, 2005. Asset Quality - ------------- The Company's asset quality has historically been strong and the level of non-performing assets ("NPAs") is low currently. As reflected in Exhibit I-9, the NPA balance was $351,000, equal to 0.08% of assets, consisting of primarily of non-accruing 1-4 family mortgage loans RP(R) Financial, LC. Page 1.21 ($261,000) and a limited balance of multi-family/commercial real estate loans and home equity loans in non-accrual status. The Company's management reviews and classifies loans on a quarterly basis and establishes loan loss provisions based on the overall quality, size and composition of the loan portfolio, as well other factors such as historical loss experience, industry trends and local real estate market and economic conditions. The Company maintained valuation allowances of $1.7 at March 31, 2005, equal to 0.50% of total loans while reserve coverage in relation to NPAs equaled 480.66% (see Exhibits I-9 and I-10). Funding Composition and Strategy - -------------------------------- Deposits have consistently accounted for the substantial portion of the Company's interest-bearing funding composition and, at March 31, 2005, deposits equaled 74.4% of ASB's interest-bearing liabilities ("IBL") composition. Exhibit I-11 sets forth the Company's deposit composition for the past three and one-half fiscal years and Exhibit I-12 provides the interest rate and maturities of the CD portfolio for March 31, 2005. Lower costing savings and transaction accounts totaling $192.7 million comprised approximately 58.8% of the Company's deposits at March 31, 2005. The proportion of savings and transaction accounts has remained relatively stable since fiscal 2000. The stability over the period reflects the following: (1) many depositors have opted for the safety and liquidity of insured deposits and foregone the potentially higher returns in alternative investments; (2) the success of the newly-opened Cedar Grove office in attracting transaction accounts; and (3) the growth in municipal deposits which are concentrated in savings and transaction account balances. The balance of the deposit base is comprised of CDs, the majority of which have remaining maturities of one year or less. As of March 31, 2005, CDs with balances equal to or in excess of $100,000 equaled $43.4 million. Borrowings serve as an alternative funding source for the Company to facilitate management of liquidity and funding costs. Borrowings held by the Company at March 31, 2005 consisted of $68.3 million of FHLB advances with a weighted average rate of 4.45%, with RP(R) Financial, LC. Page 1.22 maturities extending through 2012. Exhibit I-13 provides further detail of ASB's borrowing activities during the past three and one-half fiscal years. The Bank will continue to evaluate the costs and benefits of incrementally restructuring its portfolio of FHLB advances. Such a restructuring transaction took place during fiscal 2004 when the Bank prepaid $3.0 million of fixed rate FHLB advances at a cost of 6.28%. While the prepayment resulted in the assessment of prepayment penalties by the FHLB, the prepayment of the high rate advance will reduce future funding costs. Subsidiaries and Other Activities - --------------------------------- In addition to the Bank, ASB has one service corporation subsidiary, ASB Investment Corp, a New Jersey corporation. ASB Investment Corp. was organized in June 2003 for the purpose of selling insurance and investment products, including annuities, to the Bank's customers and the general public through a third party networking arrangement. Initially, activities at this subsidiary will be limited to the sale of fixed rate annuities. ASB Investment Corp is not a licensed insurance agency, and it may only offer insurance products through an agreement with a licensed insurance agency. In June 2003, ASB Investment Corp. entered into an agreement with Essex National Insurance Agency, Inc., a licensed insurance agency, through which it may offer insurance products. The Company has one second-tier subsidiary, which is a first-tier subsidiary of the Bank. American Savings Investment Corp. was formed in August 2004 under New Jersey law as an investment company. The purpose of this subsidiary is to invest in stocks, bonds, notes and all types of equity, mortgages, debentures and other investment securities. Legal Proceedings - ----------------- ASB and its wholly-owned subsidiaries are involved in routine legal proceedings occurring in the ordinary course of business which, in the aggregate, are believed to be immaterial to the Company's financial condition. RP(R) Financial, LC. Page 2.1 II. MARKET AREA ANALYSIS Introduction - ------------ Chartered in 1919 and operating continuously since that time in Essex County, New Jersey, the Company currently conducts operations out of a main office and administrative facility located in Bloomfield, New Jersey, and a branch office in Cedar Grove, New Jersey. The Company's offices are located approximately 15 miles west of New York City and is within the New York Primary Metropolitan Statistical Area ("PMSA"). The Company currently serves Essex County and surrounding contiguous areas of Northern New Jersey including Bergen, Hudson, Morris, Passaic and Union Counties although operations are focused on making loans and raising deposits in Bloomfield, Cedar Grove and the immediate surrounding areas of Essex County. The Company's marketing is generally focused in the suburban areas of Essex County. The Company's market in northern New Jersey is part of the greater New York Metropolitan area which provides the market with a relatively large employment base, supported by a diverse array of industries and employers. Furthermore, the Company's market also serves as bedroom community for nearby New York City as well as other nearby suburban areas in northern New Jersey and downstate New York. A map showing the location of the Company's offices in Essex County is set forth below and details regarding the Company's office and recent trends with respect to market interest rate levels are set forth in Exhibit II-1 and II-2, respectively. Future growth opportunities for ASB are influenced by growth, stability of the statewide and regional economies, other demographic population trends and the competitive environment. These factors have been examined to help determine the Company's growth potential and the relative economic health of the market areas served, as they have a direct bearing on the pro forma market value of ASB and have been factored into our valuation analysis accordingly. RP(R) Financial, LC. Page 2.2 Table 2.1 ASB Holding Company Map of Branch Locations [GRAPHIC OMITTED] Market Area Demographics - ------------------------ Key demographic and economic indicators in the Company's market include population, number of households and household/per capita income levels. Trends in these key measures are summarized by the data presented in Table 2.2 from 2000 to 2004 and projected through 2009. Data for the nation and the State of New Jersey have been included for comparative purposes. ASB operates in a densely populated metropolitan area, as Essex's County population alone is 800,000, notwithstanding the relatively small geographic area encompassed by the market. Importantly, the density of the area coupled with the relatively high costs of living and land values have contributed to limited population and household growth exhibited by Essex County. RP(R) Financial, LC. Page 2.3 Table 2.2 ASB Holding Company Summary Demographic Data
Year Growth Rate -------------------------------- -------------------- 2000 2004 2009 2000-2004 2004-2009 ---- ---- ---- --------- --------- Population (000) - ---------------- United States 281,422 292,937 307,116 1.0% 0.9% New Jersey 8,414 8,687 9,018 0.8% 0.7% Essex County 794 800 807 0.2% 0.2% Households (000) - ---------------- United States 105,480 109,949 115,474 1.0% 1.0% New Jersey 3,065 3,169 3,295 0.8% 0.8% Essex County 284 286 288 0.2% 0.1% Median Household Income ($) - --------------------------- United States $42,729 $46,475 $51,597 2.1% 2.1% New Jersey $55,908 $61,779 $69,479 2.5% 2.4% Essex County $45,337 $49,176 $55,665 2.1% 2.5% Per Capita Income ($) - --------------------- United States $21,587 $24,092 $27,309 2.8% 2.5% New Jersey $27,006 $30,559 $35,032 3.1% 2.8% Essex County $24,943 $27,501 $31,081 2.5% 2.5% Less Than $25,000 to 2004 HH Income Dist. (%) $25,000 50,000 $50,000 + - ------------------------ ------- ------ --------- United States 26.0% 28.0% 46.0% New Jersey 19.0% 22.0% 59.0% Essex County 28.0% 23.0% 49.0%
Source: Claritas. RP(R) Financial, LC. Page 2.4 Specifically, the population of Essex County increased at a 0.2% annual rate since 2000, with this trend projected to continue over the next five years through 2009. Moreover, the growth in households was consistent with the total population growth. The market's comparatively limited growth trend contrasts with comparatively stronger growth realized in the State of New Jersey and the U.S (0.8% annually and 1.0% annually, respectively, from 2000 to 2004). Growth trends with regard to households have paralleled the population growth trends, with the Company's markets in Essex County generally experiencing slack household growth rates which are well below the prevailing average for New Jersey and the U.S. Median household and per capita income levels in Essex County fall below the state average as the median household income for Essex County equaled $49,176 which is above the national average of $46,475 but well below the New Jersey average of $61,779. Essex County is home to a broad socioeconomic spectrum of citizens with a wide range of income levels, and a significant portion of Newark's core city population is employed in relatively low wage blue collar jobs or service jobs. Moreover, urban areas within Essex County are home to a significant population of recent immigrants, many of whom have limited education and language skills which limits their earnings potential. Importantly, while the aggregate income characteristics of the market reflect comparatively modest income levels, the Company's retail offices and lending operations are located in suburban areas of Essex County which provide the Company with exposure to residents or commuters with comparatively higher income levels. Summary of Local Economy and Workforce - -------------------------------------- The economy of the Company's markets in Essex County is oriented toward professional and related occupations and services, each of which provide approximately 21% of total employment (see Table 2.3 for details). The high level of professional employment is reflective of the suburban areas of Essex County which the Company primarily serves which serve as bedroom communities for other areas of northern New Jersey and New York. Similarly, management, business and financial occupations provide approximately 10% of total employment reflecting the area's status as a major money center. Moreover, projections by the New Jersey Department of Labor reflect that notwithstanding modest population growth RP(R)Financial, LC. Page 2.5 Table 2.3 ASB Holding Company Estimated and Projected Employment In Essex County By Major Occupational Group, 2002-2012
- ------------------------------------------------------------------------------------------------------------------------ 2002 2012 Change: 2002-2012 Annual Average Job Openings ----------------------------------------------------------------------------------------------- Occupation Number Percent Number Percent Number Percent Total* Growth* Replacements - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Total, All Occupations 411,050 100.0 438,000 100.0 26,900 6.5 13,140 3,750 9,390 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Management, Business, and Financial Occupations 41,650 10.1 45,650 10.4 4,000 9.6 1,200 430 770 - ------------------------------------------------------------------------------------------------------------------------ Professional and Related Occupations 86,850 21.1 99,850 22.8 13,000 15.0 3,030 1,340 1,690 - ------------------------------------------------------------------------------------------------------------------------ Service Occupations 80,300 19.5 90,500 20.7 10,200 12.7 3,130 1,040 2,090 - ------------------------------------------------------------------------------------------------------------------------ Sales and Related Occupations 33,950 8.3 35,600 8.1 1,700 5.0 1,250 190 1,050 - ------------------------------------------------------------------------------------------------------------------------ Office and Administrative Support Occupations 86,950 21.2 85,900 19.6 -1,050 -1.2 2,310 380 1,930 - ------------------------------------------------------------------------------------------------------------------------ Farming, Fishing, and Forestry Occupations 0 0.0 0 0.0 0 -9.5 0 0 0 - ------------------------------------------------------------------------------------------------------------------------ Construction and Extraction Occupations O13,450 3.3 14,400 3.3 950 7.0 360 100 260 - ------------------------------------------------------------------------------------------------------------------------ Installation, Maintenance, an Repair Occupations 14,450 3.5 14,800 3.4 350 2.6 410 90 320 - ------------------------------------------------------------------------------------------------------------------------ Production Occupations 20,600 5.0 17,600 4.0 -3,000 -14.5 490 10 470 - ------------------------------------------------------------------------------------------------------------------------ Transportation and Material Moving Occupations 32,850O 8.0 33,600 7.7 750 2.2 970 170 800 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------
* Average Annual New Jobs will not equal annualized "Employment Change" since, for declining occupations, new jobs are tabulated as zero since no net job growth is projected , while the employment change is based solely on the difference between 2002 and 2012 employment totals. Note:Occupational data include estimates of self-employed and unpaid family workers and are not directly comparable to the industry employment total. Totals may not add due to rounding. Employment data are rounded to the nearest hundred and, job opeinings are rounded to the nearest ten. Percentages and percent changes are based on unrounded data. Prepared By: NJ Department of Labor and Workforce Development Labor Market and Demographic Research Occupational and Demographic Research RP(R) Financial, LC. Page 2.6 projected for Essex County, the labor market is projected to increase by 6.5% over the 10 year period ending in 2012, with the majority of growth to be realized in the professional and management areas. Unemployment trends in the Company's market have generally been favorable the unemployment rate remains higher than the state and national average overall (see Table 2.4 for details). Specifically, the unemployment rate has diminished by 1.2% to equal 5.6% as of March 2005. While the improvement is greater than the 0.3% reduction registered on a national basis and the 1.0% reduction registered statewide. At the same time, the 5.2% national unemployment rate and the 4.6% unemployment rate for the State of New Jersey are more favorable than the prevailing rate in Essex County. Table 2.4 ASB Holding Company Market Area Unemployment Trends March 2004 March 2005 +/- Region Unemployment Unemployment Change ------ ------------ ------------ ------ United States 5.5% 5.2% (0.3)% New Jersey 5.6 4.6 (1.0) Essex County 6.8 5.6 (1.2) (1) Unemployment rates are not seasonally adjusted. Source: CACI, U.S. Bureau of Labor Statistics. Market Area Deposit Characteristics - ----------------------------------- As a savings institution with its primary business functions of real estate lending and the gathering of deposits in northern New Jersey, the Company's primary competitors are: (1) other financial institutions with offices proximate to the Company's locations; (2) other mortgage loan originators; (3) those depository and lending organizations not physically located within the Company's markets, but capable of doing business remotely through the Internet or by other means; and (4) other competitors such as investment firms, mutual funds, insurance companies, etc. RP(R) Financial, LC. Page 2.7 Competition among financial institutions in the Company's market is significant. Over the past decade, New Jersey has experienced the effects of substantial banking consolidation. In the early 1990s, certain out-of-state banks acquired New Jersey financial institutions and, later in the decade, such acquirors became subject to mergers themselves. In the northern New Jersey market, for example, large out-of-state competitors include Fleet Bank, Bank of New York, PNC Bank, Sovereign Bank, First Union National Bank, and Bank of New York. Additionally, there are a number of strong locally-based competitors such as Valley National Bank, Commerce Bank, City National and Hudson City Savings Bank. As larger institutions compete for market share to achieve economies of scale, the environment for the Company's products and services is expected to remain highly competitive. Community-sized institutions such as the Company typically compete with larger institutions on pricing or operate in a niche that will allow for operating margins to be maintained at profitable levels. The Company's business plan reflects elements of both strategies. Table 2.5 displays deposit market trends over recent years for the markets where the Company maintains branches. The large size of the markets overall are indicated by the deposit totals, which equaled $12.7 billion in Essex County, with commercial banks controlling more than 60% of the total deposit market, which falls below the statewide average of 73.2%. Deposit growth trends are moderate, as the Essex County deposit market realized 8.0% annual growth for the two years ended June 30, 2004, which approximated the growth rate for the state as a whole. The proceeds from the second step stock offering will enhance the Company's competitiveness by providing increased operating flexibility, including de novo branching, focus on cross-selling and marketing and potential acquisition. RP(R) Financial, LC. Page 2.8 Table 2.5 ASB Holding Company Essex County Deposit Detail
Total Deposits as of June 30, Market Share HQ HQ # of -------------------------- --------------- 2002-2004 Holding Company Name Institution Name City State Type Brchs 2002 2004 2002 2004 CAGR - -------------------- ---------------- ---- ----- ---- ----- ---- ---- ---- ---- ---- ($000) ($000) (%) (%) (%) Wachovia Corp. Wachovia Bank NA Charlotte NC Bank 44 $1,799,890 $1,946,932 14.18% 13.15% 4.00% Bank of America Corp.Fleet National Bank Providence RI Bank 43 $1,611,110 $1,608,753 12.69% 10.87% -0.07% PNC Financial Services Group PNC Bank NA Pittsburgh PA Bank 34 $1,510,187 $1,423,317 11.89% 9.61% -2.92% Valley National Bancorp Valley National Bank Passaic NJ Bank 30 $1,106,502 $1,349,468 8.71% 9.11% 10.43% JPMorgan Chase & Co. JPMorgan Chase Bank, NA Columbus OH Bank 12 $555,569 $795,581 4.38% 5.37% 19.67% Commerce Bancorp Inc.Commerce Bank/North Ramsey NJ Bank 6 $147,672 $352,459 1.16% 2.38% 54.49% Popular Inc. Banco Popular North Amer New York NY Bank 5 $232,172 $252,987 1.83% 1.71% 4.39% Bank of New York Co. Bank of New York New York NY Bank 6 $232,824 $247,304 1.83% 1.67% 3.06% North Fork Bancorp. North Fork Bank Mattituck NY Bank 9 $254,271 $222,969 2.00% 1.51% -6.36% Hudson United Bancorp Hudson United Bank Mahwah NJ Bank 15 $219,672 $221,886 1.73% 1.50% 0.50% City National Bancshares Corp. City NB of New Jersey Newark NJ Bank 3 $129,738 $207,902 1.02% 1.40% 26.59% Banco Comercial Portugues SA BCPBank NA Newark NJ Bank 3 $111,054 $169,615 0.87% 1.15% 23.58% Caixa Geral de Depositos SA Crown Bank NA Ocean City NJ Bank 2 $57,257 $77,833 0.45% 0.53% 16.59% Franklin Bank Franklin Bank Nutley NJ Bank 1 $34,961 $68,250 0.28% 0.46% 39.72% Allegiance Community Bank Allegiance Community Bank South Orange NJ Bank 1 $33,129 $59,149 0.26% 0.40% 33.62% Lakeland Bancorp Lakeland Bank Newfoundland NJ Bank 1 $16,111 $17,194 0.13% 0.12% 3.31% --- ---------- ---------- ----- ----- ---- TOTAL BANKS 215 $8,052,119 $9,021,599 63.41% 60.94% 5.85% Independence Cmnty Bank Corp. Independence Community BankBrooklyn NY SB 15 $505,264 $1,080,336 3.98% 7.30% 46.22% Hudson City Bancorp Inc. (MHC) Hudson City Savings Bk, FSBParamus NJ Thrift 10 $770,233 $980,063 6.07% 6.62% 12.80% PennFed Financial Services Inc. Penn FSB Newark NJ Thrift 14 $756,537 $798,230 5.96% 5.39% 2.72% Sovereign Bancorp Inc. Sovereign Bank Wyomissing PA Thrift 10 $566,819 $607,477 4.46% 4.10% 3.52% Investors Bancorp MHC Investors Savings Bank (MHC) Short Hills NJ SB 9 $489,907 $524,358 3.86% 3.54% 3.46% Provident Financial Services Provident Bank Jersey City NJ SB 6 $514,190 $519,325 4.05% 3.51% 0.50% - ----------------------------------------------------------------------------------------------------------------------------------- ASB Holding Co (MHC) American Bk of NJ (MHC) Bloomfield NJ Thrift 2 $242,791 $304,977 1.91% 2.06% 12.08% - ----------------------------------------------------------------------------------------------------------------------------------- Washington Mutual Inc. Washington Mutual Bank, FA Stockton CA Thrift 4 $165,741 $181,967 1.31% 1.23% 4.78% Kearny Financial Corp (MHC) Kearny FSB (MHC) Kearny NJ Thrift 4 $142,790 $138,548 1.12% 0.94% -1.50% Lusitania Financial MHC Lusitania SB FSB (MHC) Newark NJ Thrift 2 $112,575 $130,808 0.89% 0.88% 7.79% Llewellyn-Edison SB FSB Llewellyn-Edison SB FSB West Orange NJ Thrift 3 $124,501 $123,346 0.98% 0.83% -0.46% Golden West Financial World SB FSB Oakland CA Thrift 2 $57,951 $122,752 0.46% 0.83% 45.54% New York Community Bancorp New York Community Bank Westbury NY SB 2 $80,548 $69,662 0.63% 0.47% -7.00% Haven Savings Bank Haven Savings Bank Hoboken NJ SB 1 $0 $68,280 0.00% 0.46% N.M. Spencer Savings Bank SLA Spencer Savings Bank SLA Elmwood Park NJ Thrift 2 $51,129 $66,266 0.40% 0.45% 13.84% Columbia Savings Bank M.H.C. Columbia Bank (MHC) Fair Lawn NJ Thrift 1 $32,661 $45,468 0.26% 0.31% 17.99% Gibraltar Savings Bank FSB Gibraltar Savings Bank FSB Oak Ridge NJ Thrift 2 $22,390 $22,076 0.18% 0.15% -0.70% Dollar SB Dollar SB Newark NJ Thrift 1 $9,211 $0 0.07% 0.00% -100.00% --- ---------- ---------- ----- ----- ---- TOTAL SAVINGS INSTITUTIONS 90 $4,645,238 $5,783,939 36.59% 39.07% 11.59% TOTAL BANKS AND SAVINGS INSTITUTIONS 305 $12,697,357 $14,805,538 100.00% 100.01% 7.98% NEW JERSEY 3,926 $180,955,065 $211,318,456 99.94% 100.00% 8.06% BANKS 2,951 $133,096,359 $154,679,021 73.46% 73.22% 7.80% SAVINGS INSTITUTIONS 975 $47,858,706 $56,639,435 26.48% 26.78% 8.79%
