-----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, WR9/RlSSv1aEvEUBiMK6sB7l51ufOWAlW0fGo0FFspXsH2O1eaL86cPgbj2K9Xez 7pd6AFAtQVINiqeenrm/rg== 0000950152-97-006892.txt : 19970930 0000950152-97-006892.hdr.sgml : 19970930 ACCESSION NUMBER: 0000950152-97-006892 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASB FINANCIAL CORP /OH CENTRAL INDEX KEY: 0000944304 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 311429488 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 000-25906 FILM NUMBER: 97687170 BUSINESS ADDRESS: STREET 1: 503 CHILLICOTHE ST CITY: PORTSMOUTH STATE: OH ZIP: 45662 BUSINESS PHONE: 6143543177 MAIL ADDRESS: STREET 1: 503 CHILLICTHE ST CITY: PORTSMOUTH STATE: OH ZIP: 45662 10KSB40 1 ASB FINANCIAL CORP. FORM 10-KSB 1 FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the Fiscal Year Ended June 30, 1997 ------------- OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from______________to________________ Commission File Number: 0-25906 ASB FINANCIAL CORP. ---------------------------------------------- (Name of small business issuer in its charter) Ohio 31-1429488 - ------------------------------ ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 503 Chillicothe Street, Portsmouth, Ohio 45662 Issuer's telephone number: (614) 354-3177 ------------------------------------------------ -------------- (Address of principal executive offices) (Zip Code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None -------------------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Exchange Act: Common Shares, without par value -------------------------------------------------------------------- (Title of Class) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] The issuer's revenues for the fiscal year ended June 30, 1997 were $8.8 million. Based upon the average of the bid and asked prices quoted by the Nasdaq National Market, the aggregate market value of the voting stock held by non-affiliates of the issuer on September 24, 1997, was $17.5 million. 1,721,412 of the issuer's common shares were issued and outstanding on September 24, 1997. DOCUMENTS INCORPORATED BY REFERENCE Part II of Form 10-KSB - Portions of the Annual Report to Shareholders for the fiscal year ended June 30, 1997. Part III of Form 10-KSB - Portions of the Proxy Statement for 1997 Annual Meeting of Shareholders. 2 PART I ITEM 1. DESCRIPTION OF BUSINESS ASB Financial Corp. ("ASB"), an Ohio corporation, is a unitary savings and loan holding company which owns all of the issued and outstanding common shares of American Savings Bank, fsb ("American"), a federal savings bank chartered under the laws of the United States. On May 10, 1995, ASB acquired all of the common shares issued by American upon its conversion from a mutual savings association to a stock savings association (the "Conversion"). GENERAL American is principally engaged in the business of originating real estate loans secured by first mortgages on one- to four-family residential real estate located in American's primary market area, which consists of the City of Portsmouth and contiguous areas of Scioto County, Ohio. American also makes loans secured by multifamily real estate (over four units) and nonresidential real estate and secured and unsecured consumer loans. In addition, American purchases interests in multifamily real estate and nonresidential real estate loans originated and serviced by other lenders. American also invests in mortgage-backed securities, U.S. Government agency obligations, obligations of state and political subdivisions, and other investments permitted by applicable law. Funds for lending and other investment activities are obtained primarily from savings deposits, which are insured up to applicable limits by the Federal Deposit Insurance Corporation (the "FDIC"), and loan principal and mortgage-backed security repayments. American conducts business from its office in Portsmouth, Ohio. American's primary market area for lending consists of Scioto County, Ohio, and for deposits consists of Scioto County and adjacent communities in the North Central Kentucky area. As a savings and loan holding company, ASB is subject to regulation, supervision and examination by the Office of Thrift Supervision of the United States Department of the Treasury (the "OTS"). As a federal savings bank, American is subject to regulation, supervision and examination by the OTS and the FDIC. ASB's activities have been limited primarily to holding the common stock of American since acquiring such common stock in connection with the Conversion. Consequently, the following discussion focuses primarily on the business of American. LENDING ACTIVITIES GENERAL. American's principal lending activity is the origination of conventional real estate loans, including construction loans, secured by one- to four-family residential real estate located in American's primary market area. Loans secured by multifamily properties containing five units or more and nonresidential properties, including construction loans, are also offered by American. American also purchases interests in multifamily real estate loans and nonresidential real estate loans originated and serviced by other financial institutions. American does not originate first mortgage loans insured by the Federal Housing Authority or guaranteed by the Veterans Administration. In addition to real estate lending, American originates consumer loans, including automobile loans, loans secured by deposit accounts, home improvement loans and a limited number of unsecured loans. -2- 3 LOAN PORTFOLIO COMPOSITION. The following table presents certain information with respect to the composition of American's loan portfolio at the dates indicated:
At June 30, -------------------------------------------------------------------------- 1997 1996 1995 ------------------- -------------------- ---------------------- Percent Percent Percent of total of total of total Amount loans Amount loans Amount loans ------ ------- ------ ------ ------ ------ (Dollars in thousands) Real estate loans: One- to four-family residential $50,481 66.3% $48,302 68.0% $45,929 71.4% Multifamily 7,721 10.1 8,265 11.6 8,272 12.9 Nonresidential and land 5,520 7.3 3,401 4.8 4,048 6.3 Construction 926 1.2 2,318 3.3 1,064 1.6 Home equity 3,464 4.6 1,800 2.5 - - Commercial 2,824 3.7 2,412 3.4 946 1.5 ------- ------- ------- ------- ------- ------- Total real estate loans 70,936 93.2 66,498 93.6 60,259 93.7 Consumer and other loans: Passbook 556 .7 586 .8 617 1.0 Home improvement 1,462 1.9 1,433 2.0 1,477 2.3 Automobile 2,087 2.8 2,199 3.1 1,377 2.1 Other 1,091 1.4 350 .5 575 .9 ------- ------- ------- ------- ------- ------- Total consumer and other loans 5,196 6.8 4,568 6.4 4,046 6.3 ------- ------- ------- ------- ------- ------- Total loans 76,132 100.0% 71,066 100.0% 64,305 100.0% ======= ======= ======= Less: Loans in process 978 1,529 1,065 Net deferred loan origination fees and unearned discounts 198 198 194 Allowance for loan losses 820 884 893 ------- ------- ------- Total loans net $74,136 $68,455 $62,153 ======= ======= =======
LOAN MATURITY. The following table sets forth the contractual maturity of American's total loans at June 30, 1997, before consideration of net items:
Due during the fiscal One- to Consumer year ending June 30, four-family (1) Multifamily Nonresidential (2) and other (3) Total - -------------------- --------------- ------------ ------------------ ------------- ----- (In thousands) 1998 $ 2,536 $1,044 $ 792 $ 3,235 $ 7,607 1999 2,746 1,127 930 1,986 6,789 2000 2,971 1,215 972 1,899 7,057 2001-2002 6,694 2,725 1,683 3,110 14,212 2003-2007 21,858 1,610 1,143 1,254 25,865 2008-2012 12,484 - - - 12,484 2013 and thereafter 2,118 - - - 2,118 ------- ------ ------ -------- ------- $51,407 $7,721 $5,520 $11,484 $76,132 ======= ====== ====== ======= ======= - ----------------------------- (1) Includes construction loans. (2) Includes land development loans. (3) Includes commercial loans.
-3- 4 LOANS SECURED BY ONE-TO FOUR-FAMILY REAL ESTATE. The principal lending activity of American is the origination of permanent conventional loans secured by one- to four-family residences, primarily single-family homes, located within American's primary market area. Each of such loans is secured by a first mortgage on the underlying real estate and improvements thereon, if any. At June 30, 1997, American's one- to four-family residential real estate loan portfolio, including construction loans secured by one- to four-family residences, was approximately $51.4 million, or 67.5% of total loans. OTS regulations limit the amount which American may lend in relationship to the appraised value of the real estate and improvements (the "Loan-to-Value Ratio" or "LTV") at the time of loan origination. In accordance with such regulations, American makes loans on one- to four-family residences with LTVs of up to 95%. The principal amount of any loan which exceeds an 85% LTV at the time of origination is usually covered by private mortgage insurance at the expense of the borrower. Fixed-rate loans are offered by American, currently for terms of up to 20 years. Although fixed-rate loans were offered by American for terms of up to 25 years prior to October 1993, most of the fixed-rate loans in American's portfolio have terms of 15 years or less. Adjustable-rate residential real estate loans ("ARMs") are offered by American for terms of up to 30 years. The interest rate adjustment periods on the ARMs are either one year or three years. The interest rate adjustments on one-year and three-year ARMs presently originated by American are tied to the one-year and three-year U.S. Treasury securities rates or the Previously Occupied Homes index published by the Federal Home Loan Bank (the "FHLB"). The maximum allowable adjustment at each adjustment date is 2% with a maximum adjustment of 6% over the term of the loan. The initial rate on a three-year ARM is typically higher than the initial rate on a one-year ARM to compensate for the reduced interest rate sensitivity. Adjustable-rate loans decrease American's interest rate risk but involve other risks, primarily credit risk. As interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. American also offers home equity loans for current mortgage customers on one- to four-family residences with LTV's of up to 100%. At June 30, 1997, American's home equity loans totaled $3.5 million, or 4.6% of total loans. LOANS SECURED BY MULTIFAMILY REAL ESTATE. In addition to loans on one- to four-family properties, American originates and purchases interests in loans secured by multifamily properties containing over four units. Multifamily loans originated by American have terms of up to 15 years and a maximum LTV of 75%. Approximately 70% of the multifamily real estate loans held by American are participation interests in loans originated and serviced by other financial institutions and secured by real estate located in Ohio, Kentucky, Florida and North Carolina. See "Loan Originations, Purchases and Sales." Multifamily lending is generally considered to involve a higher degree of risk than one- to four-family residential lending because the borrower typically depends upon income generated by the project to cover operating expenses and debt service. The profitability of a project can be affected by economic conditions, government policies and other factors beyond the control of the borrower. American attempts to reduce the risk associated with multifamily lending by evaluating the creditworthiness of the borrower and the projected income from the project and by obtaining personal guarantees on loans made to corporations and partnerships. American requires that borrowers submit rent rolls and that all borrowers submit financial statements annually to enable American to monitor the loan. At June 30, 1997, loans secured by multifamily properties totaled approximately $7.7 million, or 10.1% of total loans. LOANS SECURED BY NONRESIDENTIAL REAL ESTATE AND LAND. At June 30, 1997, approximately $5.5 million, or 7.3% of American's total loans, were secured by nonresidential real estate and land. The majority of such loans have adjustable rates and terms of up to 15 years. Among the properties securing nonresidential real estate loans are office buildings, retail properties, warehouses, a hotel and an automobile dealership located in American's primary market area. Also included in American's nonresidential real estate loan portfolio are $1.7 million in participation interests which have been purchased in loans originated by other financial institutions. -4- 5 American has one land loan with a principal balance of $725,000 secured by developed land which has been subdivided for single-family home construction in Scioto County. Loans for the construction of nonresidential real estate are occasionally made by American. At June 30, 1997, American had no outstanding nonresidential real estate construction loans. Although the loans secured by nonresidential real estate typically have higher interest rates and shorter terms to maturity than one- to four-family residential real estate loans, nonresidential real estate lending is generally considered to involve a higher degree of risk than residential lending due to the relatively larger loan amounts and the effects of general economic conditions on the successful operation of income-producing properties. American has endeavored to reduce such risk by evaluating the credit history and past performance of the borrower, the location of the real estate, the financial condition of the borrower, the quality and characteristics of the income stream generated by the property and appraisals supporting the property's valuation. CONSTRUCTION LOANS. Loans for the construction of single-family houses are made to individuals for the construction and permanent financing of their primary residences. Such loans are offered with adjustable rates for terms of up to 30 years and fixed rates for terms of up to 20 years. During the first year, while the residence is being constructed, the borrower is required to pay interest only. Construction loans generally involve greater underwriting and default risks than do loans secured by mortgages on existing properties. Loan funds are advanced upon the security of the project under construction, which is more difficult to value before the completion of construction. Moreover, because of the uncertainties inherent in estimating construction costs, it is relatively difficult to evaluate accurately the LTV and the total loan funds required to complete a project. In the event a default on a construction loan occurs and foreclosure follows, American would have to take control of the project and attempt either to arrange for completion of construction or dispose of the unfinished project. At June 30, 1997, construction loans, in the aggregate, totaled $926,000, or 1.2% of American's total loans. Approximately 80% of American's construction loans are secured by property in Scioto County. COMMERCIAL REAL ESTATE LOANS. At June 30, 1997, approximately $2.8 million, or 3.7% of American's total loans were secured by commercial real estate. American originates commercial loans for a maximum term of 15 years and which are secured by real estate with a LTV of up to 80%. These extensions of credit are typically secured by office buildings, retail stores and other commercial properties. CONSUMER AND OTHER LOANS. American makes various types of consumer loans, including loans made to depositors on the security of their deposit accounts, automobile loans, home improvement loans and other secured loans, including a loan to an automobile dealer leasing group, and unsecured personal loans. Consumer loans, other than loans on deposits, are made at fixed rates of interest only and for varying terms based on the type of loan. At June 30, 1997, American had approximately $1.1 million, or 1.4% of total loans, invested in consumer and other loans. Home improvement loans include loans insured by the Federal Housing Administration. Home improvement loans typically have a five-year term and fixed rates of interest. Consumer loans, particularly consumer loans which are unsecured or are secured by rapidly depreciating assets such as automobiles, may entail greater risk than do residential real estate loans. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. The risk of default on consumer loans increases during periods of recession, high unemployment and other adverse economic conditions. LOAN SOLICITATION AND PROCESSING. Loan originations are developed from a number of sources, including continuing business with depositors, other borrowers and real estate developers, solicitations by American's lending staff and walk-in customers. -5- 6 Loan applications for permanent real estate loans are taken by loan personnel. American obtains a credit report, verification of employment and other documentation concerning the creditworthiness of the borrower. An appraisal of the fair market value of the real estate which will be given as security for the loan is prepared by a fee appraiser approved by the Board of Directors. Upon the completion of the appraisal and the receipt of information on the credit history of the borrower, the application for a loan is submitted for review in accordance with American's underwriting guidelines to American's Executive Committee, the members of which are Directors Gerald Jenkins, Robert Smith, William Burke and Louis Schoettle. Any loan for more than $100,000 must be reviewed and approved by the full Board of Directors. If a real estate loan application is approved, either an attorney's opinion or title insurance is obtained on the real estate which will secure the mortgage loan. Most of the loans in American's portfolio have an attorney's opinion. Borrowers are required to carry satisfactory fire and casualty insurance and flood insurance, if applicable, and to name American as an insured mortgagee. The procedure for approval of construction loans is the same as for permanent real estate loans, except that an appraiser evaluates the building plans, construction specifications and estimates of construction costs. American also evaluates the feasibility of the proposed construction project and the experience and record of the builder. Consumer loans are underwritten on the basis of the borrower's credit history and an analysis of the borrower's income and expenses, ability to repay the loan and the value of the collateral, if any. LOAN ORIGINATIONS, PURCHASES AND SALES. Currently, American is originating both fixed-rate and ARM loans for its portfolio and not with the intention of selling such loans in the secondary market. The documentation for most of the loans in American's portfolio does not conform to the secondary market standards of the Federal Home Loan Mortgage Corporation ("FHLMC") or the Federal National Mortgage Association (" FNMA"). To supplement loan demand in its primary market area, American purchases participation interests in multifamily and nonresidential real estate loans originated and serviced by other financial institutions. See "Loans Secured by Multifamily Real Estate" and "Loans Secured by Nonresidential Real Estate and Land." American does not purchase participation interests through brokers. Recent loan participations have been purchased primarily from a savings bank and a mortgage banking affiliate of a commercial bank headquartered in Ohio. Whole loans or participation interests purchased by American conform to American's underwriting criteria for loans originated by American. American intends to continue to purchase loans as suitable investment opportunities become available. -6- 7 The following table presents American's loan origination, purchase and sale activity for the periods indicated:
Year ended June 30, -------------------------------------- 1997 1996 1995 ---- ---- ---- (In thousands) Loans originated: Adjustable-rate: One- to four-family real estate $ 1,385 $ 1,827 $ 1,251 Multifamily real estate 352 636 - Nonresidential real estate 2,298 112 782 ------- ------- ------- Total adjustable-rate 4,035 2,575 2,033 Fixed-rate: One- to four-family real estate 9,886 11,324 5,701 Nonresidential real estate - 424 686 Consumer 8,582 9,562 5,314 -------- ------- ------- Total fixed-rate 18,468 21,310 11,701 Loans purchased 773 1,711 3,279 ------- ------- ------- Total loans originated and purchased 23,276 25,596 17,013 Reductions: Principal repayments 17,697 18,715 13,716 Transfers from loans to real estate owned and repossessed assets - 138 525 ------- ------- ------- Total reductions 17,697 18,853 14,241 Increase (decrease) in other items, net (1) 102 (441) 77 ------- ------- ------- Net increase $ 5,681 $ 6,302 $ 2,849 ======= ======= ======= - ----------------------------- (1) Consists of loans in process, unearned discounts and deferred loan origination fees and allowance for loan losses.
FEDERAL LENDING LIMIT. OTS regulations impose a lending limit on the aggregate amount that a savings association can lend to any one borrower to an amount equal to 15% of the association's total capital for risk-based capital purposes plus any loan reserves not already included in total capital (the "Lending Limit Capital"). A savings association may loan to one borrower an additional amount not to exceed 10% of the association's Lending Limit Capital, if the additional amount is fully secured by certain forms of "readily marketable collateral." Real estate is not considered "readily marketable capital." In applying this limit, the regulations require that loans to certain related or affiliated borrowers be aggregated. An exception to this limit permits loans of any type to one borrower of up to $500,000. In addition, the OTS, under certain circumstances, may permit exceptions to the lending limit on a case-by-case basis. Based on such limits, American was able to lend approximately $2.1 million to one borrower at June 30, 1997. The largest loan American had outstanding to one borrower at June 30, 1997, was $2.5 million. At the time of its origination, this loan was within the applicable loans-to-one-borrower limitations and, as such, is exempt from the current limitation. Such loan was secured by automobile titles, assignments of leases and a guarantee of the leasing company and was current at June 30, 1997. LOAN ORIGINATION AND OTHER FEES. American realizes loan origination fee and other fee income from its lending activities and also realizes income from late payment charges, application fees and fees for other miscellaneous services. Loan origination fees and other fees are a volatile source of income, varying with the volume of lending, loan repayments and general economic conditions. All nonrefundable loan origination fees and certain direct loan origination costs -7- 8 are deferred and recognized in accordance with Statement of Financial Accounting Standards ("SFAS") No. 91 as an adjustment to yield over the life of the related loan. DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. Delinquent loans are loans for which payment has not been received within 30 days of the payment due date. Loan payments are due on the first day of the month with the portion of the payment applicable to interest to accrue during the current month. When loan payments have not been made by the thirtieth of the month, late notices are sent. If payment is not received by the sixtieth day, second notices are sent and telephone calls are made to the borrower. Each loan bears a late payment penalty which is assessed as soon as such loan is more than 30 days delinquent. The late penalty for real estate loans is 3% and for consumer loans is 5% of the payment due. When a loan secured by real estate becomes delinquent more than 90 days, the Board of Directors reviews the loan and foreclosure proceedings are normally instituted and an appraisal of the collateral is performed. If the appraisal indicates that the value of the collateral is less than the book value of the loan, a valuation allowance is established for such loan. When a consumer loan becomes more than 90 days past due, a specific allowance for loss is established for the amount of the loan. -8- 9 The following table reflects the amount of loans in a delinquent status at the dates indicated:
At June 30, 1997 ------------------------------------------------------------------------------------------------------- Residential real estate Nonresidential real estate Consumer Total ------------------------- -------------------------- --------------------- ------------------------- Number Amount %(1) Number Amount %(1) Number Amount %(1) Number Amount %(1) ------ ------ ---- ------ ------ ------ ------ ------ ---- ------ ------ ----- (Dollars in thousands) Loans delinquent for: 30-59 days 39 $1,199 1.6% - $- - % 10 $41 .1% 49 $1,240 1.7% 60-89 days 17 830 1.1 - - - 8 32 -- 25 862 1.1 90 days and over 6 1,052 1.4 - - - 10 93 .1 16 1,145 1.5 -- ------ --- - --- --- -- ---- -- -- ------ --- Total delinquent 62 $3,081 4.1% - $- - % 28 $166 .2 90 $3,247 4.3% loans == ====== === = === === == ==== == == ====== === At June 30, 1996 ------------------------------------------------------------------------------------------------------- Residential real estate Nonresidential real estate Consumer Total ------------------------- -------------------------- --------------------- ------------------------- Number Amount %(1) Number Amount %(1) Number Amount %(1) Number Amount %(1) ------ ------ ---- ------ ------ ------ ------ ------ ---- ------ ------ ----- (Dollars in thousands) Loans delinquent for: 30-59 days 42 $1,386 2.0% - $ - - % 17 $65 .1% 59 $1,451 2.0% 60-89 days 14 1,317 1.8 1 38 - 9 41 .1 24 1,396 2.0 90 days and over 9 1,026 1.4 1 115 .2 8 17 - 18 1,158 1.6 -- ------ --- - --- --- -- ---- - -- ------ --- Total delinquent 65 $3,729 5.2% 2 $153 .2% 34 $123 .2% 101 $4,005 5.6% loans == ====== === = === === == ==== == === ====== === At June 30, 1995 ------------------------------------------------------------------------------------------------------- Residential real estate Nonresidential real estate Consumer Total ------------------------- -------------------------- --------------------- ------------------------- Number Amount %(1) Number Amount %(1) Number Amount %(1) Number Amount %(1) ------ ------ ---- ------ ------ ------ ------ ------ ---- ------ ------ ----- (Dollars in thousands) Loans delinquent for: 30-59 days 45 $1,469 2.3% 2 $195 .3% 10 $40 .1% 57 $1,704 2.7% 60-89 days 14 324 .5 1 77 .1 5 26 - 20 427 .6 90 days and over 12 1,907 3.0 - - - 5 22 - 17 1,929 3.0 -- ------ --- - --- --- -- ---- -- -- ------ --- Total delinquent 71 $3,700 5.8% 3 $272 .4% 20 $88 .1% 94 $4,060 6.3% loans == ====== === = ==== == == === == == ====== === - ------------------------------------ (1) Percentages correlate to total loans before net items.
