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PRO FORMA VALUATION REPORT
ASB HOLDING COMPANY
HOLDING COMPANY FOR
AMERICAN BANK OF NEW JERSEY
Bloomfield, New Jersey
Dated As Of:
May 31, 2005
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Prepared By:
RP(R) Financial, LC.
1700 North Moore Street
Suite 2210
Arlington, Virginia 22209
RP(R) Financial, LC.
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Financial Services Industry Consultants
May 31, 2005
Board of Directors
American Savings, MHC
ASB Holding Company
American Bank of New Jersey
365 Broad Street
Bloomfield, New Jersey 07003
Members of the Boards of Directors:
At your request, we have completed and hereby provide an independent
appraisal ("Appraisal") of the estimated pro forma market value of the common
stock to be issued by American Bancorp of New Jersey, Inc., Bloomfield, New
Jersey ("Company") in connection with the mutual-to-stock conversion of American
Savings, MHC (the "MHC"). The MHC currently has a majority ownership interest
in, and its principal asset consists of, approximately 70% of the common stock
of ASB Holding Company (the "MHC Shares"), the mid-tier holding company for
American Bank of New Jersey, Bloomfield, New Jersey (the "Bank"). The remaining
30% of ASB Holding Company's ("ASB") common stock is owned by public
stockholders. ASB, which was formed in June 2003, owns 100% of the common stock
of the Bank. It is our understanding that ASB will offer its stock, representing
the majority ownership interest held by the MHC, in a subscription offering to
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members. To the extent that shares remain available for purchase after
satisfaction of all subscriptions received in the subscription offering, the
shares may be offered for sale in a community offering to members of the local
community and the public at large.
This Appraisal is furnished pursuant to the requirements of the Code of
Federal Regulations 563b.7 and has been prepared in accordance with the
"Guidelines for Appraisal Reports for the Valuation of Savings and Loan
Associations Converting from Mutual to Stock Form of Organization" of the Office
of Thrift Supervision ("OTS"), which have been adopted in practice by the
Federal Deposit Insurance Corporation ("FDIC").
Plan of Conversion and Reorganization
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On May 18, 2005, the respective Boards of Directors of the MHC, ASB and
the Bank adopted the plan of conversion and reorganization (the "Plan"),
pursuant to which the MHC will be merged into the Bank and the MHC will no
longer exist. Pursuant to the Plan, the Bank will establish a New Jersey
chartered stock holding company named American Bancorp of New Jersey, Inc., and
the shares of the ASB's stock that are currently owned by public stockholders
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Washington Headquarters
Rosslyn Center Telephone: (703) 528-1700
1700 North Moore Street, Suite 2210 Fax No.: (703) 528-1788
Arlington, VA 22209 Toll-Free No.: (866) 723-0594
www.rpfinancial.com E-Mail: mail@rpfinancial.com
RP(R) Financial, LC.
Board of Directors
May 31, 2005
Page 2
will be converted, based on an exchange ratio, into shares of American Bancorp
of New Jersey, Inc. stock. The MHC will be eliminated and the Bank will become a
wholly-owned subsidiary of American Bancorp of New Jersey, Inc., which will be
owned entirely by public stockholders.
As part of the conversion and reorganization, the Company will sell
shares of common stock in an offering that will represent the ownership interest
in ASB currently owned by the MHC. As of March 31, 2005, the MHC's ownership
interest in ASB approximated 70.00%. The Company will also issue shares of its
common stock to the public stockholders of ASB pursuant to an exchange ratio
that will result in the public shareholders owning the same aggregate percentage
of the newly issued ASB common stock as owned immediately prior to the
conversion. As of March 31, 2005, the public stockholders' ownership interest in
ASB approximated 30.00%.
RP(R) Financial, LC.
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RP(R) Financial, LC. ("RP Financial") is a financial consulting firm
serving the financial services industry nationwide that, among other things,
specializes in financial valuations and analyses of business enterprises and
securities, including the pro forma valuation for savings institutions
converting from mutual-to-stock form. The background and experience of RP
Financial is detailed in Exhibit V-1. We believe that, except for the fee we
will receive for our appraisal, we are independent of the Company, the Bank, the
MHC and the other parties engaged by the Bank or the Company to assist in the
stock conversion process.
Valuation Methodology
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In preparing our Appraisal, we have reviewed the regulatory
applications of ASB, the Bank and the MHC, including the prospectus as filed
with the OTS and the Securities and Exchange Commission ("SEC"). We have
conducted a financial analysis of ASB, the Bank and the MHC that has included a
review of audited financial information for fiscal years ended September 30,
2000 through 2004 and interim financial results through March 31, 2005, and due
diligence related discussions with ASB's management; Crowe Chizek and Company
LLC, ASB's independent auditor; Malizia Spidi & Fisch, P.C., ASB's conversion
counsel; and Keefe, Bruyette & Woods, Inc., the Bank's financial and marketing
advisors in connection with the Company's stock offering. All assumptions and
conclusions set forth in the Appraisal were reached independently from such
discussions. In addition, where appropriate, we have considered information
based on other available published sources that we believe are reliable. While
we believe the information and data gathered from all these sources are
reliable, we cannot guarantee the accuracy and completeness of such information.
We have investigated the competitive environment within which ASB
operates and have assessed ASB's relative strengths and weaknesses. We have kept
abreast of the changing regulatory and legislative environment for financial
institutions and analyzed the potential
RP(R) Financial, LC.
Board of Directors
May 31, 2005
Page 3
impact on ASB and the industry as a whole. We have analyzed the potential
effects of the stock conversion on ASB's operating characteristics and financial
performance as they relate to the pro forma market value of ASB. We have
analyzed the assets held by the MHC, which will be consolidated with ASB's
assets and equity pursuant to the completion of conversion. We have reviewed the
economic and demographic characteristics of the Company's primary market area.
We have compared ASB's financial performance and condition with selected
publicly-traded thrifts in accordance with the Valuation Guidelines, as well as
all publicly-traded thrifts and thrift holding companies. We have reviewed the
current conditions in the securities markets in general and the market for
thrift stocks in particular, including the market for existing thrift issues,
initial public offerings by thrifts and thrift holding companies, and
second-step conversion offerings. We have excluded from such analyses thrifts
subject to announced or rumored acquisition, and/or institutions that exhibit
other unusual characteristics.
The Appraisal is based on ASB's representation that the information
contained in the regulatory applications and additional information furnished to
us by ASB and its independent auditor, legal counsel and other authorized agents
are truthful, accurate and complete. We did not independently verify the
financial statements and other information provided by ASB, or its independent
auditor, legal counsel and other authorized agents nor did we independently
value the assets or liabilities of ASB. The valuation considers ASB only as a
going concern and should not be considered as an indication of ASB's liquidation
value.
Our appraised value is predicated on a continuation of the current
operating environment for ASB and for all thrifts and their holding companies.
Changes in the local, state and national economy, the legislative and regulatory
environment for financial institutions and mutual holding companies, the stock
market, interest rates, and other external forces (such as natural disasters or
significant world events) may occur from time to time, often with great
unpredictability and may materially impact the value of thrift stocks as a whole
or the value of ASB's stock alone. It is our understanding that there are no
current plans for selling control of ASB following completion of the second-step
stock offering. To the extent that such factors can be foreseen, they have been
factored into our analysis.
The estimated pro forma market value is defined as the price at which
ASB's common stock, immediately upon completion of the second-step stock
offering, would change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or sell and both having reasonable
knowledge of relevant facts.
Valuation Conclusion
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It is our opinion that, as of May 31, 2005, the estimated aggregate pro
forma valuation of the shares to be issued in the conversion of the MHC,
including: (1) newly-issued shares representing the MHC's ownership interest in
ASB, and (2) exchange shares issued to existing public shareholders of ASB, was
$107,142,850 at the midpoint. Based on this valuation and the approximate 70.00%
ownership interest being sold in the public offering, the midpoint value of
RP(R) Financial, LC.
Board of Directors
May 31, 2005
Page 4
the Company's stock offering is $75,000,000, equal to 7,500,000 shares at a per
share value of $10.00. Pursuant to conversion guidelines, the 15% offering range
indicates a minimum offering value of $63,750,000 and a maximum offering value
of $86,250,000. Based on the $10.00 per share offering price, this valuation
range equates to an offering of 6,375,000 shares at the minimum and 8,625,000
shares at the maximum. In the event the appraised value is subject to an
increase, the offering range may be increased up to a supermaximum value of
$99,187,500 without requiring a resolicitation. Based on the $10.00 per share
offering price, the supermaximum value would result in an offering of 9,918,750
shares.
Establishment of the Exchange Ratio
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OTS regulations provide that in a conversion of a mutual holding
company, the minority stockholders are entitled to exchange the public shares
for newly issued shares of ASB stock as a fully converted company. The Board of
Directors of the MHC has independently determined the exchange ratio. The
determined exchange ratio has been designed to preserve the current aggregate
percentage ownership in ASB equal to 30.00% as of March 31, 2005. The exchange
ratio to be received by the existing minority shareholders of ASB will be
determined at the end of the offering, based on the total number of shares sold
in the subscription and community offerings. Based upon this calculation, and
the valuation conclusion and offering range concluded above, The exchange ratio
to be received by the existing minority shareholders of ASB will be determined
at the end of the offering, based on the total number of shares sold in the
subscription and community offerings. Based upon this calculation, and the
valuation conclusion and offering range concluded above, the exchange ratio
would be 1.63960 shares, 1.92894 shares, 2.21828 shares and 2.55102 shares of
newly issued shares of ASB stock for each share of stock held by the public
shareholders at the minimum, midpoint, maximum and supermaximum of the offering
range, respectively. RP Financial expresses no opinion on the proposed exchange
of newly issued Company shares for the shares held by the public stockholders or
on the proposed exchange ratio.
Limiting Factors and Considerations
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Our valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing shares of the
common stock. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons who purchase
shares of common stock in the conversion will thereafter be able to buy or sell
such shares at prices related to the foregoing valuation of the estimated pro
forma market value thereof. The appraisal reflects only a valuation range as of
this date for the pro forma market value of ASB immediately upon issuance of the
stock and does not take into account any trading activity with respect to the
purchase and sale of common stock in the secondary market following the
completion of the second-step offering.
RP(R) Financial, LC.
Board of Directors
May 31, 2005
Page 5
RP Financial's valuation was based on the financial condition,
operations and shares outstanding of ASB as of March 31, 2005, the date of the
financial data included in the prospectus. The proposed exchange ratio to be
received by the current public stockholders of ASB and the exchange of the
public shares for newly issued shares of ASB common stock as a full public
company was determined independently by the Boards of Directors of the MHC, ASB
and the Bank. RP Financial expresses no opinion on the proposed exchange ratio
to public stockholders or the exchange of public shares for newly issued shares.
RP Financial is not a seller of securities within the meaning of any
federal and state securities laws and any report prepared by RP Financial shall
not be used as an offer or solicitation with respect to the purchase or sale of
any securities. RP Financial maintains a policy which prohibits RP Financial,
its principals or employees from purchasing stock of its client institutions.
This valuation will be updated as provided for in the conversion
regulations and guidelines. These updates will consider, among other things, any
developments or changes in the financial performance and condition of ASB,
management policies, and current conditions in the equity markets for thrift
shares, both existing issues and new issues. These updates may also consider
changes in other external factors which impact value including, but not limited
to: various changes in the legislative and regulatory environment for financial
institutions, the stock market and the market for thrift stocks, and interest
rates. Should any such new developments or changes be material, in our opinion,
to the valuation of the shares, appropriate adjustments to the estimated pro
forma market value will be made. The reasons for any such adjustments will be
explained in the update at the date of the release of the update. The valuation
will also be updated at the completion of ASB's stock offering.
Respectfully submitted,
RP(R) FINANCIAL, LC.
/s/Ronald S. Riggins
Ronald S. Riggins
President
/s/James P. Hennessey
James P. Hennessey
Senior Vice President
RP(R) Financial, LC.
TABLE OF CONTENTS
ASB HOLDING COMPANY
Bloomfield, New Jersey
PAGE
DESCRIPTION NUMBER
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CHAPTER ONE OVERVIEW AND FINANCIAL ANALYSIS
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Plan of Conversion and Reorganization 1.1
Strategic Overview 1.2
Balance Sheet Trends 1.6
Income and Expense Trends 1.10
Interest Rate Risk Management 1.15
Lending Activities and Strategy 1.16
Asset Quality 1.20
Funding Composition and Strategy 1.21
Subsidiaries and Other Activities 1.22
Legal Proceedings 1.22
CHAPTER TWO MARKET AREA ANALYSIS
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Introduction 2.1
Market Area Demographics 2.2
Summary of Local Economy and Workforce 2.4
Market Area Deposit Characteristics 2.6
CHAPTER THREE PEER GROUP ANALYSIS
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Peer Group Selection 3.1
Financial Condition 3.7
Income and Expense Components 3.9
Loan Composition 3.12
Credit Risk 3.14
Interest Rate Risk 3.16
Summary 3.16
RP(R) Financial, LC.
TABLE OF CONTENTS
ASB HOLDING COMPANY
Bloomfield, New Jersey
(continued)
PAGE
DESCRIPTION NUMBER
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CHAPTER FOUR VALUATION ANALYSIS
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Introduction 4.1
Appraisal Guidelines 4.1
RP Financial Approach to the Valuation 4.1
Valuation Analysis 4.2
1. Financial Condition 4.3
2. Profitability, Growth and Viability of Earnings 4.4
3. Asset Growth 4.5
4. Primary Market Area 4.5
5. Dividends 4.6
6. Liquidity of the Shares 4.8
7. Marketing of the Issue 4.9
A. The Public Market 4.9
B. The New Issue Market 4.14
C. The Acquisition Market 4.17
D. Trading in ASB Holding Company's Stock 4.17
8. Management 4.18
9. Effect of Government Regulation and Regulatory Reform 4.18
Summary of Adjustments 4.19
Valuation Approaches 4.19
Comparison to Recent Conversions 4.22
Valuation Conclusion 4.23
Establishment of the Exchange Ratio 4.23
RP(R) Financial, LC.
LIST OF TABLES
ASB HOLDING COMPANY
Bloomfield, New Jersey
TABLE
NUMBER DESCRIPTION PAGE
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1.1 Historical Balance Sheets 1.7
1.2 Historical Income Statements 1.11
2.1 Map of Branch Locations 2.2
2.2 Summary Demographic Data 2.3
2.3 Estimated and Projected Employment 2.5
2.4 Market Area Unemployment Trends 2.6
2.5 Essex County Deposit Detail 2.8
3.1 Peer Group of Publicly-Traded Thrifts 3.3
3.2 Balance Sheet Composition and Growth Rates 3.8
3.3 Income as a Percent of Average Assets and Yields, Costs, Spreads 3.10
3.4 Loan Portfolio Composition and Related Information 3.13
3.5 Credit Risk Measures and Related Information 3.15
3.6 Interest Rate Risk Measures and Net Interest Income Volatility 3.17
4.1 Peer Group Market Area Comparative Analysis 4.7
4.2 Pricing Characteristics and After-Market Trends 4.15
4.3 Public Market Pricing 4.25
RP(R) Financial, LC.
Page 1.1
I. OVERVIEW AND FINANCIAL ANALYSIS
American Bank of New Jersey ("American" or the "Bank") is a
federally-chartered stock savings bank headquartered in Bloomfield, New Jersey.
American conducts retail banking operations in northern New Jersey out of a main
office and administrative facility located in Bloomfield, New Jersey, and a
branch office in Cedar Grove, New Jersey. The Company's offices are located
approximately 15 miles west of New York City. The Bank is a member of the
Federal Home Loan Bank ("FHLB") system and its deposits are insured up to the
maximum allowable amount by the Federal Deposit Insurance Corporation ("FDIC").
ASB Holding Company ("ASB" or the "Company") is a federal corporation
that commenced operations in June 2003, for the purpose of being a holding
company for the Bank in conjunction with the mutual holding company
reorganization and minority stock issuance. Specifically, on October 3, 2003,
the Company sold 1,666,350 shares of common stock to the public, reflecting a
30% ownership, while the remaining shares (3,888,150) were retained by American
Savings, MHC (the "MHC"). The public shares were issued at $10.00 per share
resulting in gross proceeds of $16.7 million, and net proceeds after expenses of
$16.1 million.
The publicly-held shares have traded on the Over-The-Counter Bulletin
Board ("OTC BB") under the ticket "ASBH" since the initial public offering
("IPO"). As of the valuation date, ASB's stock price closed at $23.00 per share.
ASB's stock has historically had limited trading volume since the IPO, often
with periods of several days of no trades, which is typical for stocks with a
small public market capitalization.
Plan of Conversion and Reorganization
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On May 18, 2005, the respective Boards of Directors of the MHC, the
Company and the Bank adopted a plan of conversion and reorganization (the
"Plan"), pursuant to which the organization will convert from the two-tier
mutual holding company structure to the full stock holding company structure and
undertake a second-step conversion offering. The MHC will be merged into the
Bank and the MHC will no longer exist. Pursuant to the Plan of Conversion and
Reorganization (the "Plan"), the Bank will establish a New Jersey-chartered
stock holding
RP(R) Financial, LC.
Page 1.2
company named American Bancorp of New Jersey, Inc. ("Bancorp"), and the shares
of the ASB's stock that are currently owned by public stockholders will be
converted, based on an exchange ratio, into shares of Bancorp stock. The MHC
will be eliminated and the Bank will become a wholly-owned subsidiary of
Bancorp, which will be owned entirely by public stockholders.
It is anticipated that the offering shares will be offered in a
Subscription Offering to the Bank's Eligible Account Holders, Tax-Qualified
Plans, including the employee stock ownership plan (the "ESOP"), Supplemental
Eligible Account Holders and Other Members. To the extent that shares remain
available for purchase after satisfaction of all subscriptions received in the
Subscription Offering, the shares may be offered for sale in a Community
Offering. After completion of the offering, Bancorp is expected to downstream
50% of the net offering proceeds. The net proceeds retained by Bancorp will be
used to extend a loan to the employee stock ownership plan ("ESOP") and for
deposit in the subsidiary bank.
Hereinafter, the historical operations of ASB and the prospective
operations of Bancorp as the successor will be collectively referred to as "ASB"
or the "Company" unless specifically stated otherwise.
Strategic Overview
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The Company has historically emphasized community-oriented banking
operations through the Bank, its wholly-owned and principal operating
subsidiary. In this regard, the Company has emphasized providing financial
services that meet the borrowing and savings needs of its local customer base.
The Company has historically maintained an operating strategy that is consistent
with a traditional thrift operating strategy, in which 1-4 family residential
mortgage loans and retail deposits constitute the principal components of the
Company's assets and liabilities, respectively. Beyond 1-4 family permanent
mortgage loans (including home equity loans), the Company's lending
diversification has been comparatively modest, consisting primarily of
commercial real estate and multi-family loans and, to a lesser extent,
construction and non-mortgage consumer and commercial and industrial ("C&I")
lending. As will be discussed in the following analysis, the Company's future
operations are expected to be focused
RP(R) Financial, LC.
Page 1.3
more heavily upon the building of commercial loan and deposit relationships
through an expanded retail branch structure.
Investments have served as a supplement to the Company's lending
activities and the investment portfolio is considered to be indicative of a low
credit risk investment philosophy. The investment portfolio is comprised
primarily of mortgage-backed securities ("MBS") and collateralized mortgage
obligations ("CMOs") as well as an adjustable rate mortgage ("ARM") mutual fund
and U.S. agency securities. The majority of the Company's investment portfolio
is classified as available for sale ("AFS"), while a small balance is classified
as held-to-maturity ("HTM"). The Company also currently maintains a moderate
balance of cash and cash equivalents for liquidity purposes.
Retail deposits have consistently served as the primary
interest-bearing funding source for the Company. Deposit growth has generally
been adequate enough to fund most of the Company's asset growth, with such
growth consisting of a mixture of certificates of deposit ("CDs") and
transaction and savings accounts. The Company has relatively large balances of
non-CD accounts (savings and interest-bearing demand accounts) which have
increased modestly as a ratio of total deposits in recent years. The Company
utilizes borrowings as a supplemental funding source to facilitate management of
funding costs (i.e., to limit the requirement to pay aggressively to attract
deposit funds to meet established growth objectives) and interest rate risk.
FHLB advances constitute the Company's principal source of borrowings with many
advances consisting of fixed term fixed rate or fixed rate amortizing
borrowings.
The Company's earnings base has historically been dependent upon net
interest income and operating expense levels, reflecting the Company's
traditional thrift operating strategy. In this regard, the Company's recent
earnings have been favorably impacted by balance sheet growth trends, which have
facilitated growth of net interest income and improvements to the Company's
operating efficiency. The pro forma increase capital is expected to facilitate
growth and leveraging opportunities, but the implementation of the de novo
branching and lending staff expansion plans will limit improvement in operating
efficiency over the next couple of years.
In summary, the Company has historically pursued a portfolio
residential lending strategy with a moderate diversification into construction
lending and commercial and multi-family real
RP(R) Financial, LC.
Page 1.4
estate mortgage lending. In the first half of fiscal 2005, the Company employed
a new President and Chief Operating Officer ("COO") with the objective of
pursuing a commercial focus, given his substantial experience in commercial
lending and executive management in several larger regional banking
organizations. In addition, the Bank is in the process of hiring locally-based
commercial lenders.
ASB plans to gradually restructure the loan portfolio to include a
greater proportion of commercial real estate and non-mortgage loans,
multi-family loans, as well as construction loans. In this regard, the Company
will seek to emphasize high quality and flexible service, capitalizing on its
local orientation and expanded array of products and services. Accordingly, in
the future, ASB's portfolio lending operations consists of two principal
segments as follows: (1) residential mortgage lending; and (2) multi-family and
commercial mortgage lending, C&I lending and construction lending. Moreover, the
Company will also seek to more actively participate in secondary market loan
origination and sales, with the dual objectives of generating fee and mortgage
loan servicing income while offering a broader array of long term fixed rate
residential mortgage loan products without incurring undue interest rate risk
exposure. The Company plans to add up to three additional loan officers in this
regard.
The Company is seeking to develop the related infrastructure required
to undertake more diversified lending. In this regard, management is in the
process of developing extensive policies and procedures pertaining to credit
standards and the administration of commercial accounts and construction loans.
Additionally, the Company anticipates employing up to six additional commercial
loan officers over the next three years with the objective of developing and
maintaining commercial account relationships, while additional support personnel
are also expected to meet the targeted growth and lending objectives.
Importantly, the employment of experienced commercial account officers and
support personnel is expected to increase overhead during the near term until
offsetting revenues can be generated through the related lending activities.
ASB is planning to undertake, several major initiatives to enhance its
infrastructure and office facilities, primarily including significant capital
investments in fixed assets. In order to support anticipated growth,
particularly in the area of commercial account relationships, the Company's
business plan calls for the opening of a new branch office every six months for
a total of five over the next three year period. While definitive locations have
not been identified
RP(R) Financial, LC.
Page 1.5
in all locations, new offices are expected to be situated in nearby areas of
northern New Jersey and will be sited with the objective of supporting the
anticipated growth in commercial account relationships. Given the cost of land
and construction in ASB's northern New Jersey market, the total capital
investment in each of these offices is expected to be in the range of $3 million
each, including land, construction and furniture and fixtures investments. In
addition to these new branch facilities, the Company is seeking to lease new
office space to house additional personnel to be employed to support targeted
growth. Thus, the employment of additional staff for the de novo branches,
lending expansion and administrative support will increase personnel costs in
the short-run without a commensurate increase in revenues.
The capital realized from the stock offering will increase the
operating flexibility and overall financial strength of ASB, as well as support
the de novo branching and lending diversification initiatives. In addition, the
increase may facilitate the opportunity to expand through acquisitions of other
commercial banks or thrifts or other financial service providers. The projected
use of stock proceeds is highlighted below.
o Company. The Company is expected to retain up to 50% of the net
-------
offering proceeds. At present, Company funds, net of the loan to the
ESOP, are expected to be placed into short to intermediate term
investment securities. Over time, Company funds are anticipated to be
utilized for various corporate purposes, possibly including
acquisitions, infusing additional equity into the Bank, repurchases of
common stock, and the payment of regular and/or special cash
dividends.
o Bank. At least 50% of the net offering proceeds will be infused into
----
the Bank in exchange for all of the Bank's newly-issued stock. The
increase in the Bank's capital will be less than the 50% of the net
offering proceeds infused, as the amount to be borrowed by the ESOP to
fund an 8% stock purchase will be accounted for as a contra-equity.
Cash proceeds (i.e., net proceeds less deposits withdrawn to fund
stock purchases) infused into the Bank are anticipated to become part
of general operating funds, and are expected to initially be invested
in short-term investments pending longer term deployment, i.e.,
repaying overnight borrowings, funding lending activities and for
general corporate purposes.
Overall, it is the Company's objective to pursue growth that will serve
to increase returns. At the same time, the Company has acknowledged that it
intends to operate with excess capital
RP(R) Financial, LC.
Page 1.6
in the near term, operating with a below market return on equity ("ROE"), until
such time as the new capital can be leveraged in a safe and sound manner over an
extended period of time.
Balance Sheet Trends
- --------------------
Over the last 5 years, the Company has sought to expand the balance
sheet primarily on a retail basis through expansion of the loan portfolio funded
predominantly by growth of deposits as well as through borrowed funds on a
supplemental basis. One of the objectives of the foregoing growth strategy has
been to leverage the capital raised in the Company's minority stock offering
completed as of October 3, 2003.
The Company's growth strategy is evidenced in the summary balance sheet
data set forth in Table 1.1, which shows that total assets increased 16.3%
annually from $223.5 million at the end of fiscal 2000, to $441.0 million as of
March 31, 2005. The most significant portion of the balance sheet growth
realized in recent periods has been achieved in the portfolio of residential
mortgage loans, including both fixed rate and adjustable rate loans. The Company
has sought to emphasize adjustable rate and/or hybrid loans (i.e., loans which
are fixed for an initial period typically ranging from five or seven years and
then converts to an adjustable rate loan). However, demand for adjustable rate
and hybrid loans has historically been limited in the Company's market,
particularly as long-term interest rates diminished to historically low levels
over the last couple of years. Accordingly, a significant portion of the loan
growth has been realized in fixed rate residential mortgage loans. Management
has sought to partially mitigate the interest rate risk associated with long
term fixed rate mortgage loans by partially funding a portion of the growth
through fixed rate borrowings. While the terms on the Company's recent
borrowings are shorter than the terms of the fixed rate loans placed into
portfolio, management has indicated it is willing to incur what it perceives to
be a manageable level of interest rate risk to enhance overall earnings levels,
particularly in view of the non-interest bearing capital which will be raised in
the second step stock offering.
Deposits have always comprised the majority of funding liabilities,
increasing at an annual rate of 17.4% since 2000. Recent deposit growth has been
attributable to several factors, including the opening of the Cedar Grove branch
in fiscal 2001 and the recent success in attracting several large municipal
accounts. Borrowings have increased at a 10.4% compounded
RP(R) Financial, LC.
Page 1.7
Table 1.1
ASB Holding Company
Historical Balance Sheets
(Amount and Percent of Assets)
Compounded
As of the Fiscal Year Ended September 30, Annual
------------------------------------------------------------------------------------- As of Growth
2000 2001 2002 2003 2004 March 31, 2005 Rate
---------------- ---------------- --------------- ---------------- --------------- ---------------- --------
Amount Pct Amount Pct Amount Pct Amount Pct Amount Pct Amount Pct Pct
------ --- ------ --- ------ --- ------ --- ------ --- ------ --- ---
($000) (%) ($000) (%) ($000) (%) ($000) (%) ($000) (%) ($000) (%) (%)
Total Amount of:
Assets $223,521 100.00% $258,208 100.00% $334,879 100.00% $427,066 100.00% $424,944 100.00% $440,954 100.00% 16.30%
Cash and cash
equivalents 4,152 1.86% 22,109 8.56% 17,330 5.18% 38,365 8.98% 8,034 1.89% 4,841 1.10% 3.47%
Loans receivable
(net) 139,906 62.59% 166,322 64.41% 208,374 62.22% 262,844 61.55% 308,970 72.71% 333,252 75.58% 21.27%
Loans held for sale 452 0.20% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 302 0.07% -8.57%
Securities - AFS 14,887 6.66% 52,022 20.15% 90,134 26.92% 107,391 25.15% 89,495 21.06% 75,992 17.23% 43.66%
Securities - HTM 56,627 25.33% 10,187 3.95% 6,970 2.08% 2,839 0.66% 2,794 0.66% 8,526 1.93% -34.34%
Federal Home Loan
Bank stock 2,260 1.01% 2,300 0.89% 2,200 0.66% 3,150 0.74% 2,890 0.68% 3,513 0.80% 10.30%
Deposits 159,302 71.27% 188,828 73.13% 264,587 79.01% 292,826 68.57% 322,716 75.94% 328,043 74.39% 17.41%
Total borrowings 43,700 19.55% 46,000 17.82% 44,000 13.14% 55,000 12.88% 57,491 13.53% 68,263 15.48% 10.42%
Total equity 17,077 7.64% 20,155 7.81% 21,872 6.53% 22,339 5.23% 39,314 9.25% 38,811 8.80% 20.01%
Loans/Deposits 87.82% 88.08% 78.75% 89.76% 95.74% 101.59%
Source: ASB Holding Company's audited financial statements and prospectus.
RP(R) Financial, LC.
Page 1.8
annual pace over this period as such funds have been used for certain
asset-liability management strategies as well as to support balance sheet
expansion.
In the future, management has indicated that it will be seeking to
continue to grow the Company's loan and deposit portfolios, with an increased
focus on commercial deposits and loans. At the same time, ASB will continue to
offer a broad mix of residential mortgage and consumer loan and deposit products
to serve its traditional customer base.
Annual equity growth equaled 20.01% since the end of fiscal 2000,
reflecting the impact of retained earnings over the period and the infusion of
$16.1 million of net offering proceeds from the minority stock offering
completed as of October 2003. The post-offering equity growth rate is expected
to initially fall below historical levels given the increased equity, the
initial anticipated low return on the net offering proceeds in the current
interest rate environment as well as the incremental cost of the stock benefit
plans and planned expansion. Over the longer term, as the new equity is
leveraged through growth, the ROE is expected to improve.
Loans Receivable
----------------
As described above, the Company's loan portfolio has increased at a
comparatively rapid pace over the last five fiscal years, increasing at a 21.3%
compounded annual growth rate. The Company's historical emphasis on 1-4 family
lending is reflected in its loan portfolio composition, as 77.5% of total loans
receivable consisted of 1-4 family mortgage loans at March 31, 2005, which
reflects a modest increase from the 74.0% ratio maintained at September 30,
2000. The increase in the ratio of 1-4 family mortgage loans has been largely
due to an increase in the balance of 1-4 family loans outstanding, as opposed to
a reduction of other types of loans. The Company has engaged in home equity
lending on a moderate basis, with such loans combined to total 3.2% of total
loans as of March 31, 2005.
Commercial real estate/multi-family loans represent the most
significant area of lending diversification for the Company, with such loans
equaling 16.4% of total loans outstanding as of March 31, 2005. The Company's
diversification into construction and non-mortgage consumer and commercial types
of lending has been limited and there has been little change in the outstanding
balance of those loans since year end 2000.
RP(R) Financial, LC.