Source: SNL Securities. RP(R) Financial, LC. Page 3.1 III. PEER GROUP ANALYSIS This chapter presents an analysis of ASB's operations versus a group of comparable savings institutions (the "Peer Group") selected from the universe of all publicly-traded savings institutions in a manner consistent with the regulatory valuation guidelines. The basis of the pro forma market valuation of ASB is derived from the pricing ratios of the Peer Group institutions, incorporating valuation adjustments for key differences in relation to the Peer Group. Since no Peer Group can be exactly comparable to ASB, key areas examined for differences are: financial condition; profitability, growth and viability of earnings; asset growth; primary market area; dividends; liquidity of the shares; marketing of the issue; management; and effect of government regulations and regulatory reform. Peer Group Selection - -------------------- The Peer Group selection process is governed by the general parameters set forth in the regulatory valuation guidelines. Accordingly, the Peer Group is comprised of only those publicly-traded savings institutions whose common stock is either listed on a national exchange (NYSE or AMEX), or is NASDAQ listed, since their stock trading activity is regularly reported and generally more frequent than non-publicly traded and closely-held institutions. Non-listed institutions are inappropriate since the trading activity for thinly-traded or closely-held stocks is typically highly irregular in terms of frequency and price and thus may not be a reliable indicator of market value. We have also excluded from the Peer Group those companies under acquisition or subject to rumored acquisition, mutual holding companies and recent conversions, since their pricing ratios are subject to unusual distortion and/or have limited trading history. A recent listing of the universe of all publicly-traded savings institutions is included as Exhibit III-1. Ideally, the Peer Group, which must have at least 10 members to comply with the regulatory valuation guidelines, should be comprised of locally or regionally-based institutions with comparable resources, strategies and financial characteristics. There are approximately 180 publicly-traded institutions nationally and, thus, it is typically the case that the Peer Group will be comprised of institutions with relatively comparable characteristics. To the extent that RP(R) Financial, LC. Page 3.2 differences exist between the converting institution and the Peer Group, valuation adjustments will be applied to account for the differences. Since ASB will be a full public company upon completion of the offering, we considered only full public companies to be viable candidates for inclusion in the Peer Group. From the universe of publicly-traded thrifts, we selected ten institutions with characteristics similar to those of ASB. In the selection process, we applied two "screens" to the universe of all public companies: o Screen #1. New Jersey institutions with assets between $100 million ---------------------------------------------------------------------- and $1 billion. Two companies met the criteria for Screen #1 and both -------------- were included in the Peer Group including Synergy Financial Group and Pamrapo Bancorp, Inc. Exhibit III-2 provides financial and public market pricing characteristics of all publicly-traded thrifts based in New Jersey. o Screen #2. Mid-Atlantic institutions with assets between $100 million ---------------------------------------------------------------------- and $1 billion, tangible equity-to-assets ratios of at least 5.0% and ---------------------------------------------------------------------- a positive return on equity ratio approximating 12% or less. Eleven ------------------------------------------------------------- companies met the criteria for Screen #2 and nine companies were included in the Peer Group: Rome Bancorp, Inc. was excluded from the Peer Group due to the recency of its conversion, which was completed in March 2005; and Carver Bancorp of New York was due to its unique customer base and relatively low pricing ratios. Exhibit III-3 provides financial and public market pricing characteristics of all publicly-traded Mid-Atlantic thrifts. Table 3.1 shows the general characteristics of each of the eleven Peer Group companies While there are expectedly some differences between the Peer Group companies and ASB, we believe that the Peer Group companies, on average, provide a good basis for valuation subject to valuation adjustments. The following sections present a comparison of ASB's financial condition, income and expense trends, loan composition, interest rate risk and credit risk versus the Peer Group as of the most recent publicly available date. A summary description of the key characteristics of each of the Peer Group companies is detailed below. RP(R) Financial, LC. Page 3.3 Table 3.1 Peer Group of Publicly-Traded Thrifts May 31, 2005(1)
Operating Total Fiscal Conv. Stock Market Ticker Financial Institution Exchg. Primary Market Strategy(2) Assets Offices Year Date Price Value ------ --------------------- ------ -------------- ----------- -------------- ---- ---- ----- ----- ($) ($Mil) WGBC Willow Grove Bancorp Inc. of PA NASDAQ Philadelphia PA Thrift $990 14 06-30 04/02 $15.34 $149 SYNF Synergy Financial Group of NJ NASDAQ Central NJ Thrift $896 18 12-31 01/04 $12.13 $150 HARL Harleysville Savings Financial Corp. of PA NASDAQ Southeastern PA Thrift $748 5 09-30 08/87 $17.75 $69 FSBI Fidelity Bancorp, Inc. of PA NASDAQ Southwestern PA Thrift $645 13 09-30 06/88 $20.99 $61 THRD TF Financial Corp. of Newtown PA NASDAQ PA, NJ Thrift $641 14 12-31 07/94 $29.00 $86 PBCI Pamrapo Bancorp, Inc. of NJ NASDAQ Northern NJ Thrift $640 9 12-31 11/89 $21.90 $109 FKFS First Keystone Financial, Inc. of PA NASDAQ Southeastern PA Thrift $576 7 09-30 01/95 $17.31 $35 WVFC WVS Financial Corp. of PA NASDAQ Pittsburgh PA Thrift $426 6 06-30 11/93 $17.10 $41 ESBK Elmira Savings Bank, FSB of NY (3) NASDAQ NY, PA Thrift $318 6 12-31 03/85 $30.75 $34 LARL Laurel Capital Group Inc. of PA NASDAQ Southwestern PA Thrift $308 8 06-30 02/87 $21.75 $42 ALFC Atlantic Liberty Financial of NY NASDAQ Brooklyn NY Thrift $184 2 03-31 10/02 $23.75 $40
NOTES: (1) Or most recent date available (M=March, S=September, D=December, J=June, E=Estimated, and P=Pro Forma). (2) Operating strategies are: Thrift=Traditional Thrift, M.B.=Mortgage Banker, R.E.=Real Estate Developer, Div.=Diversified and Ret.=Retail Banking. (3) BIF-insured savings bank institution. Source: Corporate offering circulars, data derived from information published in SNL Securities Quarterly Thrift Report, and financial reports of publicly-traded thrifts. RP(R) Financial, LC. Page 3.4 o Willow Grove Bancorp, Inc. of PA. is a $990 million institution operating through 14 offices in the Philadelphia metropolitan area. Willow Grove completed its second step conversion to a fully converted company in April 2002 which provides it with a relatively strong capital ratio (10.5%) exceeding the Peer Group average. Willow Grove's ROA is comparatively moderate which coupled with its high capital position, provides it with a comparatively moderate ROE. Lending reflects greater diversification into commercial and multi-family mortgage lending relative to the Peer Group average and credit risk exposure appears to be modestly above the Peer Group average based on its higher level of NPAs and lower reserve coverage as a percent of NPAs. o Synergy Financial Group of NJ. Selected for the Peer Group due to New Jersey market area where it operates 18 offices and maintains $896 million in total assets. Additionally, Synergy Financial completed its second step conversion from a mutual holding company as of January 2004, enhancing the comparability to the Company. Its earnings levels are comparatively modest which, coupled with its relatively strong equity/assets ratio, provides for a comparatively moderate ROE. Synergy Financial's loan portfolio has been diversified to include a higher proportion of commercial and multi-family mortgage loans as well as C&I loans, providing for a relatively high risk-weighted assets ratio. Notwithstanding the high level of risk-weighted assets, NPAs are comparatively modest. o Harleysville Savings Financial Corp. of PA. maintains $748 million in total assets and operates through a total of 5 branches northwest of Philadelphia. The balance sheet composition reflects a high degree of wholesale leveraging with respect to the high level of investments funded by borrowings, which has effectively served to leverage its capital ratio. The modest profitability of such activities is reflected in the ROA measure, which falls below the Peer Group average. Harleysville Savings Financial Corp. is primarily a residential lender, enhancing the comparability to ASB while asset quality problems are limited. o Fidelity Bancorp, Inc. of PA. operates through a total of 13 branch offices in the Pittsburgh metropolitan area. The balance sheet reflects a comparatively high ratio of leveraging, with investments and borrowings comprising significant segments of the balance sheet. ROA is comparatively moderate in relation to the Peer Group average reflecting the impact of the aforementioned wholesale leveraging. Lending is primarily concentrated in 1-4 family mortgage loans, both in terms of whole loans and a significant investment in MBS. Credit quality measures are less favorable than the Peer Group average, both in terms of the level of non-performing loans and the reserve coverage ratio. o TF Financial Corp of PA. with assets of $641 million operates through a total of 14 branches in Pennsylvania and New Jersey within the Philadelphia metropolitan area. The asset structure reflects a higher proportion of loans overall, with the majority of loans invested in 1-4 family mortgage loan portfolio. The relatively high ratio of loans provides TF Financial a relatively strong net interest margin and ROA. NPAs are comparatively in relation to the Peer Group average while reserve coverage falls within the range exhibited by the Peer Group. RP(R) Financial, LC. Page 3.5 o Pamrapo Bancorp, Inc. of NJ. was selected for the Peer Group primarily based on its size ($640 million of assets) and location in northern New Jersey. Pamrapo Bancorp reported the strongest ROA of any Peer Group company which, in turn, provided for the highest ROE of any of the comparable companies. Earnings were supported by its loan portfolio, which included a relatively high level of diversification into multi-family and commercial mortgage loans. NPAs were above the Peer Group average while reserve coverage was generally lower. o First Keystone Financial, Inc. of PA., with assets of $576 million operates through a total of 7 branches in Pennsylvania within the Philadelphia metropolitan area. First Keystone operates with the most leveraged equity position of any of the Peer Group companies. Other key balance sheet aggregates are otherwise relatively comparable to the Peer Group averages. First Keystone Financial's ROA is the lowest of the eleven Peer Group companies, reflecting its comparatively modest net interest margin. The loan portfolio reflects an emphasis on 1-4 family residential mortgage lending while credit quality measures appear to be unfavorable in comparison to the Peer Group averages, both in terms of the ratio of NPAs and the reserve coverage. o WVS Financial Corp of PA. with assets of $426 million operates through a total of 6 branches within the Pittsburgh metropolitan area. The balance sheet reflects a significant wholesale element, as MBS and investments constitute the majority of assets while borrowed funds comprise the largest segment of liabilities. Not unexpectedly given the balance sheet composition, the net interest income ratio is comparatively thin, offset by very low operating costs providing for an ROA which is only modestly below the Peer Group average. WVS Financial operates with a low risk-weighted asset ratio and limited credit risk exposure as a result of significant investment in securities and MBS. o Elmira Savings Bank, FSB of NY. is a $318 million institution operating through 6 offices in the southern tier of New York State. Equity is relatively leveraged owing to recent growth in borrowings while the loan portfolio reflects the recent emphasis on commercial mortgage and C&I lending, which has supported yields, spreads and overall earnings levels. Credit quality measures, including the ratio of NPAs and reserve coverage are favorable in comparison to the Peer Group average. o Laurel Capital Group, Inc. of PA. with assets of $308 million operates through a total of 8 branches within the Pittsburgh metropolitan area. In comparison to the Peer Group, the balance sheet reflects a higher ratio of loans and more limited employment of borrowed funds. ROA is modestly below the Peer Group average reflecting its thin net interest margin and notwithstanding the moderate operating expense ratio. Laurel Capital is primarily a 1-4 family mortgage lender as diversification has been limited. In terms of credit risk exposure, the ratio of NPLs and NPAs approximates the Peer Group average. RP(R) Financial, LC. Page 3.6 o Atlantic Liberty Financial of NY, is the smallest Peer Group company operating with $184 million of total assets through two offices in Brooklyn, New York. Key balance sheet aggregates such as loans compare closely to the Peer Group average while the strong equity/assets ratio exceeds all the Peer Group companies individually. Moreover, the strong capital position supports Atlantic Liberty's higher profitability, relative to the Peer Group average. Reflecting in part its inner-city market area, Atlantic Liberty's loan portfolio has been diversified to include a relatively high proportion of multi-family and commercial real estate loans. However, credit quality measures as reflecting in the ratio of NPAs and reserve coverage were more favorable than the Peer Group average. In aggregate, the Peer Group companies maintain a lower level of capital than the industry average (8.67% of assets versus 11.02% for all public companies), generate comparable earnings as a percent of average assets (0.76% ROAA for both the Peer Group and all public companies), and generate a higher ROE (9.03% ROE versus 7.90% for all public companies). Overall, the Peer Group's average P/B ratio and average P/E multiple were slightly below the respective averages for all publicly-traded thrifts. All Publicly-Traded Peer Group --------------- ---------- Financial Characteristics (Averages) ------------------------------------ Assets ($Mil) $ 2,566 $ 579 Market capitalization ($Mil) $ 377 $ 74 Equity/assets (%) 11.02% 8.67% Return on average assets (%) 0.76 0.76 Return on average equity (%) 7.90 9.03 Pricing Ratios (Averages)(1) ---------------------------- Price/earnings (x) 19.35x 18.25x Price/book (%) 151.48% 148.97% Price/assets (%) 16.51 12.97 (1) Based on market prices as of May 31, 2005. Ideally, the Peer Group companies would be comparable to ASB in terms of all of the selection criteria, but the universe of publicly-traded thrifts does not provide for an appropriate number of such companies. However, in general, the companies selected for the Peer Group were fairly comparable to ASB, as will be highlighted in the following comparative analysis. RP(R) Financial, LC. Page 3.7 Financial Condition - ------------------- Table 3.2 shows comparative balance sheet measures for ASB and the Peer Group, reflecting the expected similarities and some differences given the selection procedures outlined above. The Company's and the Peer Group's ratios reflect balances as of March 31, 2005. ASB's equity-to-assets ratio of 8.8% approximated the Peer Group's average net worth ratio of 8.7%. Tangible equity-to-assets ratios for the Company and the Peer Group equaled 8.8% and 8.4%, respectively, as goodwill and intangibles maintained by the Peer Group equaled 0.2% of assets. The Company's pro forma tangible capital position will increase with the addition of stock proceeds. The increase in ASB's pro forma capital position will be favorable from a risk perspective and in terms of future earnings potential that may be realized through leverage and lower funding costs. At the same time, the Company's higher pro forma capitalization will also result in a lower return on equity in the intermediate term. Both the Company's and the Peer Group's capital ratios reflected capital surpluses with respect to the regulatory capital requirements. The interest-earning asset compositions for the Company and the Peer Group were somewhat similar, with loans constituting the bulk of interest-earning assets for ASB and the Peer Group. ASB's loans-to-assets ratio of 75.6% was above the comparable Peer Group ratio of 55.8%. Comparatively, ASB's cash and investments-to-assets ratio of 20.3% was lower than the comparable Peer Group measure of 40.8%. Overall, ASB's interest-earning assets amounted to 95.9% of assets, which was modestly below the Peer Group ratio of 96.6%. ASB's funding liabilities reflected a funding strategy that was somewhat similar to that of the Peer Group's. The Company's deposits equaled 74.5% of assets, which was above the Peer Group average of 63.7%. Comparatively, borrowings accounted for a lower portion of the Company's interest-bearing funding composition, as reflected by borrowings-to-assets ratios of 15.5% and 26.1% for ASB and the Peer Group, respectively. Total interest-bearing liabilities maintained as a percent of assets equaled 90.0% and 89.8% for ASB and the Peer Group, respectively. A key measure of balance sheet strength for a thrift institution is its interest-earning assets/interest-bearing liabilities ("IEA/IBL") ratio. Presently, the Peer Group's IEA/IBL ratio RP(R) Financial, LC. Page 3.8 Table 3.2 Balance Sheet Composition and Growth Rates Comparable Institution Analysis As of March 31, 2005
Balance Sheet as a Percent of Assets ------------------------------------------------------------------------------ MEMO: Cash & MBS & Borrowed Subd. Net Goodwill Tng Net Pref. Equivalents Invest Loans Deposits Funds Debt Worth & Intang Worth Stock ----------- ------ ----- -------- -------- ---------- -------- ----- ----- ASB Holding Company - ------------------- March 31, 2005 1.1% 19.2% 75.6% 74.5% 15.5% 0.0% 8.8% 0.0% 8.8% 0.0% All Public Companies 3.7% 23.9% 67.4% 66.2% 20.9% 0.7% 10.8% 1.0% 9.8% 0.0% State of NJ 4.2% 35.3% 56.0% 69.9% 15.4% 0.8% 13.0% 1.3% 11.7% 0.0% Comparable Group Average 2.0% 38.8% 55.8% 63.7% 26.1% 0.5% 8.7% 0.2% 8.4% 0.0% Mid-Atlantic Companies 2.0% 38.8% 55.8% 63.7% 26.1% 0.5% 8.7% 0.2% 8.4% 0.0% Comparable Group - ---------------- Mid-Atlantic Companies - ---------------------- ALFC Atlantic Liberty Financial of NY 3.5% 27.8% 65.3% 59.3% 23.6% 0.0% 15.1% 0.0% 15.1% 0.0% ESBK Elmira Savings Bank, FSB of NY 1.8% 32.5% 61.8% 76.3% 16.2% 0.0% 6.8% 0.1% 6.7% 0.0% FSBI Fidelity Bancorp, Inc. of PA 1.4% 48.5% 46.6% 56.2% 35.1% 1.6% 6.4% 0.4% 5.9% 0.0% FKFS First Keystone Financial, Inc. of PA 3.5% 38.3% 53.1% 61.7% 28.4% 3.7% 5.1% 0.0% 5.1% 0.0% HARL Harleysville Savings Fin. Corp. of PA 0.4% 50.2% 46.4% 55.0% 38.1% 0.0% 6.1% 0.0% 6.1% 0.0% LARL Laurel Capital Group Inc. of PA 4.6% 24.5% 66.1% 82.3% 7.0% 0.0% 8.9% 1.1% 7.8% 0.0% PBCI Pamrapo Bancorp, Inc. of NJ 1.8% 32.5% 63.8% 76.3% 13.9% 0.0% 8.7% 0.0% 8.7% 0.0% SYNF Synergy Financial Group of NJ 0.7% 28.5% 66.6% 63.3% 24.6% 0.0% 11.5% 0.1% 11.4% 0.0% THRD TF Financial Corp. of Newtown PA 0.7% 23.8% 70.9% 71.0% 18.6% 0.0% 9.5% 0.7% 8.8% 0.0% WVFC WVS Financial Corp. of PA 0.9% 83.8% 14.2% 37.7% 54.9% 0.0% 6.8% 0.0% 6.8% 0.0% WGBC Willow Grove Bancorp Inc. of PA 2.3% 36.4% 58.6% 61.7% 26.6% 0.0% 10.6% 0.1% 10.5% 0.0%
Balance Sheet Annual Growth Rates Regulatory Capital --------------------------------------------------------- ---------------------- MBS Borrows. Cash & & Net Tng Net Assets Investments Loans Deposit Subdebt Worth Worth Tangible Core Reg.Cap. ------ ----------- ----- ------- ------- ----- ----- -------- ---- -------- ASB Holding Company - ------------------- March 31, 2005 11.71% -14.13% 21.47% 11.66% 18.93% 3.14% 3.14% 7.94% 7.94% 15.32% All Public Companies 13.91% 3.54% 15.72% 11.19% 13.54% 3.41% 0.81% 9.60% 9.34% 17.13% State of NJ 16.88% 6.65% 21.85% 9.79% 0.09% 7.76% 0.90% 11.22% 11.22% 25.26% Comparable Group Average 8.53% 4.82% 10.15% 2.69% 33.93% -0.15% 0.02% 8.83% 8.31% 16.52% Mid-Atlantic Companies 8.53% 4.82% 10.15% 2.69% 33.93% -0.15% 0.02% 8.83% 8.31% 16.52% Comparable Group - ---------------- Mid-Atlantic Companies - ---------------------- ALFC Atlantic Liberty Financial of NY 14.97% 40.66% 6.27% 1.15% 86.85% 6.08% 6.08% 11.63% 11.63% 21.70% ESBK Elmira Savings Bank, FSB of NY 7.92% 5.67% 9.69% 0.05% 98.56% -3.54% -3.13% 7.12% 7.12% 13.13% FSBI Fidelity Bancorp, Inc. of PA 2.43% -3.37% 9.07% -0.43% 8.32% -2.46% -2.51% N.M. 7.57% 13.90% FKFS First Keystone Financial, Inc. of PA 0.92% -3.29% 4.16% 0.62% 5.93% -11.91% -11.91% 8.30% 8.30% 15.30% HARL Harleysville Savings Fin. Corp. of PA 7.86% 6.68% 8.01% 4.19% 13.49% 8.17% 8.17% N.M. 6.22% 14.04% LARL Laurel Capital Group Inc. of PA 2.15% -23.02% 19.83% 2.26% -0.03% -0.82% 0.53% 7.57% 7.57% 16.08% PBCI Pamrapo Bancorp, Inc. of NJ 0.15% -11.36% 7.70% -0.29% -0.04% 7.16% 7.16% 8.23% 8.23% 16.10% SYNF Synergy Financial Group of NJ 29.77% 21.26% 33.02% 14.41% N.M. -2.60% -2.76% 10.13% 10.13% 15.86% THRD TF Financial Corp. of Newtown PA 4.45% -3.95% 8.45% -3.41% 51.26% 5.55% 5.91% 8.09% 8.09% 15.59% WVFC WVS Financial Corp. of PA 6.44% 11.23% -13.86% 4.01% 10.02% -2.42% -2.42% N.M. 6.95% 22.40% WGBC Willow Grove Bancorp Inc. of PA 16.77% 12.55% 19.30% 6.97% 64.89% -4.86% -4.85% 9.60% 9.60% 17.60%
Source: Audited and unaudited financial statements, corporate reports and offering circulars, and RP(R) Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 2005 by RP(R) Financial, LC. RP(R) Financial, LC. Page 3.9 of 107.6% is slightly higher than the Company's IEA/IBL ratio of 106.6%. The additional capital realized from stock proceeds should support an increase in ASB's IEA/IBL ratio, as the capital realized from ASB's stock offering will be primarily deployed into interest-earning assets. The growth rate section of Table 3.2 shows annual growth rates for key balance sheet items, based on the Company's and the Peer Group's annual growth for the twelve months ended March 31, 2005. ASB recorded an 11.7% increase in assets, which was modestly higher than the Peer Group's average asset growth rate of 8.5%. Asset growth experienced by the Company was the result of strong loan growth, as the loan portfolio expanded by 21.5% over the twelve months ended March 31, 2005, as compared to growth of 10.2% reported by the Peer Group on average. Similarly, the Company's deposit growth rate the last 12 months equaled 11.7% versus modest deposit growth of 2.7% reported for the Peer Group. The Peer Group's asset growth was primarily funded with borrowings which increased by 33.9% on average; the Company's borrowings also increased at a relatively strong pace equal to 18.9%. Both the Company and the Peer Group realized little or no equity growth, as capital increased by 3.1% for ASB and remained substantially unchanged for the Peer Group. The limited change in equity for both ASB and the Peer Group is primarily the result of their dividend and capital management strategies, which has substantially limited the impact of retention of earnings. On a post-offering basis, the Company's capital growth rate is expected to decline due to the increased equity level, the marginal short-term net proceeds reinvestment benefit and the intermediate term effect of investing in fixed assets and expanding staffing levels. Income and Expense Components - ----------------------------- ASB reported net income to average assets ratios of 0.55%, which is below the Peer Group average of 0.76% of assets for the twelve months ended March 31, 2005 (see Table 3.3). The Peer Group's higher profitability was the result of its relative advantages in the areas of net interest income and non-interest operating income, which was partially offset by the Company's modestly lower operating expense ratio. RP(R) Financial, LC. Page 3.10 Table 3.3 Income as Percent of Average Assets and Yields, Costs, Spreads Comparable Institution Analysis For the 12 Months Ended March 31, 2005
Net Interest Income Other Income -------------------------------- ---------------------- Loss NII Total Net Provis .After Loan R.E. Other Other Income Income Expense NII on IEA Provis Fees Oper. Income Income ------ ------ ------- --- ------ ------ ---- ----- ------ ------ ASB Holding Company - ------------------- March 31, 2005 0.55% 4.56% 2.02% 2.54% 0.06% 2.48% 0.00% 0.00% 0.26% 0.26% All Public Companies 0.78% 4.99% 1.98% 3.02% 0.12% 2.90% 0.05% 0.00% 0.65% 0.70% State of NJ 0.79% 4.71% 1.83% 2.88% 0.04% 2.83% 0.06% 0.00% 0.27% 0.34% Comparable Group Average 0.76% 4.88% 2.11% 2.77% 0.06% 2.72% 0.01% 0.00% 0.42% 0.43% Mid-Atlantic Companies 0.76% 4.88% 2.11% 2.77% 0.06% 2.72% 0.01% 0.00% 0.42% 0.43% Comparable Group - ---------------- Mid-Atlantic Companies - ---------------------- ALFC Atlantic Liberty Financial of NY 1.13% 5.47% 1.58% 3.90% 0.07% 3.83% 0.00% 0.00% 0.82% 0.82% ESBK Elmira Savings Bank, FSB of NY 0.83% 5.16% 1.79% 3.37% 0.04% 3.33% 0.00% 0.00% 0.50% 0.50% FSBI Fidelity Bancorp, Inc. of PA 0.65% 4.72% 2.56% 2.16% 0.05% 2.10% 0.06% -0.02% 0.54% 0.58% FKFS First Keystone Financial, Inc. of PA 0.35% 4.64% 2.62% 2.02% 0.04% 1.98% 0.00% 0.00% 0.47% 0.46% HARL Harleysville Savings Fin. Corp. of PA 0.68% 4.71% 2.93% 1.78% 0.00% 1.78% 0.00% 0.00% 0.19% 0.19% LARL Laurel Capital Group Inc. of PA 0.62% 4.39% 2.00% 2.40% 0.00% 2.39% 0.00% 0.01% 0.46% 0.46% PBCI Pamrapo Bancorp, Inc. of NJ 1.24% 5.64% 1.79% 3.85% 0.02% 3.83% 0.02% 0.03% 0.30% 0.35% SYNF Synergy Financial Group of NJ 0.53% 4.74% 1.85% 2.89% 0.19% 2.69% 0.00% 0.00% 0.43% 0.43% THRD TF Financial Corp. of Newtown PA 1.03% 5.03% 1.46% 3.57% 0.10% 3.48% 0.01% 0.00% 0.39% 0.40% WVFC WVS Financial Corp. of PA 0.65% 4.23% 2.77% 1.45% 0.01% 1.44% 0.00% 0.00% 0.16% 0.16% WGBC Willow Grove Bancorp Inc. of PA 0.69% 4.96% 1.84% 3.12% 0.12% 3.00% 0.03% 0.00% 0.38% 0.41%