-9- 10 Nonperforming assets include non-accrual loans, accruing loans which are delinquent 90 days or more, restructured loans, real estate acquired by foreclosure or by deed-in-lieu thereof and repossessed assets. Loans are placed on non-accrual status when, in the judgment of management, the probability of collection of interest is deemed insufficient to warrant further accrual. The following table sets forth information with respect to the accrual and nonaccrual status of American's loans and other nonperforming assets at the dates indicated:
At June 30, ------------------------------ 1997 1996 1995 ------ ------ ------ Non-accrual loans: One- to four-family $87 $164 $207 Nonresidential - 115 - Multifamily 862 862 1,700 Consumer 42 17 22 ------ ------ ------ Total 991 1,158 1,929 Accruing loans delinquent 90 days or more: 154 - - ------ ------ ------ Total nonperforming loans 1,145 1,158 1,929 Real estate acquired through foreclosure: One- to four-family - - - Nonresidential - 663 525 Multifamily - - - ------ ------ ------ Total real estate acquired through foreclosure - 663 525 ------ ------ ------ Total nonperforming assets $1,145 $1,821 $2,454 ====== ====== ====== Allowance for loan losses $820 $884 $893 ====== ====== ====== Nonperforming assets as a percent of total assets (1) 1.02% 1.61% 2.30% Allowance for loan losses as a percent of nonperforming loans 71.62% 76.34% 46.29% Allowance for loan losses as a percent of nonperforming assets 71.62% 48.54% 36.39% - ---------- (1) The applicable asset totals are $112.5 million, $112.9 million and $106.9 million for the fiscal years ended June 30, 1997, 1996 and 1995, respectively.
For the year ended June 30, 1997, gross interest income which would have been recorded had non-accrual loans been current in accordance with their original terms was $9,000. There was no interest recorded on such loans during such period. Real estate acquired by American as a result of foreclosure proceedings is classified as real estate owned ("REO") until it is sold. When property is so acquired it is recorded by American at the estimated fair value of the real estate, less estimated selling expenses, at the date of acquisition, and any write-down resulting therefrom is charged to the allowance for loan losses. Interest accrual, if any, ceases no later than the date of acquisition of the real estate, and all costs incurred from such date in -10- 11 maintaining the property are expensed. Costs relating to the development and improvement of the property are capitalized to the extent of fair value. American classifies its own assets on a regular basis in accordance with federal regulations. Problem assets are classified as "substandard," "doubtful" or "loss." "Substandard" assets have one or more defined weaknesses and are characterized by the distinct possibility that American will sustain some loss if the deficiencies are not corrected. "Doubtful" assets have the same weaknesses as "substandard" assets, with the additional characteristics that (i) the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable and (ii) there is a high possibility of loss. An asset classified "loss" is considered uncollectible and of such little value that its continuance as an asset of American is not warranted. The aggregate amounts of American's classified assets at the dates indicated were as follows:
At June 30, ------------------------------------ 1997 1996 1995 ---- ---- ---- Classified assets Substandard $949 $1,804 $2,432 Doubtful - - - Loss 42 59 22 ---- ------ ------ Total classified assets $991 $1,863 $2,454 ==== ====== ======
American establishes general allowances for loan losses for loans classified as substandard or doubtful. Generally, American charges off the portion of any real estate loan deemed to be uncollectible, whereas a loss classification and corresponding reserve is used for consumer loans. American analyzes each classified asset on a monthly basis to determine whether changes in the classifications are appropriate under the circumstances. Such analysis focuses on a variety of factors, including the amount of any delinquency and the reasons for the delinquency, if any, the use of the real estate securing the loan, the status of the borrower and the appraised value of the real estate. As such factors change, the classification of the asset will change accordingly. ALLOWANCE FOR LOAN LOSSES. Senior management, with oversight by the Board of Directors, reviews on a monthly basis the allowance for loan losses as it relates to a number of relevant factors including, but not limited to, trends in the level of delinquent and nonperforming assets and classified loans, current and anticipated economic conditions in American's primary lending area, such as unemployment data and the consumer price index, past loss experience and losses arising from specific problem assets. To a lesser extent, management also considers loan concentrations to single borrowers and changes in the composition of the loan portfolio. While management believes that it uses the best information available to determine the allowance for loan losses, unforeseen market conditions could result in adjustments, and net earnings could be adversely affected if circumstances differ substantially from the assumptions used in making the final determination. -11- 12 The following table sets forth an analysis of American's allowance for loan losses for the periods indicated:
For the year ended June 30, ----------------------------------------- 1997 1996 1995 ---- ---- ---- (Dollars in thousands) Balance at beginning of period $884 $893 $1,115 Charge-offs: Residential real estate loans (1) (22) (9) - Nonresidential real estate loans (64) - (260) Consumer loans (6) - (4) ----- ----- ------- Total charge-offs (92) (9) (264) Recoveries - - 32 ----- ----- ------- Net charge-offs (92) (9) (232) ------- Provision for losses on loans 28 - 10 ----- ----- ------- Balance at end of period $820 $884 $893 ===== ===== ======= Ratio of net charge-offs to average loans outstanding during the period .13% .01% .38% (1) Includes multifamily loans.
The following table sets forth the allocation of American's allowance for loan losses by type of loan at the dates indicated:
At June 30, ------------------------------------------------------------------------------------ 1997 1996 1995 ---------------------- ---------------------- ------------------------ Percent of Percent of Percent of loans in each loans in each loans in each category to category to category to Amount total loans Amount total loans Amount total loans ------ ----------- ------ ----------- ------ ----------- (Dollars in thousands) Balance at year end applicable to: Real estate loans $216 84.9% $309 87.7% $615 92.2% Consumer loans 42 15.1 13 12.3 22 7.8 Unallocated 562 - 562 - 256 - ---- ----- ---- ----- ---- ----- Total $820 100.0% $884 100.0% $893 100.0% ==== ===== ==== ===== ==== =====
INVESTMENT ACTIVITIES OTS regulations require that American maintain a minimum amount of liquid assets, which may be invested in U.S. Treasury obligations, securities of various federal agencies, certificates of deposit at insured banks, bankers' acceptances and federal funds. American is also permitted to make investments in certain commercial paper, corporate debt securities rated in one of the four highest rating categories by one or more nationally recognized statistical rating organizations, and mutual funds, as well as other investments permitted by federal regulations. See "REGULATION." -12- 13 The following table sets forth the composition of American's investments, other than mortgage-backed securities, at the dates indicated:
At June 30, --------------------------------------------------------------------------- 1997 1996 1995 ---------------------- --------------------- ---------------------- Carrying Percent Carrying Percent Carrying Percent Value of total Value of total Value of total ----- -------- ----- -------- ----- -------- (Dollars in thousands) Investments designated as held to maturity: Interest-bearing deposits in other financial institutions (1) $ 7,732 29.3% $10,127 34.4% $14,942 48.5% U.S. Government agency obligations - - - - 14,107 45.8 ------- ----- ------- ----- ------- ----- Total investments designated as held to maturity (2) 7,732 29.3 10,127 34.4 29,049 94.3 Investments designated as available for sale: U.S. Government agency obligations 17,960 68.0 18,771 63.8 1,357 4.4 FHLMC stock 700 2.7 513 1.8 411 1.3 ------- ----- ------- ----- ------- ----- Total investments designated as available for sale 18,660 70.7 19,284 65.6 1,768 5.7 ------- ----- ------- ----- ------- ----- Total investments $ 26,392 100.0% $29,411 100.0% $30,817 100.0% ======= ===== ======= ===== ======= ===== - ----------------------------- (1) Includes interest-bearing deposits and certificates of deposit. (2) At June 30, 1997, 1996 and 1995, the market value of American's investment securities, held to maturity, totaled $7.7 million, $10.1 million and $29.0 million, respectively.
The following table sets forth information regarding the maturities, book value and weighted average yields of American's investment securities, other than mortgage-backed securities, at June 30, 1997:
Less than 1 Year 1-5 Years 5-10 Years 10-20 Years Total ------------------ ------------------ ------------------ ------------------ ---------------- Weighted Weighted Weighted Weighted Amortized average Amortized average Amortized average Amortized average Amortized Market cost yield cost yield cost yield cost yield cost value ---- ----- ---- ----- ---- ----- ---- ----- ---- ----- (Dollars in thousands) Investments designated as held to maturity: Certificates of deposit in other financial institutions $2,545 6.00% $1,713 6.63% $ - -% $ - -% $ 4,258 $ 4,258 Investments designated as available for sale: U.S. Government agency obligations 350 5.27 3,758 6.34 11,029 7.32 2,918 7.84 18,055 17,960 FHLMC stock - - - - 20 700 ------ ---- ------ ---- ------- ---- ------ ---- ------- ------- Total $2,895 5.91 $5,471 6.42 $11,029 7.32 $2,918 7.84 $22,333 $22,918 ====== ==== ====== ==== ======= ==== ====== ==== ======= =======
-13- 14 In addition to the foregoing investment securities, American has been an active purchaser of mortgage-backed securities. At June 30, 1997, mortgage-backed securities totaled $8.6 million, or 7.6% of total assets. All of the mortgage-backed securities in American's portfolio are government-guaranteed securities, primarily participations or pass-through securities, issued by the Government National Mortgage Association ("GNMA"), the FHLMC or the FNMA. Although American's investment policy does not prohibit investment in collateralized mortgage obligations ("CMOs") or real estate mortgage investment conduits ("REMICs"), it has been American's practice generally not to purchase CMOs, REMICs or other forms of derivative instruments. -14- 15 American generally purchases mortgage-backed securities at or near par in order to avoid prepayment risk. All of American's mortgage-backed securities are fixed-rate securities. Although fixed-rate securities generally have a higher yield at the time of origination than adjustable-rate securities, the interest rate risk associated with fixed-rate securities is higher. The following table sets forth details of American's investment in mortgage-backed securities, including those designated as available for sale, at the dates indicated.
At June 30, 1997 At June 30, 1996 ---------------------------------------------- -------------------------------------------------- Gross Gross Gross Gross Amortized unrealized unrealized Estimated Amortized unrealized unrealized Estimated cost gains losses fair value cost gains losses fair value ---- ----- ------ ---------- ---- ----- ------ ---------- (In thousands) Held to maturity: FHLMC participation certificates $ - $ - $ - $ - $ - $ - $ - $ - GNMA participation - certificates - - - - - - - FNMA participation - certificates - - - - - - - FHLMC REMIC - - - - - - - - ------ ---- --- ------ ------- ---- ---- ------- Total - - - - - - - - Available for sale: FHLMC participation certificates 3,067 34 34 3,067 4,119 38 57 4,100 FNMA participation certificates 1,637 23 21 1,639 2,135 30 27 2,138 GNMA participation certificates 3,817 61 24 3,854 4,463 81 54 4,490 ------ ---- --- ------ ------- ---- ---- ------- Total mortgage-backed securities $8,521 $118 $79 $8,560 $10,717 $149 $138 $10,728 ====== ==== === ====== ======= ==== ==== ======= At June 30, 1995 ---------------------------------------------- Gross Gross Amortized unrealized unrealized Estimated cost gains losses fair value ------- ---- ---- ------- Held to maturity: FHLMC participation certificates $ 4,227 $ 27 $114 $ 4,140 GNMA participation certificates 2,089 36 15 2,110 FNMA participation certificates 1,519 21 2 1,538 FHLMC REMIC - - - - ------- ---- ---- ------- Total 7,835 84 131 7,788 Available for sale: FHLMC participation certificates - - - - FNMA participation certificates - - - - GNMA participation certificates 2,276 24 - 2,300 ------- ---- ---- ------- Total mortgage-backed securities $10,111 $108 $131 $10,088 ======= ==== ==== =======
-15- 16 DEPOSITS AND BORROWINGS GENERAL. Deposits are the primary source of American's funds for use in lending and other investment activities. In addition to deposits, American derives funds from interest payments and principal repayments on loans and mortgage-backed securities and income on interest-earning assets. Loan payments are a relatively stable source of funds, while deposit inflows and outflows fluctuate more in response to changes in general interest rates and money market conditions. DEPOSITS. Deposits are attracted principally from within American's primary market area through the offering of a broad selection of deposit instruments, including NOW accounts, demand deposit accounts, money market deposit accounts, money market checking accounts, regular passbook savings accounts, Christmas Club accounts, term certificate accounts and individual retirement accounts ("IRAs"). Interest rates paid, maturity terms, service fees and withdrawal penalties for the various types of accounts are established periodically by management of American based on American's liquidity requirements, growth goals and interest rates paid by competitors. American does not use brokers to attract deposits. The amount of deposits from outside American's primary market area is not significant. The following table sets forth the dollar amount of deposits in the various types of accounts offered by American at the dates indicated:
1997 1996 1995 -------------------- -------------------- --------------------- Percent Percent Percent of total of total of total Amount deposits Amount deposits Amount deposits ------ -------- ------ -------- ------ -------- (Dollars in thousands) Transaction accounts: Passbook accounts $ 7,379 8.2% $ 7,225 8.7% $ 7,278 9.2% Demand, NOW and Super NOW accounts 4,435 4.9 3,448 4.2 2,471 3.1 Money market deposit accounts 7,785 8.7 9,001 10.8 8,319 10.5 ------- ----- ------- ----- ------- ----- Total transaction 19,599 21.8 19,674 23.6 18,068 22.8 accounts Certificates of deposit: 4.00 - 4.99% 402 .4 474 .5 723 .9 5.00 - 5.99% 52,404 58.4 27,525 33.0 40,949 52.0 6.00 - 6.99% 17,265 19.2 35,638 42.7 19,068 24.1 7.00 - 7.99% 30 .1 36 .1 35 .1 8.00 - 8.99% 52 .1 48 .1 45 .1 ------- ----- ------- ----- ------- ----- Total certificates of deposit 70,153 78.2 63,721 76.4 60,820 77.2 ------- ----- ------- ----- ------- ----- Total deposits $89,752 100.0% $83,395 100.0% $78,888 100.0% ======= ===== ======= ===== ======= =====
-16- 17 The following table sets forth the remaining maturities of American's certificates of deposit at the dates indicated:
June 30, ---------------------------------------------- 1997 1996 1995 ------ ------- ---- (In thousands) Less than one year $42,468 $44,345 $32,815 One to two years 22,606 10,065 21,663 Two to three years 4,095 5,748 3,269 Over three years 984 3,563 3,073 ------- ------- ------- $70,153 $63,721 $60,820 ======= ======= =======
The following table presents the amount of American's certificates of deposit of $100,000 or more by the time remaining until maturity at June 30, 1997:
At June 30,1997 --------------- Certificates of deposit with balances of $100,000 (In thousands) or more maturing in quarter ending (1): September 30, 1997 $ 2,214 December 31, 1997 961 March 31, 1998 1,506 June 30, 1998 1,457 After June 30, 1998 4,361 -------- Total certificates of deposit with balances of $100,000 or more $10,499 ======= - ----------------------------- (1) Account balances over $100,000 are not insured by the FDIC.
The following table sets forth American's deposit account balance activity for the periods indicated:
Year ended June 30, 1997 1996 1995 --------- -------- --------- (Dollars in thousands) Beginning balance $ 83,395 $ 78,888 $ 82,514 Deposits 118,033 91,423 107,396 Withdrawals (114,836) (89,410) (113,796) Interest credited 3,160 2,494 2,774 --------- -------- --------- Ending balance $ 89,752 $ 83,395 $ 78,888 ========= ======== ========= Net increase (decrease) $ 6,357 $ 4,507 $ (3,626) ========= ======== ========= Percent increase (decrease) 7.62% 5.71% (4.39)% ==== ==== =====
BORROWINGS. American's other sources of funds include advances from the FHLB. As a member of the FHLB, American is required to own capital stock in the FHLB and is authorized to apply for advances from the FHLB. Each FHLB credit program has its own interest rate, which may be fixed or variable, and range of maturities. The FHLB may prescribe the acceptable uses for these advances, as well as limitations on the size of the advances and repayment provisions. In addition to advances from the FHLB, American has borrowed money totaling $500,000 at an interest rate of 8.88% maturing in 2001. -17- 18 The following table sets forth certain information as to American's FHLB advances and other borrowings at the dates indicated:
At June 30, -------------------------------------- 1997 1996 1995 ---- ---- ---- (Dollars in thousands) FHLB advances $2,884 $2,413 $442 Weighted average interest rate of FHLB advances 5.65% 4.95% 3.16% Other borrowed money $500 - - Weighted average interest rate of other - borrowed money 8.88% -
The following table sets forth the maximum balance and average balance of FHLB advances and other borrowings during the periods indicated:
Year ended June 30, ------------------------------------ 1997 1996 1995 ---- ---- ---- (Dollars in thousands) FHLB advances: Maximum balance $2,889 $2,413 $466 Average balance 2,514 684 460 Weighted average interest rate 5.65% 5.12% 3.16% Other borrowed money: Maximum balance $500 - - Average balance 333 - - Weighted average interest rate 8.88% - - ==== ====
COMPETITION American competes for deposits with other savings banks, savings associations, commercial banks and credit unions and with the issuers of commercial paper and other securities, such as shares in money market mutual funds. The primary factors in competing for deposits are interest rates and convenience of office location. In making loans, American competes with other savings banks, savings associations, commercial banks, consumer finance companies, credit unions, leasing companies and other lenders. American competes for loan originations primarily through the interest rates and loan fees it charges and through the efficiency and quality of services it provides to borrowers. Competition is intense and is affected by, among other things, the general availability of lendable funds, general and local economic conditions, current interest rate levels and other factors which are not readily predictable. SUBSIDIARY ACTIVITIES American has one wholly-owned subsidiary, A.S.L. Services, Inc. ("ASL"), which owns stock in American's data processing service provider. At June 30, 1997, the stock held by the service corporation had a book value of $15,000. Additionally, during the year ended June 30, 1996, American distributed $18,000 to ASL which was invested in the Money Concepts Financial Planning Centre, bringing the total assets of ASL to approximately $33,000 at June 30, 1997. PERSONNEL As of June 30, 1997, American had 22 full-time employees and 2 part-time employees. American believes that relations with its employees are excellent. American offers health, disability and life benefits and has established the ASB -18- 19 Financial Corp. Employee Stock Ownership Plan. None of the employees of American are represented by a collective bargaining unit. REGULATION GENERAL As a savings and loan holding company within the meaning of the Home Owners' Loan Act of 1933, as amended (the "HOLA"), ASB is subject to regulation, examination and oversight by the OTS. American is also subject to regulation, examination and oversight by the OTS and the FDIC. ASB and American must file periodic reports with these governmental agencies concerning their activities and financial condition. American is also subject to certain regulations promulgated by the Board of Governors of the Federal Reserve System ("FRB"). Congress is considering legislation to eliminate the federal savings and loan charter and the separate federal regulation of savings and loan associations, and the Department of the Treasury is preparing a report for Congress on the development of a common charter for all federally-chartered financial institutions. Pursuant to such legislation, Congress may eliminate the OTS and American may be regulated under federal law as a bank or be required to change its charter. Such change in regulation or charter would likely change the range of activities in which American may engage and would probably subject American to more regulation by the FDIC. In addition, ASB might become subject to a different set of holding company regulations limiting the activities in which ASB may engage and subjecting ASB to additional regulatory requirements, including separate capital requirements. At this time, ASB cannot predict when or whether Congress may actually pass legislation regarding ASB's and American's regulatory requirements or charter. Although such legislation may change the activities in which ASB or American are authorized to engage, it is not anticipated that the current activities of either ASB or American will be materially affected by those activity limits. OTS REGULATION SUPERVISION AND EXAMINATION. The OTS is responsible for the regulation and supervision of all savings associations, including American. American must undergo a full-scope, on-site examination by the OTS at least (a) once every twelve months, if it has total assets of $250 million or more, or (b) once every eighteen months, if it has total assets of less than $250 million and satisfies other specified criteria. The OTS issues regulations governing the operations of savings associations, regularly examines such institutions and imposes assessments on savings associations based on their asset size to cover the costs of this supervision and examination. It also promulgates regulations that prescribe permissible activities for federally chartered associations, including the types of lending that such associations may engage in and the investments in real estate, subsidiaries and securities they may make. The OTS also may initiate enforcement actions against savings associations and certain persons affiliated with them for violations of laws or regulations or for engaging in unsafe or unsound practices. If the grounds provided by law exist, the OTS may appoint a conservator or receiver for a savings association. Savings associations are subject to regulatory oversight under various consumer protection and fair lending laws. These laws govern, among other things, truth-in-lending disclosure, equal credit opportunity, fair credit reporting and community reinvestment. Failure to abide by federal laws and regulations governing community reinvestment could limit the ability of an institution to open a new branch or engage in a merger transaction. LIQUIDITY. OTS regulations require that American maintain an average daily balance of liquid assets (cash, certain time deposits, bankers' acceptances, and specified United States Government, state or federal agency obligations) equal to a monthly average of not less than 5% of its net withdrawable savings deposits plus borrowings payable in one year or less. Federal regulations also require each association to maintain an average daily balance of short-term liquid assets of not less than 1% of the total of its net withdrawable savings deposits plus borrowings payable in one year or less. Monetary penalties may be imposed upon associations failing to meet liquidity requirements. The average eligible liquidity of American, as computed under current regulations, was approximately $4.7 million, or 11.1%, for the month of June 1997, and exceeded the applicable 5% liquidity requirement by approximately $2.6 million. -19- 20 QUALIFIED THRIFT LENDER TEST. Savings associations are required to meet the QTL test. Prior to September 30, 1996, the QTL test required savings associations to maintain a specified level of investments in assets that are designated as qualifying thrift investments ("QTI"), which are generally related to domestic residential real estate and manufactured housing and include credit card, student and small business loans, and stock issued by any FHLB, the FHLMC or the Federal National Mortgage Association ("FNMA"). Under this test 65% of an institution's "portfolio assets" (total assets less goodwill and other intangibles, property used to conduct business and 20% of liquid assets) must consist of QTI on a monthly average basis in 9 out of every 12 months. Congress created a second QTL test, effective September 30, 1996, pursuant to which a savings association will qualify as a QTL thrift if at least 60% of the institution's assets (on a tax basis) consist of specified assets (generally loans secured by residential real estate or deposits, educational loans, cash and certain governmental obligations). The OTS may grant exceptions to the QTL test under certain circumstances. If a savings association fails to meet the QTL test, the association and its holding company become subject to certain operating and regulatory restrictions. A savings association that fails to meet the QTL test will not be eligible for new FHLB advances. At June 30, 1997, American met the QTL test. LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various restrictions or requirements on the ability of associations, including American, to make capital distributions, including dividend payments. OTS regulations also establish a three-tier system limiting capital distributions according to ratings of associations based on their capital level and supervisory condition. Tier 1 consists of associations that, before and after the proposed distribution, meet their fully phased-in capital requirements. Associations in this category may make capital distributions during any calendar year equal to the greater of 100% of net income, current year-to-date, plus 50% of the amount by which the lesser of the association's tangible, core or risk-based capital exceeds its fully phased-in capital requirement for such capital component, as measured at the beginning of the calendar year, or 75% of its net income over the most recent four-quarter period. A Tier 1 association deemed to be in need of more than normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3 association. American meets the requirements for a Tier 1 association and has not been notified of any need for more than normal supervision. Tier 1 associations proposing to make any capital distribution need only submit written notice to the OTS 30 days prior to such distribution. The OTS may object to the distribution during that 30-day period based on safety and soundness concerns. Tier 2 associations, which before and after the proposed distribution meet their current minimum, but not fully phased-in, capital requirements, may make capital distributions of up to 75% of net income over the most recent four-quarter period. Tier 3 associations do not meet current minimum capital requirements and must obtain OTS approval of any capital distribution. LENDING LIMITS. OTS regulations generally limit the aggregate amount that American can lend to one borrower to an amount equal to 15% of its Lending Limit Capital. A savings association may lend to one borrower an additional amount not to exceed 10% of the association's Lending Limit Capital, if the additional amount is fully secured by certain forms of "readily marketable collateral." Real estate is not considered "readily marketable collateral." Certain types of loans are not subject to these limits. Notwithstanding the specified limits, an association may lend to one borrower up to $500,000 for any purpose. In applying these limits, the regulations require that loans to certain related borrowers be aggregated. At June 30, 1997, American was in compliance with these lending limits, with its largest extension of credit to one borrower being $2.5 million. REGULATORY CAPITAL REQUIREMENTS. American is required by applicable law and regulations to meet certain minimum capital requirements. The capital standards include a leverage limit, or core capital requirement, a tangible capital requirement, and a risk-based capital requirement. The leverage limit requires "core capital" of at least 3% of total assets. "Core capital" is comprised of common stockholders' equity (including retained earnings), noncumulative perpetual preferred stock and related surplus, minority interests in consolidated subsidiaries, certain nonwithdrawable accounts and pledged deposits of mutual associations and certain purchased mortgage servicing rights. The tangible capital requirement provides that American must maintain "tangible capital" of not less than 1.5% of its adjusted total assets. "Tangible capital" is defined as core capital minus any "intangible assets." Pursuant to the risk-based capital requirement, American must maintain total capital, which consists of core or Tier 1 capital and certain general valuation reserves of 8% of risk-weighted assets. For purposes of computing risk-based capital, -20- 21 assets and certain off-balance sheet items are weighted at percentage levels ranging from 0% to 100%, depending on their relative risk. The following tables present certain information regarding compliance by American with applicable regulatory capital requirements at June 30, 1997:
At June 30, 1997 ----------------------------------------------------------------------------------- Actual capital Regulatory requirement Excess capital ----------------------- --------------------- ------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (Dollars in thousands) Tangible capital $13,321 12.1% $1,650 1.5% $11,671 10.6% Core Capital 13,321 12.1 3,300 3.0 10,021 9.1 Risk-based capital 13,855 26.9 4,123 8.0 9,732 18.9
The OTS has adopted regulations governing prompt corrective action to resolve the problems of capital deficient and otherwise troubled savings association. At each successively lower defined capital category, an institution is subject to more restrictive and numerous mandatory or discretionary regulatory actions or limits, and the applicable agency has less flexibility in determining how to resolve the problems of the institution. In addition, the OTS generally can downgrade an institution's capital category, notwithstanding its capital level, if, after notice and opportunity for hearing, the institution is deemed to be engaging in an unsafe or unsound practice, because it has not corrected deficiencies that resulted in it receiving a less than satisfactory examination rating on matters other than capital or it is deemed to be in an unsafe or unsound condition. An undercapitalized institution must submit a capital restoration plan to the OTS within 45 days after it becomes undercapitalized. Such institution will be subject to increased monitoring and asset growth restrictions and will be required to obtain prior approval for acquisitions, branching and engaging in new lines of business. Furthermore, critically undercapitalized institutions must be placed in conservatorship or receivership within 90 days of reaching that capitalization level, except under limited circumstances. American's capital levels at June 30, 1997, met the standards for the highest category, a "well-capitalized" institution. FEDERAL DEPOSIT INSURANCE CORPORATION The FDIC is an independent federal agency that insures the deposits, up to prescribed statutory limits, of federally insured banks and thrifts and safeguards the safety and soundness of the banking and thrift industries. The FDIC administers two separate insurance funds, the BIF for commercial banks and state savings banks and the SAIF for savings associations. American is a member of the SAIF, and its deposit accounts are insured by the FDIC, up to the prescribed limits. The FDIC has examination authority over all insured depository institutions, including American, and has authority to initiate enforcement actions against federally insured savings associations, if the FDIC does not believe the OTS has taken appropriate action to safeguard safety and soundness and the deposit insurance fund. The FDIC is required to maintain designated levels of reserves in each fund. The FDIC may increase assessment rates for either fund if necessary to restore the fund's ratio of reserves to insured deposits to its target level within a reasonable time and may decrease such rates if such target level has been met. The FDIC has established a risk-based assessment system for both SAIF and BIF members. Under this system, assessments vary based on the risk the institution poses to its deposit insurance fund. The risk level is determined based on the institution's capital level and the FDIC's level of supervisory concern about the institution. Because of the differing reserve levels of the funds, deposit insurance assessments paid by healthy savings associations were reduced significantly below the level paid by healthy savings associations effective in mid-1995. Assessments paid by healthy savings associations exceeded those paid by healthy commercial banks by approximately $.19 per $100 in deposits in late 1995. Such excess equaled approximately $.23 per $100 in deposits beginning in 1996. This premium disparity had a negative competitive impact on American and other institutions in the SAIF. -21- 22 Federal legislation, which was effective September 30, 1996, provided for the recapitalization of the SAIF by means of a special assessment of $.657 per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF reserves to the level required by law. Certain banks holding SAIF-insured deposits were required to pay the same special assessment on 80% of deposits at March 31, 1995. In addition, part of the cost of prior thrift failures, which had previously been paid only by SAIF members, will be paid by BIF members. As a result, BIF assessments for healthy banks in 1997 will be $.013 per $100 in deposits and SAIF assessments for healthy institutions in 1997 will be $.064 per $100 in deposits. American had $83.9 million in deposits at March 31, 1995. American paid a special assessment of $551,000 in November 1996, which was accounted for and recorded as of September 30, 1996. This assessment was tax-deductible, but reduced earnings for the year June 30, 1997. TRANSACTIONS WITH AFFILIATES AND INSIDERS Loans to executive officers, directors and principal shareholders and their related interests must conform to the lending limit on loans to one borrower, and the total of such loans to executive officers, directors, principal shareholders and their related interests cannot exceed the association's Lending Limit Capital (or 200% of Lending Limit Capital for qualifying institutions with less than $100 million in deposits). Most loans to directors, executive officers and principal shareholders must be approved in advance by a majority of the "disinterested" members of the board of directors of the association with any "interested" director not participating. All loans to directors, executive officers and principal shareholders must be made on terms substantially the same as offered in comparable transactions with the general public or as offered to all employees in a company-wide benefit program, and loans to executive officers are subject to additional limitations. American was in compliance with such restrictions at June 30, 1997. All transactions between savings associations and their affiliates must comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An affiliate is any company or entity which controls, is controlled by or is under common control with the financial institution. In a holding company context, the parent holding company of a savings association and any companies that are controlled by such parent holding company are affiliates of the institution. Generally, Sections 23A and 23B of the FRA (i) limit the extent to which a financial institution or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such institution's capital stock and surplus for any one affiliate and 20% of such capital stock and surplus for the aggregate of such transactions with all affiliates, and (ii) require that all such transactions be on terms substantially the same, or at least as favorable to the institution or the subsidiary, as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and similar types of transactions. In addition to limits in Sections 23A and 23B, American may not make any loan or other extension of credit to an affiliate unless the affiliate is engaged only in activities permissible for a bank holding company and may not purchase or invest in securities of any affiliate, except shares of a subsidiary. Exemptions from Sections 23A or 23B of the FRA may be granted only by the FRB. American was in compliance with these requirements at June 30, 1997. CHANGE IN CONTROL The Federal Deposit Insurance Act (the "FDIA") provides that no person, acting directly or indirectly or in concert with one or more persons, shall acquire control of any insured depository institution or holding company, unless 60-days prior written notice has been given to the primary federal regulator for that institution and such regulator has not issued a notice disapproving the proposed acquisition. Control, for purposes of the FDIA, means the power, directly or indirectly, alone or acting in concert, to direct the management or policies of an insured institution or to vote 25% or more of any class of securities of such institution. Control exists in situations in which the acquiring party has direct or indirect voting control of at least 25% of the institution's voting shares, controls in any manner the election of a majority of the directors of such institution or is determined to exercise a controlling influence over the management or policies of such institution. In addition, control is presumed to exist, under certain circumstances, where the acquiring party (which includes a group "acting in concert") has voting control of at least 10% of the institution's voting stock. These restrictions do not apply to holding company acquisitions. See "Holding Company Regulation". HOLDING COMPANY REGULATION ASB is a unitary savings and loan holding company subject to the regulatory oversight, examination and enforcement authority of the OTS. ASB is required to register and file periodic reports with the OTS. If the OTS determines that the continuation of a particular activity by a savings and loan holding company constitutes a serious threat to the financial condition of its subsidiary institutions, the OTS may impose restrictions on the holding company. Such restrictions may include limiting -22- 23 the payment of dividends, transactions with affiliates or any other activities deemed to pose a serious threat to the subsidiary institutions. Generally, no savings and loan holding company may (i) acquire or retain control of a savings association or another savings and loan holding company or control the assets thereof or (ii) acquire or retain more than 5% of the voting shares of a savings association or holding company thereof, which is not a subsidiary, without the prior written approval of the Director of the OTS. Additionally, under certain circumstances a savings and loan holding company is permitted to acquire, with the approval of the Director of the OTS, up to 15% of the previously unissued voting shares of an undercapitalized savings association for cash, without such savings association being deemed to be controlled by the holding company. Except with the prior approval of the Director of the OTS, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company's stock may also acquire control of any savings institution, other than a subsidiary institution, or any other savings and loan holding company. The Director of the OTS may approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings associations in more than one state, if the multiple savings and loan holding company involved controls a savings association which operated a home or branch office in the state of the association to be acquired as of March 5, 1987, or if the laws of the state in which the institution to be acquired is located specifically permit institutions to be acquired by state-chartered institutions or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state-chartered savings institutions). As under prior law, the Director of the OTS may approve an acquisition resulting in a multiple savings and loan holding company controlling savings associations in more than one state in the case of certain emergency thrift acquisitions. Federal law provides that an insured institution shall be liable for any loss incurred by the FDIC in connection with the default or potential default of, or federal assistance provided to, an insured institution which is controlled by the same holding company. Such loss would be apportioned among all of the insured institutions controlled by the holding company. FEDERAL RESERVE REQUIREMENTS FRB regulations currently require savings associations to maintain reserves of 3% of net transaction accounts (primarily NOW accounts) up to $49.3 million (subject to an exemption of up to $4.4 million), and of 10% of net transaction accounts in excess of $49.3 million. At June 30, 1997, American was in compliance with its reserve requirements. FEDERAL HOME LOAN BANK SYSTEM The FHLBs provide credit to their members in the form of advances. As members of the FHLB of Cincinnati, American is required to maintain an investment in the capital stock of the FHLB of Cincinnati in an amount equal to the greater of 1.0% of the aggregate outstanding principal amount of their residential mortgage loans, home purchase contracts and similar obligations at the beginning of each year, or 5% of their advances from the FHLB of Cincinnati. ASB is in compliance with this requirement with an aggregate investment by American in FHLB of Cincinnati stock of $675,000 at June 30, 1997. Upon the origination or renewal of a loan or advance, the FHLB of Cincinnati is required to obtain and to maintain a security interest in collateral in one or more of the following categories: fully disbursed, whole first mortgage loans on improved residential property or securities representing a whole interest in such loans; securities issued, insured or guaranteed by the United States Government or an agency thereof; deposits in any FHLB; or other real estate related collateral (up to 30% of the member's capital) acceptable to the applicable FHLB, if such collateral has a readily ascertainable value and the FHLB can perfect its security interest in the collateral. FEDERAL TAXATION ASB and American are each subject to the federal tax laws and regulations which apply to corporations generally. In addition to the regular income tax, ASB and American may be subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax rate of 20% on "alternative minimum taxable income" (which is the sum of a corporation's regular taxable income, with certain adjustments, and tax preference items), less any available exemption. Such tax preference items include interest on certain tax-exempt bonds issued after August 7, 1986. In addition, 75% of the amount by which a corporation's "adjusted current earnings" exceeds its alternative minimum taxable income computed without regard to this preference item and prior to reduction by net operating losses, is included in alternative minimum taxable income. Net -23- 24 operating losses can offset no more than 90% of alternative minimum taxable income. The alternative minimum tax is imposed to the extent it exceeds the corporation's regular income tax. Payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. However, the Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain "small corporations" for tax years beginning after December 31, 1997. A corporation initially qualifies as a small corporation if it had average gross receipts of $5,000,000 or less for the three tax years ending with its first tax year beginning after December 31, 1996. Once a corporation is recognized as a small corporation, it will continue to be exempt from the alternative minimum tax for as long as its average gross receipts for the prior three-year period does not exceed $7,500,000. In determining if a corporation meets this requirement, the first year that it achieved small corporation status is not taken into consideration. Prior to the enactment of the Small Business Jobs Protection Act (the "Act"), which was signed into law on August 21, 1996, certain thrift institutions, including American, were allowed deductions for bad debts under methods more favorable than those granted to other taxpayers. Qualified thrift institutions could compute deductions for bad debts using either the specific charge off method of Section 166 of the Code, or one of the two reserve methods of Section 593 of the Code. The reserve methods under Section 593 of the Code permitted a thrift institution annually to elect to deduct bad debts under either (i) the "percentage of taxable income" method applicable only to thrift institutions, or (ii) the "experience" method that also was available to small banks. Under the "percentage of taxable income" method, a thrift institution generally was allowed a deduction for an addition to its bad debt reserve equal to 8% of its taxable income (determined without regard to this deduction and with additional adjustments). Under the experience method, a thrift institution was generally allowed a deduction for an addition to its bad debt reserve equal to the greater of (i) an amount based on its actual average experience for losses in the current and five preceding taxable years, or (ii) an amount necessary to restore the reserve to its balance as of the close of the base year. A thrift institution could elect annually to compute its allowable addition to bad debt reserves for qualifying loans either under the experience method or the percentage of taxable income method. For tax years 1994, 1993 and 1992 ASB used the percentage of taxable income method because such method provided a higher bad debt deduction than the experience method. The Act eliminated the percentage of taxable income reserve method of accounting for bad debts by thrift institutions, effective for taxable years beginning after 1995. Thrift institutions that would be treated as small banks are allowed to utilize the experience method applicable to such institutions, while thrift institutions that are treated as large banks are required to use only the specific charge off method. A thrift institution required to change its method of computing reserves for bad debt will treat such change as a change in the method of accounting, initiated by the taxpayer, and having been made with the consent of the Secretary of the Treasury. Section 481(a) of the Code requires certain amounts to be recaptured with respect to such change. Generally, the amounts to be recaptured will be determined solely with respect to the "applicable excess reserves" of the taxpayer. The amount of the applicable excess reserves will be taken into account ratably over a six-taxable year period, beginning with the first taxable year beginning after 1995, subject to the residential loan requirement described below. In the case of a thrift institution that becomes a large bank, the amount of the institution's applicable excess reserves generally is the excess of (i) the balances of its reserve for losses on qualifying real property loans (generally loans secured by improved real estate) and its reserve for losses on nonqualifying loans (all other types of loans) as of the close of its last taxable year beginning before January 1, 1996, over (ii) the balances of such reserves as of the close of its last taxable year beginning before January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of a thrift institution that becomes a small bank, the amount of the institution's applicable excess reserves generally is the excess of (i) the balances of its reserve for losses on qualifying real property loans and its reserve for losses on nonqualifying loans as of the close of its last taxable year beginning before January 1, 1996, over (ii) the greater of the balance of (a) its pre-1988 reserves or (b) what the thrift's reserves would have been at the close of its last year beginning before January 1, 1996, had the thrift always used the experience method. For taxable years that begin after December 31, 1995, and before January 1, 1998, if a thrift meets the residential loan requirement for a tax year, the recapture of the applicable excess reserves otherwise required to be taken into account as a Code Section 481(a) adjustment for the year will be suspended. A thrift meets the residential loan requirement if, for the tax year, the principal amount of residential loans made by the thrift during the year is not less then its base amount. The "base amount" generally is the average of the principal amounts of the residential loans made by the thrift during the six most recent tax years beginning before January 1, 1996. A residential loan is a loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by residential real and church property and certain mobile homes), but only to the extent that the loan is made to the owner of the property. The balance of the pre-1988 reserves is subject to the provisions of Section 593(e) as modified by the Act which require recapture in the case of certain excessive distributions to shareholders. The pre-1988 reserves may not be utilized for payment of cash dividends or other distributions to a shareholder (including distributions in dissolution or liquidation) or for -24- 25 any other purpose (excess to absorb bad debt losses). Distribution of a cash dividend by a thrift institution to a shareholder is treated as made: first, out of the institution's post-1951 accumulated earnings and profits; second, out of the pre-1988 reserves; and third, out of such other accounts as may be proper. To the extent a distribution by American to ASB is deemed paid out of its pre-1988 reserves under these rules, the pre-1988 reserves would be reduced and American's gross income for tax purposes would be increased by the amount which, when reduced by the income tax, if any, attributable to the inclusion of such amount in its gross income, equals the amount deemed paid out of the pre-1988 reserves. As of June 30, 1997, American's pre-1988 reserves for tax purposes totaled approximately $1.9 million. ASB believes American had approximately $4.0 million of accumulated earnings and profits for tax purposes as of June 30, 1997, which would be available for dividend distributions, provided regulatory restrictions applicable to the payment of dividends are met. See "REGULATION - OTS Regulations -- Limitations on Capital Distributions." No representation can be made as to whether American will have current or accumulated earnings and profits in subsequent years. The tax returns of ASB have been audited or closed without audit through fiscal year 1992. In the opinion of management, any examination of open returns would not result in a deficiency which could have a material adverse effect on the financial condition of ASB. OHIO TAXATION The ASB is subject to the Ohio corporation franchise tax, which, as applied to ASB, is a tax measured by both net earnings and net worth. The rate of tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and 8.9% of computed Ohio taxable income in excess of $50,000 or (ii) 0.582% times taxable net worth. For tax years beginning after December 31, 1998, the rate of tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and 8.5% of computed Ohio taxable income in excess of $50,000 or (ii) .400% times taxable net worth. A special litter tax is also applicable to all corporations, including ASB, subject to the Ohio corporation franchise tax other than "financial institutions." If the franchise tax is paid on the net income basis, the litter tax is equal to .11% of the first $50,000 of computed Ohio taxable income and .22% of computed Ohio taxable income in excess of $50,000. IF the franchise tax is paid on the net worth basis, the litter tax is equal to .014% times taxable net worth. American is a "financial institution" for State of Ohio tax purposes. As such, it is subject to the Ohio corporate franchise tax on "financial institutions," which is imposed annually at a rate of 1.5% of the book net worth of American determined in accordance with generally accepted accounting principles. For tax year 1999, however, the franchise tax on financial institutions will be 1.4% of the book net worth and for tax year 2000 and years thereafter the tax will be 1.3% of book net worth. As a "financial institution," American is not subject to any tax based upon net income or net profits imposed by the State of Ohio. ITEM 2. DESCRIPTION OF PROPERTY American owns the property at 503 Chillicothe Street, Portsmouth, Ohio, on which its main office is located. At June 30, 1997, the net book value of the main office property was $517,000, and American's office premises and equipment had a total net book value of $944,000. For additional information regarding American's office premises and equipment, see Notes A and E of Notes to Consolidated Financial Statements. American also owns two parcels of real estate in downtown Portsmouth, Ohio, with a book value of approximately $200,000. The properties were purchased in November 1994 and April 1997. American plans to construct or expand a drive-through and ATM facility on the properties. ITEM 3. LEGAL PROCEEDINGS Neither ASB nor American is presently involved in any legal proceedings of a material nature. From time to time, American is a party to legal proceedings incidental to its business to enforce its security interest in collateral pledged to secure loans made by American. -25- 26 PART II ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information contained in the ASB Financial Corp. Annual Report to Shareholders for the fiscal year ended June 30, 1997 (the "Annual Report"), under the caption "Market Price of ASB's Common Shares and Related Shareholder Matters" is incorporated herein by reference. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The information contained in the Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" is incorporated herein by reference. ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS The Consolidated Financial Statements contained in the Annual Report and the opinion of Grant Thornton LLP, dated August 6, 1997, are incorporated herein by reference. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The information contained in the definitive Proxy Statement for the 1997 Annual Meeting of Shareholders of ASB Financial Corp. (the "Proxy Statement") under the captions "Board of Directors," "Executive Officers" and "Voting Securities and Ownership of Certain Beneficial Owners and Management" is incorporated herein by reference. ITEM 10. EXECUTIVE COMPENSATION The information contained in the Proxy Statement under the caption "Compensation of Executive Officers and Directors" is incorporated herein by reference. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained in the Proxy Statement under the caption "Voting Securities and Ownership of Certain Beneficial Owners and Management" is incorporated herein by reference. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Articles of Incorporation (incorporated by reference) -26- 27 3.2 Code of Regulations (incorporated by reference) 10.1 ASB Financial Corp. 1995 Stock Option and Incentive Plan (incorporated by reference) 10.2 American Savings Bank, fsb Management Recognition and Retention Plan and Trust Agreement (incorporated by reference) 13 Annual Report (the following parts of which are incorporated herein by reference: "Market Price of ASB Common Shares and Related Shareholder Matters;" "Management's Discussion and Analysis of Financial Condition and Results of Operations;" and Consolidated Financial Statements.) 20 Proxy Statement 21 Subsidiaries of ASB Financial Corp. (incorporated by reference) 27 Financial Data Schedule (b) No reports on Form 8-K have been filed during the last quarter of the fiscal year covered by this Report. -27- 28 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ASB FINANCIAL CORP. By /s/ Gerald R. Jenkins ------------------------------ Gerald R. Jenkins President (Principal Executive Officer) Date: September 22, 1997 In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Gerald R. Jenkins By /s/ Robert M. Smith ------------------------------ -------------------------------- Gerald R. Jenkins Robert M. Smith President and Director Vice President and Director (Principal Financial Officer) Date: September 22, 1997 Date: September 22, 1997 By /s/ William J. Burke By /s/ Lee O. Fitch ------------------------------ ------------------------------ William J. Burke Lee O. Fitch Director Director Date: September 22, 1997 Date: September 22, 1997 By /s/ Victor W. Morgan By /s/ Louis M. Schoettle ------------------------------ ------------------------------ Victor W. Morgan Louis M. Schoettle Director Director Date: September 22, 1997 Date: September 22, 1997 -28- 29 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 3.1 Articles of Incorporation of ASB Financial Corp. Incorporated by reference to the Form 10-KSB for fiscal year ended June 30, 1995 filed by ASB on September 28, 1995 (the "1995 Form 10-KSB") with the Securities and Exchange Commission (the "SEC"), Exhibit 3.3 3.4 Code of Regulations of ASB Financial Corp. Incorporated by reference to the Form 10-KSB, Exhibit 3.5 10.1 ASB Financial Corp. 1995 Stock Option and Incentive Incorporated by reference to the Form Plan 10-KSB for the fiscal year ended June 30, 1996 filed with the SEC on September 30, 1996, (the "1996 Form 10-KSB") Exhibit 10.1 10.2 American Savings Bank, fsb Recognition and Incorporated by reference to the 1996 Retention Planand Trust Agreement Form 10-KSB, Exhibit 10.2 13 1997 Annual Report to Shareholders 20 Proxy Statement 21 Subsidiaries of ASB Financial Corp. Incorporated by reference to the 1995 Form 10-KSB, Exhibit 21 27 Financial Data Schedule
