As filed with the Securities and Exchange Commission on August 4, 2005
Registration No. 333-125957
SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
American Bancorp of New Jersey, Inc.
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(Exact name of registrant as specified in charter)
New Jersey 6035 55-0897507
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(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or organization) Identification No.)
365 Broad Street, Bloomfield, New Jersey 07003
(973) 748-3600
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(Address and telephone number of principal executive offices)
Mr. Fred G. Kowal, President and Chief Operating Officer
365 Broad Street, Bloomfield New Jersey 07003
(973) 748-3600
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(Name, address and telephone number of agent for service)
Please send copies of all communications to:
Samuel J. Malizia, Esq.
Tiffany A. Hasselman, Esq.
MALIZIA SPIDI & FISCH, PC
1100 New York Ave., N.W.
Suite 340 West
Washington, D.C. 20005
(202) 434-4660
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
AMERICAN BANCORP OF NEW JERSEY, INC.
(Proposed Holding Company for American Bank of New Jersey)
Up to 12,321,429 Shares of Common
Stock (Including up to 8,625,000 newly issued shares
and up to 3,696,429 shares
to be exchanged for shares of ASB Holding Company)
American Bancorp of New Jersey, Inc. is offering common stock in
connection with the conversion of American Savings, MHC from the mutual to the
stock form of organization. The shares being offered represent the 70% ownership
interest in ASB Holding Company currently owned by American Savings, MHC, its
mutual holding company parent. The remaining 30% ownership interest in ASB
Holding Company is owned by the public and will be exchanged for shares of
American Bancorp of New Jersey, Inc.'s common stock. If you are now a
stockholder of ASB Holding Company, your shares will be automatically exchanged
for shares of American Bancorp of New Jersey, Inc., and the number of shares you
will receive will be based on an exchange ratio which is dependent upon the
number of shares we sell in our stock offering. All shares being offered for
sale will be sold at a price of $10.00 per share.
If you are a current or former depositor or borrower of American Bank
of New Jersey as of the eligibility dates:
o You have rights to purchase shares of our common stock in the
subscription offering.
If you are currently a stockholder of ASB Holding Company:
o Each of your shares will be exchanged automatically for between
1.6396 and 2.21828 shares of American Bancorp of New Jersey, Inc.
common stock.
o After the exchange of shares, your percentage ownership will
remain essentially equivalent to your current percentage
ownership interest in ASB Holding Company.
o You will have priority to purchase additional shares in the
community offering to the extent shares remain available after
orders are filled in the subscription offering.
If you fit neither of the above categories:
o You may purchase shares of American Bancorp of New Jersey, Inc.
common stock in the community offering to the extent shares
remain available after orders are filled in the subscription
offering and after orders from current stockholders of ASB
Holding Company are filled in the community offering.
We are offering for sale up to 8,625,000 shares of common stock;
however, we may sell up to 9,918,750 shares because of changes in the market and
general financial and economic conditions without notifying prospective
purchasers. We must sell a minimum of 6,375,000 shares in order to complete the
conversion and stock offering. The minimum purchase is 25 shares. The stock
offering is expected to terminate on ___________, 2005 at 12:00 noon, eastern
time. We may extend this termination date without notice to you until
___________, 2005. Once submitted, orders are irrevocable unless the stock
offering is terminated or extended beyond ___________, 2005. If extended, we
will notify each subscriber in a resolicitation of subscriptions. During a
resolicitation, unless an affirmative response is received, we will promptly
return a subscriber's funds with interest at our passbook savings account rate.
In no event may the stock offering be extended beyond ___________, 2007. Funds
received prior to completion of the stock offering will be held in an escrow
account either at American Bank of New Jersey or at our discretion at another
insured depository institution and will earn interest at our passbook savings
account rate. In the event the stock offering is terminated, funds will be
promptly returned with interest.
ASB Holding Company's stock is currently quoted on the OTC Bulletin
Board under the symbol "ASBH." We have applied for approval from Nasdaq to have
our common stock quoted on the Nasdaq National Market under the symbol "ABNJ."
Keefe, Bruyette & Woods, Inc. will assist us in our selling efforts on
a best efforts basis. Keefe, Bruyette & Woods, Inc. is not required to purchase
any of the common stock that is being offered.
This investment involves risk, including the possible loss of principal.
Please read the "Risk Factors" beginning at page __.
Minimum Maximum Maximum, as Adjusted
------- ------- --------------------
Number of Newly Issued Shares.............. 6,375,000 8,625,000 9,918,750
Total Offering and Conversion Expenses(1).. $ 1,376,500 $ 1,583,500 $ 1,702,525
Net Proceeds............................... $62,373,500 $84,666,500 $97,484,975
Net Proceeds Per Share..................... $ 9.78 $ 9.82 $ 9.83
________________
(1) Includes an underwriting commission payable to Keefe, Bruyette & Woods,
Inc. of 1% of the aggregate amount of common stock sold in the subscription
and community offerings. For information regarding the compensation to be
received by Keefe, Bruyette & Woods, Inc., please see Plan of
Distribution/Marketing Arrangements at page __.
These securities are not deposits or savings accounts and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, nor any state securities
regulator has approved or disapproved these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
For assistance, please contact the stock information center at (973) ___-____
Keefe, Bruyette & Woods, Inc.
The Date of this Prospectus is ___________, 2005
TABLE OF CONTENTS
Page
----
Summary........................................................................
Risk Factors...................................................................
Use of Proceeds................................................................
Dividend Policy................................................................
Market for the Stock...........................................................
Capitalization.................................................................
Pro Forma Data.................................................................
Historical and Pro Forma Capital Compliance....................................
A Warning about Forward-looking Statements.....................................
Recent Developments............................................................
Selected Consolidated Financial and Other Data.................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations...............................
Business of American Bancorp of New Jersey, Inc................................
Business of American Bank of New Jersey .......................................
Regulation.....................................................................
Taxation.......................................................................
Management.....................................................................
The Conversion.................................................................
The Stock Offering.............................................................
Restrictions on Acquisition of American Bancorp of New Jersey, Inc.............
Description of Capital Stock...................................................
Legal and Tax Opinions.........................................................
Experts........................................................................
Registration Requirements......................................................
Where You Can Find Additional Information......................................
Index to Consolidated Financial Statements.....................................
Appendix A - Office of Thrift Supervision Regulations
Section 552.14 Dissenter and appraisal rights...............................
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SUMMARY
This summary highlights selected information from this document and may not
contain all the information that is important to you. To better understand the
stock offering, you should read this entire document carefully, including the
consolidated financial statements and the notes thereto beginning at page F-1 of
this document.
American Bancorp of New Jersey, Inc.
American Bancorp of New Jersey, Inc. is a newly formed New Jersey
corporation. Its principal executive offices are located at 365 Broad Street,
Bloomfield, New Jersey 07003 and the telephone number is (973) 748-3600.
American Bancorp of New Jersey, Inc. is conducting this stock offering
in connection with the conversion of American Savings, MHC from the mutual to
the stock form of organization. The shares of common stock of American Bancorp
of New Jersey, Inc. to be sold represent the 70% ownership interest in ASB
Holding Company, a federally chartered mid-tier stock holding company, that is
currently owned by American Savings, MHC, a federally chartered mutual holding
company. The remaining 30% ownership interest in ASB Holding Company is
currently owned by public stockholders and will be exchanged for shares of
American Bancorp of New Jersey, Inc.'s common stock based on an exchange ratio
which is dependent upon the number of shares of American Bancorp of New Jersey,
Inc. common stock sold in the stock offering.
American Bank of New Jersey
American Bank of New Jersey is currently a wholly owned subsidiary of
ASB Holding Company and upon completion of the conversion and stock offering it
will become a wholly owned subsidiary of American Bancorp of New Jersey, Inc.
American Bank of New Jersey was originally founded in 1919 as the
American-Polish Building & Loan Association of Bloomfield, New Jersey. It became
a state chartered savings and loan association in 1948 and converted to a
federally chartered savings bank in 1995. It changed its name from American
Savings Bank of NJ to American Bank of New Jersey in 2005. The Bank has
historically operated as a traditional community bank, attracting and retaining
retail deposits in order to fund a variety of mortgage and consumer loan
products. The Bank also invests in mortgage-backed securities and collateralized
mortgage-backed obligations. Going forward, the Bank will continue its core
business of offering retail banking services, one- to four-family residential
mortgage loans, home equity loans and lines of credit, multi-family and
commercial real estate loans, construction loans, consumer loans and commercial
business, with an increased emphasis on the origination of commercial real
estate loans and commercial and industrial loans.
American Savings, MHC
American Savings, MHC is currently the federally chartered mutual
holding company parent for ASB Holding Company. American Savings, MHC's sole
business activity consists of its ownership of 3,888,150 shares of ASB Holding
Company's common stock, which represents 70% of its outstanding shares. At the
conclusion of the conversion and stock offering, American Savings, MHC will
cease to exist.
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ASB Holding Company
ASB Holding Company is currently the middle-tier federal stock holding
company of American Bank of New Jersey and ASB Investment Corp. and owns all of
the outstanding common stock of both entities. Currently, ASB Holding Company
has 5,554,500 shares of common stock issued and outstanding. American Savings,
MHC owns 3,888,150, or 70%, of these shares. The remaining shares of common
stock are held by the public. At March 31, 2005, ASB Holding Company had total
consolidated assets of $441.0 million and total stockholders' equity of $38.8
million. At the conclusion of the conversion and stock offering, ASB Holding
Company will cease to exist and each outstanding share of ASB Holding Company,
other than those held by American Savings, MHC, will be exchanged automatically
for between 1.6396 and 2.21828 shares of American Bancorp of New Jersey, Inc.
common stock. The exact exchange ratio is dependent upon the number of shares of
American Bancorp of New Jersey, Inc. common stock sold in the stock offering.
How the Ownership Structure Will Change After the Conversion
The following chart shows our current structure, commonly referred to
as a "two-tier" mutual holding company structure:
- ---------------------------------------- -------------------------------------------
ASB Holding Company
American Savings, MHC Minority Stockholders
(Public Stockholders)
- ---------------------------------------- -------------------------------------------
| |
| 70% | 30%
| |
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ASB Holding Company
---------------------------------------------------------------------------------------------------
| |
| 100% | 100%
| |
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American Bank of New Jersey ASB Investment Corp.
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|
| 100%
|
-----------------------------------------------
American Savings Investment Corp.
-----------------------------------------------
The following chart shows our ownership structure after the conversion and stock offering:
-----------------------------------------------
Public Stockholders
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|
| 100%
|
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American Bancorp of New Jersey, Inc.
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| |
| 100% | 100%
| |
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American Bank of New Jersey ASB Investment Corp.
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|
| 100%
|
-----------------------------------------------
American Savings Investment Corp.
-----------------------------------------------
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2
The Stock Offering
We are selling common stock which represents the 70% ownership interest
in ASB Holding Company now owned by American Savings, MHC in the following order
of priority.
First: Depositors at American Bank of New Jersey with $50 or more on
deposit as of the close of business on March 31, 2004.
Second: American Bank of New Jersey's employee stock ownership plan.
Third: Depositors at American Bank of New Jersey with $50 or more on
deposit as of close of business on June 30, 2005.
Fourth: Depositors at American Bank of New Jersey as of close of
business on July 31, 2005 and borrowers as of December 27,
1995 who continue as borrowers as of the close of business
on July 31, 2005.
We are selling between 6,375,000 and 8,625,000 shares of American
Bancorp of New Jersey, Inc. common stock, all at a price of $10.00 per share.
The number of shares sold may be increased to 9,918,750. The actual number of
shares we sell will depend on an appraisal performed by RP Financial, LC, an
independent appraisal firm. We are also exchanging shares of ASB Holding
Company, other than those held by American Savings, MHC, for shares of American
Bancorp of New Jersey, Inc. based on an exchange ratio of between 1.6396 and
2.21828. The exchange ratio may be increased to as much as 2.55102 in the event
the stock offering closes at the maximum, as adjusted of the valuation range.
See Stock Pricing and the Number of Shares to be Issued in the Conversion at
page __.
The subscription offering will terminate at 12:00 noon, eastern time,
on ___________, 2005. We may extend this expiration date without notice to you
for up to 45 days, until ___________, 2005. Once submitted, your order is
irrevocable unless the stock offering is extended beyond ___________, 2005. We
may request permission from the Office of Thrift Supervision to extend the stock
offering beyond ___________, 2005, but in no event may the stock offering be
extended beyond ___________, 2007. If the stock offering is extended beyond
___________, 2005, we will be required to notify each subscriber and resolicit
subscriptions. During any extension period, subscribers will have the right to
modify or rescind their subscriptions, and, unless an affirmative response is
received, a subscriber's funds will be returned with interest at American Bank
of New Jersey's passbook savings account rate.
We may cancel the stock offering at any time prior to the special
meeting of members of American Savings, MHC to vote on the conversion and the
special meeting of stockholders of ASB Holding Company to vote on the plan of
conversion. We may also cancel the conversion and stock offering after the
special meetings of members and stockholders if the OTS concurs in our decision
to do so. If we cancel the conversion and stock offering, orders for common
stock already submitted will be canceled and subscribers' funds will be returned
with interest at American Bank of New Jersey's passbook savings account rate.
Commencing concurrently with the subscription offering, we may also
offer shares of common stock in a community offering. In the community offering,
current stockholders of ASB Holding Company will have first preference and
natural persons and trusts of natural persons who reside in the counties where
American Bank of New Jersey has offices will have second preference. This part
of the stock offering may terminate at any time without notice but no later than
___________, 2005.
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3
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Shares not sold in the subscription or community offering may be
offered for sale in a syndicated community offering, which would be an offering
to the general public on a best efforts basis by a syndicate of broker dealers
managed by Keefe, Bruyette & Woods, Inc. This part of the stock offering may
terminate at any time without notice but no later than ___________, 2005.
You cannot transfer your subscription rights. If you attempt to
transfer your rights, you may lose the right to purchase shares and may be
subject to criminal prosecution and/or other sanctions.
We may, in our sole discretion, reject orders received in the community
offering and syndicated community offering either in whole or in part. If your
order is rejected in part, you cannot cancel the remainder of your order. We
have described the stock offering in greater detail beginning at page __.
The Exchange of ASB Holding Company Common Stock
If you are now a stockholder of ASB Holding Company, your shares will
be automatically exchanged for shares of American Bancorp of New Jersey, Inc.
The number of shares you will receive will be based on an exchange ratio. The
actual number of shares you receive will depend upon the number of shares we
sell in our stock offering.
The following table shows how the exchange ratio will adjust based on
the number of shares sold in our stock offering. The table also shows how many
shares of American Bancorp of New Jersey, Inc. an owner of ASB Holding Company
common stock would receive in the exchange, adjusted for the number of shares
sold in the stock offering.
100 Shares of
ASB Holding Company
Shares of American Would be Exchanged for
Bancorp of New Jersey, Total Shares the Following Number
Inc. to be Exchanged of Common of Shares of
Shares to be Sold for Existing Shares of Stock to be Exchange American Bancorp
in the Stock Offering ASB Holding Company Outstanding Ratio of New Jersey, Inc.
--------------------- ------------------- ----------- ----- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
Minimum................. 6,375,000 70% 2,732,143 30% 9,107,143 1.63960% 163
Midpoint................ 7,500,000 70 3,214,285 30 10,714,285 1.92894 192
Maximum................. 8,625,000 70 3,696,429 30 12,321,429 2.21828 221
Adjusted maximum........ 9,918,750 70 4,250,892 30 14,169,642 2.55102 255
If you own your shares of ASB Holding Company in "street name," the
exchange will occur automatically; you do not need to take any action. If you
have shares registered in your name, you will receive a transmittal form with
instructions to surrender your stock certificates after the stock offering is
completed. You will receive new certificates of our common stock within five
business days after we receive your properly executed transmittal form.
No fractional shares of our common stock will be issued upon
consummation of the conversion. Payment for fractional shares will be calculated
based on the $10.00 per share offering price and will be made after the receipt
of surrendered ASB Holding Company stock certificates by Registrar and Transfer
Company, which is the transfer agent for our stock and will act as the exchange
agent for the conversion.
We have described the exchange in greater detail beginning at page __.
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Tax Effects of the Conversion
We have received tax opinions indicating that, as a general matter, the
conversion and stock offering, including the exchange of shares of ASB Holding
Company for shares of American Bancorp of New Jersey, Inc., will not be a
taxable transaction for purposes of federal or state income taxes for American
Savings, MHC, ASB Holding Company, American Bancorp of New Jersey, Inc.,
American Bank of New Jersey and persons eligible to subscribe for stock in the
offering. The same is true for existing stockholders of ASB Holding Company,
except to the extent they receive cash in lieu of fractional shares; existing
stockholders of ASB Holding Company will recognize gain or loss equal to the
difference between the cash received and the tax basis of the fractional share.
See Federal and State Tax Consequences of the Conversion at page __.
Reasons for the Conversion
We believe that the conversion will:
o Better position us to remain viable and thrive as a full service community
bank in an increasingly competitive marketplace.
o Assist us to continue building shareholder value. Because a greater amount
of our outstanding stock will be held by public stockholders after the
conversion, we have applied to have our common stock quoted on the Nasdaq
National Market. This is expected to provide additional liquidity and
visibility for our common stock.
o Reduce levels of interest rate risk by enhancing net portfolio value across
all interest rate environments due to significant growth in equity capital.
Capital growth will also enable us to pursue business strategies designed
to reduce income sensitivity to movements in market interest rates that
result from the existing repricing mismatch between interest-earning assets
and interest- bearing liabilities. These strategies include growth and
diversification into commercial lending - which tend to be shorter term and
adjustable rate loans - complemented by funding strategies promoting growth
in core deposits and emphasizing commercial deposit relationships.
o Through the strategies noted above, help us to support and rebuild our net
interest margin which underwent significant compression due to systemic
asset repricing triggered by the historical interest rate lows of recent
years.
o Permit us to maintain capital ratios well above the regulatory
requirements. The proceeds from the stock offering will provide us with
additional equity capital, which will support our proposed future deposit
growth and expanded operations. While we currently exceed applicable
regulatory capital requirements, the sale of stock, coupled with the
accumulation of earnings, less dividends or other reductions in capital,
from year to year, represents a means for the orderly preservation and
expansion of our capital base.
o Provide us easier access, as a full stock corporation, to the capital
markets through possible future equity and debt offerings.
o Allow us to actively seek future acquisitions to augment our organic growth
objectives. As a fully converted holding company, we will have greater
strategic flexibility in connection with merger and acquisition
transactions. Unlike a mutual holding company, we will have more
flexibility to
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5
use stock as a form of payment for acquisitions and mergers with any other
stock institution or its holding company. Currently, however, we have no
plans, agreements or understandings regarding any acquisition.
Conditions to Complete the Conversion
We cannot complete the conversion and stock offering unless:
(1) it is approved by a majority of the votes eligible to be cast by
members of American Savings, MHC;
(2) it is approved by at least two-thirds of the votes eligible to be
cast by stockholders of ASB Holding Company, including those
shares held by American Savings, MHC;
(3) it is approved by a majority of the votes eligible to be cast by
stockholders of ASB Holding Company, excluding those shares held
by American Savings, MHC;
(4) we sell a minimum of 6,375,000 shares of common stock; and
(5) the Office of Thrift Supervision accepts the final update of our
independent valuation.
We have described the conditions to complete the conversion in greater
detail at page __.
$10.00 Per Share Stock Pricing and the Number of Shares to be Issued in the
Conversion
The number of shares offered is determined by an independent appraisal
of the pro forma estimated market value of American Bancorp of New Jersey,
Inc.'s stock performed by RP Financial, LC divided by the purchase price of
$10.00 and multiplied by 70%, the percentage of shares of ASB Holding Company
that are currently held by American Savings, MHC and which are now being offered
to the public.
The amount of stock sold in this offering is required by regulation to
be based upon an independent appraisal which is reviewed by the Office of Thrift
Supervision. The independent appraiser, RP Financial, LC, has determined that as
of July 15, 2005, our estimated aggregate pro forma market value was $107.1
million. Pursuant to Office of Thrift Supervision regulations, the appraiser
must establish a valuation range from 15% below to 15% above the estimated pro
forma market value. Accordingly, the independent appraisal resulted in a
valuation range from $91.1 million to $123.2 million. Based on this valuation
range and the 70% ownership of ASB Holding Company by American Savings, MHC,
between 6,375,000 shares and 8,625,000 shares of common stock are being offered
to the public at $10 per share.
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6
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The following table presents a summary of selected pricing ratios for
American Bancorp of New Jersey, Inc. and for the comparable publicly traded peer
group companies identified in the valuation report.
Price-to-earnings Price-to-book Price-to-tangible
multiple value ratio book value ratio
-------- ----------- ----------------
American Bancorp of New Jersey, Inc. (pro forma)(1)
Minimum........................................... 38.07x 96.90% 96.90%
Midpoint.......................................... 44.42x 103.31% 103.31%
Maximum........................................... 50.67x 108.58% 108.58%
Maximum, as adjusted.............................. 57.72x 113.51% 113.51%
Valuation of peer group companies
as of July 15, 2005(2)
Average........................................... 17.91x 144.37% 150.58%
Median............................................ 16.38x 141.69% 147.14%
_____________
(1) Based on ASB Holding Company's financial data as of and for the twelve
months ended March 31, 2005.
(2) Reflects earnings for the most recent 12-month period for which data was
publicly available.
The ratios we have presented are commonly requested by prospective
investors in order to determine whether or not the stock meets the investor's
investment criteria. Because of differences and important factors such as
operating characteristics, location, financial performance, asset size, capital
structure, and business prospects between us and other fully converted
institutions, you should not rely on these comparative valuation ratios as an
indication as to whether or not the stock is an appropriate investment for you.
The independent valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing the common
stock. Because the independent valuation is based on estimates and projections
on a number of matters, all of which are subject to change from time to time, no
assurance can be given that persons purchasing the common stock will be able to
sell their shares at a price equal to or greater than the purchase price. See
Risk Factors - You may not be able to sell your shares when you desire or for
$10.00 or more per share at page __, Pro Forma Data at page __ and The Stock
Offering - Stock Pricing and the Number of Shares to be Offered at page __.
Based on the independent valuation, we intend to issue between a
minimum of 9,107,143 shares and a maximum of 12,321,429 shares, including shares
to be exchanged for existing shares of ASB Holding Company. The independent
valuation must be updated and confirmed by RP Financial, LC before we may
complete the stock offering. The maximum amount of common stock being offered
may be increased by up to 15% without notice to persons who have subscribed for
stock, so that a total of 14,169,642 shares could be issued, including shares to
be exchanged for existing shares of ASB Holding Company. If the updated
independent valuation would result in more than 14,169,642 shares being issued,
we will be required to notify all persons who have subscribed and these persons
would have the opportunity to change or cancel their subscription orders, and,
unless an affirmative response is received, a subscriber's funds will be
returned with interest at American Bank of New Jersey's passbook savings account
rate.
Limits on the Amount of Stock You May Purchase
o The minimum purchase is 25 shares.
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o The maximum number of shares of stock that any individual (or individuals
through a single account) may purchase is 150,000 shares.
o The maximum number of shares of stock that any individual may purchase
together with any associate or group of persons acting in concert is
200,000 shares.
If you are now an ASB Holding Company stockholder, the shares of
American Bancorp of New Jersey, Inc. common stock that you receive in the
exchange for shares of ASB Holding Company common stock, in accordance with the
exchange ratio, will count against the above maximum purchase limitations.