G&A/Other Exp. Non-Op. Items Yields, Costs, and Spreads ---------------- ------------- --------------------------- MEMO: MEMO: G&A Goodwill Net Extrao. Yield Cost Yld-Cost Assets/ Effective Expense Amort. Gains Items On Assets Of Funds Spread FTE Emp. Tax Rate ------- ------ ----- ----- --------- -------- ------ -------- -------- ASB Holding Company - ------------------- March 31, 2005 1.90% 0.00% 0.04% 0.00% 4.72% 2.41% 2.31% $7,229 37.79% All Public Companies 2.45% 0.02% 0.06% 0.01% 5.09% 2.18% 2.91% $5,242 32.83% State of NJ 2.00% 0.03% 0.08% 0.00% 4.92% 2.12% 2.80% $6,129 35.63% Comparable Group Average 2.01% 0.02% -0.02% 0.00% 5.06% 2.33% 2.73% $6,052 29.72% Mid-Atlantic Companies 2.01% 0.02% -0.02% 0.00% 5.06% 2.32% 2.73% $6,052 29.72% Comparable Group - ---------------- Mid-Atlantic Companies - ---------------------- ALFC Atlantic Liberty Financial of NY 2.67% 0.00% -0.46% 0.00% 5.68% 1.90% 3.78% $7,665 55.64% ESBK Elmira Savings Bank, FSB of NY 2.64% 0.03% 0.10% 0.00% 5.39% 1.94% 3.44% $3,348 33.63% FSBI Fidelity Bancorp, Inc. of PA 1.82% 0.01% 0.02% 0.00% 4.89% 2.76% 2.12% $4,959 17.81% FKFS First Keystone Financial, Inc. of PA 2.06% 0.00% 0.01% 0.00% 4.90% 2.80% 2.10% $5,818 11.18% HARL Harleysville Savings Fin. Corp. of P 1.08% 0.00% 0.02% 0.00% 4.84% 3.14% 1.70% $9,848 25.30% LARL Laurel Capital Group Inc. of PA 1.86% 0.12% 0.00% 0.00% 4.61% 2.23% 2.38% $4,734 29.79% PBCI Pamrapo Bancorp, Inc. of NJ 2.10% 0.00% 0.00% 0.00% 5.74% 1.97% 3.77% $6,036 40.43% SYNF Synergy Financial Group of NJ 2.29% 0.01% 0.00% 0.00% 4.94% 2.14% 2.80% $6,181 36.21% THRD TF Financial Corp. of Newtown PA 2.45% 0.02% 0.00% 0.00% 5.28% 1.63% 3.65% $3,660 27.09% WVFC WVS Financial Corp. of PA 0.86% 0.00% 0.09% 0.00% 4.27% 3.00% 1.27% $9,680 21.96% WGBC Willow Grove Bancorp Inc. of PA 2.25% 0.01% -0.03% 0.00% 5.09% 2.09% 3.00% $4,646 27.89%
Source: Audited and unaudited financial statements, corporate reports and offering circulars, and RP(R) Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 2005 by RP(R) Financial, LC. RP(R) Financial, LC. Page 3.11 The Company's weaker net interest income ratio resulted from a lower ratio of interest income to average assets as the ratio of interest expense to average assets was modestly favorable in comparison to the Peer Group average. The Company's lower interest income ratio was the result of its lower yield on interest-earning assets (4.72% versus 5.06% for the Peer Group), which was realized notwithstanding the Company's higher loans/assets ratio. The Company's lower interest expense ratio was realized notwithstanding its modestly higher cost of funds in comparison to the Peer Group (2.41% versus 2.33% for the Peer Group). Overall, ASB and the Peer Group reported net interest income to average assets ratios of 2.54% and 2.77%, respectively. Non-interest operating income is a lower contributor to ASB's earnings relative to the Peer Group, at 0.26% and 0.43%, respectively, which is indicative of the Company's more traditional strategy and lesser contribution from other fee income generating activities. While the Company will be seeking to expand the level of non-interest income in the future through a greater emphasis on building commercial account relationships and undertaking secondary market loan sales, the increase is expected to be gradual and may result in an interim increase in operating costs as well (as noted below). ASB operates with a lower operating expense ratio than the Peer Group, reflecting its historical emphasis on mortgage lending (which typically entails a lower cost structure than non-mortgage lending), and more limited emphasis on non-traditional fee generating activities. Additionally, the Company's operating costs have been constrained by its large average branch size in comparison to the Peer Group as its efficient two office operation limits overhead costs. In this regard, the Company maintains a relatively higher level of assets per employee in comparison to the Peer Group ($7.2 million for ASB versus $6.1 million for the Peer Group on average. Overall, the operating expense ratios for ASB and the Peer Group were 1.90% and 2.01%, respectively. ASB's operating expenses are expected to increase following the second step stock offering as a result of the expense of the stock-related benefit plans and the long-term plans to continue to expand the branch network and commercial lending functions. However, over the RP(R) Financial, LC. Page 3.12 long term, the Company will be seeking to offset such costs through growth and increased efficiency. ASB's efficiency ratio (operating expenses as a percent of the sum of non-interest operating income and net interest income) of 68.0% is less favorable than the Peer Group's ratio of 62.8%, as the Company's revenue ratio disadvantages were only partially offset by its lower operating expense ratio. On a post-offering basis, the Company's efficiency ratio is expected to show some improvement as the net interest ratio increases with the reinvestment of proceeds, although the increased operating expenses (reflecting the costs of developing ASB's branch office and commercial lending infrastructure as well as stock plans expenses) may limit the improvement. Thus, the efficiency ratio is expected to remain at a competitive disadvantage relative to the Peer Group. Loan loss provisions had a comparable impact on the Company's earnings, amounting to 0.06% of average assets for both the Company and the Peer Group. To the extent that commercial mortgage and C&I loans account for a significant portion of the Company's future growth, the level of loan loss provisions established on an annual basis may increase in response to the heightened credit risk profile. Gains and losses from the sale of assets had a slightly more favorable impact on the Company's earnings for the twelve month period shown in Table 3.3, as the Company reported net gains equal to 0.04% of average assets versus a net loss equal to 0.02% of average assets reported by the Peer Group. The Company's effective tax rate for the last 12 months of 37.79% is modestly above the Peer Group average of 29.72%. The Company expects that its effective tax rate may improve with its investment subsidiary limiting state income tax payable, but the Company's reduced tax rate is expected to remain at a comparative disadvantage relative to the Peer Group Loan Composition - ---------------- Table 3.4 presents data related to the Company's and the Peer Group's loan portfolio compositions as of March 31, 2005, as well as data pertaining to investment in mortgage-backed securities, loans serviced for other and risk weighted assets. In comparison to the Peer Group, RP(R) Financial, LC. Page 3.13 Table 3.4 Loan Portfolio Composition and Related Information Comparable Institution Analysis As of March 31, 2005
Portfolio Composition as a Percent of Assets ---------------------------------------------------- 1-4 Constr. 5+Unit Commerc. RWA/ Serviced Servicing Institution MBS Family & Land Comm RE Business Consumer Assets For Others Assets ----------- --- ------ ------ ------- -------- -------- ------ ---------- ------ (%) (%) (%) (%) (%) (%) (%) ($000) ($000) ASB Holding Company 13.82% 59.48% 1.84% 12.58% 0.15% 2.71% 54.01% $15,865 $72 All Public Companies 13.11% 36.11% 5.44% 16.66% 3.37% 3.79% 60.66% $698,126 $9,129 State of NJ 22.30% 40.84% 1.19% 9.91% 2.32% 1.17% 50.91% $116,599 $1,172 Comparable Group Average 24.23% 35.44% 2.88% 12.01% 2.75% 1.90% 53.91% $17,898 $110 Comparable Group - ---------------- ALFC Atlantic Liberty Financial of NY 23.74% 31.93% 3.77% 29.02% 0.57% 0.00% 54.35% $0 $0 ESBK Elmira Savings Bank, FSB of NY 21.31% 31.62% 1.30% 11.02% 8.68% 9.45% 59.11% $75,371 $526 FSBI Fidelity Bancorp, Inc. of PA 21.71% 26.65% 4.94% 9.58% 0.66% 4.64% 61.89% $4 $0 FKFS First Keystone Financial, Inc. of PA 26.72% 35.56% 4.59% 11.18% 0.25% 1.60% 57.64% $51,283 $240 HARL Harleysville Savings Fin. Corp. of PA 35.94% 45.11% 0.08% 0.51% 0.14% 0.00% 45.54% $3,435 $0 LARL Laurel Capital Group Inc. of PA 5.55% 61.85% 0.96% 0.93% 0.89% 0.18% 51.15% $150 $0 PBCI Pamrapo Bancorp, Inc. of NJ 31.45% 40.94% 2.06% 18.75% 0.38% 0.10% 53.52% $872 $0 SYNF Synergy Financial Group of NJ 26.20% 27.83% 0.65% 16.61% 16.72% 1.36% 66.72% $7,768 $0 THRD TF Financial Corp. of Newtown PA 18.50% 51.65% 3.18% 12.68% 0.78% 1.08% 54.02% $4,423 $41 WVFC WVS Financial Corp. of PA 27.90% 7.96% 3.17% 3.20% 0.23% 0.20% 31.23% $1,200 $0 WGBC Willow Grove Bancorp Inc. of PA 27.55% 28.73% 7.01% 18.62% 0.95% 2.25% 57.80% $52,374 $408
Source: Audited and unaudited financial statements, corporate reports and offering circulars, and RP(R) Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 2005 by RP(R) Financial, LC. RP(R) Financial, LC. Page 3.14 the Company's loan portfolio composition reflected a higher concentration in the aggregate of 1-4 family residential mortgage loans and mortgage-backed securities (73.3% of assets versus 59.7% for the Peer Group). The Company maintained a higher concentration of 1-4 family loans, which was partially offset by the Peer Group's higher concentration of mortgage-backed securities. ASB's loans serviced for others represented a relatively comparable off-balance sheet item for the Peer Group in terms of the balance of loans serviced ($15.7 million for the Company versus $17.9 million for the Peer Group). Servicing assets were limited for both the Company and the Peer Group. Diversification into higher risk types of lending was comparable for the Company and the Peer Group on average. Commercial real estate/multi-family loans represented the most significant area of diversification for the Company (12.6% of assets), followed by consumer loans (2.7% of assets). The Peer Group's lending diversification consisted primarily of commercial real estate/multi-family loans (12.0% of assets), with modest levels of construction, commercial and consumer lending. The similarity of the loan portfolio composition overall resulted in a similar risk-weighted assets-to-assets ratio (54.01% for the Company versus 53.91% for the Peer Group). Credit Risk - ----------- The Company's credit risk exposure appears to be modestly lower than the Peer Group's, on average, based on the ratios of NPAs/assets and reserve coverage ratio. As shown in Table 3.5, the Company's ratio of NPAs and accruing loans that are more than 90 days past due was equal to 0.08% of assets and was thus below the comparable Peer Group ratio of 0.30%. The Company maintained a significantly lower non-performing loans/loans ratio than the Peer Group (0.11% versus 0.52% for the Peer Group). The reserve coverage for the Company as a percent of NPAs was 481.5% versus an average of 271.9% for the Peer Group. The Company did not report any loan chargeoffs while chargeoffs were nominal for the Peer Group. The one area of credit quality where the Company falls short of the Peer Group is with respect to the ratio of reserves to total loans, which equaled 0.50% for the Company versus 0.87% for the Peer Group on average. RP(R) Financial, LC. Page 3.15 Table 3.5 Credit Risk Measures and Related Information Comparable Institution Analysis As of March 31, 2005 or Most Recent Date Available
NPAs & Rsrves/ REO/ 90+Del/ NPLs/ Rsrves/ Rsrves/ NPAs & Net Loan NLCs/ Institution Assets Assets Loans Loans NPLs 90+Del Chargoffs Loans ----------- ------ ------ ----- ----- ---- ------ --------- ----- (%) (%) (%) (%) (%) (%) ($000) (%) ASB Holding Company 0.00% 0.08% 0.11% 0.50% 481.48% 481.48% $0 0.00% All Public Companies 0.07% 0.46% 0.54% 0.91% 278.12% 252.28% $341 0.07% State of NJ 0.00% 0.14% 0.26% 0.70% 317.98% 353.28% $108 0.00% Comparable Group Average 0.06% 0.30% 0.52% 0.87% 271.86% 284.63% $89 0.06% Comparable Group - ---------------- ALFC Atlantic Liberty Financial of NY 0.04% 0.09% 0.07% 0.61% 828.09% 441.32% $0 0.00% ESBK Elmira Savings Bank, FSB of NY 0.00% 0.17% 0.26% 0.99% 376.35% 369.25% $23 0.05% FSBI Fidelity Bancorp, Inc. of PA 0.19% N.A. 1.12% 0.81% 72.06% N.A. $130 0.17% FKFS First Keystone Financial, Inc. of PA 0.16% 0.98% 1.51% 0.67% 44.64% 36.65% $29 0.04% HARL Harleysville Savings Fin. Corp. of PA 0.00% 0.03% N.A. 0.56% N.A. 824.69% $3 0.00% LARL Laurel Capital Group Inc. of PA 0.04% 0.31% 0.41% 0.97% 239.86% 207.91% $7 -0.01% PBCI Pamrapo Bancorp, Inc. of NJ 0.00% 0.50% 0.56% 0.62% 111.64% 80.47% $4 0.00% SYNF Synergy Financial Group of NJ 0.00% 0.02% 0.03% 0.78% N.A. N.A. $167 0.12% THRD TF Financial Corp. of Newtown PA 0.11% 0.22% 0.16% 0.49% 305.50% 155.64% $236 0.21% WVFC WVS Financial Corp. of PA 0.00% N.A. N.A. 1.99% N.A. N.A. $185 -0.02% WGBC Willow Grove Bancorp Inc. of PA 0.07% 0.38% 0.52% 1.03% 196.70% 161.11% $193 0.13%
Source: Audited and unaudited financial statements, corporate reports and offering circulars, and RP(R) Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 2005 by RP(R) Financial, LC. RP(R) Financial, LC. Page 3.16 Interest Rate Risk - ------------------ Table 3.6 reflects various key ratios highlighting the relative interest rate risk exposure. From a balance sheet perspective, ASB's lower IEA/IBL ratio suggests higher exposure while the slightly higher equity/assets ratio suggests lower exposure. Following the second step offering, these ratios should improve relative to the Peer Group. In the absence of comparability in timely interest rate risk reporting and methodology, we reviewed quarterly changes in the net interest income ratio. To analyze interest rate risk associated with the net interest margin, we reviewed quarterly changes in net interest income as a percent of average assets for ASB and the Peer Group. In general, the relative fluctuations in the Company's and the Peer Group's net interest income to average assets ratios were considered to be modestly greater during the period analyzed in Table 3.6, suggesting potentially greater risk exposure. The stability of the Company's net interest margin should be enhanced by the infusion of stock proceeds, as the increase in capital will reduce the level interest rate sensitive liabilities funding ASB's assets. Summary - ------- Based on the above analysis and the criteria employed in the selection of the companies for the Peer Group, RP Financial concluded that the Peer Group forms a reasonable basis for determining the pro forma market value of ASB. Such general characteristics as asset size, capital position, interest-earning asset composition, funding composition, core earnings measures, loan composition, credit quality and exposure to interest rate risk all tend to support the reasonability of the Peer Group from a financial standpoint. Those areas where differences exist will be addressed in the form of valuation adjustments to the extent necessary. RP(R) Financial, LC. Page 3.17 Table 3.6 Interest Rate Risk Measures and Net Interest Income Volatility Comparable Institution Analysis As of March 31, 2005 or Most Recent Date Available
Balance Sheet Measures --------------------------- Non-Earn. Quarterly Change in Net Interest Income Equity/ IEA/ Assets/ -------------------------------------------------------- Institution Assets IBL Assets 3/31/05 12/31/04 9/30/04 6/30/04 3/31/04 12/31/03 ----------- ------ --- ------ ------- -------- ------- ------- ------- -------- (%) (%) (%) (change in net interest income is annualized in basis points) ASB Holding Company 8.8% 106.6% 4.1% 7 5 -1 -16 36 27 All Public Companies 9.7% 107.4% 4.9% -3 -1 2 -5 0 9 State of NJ 11.7% 111.6% 4.4% 0 -10 15 -7 3 22 Comparable Group Average 8.4% 107.1% 3.5% 1 -4 4 -7 6 19 Comparable Group - ---------------- ALFC Atlantic Liberty Financial of NY 15.1% 116.5% 3.5% -2 7 -23 -8 10 20 ESBK Elmira Savings Bank, FSB of NY 6.7% 103.8% 4.0% -4 -12 -2 0 -12 24 FSBI Fidelity Bancorp, Inc. of PA 5.9% 104.0% 3.5% 0 1 2 -8 26 1 FKFS First Keystone Financial, Inc. of PA 5.1% 101.2% 5.0% 9 -2 -6 9 -11 -2 HARL Harleysville Savings Fin. Corp. of PA 6.1% 104.2% 3.0% 2 1 5 -5 7 13 LARL Laurel Capital Group Inc. of PA 7.8% 106.6% 4.8% 11 3 14 -20 30 -15 PBCI Pamrapo Bancorp, Inc. of NJ 8.7% 108.7% 1.9% 0 -7 7 6 -10 34 SYNF Synergy Financial Group of NJ 11.4% 109.0% 4.2% -8 -12 -3 -32 N.A. N.A. THRD TF Financial Corp. of Newtown PA 8.8% 106.5% 4.5% 5 -11 -3 -2 0 93 WVFC WVS Financial Corp. of PA 6.8% 106.9% 1.0% 0 -22 26 5 14 12 WGBC Willow Grove Bancorp Inc. of PA 10.5% 110.2% 2.6% -2 8 22 -22 3 14
NA=Change is greater than 100 basis points during the quarter. Source: Audited and unaudited financial statements, corporate reports and offering circulars, and RP(R) Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 2005 by RP(R) Financial, LC. RP(R) Financial, LC. Page 4.1 IV. VALUATION ANALYSIS Introduction - ------------ This chapter presents the valuation analysis and methodology, prepared pursuant to the regulatory valuation guidelines, and valuation adjustments and assumptions used to determine the estimated pro forma market value of the common stock to be issued in conjunction with the Company's conversion transaction. Appraisal Guidelines - -------------------- The OTS written appraisal guidelines specify the market value methodology for estimating the pro forma market value of an institution pursuant to a mutual-to-stock conversion. Pursuant to this methodology: (1) a peer group of comparable publicly-traded institutions is selected; (2) a financial and operational comparison of the subject company to the peer group is conducted to discern key differences; and (3) a valuation analysis in which the pro forma market value of the subject company is determined based on the market pricing of the peer group as of the date of valuation, incorporating valuation adjustments for key differences. In addition, the pricing characteristics of recent conversions, both at conversion and in the aftermarket, must be considered. RP Financial Approach to the Valuation - -------------------------------------- The valuation analysis herein complies with such regulatory approval guidelines. Accordingly, the valuation incorporates a detailed analysis based on the Peer Group, discussed in Chapter III, which constitutes "fundamental analysis" techniques. Additionally, the valuation incorporates a "technical analysis" of recently completed stock conversions, including closing pricing and aftermarket trading of such offerings. It should be noted that these valuation analyses cannot possibly fully account for all the market forces which impact trading activity and pricing characteristics of a particular stock on a given day. The pro forma market value determined herein is a preliminary value for the Company's to-be-issued stock. Throughout the conversion process, RP Financial will: (1) review changes in RP(R) Financial, LC. Page 4.2 ASB's operations and financial conditions; (2) monitor ASB's operations and financial conditions relative to the Peer Group to identify any fundamental changes; (3) monitor the external factors affecting value including, but not limited to, local and national economic conditions, interest rates, and the stock market environment, including the market for thrift stocks; and (4) monitor pending conversion offerings (including those in the offering phase), both regionally and nationally. If material changes should occur during the conversion process, RP(R) Financial will evaluate if updated valuation reports should be prepared reflecting such changes and their related impact on value, if any. RP(R) Financial will also prepare a final valuation update at the closing of the offering to determine if the prepared valuation analysis and resulting range of value continues to be appropriate. The appraised value determined herein is based on the current market and operating environment for the Company and for all thrifts. Subsequent changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or major world events), which may occur from time to time (often with great unpredictability) may materially impact the market value of all thrift stocks, including ASB's value, or ASB's value alone. To the extent a change in factors impacting the Company's value can be reasonably anticipated and/or quantified, RP Financial has incorporated the estimated impact into the analysis. Valuation Analysis - ------------------ A fundamental analysis discussing similarities and differences relative to the Peer Group was presented in Chapter III. The following sections summarize the key differences between the Company and the Peer Group and how those differences affect the pro forma valuation. Emphasis is placed on the specific strengths and weaknesses of the Company relative to the Peer Group in such key areas as financial condition, profitability, growth and viability of earnings, asset growth, primary market area, dividends, liquidity of the shares, marketing of the issue, management, and the effect of government regulations and/or regulatory reform. We have also considered the market for thrift stocks, including the market for new issues, to assess the impact on value of ASB coming to market at this time. RP(R) Financial, LC. Page 4.3 1. Financial Condition ------------------- The financial condition of an institution is an important determinant in pro forma market value, because investors typically look to such factors as liquidity, capital, asset composition and quality, and funding sources in assessing investment attractiveness. The similarities and differences in the Company's and the Peer Group's financial strength are noted as follows: o Overall A/L Composition. Loans and investments funded by retail ------------------------- deposits were the primary components of the Company's and Peer Group's balance sheets. The Company's interest-earning asset composition exhibited a higher concentration of loans with a comparable level of diversification into high risk-weight loans and a relatively similar risk-weighted assets/total assets ratio. ASB's funding composition reflected a higher level of deposits and a lower level of borrowings than the comparable Peer Group ratios. Overall, as a percent of assets, the Company maintained a slightly lower level of interest-earning assets and a slightly higher level of interest-bearing liabilities compared to the Peer Group, which provided for a slightly lower IEA/IBL ratio for the Company. o Credit Quality. The Company's credit risk profile appears to be --------------- comparatively favorable based on lower NPAs/assets and stronger reserve coverage ratios in relation to NPAs and non-performing loans ("NPLs"). At the same time, the Peer Group's credit quality ratios are also relatively strong and their history of loan losses and chargeoffs has been limited. The Peer Group maintains higher allowances for loan losses to total loans outstanding, however. o Balance Sheet Liquidity. The Company operated with a lower level of ------------------------ cash and investment securities relative to the Peer Group (20.3% of assets versus 40.8% for the Peer Group). Following the infusion of stock proceeds, the Company's cash and investments ratio is expected to increase as the net proceeds will be initially deployed into investments. The Company's future borrowing capacity was considered to be slightly greater than the Peer Group's, in light of the lower level of borrowings maintained by the Company. o Funding Liabilities. Retail deposits served as the primary --------------------- interest-bearing source of funds for the Company and the Peer Group, with the Company maintaining a higher deposits-to-assets ratio than the Peer Group. Comparatively, the Peer Group's funding compositions reflected slightly higher utilization of borrowings than the Company. In total, the Company maintained a slightly higher level of interest-bearing liabilities than the Peer Group and the Company's cost of funds was slightly higher than the cost of the Peer Group's interest-bearing liabilities. Following the stock offering, the infusion of stock proceeds can be expected to support an increase in the Company's capital ratio and a resulting decline in the level of interest-bearing liabilities maintained as a percent of assets. RP(R) Financial, LC. Page 4.4 o Capital. The Company operates with a slightly higher pre-offering ------- capital ratio than the Peer Group, 8.8% and 8.7% of assets, respectively. Accordingly, following the second-step conversion offering, the difference between the Company's and the Peer Group's equity-to-assets ratio will become more significant. ASB's higher pro forma capital position implies greater leverage capacity, lower dependence on interest-bearing liabilities to fund assets and a greater capacity to absorb unanticipated losses. At the same time, the Company's higher pro forma capital position will depress its return on equity. On balance, ASB's balance sheet strength was considered to be more favorable than the Peer Group's, as implied by the Company's more favorable overall asset/liability composition, credit quality and capital strength. Accordingly, a slight upward adjustment was determined to be appropriate for the Company's financial condition. 