Page 1.9
Cash, Investments and Mortgage-Backed Securities
------------------------------------------------
The intent of the Company's investment policy is to provide
adequate liquidity, to generate a favorable return on excess investable funds
and to support the established credit rate risk objectives of the Company. The
ratio of cash, investments and MBS to assets has diminished since the end of
fiscal 2000 as ASB has focused on building the loan portfolio with the objective
of enhancing overall yield and earnings.
Investment securities and MBS equaled $84.5 million, or 19.2% of
total assets, as of March 31, 2005, while cash and equivalents totaled $4.8
million, or 1.1% of assets. As of March 31, 2005, the cash and investments
portfolio consisted of cash, interest-earning deposits in other financial
institutions, issued by Ginnie Mae, Fannie Mae or Freddie Mac, U.S. government
agency obligations, and other high quality investments including mutual fund
investments (see Exhibit I-3 for the investment portfolio composition).
Additionally, the Company maintains permissible equity investments such as FHLB
stock. The majority of the Company's investment securities are classified as
available for sale ("AFS"), $76.0 million or 17.2% of assets, while the balance
is classified as held-to-maturity ("HTM"), $8.5 million or 1.9% of assets.
No major changes to the composition and practices with respect to
the management of the investment portfolio are anticipated over the near term.
The level of cash and investments is anticipated to increase initially following
the second step stock offering, pending gradual redeployment into higher
yielding loans.
Funding Structure
-----------------
Since fiscal year-end 2000, deposits have grown 17.4% annually.
ASB's deposit composition has remained relatively stable over this with time
deposits fluctuating around 40% of deposits with the balance of deposit funds
consisting of savings and transaction accounts.
Although the balance of borrowed funds has increased, the ratio of
borrowings-to-assets has diminished since the end of fiscal 2000, from 19.6% to
15.5%. As of March 31, 2005, borrowed funds totaled $68.3 million (in the form
of FHLB borrowings). The Company typically utilizes borrowings: (1) when such
funds are priced attractively relative to deposits; (2) to lengthen the duration
of liabilities; (3) to enhance earnings when attractive revenue
RP(R) Financial, LC.
Page 1.10
enhancement opportunities arise; and (4) to generate additional liquid funds, if
required. Additionally, a portion of the Company's recent borrowings growth has
been undertaken in conjunction with management's efforts to "pre-fund" the
second step conversion offering with such "overnight" borrowings to be repaid
with the infusion of the stock proceeds.
Capital
-------
Annual capital growth for the Company has been relatively strong,
equal to 20.0% on a compounded annual basis. The relatively strong growth rate
primarily reflects the impact of the completion of the minority stock offering
in fiscal 2004, which resulted in $16.1 million of net proceeds after expenses
to bolster the Company's capital. Additionally, ASB's capital has been
positively impacted by the retention of earnings, net of dividends paid to
minority shareholders since 2004. As of March 31, 2005, the Company's equity
totaled $38.8 million, or 8.80% of total assets. The Bank maintained capital
surpluses relative to its regulatory capital requirements at March 31, 2005, and
thus qualified as a "well capitalized" institution. The offering proceeds will
serve to further strengthen the Bank's regulatory capital position and support
further growth. The equity growth rate is expected to slow for the Bank on a
post-offering basis given the pro forma increase in equity, low reinvestment
yields currently available and the potential dividend policy over the long term.
Income and Expense Trends
- -------------------------
Table 1.2 shows the Company's historical income statements for the past
five fiscal years and for the 12 months ended March 31, 2005. The Company
reported positive earnings over the past five and one-half years, ranging from a
low of $1.4 million, equal to 0.40% of average assets during fiscal 2003, to a
high of $2.3 million, or 0.55% of average assets reported for the 12 months
ended March 31, 2005. Consistent with the historical traditional thrift
operating strategy, net interest income and operating expenses have been the
dominant components of the Company's earnings. Non-interest operating income
derived from retail banking activities has been a limited contributor to the
Company's earnings. Loan loss provisions, as well as non-operating income items,
have had only a modest impact on the Company's earnings over the past five and
one-half fiscal years.
RP(R) Financial, LC.
Page 1.11
Table 1.2
ASB Holding Company
Historical Income Statements
For the Fiscal Year Ended September 30, For the 12
------------------------------------------------------------------------------------- Months Ended
` 2000 2001 2002 2003 2004 March 31, 2005
----------------- --------------- ---------------- ---------------- ---------------- ----------------
Amount Pct(1) Amount Pct(1) Amount Pct(1) Amount Pct(1) Amount Pct(1) Amount Pct(1)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
($000) (%) ($000) (%) ($000) (%) ($000) (%) ($000) (%) ($000) (%)
Interest Income $15,070 7.09% $16,052 7.01% $ 17,578 5.86% $17,476 4.86% $18,204 4.55% $19,181 4.56%
Interest Expense (8,398) -3.95% (9,140) -3.99% (8,829)-2.94% (8,870) -2.47% (8,105) -2.02% (8,500) -2.02%
------- ---- ------- ---- -------- ---- ------- ---- ------- ---- ------- ----
Net Interest Income $6,672 3.14% $6,912 3.02% $8,749 2.92% $8,606 2.39% $10,099 2.52% $10,681 2.54%
Provision for Loan
Losses (22) -0.01% (2) 0.00% (105)-0.04% (254) -0.07% (207) -0.05% (265) -0.06%
------- ---- ------- ---- -------- ---- ------- ---- ------- ---- ------- ----
Net Interest Income
after Provisions $6,650 3.13% $6,910 3.02% $8,644 2.88% $8,352 2.32% $9,892 2.47% $10,416 2.47%
Other Operating Income 555 0.26% 458 0.20% 595 0.20% 752 0.21% 1,095 0.27% 1,089 0.26%
Operating Expense (4,338) -2.04% (4,923) -2.15% (6,274)-2.09% (6,862) -1.91% (7,657) -1.91% (7,999) -1.90%
------- ---- ------- ---- -------- ---- ------- ---- ------- ---- ------- ----
Net Operating Income $ 2,867 1.35% $ 2,445 1.07% $ 2,965 0.99% $ 2,242 0.62% $ 3,330 0.83% $ 3,506 0.83%
Net Gain(Loss) on Sale
of Investments $ - 0.00% $ - 0.00% $ - 0.00% $ (188) -0.05% $ - 0.00% $ 0 0.00%
Net Gain(Loss) on Sale
of Loans - 0.00% - 0.00% - 0.00% 151 0.04% 27 0.01% 7 0.00%
Other Gains and Losses - 0.00% - 0.00% - 0.00% 3 0.00% 176 0.04% 176 0.04%
------- ---- ------- ---- -------- ---- ------- ---- ------- ---- ------- ----
Total Non-Operating
Income/(Expense) $ - 0.00% $ - 0.00% $ - 0.00% $ (34) -0.01% $ 203 0.05% $ 183 0.04%
Net Income Before Tax $ 2,867 1.35% $ 2,445 1.07% $ 2,965 0.99% $ 2,208 0.61% $ 3,533 0.88% $ 3,689 0.88%
Income Taxes (1,039) -0.49% (888) -0.39% (1,075)-0.36% (805) -0.22% (1,371) -0.34% (1,394) -0.33%
------- ---- ------- ---- -------- ---- ------- ---- ------- ---- ------- ----
Net Income (Loss)
Before Extraord. Items $ 1,828 0.86% $ 1,557 0.68% $ 1,890 0.63% $ 1,403 0.39% $ 2,162 0.54% $ 2,295 0.55%
Estimated Core Net Income
- -------------------------
Net Income $ 1,828 0.86% $ 1,557 0.68% $ 1,890 0.63% $ 1,403 0.39% $ 2,162 0.54% $ 2,295 0.55%
Addback(Deduct):
Non-Recurring (Inc)/Exp - 0.00% - 0.00% - 0.00% 34 0.01% (203) -0.05% (183) -0.04%
Tax Effect (2) - 0.00% - 0.00% - 0.00% (14) 0.00% 81 0.02% 73 0.02%
------- ---- ------- ---- -------- ---- ------- ---- ------- ---- ------- ----
Estimated Core Net Income $ 1,828 0.86% $ 1,557 0.68% $ 1,890 0.63% $ 1,423 0.40% $ 2,040 0.51% $ 2,185 0.52%
Memo:
Expense Coverage
Ratio (3) 153.80% 140.40% 139.45% 125.42% 131.89% 133.53%
Efficiency Ratio (4) 60.02% 66.80% 67.14% 73.33% 68.40% 67.96%
Effective Tax Rate 36.24% 36.32% 36.26% 36.46% 38.81% 37.79%
(1) Percent of average assets.
(2) Assumes a marginal tax rate of 40%.
(3) Net interest income divided by operating expenses.
(4) Operating expenses as a percent of the sum of net interest income and other
operating income (excluding gains on sale).
Source: ASB Holding Company's audited financial statements and prospectus.
RP(R) Financial, LC.
Page 1.12
Net Interest Income
-------------------
Net interest income has historically been at modest levels
relative to industry averages, reflecting both the conservative nature of the
investment portfolio and the high ratio of residential mortgage loans. Net
interest income reflects a growth trend over the past five fiscal periods, both
as a result of balance sheet growth and the increase in the loans/assets ratio.
Specifically, net interest income has increased from $6.7 million, equal to
3.14% of average assets, for the fiscal year ended September 30, 2000, to $10.7
million, equal to 2.54% of average assets for the 12 month ended March 31, 2005.
Specifically, the Company's interest rate spread decreased from
2.63% in fiscal 2002 to 2.14% in fiscal 2003, as assets repriced downward more
rapidly than liabilities in the declining interest rate environment prevailing
through the period, reflecting the high rate of mortgage refinancing which
impacted the average yields on the loan portfolio and portfolio of
mortgage-related securities (details regarding the Company's yields, costs and
spreads are included as Exhibit I-4). ASB's spreads increased modestly in fiscal
2004 and for the six months ended March 31, 2005, primarily owing to an increase
in the Company's average asset yield. While there may be further improvements in
ASB's asset yields as the Company seeks to increase the loan portfolio,
particularly with respect to commercial loans, further potential short-term rate
increases by the Federal Reserve coupled with ASB's deposit growth targets will
place upward pressures on funding costs as well. Further, while the initial
reinvestment of the offering proceeds should increase net interest income, the
initial reinvestment yields are expected to depress asset yields and the net
interest income ratio.
Loan Loss Provisions
--------------------
Over the past five and one-half years, credit quality related
losses generally have not been a material factor in the Company's earnings, a
characteristic which has been supported by maintenance of generally favorable
credit quality measures and a loan portfolio composition that consists of a high
concentration of relatively low risk 1-4 family permanent mortgage loans and
home equity loans. The highest amount of loan loss provisions established by the
Company over the past five and one-half years was in fiscal 2002, in which loan
loss provisions established equaled $265,000, or 0.07% of average assets, with
the increase relative to the prior fiscal years
RP(R) Financial, LC.
Page 1.13
primarily attributable to ongoing growth of the loan portfolio which
necessitated an increase to the reserve levels in accordance with the Company's
policies and procedures. Going forward, the Company will continue to evaluate
the adequacy of the level of general valuation allowances ("GVAs"), and
establish additional loan loss provisions in accordance with the Company's asset
classification and loss reserve policies. To the extent that commercial mortgage
and C&I loans account for a significant portion of the Company's future growth,
the level of periodic loan loss provisions may likely increase in response to
the heightened credit risk profile.
Non-Interest Income
-------------------
Consistent with the Company's adherence to a traditional thrift
operating philosophy and limited revenue diversification, sources of
non-interest operating income have been a somewhat modest contributor to
earnings. Throughout the period shown in Table 1.2, non-interest operating
income increased modestly and equaled $1.1 million, or 0.26% of average assets,
for the 12 months ended March 31, 2005. Sources of non-interest operating income
consist substantially of fees and service charges generated from the retail
customer base, with the general upward trend in the non-interest operating
income ratio supported by growth of transaction accounts, which have generated
higher levels of deposit-related service charges, as well as elevated loan
prepayment fees due to high loan refinancing activity. The Company has not sold
loans in the secondary market historically, although this activity may increase
in the future to realize servicing income and gains on sale.
The Company will be seeking to build the level of non-interest
income primarily in three ways. First, the development of commercial accounts
relationships is expected to generate higher levels of fee income, both from the
lending and deposit perspective. Second, the ASB will also be seeking to expand
the level of secondary market loan sales with the objective of increasing
revenues from marketing gains and mortgage loan servicing income. Third, over
the long term, ASB will seek to build revenues from annuity sales and other
non-traditional sources. Over the near term however, the Company's earnings can
be expected to remain highly dependent upon the net interest margin and
non-interest income can be expected to be a limited contributor to overall
earnings.
RP(R) Financial, LC.
Page 1.14
Operating Expenses
------------------
The Company's operating expenses have increased in recent years
due to expanded business volumes which have resulted in growth of both the
retail deposit base and loan portfolio. In this regard, such key elements of
ASB's operating expenses including salary and employee benefits, occupancy and
equipment, data processing and other miscellaneous expenses have all been
subject to increase. Furthermore, employee benefit costs have been subject to
increase after the Company adopted stock-related benefit plans in conjunction
with its minority stock issuance in October 2003. However, the increases in the
Company's overhead costs have been comparatively modest in relation to asset
growth, which has resulted in a reduction in ASB's ratio of operating expenses
to average assets, from 2.15% of average assets in fiscal 2001 to 1.90% for the
12 months ended March 31, 2005.
Operating expenses and the operating expense ratio are expected to
increase following the second step stock offering as a result of the expense of
the stock-related benefit plans and the long-term plans to continue to expand
the branch network and commercial lending functions.
Non-Operating Income/Expense
----------------------------
Non-operating income and expenses have had a limited impact on
earnings over the last five fiscal years, particularly as secondary market loan
sales have been limited. For the 12 months ended March 31, 2005, non-operating
income was comprised of gains on the sale of loans equal to $7,000 and gains on
the sale of other real estate owned of $176,000, equal to 0.06% of average
assets. Overall, non-operating income for the 12 months ended March 31, 2005,
equaled $183,000, or 0.04% of average assets.
Taxes
-----
The Company's average tax rate has fluctuated in a range of 36% to
39% over the last five fiscal years and equaled 37.79% for the 12 months ended
March 31, 2005.
During fiscal 2004, the Bank formed a subsidiary known as American
Savings Investment Corp., which holds the majority of the Bank's investment
securities. Investment
RP(R) Financial, LC.
Page 1.15
income generated by this special purpose investment subsidiary is not included
in the Bank's New Jersey taxable income, but is separately taxed at a reduced
effective rate.
Efficiency Ratio
----------------
The Company's efficiency ratio reflects improvement over the
several years largely owing to expansion of net interest income, which is
attributable to both balance sheet growth and improving spreads, while the ratio
of the Company's operating expenses and non-interest income to average assets
has remained relatively unchanged. Specifically, the efficiency ratio diminished
from 73.3% in fiscal 2003, to 68.0% for the 12 months ended March 31, 2005. On a
post-offering basis, the efficiency ratio is expected to initially show some
improvement as the net interest ratio increases with the reinvestment of
proceeds, although the increased operating expenses due to the stock plans, de
novo branch and lending diversification may limit or negate such improvement.
Interest Rate Risk Management
- -----------------------------
The Company's balance sheet is liability-sensitive in the short-term
(less than one year) and, thus, the net interest margin will typically be
adversely affected during periods of rising and higher interest rates. As of
March 31, 2005, the Net Portfolio Value ("NPV") analysis provided by the Office
of Thrift Supervision ("OTS") indicated that a 200 basis point instantaneous and
permanent increase in interest rates would result in a 293 basis point reduction
in the NPV ratio, and result in a post-shock NPV ratio equal to 7.72% of assets
(see Exhibit I-5). These rate shock simulations indicate a moderate level of
risk exposure pursuant to OTS definitions. By way of comparison, OTS estimates
NPV data on a regional and national basis. Based on OTS estimates incorporating
December 31, 2004, financial data and market rate information, assuming a
positive 200 basis point instantaneous and permanent rate shock, the post-shock
NPV ratio for all thrifts with total assets between $100 million and $1 billion
equaled 12.40%, which reflects a 138 basis point decline relative to the base
scenario.
The NPV analysis is an indicator to the risk of earnings in a volatile
interest rate environment as it incorporates changing assumptions with respect
to maturity and repricing of assets and liabilities. The OTS NPV analysis
indicates that the Company has a lower post-shock
RP(R) Financial, LC.
Page 1.16
NPV ratio and higher interest sensitivity measure (i.e., the change in the
post-shock NPV ratio is greater) pursuant to a rising interest rate scenario,
which is typically the more adverse scenario for a thrift institution. In this
regard, the Company's interest rate risk exposure is primarily the result of the
large balance of permanent long-term fixed rate mortgage which predominate the
loan portfolio, which are primarily funded by comparatively short term deposits
and borrowed funds.
Overall, the data suggests that the Company's earnings would be
adversely impacted by increasing interest rates. On a pro forma basis, the
Company's interest rate risk position is expected to improve as the proceeds
from the second step stock offering are reinvested into interest earning assets.
Lending Activities and Strategy
- -------------------------------
The Company's historical lending activities have traditionally
emphasized 1-4 family permanent mortgage loans, and such loans continue to
comprise the largest concentration of the loan portfolio. Beyond 1-4 family
loans, lending diversification by the Company primarily includes commercial and
multi-family real estate mortgage loans, and to a lesser extent, loans secured
by properties under construction as well as non-mortgage commercial and consumer
loans. Details regarding the Company's loan portfolio composition and
characteristics are included in Exhibits I-6, I-7 and I-8. As of March 31, 2005,
permanent first and second mortgage loans secured by residential properties
totaled $262.3 million, equal to 77.5% of total loans, while home equity lines
of credit totaled $11.2 million, or 3.3% of loans. Commercial real estate and
multi-family mortgage loans together totaled $55.5 million, equal to 16.4% of
total loans, while the modest remaining balance of the loan portfolio was
comprised of construction loans and various types of non-mortgage and unsecured
consumer and commercial credit.
In the future, the Company will be seeking to achieve a more
diversified mix of residential, commercial mortgage and non-mortgage loans as
well as construction loans. Importantly, growth in this regard will be gradual
as the Company employs experienced commercial loan officers and builds out the
branch infrastructure which will facilitate the realization of the established
goals for the loan portfolio composition.
RP(R) Financial, LC.
Page 1.17
Residential Lending
-------------------
At March 31, 2005, the Company's loan portfolio was concentrated
in 1-4 family residential mortgage loans totaling $262.3 million, or 77.5% of
loans receivable. The Company originates permanent first mortgage loans (both
fixed and adjustable rate or hybrid loans) for portfolio. Residential loans are
originated with fixed or adjustable rates and typically have terms of ten to
thirty years. The Company also offers mortgage loans with bi-weekly payments.
The majority of ASB's adjustable rate loan products provide for an interest rate
that is tied to the one-year Constant Maturity U.S. Treasury index and have
terms of up to thirty years with initial fixed rate periods of one, three, five,
seven, or ten years according to the terms of the loan. The Company also offers
an adjustable rate loan with a rate that adjusts every three years to the
three-year Constant Maturity U.S. Treasury index.
The fixed rate mortgage loans originated by the Company generally
meet the secondary mortgage market standards of Fannie Mae. For the purposes of
interest rate risk management, the Company occasionally sells qualifying 1-4
family residential mortgages in the secondary market to Fannie Mae and other
investors without recourse and with servicing retained. However, sales have
typically been limited and totaled only $4.8 million in fiscal 2004.
As a complement to the 1-4 family permanent mortgage lending
activities, the Company also offers home equity loans including fixed rate
amortizing term loans ("HELs") as well as variable rate lines of credit
("HELOCs"). Such loans typically have shorter maturities and higher interest
rates than traditional 1-4 family lending and are consistent with the Company's
residential lending orientation. Adjustable rate home equity lines of credit are
tied to the prime rate of interest and carry a 20 year term. Fixed rate home
equity loans generally have 5 to 15 year terms. The maximum loan amount is
$500,000 for home equity loans, with a maximum LTV of 75%. This type of lending
will continue to be emphasized by the Company in the future, due to the
comparatively higher yields and perceived moderate credit risk associated with
these loans, along with the benefits in terms of interest rate risk (the loans
either change with any change in the prime rate of interest, or have fixed rates
for fixed terms which average 15 years). During 2001, ASB began offering home
equity loans on investment properties in addition to loans on primary
residences. Loans on investment properties are made in amounts of up to 65% of
value on term loans and up to 60% of value of home equity lines of credit. As of
RP(R) Financial, LC.
Page 1.18
March 31, 2005, home equity lines of credit and home equity loans totaled $11.2
million (3.3% of loans).
Multi-Family and Commercial Mortgage Lending
--------------------------------------------
The Company has historically been a moderately active originator
of commercial and multi-family/mixed use commercial real estate loans.
Typically, these properties are small commercial buildings (i.e., offices,
retail shops, etc.), the majority of which are non-owner occupied. Over the last
five fiscal years, the portfolio of multi-family and commercial mortgage loans
has increased at approximately the same rate as the loan portfolio overall, and
thus have maintained their relative proportion to the total loan portfolio. As
of March 31, 2005, multi-family and commercial mortgage loans totaled $55.5
million, equal to 16.4% of total loans receivable.
Multi-family and commercial mortgage loans are typically offered
with adjustable rates of interest, which typically adjust every 5 years based on
changes in the 5 Year Constant Maturity U.S. Treasury Index. Such loans
typically possess amortization periods of up to 25 years, and loan-to-value
ratios of up to 75%, and target a debt-coverage ratio of at least 1.2 times. The
majority of the Company's multi-family and commercial mortgage loans are secured
by properties in northern New Jersey and all the collateral properties are
within the State of New Jersey.
In the future, the Company will seek to generate commercial loans
(both mortgage and C&I loans) through an active officer call program. Most loans
will be originated to businesses or secured by properties within the State of
New Jersey. Most C&I loans will be originated to businesses with total revenues
of $20 million or less while the size of the typical real estate loan will be in
the range of $1 million to $4 million. Larger relationships may likely be
developed with a portion of the credit participated out to other lenders based
on the Bank's regulatory loans-to-one borrower limit and other factors.
Management believes its efforts to build commercial account relationships will
be enhanced by planned branch expansion, which will provide the Company with a
broader retail footprint.
RP(R) Financial, LC.
Page 1.19
Construction Loans
------------------
ASB also originates construction loans on local residential
property, as a strategy to enhance the overall yield of the loan portfolio,
shorten the term to maturity of the loan portfolio, and increase the Company's
presence in the local market area in connection with builders and real estate
agents. ASB maintains no formal limits as to the number of projects a builder
has under construction or development but makes a case by case determination on
loans to builders and developers who have multiple projects under development.
The Company generally does not make construction loans to builders on a
speculative basis. However, the Company will allow a model unit without a
contract in place. In some cases, ASB converts a construction loan to the
permanent end mortgage loan upon completion of construction. Construction loan
terms include a maximum LTV of 75%, and terms of no more than 24 months
The balance of construction loans declined from fiscal 2000
through end of fiscal 2003 as the Company elected to reduce construction lending
following the retirement of the loan officer who had previously managed this
portfolio. However, the Company will be seeking to be more active in the
construction lending arena in the future in concert with the expansion of its
community bank operating strategy. In this regard, the nature of the ASB's
lending, which will primarily be focused on residential construction lending
will be unchanged. However, it is expected that total volumes and the potential
size of the loan relationships will be larger.
Non-Mortgage Lending
--------------------
The Company's commercial lending emphasis has historically
centered on the development of real estate secured relationships, as
non-mortgage C&I lending remains limited. As of March 31, 2005, commercial
business loans totaled $663,000, equal to 0.20% of total loans. The Company
offers commercial loans to sole proprietorships, professional partnerships and
various other small businesses. The types of commercial loans offered include
lines of credit and business term loans. Most line of credit and business term
loans are secured by real estate and other assets such as inventory, equipment
or accounts receivable. ASB's commercial term loans generally have terms from
one to five years and are typically fixed rate loans. Commercial lines of credit
have terms from one to three years and are typically adjustable rate loans.
RP(R) Financial, LC.
Page 1.20
Consumer lending by the Company (other than home equity lending
referenced above) is relatively modest and primarily consists of lending on the
security of a deposit account. The Company also offers unsecured personal loans
and checking overdraft loans. Such lending has been relatively limited
historically and is expected to remain limited over the foreseeable future. As
of March 31, 2005, consumer loans excluding HELs and HELOCs totaled $701,000,
equal to 0.21% of total loans.
Loan Originations, Purchases and Sales
--------------------------------------
ASB primarily has historically been a portfolio lender. Gross loan
originations totaled $111.8 million for the year ended September 30, 2004, the
majority of which were permanent first and second mortgage loans secured by 1-4
family residential properties ($84.4 million). Net of principal repayments, net
loan growth totaled approximately $46.1 million for fiscal 2004, as compared to
the modest level of purchases which totaled $3.3 million, consisting of
adjustable rate mortgage loans. During fiscal 2004, the Company sold 23 loans
with a principal balance of $4.8 million; loan sales have principally been
undertaken on a non-recourse basis with the objective of managing the Company's
interest rate risk exposure.
The Company will occasionally purchase participations in loans
originated through other lending institutions including the Thrift Institutions
Community Investment Corporation of New Jersey ("TICIC"). At March 31, 2005,
participations through such entities were secured by one-to-four family
properties as well as multi-family or other non-one- to-four family properties,
such as assisted living facilities. The aggregate balance of TICIC
participations at March 31, 2005 was $1.6 million. ASB may also sell
participation interests in multi-family, commercial and other real estate loans
or construction loans if the total loan would otherwise exceed the loans-to-one
borrower limit. The balance of all other loan participations totaled $5.1
million at March 31, 2005.
Asset Quality
- -------------
The Company's asset quality has historically been strong and the level
of non-performing assets ("NPAs") is low currently. As reflected in Exhibit I-9,
the NPA balance was $351,000, equal to 0.08% of assets, consisting of primarily
of non-accruing 1-4 family mortgage loans
RP(R) Financial, LC.
Page 1.21
($261,000) and a limited balance of multi-family/commercial real estate loans
and home equity loans in non-accrual status.
The Company's management reviews and classifies loans on a
quarterly basis and establishes loan loss provisions based on the overall
quality, size and composition of the loan portfolio, as well other factors such
as historical loss experience, industry trends and local real estate market and
economic conditions. The Company maintained valuation allowances of $1.7 at
March 31, 2005, equal to 0.50% of total loans while reserve coverage in relation
to NPAs equaled 480.66% (see Exhibits I-9 and I-10).
Funding Composition and Strategy
- --------------------------------
Deposits have consistently accounted for the substantial portion of the
Company's interest-bearing funding composition and, at March 31, 2005, deposits
equaled 74.4% of ASB's interest-bearing liabilities ("IBL") composition. Exhibit
I-11 sets forth the Company's deposit composition for the past three and
one-half fiscal years and Exhibit I-12 provides the interest rate and maturities
of the CD portfolio for March 31, 2005.
Lower costing savings and transaction accounts totaling $192.7 million
comprised approximately 58.8% of the Company's deposits at March 31, 2005. The
proportion of savings and transaction accounts has remained relatively stable
since fiscal 2000. The stability over the period reflects the following: (1)
many depositors have opted for the safety and liquidity of insured deposits and
foregone the potentially higher returns in alternative investments; (2) the
success of the newly-opened Cedar Grove office in attracting transaction
accounts; and (3) the growth in municipal deposits which are concentrated in
savings and transaction account balances. The balance of the deposit base is
comprised of CDs, the majority of which have remaining maturities of one year or
less. As of March 31, 2005, CDs with balances equal to or in excess of $100,000
equaled $43.4 million.
Borrowings serve as an alternative funding source for the Company to
facilitate management of liquidity and funding costs. Borrowings held by the
Company at March 31, 2005 consisted of $68.3 million of FHLB advances with a
weighted average rate of 4.45%, with
RP(R) Financial, LC.
Page 1.22
maturities extending through 2012. Exhibit I-13 provides further detail of ASB's
borrowing activities during the past three and one-half fiscal years.
The Bank will continue to evaluate the costs and benefits of
incrementally restructuring its portfolio of FHLB advances. Such a restructuring
transaction took place during fiscal 2004 when the Bank prepaid $3.0 million of
fixed rate FHLB advances at a cost of 6.28%. While the prepayment resulted in
the assessment of prepayment penalties by the FHLB, the prepayment of the high
rate advance will reduce future funding costs.
Subsidiaries and Other Activities
- ---------------------------------
In addition to the Bank, ASB has one service corporation subsidiary,
ASB Investment Corp, a New Jersey corporation. ASB Investment Corp. was
organized in June 2003 for the purpose of selling insurance and investment
products, including annuities, to the Bank's customers and the general public
through a third party networking arrangement. Initially, activities at this
subsidiary will be limited to the sale of fixed rate annuities. ASB Investment
Corp is not a licensed insurance agency, and it may only offer insurance
products through an agreement with a licensed insurance agency. In June 2003,
ASB Investment Corp. entered into an agreement with Essex National Insurance
Agency, Inc., a licensed insurance agency, through which it may offer insurance
products.
The Company has one second-tier subsidiary, which is a first-tier
subsidiary of the Bank. American Savings Investment Corp. was formed in August
2004 under New Jersey law as an investment company. The purpose of this
subsidiary is to invest in stocks, bonds, notes and all types of equity,
mortgages, debentures and other investment securities.
Legal Proceedings
- -----------------
ASB and its wholly-owned subsidiaries are involved in routine legal
proceedings occurring in the ordinary course of business which, in the
aggregate, are believed to be immaterial to the Company's financial condition.
RP(R) Financial, LC.
Page 2.1
II. MARKET AREA ANALYSIS
Introduction
- ------------
Chartered in 1919 and operating continuously since that time in Essex
County, New Jersey, the Company currently conducts operations out of a main
office and administrative facility located in Bloomfield, New Jersey, and a
branch office in Cedar Grove, New Jersey. The Company's offices are located
approximately 15 miles west of New York City and is within the New York Primary
Metropolitan Statistical Area ("PMSA"). The Company currently serves Essex
County and surrounding contiguous areas of Northern New Jersey including Bergen,
Hudson, Morris, Passaic and Union Counties although operations are focused on
making loans and raising deposits in Bloomfield, Cedar Grove and the immediate
surrounding areas of Essex County.
The Company's marketing is generally focused in the suburban areas of
Essex County. The Company's market in northern New Jersey is part of the greater
New York Metropolitan area which provides the market with a relatively large
employment base, supported by a diverse array of industries and employers.
Furthermore, the Company's market also serves as bedroom community for nearby
New York City as well as other nearby suburban areas in northern New Jersey and
downstate New York. A map showing the location of the Company's offices in Essex
County is set forth below and details regarding the Company's office and recent
trends with respect to market interest rate levels are set forth in Exhibit II-1
and II-2, respectively.
Future growth opportunities for ASB are influenced by growth, stability
of the statewide and regional economies, other demographic population trends and
the competitive environment. These factors have been examined to help determine
the Company's growth potential and the relative economic health of the market
areas served, as they have a direct bearing on the pro forma market value of ASB
and have been factored into our valuation analysis accordingly.
RP(R) Financial, LC.