If determined to be necessary or desirable by the Board of Directors,
the plan may be amended by a two-thirds vote of the full Board, with the
concurrence of the Office of Thrift Supervision. Thus, we may increase or
decrease the purchase limitations. In the event the maximum purchase limitation
is increased, persons who subscribed for the maximum will be notified and
permitted to increase their subscription.
For further discussion of the purchase limits and definitions of
"associate" and "acting in concert," see The Stock Offering - Limitations on
Purchases of Common Stock at page __.
How to Purchase Stock in the Offering
If you want to place an order for shares in the stock offering, you
must complete an original stock order form and send it to us together with full
payment. You must also sign the certification on side of the stock order form in
which you acknowledge that our common stock is not a bank deposit or account, is
not federally insured and is not guaranteed by American Bank of New Jersey or by
the federal government. The certification also includes an acknowledgment from
you that before purchasing shares of our common stock, you received a copy of
this prospectus and that you are aware of the risks involved in the investment,
including those described under Risk Factors at page __.
We must receive your stock order form before the end of the
subscription offering or the end of the community offering, as appropriate. Once
we receive your order, you cannot cancel or change it without our consent.
To ensure that we properly identify your subscription rights, you must
provide on your stock order form all of the information requested for each of
your deposit accounts as of the eligibility dates. If you fail to do so, your
subscription may be reduced or rejected if the stock offering is oversubscribed.
You may pay for shares in the subscription offering or the community
offering in any of the following ways:
o By check or money order made payable to American Bank of New Jersey.
o By authorizing withdrawal from an account at American Bank of New Jersey.
To use funds in an IRA account at American Bank of New Jersey, you must
transfer your account into a self-directed IRA account at an unaffiliated
institution or broker. Please contact the stock information center as soon
as possible for assistance.
o In cash, only if delivered in person.
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We will pay interest on your subscription funds from the date we
receive your funds at the passbook savings account rate until the stock offering
is completed or terminated. All funds authorized for withdrawal from deposit
accounts with us will earn interest at the applicable account rate until the
stock offering is completed or terminated. If, as a result of a withdrawal from
a certificate of deposit, the balance falls below the minimum balance
requirement, the remaining funds will be transferred to a savings account and
will earn interest at our passbook savings account rate. There will be no early
withdrawal penalty for withdrawals from certificates of deposit used to pay for
stock. Funds received in the subscription offering will be held in a segregated
deposit account at American Bank of New Jersey established to hold funds
received as payment for shares. We may, at our discretion, determine during the
stock offering period that it is in the best interest of American Bank of New
Jersey to instead hold subscription funds in an escrow account at another
federally insured financial institution.
Proposed Stock Purchases by Management
We expect our directors and executive officers, together with their
associates, to subscribe for approximately 351,000 shares of common stock in the
stock offering. The purchase price paid by them will be the same $10.00 per
share price paid by all other persons who purchase shares of common stock in the
stock offering. Purchases of common stock in the offering by our directors and
executive officers, and their associates, will be counted toward the minimum of
6,375,000 shares that must be sold in order to complete the conversion and stock
offering. Following the conversion and stock offering, our directors and
executive officers, together with their associates, are expected to own 7.9% of
our outstanding shares at the midpoint of the offering range. See Proposed Stock
Purchases by Management at page __.
Our Use of the Proceeds Raised from the Sale of Stock
We estimate that we will receive net proceeds from the sale of the
common stock of between $62.4 million at the minimum of the offering range and
$84.7 million at the maximum of the offering range. American Bancorp of New
Jersey, Inc. will use 50% of the net proceeds of the stock offering to make a
capital contribution to American Bank of New Jersey. American Bancorp of New
Jersey, Inc. will also lend the Bank's employee stock ownership plan cash to
enable the plan to buy 8.0% of the shares sold in the stock offering, which at
the minimum of the offering range would total 510,000 shares, requiring a $5.1
million loan, and at the maximum of the offering range would total 690,000
shares, requiring a $6.9 million loan. The balance will be used for general
business purposes, which may include investment in securities, repurchase of
shares of common stock or payment of cash dividends.
The funds received by American Bank of New Jersey will be used for
general business purposes, including funding the origination of loans and
investments in securities. We may, in the near term, use a portion of the
proceeds to repay overnight Federal Home Loan Bank borrowings. These borrowings
have grown recently as we have leveraged our balance sheet by funding loan
originations, primarily one- to-four family mortgage loans, with overnight
borrowings.
We intend to hire additional lenders to grow our loan portfolio. As
part of our plan to diversify the loan mix by developing a separate and distinct
commercial lending business unit, we have recently hired a commercial and
industrial lender and intend over the next several years to hire several
additional commercial real estate and commercial and industrial lenders. We also
plan to hire additional one-to-four family residential lenders.
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9
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We also intend to expand our branch office network. Our current plan is
to open up to five de novo branches over approximately the next three years, and
we have identified several potential sites for de novo branches. In addition, we
need to augment the office space available for our administrative operations in
order to add the personnel called for by our growth plans.
In addition to expansion of our branch network through opening de novo
branches or acquiring branch offices, we intend to actively consider the
acquisition of local financial institutions and/or noninterest income
subsidiaries as a means to expand our banking operations. It is uncertain,
however, when or if these acquisitions will occur, and we do not have any
current understandings, agreements or arrangements for any acquisitions. See Use
of Proceeds at page __.
Stock Benefit Plans for Management
In order to link our officers', directors' and employees' interests
closer to our stockholders' interests, we have established certain benefit plans
that use our stock as compensation. At a stockholder meeting in January 2005,
stockholders of ASB Holding Company approved the ASB Holding Company 2005 Stock
Option Plan and the American Bank of New Jersey 2005 Restricted Stock Plan.
Officers and directors of ASB Holding Company and its subsidiaries were awarded
options to purchase shares of common stock under the option plan and shares of
common stock under the restricted stock plan. The number of options and the
exercise price will be adjusted in accordance with the exchange ratio in
connection with the conversion. The restricted stock awards will also be
adjusted for the exchange ratio in connection with the conversion. The vesting
periods under these plans will remain unchanged. See 2005 Stock Awards at page
__ for details related to these stock plans. Additionally, American Bank of New
Jersey previously established an employee stock ownership plan in connection
with the ASB Holding Company minority stock offering completed in October 2003,
and the shares purchased by this plan will be exchanged for shares of American
Bancorp of New Jersey, Inc. in the conversion in accordance with the exchange
ratio.
We intend to establish additional stock benefit plans in connection
with and following this stock offering. The following table presents information
regarding the existing stock-based benefit plans and anticipated new stock-based
benefit plans. The table below assumes that 10,714,285 shares are outstanding
after the stock offering, which includes the sale of 7,500,000 shares in the
stock offering (the midpoint) and the issuance of 3,214,285 shares in exchange
for shares of ASB Holding Company. It is assumed that the value of the stock is
$10.00 per share and that the exchange of existing shares is in accordance with
the exchange ratio at the midpoint of the offering range.
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10
Percentage of
Shares
Existing and New Stock Benefit Plans: Estimated Outstanding After
Participants Shares Value of Shares the Conversion
------------ ------ --------------- --------------
Existing Employee Stock Ownership Plan............. Employees 257,143(1) $2,571,430 2.4%
New Employee Stock Ownership Plan.................. Employees 600,000 6,000,000 5.6
--------- ----------- ----
Total Employee Stock Ownership Plan............. 857,143 8,571,430 8.0%
--------- ----------- ====
Directors
Existing Restricted Stock Awards................... and Officers 157,499(2) 1,574,990 1.5%
Directors 2.5
New Restricted Stock Awards........................ and Officers 271,071 2,710,710
--------- ----------- ----
Total Restricted Stock Awards................... 428,570 4,285,700 4.0%
--------- ----------- ====
Directors
Existing Stock Options............................. and Officers 525,001(3) 2,499,005(4) 4.9%
Directors
New Stock Options.................................. and Officers 546,429 1,863,322(5) 5.1
--------- ----------- ----
Total Stock Options............................. 1,071,430 4,362,327 10.0
--------- ----------- ====
Total................................ 2,357,143 $17,219,457 22.0%
========= =========== ====
- --------
(1) The existing employee stock ownership plan holds 133,308 shares, which at
the midpoint will be exchanged for 257,143 shares.
(2) A total of 81,651 shares were awarded under the existing restricted stock
plan, which at the midpoint will be exchanged for 157,499 shares.
(3) A total of 272,171 options were granted under the existing stock option
plan, which at the midpoint will be exchanged for 525,001 options.
(4) Assumes that the options granted under the existing stock option plan have
a value of $4.76 per option, which was determined using the
Black-Scholes-Merton option pricing formula using various assumptions. See
Note 12 to the Consolidated Financial Statements included in this document.
(5) Assumes that the options granted under the new stock option plan have a
value of $3.41 per option, which was determined using the
Black-Scholes-Merton option pricing formula using various assumptions. See
Pro Forma Data on page __. If the fair market value per share on the date
of grant is different than $10.00, or if the assumptions used in the option
pricing formula are different from those used in preparing the pro forma
data, the value of the options will be different. There can be no assurance
that the actual fair market value per share on the date of grant, and
correspondingly the exercise price of the options, will be $10.00 per
share.
Stockholders will experience a reduction or dilution in ownership
interest of approximately 12.28% if we use newly issued shares to fund stock
options and stock awards made under these plans (or taken individually, dilution
of approximately 4.67% for the current stock option plan, 4.85% for the new
stock option plan, 1.45% for the current restricted stock plan, and 2.47% for
the new restricted stock plan). It is our intention to fund these plans through
open market purchases, however, if any options previously granted under the 2005
Stock Option Plan are exercised during the first year following the completion
of this stock offering, they may be funded with newly issued shares as Office of
Thrift Supervision regulations do not permit us to repurchase our shares during
the first year following the completion of this stock offering except to fund
the current restricted stock plan or the new restricted stock plan or under
extraordinary circumstances. See Potential Stock Benefit Plans - Dilution at
page __.
If we present the restricted stock plan and stock option plan for a
stockholder vote within one year of the conversion, current Office of Thrift
Supervision policy would require us to limit the shares under the new plans so
that the existing and new restricted stock plans together do not exceed 4% of
the shares outstanding after the conversion and the existing and new stock
options plans together do not exceed 10% of the shares outstanding after the
conversion. The table and the
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11
dilution percentages shown above assume that the plans are presented for a
stockholder vote within one year of the conversion; if the plans are voted on
after the one year anniversary of the conversion, we will not be subject to such
limits.
Market For Common Stock
We have applied for approval from Nasdaq to have American Bancorp of
New Jersey, Inc.'s common stock quoted on the Nasdaq National Market under the
symbol "ABNJ." Quotations for the common stock of ASB Holding Company currently
appear on the OTC Bulletin Board under the symbol "ASBH." While it is expected
that American Bancorp of New Jersey, Inc.'s common stock will be more easily
tradeable than ASB Holding Company's common stock because there will be
significantly more outstanding shares than before the conversion, there can be
no assurance of this. Keefe, Bruyette & Woods, Inc. has advised us that it
intends to be a market maker in the common stock and will assist us in obtaining
additional market makers.
Restrictions on Acquisition of American Bancorp of New Jersey, Inc.
Our certificate of incorporation and bylaws contain provisions that may
make it difficult for someone to acquire control of American Bancorp of New
Jersey, Inc. These provisions may discourage takeover attempts and prevent you
from receiving a premium over the market price of your shares as part of a
takeover. These provisions include:
o restrictions on the acquisition of our stock;
o limitations on voting rights;
o the election of only approximately one-fourth of our Board of
Directors each year;
o restrictions on the ability of stockholders to call special
stockholders' meetings;
o restrictions on the ability of stockholders to make stockholder
proposals or nominate persons for election as directors;
o the right of the Board of Directors to issue shares of preferred
or common stock without stockholder approval, subject to
limitations imposed by Nasdaq; and
o the requirement of an 80% vote of stockholders for the approval
of business combinations not approved by two-thirds of the Board
of Directors.
See Restrictions on Acquisition of American Bancorp of New Jersey, Inc. at page
__.
Additionally, prior Office of Thrift Supervision approval would be
required for us to be acquired within three years after the conversion. Current
Office of Thrift Supervision policy is to not grant this approval.
Dividend Policy
Since the completion of its initial public stock offering in October
2003, ASB Holding Company has paid two dividends: a special dividend of $0.75
per share in December 2004 and a quarterly dividend of $0.09 per share in June
2005. After the conversion, American Bancorp of New Jersey, Inc. intends to pay
a regular quarterly dividend, however, there can be no assurance as to the
precise amount of the dividend.
The dividends paid to date by ASB Holding Company were paid only to the
public stockholders, holding 30% of the outstanding shares of ASB Holding
Company, while American Savings, MHC waived
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12
its receipt of the dividend on the 70% of the outstanding shares it holds.
Following the conversion and stock offering, however, 100% of the outstanding
stock of American Bancorp of New Jersey, Inc. will be held by public
stockholders and dividends, if and when paid, will be payable on all outstanding
shares of common stock.
The payment of dividends will depend on a number of factors, including
our capital requirements, our financial condition and results of operations, tax
considerations, statutory and regulatory limitations, and general economic
conditions. No assurance can be given that we will pay dividends in the future.
Receiving a Prospectus and an Order Form
To ensure that each purchaser receives a prospectus at least 48 hours
before the applicable expiration date, in accordance with Rule 15c2-8 of the
Securities Exchange Act of 1934, no prospectus will be mailed any later than
five days prior to the expiration date or hand delivered any later than two days
prior to the expiration date. Execution of the order form will confirm receipt
or delivery in accordance with Rule 15c2-8. Order forms will only be distributed
with a prospectus.
For assistance, please contact the stock information center at (973) ___-____
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13
RISK FACTORS
In addition to the other information in this document, you should carefully
consider the following risk factors in evaluating an investment in our stock.
Historically, we have operated as a traditional thrift. Our new strategic plan
calls for us to diversify our loan portfolio with increased emphasis on
multi-family and commercial real estate loans and commercial business loans. The
repayment risk related to these types of loans is considered to be greater than
the risk related to one-to-four family residential loans.
At March 31, 2005, our loan portfolio included multi-family and
commercial real estate loans totaling $55.5 million, or 16.4% of our total
portfolio. We also have a small amount, $663,000, of commercial business loans.
It is our intention to significantly increase our origination of these types of
loans. As part of our plan to grow and diversify the loan mix by developing a
separate and distinct commercial lending business unit, we have recently hired a
commercial and industrial lender and intend over the next several years to hire
several additional commercial real estate and commercial and industrial lenders.
We also expect that our construction lending program will expand in connection
with our increasing strategic emphasis on commercial real estate lending.
Multi-family and commercial real estate loans and commercial business
loans are generally considered to involve a higher degree of credit risk than
long-term financing of owner-occupied residential properties. The likelihood
that these loans will not be repaid or will be late in paying is generally
greater than with residential loans. See Lending Activities - Multi-family and
Commercial Mortgage Loans and Commercial Loans on pages __.
Furthermore, it may take some time for us to attract lending business
sufficient to offset the increased compensation and benefit expenses that
results from hiring the additional personnel we will need. There can be no
assurance that the lenders we hire will successfully grow our loan portfolio.
We intend to expand our franchise through de novo branching. Until the new
branches attract sufficient business to offset the increased expenses incurred
by de novo branching, the new branches are likely to reduce our earnings. There
is no assurance, however, that we will be successful in opening de novo
branches.
Our current plan is to open up to five de novo branches over
approximately the next three years, and we have identified several potential
sites for de novo branches. Costs for land purchase and branch construction will
adversely impact earnings going forward. We currently estimate that total land,
construction and equipment costs could average as much as $3.1 million per
branch and could be as high as $3.6 million for one branch, however, the actual
expense could differ significantly. The expenses associated with opening new
offices, in addition to the personnel and operating costs that we will have once
these offices are open, will significantly increase noninterest expenses.
Because these expenses are in fixed assets, they will not result in any
additional earnings but will result in a substantial increase in depreciation
and occupancy expense.
There can be no assurance when, or if, these new offices will open or
that we will be successful in executing this part of the business plan. If we
are able to locate and obtain suitable sites for these branches, there is no
guarantee that these de novo branches will be profitable.
14
Additional expenses are also expected in connection with our need to
augment the office space available for our administrative operations. Our main
office in Bloomfield currently houses our management staff and administrative
operations. The space devoted to management and administrative operations will
need to be augmented in order to add the additional lenders, mortgage processors
and support staff called for by our growth plans. Currently, we estimate that we
may incur a lease expense of up to $150,000 annually in connection with our plan
to augment our available space. In addition to a lease expense, there is also a
possibility we will incur renovation costs of up to $1.5 million. The actual
lease and renovation expenses, however, could differ significantly.
Notwithstanding the unpredictability of future interest rates, we expect that
changes in interest rates may have a significant, adverse impact on our net
interest income because the income from our assets and the cost of our
liabilities are sensitive to changes in interest rates.
Our ability to make a profit largely depends on our net interest
income, which could be negatively affected by changes in interest rates. Net
interest income is the difference between:
o The interest income we earn on our interest-earning assets such
as loans and securities; and
o The interest expense we pay on our interest-bearing liabilities
such as deposits and amounts we borrow.
The rates we earn on our assets and the rates we pay on our liabilities
are generally fixed for a contractual period of time. We, like many savings
institutions, have liabilities that generally have shorter contractual
maturities than our assets. This imbalance can create significant earnings
volatility, because market interest rates change over time. In a period of
rising interest rates, the interest income earned on our assets may not increase
as rapidly as the interest paid on our liabilities. In a period of declining
interest rates the interest income earned on our assets may decrease more
rapidly than the interest paid on our liabilities. See Management of Interest
Rate Risk and Market Risk at page __.
We plan to remain independent and you should not invest in our common stock if
you are anticipating our sale.
It is our intention to continue operating as an independent financial
institution. Our certificate of incorporation and bylaws contain provisions that
may make it difficult for someone to acquire control of us. These provisions may
discourage takeover attempts and prevent you from receiving a premium over the
market price of your shares as part of a takeover.
In addition, certain officers have employment agreements with American
Bank of New Jersey providing for change in control severance payments. We also
have a change in control severance policy covering our employees and a directors
consultant and retirement plan that provides for payments in the event of a
change in control. The officer agreements, employee severance policy and
director plan will make it more expensive to acquire us.
Additionally, prior Office of Thrift Supervision would be required for
us to be acquired within three years after the conversion. Current Office of
Thrift Supervision policy is to not grant this approval. See Restrictions on
Acquisitions of American Bancorp of New Jersey, Inc. at page __.
15
Our recently implemented stock-based benefit plans and our proposed additional
stock-based benefit plans will increase our future compensation expense and
dilute stockholder ownership.
We adopted a stock option plan and a restricted stock plan in January
2005. In connection with this stock offering, we intend to adopt a new stock
option plan that will provide for the granting of further options to purchase
common stock and a new restricted stock plan that will provide for further
awards of restricted stock to our eligible officers and directors. Our
previously established employee stock ownership plan will make additional stock
purchases in this stock offering, and it will distribute stock to all of our
qualifying employees over a period of time. Based on the offering price of
$10.00 per share and assuming values for the stock options using the
Black-Scholes -Merton option pricing formula, the value of the stock under the
existing and new stock option, restricted stock and employee stock ownership
plans, if all shares issuable under the plans are awarded, would be
approximately $18.2 million at the midpoint of the offering range. See the table
and notes thereto under Stock Benefit Plans at page __ of the Summary for
information regarding the estimated number of shares under each plan and the
assumed value of the stock options.
The new restricted stock plan, the new stock option plan and the
additional stock purchases by the employee stock ownership plan will increase
our future costs of compensating our directors, officers, and employees. The
cost of the employee stock ownership plan will vary based on our stock price
over time, while the cost of the new restricted stock plan will be based on our
stock price when the awards are first granted. In addition, the Financial
Accounting Standards Board has announced a change in the required accounting
methods applicable to stock options. Under these accounting requirements, we
will be required to recognize compensation expense related to stock options
outstanding based upon the fair value of the awards at the date of grant over
the period that the awards are earned. These additional expenses will adversely
affect our profitability and stockholders' equity. We cannot predict the actual
amount of the new stock-related compensation and benefit expenses because
applicable accounting standards require that they be based on the fair market
value of the shares of common stock at specific points in the future; however,
we expect them to be material.
Stockholders will experience a reduction or dilution in ownership
interest of approximately 12.28% if we use newly issued shares to fund stock
options and stock awards made under these plans (or taken individually, dilution
of approximately 4.67% for the current stock option plan, 4.85% for the new
stock option plan, 1.45% for the current restricted stock plan, and 2.47% for
the new restricted stock plan). It is our intention to fund these plans through
open market purchases, however, if any options previously granted under the 2005
Stock Option Plan are exercised during the first year following the completion
of this stock offering, they may be funded with newly issued shares as Office of
Thrift Supervision regulations do not permit us to repurchase our shares during
the first year following the completion of this stock offering except to fund a
restricted stock plan or under extraordinary circumstances. See Potential Stock
Benefit Plans - Dilution at page __.
Our new organizational structure will result in changes in shareholder rights
for existing shareholders.
As a result of the conversion, the existing stockholders of ASB Holding Company
will become stockholders of American Bancorp of New Jersey, Inc. There are
certain differences in stockholder rights arising from distinctions between ASB
Holding Company's federal charter and bylaws and American Bancorp of New Jersey,
Inc.'s certificate of incorporation and bylaws, which are based on New Jersey
corporate law. The rights of stockholders to call special meetings, make
director nominations and stockholder proposals and amend the corporation's
governing instruments are more limited under American
16
Bancorp of New Jersey, Inc.'s certificate of incorporation and bylaws.
Additionally, the certificate of incorporation of American Bancorp of New
Jersey, Inc. limits the voting rights for shares held in excess of 10% of the
outstanding shares. See Comparison of Stockholders' Rights of ASB Holding
Company and American Bancorp of New Jersey, Inc. at page __.
Our low return on equity after the conversion may negatively impact the value of
our common stock.
As a result of the additional capital that will be raised by us in the
conversion, our ability to leverage the net proceeds from the conversion may be
limited in the near future. Our return on equity is initially expected to be
lower than it has been in recent years, which may negatively impact the value of
our common stock.
Execution of our growth strategy through de novo branching and increased loan
production will increase our expenses which will adversely impact earnings.
Part of our current growth strategy is to expand our branch network and
increase our loan production by hiring commercial real estate and commercial and
industrial lenders, as well as additional one-to-four family residential loan
originators. Our compensation and benefit expenses will be significantly
increased if we hire more lenders and also add staff to support expanded branch
and loan operations. The land purchase and construction expenses associated with
opening offices, in addition to the personnel and operating costs that we will
have once these offices are open, will significantly increase noninterest
expenses. Our current plan is to open up to five de novo branches over
approximately the next three years, and we estimate that the total land,
construction and equipment costs could average as much as $3.1 million per
branch and could be higher. Because the land, construction and equipment
expenses are in fixed assets, they will not result in any additional earnings
but will result in a substantial increase in depreciation and occupancy expense.
You may not be able to sell your shares when you desire or for $10.00 or more
per share.