2. Profitability, Growth and Viability of Earnings ----------------------------------------------- Earnings are a key factor in determining pro forma market value, as the level and risk characteristics of an institution's earnings stream and the prospects and ability to generate future earnings heavily influence the multiple the investment community will pay for earnings. The major factors considered in the valuation are described below. o Reported Earnings. The Company's pre-conversion profitability is ------------------ modestly below the Peer Group average on an ROAA basis (0.55% of average assets versus 0.76% for the Peer Group). The Peer Group's favorable earnings are the result of their higher average revenues (both net interest income and non-interest income) and lower effective tax rate, which are only partially offset by the Company's lower operating expense ratio. On a pro forma basis, the Company's initial proceeds reinvestment benefit will be offset to an extent by the stock benefit plans expense, which will result in a lower pro forma ROA for the Company versus the Peer Group. Moreover, there remain certain unknown aspects of the Company's future earnings, such as the ability to realize profitable growth objectives that cover the anticipated investments in personnel and fixed assets. Interest Rate Risk. Quarterly changes in the Company's net interest ------------------- income to average assets ratios were modestly more volatile relative to the Peer Group average. Other quantitative risk measures show that the Company has greater risk exposure with respect to the volatility of its post-shock NPV ratios in comparison to all OTS regulated thrift institutions with total assets ranging between $100 million to $1 billion. At the same time, the capital raised in the second step stock offering will serve to mitigate the Company's interest rate risk exposure prospectively. RP(R) Financial, LC. Page 4.5 o Credit Risk. Factors indicating the Company's lower credit risk ------------ profile include, lower NPAs/assets and stronger reserve coverage. Additionally, loan loss provisions as a percent of average assets are comparable to the Peer Group average. At the same time, the Company's ratio of reserves to total loans is below the Peer Group average. Moreover, the Company's future diversification strategy may increase the relative credit risk exposure in comparison to the Peer Group. o Earnings Growth Potential. The Company's faster balance sheet growth -------------------------- in comparison to the Peer Group suggests stronger earnings growth potential for the Company. While the current equity level may restrict such growth in the future, the capital to be raised in the offering should allow such growth to continue for the Company. Moreover, management expects that on-going infrastructure investments (i.e., in fixed assets, personnel, etc.) and the building of commercial account relationships may enhance the long-term earnings growth potential. At the same time, such expenditures may depress near-term earnings growth potential and involve execution risk that management may not achieve the targeted portfolio goals for the Company or that such activities may not be as profitable as currently anticipated. One other factor that may favorably influence earnings is the expected reduction in the state income tax payable attributable to the newly-formed investment subsidiary. o Return on Equity. The Company's pro forma capital position will exceed ---------------- the Peer Group average. Coupled with its lower pro forma ROA, the Company's pro forma core ROE is anticipated to be lower than the Peer Group average. Overall, we concluded that a slight downward adjustment for profitability, growth and viability of earnings was appropriate. 3. Asset Growth ------------ The Company's recent asset growth exceeded the Peer Group average, reflecting the Company's efforts to support earnings through leveraging equity, which has primarily been centered on loan portfolio growth. On a pro forma basis, the Company should have the equity to facilitate continued growth and expansion, and its pro forma equity position will be higher than for the Peer Group, on average. On balance, we believe a slight upward adjustment was warranted for this factor. 4. Primary Market Area ------------------- The general condition of an institution's market area has an impact on value, as future success is in part dependent upon opportunities for profitable activities in the local market RP(R) Financial, LC. Page 4.6 served. Operating in northern New Jersey, the Company faces significant competition for loans and deposits from other financial institutions, many of which are larger, provide a broader array of services and have significantly larger branch networks than maintained by the Company. ASB's primary market area for deposits and loans is Essex County, where both of the Company's branches are located. Essex County's population increased at a moderate pace during the first four years of this decade, with additional modest population growth projected over the next five years (see Table 4.1). Importantly, population growth rates for Essex County are comparable to the growth rates posted for the Peer Group's market areas on average. Per capita income measures for Essex County were lower than the comparable measures for New Jersey but approximated the median and average income measures for the Peer Group's markets. The comparability of income levels for Essex County and the Peer Group's primary market areas is reflective of the urban and suburban locations of many of the Peer Group's institutions markets on an individual basis. The local economy in Essex County has benefited from regional economic growth and the unemployment rate of 5.4%, which includes areas of inner-city Newark with relatively high unemployment, and is only modestly above the average for the Peer Group's market areas of 4.5% In general, with several exceptions, the Peer Group companies operate in large urban and suburban markets in the Mid-Atlantic region. Given the selection criteria which emphasized institutions with $100 to $1 billion of total assets, the Peer Group institutions necessarily hold a relatively small market share of their respective markets overall. Thus, the Company's deposit market share of 2.1% of the Essex County deposit market is relatively comparable to the Peer Group average. On balance, we concluded that no adjustment was appropriate for the Company's market area. 5. Dividends --------- ASB has indicated its intention to pay dividends but has not specified the level of the future dividend to be paid. The Company paid its first regular quarterly dividend in June 2005, at a rate of $0.09 per share. Importantly, future declarations of dividends by the Board of Directors will depend upon a number of factors, including investment opportunities, growth RP(R) Financial, LC. Page 4.7 Table 4.1 ASB Holding Company Peer Group Market Area Comparative Analysis
Per Capita Estimated Income 6/30/04 Population Projected Estimated Projected ---------------- Deposit Unemployment Headquarters ------------ Population 2000-2004 2004-2009 % State Market Rate Institution City 2000 2004 2009 % Change % Change Amount Average Share(1) 12/31/2004 - ----------- ---- ---- ---- ---- -------- -------- ------ ------- -------- ---------- (000) (000) (000) Atlantic Liberty Financial of NY Brooklyn 2,465 2,497 2,533 1.28% 1.44% $18,150 70.26% 0.38% 6.5% Elmira Savings Bank, FSB of NY Elmira 91 90 89 -0.96% -1.34% $20,491 79.32% 20.07% 5.1% Fidelity Bancorp, Inc. of PA Pittsburgh 1,282 1,264 1,242 -1.41% -1.69% $25,153 107.36% 0.79% 4.4% First Keystone Financial, Inc. of PA Media 551 555 562 0.83% 1.10% $27,945 119.28% 3.88% 4.4% Harleysville Savings Fin. Corp. of PA Harleysville 750 778 813 3.72% 4.55% $34,965 149.24% 2.49% 3.3% Laurel Capital Group Inc. of PA Allison Park 1,282 1,264 1,242 -1.41% -1.69% $25,153 107.36% 0.55% 4.4% Pamrapo Bancorp, Inc. of NJ Bayonne 609 608 607 -0.11% -0.26% $23,819 77.94% 1.49% 5.5% Synergy Financial Group of NJ Cranford 523 535 549 2.30% 2.69% $30,127 98.59% 2.30% 4.2% TF Financial Corp of Newtown PA Newtown 598 620 648 3.75% 4.58% $31,496 134.43% 1.59% 4.1% Willow Grove Bancorp, Inc. of PA Maple Glen 750 778 813 3.72% 4.55% $34,965 149.24% 2.62% 3.3% WVS Financial Corp. of PA Pittsburgh 1,282 1,264 1,242 -1.41% -1.69% $25,153 107.36% 0.37% 4.4% Averages: 926 932 940 0.94% 1.11% $27,038 109.12% 3.32% 4.5% Medians: 750 778 813 0.83% 1.10% $25,153 107.36% 1.59% 4.4% ASB Holding Co. Essex 794 800 807 0.83% 0.90% $27,501 89.99% 2.07% 5.4%
(1) Total institution deposits in headquarters county as percent of total county deposits (banks and thrifts only). Sources: Claritas, FDIC. RP(R) Financial, LC. Page 4.8 objectives, financial condition, profitability, tax considerations, minimum capital requirements, regulatory limitations, stock market characteristics and general economic conditions. All eleven of the Peer Group companies pay regular cash dividends, with implied dividend yields ranging from 1.18% to 4.02%. The average dividend yield on the stocks of the Peer Group institutions was 2.76% as of May 31, 2005, representing an average payout ratio of 44.6% of earnings. As of May 31, 2005, approximately 90% of all publicly-traded thrifts had adopted cash dividend policies (see Exhibit IV-1) exhibiting an average yield of 2.24% and an average payout ratio of 36.0% of earnings. The dividend paying thrifts generally maintain higher than average profitability ratios, facilitating their ability to pay cash dividends. On balance, we concluded that no adjustment is warranted for purposes of dividends relative to the Peer Group, primarily taking into account the lack of a stated dividend policy, as well as the lower pro forma ROA and higher pro forma capital ratio. 6. Liquidity of the Shares ----------------------- The Peer Group is by definition composed of companies that are traded in the public markets. All eleven of the Peer Group companies trade on the NASDAQ system. Typically, the number of shares outstanding and market capitalization provides an indication of how much liquidity there will be in a particular stock. The market capitalization of the Peer Group companies ranged from $33.8 million to $150.2 million as of May 31, 2005, with average and median market values of $74.1 million and $61.4 million, respectively. The shares issued and outstanding to the public shareholders of the Peer Group members ranged from 1.1 million to 12.4 million, with average and median shares outstanding of 4.2 million and 2.9 million, respectively. The Company's pro forma market value and shares outstanding for the Company will be in the upper end of the Peer Group range. The Company's stock will be quoted on the NASDAQ National Market System following the conversion. Overall, we anticipate that the Company's stock will have a comparable trading market as the Peer Group companies on average and, therefore, concluded no adjustment was necessary for this factor. RP(R) Financial, LC. Page 4.9 7. Marketing of the Issue ---------------------- We believe that four separate markets exist for thrift stocks, including those coming to market such as ASB: (1) the after-market for public companies, in which trading activity is regular and investment decisions are made based upon financial condition, earnings, capital, ROE, dividends and future prospects; (2) the new issue market in which converting thrifts are evaluated on the basis of the same factors, but on a pro forma basis without the benefit of prior operations as a fully-converted publicly-held company and stock trading history; (3) the acquisition market for thrift franchises in New Jersey; and (4) the market for the public stock of ASB. All of these markets were considered in the valuation of the Company's to-be-issued stock. A. The Public Market ----------------- The value of publicly-traded thrift stocks is easily measurable, and is tracked by most investment houses and related organizations. Exhibit IV-1 provides pricing and financial data on all publicly-traded thrifts. In general, thrift stock values react to market stimuli such as interest rates, inflation, perceived industry health, projected rates of economic growth, regulatory issues and stock market conditions in general. Exhibit IV-2 displays historical stock market trends for various indices and includes historical stock price index values for thrifts and commercial banks. Exhibit IV-3 displays historical stock price indices for thrifts only. In terms of assessing general stock market conditions, the performance of the overall stock market has been mixed over the past year. Strong employment data for May combined with lower oil prices and favorable inflation data provided for a positive trend in the broader market through mid-June. Stocks traded in a narrow range through the end of the second quarter, as investors awaited the outcome of the Federal Reserve meeting at the end of June. Rising oil prices and profit warnings from some technology companies caused major stock indices to fall at the start of the third quarter of 2004. Stocks continued to trend lower through most of July, as a slow down in the economic expansion raised concerns about future earnings growth. Strong consumer confidence numbers for July reversed the downward trend in stocks during the last week of July, with the Dow Jones Industrial Average ("DJIA") closing up for the week for the first time since mid-June. The recovery in the stock market was RP(R) Financial, LC. Page 4.10 short-lived, as record high oil prices, weak retail sales for July and weaker than expected job growth for July pulled stocks lower in early-August. A positive economic outlook by the Federal Reserve and bargain hunting supported gains in the stock market during mid-August, as the DJIA moved back above the 10000 barrier. The DJIA hit a six week high in late-August, which was supported by a drop in oil prices. After the DJIA closed at a two month high in early-September, based on hopes for favorable employment numbers for August, the broader stock market traded in a narrow range through mid-September. Concerns that rising oil prices would hurt the economy and reduce corporate earnings pressured stocks lower in late-September. Stocks rallied at the start of the fourth quarter of 2004, largely on the basis of a rebound in technology stocks due to an upbeat outlook for third quarter earnings. Higher oil prices and allegations of improprieties in the insurance industry pressured the DJIA to its lowest level of the year in late-October. Lower oil prices reversed the downward trend in stock at the close of October. The election outcome, a rise in consumer confidence and a strong jobs report for October extended the stock market rally into mid-November, as the DJIA hit a seven month high. Concerns about the falling dollar and a sharp rise in October producer prices temporarily dampened the stock market rally in late-November, but then stocks recovered in early-December on a sharp decline on oil prices. Some favorable economic data, including a strong report on December consumer confidence and a five-month low in new unemployment claims, helped to extend the rally through the end of the year as the DJIA move to a three and one-half year high. The broader stock market started 2005 in a downward trend, as investors reacted negatively to some disappointing economic data and indications by the Federal Reserve that it was likely to keep raising rates because of wariness about inflation. Concerns about slowing profit growth, weaker than expected growth in the fourth quarter of 2004 and the elections in Iraq extended the downward trend through mid-January. After three straight weekly declines, the DJIA edged higher in the last week of January on some upbeat earnings reports and a better than expected consumer confidence index. The positive trend in the broader stock market continued during the first half of February, as the Federal Reserve's quarter-point rate increase contained no surprises, oil prices declined and January retail sale beat expectations. The broader stock market had an uneven performance during the second half of February, reflecting concerns about inflation, higher oil prices and a weak dollar. RP(R) Financial, LC. Page 4.11 Despite surging oil prices, the DJIA moved back into positive territory for the year in early-March 2005. Strong job growth reflected in the February employment data and better than expected retail sales for February were factors that contributed to the positive move in stocks during the first week of March. Higher oil prices and interest rates pressured stocks lower in mid-March, as rising commodity prices rekindled inflation fears. The downturn in stocks continued going into the second half of March, as stocks were weighed down by news of a record U.S. trade deficit in 2004, General Motors' warning that earnings would be significantly below an earlier forecast and record high oil prices. Increased expectations of higher interest rates further depressed stocks in late-March, as the Federal Reserve surprised investors by signaling for the first time in more than four years that it was concerned with inflation. As expected, the Federal Reserve concluded its March meeting by raising its target for the federal funds rate to 2.75% from 2.5%. After dropping to a two-month low, a decline in oil prices helped lift the DJIA to its biggest one-day gain for the year at the end of March 2005. However, the first quarter of 2005 still showed a decline in the DJIA for the third year in a row. Weaker-than-expected job growth reflected in the March 2005 employment data pushed stocks lower at the start of the second quarter. Following a brief rally in early-April, the broader stock market moved to a five-month low in mid-April. The sell-off was based on concerns of a slowing U.S. economy, higher inflation and rising oil prices. Comparatively, economic data which showed a decline in initial jobless claims, a pick-up in Mid-Atlantic manufacturing activity and strong new home sales combined with some favorable first quarter earnings reports fueled a sharp rise in the stock market heading into late-April. A stronger-than-expected employment report for April, optimism about interest rates and a big planned purchase of General Motors shares helped to lift stocks in early-May. Gains in the broader stock market generally continued into late-May, as the trade deficit fell sharply in March, oil prices dropped and the economy showed signs of sustaining growth with low inflation, supported by news that first quarter GDP growth was higher than originally indicated. On May 31, 2005, the DJIA closed at 10467.48, an increase of 2.7% from one year ago and a decline of 2.9% year-to-date, and the NASDAQ closed at 2068.22, an increase of 4.1% from one year ago and a decline of 4.9% year-to-date. RP(R) Financial, LC. Page 4.12 The market for thrift stocks has been mixed during the past twelve months, but, in general, thrift stocks have appreciated and declined in conjunction with the broader market. Thrift stocks generally retreated during the first half of June, as the yield on the 10-year Treasury note moved to a two-year high on inflation concerns. Following the sharp sell-off, thrift stocks rebounded as a moderate increase in core consumer prices during may and comments by the Federal Reserve Chairman that inflation was not viewed to be a serious problem eased fears of a sharp rise in inflation. Acquisition activity helped to boost thrift stocks in late-June, but the upward trend was abruptly reversed at the end of June as a significant decline in Washington Mutual's 2004 earnings guidance pulled the broader thrift sector lower. Thrift stocks responded favorably to the 25 basis point rate increase implemented by the Federal Reserve at the close of the second quarter of 2004, as the Federal Reserve indicated that it would continue to raise the federal funds rate 25 basis points at a time. June employment data which showed weaker-than-expected job growth also provided support to thrift stocks in early-July. For most of July there was little movement in thrift stocks, as second quarter earnings were generally in line with expectations. A rally in the broader market in late-July provided a boost to thrift stocks as well. Thrift issues traded down with the rest of the market in early-August, although losses in the thrift sector were mild compared to the sell-off experienced in the boarder market as weaker than expected job growth for July pushed interest rates lower. Improved inflation data, lower interest rates and a rally in the broader stock market combined to push the thrift sector higher in mid-August. Thrift stocks sustained a positive trend in late-August, which was fueled by lower interest rates and strength in the broader stock market. The upward trend in thrift prices continued through mid-September, as September employment data matched expectations and inflation remained low. Thrift stocks edged lower at the close of the third quarter, which was largely attributable to weakness in the broader stock market. Thrift issues also rebounded in conjunction with the broader stock market rally at the start of the fourth quarter of 2004. After trading in a narrow range into mid-October, thrift stocks moved lower on some disappointing third quarter earnings and lower guidance on future earnings due to margin compression resulting from a flatter yield curve. The rally in the boarder stock market and the Federal Reserve's indication that inflation risks were well contained fueled gains in the thrift sector during the first half of November. Trading activity in thrift stocks was RP(R) Financial, LC. Page 4.13 mixed during late-November, as the rally lost steam on some profit taking and higher than expected inflation data for October. Thrift issues followed the broader market higher in early-December and then declined modestly into a narrow trading range through late-December. The year end rally in the broader stock market provided a slight boost to thrift prices as well. The market for thrift stocks was mixed at the start of 2005, but, in general, thrift stocks eased lower during January. Fourth quarter earnings for the thrift sector were generally in line with expectations, but concerns about higher interest rates and margin compression hindered thrift stocks throughout most of January. Thrift stocks followed the broader market higher in early-February, but then eased slightly in mid-February as long-term interest rates spiked-up following an unexpected surge in the January 2005 wholesale core inflation rate. Comparatively, tame inflation data reflected in the January consumer price index provided a boost to the thrift sector in late-February. Thrift stocks followed