Page 2.2
Table 2.1
ASB Holding Company
Map of Branch Locations
[GRAPHIC OMITTED]
Market Area Demographics
- ------------------------
Key demographic and economic indicators in the Company's market include
population, number of households and household/per capita income levels. Trends
in these key measures are summarized by the data presented in Table 2.2 from
2000 to 2004 and projected through 2009. Data for the nation and the State of
New Jersey have been included for comparative purposes. ASB operates in a
densely populated metropolitan area, as Essex's County population alone is
800,000, notwithstanding the relatively small geographic area encompassed by the
market. Importantly, the density of the area coupled with the relatively high
costs of living and land values have contributed to limited population and
household growth exhibited by Essex County.
RP(R) Financial, LC.
Page 2.3
Table 2.2
ASB Holding Company
Summary Demographic Data
Year Growth Rate
-------------------------------- --------------------
2000 2004 2009 2000-2004 2004-2009
---- ---- ---- --------- ---------
Population (000)
- ----------------
United States 281,422 292,937 307,116 1.0% 0.9%
New Jersey 8,414 8,687 9,018 0.8% 0.7%
Essex County 794 800 807 0.2% 0.2%
Households (000)
- ----------------
United States 105,480 109,949 115,474 1.0% 1.0%
New Jersey 3,065 3,169 3,295 0.8% 0.8%
Essex County 284 286 288 0.2% 0.1%
Median Household Income ($)
- ---------------------------
United States $42,729 $46,475 $51,597 2.1% 2.1%
New Jersey $55,908 $61,779 $69,479 2.5% 2.4%
Essex County $45,337 $49,176 $55,665 2.1% 2.5%
Per Capita Income ($)
- ---------------------
United States $21,587 $24,092 $27,309 2.8% 2.5%
New Jersey $27,006 $30,559 $35,032 3.1% 2.8%
Essex County $24,943 $27,501 $31,081 2.5% 2.5%
Less Than $25,000 to
2004 HH Income Dist. (%) $25,000 50,000 $50,000 +
- ------------------------ ------- ------ ---------
United States 26.0% 28.0% 46.0%
New Jersey 19.0% 22.0% 59.0%
Essex County 28.0% 23.0% 49.0%
Source: Claritas.
RP(R) Financial, LC.
Page 2.4
Specifically, the population of Essex County increased at a 0.2% annual
rate since 2000, with this trend projected to continue over the next five years
through 2009. Moreover, the growth in households was consistent with the total
population growth. The market's comparatively limited growth trend contrasts
with comparatively stronger growth realized in the State of New Jersey and the
U.S (0.8% annually and 1.0% annually, respectively, from 2000 to 2004). Growth
trends with regard to households have paralleled the population growth trends,
with the Company's markets in Essex County generally experiencing slack
household growth rates which are well below the prevailing average for New
Jersey and the U.S.
Median household and per capita income levels in Essex County fall
below the state average as the median household income for Essex County equaled
$49,176 which is above the national average of $46,475 but well below the New
Jersey average of $61,779. Essex County is home to a broad socioeconomic
spectrum of citizens with a wide range of income levels, and a significant
portion of Newark's core city population is employed in relatively low wage blue
collar jobs or service jobs. Moreover, urban areas within Essex County are home
to a significant population of recent immigrants, many of whom have limited
education and language skills which limits their earnings potential.
Importantly, while the aggregate income characteristics of the market
reflect comparatively modest income levels, the Company's retail offices and
lending operations are located in suburban areas of Essex County which provide
the Company with exposure to residents or commuters with comparatively higher
income levels.
Summary of Local Economy and Workforce
- --------------------------------------
The economy of the Company's markets in Essex County is oriented toward
professional and related occupations and services, each of which provide
approximately 21% of total employment (see Table 2.3 for details). The high
level of professional employment is reflective of the suburban areas of Essex
County which the Company primarily serves which serve as bedroom communities for
other areas of northern New Jersey and New York. Similarly, management, business
and financial occupations provide approximately 10% of total employment
reflecting the area's status as a major money center. Moreover, projections by
the New Jersey Department of Labor reflect that notwithstanding modest
population growth
RP(R)Financial, LC.
Page 2.5
Table 2.3
ASB Holding Company
Estimated and Projected Employment In Essex County
By Major Occupational Group, 2002-2012
- ------------------------------------------------------------------------------------------------------------------------
2002 2012 Change: 2002-2012 Annual Average Job Openings
-----------------------------------------------------------------------------------------------
Occupation Number Percent Number Percent Number Percent Total* Growth* Replacements
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Total, All Occupations 411,050 100.0 438,000 100.0 26,900 6.5 13,140 3,750 9,390
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Management, Business,
and Financial Occupations 41,650 10.1 45,650 10.4 4,000 9.6 1,200 430 770
- ------------------------------------------------------------------------------------------------------------------------
Professional and Related
Occupations 86,850 21.1 99,850 22.8 13,000 15.0 3,030 1,340 1,690
- ------------------------------------------------------------------------------------------------------------------------
Service Occupations 80,300 19.5 90,500 20.7 10,200 12.7 3,130 1,040 2,090
- ------------------------------------------------------------------------------------------------------------------------
Sales and Related
Occupations 33,950 8.3 35,600 8.1 1,700 5.0 1,250 190 1,050
- ------------------------------------------------------------------------------------------------------------------------
Office and Administrative
Support Occupations 86,950 21.2 85,900 19.6 -1,050 -1.2 2,310 380 1,930
- ------------------------------------------------------------------------------------------------------------------------
Farming, Fishing, and
Forestry Occupations 0 0.0 0 0.0 0 -9.5 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
Construction and
Extraction Occupations O13,450 3.3 14,400 3.3 950 7.0 360 100 260
- ------------------------------------------------------------------------------------------------------------------------
Installation, Maintenance,
an Repair Occupations 14,450 3.5 14,800 3.4 350 2.6 410 90 320
- ------------------------------------------------------------------------------------------------------------------------
Production Occupations 20,600 5.0 17,600 4.0 -3,000 -14.5 490 10 470
- ------------------------------------------------------------------------------------------------------------------------
Transportation and
Material Moving
Occupations 32,850O 8.0 33,600 7.7 750 2.2 970 170 800
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
* Average Annual New Jobs will not equal annualized "Employment Change"
since, for declining occupations, new jobs are tabulated as zero since no
net job growth is projected , while the employment change is based solely
on the difference between 2002 and 2012 employment totals.
Note:Occupational data include estimates of self-employed and unpaid family
workers and are not directly comparable to the industry employment total.
Totals may not add due to rounding. Employment data are rounded to the
nearest hundred and, job opeinings are rounded to the nearest ten.
Percentages and percent changes are based on unrounded data.
Prepared By: NJ Department of Labor and Workforce Development
Labor Market and Demographic Research
Occupational and Demographic Research
RP(R) Financial, LC.
Page 2.6
projected for Essex County, the labor market is projected to increase by 6.5%
over the 10 year period ending in 2012, with the majority of growth to be
realized in the professional and management areas.
Unemployment trends in the Company's market have generally been
favorable the unemployment rate remains higher than the state and national
average overall (see Table 2.4 for details). Specifically, the unemployment rate
has diminished by 1.2% to equal 5.6% as of March 2005. While the improvement is
greater than the 0.3% reduction registered on a national basis and the 1.0%
reduction registered statewide. At the same time, the 5.2% national unemployment
rate and the 4.6% unemployment rate for the State of New Jersey are more
favorable than the prevailing rate in Essex County.
Table 2.4
ASB Holding Company
Market Area Unemployment Trends
March 2004 March 2005 +/-
Region Unemployment Unemployment Change
------ ------------ ------------ ------
United States 5.5% 5.2% (0.3)%
New Jersey 5.6 4.6 (1.0)
Essex County 6.8 5.6 (1.2)
(1) Unemployment rates are not seasonally adjusted.
Source: CACI, U.S. Bureau of Labor Statistics.
Market Area Deposit Characteristics
- -----------------------------------
As a savings institution with its primary business functions of real
estate lending and the gathering of deposits in northern New Jersey, the
Company's primary competitors are: (1) other financial institutions with offices
proximate to the Company's locations; (2) other mortgage loan originators; (3)
those depository and lending organizations not physically located within the
Company's markets, but capable of doing business remotely through the Internet
or by other means; and (4) other competitors such as investment firms, mutual
funds, insurance companies, etc.
RP(R) Financial, LC.
Page 2.7
Competition among financial institutions in the Company's market is
significant. Over the past decade, New Jersey has experienced the effects of
substantial banking consolidation. In the early 1990s, certain out-of-state
banks acquired New Jersey financial institutions and, later in the decade, such
acquirors became subject to mergers themselves. In the northern New Jersey
market, for example, large out-of-state competitors include Fleet Bank, Bank of
New York, PNC Bank, Sovereign Bank, First Union National Bank, and Bank of New
York. Additionally, there are a number of strong locally-based competitors such
as Valley National Bank, Commerce Bank, City National and Hudson City Savings
Bank. As larger institutions compete for market share to achieve economies of
scale, the environment for the Company's products and services is expected to
remain highly competitive. Community-sized institutions such as the Company
typically compete with larger institutions on pricing or operate in a niche that
will allow for operating margins to be maintained at profitable levels. The
Company's business plan reflects elements of both strategies.
Table 2.5 displays deposit market trends over recent years for the
markets where the Company maintains branches. The large size of the markets
overall are indicated by the deposit totals, which equaled $12.7 billion in
Essex County, with commercial banks controlling more than 60% of the total
deposit market, which falls below the statewide average of 73.2%. Deposit growth
trends are moderate, as the Essex County deposit market realized 8.0% annual
growth for the two years ended June 30, 2004, which approximated the growth rate
for the state as a whole.
The proceeds from the second step stock offering will enhance the
Company's competitiveness by providing increased operating flexibility,
including de novo branching, focus on cross-selling and marketing and potential
acquisition.
RP(R) Financial, LC.
Page 2.8
Table 2.5
ASB Holding Company
Essex County Deposit Detail
Total Deposits
as of June 30, Market Share
HQ HQ # of -------------------------- --------------- 2002-2004
Holding Company Name Institution Name City State Type Brchs 2002 2004 2002 2004 CAGR
- -------------------- ---------------- ---- ----- ---- ----- ---- ---- ---- ---- ----
($000) ($000) (%) (%) (%)
Wachovia Corp. Wachovia Bank NA Charlotte NC Bank 44 $1,799,890 $1,946,932 14.18% 13.15% 4.00%
Bank of America Corp.Fleet National Bank Providence RI Bank 43 $1,611,110 $1,608,753 12.69% 10.87% -0.07%
PNC Financial
Services Group PNC Bank NA Pittsburgh PA Bank 34 $1,510,187 $1,423,317 11.89% 9.61% -2.92%
Valley National
Bancorp Valley National Bank Passaic NJ Bank 30 $1,106,502 $1,349,468 8.71% 9.11% 10.43%
JPMorgan Chase & Co. JPMorgan Chase Bank, NA Columbus OH Bank 12 $555,569 $795,581 4.38% 5.37% 19.67%
Commerce Bancorp Inc.Commerce Bank/North Ramsey NJ Bank 6 $147,672 $352,459 1.16% 2.38% 54.49%
Popular Inc. Banco Popular North Amer New York NY Bank 5 $232,172 $252,987 1.83% 1.71% 4.39%
Bank of New York Co. Bank of New York New York NY Bank 6 $232,824 $247,304 1.83% 1.67% 3.06%
North Fork Bancorp. North Fork Bank Mattituck NY Bank 9 $254,271 $222,969 2.00% 1.51% -6.36%
Hudson United
Bancorp Hudson United Bank Mahwah NJ Bank 15 $219,672 $221,886 1.73% 1.50% 0.50%
City National
Bancshares Corp. City NB of New Jersey Newark NJ Bank 3 $129,738 $207,902 1.02% 1.40% 26.59%
Banco Comercial
Portugues SA BCPBank NA Newark NJ Bank 3 $111,054 $169,615 0.87% 1.15% 23.58%
Caixa Geral
de Depositos SA Crown Bank NA Ocean City NJ Bank 2 $57,257 $77,833 0.45% 0.53% 16.59%
Franklin Bank Franklin Bank Nutley NJ Bank 1 $34,961 $68,250 0.28% 0.46% 39.72%
Allegiance Community
Bank Allegiance Community Bank South Orange NJ Bank 1 $33,129 $59,149 0.26% 0.40% 33.62%
Lakeland Bancorp Lakeland Bank Newfoundland NJ Bank 1 $16,111 $17,194 0.13% 0.12% 3.31%
--- ---------- ---------- ----- ----- ----
TOTAL BANKS 215 $8,052,119 $9,021,599 63.41% 60.94% 5.85%
Independence Cmnty
Bank Corp. Independence Community BankBrooklyn NY SB 15 $505,264 $1,080,336 3.98% 7.30% 46.22%
Hudson City Bancorp
Inc. (MHC) Hudson City Savings Bk, FSBParamus NJ Thrift 10 $770,233 $980,063 6.07% 6.62% 12.80%
PennFed Financial
Services Inc. Penn FSB Newark NJ Thrift 14 $756,537 $798,230 5.96% 5.39% 2.72%
Sovereign Bancorp
Inc. Sovereign Bank Wyomissing PA Thrift 10 $566,819 $607,477 4.46% 4.10% 3.52%
Investors Bancorp
MHC Investors Savings Bank
(MHC) Short Hills NJ SB 9 $489,907 $524,358 3.86% 3.54% 3.46%
Provident Financial
Services Provident Bank Jersey City NJ SB 6 $514,190 $519,325 4.05% 3.51% 0.50%
- -----------------------------------------------------------------------------------------------------------------------------------
ASB Holding Co (MHC) American Bk of NJ (MHC) Bloomfield NJ Thrift 2 $242,791 $304,977 1.91% 2.06% 12.08%
- -----------------------------------------------------------------------------------------------------------------------------------
Washington Mutual
Inc. Washington Mutual Bank, FA Stockton CA Thrift 4 $165,741 $181,967 1.31% 1.23% 4.78%
Kearny Financial
Corp (MHC) Kearny FSB (MHC) Kearny NJ Thrift 4 $142,790 $138,548 1.12% 0.94% -1.50%
Lusitania Financial
MHC Lusitania SB FSB (MHC) Newark NJ Thrift 2 $112,575 $130,808 0.89% 0.88% 7.79%
Llewellyn-Edison
SB FSB Llewellyn-Edison SB FSB West Orange NJ Thrift 3 $124,501 $123,346 0.98% 0.83% -0.46%
Golden West
Financial World SB FSB Oakland CA Thrift 2 $57,951 $122,752 0.46% 0.83% 45.54%
New York Community
Bancorp New York Community Bank Westbury NY SB 2 $80,548 $69,662 0.63% 0.47% -7.00%
Haven Savings Bank Haven Savings Bank Hoboken NJ SB 1 $0 $68,280 0.00% 0.46% N.M.
Spencer Savings
Bank SLA Spencer Savings Bank SLA Elmwood Park NJ Thrift 2 $51,129 $66,266 0.40% 0.45% 13.84%
Columbia Savings
Bank M.H.C. Columbia Bank (MHC) Fair Lawn NJ Thrift 1 $32,661 $45,468 0.26% 0.31% 17.99%
Gibraltar Savings
Bank FSB Gibraltar Savings Bank FSB Oak Ridge NJ Thrift 2 $22,390 $22,076 0.18% 0.15% -0.70%
Dollar SB Dollar SB Newark NJ Thrift 1 $9,211 $0 0.07% 0.00% -100.00%
--- ---------- ---------- ----- ----- ----
TOTAL SAVINGS INSTITUTIONS 90 $4,645,238 $5,783,939 36.59% 39.07% 11.59%
TOTAL BANKS AND SAVINGS INSTITUTIONS 305 $12,697,357 $14,805,538 100.00% 100.01% 7.98%
NEW JERSEY 3,926 $180,955,065 $211,318,456 99.94% 100.00% 8.06%
BANKS 2,951 $133,096,359 $154,679,021 73.46% 73.22% 7.80%
SAVINGS INSTITUTIONS 975 $47,858,706 $56,639,435 26.48% 26.78% 8.79%
Source: SNL Securities.
RP(R) Financial, LC.
Page 3.1
III. PEER GROUP ANALYSIS
This chapter presents an analysis of ASB's operations versus a group of
comparable savings institutions (the "Peer Group") selected from the universe of
all publicly-traded savings institutions in a manner consistent with the
regulatory valuation guidelines. The basis of the pro forma market valuation of
ASB is derived from the pricing ratios of the Peer Group institutions,
incorporating valuation adjustments for key differences in relation to the Peer
Group. Since no Peer Group can be exactly comparable to ASB, key areas examined
for differences are: financial condition; profitability, growth and viability of
earnings; asset growth; primary market area; dividends; liquidity of the shares;
marketing of the issue; management; and effect of government regulations and
regulatory reform.
Peer Group Selection
- --------------------
The Peer Group selection process is governed by the general parameters
set forth in the regulatory valuation guidelines. Accordingly, the Peer Group is
comprised of only those publicly-traded savings institutions whose common stock
is either listed on a national exchange (NYSE or AMEX), or is NASDAQ listed,
since their stock trading activity is regularly reported and generally more
frequent than non-publicly traded and closely-held institutions. Non-listed
institutions are inappropriate since the trading activity for thinly-traded or
closely-held stocks is typically highly irregular in terms of frequency and
price and thus may not be a reliable indicator of market value. We have also
excluded from the Peer Group those companies under acquisition or subject to
rumored acquisition, mutual holding companies and recent conversions, since
their pricing ratios are subject to unusual distortion and/or have limited
trading history. A recent listing of the universe of all publicly-traded savings
institutions is included as Exhibit III-1.
Ideally, the Peer Group, which must have at least 10 members to comply
with the regulatory valuation guidelines, should be comprised of locally or
regionally-based institutions with comparable resources, strategies and
financial characteristics. There are approximately 180 publicly-traded
institutions nationally and, thus, it is typically the case that the Peer Group
will be comprised of institutions with relatively comparable characteristics. To
the extent that
RP(R) Financial, LC.
Page 3.2
differences exist between the converting institution and the Peer Group,
valuation adjustments will be applied to account for the differences. Since ASB
will be a full public company upon completion of the offering, we considered
only full public companies to be viable candidates for inclusion in the Peer
Group. From the universe of publicly-traded thrifts, we selected ten
institutions with characteristics similar to those of ASB. In the selection
process, we applied two "screens" to the universe of all public companies:
o Screen #1. New Jersey institutions with assets between $100 million
----------------------------------------------------------------------
and $1 billion. Two companies met the criteria for Screen #1 and both
--------------
were included in the Peer Group including Synergy Financial Group and
Pamrapo Bancorp, Inc. Exhibit III-2 provides financial and public
market pricing characteristics of all publicly-traded thrifts based in
New Jersey.
o Screen #2. Mid-Atlantic institutions with assets between $100 million
----------------------------------------------------------------------
and $1 billion, tangible equity-to-assets ratios of at least 5.0% and
----------------------------------------------------------------------
a positive return on equity ratio approximating 12% or less. Eleven
-------------------------------------------------------------
companies met the criteria for Screen #2 and nine companies were
included in the Peer Group: Rome Bancorp, Inc. was excluded from the
Peer Group due to the recency of its conversion, which was completed
in March 2005; and Carver Bancorp of New York was due to its unique
customer base and relatively low pricing ratios. Exhibit III-3
provides financial and public market pricing characteristics of all
publicly-traded Mid-Atlantic thrifts.
Table 3.1 shows the general characteristics of each of the eleven Peer
Group companies While there are expectedly some differences between the Peer
Group companies and ASB, we believe that the Peer Group companies, on average,
provide a good basis for valuation subject to valuation adjustments. The
following sections present a comparison of ASB's financial condition, income and
expense trends, loan composition, interest rate risk and credit risk versus the
Peer Group as of the most recent publicly available date.
A summary description of the key characteristics of each of the Peer
Group companies is detailed below.
RP(R) Financial, LC.
Page 3.3
Table 3.1
Peer Group of Publicly-Traded Thrifts
May 31, 2005(1)
Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Primary Market Strategy(2) Assets Offices Year Date Price Value
------ --------------------- ------ -------------- ----------- -------------- ---- ---- ----- -----
($) ($Mil)
WGBC Willow Grove Bancorp Inc. of PA NASDAQ Philadelphia PA Thrift $990 14 06-30 04/02 $15.34 $149
SYNF Synergy Financial Group of NJ NASDAQ Central NJ Thrift $896 18 12-31 01/04 $12.13 $150
HARL Harleysville Savings Financial Corp. of PA NASDAQ Southeastern PA Thrift $748 5 09-30 08/87 $17.75 $69
FSBI Fidelity Bancorp, Inc. of PA NASDAQ Southwestern PA Thrift $645 13 09-30 06/88 $20.99 $61
THRD TF Financial Corp. of Newtown PA NASDAQ PA, NJ Thrift $641 14 12-31 07/94 $29.00 $86
PBCI Pamrapo Bancorp, Inc. of NJ NASDAQ Northern NJ Thrift $640 9 12-31 11/89 $21.90 $109
FKFS First Keystone Financial, Inc. of PA NASDAQ Southeastern PA Thrift $576 7 09-30 01/95 $17.31 $35
WVFC WVS Financial Corp. of PA NASDAQ Pittsburgh PA Thrift $426 6 06-30 11/93 $17.10 $41
ESBK Elmira Savings Bank, FSB of NY (3) NASDAQ NY, PA Thrift $318 6 12-31 03/85 $30.75 $34
LARL Laurel Capital Group Inc. of PA NASDAQ Southwestern PA Thrift $308 8 06-30 02/87 $21.75 $42
ALFC Atlantic Liberty Financial of NY NASDAQ Brooklyn NY Thrift $184 2 03-31 10/02 $23.75 $40
NOTES: (1) Or most recent date available (M=March, S=September, D=December,
J=June, E=Estimated, and P=Pro Forma).
(2) Operating strategies are: Thrift=Traditional Thrift, M.B.=Mortgage
Banker, R.E.=Real Estate Developer, Div.=Diversified and Ret.=Retail
Banking.
(3) BIF-insured savings bank institution.
Source: Corporate offering circulars, data derived from information published in
SNL Securities Quarterly Thrift Report, and financial reports of
publicly-traded thrifts.
RP(R) Financial, LC.
Page 3.4
o Willow Grove Bancorp, Inc. of PA. is a $990 million institution operating
through 14 offices in the Philadelphia metropolitan area. Willow Grove
completed its second step conversion to a fully converted company in April
2002 which provides it with a relatively strong capital ratio (10.5%)
exceeding the Peer Group average. Willow Grove's ROA is comparatively
moderate which coupled with its high capital position, provides it with a
comparatively moderate ROE. Lending reflects greater diversification into
commercial and multi-family mortgage lending relative to the Peer Group
average and credit risk exposure appears to be modestly above the Peer
Group average based on its higher level of NPAs and lower reserve coverage
as a percent of NPAs.
o Synergy Financial Group of NJ. Selected for the Peer Group due to New
Jersey market area where it operates 18 offices and maintains $896 million
in total assets. Additionally, Synergy Financial completed its second step
conversion from a mutual holding company as of January 2004, enhancing the
comparability to the Company. Its earnings levels are comparatively modest
which, coupled with its relatively strong equity/assets ratio, provides for
a comparatively moderate ROE. Synergy Financial's loan portfolio has been
diversified to include a higher proportion of commercial and multi-family
mortgage loans as well as C&I loans, providing for a relatively high
risk-weighted assets ratio. Notwithstanding the high level of risk-weighted
assets, NPAs are comparatively modest.
o Harleysville Savings Financial Corp. of PA. maintains $748 million in total
assets and operates through a total of 5 branches northwest of
Philadelphia. The balance sheet composition reflects a high degree of
wholesale leveraging with respect to the high level of investments funded
by borrowings, which has effectively served to leverage its capital ratio.
The modest profitability of such activities is reflected in the ROA
measure, which falls below the Peer Group average. Harleysville Savings
Financial Corp. is primarily a residential lender, enhancing the
comparability to ASB while asset quality problems are limited.
o Fidelity Bancorp, Inc. of PA. operates through a total of 13 branch offices
in the Pittsburgh metropolitan area. The balance sheet reflects a
comparatively high ratio of leveraging, with investments and borrowings
comprising significant segments of the balance sheet. ROA is comparatively
moderate in relation to the Peer Group average reflecting the impact of the
aforementioned wholesale leveraging. Lending is primarily concentrated in
1-4 family mortgage loans, both in terms of whole loans and a significant
investment in MBS. Credit quality measures are less favorable than the Peer
Group average, both in terms of the level of non-performing loans and the
reserve coverage ratio.
o TF Financial Corp of PA. with assets of $641 million operates through a
total of 14 branches in Pennsylvania and New Jersey within the Philadelphia
metropolitan area. The asset structure reflects a higher proportion of
loans overall, with the majority of loans invested in 1-4 family mortgage
loan portfolio. The relatively high ratio of loans provides TF Financial a
relatively strong net interest margin and ROA. NPAs are comparatively in
relation to the Peer Group average while reserve coverage falls within the
range exhibited by the Peer Group.
RP(R) Financial, LC.
Page 3.5
o Pamrapo Bancorp, Inc. of NJ. was selected for the Peer Group primarily
based on its size ($640 million of assets) and location in northern New
Jersey. Pamrapo Bancorp reported the strongest ROA of any Peer Group
company which, in turn, provided for the highest ROE of any of the
comparable companies. Earnings were supported by its loan portfolio, which
included a relatively high level of diversification into multi-family and
commercial mortgage loans. NPAs were above the Peer Group average while
reserve coverage was generally lower.
o First Keystone Financial, Inc. of PA., with assets of $576 million operates
through a total of 7 branches in Pennsylvania within the Philadelphia
metropolitan area. First Keystone operates with the most leveraged equity
position of any of the Peer Group companies. Other key balance sheet
aggregates are otherwise relatively comparable to the Peer Group averages.
First Keystone Financial's ROA is the lowest of the eleven Peer Group
companies, reflecting its comparatively modest net interest margin. The
loan portfolio reflects an emphasis on 1-4 family residential mortgage
lending while credit quality measures appear to be unfavorable in
comparison to the Peer Group averages, both in terms of the ratio of NPAs
and the reserve coverage.
o WVS Financial Corp of PA. with assets of $426 million operates through a
total of 6 branches within the Pittsburgh metropolitan area. The balance
sheet reflects a significant wholesale element, as MBS and investments
constitute the majority of assets while borrowed funds comprise the largest
segment of liabilities. Not unexpectedly given the balance sheet
composition, the net interest income ratio is comparatively thin, offset by
very low operating costs providing for an ROA which is only modestly below
the Peer Group average. WVS Financial operates with a low risk-weighted
asset ratio and limited credit risk exposure as a result of significant
investment in securities and MBS.
o Elmira Savings Bank, FSB of NY. is a $318 million institution operating
through 6 offices in the southern tier of New York State. Equity is
relatively leveraged owing to recent growth in borrowings while the loan
portfolio reflects the recent emphasis on commercial mortgage and C&I
lending, which has supported yields, spreads and overall earnings levels.
Credit quality measures, including the ratio of NPAs and reserve coverage
are favorable in comparison to the Peer Group average.
o Laurel Capital Group, Inc. of PA. with assets of $308 million operates
through a total of 8 branches within the Pittsburgh metropolitan area. In
comparison to the Peer Group, the balance sheet reflects a higher ratio of
loans and more limited employment of borrowed funds. ROA is modestly below
the Peer Group average reflecting its thin net interest margin and
notwithstanding the moderate operating expense ratio. Laurel Capital is
primarily a 1-4 family mortgage lender as diversification has been limited.
In terms of credit risk exposure, the ratio of NPLs and NPAs approximates
the Peer Group average.
RP(R) Financial, LC.
Page 3.6
o Atlantic Liberty Financial of NY, is the smallest Peer Group company
operating with $184 million of total assets through two offices in
Brooklyn, New York. Key balance sheet aggregates such as loans compare
closely to the Peer Group average while the strong equity/assets ratio
exceeds all the Peer Group companies individually. Moreover, the strong
capital position supports Atlantic Liberty's higher profitability, relative
to the Peer Group average. Reflecting in part its inner-city market area,
Atlantic Liberty's loan portfolio has been diversified to include a
relatively high proportion of multi-family and commercial real estate
loans. However, credit quality measures as reflecting in the ratio of NPAs
and reserve coverage were more favorable than the Peer Group average.
In aggregate, the Peer Group companies maintain a lower level of
capital than the industry average (8.67% of assets versus 11.02% for all public
companies), generate comparable earnings as a percent of average assets (0.76%
ROAA for both the Peer Group and all public companies), and generate a higher
ROE (9.03% ROE versus 7.90% for all public companies). Overall, the Peer Group's
average P/B ratio and average P/E multiple were slightly below the respective
averages for all publicly-traded thrifts.
All
Publicly-Traded Peer Group
--------------- ----------
Financial Characteristics (Averages)
------------------------------------
Assets ($Mil) $ 2,566 $ 579
Market capitalization ($Mil) $ 377 $ 74
Equity/assets (%) 11.02% 8.67%
Return on average assets (%) 0.76 0.76
Return on average equity (%) 7.90 9.03
Pricing Ratios (Averages)(1)
----------------------------
Price/earnings (x) 19.35x 18.25x
Price/book (%) 151.48% 148.97%
Price/assets (%) 16.51 12.97
(1) Based on market prices as of May 31, 2005.
Ideally, the Peer Group companies would be comparable to ASB in terms
of all of the selection criteria, but the universe of publicly-traded thrifts
does not provide for an appropriate number of such companies. However, in
general, the companies selected for the Peer Group were fairly comparable to
ASB, as will be highlighted in the following comparative analysis.
RP(R) Financial, LC.
Page 3.7
Financial Condition
- -------------------
Table 3.2 shows comparative balance sheet measures for ASB and the Peer
Group, reflecting the expected similarities and some differences given the
selection procedures outlined above. The Company's and the Peer Group's ratios
reflect balances as of March 31, 2005. ASB's equity-to-assets ratio of 8.8%
approximated the Peer Group's average net worth ratio of 8.7%. Tangible
equity-to-assets ratios for the Company and the Peer Group equaled 8.8% and
8.4%, respectively, as goodwill and intangibles maintained by the Peer Group
equaled 0.2% of assets. The Company's pro forma tangible capital position will
increase with the addition of stock proceeds. The increase in ASB's pro forma
capital position will be favorable from a risk perspective and in terms of
future earnings potential that may be realized through leverage and lower
funding costs. At the same time, the Company's higher pro forma capitalization
will also result in a lower return on equity in the intermediate term. Both the
Company's and the Peer Group's capital ratios reflected capital surpluses with
respect to the regulatory capital requirements.
The interest-earning asset compositions for the Company and the Peer
Group were somewhat similar, with loans constituting the bulk of
interest-earning assets for ASB and the Peer Group. ASB's loans-to-assets ratio
of 75.6% was above the comparable Peer Group ratio of 55.8%. Comparatively,
ASB's cash and investments-to-assets ratio of 20.3% was lower than the
comparable Peer Group measure of 40.8%. Overall, ASB's interest-earning assets
amounted to 95.9% of assets, which was modestly below the Peer Group ratio of
96.6%.