-29- EX-13 2 EXHIBIT 13 1 Exhibit 13 [Cover of Annual Report] [On the far left side of the cover, there is an inch strip of marbleized blue] [Logo of ASB Financial Corp. appears in blue] ANNUAL 1997 REPORT 2 To our shareholders and valued customers: Several significant developments distinguish the 1997 fiscal year of ASB Financial Corp. In December 1996, we distributed $5.00 per share to our shareholders in a special capital distribution, enabling us to reduce ASB's excess capital position by $8.6 million to help ASB achieve a better return on equity and enhance the value of your investment. Despite having paid the $8.6 million capital distribution, ASB's asset size was not significantly diminished. Total assets were $112.5 million at June 30, 1997, a reduction of only $453,000 from June 30, 1996. Deposits increased approximately $6.4 million during the year, offsetting the reduction in shareholders' equity attributable to the capital distribution. ASB used these new funds to originate loans, as a result of which loans receivable increased $5.7 million. The entire thrift industry was affected by legislation enacted in September 1996 to fully capitalize the Savings Association Insurance Fund. American Savings Bank, fsb, our SAIF-insured subsidiary, paid a special assessment to the Federal Deposit Insurance Corporation in the first quarter of the 1997 fiscal year of $551,000. Although this one-time assessment adversely affected net earnings for 1997, which declined $444,000 compared to the 1996 fiscal year, our annual federal deposit insurance premiums have been significantly reduced which should favorably impact earnings in the 1998 fiscal year. As we look ahead to 1998, this will be the last annual report in which I address you as President of ASB. I have informed the Board of Directors that I plan to retire from my positions as President and Chief Executive Officer of ASB and American Savings in January 1998. I will continue to serve ASB and American Savings as Chairman of the Board, but the offices of President and Chief Executive Officer of ASB and American Savings will pass into the capable and experienced hands of Robert M. Smith. With over 30 years of service to American Savings, Bob has played a major role in our growth and prosperity, and we are fortunate to have someone of his caliber to guide ASB and American Savings into the 21st century. I would like to express my deepest gratitude to my colleagues on the board and the staff of ASB and American Savings for the support and friendship they have given me over the years. The many milestones and accomplishments that mark the years I have spent here would not have been possible without their wisdom and talents. I also thank our customers for giving us the privilege of serving your banking needs. Finally, I would like to thank our shareholders for your support. The confidence you have placed in us through your investment in ASB is very gratifying. Very truly yours, Gerald R. Jenkins 3 THIS PAGE LEFT BLANK INTENTIONALLY. 4 BUSINESS OF ASB FINANCIAL CORP. ASB Financial Corp. ("ASB"), a unitary savings and loan holding company incorporated under the laws of the State of Ohio, owns all of the issued and outstanding common shares of American Savings Bank, fsb ("American"), a savings bank chartered under the laws of the United States. In May 1995, ASB acquired all of the common shares issued by American upon its conversion from a mutual savings association to a stock savings association (the "Conversion"). ASB's business activities have been limited primarily to holding the common shares of American. Serving the Portsmouth, Ohio, area since 1892, American conducts business from its office in Portsmouth, Ohio. The principal business of American is the origination of loans secured by one- to four-family residential real estate located in American's primary market area, which consists of the City of Portsmouth and contiguous areas of Scioto County, Ohio. American also originates loans secured by multifamily residences (over four units) and nonresidential real estate and purchases interests in loans originated by other lenders secured by multifamily real estate and nonresidential real estate outside of American's primary market area. In addition to real estate lending, American invests in mortgage-backed securities, U.S. Government and agency obligations and other investments permitted by applicable law. Funds for lending and other investment activities are obtained primarily from savings deposits, which are insured up to applicable limits by the Federal Deposit Insurance Corporation (the "FDIC") in the Savings Association Insurance Fund (the "SAIF"). As a savings and loan holding company, ASB is subject to regulation, supervision and examination by the Office of Thrift Supervision of the United States Department of the Treasury (the "OTS"). As a savings bank chartered under the laws of the United States, American is subject to regulation, supervision and examination by the OTS and the FDIC. American is also a member of the Federal Home Loan Bank (the "FHLB") of Cincinnati. ASB's office is located at 503 Chillicothe Street, Portsmouth, Ohio 45662. MARKET PRICE OF ASB'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS There were 1,721,412 common shares of ASB outstanding on September 5, 1997, held of record by approximately 1,034 shareholders. Price information with respect to ASB's common shares is quoted on the Nasdaq National Market ("Nasdaq") under the symbol "ASBP." 1 5 The table below sets forth the high and low bid prices for the common shares of ASB, together with the dividends declared per share, for each quarter of fiscal 1997 and 1996. Price quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Cash dividends High bid Low bid declared -------- ------- -------- FISCAL 1996 Quarter ended: September 30, 1995 $ 14.00 $ 11.50 $ .075 December 31, 1995 16.75 13.50 .075 March 31, 1996 16.50 15.25 .075 June 30, 1996 16.00 14.00 .100 FISCAL 1997 Quarter ended: September 30, 1996 14.375 13.875 .100 December 31, 1996 (1) 18.000 14.25 .100 March 31, 1997 12.750 11.500 .100 June 30, 1997 11.75 11.75 .100
- ---------- (1) Additionally, in December 1996, ASB paid a $5.00 cash per share return of capital distribution. Dividends are subject to determination and declaration by the Board of Directors of ASB, which takes into account ASB's financial condition, results of operations, tax considerations, industry standards, economic conditions, regulatory restrictions and other factors which affect the payment of dividends. 2 6 SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA The following tables set forth certain information concerning the consolidated financial condition, earnings and other data regarding ASB at the dates and for the periods indicated. Information prior to the fiscal year ended June 30, 1995, the year in which the Conversion was completed, is for American only.
SELECTED CONSOLIDATED FINANCIAL At June 30, CONDITION DATA: ---------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (In thousands) Total amount of: Assets $112,469 $112,922 $106,861 $ 93,931 $ 91,336 Cash and cash equivalents (1) 3,850 3,836 5,926 5,969 7,198 Certificates of deposit in other financial institutions 4,258 6,702 9,301 8,324 7,170 Investment securities available for sale - at market 18,660 19,284 1,768 -- -- Investment securities - at amortized cost -- -- 14,107 8,978 6,373 Mortgage-backed securities available for sale - at market 8,560 10,728 2,300 -- -- Mortgage-backed securities - at amortized cost -- -- 7,835 8,224 7,218 Loans receivable - net 74,136 68,455 62,153 59,304 60,544 Real estate acquired through foreclosure - net -- 663 525 -- 561 Deposits 89,752 83,395 78,888 82,514 81,404 Advances from the FHLB 2,884 2,413 442 469 496 Shareholders' equity, restricted (2) (3) 17,701 25,613 26,058 9,740 8,950
- ---------- (1) Consists of cash and due from banks and interest-bearing deposits in other financial institutions. (2) Consists solely of retained earnings at June 30, 1993 and 1994. (3) At June 30, 1997, 1996 and 1995, shareholders' equity includes $412,000, $124,000 and $272,000, respectively, of unrealized gains on securities designated as available for sale, net of related tax effects, pursuant to Statement of Financial Accounting Standards ("SFAS") No. 115. 3 7
SELECTED CONSOLIDATED OPERATING For the year ended June 30, DATA: -------------------------------------------------- 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ (In thousands, except per share data) Interest income $8,393 $8,173 $7,012 $6,637 $7,058 Interest expense 4,686 4,310 3,893 3,307 3,712 ------ ------ ------ ------ ------ Net interest income 3,707 3,863 3,119 3,330 3,346 Provision for losses on loans 28 -- 10 749 272 ------ ------ ------ ------ ------ Net interest income after provision for losses on loans 3,679 3,863 3,109 2,581 3,074 Other income 364 195 143 451 134 General, administrative and other expense 3,054 2,373 1,726 2,044 1,407 ------ ------ ------ ------ ------ Earnings before income taxes 989 1,685 1,526 988 1,801 Federal income taxes 322 574 518 199 609 ------ ------ ------ ------ ------ Net earnings $ 667 $1,111 $1,008 $ 789 $1,192 ====== ====== ====== ====== ====== Earnings per share (1) $ .42 $ .69 N/A N/A N/A ====== ====== At or for the year ended June 30, -------------------------------------------------- SELECTED FINANCIAL RATIOS: 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ Return on average assets .59% 1.01% 1.00% .85% 1.35% Return on average equity 3.15 4.30 9.38 8.44 14.27 Equity to total assets at end of period 15.74 22.68 24.38 10.37 9.80 Average interest-earning assets to average interest-bearing liabilities 122.77 127.55 111.19 109.30 108.70 Average interest rate spread during period 2.41 2.55 2.83 3.38 3.51 Net interest margin 3.39 3.69 3.29 3.72 3.89 Net interest income to general, administrative and other expense 121.38 162.79 180.71 162.92 237.81 General, administrative and other expense to average total assets 2.70 2.16 1.72 2.21 1.60 Nonperforming assets to total assets 1.02 1.61 2.30 3.10 2.56 Allowance for loan losses to nonperforming loans 71.62 76.34 46.29 38.28 25.75
- ---------- (1) Earnings per share is based upon 1,591,703 and 1,602,200 weighted-average shares outstanding for the fiscal years ended June 30, 1997 and 1996, respectively. Earnings per share is not applicable to the fiscal years ended June 30, 1993 through 1995, inclusive, as ASB did not issue stock prior to April 1995. 4 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL ASB was incorporated for the purpose of owning all of American's outstanding common shares. As a result, the discussion and analysis that follows focuses primarily on the financial condition and results of operations of American. The following discussion and analysis of the consolidated financial condition and results of operations of ASB and American should be read in conjunction with and with reference to the consolidated financial statements, and the notes thereto, presented in this Annual Report. CHANGES IN FINANCIAL CONDITION ASB's total assets amounted to $112.5 million at June 30, 1997, a decrease of $453,000, or .4%, from 1996 levels. The decrease in total assets resulted primarily from a $5.00 cash per share, or $8.6 million, return of capital distribution, which was partially offset by a $6.4 million increase in deposits, a $471,000 increase in FHLB advances and a $500,000 increase in other borrowed money. Cash, interest-bearing deposits and certificates of deposit in other financial institutions totaled $8.1 million at June 30, 1997, a decline of $2.4 million, or 23.1%, from 1996 levels. Investment securities totaled $18.7 million at June 30, 1997, a decrease of $624,000, or 3.2%, over the balance at June 30, 1996. During fiscal 1997, management purchased $7.1 million of investment securities, primarily intermediate and long-term U.S. Government agency securities. Such purchases were offset by maturities and sales totaling $8.2 million. Mortgage-backed securities decreased by $2.2 million, or 20.2%, due primarily to principal repayments of $2.1 million. The overall decline in investments and liquid assets reflects management's use of these funds to finance the return of capital distribution. Loans receivable increased by $5.7 million, or 8.3%, to a total of $74.1 million at June 30, 1997, compared to $68.5 million at June 30, 1996. Loan disbursements of $22.5 million and purchases of $773,000 exceeded principal repayments of $17.7 million during fiscal 1997. Growth in loans secured by residential real estate totaled $243,000, or .4%, while growth in the nonresidential real estate and consumer loan portfolios amounted to $2.1 million and $2.7 million, respectively. At June 30, 1997, American's allowance for loan losses totaled $820,000, representing 1.1% of total loans and 71.6% of nonperforming loans. At June 30, 1996, the allowance for loan losses totaled $884,000, or 1.2% of total loans and 76.3% of nonperforming loans. 5 9 Deposits increased by $6.4 million, or 7.6%, during fiscal 1997 to a total of $89.8 million at June 30, 1997. The increase resulted primarily from management's continuing efforts to maintain growth in deposits through marketing and pricing strategies. Borrowings increased by $971,000, or 40.2%, during fiscal 1997, compared to fiscal 1996. Shareholders' equity totaled $17.7 million at June 30, 1997, a decrease of $7.9 million, or 30.9%, from June 30, 1996 levels. The decrease resulted primarily from the $5.00 per share, or $8.6 million, return of capital distribution paid in December 1996, coupled with regular quarterly dividends of $689,000, which were partially offset by net earnings of $667,000 and a $288,000 increase in unrealized gains on securities designated as available for sale. COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 GENERAL. Net earnings amounted to $667,000 for the fiscal year ended June 30, 1997, a decrease of $444,000, or 40.0%, from the $1.1 million in net earnings recorded in fiscal 1996. The decrease in net earnings resulted primarily from a $551,000 charge recorded as a result of the one-time SAIF recapitalization assessment, coupled with a $130,000 increase in additional general, administrative and other expenses, a $156,000 decrease in net interest income and a $28,000 increase in the provision for losses on loans, which were partially offset by a $169,000 increase in other income and a $252,000 decrease in the provision for federal income taxes. NET INTEREST INCOME. Total interest income amounted to $8.4 million for the fiscal year ended June 30, 1997, an increase of $220,000, or 2.7%, over fiscal 1996. Interest income on loans totaled $5.9 million in fiscal 1997, an increase of $384,000, or 7.0%. This increase was due primarily to a $5.1 million increase in the weighted-average balance of loans outstanding, which was partially offset by a decrease in yield of six basis points to 8.25% in 1997. Interest income on mortgage-backed securities decreased by $70,000, or 9.3%, as a result of a $1.1 million decrease in the weighted-average balance outstanding in fiscal 1997. Interest income on investment securities and interest-earning assets decreased by $94,000, or 4.9%, due primarily to a 51 basis point decrease in yield to 6.39% in fiscal 1997, which was partially offset by a $778,000 increase in the weighted-average balance outstanding year to year. Interest expense totaled $4.7 million for the fiscal year ended June 30, 1997, an increase of $376,000, or 8.7%, over the $4.3 million total recorded in fiscal 1996. Interest expense on deposits increased by $252,000, or 5.9%, due primarily to a $5.2 million, or 6.4%, in the weighted-average balance outstanding year to year. Interest expense on borrowings increased by $124,000, or 288.4%, due primarily to a $1.9 million increase in the weighted-average balance outstanding and a 108 basis point increase in the average rate. As a result of the foregoing changes in interest income and interest expense, net interest income decreased by $156,000, or 4.0%, to a total of $3.7 million for the fiscal year ended June 30, 6 10 1997, compared to $3.9 million in fiscal 1996. The interest rate spread declined by 14 basis points to 2.41% in fiscal 1997 from 2.55% in fiscal 1996, while the net interest margin decreased to 3.39% in 1997 from 3.69% in 1996. PROVISION FOR LOSSES ON LOANS. A provision for losses on loans is charged to earnings to bring the total allowance for loan losses to a level considered appropriate by management based on historical experience, the volume and type of lending conducted by American, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to American's market area, and other factors related to the collectibility of American's loan portfolio. As a result of such analysis, management recorded a $28,000 provision for losses on loans during the fiscal year ended June 30, 1997. The provision was attributable primarily to growth in the nonresidential real estate and consumer loan portfolios. Although management believes that its allowance for loan losses at June 30, 1997, was adequate based on the available facts and circumstances, there can be no assurances that additions to such allowance will not be necessary in future periods, which could adversely affect ASB's results of operations. The foregoing statement is a "forward-looking" statement within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Factors that could affect the adequacy of the loan loss allowance include, but are not limited to, the following: (1) changes in the national and local economy which may negatively impact the ability of borrowers to repay their loans and which may cause the value of real estate and other properties that secure outstanding loans to decline; (2) unforeseen adverse changes in circumstances with respect to certain large loans; (3) decrease in the value of collateral securing consumer loans to amounts less than the outstanding balances of the consumer loans; and (4) determinations by various regulatory agencies that American must recognize additions to its loan loss allowance based on such regulators' judgment of information available to them at the time of their examinations. OTHER INCOME. Other income totaled $364,000 for the fiscal year ended June 30, 1997, an increase of $169,000, or 86.7%, over the $195,000 recorded in fiscal 1996. The increase resulted primarily from a $104,000 gain on sale of investment securities coupled with a $42,000 increase in rental income received on a parcel of real estate acquired through foreclosure. GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and other expense totaled $3.1 million for the fiscal year ended June 30, 1997, an increase of $681,000, or 28.7%, over the $2.4 million total recorded in fiscal 1996. The increase resulted primarily from a $551,000 charge recorded during the year in connection with the SAIF recapitalization, a $131,000, or 10.7%, increase in employee compensation and benefits, an $18,000, or 8.6%, increase in franchise taxes and a $43,000, or 9.4%, increase in other operating expense. The increase in employee compensation and benefits was due primarily to increased costs related to stock benefit plans and normal merit increases. The increase in franchise taxes resulted from ASB's increase in equity capital during fiscal 1996. The increase in other operating expense was due to an increase in expenses related to the return of capital and pro-rata increases in overall operating costs attendant to ASB's growth year to year. 7 11 FEDERAL INCOME TAXES. The provision for federal income taxes totaled $322,000 for the fiscal year ended June 30, 1997, a decrease of $252,000, or 43.9%, from the $574,000 recorded in fiscal 1996. The decrease was due primarily to a $696,000, or 41.3%, decrease in pretax earnings year to year. ASB's effective tax rates were 32.6% and 34.1% for the fiscal years ended June 30, 1997 and 1996, respectively. COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1996 AND 1995 GENERAL. Net earnings amounted to $1.1 million for the fiscal year ended June 30, 1996, an increase of $103,000, or 10.2%, over the $1.0 million in net earnings recorded in fiscal 1995. The increase in net earnings resulted primarily from an increase in net interest income of $744,000, an increase in other income of $52,000 and a decline in the provision for losses on loans of $10,000, which were partially offset by an increase in general, administrative and other expense of $647,000 and an increase in the provision for federal income taxes of $56,000. NET INTEREST INCOME. Total interest income amounted to $8.2 million for the fiscal year ended June 30, 1996, an increase of $1.2 million, or 16.6%, over fiscal 1995. Interest income on loans totaled $5.5 million in fiscal 1996, an increase of $633,000, or 13.0%. This increase was due primarily to an increase in the weighted-average balance outstanding of $5.8 million and an increase in yield of 25 basis points to 8.31% in 1996. Interest income on mortgage-backed securities increased by $218,000, or 41.0%, as a result of a $2.6 million increase in the weighted-average balance outstanding coupled with a 39 basis point increase in yield to 7.11% in fiscal 1996. Interest income on investment securities and interest-bearing deposits increased by $310,000, or 19.2%, due primarily to an 82 basis point increase in yield to 6.90% in fiscal 1996 coupled with a $1.3 million increase in the weighted-average balance outstanding year to year. Interest expense totaled $4.3 million for the fiscal year ended June 30, 1996, an increase of $417,000, or 10.7%, over the $3.9 million total recorded in fiscal 1995. Interest expense on deposits increased by $397,000, or 10.3%, due primarily to a 70 basis point increase in the cost of funds to 5.26% in fiscal 1996, which was partially offset by a $3.7 million, or 4.4%, decline in the weighted-average balance outstanding year to year. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $744,000, or 23.9%, to a total of $3.9 million for the fiscal year ended June 30, 1996, as compared to $3.1 million in fiscal 1995. The interest rate spread declined by 28 basis points to 2.55% in fiscal 1996 from 2.83% in fiscal 1995, while the net interest margin increased to 3.69% in 1996 from 3.29% in 1995. PROVISION FOR LOSSES ON LOANS. Based upon management's overall assessment of the impact of economic conditions as applied to the loan portfolio, as well as the decline in nonperforming loans from $1.9 million to $1.2 million at June 30, 1995 and 1996, respectively, management concluded 8 12 that the allowance for loan losses was adequate and, as a result, no provision for losses on loans was established during fiscal 1996. OTHER INCOME. Other income totaled $195,000 for the fiscal year ended June 30, 1996, an increase of $52,000, or 36.4%, over the $143,000 recorded in fiscal 1995. The increase resulted primarily from a $25,000 increase in rental income received on a parcel of real estate acquired through foreclosure and from $13,000 received from the sale of non-deposit investment products under an agency arrangement with Money Concepts, Inc. GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and other expense totaled $2.4 million for the fiscal year ended June 30, 1996, an increase of $647,000, or 37.5%, over the $1.7 million recorded in fiscal 1995. The increase resulted primarily from a $374,000, or 43.7%, increase in employee compensation and benefits, a $75,000, or 56.0%, increase in franchise taxes and a $172,000, or 60.1%, increase in other operating expense. The increase in employee compensation and benefits was due primarily to increased costs related to employee stock benefit plans and normal merit increases. The increase in franchise taxes resulted from ASB's increase in equity capital due to the common stock offering. The increase in other operating expense was due to increased costs related to the reporting requirements of a public company, an increase in expenses for real estate acquired through foreclosure and pro-rata increases in operating costs attendant to ASB's growth year to year. FEDERAL INCOME TAXES. The provision for federal income taxes totaled $574,000 for the fiscal year ended June 30, 1996, an increase of $56,000, or 10.8%, over the $518,000 recorded in fiscal 1995. The increase was due primarily to a $159,000, or 10.4%, increase in pretax earnings year to year. ASB's effective tax rates were 34.1% and 33.9% for the fiscal years ended June 30, 1996 and 1995, respectively. 9 13 AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA The following table sets forth ASB's average balance sheet information and reflects the average yield on interest-earning assets and the average cost of interest-bearing liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average monthly balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods presented. Average balances are derived from average monthly balances, which include nonaccruing loans in the loan portfolio, net of the allowance for loan losses.