Publicly traded stocks have recently experienced substantial market
price volatility. This is due, in part, to investors' shifting perceptions of
the effect on various industry sectors of changes and potential changes in the
economy. Volatility, therefore, may be unrelated to the current operating
performance of particular companies whose shares are traded. The purchase price
of common stock sold in conversion transactions, including mutual-to-stock
conversion transactions of mutual holding companies, is based on an independent
appraisal. Independent appraisals are not intended to be, and should not be
construed as, a recommendation as to the advisability of purchasing shares.
After our common stock begins to trade, the trading price will be determined by
the marketplace. The trading price will fluctuate because it will be influenced
by many factors, including prevailing interest rates, other economic conditions,
our operating performance and investor perceptions of the outlook for us and the
banking industry in general. We cannot assure you that if you choose to sell
shares you purchased in the stock offering, you will be able to sell them at or
above the $10.00 per share offering price.
Our business is geographically concentrated in New Jersey and a downturn in
conditions in the state could have an adverse impact on our profitability.
A substantial majority of our loans are to individuals and businesses
in New Jersey. Any decline in the economy of the state could have an adverse
impact on our earnings. Because we have a significant amount of real estate
loans, decreases in local real estate values could adversely affect the value of
property used as collateral. Adverse changes in the economy and real estate
values may also have a
17
negative effect on the ability of our borrowers to make timely repayments of
their loans, which would have an adverse impact on our earnings.
Strong competition within our market area may limit our growth and
profitability.
Competition in the banking and financial services industry in New
Jersey is intense. In our market area, we compete with commercial banks, savings
institutions, mortgage brokerage firms, credit unions, finance companies, mutual
funds, insurance companies and brokerage and investment banking firms operating
locally and elsewhere. Many of these competitors have substantially greater
resources and lending limits than we do and offer services that we do not or
cannot provide. This competition has made it more difficult for us to make new
loans and more difficult to retain deposits. Price competition for loans might
result in us originating fewer loans, or earning less on our loans, and price
competition for deposits might result in us reducing our total deposits or
paying more on our deposits.
We operate in a highly regulated environment and may be adversely affected by
changes in laws and regulations.
We are subject to extensive regulation, supervision and examination by
the Office of Thrift Supervision and by the Federal Deposit Insurance
Corporation. This regulation and supervision govern the activities in which a
bank and its holding company may engage and are intended primarily for the
protection of the insurance fund and depositors. Regulatory authorities have
extensive discretion in connection with their supervisory and enforcement
activities, including the imposition of restrictions on the operation of a bank,
the classification of assets by a bank and the adequacy of a bank's allowance
for loan losses. Any change in this regulation and oversight, whether in the
form of regulatory policy, regulations, or legislation could have a material
impact on us and our operations. See Regulation beginning at page __.
USE OF PROCEEDS
We are conducting this stock offering principally to raise additional
capital to support our continued growth. The net proceeds will depend on the
total number of shares of stock issued in the offering, which will depend on the
independent valuation and market considerations. The net proceeds will also be
impacted by the expenses incurred by us in connection with the stock offering.
Although the actual net proceeds from the sale of the common stock cannot be
determined until the stock offering is completed, we estimate that we will
receive net proceeds from the sale of common stock of between $62.4 million at
the minimum and $84.7 million at the maximum of the offering range.
Assuming expenses of between $1.4 million at the minimum and $1.7
million at the maximum, as adjusted, of the offering range and assuming the
purchase of 8% of the shares by the employee stock ownership plan, the following
table shows the manner in which we will use the net proceeds:
18
Maximum, as
Minimum Midpoint Maximum Adjusted
---------------------- ------------------ ------------------- ----------------
$ % $ % $ % $ %
------- ----- ------- ----- ------- ----- ------- -----
(Dollars in thousands)
Loan to employee stock
ownership plan..................... $ 5,100 8.2% $ 6,000 8.2% $ 6,900 8.1% $ 7,935 8.1%
Investment in American Bank
of New Jersey...................... 31,187 50.0 36,760 50.0 42,333 50.0 48,743 50.0
American Bancorp of New
Jersey, Inc. working capital....... 26,086 41.8 30,760 41.8 35,433 41.9 40,857 41.9
------- ----- ------- ----- ------- ----- ------- -----
Net Proceeds.............. $62,373 100.0% $73,520 100.0% $84,666 100.0% $97,485 100.0%
======= ===== ======= ===== ======= ===== ======= =====
We will use 50% of the net proceeds of the stock offering to make a
capital contribution to American Bank of New Jersey. We will also lend the
Bank's employee stock ownership plan cash to enable the plan to buy up to 8% of
the shares sold in the stock offering. The balance, ranging from $26.1 million
at the minimum of the offering range to $40.9 million at the maximum, as
adjusted, will be retained as our initial capitalization. We will use these
funds for general business purposes which may include investment in securities,
repurchase of shares of our common stock, or payment of cash dividends. For
additional information regarding the payment of cash dividends, see Dividend
Policy at page __.
Similar to ASB Holding Company, the current holding company for
American Bank of New Jersey, our primary activity following completion of the
conversion and stock offering will be to hold all of the stock of American Bank
of New Jersey. We have not engaged in any significant business to date.
The funds received by American Bank of New Jersey from us will be used
for general business purposes, including funding the origination of loans and
investments in securities. The Bank may, in the near term, use a portion of the
proceeds to repay overnight Federal Home Loan Bank borrowings. These borrowings
have grown recently as we have leveraged our balance sheet by funding loan
originations, primarily one-to-four family mortgage loans, with overnight
borrowings.
The Bank intends to hire additional lenders. As part of its plan to
grow and diversify the loan mix by developing a separate and distinct commercial
lending business unit, the Bank has recently hired a commercial and industrial
lender and intends over the next several years to hire several additional
commercial real estate and commercial and industrial lenders. The Bank also
plans to hire additional one- to-four family residential lenders.
We intend to expand the Bank's branch office network. Our current plan
is to open up to five de novo branches over approximately the next three years,
and several potential sites for de novo branches have been identified. We
currently estimate that the total land, construction and equipment costs could
average as much as $3.1 million per branch and could be as high as $3.6 million
for one branch, however, the actual expense could differ significantly. In
addition, we intend to augment the office space available for our administrative
operations. Our main office in Bloomfield currently houses our management staff
and administrative operations. The space devoted to management and
administrative operations will need to be augmented in order to add the
additional lenders, mortgage processors and support staff called for by our
growth plans. Currently, we estimate that we may incur a lease expense of up to
$150,000 annually in connection with our plan to augment our available space. In
addition to a lease expense, there is also a possibility we will incur
renovation costs of up to $1.5 million. The actual lease and renovation
expenses, however, could differ significantly.
19
In addition to expansion of our branch network through opening de novo
branches or acquiring branch offices, we intend to actively consider the
acquisition of local financial institutions and/or noninterest income
subsidiaries as a means to expand our banking operations. It is uncertain,
however, when or if these acquisitions will occur, and we do not have any
current understandings, agreements or arrangements for any acquisitions.
If the employee stock ownership plan is not able to purchase all of its
common stock in the stock offering, it may purchase shares of common stock in
the market after the stock offering. If the purchase price of the common stock
is higher than $10.00 per share, the amount of proceeds required for the
purchase by the employee stock ownership plan will increase, and the resulting
stockholders' equity will decrease.
The net proceeds may vary significantly because total expenses of the
stock offering may be significantly more or less than those estimated at the
various points of the offering range. Payments for shares made through
withdrawals from existing deposit accounts at American Bank of New Jersey will
not result in the receipt of new funds for investment but will result in a
reduction of American Bank of New Jersey's deposits and interest expense as
funds are transferred from interest-bearing certificates or other deposit
accounts.
DIVIDEND POLICY
Since the completion of its initial public stock offering in October
2003, ASB Holding Company has paid two dividends: a special dividend of $0.75
per share in December 2004 and a quarterly dividend of $0.09 per share in June
2005. After the conversion, American Bancorp of New Jersey, Inc. intends to pay
a regular quarterly dividend, however, there can be no assurance as to the
precise amount of the dividend.
The dividends paid to date by ASB Holding Company were paid only to the
public stockholders, holding 30% of the outstanding shares of ASB Holding
Company, while American Savings, MHC waived its receipt of the dividend on the
70% of the outstanding shares it holds. Following the conversion and stock
offering, however, 100% of the outstanding stock of American Bancorp of New
Jersey, Inc. will be held by public stockholders and dividends will be payable
on all outstanding shares of common stock.
The payment of dividends will depend on a number of factors including
our capital requirements, our financial condition and results of operations, tax
considerations, statutory and regulatory limitations, and general economic
conditions. No assurance can be given that we will pay dividends in the future,
or that, if paid, dividends will not be reduced or eliminated in future periods.
Under New Jersey law, American Bancorp of New Jersey, Inc. may not pay
dividends if, after giving effect thereto, it would be unable to pay its debts
as they become due in the usual course of its business or if its total assets
would be less than its total liabilities. American Bancorp of New Jersey, Inc.'s
ability to pay dividends may also depend on the receipt of dividends from
American Bank of New Jersey which is subject to a variety of regulatory
limitations on the payment of dividends. See Regulation - Regulation of American
Bank of New Jersey - Dividend and Other Capital Distribution Limitations at page
__. Furthermore, as a condition to the OTS giving its authorization to conduct
the stock offering, American Bancorp of New Jersey, Inc. has agreed that it will
not initiate any action within one year of completion of the stock offering in
the furtherance of payment of a special distribution or return of capital to
stockholders of American Bancorp of New Jersey, Inc.
20
MARKET FOR THE STOCK
Quotations for ASB Holding Company's common stock currently appear on
the OTC Bulletin Board under the symbol "ASBH." American Bancorp of New Jersey,
Inc. is a newly formed company and has not issued capital stock. It will not
have any stock outstanding until the completion of this stock offering. It is
expected that there will be a more active trading market for the common stock of
American Bancorp of New Jersey, Inc. than there has been for ASB Holding Company
because there will be more shares outstanding to the public. We have applied for
approval from Nasdaq to have our common stock quoted on the Nasdaq National
Market under the symbol "ABNJ." There can be no assurance, however, that an
active and liquid trading market for our common stock will develop or, if
developed, be maintained.
The following table sets forth the high and low sales prices for ASB
Holding Company's common stock and dividends paid for the periods indicated. ASB
Holding Company's common stock commenced trading on October 3, 2003. The
following stock price information represents inter-dealer quotations and,
therefore, may not include retail markups, markdowns, or commissions and may not
reflect actual transactions. As of March 31, 2005, there were 1,666,350 shares
of ASB Holding Company's common stock outstanding to persons other than American
Savings, MHC. In connection with the conversion, each share of ASB Holding
Company common stock will be converted into shares of common stock of American
Bancorp of New Jersey, Inc., based upon the exchange ratio as described under
The Conversion - Share Exchange Ratio at page __. Accordingly, the information
in this table should be reviewed in conjunction with the exchange ratio
information.
High Low Dividends
---- --- ---------
Fiscal 2004
- -----------
First Quarter (October 3, 2003 to December 31, 2003).... $18.50 $16.20 $ -
Second Quarter.......................................... 17.95 16.65 -
Third Quarter........................................... 17.15 14.25 -
Fourth Quarter.......................................... 15.19 14.50 -
Fiscal 2005
- -----------
First Quarter........................................... 18.00 15.00 0.75
Second Quarter.......................................... 18.50 16.70 -
Third Quarter (through _______, 2005)................... _____ _____ 0.09
At May 17, 2005, the business day immediately preceding the public
announcement of the conversion and new stock offering, and at ___________, 2005,
the closing price of ASB Holding Company's common stock as reported on the OTC
Bulletin Board was $18.00 per share and $_____ per share, respectively. At July
31, 2005, ASB Holding Company had ________ stockholders of record, including
persons who hold stock in "street" name through various brokerage firms.
21
CAPITALIZATION
Set forth below is the historical capitalization as of March 31, 2005
and the pro forma capitalization of American Bancorp of New Jersey, Inc. after
giving effect to the stock offering. The table also gives effect to the
assumptions set forth under Pro Forma Data at page __. A change in the number of
shares sold in the stock offering may materially affect the pro forma
capitalization.
Pro Forma Capitalization at March 31, 2005
---------------------------------------------------------
Maximum,
Minimum Midpoint Maximum as adjusted
6,375,000 7,500,000 8,625,000 9,918,750
Actual at Shares at Shares at Shares at Shares at
March 31, $10.00 $10.00 $10.00 $10.00
2005(1) per share per share per share per share(2)
------- --------- --------- --------- ------------
(In thousands)
Deposits(3)............................................ $328,043 $328,043 $328,043 $328,043 $328,043
FHLB advances(4)....................................... 68,263 68,263 68,263 68,263 68,263
-------- -------- -------- -------- --------
Total deposits and borrowings.......................... $396,306 $396,306 $396,306 $396,306 $396,306
======== ======== ======== ======== ========
Stockholders' equity:
Preferred stock, $0.10 par value, 10,000,000
shares authorized (post conversion);
none to be issued.................................. $ - $ - $ - $ - $ -
Common stock, $0.10 par value, 20,000,000
shares authorized (post conversion); assuming
shares outstanding as shown(5)..................... 555 911 1,071 1,232 1,417
Additional paid-in capital(5)(6)....................... 17,066 79,083 90,070 101,055 113,689
Retained earnings(7)................................... 24,848 24,848 24,848 24,848 24,848
Assets received from American Savings, MHC(8).......... - 100 100 100 100
Less:
Accumulated other comprehensive loss, net of tax..... (950) (950) (950) (950) (950)
Amount reclassified on employee stock
ownership plan shares(9).......................... (312) - - - -
Unearned employee stock ownership plan
shares(10)........................................ (1,131) (6,231) (7,131) (8,031) (9,066)
Unearned restricted stock plan shares(11)............ (1,265) (3,569) (3,976) (4,382) (4,850)
------- ------- -------- -------- --------
Total stockholders' equity............................. $38,811 $94,192 $104,032 $113,872 $125,188
======= ======= ======== ======== ========
__________________
(1) Actual capitalization at March 31, 2005 consists of the existing
capitalization of ASB Holding Company
(2) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the independent valuation and a
commensurate increase in the offering range of up to 15% to reflect changes
in market and financial conditions.
(3) Does not reflect withdrawals from deposit accounts for the purchase of
stock in the offering. Any withdrawals would reduce pro forma deposits by
an amount equal to the withdrawals.
(4) We may, in the near term, use a portion of the proceeds to repay overnight
Federal Home Loan Bank borrowings. At March 31, 2005, overnight borrowings
totaled $14.5 million. Pro forma Federal Home Loan Bank advances would
decrease if we use a portion of the proceeds to repay the overnight
borrowings.
(5) Pro forma common stock and additional paid-in capital reflect the number of
shares of common stock to be outstanding after the stock offering.
Additional paid-in capital amounts under pro forma capitalization are net
of stock offering expenses.
(6) No effect has been given to the issuance of additional shares of stock
pursuant to the 2005 Stock Option Plan or any stock option plan that may be
adopted by American Bancorp of New Jersey, Inc. and presented for approval
by the stockholders after the stock offering. An amount equal to
approximately 7.3% of the shares of stock sold in the offering would be
reserved for issuance upon the exercise of options to be granted under the
new stock option plan following the stock offering. See Management -
Potential Stock Benefit Plans - Stock Option Plan at page __.
22
(7) The retained earnings of American Bank of New Jersey will be substantially
restricted after the conversion. See Regulation - Regulation of American
Bank of New Jersey - Dividends and Other Capital Distribution Limitations
at page __.
(8) Pro forma data reflects the consolidation of $100,000 of capital from
American Savings, MHC.
(9) The amount reclassified on employee stock ownership plan shares represents
the contingent repurchase obligation. At March 31, 2005, the employee stock
ownership plan held 133,308 shares of ASB Holding Company's common stock
and 16,913 of these shares were allocated to the accounts maintained for
participants. Participants become eligible to receive payment of the vested
benefits under the plan upon retirement, disability or termination of
employment. Participants who elect to receive their benefit payments in the
form of ASB Holding Company common stock may require ASB Holding Company to
purchase the common stock distributed at fair value during two 60-day
periods. The first purchase period begins on the date the benefit is paid
and the second purchase period begins on the first anniversary of the
payment date. This contingent repurchase obligation is reflected in the
financial statements as "Common stock in ESOP subject to contingent
repurchase obligation" and reduces shareholder's equity by an amount that
represents the fair value of all allocated shares, without regard to
whether it is likely that the shares would be distributed or that the
recipients of the shares would be likely to exercise their right to require
ASB Holding Company to purchase the shares. At March 31, 2005, this
contingent repurchase obligation reduced stockholders' equity by $312,000.
This obligation will be terminated upon completion of the conversion and
stock offering as it is not applicable to Nasdaq traded stock. We
anticipate that American Bancorp of New Jersey, Inc.'s common stock will be
traded on Nasdaq while ASB Holding Company's common stock is traded on the
OTC Bulletin Board.
(10) The purchase price of unearned shares held by the employee stock ownership
plan is reflected as a reduction of stockholders' equity. Includes unearned
shares held currently by the existing employee stock ownership plan and
assumes that 8.0% of the shares sold in the stock offering will be
purchased by the new employee stock ownership plan, and that the funds used
to acquire the additional employee stock ownership plan shares will be
borrowed from American Bancorp of New Jersey, Inc. For an estimate of the
impact of the loan on earnings, see Pro Forma Data at page __. American
Bank of New Jersey intends to make scheduled discretionary contributions to
the employee stock ownership plan sufficient to enable the plan to service
and repay its debt over a ten year period. See Management - Employee Stock
Ownership Plan at page __. If the employee stock ownership plan does not
purchase stock in the stock offering and the purchase price in the open
market is greater than $10.00 price per share, there will be a
corresponding reduction in stockholders' equity. See The Stock Offering -
Subscription Offering - Subscription Rights at page __.
(11) The purchase price of unearned shares held by the restricted stock plans is
reflected as a reduction of stockholders' equity. Includes shares held
currently by the 2005 Restricted Stock Plan and assumes that an amount
equal to approximately 3.6% of the shares of stock sold in the stock
offering are purchased for the new restricted stock plan following the
stock offering at $10.00 per share. In addition, the 2005 Restricted Stock
Plan intends to continue to make stock purchases in the open market from
time to time to fund this plan after the completion of the stock offering.
If the purchase price in the open market is greater than $10.00 per share,
there will be a corresponding reduction in stockholders' equity. See
footnote (2) to the table under Pro Forma Data at page __. See Management -
Potential Stock Benefit Plans - Restricted Stock Plan at page __.
PRO FORMA DATA
The actual net proceeds from the sale of the stock cannot be determined
until the stock offering is completed. However, investable net proceeds to
American Bancorp of New Jersey, Inc. are currently estimated to be between
approximately $54.8 million and $74.4 million (or $85.7 million if the
independent valuation is increased by 15%) based on the following assumptions:
o receipt of assets of $100,000 from American Savings, MHC;
o an amount equal to the cost of purchasing 8% of the shares sold in the
stock offering will be loaned to the employee stock ownership plan to fund
its purchase of 8% of the shares sold in the stock offering;
o an amount equal to approximately 3.6% of the shares sold in the stock
offering will be awarded pursuant to the restricted stock plan adopted no
sooner than six months following the stock offering, funded through open
market purchases; and
o expenses of the stock offering are estimated to be approximately $1.4
million at the minimum of the offering range and $1.6 million at the
maximum ($1.7 million if the valuation is increased by 15%).
23
We have prepared the following table, which sets forth our historical
net income and stockholders' equity prior to the stock offering and our pro
forma consolidated net income and stockholders' equity following the stock
offering. In preparing this table, and in calculating pro forma data, we have
made the following assumptions:
o Pro forma earnings have been calculated assuming the stock had been sold at
the beginning of the period and the net proceeds had been invested at an
average yield of 3.35% for the six months ended March 31, 2005 and the year
ended September 30, 2004, which approximates the yield on a one-year U.S.
Treasury bill on March 31, 2005 and September 30, 2004. The yield on a one-
year U.S. Treasury bill, rather than an arithmetic average of the average
yield on interest-earning assets and the average rate paid on deposits, has
been used to estimate income on net proceeds because it is believed that
the one-year U.S. Treasury bill rate is a more accurate estimate of the
rate that would be obtained on an investment of net proceeds from the stock
offering.
o The pro forma after-tax yield on the net proceeds is assumed to be 2.01%
for the six months ended March 31, 2005 and for the year ended September
30, 2004, based on an effective tax rate of 39.94% for both periods.
o We did not include any withdrawals from deposit accounts to purchase shares
in the stock offering.
o Historical and pro forma per share amounts have been calculated by dividing
historical and pro forma amounts by the indicated number of shares of
stock, as adjusted in the pro forma net earnings per share to give effect
to the purchase of shares by the employee stock ownership plan.
o Pro forma stockholders' equity amounts have been calculated as if the stock
had been sold on March 31, 2005 and September 30, 2004, respectively, and
no effect has been given to the assumed earnings effect of the
transactions.
The following pro forma data rely on the assumptions we outlined above,
and these data do not represent the fair market value of the common stock, the
current value of assets or liabilities, or the amount of money that would be
distributed to stockholders if we liquidated American Bancorp of New Jersey,
Inc. The pro forma data do not predict how much we will earn in the future. You
should not use the following information to predict future results of
operations.
The pro forma information does not take into account our anticipated
future expenses in connection with de novo branching or the expenses related to
our growth strategy, including the hiring of additional lenders. The historical
data for the year ended September 30, 2004 does not reflect any expense for the
restricted stock plan and stock option plan approved by ASB Holding Company
stockholders on January 20, 2005. The historical data for the six months ended
March 31, 2005 does not reflect accrual of restricted stock plan expense for the
entire six month period because the restricted stock plan awards were not made
until January 2005. The pro forma data for the six months ended March 31, 2005
includes an adjustment for stock option expense for those options awarded in
January 2005. Please see Note 1 to the Consolidated Financial Statements for the
pro forma expense disclosed and Note 12 for the Black Scholes assumptions and
number of options.
The following tables summarize historical data and pro forma data at or
for the six months ended March 31, 2005 and at or for the year ended September
30, 2004 based on the assumptions set forth above and in the tables and should
not be used as a basis for projections of market value of the stock following
the stock offering. Pro forma stockholders' equity per share does not give
effect to the liquidation account to be established in the conversion, or, in
the event of liquidation of American Bank of New Jersey, to the tax effect of
the recapture of the bad debt reserve. See Management - Potential Stock Benefit
Plans - Stock Option Plan at page __ and The Conversion - Liquidation Rights at
page __.