ASB's funding liabilities reflected a funding strategy that was
somewhat similar to that of the Peer Group's. The Company's deposits equaled
74.5% of assets, which was above the Peer Group average of 63.7%. Comparatively,
borrowings accounted for a lower portion of the Company's interest-bearing
funding composition, as reflected by borrowings-to-assets ratios of 15.5% and
26.1% for ASB and the Peer Group, respectively. Total interest-bearing
liabilities maintained as a percent of assets equaled 90.0% and 89.8% for ASB
and the Peer Group, respectively.
A key measure of balance sheet strength for a thrift institution is its
interest-earning assets/interest-bearing liabilities ("IEA/IBL") ratio.
Presently, the Peer Group's IEA/IBL ratio
RP(R) Financial, LC.
Page 3.8
Table 3.2
Balance Sheet Composition and Growth Rates
Comparable Institution Analysis
As of March 31, 2005
Balance Sheet as a Percent of Assets
------------------------------------------------------------------------------
MEMO:
Cash & MBS & Borrowed Subd. Net Goodwill Tng Net Pref.
Equivalents Invest Loans Deposits Funds Debt Worth & Intang Worth Stock
----------- ------ ----- -------- -------- ---------- -------- ----- -----
ASB Holding Company
- -------------------
March 31, 2005 1.1% 19.2% 75.6% 74.5% 15.5% 0.0% 8.8% 0.0% 8.8% 0.0%
All Public Companies 3.7% 23.9% 67.4% 66.2% 20.9% 0.7% 10.8% 1.0% 9.8% 0.0%
State of NJ 4.2% 35.3% 56.0% 69.9% 15.4% 0.8% 13.0% 1.3% 11.7% 0.0%
Comparable Group Average 2.0% 38.8% 55.8% 63.7% 26.1% 0.5% 8.7% 0.2% 8.4% 0.0%
Mid-Atlantic Companies 2.0% 38.8% 55.8% 63.7% 26.1% 0.5% 8.7% 0.2% 8.4% 0.0%
Comparable Group
- ----------------
Mid-Atlantic Companies
- ----------------------
ALFC Atlantic Liberty Financial of NY 3.5% 27.8% 65.3% 59.3% 23.6% 0.0% 15.1% 0.0% 15.1% 0.0%
ESBK Elmira Savings Bank, FSB of NY 1.8% 32.5% 61.8% 76.3% 16.2% 0.0% 6.8% 0.1% 6.7% 0.0%
FSBI Fidelity Bancorp, Inc. of PA 1.4% 48.5% 46.6% 56.2% 35.1% 1.6% 6.4% 0.4% 5.9% 0.0%
FKFS First Keystone Financial, Inc.
of PA 3.5% 38.3% 53.1% 61.7% 28.4% 3.7% 5.1% 0.0% 5.1% 0.0%
HARL Harleysville Savings Fin. Corp.
of PA 0.4% 50.2% 46.4% 55.0% 38.1% 0.0% 6.1% 0.0% 6.1% 0.0%
LARL Laurel Capital Group Inc. of PA 4.6% 24.5% 66.1% 82.3% 7.0% 0.0% 8.9% 1.1% 7.8% 0.0%
PBCI Pamrapo Bancorp, Inc. of NJ 1.8% 32.5% 63.8% 76.3% 13.9% 0.0% 8.7% 0.0% 8.7% 0.0%
SYNF Synergy Financial Group of NJ 0.7% 28.5% 66.6% 63.3% 24.6% 0.0% 11.5% 0.1% 11.4% 0.0%
THRD TF Financial Corp. of Newtown PA 0.7% 23.8% 70.9% 71.0% 18.6% 0.0% 9.5% 0.7% 8.8% 0.0%
WVFC WVS Financial Corp. of PA 0.9% 83.8% 14.2% 37.7% 54.9% 0.0% 6.8% 0.0% 6.8% 0.0%
WGBC Willow Grove Bancorp Inc. of PA 2.3% 36.4% 58.6% 61.7% 26.6% 0.0% 10.6% 0.1% 10.5% 0.0%
Balance Sheet Annual Growth Rates Regulatory Capital
--------------------------------------------------------- ----------------------
MBS Borrows.
Cash & & Net Tng Net
Assets Investments Loans Deposit Subdebt Worth Worth Tangible Core Reg.Cap.
------ ----------- ----- ------- ------- ----- ----- -------- ---- --------
ASB Holding Company
- -------------------
March 31, 2005 11.71% -14.13% 21.47% 11.66% 18.93% 3.14% 3.14% 7.94% 7.94% 15.32%
All Public Companies 13.91% 3.54% 15.72% 11.19% 13.54% 3.41% 0.81% 9.60% 9.34% 17.13%
State of NJ 16.88% 6.65% 21.85% 9.79% 0.09% 7.76% 0.90% 11.22% 11.22% 25.26%
Comparable Group Average 8.53% 4.82% 10.15% 2.69% 33.93% -0.15% 0.02% 8.83% 8.31% 16.52%
Mid-Atlantic Companies 8.53% 4.82% 10.15% 2.69% 33.93% -0.15% 0.02% 8.83% 8.31% 16.52%
Comparable Group
- ----------------
Mid-Atlantic Companies
- ----------------------
ALFC Atlantic Liberty Financial of NY 14.97% 40.66% 6.27% 1.15% 86.85% 6.08% 6.08% 11.63% 11.63% 21.70%
ESBK Elmira Savings Bank, FSB of NY 7.92% 5.67% 9.69% 0.05% 98.56% -3.54% -3.13% 7.12% 7.12% 13.13%
FSBI Fidelity Bancorp, Inc. of PA 2.43% -3.37% 9.07% -0.43% 8.32% -2.46% -2.51% N.M. 7.57% 13.90%
FKFS First Keystone Financial, Inc.
of PA 0.92% -3.29% 4.16% 0.62% 5.93% -11.91% -11.91% 8.30% 8.30% 15.30%
HARL Harleysville Savings Fin. Corp.
of PA 7.86% 6.68% 8.01% 4.19% 13.49% 8.17% 8.17% N.M. 6.22% 14.04%
LARL Laurel Capital Group Inc. of PA 2.15% -23.02% 19.83% 2.26% -0.03% -0.82% 0.53% 7.57% 7.57% 16.08%
PBCI Pamrapo Bancorp, Inc. of NJ 0.15% -11.36% 7.70% -0.29% -0.04% 7.16% 7.16% 8.23% 8.23% 16.10%
SYNF Synergy Financial Group of NJ 29.77% 21.26% 33.02% 14.41% N.M. -2.60% -2.76% 10.13% 10.13% 15.86%
THRD TF Financial Corp. of Newtown PA 4.45% -3.95% 8.45% -3.41% 51.26% 5.55% 5.91% 8.09% 8.09% 15.59%
WVFC WVS Financial Corp. of PA 6.44% 11.23% -13.86% 4.01% 10.02% -2.42% -2.42% N.M. 6.95% 22.40%
WGBC Willow Grove Bancorp Inc. of PA 16.77% 12.55% 19.30% 6.97% 64.89% -4.86% -4.85% 9.60% 9.60% 17.60%
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP(R) Financial, LC. calculations. The
information provided in this table has been obtained from sources we
believe are reliable, but we cannot guarantee the accuracy or
completeness of such information.
Copyright (c) 2005 by RP(R) Financial, LC.
RP(R) Financial, LC.
Page 3.9
of 107.6% is slightly higher than the Company's IEA/IBL ratio of 106.6%. The
additional capital realized from stock proceeds should support an increase in
ASB's IEA/IBL ratio, as the capital realized from ASB's stock offering will be
primarily deployed into interest-earning assets.
The growth rate section of Table 3.2 shows annual growth rates for key
balance sheet items, based on the Company's and the Peer Group's annual growth
for the twelve months ended March 31, 2005. ASB recorded an 11.7% increase in
assets, which was modestly higher than the Peer Group's average asset growth
rate of 8.5%. Asset growth experienced by the Company was the result of strong
loan growth, as the loan portfolio expanded by 21.5% over the twelve months
ended March 31, 2005, as compared to growth of 10.2% reported by the Peer Group
on average. Similarly, the Company's deposit growth rate the last 12 months
equaled 11.7% versus modest deposit growth of 2.7% reported for the Peer Group.
The Peer Group's asset growth was primarily funded with borrowings which
increased by 33.9% on average; the Company's borrowings also increased at a
relatively strong pace equal to 18.9%.
Both the Company and the Peer Group realized little or no equity
growth, as capital increased by 3.1% for ASB and remained substantially
unchanged for the Peer Group. The limited change in equity for both ASB and the
Peer Group is primarily the result of their dividend and capital management
strategies, which has substantially limited the impact of retention of earnings.
On a post-offering basis, the Company's capital growth rate is expected to
decline due to the increased equity level, the marginal short-term net proceeds
reinvestment benefit and the intermediate term effect of investing in fixed
assets and expanding staffing levels.
Income and Expense Components
- -----------------------------
ASB reported net income to average assets ratios of 0.55%, which is
below the Peer Group average of 0.76% of assets for the twelve months ended
March 31, 2005 (see Table 3.3). The Peer Group's higher profitability was the
result of its relative advantages in the areas of net interest income and
non-interest operating income, which was partially offset by the Company's
modestly lower operating expense ratio.
RP(R) Financial, LC.
Page 3.10
Table 3.3
Income as Percent of Average Assets and Yields, Costs, Spreads
Comparable Institution Analysis
For the 12 Months Ended March 31, 2005
Net Interest Income Other Income
-------------------------------- ----------------------
Loss NII Total
Net Provis .After Loan R.E. Other Other
Income Income Expense NII on IEA Provis Fees Oper. Income Income
------ ------ ------- --- ------ ------ ---- ----- ------ ------
ASB Holding Company
- -------------------
March 31, 2005 0.55% 4.56% 2.02% 2.54% 0.06% 2.48% 0.00% 0.00% 0.26% 0.26%
All Public Companies 0.78% 4.99% 1.98% 3.02% 0.12% 2.90% 0.05% 0.00% 0.65% 0.70%
State of NJ 0.79% 4.71% 1.83% 2.88% 0.04% 2.83% 0.06% 0.00% 0.27% 0.34%
Comparable Group Average 0.76% 4.88% 2.11% 2.77% 0.06% 2.72% 0.01% 0.00% 0.42% 0.43%
Mid-Atlantic Companies 0.76% 4.88% 2.11% 2.77% 0.06% 2.72% 0.01% 0.00% 0.42% 0.43%
Comparable Group
- ----------------
Mid-Atlantic Companies
- ----------------------
ALFC Atlantic Liberty Financial of NY 1.13% 5.47% 1.58% 3.90% 0.07% 3.83% 0.00% 0.00% 0.82% 0.82%
ESBK Elmira Savings Bank, FSB of NY 0.83% 5.16% 1.79% 3.37% 0.04% 3.33% 0.00% 0.00% 0.50% 0.50%
FSBI Fidelity Bancorp, Inc. of PA 0.65% 4.72% 2.56% 2.16% 0.05% 2.10% 0.06% -0.02% 0.54% 0.58%
FKFS First Keystone Financial, Inc. of PA 0.35% 4.64% 2.62% 2.02% 0.04% 1.98% 0.00% 0.00% 0.47% 0.46%
HARL Harleysville Savings Fin. Corp. of PA 0.68% 4.71% 2.93% 1.78% 0.00% 1.78% 0.00% 0.00% 0.19% 0.19%
LARL Laurel Capital Group Inc. of PA 0.62% 4.39% 2.00% 2.40% 0.00% 2.39% 0.00% 0.01% 0.46% 0.46%
PBCI Pamrapo Bancorp, Inc. of NJ 1.24% 5.64% 1.79% 3.85% 0.02% 3.83% 0.02% 0.03% 0.30% 0.35%
SYNF Synergy Financial Group of NJ 0.53% 4.74% 1.85% 2.89% 0.19% 2.69% 0.00% 0.00% 0.43% 0.43%
THRD TF Financial Corp. of Newtown PA 1.03% 5.03% 1.46% 3.57% 0.10% 3.48% 0.01% 0.00% 0.39% 0.40%
WVFC WVS Financial Corp. of PA 0.65% 4.23% 2.77% 1.45% 0.01% 1.44% 0.00% 0.00% 0.16% 0.16%
WGBC Willow Grove Bancorp Inc. of PA 0.69% 4.96% 1.84% 3.12% 0.12% 3.00% 0.03% 0.00% 0.38% 0.41%
G&A/Other Exp. Non-Op. Items Yields, Costs, and Spreads
---------------- ------------- ---------------------------
MEMO: MEMO:
G&A Goodwill Net Extrao. Yield Cost Yld-Cost Assets/ Effective
Expense Amort. Gains Items On Assets Of Funds Spread FTE Emp. Tax Rate
------- ------ ----- ----- --------- -------- ------ -------- --------
ASB Holding Company
- -------------------
March 31, 2005 1.90% 0.00% 0.04% 0.00% 4.72% 2.41% 2.31% $7,229 37.79%
All Public Companies 2.45% 0.02% 0.06% 0.01% 5.09% 2.18% 2.91% $5,242 32.83%
State of NJ 2.00% 0.03% 0.08% 0.00% 4.92% 2.12% 2.80% $6,129 35.63%
Comparable Group Average 2.01% 0.02% -0.02% 0.00% 5.06% 2.33% 2.73% $6,052 29.72%
Mid-Atlantic Companies 2.01% 0.02% -0.02% 0.00% 5.06% 2.32% 2.73% $6,052 29.72%
Comparable Group
- ----------------
Mid-Atlantic Companies
- ----------------------
ALFC Atlantic Liberty Financial of NY 2.67% 0.00% -0.46% 0.00% 5.68% 1.90% 3.78% $7,665 55.64%
ESBK Elmira Savings Bank, FSB of NY 2.64% 0.03% 0.10% 0.00% 5.39% 1.94% 3.44% $3,348 33.63%
FSBI Fidelity Bancorp, Inc. of PA 1.82% 0.01% 0.02% 0.00% 4.89% 2.76% 2.12% $4,959 17.81%
FKFS First Keystone Financial, Inc. of PA 2.06% 0.00% 0.01% 0.00% 4.90% 2.80% 2.10% $5,818 11.18%
HARL Harleysville Savings Fin. Corp. of P 1.08% 0.00% 0.02% 0.00% 4.84% 3.14% 1.70% $9,848 25.30%
LARL Laurel Capital Group Inc. of PA 1.86% 0.12% 0.00% 0.00% 4.61% 2.23% 2.38% $4,734 29.79%
PBCI Pamrapo Bancorp, Inc. of NJ 2.10% 0.00% 0.00% 0.00% 5.74% 1.97% 3.77% $6,036 40.43%
SYNF Synergy Financial Group of NJ 2.29% 0.01% 0.00% 0.00% 4.94% 2.14% 2.80% $6,181 36.21%
THRD TF Financial Corp. of Newtown PA 2.45% 0.02% 0.00% 0.00% 5.28% 1.63% 3.65% $3,660 27.09%
WVFC WVS Financial Corp. of PA 0.86% 0.00% 0.09% 0.00% 4.27% 3.00% 1.27% $9,680 21.96%
WGBC Willow Grove Bancorp Inc. of PA 2.25% 0.01% -0.03% 0.00% 5.09% 2.09% 3.00% $4,646 27.89%
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP(R) Financial, LC. calculations. The
information provided in this table has been obtained from sources we
believe are reliable, but we cannot guarantee the accuracy or
completeness of such information.
Copyright (c) 2005 by RP(R) Financial, LC.
RP(R) Financial, LC.
Page 3.11
The Company's weaker net interest income ratio resulted from a lower
ratio of interest income to average assets as the ratio of interest expense to
average assets was modestly favorable in comparison to the Peer Group average.
The Company's lower interest income ratio was the result of its lower yield on
interest-earning assets (4.72% versus 5.06% for the Peer Group), which was
realized notwithstanding the Company's higher loans/assets ratio. The Company's
lower interest expense ratio was realized notwithstanding its modestly higher
cost of funds in comparison to the Peer Group (2.41% versus 2.33% for the Peer
Group). Overall, ASB and the Peer Group reported net interest income to average
assets ratios of 2.54% and 2.77%, respectively.
Non-interest operating income is a lower contributor to ASB's earnings
relative to the Peer Group, at 0.26% and 0.43%, respectively, which is
indicative of the Company's more traditional strategy and lesser contribution
from other fee income generating activities. While the Company will be seeking
to expand the level of non-interest income in the future through a greater
emphasis on building commercial account relationships and undertaking secondary
market loan sales, the increase is expected to be gradual and may result in an
interim increase in operating costs as well (as noted below).
ASB operates with a lower operating expense ratio than the Peer Group,
reflecting its historical emphasis on mortgage lending (which typically entails
a lower cost structure than non-mortgage lending), and more limited emphasis on
non-traditional fee generating activities. Additionally, the Company's operating
costs have been constrained by its large average branch size in comparison to
the Peer Group as its efficient two office operation limits overhead costs. In
this regard, the Company maintains a relatively higher level of assets per
employee in comparison to the Peer Group ($7.2 million for ASB versus $6.1
million for the Peer Group on average. Overall, the operating expense ratios for
ASB and the Peer Group were 1.90% and 2.01%, respectively.
ASB's operating expenses are expected to increase following the
second step stock offering as a result of the expense of the stock-related
benefit plans and the long-term plans to continue to expand the branch network
and commercial lending functions. However, over the
RP(R) Financial, LC.
Page 3.12
long term, the Company will be seeking to offset such costs through growth and
increased efficiency.
ASB's efficiency ratio (operating expenses as a percent of the sum of
non-interest operating income and net interest income) of 68.0% is less
favorable than the Peer Group's ratio of 62.8%, as the Company's revenue ratio
disadvantages were only partially offset by its lower operating expense ratio.
On a post-offering basis, the Company's efficiency ratio is expected to show
some improvement as the net interest ratio increases with the reinvestment of
proceeds, although the increased operating expenses (reflecting the costs of
developing ASB's branch office and commercial lending infrastructure as well as
stock plans expenses) may limit the improvement. Thus, the efficiency ratio is
expected to remain at a competitive disadvantage relative to the Peer Group.
Loan loss provisions had a comparable impact on the Company's earnings,
amounting to 0.06% of average assets for both the Company and the Peer Group. To
the extent that commercial mortgage and C&I loans account for a significant
portion of the Company's future growth, the level of loan loss provisions
established on an annual basis may increase in response to the heightened credit
risk profile.
Gains and losses from the sale of assets had a slightly more favorable
impact on the Company's earnings for the twelve month period shown in Table 3.3,
as the Company reported net gains equal to 0.04% of average assets versus a net
loss equal to 0.02% of average assets reported by the Peer Group.
The Company's effective tax rate for the last 12 months of 37.79% is
modestly above the Peer Group average of 29.72%. The Company expects that its
effective tax rate may improve with its investment subsidiary limiting state
income tax payable, but the Company's reduced tax rate is expected to remain at
a comparative disadvantage relative to the Peer Group
Loan Composition
- ----------------
Table 3.4 presents data related to the Company's and the Peer Group's
loan portfolio compositions as of March 31, 2005, as well as data pertaining to
investment in mortgage-backed securities, loans serviced for other and risk
weighted assets. In comparison to the Peer Group,
RP(R) Financial, LC.
Page 3.13
Table 3.4
Loan Portfolio Composition and Related Information
Comparable Institution Analysis
As of March 31, 2005
Portfolio Composition as a Percent of Assets
----------------------------------------------------
1-4 Constr. 5+Unit Commerc. RWA/ Serviced Servicing
Institution MBS Family & Land Comm RE Business Consumer Assets For Others Assets
----------- --- ------ ------ ------- -------- -------- ------ ---------- ------
(%) (%) (%) (%) (%) (%) (%) ($000) ($000)
ASB Holding Company 13.82% 59.48% 1.84% 12.58% 0.15% 2.71% 54.01% $15,865 $72
All Public Companies 13.11% 36.11% 5.44% 16.66% 3.37% 3.79% 60.66% $698,126 $9,129
State of NJ 22.30% 40.84% 1.19% 9.91% 2.32% 1.17% 50.91% $116,599 $1,172
Comparable Group Average 24.23% 35.44% 2.88% 12.01% 2.75% 1.90% 53.91% $17,898 $110
Comparable Group
- ----------------
ALFC Atlantic Liberty Financial of NY 23.74% 31.93% 3.77% 29.02% 0.57% 0.00% 54.35% $0 $0
ESBK Elmira Savings Bank, FSB of NY 21.31% 31.62% 1.30% 11.02% 8.68% 9.45% 59.11% $75,371 $526
FSBI Fidelity Bancorp, Inc. of PA 21.71% 26.65% 4.94% 9.58% 0.66% 4.64% 61.89% $4 $0
FKFS First Keystone Financial, Inc. of PA 26.72% 35.56% 4.59% 11.18% 0.25% 1.60% 57.64% $51,283 $240
HARL Harleysville Savings Fin. Corp. of PA 35.94% 45.11% 0.08% 0.51% 0.14% 0.00% 45.54% $3,435 $0
LARL Laurel Capital Group Inc. of PA 5.55% 61.85% 0.96% 0.93% 0.89% 0.18% 51.15% $150 $0
PBCI Pamrapo Bancorp, Inc. of NJ 31.45% 40.94% 2.06% 18.75% 0.38% 0.10% 53.52% $872 $0
SYNF Synergy Financial Group of NJ 26.20% 27.83% 0.65% 16.61% 16.72% 1.36% 66.72% $7,768 $0
THRD TF Financial Corp. of Newtown PA 18.50% 51.65% 3.18% 12.68% 0.78% 1.08% 54.02% $4,423 $41
WVFC WVS Financial Corp. of PA 27.90% 7.96% 3.17% 3.20% 0.23% 0.20% 31.23% $1,200 $0
WGBC Willow Grove Bancorp Inc. of PA 27.55% 28.73% 7.01% 18.62% 0.95% 2.25% 57.80% $52,374 $408
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP(R) Financial, LC. calculations. The
information provided in this table has been obtained from sources we
believe are reliable, but we cannot guarantee the accuracy or
completeness of such information.
Copyright (c) 2005 by RP(R) Financial, LC.
RP(R) Financial, LC.
Page 3.14
the Company's loan portfolio composition reflected a higher
concentration in the aggregate of 1-4 family residential mortgage loans and
mortgage-backed securities (73.3% of assets versus 59.7% for the Peer Group).
The Company maintained a higher concentration of 1-4 family loans, which was
partially offset by the Peer Group's higher concentration of mortgage-backed
securities. ASB's loans serviced for others represented a relatively comparable
off-balance sheet item for the Peer Group in terms of the balance of loans
serviced ($15.7 million for the Company versus $17.9 million for the Peer
Group). Servicing assets were limited for both the Company and the Peer Group.
Diversification into higher risk types of lending was comparable for
the Company and the Peer Group on average. Commercial real estate/multi-family
loans represented the most significant area of diversification for the Company
(12.6% of assets), followed by consumer loans (2.7% of assets). The Peer Group's
lending diversification consisted primarily of commercial real
estate/multi-family loans (12.0% of assets), with modest levels of construction,
commercial and consumer lending. The similarity of the loan portfolio
composition overall resulted in a similar risk-weighted assets-to-assets ratio
(54.01% for the Company versus 53.91% for the Peer Group).
Credit Risk
- -----------
The Company's credit risk exposure appears to be modestly lower than
the Peer Group's, on average, based on the ratios of NPAs/assets and reserve
coverage ratio. As shown in Table 3.5, the Company's ratio of NPAs and accruing
loans that are more than 90 days past due was equal to 0.08% of assets and was
thus below the comparable Peer Group ratio of 0.30%. The Company maintained a
significantly lower non-performing loans/loans ratio than the Peer Group (0.11%
versus 0.52% for the Peer Group). The reserve coverage for the Company as a
percent of NPAs was 481.5% versus an average of 271.9% for the Peer Group. The
Company did not report any loan chargeoffs while chargeoffs were nominal for the
Peer Group. The one area of credit quality where the Company falls short of the
Peer Group is with respect to the ratio of reserves to total loans, which
equaled 0.50% for the Company versus 0.87% for the Peer Group on average.
RP(R) Financial, LC.
Page 3.15
Table 3.5
Credit Risk Measures and Related Information
Comparable Institution Analysis
As of March 31, 2005 or Most Recent Date Available
NPAs & Rsrves/
REO/ 90+Del/ NPLs/ Rsrves/ Rsrves/ NPAs & Net Loan NLCs/
Institution Assets Assets Loans Loans NPLs 90+Del Chargoffs Loans
----------- ------ ------ ----- ----- ---- ------ --------- -----
(%) (%) (%) (%) (%) (%) ($000) (%)
ASB Holding Company 0.00% 0.08% 0.11% 0.50% 481.48% 481.48% $0 0.00%
All Public Companies 0.07% 0.46% 0.54% 0.91% 278.12% 252.28% $341 0.07%
State of NJ 0.00% 0.14% 0.26% 0.70% 317.98% 353.28% $108 0.00%
Comparable Group Average 0.06% 0.30% 0.52% 0.87% 271.86% 284.63% $89 0.06%
Comparable Group
- ----------------
ALFC Atlantic Liberty Financial of NY 0.04% 0.09% 0.07% 0.61% 828.09% 441.32% $0 0.00%
ESBK Elmira Savings Bank, FSB of NY 0.00% 0.17% 0.26% 0.99% 376.35% 369.25% $23 0.05%
FSBI Fidelity Bancorp, Inc. of PA 0.19% N.A. 1.12% 0.81% 72.06% N.A. $130 0.17%
FKFS First Keystone Financial, Inc. of PA 0.16% 0.98% 1.51% 0.67% 44.64% 36.65% $29 0.04%
HARL Harleysville Savings Fin. Corp. of PA 0.00% 0.03% N.A. 0.56% N.A. 824.69% $3 0.00%
LARL Laurel Capital Group Inc. of PA 0.04% 0.31% 0.41% 0.97% 239.86% 207.91% $7 -0.01%
PBCI Pamrapo Bancorp, Inc. of NJ 0.00% 0.50% 0.56% 0.62% 111.64% 80.47% $4 0.00%
SYNF Synergy Financial Group of NJ 0.00% 0.02% 0.03% 0.78% N.A. N.A. $167 0.12%
THRD TF Financial Corp. of Newtown PA 0.11% 0.22% 0.16% 0.49% 305.50% 155.64% $236 0.21%
WVFC WVS Financial Corp. of PA 0.00% N.A. N.A. 1.99% N.A. N.A. $185 -0.02%
WGBC Willow Grove Bancorp Inc. of PA 0.07% 0.38% 0.52% 1.03% 196.70% 161.11% $193 0.13%
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP(R) Financial, LC. calculations. The
information provided in this table has been obtained from sources we
believe are reliable, but we cannot guarantee the accuracy or
completeness of such information.
Copyright (c) 2005 by RP(R) Financial, LC.
RP(R) Financial, LC.
Page 3.16
Interest Rate Risk
- ------------------
Table 3.6 reflects various key ratios highlighting the relative
interest rate risk exposure. From a balance sheet perspective, ASB's lower
IEA/IBL ratio suggests higher exposure while the slightly higher equity/assets
ratio suggests lower exposure. Following the second step offering, these ratios
should improve relative to the Peer Group. In the absence of comparability in
timely interest rate risk reporting and methodology, we reviewed quarterly
changes in the net interest income ratio.
To analyze interest rate risk associated with the net interest margin,
we reviewed quarterly changes in net interest income as a percent of average
assets for ASB and the Peer Group. In general, the relative fluctuations in the
Company's and the Peer Group's net interest income to average assets ratios were
considered to be modestly greater during the period analyzed in Table 3.6,
suggesting potentially greater risk exposure. The stability of the Company's net
interest margin should be enhanced by the infusion of stock proceeds, as the
increase in capital will reduce the level interest rate sensitive liabilities
funding ASB's assets.
Summary
- -------
Based on the above analysis and the criteria employed in the selection
of the companies for the Peer Group, RP Financial concluded that the Peer Group
forms a reasonable basis for determining the pro forma market value of ASB. Such
general characteristics as asset size, capital position, interest-earning asset
composition, funding composition, core earnings measures, loan composition,
credit quality and exposure to interest rate risk all tend to support the
reasonability of the Peer Group from a financial standpoint. Those areas where
differences exist will be addressed in the form of valuation adjustments to the
extent necessary.
RP(R) Financial, LC.
Page 3.17
Table 3.6
Interest Rate Risk Measures and Net Interest Income Volatility
Comparable Institution Analysis
As of March 31, 2005 or Most Recent Date Available
Balance Sheet Measures
---------------------------
Non-Earn. Quarterly Change in Net Interest Income
Equity/ IEA/ Assets/ --------------------------------------------------------
Institution Assets IBL Assets 3/31/05 12/31/04 9/30/04 6/30/04 3/31/04 12/31/03
----------- ------ --- ------ ------- -------- ------- ------- ------- --------
(%) (%) (%) (change in net interest income is annualized in basis points)
ASB Holding Company 8.8% 106.6% 4.1% 7 5 -1 -16 36 27
All Public Companies 9.7% 107.4% 4.9% -3 -1 2 -5 0 9
State of NJ 11.7% 111.6% 4.4% 0 -10 15 -7 3 22
Comparable Group Average 8.4% 107.1% 3.5% 1 -4 4 -7 6 19
Comparable Group
- ----------------
ALFC Atlantic Liberty Financial of NY 15.1% 116.5% 3.5% -2 7 -23 -8 10 20
ESBK Elmira Savings Bank, FSB of NY 6.7% 103.8% 4.0% -4 -12 -2 0 -12 24
FSBI Fidelity Bancorp, Inc. of PA 5.9% 104.0% 3.5% 0 1 2 -8 26 1
FKFS First Keystone Financial, Inc. of PA 5.1% 101.2% 5.0% 9 -2 -6 9 -11 -2
HARL Harleysville Savings Fin. Corp. of PA 6.1% 104.2% 3.0% 2 1 5 -5 7 13
LARL Laurel Capital Group Inc. of PA 7.8% 106.6% 4.8% 11 3 14 -20 30 -15
PBCI Pamrapo Bancorp, Inc. of NJ 8.7% 108.7% 1.9% 0 -7 7 6 -10 34
SYNF Synergy Financial Group of NJ 11.4% 109.0% 4.2% -8 -12 -3 -32 N.A. N.A.
THRD TF Financial Corp. of Newtown PA 8.8% 106.5% 4.5% 5 -11 -3 -2 0 93
WVFC WVS Financial Corp. of PA 6.8% 106.9% 1.0% 0 -22 26 5 14 12
WGBC Willow Grove Bancorp Inc. of PA 10.5% 110.2% 2.6% -2 8 22 -22 3 14
NA=Change is greater than 100 basis points during the quarter.
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP(R) Financial, LC. calculations. The
information provided in this table has been obtained from sources
we believe are reliable, but we cannot guarantee the accuracy or
completeness of such information.
Copyright (c) 2005 by RP(R) Financial, LC.
RP(R) Financial, LC.
Page 4.1
IV. VALUATION ANALYSIS
Introduction
- ------------
This chapter presents the valuation analysis and methodology, prepared
pursuant to the regulatory valuation guidelines, and valuation adjustments and
assumptions used to determine the estimated pro forma market value of the common
stock to be issued in conjunction with the Company's conversion transaction.