Year ended June 30, ------------------------------------------------------------------------------------------------ 1997 1996 1995 ------------------------------ ------------------------------ ------------------------------ Average Interest Average Interest Average Interest outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/ balance paid rate balance paid rate balance paid rate -------- -------- -------- -------- -------- -------- -------- -------- -------- (Dollars in thousands) Interest-earning assets: Loans receivable $ 71,260 $ 5,882 8.25% $ 66,152 $ 5,498 8.31% $ 60,395 $ 4,865 8.06% Mortgage-backed securities 9,487 680 7.17 10,555 750 7.11 7,913 532 6.72 Investment securities and other interest-earning assets 28,664 1,831 6.39 27,886 1,925 6.90 26,553 1,615 6.08 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total interest-earning assets 109,411 8,393 7.67 104,593 8,173 7.81 94,861 7,012 7.39 Non-interest-earning assets 3,662 5,332 5,027 -------- -------- -------- Total assets $113,073 $109,925 $ 99,888 ======== ======== ======== Interest-bearing liabilities: Deposits $ 86,296 4,519 5.24 $ 81,114 4,267 5.26 $ 84,858 3,870 4.56 Borrowings 2,822 167 5.92 889 43 4.84 457 23 5.03 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total interest-bearing liabilities 89,118 4,686 5.26 82,003 4,310 5.26 85,315 3,893 4.56 -------- -------- -------- -------- -------- -------- -------- Non-interest-bearing liabilities 2,752 2,086 3,826 -------- -------- -------- Total liabilities 91,870 84,089 89,141 Shareholders' equity 21,203 25,836 10,747 -------- -------- -------- Total liabilities and shareholders' equity $113,073 $109,925 $ 99,888 ======== ======== ======== Net interest income $ 3,707 $ 3,863 $ 3,119 ======== ======== ======== Interest rate spread 2.41% 2.55% 2.83% ======== ======== ======== Net interest margin 3.39% 3.69% 3.29% ======== ======== ======== Average interest-earning assets to interest-bearing liabilities 122.77% 127.55% 111.19% ======== ======== ========
10 14 The table below describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected ASB's interest income and expense during the years indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by prior year volume) and (iii) total changes in rate and volume. The combined effects of changes in both volume and rate, which cannot be separately identified, have been allocated proportionately to the change due to volume and the change due to rate.
For the year ended June 30, ------------------------------------------------------------- 1997 vs. 1996 1996 vs. 1995 ---------------------------- ---------------------------- Increase Increase (decrease) (decrease) due to due to ----------------- ----------------- Volume Rate Total Volume Rate Total ------ ------ ------ ------ ------ ------ (In thousands) Interest-earning assets: Loans receivable $ 424 $ (40) $ 384 $ 478 $ 155 $ 633 Mortgage-backed securities (76) 6 (70) 186 32 218 Investment securities and interest-earning assets 53 (147) (94) 84 226 310 ------ ------ ------ ------ ------ ------ Total interest-earning assets 401 (181) 220 748 413 1,161 ------ ------ ------ ------ ------ ------ Interest-bearing liabilities: Deposits 270 (18) 252 (177) 574 397 Borrowings 112 12 124 21 (1) 20 ------ ------ ------ ------ ------ ------ Total interest-bearing liabilities 382 (6) 376 (156) 573 417 ------ ------ ------ ------ ------ ------ Increase (decrease) in net interest income $ 19 $ (175) $ (156) $ 904 $ (160) $ 744 ====== ====== ====== ====== ====== ======
ASSET AND LIABILITY MANAGEMENT American's interest rate spread is the principal determinant of American's income. The interest rate spread, and therefore net interest income, can vary considerably over time because asset and liability repricing do not coincide. Moreover, the long-term and cumulative effect of interest rate changes can be substantial. Interest rate risk is defined as the sensitivity of an institution's earnings and net asset values to changes in interest rates. The management and Board of Directors attempt to manage American's exposure to interest rate risk in a manner to maintain the projected four-quarter percentage change in net interest income and the projected change in the market value of 11 15 portfolio equity within limits established by the Board of Directors, assuming a permanent and instantaneous parallel shift in interest rates. As a part of its effort to monitor its interest rate risk, American reviews the reports of the OTS which set forth the application of the "net portfolio value" ("NPV") methodology adopted by the OTS as part of its final rules related to revisions in the risk-based capital regulations, although American is not currently subject to the NPV regulation. Presented below is an analysis of the interest rate risk of American, at June 30, 1997, as measured by changes in NPV for instantaneous and sustained parallel shifts of 100 basis point movements in market interest rates. Generally, NPV is the discounted present value of the difference between incoming cash flows on interest-earning and other assets and outgoing cash flows on interest-bearing liabilities. The table also contains the policy limits set by the Board of Directors of American as the maximum change in NPV that the Board of Directors deems advisable in the event of various changes in interest rates. Such limits have been established with consideration of the dollar impact of various rate changes and the strong capital position of American.
At June 30, 1997 ------------------------ Changes in interest rate Board limit $ change % change (basis points) % changes in NPV in NPV -------------- --------- ------ ------ (Dollars in thousands) +300 (40)% $(6,813) (42)% +200 (30) (4,567) (28) +100 (20) (2,862) (14) 0 0 0 0 -100 20 1,933 12 -200 30 3,322 20 -300 40 4,667 29
As with any method of measuring interest rate risk, certain shortcomings are inherent in the NPV approach. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Further, in the event of a change in interest rates, expected rates of prepayment on loans and mortgage-backed securities and early withdrawal levels from certificates of deposit would likely deviate significantly from those assumed in making the risk calculations. 12 16 LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY. Liquidity refers to the ability of an institution to generate sufficient cash to fund current loan demand, meet deposit withdrawals and pay operating expenses. Liquidity is influenced by financial market conditions, fluctuations in interest rates, general economic conditions and regulatory requirements. Liquidity is a result of the operating, investing and financing activities of ASB. These activities on a consolidated basis, are summarized below for the years ended June 30, 1997, 1996, and 1995:
Year ended June 30, ---------------------------------- 1997 1996 1995 -------- -------- -------- (In thousands) Net cash from operating activities $ 1,113 $ 1,286 $ 1,413 Net cash from investing activities 723 (8,124) (12,860) Net cash from financing activities (1,822) 4,748 11,404 -------- -------- -------- Net change in cash and cash equivalents 14 (2,090) (43) Cash and cash equivalents at the beginning of the period 3,836 5,926 5,969 -------- -------- -------- Cash and cash equivalents at the end of the period $ 3,850 $ 3,836 $ 5,926 ======== ======== ========
American generally strives to maintain liquidity (defined as cash, interest-bearing deposits and investment securities with terms of less then five years) in a range of 10 to 25% of total assets. OTS regulations require that savings associations maintain an average daily balance of cash, certain time deposits and investments in specified United States Government, state or federal agency obligations equal to a monthly average of not less than 5% of its net withdrawable savings deposits plus borrowings payable in one year or less. Federal regulations also require each association to maintain an average daily balance of short-term liquid assets at a specified percentage, currently 1%, of the total of its net withdrawable savings accounts and borrowings payable in one year or less. Monetary penalties may be imposed upon associations failing to meet liquidity requirements. The eligible liquidity of American, as computed under current regulations, at June 30, 1997, was approximately $10.4 million, or 13.1%, and exceeded the then applicable 5.0% liquidity requirement by approximately $7.6 million, or 8.1%. At June 30, 1997, American had outstanding commitments of approximately $151,000 to originate loans. Additionally, American was obligated under unused lines of credit totaling $2.0 million. In the opinion of management, all loan commitments had interest rates which equaled or exceeded market interest rates as of June 30, 1997, and will be funded from existing excess liquidity and normal cash flow from operations. 13 17 CAPITAL RESOURCES. American is required by OTS regulations to maintain specified minimum amounts of capital. OTS capital standards include a tangible capital requirement, a core capital requirement and a risk-based capital requirement. The tangible capital requirement requires savings associations to maintain "tangible capital" of not less than 1.5% of the association's adjusted total assets. Tangible capital is defined in OTS regulations as core capital minus any intangible assets. "Core capital" is comprised of common shareholders' equity (including retained earnings), noncumulative preferred stock and related surplus, minority interests in consolidated subsidiaries, certain nonwithdrawable accounts and pledged deposits of mutual associations. OTS regulations require savings associations to maintain core capital of at least 3% of the association's total assets. The OTS has proposed to increase such requirement to 4% or 5%, except for those associations with the highest examination rating and acceptable levels of risk. OTS regulations require that savings associations maintain "risk-based capital" in an amount not less than 8% of risk-weighted assets. Risk-based capital is defined as core capital plus certain additional items of capital, which in the case of American includes its general allowance for loan losses. At June 30, 1997, American exceeded all applicable minimum capital requirements. The following table sets forth the amount and percentage level of regulatory capital of American at June 30, 1997, and the amount by which it exceeded minimum requirements:
Excess of regulatory capital over current Regulatory capital Current Requirement requirement ------------------- --------------------- --------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (Dollars in thousands) Tangible capital $13,321 12.1% $1,650 1.5% $11,671 10.6% Core capital 13,321 12.1 3,300 3.0 10,021 9.1 Risk-based capital 13,855 26.9 4,123 8.0 9,732 18.9
14 18 EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 123, "Accounting for Stock-Based Compensation," establishing financial accounting and reporting standards for stock-based compensation plans. SFAS No. 123 encourages all entities to adopt a new method of accounting to measure the compensation cost of all stock compensation plans based on the estimated fair value of the award at the date it is granted. Companies are, however, allowed to continue to measure compensation cost for those plans using the intrinsic value based method of accounting, which generally does not result in compensation expense recognition for most plans. Companies that elect to remain with the existing accounting are required to disclose in a footnote to the financial statements pro forma net earnings and, if presented, earnings per share, as if SFAS No. 123 had been adopted. The accounting requirements of SFAS No. 123 are effective for transactions entered into during fiscal years that begin after December 15, 1995; however, companies are required to disclose information for awards granted in their first fiscal year beginning after December 15, 1994. Management has determined that ASB will continue to account for stock-based compensation pursuant to Accounting Principles Board Opinion No. 25, and, therefore, the disclosure provisions of SFAS No. 123 will have no effect on its consolidated financial condition or results of operations. In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of Financial Assets, Servicing Rights, and Extinguishment of Liabilities," that provides accounting guidance on transfers of financial assets, servicing of financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an approach to accounting for transfers of financial assets that provides a means of dealing with more complex transactions in which the seller disposes of only a partial interest in the assets, retains rights or obligations, makes use of special purpose entities in the transaction, or otherwise has continuing involvement with the transferred assets. The new accounting method, the financial components approach, provides that the carrying amount of the financial assets transferred be allocated to components of the transaction based on their relative fair values. SFAS No. 125 provides criteria for determining whether control of assets has been relinquished and whether a sale has occurred. If the transfer does not qualify as a sale, it is accounted for as a secured borrowing. Transactions subject to the provisions of SFAS No. 125 include, among others, transfers involving repurchase agreements, securitizations of financial assets, loan participations, factoring arrangements, and transfers of receivables with recourse. An entity that undertakes an obligation to service financial assets recognizes either a servicing asset or liability for the servicing contract (unless related to a securitization of assets, and all the securitized assets are retained and classified as held-to-maturity). A servicing asset or liability that is purchased or assumed is initially recognized at its fair value. Servicing assets and liabilities are amortized in proportion to and over the period of estimated net servicing income or net servicing loss and are subject to subsequent assessments for impairment based on fair value. 15 19 SFAS No. 125 provides that a liability is removed from the balance sheet only if the debtor either pays the creditor and is relieved of its obligation for the liability or is legally released from being the primary obligor. SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after December 31, 1997, and is to be applied prospectively. Earlier or retroactive application is not permitted. Management does not believe that adoption of SFAS No. 125 will have a material adverse effect on ASB's consolidated financial position or results of operations. In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which requires companies to present basic earnings per share and, if applicable, diluted earnings per share, instead of primary and fully diluted earnings per share, respectively. Basic earnings per share is computed without including potential common shares. Diluted earnings per share is computed taking into consideration common shares outstanding and potentially dilutive common shares, including options, warrants, convertible securities and contingent stock agreements. SFAS No. 128 is effective for periods ending after December 15, 1997. Early application is not permitted. Based upon the provisions of SFAS No. 128, ASB's basic and diluted earnings per share for the fiscal year ended June 30, 1997, would have been $.42 and $.39, respectively. Basic and diluted earnings per share for the fiscal year ended June 30, 1996, would have been $.69. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which requires entities presenting a complete set of financial statements to include details of comprehensive income that arise in the reporting period. Comprehensive income consists of net income or loss for the current period and other comprehensive income , expense, gains and losses that bypass the income statement and are reported in a separate component of equity, i.e., unrealized gains and losses on certain investment securities. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 130 relates solely to disclosure provisions and therefore will not have a material effect on ASB's consolidated financial position or results of operations. 16 20 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AND CONSOLIDATED FINANCIAL STATEMENTS PAGE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 18 FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 19 CONSOLIDATED STATEMENTS OF EARNINGS 20 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 21 CONSOLIDATED STATEMENTS OF CASH FLOWS 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24 17 21 [GRANT THORNTON LETTERHEAD] Report of Independent Certified Public Accountants Board of Directors ASB Financial Corp. We have audited the accompanying consolidated statements of financial condition of ASB Financial Corp. as of June 30, 1997 and 1996, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years ended June 30, 1997, 1996 and 1995. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ASB Financial Corp. as of June 30, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the years ended June 30, 1997, 1996 and 1995, in conformity with generally accepted accounting principles. /s/ Grant Thornton LLP Cincinnati, Ohio August 6, 1997 18 22 ASB FINANCIAL CORP. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION June 30, (In thousands, except share data)
ASSETS 1997 1996 --------- --------- Cash and due from banks $ 376 $ 411 Interest-bearing deposits in other financial institutions 3,474 3,425 --------- --------- Cash and cash equivalents 3,850 3,836 Certificates of deposit in other financial institutions 4,258 6,702 Investment securities available for sale - at market 18,660 19,284 Mortgage-backed securities available for sale - at market 8,560 10,728 Loans receivable - net 74,136 68,455 Office premises and equipment - at depreciated cost 944 940 Real estate acquired through foreclosure - net -- 663 Federal Home Loan Bank stock - at cost 675 667 Accrued interest receivable on loans 95 120 Accrued interest receivable on mortgage-backed securities 78 110 Accrued interest receivable on investments and interest-bearing deposits 356 479 Prepaid expenses and other assets 604 586 Prepaid federal income taxes 62 -- Deferred federal income taxes 191 352 --------- --------- Total assets $ 112,469 $ 112,922 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits $ 89,752 $ 83,395 Advances from the Federal Home Loan Bank 2,884 2,413 Other borrowed money 500 -- Advances by borrowers for taxes and insurance 169 162 Accrued interest payable 112 115 Other liabilities 1,351 1,219 Accrued federal income taxes -- 5 --------- --------- Total liabilities 94,768 87,309 Commitments -- -- Shareholders' equity Preferred stock, 1,000,000 shares authorized, no par value; no shares issued -- -- Common stock, 4,000,000 shares authorized, no par value; 1,721,412 and 1,713,960 shares issued and outstanding at June 30, 1997 and 1996 -- -- Additional paid-in capital 8,023 16,496 Retained earnings, restricted 11,187 11,173 Shares acquired by stock benefit plans (1,921) (2,180) Unrealized gains on securities designated as available for sale, net of related tax effects 412 124 --------- --------- Total shareholders' equity 17,701 25,613 --------- --------- Total liabilities and shareholders' equity $ 112,469 $ 112,922 ========= =========
19 23 ASB FINANCIAL CORP. CONSOLIDATED STATEMENTS OF EARNINGS For the year ended June 30, (In thousands, except share data)
1997 1996 1995 ------- ------- ------- Interest income Loans $ 5,882 $ 5,498 $ 4,865 Mortgage-backed securities 680 750 532 Investment securities 1,494 1,426 577 Interest-bearing deposits and other 337 499 1,038 ------- ------- ------- Total interest income 8,393 8,173 7,012 Interest expense Deposits 4,519 4,267 3,870 Borrowings 167 43 23 ------- ------- ------- Total interest expense 4,686 4,310 3,893 ------- ------- ------- Net interest income 3,707 3,863 3,119 Provision for losses on loans 28 -- 10 ------- ------- ------- Net interest income after provision for losses on loans 3,679 3,863 3,109 Other income Gain on sale of investment securities 104 -- -- Other operating 260 195 143 ------- ------- ------- Total other income 364 195 143 General, administrative and other expense Employee compensation and benefits 1,360 1,229 855 Occupancy and equipment 122 120 121 Federal deposit insurance premiums 665 188 190 Franchise taxes 227 209 134 Data processing 179 169 140 Other operating 501 458 286 ------- ------- ------- Total general, administrative and other expense 3,054 2,373 1,726 ------- ------- ------- Earnings before income taxes 989 1,685 1,526 Federal income taxes Current 309 587 391 Deferred 13 (13) 127 ------- ------- ------- Total federal income taxes 322 574 518 ------- ------- ------- NET EARNINGS $ 667 $ 1,111 $ 1,008 ======= ======= ======= EARNINGS PER SHARE $ .42 $ .69 N/A ======= ======= =======
20 24 ASB FINANCIAL CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended June 30, 1997, 1996 and 1995 (In thousands, except share data)
UNREALIZED GAINS SHARES (LOSSES) ON ADDITIONAL ACQUIRED SECURITIES COMMON PAID-IN RETAINED BY EMPLOYEE DESIGNATED AS STOCK CAPITAL EARNINGS BENEFIT PLANS AVAILABLE FOR SALE TOTAL Balance at July 1, 1994 $ -- $ -- $ 9,740 $ -- $ -- $ 9,740 Designation of securities as available for sale upon adoption of SFAS No. 115 -- -- -- -- 224 224 Net proceeds from issuance of common stock -- 16,437 -- (1,270) -- 15,167 Net earnings for the year ended June 30, 1995 -- -- 1,008 -- -- 1,008 Dividends of $.075 per common share -- -- (129) -- -- (129) Unrealized gains on securities designated as available for sale, net of related tax effects -- -- -- -- 48 48 ----- -------- -------- -------- -------- -------- Balance at June 30, 1995 -- 16,437 10,619 (1,270) 272 26,058 Purchase of shares for stock benefit plans -- -- -- (1,062) -- (1,062) Amortization of expense related to stock benefit plans -- 59 -- 152 -- 211 Net earnings for the year ended June 30, 1996 -- -- 1,111 -- -- 1,111 Dividends of $.325 per common share -- -- (557) -- -- (557) Unrealized losses on securities designated as available for sale, net of related tax effects -- -- -- -- (148) (148) ----- -------- -------- -------- -------- -------- Balance at June 30, 1996 -- 16,496 11,173 (2,180) 124 25,613 Amortization of expense related to stock benefit plans -- 31 -- 259 -- 290 Issuance of shares under stock option plan -- 103 -- -- -- 103 Net earnings for the year ended June 30, 1997 -- -- 667 -- -- 667 Dividends of $5.40 per share -- (8,607) (653) -- -- (9,260) Unrealized gains on securities designated as available for sale, net of related tax effects -- -- -- -- 288 288 ----- -------- -------- -------- -------- -------- Balance at June 30, 1997 $ -- $ 8,023 $ 11,187 $ (1,921) $ 412 $ 17,701 ===== ======== ======== ======== ======== ========
21 25 ASB FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS For the year ended June 30, (In thousands)
1997 1996 1995 Cash flows from operating activities: Net earnings for the year $ 667 $ 1,111 $ 1,008 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Amortization of discounts and premiums on loans, investments and mortgage-backed securities - net 30 76 88 Amortization of deferred loan origination fees (64) (52) (86) Amortization of expense related to stock benefit plans 290 211 -- Depreciation and amortization 78 79 64 Provision for losses on loans 28 -- 10 Gain on sale of investment securities (104) -- -- Federal Home Loan Bank stock dividends (48) (44) (40) Increase (decrease) in cash due to changes in: Accrued interest receivable on loans 25 (54) 22 Accrued interest receivable on mortgage-backed securities 31 (10) (4) Accrued interest receivable on investments and interest-bearing deposits 123 (45) (183) Prepaid expenses and other assets (18) (145) 115 Accrued interest payable (3) (40) 96 Other liabilities 132 174 150 Federal income taxes Current (67) 38 46 Deferred 13 (13) 127 -------- -------- -------- Net cash provided by operating activities 1,113 1,286 1,413 Cash flows provided by (used in) investing activities: Proceeds from maturity of investment securities 4,650 9,121 300 Proceeds from sale of investment securities 3,576 -- -- Purchase of investment securities designated as available for sale (7,057) (12,237) (1,004) Purchase of investment securities designated as held-to-maturity -- -- (5,786) Purchase of mortgage-backed securities designated as available for sale -- (3,544) (2,312) Purchase of mortgage-backed securities designated as held-to-maturity -- -- (2,128) Principal repayments on mortgage-backed securities 2,133 2,848 2,447 Purchase of loans (773) (1,711) (3,279) Loan principal repayments 17,697 18,715 13,716 Loan disbursements (22,503) (23,885) (13,734) Purchase of office premises and equipment (91) (18) (171) Proceeds from sale of office premises and equipment 9 -- -- Proceeds from sale of real estate acquired through foreclosure 598 -- -- Redemption of Federal Home Loan Bank stock 40 -- 68 Purchase of Federal Home Loan Bank stock -- (12) -- (Increase) decrease in certificates of deposit in other financial institutions - net 2,444 2,599 (977) -------- -------- -------- Net cash provided by (used in) investing activities 723 (8,124) (12,860) -------- -------- -------- Net cash provided by (used in) operating and investing activities (subtotal carried forward) 1,836 (6,838) (11,447) -------- -------- --------