the broader market higher in early-March, as long-term interest rates declined slightly. Likewise, thrift stocks declined in conjunction with broader market during mid-March on the spike-up in long-term interest rates and signals from the Federal Reserve that it was becoming more concerned about inflation. Thrift stocks participated in the broader market rally at the close of the first quarter, with the SNL Thrift Index posting a one-day gain of 1.3% compared to 1.1% gain for the DJIA. Thrift issues started the second quarter trading in a narrow range and then followed the broader market lower in mid-April reflecting concerns that first quarter earnings in the thrift sector would show the negative effects of net interest margin compression resulting from the flattening of the yield curve. Acquisition speculation involving some large thrifts and a strong report on new home sales in March provided a boost to thrift stocks in late-April. Thrift stocks continued to show strength at the beginning of May, as long-term Treasury yields headed higher on news that the U.S. Treasury Department was considering bringing back the 30-year Treasury bond. Surprisingly strong job growth cooled off the thrift rally at the end of the first week of May. Thrift stocks rebounded in May on strength in the broader market and a smaller than expected increase in the April consumer price index, which served to ease inflation concerns and revisions to the first quarter GDP report in late May which boosted the equities market as a whole. On May 31, 2005, the SNL Index for all publicly-traded thrifts closed at 1546.4, an increase of 3.4% from one year ago and a decline of 3.7% year-to-date. RP(R) Financial, LC. Page 4.14 B. The New Issue Market -------------------- In addition to thrift stock market conditions in general, the new issue market for converting thrifts is also an important consideration in determining the Company's pro forma market value. The new issue market is separate and distinct from the market for seasoned thrift issues in that the pricing ratios for converting issues are computed on a pro forma basis, specifically: (1) the numerator and denominator are both impacted by the conversion offering amount, unlike existing stock issues in which price change affects only the numerator; and (2) the pro forma pricing ratio incorporates assumptions regarding source and use of proceeds, effective tax rates, stock plan purchases, etc. which impact pro forma financials, whereas pricing for existing issues are based on reported financials. The distinction between pricing of converting and existing issues is perhaps no clearer than in the case of the price/book ("P/B") ratio in that the P/B ratio of a converting thrift will typically result in a discount to tangible book value whereas in the current market for existing thrifts the P/B ratio often reflects a premium to book value. Therefore, it is appropriate to also consider the market for new issues, both at the time of the conversion and in the aftermarket. After experiencing a fairly strong market during 2004 and early-2005, the new issue market for thrift stocks has not been as strong for the recent thrift offerings completed. Most notably, a number of recent thrift offerings are currently trading below their IPO prices. As shown in Table 4.2, two standard conversions, three second-step conversions and six mutual holding company offerings were completed during the past three months. The second-step conversion offerings are considered to be more relevant for our analysis. In general, second-step conversions tend to be priced (and trade in the aftermarket) at a higher P/B ratio than standard conversions. We believe investors take into consideration the generally more leveraged pro forma balance sheets of second-step companies, their track records as public companies prior to conversion, and their generally higher pro forma ROE measures relative to standard conversions in pricing their common stocks. All the second step offerings closed within the valuation range with Rome Bancorp and First Federal of Northern Michigan Bancorp closing between the midpoint and the maximum of the offering range after extending the offering period, and Hudson City Bancorp closing its syndicated community offering between the minimum and the midpoint of the offering range. Both of the recent offerings which have traded (Hudson City Bancorp was RP(R) Financial, LC. Page 4.15 Pricing Characteristics and After-Market Trends Conversions Completed in 2005
- ---------------------------------------------------------------------------------------------------------------------------------- Institutional Information Pre-Conversion Data Offering Information Contribution to ----------------------------- --------------------- --------------- Financial Info. Asset Quality Char. Found. - --------------------------------------------------------------------------------------------------------------------------------- Conversion Equity NPAs/ Res. Gross % % of Exp./ % of Institution ST. Date Ticker Assets Assets Asset Cov. Proc. Offer Mid. Proc. Form Offering ($Mil) (%) (%) (%) ($Mil.) (%) (%) (%) (%) - -------------------------------------------------------------------------------------------------------------------------------- Standard Conversions - -------------------- Benjamin Franklin Bancorp, Inc.*(1.7) MA 4/5/05 BFBC-NASDAQ $ 781 6.86% 0.02% NM $ 55.9 100% 112% 3.0% Stk. 6.7% OC Financial, Inc.* OH 4/1/05 OCFL-OTCBB $ 56 5.20% 0.13% 294% $ 5.6 100% 93% 8.3% N.A N.A Averages - Standard Conversions: $ 419 6.03% 0.08% 294% $ 30.8 100% 103% 5.7% N.A. N.A. Medians - Standard Conversions: $ 419 6.03% 0.08% 294% $ 30.8 100% 103% 5.7% N.A. N.A. Second Step Conversions - ----------------------- Hudson City Bancorp, Inc.* NJ 6/7/05 HCBK-NASDAQ $21,131 7.50% 0.11% 126% $3,929.8 66% 92% 3.2% N.A N.A First Federal of NM Bancorp, Inc.* NM I4/4/05. FFNM-NASDAQ $ 263 8.37% 0.85% 72% $ 17.0 55% 106% 4.4% C/S 3.9% Rome Bancorp, Inc.* NY 3/31/05 ROME-NASDAQ $ 270 14.14% 0.31% 241% $ 59.0 62% 106% 5.1% N.A N.A Averages - Second Step Conversions: $ 7,221 10.00% 0.42% 147% $1,335.3 61% 102% 4.2% N.A. N.A. Medians - Second Step Conversions: $ 270 8.37% 0.31% 126% $ 59.0 62% 106% 4.4% N.A .N.A. Mutual Holding Companies(6) - --------------------------- North Penn Bancorp, Inc.(1) PA 6/2/05 NPEN-OTCBB $ 93 8.33% 1.46% 69% $ 6.4 44% 85% 8.0% C/S 1.6%/4.4 Rockville Financial, Inc.(1) CT 5/23/05 RCKB-NASDAQ $ 890 7.70% 0.29% 266% $ 83.6 43% 115% 2.4% Stk .4.7% FedFirst Financial Corporation* PA 4/7/05 FFCO-NASDAQ $ 270 7.41% 0.22% 215% $ 29.8 45% 132% 3.5% N.A N.A Brooklyn Federal Bancorp, Inc.* NY 4/6/05 BFSB-NASDAQ $ 304 12.33% 0.00% NM $ 39.7 30% 132% 2.8% N.A N.A Prudential Bancorp, Inc.(1)* PA 3/30/05 PBIP-NASDAQ $ 407 9.59% 0.25% 116% $ 56.5 45% 132% 2.7% N.A N.A Kentucky First Federal Bancorp(7) KY 3/3/05 KFFB-NASDAQ $ 295 11.03% 0.59% 37% $ 21.3 25% 132% 6.3% N.A N.A Averages - Mutual Holding Companies: $ 376 9.40% 0.47% 140% $ 39.5 39% 121% 4.3% N.A. N.A. Medians - Mutual Holding Companies: $ 299 8.96% 0.27% 116% $ 34.7 44% 132% 3.2% N.A. N.A. Averages - All Conversions: $l2,251 8.95% 0.38% 160% $ 336.8 56% 113% 4.5% N.A. N.A. Medians - All Conversions: $ 295 8.33% 0.25% 126% $ 39.7 45% 112% 3.5% N.A. N.A. - ---------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------- Institutional Information Insider Purchases Pro Forma Data ----------------- ---------------------------------------- Pricing Ratios(3) Financial Charac. - ------------------------------------------------------------------------------- ------------------- ------------------- Benefit Plans Initial Conversion Reco Mgmt.& Dividend Core Core Core Institution ST. Date Ticker ESOP Plans Dirs. Yield P/TB P/E P/A ROA TE/A ROE (%) (%) (%)(2) (%) (%) (x) (%) (%) (%) (%) - --------------------------------------------------------------------------------------------------------------------------------- Standard Conversions - -------------------- Benjamin Franklin Bancorp, Inc.*(1.7) MA 4/5/05 BFBC-NASDAQ 8.0% 4.0% 3.5% 0.00% 128.0% 32.1x 10.3% 0.3x 8.1% 4.0x OC Financial, Inc.* OH 4/1/05 OCFL-OTCBB 8.0% 4.0% 25.0% 0.00% 75.8% NM 9.2% NM 12.2% NM Averages - Standard Conversions: 8.0% 4.0% 14.3% 0.00% 101.9% 32.1x 9.8% 32.0% 10.1% 399.0% Medians - Standard Conversions: 8.0% 4.0% 14.3% 0.00% 101.9% 32.1x 9.8% 32.0% 10.1% 399.0% Second Step Conversions - ----------------------- Hudson City Bancorp, Inc.* NJ 6/7/05 HCBK-NASDAQ 4.0% 8.0% 0.3% 2.40% 121.5% 21.3x 24.4% 1.2% 20.1% 5.7% First Federal of NM Bancorp, Inc.* NM I4/4/05. FFNM-NASDAQ 8.2% 4.1% 1.7% 2.14% 96.3% 85.9x 11.2% 0.1% 11.6% 1.1% Rome Bancorp, Inc.* NY 3/31/05 ROME-NASDAQ 4.0% 3.6% 1.0% 2.65% 107.0% 35.9x 29.8% 0.8% 27.9% 3.0% Averages - Second Step Conversions 5.4% 5.2% 1.0% 2.40% 108.2% 47.7x 21.8% 0.7% 19.9% 3.3% Medians - Second Step Conversions 4.0% 4.1% 1.0% 2.40% 107.0% 35.9x 24.4% 0.8% 20.1% 3.0% Mutual Holding Companies(6) - --------------------------- North Penn Bancorp, Inc.(1) PA 6/2/05 NPEN-OTCBB 8.4% 4.2% 8.9% 0.00% 73.6% 42.0x 13.8% 0.4% 13.0% 2.8% Rockville Financial, Inc.(1) CT 5/23/05 RCKB-NASDAQ 8.4% 4.2% 4.4% 0.00% 83.4% 55.4x 18.4% 0.4% 14.6% 2.4% FedFirst Financial Corporation* PA 4/7/05 FFCO-NASDAQ 8.7% 4.4% 5.3% 0.00% 87.3% 123.5x 20.3% 0.2% 14.9% 1.2% Brooklyn Federal Bancorp, Inc.* NY 4/6/05 BFSB-NASDAQ 8.0% 6.5% 2.3% 0.00% 88.3% 37.9x 31.8% 1.0% 20.9% 4.9% Prudential Bancorp, Inc.(1)* PA 3/30/05 PBIP-NASDAQ 8.0% 4.0% 1.4% 0.00% 86.2% 40.7x 24.5% 0.6% 19.2% 3.3% Kentucky First Federal Bancorp(7) KY 3/3/05 KFFB-NASDAQ 8.7% 7.9% 5.5% 4.00% 91.5% 35.5x 26.4% 0.6% 16.1% 3.6% Averages - Mutual Holding Companies 8.4% 5.2% 4.6% 0.67% 85.0% 55.8x 22.5% 0.5% 16.4% 3.0% Medians - Mutual Holding Companies 8.4% 4.3% 4.9% 0.00% 86.7% 41.4x 22.4% 0.5% 15.5% 3.0% Averages - All Conversions 7.5% 5.0% 5.4% 1.02% 94.4% 51.0x 20.0% 3.7% 16.2% 42.7% Medians - All Conversions 8.0% 4.2% 3.5% 0.00% 88.3% 39.3x 20.3% 0.6% 14.9% 3.1% - --------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------- Institutional Information Post-IPO Pricing Trends ------------------------------------------- Closing Price - ------------------------------------------------------------- ------------------------------------------- First After After Conversion IPO Trading % First % First % Institution ST. Date Ticker Price Day Change Week Change Month Change ($) ($) (%) (4)($) (%) (5)($) (%) - ---------------------------------------------------------------------------------------------------------------- Standard Conversions - -------------------- Benjamin Franklin Bancorp, Inc.*(1.7) MA 4/5/05 BFBC-NASDAQ $10.0 $10.06 0.6% $10.39 3.9% $10.25 2.5% OC Financial, Inc.* OH 4/1/05 OCFL-OTCBB $10.0 $12.00 20.0% $10.80 8.0% $11.00 10.0% Averages - Standard Conversions: $10.0 $11.03 10.3% $10.60 6.0% $10.63 6.3% Medians - Standard Conversions: $10.0 $11.03 10.3% $10.60 6.0% $10.63 6.3% Second Step Conversions - ----------------------- Hudson City Bancorp, Inc.* NJ 6/7/05 HCBK-NASDAQ $10.0 $10.00 0.0% $10.00 0.0% $10.00 0.0% First Federal of NM Bancorp, Inc.* NM I4/4/05. FFNM-NASDAQ $10.0 $ 9.49 -5.1% $ 9.20 -8.0% $ 8.40 -16.0% Rome Bancorp, Inc.* NY 3/31/05 ROME-NASDAQ $10.0 $10.05 0.5% $ 9.75 -2.5% $ 9.44 -5.6% Averages - Second Step Conversions: $10.0 $ 9.85 -1.5% $ 9.65 -3.5% $ 9.28 -7.2% Medians - Second Step Conversions: $10.0 $10.00 0.0% $ 9.75 -2.5% $ 9.44 -5.6% Mutual Holding Companies(6) - --------------------------- North Penn Bancorp, Inc.(1) PA 6/2/05 NPEN-OTCBB $10.0 $11.00 10.0% $11.00 10.0% $11.00 10.0% Rockville Financial, Inc.(1) CT 5/23/05 RCKB-NASDAQ $10.0 $10.48 4.8% $11.05 10.5% $11.62 16.2% FedFirst Financial Corporation* PA 4/7/05 FFCO-NASDAQ $10.0 $ 9.34 -6.6% $ 9.07 -9.3% $ 8.55 -14.5% Brooklyn Federal Bancorp, Inc.* NY 4/6/05 BFSB-NASDAQ $10.0 $ 9.95 -0.5% $ 9.90 -1.0% $ 9.50 -5.0% Prudential Bancorp, Inc.(1)* PA 3/30/05 PBIP-NASDAQ $10.0 $ 9.85 -1.5% $ 9.35 -6.5% $ 8.75 -12.5% Kentucky First Federal Bancorp(7) KY 3/3/05 KFFB-NASDAQ $10.0 $10.79 7.9% $11.20 12.0% $11.24 12.4% Averages - Mutual Holding Companies $10.0 $10.24 2.4% $10.26 2.6% $10.11 1.1% Medians - Mutual Holding Companies $10.0 $10.22 2.2% $10.45 4.5% $10.25 2.5% Averages - All Conversions: $10.0 $10.27 2.7% $10.16 1.6% $ 9.98 -0.2% Medians - All Conversions: $10.0 $10.05 0.5% $10.00 0.0% $10.00 0.0% - ---------------------------------------------------------------------------------------------------------------
Note: * - Appraisal performed by RP Financial; "NT" - Not Traded; "NA" - Not Applicable, Not Available; C/S-Cash/Stock. (1) Non-OTS regulated thrift. (2) As a percent of MHC offering for MHC transaction. (3) Does not take into account the adoption of SOP 93.6. (4) Latest price if offering is less than one week old. (5) Latest price if offering is more than one week but less than one month old. (6) Mutual holding company pro forma data on full conversion basis. (7) Simultaneously completed acquisition of another financial institution. (8) Simultaneously converted to a commercial bank charter. (9) Former credit union. RP(R) Financial, LC. Page 4.16 pending the close of its offering and was scheduled to trade as a fully converted company approximately one week following the appraisal date of this report), have traded down post-IPO reflecting current market weakness. On average, these three recent second step transactions were priced at 108.2% of pro forma book value, with Hudson City Bancorp at the upper end of the range (121.5% of pro forma book value and 21.3 times pro forma earnings) reflecting its large size and strong earnings while First Federal closed at the lower end of the range of the recent second step conversions (107.0% of pro forma book value and 85.9x pro forma earnings) owing to its comparatively small size and more limited earnings capacity. The weakness in the second step market is evidenced in the relationship of the trading prices of the minority shares of Rome Bancorp, First Federal of Northern Michigan Bancorp and Hudson City Bancorp prior to the commencement of their offerings and their final exchange ratios (see below). For all the foregoing transactions, the values implied by their final exchange ratios were lower than their trading prices at the commencement of their offerings, suggesting that, under current market conditions, the final market values for these companies were below the values implied by the trading prices of their minority shares. Post-Announcement Trading Activity of MHCs Announcing Second Step Conversions
Rome First Hudson City Bancorp Federal Bancorp ------- ------- ------- Date of Announcement 11/11/2004 11/12/2004 12/17/2004 Share Price at Announcement $28.00 $16.30 $39.93 Share Price at Commencement of Offering $28.05 $24.75 $35.85 Share Price Implied by Final Exchange $22.68 $18.65 $32.06 Difference: Announcement - Final Exchange (%) -19.0% 14.4% -19.7% Difference: Commencement - Final Exchange (%) -19.1% -24.6% -10.6% IPO Price $10.00 $10.00 $10.00 Price as of May 31, 2005 $9.63 $9.03 $10.46 (1)
(1) Adjusted for a 3.206x exchange ratio. RP(R) Financial, LC. Page 4.17 C. The Acquisition Market ---------------------- Also considered in the valuation was the potential impact on the Company's stock price of recently completed and pending acquisitions of other savings institutions operating in New Jersey. As shown in Exhibit IV-4, there were six New Jersey thrift acquisitions completed from 2001 through year-to-date 2005, and there are no currently pending transactions. The recent acquisition activity involving New Jersey savings institutions may imply a certain degree of acquisition speculation for the Company's stock. To the extent that acquisition speculation may impact the Company's offering, we have largely taken this into account in selecting companies for the Peer Group which operate in markets that have experienced a comparable level of acquisition activity as the Company's market and, thus, are subject to the same type of acquisition speculation that may influence ASB's stock. However, since converting thrifts are subject to a three-year regulatory moratorium from being acquired, acquisition speculation in ASB's stock would tend to be less compared to the stocks of the Peer Group companies. D. Trading in ASB Holding Company's Stock -------------------------------------- Since ASB's minority stock currently trades under the symbol "ASBH" on the OTC Bulletin Board, RP Financial also considered the recent trading activity in the valuation analysis. ASB had a total of 5,554,500 shares issued and outstanding at March 31, 2005, of which 1,666,350 shares were held by public shareholders and traded as public securities. As of May 31, 2005, the Company's closing stock price was $23.00 per share. There are significant differences between the Company's minority stock (currently being traded) and the conversion stock that will be issued by ASB. Such differences include different liquidity characteristics (the new conversion stock will be more liquid owing to larger number of public shares available to trade), a different return on equity for the conversion stock and dividend payments will be made on all shares outstanding; thereby, requiring a higher payout ratio to sustain the current level of dividends paid to non-MHC shareholders. Since the pro forma impact has not been publicly disseminated to date, it is appropriate to discount the current trading level. As the pro forma impact is made known publicly, the trading level will become more informative. * * * * * * * * * * * RP(R) Financial, LC. Page 4.18 In determining our valuation adjustment for marketing of the issue, we considered trends in both the overall thrift market, the new issue market including the new issue market for second-step conversions, the acquisition market and recent trading activity in the Company's minority stock. Taking these factors and trends into account, RP(R) Financial concluded that no adjustment was appropriate in the valuation analysis for purposes of marketing of the issue. 8. Management ---------- ASB's management team appears to have experience and expertise in all of the key areas of the Company's operations. The Company has recently appointed a new President and Chief Operating Officer with the objective of having this individual manage targeted growth and provide oversight to the development of commercial account relationships. While this individual has a limited track record with the Company, he has extensive commercial banking experience in the local market with a track record for success at other institutions. Exhibit IV-5 provides summary resumes of ASB's Board of Directors and senior management. While the Company does not have the resources to develop a great deal of management depth, given its asset size and the impact it would have on operating expenses, management and the Board have been effective in implementing an operating strategy that can be well managed by the Company's present organizational structure as indicated by the financial characteristics of the Company. ASB currently does not have any executive management positions that are vacant. Similarly, the returns, capital positions, and other operating measures of the Peer Group companies are indicative of well-managed financial institutions, which have Boards and management teams that have been effective in implementing competitive operating strategies. Additionally, many of the Peer Group companies have, like the Company, bolstered their management ranks with experienced individuals from their regional banking community. Therefore, on balance, we concluded no valuation adjustment relative to the Peer Group was appropriate for this factor. 9. Effect of Government Regulation and Regulatory Reform ----------------------------------------------------- In summary, as a fully-converted OTS regulated institution, ASB will operate in substantially the same regulatory environment as the Peer Group members -- all of whom are RP(R) Financial, LC. Page 4.19 adequately capitalized institutions and are operating with no apparent restrictions. Exhibit IV-6 reflects the Bank's pro forma regulatory capital ratios. On balance, no adjustment has been applied for the effect of government regulation and regulatory reform. Summary of Adjustments - ---------------------- Overall, based on the factors discussed above, we concluded that the Company's pro forma market value should reflect the following valuation adjustments relative to the Peer Group: Key Valuation Parameters: Valuation Adjustment ------------------------- -------------------- Financial Condition Slight Upward Profitability, Growth and Viability of Earnings Slight Downward Asset Growth Slight Upward Primary Market Area No Adjustment Dividends No Adjustment Liquidity of the Shares No Adjustment Marketing of the Issue No Adjustment Management No Adjustment Effect of Government Regulations and Regulatory Reform No Adjustment Valuation Approaches - -------------------- In applying the accepted valuation methodology promulgated by the OTS, i.e., the pro forma market value approach, we considered the three key pricing ratios in valuing ASB's to-be-issued stock -- price/earnings ("P/E"), price/book ("P/B"), and price/assets ("P/A") approaches -- all performed on a pro forma basis including the effects of the stock proceeds. In computing the pro forma impact of the conversion and the related pricing ratios, we have incorporated the valuation parameters disclosed in ASB's prospectus for offering expenses, reinvestment rate, effective tax rate and stock benefit plan assumptions (summarized in Exhibits IV-7 and IV-8). RP Financial's valuation placed an emphasis on the following: o P/E Approach. The P/E approach is generally the best indicator of ------------- long-term value for a stock. Given the similarities between the Company's and the Peer Group's operating strategies, earnings composition and overall financial condition, the P/E approach was carefully considered in this valuation. At the same time, since reported RP(R) Financial, LC. Page 4.20 earnings for both the Company and the Peer Group included certain non-recurring items, we also made adjustments to earnings to arrive at core earnings estimates for the Company and the Peer Group and resulting price/core earnings ratios. o P/B Approach. P/B ratios have generally served as a useful benchmark ------------ in the valuation of thrift stocks, particularly in the context of a public offering, as the earnings approach involves assumptions regarding the use of proceeds. RP Financial considered the P/B approach to be a useful indicator of pro forma value, taking into account the pricing ratios under the P/E and P/A approaches. We have also modified the P/B approach to exclude the impact of intangible assets (i.e., price/tangible book value or "P/TB"), in that the investment community frequently makes this adjustment in its evaluation of this pricing approach. o P/A Approach. P/A ratios are generally a less reliable indicator of ------------ market value, as investors typically assign less weight to assets and attribute greater weight to book value and earnings - we have also given less weight to the assets approach. Furthermore, this approach as set forth in the regulatory valuation guidelines does not take into account the amount of stock purchases funded by deposit withdrawals, thus understating the pro forma P/A ratio. At the same time, the P/A ratio is an indicator of franchise value, and, in the case of highly capitalized institutions, high P/A ratios may limit the investment community's willingness to pay market multiples for earnings or book value when ROE is expected to be low. o Trading of ASBH stock. Converting institutions generally do not have --------------------- stock outstanding. ASB, however, has public shares outstanding due to the mutual holding company form of ownership. Since ASB is currently traded on the OTC Bulletin, it is an indicator of investor interest in the Company's conversion stock and therefore received some weight in our valuation. Based on the May 31, 2005 stock price of $23.00 per share and the 5,554,500 shares of ASB stock outstanding, the Company's implied market value of $127.8 million was considered in the valuation process. However, since the conversion stock will have different characteristics than the minority shares, and since pro forma information has not been publicly disseminated to date, the current trading price of ASB's stock was somewhat discounted herein but will become more important towards the closing of the offering. The Company has adopted Statement of Position ("SOP") 93-6, which causes earnings per share computations to be based on shares issued and outstanding excluding unreleased ESOP shares. For purposes of preparing the pro forma pricing analyses, we have reflected all shares issued in the offering, including all ESOP shares, to capture the full dilutive impact, particularly since the ESOP shares are economically dilutive, receive dividends and can be voted. However, we did consider the impact of SOP 93-6 in the valuation. RP(R) Financial, LC. Page 4.21 Based on the application of the three valuation approaches, taking into consideration the valuation adjustments discussed above, RP(R) Financial concluded that, as of May 31, 2005, the aggregate pro forma market value of ASB's conversion stock was $107,142,850 at the midpoint, equal to 10,714,285 shares at $10.00 per share. The midpoint and resulting valuation range is based on the sale of a 70.00% ownership interest to the public, which provides for a $75.0 million public offering at the midpoint value. 