Appraisal Guidelines
- --------------------
The OTS written appraisal guidelines specify the market value
methodology for estimating the pro forma market value of an institution pursuant
to a mutual-to-stock conversion. Pursuant to this methodology: (1) a peer group
of comparable publicly-traded institutions is selected; (2) a financial and
operational comparison of the subject company to the peer group is conducted to
discern key differences; and (3) a valuation analysis in which the pro forma
market value of the subject company is determined based on the market pricing of
the peer group as of the date of valuation, incorporating valuation adjustments
for key differences. In addition, the pricing characteristics of recent
conversions, both at conversion and in the aftermarket, must be considered.
RP Financial Approach to the Valuation
- --------------------------------------
The valuation analysis herein complies with such regulatory approval
guidelines. Accordingly, the valuation incorporates a detailed analysis based on
the Peer Group, discussed in Chapter III, which constitutes "fundamental
analysis" techniques. Additionally, the valuation incorporates a "technical
analysis" of recently completed stock conversions, including closing pricing and
aftermarket trading of such offerings. It should be noted that these valuation
analyses cannot possibly fully account for all the market forces which impact
trading activity and pricing characteristics of a particular stock on a given
day.
The pro forma market value determined herein is a preliminary value for
the Company's to-be-issued stock. Throughout the conversion process, RP
Financial will: (1) review changes in
RP(R) Financial, LC.
Page 4.2
ASB's operations and financial conditions; (2) monitor ASB's operations and
financial conditions relative to the Peer Group to identify any fundamental
changes; (3) monitor the external factors affecting value including, but not
limited to, local and national economic conditions, interest rates, and the
stock market environment, including the market for thrift stocks; and (4)
monitor pending conversion offerings (including those in the offering phase),
both regionally and nationally. If material changes should occur during the
conversion process, RP(R) Financial will evaluate if updated valuation reports
should be prepared reflecting such changes and their related impact on value, if
any. RP(R) Financial will also prepare a final valuation update at the closing
of the offering to determine if the prepared valuation analysis and resulting
range of value continues to be appropriate.
The appraised value determined herein is based on the current market
and operating environment for the Company and for all thrifts. Subsequent
changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or major world events), which may occur from time to time
(often with great unpredictability) may materially impact the market value of
all thrift stocks, including ASB's value, or ASB's value alone. To the extent a
change in factors impacting the Company's value can be reasonably anticipated
and/or quantified, RP Financial has incorporated the estimated impact into the
analysis.
Valuation Analysis
- ------------------
A fundamental analysis discussing similarities and differences relative
to the Peer Group was presented in Chapter III. The following sections summarize
the key differences between the Company and the Peer Group and how those
differences affect the pro forma valuation. Emphasis is placed on the specific
strengths and weaknesses of the Company relative to the Peer Group in such key
areas as financial condition, profitability, growth and viability of earnings,
asset growth, primary market area, dividends, liquidity of the shares, marketing
of the issue, management, and the effect of government regulations and/or
regulatory reform. We have also considered the market for thrift stocks,
including the market for new issues, to assess the impact on value of ASB coming
to market at this time.
RP(R) Financial, LC.
Page 4.3
1. Financial Condition
-------------------
The financial condition of an institution is an important determinant
in pro forma market value, because investors typically look to such factors as
liquidity, capital, asset composition and quality, and funding sources in
assessing investment attractiveness. The similarities and differences in the
Company's and the Peer Group's financial strength are noted as follows:
o Overall A/L Composition. Loans and investments funded by retail
-------------------------
deposits were the primary components of the Company's and Peer Group's
balance sheets. The Company's interest-earning asset composition
exhibited a higher concentration of loans with a comparable level of
diversification into high risk-weight loans and a relatively similar
risk-weighted assets/total assets ratio. ASB's funding composition
reflected a higher level of deposits and a lower level of borrowings
than the comparable Peer Group ratios. Overall, as a percent of
assets, the Company maintained a slightly lower level of
interest-earning assets and a slightly higher level of
interest-bearing liabilities compared to the Peer Group, which
provided for a slightly lower IEA/IBL ratio for the Company.
o Credit Quality. The Company's credit risk profile appears to be
---------------
comparatively favorable based on lower NPAs/assets and stronger
reserve coverage ratios in relation to NPAs and non-performing loans
("NPLs"). At the same time, the Peer Group's credit quality ratios are
also relatively strong and their history of loan losses and chargeoffs
has been limited. The Peer Group maintains higher allowances for loan
losses to total loans outstanding, however.
o Balance Sheet Liquidity. The Company operated with a lower level of
------------------------
cash and investment securities relative to the Peer Group (20.3% of
assets versus 40.8% for the Peer Group). Following the infusion of
stock proceeds, the Company's cash and investments ratio is expected
to increase as the net proceeds will be initially deployed into
investments. The Company's future borrowing capacity was considered to
be slightly greater than the Peer Group's, in light of the lower level
of borrowings maintained by the Company.
o Funding Liabilities. Retail deposits served as the primary
---------------------
interest-bearing source of funds for the Company and the Peer Group,
with the Company maintaining a higher deposits-to-assets ratio than
the Peer Group. Comparatively, the Peer Group's funding compositions
reflected slightly higher utilization of borrowings than the Company.
In total, the Company maintained a slightly higher level of
interest-bearing liabilities than the Peer Group and the Company's
cost of funds was slightly higher than the cost of the Peer Group's
interest-bearing liabilities. Following the stock offering, the
infusion of stock proceeds can be expected to support an increase in
the Company's capital ratio and a resulting decline in the level of
interest-bearing liabilities maintained as a percent of assets.
RP(R) Financial, LC.
Page 4.4
o Capital. The Company operates with a slightly higher pre-offering
-------
capital ratio than the Peer Group, 8.8% and 8.7% of assets,
respectively. Accordingly, following the second-step conversion
offering, the difference between the Company's and the Peer Group's
equity-to-assets ratio will become more significant. ASB's higher pro
forma capital position implies greater leverage capacity, lower
dependence on interest-bearing liabilities to fund assets and a
greater capacity to absorb unanticipated losses. At the same time, the
Company's higher pro forma capital position will depress its return on
equity.
On balance, ASB's balance sheet strength was considered to be more
favorable than the Peer Group's, as implied by the Company's more favorable
overall asset/liability composition, credit quality and capital strength.
Accordingly, a slight upward adjustment was determined to be appropriate for the
Company's financial condition.
2. Profitability, Growth and Viability of Earnings
-----------------------------------------------
Earnings are a key factor in determining pro forma market value, as the
level and risk characteristics of an institution's earnings stream and the
prospects and ability to generate future earnings heavily influence the multiple
the investment community will pay for earnings. The major factors considered in
the valuation are described below.
o Reported Earnings. The Company's pre-conversion profitability is
------------------
modestly below the Peer Group average on an ROAA basis (0.55% of
average assets versus 0.76% for the Peer Group). The Peer Group's
favorable earnings are the result of their higher average revenues
(both net interest income and non-interest income) and lower effective
tax rate, which are only partially offset by the Company's lower
operating expense ratio. On a pro forma basis, the Company's initial
proceeds reinvestment benefit will be offset to an extent by the stock
benefit plans expense, which will result in a lower pro forma ROA for
the Company versus the Peer Group. Moreover, there remain certain
unknown aspects of the Company's future earnings, such as the ability
to realize profitable growth objectives that cover the anticipated
investments in personnel and fixed assets.
Interest Rate Risk. Quarterly changes in the Company's net interest
-------------------
income to average assets ratios were modestly more volatile relative
to the Peer Group average. Other quantitative risk measures show that
the Company has greater risk exposure with respect to the volatility
of its post-shock NPV ratios in comparison to all OTS regulated thrift
institutions with total assets ranging between $100 million to $1
billion. At the same time, the capital raised in the second step stock
offering will serve to mitigate the Company's interest rate risk
exposure prospectively.
RP(R) Financial, LC.
Page 4.5
o Credit Risk. Factors indicating the Company's lower credit risk
------------
profile include, lower NPAs/assets and stronger reserve coverage.
Additionally, loan loss provisions as a percent of average assets are
comparable to the Peer Group average. At the same time, the Company's
ratio of reserves to total loans is below the Peer Group average.
Moreover, the Company's future diversification strategy may increase
the relative credit risk exposure in comparison to the Peer Group.
o Earnings Growth Potential. The Company's faster balance sheet growth
--------------------------
in comparison to the Peer Group suggests stronger earnings growth
potential for the Company. While the current equity level may restrict
such growth in the future, the capital to be raised in the offering
should allow such growth to continue for the Company. Moreover,
management expects that on-going infrastructure investments (i.e., in
fixed assets, personnel, etc.) and the building of commercial account
relationships may enhance the long-term earnings growth potential. At
the same time, such expenditures may depress near-term earnings growth
potential and involve execution risk that management may not achieve
the targeted portfolio goals for the Company or that such activities
may not be as profitable as currently anticipated. One other factor
that may favorably influence earnings is the expected reduction in the
state income tax payable attributable to the newly-formed investment
subsidiary.
o Return on Equity. The Company's pro forma capital position will exceed
----------------
the Peer Group average. Coupled with its lower pro forma ROA, the
Company's pro forma core ROE is anticipated to be lower than the Peer
Group average.
Overall, we concluded that a slight downward adjustment for
profitability, growth and viability of earnings was appropriate.
3. Asset Growth
------------
The Company's recent asset growth exceeded the Peer Group average,
reflecting the Company's efforts to support earnings through leveraging equity,
which has primarily been centered on loan portfolio growth. On a pro forma
basis, the Company should have the equity to facilitate continued growth and
expansion, and its pro forma equity position will be higher than for the Peer
Group, on average. On balance, we believe a slight upward adjustment was
warranted for this factor.
4. Primary Market Area
-------------------
The general condition of an institution's market area has an impact on
value, as future success is in part dependent upon opportunities for profitable
activities in the local market
RP(R) Financial, LC.
Page 4.6
served. Operating in northern New Jersey, the Company faces significant
competition for loans and deposits from other financial institutions, many of
which are larger, provide a broader array of services and have significantly
larger branch networks than maintained by the Company. ASB's primary market area
for deposits and loans is Essex County, where both of the Company's branches are
located. Essex County's population increased at a moderate pace during the first
four years of this decade, with additional modest population growth projected
over the next five years (see Table 4.1). Importantly, population growth rates
for Essex County are comparable to the growth rates posted for the Peer Group's
market areas on average.
Per capita income measures for Essex County were lower than the
comparable measures for New Jersey but approximated the median and average
income measures for the Peer Group's markets. The comparability of income levels
for Essex County and the Peer Group's primary market areas is reflective of the
urban and suburban locations of many of the Peer Group's institutions markets on
an individual basis. The local economy in Essex County has benefited from
regional economic growth and the unemployment rate of 5.4%, which includes areas
of inner-city Newark with relatively high unemployment, and is only modestly
above the average for the Peer Group's market areas of 4.5%
In general, with several exceptions, the Peer Group companies operate
in large urban and suburban markets in the Mid-Atlantic region. Given the
selection criteria which emphasized institutions with $100 to $1 billion of
total assets, the Peer Group institutions necessarily hold a relatively small
market share of their respective markets overall. Thus, the Company's deposit
market share of 2.1% of the Essex County deposit market is relatively comparable
to the Peer Group average.
On balance, we concluded that no adjustment was appropriate for the
Company's market area.
5. Dividends
---------
ASB has indicated its intention to pay dividends but has not specified
the level of the future dividend to be paid. The Company paid its first regular
quarterly dividend in June 2005, at a rate of $0.09 per share. Importantly,
future declarations of dividends by the Board of Directors will depend upon a
number of factors, including investment opportunities, growth
RP(R) Financial, LC.
Page 4.7
Table 4.1
ASB Holding Company
Peer Group Market Area Comparative Analysis
Per Capita
Estimated Income 6/30/04
Population Projected Estimated Projected ---------------- Deposit Unemployment
Headquarters ------------ Population 2000-2004 2004-2009 % State Market Rate
Institution City 2000 2004 2009 % Change % Change Amount Average Share(1) 12/31/2004
- ----------- ---- ---- ---- ---- -------- -------- ------ ------- -------- ----------
(000) (000) (000)
Atlantic Liberty
Financial of NY Brooklyn 2,465 2,497 2,533 1.28% 1.44% $18,150 70.26% 0.38% 6.5%
Elmira Savings Bank,
FSB of NY Elmira 91 90 89 -0.96% -1.34% $20,491 79.32% 20.07% 5.1%
Fidelity Bancorp,
Inc. of PA Pittsburgh 1,282 1,264 1,242 -1.41% -1.69% $25,153 107.36% 0.79% 4.4%
First Keystone
Financial, Inc.
of PA Media 551 555 562 0.83% 1.10% $27,945 119.28% 3.88% 4.4%
Harleysville Savings
Fin. Corp. of PA Harleysville 750 778 813 3.72% 4.55% $34,965 149.24% 2.49% 3.3%
Laurel Capital Group
Inc. of PA Allison Park 1,282 1,264 1,242 -1.41% -1.69% $25,153 107.36% 0.55% 4.4%
Pamrapo Bancorp,
Inc. of NJ Bayonne 609 608 607 -0.11% -0.26% $23,819 77.94% 1.49% 5.5%
Synergy Financial
Group of NJ Cranford 523 535 549 2.30% 2.69% $30,127 98.59% 2.30% 4.2%
TF Financial Corp
of Newtown PA Newtown 598 620 648 3.75% 4.58% $31,496 134.43% 1.59% 4.1%
Willow Grove
Bancorp, Inc. of PA Maple Glen 750 778 813 3.72% 4.55% $34,965 149.24% 2.62% 3.3%
WVS Financial Corp.
of PA Pittsburgh 1,282 1,264 1,242 -1.41% -1.69% $25,153 107.36% 0.37% 4.4%
Averages: 926 932 940 0.94% 1.11% $27,038 109.12% 3.32% 4.5%
Medians: 750 778 813 0.83% 1.10% $25,153 107.36% 1.59% 4.4%
ASB Holding Co. Essex 794 800 807 0.83% 0.90% $27,501 89.99% 2.07% 5.4%
(1) Total institution deposits in headquarters county as percent of total county
deposits (banks and thrifts only).
Sources: Claritas, FDIC.
RP(R) Financial, LC.
Page 4.8
objectives, financial condition, profitability, tax considerations, minimum
capital requirements, regulatory limitations, stock market characteristics and
general economic conditions.
All eleven of the Peer Group companies pay regular cash dividends, with
implied dividend yields ranging from 1.18% to 4.02%. The average dividend yield
on the stocks of the Peer Group institutions was 2.76% as of May 31, 2005,
representing an average payout ratio of 44.6% of earnings. As of May 31, 2005,
approximately 90% of all publicly-traded thrifts had adopted cash dividend
policies (see Exhibit IV-1) exhibiting an average yield of 2.24% and an average
payout ratio of 36.0% of earnings. The dividend paying thrifts generally
maintain higher than average profitability ratios, facilitating their ability to
pay cash dividends.
On balance, we concluded that no adjustment is warranted for purposes
of dividends relative to the Peer Group, primarily taking into account the lack
of a stated dividend policy, as well as the lower pro forma ROA and higher pro
forma capital ratio.
6. Liquidity of the Shares
-----------------------
The Peer Group is by definition composed of companies that are traded
in the public markets. All eleven of the Peer Group companies trade on the
NASDAQ system. Typically, the number of shares outstanding and market
capitalization provides an indication of how much liquidity there will be in a
particular stock. The market capitalization of the Peer Group companies ranged
from $33.8 million to $150.2 million as of May 31, 2005, with average and median
market values of $74.1 million and $61.4 million, respectively. The shares
issued and outstanding to the public shareholders of the Peer Group members
ranged from 1.1 million to 12.4 million, with average and median shares
outstanding of 4.2 million and 2.9 million, respectively. The Company's pro
forma market value and shares outstanding for the Company will be in the upper
end of the Peer Group range. The Company's stock will be quoted on the NASDAQ
National Market System following the conversion. Overall, we anticipate that the
Company's stock will have a comparable trading market as the Peer Group
companies on average and, therefore, concluded no adjustment was necessary for
this factor.
RP(R) Financial, LC.
Page 4.9
7. Marketing of the Issue
----------------------
We believe that four separate markets exist for thrift stocks,
including those coming to market such as ASB: (1) the after-market for public
companies, in which trading activity is regular and investment decisions are
made based upon financial condition, earnings, capital, ROE, dividends and
future prospects; (2) the new issue market in which converting thrifts are
evaluated on the basis of the same factors, but on a pro forma basis without the
benefit of prior operations as a fully-converted publicly-held company and stock
trading history; (3) the acquisition market for thrift franchises in New Jersey;
and (4) the market for the public stock of ASB. All of these markets were
considered in the valuation of the Company's to-be-issued stock.
A. The Public Market
-----------------
The value of publicly-traded thrift stocks is easily
measurable, and is tracked by most investment houses and related organizations.
Exhibit IV-1 provides pricing and financial data on all publicly-traded thrifts.
In general, thrift stock values react to market stimuli such as interest rates,
inflation, perceived industry health, projected rates of economic growth,
regulatory issues and stock market conditions in general. Exhibit IV-2 displays
historical stock market trends for various indices and includes historical stock
price index values for thrifts and commercial banks. Exhibit IV-3 displays
historical stock price indices for thrifts only.
In terms of assessing general stock market conditions, the
performance of the overall stock market has been mixed over the past year.
Strong employment data for May combined with lower oil prices and favorable
inflation data provided for a positive trend in the broader market through
mid-June. Stocks traded in a narrow range through the end of the second quarter,
as investors awaited the outcome of the Federal Reserve meeting at the end of
June.
Rising oil prices and profit warnings from some technology
companies caused major stock indices to fall at the start of the third quarter
of 2004. Stocks continued to trend lower through most of July, as a slow down in
the economic expansion raised concerns about future earnings growth. Strong
consumer confidence numbers for July reversed the downward trend in stocks
during the last week of July, with the Dow Jones Industrial Average ("DJIA")
closing up for the week for the first time since mid-June. The recovery in the
stock market was
RP(R) Financial, LC.
Page 4.10
short-lived, as record high oil prices, weak retail sales for July and weaker
than expected job growth for July pulled stocks lower in early-August. A
positive economic outlook by the Federal Reserve and bargain hunting supported
gains in the stock market during mid-August, as the DJIA moved back above the
10000 barrier. The DJIA hit a six week high in late-August, which was supported
by a drop in oil prices. After the DJIA closed at a two month high in
early-September, based on hopes for favorable employment numbers for August, the
broader stock market traded in a narrow range through mid-September. Concerns
that rising oil prices would hurt the economy and reduce corporate earnings
pressured stocks lower in late-September.
Stocks rallied at the start of the fourth quarter of 2004,
largely on the basis of a rebound in technology stocks due to an upbeat outlook
for third quarter earnings. Higher oil prices and allegations of improprieties
in the insurance industry pressured the DJIA to its lowest level of the year in
late-October. Lower oil prices reversed the downward trend in stock at the close
of October. The election outcome, a rise in consumer confidence and a strong
jobs report for October extended the stock market rally into mid-November, as
the DJIA hit a seven month high. Concerns about the falling dollar and a sharp
rise in October producer prices temporarily dampened the stock market rally in
late-November, but then stocks recovered in early-December on a sharp decline on
oil prices. Some favorable economic data, including a strong report on December
consumer confidence and a five-month low in new unemployment claims, helped to
extend the rally through the end of the year as the DJIA move to a three and
one-half year high.
The broader stock market started 2005 in a downward trend, as
investors reacted negatively to some disappointing economic data and indications
by the Federal Reserve that it was likely to keep raising rates because of
wariness about inflation. Concerns about slowing profit growth, weaker than
expected growth in the fourth quarter of 2004 and the elections in Iraq extended
the downward trend through mid-January. After three straight weekly declines,
the DJIA edged higher in the last week of January on some upbeat earnings
reports and a better than expected consumer confidence index. The positive trend
in the broader stock market continued during the first half of February, as the
Federal Reserve's quarter-point rate increase contained no surprises, oil prices
declined and January retail sale beat expectations. The broader stock market had
an uneven performance during the second half of February, reflecting concerns
about inflation, higher oil prices and a weak dollar.
RP(R) Financial, LC.
Page 4.11
Despite surging oil prices, the DJIA moved back into positive
territory for the year in early-March 2005. Strong job growth reflected in the
February employment data and better than expected retail sales for February were
factors that contributed to the positive move in stocks during the first week of
March. Higher oil prices and interest rates pressured stocks lower in mid-March,
as rising commodity prices rekindled inflation fears. The downturn in stocks
continued going into the second half of March, as stocks were weighed down by
news of a record U.S. trade deficit in 2004, General Motors' warning that
earnings would be significantly below an earlier forecast and record high oil
prices. Increased expectations of higher interest rates further depressed stocks
in late-March, as the Federal Reserve surprised investors by signaling for the
first time in more than four years that it was concerned with inflation. As
expected, the Federal Reserve concluded its March meeting by raising its target
for the federal funds rate to 2.75% from 2.5%. After dropping to a two-month
low, a decline in oil prices helped lift the DJIA to its biggest one-day gain
for the year at the end of March 2005. However, the first quarter of 2005 still
showed a decline in the DJIA for the third year in a row.
Weaker-than-expected job growth reflected in the March 2005
employment data pushed stocks lower at the start of the second quarter.
Following a brief rally in early-April, the broader stock market moved to a
five-month low in mid-April. The sell-off was based on concerns of a slowing
U.S. economy, higher inflation and rising oil prices. Comparatively, economic
data which showed a decline in initial jobless claims, a pick-up in Mid-Atlantic
manufacturing activity and strong new home sales combined with some favorable
first quarter earnings reports fueled a sharp rise in the stock market heading
into late-April. A stronger-than-expected employment report for April, optimism
about interest rates and a big planned purchase of General Motors shares helped
to lift stocks in early-May. Gains in the broader stock market generally
continued into late-May, as the trade deficit fell sharply in March, oil prices
dropped and the economy showed signs of sustaining growth with low inflation,
supported by news that first quarter GDP growth was higher than originally
indicated. On May 31, 2005, the DJIA closed at 10467.48, an increase of 2.7%
from one year ago and a decline of 2.9% year-to-date, and the NASDAQ closed at
2068.22, an increase of 4.1% from one year ago and a decline of 4.9%
year-to-date.
RP(R) Financial, LC.
Page 4.12
The market for thrift stocks has been mixed during the past
twelve months, but, in general, thrift stocks have appreciated and declined in
conjunction with the broader market. Thrift stocks generally retreated during
the first half of June, as the yield on the 10-year Treasury note moved to a
two-year high on inflation concerns. Following the sharp sell-off, thrift stocks
rebounded as a moderate increase in core consumer prices during may and comments
by the Federal Reserve Chairman that inflation was not viewed to be a serious
problem eased fears of a sharp rise in inflation. Acquisition activity helped to
boost thrift stocks in late-June, but the upward trend was abruptly reversed at
the end of June as a significant decline in Washington Mutual's 2004 earnings
guidance pulled the broader thrift sector lower.
Thrift stocks responded favorably to the 25 basis point rate
increase implemented by the Federal Reserve at the close of the second quarter
of 2004, as the Federal Reserve indicated that it would continue to raise the
federal funds rate 25 basis points at a time. June employment data which showed
weaker-than-expected job growth also provided support to thrift stocks in
early-July. For most of July there was little movement in thrift stocks, as
second quarter earnings were generally in line with expectations. A rally in the
broader market in late-July provided a boost to thrift stocks as well. Thrift
issues traded down with the rest of the market in early-August, although losses
in the thrift sector were mild compared to the sell-off experienced in the
boarder market as weaker than expected job growth for July pushed interest rates
lower. Improved inflation data, lower interest rates and a rally in the broader
stock market combined to push the thrift sector higher in mid-August. Thrift
stocks sustained a positive trend in late-August, which was fueled by lower
interest rates and strength in the broader stock market. The upward trend in
thrift prices continued through mid-September, as September employment data
matched expectations and inflation remained low. Thrift stocks edged lower at
the close of the third quarter, which was largely attributable to weakness in
the broader stock market.
Thrift issues also rebounded in conjunction with the broader
stock market rally at the start of the fourth quarter of 2004. After trading in
a narrow range into mid-October, thrift stocks moved lower on some disappointing
third quarter earnings and lower guidance on future earnings due to margin
compression resulting from a flatter yield curve. The rally in the boarder stock
market and the Federal Reserve's indication that inflation risks were well
contained fueled gains in the thrift sector during the first half of November.
Trading activity in thrift stocks was
RP(R) Financial, LC.
Page 4.13
mixed during late-November, as the rally lost steam on some profit taking and
higher than expected inflation data for October. Thrift issues followed the
broader market higher in early-December and then declined modestly into a narrow
trading range through late-December. The year end rally in the broader stock
market provided a slight boost to thrift prices as well.
The market for thrift stocks was mixed at the start of 2005,
but, in general, thrift stocks eased lower during January. Fourth quarter
earnings for the thrift sector were generally in line with expectations, but
concerns about higher interest rates and margin compression hindered thrift
stocks throughout most of January. Thrift stocks followed the broader market
higher in early-February, but then eased slightly in mid-February as long-term
interest rates spiked-up following an unexpected surge in the January 2005
wholesale core inflation rate. Comparatively, tame inflation data reflected in
the January consumer price index provided a boost to the thrift sector in
late-February. Thrift stocks followed the broader market higher in early-March,
as long-term interest rates declined slightly. Likewise, thrift stocks declined
in conjunction with broader market during mid-March on the spike-up in long-term
interest rates and signals from the Federal Reserve that it was becoming more
concerned about inflation. Thrift stocks participated in the broader market
rally at the close of the first quarter, with the SNL Thrift Index posting a
one-day gain of 1.3% compared to 1.1% gain for the DJIA.
Thrift issues started the second quarter trading in a narrow
range and then followed the broader market lower in mid-April reflecting
concerns that first quarter earnings in the thrift sector would show the
negative effects of net interest margin compression resulting from the
flattening of the yield curve. Acquisition speculation involving some large
thrifts and a strong report on new home sales in March provided a boost to
thrift stocks in late-April. Thrift stocks continued to show strength at the
beginning of May, as long-term Treasury yields headed higher on news that the
U.S. Treasury Department was considering bringing back the 30-year Treasury
bond. Surprisingly strong job growth cooled off the thrift rally at the end of
the first week of May. Thrift stocks rebounded in May on strength in the broader
market and a smaller than expected increase in the April consumer price index,
which served to ease inflation concerns and revisions to the first quarter GDP
report in late May which boosted the equities market as a whole. On May 31,
2005, the SNL Index for all publicly-traded thrifts closed at 1546.4, an
increase of 3.4% from one year ago and a decline of 3.7% year-to-date.
RP(R) Financial, LC.
Page 4.14
B. The New Issue Market
--------------------
In addition to thrift stock market conditions in general, the
new issue market for converting thrifts is also an important consideration in
determining the Company's pro forma market value. The new issue market is
separate and distinct from the market for seasoned thrift issues in that the
pricing ratios for converting issues are computed on a pro forma basis,
specifically: (1) the numerator and denominator are both impacted by the
conversion offering amount, unlike existing stock issues in which price change
affects only the numerator; and (2) the pro forma pricing ratio incorporates
assumptions regarding source and use of proceeds, effective tax rates, stock
plan purchases, etc. which impact pro forma financials, whereas pricing for
existing issues are based on reported financials. The distinction between
pricing of converting and existing issues is perhaps no clearer than in the case
of the price/book ("P/B") ratio in that the P/B ratio of a converting thrift
will typically result in a discount to tangible book value whereas in the
current market for existing thrifts the P/B ratio often reflects a premium to
book value. Therefore, it is appropriate to also consider the market for new
issues, both at the time of the conversion and in the aftermarket.
After experiencing a fairly strong market during 2004 and
early-2005, the new issue market for thrift stocks has not been as strong for
the recent thrift offerings completed. Most notably, a number of recent thrift
offerings are currently trading below their IPO prices. As shown in Table 4.2,
two standard conversions, three second-step conversions and six mutual holding
company offerings were completed during the past three months. The second-step
conversion offerings are considered to be more relevant for our analysis. In
general, second-step conversions tend to be priced (and trade in the
aftermarket) at a higher P/B ratio than standard conversions. We believe
investors take into consideration the generally more leveraged pro forma balance
sheets of second-step companies, their track records as public companies prior
to conversion, and their generally higher pro forma ROE measures relative to
standard conversions in pricing their common stocks. All the second step
offerings closed within the valuation range with Rome Bancorp and First Federal
of Northern Michigan Bancorp closing between the midpoint and the maximum of the
offering range after extending the offering period, and Hudson City Bancorp
closing its syndicated community offering between the minimum and the midpoint
of the offering range. Both of the recent offerings which have traded (Hudson
City Bancorp was
RP(R) Financial, LC.
Page 4.15
Pricing Characteristics and After-Market Trends
Conversions Completed in 2005
- ----------------------------------------------------------------------------------------------------------------------------------
Institutional Information Pre-Conversion Data Offering Information Contribution to
----------------------------- --------------------- ---------------
Financial Info. Asset Quality Char. Found.
- ---------------------------------------------------------------------------------------------------------------------------------
Conversion Equity NPAs/ Res. Gross % % of Exp./ % of
Institution ST. Date Ticker Assets Assets Asset Cov. Proc. Offer Mid. Proc. Form Offering
($Mil) (%) (%) (%) ($Mil.) (%) (%) (%) (%)
- --------------------------------------------------------------------------------------------------------------------------------
Standard Conversions
- --------------------
Benjamin Franklin Bancorp, Inc.*(1.7) MA 4/5/05 BFBC-NASDAQ $ 781 6.86% 0.02% NM $ 55.9 100% 112% 3.0% Stk. 6.7%
OC Financial, Inc.* OH 4/1/05 OCFL-OTCBB $ 56 5.20% 0.13% 294% $ 5.6 100% 93% 8.3% N.A N.A
Averages - Standard Conversions: $ 419 6.03% 0.08% 294% $ 30.8 100% 103% 5.7% N.A. N.A.
Medians - Standard Conversions: $ 419 6.03% 0.08% 294% $ 30.8 100% 103% 5.7% N.A. N.A.
Second Step Conversions
- -----------------------
Hudson City Bancorp, Inc.* NJ 6/7/05 HCBK-NASDAQ $21,131 7.50% 0.11% 126% $3,929.8 66% 92% 3.2% N.A N.A
First Federal of NM Bancorp, Inc.* NM I4/4/05. FFNM-NASDAQ $ 263 8.37% 0.85% 72% $ 17.0 55% 106% 4.4% C/S 3.9%
Rome Bancorp, Inc.* NY 3/31/05 ROME-NASDAQ $ 270 14.14% 0.31% 241% $ 59.0 62% 106% 5.1% N.A N.A
Averages - Second Step Conversions: $ 7,221 10.00% 0.42% 147% $1,335.3 61% 102% 4.2% N.A. N.A.
Medians - Second Step Conversions: $ 270 8.37% 0.31% 126% $ 59.0 62% 106% 4.4% N.A .N.A.