22 26 ASB FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the year ended June 30, (In thousands)
1997 1996 1995 Net cash provided by (used in) operating and investing activities (subtotal brought forward) $ 1,836 $ (6,838) $(11,447) Cash flows provided by financing activities: Net increase (decrease) in deposit accounts 6,357 4,507 (3,626) Proceeds from Federal Home Loan Bank advances 2,500 2,000 -- Proceeds from other borrowed money 3,500 -- -- Repayment of Federal Home Loan Bank advances (2,029) (29) (27) Repayment of other borrowed money (3,000) -- -- Advances by borrowers for taxes and insurance 7 (111) 19 Net proceeds from the issuance of common stock -- -- 16,437 Shares acquired by the stock benefit plans -- (1,062) (1,270) Proceeds from issuance of shares under stock option plan 103 -- -- Distributions paid on common stock (9,260) (557) (129) -------- -------- -------- Net cash provided by (used in) financing activities (1,822) 4,748 11,404 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 14 (2,090) (43) Cash and cash equivalents at beginning of year 3,836 5,926 5,969 -------- -------- -------- Cash and cash equivalents at end of year $ 3,850 $ 3,836 $ 5,926 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for: Federal income taxes $ 383 $ 552 $ 343 ======== ======== ======== Interest on deposits and borrowings $ 4,689 $ 4,350 $ 3,797 ======== ======== ======== Supplemental disclosure of noncash investing activities: Transfers from loans to real estate acquired through foreclosure $ -- $ 138 $ 525 ======== ======== ======== Transfers of investments and mortgage-backed securities to an available for sale classification $ -- $ 22,486 $ 350 ======== ======== ======== Unrealized gains (losses) on securities designated as available for sale, net of related tax effects $ 288 $ (148) $ 272 ======== ======== ========
The accompanying notes are an integral part of these statements. 23 27 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997, 1996 and 1995 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES During fiscal 1994, the Board of Directors of American Savings Bank, fsb (the "Savings Bank") adopted a plan of conversion (the "Plan") whereby the Savings Bank would convert to the stock form of ownership (the "Conversion"), followed by the issuance of all of the Savings Bank's outstanding stock to a newly formed holding company, ASB Financial Corp. (the "Corporation"), and the issuance of common shares of the Corporation to subscribing members of the Savings Bank. The conversion to the stock form of ownership was completed on May 10, 1995, and resulted in the Corporation's sale of 1,713,960 common shares. Condensed financial statements of the Corporation as of and for the periods ended June 30, 1997 and 1996 are presented in Note M. Future references are made to either the Corporation or the Savings Bank as applicable. The Corporation is a savings and loan holding company whose activities are primarily limited to holding the stock of the Savings Bank. The Savings Bank conducts a general banking business in southeastern Ohio which consists of attracting deposits from the general public and primarily applying those funds to the origination of loans for residential, consumer and nonresidential purposes. The Savings Bank's profitability is significantly dependent on net interest income, which is the difference between interest income generated from interest-earning assets (i.e. loans and investments) and the interest expense paid on interest-bearing liabilities (i.e. customer deposits and borrowed funds). Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by the Savings Bank can be significantly influenced by a number of environmental factors, such as governmental monetary policy, that are outside of management's control. The consolidated financial information presented herein has been prepared in accordance with generally accepted accounting principles ("GAAP") and general accounting practices within the financial services industry. In preparing consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from such estimates. The following is a summary of the Corporation's significant accounting policies which have been consistently applied in the preparation of the accompanying consolidated financial statements. 1. Principles of Consolidation The consolidated financial statements include the accounts of the Corporation and the Savings Bank. All significant intercompany balances and transactions have been eliminated. 24 28 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2. Investment Securities and Mortgage-Backed Securities The Corporation accounts for investment and mortgage-backed securities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires that investments in debt and equity securities be categorized as held-to-maturity, trading, or available for sale. Securities classified as held-to-maturity are to be carried at cost only if the Corporation has the positive intent and ability to hold these securities to maturity. Trading securities and securities designated as available for sale are carried at fair value with resulting unrealized gains or losses recorded to operations or shareholders' equity, respectively. In November 1995, the FASB issued a Special Report on Implementation of SFAS No. 115 (the "Special Report"), which provided for the reclassification of securities between the held-to-maturity, available for sale and trading portfolios during a forty-five day period, without calling into question management's prior intent with respect to such securities. Management elected to restructure the Corporation's securities portfolio pursuant to the Special Report, and transferred approximately $22.5 million of investment and mortgage-backed securities from the held-to-maturity portfolio to an available for sale portfolio. At June 30, 1997 and 1996, the Corporation's shareholders' equity reflected a net unrealized gain on securities designated as available for sale of $412,000 and $124,000, respectively. Realized gains and losses on sales of securities are recognized using the specific identification method. 3. Loans Receivable Loans receivable are stated at the principal amount outstanding, adjusted for deferred loan origination fees and the allowance for loan losses. Interest is accrued as earned unless the collectibility of the loan is in doubt. Interest on loans that are contractually past due is charged off, or an allowance is established based on management's periodic evaluation. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received until, in management's judgment, the borrower's ability to make periodic interest and principal payments has returned to normal, in which case the loan is returned to accrual status. If the ultimate collectibility of the loan is in doubt, in whole or in part, all payments received on nonaccrual loans are applied to reduce principal until such doubt is eliminated. 25 29 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 4. Loan Origination Fees The Savings Bank accounts for loan origination fees in accordance with SFAS No. 91 "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Cost of Leases". Pursuant to the provisions of SFAS No. 91, origination fees received from loans, net of direct origination costs, are deferred and amortized to interest income using the level-yield method, giving effect to actual loan prepayments. Additionally, SFAS No. 91 generally limits the definition of loan origination costs to the direct costs of originating a loan, i.e., principally actual personnel costs. Fees received for loan commitments that are expected to be drawn upon, based on the Savings Bank's experience with similar commitments, are deferred and amortized over the life of the loan using the level-yield method. Fees for other loan commitments are deferred and amortized over the loan commitment period on a straight-line basis. 5. Allowance for Losses on Loans It is the Savings Bank's policy to provide valuation allowances for estimated losses on loans based on past loss experience, trends in the level of delinquent and problem loans, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral and current and anticipated economic conditions in the primary lending area. When the collection of a loan becomes doubtful, or otherwise troubled, the Savings Bank records a loan charge-off equal to the difference between the fair value of the property securing the loan and the loan's carrying value. Major loans (including development projects) and major lending areas are reviewed periodically to determine potential problems at an early date. The allowance for loan losses is increased by charges to earnings and decreased by charge-offs (net of recoveries). In June 1993, the FASB adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan". This promulgation, which was amended by SFAS No. 118 as to certain income recognition and disclosure provisions and was effective as to the Corporation in fiscal 1996, requires that impaired loans be measured based upon the present value of expected future cash flows discounted at the loan's effective interest rate or, as an alternative, at the loan's observable market price or fair value of the collateral. The Savings Bank's current procedures for evaluating impaired loans result in carrying such loans at the lower of cost or fair value. 26 30 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 5. Allowance for Losses on Loans (continued) The Savings Bank adopted SFAS No. 114, as subsequently amended, on July 1, 1995, without material effect on consolidated financial condition or results of operations. A loan is defined under SFAS No. 114 as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. In applying the provisions of SFAS No. 114, the Savings Bank considers its investment in one- to four-family residential loans and consumer installment loans to be homogeneous and therefore excluded from separate identification for evaluation of impairment. With respect to the Savings Bank's investment in impaired multi-family and nonresidential loans, such loans are collateral dependent, and as a result, are carried as a practical expedient at the lower of cost or fair value. It is the Savings Bank's policy to charge off unsecured credits that are more than ninety days delinquent. Similarly, collateral dependent loans which are more than ninety days delinquent are considered to constitute more than a minimum delay in repayment and are evaluated for impairment under SFAS No. 114 at that time. At June 30, 1997 and 1996, the Savings Bank had two loans totaling $1.3 million that were defined as impaired under SFAS No. 114. The Savings Bank maintained an allowance for credit losses of $262,000 related to these loans for each of the years ended June 30, 1997 and 1996. 6. Office Premises and Equipment Office premises and equipment are carried at cost and include expenditures which extend the useful lives of existing assets. Maintenance, repairs and minor renewals are expensed as incurred. For financial reporting, depreciation and amortization are provided on the straight-line and accelerated methods over the useful lives of the assets, estimated to be forty years for buildings, ten to forty years for building improvements, and five to ten years for furniture and equipment. An accelerated method is used for tax reporting purposes. 7. Real Estate Acquired Through Foreclosure Real estate acquired through foreclosure is carried at the lower of the loan's unpaid principal balance (cost) or fair value less estimated selling expenses at the date of acquisition. Real estate loss provisions are recorded if the properties' fair value subsequently declines below the amount determined at the recording date. In determining the lower of cost or fair value at acquisition, costs relating to development and improvement of property are capitalized. Costs relating to holding real estate acquired through foreclosure, net of rental income, are charged against earnings as incurred. 27 31 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 8. Federal Income Taxes The Corporation accounts for federal income taxes in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 established financial accounting and reporting standards for the effects of income taxes that result from the Corporation's activities within the current and previous years. Pursuant to the provisions of SFAS No. 109, a deferred tax liability or deferred tax asset is computed by applying the current statutory tax rates to net taxable or deductible differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements that will result in taxable or deductible amounts in future periods. Deferred tax assets are recorded only to the extent that the amount of net deductible temporary differences or carryforward attributes may be utilized against current period earnings, carried back against prior years earnings, offset against taxable temporary differences reversing in future periods, or utilized to the extent of management's estimate of future taxable income. A valuation allowance is provided for deferred tax assets to the extent that the value of net deductible temporary differences and carryforward attributes exceeds management's estimates of taxes payable on future taxable income. Deferred tax liabilities are provided on the total amount of net temporary differences taxable in the future. The Corporation's principal temporary differences between pretax financial income and taxable income result from different methods of accounting for deferred loan origination fees and costs, Federal Home Loan Bank stock dividends, the general loan loss allowance, deferred compensation, and percentage of earnings bad debt deductions. Additional temporary differences result from depreciation computed using accelerated methods for tax purposes. 9. Salary Continuation Agreement The Savings Bank has entered into salary continuation agreements with certain key members of management. These agreements provide for payments of up to fifteen years of compensation under certain circumstances. Compensation expense under the salary continuation plan totaled $33,000, $8,000 and $18,000 for the years ended June 30, 1997, 1996 and 1995, respectively. 10. Retirement Plans and Stock Option Plans In conjunction with the Conversion, the Corporation implemented an Employee Stock Ownership Plan ("ESOP"). The ESOP provides retirement benefits for substantially all employees who have completed one year of service and have attained the age of 21. The Corporation accounts for the ESOP in accordance with Statement of Position ("SOP") 93-6, "Employers' Accounting for Employee Stock Ownership Plans". SOP 93-6 requires that compensation expense recorded by employers equal the fair value of ESOP shares allocated to participants during a given fiscal year. Expense related to the ESOP totaled approximately $296,000 for each of the years ended June 30, 1997 and 1996, and $38,000 for the year ended June 30, 1995. 28 32 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 10. Retirement Plans and Stock Option Plans (continued) The Corporation also has a Management Recognition Plan ("MRP"). Subsequent to the offering of common shares by the Corporation, the MRP purchased 68,558 shares of the common stock in the open market. One-half of the shares available under the plan were granted to the Corporation's directors and executive officers. Common stock granted under the MRP vests ratably over a five year period, commencing in October 1995. Expense recognized under the MRP plan totaled approximately $137,000 and $120,000 for the years ended June 30, 1997 and 1996, respectively. Also, the Board of Directors adopted the ASB Financial Corp. 1995 Stock Option and Incentive Plan (the "Stock Option Plan") that provided for the issuance of 171,396 shares of authorized, but unissued shares of common stock at fair market value at the date of grant. In November 1995, the Corporation granted options to purchase 145,684 shares at the fair value of $13.875 per share. The Stock Option Plan provides for one-fifth of the shares granted to be exercisable on each of the first five anniversaries of the date of the Plan, commencing in November 1995. During fiscal 1997, a total of 7,452 stock options granted were exercised. At June 30, 1997, a total of 138,232 shares were subject to exercise at an exercise price of $10.08 per share. The exercise price was adjusted in fiscal 1997 to give effect to the return of capital distribution. 11. Earnings Per Share Primary earnings per share for the years ended June 30, 1997 and 1996 is based upon the weighted-average shares outstanding during the period, less 126,541 and 111,760 shares, respectively, in the ESOP that are unallocated and not committed to be released. Weighted-average common shares deemed outstanding totaled 1,591,703 and 1,602,200 for the years ended June 30, 1997 and 1996, respectively. There was no material dilutive effect related to the Corporation's stock option plan for any of the periods presented. The provisions of Accounting Principles Board Opinion No. 15, "Earnings Per Share," are not applicable to the fiscal year ended June 30, 1995, as the Corporation completed its conversion from mutual to stock form in April 1995. During fiscal 1996, the Corporation declared dividends of $5.40 per common share. Of this amount, $5.00 per share was paid in December 1996 from funds retained by the Corporation in the conversion and was deemed by management to constitute a return of excess capital. Accordingly, the Corporation charged the return of capital dividend to additional paid-in-capital. Management believes that approximately $5.17 of the current fiscal year dividends constitute a tax-free return of capital. 29 33 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 12. Investment in Subsidiary The Savings Bank has a wholly-owned subsidiary, A.S.L. Services, Inc., which was incorporated for the sole purpose of owning stock in the Savings Bank's data processor. The subsidiary's assets at June 30, 1997 and 1996 were limited to a $15,000 investment in such stock. As a result, the subsidiary has not been consolidated based on materiality. 13. Fair Value of Financial Instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires disclosure of the fair value of financial instruments, both assets and liabilities whether or not recognized in the consolidated statement of financial condition, for which it is practicable to estimate that value. For financial instruments where quoted market prices are not available, fair values are based on estimates using present value and other valuation methods. The methods used are greatly affected by the assumptions applied, including the discount rate and estimates of future cash flows. Therefore, the fair values presented may not represent amounts that could be realized in an exchange for certain financial instruments. The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments at June 30, 1997 and 1996: Cash and cash equivalents: The carrying amounts presented in the consolidated statement of financial condition for cash and cash equivalents are deemed to approximate fair value. Certificates of deposit in other financial institutions: The carrying amounts presented in the consolidated statement of financial condition for certificates of deposit in other financial institutions are deemed to approximate fair value. Investment and mortgage-backed securities: For investment and mortgage-backed securities, fair value is deemed to equal the quoted market price. Loans receivable: The loan portfolio has been segregated into categories with similar characteristics, such as one- to four-family residential, multi-family residential and nonresidential real estate. These loan categories were further delineated into fixed-rate and adjustable-rate loans. The fair values for the resultant loan categories were computed via discounted cash flow analysis, using current interest rates offered for loans with similar terms to borrowers of similar credit quality. For loans on deposit accounts and consumer and other loans, fair values were deemed to equal the historic carrying values. The historical carrying amount of accrued interest on loans is deemed to approximate fair value. Federal Home Loan Bank stock: The carrying amount presented in the consolidated statement of financial condition is deemed to approximate fair value. 30 34 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 13. Fair Value of Financial Instruments (continued) Deposits: The fair value of NOW accounts, passbook accounts, money market demand and escrow deposits is deemed to approximate the amount payable on demand. Fair values for fixed-rate certificates of deposit have been estimated using a discounted cash flow calculation using the interest rates currently offered for deposits of similar remaining maturities. Advances from Federal Home Loan Bank and Other Borrowed Money: The fair value of these advances and borrowings are estimated using the rates currently offered for similar advances and borrowings of similar remaining maturities. Commitments to extend credit: For fixed-rate and adjustable-rate loan commitments, the fair value estimate considers the difference between current levels of interest rates and committed rates. At June 30, 1997 and 1996, the difference between the fair value and notional amount of loan commitments was not material. Based on the foregoing methods and assumptions, the carrying value and fair value of the Corporation's financial instruments at June 30 are as follows:
CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE (In thousands) Financial assets Cash and cash equivalents $ 3,850 $ 3,850 $ 3,836 $ 3,836 Certificates of deposit in other financial institutions 4,258 4,258 6,702 6,702 Investment securities 18,660 18,660 19,284 19,284 Mortgage-backed securities 8,560 8,560 10,728 10,728 Loans receivable 74,136 71,492 68,455 67,977 Stock in Federal Home Loan Bank 675 675 667 667 ---------- ---------- ---------- ---------- $ 110,139 $ 107,495 $ 109,672 $ 109,194 ========== ========== ========== ========== Financial liabilities Deposits $ 89,752 $ 90,037 $ 83,395 $ 80,751 Advances from the Federal Home Loan Bank 2,884 2,872 2,413 2,406 Other borrowed money 500 504 -- -- Escrow deposits 169 169 162 162 ---------- ---------- ---------- ---------- $ 93,305 $ 93,582 $ 85,970 $ 83,319 ========== ========== ========== ==========
14. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks and interest-bearing deposits due from other financial institutions with original maturities of less than ninety days. 31 35 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 15. Reclassifications Certain prior year amounts have been reclassified to conform to the 1997 consolidated financial statement presentation. NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES Amortized cost and estimated fair values of investment securities designated as available for sale at June 30, 1997 and 1996 are summarized as follows:
1997 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE AVAILABLE FOR SALE: U.S. Government agency obligations $ 18,055 $ 33 $ 128 $ 17,960 FHLMC stock 20 680 -- 700 --------- ----- ----- -------- $ 18,075 $ 713 $ 128 $ 18,660 ========= ===== ===== ======== 1996 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE AVAILABLE FOR SALE: U.S. Government agency obligations $ 19,084 $ 14 $ 327 $ 18,771 FHLMC stock 24 489 -- 513 --------- ----- ----- -------- $ 19,108 $ 503 $ 327 $ 19,284 ========= ===== ===== ========
32 36 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued) The amortized cost and estimated fair value of U.S. Government agency obligations by contractual term to maturity at June 30 are shown below:
1997 1996 ESTIMATED ESTIMATED AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE (In thousands) Due in three years or less $ 1,604 $ 1,596 $ 2,320 $ 2,303 Due after three years through five years 2,504 2,488 3,238 3,232 Due after five years 13,947 13,876 13,526 13,236 -------- -------- -------- -------- $ 18,055 $ 17,960 $ 19,084 $ 18,771 ======== ======== ======== ========
The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of mortgage-backed securities designated as available for sale at June 30, 1997 and 1996 are summarized as follows:
1997 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE AVAILABLE FOR SALE: (In thousands) Federal Home Loan Mortgage Corporation participation certificates $3,067 $ 34 $ 34 $3,067 Government National Mortgage Association participation certificates 3,817 61 24 3,854 Federal National Mortgage Association participation certificates 1,637 23 21 1,639 ----- ----- ----- ------ Total mortgage-backed securities $8,521 $ 118 $ 79 $8,560 ====== ===== ===== ======
33 37 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
1996 GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE AVAILABLE FOR SALE: (In thousands) Federal Home Loan Mortgage Corporation participation certificates $ 4,119 $ 38 $ 57 $ 4,100 Government National Mortgage Association participation certificates 4,463 81 54 4,490 Federal National Mortgage Association participation certificates 2,135 30 27 2,138 -------- ----- ----- -------- Total mortgage-backed securities $ 10,717 $ 149 $ 138 $ 10,728 ======== ===== ===== ========
The amortized cost of mortgage-backed securities, by contractual terms to maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may generally prepay obligations without prepayment penalties.