1. Price-to-Earnings ("P/E"). The application of the P/E valuation -------------------------- method requires calculating the Company's pro forma market value by applying a valuation P/E multiple to the pro forma earnings base. In applying this technique, we considered both reported earnings and a recurring earnings base, that is, earnings adjusted to exclude any one-time non-operating items, plus the estimated after-tax earnings benefit of the reinvestment of the net proceeds. The Company's reported earnings, equaled $2.295 million for the twelve months ended March 31, 2005. In deriving ASB's estimated core earnings for purposes of the valuation, the only adjustments made to reported earnings was to eliminate the net gains on the sale of loans and real estate owned which together, equaled $183,000 for the twelve month period. As shown below, on a tax-effected basis, assuming an effective marginal tax rate of 39.94%, the Company's core earnings were determined to equal $2.185 million for the twelve months ended March 31, 2005. (Note: see Exhibit IV-9 for the adjustments applied to the Peer Group's earnings in the calculation of core earnings). Amount(1) --------- ($000) Net income $2,295 Deduct: Net non-operating income (1) (110) ------ Core earnings estimate $2,185 (1) Adjustment was tax effected at 39.94%. Based on the Company's reported and estimated core earnings, and incorporating the impact of the pro forma assumptions discussed previously, the Company's pro forma reported and core P/E multiples at the $107.1 million midpoint value equaled 44.42 times and 46.54 times, respectively, which provided for premiums of 162.7% and 178.7% relative to the Peer RP(R) Financial, LC. Page 4.22 Group's average reported and core earnings multiples of 18.25 times and 18.09 times, respectively (see Table 4.3). 2. Price-to-Book ("P/B"). The application of the P/B valuation method ---------------------- requires calculating the Company's pro forma market value by applying a valuation P/B ratio, derived from the Peer Group's P/B ratio, to the Company's pro forma book value. The Company's pre-conversion book value was adjusted to include $100,000 of equity held at the MHC level which will be consolidated with the Company's capital as the result of the conversion, and $312,000 ESOP-related contra-equity account which will be eliminated upon conversion. In applying the P/B approach, we considered both reported book value and tangible book value. Based on the $107.1 million midpoint valuation, ASB's pro forma P/B and P/TB ratios both equaled 103.28%. In comparison to the respective average P/B and P/TB ratios indicated for the Peer Group of 148.97% and 153.57%, the Company's ratios reflected discounts of 30.7% and 32.8%, respectively. RP(R) Financial considered the discounts under the P/B approach to be reasonable in light of the valuation adjustments referenced earlier, the comparatively lower pro forma return on equity and the resulting pricing ratios under the earnings and assets approaches. 3. Price-to-Assets ("P/A"). The P/A valuation methodology determines ------------------------ market value by applying a valuation P/A ratio to the Company's pro forma asset base, conservatively assuming no deposit withdrawals are made to fund stock purchases. In all likelihood there will be deposit withdrawals, which results in understating the pro forma P/A ratio computed herein. At the midpoint of the valuation range, ASB's value equaled 21.20% of pro forma assets. Comparatively, the Peer Group companies exhibited an average P/A ratio of 12.97%, which implies a premium of 63.5% has been applied to the Company's pro forma P/A ratio. Comparison to Recent Conversions - -------------------------------- As indicated at the beginning of this chapter, RP(R) Financial's analysis of recent conversion offering pricing characteristics at closing and in the aftermarket has been limited to a "technical" analysis and, thus, the pricing characteristics of recent conversion offerings can not be a primary determinate of value. Particular focus was placed on the P/TB approach in this analysis, since the P/E multiples do not reflect the actual impact of reinvestment and the source of the stock proceeds (i.e., external funds vs. deposit withdrawals). RP(R) Financial, LC. Page 4.23 The three second-step conversion offerings completed in the past three months closed with pro forma P/TB ratios of 107.0% (Rome Bancorp) and 96.3% (First Federal of Northern Michigan), after extension of their offerings, while Hudson City Bancorp closed at a pro forma P/TB ratio of 121.5% after completing its syndicated community offering. During their first week of trading as fully-converted companies, Rome Bancorp's and First Federal of Northern Michigan's stock prices had decreased by 2.5% and 8.0% from their respective IPO prices and remained below their IPO price as of May 31, 2005 (by 3.7% and 10.0%, respectively). Hudson City's offering was pending closing with the trading price as of May 31, 2005, up by approximately 5% relative to its proposed closing value adjusted for the final exchange ratio. Valuation Conclusion - -------------------- Based on the foregoing, it is our opinion that, as of May 31, 2005, the estimated aggregate pro forma market value of the Company, inclusive of the sale of the MHC's ownership interest to the public shareholders, was $107,142,850 at the midpoint. Based on this valuation and the approximate 70.00% ownership interest being sold in the public offering, the midpoint value of the Company's stock offering is $75,000,000, equal to 7,500,000 shares at a per share value of $10.00. Pursuant to conversion guidelines, the 15% offering range indicates a minimum offering value of $63,750,000 and a maximum offering value of $86,250,000. Based on the $10.00 per share offering price, this valuation range equates to an offering of 6,375,000 shares at the minimum and 8,625,000 shares at the maximum. In the event the appraised value is subject to an increase, the offering range may be increased up to a supermaximum value of $99,187,500 without requiring a resolicitation. Based on the $10.00 per share offering price, the supermaximum value would result in an offering of 9,918,750 shares. The pro forma valuation calculations relative to the Peer Group are shown in Table 4.3 and are detailed in Exhibit IV-7 and Exhibit IV-8. Establishment of the Exchange Ratio - ----------------------------------- OTS regulations provide that in a conversion of a mutual holding company, the minority stockholders are entitled to exchange the public shares for newly issued shares of ASB stock as a fully converted company. The Board of Directors of the MHC has independently determined the RP(R) Financial, LC. Page 4.24 exchange ratio. The determined exchange ratio has been designed to preserve the current aggregate percentage ownership in ASB equal to 30.00% as of March 31, 2005. The exchange ratio to be received by the existing minority shareholders of ASB will be determined at the end of the offering, based on the total number of shares sold in the subscription and community offerings. Based upon this calculation, and the valuation conclusion and offering range concluded above, the exchange ratio would be 1.63960 shares, 1.92894 shares, 2.21828 shares and 2.55102 shares of newly issued shares of ASB stock for each share of stock held by the public shareholders at the minimum, midpoint, maximum and supermaximum of the offering range, respectively. RP(R) Financial expresses no opinion on the proposed exchange of newly issued Company shares for the shares held by the public stockholders or on the proposed exchange ratio. RP(R) Financial, LC. Page 4.25 Table 4.3 Public Market Pricing ASB Holding Company and the Comparables As of May 31, 2005
Market Per Share Date Capitalization -------------- --------------- Core Book Pricing Ratios(3) Price/Market 12 Month Value/------------------------------------ Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/Core ------- ------ ------ ----- --- --- --- ---- ------ ($) ($Mil) ($) ($) (x) (%) (%) (%) (x) ASB Holding Company - ------------------- Superrange $10.00 $141.70 $0.17 $8.81 57.72x 113.53 26.91% 113.53% 60.43x Maximum $10.00 $123.21 $0.20 $9.21 50.67x 108.52 23.91% 108.52% 53.06x Midpoint $10.00 $107.14 $0.23 $9.68 44.42x 103.28 21.20% 103.28% 46.54x Minimum $10.00 $91.07 $0.26 $10.32 38.07x 96.94% 18.37% 96.94% 39.91x All Public Companies(7) - ----------------------- Averages $20.04 $376.96 $1.03 $13.53 19.35x 151.48 16.51% 169.40% 20.28x Medians --- --- --- --- 16.28x 144.00 14.26% 157.83% 18.32x All Non-MHC State of NJ(7) - -------------------------- Averages $17.63 $356.36 $0.97 $10.91 19.14x 163.97 14.64% 178.11% 21.07x Medians --- --- --- --- 14.46x 161.04 15.68% 180.91% 19.30x Comparable Group Averages - ------------------------- Averages $20.71 $74.13 $1.29 $13.97 18.25x 148.97 12.97% 153.57% 18.09x Medians - - - - 15.27x 146.14 13.36% 149.16% 15.52x Comparable Group - ---------------- ALFC Atlantic Liberty Financial of NY $23.75 $39.97 $1.53 $16.53 19.63x 143.68 21.73% 143.68% 15.52x ESBK Elmira Savings Bank, FSB of NY $30.75 $33.76 $2.19 $19.67 12.92x 156.33 10.62% 159.49% 14.04x FSBI Fidelity Bancorp, Inc. of PA $20.99 $61.35 $1.38 $14.03 14.89x 149.61 %9.52% 160.72% 15.21x FKFS First Keystone Financial, Inc. of PA $17.31 $34.65 $0.99 $14.56 17.31x 118.89 %6.02% 118.89% 17.48x HARL Harleysville Savings Fin. Corp. of PA $17.75 $68.62 $1.24 $11.90 13.98x 149.16 %9.17% 149.16% 14.31x LARL Laurel Capital Group Inc. of PA $21.75 $42.20 $0.98 $14.07 22.19x 154.58 13.71% 176.69% 22.19x PBCI Pamrapo Bancorp, Inc. of of NJ $21.90 $108.97 $1.60 $11.25 13.69x 194.67 17.03% 194.67% 13.69x SYNF Synergy Financial Group of NJ $12.13 $150.23 $0.35 $8.30 34.66x 146.14 16.76% 147.39% 34.66x THRD TF Financial Corp. of Newtown PA $29.00 $85.55 $2.17 $20.63 13.30x 140.57 13.36% 152.39% 13.36x WVFC WVS Financial Corp. of PA $17.10 $41.13 $1.03 $11.99 15.27x 142.62 %9.66% 142.62% 16.60x WGBC Willow Grove Bancorp Inc. of PA $15.34 $149.01 $0.70 $10.77 22.90x 142.43 15.06% 143.63% 21.91x
Dividends(4) Financial Characteristics(6) ------------------- ----------------------------------------------- Reported Core Amount/ Payout Total Equity NPAs/------------- ---------- Offering Exchange Share Yield Ratio(5) Assets Assets Assets ROA ROE ROA ROE Size Ratio ----- ----- ------- ------- ------ ------ --- --- --- --- ---- ----- ($) (%) (%) ($Mil) (%) (%) (%) (%) (%) (%) ($Mil) (x) ASB Holding Company - ------------------- Superrange $0.00 0.00% 0.00% $527 23.70% 0.07% 0.47% 1.97% 0.45% 1.88% 99.19 2.55102x Maximum $0.00 0.00% 0.00% $515 22.03% 0.07% 0.47% 2.14% 0.45% 2.05% 86.25 2.21828x Midpoint $0.00 0.00% 0.00% $505 20.52% 0.07% 0.48% 2.32% 0.46% 2.22% 75.00 1.92894x Minimum $0.00 0.00% 0.00% $496 18.95% 0.07% 0.48% 2.55% 0.46% 2.43% 63.75 1.63960x All Public Companies(7) - ----------------------- Averages $0.45 2.24% 34.03% $2,566 11.02% 0.46% 0.76% 7.90% 0.73% 7.10% Medians --- --- --- --- --- --- --- --- --- --- All Non-MHC State of NJ(7) - -------------------------- Averages $0.43 2.24% 35.98% $2,171 9.46% 0.17% 0.86% 10.31% 0.78% 9.28% Medians --- --- --- --- --- --- --- --- --- --- Comparable Group Averages - ------------------------- Averages $0.57 2.76% 44.63% $579 8.67% 0.30% 0.76% 9.03% 0.78% 9.03% Medians --- --- --- --- --- --- --- --- --- --- Comparable Group - ---------------- ALFC Atlantic Liberty Financial of NY $0.28 1.18% 18.30% $184 15.12% 0.09% 1.14% 7.52% 1.44% 9.51% ESBK Elmira Savings Bank, FSB of NY $0.80 2.60% 36.53% $318 6.79% 0.17% 0.84% 12.05% 0.77% 11.09% FSBI Fidelity Bancorp, Inc. of PA $0.47 2.24% 34.06% $645 6.36% N.A. 0.65% 9.98% 0.63% 9.77% FKFS First Keystone Financial, Inc. of PA $0.44 2.54% 44.44% $576 5.06% 0.98% 0.35% 6.68% 0.35% 6.62% HARL Harleysville Savings Fin. Corp. of PA $0.60 3.38% 48.39% $748 6.15% 0.03% 0.68% 11.09% 0.67% 10.83% LARL Laurel Capital Group Inc. of PA $0.80 3.68% N.M. $308 8.87% 0.31% 0.62% 6.93% 0.62% 6.93% PBCI Pamrapo Bancorp, Inc. of of NJ $0.88 4.02% 55.00% $640 8.75% 0.50% 1.24% 14.71% 1.24% 14.71% SYNF Synergy Financial Group of NJ $0.16 1.32% 45.71% $896 11.47% 0.02% 0.53% 4.15% 0.53% 4.15% THRD TF Financial Corp. of Newtown PA $0.72 2.48% 33.18% $641 9.50% 0.22% 1.03% 10.89% 1.02% 10.84% WVFC WVS Financial Corp. of PA $0.64 3.74% 62.14% $426 6.77% N.A. 0.65% 9.23% 0.60% 8.48% WGBC Willow Grove Bancorp Inc. of PA $0.48 3.13% 68.57% $990 10.57% 0.38% 0.69% 6.15% 0.72% 6.43%
(1) Average of High/Low or Bid/Ask price per share. (2) EPS (estimate core basis) is based on actual trailing 12 month data, adjusted to omit non-operating items (including the SAIF assessment) on a tax-effected basis, and is shown on a pro forma basis where appropriate. (3) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. (4) Indicated 12 month dividend, based on last quarterly dividend declared. (5) Indicated 12 month dividend as a percent of trailing 12 month estimated core earnings. (6) ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing 12 month common earnings and average common equity and total assets balances. (7) Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics. Source: Corporate reports, offering circulars, and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. Copyright (c) 2005 by RP(R) Financial, LC. EXHIBITS RP(R) Financial, LC. LIST OF EXHIBITS Exhibit Number Description - ------ ----------- I-1 Audited Financial Statements I-2 Key Operating Ratios I-3 Investment Portfolio Composition I-4 Yields and Costs I-5 Interest Rate Risk Analysis I-6 Fixed Rate and Adjustable Rate Loans I-7 Loan Portfolio Composition I-8 Contractual Maturity By Loan Type I-9 Non-Performing Assets I-10 Loan Loss Allowance Activity I-11 Deposit Composition I-12 CDs by Rate and Maturity I-13 Borrowings Activity II-1 Description of Office Facilities II-2 Historical Interest Rates RP(R) Financial, LC. LIST OF EXHIBITS (continued) Exhibit Number Description - ------ ----------- III-1 General Characteristics of Publicly-Traded Institutions III-2 Public Market Pricing of New Jersey Thrifts III-3 Public Market Price of Mid-Atlantic Thrifts IV-1 Stock Prices: As of May 31, 2005 IV-2 Historical Stock Price Indices IV-3 Historical Thrift Stock Indices IV-4 Market Area Acquisition Activity IV-5 Director and Senior Management Summary Resumes IV-6 Pro Forma Regulatory Capital Ratios IV-7 Pro Forma Analysis Sheet IV-8 Pro Forma Effect of Conversion Proceeds IV-9 Peer Group Core Earnings Analysis V-1 Firm Qualifications Statement EXHIBIT I-1 ASB Holding Company Audited Financial Statements [Incorporated by Reference] EXHIBIT I-2 ASB Holding Company Key Operating Ratios Exhibit I-2 ASB Holding Company Key Operating Ratios
At or For the Six Months Ended At or For the Year Ended March 31, September 30, ---------------- ---------------------------------------------- 2005 2004 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- ---- ---- PERFORMANCE RATIOS(1): Return on average assets (ratio of net income to average total assets) ................. 0.55% 0.54% 0.54% 0.39% 0.63% 0.68% 0.86% Return on average equity (ratio of net income to average equity) ....................... 6.22% 5.73% 5.77% 6.48% 9.30% 8.28% 11.13% Net interest rate spread .................... 2.36% 2.29% 2.28% 2.14% 2.63% 2.49% 2.63% Net interest margin on average interest-earning assets .................. 2.67% 2.61% 2.60% 2.44% 3.00% 3.10% 3.20% Average interest-earning assets to average interest-bearing liabilities ............. 114.62% 115.25% 115.67% 111.69% 112.30% 115.01% 113.99% Operating expense ratio (noninterest expenses to average total assets) ................. 1.91% 1.92% 1.92% 1.89% 2.09% 2.16% 2.03% Efficiency ratio (noninterest expense divided by sum of net interest income and noninterest income) ...................... 67.31% 67.88% 67.18% 73.60% 67.14% 68.80% 60.03% ASSET QUALITY RATIOS: Non-performing loans to total loans ......... 0.11% 0.13% 0.17% 0.20% 0.27% 0.36% 0.53% Non-performing assets to total assets ....... 0.08% 0.14% 0.12% 0.12% 0.17% 0.24% 0.35% Net charge-offs to average loans outstanding 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01% Allowance for loan losses to non-performing loans .................................... 480.66% 403.88% 304.05% 265.18% 195.96% 160.67% 128.92% Allowance for loan losses to total loans .... 0.50% 0.52% 0.51% 0.52% 0.53% 0.58% 0.68% CAPITAL RATIOS: Equity to total assets at end of period ..... 8.80% 9.80% 9.25% 5.23% 6.53% 7.81% 7.79% Average equity to average assets ............ 8.90% 9.42% 9.37% 5.98% 6.78% 8.24% 7.70%
(1) Performance ratios for the six month periods ended March 31, 2005 and 2004 are annualized where appropriate. EXHIBIT I-3 ASB Holding Company Investment Portfolio Composition Exhibit I-3 ASB Holding Company Investment Portfolio Composition
At March 31, At September ------------ --------------------------- 2005 2004 2003 2002 ------------ ---- ---- ---- (In thousands) Securities Held-to-Maturity: U.S. government and federal agency obligations.. $ 2,000 $ -- $ -- $ -- Collateralized mortgage non-agency obligations.. 2,785 -- -- -- Collateralized mortgage agency obligations ..... 90 107 193 3,076 Government National Mortgage Association ....... 278 327 476 711 Federal Home Loan Mortgage Corporation ......... 445 490 657 986 Federal National Mortgage Association .......... 2,928 1,870 1,513 2,197 -------- -------- -------- -------- Total securities held-to-maturity ............ 8,526 2,794 2,839 6,970 -------- -------- -------- -------- Securities Available-for-Sale: U.S. government and federal agency obligation... 11,740 13,840 13,484 -- Collateralized mortgage non-agency obligations.. 599 1,234 4,962 19,177 Collateralized mortgage agency obligations ..... 34,311 42,870 61,685 57,346 Government National Mortgage Association ....... 177 202 320 513 Federal Home Loan Mortgage Corporation ......... 4,854 5,219 346 885 Federal National Mortgage Association .......... 14,482 16,261 16,664 2,213 Mutual fund .................................... 9,829 9,869 9,930 10,000 -------- -------- -------- -------- Total securities available-for-sale .......... 75,992 89,495 107,391 90,134 -------- -------- -------- -------- Total ........................................ $ 84,518 $ 92,289 $110,230 $ 97,104 ======== ======== ======== ========
EXHIBIT I-4 ASB Holding Company Yields and Costs Exhibit I-4 ASB Holding Company Yields and Costs
At March 31, Six Months Ended March 31, --------------------- ------------------------------------- 2005 2005 --------------------- ------------------------------------ Average Interest Average Balance Yield/Cost Balance Earned/Paid Yield/Cost ------- ---------- ------- ----------- ---------- (Dollars in thousands) INTEREST-EARNING ASSETS: Loans receivable, net(1)............... $333,554 5.36% $318,539 8,483 5.33% Investment securities(2)............... 84,518 3.42% 91,109 1,450 3.18% Other interest-earning assets(3)....... 5,971 3.38% 7,052 61 1.72% -------- -------- ------ Total interest-earning assets.......... 424,043 4.94% 416,700 9,994 4.80% Noninterest-earning assets............. 16,911 14,806 -------- -------- Total assets........................... $440,954 $431,505 ======== ======== INTEREST-BEARING LIABILITIES: NOW & money market..................... $ 34,018 1.18% $ 37,307 206 1.11% Savings deposits(4).................... 134,637 1.58% 140,934 1,108 1.57% Certificates of deposit................ 135,295 2.94% 123,542 1,705 2.76% -------- -------- ------ Total interest-bearing deposits........ 303,950 2.14% 301,783 3,019 2.00% Federal Home Loan Bank advances........ 68,263 4.45% 61,780 1,404 4.54% -------- -------- ------ Total interest-bearing liabilities.... 372,213 2.56% 363,563 4,423 2.43% Noninterest-bearing deposits........... 24,093 23,685 Other noninterest-bearing liabilities.. 5,837 5,834 -------- -------- Total liabilities...................... 402,143 393,082 Stockholders' equity................... 38,811 38,423 -------- -------- Total liabilities and equity........... $440,954 $431,505 ======== ======== Net interest spread(5)................. 2.38% $5,571 2.36% ==== ====== ==== Net interest margin(6)................. 2.70% 2.67% ==== ==== Ratio of interest-earning assets to interest-bearing liabilities......... 113.92% 114.62% ====== ====== Six Months Ended March 31, ------------------------------------- 2004 ------------------------------------- Average Interest Average Balance Earned/Paid Yield/Cost ------- ----------- ----------- (Dollars in thousands) INTEREST-EARNING ASSETS: Loans receivable, net(1)............... $270,680 7,405 5.47% Investment securities(2)............... 105,579 1,587 3.01% Other interest-earning assets(3)....... 5,978 25 0.84% -------- ------ Total interest-earning assets.......... 382,237 9,017 4.72% Noninterest-earning assets............. 11,060 -------- Total assets........................... $393,297 ======== INTEREST-BEARING LIABILITIES: NOW & money market..................... $ 21,913 109 0.99% Savings deposits(4).................... 131,707 1,033 1.57% Certificates of deposit................ 118,306 1,458 2.46% -------- ------ Total interest-bearing deposits........ 271,926 2,600 1.91% Federal Home Loan Bank advances........ 59,780 1,428 4.78% -------- ------ Total interest-bearing liabilities.... 331,706 4,028 2.43% Noninterest-bearing deposits........... 22,154 Other noninterest-bearing liabilities.. 2,400 -------- Total liabilities...................... 356,260 Stockholders' equity................... 37,037 -------- Total liabilities and equity........... $393,297 ======== Net interest spread(5)................. $4,989 2.29% ====== ==== Net interest margin(6)................. 2.61% ==== Ratio of interest-earning assets to interest-bearing liabilities......... 115.23% ======
- ----------------- (1) Calculated net of deferred fees and loss reserves. Non-accruing loans have been included as loans carrying a zero yield. (2) Calculated based on amortized cost excluding FAS 115 market value adjustment. (3) Includes Federal Home Loan Bank stock at cost and term deposits with other financial institutions. (4) Includes money market savings accounts. (5) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (6) Net interest margin represents net interest income as a percentage of average interest-earning assets. Exhibit I-4 (continued) ASB Holding Company Yields and Costs