Mutual Holding Companies(6)
- ---------------------------
North Penn Bancorp, Inc.(1) PA 6/2/05 NPEN-OTCBB $ 93 8.33% 1.46% 69% $ 6.4 44% 85% 8.0% C/S 1.6%/4.4
Rockville Financial, Inc.(1) CT 5/23/05 RCKB-NASDAQ $ 890 7.70% 0.29% 266% $ 83.6 43% 115% 2.4% Stk .4.7%
FedFirst Financial Corporation* PA 4/7/05 FFCO-NASDAQ $ 270 7.41% 0.22% 215% $ 29.8 45% 132% 3.5% N.A N.A
Brooklyn Federal Bancorp, Inc.* NY 4/6/05 BFSB-NASDAQ $ 304 12.33% 0.00% NM $ 39.7 30% 132% 2.8% N.A N.A
Prudential Bancorp, Inc.(1)* PA 3/30/05 PBIP-NASDAQ $ 407 9.59% 0.25% 116% $ 56.5 45% 132% 2.7% N.A N.A
Kentucky First Federal Bancorp(7) KY 3/3/05 KFFB-NASDAQ $ 295 11.03% 0.59% 37% $ 21.3 25% 132% 6.3% N.A N.A
Averages - Mutual Holding Companies: $ 376 9.40% 0.47% 140% $ 39.5 39% 121% 4.3% N.A. N.A.
Medians - Mutual Holding Companies: $ 299 8.96% 0.27% 116% $ 34.7 44% 132% 3.2% N.A. N.A.
Averages - All Conversions: $l2,251 8.95% 0.38% 160% $ 336.8 56% 113% 4.5% N.A. N.A.
Medians - All Conversions: $ 295 8.33% 0.25% 126% $ 39.7 45% 112% 3.5% N.A. N.A.
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Information Insider Purchases Pro Forma Data
----------------- ----------------------------------------
Pricing Ratios(3) Financial Charac.
- ------------------------------------------------------------------------------- ------------------- -------------------
Benefit Plans Initial
Conversion Reco Mgmt.& Dividend Core Core Core
Institution ST. Date Ticker ESOP Plans Dirs. Yield P/TB P/E P/A ROA TE/A ROE
(%) (%) (%)(2) (%) (%) (x) (%) (%) (%) (%)
- ---------------------------------------------------------------------------------------------------------------------------------
Standard Conversions
- --------------------
Benjamin Franklin Bancorp, Inc.*(1.7) MA 4/5/05 BFBC-NASDAQ 8.0% 4.0% 3.5% 0.00% 128.0% 32.1x 10.3% 0.3x 8.1% 4.0x
OC Financial, Inc.* OH 4/1/05 OCFL-OTCBB 8.0% 4.0% 25.0% 0.00% 75.8% NM 9.2% NM 12.2% NM
Averages - Standard Conversions: 8.0% 4.0% 14.3% 0.00% 101.9% 32.1x 9.8% 32.0% 10.1% 399.0%
Medians - Standard Conversions: 8.0% 4.0% 14.3% 0.00% 101.9% 32.1x 9.8% 32.0% 10.1% 399.0%
Second Step Conversions
- -----------------------
Hudson City Bancorp, Inc.* NJ 6/7/05 HCBK-NASDAQ 4.0% 8.0% 0.3% 2.40% 121.5% 21.3x 24.4% 1.2% 20.1% 5.7%
First Federal of NM Bancorp, Inc.* NM I4/4/05. FFNM-NASDAQ 8.2% 4.1% 1.7% 2.14% 96.3% 85.9x 11.2% 0.1% 11.6% 1.1%
Rome Bancorp, Inc.* NY 3/31/05 ROME-NASDAQ 4.0% 3.6% 1.0% 2.65% 107.0% 35.9x 29.8% 0.8% 27.9% 3.0%
Averages - Second Step Conversions 5.4% 5.2% 1.0% 2.40% 108.2% 47.7x 21.8% 0.7% 19.9% 3.3%
Medians - Second Step Conversions 4.0% 4.1% 1.0% 2.40% 107.0% 35.9x 24.4% 0.8% 20.1% 3.0%
Mutual Holding Companies(6)
- ---------------------------
North Penn Bancorp, Inc.(1) PA 6/2/05 NPEN-OTCBB 8.4% 4.2% 8.9% 0.00% 73.6% 42.0x 13.8% 0.4% 13.0% 2.8%
Rockville Financial, Inc.(1) CT 5/23/05 RCKB-NASDAQ 8.4% 4.2% 4.4% 0.00% 83.4% 55.4x 18.4% 0.4% 14.6% 2.4%
FedFirst Financial Corporation* PA 4/7/05 FFCO-NASDAQ 8.7% 4.4% 5.3% 0.00% 87.3% 123.5x 20.3% 0.2% 14.9% 1.2%
Brooklyn Federal Bancorp, Inc.* NY 4/6/05 BFSB-NASDAQ 8.0% 6.5% 2.3% 0.00% 88.3% 37.9x 31.8% 1.0% 20.9% 4.9%
Prudential Bancorp, Inc.(1)* PA 3/30/05 PBIP-NASDAQ 8.0% 4.0% 1.4% 0.00% 86.2% 40.7x 24.5% 0.6% 19.2% 3.3%
Kentucky First Federal Bancorp(7) KY 3/3/05 KFFB-NASDAQ 8.7% 7.9% 5.5% 4.00% 91.5% 35.5x 26.4% 0.6% 16.1% 3.6%
Averages - Mutual Holding Companies 8.4% 5.2% 4.6% 0.67% 85.0% 55.8x 22.5% 0.5% 16.4% 3.0%
Medians - Mutual Holding Companies 8.4% 4.3% 4.9% 0.00% 86.7% 41.4x 22.4% 0.5% 15.5% 3.0%
Averages - All Conversions 7.5% 5.0% 5.4% 1.02% 94.4% 51.0x 20.0% 3.7% 16.2% 42.7%
Medians - All Conversions 8.0% 4.2% 3.5% 0.00% 88.3% 39.3x 20.3% 0.6% 14.9% 3.1%
- --------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Institutional Information Post-IPO Pricing Trends
-------------------------------------------
Closing Price
- ------------------------------------------------------------- -------------------------------------------
First After After
Conversion IPO Trading % First % First %
Institution ST. Date Ticker Price Day Change Week Change Month Change
($) ($) (%) (4)($) (%) (5)($) (%)
- ----------------------------------------------------------------------------------------------------------------
Standard Conversions
- --------------------
Benjamin Franklin Bancorp, Inc.*(1.7) MA 4/5/05 BFBC-NASDAQ $10.0 $10.06 0.6% $10.39 3.9% $10.25 2.5%
OC Financial, Inc.* OH 4/1/05 OCFL-OTCBB $10.0 $12.00 20.0% $10.80 8.0% $11.00 10.0%
Averages - Standard Conversions: $10.0 $11.03 10.3% $10.60 6.0% $10.63 6.3%
Medians - Standard Conversions: $10.0 $11.03 10.3% $10.60 6.0% $10.63 6.3%
Second Step Conversions
- -----------------------
Hudson City Bancorp, Inc.* NJ 6/7/05 HCBK-NASDAQ $10.0 $10.00 0.0% $10.00 0.0% $10.00 0.0%
First Federal of NM Bancorp, Inc.* NM I4/4/05. FFNM-NASDAQ $10.0 $ 9.49 -5.1% $ 9.20 -8.0% $ 8.40 -16.0%
Rome Bancorp, Inc.* NY 3/31/05 ROME-NASDAQ $10.0 $10.05 0.5% $ 9.75 -2.5% $ 9.44 -5.6%
Averages - Second Step Conversions: $10.0 $ 9.85 -1.5% $ 9.65 -3.5% $ 9.28 -7.2%
Medians - Second Step Conversions: $10.0 $10.00 0.0% $ 9.75 -2.5% $ 9.44 -5.6%
Mutual Holding Companies(6)
- ---------------------------
North Penn Bancorp, Inc.(1) PA 6/2/05 NPEN-OTCBB $10.0 $11.00 10.0% $11.00 10.0% $11.00 10.0%
Rockville Financial, Inc.(1) CT 5/23/05 RCKB-NASDAQ $10.0 $10.48 4.8% $11.05 10.5% $11.62 16.2%
FedFirst Financial Corporation* PA 4/7/05 FFCO-NASDAQ $10.0 $ 9.34 -6.6% $ 9.07 -9.3% $ 8.55 -14.5%
Brooklyn Federal Bancorp, Inc.* NY 4/6/05 BFSB-NASDAQ $10.0 $ 9.95 -0.5% $ 9.90 -1.0% $ 9.50 -5.0%
Prudential Bancorp, Inc.(1)* PA 3/30/05 PBIP-NASDAQ $10.0 $ 9.85 -1.5% $ 9.35 -6.5% $ 8.75 -12.5%
Kentucky First Federal Bancorp(7) KY 3/3/05 KFFB-NASDAQ $10.0 $10.79 7.9% $11.20 12.0% $11.24 12.4%
Averages - Mutual Holding Companies $10.0 $10.24 2.4% $10.26 2.6% $10.11 1.1%
Medians - Mutual Holding Companies $10.0 $10.22 2.2% $10.45 4.5% $10.25 2.5%
Averages - All Conversions: $10.0 $10.27 2.7% $10.16 1.6% $ 9.98 -0.2%
Medians - All Conversions: $10.0 $10.05 0.5% $10.00 0.0% $10.00 0.0%
- ---------------------------------------------------------------------------------------------------------------
Note: * - Appraisal performed by RP Financial; "NT" - Not Traded; "NA" - Not
Applicable, Not Available; C/S-Cash/Stock.
(1) Non-OTS regulated thrift.
(2) As a percent of MHC offering for MHC transaction.
(3) Does not take into account the adoption of SOP 93.6.
(4) Latest price if offering is less than one week old.
(5) Latest price if offering is more than one week but less than one month old.
(6) Mutual holding company pro forma data on full conversion basis.
(7) Simultaneously completed acquisition of another financial institution.
(8) Simultaneously converted to a commercial bank charter.
(9) Former credit union.
RP(R) Financial, LC.
Page 4.16
pending the close of its offering and was scheduled to trade
as a fully converted company approximately one week following the appraisal date
of this report), have traded down post-IPO reflecting current market weakness.
On average, these three recent second step transactions were priced at 108.2% of
pro forma book value, with Hudson City Bancorp at the upper end of the range
(121.5% of pro forma book value and 21.3 times pro forma earnings) reflecting
its large size and strong earnings while First Federal closed at the lower end
of the range of the recent second step conversions (107.0% of pro forma book
value and 85.9x pro forma earnings) owing to its comparatively small size and
more limited earnings capacity.
The weakness in the second step market is evidenced in the
relationship of the trading prices of the minority shares of Rome Bancorp, First
Federal of Northern Michigan Bancorp and Hudson City Bancorp prior to the
commencement of their offerings and their final exchange ratios (see below). For
all the foregoing transactions, the values implied by their final exchange
ratios were lower than their trading prices at the commencement of their
offerings, suggesting that, under current market conditions, the final market
values for these companies were below the values implied by the trading prices
of their minority shares.
Post-Announcement Trading Activity of MHCs
Announcing Second Step Conversions
Rome First Hudson City
Bancorp Federal Bancorp
------- ------- -------
Date of Announcement 11/11/2004 11/12/2004 12/17/2004
Share Price at Announcement $28.00 $16.30 $39.93
Share Price at Commencement of Offering $28.05 $24.75 $35.85
Share Price Implied by Final Exchange $22.68 $18.65 $32.06
Difference: Announcement - Final Exchange (%) -19.0% 14.4% -19.7%
Difference: Commencement - Final Exchange (%) -19.1% -24.6% -10.6%
IPO Price $10.00 $10.00 $10.00
Price as of May 31, 2005 $9.63 $9.03 $10.46 (1)
(1) Adjusted for a 3.206x exchange ratio.
RP(R) Financial, LC.
Page 4.17
C. The Acquisition Market
----------------------
Also considered in the valuation was the potential impact on
the Company's stock price of recently completed and pending acquisitions of
other savings institutions operating in New Jersey. As shown in Exhibit IV-4,
there were six New Jersey thrift acquisitions completed from 2001 through
year-to-date 2005, and there are no currently pending transactions. The recent
acquisition activity involving New Jersey savings institutions may imply a
certain degree of acquisition speculation for the Company's stock. To the extent
that acquisition speculation may impact the Company's offering, we have largely
taken this into account in selecting companies for the Peer Group which operate
in markets that have experienced a comparable level of acquisition activity as
the Company's market and, thus, are subject to the same type of acquisition
speculation that may influence ASB's stock. However, since converting thrifts
are subject to a three-year regulatory moratorium from being acquired,
acquisition speculation in ASB's stock would tend to be less compared to the
stocks of the Peer Group companies.
D. Trading in ASB Holding Company's Stock
--------------------------------------
Since ASB's minority stock currently trades under the symbol
"ASBH" on the OTC Bulletin Board, RP Financial also considered the recent
trading activity in the valuation analysis. ASB had a total of 5,554,500 shares
issued and outstanding at March 31, 2005, of which 1,666,350 shares were held by
public shareholders and traded as public securities. As of May 31, 2005, the
Company's closing stock price was $23.00 per share. There are significant
differences between the Company's minority stock (currently being traded) and
the conversion stock that will be issued by ASB. Such differences include
different liquidity characteristics (the new conversion stock will be more
liquid owing to larger number of public shares available to trade), a different
return on equity for the conversion stock and dividend payments will be made on
all shares outstanding; thereby, requiring a higher payout ratio to sustain the
current level of dividends paid to non-MHC shareholders. Since the pro forma
impact has not been publicly disseminated to date, it is appropriate to discount
the current trading level. As the pro forma impact is made known publicly, the
trading level will become more informative.
* * * * * * * * * * *
RP(R) Financial, LC.
Page 4.18
In determining our valuation adjustment for marketing of the
issue, we considered trends in both the overall thrift market, the new issue
market including the new issue market for second-step conversions, the
acquisition market and recent trading activity in the Company's minority stock.
Taking these factors and trends into account, RP(R) Financial concluded that no
adjustment was appropriate in the valuation analysis for purposes of marketing
of the issue.
8. Management
----------
ASB's management team appears to have experience and expertise in all
of the key areas of the Company's operations. The Company has recently appointed
a new President and Chief Operating Officer with the objective of having this
individual manage targeted growth and provide oversight to the development of
commercial account relationships. While this individual has a limited track
record with the Company, he has extensive commercial banking experience in the
local market with a track record for success at other institutions. Exhibit IV-5
provides summary resumes of ASB's Board of Directors and senior management.
While the Company does not have the resources to develop a great deal of
management depth, given its asset size and the impact it would have on operating
expenses, management and the Board have been effective in implementing an
operating strategy that can be well managed by the Company's present
organizational structure as indicated by the financial characteristics of the
Company. ASB currently does not have any executive management positions that are
vacant.
Similarly, the returns, capital positions, and other operating measures
of the Peer Group companies are indicative of well-managed financial
institutions, which have Boards and management teams that have been effective in
implementing competitive operating strategies. Additionally, many of the Peer
Group companies have, like the Company, bolstered their management ranks with
experienced individuals from their regional banking community. Therefore, on
balance, we concluded no valuation adjustment relative to the Peer Group was
appropriate for this factor.
9. Effect of Government Regulation and Regulatory Reform
-----------------------------------------------------
In summary, as a fully-converted OTS regulated institution, ASB will
operate in substantially the same regulatory environment as the Peer Group
members -- all of whom are
RP(R) Financial, LC.
Page 4.19
adequately capitalized institutions and are operating with no apparent
restrictions. Exhibit IV-6 reflects the Bank's pro forma regulatory capital
ratios. On balance, no adjustment has been applied for the effect of government
regulation and regulatory reform.
Summary of Adjustments
- ----------------------
Overall, based on the factors discussed above, we concluded that the
Company's pro forma market value should reflect the following valuation
adjustments relative to the Peer Group:
Key Valuation Parameters: Valuation Adjustment
------------------------- --------------------
Financial Condition Slight Upward
Profitability, Growth and Viability of Earnings Slight Downward
Asset Growth Slight Upward
Primary Market Area No Adjustment
Dividends No Adjustment
Liquidity of the Shares No Adjustment
Marketing of the Issue No Adjustment
Management No Adjustment
Effect of Government Regulations and Regulatory Reform No Adjustment
Valuation Approaches
- --------------------
In applying the accepted valuation methodology promulgated by the OTS,
i.e., the pro forma market value approach, we considered the three key pricing
ratios in valuing ASB's to-be-issued stock -- price/earnings ("P/E"), price/book
("P/B"), and price/assets ("P/A") approaches -- all performed on a pro forma
basis including the effects of the stock proceeds. In computing the pro forma
impact of the conversion and the related pricing ratios, we have incorporated
the valuation parameters disclosed in ASB's prospectus for offering expenses,
reinvestment rate, effective tax rate and stock benefit plan assumptions
(summarized in Exhibits IV-7 and IV-8).
RP Financial's valuation placed an emphasis on the following:
o P/E Approach. The P/E approach is generally the best indicator of
-------------
long-term value for a stock. Given the similarities between the
Company's and the Peer Group's operating strategies, earnings
composition and overall financial condition, the P/E approach was
carefully considered in this valuation. At the same time, since
reported
RP(R) Financial, LC.
Page 4.20
earnings for both the Company and the Peer Group included certain
non-recurring items, we also made adjustments to earnings to arrive at
core earnings estimates for the Company and the Peer Group and
resulting price/core earnings ratios.
o P/B Approach. P/B ratios have generally served as a useful benchmark
------------
in the valuation of thrift stocks, particularly in the context of a
public offering, as the earnings approach involves assumptions
regarding the use of proceeds. RP Financial considered the P/B
approach to be a useful indicator of pro forma value, taking into
account the pricing ratios under the P/E and P/A approaches. We have
also modified the P/B approach to exclude the impact of intangible
assets (i.e., price/tangible book value or "P/TB"), in that the
investment community frequently makes this adjustment in its
evaluation of this pricing approach.
o P/A Approach. P/A ratios are generally a less reliable indicator of
------------
market value, as investors typically assign less weight to assets and
attribute greater weight to book value and earnings - we have also
given less weight to the assets approach. Furthermore, this approach
as set forth in the regulatory valuation guidelines does not take into
account the amount of stock purchases funded by deposit withdrawals,
thus understating the pro forma P/A ratio. At the same time, the P/A
ratio is an indicator of franchise value, and, in the case of highly
capitalized institutions, high P/A ratios may limit the investment
community's willingness to pay market multiples for earnings or book
value when ROE is expected to be low.
o Trading of ASBH stock. Converting institutions generally do not have
---------------------
stock outstanding. ASB, however, has public shares outstanding due to
the mutual holding company form of ownership. Since ASB is currently
traded on the OTC Bulletin, it is an indicator of investor interest in
the Company's conversion stock and therefore received some weight in
our valuation. Based on the May 31, 2005 stock price of $23.00 per
share and the 5,554,500 shares of ASB stock outstanding, the Company's
implied market value of $127.8 million was considered in the valuation
process. However, since the conversion stock will have different
characteristics than the minority shares, and since pro forma
information has not been publicly disseminated to date, the current
trading price of ASB's stock was somewhat discounted herein but will
become more important towards the closing of the offering.
The Company has adopted Statement of Position ("SOP") 93-6, which
causes earnings per share computations to be based on shares issued and
outstanding excluding unreleased ESOP shares. For purposes of preparing the pro
forma pricing analyses, we have reflected all shares issued in the offering,
including all ESOP shares, to capture the full dilutive impact, particularly
since the ESOP shares are economically dilutive, receive dividends and can be
voted. However, we did consider the impact of SOP 93-6 in the valuation.
RP(R) Financial, LC.
Page 4.21
Based on the application of the three valuation approaches, taking into
consideration the valuation adjustments discussed above, RP(R) Financial
concluded that, as of May 31, 2005, the aggregate pro forma market value of
ASB's conversion stock was $107,142,850 at the midpoint, equal to 10,714,285
shares at $10.00 per share. The midpoint and resulting valuation range is based
on the sale of a 70.00% ownership interest to the public, which provides for a
$75.0 million public offering at the midpoint value.
1. Price-to-Earnings ("P/E"). The application of the P/E valuation
--------------------------
method requires calculating the Company's pro forma market value by applying a
valuation P/E multiple to the pro forma earnings base. In applying this
technique, we considered both reported earnings and a recurring earnings base,
that is, earnings adjusted to exclude any one-time non-operating items, plus the
estimated after-tax earnings benefit of the reinvestment of the net proceeds.
The Company's reported earnings, equaled $2.295 million for the twelve months
ended March 31, 2005. In deriving ASB's estimated core earnings for purposes of
the valuation, the only adjustments made to reported earnings was to eliminate
the net gains on the sale of loans and real estate owned which together, equaled
$183,000 for the twelve month period. As shown below, on a tax-effected basis,
assuming an effective marginal tax rate of 39.94%, the Company's core earnings
were determined to equal $2.185 million for the twelve months ended March 31,
2005. (Note: see Exhibit IV-9 for the adjustments applied to the Peer Group's
earnings in the calculation of core earnings).
Amount(1)
---------
($000)
Net income $2,295
Deduct: Net non-operating income (1) (110)
------
Core earnings estimate $2,185
(1) Adjustment was tax effected at 39.94%.
Based on the Company's reported and estimated core earnings, and
incorporating the impact of the pro forma assumptions discussed previously, the
Company's pro forma reported and core P/E multiples at the $107.1 million
midpoint value equaled 44.42 times and 46.54 times, respectively, which provided
for premiums of 162.7% and 178.7% relative to the Peer
RP(R) Financial, LC.
Page 4.22
Group's average reported and core earnings multiples of 18.25 times and 18.09
times, respectively (see Table 4.3).
2. Price-to-Book ("P/B"). The application of the P/B valuation method
----------------------
requires calculating the Company's pro forma market value by applying a
valuation P/B ratio, derived from the Peer Group's P/B ratio, to the Company's
pro forma book value. The Company's pre-conversion book value was adjusted to
include $100,000 of equity held at the MHC level which will be consolidated with
the Company's capital as the result of the conversion, and $312,000 ESOP-related
contra-equity account which will be eliminated upon conversion. In applying the
P/B approach, we considered both reported book value and tangible book value.
Based on the $107.1 million midpoint valuation, ASB's pro forma P/B and P/TB
ratios both equaled 103.28%. In comparison to the respective average P/B and
P/TB ratios indicated for the Peer Group of 148.97% and 153.57%, the Company's
ratios reflected discounts of 30.7% and 32.8%, respectively. RP(R) Financial
considered the discounts under the P/B approach to be reasonable in light of the
valuation adjustments referenced earlier, the comparatively lower pro forma
return on equity and the resulting pricing ratios under the earnings and assets
approaches.
3. Price-to-Assets ("P/A"). The P/A valuation methodology determines
------------------------
market value by applying a valuation P/A ratio to the Company's pro forma asset
base, conservatively assuming no deposit withdrawals are made to fund stock
purchases. In all likelihood there will be deposit withdrawals, which results in
understating the pro forma P/A ratio computed herein. At the midpoint of the
valuation range, ASB's value equaled 21.20% of pro forma assets. Comparatively,
the Peer Group companies exhibited an average P/A ratio of 12.97%, which implies
a premium of 63.5% has been applied to the Company's pro forma P/A ratio.
Comparison to Recent Conversions
- --------------------------------
As indicated at the beginning of this chapter, RP(R) Financial's
analysis of recent conversion offering pricing characteristics at closing and in
the aftermarket has been limited to a "technical" analysis and, thus, the
pricing characteristics of recent conversion offerings can not be a primary
determinate of value. Particular focus was placed on the P/TB approach in this
analysis, since the P/E multiples do not reflect the actual impact of
reinvestment and the source of the stock proceeds (i.e., external funds vs.
deposit withdrawals).
RP(R) Financial, LC.
Page 4.23
The three second-step conversion offerings completed in the past three
months closed with pro forma P/TB ratios of 107.0% (Rome Bancorp) and 96.3%
(First Federal of Northern Michigan), after extension of their offerings, while
Hudson City Bancorp closed at a pro forma P/TB ratio of 121.5% after completing
its syndicated community offering. During their first week of trading as
fully-converted companies, Rome Bancorp's and First Federal of Northern
Michigan's stock prices had decreased by 2.5% and 8.0% from their respective IPO
prices and remained below their IPO price as of May 31, 2005 (by 3.7% and 10.0%,
respectively). Hudson City's offering was pending closing with the trading price
as of May 31, 2005, up by approximately 5% relative to its proposed closing
value adjusted for the final exchange ratio.
Valuation Conclusion
- --------------------
Based on the foregoing, it is our opinion that, as of May 31, 2005, the
estimated aggregate pro forma market value of the Company, inclusive of the sale
of the MHC's ownership interest to the public shareholders, was $107,142,850 at
the midpoint. Based on this valuation and the approximate 70.00% ownership
interest being sold in the public offering, the midpoint value of the Company's
stock offering is $75,000,000, equal to 7,500,000 shares at a per share value of
$10.00. Pursuant to conversion guidelines, the 15% offering range indicates a
minimum offering value of $63,750,000 and a maximum offering value of
$86,250,000. Based on the $10.00 per share offering price, this valuation range
equates to an offering of 6,375,000 shares at the minimum and 8,625,000 shares
at the maximum. In the event the appraised value is subject to an increase, the
offering range may be increased up to a supermaximum value of $99,187,500
without requiring a resolicitation. Based on the $10.00 per share offering
price, the supermaximum value would result in an offering of 9,918,750 shares.
The pro forma valuation calculations relative to the Peer Group are shown in
Table 4.3 and are detailed in Exhibit IV-7 and Exhibit IV-8.
Establishment of the Exchange Ratio
- -----------------------------------
OTS regulations provide that in a conversion of a mutual holding
company, the minority stockholders are entitled to exchange the public shares
for newly issued shares of ASB stock as a fully converted company. The Board of
Directors of the MHC has independently determined the
RP(R) Financial, LC.
Page 4.24
exchange ratio. The determined exchange ratio has been designed to preserve the
current aggregate percentage ownership in ASB equal to 30.00% as of March 31,
2005. The exchange ratio to be received by the existing minority shareholders of
ASB will be determined at the end of the offering, based on the total number of
shares sold in the subscription and community offerings. Based upon this
calculation, and the valuation conclusion and offering range concluded above,
the exchange ratio would be 1.63960 shares, 1.92894 shares, 2.21828 shares and
2.55102 shares of newly issued shares of ASB stock for each share of stock held
by the public shareholders at the minimum, midpoint, maximum and supermaximum of
the offering range, respectively. RP(R) Financial expresses no opinion on the
proposed exchange of newly issued Company shares for the shares held by the
public stockholders or on the proposed exchange ratio.
RP(R) Financial, LC.
Page 4.25
Table 4.3
Public Market Pricing
ASB Holding Company and the Comparables
As of May 31, 2005
Market Per Share Date
Capitalization --------------
--------------- Core Book Pricing Ratios(3)
Price/Market 12 Month Value/------------------------------------
Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/Core
------- ------ ------ ----- --- --- --- ---- ------
($) ($Mil) ($) ($) (x) (%) (%) (%) (x)
ASB Holding Company
- -------------------
Superrange $10.00 $141.70 $0.17 $8.81 57.72x 113.53 26.91% 113.53% 60.43x
Maximum $10.00 $123.21 $0.20 $9.21 50.67x 108.52 23.91% 108.52% 53.06x
Midpoint $10.00 $107.14 $0.23 $9.68 44.42x 103.28 21.20% 103.28% 46.54x
Minimum $10.00 $91.07 $0.26 $10.32 38.07x 96.94% 18.37% 96.94% 39.91x
All Public Companies(7)
- -----------------------
Averages $20.04 $376.96 $1.03 $13.53 19.35x 151.48 16.51% 169.40% 20.28x
Medians --- --- --- --- 16.28x 144.00 14.26% 157.83% 18.32x
All Non-MHC State of NJ(7)
- --------------------------
Averages $17.63 $356.36 $0.97 $10.91 19.14x 163.97 14.64% 178.11% 21.07x
Medians --- --- --- --- 14.46x 161.04 15.68% 180.91% 19.30x
Comparable Group Averages
- -------------------------
Averages $20.71 $74.13 $1.29 $13.97 18.25x 148.97 12.97% 153.57% 18.09x
Medians - - - - 15.27x 146.14 13.36% 149.16% 15.52x
Comparable Group
- ----------------
ALFC Atlantic Liberty
Financial of NY $23.75 $39.97 $1.53 $16.53 19.63x 143.68 21.73% 143.68% 15.52x
ESBK Elmira Savings Bank,
FSB of NY $30.75 $33.76 $2.19 $19.67 12.92x 156.33 10.62% 159.49% 14.04x
FSBI Fidelity Bancorp,
Inc. of PA $20.99 $61.35 $1.38 $14.03 14.89x 149.61 %9.52% 160.72% 15.21x
FKFS First Keystone
Financial, Inc. of PA $17.31 $34.65 $0.99 $14.56 17.31x 118.89 %6.02% 118.89% 17.48x
HARL Harleysville Savings
Fin. Corp. of PA $17.75 $68.62 $1.24 $11.90 13.98x 149.16 %9.17% 149.16% 14.31x
LARL Laurel Capital Group
Inc. of PA $21.75 $42.20 $0.98 $14.07 22.19x 154.58 13.71% 176.69% 22.19x
PBCI Pamrapo Bancorp, Inc.
of of NJ $21.90 $108.97 $1.60 $11.25 13.69x 194.67 17.03% 194.67% 13.69x
SYNF Synergy Financial
Group of NJ $12.13 $150.23 $0.35 $8.30 34.66x 146.14 16.76% 147.39% 34.66x
THRD TF Financial Corp.
of Newtown PA $29.00 $85.55 $2.17 $20.63 13.30x 140.57 13.36% 152.39% 13.36x
WVFC WVS Financial Corp.
of PA $17.10 $41.13 $1.03 $11.99 15.27x 142.62 %9.66% 142.62% 16.60x
WGBC Willow Grove Bancorp
Inc. of PA $15.34 $149.01 $0.70 $10.77 22.90x 142.43 15.06% 143.63% 21.91x
Dividends(4) Financial Characteristics(6)
------------------- -----------------------------------------------
Reported Core
Amount/ Payout Total Equity NPAs/------------- ---------- Offering Exchange
Share Yield Ratio(5) Assets Assets Assets ROA ROE ROA ROE Size Ratio
----- ----- ------- ------- ------ ------ --- --- --- --- ---- -----
($) (%) (%) ($Mil) (%) (%) (%) (%) (%) (%) ($Mil) (x)
ASB Holding Company
- -------------------
Superrange $0.00 0.00% 0.00% $527 23.70% 0.07% 0.47% 1.97% 0.45% 1.88% 99.19 2.55102x
Maximum $0.00 0.00% 0.00% $515 22.03% 0.07% 0.47% 2.14% 0.45% 2.05% 86.25 2.21828x
Midpoint $0.00 0.00% 0.00% $505 20.52% 0.07% 0.48% 2.32% 0.46% 2.22% 75.00 1.92894x
Minimum $0.00 0.00% 0.00% $496 18.95% 0.07% 0.48% 2.55% 0.46% 2.43% 63.75 1.63960x
All Public Companies(7)
- -----------------------
Averages $0.45 2.24% 34.03% $2,566 11.02% 0.46% 0.76% 7.90% 0.73% 7.10%
Medians --- --- --- --- --- --- --- --- --- ---
All Non-MHC State of NJ(7)
- --------------------------
Averages $0.43 2.24% 35.98% $2,171 9.46% 0.17% 0.86% 10.31% 0.78% 9.28%
Medians --- --- --- --- --- --- --- --- --- ---
Comparable Group Averages
- -------------------------
Averages $0.57 2.76% 44.63% $579 8.67% 0.30% 0.76% 9.03% 0.78% 9.03%
Medians --- --- --- --- --- --- --- --- --- ---
Comparable Group
- ----------------
ALFC Atlantic Liberty
Financial of NY $0.28 1.18% 18.30% $184 15.12% 0.09% 1.14% 7.52% 1.44% 9.51%
ESBK Elmira Savings Bank,
FSB of NY $0.80 2.60% 36.53% $318 6.79% 0.17% 0.84% 12.05% 0.77% 11.09%
FSBI Fidelity Bancorp,
Inc. of PA $0.47 2.24% 34.06% $645 6.36% N.A. 0.65% 9.98% 0.63% 9.77%
FKFS First Keystone
Financial, Inc. of PA $0.44 2.54% 44.44% $576 5.06% 0.98% 0.35% 6.68% 0.35% 6.62%
HARL Harleysville Savings
Fin. Corp. of PA $0.60 3.38% 48.39% $748 6.15% 0.03% 0.68% 11.09% 0.67% 10.83%
LARL Laurel Capital Group
Inc. of PA $0.80 3.68% N.M. $308 8.87% 0.31% 0.62% 6.93% 0.62% 6.93%
PBCI Pamrapo Bancorp, Inc.
of of NJ $0.88 4.02% 55.00% $640 8.75% 0.50% 1.24% 14.71% 1.24% 14.71%
SYNF Synergy Financial
Group of NJ $0.16 1.32% 45.71% $896 11.47% 0.02% 0.53% 4.15% 0.53% 4.15%
THRD TF Financial Corp.
of Newtown PA $0.72 2.48% 33.18% $641 9.50% 0.22% 1.03% 10.89% 1.02% 10.84%
WVFC WVS Financial Corp.
of PA $0.64 3.74% 62.14% $426 6.77% N.A. 0.65% 9.23% 0.60% 8.48%
WGBC Willow Grove Bancorp
Inc. of PA $0.48 3.13% 68.57% $990 10.57% 0.38% 0.69% 6.15% 0.72% 6.43%
(1) Average of High/Low or Bid/Ask price per share.