JUNE 30, 1997 1996 Due within three years $ 1,085 $ 1,756 Due in three to five years 173 1,115 Due in five to ten years 566 1,980 Due in ten to twenty years 3,126 2,041 Due after twenty years 3,571 3,825 ------- ------- $ 8,521 $10,717 ======= =======
34 38 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE C - LOANS RECEIVABLE The composition of the loan portfolio at June 30 is as follows:
1997 1996 (In thousands) Residential real estate One- to four- family $ 50,481 $ 48,302 Multi-family 7,721 8,265 Construction 926 2,318 Nonresidential real estate and land 5,520 3,401 Consumer and other 11,484 8,780 -------- -------- 76,132 71,066 Less: Undisbursed portion of loans in process 978 1,529 Deferred loan origination fees 198 198 Allowance for loan losses 820 884 -------- -------- $ 74,136 $ 68,455 ======== ========
The Savings Bank's lending efforts have historically focused on one- to four-family and multi-family residential real estate loans, which comprise approximately $57.1 million, or 77%, of the total loan portfolio at June 30, 1997, and $56.3 million, or 82%, of the total loan portfolio at June 30, 1996. Generally, such loans have been underwritten on the basis of no more than an 80% loan-to-value ratio, which has historically provided the Savings Bank with adequate collateral coverage in the event of default. Nevertheless, the Savings Bank, as with any lending institution, is subject to the risk that real estate values could deteriorate in its primary lending area of southeastern Ohio, thereby impairing collateral values. However, management is of the belief that residential real estate values in the Savings Bank's primary lending area are presently stable. In the normal course of business, the Savings Bank has made loans to some of its directors, officers and employees. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectibility. The aggregate dollar amount of loans outstanding to directors, officers and employees totaled approximately $316,000 and $353,000 at June 30, 1997 and 1996, respectively. 35 39 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE D - ALLOWANCE FOR LOAN LOSSES The activity in the allowance for loan losses is summarized as follows for the years ended June 30:
1997 1996 1995 (In thousands) Balance at beginning of year $ 884 $ 893 $ 1,115 Provision for loan losses 28 -- 10 Charge-offs of loans (92) (9) (264) Recoveries -- -- 32 ------- ------- ------- Balance at end of year $ 820 $ 884 $ 893 ======= ======= =======
As of June 30, 1997, the Savings Bank's allowance for loan losses was solely general in nature, and is includible as a component of regulatory risk-based capital, subject to certain percentage limitations. Nonperforming and nonaccrual loans totaled approximately $1.1 million, $1.2 million and $1.9 million at June 30, 1997, 1996 and 1995, respectively. During the years ended June 30, 1997, 1996 and 1995, interest income of approximately $9,000, $4,000 and $38,000, respectively, would have been recognized had such nonperforming and nonaccrual loans been performing in accordance with contractual terms. NOTE E - OFFICE PREMISES AND EQUIPMENT Office premises and equipment at June 30 are comprised of the following:
1997 1996 (In thousands) Land and improvements $ 376 $ 325 Office buildings and improvements 1,161 1,143 Furniture, fixtures and equipment 434 421 ------- ------- 1,971 1,889 Less accumulated depreciation and amortization 1,027 949 ------- ------- $ 944 $ 940 ======= =======
36 40 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE F - DEPOSITS Deposits consist of the following major classifications at June 30:
DEPOSIT TYPE AND WEIGHTED- AVERAGE INTEREST RATE 1997 1996 (In thousands) NOW accounts 1997 - 2.24% $ 4,435 1996 - 2.36% $ 3,448 Passbook 1997 - 2.94% 7,379 1996 - 2.94% 7,225 Money market deposit accounts 1997 - 3.49% 7,785 1996 - 3.49% 9,001 -------- -------- Total demand, transaction and passbook deposits 19,599 19,674 Certificates of deposit Original maturities of: Less than 12 months 1997 - 5.22% 5,774 1996 - 5.10% 7,517 12 months to 24 months 1997 - 5.89% 34,303 1996 - 5.88% 21,371 30 months to 36 months 1997 - 5.90% 10,293 1996 - 5.95% 16,006 More than 36 months 1997 - 5.86% 1,723 1996 - 5.69% 2,448 Individual retirement accounts 1997 - 6.03% 14,052 1996 - 6.43% 13,384 Jumbo accounts 1997 - 5.82% 4,008 1996 - 5.52% 2,995 -------- -------- Total certificates of deposit 70,153 63,721 -------- -------- Total deposit accounts $ 89,752 $ 83,395 ======== ========
At June 30, 1997 and 1996, the Corporation had deposit accounts with balances greater than $100,000 totaling $8.8 million and $8.2 million, respectively. 37 41 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE F - DEPOSITS (continued) Interest expense on deposits for the year ended June 30 is summarized as follows:
1997 1996 1995 (In thousands) Passbook $ 214 $ 212 $ 295 NOW and money market deposit accounts 402 421 467 Certificates of deposit 3,903 3,634 3,108 ------- ------- ------- $ 4,519 $ 4,267 $ 3,870 ======= ======= =======
Maturities of outstanding certificates of deposit at June 30 are summarized as follows:
1997 1996 (In thousands) Less than one year $ 42,468 $ 44,345 One to three years 26,701 15,813 Over three years 984 3,563 -------- -------- $ 70,153 $ 63,721 ======== ========
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK Advances from the Federal Home Loan Bank, collateralized at June 30, 1997 by pledges of certain residential mortgage loans totaling $4.3 million, and the Savings Bank's investment in Federal Home Loan Bank stock, are summarized as follows:
MATURING YEAR ENDING INTEREST RATE JUNE 30, 1997 1996 (In thousands) 5.25% 1997 $ -- $1,000 5.40% 1997 -- 1,000 5.77% 1998 2,000 -- 7.10% 2002 500 -- 3.16% 2008 384 413 ------ ------ $2,884 $2,413 ====== ====== Weighted-average interest rate 5.65% 4.95% ====== ======
38 42 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE H - OTHER BORROWED MONEY At June 30, 1997, other borrowed money consisted of a $500,000 note, bearing interest at a rate of 8.88% and maturing in 2001. NOTE I - FEDERAL INCOME TAXES Federal income taxes differ from the amounts computed at the statutory corporate tax rate as follows:
JUNE 30, 1997 1996 1995 (In thousands) Federal income taxes computed at statutory rate $ 336 $ 573 $ 519 Increase (decrease) in taxes resulting from: Nontaxable interest income (9) -- -- Other (5) 1 (1) ----- ----- ----- Federal income tax provision per consolidated financial statements $ 322 $ 574 $ 518 ===== ===== =====
The composition of the Corporation's net deferred tax asset at June 30 is as follows:
1997 1996 (In thousands) Taxes (payable) refundable on temporary differences at estimated corporate tax rate: Deferred tax assets: General loan loss allowance $ 279 $ 301 Deferred compensation 501 471 Employee stock benefit plans 58 41 ----- ----- Total deferred tax assets 838 813 Deferred tax liabilities: Percentage of earnings bad debt deduction (265) (265) Book/tax depreciation (4) (25) Deferred loan origination costs (49) -- Federal Home Loan Bank stock dividends (117) (108) Unrealized gain on securities designated as available for sale (212) (63) ----- ----- Total deferred tax liabilities (647) (461) ----- ----- Net deferred tax asset $ 191 $ 352 ===== =====
39 43 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE I - FEDERAL INCOME TAXES (continued) The Savings Bank was allowed a special bad debt deduction, generally limited to 8% of otherwise taxable income, and subject to certain limitations based on aggregate loans and deposit account balances at the end of the year. If the amounts that qualify as deductions for federal income taxes are later used for purposes other than bad debt losses, including distributions in liquidation, such distributions will be subject to federal income taxes at the then current corporate income tax rate. Retained earnings at June 30, 1997 include approximately $2.7 million for which federal income taxes have not been provided. The approximate amount of unrecognized deferred tax liability relating to the cumulative bad debt deduction was approximately $660,000 at June 30, 1997. See Note L for additional information regarding future percentage of earnings bad debt deductions. NOTE J - LOAN COMMITMENTS The Savings Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers including commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the statement of financial condition. The contract or notional amounts of the commitments reflect the extent of the Savings Bank's involvement in such financial instruments. The Savings Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Savings Bank uses the same credit policies in making commitments and conditional obligations as those utilized for on-balance-sheet instruments. At June 30, 1997, the Savings Bank had outstanding commitments to originate and purchase loans totaling approximately $151,000 and $1.0 million, respectively. In addition, the Savings Bank was obligated under unused lines of credit totaling $2.0 million. In the opinion of management all loan commitments equaled or exceeded prevalent market interest rates as of June 30, 1997, and will be funded from normal cash flow from operations. 40 44 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE K - REGULATORY CAPITAL The Savings Bank is subject to minimum regulatory capital standards promulgated by the Office of Thrift Supervision (the "OTS"). Failure to meet minimum capital requirements can initiate certain mandatory -- and possibly additional discretionary -- actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Savings Bank must meet specific capital guidelines that involve quantitative measures of the Savings Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Savings Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The minimum capital standards of the OTS generally require the maintenance of regulatory capital sufficient to meet each of three tests, hereinafter described as the tangible capital requirement, the core capital requirement and the risk-based capital requirement. The tangible capital requirement provides for minimum tangible capital (defined as shareholders' equity less all intangible assets) equal to 1.5% of adjusted total assets. The core capital requirement provides for minimum core capital (tangible capital plus certain forms of supervisory goodwill and other qualifying intangible assets) equal to 3.0% of adjusted total assets. An OTS proposal, if adopted in present form, would increase the core capital requirement to a range of 4.0% - 5.0% of adjusted total assets for substantially all savings associations. Management anticipates no material change to the Savings Bank's excess regulatory capital position as a result of this proposed change in the regulatory capital requirement. The risk-based capital requirement currently provides for the maintenance of core capital plus general loss allowances equal to 8.0% of risk-weighted assets. In computing risk-weighted assets, the Savings Bank multiplies the value of each asset on its statement of financial condition by a defined risk-weighting factor, e.g., one- to four-family residential loans carry a risk-weighted factor of 50%. As of June 30, 1997, management believes that the Savings Bank met all capital adequacy requirements to which it is subject.
AS OF JUNE 30, 1997 TO BE "WELL- CAPITALIZED" UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS ---------------- ------------------- -------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (In thousands) Tangible capital $13,321 12.1% >/=$1,650 >/=1.5% >/=$5,500 >/= 5.0% Core capital $13,321 12.1% >/=$3,300 >/=3.0% >/=$6,600 >/= 6.0% Risk-based capital $13,855 26.9% >/=$4,123 >/=8.0% >/=$5,153 >/=10.0%
41 45 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE K - REGULATORY CAPITAL (continued) The Savings Bank's management believes that, under the current regulatory capital regulations, the Savings Bank will continue to meet its minimum capital requirements in the foreseeable future. However, events beyond the control of the Savings Bank, such as increased interest rates or a downturn in the economy in the Savings Bank's market area, could adversely affect future earnings and, consequently, the ability to meet future minimum regulatory capital requirements. NOTE L - LEGISLATIVE DEVELOPMENTS The deposit accounts of the Savings Bank and of other savings associations are insured by the Federal Deposit Insurance Corporation ("FDIC") through the Savings Association Insurance Fund ("SAIF"). The reserves of the SAIF were below the level required by law, because a significant portion of the assessments paid into the fund were used to pay the cost of prior thrift failures. The deposit accounts of commercial banks are insured by the FDIC through the Bank Insurance Fund ("BIF"), except to the extent such banks have acquired SAIF deposits. The reserves of the BIF met the level required by law in May 1995. As a result of the respective reserve levels of the funds, deposit insurance assessments paid by healthy savings associations exceeded those paid by healthy commercial banks by approximately $.19 per $100 in deposits in 1995. In fiscal 1996 and 1997, no BIF assessments were required for healthy commercial banks except for a $2,000 minimum fee. Legislation was enacted to recapitalize the SAIF that provided for a special assessment totaling $.657 per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF reserves to the level required by law. The Savings Bank held $83.8 million in deposits at March 31, 1995, resulting in an assessment of approximately $551,000, or $364,000 after-tax, which was charged to operations in fiscal 1997. A component of the recapitalization plan provided for the merger of the SAIF and BIF on January 1, 1999. However, the SAIF recapitalization legislation currently provides for an elimination of the thrift charter or of the separate federal regulation of thrifts prior to the merger of the deposit insurance funds. As a result, the Savings Bank would be regulated as a bank under federal laws which would subject it to the more restrictive activity limits imposed on national banks. In the opinion of management, such activity limit restrictions would not have a material effect on the Corporation's financial position or results of operations. Under separate legislation related to the recapitalization plan, the Savings Bank is required to recapture as taxable income approximately $780,000 of its tax bad debt reserve, which represents the post-1987 additions to the reserve, and will be unable to utilize the percentage of earnings method to compute its bad debt deduction in the future. The Savings Bank has provided deferred taxes for this amount and will be permitted to amortize the recapture of the bad debt reserve in taxable income over six years. 42 46 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE M - CONDENSED FINANCIAL STATEMENTS OF ASB FINANCIAL CORP. The following condensed financial statements summarize the financial position of ASB Financial Corp. as of June 30, 1997 and 1996, and the results of its operations and its cash flows for the fiscal years ended June 30, 1997 and 1996.
ASB FINANCIAL CORP. STATEMENTS OF FINANCIAL CONDITION June 30, (In thousands) ASSETS 1997 1996 Interest-bearing deposits in American Savings Bank $ 693 $ 1,075 Interest-bearing deposits in other financial institutions 2,378 2,500 Investment securities -- 3,420 Loan receivable from ESOP 959 1,118 Investment in American Savings Bank, fsb 13,733 17,578 Prepaid expenses and other 104 93 --------- --------- Total assets $ 17,867 $ 25,784 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Dividends payable $ 172 $ 171 Shareholders' equity Common stock and additional paid-in capital 8,023 16,496 Retained earnings 11,181 11,173 Shares acquired by stock benefit plans (1,921) (2,180) Unrealized gains on securities designated as available for sale, net 412 124 --------- --------- Total shareholders' equity 17,695 25,613 --------- --------- Total liabilities and shareholders' equity $ 17,867 $ 25,784 ========= ========= ASB FINANCIAL CORP. STATEMENTS OF EARNINGS Year ended June 30, (In thousands) 1997 1996 Revenue Interest income $ 292 $ 455 Equity in earnings of American Savings Bank 631 887 --------- --------- Total revenue 923 1,342 General and administrative expenses 248 122 --------- --------- Earnings before income taxes 675 1,220 Federal income tax 15 109 --------- --------- NET EARNINGS $ 660 $ 1,111 ========= =========
43 47 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE M - CONDENSED FINANCIAL STATEMENTS OF ASB FINANCIAL CORP. (continued) ASB FINANCIAL CORP. STATEMENTS OF CASH FLOWS Year ended June 30, (In thousands)
1997 1996 Cash provided by (used in) operating activities: Net earnings for the year $ 660 $ 1,111 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities (Undistributed earnings of) excess of distributions from consolidated subsidiary 4,369 (887) Loss on sale of investment securities 9 -- Increase (decrease) in cash due to changes in: Prepaid expenses and other assets (36) 20 Other liabilities 1 43 -------- -------- Net cash provided by operating activities 5,003 287 Cash flows provided by (used in) investing activities: Proceeds from repayment of loan 159 152 Proceeds from maturities of investment securities -- 1,500 Proceeds from sale of investment securities 3,491 -- Purchase of investment securities -- (3,500) -------- -------- Net cash provided by (used in) investing activities 3,650 (1,848) Cash flows provided by (used in) financing activities: Proceeds from exercise of stock options 103 -- Payment of dividends on common stock (9,260) (557) -------- -------- Net cash used in financing activities (9,157) (557) -------- -------- Net decrease in cash and cash equivalents (504) (2,118) Cash and cash equivalents at beginning of year 3,575 5,693 -------- -------- Cash and cash equivalents at end of year $ 3,071 $ 3,575 ======== ========
The financial statements of ASB Financial Corp. above reflect the effects of a $7,000 after-tax loss on an intercompany sale of securities to the Savings Bank. Such loss has been eliminated in the consolidated financial statements. 44 48 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE M - CONDENSED FINANCIAL STATEMENTS OF ASB FINANCIAL CORP. (continued) As a condition to regulatory approval of the stock conversion and reorganization to the holding company form of ownership, the Savings Bank agreed to limit the amount of dividends payable to the Corporation. Regulations of the Office of Thrift Supervision (OTS) impose limitations on the payment of dividends and other capital distributions by savings associations. Under such regulations, a savings association that, immediately prior to, and on a pro forma basis after giving effect to, a proposed capital distribution, has total capital (as defined by OTS regulation) that is equal to or greater than the amount of its fully phased-in capital requirement is generally permitted without OTS approval (but subsequent to 30 days prior notice to the OTS of the planned dividend) to make capital distributions during a calendar year in the amount of up to the greater of (i) 100% of its net earnings to date during the year plus an amount equal to one-half of the amount by which its total capital-to-assets ratio exceeded its fully phased-in capital-to-assets ratio at the beginning of the year or (ii) 75% of its net earnings for the most recent four quarters. Pursuant to such OTS dividend regulations, the Savings Bank had the ability to pay dividends of approximately $2.9 million to the Corporation at June 30, 1997. NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table summarizes the Corporation's quarterly results for the fiscal years ended June 30, 1997 and 1996. Certain amounts, as previously reported, have been reclassified to conform to the 1997 presentation.
THREE MONTHS ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, 1997: (In thousands, except per share data) Total interest income $ 2,065 $ 2,148 $ 2,079 $ 2,101 Total interest expense 1,143 1,156 1,188 1,199 ------- ------- ------- ------- Net interest income 922 992 891 902 Provision for losses on loans 22 -- -- 6 Other income (expense) 52 162 67 83 General, administrative and other expense 1,219 677 606 552 ------- ------- ------- ------- Earnings (loss) before income taxes (credits) (267) 477 352 427 Federal income taxes (credits) (91) 164 117 132 ------- ------- ------- ------- Net earnings (loss) $ (176) $ 313 $ 235 $ 295 ======= ======= ======= ======= Earnings (loss) per share $ (.11) $ .19 $ .14 $ .20 ======= ======= ======= =======
45 49 ASB FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 1997, 1996 and 1995 NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (continued)
THREE MONTHS ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, 1996: (In thousands, except per share data) Total interest income $ 2,026 $ 2,016 $ 2,036 $ 2,095 Total interest expense 1,061 1,069 1,086 1,094 ------- ------- ------- ------- Net interest income 965 947 950 1,001 Provision for losses on loans -- -- -- -- Other income 42 31 50 72 General, administrative and other expense 559 551 654 609 ------- ------- ------- ------- Earnings before income taxes 448 427 346 464 Federal income taxes 150 150 116 158 ------- ------- ------- ------- Net earnings $ 298 $ 277 $ 230 $ 306 ======= ======= ======= ======= Earnings per share $ .19 $ .17 $ .14 $ .19 ======= ======= ======= =======
NOTE O - CORPORATE REORGANIZATION AND CONVERSION TO STOCK FORM During fiscal 1994, the Savings Bank's Board of Directors adopted a plan of conversion and reorganization (the "Plan") whereby the Savings Bank would convert to the stock form of ownership, followed by the issuance of all of the Savings Bank's outstanding stock to a newly formed holding company, ASB Financial Corp. Pursuant to the Plan, the Savings Bank offered for sale up to 1.7 million common shares to its depositors and members of the community. The stock offering was completed on May 10, 1995, culminating in the sale of 1,713,960 common shares and the receipt of $15.2 million of net equity capital. At the completion of the conversion to stock form, the Savings Bank established a liquidation account in an amount equal to retained earnings contained in the final offering circular. The liquidation account will be maintained for the benefit of eligible deposit account holders who maintain deposit accounts in the Savings Bank after conversion. In the event of a complete liquidation (and only in such event), each eligible deposit account holder will be entitled to receive a liquidation distribution from the liquidation account in the amount of the then current adjusted balance of deposit accounts held, before any liquidation distribution may be made with respect to common stock. Except for the repurchase of stock and payment of dividends by the Savings Bank, the existence of the liquidation account will not restrict the use or application of such retained earnings. The Savings Bank may not declare, pay a cash dividend on, or repurchase any of its common stock, if the effect thereof would cause retained earnings to be reduced below either the amount required for the liquidation account or the regulatory capital requirements for SAIF insured institutions. 46 50 ASB FINANCIAL CORP. DIRECTORS AND EXECUTIVE OFFICERS Gerald R. Jenkins Director and President President and Managing Officer American Savings Bank, fsb Robert M. Smith Director and Vice President Executive Vice President and Chief Financial Officer American Savings Bank, fsb William J. Burke Director Director and Chief Executive Officer OSCO Industries, Inc. Lee O. Fitch Director Shareholder and Director Miller, Searl & Fitch, L.P.A. Victor W. Morgan Director Morgan Brothers, Inc. Retired Louis M. Schoettle, M.D. Director Physician Retired M. Kathryn Scott Secretary Secretary American Savings Bank, fsb Carlisa R. Baker Treasurer Treasurer American Savings Bank, fsb 47 51 AMERICAN SAVINGS BANK, FSB DIRECTORS AND EXECUTIVE OFFICERS Gerald R. Jenkins Director and President Robert M. Smith Director and Executive Vice President William J. Burke Director Lee O. Fitch Director and Attorney Victor W. Morgan Director Louis M. Schoettle, M.D. Director Jack A. Stephenson Vice President M. Kathryn Scott Secretary Carlisa R. Baker Treasurer 48 52 SHAREHOLDER SERVICES The Fifth Third Bank serves as transfer agent and dividend disbursing agent for ASB's shares. Communications regarding change of address, transfer of shares, lost certificates and dividends should be sent to: The Fifth Third Bank Stock Transfer Department Mail Drop 1090F5 38 Fountain Square Plaza Cincinnati, Ohio 45263 (513) 579-5320 (800) 837-2755 ANNUAL MEETING The Annual Meeting of Shareholders of ASB Financial Corp. will be held on October 22, 1997, at 11:00 a.m., Eastern Time, at the Holiday Inn, U.S. Route 23 North, Portsmouth, Ohio. Shareholders are cordially invited to attend. ANNUAL REPORT ON FORM 10-KSB A copy of ASB's 1997 Annual Report on Form 10-KSB, as filed with the Securities and Exchange Commission, will be available at no charge to shareholders upon written request to: American Savings Bank, fsb 503 Chillicothe Street Portsmouth, Ohio 45662 Attention: Gerald R. Jenkins, President 49 EX-20 3 EXHIBIT 20 1 ASB FINANCIAL CORP. 503 CHILLICOTHE STREET PORTSMOUTH, OHIO 45662 (614) 354-3177 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS The 1997 Annual Meeting of Shareholders of ASB Financial Corp. ("ASB") will be held at the Holiday Inn, U.S. Route 23 North, Portsmouth, Ohio 45662, on October 22, 1997, at 11:00 a.m., local time (the "Annual Meeting"), for the following purposes, all of which are more completely set forth in the accompanying Proxy Statement: 1. To elect three directors of ASB for terms expiring in 1999; 2. To ratify the selection of Grant Thornton LLP as the auditors of ASB for the current fiscal year; and 3. To transact such other business as may properly come before the Annual Meeting or any adjournments thereof. Only shareholders of ASB of record at the close of business on August 29, 1997, will be entitled to receive notice of and to vote at the Annual Meeting and at any adjournments thereof. Whether or not you expect to attend the Annual Meeting, we urge you to consider the accompanying Proxy Statement carefully and to SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND THE PRESENCE OF A QUORUM MAY BE ASSURED. The giving of a Proxy does not affect your right to vote in person in the event you attend the Annual Meeting. By Order of the Board of Directors Portsmouth, Ohio Gerald R. Jenkins, President September 19, 1997 2 ASB FINANCIAL CORP. 503 CHILLICOTHE STREET PORTSMOUTH, OHIO 45662 (614) 354-3177 PROXY STATEMENT PROXIES The enclosed Proxy is being solicited by the Board of Directors of ASB Financial Corp. ("ASB") for use at the 1997 Annual Meeting of Shareholders of ASB to be held at the Holiday Inn, U.S. Route 23 North, Portsmouth, Ohio 45662, on October 22, 1997, at 11:00 a.m., local time, and at any adjournments thereof (the "Annual Meeting"). Without affecting any vote previously taken, the Proxy may be revoked by a shareholder executing a later dated proxy which is received by ASB before the Proxy is exercised or by giving notice of revocation to ASB in writing or in open meeting before the Proxy is exercised. Attendance at the Annual Meeting will not, of itself, revoke a Proxy. Each properly executed Proxy received prior to the Annual Meeting and not revoked will be voted as specified thereon or, in the absence of specific instructions to the contrary, will be voted: FOR the reelection of William J. Burke, Lee O. Fitch and Gerald R. Jenkins as directors of ASB for terms expiring in 1999; and FOR the ratification of the selection of Grant Thornton LLP ("Grant Thornton") as the auditors of ASB for the current fiscal year. Proxies may be solicited by the directors, officers and other employees of ASB and American Savings Bank, fsb ("American"), in person or by telephone, telegraph or mail only for use at the Annual Meeting. The Proxies will not be used for any other meeting. The cost of soliciting Proxies will be borne by ASB. Only shareholders of record as of the close of business on August 29, 1997 (the "Voting Record Date"), are entitled to vote at the Annual Meeting. Each such shareholder will be entitled to cast one vote for each share owned. ASB's records disclose that, as of the Voting Record Date, there were 1,721,412 votes entitled to be cast at the Annual Meeting. This Proxy Statement is first being mailed to shareholders of ASB on or about September 19, 1997. VOTE REQUIRED ELECTION OF DIRECTORS Under Ohio law and ASB's Code of Regulations (the "ASB Regulations"), the three nominees receiving the greatest number of votes will be elected as directors. Shares as to which the authority to vote is withheld will not be counted toward the election of directors or toward the election of the individual nominees specified on the Proxy. If the accompanying Proxy is signed and dated by the shareholder but no vote is specified thereon, the shares held by such shareholder will be voted FOR the reelection of the three nominees. -1- 3 RATIFICATION OF SELECTION OF AUDITORS The affirmative vote of the holders of a majority of the shares of ASB represented in person or by proxy at the Annual Meeting is necessary to ratify the selection of Grant Thornton as the auditors of ASB for the current fiscal year. The effect of an abstention is the same as a vote against ratification. If the accompanying Proxy is signed and dated by the shareholder but no vote is specified thereon, the shares held by such shareholder will be voted FOR the ratification of the selection of Grant Thornton as auditors. VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to the only persons known to ASB to own beneficially more than five percent of the outstanding common shares of ASB as of August 31, 1997:
Amount and nature of beneficial ownership -------------------------------------------- Name and Address Sole voting and/or Shared voting and/or Percent of - ---------------- investment power investment power shares outstanding ---------------- ---------------- ------------------ First Bankers Trust, N.A. 1201 Broadway Quincy, Illinois 62301 126,542 (1) 33,081 7.38% Lee O. Fitch (2) 23,154 (3) 69,158 5.36% - --------------------------- (1) Consists of the shares held by First Bankers Trust, N.A., as the Trustee for the ASB Financial Corp. Employee Stock Ownership Plan (the "ESOP"). First Bankers Trust Company, N.A. (the "ESOP Trustee"), has shared investment power over all shares held in the ESOP Trust and sole voting power over shares held in the ESOP Trust which have not been allocated to the accounts of ESOP participants. (2) May be contacted at the address of ASB. (3) Includes 61,702 shares held by the American Savings Bank, fsb Management Recognition Plan and Trust Agreement (the "MRP"). Mr. Fitch is a trustee of the MRP and as such has shared voting power over such shares.