24
At or For the Six Months Ended March 31, 2005
------------------------------------------------------------------
6,375,000 7,500,000 8,625,000 9,918,750
Shares Sold Shares Sold Shares Sold Shares Sold at
at $10.00 at $10.00 at $10.00 $10.00
per share per share per share per share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
Gross proceeds............................................... $63,750 $75,000 $86,250 $99,188
Less expenses................................................ 1,377 1,480 1,584 1,703
Plus: Assets received from American Savings, MHC............. 100 100 100 100
------- ------- ------- -------
Estimated net proceeds.................................... 62,473 73,620 84,766 97,585
Less ESOP funded by American Bancorp of New Jersey, Inc...... (5,100) (6,000) (6,900) (7,935)
Less restricted stock plan adjustment........................ (2,304) (2,711) (3,117) (3,585)
------- ------- ------- -------
Estimated investable net proceeds......................... $55,069 $64,909 $74,749 $86,065
======= ======= ======= =======
Net Income:
Historical ............................................... $1,194 $1,194 $1,194 $1,194
Pro forma income on net proceeds.......................... 554 653 752 866
Pro forma ESOP adjustment(1).............................. (153) (180) (207) (238)
Pro forma restricted stock plan adjustment(2)............. (138) (163) (187) (215)
Pro forma options adjustment - new options(3)............. (143) (168) (193) (222)
Pro forma options adjustment - January 2005 options(4).... (54) (54) (54) (54)
------ ------ ------ ------
Pro forma net income(1)(2)(3)(4)(5)....................... $1,260 $1,282 $1,305 $1,331
====== ====== ====== ======
Per share net income:
Historical ............................................... $0.14 $0.12 $0.10 $0.09
Pro forma income on net proceeds.......................... 0.06 0.06 0.06 0.06
Pro forma ESOP adjustment(1).............................. (0.02) (0.02) (0.02) (0.02)
Pro forma restricted stock plan adjustment(2)............. (0.02) (0.02) (0.02) (0.02)
Pro forma options adjustment - new options(3)............. (0.02) (0.02) (0.02) (0.02)
Pro forma options adjustment - January 2005 options(4).... (0.01) (0.01) (0.00) (0.00)
----- ----- ----- -----
Pro forma net income per share(1)(2)(3)(4)(5)............. $0.13 $0.11 $0.10 $0.09
===== ===== ===== =====
Shares used in calculation of income per share (6)........... 8,622,643 10,144,285 11,665,929 13,415,817
Stockholders' equity:
Historical ............................................... $38,811 $ 38,811 $ 38,811 $ 38,811
Estimated net proceeds.................................... 62,473 73,620 84,766 97,585
Plus: Elimination of ESOP reclassification............. 312 312 312 312
Less: Common Stock acquired by the ESOP(1)................ (5,100) (6,000) (6,900) (7,935)
Less: Common Stock acquired by the
restricted stock plan(2)....................... (2,304) (2,711) (3,117) (3,585)
------- -------- -------- --------
Pro forma stockholders' equity............................ $94,192 $104,032 $113,872 $125,118
======= ======== ======== ========
Stockholders' equity per share:
Historical ............................................... $ 4.26 $ 3.62 $ 3.15 $ 2.74
Estimated net proceeds.................................... 6.86 6.87 6.87 6.88
Plus: Elimination of ESOP reclassification............. 0.03 0.03 0.03 0.02
Less: Common Stock acquired by the ESOP(1)................ (0.56) (0.56) (0.56) (0.56)
Less: Common stock acquired by the
restricted stock plan(2)....................... (0.25) (0.25) (0.25) (0.25)
------ ----- ------ ------
Pro forma stockholders' equity per share.................. $10.34 $9.71 $ 9.24 $ 8.83
====== ===== ====== ======
Offering price as a percentage of pro forma
stockholders' equity per share............................. 96.71% 102.99% 108.23% 113.25%
===== ====== ====== ======
Offering price as a percentage of pro forma
net income per share........................................ 38.46X 45.45X 50.00X 55.56X
===== ===== ===== =====
Shares used in calculation of stockholders' equity per share(5) 9,107,143 10,714,285 12,321,429 14,169,642
(Footnotes on following page)
25
- -------------------
(1) Assumes that 8% of the shares sold in the stock offering will be purchased
by the employee stock ownership plan and that the plan will borrow funds
from American Bancorp of New Jersey, Inc. The stock acquired by the
employee stock ownership plan is reflected as a reduction of stockholders'
equity. American Bank of New Jersey intends to make annual contributions to
the plan in an amount at least equal to the principal and interest
requirement of the loan. This table assumes a 10 year amortization period.
See Management - Employee Stock Ownership Plan at page __. The pro forma
net earnings assumes: (i) that American Bank of New Jersey's contribution
to the employee stock ownership plan for the principal portion of the debt
service requirement for the six months ended March 31, 2005 was made at the
end of the period; (ii) that 25,500, 30,000, 34,500 and 39,675 shares at
the minimum, midpoint, maximum, and 15% above the maximum of the range,
respectively, were committed to be released during the six months ended
March 31, 2005, at an average fair value of $10.00 per share and were
accounted for as a charge to expense in accordance with Statement of
Position ("SOP") No. 93-6; and (iii) only the employee stock ownership plan
shares committed to be released were considered outstanding for purposes of
the net earnings per share calculations. All employee stock ownership plan
shares were considered outstanding for purposes of the stockholders' equity
per share calculations.
(2) Gives effect to the restricted stock plan that may be adopted by American
Bank of New Jersey following the stock offering and presented for approval
at a meeting of stockholders to be held after completion of the stock
offering. If the restricted stock plan is approved by the stockholders, the
restricted stock plan is expected to acquire an amount of stock equal to
approximately 3.6% of the shares sold in the stock offering, or 230,411,
271,071, 311,732 and 358,492 shares of stock, respectively, at the minimum,
midpoint, maximum and 15% above the maximum of the range through open
market purchases. Funds used by the restricted stock plan to purchase
shares will be contributed to the restricted stock plan by American Bank of
New Jersey. In calculating the pro forma effect of the restricted stock
plan, it is assumed that the required stockholder approval has been
received for the plan, that the shares were acquired by the restricted
stock plan at the beginning of the six months ended March 31, 2005 through
open market purchases, at $10.00 per share, and that 20% of the amount
contributed was amortized to expense during the six months ended March 31,
2005. The restricted stock plan will be amortized over 5 years. The
issuance of authorized but unissued shares of stock to the restricted stock
plan instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 2.47% and pro forma net income per
share for the six months ended March 31, 2005 would be $0.13, $0.11, $0.11
and $0.10 at the minimum, midpoint, maximum and 15% above the maximum of
the range, respectively, and pro forma stockholders' equity per share at
March 31, 2005 would be $10.09, $9.47, $9.01 and $8.62 at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively.
There can be no assurance that stockholder approval of the restricted stock
plan will be obtained, or the actual purchase price of the shares will be
equal to $10.00 per share. See Management - Potential Stock Benefit Plans -
Restricted Stock Plan at page __.
(3) Gives effect to the stock option plan that may be adopted by American
Bancorp of New Jersey, Inc. following the stock offering and presented for
approval at a meeting of stockholders to be held after completion of the
stock offering and assumes that the options granted under the stock option
plan have a value of $3.41 per option, which was determined using the
Black-Scholes-Merton option pricing formula using the following
assumptions: (i) the trading price on date of grant was $10.00 per share;
(ii) exercise price is equal to the trading price on the date of grant;
(iii) dividend yield of 1.8%; (iv) expected life of 10 years; (v) expected
volatility of 20%; and risk-free interest rate of 4.5%. The assumed
expected volatility is based on the trading history of ASB Holding
Company's common stock. If the fair market value per share on the date of
grant is different than $10.00, or if the assumptions used in the option
pricing formula are different from those used in preparing this pro forma
data, the value of the options and the related expense recognized will be
different. There can be no assurance that the actual fair market value per
share on the date of grant, and correspondingly the exercise price of the
options, will be $10.00 per share. The issuance of authorized but unissued
shares of stock instead of open market purchases to fund exercises of
options granted under the stock option plan would dilute the voting
interests of existing stockholders by approximately 4.85%. See Management -
Potential Stock Benefit Plans - Stock Option Plan on page ___.
(4) The pro forma data for the six months ended March 31, 2005 includes an
adjustment for stock option expense for those options awarded in January
2005. Please see Note 1 to the Consolidated Financial Statements for the
pro forma expense disclosed and Note 12 for the Black Scholes assumptions
and number of options.
(5) Retained earnings will continue to be substantially restricted after the
stock offering. See Dividend Policy at page __ and Regulation - Regulation
of American Bank of New Jersey - Dividends and Other Capital Distribution
Limitations at page __.
(6) For purposes of calculating net income per share, only the employee stock
ownership plan shares committed to be released under the plan were
considered outstanding. For purposes of calculating stockholders' equity
per share, all employee stock ownership shares were considered outstanding.
We have also assumed that no options granted under the stock option plan
were exercised during the period and that the trading price of American
Bancorp of New Jersey, Inc. common stock at the end of the period was
$10.00 per share. Under this assumption, using the treasury stock method,
no additional shares of stock were considered to be outstanding for
purposes of calculating earnings per share or stockholders' equity per
share.
26
At or For the Year Ended September 30, 2004
------------------------------------------------------------------
6,375,000 7,500,000 8,625,000 9,918,750
Shares Sold Shares Sold Shares Sold Shares Sold at
at $10.00 at $10.00 at $10.00 $10.00
per share per share per share per share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
Gross proceeds............................................... $63,750 $75,000 $86,250 $99,188
Less expenses................................................ 1,377 1,480 1,584 1,703
Plus: Assets received from American Savings, MHC............. 100 100 100 100
------- ------- ------- -------
Estimated net proceeds.................................... 62,473 73,620 84,766 97,585
Less ESOP funded by American Bancorp of New Jersey, Inc...... (5,100) (6,000) (6,900) (7,935)
Less restricted stock plan adjustment........................ (2,304) (2,711) (3,117) (3,585)
------- ------- ------- -------
Estimated investable net proceeds......................... $55,069 $64,909 $74,749 $86,065
======= ======= ======= =======
Net Income:
Historical ............................................... $2,162 $2,162 $2,162 $2,162
Pro forma income on net proceeds.......................... 1,108 1,306 1,504 1,732
Pro forma ESOP adjustment(1).............................. (306) (360) (414) (477)
Pro forma restricted stock plan adjustment(2)............. (277) (326) (374) (431)
Pro forma option plan adjustment(3)....................... (285) (335) (386) (444)
------ ------ ------ ------
Pro forma net income(1)(2)(3)(4).......................... $2,402 $2,447 $2,492 $2,542
====== ====== ====== ======
Per share net income:
Historical ............................................... $0.25 $0.21 $0.18 $0.16
Pro forma income on net proceeds.......................... 0.13 0.13 0.13 0.13
Pro forma ESOP adjustments(1)............................. (0.04) (0.04) (0.04) (0.04)
Pro forma restricted stock plan adjustment(2)............. (0.03) (0.03) (0.03) (0.03)
Pro forma option plan adjustment(3)....................... (0.03) (0.03) (0.03) (0.03)
----- ----- ----- -----
Pro forma net income per share(1)(2)(3)(4)................ $0.28 $0.24 $0.21 $0.19
===== ===== ===== =====
Shares used in calculation of income per share (5)........... 8,648,143 10,174,285 11,700,429 13,455,492
Stockholders' equity:
Historical ............................................... $39,314 $ 39,314 $ 39,314 $ 39,314
Estimated net proceeds.................................... 62,473 73,620 84,766 97,585
Plus: Elimination of ESOP reclassification............. 312 312 312 312
Less: Common Stock acquired by the ESOP(1)................ (5,100) (6,000) (6,900) (7,935)
Less: Common Stock acquired by the
restricted stock plan(2)....................... (2,304) (2,711) (3,117) (3,585)
------- -------- -------- --------
Pro forma stockholders' equity............................ $94,695 $104,535 $114,375 $125,691
======= ======== ======== ========
Stockholders' equity per share:
Historical ............................................... $ 4.32 $ 3.67 $ 3.19 $ 2.77
Estimated net proceeds.................................... 6.86 6.87 6.88 6.89
Plus: Elimination of ESOP reclassification............. 0.03 0.03 0.03 0.02
Less: Common Stock acquired by the ESOP(1)................ (0.56) (0.56) (0.56) (0.56)
Less: Common stock acquired by the
restricted stock plan(2)....................... (0.25) (0.25) (0.25) (0.25)
------ ----- ------ ------
Pro forma stockholders' equity per share.................. $10.40 $9.76 $ 9.28 $ 8.87
====== ===== ====== ======
Offering price as a percentage of pro forma
stockholders' equity per share............................. 96.15% 102.46% 107.76% 112.74%
===== ====== ====== ======
Offering price as a percentage of pro forma
net income per share........................................ 35.71X 41.67X 47.62X 52.63X
===== ===== ===== =====
Shares used in calculation of stockholders' equity per share(5) 9,107,143 10,714,285 12,321,429 14,169,642
(Footnotes on following page)
27
- ------------------
(1) Assumes that 8% of the shares sold in the stock offering will be purchased
by the employee stock ownership plan and that the plan will borrow funds
from American Bancorp of New Jersey, Inc. The stock acquired by the
employee stock ownership plan is reflected as a reduction of stockholders'
equity. American Bank of New Jersey intends to make annual contributions to
the plan in an amount at least equal to the principal and interest
requirement of the loan. This table assumes a 10 year amortization period.
See Management - Employee Stock Ownership Plan at page __. The pro forma
net earnings assumes: (i) that American Bank of New Jersey's contribution
to the employee stock ownership plan for the principal portion of the debt
service requirement for year ended September 30, 2004 was made at the end
of the period; (ii) that 51,000, 60,000, 69,000 and 79,350 shares at the
minimum, midpoint, maximum, and 15% above the maximum of the range,
respectively, were committed to be released during the year ended September
30, 2004, at an average fair value of $10.00 per share and were accounted
for as a charge to expense in accordance with Statement of Position ("SOP")
No. 93- 6; and (iii) only the employee stock ownership plan shares
committed to be released were considered outstanding for purposes of the
net earnings per share calculations. All employee stock ownership plan
shares were considered outstanding for purposes of the stockholders' equity
per share calculations.
(2) Gives effect to the restricted stock plan that may be adopted by American
Bank of New Jersey following the stock offering and presented for approval
at a meeting of stockholders to be held after completion of the stock
offering. If the restricted stock plan is approved by the stockholders, the
restricted stock plan is expected to acquire an amount of stock equal to
approximately 3.6% of the shares sold in the stock offering, or 230,411,
271,071, 311,732 and 358,492 shares of stock, respectively, at the minimum,
midpoint, maximum and 15% above the maximum of the range through open
market purchases. Funds used by the restricted stock plan to purchase
shares will be contributed to the restricted stock plan by American Bank of
New Jersey. In calculating the pro forma effect of the restricted stock
plan, it is assumed that the required stockholder approval has been
received for the plan, that the shares were acquired by the restricted
stock plan at the beginning of the year ended September 30, 2004 through
open market purchases, at $10.00 per share, and that 20% of the amount
contributed was amortized to expense during the year ended September 30,
2004. The restricted stock plan will be amortized over 5 years. The
issuance of authorized but unissued shares of stock to the restricted stock
plan instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 2.47% and pro forma net income per
share for the year ended September 30, 2004 would be $0.28, $0.25, $0.22
and $0.20 at the minimum, midpoint, maximum and 15% above the maximum of
the range, respectively, and pro forma stockholders' equity per share at
September 30, 2004 would be $10.14, $9.52, $9.05 and $8.65 at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively.
There can be no assurance that stockholder approval of the restricted stock
plan will be obtained, or the actual purchase price of the shares will be
equal to $10.00 per share. See Management - Potential Stock Benefit Plans -
Restricted Stock Plan at page __.
(3) Gives effect to the stock option plan that may be adopted by American
Bancorp of New Jersey, Inc. following the stock offering and presented for
approval at a meeting of stockholders to be held after completion of the
stock offering and assumes that the options granted under the stock option
plan have a value of $3.41 per option, which was determined using the
Black-Scholes-Merton option pricing formula using the following
assumptions: (i) the trading price on date of grant was $10.00 per share;
(ii) exercise price is equal to the trading price on the date of grant;
(iii) dividend yield of 1.8%; (iv) expected life of 10 years; (v) expected
volatility of 20%; and risk-free interest rate of 4.5%. The assumed
expected volatility is based on the trading history of ASB Holding
Company's common stock. If the fair market value per share on the date of
grant is different than $10.00, or if the assumptions used in the option
pricing formula are different from those used in preparing this pro forma
data, the value of the options and the related expense recognized will be
different. There can be no assurance that the actual fair market value per
share on the date of grant, and correspondingly the exercise price of the
options, will be $10.00 per share. The issuance of authorized but unissued
shares of stock instead of open market purchases to fund exercises of
options granted under the stock option plan would dilute the voting
interests of existing stockholders by approximately 4.85%. See Management -
Potential Stock Benefit Plans - Stock Option Plan on page ___.
(4) Retained earnings will continue to be substantially restricted after the
stock offering. See Dividend Policy at __ and Regulation - Regulation of
American Bank of New Jersey - Dividends and Other Capital Distribution
Limitations at page __.
(5) For purposes of calculating net income per share, only the employee stock
ownership plan shares committed to be released under the plan were
considered outstanding. For purposes of calculating stockholders' equity
per share, all employee stock ownership shares were considered outstanding.
We have also assumed that no options granted under the stock option plan
were exercised during the period and that the trading price of American
Bancorp of New Jersey, Inc. common stock at the end of the period was
$10.00 per share. Under this assumption, using the treasury stock method,
no additional shares of stock were considered to be outstanding for
purposes of calculating earnings per share or stockholders' equity per
share.
28
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents American Bank of New Jersey's historical
and pro forma capital position and its capital requirements as of March 31,
2005. Pro forma capital levels assume receipt by American Bank of New Jersey of
50% of the net proceeds. For a discussion of the assumptions underlying the pro
forma capital calculations presented below, see Use of Proceeds, Capitalization
and Pro Forma Data at pages __, __ and __. The definitions of the terms used in
the table are those provided in the capital regulations issued by the OTS. For a
discussion of the capital standards applicable to American Bank of New Jersey,
see Regulation - Regulation of American Bank of New Jersey - Regulatory Capital
Requirements at page __.
Pro Forma at March 31, 2005
-------------------------------------------------------------------------------------
$99,187,500
Actual, at $63,750,000 $75,000,000 $86,250,000 Maximum, as adjusted
March 31, 2005 Minimum Offering Midpoint Offering Maximum Offering Offering (1)
-------------------- ------------------- ------------------- ------------------- --------------------
Percentage Percentage Percentage Percentage Percentage
Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2) Amount of Assets(2)
------ ------------ ------ ------------ ------ ------------ ------ ------------ ------ ------------
(Dollars in thousands)
GAAP Capital(3)........ $33,941 7.76% $57,773 12.53% $62,040 13.33% $66,307 14.12% $71,213 15.01%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Tangible Capital:
Actual or Pro Forma.. $34,856 7.96% $58,688 12.71% $62,955 13.50% $67,222 14.29% $71,128 15.17
Required............. 6,571 1.50 6,929 1.50 6,993 1.50 7,057 1.50 7,130 1.50
------- ---- ------- ----- ------- ----- ------- ----- ------- -----
Excess............... $28,285 6.46% $51,760 11.21% $55,962 12.00% $60,165 12.79% $64,998 13.67%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Core Capital:
Actual or Pro Forma.. $34,856 7.96% $58,688 12.71% $62,955 13.50% $67,222 14.29% $72,128 15.17%
Required(4).......... 17,524 4.00 18,477 4.00 18,648 4.00 18,818 4.00 19,015 4.00
------- ---- ------- ----- ------- ----- ------- ----- ------- -----
Excess............... $17,332 3.96% $40,211 8.71% $44,308 9.50% $48,403 10.29% $53,114 11.17%
======= ==== ======= ==== ======= ==== ======= ===== ======= =====
Risk-Based Capital:
Actual or
Pro Forma(5)(6).... $36,545 15.34% $60,377 24.85% $64,644 26.52% $68,911 28.17% $73,817 30.05%
Required............. 19,053 8.00 19,435 8.00 19,503 8.00 19,572 8.00 19,650 8.00
------- ---- ------- ----- ------- ----- ------- ----- ------- -----
Excess............... $17,492 7.34% $40,943 16.85% $45,141 18.52% $49,340 20.17% $54,168 21.05%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Tier 1 Risk-Based
Capital:
Actual or
Pro Forma(5)(6).... $34,856 14.64% $58,688 24.16% $62,955 25.82% $67,222 27.48% $72,128 29.37%
Required............. 9,527 4.00 9,717 4.00 9,751 4.00 9,786 4.00 9,825 4.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess............... $25,329 10.64% $48,971 20.16% $53,204 21.82% $57,436 23.48% $62,304 25.37%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
- -----------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering range of up to 15% as a
result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the stock
offering.
(2) Tangible and core capital levels are shown as a percentage of total
adjusted assets. The risk-based capital level is shown as a percentage of
risk-weighted assets.
(3) GAAP capital includes unrealized gain (loss) on available-for-sale
securities, net, which is not included as regulatory capital.
(4) The current OTS core capital requirement for savings banks is 3% of total
adjusted assets for thrifts that receive the highest supervisory rating for
safety and soundness and 4% to 5% for all other thrifts. See Regulation -
Regulation of American Bank of New Jersey - Regulatory Capital Requirements
at page __.
(5) Assumes net proceeds are invested in assets that carry a 50% risk-weighing.
(6) The difference between equity under GAAP and regulatory risk-based capital
is attributable to the addition of $915,000 for accumulated other
comprehensive (loss) and $1,690,000 for the allowance for loan losses.
29
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which can be
identified by the use of words such as "believes," "expects," "anticipates,"
"estimates" or similar expressions. Forward-looking statements include:
o statements of our goals, intentions and expectations;
o statements regarding our business plans, prospects, growth and operating
strategies;
o statements regarding the quality of our loan and investment portfolios; and
o estimates of our risks and future costs and benefits.
These forward-looking statements are subject to significant risks and
uncertainties. Actual results may differ materially from those contemplated by
the forward-looking statements due to, among others, the following factors:
o general economic conditions, either nationally or in our market area, that
are worse than expected;
o changes in the interest rate environment that reduce our interest margins
or reduce the fair value of financial instruments;
o increased competitive pressures among financial services companies;
o changes in consumer spending, borrowing and savings habits;
o legislative or regulatory changes that adversely affect our business;
o adverse changes in the securities markets;
o our ability to successfully manage our growth;
o changes in accounting policies and practices, as may be adopted by the bank
regulatory agencies or the Financial Accounting Standards Board; and
o our ability to enter into new markets and/or expand product offerings
successfully and take advantage of growth opportunities.
Any of the forward-looking statements that we make in this prospectus
and in other public statements we make may turn out to be wrong because of
inaccurate assumptions we might make, because of the factors illustrated above
or because of other factors that we cannot foresee. Consequently, no
forward-looking statement can be guaranteed.
30
RECENT DEVELOPMENTS
The financial information under the captions Balance Sheet Data and
Summary of Operations in this section is derived from ASB Holding Company's
audited financial statements for the fiscal year ended September 30, 2004 and
unaudited financial statements for the nine months ended June 30, 2005 and 2004.
In the opinion of management, all adjustments consisting of normal recurring
adjustments that are necessary for a fair presentation of the interim periods
have been reflected. The results of operations and other data presented for the
nine month period ended June 30, 2005 do not necessarily indicate the results
that may be expected for the fiscal year ending September 30, 2005 or any other
period.