(2) EPS (estimate core basis) is based on actual trailing 12 month data,
adjusted to omit non-operating items (including the SAIF assessment) on a
tax-effected basis, and is shown on a pro forma basis where appropriate.
(3) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB =
Price to tangible book value; and P/Core = Price to core earnings.
(4) Indicated 12 month dividend, based on last quarterly dividend declared.
(5) Indicated 12 month dividend as a percent of trailing 12 month estimated
core earnings.
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing 12 month common earnings and average common equity and
total assets balances.
(7) Excludes from averages and medians those companies the subject of actual or
rumored acquisition activities or unusual operating characteristics.
Source: Corporate reports, offering circulars, and RP Financial, LC.
calculations. The information provided in this report has been
obtained from sources we believe are reliable, but we cannot guarantee
the accuracy or completeness of such information.
Copyright (c) 2005 by RP(R) Financial, LC.
EXHIBITS
RP(R) Financial, LC.
LIST OF EXHIBITS
Exhibit
Number Description
- ------ -----------
I-1 Audited Financial Statements
I-2 Key Operating Ratios
I-3 Investment Portfolio Composition
I-4 Yields and Costs
I-5 Interest Rate Risk Analysis
I-6 Fixed Rate and Adjustable Rate Loans
I-7 Loan Portfolio Composition
I-8 Contractual Maturity By Loan Type
I-9 Non-Performing Assets
I-10 Loan Loss Allowance Activity
I-11 Deposit Composition
I-12 CDs by Rate and Maturity
I-13 Borrowings Activity
II-1 Description of Office Facilities
II-2 Historical Interest Rates
RP(R) Financial, LC.
LIST OF EXHIBITS (continued)
Exhibit
Number Description
- ------ -----------
III-1 General Characteristics of Publicly-Traded Institutions
III-2 Public Market Pricing of New Jersey Thrifts
III-3 Public Market Price of Mid-Atlantic Thrifts
IV-1 Stock Prices: As of May 31, 2005
IV-2 Historical Stock Price Indices
IV-3 Historical Thrift Stock Indices
IV-4 Market Area Acquisition Activity
IV-5 Director and Senior Management Summary Resumes
IV-6 Pro Forma Regulatory Capital Ratios
IV-7 Pro Forma Analysis Sheet
IV-8 Pro Forma Effect of Conversion Proceeds
IV-9 Peer Group Core Earnings Analysis
V-1 Firm Qualifications Statement
EXHIBIT I-1
ASB Holding Company
Audited Financial Statements
[Incorporated by Reference]
EXHIBIT I-2
ASB Holding Company
Key Operating Ratios
Exhibit I-2
ASB Holding Company
Key Operating Ratios
At or For the
Six Months Ended At or For the Year Ended
March 31, September 30,
---------------- ----------------------------------------------
2005 2004 2004 2003 2002 2001 2000
---- ---- ---- ---- ---- ---- ----
PERFORMANCE RATIOS(1):
Return on average assets (ratio of net income
to average total assets) ................. 0.55% 0.54% 0.54% 0.39% 0.63% 0.68% 0.86%
Return on average equity (ratio of net income
to average equity) ....................... 6.22% 5.73% 5.77% 6.48% 9.30% 8.28% 11.13%
Net interest rate spread .................... 2.36% 2.29% 2.28% 2.14% 2.63% 2.49% 2.63%
Net interest margin on average
interest-earning assets .................. 2.67% 2.61% 2.60% 2.44% 3.00% 3.10% 3.20%
Average interest-earning assets to average
interest-bearing liabilities ............. 114.62% 115.25% 115.67% 111.69% 112.30% 115.01% 113.99%
Operating expense ratio (noninterest expenses
to average total assets) ................. 1.91% 1.92% 1.92% 1.89% 2.09% 2.16% 2.03%
Efficiency ratio (noninterest expense divided
by sum of net interest income and
noninterest income) ...................... 67.31% 67.88% 67.18% 73.60% 67.14% 68.80% 60.03%
ASSET QUALITY RATIOS:
Non-performing loans to total loans ......... 0.11% 0.13% 0.17% 0.20% 0.27% 0.36% 0.53%
Non-performing assets to total assets ....... 0.08% 0.14% 0.12% 0.12% 0.17% 0.24% 0.35%
Net charge-offs to average loans outstanding 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01%
Allowance for loan losses to non-performing
loans .................................... 480.66% 403.88% 304.05% 265.18% 195.96% 160.67% 128.92%
Allowance for loan losses to total loans .... 0.50% 0.52% 0.51% 0.52% 0.53% 0.58% 0.68%
CAPITAL RATIOS:
Equity to total assets at end of period ..... 8.80% 9.80% 9.25% 5.23% 6.53% 7.81% 7.79%
Average equity to average assets ............ 8.90% 9.42% 9.37% 5.98% 6.78% 8.24% 7.70%
(1) Performance ratios for the six month periods ended March 31, 2005 and 2004
are annualized where appropriate.
EXHIBIT I-3
ASB Holding Company
Investment Portfolio Composition
Exhibit I-3
ASB Holding Company
Investment Portfolio Composition
At March 31, At September
------------ ---------------------------
2005 2004 2003 2002
------------ ---- ---- ----
(In thousands)
Securities Held-to-Maturity:
U.S. government and federal agency obligations.. $ 2,000 $ -- $ -- $ --
Collateralized mortgage non-agency obligations.. 2,785 -- -- --
Collateralized mortgage agency obligations ..... 90 107 193 3,076
Government National Mortgage Association ....... 278 327 476 711
Federal Home Loan Mortgage Corporation ......... 445 490 657 986
Federal National Mortgage Association .......... 2,928 1,870 1,513 2,197
-------- -------- -------- --------
Total securities held-to-maturity ............ 8,526 2,794 2,839 6,970
-------- -------- -------- --------
Securities Available-for-Sale:
U.S. government and federal agency obligation... 11,740 13,840 13,484 --
Collateralized mortgage non-agency obligations.. 599 1,234 4,962 19,177
Collateralized mortgage agency obligations ..... 34,311 42,870 61,685 57,346
Government National Mortgage Association ....... 177 202 320 513
Federal Home Loan Mortgage Corporation ......... 4,854 5,219 346 885
Federal National Mortgage Association .......... 14,482 16,261 16,664 2,213
Mutual fund .................................... 9,829 9,869 9,930 10,000
-------- -------- -------- --------
Total securities available-for-sale .......... 75,992 89,495 107,391 90,134
-------- -------- -------- --------
Total ........................................ $ 84,518 $ 92,289 $110,230 $ 97,104
======== ======== ======== ========
EXHIBIT I-4
ASB Holding Company
Yields and Costs
Exhibit I-4
ASB Holding Company
Yields and Costs
At March 31, Six Months Ended March 31,
--------------------- -------------------------------------
2005 2005
--------------------- ------------------------------------
Average Interest Average
Balance Yield/Cost Balance Earned/Paid Yield/Cost
------- ---------- ------- ----------- ----------
(Dollars in thousands)
INTEREST-EARNING ASSETS:
Loans receivable, net(1)............... $333,554 5.36% $318,539 8,483 5.33%
Investment securities(2)............... 84,518 3.42% 91,109 1,450 3.18%
Other interest-earning assets(3)....... 5,971 3.38% 7,052 61 1.72%
-------- -------- ------
Total interest-earning assets.......... 424,043 4.94% 416,700 9,994 4.80%
Noninterest-earning assets............. 16,911 14,806
-------- --------
Total assets........................... $440,954 $431,505
======== ========
INTEREST-BEARING LIABILITIES:
NOW & money market..................... $ 34,018 1.18% $ 37,307 206 1.11%
Savings deposits(4).................... 134,637 1.58% 140,934 1,108 1.57%
Certificates of deposit................ 135,295 2.94% 123,542 1,705 2.76%
-------- -------- ------
Total interest-bearing deposits........ 303,950 2.14% 301,783 3,019 2.00%
Federal Home Loan Bank advances........ 68,263 4.45% 61,780 1,404 4.54%
-------- -------- ------
Total interest-bearing liabilities.... 372,213 2.56% 363,563 4,423 2.43%
Noninterest-bearing deposits........... 24,093 23,685
Other noninterest-bearing liabilities.. 5,837 5,834
-------- --------
Total liabilities...................... 402,143 393,082
Stockholders' equity................... 38,811 38,423
-------- --------
Total liabilities and equity........... $440,954 $431,505
======== ========
Net interest spread(5)................. 2.38% $5,571 2.36%
==== ====== ====
Net interest margin(6)................. 2.70% 2.67%
==== ====
Ratio of interest-earning assets to
interest-bearing liabilities......... 113.92% 114.62%
====== ======
Six Months Ended March 31,
-------------------------------------
2004
-------------------------------------
Average Interest Average
Balance Earned/Paid Yield/Cost
------- ----------- -----------
(Dollars in thousands)
INTEREST-EARNING ASSETS:
Loans receivable, net(1)............... $270,680 7,405 5.47%
Investment securities(2)............... 105,579 1,587 3.01%
Other interest-earning assets(3)....... 5,978 25 0.84%
-------- ------
Total interest-earning assets.......... 382,237 9,017 4.72%
Noninterest-earning assets............. 11,060
--------
Total assets........................... $393,297
========
INTEREST-BEARING LIABILITIES:
NOW & money market..................... $ 21,913 109 0.99%
Savings deposits(4).................... 131,707 1,033 1.57%
Certificates of deposit................ 118,306 1,458 2.46%
-------- ------
Total interest-bearing deposits........ 271,926 2,600 1.91%
Federal Home Loan Bank advances........ 59,780 1,428 4.78%
-------- ------
Total interest-bearing liabilities.... 331,706 4,028 2.43%
Noninterest-bearing deposits........... 22,154
Other noninterest-bearing liabilities.. 2,400
--------
Total liabilities...................... 356,260
Stockholders' equity................... 37,037
--------
Total liabilities and equity........... $393,297
========
Net interest spread(5)................. $4,989 2.29%
====== ====
Net interest margin(6)................. 2.61%
====
Ratio of interest-earning assets to
interest-bearing liabilities......... 115.23%
======
- -----------------
(1) Calculated net of deferred fees and loss reserves. Non-accruing loans have
been included as loans carrying a zero yield.
(2) Calculated based on amortized cost excluding FAS 115 market value
adjustment.
(3) Includes Federal Home Loan Bank stock at cost and term deposits with other
financial institutions.
(4) Includes money market savings accounts.
(5) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
Exhibit I-4 (continued)
ASB Holding Company
Yields and Costs
Year Ended September 30,
------------------------------------------------------------------------------
2004 2003
------------------------------------ ----------------------------------
Average Interest Average Average Interest Average
Balance Earned/Paid Yield/Cost Balance Earned/Paid Yield/Cost
------- ----------- ---------- ------- ----------- ----------
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(1)............... $278,632 $15,017 5.39% $238,474 $14,343 6.01%
Investment securities(2)............... 103,978 3,125 3.01% 100,787 2,918 2.90%
Other interest-earning assets(3)....... 6,302 62 0.98% 13,462 215 1.60%
-------- ------- -------- -------
Total interest-earning assets.......... 388,912 18,204 4.68% 352,723 17,476 4.95%
Noninterest-earning assets............. 10,755 9,459
-------- --------
Total assets........................... $399,667 $362,182
======== ========
Interest-bearing liabilities:
NOW & money market..................... $23,086 225 0.97% $22,511 290 1.29%
Savings deposits(4).................... 136,100 2,109 1.55% 117,052 2,307 1.97%
Certificates of deposit................ 116,926 2,912 2.49% 121,310 3,439 2.83%
-------- ------- -------- -------
Total interest-bearing deposits........ 276,113 5,246 1.90% 260,873 6,036 2.31%
Federal Home Loan Bank advances........ 60,125 2,859 4.76% 54,923 2,834 5.16%
-------- ------- -------- -------
Total interest-bearing liabilities.... 336,238 8,105 2.41% 315,796 8,870 2.81%
Noninterest-bearing deposits........... 22,080 ------- 20,303 -------
Other noninterest-bearing liabilities.. 3,884 4,441
-------- --------
Total liabilities...................... 362,202 340,540
Stockholders' equity................... 37,465 21,642
-------- --------
Total liabilities and equity........... $399,667 $362,182
======== ========
Net interest spread(5)................. $10,099 2.28% $ 8,606 2.14%
======= ==== ======= ====
Net interest margin(6)................. 2.60% 2.44%
==== ====
Ratio of interest-earning assets to
interest-bearing liabilities......... 115.67% 111.69%
====== ======
Year Ended September 30,
-----------------------------------
2002
-----------------------------------
Average Interest Average
Balance Earned/Paid Yield/Cost
-------- ----------- ----------
Interest-earning assets:
Loans receivable, net(1)............... $186,974 $12,907 6.90%
Investment securities(2)............... 91,141 4,414 4.84%
Other interest-earning assets(3)....... 13,506 257 1.90%
-------- -------
Total interest-earning assets.......... 291,621 17,578 6.03%
Noninterest-earning assets............. 8,223
--------
Total assets........................... $299,844
========
Interest-bearing liabilities:
NOW & money market..................... $14,381 211 1.47%
Savings deposits(4).................... 86,475 2,196 2.54%
Certificates of deposit................ 114,965 4,158 3.62%
-------- -------
Total interest-bearing deposits........ 215,821 6,565 3.04%
Federal Home Loan Bank advances........ 43,859 2,264 5.16%
-------- -------
Total interest-bearing liabilities.... 259,680 8,829 3.40%
Noninterest-bearing deposits........... 16,333 -------
Other noninterest-bearing liabilities.. 3,507
--------
Total liabilities...................... 279,520
Stockholders' equity................... 20,324
--------
Total liabilities and equity........... $299,844
========
Net interest spread(5)................. $ 8,749 2.63%
======= ====
Net interest margin(6)................. 3.00%
====
Ratio of interest-earning assets to
interest-bearing liabilities......... 112.30%
======
- ---------------------
(1) Calculated net of deferred fees and loss reserves. Non-accruing loans have
been included as loans carrying a zero yield.
(2) Calculated based on amortized cost excluding FAS 115 market value
adjustment.
(3) Includes Federal Home Loan Bank stock at cost and term deposits with other
financial institutions.
(4) Includes money market savings accounts.
(5) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
EXHIBIT I-5
ASB Holding Company
Interest Rate Risk Analysis
Exhibit I-5
ASB Holding Company
Interest Rate Risk Analysis
Net Portfolio Value
Net Portfolio Value as % of Present Value of Assets
--------------------- ----------------------------------------
Changes in Net Portfolio Basis Point
Rates(1) $ Amount $ Change % Change Value Ratio Change
----------- -------- -------- -------- ------------- -----------
(Dollars in thousands)
+300 bp 24,991 -23,067 -48% 5.98% -468 bp
+200 bp 33,146 -14,912 -31% 7.72% -293 bp
+100 bp 41,117 -6,940 -14% 9.33% -132 bp
0 bp 48,058 10.66%
-100 bp 53,007 4,950 +10% 11.53% +87 bp
-200 bp 53,372 5,314 +11% 11.49% +84 bp
(1) The-300bp scenario is not shown due to the low prevailing interest rate
environment.
EXHIBIT I-6
ASB Holding Company
Fixed Rate and Adjustable Rate Loans
Exhibit I-6
ASB Holding Company
Fixed Rate and Adjustable Rate Loans
The following table sets forth the dollar amount of all loans at March
31, 2005 due after March 31, 2006, which have fixed interest rates and which
have floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
One- to four-family............ $153,365 $108,385 $261,750
Multi-family and commercial.... 19,695 34,634 54,329
Construction................... - 4,417 4,417
Consumer....................... 9 - 9
Home equity.................... - 11,232 11,232
Commercial..................... 33 103 136
-------- -------- --------
Total........................ $173,102 $158,771 $331,873
======== ======== ========
The following table sets forth the dollar amount of all loans at
September 30, 2004 due after September 30, 2005, which have fixed interest rates
and which have floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
One- to four-family............ $156,752 $93,990 $250,742
Multi-family and commercial.... 19,399 23,522 42,921
Construction................... - 6,150 6,150
Consumer....................... 6 -- 6
Home equity.................... - 10,647 10,647
Commercial..................... 125 121 246
-------- -------- --------
Total........................ $176,282 $134,430 $310,712
======== ======== ========
EXHIBIT I-7
ASB Holding Company
Loan Portfolio Composition
Exhibit I-7
ASB Holding Company
Loan Portfolio Composition
At March 31, At September 30
------------------ ------------------------------------------------------------------
2005 2004 2003 2002
------------------ ------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
Type of Loans:
Mortgage Loans
One- to four-family(1)............ $262,286 77.49% $251,531 80.17% $215,984 81.59% $167,564 79.06%
Multi-family and commercial....... 55,454 16.38 43,197 13.77 36,202 13.68 29,503 13.92
Construction........................ 8,132 2.40 7,175 2.29 1,233 0.47 4,875 2.30
Consumer............................ 701 0.21 746 0.24 780 0.29 795 0.38
Home equity......................... 11,249 3.32 10,666 3.40 8,893 3.36 6,904 3.26
Commercial.......................... 663 0.20 398 0.13 1,610 0.61 2,298 1.08
-------- ------ -------- ------ -------- ------ -------- ------
Total loans receivable......... 338,485 100.00% 313,713 100.00% 264,702 100.00% 211,939 100.00%
====== ====== ====== ======
Less:
Allowance for loan losses......... (1,689) (1,578) (1,371) (1,117)
Net deferred origination costs.... 977 935 796 673
Loans in process.................. (4,219) (4,100) (783) (3,121)
-------- -------- -------- --------
Total loans receivable, net.... $333,554 $308,970 $263,344 $208,374
======== ======== ======== ========
At September 30
-----------------------------------------
2001 2000
------------------ ------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
Type of Loans:
Mortgage Loans
One- to four-family(1)............ $131,513 76.18% $108,678 73.97%
Multi-family and commercial....... 24,903 14.42 21,867 14.88
Construction........................ 9,402 5.45 10,697 7.28
Consumer............................ 540 0.31 547 0.37
Home equity......................... 5,863 3.40 4,903 3.34
Commercial.......................... 417 0.24 238
-------- ------ -------- ------
Total loans receivable......... 172,638 100.00% 146,930 100.00%
====== ======
Less:
Allowance for loan losses......... (1,009) (1,003)
Net deferred origination costs.... 532 400
Loans in process.................. (5,839) (5,369)
-------- --------
Total loans receivable, net.... $166,322 $140,958
======== ========
(1) Includes loans held for sale of $300,000, $500,000 and $452,000 at March
31, 2005, September 30, 2003 and September 30, 2000, respectively.
Exhibit I-8
ASB Holding Company
Contractual Maturity By Loan Type
Exhibit I-8
ASB Holding Company
Contractual Maturity By Loan Type
At March 31, 2005
------------------------------------------------------------------------------------------
Multi-family
One- to Four- and
Family Commercial Construction Consumer Home Equity Commercial Total
------------ ----------- ------------ -------- ----------- ---------- -----
(In thousands)
Amounts Due:
Within 1 Year .......... $ 536 $ 1,125 $ 3,715 $ 692 $ 17 $ 527 $ 6,612
After 1 year:
1 to 5 years ......... 2,358 1,454 4,417 9 50 71 8,359
5 to 10 years ........ 31,584 5,100 -- -- 1,997 65 38,746
10 to 15 years ....... 58,619 15,442 -- -- 7,957 -- 82,018
Over 15 years ........ 169,189 32,333 -- -- 1,228 -- 202,750
Total due after one year 261,750 54,329 4,417 9 11,232 136 331,873
-------- -------- -------- -------- -------- -------- --------
Total amount due ....... $262,286 $ 55,454 $ 8,132 $ 701 $ 11,249 $ 663 $338,485
======== ======== ======== ======== ======== ======== ========
ESHIBIT I-9
ASB Holding Company
Non-Performing Assets
Exhibit I-9
ASB Holding Company
Non-Performing Assets
At
March 31, At September 30,
--------- ----------------------------------------------
2005 2004 2003 2002 2001 2000
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
One- to four-family ............................... $261 $445 $147 $147 $309 $374
Multi-family and commercial ....................... 74 74 369 423 287 343
Construction ...................................... -- -- -- -- -- --
Consumer .......................................... -- -- 1 -- 21 --
Home equity ....................................... 17 -- -- -- 11 61
Commercial ........................................ -- -- -- -- -- --
---- ---- ---- ---- ---- ----
Total .......................................... $352 $519 $517 570 628 778
Accruing loans contractually past due 90 days or more -- -- -- -- -- --
---- ---- ---- ---- ---- ----
Total non-performing loans .......................... 352 519 517 570 628 778
Real estate owned ................................... -- -- -- -- -- --
Other non-performing assets ......................... -- -- -- -- -- --
---- ---- ---- ---- ---- ----
Total non-performing assets ......................... $352 $519 $517 $570 $628 $778
==== ==== ==== ==== ==== ====
Allowance for loan losses to non-performing loans ... 480.66% 304.05% 265.18% 195.96% 160.67% 128.92%
Total non-performing loans to total loans ........... 0.11% 0.17% 0.20% 0.27% 0.36% 0.53%
Total non-performing loans to total assets .......... 0.08% 0.12% 0.12% 0.17% 0.24% 0.35%
Total non-performing assets to total assets ......... 0.08% 0.12% 0.12% 0.17% 0.24% 0.35%
Exhibit I-10
ASB Holding Company
Loan Loss Allowance Activity
Exhibit I-10
ASB Holding Company
Loan Loss Allowance Activity
Six Months Ended Year Ended
March 31, September 30,
-------------------- ------------------------------------------------------
2005 2004 2004 2003 2002 2001 2000
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
Allowance balance at beginning of period .... $ 1,578 $ 1,371 $ 1,371 $ 1,117 $ 1,009 $ 1,003 $ 999
Provision for loan losses ................... 112 54 207 254 105 2 22
Charge-offs:
One- to four-family ....................... -- -- -- -- -- -- (19)
Consumer................................... -- -- -- -- (1) -- --
--------- --------- --------- --------- --------- --------- ---------
Total charge-offs ...................... (19) -- -- -- -- (1) --
--------- --------- --------- --------- --------- --------- ---------
Recoveries:
Consumer -- -- -- -- 4 4 1
--------- --------- --------- --------- --------- --------- ---------
Total recoveries -- -- -- -- 4 4 1
--------- --------- --------- --------- --------- --------- ---------
Net (charge-offs) recoveries ................ -- -- -- -- 3 4 18
--------- --------- --------- --------- --------- --------- ---------
Allowance balance at end of period .......... $ 1,690 $ 1,425 $ 1,578 $ 1,371 $ 1,117 $ 1,009 $ 1,003
========= ========= ========= ========= ========= ========= =========
Total loans outstanding at end of period .... $ 338,485 $ 275,774 $ 313,713 $ 264,702 $ 211,939 $ 172,638 $ 146,930
========= ========= ========= ========= ========= ========= =========
Average loans outstanding during period ..... $ 318,539 $ 270,680 $ 278,632 $ 238,474 $ 186,974 $ 150,938 $ 128,463
========= ========= ========= ========= ========= ========= =========
Allowance as a % of total loans ............. 0.50% 0.52% 0.50% 0.52% 0.53% 0.58% 0.68%
Net loans charge-offs as a % of average loans 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01%
EXHIBIT I-11
ASB Holding Company
Deposit Composition
Exhibit I-11
ASB Holding Company
Deposit Composition
At March 31, At September 30,
--------------------------------- ----------------------------------
2005 2004
--------------------------------- -------------------------------
Weighted Weighted
Percent Average Percent Average
of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate
------ -------- -------- ------ -------- --------
(Dollars in thousands)
Noninterest-bearing demand
deposits................ $ 24,093 7.34% -% $ 22,599 7.00% -%
Interest-bearing demand
deposits................ 34,018 10.37 1.18 38,696 11.99 1.06
Time deposits.............. 135,295 41.24 2.94 143,401 44.44 1.60
Savings deposits........... 134,637 41.05 1.58 118,020 36.57 2.65
-------- ------ ---- -------- ------ ----
Total deposits........ $328,043 100.00% 1.98% $322,716 100.00% 1.81%
======== ====== ==== ======== ====== ====
At September 30,
--------------------------------------------------------------------
2003 2002
------------------------------- --------------------------------
Weighted Weighted
Percent Average Percent Average
of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate
------ -------- -------- ------ -------- --------
(Dollars in thousands)
Noninterest-bearing demand
deposits................ $ 21,676 7.40% -% $ 16,816 6.36% -%
Interest-bearing demand
deposits................ 21,721 7.42 0.98 27,733 10.48 1.55
Time deposits.............. 127,720 43.62 1.60 101,433 38.34 2.30
Savings deposits........... 121,709 41.56 2.55 118,605 44.82 3.14
-------- ------ ==== ======== ====== ====
Total deposits........ $292,826 100.00% 1.79% $264,587 100.00% 2.45%
======== ====== ==== ======== ====== ====
Exhibit I-12
ASB Holding Company
CDs By Rate and Maturity
Exhibit I-12
ASB Holding Company
CDs By Rate and Maturity
The following table sets forth the time deposits at the Bank classified
by interest rate as of the dates indicated.
At March 31, At September 30,
------------------ -----------------------------------------------------------------
2005 2004 2003 2002
------------------ ------------------ ----------------- ------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
Interest Rate
0.00% - 0.99%.......... $ - -% $ - -% $ 240 0.20% $ 498 0.42%
1.00% - 1.99%.......... 36,415 26.92 51,664 43.78 56,504 46.43 8 0.42
2.00% - 2.99%.......... 32,971 24.37 20,848 17.66 18,576 15.26 66,213 55.82
3.00% - 3.99%.......... 34,763 25.69 16,353 13.86 23,047 18.94 28,792 24.28
4.00% - 4.99%.......... 19,369 14.32 19,198 16.27 18,414 15.13 16,557 13.96
5.00% - 5.99%.......... 11,334 8.38 9,494 8.04 3,941 3.24 5,129 4.32
6.00% - 6.99%.......... 443 0.33 463 0.39 987 0.81 1,383 1.17
7.00% - 7.99%.......... - - - - - - 33 0.03
-------- ------ -------- ------ -------- ------ -------- ------
Total................ $135,295 100.00% $118,020 100.00% $121,709 100.00% $118,605 100.00%
======== ====== ======== ====== ======== ====== ======== ======
The following table sets forth the amount and maturities of time
deposits at the Bank at March 31, 2005.
Amount Due
------------------------------------------------------------------------------------
After
March 31, March 31, March 31, March 31, March 31, March 31,
Interest Rate 2006 2007 2008 2009 2010 2010
------------- --------- --------- --------- -------- --------- ---------
(In thousands)
0.00% - 0.99%........ $36,410 $ - $ - $ - $ - $ -
1.00% - 1.99%........ 28,541 6 - - - -
2.00% - 2.99%........ 13,033 4,345 84 - - -
3.00% - 3.99%........ 5,382 14,268 3,570 3,162 667 63
4.00% - 4.99%........ 93 692 6,192 3,481 1,796 1,826
5.00% - 5.99%........ 392 185 3,204 186 66 7,601
6.00% - 6.99%........ - - 50 - - -
------- ------- ------- ------ ------ ------
Total............ $83,851 $19,496 $13,100 $6,829 $2,529 $9,490
======= ======= ======= ====== ====== ======
Exhibit I-13
ASB Holding Company
Borrowings Activity
Exhibit I-13
ASB Holding Company
Borrowings Activity
At or For the
At or For the Year Ended September 30,
Six Months Ended -------------------------------------
March 31, 2005 2004 2003 2002
---------------- -------- -------- --------
(Dollars in thousands)
Federal Home Loan Bank Advances:
Average balance outstanding............... $ 61,780 $ 60,125 $ 54,923 $ 43,859
Maximum amount outstanding
at any month-end during the period...... $ 68,263 $ 65,500 $ 61,800 $ 48,500
Balance outstanding at end of period...... $ 68,263 $ 57,491 $ 55,000 $ 44,000
Weighted average interest rate during
the period............................. 4.54% 4.76% 5.16% 5.16%
Weighted average interest rate at end
of period.............................. 4.45% 4.72% 5.13% 5.59%
Exhibit II-1
ASB Holding Company
Description of Office Facilities
Exhibit II-1
ASB Holding Company
Description of Office Facilities
Year Facility Leased or Net Book Value at
Office Location Opened Owned March 31, 2005
--------------- ------------- --------- -----------------
(In thousands)
Main Office
365 Broad Street
Bloomfield, New Jersey 07003 1965 Owned $1,377
Main Office Drive Up Facility
16 Pitt Street
Bloomfield, New Jersey 07003 1998 Owned $ 346
Full Service Branch
310 Pompton Avenue
Cedar Grove, New Jersey 07009 2001 Owned $1,928
Deposits in connection with branch site
acquisitions $ 408
Exhibit II-2
Historical Interest Rates(1)
Exhibit II-2
Historical Interest Rates(1)
Prime 90 Day One Year 10 Year
Year/Qtr. Ended Rate T-Bill T-Bill T-Bond
--------------- ---- ------ ------ ------
1997: Quarter 1 8.50% 5.35% 6.02% 6.92%
Quarter 2 8.50% 5.25% 5.67% 6.51%
Quarter 3 8.50% 5.06% 5.47% 6.12%
Quarter 4 8.50% 5.36% 5.51% 5.75%
1998: Quarter 1 8.50% 5.16% 5.41% 5.67%
Quarter 2 8.50% 5.10% 5.38% 5.44%
Quarter 3 8.25% 4.37% 4.41% 4.44%
Quarter 4 7.75% 4.48% 4.53% 4.65%
1999: Quarter 1 7.75% 4.49% 4.72% 5.25%
Quarter 2 7.75% 4.78% 5.07% 5.81%
Quarter 3 8.25% 4.88% 5.22% 5.90%
Quarter 4 8.50% 5.33% 5.98% 6.45%
2000: Quarter 1 9.00% 5.88% 6.28% 6.03%
Quarter 2 9.50% 5.88% 6.08% 6.03%
Quarter 3 9.50% 6.23% 6.07% 5.80%
Quarter 4 9.50% 5.89% 5.32% 5.12%
2001: Quarter 1 8.00% 4.30% 4.09% 4.93%
Quarter 2 6.75% 3.65% 3.72% 5.42%
Quarter 3 6.00% 2.40% 2.49% 4.60%
Quarter 4 4.75% 1.74% 2.17% 5.07%
2002: Quarter 1 4.75% 1.79% 2.70% 5.42%
Quarter 2 4.75% 1.70% 2.06% 4.86%
Quarter 3 4.75% 1.57% 1.53% 3.63%
Quarter 4 4.25% 1.22% 1.32% 3.83%
2003: Quarter 1 4.25% 1.14% 1.19% 3.83%
Quarter 2 4.00% 0.90% 1.09% 3.54%
Quarter 3 4.00% 0.95% 1.15% 3.96%
Quarter 4 4.00% 0.95% 1.26% 4.27%
2004: Quarter 1 4.00% 0.95% 1.20% 3.86%
Quarter 2 4.00% 1.33% 2.09% 4.62%
Quarter 3 4.75% 1.70% 2.16% 4.12%
Quarter 4 5.25% 2.22% 2.75% 4.24%
2005: Quarter 1 5.75% 2.80% 3.43% 4.51%
As of May 31, 2005 6.00% 2.99% 3.32% 4.00%
(1) End of period data.