-2- 4 The following table sets forth certain information with respect to the number of common shares of ASB beneficially owned by each director of ASB and by all directors and executive officers of ASB as a group as of August 31, 1997:
Amount and nature of Percent of Name and Address (1) beneficial ownership (2) shares outstanding (3) - -------------------- --------------------------- ---------------------- William J. Burke 34,753 (4) 2.02% Lee O. Fitch 92,312 (5) 5.36 Gerald R. Jenkins 44,710 (6) 2.59 Victor W. Morgan 33,433 (7) 1.94 Louis M. Schoettle, M.D. 33,456 (8) 1.94 Robert M. Smith 32,385 (9) 1.87 All directors and executive officers of ASB as a group (9 persons) 280,088 (10) 16.00% - ----------------------------- (1) Each of the persons listed in this table may be contacted at the address of ASB. (2) All shares are owned directly with sole voting or investment power unless otherwise indicated by footnote. (3) Assumes a total of 1,721,412 common shares outstanding, plus the number of shares such person or group has the right to acquire within 60 days, if any. (4) Includes 2,356 shares which may be acquired upon the exercise of an option and 17,303 shares as to which Mr. Burke shares voting and investment power. (5) Includes 2,356 shares which may be acquired upon the exercise of an option, 7,456 shares as to which Mr. Fitch has shared voting and investment power and 61,702 shares held by the MRP as to which Mr. Fitch has shared voting power as a Trustee of the MRP. (6) Includes 4,907 shares which may be acquired upon the exercise of an option, 1,419 shares owned by Mr. Jenkins' spouse and 24,562 shares as to which Mr. Jenkins has shared voting and investment power. (7) Includes 981 shares which may be acquired upon the exercise of an option and 32,452 shares as to which Mr. Morgan has shared voting and investment power. (8) Includes 2,356 shares which may be acquired upon the exercise of an option and 31,100 shares as to which Dr. Schoettle has shared voting and investment power. (9) Includes 8,372 shares which may be acquired upon the exercise of an option, 3,533 shares owned by Mr. Smith's spouse and 13,607 shares as to which Mr. Smith has shared voting and investment power. (10) Includes 28,868 shares which may be acquired upon the exercise of options, 61,702 shares held by the MRP as to which Mr. Fitch has shared voting power as Trustee of the MRP and 130,796 shares as to which the officers and directors of ASB have shared voting and investment power.
-3- 5 BOARD OF DIRECTORS ELECTION OF DIRECTORS The ASB Regulations provide for a Board of Directors consisting of six persons divided into two classes. In accordance with Section 2.03 of the Regulations, nominees for election as directors may be proposed only by the directors or by a shareholder entitled to vote for directors if such shareholder has submitted a written nomination to the Secretary of ASB by the later of the August 15th immediately preceding the annual meeting of shareholders or the sixtieth day before the first anniversary of the most recent annual meeting of shareholders held for the election of directors. Each such written nomination must state the name, age, business or residence address of the nominee, the principal occupation or employment of the nominee, the number of common shares of ASB owned either beneficially or of record by each such nominee and the length of time such shares have been so owned. Each of the directors of ASB is also a director of American. Each nominee became a director of ASB in connection with the conversion of American from mutual to stock form (the "Conversion") and the formation of ASB as the holding company for American. The Board of Directors proposes the reelection of the following persons to serve as directors of ASB until the annual meeting of shareholders in 1999 and until their successors are duly elected and qualified or until their earlier resignation, removal from office or death:
Director of ASB Name Age (1) Position(s) held since - ---- ------- ---------------- ------- William J. Burke 56 Director 1995 Lee O. Fitch 81 Director 1995 Gerald R. Jenkins 62 Director and President 1995 - ------------------------- (1) As of September 15, 1997.
If any nominee is unable to stand for election, any Proxies granting authority to vote for such nominee will be voted for such substitute as the Board of Directors recommends. The following directors will continue to serve after the Annual Meeting for the terms indicated:
Director of ASB Name Age (1) Position(s) held since Term expires - ---- ------- ---------------- ------ ------------ Victor W. Morgan 70 Director 1995 1998 Louis M. Schoettle, M.D 71 Director 1995 1998 Robert M. Smith 51 Director and Vice 1995 1998 President - ----------------------------- (1) As of September 15, 1997.
-4- 6 MR. BURKE is a director, the chief executive officer and the marketing manager of OSCO Industries, Inc., a manufacturing company which has its principal place of business in Portsmouth, Ohio. He has been employed by OSCO Industries, Inc., since 1977. MR. FITCH is a shareholder and director of the law firm of Miller, Searl and Fitch, L.P.A. He has practiced law with Miller, Searl and Fitch since 1950. MR. JENKINS, the President and Chief Executive Officer of ASB and American, has been employed by American since 1967. Prior to becoming President in 1983, he held various positions at American including Secretary and Vice President. Mr. Jenkins has informed the Board of Directors that he expects to retire from his positions as President and Chief Executive Officer of ASB and American effective January 1998. It is expected that Mr. Jenkins will continue to serve ASB and American as Chairman of the Board and that Mr. Smith will assume the duties of President and Chief Executive Officer of ASB and American. MR. MORGAN retired in 1990 after over 40 years with Morgan Brothers, Inc., a retail jewelry business in Portsmouth. At the time of his retirement, he was President of Morgan Brothers, Inc. DR. SCHOETTLE is a physician. He retired from active practice in 1994 after over 35 years of practicing medicine in Portsmouth. Dr. Schoettle also owns and operates a 1,100 acre farm. MR. SMITH has been employed by American since 1966 and is currently the Executive Vice President and Chief Financial Officer of American, positions he has held since 1988. He also currently serves ASB as Vice President. Prior positions held by Mr. Smith with American include Secretary and Treasurer. MEETINGS OF DIRECTORS The Board of Directors of ASB met 13 times for regularly scheduled and special meetings. Each director of ASB is also a director of American. The Board of Directors of American met 12 times for regularly scheduled and special meetings during the fiscal year ended June 30, 1996. COMMITTEES OF DIRECTORS The Board of Directors of ASB has an Audit Committee and a Stock Option Committee. The full Board of Directors serves as a nominating committee. The Audit Committee recommends audit firms to the full Board of Directors and reviews and approves the annual independent audit report. The members of the Audit Committee are Messrs. Morgan, Burke and Fitch. The Audit Committee met twice during the fiscal year ended June 30, 1997. The Stock Option Committee is responsible for administering the ASB Financial Corp. Stock Option and Incentive Plan (the "Stock Option Plan"), including interpreting the Stock Option Plan and awarding options pursuant to its terms. Its members are Messrs. Burke, Fitch and Morgan. The Stock Option Committee met once during the fiscal year ended June 30, 1997. The Board of Directors of American has an Executive Committee, a Finance Committee and a MRP Committee. The members of the Executive Committee are Messrs. Jenkins, Smith and Burke and Dr. Schoettle. The Executive Committee serves as a loan approval committee and is authorized to act on behalf of the Board of -5- 7 Directors between regular meetings of the Board of Directors. The Executive Committee met eight times during the fiscal year ended June 30, 1997. The Finance Committee is comprised of Messrs. Jenkins, Fitch and Morgan. The function of the Finance Committee is to determine compensation for American's executive officers and to make recommendations to the Board of Directors regarding employee compensation matters. The Finance Committee met twice during the fiscal year ended June 30, 1997. The MRP Committee administers the MRP. Such committee consists of Messrs. Burke, Morgan and Fitch. The MRP Committee met once during the 1997 fiscal year. EXECUTIVE OFFICERS In addition to Mr. Jenkins, the President of both ASB and American, and Mr. Smith, the Vice President of ASB and the Executive Vice President of American, the following persons are executive officers of ASB and American and hold the designated positions:
Name Age (1) Position(s) held ---- ------- ---------------- Carlisa R. Baker 35 Treasurer of American and ASB M. Kathryn Scott 46 Secretary of American and ASB Jack A. Stephenson 45 Vice President/Lending of American - ---------------------------------- (1) As of September 15, 1997.
MS. BAKER has been employed by American since 1979. In 1993, she was promoted to her present position as Treasurer. In that capacity, she is responsible for American's accounting department. Ms. Baker has served as the Treasurer of ASB since November 1995. MS. SCOTT has been employed by American since 1984. She is responsible for American's deposit activities. She has also served as American's corporate Secretary since 1993 and ASB's corporate Secretary since January 1995. MR. STEPHENSON has been employed by American since 1987. Since 1988 he has served as American's Vice President responsible for lending activities. -6- 8 COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS EXECUTIVE COMPENSATION The following table sets forth the compensation paid to Gerald R. Jenkins, the President of ASB and American, and to Robert M. Smith, the Executive Vice President of ASB and Chief Financial Officer of American, for the fiscal years ended June 30, 1997, 1996 and 1995. No other executive officer of ASB earned salary and bonus in excess of $100,000 during such periods. Summary Compensation Table --------------------------
----------------------------------------------------------------------------------- Annual compensation Long term compensation All other compensation ----------------------------------------------------------------------------------------------------------------------- Awards ------------------------------------- Name and principal Year Salary($) Bonus($) Restricted Securities position stock awards underlying ($) options/SARs (#) ----------------------------------------------------------------------------------------------------------------------- Gerald R. Jenkins 1997 $99,100 $ 6,800 -- 58,917 (1) $54,061 (2) President 1996 $94,400 $ 9,210 $92,953 (3) 42,849 (4) $15,900 1995 $89,900 $13,200 -- -- $13,200 Robert M. Smith 1997 $78,750 $ 5,200 -- 47,134 (1) $45,513 (5) Vice President 1996 72,150 7,040 $83,295 (3) 34,279 (4) $15,900 1995 68,700 10,100 -- -- $13,200 ------------------------- (1) Represents an adjustment to the number of common shares of ASB underlying options granted to Mr. Jenkins and Mr. Smith during the year ended June 30, 1996. Pursuant to the terms of the Stock Option Plan, the Board of Directors adjusted the number of shares covered by, and the exercise price of, the options granted to Mr. Jenkins and Mr. Smith in fiscal 1996 in connection with the tax free return of capital paid by ASB in fiscal 1997. (2) Consists of directors' fees of $17,700 and the $36,361 value of allocations to Mr. Jenkins' account under the ESOP. Does not include amounts attributable to miscellaneous benefits received by Mr. Jenkins, the cost of which was less than 10% of his annual salary and bonus. (3) On November 15, 1995, Mr. Jenkins and Mr. Smith were awarded 6,855 and 6,170 common shares, respectively, pursuant to the MRP. Mr. Jenkins and Mr. Smith paid no consideration for such shares. Such shares are earned and non-forfeitable at the rate of one-fifth per year on the anniversary of the date of the award, beginning on November 15, 1996, assuming continued employment with, or service on, the Board of Directors of American. The market price of ASB's shares on November 15, 1995, determined by reference to the closing bid for ASB's shares on the Nasdaq National Market ("Nasdaq") on such date, was $13.50 per share. The aggregate market value of the shares awarded to Mr. Jenkins and Mr. Smith under the MRP, as of such date, was $92,543 and $83,295, respectively. As of June 30, 1997, the shares which have been awarded to Mr. Jenkins and Mr. Smith under the MRP had an aggregate market value of approximately $80,546 and, $72,498, respectively. In addition, dividends and other distributions paid on such shares and earnings on such dividends and distributions will be distributed to Mr. Jenkins and Mr. Smith according to the vesting schedule. (Footnotes continued on next page)
-7- 9 (4) Represents the number of common shares of ASB underlying options granted to Mr. Jenkins and Mr. Smith pursuant to the Stock Option Plan during the fiscal year ended June 30, 1996. (5) Consists of directors' fees of $17,700 and the $27,813 aggregate value of allocations to Mr. Smith's account under the ESOP. Does not include amounts attributable to miscellaneous benefits received by Mr. Smith, the cost of which was less than 10% of his annual salary and bonus. SALARY PLAN American maintains a non-qualified retirement plan (the "Salary Plan") for the benefit of its five executive officers. The Plan provides for continued monthly compensation to an employee, or his or her beneficiary, for 180 months following the employee's retirement from American at age 65, provided the employee has completed 15 consecutive years of service to American. The Salary Plan provides for a reduced benefit if the employee retires after age 55 and before age 65. If the employee's employment is terminated prior to the employee attaining age 55 for any reason other than total disability or death, the employee is not entitled to receive any benefits under the Salary Plan. The benefit payable to Mr. Jenkins under the Salary Plan, assuming his retirement at age 65, is $5,000 per month for 180 months. The benefit payable to Mr. Smith under the Salary Plan, assuming his retirement at age 65, is $4,000 per month for 180 months. STOCK OPTION PLAN At the 1995 Annual Meeting of Shareholders of ASB, the Shareholders approved the Stock Option Plan. Pursuant to the Stock Option Plan, 171,396 common shares were reserved for issuance by ASB upon the exercise of options to be granted to certain directors, officers and employees of American and ASB from time to time under the Stock Option Plan. Options to purchase 145,684 common shares of ASB were awarded pursuant to the Stock Option Plan during the 1996 fiscal year. No options were awarded pursuant to the Stock Option Plan during the 1997 fiscal year. The Stock Option Committee may grant options under the Stock Option Plan at such times as they deem most beneficial to American and ASB on the basis of the individual participant's responsibility, tenure and future potential to American and ASB. Options granted to the officers and employees under the Stock Option Plan may be "incentive stock options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Options granted under the Stock Option Plan to directors who are not employees of ASB or American will not qualify under the Code and thus will not be incentive stock options ("Non-Qualified Stock Options"). The option exercise price of each option granted under the Stock Option Plan will be determined by the Committee at the time of option grant, with the exception that the exercise price for an option must not be less than 100% of the fair market value of the shares on the date of the grant. In addition, the exercise price of an ISO may not be less than 110% of the fair market value of the shares on the date of the grant if the recipient owns more than 10% of ASB's outstanding common shares. The Committee shall fix the term of each option, except that an ISO shall not be exercisable after the expiration of ten years from the date it is granted; provided, however, that if a recipient of an ISO owns a number of shares representing more than 10% of the ASB shares outstanding at the time the ISO is granted, the term of the ISO shall not exceed five years. One-fifth of such stock options awarded under the Stock Option Plan will become exercisable on each of the first five anniversaries of the date of the award. -8- 10 An option recipient cannot transfer or assign an option other than by will or in accordance with the laws of descent and distribution. Termination for cause, as defined in the Stock Option Plan, will result in the annulment of any outstanding options and any options which have not yet become exercisable shall terminate upon the resignation, removal or retirement of a director of ASB or American, or upon the termination of employment of an officer or employee of ASB or American, except in the case of death or disability. The following table sets forth information regarding the number and value of unexercised options held by Mr. Jenkins and Mr. Smith at June 30, 1997:
Aggregated Option/SAR Exercises in Last Fiscal Year and 6/30/97 Option /SAR Values ---------------------------------------------------------------------------------- Number of Securities Underlying Value of Unexercised Unexercised Options/SARs at In-the-Money Options/SARs at Name Shares Acquired Value 6/30/97 (#) 6/30/97 ($)(2) on Exercise (#) Realized ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable - ------------------------------------------------------------------------------------------------------------------------------ Gerald R. Jenkins 5,000 $18,125 6,783/47,134 $11,328/$78,714 Robert M. Smith 766 $ 2,777 8,661/37,707 $14,464/$62,971 - ----------------------------- (1) The value realized is the difference between the $13.875 exercise price and the fair market value of ASB common shares, which was $17.50 per share on December 5, 1996, the date of exercise, based on the closing bid price reported by the Nasdaq National Market. (2) For purposes of this table, the value of the option was determined by multiplying the number of shares subject to the unexercised option by the difference between the $10.08 exercise price and the fair market value of ASB's common shares, which was $11.75 on June 30, 1997, based on the closing bid price reported by the Nasdaq National Market.
MANAGEMENT RECOGNITION PLAN At the 1995 Annual Meeting of the Shareholders of ASB, the shareholders approved the MRP. With funds contributed by American, the MRP purchased 68,558 common shares, 34,963 of which were awarded to directors and executive officers of ASB and American during the 1996 fiscal year. The MRP is administered by the MRP Committee. The MRP Committee determines which directors and employees of American will be awarded shares under the MRP and the number of shares awarded; provided, however, that the aggregate number of shares covered by awards to any one director or employee shall not exceed 25% of the shares held pursuant to the MRP and directors who are not employees of American may not receive more than 5% of such shares individually or 30% in the aggregate. Unless the MRP Committee specifies a longer time period at the time of an award of shares, one-fifth of such shares will be earned and non-forfeitable on each of the first five anniversaries of the date of the award. Until shares awarded are earned by the participant, such shares will be forfeited in the event that the participant cases to be either a director or an employee of American, except that in the event of the death or disability of a participant, the participant's shares will be deemed to be earned and nonforfeitable. -9- 11 The shares will be distributed as soon as practicable after they are earned. A participant may direct the voting of all shares awarded to him or her prior to such shares being earned and will be entitled to the benefit of any dividends or other distributions paid on such shares. However, a participant will not be allowed, for five years from the effective date of the Conversion, to direct the voting of common shares awarded, but not yet earned and distributed, if such participant would, if permitted to vote such awarded shares, be deemed to own in excess of ten percent (10%) of all issued and outstanding common shares of ASB. Shares that have been awarded, but not earned, may not be transferred. EMPLOYEE STOCK OWNERSHIP PLAN ASB established the ESOP for the benefit of employees of ASB and its subsidiaries, including American, who are age 21 or older and who have completed at least one year of service with ASB and its subsidiaries. The ESOP provides an ownership interest in ASB to all full-time employees of ASB and its subsidiaries. Contributions to the ESOP and shares released from the suspense account are allocated among participants on the basis of compensation. Except for participants who retire, become disabled, or die during the plan year, all other participants must have completed as least 1,000 hours of service in order to receive an allocation. Benefits become fully vested after five years. Employees of ASB and American were given credit for vesting purposes for years of service to American prior to the effective date of the ESOP. Vesting is accelerated upon retirement at or after age 65, death, disability or termination of the ESOP. Shares allocated to the account of a participant whose employment by American terminates prior to having satisfied the vesting requirement will be forfeited. Forfeitures will be reallocated among remaining participating employees. Benefits may be paid either in ASB's common shares or in cash. Benefits may be payable upon retirement, death, disability or separation from service. Benefits payable under the ESOP cannot be estimated. ASB common shares and other ESOP funds are held and invested by the ESOP Trustee. The ESOP Trustee must vote all allocated shares held in the ESOP in accordance with the instructions of participating employees. The ESOP Trustee has no authority to vote allocated shares in respect of which no instructions are received from the participating employee. Unallocated shares are voted by the ESOP Trustee in its sole discretion. As of August 31, 1997, 33,081 of the 126,960 common shares of the Company held in the ESOP Trust had been allocated to the accounts of participants. DIRECTOR COMPENSATION Each director currently receives a fee of $300 per month for service as a director of ASB and a fee of $1,200 per month for service as a director of American. In addition, each member of American's Audit Committee receives $50 per committee meeting attended. During the fiscal year ended June 30, 1997, a total of $106,200 was paid in directors' fees. In December 1981 American instituted a deferred compensation benefit plan pursuant to which the directors could defer payment of their director's fees. Effective April 14, 1995, each of the six directors entered into agreements with American which restated such plan, transferred all amounts previously deferred to a trust, and provided that all future deferred amounts be contributed to the trust. The amounts deferred will be used to purchase common shares of ASB at various times throughout the year. Dividends on ASB shares, to the extent permitted by law and regulations governing ASB's operations, shall be reinvested in ASB shares. One month after a director ceases to be an active director of American, American shall pay the director's deferred amount in a lump sum, or at the director's option, in equal monthly payments for a period of not less than five nor more than ten years. The -10- 12 deferred amount shall be paid in common shares of ASB unless American shall deem it prudent to convert the shares into cash. If a director dies while serving as a director of American, equal monthly payments for a period of ten years will be made to the director's beneficiary. Such death benefit payments will total the amount the director would have received if he had retired on the day of his death. SELECTION OF AUDITORS The Board of Directors has selected Grant Thornton as the auditors of ASB for the current fiscal year and recommends that the shareholders ratify the selection. Management expects that a representative of Grant Thornton will be present at the Annual Meeting, will have the opportunity to make a statement if he or she so desires and will be available to respond to appropriate questions. PROPOSALS OF SHAREHOLDERS AND OTHER MATTERS Any proposals of shareholders intended to be included in ASB's proxy statement for the 1998 Annual Meeting of Shareholders should be sent to ASB by certified mail and must be received by ASB not later than May 22, 1998. Management knows of no other business which may be brought before the Annual Meeting. It is the intention of the persons named in the enclosed Proxy to vote such Proxy in accordance with their best judgment on any other matters which may be brought before the Annual Meeting. IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO FILL IN, SIGN AND RETURN THE PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. By Order of the Board of Directors Gerald R. Jenkins, President September 19, 1997 -11- EX-27 4 EXHIBIT 27
9 1,000 YEAR JUN-30-1997 JUL-01-1996 JUN-30-1997 376 7,732 0 0 27,220 0 0 74,136 820 112,469 89,752 0 1,632 3,384 0 0 0 17,701 112,469 5,882 2,174 337 8,393 4,519 4,686 3,707 28 104 3,054 989 667 0 0 667 .42 .42 2.41 991 154 0 0 884 92 0 820 0 0 820
-----END PRIVACY-ENHANCED MESSAGE-----