Balance Sheet Data:
At At
June 30, September
2005 30, 2004
------ --------
(Dollars in thousands)
Assets $443,248 $424,944
Cash and cash equivalents 8,687 8,034
Loans receivable, net 338,856 308,970
Loans held-for-sale 675 --
Securities available-for-sale 68,682 89,495
Securities held-to-maturity 8,251 2,794
Federal Home Loan Bank stock 3,303 2,890
Deposits 331,391 322,716
Borrowings 66,049 57,491
Equity 39,285 39,314
Summary of Operations:
At or For the Nine
Months Ended
June 30,
2005 2004
------- -------
(Dollars in thousands)
Interest income $15,217 $13,489
Interest expense 6,903 5,990
------- -------
Net interest income 8,314 7,499
Provision for loan losses 105 96
------- -------
Net interest income after provision for loan losses 8,209 7,403
Noninterest income 802 808
Noninterest expense 6,627 5,599
------- -------
Income before taxes 2,384 2,612
Income tax provision 864 1,105
------- -------
Net income $ 1,520 $ 1,597
======= =======
Actual Number of (not in thousands):
Real estate loans outstanding 1,602 1,500
Deposit accounts 20,318 20,095
Offices(1) 2 2
- -----
(1) All offices are full-service.
31
At or For the
Nine Months Ended
June 30,
----------------------
2005 2004
------- --------
Performance Ratios(1):
Return on average assets (ratio of net income to average
total assets) 0.47% 0.54%
Return on average equity (ratio of net income to average
equity) 5.27% 5.71%
Net interest rate spread 2.32% 2.29%
Net interest margin on average interest-earning assets 2.64% 2.61%
Average interest-earning assets to average interest-
bearing liabilities 114.53% 115.41%
Operating expense ratio (noninterest expenses to average
total assets) 2.03% 1.89%
Efficiency ratio (noninterest expense divided by sum of
net interest income and noninterest income) 72.70% 67.39%
Asset Quality Ratios:
Non-performing loans to total loans 0.29% 0.07%
Non-performing assets to total assets 0.23% 0.10%
Net charge-offs to average loans outstanding 0.00% 0.00%
Allowance for loan losses to non-performing loans 168.32% 717.88%
Allowance for loan losses to total loans 0.49% 0.51%
Capital Ratios:
Equity to assets at end of period 8.86% 9.26%
Average equity to average assets 8.85% 9.45%
- ----------------
(1) Performance ratios for the nine month periods ended June 30, 2005 and 2004
are annualized where appropriate.
General
Our results of operations depend primarily on our net interest income.
Net interest income is the difference between the interest income we earn on our
interest-earning assets and the interest we pay on interest-bearing liabilities.
It is a function of the average balances of loans and investments versus
deposits and borrowed funds outstanding in any one period and the yields earned
on those loans and investments and the cost of those deposits and borrowed
funds. Our interest-earning assets consist primarily of residential mortgage
loans, multi-family and commercial real estate mortgage loans, residential
mortgage-related securities and U.S. Agency debentures. Interest-bearing
liabilities consist primarily of retail deposits and borrowings from the Federal
Home Loan Bank of New York.
Declining interest rates in the three year period ended September 30,
2003 resulted in acceleration of asset prepayments due primarily to mortgage
refinancing. The negative impact on interest income from earning assets
refinancing to lower market interest rates was exacerbated during that period by
the accelerated amortization of the remaining balance of net deferred
origination costs and net premiums relating to these assets. This reduction in
earning asset yields was partially offset by a reduction in our cost of retail
deposits. However, the reduction in our overall cost of liabilities lagged that
of our deposits due to our balance of higher costing, long term, fixed rate FHLB
32
borrowings previously drawn for interest rate risk management purposes.
Together, these factors resulted in a reduction of our net interest margin and
net income through that period.
During the fiscal year ended September 30, 2004, the general level of
market interest rates increased from the historical lows of the prior three year
period. These increases slowed the pace of loan refinancing, thereby reducing
the rate at which earning assets prepaid. Slowing prepayments resulted in a
corresponding reduction in the amortization of deferred costs and premiums,
thereby increasing earning asset yields. The cost of interest-bearing
liabilities lagged the upward movement in current market interest rates. After
decreasing for thirteen consecutive quarters, the cost of interest-bearing
liabilities remained unchanged for the quarters ended March 31, 2004 and June
30, 2004 before increasing modestly in the final quarter of the fiscal year
ended September 30, 2004. As a result, we reported a 16 basis point improvement
in our net interest margin to 2.60% for the year ended September 30, 2004 from
2.44% for the year ended September 30, 2003.
We continued to realize modest improvement in our net interest margin
through the first nine months of fiscal 2005 when compared with that reported
for fiscal 2004. We realized a 14 basis point increase in our yield on earning
assets from 4.69% for the year ended September 30, 2004 to 4.83% for the nine
months ended June 30, 2005. This increase was attributable to a 21 basis point
increase in the yield on investment securities and a 115 basis point increase in
the yield on interest-bearing deposits and other earning assets. These increases
were offset by a 6 basis point decline in the yield on loans for the nine months
ended June 30, 2005 as compared to the yield on loans for fiscal 2004.
Offsetting this overall improvement in earning assets yields was a 10 basis
point increase in the cost of interest-bearing liabilities from 2.41% to 2.51%.
This increase resulted, in part, from a 19 basis point increase in the cost of
interest- bearing deposits. This increase was offset by a 26 basis point
decrease in the cost of borrowings due largely to increased utilization of
overnight borrowings. In total, our net interest margin increased 4 basis points
to 2.64% for the nine months ended June 30, 2005 from 2.60% for fiscal 2004.
Our results of operations also depend on our provision for loan losses,
noninterest income, and noninterest expense. Non-performing loans as a
percentage of total assets have increased modestly to 0.23% of total assets at
June 30, 2005 from 0.12% of total assets at September 30, 2004. However, this
increase in non-performing assets has not resulted in the need for additional
loan loss provisions. Consequently, loan loss provisions in the current year
continue to result primarily from the overall growth in portfolio loans.
Noninterest income includes deposit service fees and charges, income on
the cash surrender value of life insurance, gains on sales of loans and
securities, gains on sales of other real estate owned and loan related fees and
charges. Excluding gains and losses on sale of assets, annualized noninterest
income as a percentage of average assets totaled 0.25% for the nine months ended
June 30, 2005 - a reduction of 2 basis point from 0.27% for fiscal 2004. A
portion of this decrease is attributable to overall growth in average earning
assets outpacing that of fee income from deposits and loans.
Gains and losses on sale of loans, excluded in the comparison above,
typically result from selling long term, fixed rate mortgage loan originations
into the secondary market for interest rate risk management purposes. Demand for
such loans typically fluctuates with market interest rates. As interest rates
rise, market demand for long term, fixed rate mortgage loans diminishes in favor
of hybrid ARMs which are retained in the portfolio rather than being sold into
the secondary market. Consequently, the gains and losses on sale of loans
reported will fluctuate with market conditions.
33
Noninterest expense includes salaries and employee benefits, occupancy
and equipment expenses and other general and administrative expenses. Generally,
certain operating costs have increased since the initial public offering in the
beginning of fiscal 2004. Operating as a public entity resulted in comparatively
higher legal, accounting and compliance costs throughout fiscal 2004 than had
been recorded in earlier years. This trend is expected to continue as we incur
additional compliance costs associated with the Sarbanes-Oxley Act of 2002.
Additionally, we are recording higher employee compensation and benefit expense
than we had in the years preceding our minority stock offering. Much of this
increase is attributable to the implementation of an employee stock ownership
plan benefit that did not exist prior to the offering. More recently, benefit
costs have increased as we implemented the restricted stock and stock option
plans approved by shareholders at the annual meeting held on January 20, 2005.
During fiscal 2004 we recognized a $125,000 penalty to prepay $3.0
million of fixed rate FHLB advances with a weighted average cost of 6.28%. In
the future, we may evaluate the costs and benefits of further prepayments, which
may result in additional one time charges to earnings in the form of FHLB
prepayment penalties to further improve the Bank's net interest spread and
margin and enhance future earnings.
Excluding penalties for prepayment of borrowed funds, annualized
noninterest expense as a percentage of average assets totaled 2.03% for the nine
months ended June 30, 2005 - an increase of 14 basis points from 1.89% for
fiscal 2004. In part, this increase is attributable to the implementation of the
restricted stock plan benefits noted above. However, a portion of this increase
is also attributable to the restructuring of the Director Retirement Plan which
resulted in a pre tax charge of $444,000 during the three months ended June 30,
2005. Additionally, we are also recording higher consulting and professional
fees associated with evaluating and executing our balance sheet growth and
diversification strategies.
In relation to the rate of balance sheet growth, these sharp increases
in compensation, benefit and professional service costs have been partially
offset by slower increases - as well as outright reductions - in other
noninterest expenses. For the nine months ended June 30, 2005, both occupancy
and equipment and data processing costs have been reduced from both a dollar and
percentage of average assets perspective when compared with fiscal 2004.
Together, reductions in these expenses totaled 4 basis points which partially
offset the 18 basis point combined increase in all other non interest expenses
for the same period. In large part, these reductions result from reduced
depreciation and core processing expenses and the absence in the current period
of certain non-recurring charges associated with information technology
infrastructure upgrades that were incurred in fiscal 2004.
Management expects occupancy and equipment expense to increase in
future periods as we implement our de novo branching strategy to expand our
branch office network. Our current plan is to open up to five de novo branches
over approximately the next three years, and we have identified several
potential sites for de novo branches. Costs for land purchase and branch
construction will impact earnings going forward. The expenses associated with
opening new offices, in addition to the personnel and operating costs that we
will have once these offices are open, will significantly increase noninterest
expenses. Additional expenses are also expected in connection with our need to
augment the office space available for our administrative operations in order to
add the personnel called for by our growth plans.
34
In total, our return on average assets decreased 7 basis points to
0.47% for the nine months ended June 30, 2005 from 0.54% for fiscal 2004 while
return on average equity decreased 50 basis points to 5.27% from 5.77% for the
same comparative periods. However, absent the one-time after-tax charge for
restructuring the Director Retirement Plan of approximately $267,000, our return
on average assets and return on average equity for the nine months ended June
30, 2005 would have been 0.55% and 6.20%, respectively.
Our net interest margin may be adversely affected in either a rising or
falling rate environment. A decrease in interest rates could trigger another
wave of loan refinancing that could result in the margin compression previously
experienced. Conversely, notwithstanding the earning asset yield improvement
during fiscal 2004 and the first six months of fiscal 2005 while interest rates
rose from their historical lows, further increases in interest rates from
current levels could trigger continued increases in the Bank's cost of
interest-bearing liabilities that outpace that of its yield on earning assets
causing further net interest margin compression. Such compression occurred
during the three months ended June 30, 2005 when our net interest spread shrank
17 basis point to 2.24% from 2.41% for the three month period ended March 31,
2005. While yield on earning assets grew 6 basis points from 4.85% at March 31,
2005 to 4.91% at June 30, 2005, that improvement in yield was more than offset
by a 23 basis point increase in the cost of interest-bearing liabilities from
2.44% to 2.67% during the same comparative period. A portion of this increased
cost was attributable to the disintermediation of lower cost, non-maturity
deposits into higher cost certificates of deposit.
The risk of continued disintermediation of our deposits into higher
cost accounts continues to be noteworthy given the Bank's substantial net growth
in non-maturity deposits during the prior three years. Like many banks, we were
successful in growing deposits while interest rates decreased to their
historical lows. However, our ability to retain and grow such deposits at a
reasonable cost, while a highly competitive marketplace adjusts its pricing
strategies to an environment of rising interest rates, is now being rigorously
tested.
Finally, our results of operations may also be affected significantly
by other economic and competitive conditions in our market area as well as
changes in applicable laws, regulations or governmental policies. Furthermore,
because our lending activity is concentrated in loans secured by real estate
located in northern New Jersey, downturns in the regional economy encompassing
New Jersey could have a negative impact on our earnings.
Comparison of Financial Condition at June 30, 2005 and September 30, 2004
Our total assets increased by $18.3 million, or 4.3%, to $443.2 million
at June 30, 2005 from $424.9 million at September 30, 2004. The increase
reflected growth in securities held to maturity, cash and cash equivalents and
loans receivable, net offset by declines in securities available for sale. Loans
receivable, net increased by $29.9 million, or 9.7%, to $338.9 million at June
30, 2005 from $309 million at September 30, 2004. Our increase in loans resulted
from a high volume of multi-family and commercial real estate and one-to-four
family mortgage loan originations.
The following table compares the composition of the loan portfolio by
loan type as a percentage of total assets at June 30, 2005 and September 30,
2004. Amounts reported exclude allowance for loan losses and net deferred
origination costs.
35
June 30, 2005 September 30, 2004
--------------------- ----------------------
(Dollars in thousands)
Percent of Percent of
Type of Loans Amount Total Assets Amount Total Assets
- ------------- ------ ------------ ------ ------------
Construction $ 2,569 0.58% $ 3,075 0.72%
1/1 and 3/3 ARMs 4,895 1.10 1,800 0.42
3/1 and 5/1 ARMs 109,720 24.76 89,694 21.11
5/5 and 10/10 ARMs 37,669 8.50 24,619 5.79
7/1 and 10/1 ARMs 1,748 0.40 1,675 0.40
15 year or less fixed 109,233 24.65 112,238 26.41
Greater than 15 year fixed 60,915 13.74 64,702 15.23
Home equity lines of credit 11,711 2.64 10,666 2.51
Consumer 725 0.16 746 0.18
Commercial 993 0.22 398 0.09
------- ----- ------- -----
Total $340,178 76.75% $309,613 72.86%
======= ===== ======= =====
Securities classified as available-for-sale decreased $20.8 million, or
23.2%, to $68.7 million at June 30, 2005 from $89.5 million at September 30,
2004 as we continued to reinvest cash flows from the investment securities
portfolio into loans. These decreases were partially offset by an increase in
securities held to maturity of $5.5 million or 195.3% to $8.3 million at June
30, 2005 from $2.8 million at September 30, 2004. Additionally, cash and cash
equivalents increased by $653,000, or 8.1%, to $8.7 million at June 30, 2005
from $8 million at September 30, 2004.
The following table compares the composition of the investment
securities portfolio by security type as a percentage of total assets at June
30, 2005 and September 30, 2004. Amounts reported exclude unrealized gains and
losses on the available for sale portfolio.
June 30, 2005 September 30, 2004
-------------------- ------------------------
(Dollars in thousands)
Percent of Percent of
Type of Security Amount Total Assets Amount Total Assets
- ---------------- ------ ------------ ------ ------------
Fixed rate MBS $13,850 3.12% $15,923 3.75%
ARM MBS 8,442 1.90 8,755 2.06
Fixed rate CMO 30,731 6.93 43,982 10.36
Floating rate CMO 2,994 0.68 435 0.10
ARM mutual fund 10,000 2.26 10,000 2.35
Fixed rate agency debentures 11,998 2.71 13,997 3.29
------ ---- ------ ----
Total $78,015 17.60% $93,092 21.91%
====== ===== ====== =====
Assuming no change in interest rates, the estimated average life of the
investment securities portfolio, excluding the ARM mutual fund, was 2.09 years
and 2.23 years at June 30, 2005 and September 30, 2004, respectively. Assuming a
hypothetical immediate and permanent increase in interest rates of 300 basis
points, the estimated average life of the portfolio extends to 2.69 years and
3.12 years at June 30, 2005 and September 30, 2004, respectively.
36
Total deposits increased by $8.7 million, or 2.7%, to $331.4 million at
June 30, 2005 from $322.7 million at September 30, 2004. The increase was
primarily due to increases in certificates of deposit and non interest-bearing
deposits, partially offset by a decline in savings deposits and interest-bearing
checking deposits. Certificates of deposit accounts increased $31.5 million or
26.7% to $149.5 million. Savings deposits decreased by $22.8 million, or 15.9%
to $120.6 million. Checking deposits, including demand, NOW and money market
checking accounts, increased $6,000 or 0.01% to $61.3 million.
The following table compares the composition of the deposit portfolio
by category as a percentage of total assets at June 30, 2005 with that of
September 30, 2004.
June 30, 2005 September 30, 2004
---------------------- -----------------------
(Dollars in thousands)
Percent of Percent of
Deposit Category Amount Total Assets Amount Total Assets
- ---------------- ------ ------------ ------ ------------
Money market checking $ 20,066 4.53% $ 25,834 6.08%
Other checking 41,235 9.30 35,461 8.34
Money market savings 32,466 7.32 44,880 10.56
Other savings 88,125 19.88 98,521 23.18
Certificates of deposit 149,499 33.73 118,020 27.78
------- ----- ------- -----
Total $331,391 74.76% $322,716 75.94%
======= ===== ======= =====
FHLB advances increased $8.5 million, or 14.8%, to $66.0 million at
June 30, 2005 from $57.5 million at September 30, 2004. The net increase of $8.5
million comprised a net increase of $9.6 million drawn on overnight repricing
lines of credit offset by the repayment of a maturing $1.0 million fixed rate
term advance and $42,000 of amortization on fixed rate amortizing advances.
The following table compares the composition of the borrowing portfolio
by remaining term to maturity at June 30, 2005 and September 30, 2004. Scheduled
principal payments on amortizing borrowings are reported as maturities.
June 30, 2005 September 30, 2004
---------------------- -----------------------
(Dollars in thousands)
Percent of Percent of
Remaining Term Amount Total Assets Amount Total Assets
- -------------- ------ ------------ ------ ------------
Overnight $12,300 2.77% $ 2,700 0.64%
One year or less 6,059 1.37 1,057 0.25
Over one year to two years 8,063 1.82 8,060 1.90
Over two years to three years 8,063 1.82 8,062 1.90
Over three years to four years 11,564 2.61 12,065 2.84
Over four years to five years 6,000 1.35 7,547 1.77
More than five years 14,000 3.16 18,000 4.23
------ ---- ------ ----
Total $66,049 14.90% $57,491 13.53%
====== ===== ====== =====
Equity decreased $29,000, or 0.07% to $39.3 million at June 30, 2005
from $39.3 million at September 30, 2004. The decrease reflects dividends paid
of $1.3 million, offset by net income of $1.5
37
million for the nine months ended June 30, 2005. In addition, the amount
reclassified on ESOP shares increased $375,000 due to a change in the fair value
and the number of shares of common stock in the ESOP subject to a contingent
repurchase obligation as discussed in Note 10 to the Consolidated Financial
Statements.
Comparison of Operating Results for the Nine Months Ended June 30, 2005 and June
30, 2004
General. Net income for the nine months ended June 30, 2005 was $1.5
million, a decrease of $77,000, or 4.8% from the same period in 2004. The
decrease in net income resulted from an increase in noninterest expense and the
provision for loan losses offset by an increase in net interest income coupled
with a decrease in non interest income and the provision for income taxes.
Interest Income. Total interest income increased 12.8% or $1.7 million
to $15.2 million for the nine months ended June 30, 2005, from $13.5 million for
the same period in 2004. For those same comparative periods, the average yield
on interest-earning assets increased 14 basis points to 4.83% from 4.69% while
the average balance of interest-earning assets increased $36.1 million or 9.4%
to $419.7 million from $383.6 million.
Interest income on loans increased $1.9 million or 17%, to $13 million
for the nine months ended June 30, 2005 from $11.1 million for the same period
in 2004. This increase was due, in part, to a $52.0 million increase in the
average balance of loans receivable to $324.8 million for the nine month period
ended June 30, 2005 from $272.8 million for same period in 2004. The impact on
interest income attributable to this growth more than offset the 9 basis points
decrease in the average yield on loans which declined to 5.33% from 5.42% for
those same comparative periods. The increase in the average balance of loans
receivable was the result of loan originations exceeding repayments due to
strong borrower demand.
The rise in interest income on loans was offset by lower interest
income on securities, which decreased $229,000 to $2.1 million for the nine
months ended June 30, 2005 from $2.4 for the same period in 2004. The decrease
was due, in part, to a $16.7 million decline in the average balance of
investment securities to $88.0 million for the nine months ended June 30, 2005
from $104.7 million for the same period in 2004. The impact on interest income
attributable to this decline was partly offset by a 23 basis point increase in
the average yield on securities which grew to 3.22% from 2.99% for those same
comparative periods. This increase in yield primarily resulted from slowing
prepayments which reduced net premium amortization and higher yields on
adjustable rate securities which have repriced upward in accordance with the
general movement of market interest rates.
Further, interest income on federal funds sold and other
interest-bearing deposits increased $70,000 to $111,000 for the nine months
ended June 30, 2005 from $41,000 for the same period in 2004. This increase was
due, in part, to an increase of $895,000 in the average balance of these assets
to $6.9 million for the nine months ended June 30, 2005 from $6.0 million for
the same period in 2004. The impact on interest income attributable to this
growth was further augmented by a 123 basis point rise in the average yield on
these assets which increased to 2.13% from 0.90% for those same comparative
periods.
Interest Expense. Total interest expense increased by $913,000 or 15.2%
to $6.9 million for the nine months ended June 30, 2005 from $6.0 million for
the same period in 2004. For those same comparative periods, the average cost of
interest-bearing liabilities increased 11 basis points to 2.51%
38
from 2.40% while the average balance of interest-bearing liabilities increased
$34.0 million or 10.3% to $366.4 million from $332.4 million.
Interest expense on deposits increased $849,000 or 21.9% to $4.7
million for the nine months ended June 30, 2005 from $3.9 million for the same
period in 2004. This increase was due, in part, to a $28.8 million increase in
the average balance of interest-bearing deposits to $301.8 million for the nine
months ended June 30, 2005 from $273.0 million for the same period in 2004. The
components of this net increase for the comparative periods include an increase
of $13.2 million in the average balance of certificates of deposit, a $1.5
million increase in the average balance of savings accounts and a $14.1 million
increase in the average balance of interest-bearing checking accounts.
The impact on interest expense attributable to the net growth in these
average balances was exacerbated by a 20 basis point increase in the average
cost of interest-bearing deposits to 2.09% for the nine months ended June 30,
2005 from 1.89% for the same period in 2004. The components of this increase for
the comparative periods includes a 42 basis point increase in the average cost
of certificates of deposit, a 2 basis point increase in the average cost of
savings accounts and a 19 basis point increase in the average cost of
interest-bearing checking accounts.
Interest expense on FHLB advances increased $64,000 to $2.2 million for
the nine months ended June 30, 2005 from $2.1 million for the same period in
2004. This increase was due, in part, to a $5.2 million increase in the average
balance of advances to $64.6 million for the nine months ended June 30, 2005 as
compared to the same period one year ago. The impact on expense attributable to
this increase in average balance was modestly offset by a 26 basis point decline
in the average cost of advances for those same comparative periods. The lower
average cost is primarily due to utilization of overnight repricing line of
credit borrowings whose current cost is less than that of the remaining
portfolio of fixed-rate term advances.
Net Interest Income. In total, net interest income for the nine months
ended June 30, 2005 increased by $815,000 or 10.9%, to $8.3 million from $7.5
million for the same period in 2004. For those same comparative periods, our net
interest rate spread increased 3 basis points to 2.32% while our net interest
margin increased 3 basis points to 2.64% from 2.61%.
Provision for Loan Losses. In evaluating the level of the allowance for
loan losses, management considers historical loss experience, the types of loans
and the amount of loans in the loan portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any underlying
collateral, peer group information, and prevailing economic conditions. Large
groups of smaller balance homogeneous loans, such as residential real estate,
small commercial real estate, and home equity and consumer loans, are evaluated
in the aggregate using historical loss factors and peer group data adjusted for
current economic conditions. Large balance and/or more complex loans, such as
multi-family and commercial real estate loans, are evaluated individually for
impairment. This evaluation is inherently subjective, as it requires estimates
that are susceptible to significant revision, as more information becomes
available or as projected events change.