Year Ended September 30, ------------------------------------------------------------------------------ 2004 2003 ------------------------------------ ---------------------------------- Average Interest Average Average Interest Average Balance Earned/Paid Yield/Cost Balance Earned/Paid Yield/Cost ------- ----------- ---------- ------- ----------- ---------- (Dollars in thousands) Interest-earning assets: Loans receivable, net(1)............... $278,632 $15,017 5.39% $238,474 $14,343 6.01% Investment securities(2)............... 103,978 3,125 3.01% 100,787 2,918 2.90% Other interest-earning assets(3)....... 6,302 62 0.98% 13,462 215 1.60% -------- ------- -------- ------- Total interest-earning assets.......... 388,912 18,204 4.68% 352,723 17,476 4.95% Noninterest-earning assets............. 10,755 9,459 -------- -------- Total assets........................... $399,667 $362,182 ======== ======== Interest-bearing liabilities: NOW & money market..................... $23,086 225 0.97% $22,511 290 1.29% Savings deposits(4).................... 136,100 2,109 1.55% 117,052 2,307 1.97% Certificates of deposit................ 116,926 2,912 2.49% 121,310 3,439 2.83% -------- ------- -------- ------- Total interest-bearing deposits........ 276,113 5,246 1.90% 260,873 6,036 2.31% Federal Home Loan Bank advances........ 60,125 2,859 4.76% 54,923 2,834 5.16% -------- ------- -------- ------- Total interest-bearing liabilities.... 336,238 8,105 2.41% 315,796 8,870 2.81% Noninterest-bearing deposits........... 22,080 ------- 20,303 ------- Other noninterest-bearing liabilities.. 3,884 4,441 -------- -------- Total liabilities...................... 362,202 340,540 Stockholders' equity................... 37,465 21,642 -------- -------- Total liabilities and equity........... $399,667 $362,182 ======== ======== Net interest spread(5)................. $10,099 2.28% $ 8,606 2.14% ======= ==== ======= ==== Net interest margin(6)................. 2.60% 2.44% ==== ==== Ratio of interest-earning assets to interest-bearing liabilities......... 115.67% 111.69% ====== ====== Year Ended September 30, ----------------------------------- 2002 ----------------------------------- Average Interest Average Balance Earned/Paid Yield/Cost -------- ----------- ---------- Interest-earning assets: Loans receivable, net(1)............... $186,974 $12,907 6.90% Investment securities(2)............... 91,141 4,414 4.84% Other interest-earning assets(3)....... 13,506 257 1.90% -------- ------- Total interest-earning assets.......... 291,621 17,578 6.03% Noninterest-earning assets............. 8,223 -------- Total assets........................... $299,844 ======== Interest-bearing liabilities: NOW & money market..................... $14,381 211 1.47% Savings deposits(4).................... 86,475 2,196 2.54% Certificates of deposit................ 114,965 4,158 3.62% -------- ------- Total interest-bearing deposits........ 215,821 6,565 3.04% Federal Home Loan Bank advances........ 43,859 2,264 5.16% -------- ------- Total interest-bearing liabilities.... 259,680 8,829 3.40% Noninterest-bearing deposits........... 16,333 ------- Other noninterest-bearing liabilities.. 3,507 -------- Total liabilities...................... 279,520 Stockholders' equity................... 20,324 -------- Total liabilities and equity........... $299,844 ======== Net interest spread(5)................. $ 8,749 2.63% ======= ==== Net interest margin(6)................. 3.00% ==== Ratio of interest-earning assets to interest-bearing liabilities......... 112.30% ======
- --------------------- (1) Calculated net of deferred fees and loss reserves. Non-accruing loans have been included as loans carrying a zero yield. (2) Calculated based on amortized cost excluding FAS 115 market value adjustment. (3) Includes Federal Home Loan Bank stock at cost and term deposits with other financial institutions. (4) Includes money market savings accounts. (5) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (6) Net interest margin represents net interest income as a percentage of average interest-earning assets. EXHIBIT I-5 ASB Holding Company Interest Rate Risk Analysis Exhibit I-5 ASB Holding Company Interest Rate Risk Analysis
Net Portfolio Value Net Portfolio Value as % of Present Value of Assets --------------------- ---------------------------------------- Changes in Net Portfolio Basis Point Rates(1) $ Amount $ Change % Change Value Ratio Change ----------- -------- -------- -------- ------------- ----------- (Dollars in thousands) +300 bp 24,991 -23,067 -48% 5.98% -468 bp +200 bp 33,146 -14,912 -31% 7.72% -293 bp +100 bp 41,117 -6,940 -14% 9.33% -132 bp 0 bp 48,058 10.66% -100 bp 53,007 4,950 +10% 11.53% +87 bp -200 bp 53,372 5,314 +11% 11.49% +84 bp
(1) The-300bp scenario is not shown due to the low prevailing interest rate environment. EXHIBIT I-6 ASB Holding Company Fixed Rate and Adjustable Rate Loans Exhibit I-6 ASB Holding Company Fixed Rate and Adjustable Rate Loans The following table sets forth the dollar amount of all loans at March 31, 2005 due after March 31, 2006, which have fixed interest rates and which have floating or adjustable interest rates. Floating or Fixed Rates Adjustable Rates Total ----------- ---------------- ----- (In thousands) One- to four-family............ $153,365 $108,385 $261,750 Multi-family and commercial.... 19,695 34,634 54,329 Construction................... - 4,417 4,417 Consumer....................... 9 - 9 Home equity.................... - 11,232 11,232 Commercial..................... 33 103 136 -------- -------- -------- Total........................ $173,102 $158,771 $331,873 ======== ======== ======== The following table sets forth the dollar amount of all loans at September 30, 2004 due after September 30, 2005, which have fixed interest rates and which have floating or adjustable interest rates. Floating or Fixed Rates Adjustable Rates Total ----------- ---------------- ----- (In thousands) One- to four-family............ $156,752 $93,990 $250,742 Multi-family and commercial.... 19,399 23,522 42,921 Construction................... - 6,150 6,150 Consumer....................... 6 -- 6 Home equity.................... - 10,647 10,647 Commercial..................... 125 121 246 -------- -------- -------- Total........................ $176,282 $134,430 $310,712 ======== ======== ======== EXHIBIT I-7 ASB Holding Company Loan Portfolio Composition Exhibit I-7 ASB Holding Company Loan Portfolio Composition
At March 31, At September 30 ------------------ ------------------------------------------------------------------ 2005 2004 2003 2002 ------------------ ------------------ ------------------ ------------------ Amount Percent Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- ------ ------- (Dollars in thousands) Type of Loans: Mortgage Loans One- to four-family(1)............ $262,286 77.49% $251,531 80.17% $215,984 81.59% $167,564 79.06% Multi-family and commercial....... 55,454 16.38 43,197 13.77 36,202 13.68 29,503 13.92 Construction........................ 8,132 2.40 7,175 2.29 1,233 0.47 4,875 2.30 Consumer............................ 701 0.21 746 0.24 780 0.29 795 0.38 Home equity......................... 11,249 3.32 10,666 3.40 8,893 3.36 6,904 3.26 Commercial.......................... 663 0.20 398 0.13 1,610 0.61 2,298 1.08 -------- ------ -------- ------ -------- ------ -------- ------ Total loans receivable......... 338,485 100.00% 313,713 100.00% 264,702 100.00% 211,939 100.00% ====== ====== ====== ====== Less: Allowance for loan losses......... (1,689) (1,578) (1,371) (1,117) Net deferred origination costs.... 977 935 796 673 Loans in process.................. (4,219) (4,100) (783) (3,121) -------- -------- -------- -------- Total loans receivable, net.... $333,554 $308,970 $263,344 $208,374 ======== ======== ======== ======== At September 30 ----------------------------------------- 2001 2000 ------------------ ------------------ Amount Percent Amount Percent ------ ------- ------ ------- (Dollars in thousands) Type of Loans: Mortgage Loans One- to four-family(1)............ $131,513 76.18% $108,678 73.97% Multi-family and commercial....... 24,903 14.42 21,867 14.88 Construction........................ 9,402 5.45 10,697 7.28 Consumer............................ 540 0.31 547 0.37 Home equity......................... 5,863 3.40 4,903 3.34 Commercial.......................... 417 0.24 238 -------- ------ -------- ------ Total loans receivable......... 172,638 100.00% 146,930 100.00% ====== ====== Less: Allowance for loan losses......... (1,009) (1,003) Net deferred origination costs.... 532 400 Loans in process.................. (5,839) (5,369) -------- -------- Total loans receivable, net.... $166,322 $140,958 ======== ========
(1) Includes loans held for sale of $300,000, $500,000 and $452,000 at March 31, 2005, September 30, 2003 and September 30, 2000, respectively. Exhibit I-8 ASB Holding Company Contractual Maturity By Loan Type Exhibit I-8 ASB Holding Company Contractual Maturity By Loan Type
At March 31, 2005 ------------------------------------------------------------------------------------------ Multi-family One- to Four- and Family Commercial Construction Consumer Home Equity Commercial Total ------------ ----------- ------------ -------- ----------- ---------- ----- (In thousands) Amounts Due: Within 1 Year .......... $ 536 $ 1,125 $ 3,715 $ 692 $ 17 $ 527 $ 6,612 After 1 year: 1 to 5 years ......... 2,358 1,454 4,417 9 50 71 8,359 5 to 10 years ........ 31,584 5,100 -- -- 1,997 65 38,746 10 to 15 years ....... 58,619 15,442 -- -- 7,957 -- 82,018 Over 15 years ........ 169,189 32,333 -- -- 1,228 -- 202,750 Total due after one year 261,750 54,329 4,417 9 11,232 136 331,873 -------- -------- -------- -------- -------- -------- -------- Total amount due ....... $262,286 $ 55,454 $ 8,132 $ 701 $ 11,249 $ 663 $338,485 ======== ======== ======== ======== ======== ======== ========
ESHIBIT I-9 ASB Holding Company Non-Performing Assets Exhibit I-9 ASB Holding Company Non-Performing Assets
At March 31, At September 30, --------- ---------------------------------------------- 2005 2004 2003 2002 2001 2000 (Dollars in thousands) Loans accounted for on a non-accrual basis: One- to four-family ............................... $261 $445 $147 $147 $309 $374 Multi-family and commercial ....................... 74 74 369 423 287 343 Construction ...................................... -- -- -- -- -- -- Consumer .......................................... -- -- 1 -- 21 -- Home equity ....................................... 17 -- -- -- 11 61 Commercial ........................................ -- -- -- -- -- -- ---- ---- ---- ---- ---- ---- Total .......................................... $352 $519 $517 570 628 778 Accruing loans contractually past due 90 days or more -- -- -- -- -- -- ---- ---- ---- ---- ---- ---- Total non-performing loans .......................... 352 519 517 570 628 778 Real estate owned ................................... -- -- -- -- -- -- Other non-performing assets ......................... -- -- -- -- -- -- ---- ---- ---- ---- ---- ---- Total non-performing assets ......................... $352 $519 $517 $570 $628 $778 ==== ==== ==== ==== ==== ==== Allowance for loan losses to non-performing loans ... 480.66% 304.05% 265.18% 195.96% 160.67% 128.92% Total non-performing loans to total loans ........... 0.11% 0.17% 0.20% 0.27% 0.36% 0.53% Total non-performing loans to total assets .......... 0.08% 0.12% 0.12% 0.17% 0.24% 0.35% Total non-performing assets to total assets ......... 0.08% 0.12% 0.12% 0.17% 0.24% 0.35%
Exhibit I-10 ASB Holding Company Loan Loss Allowance Activity Exhibit I-10 ASB Holding Company Loan Loss Allowance Activity Six Months Ended Year Ended March 31, September 30, -------------------- ------------------------------------------------------ 2005 2004 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- ---- ---- (Dollars in thousands) Allowance balance at beginning of period .... $ 1,578 $ 1,371 $ 1,371 $ 1,117 $ 1,009 $ 1,003 $ 999 Provision for loan losses ................... 112 54 207 254 105 2 22 Charge-offs: One- to four-family ....................... -- -- -- -- -- -- (19) Consumer................................... -- -- -- -- (1) -- -- --------- --------- --------- --------- --------- --------- --------- Total charge-offs ...................... (19) -- -- -- -- (1) -- --------- --------- --------- --------- --------- --------- --------- Recoveries: Consumer -- -- -- -- 4 4 1 --------- --------- --------- --------- --------- --------- --------- Total recoveries -- -- -- -- 4 4 1 --------- --------- --------- --------- --------- --------- --------- Net (charge-offs) recoveries ................ -- -- -- -- 3 4 18 --------- --------- --------- --------- --------- --------- --------- Allowance balance at end of period .......... $ 1,690 $ 1,425 $ 1,578 $ 1,371 $ 1,117 $ 1,009 $ 1,003 ========= ========= ========= ========= ========= ========= ========= Total loans outstanding at end of period .... $ 338,485 $ 275,774 $ 313,713 $ 264,702 $ 211,939 $ 172,638 $ 146,930 ========= ========= ========= ========= ========= ========= ========= Average loans outstanding during period ..... $ 318,539 $ 270,680 $ 278,632 $ 238,474 $ 186,974 $ 150,938 $ 128,463 ========= ========= ========= ========= ========= ========= ========= Allowance as a % of total loans ............. 0.50% 0.52% 0.50% 0.52% 0.53% 0.58% 0.68% Net loans charge-offs as a % of average loans 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01%
EXHIBIT I-11 ASB Holding Company Deposit Composition Exhibit I-11 ASB Holding Company Deposit Composition
At March 31, At September 30, --------------------------------- ---------------------------------- 2005 2004 --------------------------------- ------------------------------- Weighted Weighted Percent Average Percent Average of Total Nominal of Total Nominal Amount Deposits Rate Amount Deposits Rate ------ -------- -------- ------ -------- -------- (Dollars in thousands) Noninterest-bearing demand deposits................ $ 24,093 7.34% -% $ 22,599 7.00% -% Interest-bearing demand deposits................ 34,018 10.37 1.18 38,696 11.99 1.06 Time deposits.............. 135,295 41.24 2.94 143,401 44.44 1.60 Savings deposits........... 134,637 41.05 1.58 118,020 36.57 2.65 -------- ------ ---- -------- ------ ---- Total deposits........ $328,043 100.00% 1.98% $322,716 100.00% 1.81% ======== ====== ==== ======== ====== ==== At September 30, -------------------------------------------------------------------- 2003 2002 ------------------------------- -------------------------------- Weighted Weighted Percent Average Percent Average of Total Nominal of Total Nominal Amount Deposits Rate Amount Deposits Rate ------ -------- -------- ------ -------- -------- (Dollars in thousands) Noninterest-bearing demand deposits................ $ 21,676 7.40% -% $ 16,816 6.36% -% Interest-bearing demand deposits................ 21,721 7.42 0.98 27,733 10.48 1.55 Time deposits.............. 127,720 43.62 1.60 101,433 38.34 2.30 Savings deposits........... 121,709 41.56 2.55 118,605 44.82 3.14 -------- ------ ==== ======== ====== ==== Total deposits........ $292,826 100.00% 1.79% $264,587 100.00% 2.45% ======== ====== ==== ======== ====== ====
Exhibit I-12 ASB Holding Company CDs By Rate and Maturity Exhibit I-12 ASB Holding Company CDs By Rate and Maturity The following table sets forth the time deposits at the Bank classified by interest rate as of the dates indicated.
At March 31, At September 30, ------------------ ----------------------------------------------------------------- 2005 2004 2003 2002 ------------------ ------------------ ----------------- ------------------ Percent Percent Percent Percent Amount of Total Amount of Total Amount of Total Amount of Total ------ -------- ------ -------- ------ -------- ------ -------- (Dollars in thousands) Interest Rate 0.00% - 0.99%.......... $ - -% $ - -% $ 240 0.20% $ 498 0.42% 1.00% - 1.99%.......... 36,415 26.92 51,664 43.78 56,504 46.43 8 0.42 2.00% - 2.99%.......... 32,971 24.37 20,848 17.66 18,576 15.26 66,213 55.82 3.00% - 3.99%.......... 34,763 25.69 16,353 13.86 23,047 18.94 28,792 24.28 4.00% - 4.99%.......... 19,369 14.32 19,198 16.27 18,414 15.13 16,557 13.96 5.00% - 5.99%.......... 11,334 8.38 9,494 8.04 3,941 3.24 5,129 4.32 6.00% - 6.99%.......... 443 0.33 463 0.39 987 0.81 1,383 1.17 7.00% - 7.99%.......... - - - - - - 33 0.03 -------- ------ -------- ------ -------- ------ -------- ------ Total................ $135,295 100.00% $118,020 100.00% $121,709 100.00% $118,605 100.00% ======== ====== ======== ====== ======== ====== ======== ======
The following table sets forth the amount and maturities of time deposits at the Bank at March 31, 2005.
Amount Due ------------------------------------------------------------------------------------ After March 31, March 31, March 31, March 31, March 31, March 31, Interest Rate 2006 2007 2008 2009 2010 2010 ------------- --------- --------- --------- -------- --------- --------- (In thousands) 0.00% - 0.99%........ $36,410 $ - $ - $ - $ - $ - 1.00% - 1.99%........ 28,541 6 - - - - 2.00% - 2.99%........ 13,033 4,345 84 - - - 3.00% - 3.99%........ 5,382 14,268 3,570 3,162 667 63 4.00% - 4.99%........ 93 692 6,192 3,481 1,796 1,826 5.00% - 5.99%........ 392 185 3,204 186 66 7,601 6.00% - 6.99%........ - - 50 - - - ------- ------- ------- ------ ------ ------ Total............ $83,851 $19,496 $13,100 $6,829 $2,529 $9,490 ======= ======= ======= ====== ====== ======
Exhibit I-13 ASB Holding Company Borrowings Activity Exhibit I-13 ASB Holding Company Borrowings Activity
At or For the At or For the Year Ended September 30, Six Months Ended ------------------------------------- March 31, 2005 2004 2003 2002 ---------------- -------- -------- -------- (Dollars in thousands) Federal Home Loan Bank Advances: Average balance outstanding............... $ 61,780 $ 60,125 $ 54,923 $ 43,859 Maximum amount outstanding at any month-end during the period...... $ 68,263 $ 65,500 $ 61,800 $ 48,500 Balance outstanding at end of period...... $ 68,263 $ 57,491 $ 55,000 $ 44,000 Weighted average interest rate during the period............................. 4.54% 4.76% 5.16% 5.16% Weighted average interest rate at end of period.............................. 4.45% 4.72% 5.13% 5.59%
Exhibit II-1 ASB Holding Company Description of Office Facilities Exhibit II-1 ASB Holding Company Description of Office Facilities
Year Facility Leased or Net Book Value at Office Location Opened Owned March 31, 2005 --------------- ------------- --------- ----------------- (In thousands) Main Office 365 Broad Street Bloomfield, New Jersey 07003 1965 Owned $1,377 Main Office Drive Up Facility 16 Pitt Street Bloomfield, New Jersey 07003 1998 Owned $ 346 Full Service Branch 310 Pompton Avenue Cedar Grove, New Jersey 07009 2001 Owned $1,928 Deposits in connection with branch site acquisitions $ 408
Exhibit II-2 Historical Interest Rates(1) Exhibit II-2 Historical Interest Rates(1)
Prime 90 Day One Year 10 Year Year/Qtr. Ended Rate T-Bill T-Bill T-Bond --------------- ---- ------ ------ ------ 1997: Quarter 1 8.50% 5.35% 6.02% 6.92% Quarter 2 8.50% 5.25% 5.67% 6.51% Quarter 3 8.50% 5.06% 5.47% 6.12% Quarter 4 8.50% 5.36% 5.51% 5.75% 1998: Quarter 1 8.50% 5.16% 5.41% 5.67% Quarter 2 8.50% 5.10% 5.38% 5.44% Quarter 3 8.25% 4.37% 4.41% 4.44% Quarter 4 7.75% 4.48% 4.53% 4.65% 1999: Quarter 1 7.75% 4.49% 4.72% 5.25% Quarter 2 7.75% 4.78% 5.07% 5.81% Quarter 3 8.25% 4.88% 5.22% 5.90% Quarter 4 8.50% 5.33% 5.98% 6.45% 2000: Quarter 1 9.00% 5.88% 6.28% 6.03% Quarter 2 9.50% 5.88% 6.08% 6.03% Quarter 3 9.50% 6.23% 6.07% 5.80% Quarter 4 9.50% 5.89% 5.32% 5.12% 2001: Quarter 1 8.00% 4.30% 4.09% 4.93% Quarter 2 6.75% 3.65% 3.72% 5.42% Quarter 3 6.00% 2.40% 2.49% 4.60% Quarter 4 4.75% 1.74% 2.17% 5.07% 2002: Quarter 1 4.75% 1.79% 2.70% 5.42% Quarter 2 4.75% 1.70% 2.06% 4.86% Quarter 3 4.75% 1.57% 1.53% 3.63% Quarter 4 4.25% 1.22% 1.32% 3.83% 2003: Quarter 1 4.25% 1.14% 1.19% 3.83% Quarter 2 4.00% 0.90% 1.09% 3.54% Quarter 3 4.00% 0.95% 1.15% 3.96% Quarter 4 4.00% 0.95% 1.26% 4.27% 2004: Quarter 1 4.00% 0.95% 1.20% 3.86% Quarter 2 4.00% 1.33% 2.09% 4.62% Quarter 3 4.75% 1.70% 2.16% 4.12% Quarter 4 5.25% 2.22% 2.75% 4.24% 2005: Quarter 1 5.75% 2.80% 3.43% 4.51% As of May 31, 2005 6.00% 2.99% 3.32% 4.00%
(1) End of period data. Sources: Federal Reserve. Exhibit III-1 General Characteristics of Publicly-Traded Institutions [GRAPHICS OMITTED] EXHIBIT III-2 Public Market Pricing of New Jersey Thrifts [GRAPHICS OMITTED] EXHIBIT III-3 Public Market Pricing of Mid-Altanic Thrifts [GRAPHICS OMITTED] EXHIBIT IV-1 Stock Prices: As of May 31, 2005 [GRAPHICS OMITTED] EXHIBIT IV-2 Historical Stock Price Indices Exhibit IV-2 Historical Stock Price Indices(1) SNL SNL NASDAQ Thrift Bank Year/Qtr. Ended DJIA S&P 500 Composite Index Index --------------- ---- ------- --------- ----- ----- 1998: Quarter 1 8799.8 1101.8 1,835.7 869.3 456.1 Quarter 2 8952.0 1133.8 1,894.7 833.5 457.7 Quarter 3 7842.6 1017.0 1,693.8 651.3 363.5 Quarter 4 9181.4 1229.2 2,192.7 705.9 439.6 1999: Quarter 1 9786.2 1286.4 2,461.4 707.6 448.4 Quarter 2 10970.8 1372.7 2,686.1 695.6 479.3 Quarter 3 10337.0 1282.7 2,746.2 609.1 409.9 Quarter 4 11497.1 1469.3 4,069.3 562.4 416.7 2000: Quarter 1 10921.9 1498.6 4,572.8 545.6 421.2 Quarter 2 10447.9 1454.6 3,966.1 567.8 387.4 Quarter 3 10650.9 1436.5 3,672.8 718.3 464.6 Quarter 4 10786.9 1320.3 2,470.5 874.3 479.4 2001: Quarter 1 9878.8 1160.3 1,840.3 885.2 459.2 Quarter 2 10502.4 1224.4 2,160.5 964.5 493.7 Quarter 3 8847.6 1040.9 1,498.8 953.9 436.6 Quarter 4 10021.5 1148.1 1,950.4 918.2 473.7 2002: Quarter 1 10403.9 1147.4 1,845.4 1006.7 498.3 Quarter 2 9243.3 989.8 1,463.2 1121.4 468.9 Quarter 3 7591.9 815.3 1,172.1 984.3 396.8 Quarter 4 8341.6 879.8 1,335.5 1073.2 419.1 2003: Quarter 1 7992.1 848.2 1,341.2 1096.2 401.0 Quarter 2 8985.4 974.5 1,622.8 1266.6 476.1 Quarter 3 9275.1 996.0 1,786.9 1330.9 490.9 Quarter 4 10453.9 1112.0 2,003.4 1482.3 548.6 2004: Quarter 1 10357.7 1126.2 1,994.2 1585.3 562.2 Quarter 2 10435.5 1140.8 2,047.8 1437.8 546.6 Quarter 3 10080.3 1114.6 1,896.8 1495.1 556.0 Quarter 4 10783.0 1211.9 2,175.4 1605.6 595.1 2005: Quarter 1 10503.8 1180.6 1,999.2 1516.6 551.0 As of May 31, 2005 10467.5 1191.5 2,068.2 1546.4 563.7 (1) End of period data. Sources: SNL Securities and Wall Street Journal. EXHIBIT IV-3 Historical Thrift Stock Indices [GRAPHICS OMITTED] EXHIBIT IV-4 Market Area Acquisition Activity Exhibit IV-4 New Jersey Thrift Acquisitions 2001-Present
Target Financials at Announcement ---------------------------- Total Announce Complete Assets E/A ROAA ROAE Date Date Buyer Short Name Target Name ($000) (%) (%) (%) -------- -------- ---------------- ----------- ------- ---- ---- ----- 01/10/2002 10/21/2002 Kearny, MHC NJ Pulaski Bancorp, Inc. (MHC) NJ 237,596 10.50 0.32 3.05 09/11/2002 07/01/2003 Kearny, MHC NJ West Essex Bancorp Inc.,(MHC) NJ 390,333 13.02 0.88 6.51 05/16/2002 12/31/2002 NSB Holding Corp. NY Liberty Bancorp, Inc. (MHC) NJ 323,043 9.69 0.36 3.63 10/18/2001 08/23/2002 Oritani Financial Corp M.H.C NJ Hamilton Bancorp, MHC NJ 123,151 6.40 0.45 6.95 10/17/2001 07/31/2002 Pacific MHC CA College Savings Bank NJ 323,236 5.39 0.56 10.31 12/22/2003 07/14/2004 Provident Financial Services NJ First Sentinel Bancorp, Inc. NJ 2,245,130 9.68 1.12 11.66 Average: 607,082 9.11 0.62 7.02 Median: 323,140 9.69 0.51 6.73 Target Financials at Announcement Deal Terms and Pricing at Announcement -------------- ----------------------------------------------------- NPAs/ Rsrvs/ Deal Value/ Prem/ Assets NPLs Value Share P/B P/TB P/E P/A Cdeps (%) (%) ($M) ($) (%) (%) (x) (%) (%) ------ ------ ----- ----- ----- ----- ---- ---- ----- 0.29 182.58 32.900 Cash 253.27 253.27 NM 27.06 23.60 0.36 114.15 35.100 Cash 334.60 356.71 52.39 44.90 60.81 0.20 140.73 26.500 Cash 276.62 276.62 NM 27.68 25.15 0.05 NA NA NA NA NA NA NA 0.00 NA NA NA NA NA NA NA 0.04 NM 22.246 Mixed 283.03 288.17 23.92 28.68 32.93 0.16 145.82 29.19 286.88 293.69 38.16 32.08 35.62 0.13 140.73 29.70 279.83 282.40 38.16 28.18 29.04