Sources: Federal Reserve.
Exhibit III-1
General Characteristics of Publicly-Traded Institutions
[GRAPHICS OMITTED]
EXHIBIT III-2
Public Market Pricing of New Jersey Thrifts
[GRAPHICS OMITTED]
EXHIBIT III-3
Public Market Pricing of Mid-Altanic Thrifts
[GRAPHICS OMITTED]
EXHIBIT IV-1
Stock Prices:
As of May 31, 2005
[GRAPHICS OMITTED]
EXHIBIT IV-2
Historical Stock Price Indices
Exhibit IV-2
Historical Stock Price Indices(1)
SNL SNL
NASDAQ Thrift Bank
Year/Qtr. Ended DJIA S&P 500 Composite Index Index
--------------- ---- ------- --------- ----- -----
1998: Quarter 1 8799.8 1101.8 1,835.7 869.3 456.1
Quarter 2 8952.0 1133.8 1,894.7 833.5 457.7
Quarter 3 7842.6 1017.0 1,693.8 651.3 363.5
Quarter 4 9181.4 1229.2 2,192.7 705.9 439.6
1999: Quarter 1 9786.2 1286.4 2,461.4 707.6 448.4
Quarter 2 10970.8 1372.7 2,686.1 695.6 479.3
Quarter 3 10337.0 1282.7 2,746.2 609.1 409.9
Quarter 4 11497.1 1469.3 4,069.3 562.4 416.7
2000: Quarter 1 10921.9 1498.6 4,572.8 545.6 421.2
Quarter 2 10447.9 1454.6 3,966.1 567.8 387.4
Quarter 3 10650.9 1436.5 3,672.8 718.3 464.6
Quarter 4 10786.9 1320.3 2,470.5 874.3 479.4
2001: Quarter 1 9878.8 1160.3 1,840.3 885.2 459.2
Quarter 2 10502.4 1224.4 2,160.5 964.5 493.7
Quarter 3 8847.6 1040.9 1,498.8 953.9 436.6
Quarter 4 10021.5 1148.1 1,950.4 918.2 473.7
2002: Quarter 1 10403.9 1147.4 1,845.4 1006.7 498.3
Quarter 2 9243.3 989.8 1,463.2 1121.4 468.9
Quarter 3 7591.9 815.3 1,172.1 984.3 396.8
Quarter 4 8341.6 879.8 1,335.5 1073.2 419.1
2003: Quarter 1 7992.1 848.2 1,341.2 1096.2 401.0
Quarter 2 8985.4 974.5 1,622.8 1266.6 476.1
Quarter 3 9275.1 996.0 1,786.9 1330.9 490.9
Quarter 4 10453.9 1112.0 2,003.4 1482.3 548.6
2004: Quarter 1 10357.7 1126.2 1,994.2 1585.3 562.2
Quarter 2 10435.5 1140.8 2,047.8 1437.8 546.6
Quarter 3 10080.3 1114.6 1,896.8 1495.1 556.0
Quarter 4 10783.0 1211.9 2,175.4 1605.6 595.1
2005: Quarter 1 10503.8 1180.6 1,999.2 1516.6 551.0
As of May 31, 2005 10467.5 1191.5 2,068.2 1546.4 563.7
(1) End of period data.
Sources: SNL Securities and Wall Street Journal.
EXHIBIT IV-3
Historical Thrift Stock Indices
[GRAPHICS OMITTED]
EXHIBIT IV-4
Market Area Acquisition Activity
Exhibit IV-4
New Jersey Thrift Acquisitions 2001-Present
Target Financials at
Announcement
----------------------------
Total
Announce Complete Assets E/A ROAA ROAE
Date Date Buyer Short Name Target Name ($000) (%) (%) (%)
-------- -------- ---------------- ----------- ------- ---- ---- -----
01/10/2002 10/21/2002 Kearny, MHC NJ Pulaski Bancorp, Inc. (MHC) NJ 237,596 10.50 0.32 3.05
09/11/2002 07/01/2003 Kearny, MHC NJ West Essex Bancorp Inc.,(MHC) NJ 390,333 13.02 0.88 6.51
05/16/2002 12/31/2002 NSB Holding Corp. NY Liberty Bancorp, Inc. (MHC) NJ 323,043 9.69 0.36 3.63
10/18/2001 08/23/2002 Oritani Financial Corp M.H.C NJ Hamilton Bancorp, MHC NJ 123,151 6.40 0.45 6.95
10/17/2001 07/31/2002 Pacific MHC CA College Savings Bank NJ 323,236 5.39 0.56 10.31
12/22/2003 07/14/2004 Provident Financial Services NJ First Sentinel Bancorp, Inc. NJ 2,245,130 9.68 1.12 11.66
Average: 607,082 9.11 0.62 7.02
Median: 323,140 9.69 0.51 6.73
Target Financials
at Announcement Deal Terms and Pricing at Announcement
-------------- -----------------------------------------------------
NPAs/ Rsrvs/ Deal Value/ Prem/
Assets NPLs Value Share P/B P/TB P/E P/A Cdeps
(%) (%) ($M) ($) (%) (%) (x) (%) (%)
------ ------ ----- ----- ----- ----- ---- ---- -----
0.29 182.58 32.900 Cash 253.27 253.27 NM 27.06 23.60
0.36 114.15 35.100 Cash 334.60 356.71 52.39 44.90 60.81
0.20 140.73 26.500 Cash 276.62 276.62 NM 27.68 25.15
0.05 NA NA NA NA NA NA NA
0.00 NA NA NA NA NA NA NA
0.04 NM 22.246 Mixed 283.03 288.17 23.92 28.68 32.93
0.16 145.82 29.19 286.88 293.69 38.16 32.08 35.62
0.13 140.73 29.70 279.83 282.40 38.16 28.18 29.04
Source: SNL Finanical, LC.
Exhibit IV-5
ASB Holding Company
Director and Senior Management Summary Resumes
Exhibit IV-5
ASB Holding Company
Director and Senior Management Summary Resumes
Robert A. Gaccione has been a member of the Board since 2003. He has been a
senior partner of the law firm of Gaccione, Pomaco & Malanga, P.C. in
Belleville, New Jersey for thirty years. He is a former Federal Bureau of
Investigation agent. Mr. Gaccione also serves as the Essex County Tax Board
Commissioner. He served as a director of Franklin Community Bank, a commercial
bank located in Nutley, New Jersey for three years. Mr. Gaccione is a member and
the past president of the Belleville Rotary Club, is the president of the Clara
Maass Foundation and is a member of the Belleville Foundation.
Joseph Kliminski has been a member of the Board since 1986. He has been
employed by the Bank since 1967 and became President and Chief Executive Officer
of the Bank in 1987 and President and Chief Executive Officer of ASB Holding
Company upon its formation in June 2003. Mr. Fred Kowal succeeded Mr. Kliminski
as President of the Bank and ASB Holding Company in 2005. Mr. Kliminski
continues to serve as Chief Executive Officer of the Bank and ASB Holding
Company and will also hold this position for American Bancorp of New Jersey,
Inc. Mr. Kliminski is a member and past president of the Bloomfield Lions Club,
is president of the Advisory Board to the Bloomfield Town Council, chairman of
the Bloomfield Education Foundation, and former chairman of the Deborah Hospital
Children of the World Golf Tournament. Mr. Kliminski also serves on the
Executive Committee of the Bloomfield Center Alliance, and is a member and
former president of the Board of Trustees of the Bloomfield Public Library. He
is also a former member of the Board of Governors of the New Jersey League of
Community Bankers and past president of the Essex County Savings League.
Fred G. Kowal was appointed as President and Chief Operating Officer of the
Bank in March 2005 and was appointed as a member of the Board of ASB Holding
Company at the same time. In May 2005, he was appointed as President and Chief
Operating Officer of ASB Holding Company. He will serve in these same capacities
as an officer of American Bancorp of New Jersey, Inc. Mr. Kowal was previously
Chairman and Chief Executive Officer of Warwick Community Bancorp, Inc. until
its merger into Provident Bancorp, Inc. in October 2004. He joined Warwick
Community Bancorp, Inc. in 1999 and also served as Chairman of the Board of
Directors of The Warwick Savings Bank and as Chairman of the Board, President
and Chief Executive Officer of The Towne Center Bank, a de novo commercial bank
formed by Warwick Community Bancorp, Inc. in 1999. Prior to joining Warwick, he
served as Senior Vice President of First Union National Bank, where he worked
for 16 years, and as Senior Vice President of PNC Bank.
H. Joseph North has been a member of the Board since 1991. Mr. North
retired in 1987 as Town Administrator of Bloomfield, New Jersey after 20 years
of service as the municipality's chief administrative officer. Mr. North is a
past president and a lifetime member of the New Jersey Municipal Management
Association and is a former member of the International City Management
Association. Mr. North is also a former president of the Bloomfield Lions Club,
Bloomfield Fifth Quarter Club and Bloomfield Tennis Federation.
Stanley Obal has been a member of the Board since 1981. Mr. Obal retired in
1982 and was the owner of Obal's Inn, a tavern and restaurant in Bloomfield, New
Jersey.
W. George Parker has been a member of the Board since 1967 and Chairman
since 1990. Mr. Parker is the owner, president and chief executive officer of
Adco Chemical Company, located in Newark, New Jersey.
Exhibit IV-5 (continued)
ASB Holding Company
Director and Senior Management Summary Resumes
Vincent S. Rospond has been a member of the Board since 1981. He is an
attorney and the majority stockholder of the law firm of Rospond, Rospond &
Conte, P.A. in Bloomfield, New Jersey. Rospond, Rospond & Conte serves as
general counsel to the Bank. Mr. Rospond is the president and a trustee of
United Way of Bloomfield, is a member and the former legal counsel of Bloomfield
Chamber of Commerce, and is a member and the treasurer of North Jersey
Manufacturer's & Businessmen Association. He is also a member of the Cornell
Club of New Jersey, the Essex County Bar Association, the Newark Art Museum, the
Bloomfield Music Federation and the New Jersey Bar Association.
James H. Ward, III has been a member of the Board since 1991 and Vice
Chairman since 2003. From 1998 to 2000, he was the majority stockholder and
Chief Operating Officer of Rylyn Group, which operated a restaurant in
Indianapolis, Indiana. Prior to that, he was the majority stockholder and Chief
Operating Officer of Ward and Company, an insurance agency in Springfield, New
Jersey, where he was employed from 1968 to 1998. He is now a retired investor.
Richard M. Bzdek is the Bank's Executive Vice President and Secretary and
became Executive Vice President and Secretary of the ASB Holding Company upon
its formation in June 2003. He will serve in these same capacities as an officer
of American Bancorp of New Jersey, Inc. He has been employed by the Bank since
1975. Mr. Bzdek is the former president and a current director of the Bloomfield
Chamber of Commerce. He is a member of the Financial Managers Society and serves
as Vice Chairman on the Operations and Technology Committee of the New Jersey
League of Community Bankers. He is also the treasurer and a trustee of United
Way of Bloomfield and is a director and co-founder of the Bloomfield Center
Alliance.
Eric B. Heyer has served as Senior Vice President, Treasurer and Chief
Financial Officer for the Bank since 1997 and was appointed to these same
positions for ASB Holding Company upon its formation in June 2003. He will serve
in these same capacities as an officer of American Bancorp of New Jersey, Inc.
Mr. Heyer has been employed by the Bank since 1993. He was previously the chief
financial officer of Monarch Savings Bank in Kearny, New Jersey, where he was
employed from 1986 to 1993. Mr. Heyer is a member of the Financial Managers
Society. He has previously served as a trustee of Kingston United Methodist
Church and currently serves as vice chairman of the stewardship and finance
committee of Princeton United Methodist Church. Mr. Heyer also serves as a board
member of the Mental Health Clinic of Passaic in Clifton, New Jersey.
Catherine M. Bringuier has been the Bank's Senior Vice President and Chief
Lending Officer since January 2003. Ms. Bringuier has been employed by the Bank
since 1990. She has previously held the positions of compliance officer, Vice
President and Lending Officer for commercial, residential and consumer lending.
She is an Assistant Den Leader for Cub Scouts Pack 103 of Cranford, NJ and is a
member of the Sunny Acres Civic and Improvement Association of Crawford, NJ.
EXHIBIT IV-6
ASB Holding Company
Pro Forma Regulatory Capital Ratios
EXHIBIT IV-6
ASB Holding Company
Pro Forma Regulatory Capital Ratios
Pro Forma at March 31, 2005
Actual, as of -----------------------------------------------------------------------------------
March 31, 2005 Minimum Midpoint Maximum Maximum As Adjusted
--------------------- -------------------- ------------------- ------------------- --------------------
Percent Percent Percent Percent Percent
Amount of Assets Amount of Assets Amount of Assets Amount of Assets Amount of Assets
------ ------------ ------ ------------ ------ ------------ ------ ------------ -------------------
(Dollars in thousands)
Capital and Retained
Earnings Under Generally
Accepted Accounting
Principles $33,941 7.76% $57,528 12.49% $61,751 13.28% $65,974 14.06% $70,831 14.94%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Tangible Capital....... $34,856 7.96% $58,443 12.66% $62,666 13.45% $66,889 14.23% $71,746 15.10
Requirement............ 6,571 1.50 6,925 1.50 6,989 1.50 7,052 1.50 7,125 1.50
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess................. $28,285 6.46% $51,517 11.16% $55,677 11.95% $59,837 12.73% $64,621 13.60%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Tier 1 Capital
(Leverage)........... $34,856 7.96% $58,443 12.66% $62,666 13.45% $66,889 14.23% $71,746 15.10%
Requirement............ 17,524 4.00 18,467 4.00 18,636 4.00 18,805 4.00 18,999 4.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess................. $17,332 3.96% $39,975 8.66% $43,030 9.45% $48,084 10.23% $52,747 11.10%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Total Risk-Based
Capital.............. $36,545 15.34% $60,132 24.06% $64,355 25.53% $68,578 26.98% $73,435 28.62%
Risk-Based Requirement. 19,053 8.00 19,997 8.00 20,166 8.00 20,335 8.00 20,529 8.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess................. $17,492 7.34% $40,135 16.06% $44,189 17.53% $48,243 18.98% $52,906 20.62%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Tier 1 Risk-Based...... $34,856 14.64% $58,443 23.38% $62,666 24.86% $66,889 26.32% $71,746 27.96%
Tier 1 Risk-Based
Requirement.......... 9,527 4.00 9,998 4.00 10,083 4.00 10,167 4.00 10,264 4.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess................. $25,329 10.64% $48,444 19.38% $52,583 20.86% $56,722 22.32% $61,481 23.96%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Net Proceeds After Exp. Infused (50%) $31,237 $36,810 $42,383 $48,792
Less: ESOP (5,100) (6,000) (6,900) (7,935)
Less: MRP (2,550) (3,000) (3,450) (3,968)
------- ------- ------- -------
Pro Forma Increase $23,587 $27,810 $32,033 $36,890
======= ======= ======= =======
EXHIBIT IV-7
PRO FORMA ANALYSIS SHEET
ASB Holding Company, Bloomfield, New Jersey
Prices as of May 31, 2005
EXHIBIT IV-7
PRO FORMA ANALYSIS SHEET
ASB Holding Company, Bloomfield, New Jersey
Prices as of May 31, 2005
Peer Group New Jersey Companies All Public
Subject ------------------ --------------------- ------------------
Valuation Midpoint Pricing Multipl Symbol at Midpoint Mean Median Mean Median Mean Median
---------------------------------- ------ ----------- ---- ------ ---- ------ ---- ------
Price-earnings multiple= P/E 47.94 x 18.25x 15.27x 19.14x 14.46x 19.35x 16.28x
Price-core earnings mul=iple P/CE 50.42 x 18.09x 15.52x 21.07x 19.30x 20.28x 18.32x
Price-book ratio = P/B 103.59% 148.97 146.14 163.97 161.04 151.48 144.00
Price-tangible book rat=o P/TB 103.59% 153.57 149.16 178.11 180.91 169.40 157.83
Price-assets ratio = P/A 21.20% 12.97 13.36 14.64 15.68 14.51 14.26
Valuation Parameters Adjusted Stated
-------------------- -------- ------
Pre-Conversion Earnings (Y) $2,295,000 (12 Mths 3/05) ESOP Stock (% of Offering + Foundation)(E) 8.00% 8.00%
Pre-Conversion Core Earnings $2,185,090 (12 Mths 3/05) Cost of ESOP Borrowings (S) 0.00%
Pre-Conversion Book Value (B$38,911,000 ESOP Amortization (T) 10.00 Years
Pre-Conv. Tang. Book Value ($38,911,000 Stock Program (% of Offering + Foundation (4.00% 4.00%
Pre-Conversion Assets (A) $440,954,000 Stock Programs Vesting (N) 5.00 Years
Reinvestment Rate (R) 3.35% Fixed Expenses $800,000
Tax rate (TAX) 39.94% Variable Expenses 1.00%
After Tax Reinvest. Rate (R) 2.01% Percentage Sold (PCT) 70.0000%
Est. Conversion Expenses (1)(X) 1.97% MHC Assets $100,000
Insider Purchases $1,000,000 Options as % of Offering (O1) 10.00%
Price/Share $10.00 Estimated Option Value (O2) 47.20%
Foundation Cash Contribution (FC) 0.00% Option Vesting Period (O3) 5.00 years
Foundation Stock Contribution (FS)0.00% Shares % of Options taxable (O4) 25.00%
Foundation Tax Benefit (FT) $0
Calculation of Pro Forma Value After Conversion
-----------------------------------------------
1. V= P/E * (Y) V= $107,142,853
---------------------------------------------------------------------------------------
1 - P/E * PCT * ((1-X-E-M-FS)*R - (1-TAX)*(E/T) - (1-TAX)*(M/N)-(1-TAX*O4)*(O1*O2/O3)))
2. V= P/Core E * (YC) V= $107,142,853
--------------------------------------------------------------------------------------------
1 - P/Core E * PCT * ((1-X-E-M-FS)*R - (1-TAX)*(E/T) - (1-TAX)*(M/N)-(1-TAX*O4)*(O1*O2/O3)))
3. V= P/B * (B+FT) V= $107,142,853
---------------------------------------------
1 - P/B * PCT * (1-X-E-M-FC-FS)
4. V= P/TB * (B+FT) V= $107,142,853
---------------------------------------------
1 - P/TB * PCT * (1-X-E-M-FC-FS)
5. V= P/A * (A+FT) V= $107,142,853
------------------------------------------------------------
1 - P/A * PCT * (1-X-E-M-FC-FS)
Shares
------
2nd Step Full Plus: Total Market
2nd Step Exchange Conversion Foundation Capitalization Exchange
Conclusion Offering Shares Shares Shares Shares Shares Ratio
---------- --------------- ------ ------ ------ ------ -----
Supermaximum 9,918,750 4,250,892 14,169,642 0 14,169,642 2.55102
Maximum 8,625,000 3,696,428 12,321,428 0 12,321,428 2.21828
Midpoint 7,500,000 3,214,285 10,714,285 0 10,714,285 1.92894
Minimum 6,375,000 2,732,143 9,107,143 0 9,107,143 1.63960
Market Value
------------
2nd Step Full Total Market
2nd Step Exchange Conversion Foundation Capitalization
Conclusion Offering Value Shares Value $ Value Value $ Value
---------- -------------- ------------ ------- ----- -------
Supermaximum $99,187,500 $42,508,923 $141,696,418 $0 $141,696,418
Maximum $86,250,000 $36,964,281 $123,214,286 0 $123,214,286
Midpoint $75,000,000 $32,142,853 $107,142,853 0 $107,142,853
Minimum $63,750,000 $27,321,425 $91,071,430 0 $ 91,071,430
(1) Estimated offering expenses at midpoint of the offering.
EXHIBIT IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
ASB Holding Company, Inc.
At the Minimum of the Range
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
ASB Holding Company, Inc.
At the Minimum of the Range
1. Fully Converted Value and Exchange Ratio
Fully Converted Value $91,071,430
Exchange Ratio 1.63960
2nd Step Offering Proceeds $63,750,000
Less: Estimated Offering Expenses 1,376,500
-----------
2nd Step Net Conversion Proceeds (Including Foundation) $62,373,500
2. Estimated Additional Income from Conversion Proceeds
Net Conversion Proceeds $62,373,500
Less: Cash Contribution to Foundation (0)
Less: Stock Contribution to Foundation 0
Less: ESOP Stock Purchases (1) (5,100,000)
Less: MRP Stock Purchases (2) (2,550,000)
-----------
Net Proceeds to be Reinvested $54,723,500
Estimated after-tax net incremental rate of return 2.01%
----
Earnings Increase $1,101,042
Less: Estimated cost of ESOP borrowings 0
Less: Amortization of ESOP borrowings(3) (306,306)
Less: Stock Programs Vesting (3) (306,306)
Less: Option Plan Vesting (4) (541,710)
--------
Net Earnings Increase ($53,280)
Net
Before Earnings After
3. Pro Forma Earnings Conversion Increase Conversion
---------- -------- ----------
12 Months ended March 31, 2005 (reported) $2,295,000 ($53,280) $2,241,720
12 Months ended March 31, 2005 (core) $2,185,090 ($53,280) $2,131,810
Before Net Addition Tax Benefit After
4. Pro Forma Net Worth Conversion to Equity of Foundation Conversion
---------- --------- ------------- ----------
March 31, 2005 $38,911,000 $54,723,500 $0 $93,634,500
March 31, 2005 (Tangible) $38,911,000 $54,723,500 $0 $93,634,500
Before Net Cash Tax Benefit After
5. Pro Forma Assets Conversion Proceeds of Foundation Conversion
---------- -------- ------------- ----------
March 31, 2005 $440,954,000 $54,723,500 $0 $495,677,500
(1) Includes ESOP purchases of 8% of the second step offering.
(2) Includes MRP purchases of 4% of the second step offering.
(3) ESOP amortized over 10 years, MRP amortized over 5 years, tax effected at:
39.94%
(4) Option valuation based on Black-Scholes model, 10 year vesting, and
assuming 25% taxable.
EXHBIIT IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
ASB Holding Company, Inc.
At the Midpoint of the Range
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
ASB Holding Company, Inc.
At the Midpoint of the Range
1. Fully Converted Value and Exchange Ratio
Fully Converted Value $107,142,853
Exchange Ratio 1.92894
2nd Step Offering Proceeds $75,000,000
Less: Estimated Offering Expenses 1,480,000
-----------
2nd Step Net Conversion Proceeds (Including Foundation) $73,520,000
2. Estimated Additional Income from Conversion Proceeds
Net Conversion Proceeds $73,520,000
Less: Cash Contribution to Foundation (0)
Less: Stock Contribution to Foundation 0
Less: ESOP Stock Purchases (1) (6,000,000)
Less: MRP Stock Purchases (2) (3,000,000)
-----------
Net Proceeds to be Reinvested $64,520,000
Estimated after-tax net incremental rate of return 2.01%
----
Earnings Increase $1,298,149
Less: Estimated cost of ESOP borrowings 0
Less: Amortization of ESOP borrowings(3) (360,360)
Less: Stock Programs Vesting (3) (360,360)
Less: Option Plan Vesting (4) (637,306)
----------
Net Earnings Increase ($59,877)
Net
Before Earnings After
3. Pro Forma Earnings Conversion Increase Conversion
---------- -------- ----------
12 Months ended March 31, 2005 (reported) $2,295,000 ($59,877) $2,235,123
12 Months ended March 31, 2005 (core) $2,185,090 ($59,877) $2,125,213
Before Net Cash Tax Benefit After
4. Pro Forma Net Worth Conversion Proceeds of Foundation Conversion
---------- -------- ------------- ----------
March 31, 2005 $38,911,000 $64,520,000 $0 $103,431,000
March 31, 2005 (Tangible) $38,911,000 $64,520,000 $0 $103,431,000
Before Net Cash Tax Benefit After
5. Pro Forma Assets Conversion Proceeds of Foundation Conversion
---------- -------- ------------- ----------
March 31, 2005 $440,954,000 $64,520,000 $0 $505,474,000
(1) Includes ESOP purchases of 8% of the second step offering.
(2) Includes MRP purchases of 4% of the second step offering.
(3) ESOP amortized over 10 years, MRP amortized over 5 years, tax effected at:
39.94%
(4) Option valuation based on Black-Scholes model, 10 year vesting, and
assuming 25% taxable.
EXHIBIT IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
ASB Holding Company, Inc.
At the Maximum of the Range
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
ASB Holding Company, Inc.
At the Maximum of the Range
1. Fully Converted Value and Exchange Ratio
Fully Converted Value $123,214,286
Exchange Ratio 2.21828
2nd Step Offering Proceeds $86,250,000
Less: Estimated Offering Expenses 1,583,500
-----------
2nd Step Net Conversion Proceeds (Including Foundation) $84,666,500
2. Estimated Additional Income from Conversion Proceeds
Net Conversion Proceeds $84,666,500
Less: Cash Contribution to Foundation (0)
Less: Stock Contribution to Foundation 0
Less: ESOP Stock Purchases (1) (6,900,000)
Less: MRP Stock Purchases (2) (3,450,000)
-----------
Net Proceeds to be Reinvested $74,316,500
Estimated after-tax net incremental rate of return 2.01%
----
Earnings Increase $1,495,255
Less: Estimated cost of ESOP borrowings 0
Less: Amortization of ESOP borrowings(3) (414,414)
Less: Stock Programs Vesting (3) (414,414)
Less: Option Plan Vesting (4) (732,902)
----------
Net Earnings Increase ($66,475)
Net
Before Earnings After
3. Pro Forma Earnings Conversion Increase Conversion
---------- -------- ----------
12 Months ended March 31, 2005 (reported) $2,295,000 ($66,475) $2,228,525
12 Months ended March 31, 2005 (core) $2,185,090 ($66,475) $2,118,615
Before Net Cash Tax Benefit After
4. Pro Forma Net Worth Conversion Proceeds of Foundation Conversion
---------- -------- ------------- ----------
March 31, 2005 $38,911,000 $74,316,500 $0 $113,227,500
March 31, 2005 (Tangible) $38,911,000 $74,316,500 $0 $113,227,500
Before Net Cash Tax Benefit After
5. Pro Forma Assets Conversion Proceeds of Foundation Conversion
---------- -------- ------------- ----------
March 31, 2005 $440,954,000 $74,316,500 $0 $515,270,500
(1) Includes ESOP purchases of 8% of the second step offering.
(2) Includes MRP purchases of 4% of the second step offering.
(3) ESOP amortized over 10 years, MRP amortized over 5 years, tax effected at:
39.94%
(4) Option valuation based on Black-Scholes model, 10 year vesting, and
assuming 25% taxable.
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
ASB Holding Company, Inc.
At the Supermaximum Value
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
ASB Holding Company, Inc.
At the Supermaximum Value
1. Fully Converted Value and Exchange Ratio
Fully Converted Value $141,696,418
Exchange Ratio 2.55102
2nd Step Offering Proceeds $99,187,500
Less: Estimated Offering Expenses 1,702,525
-----------
2nd Step Net Conversion Proceeds (Including Foundation) $97,484,975
2. Estimated Additional Income from Conversion Proceeds
Net Conversion Proceeds $97,484,975
Less: Cash Contribution to Foundation (0)
Less: Stock Contribution to Foundation 0
Less: ESOP Stock Purchases (1) (7,935,000)
Less: MRP Stock Purchases (2) (3,967,500)
-----------
Net Proceeds to be Reinvested $85,582,475
Estimated after-tax net incremental rate of return 2.01%
----
Earnings Increase $1,721,928
Less: Estimated cost of ESOP borrowings 0
Less: Amortization of ESOP borrowings(3) (476,576)
Less: Stock Programs Vesting (3) (476,576)
Less: Option Plan Vesting (4) (842,837)
----------
Net Earnings Increase ($74,062)
Net
Before Earnings After
3. Pro Forma Earnings Conversion Increase Conversion
---------- -------- ----------
12 Months ended March 31, 2005 (reported) $2,295,000 ($74,062) $2,220,938
12 Months ended March 31, 2005 (core) $2,185,090 ($74,062) $2,111,029
Before Net Cash Tax Benefit After
4. Pro Forma Net Worth Conversion Proceeds of Foundation Conversion
---------- -------- ------------- ----------
March 31, 2005 $38,911,000 $85,582,475 $0 $124,493,475
March 31, 2005 (Tangible) $38,911,000 $85,582,475 $0 $124,493,475
Before Net Cash Tax Benefit After
5. Pro Forma Assets Conversion Proceeds of Foundation Conversion
---------- -------- ------------- ----------
March 31, 2005 $440,954,000 $85,582,475 $0 $526,536,475
(1) Includes ESOP purchases of 8% of the second step offering.
(2) Includes MRP purchases of 4% of the second step offering.
(3) ESOP amortized over 10 years, MRP amortized over 5 years, tax effected at:
39.94%
(4) Option valuation based on Black-Scholes model, 10 year vesting, and
assuming 25% taxable.
Exhibit IV-9
Peer Group Core Earnings Analysis
Exhibit IV-9
Peer Group Core Earnings Analysis
[GRAPHIC OMITTED]
Exhibit V-1
RP(R) Financial, LC.
Firm Qualifications Statement
[OMITTED]