Management assesses the allowance for loan losses quarterly. While
management uses available information to recognize losses on loans, future loan
loss provisions may be necessary based on changes in economic conditions. In
addition, regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses and may require the Bank to
recognize additional provisions based on their judgment of information available
to them at the time of their examination. The allowance for loan losses as of
June 30, 2005 was maintained at a level that
39
represented management's best estimate of losses in the loan portfolio to the
extent they were both probable and reasonable to estimate.
The provision for loan losses totaled $105,000 for the nine months
ended June 30, 2005 representing an increase of $9,000 over the same comparative
period in 2004. The current year's loan loss provision was reduced by the
recovery of a $42,000 reserve previously established against an impaired loan
which paid off in full during the current year. Notwithstanding this recovery,
other provisions for specific nonperforming assets and historical losses based
on net charge-offs were nominal due to a history of low charge-offs and the
relative stability of nonperforming asset balances. However, the application of
the Bank's loan loss methodology outlined above results, in part, in historical
and environmental loss factors being applied to the outstanding balance of
homogeneous groups of loans to estimate probable credit losses. For example, as
a result of recent loan growth, a large part of the Bank's loan portfolio is
considered "unseasoned," meaning the loans were originated less than three years
ago. Generally, unseasoned loans demonstrate a greater risk of credit losses
than their seasoned counterparts. Moreover, in many cases, these unseasoned
loans are obligations of borrowers with whom the Bank has had no prior payment
experience. These risks are considered in the environmental factors used in the
Bank's loan loss provision calculations as described above. Both historical and
environmental loss factors are reviewed and updated quarterly as part of
management's assessment of the allowance for loan losses.
Using this methodology, incremental growth in the outstanding balance
of the loans on which historical and environmental loss factors are applied
results in additional loan loss provisions. For the nine months ended June 30,
2005, total gross loan balances, excluding the allowance for loan losses, grew
$30.7 million or 9.9%. The growth was primarily comprised of net increases in
one-to-four family mortgages totaling $14.7 million, increases in home equity
and commercial loans totaling $1.7 million and increases in multi-family and
commercial real estate loans totaling $14.8 million, offset by a decline in
consumer loan totaling $21,000 and the disbursed balances of construction loans
totaling $500,000.
By comparison, loan growth for the nine months ended June 30, 2004
totaled $22.7 million or $8.0 million less than the same comparative period this
year. The growth in this prior comparative period was primarily comprised of an
increase in one-to-four family mortgages totaling $20.3 million, an increase of
$2.5 million in multi-family and commercial real estate loans and an increase of
$594,000 in home equity loans, offset by net decreases in consumer loans,
construction loans and commercial loans totaling $706,000.
In total, the allowance for loan losses as a percentage of gross loans
outstanding decreased 2 basis points to 0.49% at June 30, 2005 from 0.51% at
June 30, 2004. These ratios reflect allowance for loan losses balances of $1.7
million and $1.5 million, respectively. As noted earlier, the level of the
allowance is based on estimates and the ultimate losses may vary from those
estimates.
Noninterest Income. Noninterest income decreased $6,000 to $802,000 for
the nine months ended June 30, 2005 compared to the same period in 2004. The
decrease was primarily the result of a $16,000 loss on sale of
available-for-sale securities coupled with a decline of $17,000 in deposit
service fees attributable primarily to reduced customer utilization of deposit
services introduced in the prior fiscal year. In addition, there was a decrease
of $17,000 in gains on sale of held for sale loans as fewer long term, fixed
rate loans were originated and sold into the secondary market. These decreases
were offset by an increase in income from cash surrender value of life insurance
which grew $44,000 from $156,000 for the nine months ended June 30, 2004 to
$200,000 for the same quarter
40
ended this year resulting from higher policy balances held. Other non-interest
income remained flat at $111,000 from period to period.
Noninterest Expense. Noninterest expense increased $1,028,000, or 18.4%
to $6.6 million for the nine months ended June 30, 2005 from $5.6 million for
the same period in 2004. The increase was primarily a result of higher expenses
for salaries and benefits, advertising and other non-interest expense, offset by
decreases in occupancy and equipment expense, data processing, and federal
deposit insurance expense.
Salaries and employee benefits increased $826,000 or 23.3% to $4.4
million for the nine months ended June 30, 2005 as compared to $3.5 million for
the same period in 2004. A significant portion of this increase was attributable
to a charge of $444,000 resulting from restructuring the Bank's Director
Retirement Plan. Additionally, compensation and benefits costs increased
$136,000 due to the implementation of a restricted stock plan during the current
fiscal year. Salaries and wages including bonus and payroll taxes, increased
$204,000 or 7.98% due, in part, to executive and lending staffing additions
coupled with overall annual increases in employee compensation. Finally, medical
insurance benefit premiums increased $20,000 or 6.57% for the same comparative
periods.
Occupancy and equipment expense decreased $42,000 to $606,000 for the
nine months ended June 30, 2005 as compared to $648,000 for the same period in
2004. This decrease is primarily attributable to a $54,000 decrease in computer
depreciation expense. For the same comparative periods, data processing costs
also decreased $29,000 from $500,000 to $471,000 due to the absence in the
current period of non recurring information technology conversion and upgrade
expenses that were recognized during 2004.
Other noninterest expenses increased $250,000 for the nine months ended
June 30, 2005 as compared to the same period in 2004. Legal fees increased
$104,000 to $187,000 for the nine months ended June 30, 2005 from $83,000 for
the same period in 2004. A portion of the increase in legal fees is attributable
to matters presented to shareholders at the annual meeting held January 20,
2005. Additionally, professional and consulting fees, including auditing and
accounting fees, increased $104,000 to $217,000 for the nine months ended June
30, 2005 as compared to the same period in 2004. A portion of this increase is
attributable to our operation as a public company including implementation costs
associated with the Sarbanes-Oxley Act of 2002. Other comparative increases in
both legal and professional and consulting fees are attributable to ongoing
evaluation and implementation of growth and diversification strategies relating
to the execution of our business plan.
Notwithstanding these increases mentioned above, management expects
ongoing compliance costs of the Sarbanes-Oxley Act of 2002 to continue to grow.
Furthermore, we currently intend to expand our branch office network over the
next several years, and expenses related to such expansion may impact earnings
in future periods.
Provision for Income Taxes. The provision for income taxes decreased
$151,000 for the nine months ended June 30, 2005 from the same period in 2004.
The effective tax rate was 36.2% and 38.9% for the nine months ended June 30,
2005 and 2004, respectively. The modest decrease in the effective tax rate is
primarily attributable to the funding of American Savings Investment Corporation
in November 2004, a wholly owned New Jersey investment subsidiary formed in
August 2004 by American Bank of New Jersey. The purpose of this subsidiary is to
invest in stocks, bonds, notes and all types of equity, mortgages, debentures
and other investment securities. Interest income from this subsidiary is taxed
by the State of New Jersey at an effective rate lower than the statutory
corporate
41
state income tax rate. Additionally, increases in the Bank's balance of
bank-owned life insurance, which generates tax exempt income from growth in the
cash surrender value of policies, has also contributed to reductions in the
effective income tax rate.
42
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The financial information under the captions Balance Sheet Data and
Summary of Operations in this section is derived from ASB Holding Company's
audited financial statements for the five fiscal years ended September 30, 2004
and unaudited financial statements for the six months ended March 31, 2005 and
2004, and should be read together with the financial statements and the notes
thereto beginning on page F-1 of this document. In the opinion of management,
all adjustments consisting of normal recurring adjustments that are necessary
for a fair presentation of the interim periods have been reflected. The results
of operations and other data presented for the six month period ended March 31,
2005 do not necessarily indicate the results that may be expected for the fiscal
year ending September 30, 2005 or any other period.
Balance Sheet Data: At
March 31, At September 30
--------- -------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
Assets................................. $440,954 $424,944 $427,066 $334,879 $258,208 $223,521
Cash and cash equivalents.............. 4,841 8,034 38,365 17,330 22,109 4,152
Loans receivable, net.................. 333,252 308,970 262,844 208,374 166,322 139,906
Loans held-for-sale.................... 302 - 500 - - -
Securities available-for-sale.......... 75,992 89,495 107,391 90,134 52,022 56,627
Securities held-to-maturity............ 8,526 2,794 2,839 6,970 10,187 12,887
Federal Home Loan Bank stock........... 3,513 2,890 3,150 2,200 2,300 2,260
Deposits............................... 328,043 322,716 292,826 264,587 188,828 159,302
Borrowings............................. 68,263 57,491 55,000 44,000 46,000 43,700
Equity................................. 38,811 39,314 22,339 21,872 20,155 17,077
Summary of Operations: At or For the Six
Months Ended
March 31, At or For the Year Ended September 30,
---------------------- ---------------------------------------------
2005 2004 2004 2003 2002 2001 2000
------- ------- ------- ------- ------- ------- -------
(Dollars in thousands)
Interest income........................ $ 9,994 $ 9,017 $18,204 $17,476 $17,578 $16,052 $15,070
Interest expense....................... 4,423 4,028 8,105 8,870 8,829 9,140 8,398
------- ------- ------- ------- ------- ------- -------
Net interest income................. 5,571 4,989 10,099 8,606 8,749 6,912 6,672
Provision for loan losses.............. 112 54 207 254 105 2 22
------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses............ 5,459 4,935 9,892 8,352 8,644 6,910 6,650
Noninterest income..................... 537 563 1,298 718 595 458 555
Noninterest expense.................... 4,111 3,769 7,657 6,862 6,274 4,923 4,338
------- ------- ------- ------- ------- ------- -------
Income before taxes.................... 1,885 1,729 3,533 2,208 2,965 2,445 2,867
Income tax provision................... 691 668 1,371 805 1,075 888 1,039
------- ------- ------- ------- ------- ------- -------
Net income............................. $ 1,194 $ 1,061 $ 2,162 $ 1,403 $ 1,890 $ 1,557 $ 1,828
======= ======= ======= ======= ======= ======= =======
Actual Number of (not in thousands):
Real estate loans outstanding.......... 1,919 1,795 1,871 1,744 1,535 1,330 1,234
Deposit accounts....................... 20,190 20,157 20,021 20,386 20,046 18,120 17,030
Offices(1)............................. 2 2 2 2 2 2 1
- -------
(1) All offices are full-service.
43
At or For the
Six Months Ended At or For the Year Ended
March 31, September 30,
------------------- -------------------------------------------------
2005 2004 2004 2003 2002 2001 2000
---- ---- ---- ---- ---- ---- ----
Performance Ratios(1):
Return on average assets (ratio of net income
to average total assets)................... 0.55% 0.54% 0.54% 0.39% 0.63% 0.68% 0.86%
Return on average equity (ratio of net income
to average equity)......................... 6.22% 5.73% 5.77% 6.48% 9.30% 8.28% 11.13%
Net interest rate spread...................... 2.36% 2.29% 2.28% 2.14% 2.63% 2.49% 2.63%
Net interest margin on average interest-earning
assets..................................... 2.67% 2.61% 2.60% 2.44% 3.00% 3.10% 3.20%
Average interest-earning assets to average
interest-bearing liabilities............... 114.62% 115.23% 115.67% 111.69% 112.30% 115.01% 113.99%
Operating expense ratio (noninterest expenses
to average total assets)................... 1.91% 1.92% 1.92% 1.89% 2.09% 2.16% 2.03%
Efficiency ratio (noninterest expense divided
by sum of net interest income and
noninterest income)........................ 67.31% 67.89% 67.18% 73.60% 67.14% 68.80% 60.03%
Asset Quality Ratios:
Non-performing loans to total loans........... 0.11% 0.13% 0.17% 0.20% 0.27% 0.36% 0.53%
Non-performing assets to total assets......... 0.08% 0.14% 0.12% 0.12% 0.17% 0.24% 0.35%
Net charge-offs to average loans outstanding.. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01%
Allowance for loan losses to non-performing
loans...................................... 481.48% 403.68% 304.05% 265.18% 195.96% 160.67% 128.92%
Allowance for loan losses to total loans...... 0.50% 0.52% 0.50% 0.52% 0.53% 0.58% 0.68%
Capital Ratios:
Equity to assets at end of period............. 8.80% 9.80% 9.25% 5.23% 6.53% 7.81% 7.79%
Average equity to average assets.............. 8.90% 9.42% 9.37% 5.98% 6.78% 8.24% 7.70%
- ----------------
(1) Performance ratios for the six month periods ended March 31, 2005 and 2004
are annualized where appropriate.
44
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Our results of operations depend primarily on our net interest income.
Net interest income is the difference between the interest income we earn on our
interest-earning assets and the interest we pay on interest-bearing liabilities.
It is a function of the average balances of loans and investments versus
deposits and borrowed funds outstanding in any one period and the yields earned
on those loans and investments and the cost of those deposits and borrowed
funds. Our interest-earning assets consist primarily of residential mortgage
loans, multi-family and commercial real estate mortgage loans, residential
mortgage-related securities and U.S. Agency debentures. Interest-bearing
liabilities consist primarily of retail deposits and borrowings from the Federal
Home Loan Bank of New York.
Declining interest rates in the three year period ended September 30,
2003 resulted in acceleration of asset prepayments due primarily to mortgage
refinancing. The negative impact on interest income from earning assets
refinancing to lower market interest rates was exacerbated during that period by
the accelerated amortization of the remaining balance of net deferred
origination costs and net premiums relating to these assets. This reduction in
earning asset yields was partially offset by a reduction in our cost of retail
deposits. However, the reduction in our overall cost of liabilities lagged that
of our deposits due to our balance of higher costing, long term, fixed rate FHLB
borrowings previously drawn for interest rate risk management purposes.
Together, these factors resulted in a reduction of our net interest margin and
net income through that period.
During the fiscal year ended September 30, 2004, the general level of
market interest rates increased from the historical lows of the prior three year
period. These increases slowed the pace of loan refinancing, thereby reducing
the rate at which earning assets prepaid. Slowing prepayments resulted in a
corresponding reduction in the amortization of deferred costs and premiums,
thereby increasing earning asset yields. The cost of interest-bearing
liabilities lagged the upward movement in current market interest rates. After
decreasing for thirteen consecutive quarters, the cost of interest-bearing
liabilities remained unchanged for the quarters ended March 31, 2004 and June
30, 2004 before increasing modestly in the final quarter of the fiscal year
ended September 30, 2004. As a result, we reported a 16 basis point improvement
in our net interest margin to 2.60% for the year ended September 30, 2004 from
2.44% for the year ended September 30, 2003.
We continued to realize improvement in our net interest margin through
the first six months of fiscal 2005 when compared with that reported for fiscal
2004. We realized an 11 basis point increase in our yield on earning assets from
4.69% for the year ended September 30, 2004 to 4.80% for the six months ended
March 31, 2005. This increase was attributable to a 15 basis point increase in
the yield on investment securities and a 74 basis point increase in the yield on
interest-bearing deposits and other earning assets. These increases were offset
by a 6 basis point decline in the yield on loans for the six months ended March
31, 2005 as compared to the yield on loans for fiscal 2004. Offsetting this
overall improvement in the yield on earning assets was a 2 basis point increase
in the cost of interest-bearing liabilities from 2.41% to 2.43%. This increase
resulted, in part, from a 10 basis point increase in the cost of
interest-bearing deposits. This increase was offset by a 22 basis point decrease
in the cost of borrowings due largely to increased utilization of overnight
borrowings. In total, the net interest margin improved by 7 basis points to
2.67% for the six months ended March 31, 2005 from 2.60% for fiscal 2004.
45
Our results of operations also depend on our provision for loan losses,
noninterest income and noninterest expense. Non-performing loans as a percentage
of total assets have declined to 0.08% at March 31, 2005 from 0.12% at September
30, 2004. Consequently, loan loss provisions during the six months ended March
31, 2005 resulted primarily from the overall growth in portfolio loans.
Noninterest income includes deposit service fees and charges, income on
the cash surrender value of bank-owned life insurance, gains on sales of loans
and securities, gains on sales of other real estate owned and loan related fees
and charges. Excluding gains on sales of assets, annualized noninterest income
as a percentage of average assets totaled 0.25% for the six months ended March
31, 2005 - a reduction of 2 basis points from 0.27% for fiscal 2004. A portion
of this decrease was attributable to overall growth in average earning assets
outpacing that of fee income from deposits and loans.
Gains and losses on sales of loans, excluded in the comparison above,
typically result from selling long term, fixed rate mortgage loan originations
into the secondary market for interest rate risk management purposes. Demand for
these loans typically fluctuates with market interest rates. As interest rates
rise, market demand for long term, fixed rate mortgage loans diminishes in favor
of hybrid ARMs which are retained in the portfolio rather than being sold into
the secondary market. Consequently, the gains and losses on sales of loans
reported will fluctuate with market conditions and have not been significant
since 2003.
Noninterest expense includes salaries and employee benefits, occupancy
and equipment expenses and other general and administrative expenses. Generally,
certain operating costs have increased since the initial public offering in the
beginning of fiscal 2004. Operating as a public entity resulted in comparatively
higher legal, accounting and compliance costs throughout fiscal 2004 than had
been recorded in earlier years. This trend is expected to continue as we incur
additional compliance costs associated with the Sarbanes-Oxley Act of 2002.
Additionally, we are recording higher employee compensation and benefit expense
than we had in the years preceding the minority stock offering of ASB Holding
Company. Much of this increase was attributable to the implementation of an
employee stock ownership plan that did not exist prior to the initial public
offering. More recently, benefit costs have increased as we implement the
restricted stock and stock option plans approved by shareholders at the annual
meeting held on January 20, 2005.
Management expects additional compensation and benefit expenses in the
future in connection with the purchase by the employee stock ownership plan of
8.0% of the shares sold by American Bancorp of New Jersey, Inc. in the current
stock offering as well as the new restricted stock plan and new stock option
plan we intend to adopt following the current stock offering. See Management -
Potential Stock Benefit Plans at page __.
Our compensation and benefit expenses will also increase as a result of
our overall growth strategy. In March 2005, we added to our management team a
new president and chief operating officer, Mr. Fred Kowal. As part of our plan
to grow and diversify the loan mix by developing a separate and distinct
commercial lending business unit, we have recently hired a commercial and
industrial lender and intend over the next several years to hire several
additional commercial real estate and commercial and industrial lenders. We also
plan to hire additional one-to four-family residential lenders.
During fiscal 2004 we recognized a $125,000 penalty to prepay $3.0
million of fixed rate FHLB advances with a weighted average cost of 6.28%. In
the future, we may evaluate the costs and benefits of further prepayments, which
may result in additional one time charges to earnings in the
46
form of FHLB prepayment penalties to further improve the Bank's net interest
spread and margin and enhance future earnings.
Excluding penalties for prepayment of borrowed funds, annualized
noninterest expense as a percentage of average assets totaled 1.91% for the six
months ended March 31, 2005 - an increase of 2 basis points from 1.89% for
fiscal 2004. In part, this increase was attributable to the implementation of
the restricted stock plan benefits noted above. Additionally, we are also
recording higher consulting and professional fees associated with evaluating and
executing our balance sheet growth and diversification strategies.
In relation to the rate of balance sheet growth, these sharp increases
in compensation, benefit and professional service costs have been partially
offset by slower increases - and in some cases reductions - in other noninterest
expenses. For the six months ended March 31, 2005, both occupancy and equipment
and data processing costs have been reduced from both a dollar and percentage of
average assets perspective when compared with fiscal 2004. Together, reductions
in these expenses totaled 0.04% which offset the 0.06% combined increase in all
other noninterest expenses for the same period. In large part, these reductions
resulted from lower depreciation and core processing expenses and the absence in
the current period of certain non-recurring charges associated with information
technology infrastructure upgrades that were performed in fiscal 2004.
Management expects occupancy and equipment expense to increase in
future periods as we seek to implement our de novo branching strategy. We intend
to expand our branch office network. Our current plan is to open up to five de
novo branches over approximately the next three years, and we have identified
several potential sites for de novo branches. Costs for land purchase and branch
construction will impact earnings going forward. The expenses associated with
opening new offices, in addition to the personnel and operating costs that we
will have once these offices are open, will significantly increase noninterest
expenses. Additional expenses are also expected in connection with our need to
augment the office space available for our administrative operations in order to
add the personnel called for by our growth plans.
In total, our return on average assets increased 1 basis point to 0.55%
for the six months ended March 31, 2005 from 0.54% for fiscal 2004 while return
on average equity increased 45 basis points to 6.22% from 5.77%. Our net
interest margin may be adversely affected in either a rising or falling rate
environment. A decrease in interest rates could trigger another wave of loan
refinancing that could result in the margin compression previously experienced.
Conversely, notwithstanding the earning asset yield improvement during fiscal
2004 and during the first six months of fiscal 2005 which resulted from interest
rates rising from their historical lows, continued increases in interest rates
from current levels could trigger
47
increases in the Bank's cost of interest-bearing liabilities that outpace
increases, if any, in its yield on earning assets causing further net interest
margin compression. This risk is particularly noteworthy given the Bank's
substantial net growth in non-maturity deposits over the past three years. Like
many banks, we were successful in growing deposits while interest rates
decreased to their historical lows. However, our ability to retain and grow
these deposits at a reasonable cost, while a highly competitive marketplace
adjusts its pricing strategies to an environment of rising interest rates, is
only now beginning to be tested.
Our results of operations may also be affected significantly by other
economic and competitive conditions in our market area as well as changes in
applicable laws, regulations or governmental policies. Furthermore, because our
lending activity is concentrated in loans secured by real estate located in
northern New Jersey, downturns in the regional economy encompassing northern New
Jersey could have a negative impact on our earnings.
Critical Accounting Policies
Note 1 to our Consolidated Financial Statements included in this
document contains a summary of our significant accounting policies. Various
elements of our accounting policies, by their nature, are inherently subject to
estimation techniques, valuation assumptions and other subjective assessments.
The following is a description of our critical accounting policy and an
explanation of the methods and assumptions underlying its application.
Allowance for Loan Losses
Our policy with respect to the methodologies used to determine the
allowance for loan losses is our most critical accounting policy. This policy is
important to the presentation of our financial condition and results of
operations, and it involves a higher degree of complexity and requires
management to make difficult and subjective judgments, which often require
assumptions or estimates about highly uncertain matters. The use of different
judgments, assumptions and estimates could result in material differences in our
results of operations or financial condition.
In evaluating the level of the allowance for loan losses, management
considers historical loss experience, the types of loans and the amount of loans
in the loan portfolio, adverse situations that may affect the borrower's ability
to repay, estimated value of any underlying collateral, peer group information,
and prevailing economic conditions. Large groups of smaller balance homogeneous
loans, such as residential real estate, home equity and consumer loans, are
evaluated in the aggregate using historical loss factors and peer group data
adjusted for current economic conditions. Large balance and/or more complex
loans, such as multi-family and commercial real estate loans, are evaluated
individually for impairment. This evaluation is inherently subjective, as it
requires estimates that are susceptible to significant revision, as more
information becomes available or as projected events change.
Management assesses the allowance for loan losses quarterly. While
management uses available information to recognize losses on loans, future loan
loss provisions may be necessary based on changes in economic conditions. In
addition, regulatory agencies, as an integral part of their examination process,
periodically review our allowance for loan losses and may require us to
recognize additional provisions based on their judgment of information available
to them at the time of their examination. The allowance for loan losses as of
March 31, 2005 was maintained at a level that represented management's best
estimate of losses in the loan portfolio to the extent they were both probable
and reasonable to estimate.