Source: SNL Finanical, LC. Exhibit IV-5 ASB Holding Company Director and Senior Management Summary Resumes Exhibit IV-5 ASB Holding Company Director and Senior Management Summary Resumes Robert A. Gaccione has been a member of the Board since 2003. He has been a senior partner of the law firm of Gaccione, Pomaco & Malanga, P.C. in Belleville, New Jersey for thirty years. He is a former Federal Bureau of Investigation agent. Mr. Gaccione also serves as the Essex County Tax Board Commissioner. He served as a director of Franklin Community Bank, a commercial bank located in Nutley, New Jersey for three years. Mr. Gaccione is a member and the past president of the Belleville Rotary Club, is the president of the Clara Maass Foundation and is a member of the Belleville Foundation. Joseph Kliminski has been a member of the Board since 1986. He has been employed by the Bank since 1967 and became President and Chief Executive Officer of the Bank in 1987 and President and Chief Executive Officer of ASB Holding Company upon its formation in June 2003. Mr. Fred Kowal succeeded Mr. Kliminski as President of the Bank and ASB Holding Company in 2005. Mr. Kliminski continues to serve as Chief Executive Officer of the Bank and ASB Holding Company and will also hold this position for American Bancorp of New Jersey, Inc. Mr. Kliminski is a member and past president of the Bloomfield Lions Club, is president of the Advisory Board to the Bloomfield Town Council, chairman of the Bloomfield Education Foundation, and former chairman of the Deborah Hospital Children of the World Golf Tournament. Mr. Kliminski also serves on the Executive Committee of the Bloomfield Center Alliance, and is a member and former president of the Board of Trustees of the Bloomfield Public Library. He is also a former member of the Board of Governors of the New Jersey League of Community Bankers and past president of the Essex County Savings League. Fred G. Kowal was appointed as President and Chief Operating Officer of the Bank in March 2005 and was appointed as a member of the Board of ASB Holding Company at the same time. In May 2005, he was appointed as President and Chief Operating Officer of ASB Holding Company. He will serve in these same capacities as an officer of American Bancorp of New Jersey, Inc. Mr. Kowal was previously Chairman and Chief Executive Officer of Warwick Community Bancorp, Inc. until its merger into Provident Bancorp, Inc. in October 2004. He joined Warwick Community Bancorp, Inc. in 1999 and also served as Chairman of the Board of Directors of The Warwick Savings Bank and as Chairman of the Board, President and Chief Executive Officer of The Towne Center Bank, a de novo commercial bank formed by Warwick Community Bancorp, Inc. in 1999. Prior to joining Warwick, he served as Senior Vice President of First Union National Bank, where he worked for 16 years, and as Senior Vice President of PNC Bank. H. Joseph North has been a member of the Board since 1991. Mr. North retired in 1987 as Town Administrator of Bloomfield, New Jersey after 20 years of service as the municipality's chief administrative officer. Mr. North is a past president and a lifetime member of the New Jersey Municipal Management Association and is a former member of the International City Management Association. Mr. North is also a former president of the Bloomfield Lions Club, Bloomfield Fifth Quarter Club and Bloomfield Tennis Federation. Stanley Obal has been a member of the Board since 1981. Mr. Obal retired in 1982 and was the owner of Obal's Inn, a tavern and restaurant in Bloomfield, New Jersey. W. George Parker has been a member of the Board since 1967 and Chairman since 1990. Mr. Parker is the owner, president and chief executive officer of Adco Chemical Company, located in Newark, New Jersey. Exhibit IV-5 (continued) ASB Holding Company Director and Senior Management Summary Resumes Vincent S. Rospond has been a member of the Board since 1981. He is an attorney and the majority stockholder of the law firm of Rospond, Rospond & Conte, P.A. in Bloomfield, New Jersey. Rospond, Rospond & Conte serves as general counsel to the Bank. Mr. Rospond is the president and a trustee of United Way of Bloomfield, is a member and the former legal counsel of Bloomfield Chamber of Commerce, and is a member and the treasurer of North Jersey Manufacturer's & Businessmen Association. He is also a member of the Cornell Club of New Jersey, the Essex County Bar Association, the Newark Art Museum, the Bloomfield Music Federation and the New Jersey Bar Association. James H. Ward, III has been a member of the Board since 1991 and Vice Chairman since 2003. From 1998 to 2000, he was the majority stockholder and Chief Operating Officer of Rylyn Group, which operated a restaurant in Indianapolis, Indiana. Prior to that, he was the majority stockholder and Chief Operating Officer of Ward and Company, an insurance agency in Springfield, New Jersey, where he was employed from 1968 to 1998. He is now a retired investor. Richard M. Bzdek is the Bank's Executive Vice President and Secretary and became Executive Vice President and Secretary of the ASB Holding Company upon its formation in June 2003. He will serve in these same capacities as an officer of American Bancorp of New Jersey, Inc. He has been employed by the Bank since 1975. Mr. Bzdek is the former president and a current director of the Bloomfield Chamber of Commerce. He is a member of the Financial Managers Society and serves as Vice Chairman on the Operations and Technology Committee of the New Jersey League of Community Bankers. He is also the treasurer and a trustee of United Way of Bloomfield and is a director and co-founder of the Bloomfield Center Alliance. Eric B. Heyer has served as Senior Vice President, Treasurer and Chief Financial Officer for the Bank since 1997 and was appointed to these same positions for ASB Holding Company upon its formation in June 2003. He will serve in these same capacities as an officer of American Bancorp of New Jersey, Inc. Mr. Heyer has been employed by the Bank since 1993. He was previously the chief financial officer of Monarch Savings Bank in Kearny, New Jersey, where he was employed from 1986 to 1993. Mr. Heyer is a member of the Financial Managers Society. He has previously served as a trustee of Kingston United Methodist Church and currently serves as vice chairman of the stewardship and finance committee of Princeton United Methodist Church. Mr. Heyer also serves as a board member of the Mental Health Clinic of Passaic in Clifton, New Jersey. Catherine M. Bringuier has been the Bank's Senior Vice President and Chief Lending Officer since January 2003. Ms. Bringuier has been employed by the Bank since 1990. She has previously held the positions of compliance officer, Vice President and Lending Officer for commercial, residential and consumer lending. She is an Assistant Den Leader for Cub Scouts Pack 103 of Cranford, NJ and is a member of the Sunny Acres Civic and Improvement Association of Crawford, NJ. EXHIBIT IV-6 ASB Holding Company Pro Forma Regulatory Capital Ratios EXHIBIT IV-6 ASB Holding Company Pro Forma Regulatory Capital Ratios
Pro Forma at March 31, 2005 Actual, as of ----------------------------------------------------------------------------------- March 31, 2005 Minimum Midpoint Maximum Maximum As Adjusted --------------------- -------------------- ------------------- ------------------- -------------------- Percent Percent Percent Percent Percent Amount of Assets Amount of Assets Amount of Assets Amount of Assets Amount of Assets ------ ------------ ------ ------------ ------ ------------ ------ ------------ ------------------- (Dollars in thousands) Capital and Retained Earnings Under Generally Accepted Accounting Principles $33,941 7.76% $57,528 12.49% $61,751 13.28% $65,974 14.06% $70,831 14.94% ======= ==== ======= ===== ======= ===== ======= ===== ======= ===== Tangible Capital....... $34,856 7.96% $58,443 12.66% $62,666 13.45% $66,889 14.23% $71,746 15.10 Requirement............ 6,571 1.50 6,925 1.50 6,989 1.50 7,052 1.50 7,125 1.50 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Excess................. $28,285 6.46% $51,517 11.16% $55,677 11.95% $59,837 12.73% $64,621 13.60% ======= ==== ======= ===== ======= ===== ======= ===== ======= ===== Tier 1 Capital (Leverage)........... $34,856 7.96% $58,443 12.66% $62,666 13.45% $66,889 14.23% $71,746 15.10% Requirement............ 17,524 4.00 18,467 4.00 18,636 4.00 18,805 4.00 18,999 4.00 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Excess................. $17,332 3.96% $39,975 8.66% $43,030 9.45% $48,084 10.23% $52,747 11.10% ======= ==== ======= ===== ======= ===== ======= ===== ======= ===== Total Risk-Based Capital.............. $36,545 15.34% $60,132 24.06% $64,355 25.53% $68,578 26.98% $73,435 28.62% Risk-Based Requirement. 19,053 8.00 19,997 8.00 20,166 8.00 20,335 8.00 20,529 8.00 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Excess................. $17,492 7.34% $40,135 16.06% $44,189 17.53% $48,243 18.98% $52,906 20.62% ======= ==== ======= ===== ======= ===== ======= ===== ======= ===== Tier 1 Risk-Based...... $34,856 14.64% $58,443 23.38% $62,666 24.86% $66,889 26.32% $71,746 27.96% Tier 1 Risk-Based Requirement.......... 9,527 4.00 9,998 4.00 10,083 4.00 10,167 4.00 10,264 4.00 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Excess................. $25,329 10.64% $48,444 19.38% $52,583 20.86% $56,722 22.32% $61,481 23.96% ======= ==== ======= ===== ======= ===== ======= ===== ======= ===== Net Proceeds After Exp. Infused (50%) $31,237 $36,810 $42,383 $48,792 Less: ESOP (5,100) (6,000) (6,900) (7,935) Less: MRP (2,550) (3,000) (3,450) (3,968) ------- ------- ------- ------- Pro Forma Increase $23,587 $27,810 $32,033 $36,890 ======= ======= ======= =======
EXHIBIT IV-7 PRO FORMA ANALYSIS SHEET ASB Holding Company, Bloomfield, New Jersey Prices as of May 31, 2005 EXHIBIT IV-7 PRO FORMA ANALYSIS SHEET ASB Holding Company, Bloomfield, New Jersey Prices as of May 31, 2005
Peer Group New Jersey Companies All Public Subject ------------------ --------------------- ------------------ Valuation Midpoint Pricing Multipl Symbol at Midpoint Mean Median Mean Median Mean Median ---------------------------------- ------ ----------- ---- ------ ---- ------ ---- ------ Price-earnings multiple= P/E 47.94 x 18.25x 15.27x 19.14x 14.46x 19.35x 16.28x Price-core earnings mul=iple P/CE 50.42 x 18.09x 15.52x 21.07x 19.30x 20.28x 18.32x Price-book ratio = P/B 103.59% 148.97 146.14 163.97 161.04 151.48 144.00 Price-tangible book rat=o P/TB 103.59% 153.57 149.16 178.11 180.91 169.40 157.83 Price-assets ratio = P/A 21.20% 12.97 13.36 14.64 15.68 14.51 14.26
Valuation Parameters Adjusted Stated -------------------- -------- ------ Pre-Conversion Earnings (Y) $2,295,000 (12 Mths 3/05) ESOP Stock (% of Offering + Foundation)(E) 8.00% 8.00% Pre-Conversion Core Earnings $2,185,090 (12 Mths 3/05) Cost of ESOP Borrowings (S) 0.00% Pre-Conversion Book Value (B$38,911,000 ESOP Amortization (T) 10.00 Years Pre-Conv. Tang. Book Value ($38,911,000 Stock Program (% of Offering + Foundation (4.00% 4.00% Pre-Conversion Assets (A) $440,954,000 Stock Programs Vesting (N) 5.00 Years Reinvestment Rate (R) 3.35% Fixed Expenses $800,000 Tax rate (TAX) 39.94% Variable Expenses 1.00% After Tax Reinvest. Rate (R) 2.01% Percentage Sold (PCT) 70.0000% Est. Conversion Expenses (1)(X) 1.97% MHC Assets $100,000 Insider Purchases $1,000,000 Options as % of Offering (O1) 10.00% Price/Share $10.00 Estimated Option Value (O2) 47.20% Foundation Cash Contribution (FC) 0.00% Option Vesting Period (O3) 5.00 years Foundation Stock Contribution (FS)0.00% Shares % of Options taxable (O4) 25.00% Foundation Tax Benefit (FT) $0
Calculation of Pro Forma Value After Conversion ----------------------------------------------- 1. V= P/E * (Y) V= $107,142,853 --------------------------------------------------------------------------------------- 1 - P/E * PCT * ((1-X-E-M-FS)*R - (1-TAX)*(E/T) - (1-TAX)*(M/N)-(1-TAX*O4)*(O1*O2/O3))) 2. V= P/Core E * (YC) V= $107,142,853 -------------------------------------------------------------------------------------------- 1 - P/Core E * PCT * ((1-X-E-M-FS)*R - (1-TAX)*(E/T) - (1-TAX)*(M/N)-(1-TAX*O4)*(O1*O2/O3))) 3. V= P/B * (B+FT) V= $107,142,853 --------------------------------------------- 1 - P/B * PCT * (1-X-E-M-FC-FS) 4. V= P/TB * (B+FT) V= $107,142,853 --------------------------------------------- 1 - P/TB * PCT * (1-X-E-M-FC-FS) 5. V= P/A * (A+FT) V= $107,142,853 ------------------------------------------------------------ 1 - P/A * PCT * (1-X-E-M-FC-FS)
Shares ------ 2nd Step Full Plus: Total Market 2nd Step Exchange Conversion Foundation Capitalization Exchange Conclusion Offering Shares Shares Shares Shares Shares Ratio ---------- --------------- ------ ------ ------ ------ ----- Supermaximum 9,918,750 4,250,892 14,169,642 0 14,169,642 2.55102 Maximum 8,625,000 3,696,428 12,321,428 0 12,321,428 2.21828 Midpoint 7,500,000 3,214,285 10,714,285 0 10,714,285 1.92894 Minimum 6,375,000 2,732,143 9,107,143 0 9,107,143 1.63960 Market Value ------------ 2nd Step Full Total Market 2nd Step Exchange Conversion Foundation Capitalization Conclusion Offering Value Shares Value $ Value Value $ Value ---------- -------------- ------------ ------- ----- ------- Supermaximum $99,187,500 $42,508,923 $141,696,418 $0 $141,696,418 Maximum $86,250,000 $36,964,281 $123,214,286 0 $123,214,286 Midpoint $75,000,000 $32,142,853 $107,142,853 0 $107,142,853 Minimum $63,750,000 $27,321,425 $91,071,430 0 $ 91,071,430
(1) Estimated offering expenses at midpoint of the offering. EXHIBIT IV-8 PRO FORMA EFFECT OF CONVERSION PROCEEDS ASB Holding Company, Inc. At the Minimum of the Range Exhibit IV-8 PRO FORMA EFFECT OF CONVERSION PROCEEDS ASB Holding Company, Inc. At the Minimum of the Range
1. Fully Converted Value and Exchange Ratio Fully Converted Value $91,071,430 Exchange Ratio 1.63960 2nd Step Offering Proceeds $63,750,000 Less: Estimated Offering Expenses 1,376,500 ----------- 2nd Step Net Conversion Proceeds (Including Foundation) $62,373,500 2. Estimated Additional Income from Conversion Proceeds Net Conversion Proceeds $62,373,500 Less: Cash Contribution to Foundation (0) Less: Stock Contribution to Foundation 0 Less: ESOP Stock Purchases (1) (5,100,000) Less: MRP Stock Purchases (2) (2,550,000) ----------- Net Proceeds to be Reinvested $54,723,500 Estimated after-tax net incremental rate of return 2.01% ---- Earnings Increase $1,101,042 Less: Estimated cost of ESOP borrowings 0 Less: Amortization of ESOP borrowings(3) (306,306) Less: Stock Programs Vesting (3) (306,306) Less: Option Plan Vesting (4) (541,710) -------- Net Earnings Increase ($53,280)
Net Before Earnings After 3. Pro Forma Earnings Conversion Increase Conversion ---------- -------- ---------- 12 Months ended March 31, 2005 (reported) $2,295,000 ($53,280) $2,241,720 12 Months ended March 31, 2005 (core) $2,185,090 ($53,280) $2,131,810 Before Net Addition Tax Benefit After 4. Pro Forma Net Worth Conversion to Equity of Foundation Conversion ---------- --------- ------------- ---------- March 31, 2005 $38,911,000 $54,723,500 $0 $93,634,500 March 31, 2005 (Tangible) $38,911,000 $54,723,500 $0 $93,634,500 Before Net Cash Tax Benefit After 5. Pro Forma Assets Conversion Proceeds of Foundation Conversion ---------- -------- ------------- ---------- March 31, 2005 $440,954,000 $54,723,500 $0 $495,677,500
(1) Includes ESOP purchases of 8% of the second step offering. (2) Includes MRP purchases of 4% of the second step offering. (3) ESOP amortized over 10 years, MRP amortized over 5 years, tax effected at: 39.94% (4) Option valuation based on Black-Scholes model, 10 year vesting, and assuming 25% taxable. EXHBIIT IV-8 PRO FORMA EFFECT OF CONVERSION PROCEEDS ASB Holding Company, Inc. At the Midpoint of the Range Exhibit IV-8 PRO FORMA EFFECT OF CONVERSION PROCEEDS ASB Holding Company, Inc. At the Midpoint of the Range
1. Fully Converted Value and Exchange Ratio Fully Converted Value $107,142,853 Exchange Ratio 1.92894 2nd Step Offering Proceeds $75,000,000 Less: Estimated Offering Expenses 1,480,000 ----------- 2nd Step Net Conversion Proceeds (Including Foundation) $73,520,000 2. Estimated Additional Income from Conversion Proceeds Net Conversion Proceeds $73,520,000 Less: Cash Contribution to Foundation (0) Less: Stock Contribution to Foundation 0 Less: ESOP Stock Purchases (1) (6,000,000) Less: MRP Stock Purchases (2) (3,000,000) ----------- Net Proceeds to be Reinvested $64,520,000 Estimated after-tax net incremental rate of return 2.01% ---- Earnings Increase $1,298,149 Less: Estimated cost of ESOP borrowings 0 Less: Amortization of ESOP borrowings(3) (360,360) Less: Stock Programs Vesting (3) (360,360) Less: Option Plan Vesting (4) (637,306) ---------- Net Earnings Increase ($59,877)
Net Before Earnings After 3. Pro Forma Earnings Conversion Increase Conversion ---------- -------- ---------- 12 Months ended March 31, 2005 (reported) $2,295,000 ($59,877) $2,235,123 12 Months ended March 31, 2005 (core) $2,185,090 ($59,877) $2,125,213 Before Net Cash Tax Benefit After 4. Pro Forma Net Worth Conversion Proceeds of Foundation Conversion ---------- -------- ------------- ---------- March 31, 2005 $38,911,000 $64,520,000 $0 $103,431,000 March 31, 2005 (Tangible) $38,911,000 $64,520,000 $0 $103,431,000 Before Net Cash Tax Benefit After 5. Pro Forma Assets Conversion Proceeds of Foundation Conversion ---------- -------- ------------- ---------- March 31, 2005 $440,954,000 $64,520,000 $0 $505,474,000
(1) Includes ESOP purchases of 8% of the second step offering. (2) Includes MRP purchases of 4% of the second step offering. (3) ESOP amortized over 10 years, MRP amortized over 5 years, tax effected at: 39.94% (4) Option valuation based on Black-Scholes model, 10 year vesting, and assuming 25% taxable. EXHIBIT IV-8 PRO FORMA EFFECT OF CONVERSION PROCEEDS ASB Holding Company, Inc. At the Maximum of the Range Exhibit IV-8 PRO FORMA EFFECT OF CONVERSION PROCEEDS ASB Holding Company, Inc. At the Maximum of the Range
1. Fully Converted Value and Exchange Ratio Fully Converted Value $123,214,286 Exchange Ratio 2.21828 2nd Step Offering Proceeds $86,250,000 Less: Estimated Offering Expenses 1,583,500 ----------- 2nd Step Net Conversion Proceeds (Including Foundation) $84,666,500 2. Estimated Additional Income from Conversion Proceeds Net Conversion Proceeds $84,666,500 Less: Cash Contribution to Foundation (0) Less: Stock Contribution to Foundation 0 Less: ESOP Stock Purchases (1) (6,900,000) Less: MRP Stock Purchases (2) (3,450,000) ----------- Net Proceeds to be Reinvested $74,316,500 Estimated after-tax net incremental rate of return 2.01% ---- Earnings Increase $1,495,255 Less: Estimated cost of ESOP borrowings 0 Less: Amortization of ESOP borrowings(3) (414,414) Less: Stock Programs Vesting (3) (414,414) Less: Option Plan Vesting (4) (732,902) ---------- Net Earnings Increase ($66,475)
Net Before Earnings After 3. Pro Forma Earnings Conversion Increase Conversion ---------- -------- ---------- 12 Months ended March 31, 2005 (reported) $2,295,000 ($66,475) $2,228,525 12 Months ended March 31, 2005 (core) $2,185,090 ($66,475) $2,118,615 Before Net Cash Tax Benefit After 4. Pro Forma Net Worth Conversion Proceeds of Foundation Conversion ---------- -------- ------------- ---------- March 31, 2005 $38,911,000 $74,316,500 $0 $113,227,500 March 31, 2005 (Tangible) $38,911,000 $74,316,500 $0 $113,227,500 Before Net Cash Tax Benefit After 5. Pro Forma Assets Conversion Proceeds of Foundation Conversion ---------- -------- ------------- ---------- March 31, 2005 $440,954,000 $74,316,500 $0 $515,270,500
(1) Includes ESOP purchases of 8% of the second step offering. (2) Includes MRP purchases of 4% of the second step offering. (3) ESOP amortized over 10 years, MRP amortized over 5 years, tax effected at: 39.94% (4) Option valuation based on Black-Scholes model, 10 year vesting, and assuming 25% taxable. Exhibit IV-8 PRO FORMA EFFECT OF CONVERSION PROCEEDS ASB Holding Company, Inc. At the Supermaximum Value Exhibit IV-8 PRO FORMA EFFECT OF CONVERSION PROCEEDS ASB Holding Company, Inc. At the Supermaximum Value
1. Fully Converted Value and Exchange Ratio Fully Converted Value $141,696,418 Exchange Ratio 2.55102 2nd Step Offering Proceeds $99,187,500 Less: Estimated Offering Expenses 1,702,525 ----------- 2nd Step Net Conversion Proceeds (Including Foundation) $97,484,975 2. Estimated Additional Income from Conversion Proceeds Net Conversion Proceeds $97,484,975 Less: Cash Contribution to Foundation (0) Less: Stock Contribution to Foundation 0 Less: ESOP Stock Purchases (1) (7,935,000) Less: MRP Stock Purchases (2) (3,967,500) ----------- Net Proceeds to be Reinvested $85,582,475 Estimated after-tax net incremental rate of return 2.01% ---- Earnings Increase $1,721,928 Less: Estimated cost of ESOP borrowings 0 Less: Amortization of ESOP borrowings(3) (476,576) Less: Stock Programs Vesting (3) (476,576) Less: Option Plan Vesting (4) (842,837) ---------- Net Earnings Increase ($74,062)
Net Before Earnings After 3. Pro Forma Earnings Conversion Increase Conversion ---------- -------- ---------- 12 Months ended March 31, 2005 (reported) $2,295,000 ($74,062) $2,220,938 12 Months ended March 31, 2005 (core) $2,185,090 ($74,062) $2,111,029 Before Net Cash Tax Benefit After 4. Pro Forma Net Worth Conversion Proceeds of Foundation Conversion ---------- -------- ------------- ---------- March 31, 2005 $38,911,000 $85,582,475 $0 $124,493,475 March 31, 2005 (Tangible) $38,911,000 $85,582,475 $0 $124,493,475 Before Net Cash Tax Benefit After 5. Pro Forma Assets Conversion Proceeds of Foundation Conversion ---------- -------- ------------- ---------- March 31, 2005 $440,954,000 $85,582,475 $0 $526,536,475
(1) Includes ESOP purchases of 8% of the second step offering. (2) Includes MRP purchases of 4% of the second step offering. (3) ESOP amortized over 10 years, MRP amortized over 5 years, tax effected at: 39.94% (4) Option valuation based on Black-Scholes model, 10 year vesting, and assuming 25% taxable. Exhibit IV-9 Peer Group Core Earnings Analysis Exhibit IV-9 Peer Group Core Earnings Analysis [GRAPHIC OMITTED] Exhibit V-1 RP(R) Financial, LC. Firm Qualifications Statement [OMITTED] COVER 15 filename15.txt MALIZIA SPIDI & FISCH, PC ATTORNEYS AT LAW 1100 NEW YORK AVENUE, N.W. 1900 SOUTH ATHERTON STREET SUITE 340 WEST SUITE 101 WASHINGTON, D.C. 20005 STATE COLLEGE, PA 16801 (202) 434-4660 (814) 272-3502 FACSIMILE: (202) 434-4661 FACSIMILE: (814) 272-3514 SAMUEL J. MALIZIA WRITER'S DIRECT DIAL NUMBER MALIZIA@MALIZIALAW.COM (202) 434-4666 VIA EDGAR - --------- June 20, 2005 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: American Bancorp of New Jersey, Inc. Registration Statement on Form S-1 ---------------------------------- Dear Sir or Madam: Accompanying this letter, on behalf of the above-referenced registrant, is the Registration Statement on Form S-1 relating to the registration for the sale of up to 14,169,642 shares of the common stock, par value $0.10 per share, of the registrant. A wire transfer to the Securities and Exchange Commission (the "SEC") in the amount of $16,677.67 in payment of the filing fee for the Registration Statement has previously been delivered to the account of the SEC at Mellon Bank. As described in the Registration Statement, the registrant is offering its common stock in connection with the conversion of American Savings, MHC from the mutual to the stock form of organization pursuant to a Plan of Conversion and Reorganization in accordance with Part 563b of the regulations of the Office of Thrift Supervision (the "OTS"). The shares being offered for sale represent the 70% ownership interest in ASB Holding Company, the federally-chartered mid- tier holding company, now owned by American Savings, MHC. The remaining 30% ownership interest in ASB Holding Company is owned by the public and will be exchanged for shares of American Bancorp of New Jersey, Inc.'s common stock. This transaction is commonly referred to as a second-step conversion. We are concurrently filing with the OTS an Application for Conversion on Form AC as well as an H-(e)1-S Savings and Loan Holding Company Application. We are also concurrently filing with the SEC a preliminary proxy statement for the special meeting of stockholders of ASB Holding Company to vote of the Plan of Conversion and Reorganization. MALIZIA SPIDI & FISCH, PC Securities and Exchange Commission June 20, 2005 Page 2 Please call the undersigned or Tiffany Hasselman of this office with any questions or comments regarding the Registration Statement. Sincerely, /s/Samuel J. Malizia Samuel J. Malizia Enclosures cc: Joseph Kliminski, Chief Executive Officer Fred G. Kowal, President and Chief Operating Officer Ms. Wendy L. Campbell, Crowe Chizek and Company LLC -----END PRIVACY-ENHANCED MESSAGE-----