48
Business Strategy
Our business strategy has been to operate as a well-capitalized
independent financial institution dedicated to providing convenient access and
quality service at competitive prices. During recent years we have experienced
significant growth, with total loans receivable, net growing from $208.4 million
at September 30, 2002 to $333.3 million at March 31, 2005 and total deposits
growing from $264.6 million at September 30, 2002 to $328.0 million at March 31,
2005.
Our current strategy seeks to continue the growth of the last several
years. The highlights of our business strategy include the following:
o Grow and diversify the deposit mix by emphasizing non-maturity account
relationships acquired through de novo branching and existing deposit
growth. We currently plan to open up to five de novo branches over
approximately the next three years, and we are currently negotiating
agreements in connection with several potential sites for de novo branches.
o Grow and diversify the loan mix by (i) enhancing the Bank's one-to-four
family mortgage loan origination capacity by adding several residential
lenders and (ii) developing a separate and distinct commercial lending unit
by adding several commercial real estate and commercial and industrial
lenders. We have recently hired our first commercial and industrial lender.
Additionally, our President and Chief Operating Officer, Fred G. Kowal, who
joined the Bank in March 2005, has a commercial banking background.
o Grow and diversify noninterest income through supplemental deposit and
lending related services and strategies.
o Explore alternative loan and deposit product and service delivery channels.
o Broaden and strengthen customer relationships by bolstering cross marketing
strategies and tactics with a focus on multiple account/service
relationships.
o Utilize capital markets tools to grow capital and enhance shareholder
value.
Comparison of Financial Condition at March 31, 2005 and September 30, 2004
Our total assets increased by $16.1 million, or 3.8%, to $441.0 million
at March 31, 2005 from $424.9 million at September 30, 2004. The increase
reflected growth in loans receivable, net and securities held to maturity offset
by declines in interest-bearing deposits and securities available for sale.
Loans receivable, net increased by $24.3 million, or 7.9%, to $333.3 million at
March 31, 2005 from $309.0 million at September 30, 2004. Our increase in loans
resulted primarily from originations of multi-family and commercial real estate
and one-to four-family mortgage loans.
49
Amounts reported in the following table exclude allowance for loan
losses and net deferred origination costs.
March 31, 2005 September 30, 2004
-------------------- ---------------------
(Dollars in thousands)
Percent of Percent of
Type of Loans Amount Total Assets Amount Total Assets
- ------------- ------ ------------ ------ ------------
Construction $ 3,913 0.89% $ 3,075 0.72%
1/1 and 3/3 ARMs 5,550 1.26 1,800 0.42
3/1 and 5/1 ARMs 101,718 23.07 89,694 21.11
5/5 and 10/10 ARMs 35,122 7.96 24,619 5.79
7/1 and 10/1 ARMs 1,754 0.40 1,675 0.40
15 year or less fixed 111,504 25.29 112,238 26.41
Greater than 15 year fixed 62,092 14.08 64,702 15.23
Home equity lines of credit 11,249 2.55 10,666 2.51
Consumer 701 0.16 746 0.18
Commercial 663 0.15 398 0.09
-------- ----- -------- -----
Total $334,266 75.81% $309,613 72.86%
======== ===== ======== =====
Adjustable rate mortgages, or "ARMs", listed in the table above are
denoted by initial and subsequent rate adjustment periods, respectively. For
example, a 3/1 ARM is a hybrid adjustable rate loan whose interest rate
initially adjusts after a fixed rate period of three years and then adjusts
every one year thereafter.
Securities classified as available-for-sale decreased $13.5 million, or
15.1%, to $76.0 million at March 31, 2005 from $89.5 million at September 30,
2004 as the Bank continued to reinvest cash flows from the securities portfolio
into loans rather than back into the securities portfolio. Cash and cash
equivalents decreased by $3.2 million, or 40%, to $4.8 million at March 31, 2005
from $8.0 million at September 30, 2004 to provide funding for loan growth.
These decreases were partially offset by an increase in securities held to
maturity of $5.7 million or 203.6% to $8.5 million at March 31, 2005 from $2.8
million at September 30, 2004.
The following table compares the composition of the securities
portfolio by security type as a percentage of total assets at March 31, 2005 and
September 30, 2004. Amounts reported exclude unrealized gains and losses on the
available for sale portfolio.
50
March 31, 2005 September 30, 2004
---------------------- ----------------------
(Dollars in thousands)
Percent of Percent of
Type of Security Amount Total Assets Amount Total Assets
- ---------------- ------ ------------ ------ ------------
Fixed rate MBS $14,565 3.30% $15,923 3.75%
ARM MBS 9,142 2.07 8,755 2.06
Fixed rate CMO 35,184 7.99 43,982 10.36
Floating rate CMO 3,150 0.71 435 0.10
ARM mutual fund 10,000 2.27 10,000 2.35
Fixed rate agency debentures 13,997 3.17 13,997 3.29
------- ----- ------- -----
Total $86,038 19.51% $93,092 21.91%
======= ===== ======= =====
Assuming no change in interest rates, the estimated average life of the
investment securities portfolio, excluding the ARM mutual fund, was 2.54 years
and 2.23 years at March 31, 2005 and September 30, 2004, respectively. Assuming
a hypothetical immediate and permanent increase in interest rates of 300 basis
points, the estimated average life of the portfolio would hypothetically extend
to 3.13 years and 3.12 years at March 31, 2005 and September 30, 2004,
respectively.
Total deposits increased by $5.3 million, or 1.6%, to $328 million at
March 31, 2005 from $322.7 million at September 30, 2004. The increase was
primarily due to increases in certificates of deposit and noninterest-bearing
deposits, partially offset by a decline in savings deposits and interest-bearing
checking deposits. Certificates of deposit accounts increased $17.3 million or
14.7% to $135.3 million. Savings deposits decreased by $8.8 million, or 6.1% to
$134.6 million. Checking deposits, including demand, NOW and money market
checking accounts, decreased $3.2 million or 5.2% to $58.1 million.
The following table compares the composition of the deposit portfolio
by category as a percentage of total assets at March 31, 2005 with that of
September 30, 2004.
March 31, 2005 September 30, 2004
---------------------- ----------------------
(Dollars in thousands)
Percent of Percent of
Deposit Category Amount Total Assets Amount Total Assets
- ---------------- ------ ------------ ------ ------------
Money market checking $ 20,367 4.62% $ 25,834 6.08%
Other checking 37,744 8.56 35,461 8.34
Money market savings 38,804 8.80 44,880 10.56
Other savings 95,833 21.73 98,521 23.18
Certificates of deposit 135,295 30.68 118,020 27.78
-------- ----- -------- -----
Total $328,043 74.39% $322,716 75.94%
======== ===== ======== =====
FHLB advances increased $10.8 million, or 18.8%, to $68.3 million at
March 31, 2005 from $57.5 million at September 30, 2004. The net increase of
$10.8 million was comprised of $11.8 million drawn on an overnight line of
credit which replaced $1.0 million of maturing fixed rate advances and $28,000
of amortization on fixed rate amortizing advances.
51
The following table compares the composition of the borrowing portfolio
by remaining term to maturity at March 31, 2005 and September 30, 2004.
Scheduled principal payments on amortizing borrowings are reported as
maturities.
March 31, 2005 September 30, 2004
---------------------- ----------------------
(Dollars in thousands)
Percent of Percent of
Remaining Term Amount Total Assets Amount Total Assets
- -------------- ------ ------------ ------ ------------
Overnight $14,500 3.29% $ 2,700 0.64%
One year or less 2,057 0.47 1,057 0.25
Over one year to two years 9,061 2.05 8,060 1.90
Over two years to three years 6,064 1.38 8,062 1.90
Over three years to four years 14,068 3.19 12,065 2.84
Over four years to five years 7,513 1.70 7,547 1.77
More than five years 15,000 3.40 18,000 4.23
------- ----- ------- -----
Total $68,263 15.48% $57,491 13.53%
======= ===== ======= =====
Equity decreased $503,000, or 1.3%, to $38.8 million at March 31, 2005
from $39.3 million at September 30, 2004. The decrease reflects a special cash
dividend paid of $1.2 million and a $468,000 increase in accumulated other
comprehensive loss, offset by net income of $1.2 million for the six months
ended March 31, 2005. In addition, the amount reclassified on ESOP shares
increased $260,000 due to a change in the fair value and the number of shares of
common stock in the ESOP subject to a contingent repurchase obligation.
Comparison of Operating Results for the Six Months Ended March 31, 2005 and
March 31, 2004
General. Net income for the six months ended March 31, 2005 was $1.2
million, an increase of $133,000, or 12.5% from the same period in fiscal 2004.
The increase in net income resulted from an increase in net interest income
partially offset by a decrease in noninterest income, an increase in noninterest
expense and an increase in the provision for income taxes.
Interest Income. Total interest income increased 10.8% or $977,000 to
$10.0 million for the six months ended March 31, 2005, from $9.0 million for the
same period in fiscal 2004. For those same comparative periods, the average
yield on interest-earning assets increased 8 basis points to 4.80% from 4.72%
while the average balance of interest-earning assets increased $32.4 million or
8.4% to $416.7 million from $384.3 million.
Interest income on loans increased $1.1 million or 14.6%, to $8.5
million for the six months ended March 31, 2005 from $7.4 million for the same
period in fiscal 2004. This increase was due, in part, to a $47.8 million
increase in the average balance of loans receivable to $318.5 million for the
six months ended March 31, 2005 from $270.7 million for same period in fiscal
2004. The impact on interest income attributable to this growth more than offset
the 14 basis point decrease in the average yield on loans which declined to
5.33% from 5.47% for those same comparative periods. The increase in the average
balance of loans receivable was the result of loan originations exceeding
repayments due to strong demand.
The rise in interest income on loans was offset by lower interest
income on securities, which decreased $137,000 to $1.5 million for the six
months ended March 31, 2005 from $1.6 million for the
52
same period in fiscal 2004. The decrease was due primarily to a $16.4 million
decline in the average balance of investment securities to $91.1 million for the
six months ended March 31, 2005 from $107.5 million for the same period in
fiscal 2004. The impact on interest income attributable to this decline was
offset by a 23 basis point increase in the average yield on securities which
grew to 3.18% from 2.95% for those same comparative periods. This increase in
yield primarily resulted from slowing prepayments which reduced net premium
amortization and higher yields on adjustable rate securities which have repriced
upward in accordance with the general movement of market interest rates.
Further, interest income on federal funds sold and other
interest-bearing deposits increased $36,000 to $61,000 for the six months ended
March 31, 2005 from $25,000 for the same period in fiscal 2004. This increase
was due, in part, to an increase of $1.1 million in the average balance of these
assets to $7.1 million for the six months ended March 31, 2005 from $6.0 million
for the same period in fiscal 2004. The impact on interest income attributable
to this growth was augmented by an 89 basis point rise in the average yield on
these assets which increased to 1.72% from 0.83% for those same comparative
periods.
Interest Expense. Total interest expense increased by $395,000 or 9.80%
to $4.4 million for the six months ended March 31, 2005 from $4.0 million for
the same period in fiscal 2004. For those same comparative periods, the average
cost of interest-bearing liabilities remained stable at 2.43% while the average
balance of interest-bearing liabilities increased $31.9 million or 9.6% to
$363.6 million from $331.7 million.
Interest expense on deposits increased $419,000 or 16.1% to $3.0
million for the six months ended March 31, 2005 from $2.6 million for the same
period in fiscal 2004. This increase was due, in part, to a $29.9 million
increase in the average balance of interest-bearing deposits to $301.8 million
for the six months ended March 31, 2005 from $271.9 million for the same period
in fiscal 2004. The components of this net increase for the comparative periods
include an increase of $5.2 million or 4.4% in the average balance of
certificates of deposit, a $9.2 million or 7.0% increase in the average balance
of savings accounts and a $15.4 million or 70.3% increase in the average balance
of interest-bearing checking accounts.
The impact on interest expense attributable to the net growth in these
average balances was exacerbated by a 9 basis point increase in the average cost
of interest-bearing deposits which rose to 2.00% for the six months ended March
31, 2005 from 1.91% for the same period in fiscal 2004. The components of this
net increase for the comparative periods includes a 30 basis point increase in
the average cost of certificates of deposit, and a 12 basis point increase in
the average cost of interest-bearing checking accounts. The cost of savings
deposits remained stable at 1.57% for the same comparative periods.
Interest expense on FHLB advances decreased $24,000 to $1.40 million
for the six months ended March 31, 2005 from $1.43 million for the same period
in fiscal 2004. This decrease was due, in part, to a 24 basis point reduction in
the average cost of advances which declined to 4.54% for the six months ended
March 31, 2005 from 4.78% for the same period in fiscal 2004. The impact on
expense attributable to this decline in average cost was partially offset by a
$2.0 million increase in the average balance of advances to $61.8 million from
$59.8 million for those same comparative periods. The lower average cost was
primarily due to utilization of overnight line of credit borrowings and new term
borrowings whose cost was less than those that matured or were prepaid during
fiscal 2004.
Net Interest Income. In total, net interest income for the six months
ended March 31, 2005 increased by $582,000 or 11.7%, to $5.6 million from $5.0
million for the same period in fiscal 2004.
53
For those same comparative periods, our net interest rate spread increased 10
basis points to 2.36% from 2.26% while our net interest margin increased 7 basis
points to 2.67% from 2.60%.
Provision for Loan Losses. In evaluating the level of the allowance for
loan losses, management considers historical loss experience, the types of loans
and the amount of loans in the loan portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any underlying
collateral, peer group information, and prevailing economic conditions. Large
groups of smaller balance homogeneous loans, such as residential real estate,
small commercial real estate, and home equity and consumer loans, are evaluated
in the aggregate using historical loss factors and peer group data adjusted for
current economic conditions. Large balance and/or more complex loans, such as
multi-family and commercial real estate loans, are evaluated individually for
impairment. This evaluation is inherently subjective, as it requires estimates
that are susceptible to significant revision, as more information becomes
available or as projected events change.
Management assesses the allowance for loan losses quarterly. While
management uses available information to recognize losses on loans, future loan
loss provisions may be necessary based on changes in economic conditions. In
addition, regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses and may require the Bank to
recognize additional provisions based on their judgment of information available
to them at the time of their examination. The allowance for loan losses as of
March 31, 2005 was maintained at a level that represented management's best
estimate of losses in the loan portfolio to the extent they were both probable
and reasonable to estimate.
The provision for loan losses totaled $112,000 for the six months ended
March 31, 2005 representing an increase of $58,000 over the same comparative
period in fiscal 2004. Provisions for specific nonperforming assets and
historical losses based on net charge-offs were nominal due to a history of low
charge-offs and the relative stability of nonperforming asset balances. However,
the application of the Bank's loan loss methodology outlined above results, in
part, in historical and environmental loss factors being applied to the
outstanding balance of homogeneous groups of loans to estimate probable credit
losses. For example, as a result of recent loan growth, a large part of the
Bank's loan portfolio is considered "unseasoned," meaning the loans were
originated less than three years ago. Generally, unseasoned loans demonstrate a
greater risk of credit losses than their seasoned counterparts. Moreover, in
many cases, these unseasoned loans are obligations of borrowers with whom the
Bank has had no prior payment experience. These risks are considered in the
environmental factors used in the Bank's loss provision calculations as
described above. Both historical and environmental loss factors are reviewed and
updated quarterly as part of management's assessment of the allowance for loan
losses.
Using this methodology, incremental growth in the outstanding balance
of the loans on which historical and environmental loss factors are applied
results in additional loss provisions. For the six months ended March 31, 2005,
total gross loan balances, excluding the allowance for loan loss, grew $24.6
million or 8.0%. The growth was primarily comprised of net increases in
one-to-four family mortgages totaling $10.7 million, increases in multi-family
and commercial real estate loans totaling $12.3 million, and net growth in
disbursed balances of construction loans totaling $845,000.
By comparison, loan growth for the six months ended March 31, 2004
totaled $11.3 million or $13.3 million less than the same comparative period in
fiscal 2005. The growth in this prior comparative period was primarily comprised
of net increases in one-to-four family mortgages and home equity lines of credit
totaling $12.6 million, a decrease in multi-family and commercial real estate
loans totaling $830,000, and net growth in disbursed balances of construction
loans totaling $145,000.
54
In total, the allowance for loan losses as a percentage of gross loans
outstanding decreased 2 basis points to 0.50% at March 31, 2005 from 0.52% at
March 31, 2004. These ratios reflect allowance for loan loss balances of $1.7
million and $1.4 million, respectively. Furthermore, nonperforming loans as a
percentage of gross loans was 0.11% at March 31, 2005 compared to 0.13% at March
31, 2004. As noted earlier, the level of the allowance is based on estimates and
the ultimate losses may vary from those estimates.
Noninterest Income. Noninterest income decreased $26,000 to $537,000
for the six months ended March 31, 2005 compared to the same period in fiscal
2004. The decrease was primarily the result of a decline in deposit service fees
and charges totaling $29,000 largely due to reduced customer utilization of
deposit services introduced in fiscal 2004. For these same comparative periods,
gain on sale of loans held for sale also declined $20,000 as fewer long term,
fixed rate loans were originated and sold into the secondary market. Offsetting
these decreases was an $18,000 increase in income from bank-owned life insurance
policies resulting from higher policy balances held and an increase of $5,000 in
other noninterest income.
Noninterest Expense. Noninterest expense increased $342,000, or 9.1% to
$4.1 million for the six months ended March 31, 2005 from $3.8 million for the
same period in fiscal 2004. The increase was primarily a result of higher
expenses for salaries and benefits, advertising and other non-interest expense,
offset by decreases in occupancy and equipment expense, data processing, and
federal deposit insurance expense.
Salaries and employee benefits increased $201,000 or 8.6% to $2.5
million for the six months ended March 31, 2005 as compared to $2.3 million for
the same period in fiscal 2004. A large portion of the increase was due to
$67,000 in restricted stock plan expense arising from the implementation of the
plan during fiscal 2005. Additionally, salaries and wages including bonus and
payroll taxes, increased $134,000. Of this increase, $75,000 was due to
comparatively higher management incentive plan expense in the current quarter
when compared with the same period in fiscal 2004 when significant cutbacks in
management incentive plan compensation resulted from corporate performance
targets not being achieved. The remaining increase of $59,000 was primarily
attributable to annual increases in employee compensation.
Occupancy and equipment expense decreased $32,000 to $409,000 for the
six months ended March 31, 2005 as compared to $441,000 for the same period in
fiscal 2004. This decrease was primarily attributable to a $37,000 decrease in
computer depreciation expense. For the same comparative periods, data processing
costs also decreased $41,000 to $293,000 due to the absence in the current
period of non- recurring information technology conversion and upgrade expenses
that were recognized during fiscal 2004.
Other noninterest expenses increased $205,000 or 41.3% for the six
months ended March 31, 2005 as compared to the same period in fiscal 2004. Legal
fees increased $84,000 to $156,000 for the six months ended March 31, 2005 from
$72,000 for the same period in fiscal 2004. A portion of the increase in legal
fees was attributable to matters presented to shareholders at the annual meeting
held January 20, 2005. Additionally, professional and consulting fees, including
auditing and accounting fees, increased $89,000 to $166,000 for the six months
ended March 31, 2005 as compared to the same period in fiscal 2004. A portion of
this increase was due largely to our operation as a public company including
implementation costs associated with the Sarbanes-Oxley Act of 2002. Other
increases in legal, professional and consulting fees were attributable to
ongoing evaluation and implementation of growth and diversification strategies
relating to the execution of our business plan.
55
Provision for Income Taxes. The provision for income taxes increased
$23,000 for the six months ended March 31, 2005 from the same period in fiscal
2004. The effective tax rate was 36.6% and 38.6% for the six months ended March
31, 2005 and 2004, respectively. The decrease in the effective tax rate was
primarily attributable to the Bank's funding of American Savings Investment
Corp. in November 2004, a wholly owned New Jersey investment subsidiary formed
in August 2004 by American Bank of New Jersey. The purpose of this subsidiary is
to invest in stocks, bonds, notes and all types of equity, mortgages, debentures
and other investment securities. Interest income from this subsidiary is taxed
by the State of New Jersey at an effective rate lower than the statutory
corporate state income tax rate. Additionally, increases in the Bank's balance
of bank-owned life insurance, which generates tax exempt income from growth in
the cash surrender value of policies, has also contributed to reductions in the
effective income tax rate.
Comparison of Financial Condition at September 30, 2004 and September 30, 2003
Our total assets decreased by $2.1 million, or 0.50%, to $424.9 million
at September 30, 2004 from $427.1 million at September 30, 2003. The decrease
reflected a reduction in short term liquid assets resulting from refunds of
stock oversubscriptions in connection with the October 3, 2003 closing of the
initial public offering and a decrease in securities. These decreases were
partially offset by an increase in loans. Loans receivable, net increased by
$46.1 million, or 17.5%, to $309.0 million at September 30, 2004 from $262.8
million at September 30, 2003. Our increase in loans resulted from a high volume
of one-to four-family mortgage loan originations reflecting continued strong
demand by borrowers seeking to take advantage of historically low market
interest rates in the earlier part of the year coupled with slowing loan
prepayments in the latter part of the year resulting from interest rates rising
from those historical lows.
The following table compares the composition of the loan portfolio by
loan type as a percentage of total assets at September 30, 2004 with that of
September 30, 2003. Amounts reported exclude allowance for loan losses and net
deferred origination costs.
September 30, 2004 September 30, 2003
------------------ ------------------
(Dollars in thousands)
Percent of Percent of
Type of Loans Amount Total Assets Amount Total Assets
- ------------- ------ ------------ ------ ------------
Construction $ 3,075 0.72% $ 450 0.11%
1/1 and 3/3 ARMs 1,800 0.42 1,383 0.32
3/1 and 5/1 ARMs 89,694 21.11 46,357 10.85
5/5 and 10/10 ARMs 24,619 5.79 16,892 3.96
7/1 and 10/1 ARMs 1,675 0.40 2,462 0.58
15 year or less fixed 112,238 26.41 108,587 25.43
Greater than 15 year fixed 64,702 15.23 76,005 17.80
Home equity lines of credit 10,666 2.51 8,893 2.08
Consumer 746 0.18 780 0.18
Commercial 398 0.09 1,610 0.37
-------- ----- -------- -----
Total $309,613 72.86% $263,419 61.68%
======== ===== ======== =====
56
Securities classified as available-for-sale decreased $17.9 million, or
16.7%, to $89.5 million at September 30, 2004 from $107.4 million at September
30, 2003 as we continued to reinvest cash flows from our investment securities
portfolio into loans. Cash and cash equivalents decreased by $30.4 million, or
79.2%, to $8.0 million at September 30, 2004 from $38.4 million at September 30,
2003 to provide funding for refunds of stock oversubscriptions in connection
with the stock offering.
The following table compares the composition of the investment
securities portfolio by security type as a percentage of total assets at
September 30, 2004 with that of September 30, 2003. Amounts reported exclude
unrealized gains and losses on the available-for-sale portfolio.
September 30, 2004 September 30, 2003
------------------ ------------------
(Dollars in thousands)
Percent of Percent of
Type of Security Amount Total Assets Amount Total Assets
- ---------------- ------ ------------ ------ ------------
Fixed rate MBS $15,923 3.75% $15,401 3.61%
ARM MBS 8,755 2.06 4,893 1.15
Fixed rate CMO 43,982 10.36 66,373 15.54
Floating rate CMO 435 0.10 699 0.16
ARM mutual fund 10,000 2.35 10,000 2.34
Fixed rate agency debentures 13,997 3.29 13,538 3.17
------- ----- -------- -----
Total $93,092 21.91% $110,904 25.97%
======= ===== ======== =====
Assuming no change in interest rates, the estimated average life of the
investment securities portfolio, excluding the ARM mutual fund, was 2.23 years
and 2.80 years at September 30, 2004 and September 30, 2003, respectively.
Assuming a hypothetical immediate and permanent increase in interest rates of
300 basis points, the estimated average life of the portfolio extends to 3.12
years and 3.72 years at September 30, 2004 and September 30, 2003, respectively.
Total deposits increased by $29.9 million, or 10.2%, to $322.7 million
at September 30, 2004 from $292.8 million at September 30, 2003. The increase
was primarily due to an increase in money market checking and savings deposits,
partially offset by a decline in certificates of deposit. Savings accounts
increased $15.7 million or 12.3% to $143.4 million. Certificates of deposit
decreased by $3.7 million, or 3.0% to $118.0 million. Checking deposits,
including demand, NOW and money market checking accounts, increased $17.9
million or 41.2% to $61.3 million, primarily due to a new municipal deposit
relationship established during fiscal 2004. The increase in savings accounts
was primarily due to a new statement savings account product which became
available during the fourth quarter of 2003. A portion of the growth in these
accounts resulted from funds being transferred from other existing accounts such
as maturing certificates of deposit.
57
The following table compares the composition of the deposit portfolio
by category as a percentage of total assets at September 30, 2004 with that of
September 30, 2003.
September 30, 2004 September 30, 2003
------------------ ------------------
(Dollars in thousands)
Percent of Percent of
Deposit Category Amount Total Assets Amount Total Assets
- ---------------- ------ ------------ ------ ------------
Money market checking $ 25,834 6.08% $ 10,442 2.45%
Other checking 35,461 8.34 32,955 7.72
Money market savings 44,880 10.56 55,498 13.00
Other savings 98,521 23.18 72,222 16.91
Certificates of deposit 118,020 27.78 121,709 28.49
-------- ----- -------- -----
Total $322,716 75.94% $292,826 68.57%
======== ===== ======== =====
FHLB advances increased $2.5 million, or 4.5%, to $57.5 million at
September 30, 2004 from $55.0 million at September 30, 2003. The net increase of
$2.5 million was comprised of a $2.7 million increase in an overnight line of
credit and an additional $6.8 million drawn on term advances which includes a
$1.8 million amortizing advance drawn to fund a commercial real estate loan on
an apartment building in a moderate-income tract within the Bank's CRA
assessment area. Offsetting these additions were reductions resulting from the
maturity and prepayment of $4.0 million and $3.0 million of fixed rate term
advances respectively.
The following table compares the composition of the borrowing portfolio
by remaining term to maturity as a percentage of total assets at September 30,
2004 with that of September 30, 2003. Scheduled principal payments on amortizing
borrowings are reported as maturities.
September 30, 2004 September 30, 2003
------------------ ------------------
(Dollars in thousands)
Percent of Percent of
Remaining Term Amount Total Assets Amount Total Assets
- -------------- ------ ------------ ------ ------------
Overnight $ 2,700 0.64% $ - -%
One year or less 1,057 0.25 4,000 0.94
Over one year to two years 8,060 1.90 2,000 0.47
Over two years to three years 8,062 1.90 9,000 2.11
Over three years to four years 12,065 2.84 4,000 0.94
Over four years to five years 7,547 1.77 12,000 2.81
More than five years 18,000 4.23 24,000 5.61
------- ----- ------- -----
Total $57,491 13.53% $55,000 12.88%
======= ===== ======= =====
Stockholders' equity increased $17.0 million, or 76.2%, to $39.3
million at September 30, 2004 from $22.3 million at September 30, 2003. The
increase reflects the completion of the minority stock offering whereby
1,666,350 shares of common stock were sold at $10.00 per share and proceeds of
$16.1 million, net of conversion costs, were received. Further, we recognized
net income of $2.2 million for the year ended September 30, 2004, in addition to
a $77,000 increase in accumulated other comprehensive loss for unrealized
after-tax losses on securities available-for-sale.
58
Comparison of Operating Results for the Years Ended September 30, 2004 and 2003
General. Net income for the year ended September 30, 2004 was $2.2
million, an increase of $759,000, or 54.1% from 2003. The increase in net income
resulted from an increase in net interest income and non-interest income, offset
by increases in non-interest expense and the provision for income taxes.
Interest Income. Total interest income increased by $728,000 or 4.2%,
to $18.2 million for the year ended September 30, 2004 from $17.5 million for
the year ended September 30, 2003. The primary factor for the increase in
interest income was an increase of $36.2 million or 10.3% in the average balance
of interest-earnings assets for the year ended September 30, 2004 to $388.9
million from $352.7 million for the year ended September 30, 2003. This increase
in the average balance was partially offset by a 27 basis points decline in the
average yield to 4.68% in fiscal 2004 from 4.95% in fiscal 2003.
Interest income on loans increased $674,000 or 4.7%, to $15.0 million
for the year ended September 30, 2004 from $14.3 million for the 2003 period.
The average balance of loans receivable, net increased $40.2 million to $278.6
million for the year ended September 30, 2004, which more than offset the
decrease in the average yield on loans receivable, net from 6.01% in fiscal 2003
to 5.39% in fiscal 2004.
The increase in interest income on loans was offset by a decrease in
interest income on federal funds sold and other interest-bearing deposits, which
declined $153,000 or 71.2% to $62,000 for the year ended September 30, 2004. The
decrease resulted from declines in the average yield and average balance of
those assets. There was a 62 basis point decrease in the average yield on
federal funds sold and other interest-bearing deposits from 1.60% in fiscal 2003
to 0.98% in fiscal 2004. This decrease in interest income was exacerbated by a
decline in the average balance of federal funds sold and other interest-bearing
deposits from $13.5 million for fiscal 2003 to $6.3 million for fiscal 2004.
Interest income on securities increased $207,000 or 7.1% to $3.1
million for the year ended September 30, 2004. The average balance of securities
increased $3.2 million to $104.0 million for the year ended September 30, 2004
from $100.8 million for the year ended September 30, 2003. Additionally, the
average yield on securities increased 11 basis points in fiscal 2004 to 3.01%
from 2.90% in fiscal 2003.
Interest Expense. Total interest expense decreased by $765,000 or 8.6%
to $8.1 million for the year ended September 30, 2004 from $8.9 million in 2003.
For those same periods, the average cost of interest-bearing liabilities
decreased 40 basis points from 2.81% to 2.41%. This decline in the average cost
was offset by an increase of $20.4 million in the average balance of
interest-bearing liabilities to $336.2 million in fiscal 2004 from $315.8
million in fiscal 2003.
The average balance of interest-bearing deposits increased $15.2
million or 5.8% for the year ended September 30, 2004. The average balance of
certificates of deposit decreased $4.4 million to $116.9 million in fiscal 2004
from $121.3 million in fiscal 2003. In addition, the average cost of
certificates of deposit decreased from 2.83% to 2.49%. The average cost of
savings accounts decreased from 1.97% in 2003 to 1.55% in 2004, which more than
offset the increase of $19.0 million or 16.3% in the average balance of savings
accounts.
Interest expense on FHLB advances increased $25,000 to $2.9 million as
a result of an increase in the average balance from $54.9 million in fiscal 2003
to $60.1 million in fiscal 2004. This was partially
59
offset by a decrease in the average cost of advances from 5.16% in 2003 to 4.76%
in 2004. The lower average cost was primarily due to utilization of overnight
line of credit borrowings and new term borrowings with an average cost that was
less than those that matured or were prepaid during the year.
Net Interest Income. Net interest income increased by $1.5 million or
17.4%, to $10.1 million for the year ended September 30, 2004 from $8.6 million
for the year ended September 30, 2003. The net interest rate spread increased 14
basis points to 2.28% in 2004 from 2.14% in 2003 while the net interest margin
increased 16 basis points to 2.60% from 2.44%. Both increases reflect
interest-bearing liabilities repricing downward slightly more rapidly than
assets.
Provision for Loan Losses. Provisions for loan losses are charged to
operations at a level required to reflect probable incurred credit losses in the
loan portfolio. The provision for loan losses decreased $47,000 to $207,000 for
the year ended September 30, 2004 compared to $254,000 for the year ended
September 30, 2003. Provisions for nonperforming assets and historical losses
based on net charge-offs were nominal due to a history of low charge-offs and
relative stability of nonperforming assets. However, the application of the
Bank's loan loss methodology outlined earlier results, in part, in historical
and environmental loss factors being applied to the outstanding balance of
homogeneous groups of loans to estimate probable credit losses. For the year
ended September 30, 2004, total one-to-four family mortgages increased $36.3
million representing an increase of 16.8% and reflecting the majority of the
Bank's loan growth. Multi-family and commercial real estate loans increased $7.0
million or 19.3% and commercial loans decreased $1.2 million or 75.3%. Consumer
loans decreased $34,000 or 4.4% and home equity loans increased $1.8 million or
19.9% while construction loans, net of loans in process, increased $2.6 million
or 581.1%.
As a result of recent loan growth, a large part of the Bank's loan
portfolio is considered "unseasoned", meaning the loans were originated less
than three years ago. Generally, unseasoned loans demonstrate a greater risk of
credit losses than their seasoned counterparts. Moreover, in many cases, these
unseasoned loans are obligations of borrowers with whom the Bank has had no
prior payment experience. These risks are considered in the environmental
factors used in the Bank's loss provision calculations as described above.
This evaluation is inherently subjective, as it requires estimates that
are susceptible to significant revision, as more information becomes available
or as projected events change. The allowance for loan losses as a percentage of
gross loans outstanding declined slightly to 0.50% for September 30, 2004
compared to 0.52% at September 30, 2003 reflecting balances of $1.6 million and
$1.4 million, respectively. Non-performing loans as a percentage of gross loans
was 0.17% at September 30, 2004 compared to 0.20% at September 30, 2003. The
level of the allowance is based on estimates and the ultimate losses may vary
from those estimates.
Noninterest Income. Noninterest income increased $580,000, or 80.8% to
$1.3 million for the year ended September 30, 2004 compared to 2003. A
significant portion of that increase resulted from the absence in 2004 of
$188,000 in loss on sale of available-for-sale securities that had been recorded
during 2003. Additionally, service charges on deposit accounts increased by
$245,000 primarily due to the implementation of new deposit services. Gains on
sale of loans held for sale decreased $124,000 to $27,000 for the year ended
September 30, 2004 from $151,000 for 2003. Income from cash surrender value of
life insurance decreased $20,000 for the comparative periods due to reduced
yields reflecting lower market interest rates. Finally, gain on sale of other
real estate owned increased $173,000 and other non-interest income increased by
$118,000, due in large part to collection of comparatively higher loan
prepayment penalties.
60
Noninterest Expense. Noninterest expense increased $795,000, or 11.6%
to $7.7 million for the year ended September 30, 2004 from $6.9 million for the
year ended September 30, 2003. The increase was primarily a result of higher
expenses for salaries and employee benefits, occupancy and equipment, data
processing, advertising, and other non-interest expenses.
Salaries and benefits increased $305,000 or 6.8% for the year ended
September 30, 2004. A large portion of the increase was due to $215,000 in
employee stock ownership plan expense arising from the implementation of the
plan during fiscal 2004. Medical and related benefit plan premiums increased
9.4% or $35,000 while salaries and wages including bonus and payroll taxes,
increased $178,000 or 5.3% for the year ended September 30, 2004 as compared to
the same period in 2003. These increases were offset by lower deferred
compensation plan benefit expenses of $98,000, which had been adjusted in fiscal
2003 for a decrease in the discount rate used to calculate the liability in a
lower rate environment. In addition, expense for temporary help declined $23,000
in 2004 as a result of decreased utilization of temporary services that were
required in 2003 to augment loan processing and accounting staff due to strong
loan origination volume and extended staff absences.
Occupancy and equipment expense increased $31,000 to $853,000 for the
year ended September 30, 2004 as compared to $822,000 for 2003, due to higher
computer expenses primarily related to upgrades and enhancements to information
technology support and security services. Data processing costs also increased
$109,000 mainly due to increases in service bureau core processing costs
resulting from growth in deposit and loan accounts as well as non-recurring
costs associated with comprehensive system upgrades.
Other non-interest expense increased $204,000 for the year ended
September 30, 2004 as compared to 2003. Professional and consulting fees,
including legal fees, increased $12,000 due to expenses associated with being a
public company. Further, general and administrative expenses increased $74,000
consisting primarily of $38,000 in comparatively higher expenses relating to
printing and the bulk purchase of brochures and forms and $25,000 in higher
costs associated with new deposit service programs. Other expense increases
included $4,000 for corporate insurance, $9,000 in transfer agent fees and
$18,000 for regulatory fees resulting from increased regulatory assessments due
to asset growth and the establishment of a holding company. These additional
costs were offset by minor decreases in other miscellaneous expenses. Further,
net loan processing charges increased primarily due to reduced recognition of
loan modification fees offsetting related costs resulting from the deferral of
such fees and costs in the current period.
The Bank also recognized $125,000 in borrowed funds prepayment
penalties for the year ended September 30, 2004 compared to none in fiscal 2003.
This expense resulted from the prepayment of $3.0 million of FHLB advances with
a weighted average cost of 6.28%.
Finally, advertising expenses were higher by $18,000 in 2004 resulting
from increased print, radio, and television ads, and higher agency fees.
Provision for Income Taxes. The provision for income taxes increased
$566,000 for the year ended September 30, 2004 from the same period in 2003. The
effective tax rate was 38.8% and 36.5% for the years ended September 30, 2004
and 2003. The slight increase in the effective tax rate results primarily from
an increase in nondeductible expenses related to the employee stock ownership
plan.
61
Comparison of Operating Results for the Years Ended September 30, 2003 and 2002
General. Net income for the year ended September 30, 2003 was $1.4
million, a decrease of $487,000, or 25.78% from 2002. The decrease in net income
resulted from a decrease in net interest income and increases in the provision
for loan losses and noninterest expense, partially offset by an increase in
noninterest income.
Interest Income. Total interest income decreased by $102,000 or 0.58%,
to $17.5 million for the year ended September 30, 2003 from $17.6 million for
the year ended September 30, 2002. The primary factor for the decrease in
interest income was a decrease in the average yield on interest- earnings assets
to 4.95% for the year ended September 30, 2003 from 6.03% for the year ended
September 30, 2002. This reduction in yield was partially offset by a $61.1
million increase in the average balance of interest-earning assets to $352.7
million for fiscal 2003 from $291.6 million for fiscal 2002.
The average balance of loans receivable increased $51.5 million while
the average balance of securities increased $9.6 million. The increase in loans
was the result of loan originations exceeding repayments due to strong demand,
reflecting generally lower interest rates in 2003. The increased interest income
on loans as a result of increased volume was partially offset by the decrease in
the average yield on loans receivable to 6.01% from 6.90%, reflecting decreased
market rates of interest.
The increase in the average balance of securities was more than offset
by a decrease in the average yield to 2.90% for fiscal 2003 from 4.84% for
fiscal 2002. This decrease was also reflective of decreased market rates of
interest which resulted in accelerated prepayment and net premium amortization
of mortgage-backed securities and collateralized mortgage obligations coupled
with the reinvestment of principal into lower yielding securities.
Interest Expense. Total interest expense increased $41,000 or 0.46%, to
$8.9 million for the year ended September 30, 2003 from $8.8 million for the
year ended September 30, 2002. The increase in interest expense primarily
resulted from the increase in the average balance of Federal Home Loan Bank
advances to $54.9 million for 2003 from $43.9 million for 2002 while the average
cost thereof remained the same for both years at 5.16%. This increase was
largely offset by a reduction in the cost of interest-bearing deposits, which
decreased to 2.31% for the year ended September 30, 2003 from 3.04% for the year
ended September 30, 2002, which more than offset an increase in balance to
$260.9 million for 2003 from $215.8 million for 2002.
Net Interest Income. Net interest income decreased by $143,000, or
1.63%, to $8.6 million for the year ended September 30, 2003 from $8.7 million
for 2002. The net interest rate spread decreased to 2.14% for fiscal 2003 from
2.63% for fiscal 2002, while the net interest margin decreased to 2.44% from
3.00%. The decrease in the spread and margin was reflective of the rapid
repricing of the loan and securities portfolios due to refinancings and
prepayments which outpaced the repricing of interest-bearing liabilities.
For the year ended September 30, 2003, the decrease in the cost of
interest-bearing liabilities lagged that of interest-yielding assets due, in
part, to the $54.9 million average balance of fixed rate Federal Home Loan Bank
advances carrying an average cost of 5.16%. These fixed rate advances, drawn for
purposes of interest rate risk management, were initially used to partially fund
a growing portfolio of originated fixed-rate mortgage loans. In the past year,
many of these loans have refinanced to lower rates thereby substantially
reducing the net interest margin earned on this funding. At September 30, 2003,
62
these "laddered" borrowings range in remaining maturity from one to ten years
with a weighted average remaining maturity of 4.9 years and a weighted average
cost of 5.13%.
Provision for Loan Losses. Provisions for loan losses, are charged to
operations, at a level required to reflect probable incurred credit losses in
the loan portfolio. In evaluating the level of the allowance for loan losses,
management considers historical loss experience, the types of loans and the
amount of loans in the loan portfolio, adverse situations that may affect the
borrower's ability to repay, estimated value of any underlying collateral, peer
group information, and prevailing economic conditions. Large groups of smaller
balance homogenous loans, such as residential real estate, small commercial real
estate, and home equity and consumer loans, are evaluated in the aggregate using
historical loss factors and peer group data adjusted for current economic
conditions. Large balance and/or more complex loans, such as multi-family and
commercial real estate loans, and classified loans, are evaluated individually
for impairment.
The provision for loan losses increased to $254,000 for the year ended
September 30, 2003 from $105,000 for 2002 to reflect a $52.3 million or 24.65%
increase in gross loans, and also to reflect an additional $38,000 allocation
for an impaired $75,000 loan participation secured by an assisted living
facility in West Orange, New Jersey.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available or as
future events change. The allowance for loan losses as a percentage of gross
loans outstanding decreased to 0.52% at September 30, 2003 from 0.53% at
September 30, 2002 reflecting balances of $1.4 million and $1.1 million,
respectively. Non-performing loans as a percentage of gross loans was 0.20% at
September 30, 2003 compared to 0.27% at September 30, 2002. The level of the
allowance is based on estimates and the ultimate losses may vary from estimates.
Noninterest Income. Noninterest income increased $123,000, or 20.67% to
$718,000 for the year ended September 30, 2003 compared to the year ended
September 30, 2002. The increase was primarily the result of comparatively
higher income from the increase in cash surrender value of life insurance of
$125,000 and a $144,000 increase in gains on sale of loans held for sale due to
the sale of a portion of originated long term, fixed-rate loans into the
secondary market. Additionally, service charges on deposits increased $52,000 as
a result of the increased volume of deposits. Increases in noninterest income
were offset by a $188,000 loss on sales of available for sale securities as we
sold $21.0 million of securities at losses in order to restructure the balance
sheet to better manage interest rate risk in the low rate environment.
Noninterest Expense. Noninterest expense increased $588,000 or 9.38% to
$6.9 million for the year ended September 30, 2003 from $6.3 million for the
year ended September 30, 2002. The increase was primarily a result of a $538,000
increase in salaries and employee benefits, an $85,000 increase in occupancy and
equipment costs attributable, in large part, to information technology systems
and maintenance upgrades, a $57,000 increase in data processing costs,
comprising primarily additional core processing expenditures, and an increase of
$66,000 in other noninterest expenses attributable in large part to increases in
non capitalized corporate legal fees in connection with becoming a public
company and the formation of the mid-tier holding company. Offsetting these
increases was a $165,000 reduction in advertising and marketing expenses as
deposit branch promotional expenditures for the Cedar Grove branch were reduced
significantly from the 2002 level.
63
Salaries and employee benefits increased $538,000, or 13.55% primarily
as a result of the continued growth of the Bank. Compensation expense, including
bonuses and payroll taxes, increased approximately $310,000 as a result of
inflation, increased full-time equivalent employees and overtime wages due to
the growth of the Bank and increased loan origination volume. Employee benefits
increased approximately $258,000 of which $183,000 was attributable to increases
in deferred compensation benefits. The increase in deferred compensation
benefits was primarily the result of establishing an officer supplemental
executive retirement plan in mid-2002. The recording of a full year's benefit
for fiscal 2003 resulted in an increase of $147,000 over the 2002 fiscal year
during which the plan was in place for only a portion of the year. The remaining
deferred compensation increase of $36,000 is attributable to increases in
employee profit sharing and 401k plan benefits. The remaining $75,000 of
employee benefit increases are attributable to increases in net costs of
medical, dental and other employee benefits due to an increase in premiums and
an increase in staffing.
Net increases in staffing for the year ended September 30, 2003 include
the addition of a Vice President Controller in the Accounting Department, a
Commercial Loan Administrator in the Lending Department and an additional staff
member in the deposit support services. These additions were needed to augment
our existing human resources as we converted to a public company, placed greater
strategic emphasis on commercial lending and expanded our deposit-related
products and services to support our continued growth objectives.
Provision for Income Taxes. The provision for income taxes decreased
$270,000 reflecting a decrease in pretax income of $757,000. The effective tax
rate was 36.46% and 36.26% for the years ended September 30, 2003 and 2002.
Effective for the Bank on January 1, 2002, the state tax rate increased from 3%
to 9% of state taxable income. This increase was largely offset by a positive
adjustment to the deferred tax inventory to reflect the new tax rate, and by an
increase in federal tax-exempt income as a result of the increase in the cash
surrender value of life insurance.
Liquidity and Commitments
We are required to have enough investments that qualify as liquid
assets in order to maintain sufficient liquidity to ensure a safe and sound
operation. Liquidity may increase or decrease depending upon the availability of
funds and comparative yields on investments in relation to the return on loans.
Historically, we have maintained liquid assets above levels believed to be
adequate to meet the requirements of normal operations, including potential
deposit outflows. Cash flow projections are regularly reviewed and updated to
assure that adequate liquidity is maintained.
The Bank's short term liquidity, represented by cash and cash
equivalents, is a product of its operating, investing and financing activities.
The Bank's primary sources of funds are deposits, amortization, prepayments and
maturities of outstanding loans and mortgage-backed securities, maturities of
investment securities and other short-term investments and funds provided from
operations. While scheduled payments from the amortization of loans and
mortgage-backed securities and maturing investment securities and short-term
investments are relatively predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions, and competition. In addition, the Bank invests excess funds in
short-term interest-earning assets, which provide liquidity to meet lending
requirements. The Bank also generates cash through borrowings. The Bank utilizes
Federal Home Loan Bank advances to leverage its capital base and provide funds
for its lending and investment activities, and to enhance its interest rate risk
management.
64
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits or U.S. Agency securities. On a longer-term basis,
the Bank maintains a strategy of investing in various loan products and in
securities collateralized by loans. The Bank uses its sources of funds primarily
to meet its ongoing commitments, to pay maturing certificates of deposit and
savings withdrawals, to fund loan commitments and to maintain its portfolio of
mortgage-backed securities and investment securities. At March 31, 2005, the
total approved loan origination commitments outstanding amounted to $16.0
million. At the same date, unused lines of credit were $13.2 million and
construction loans in process were $4.2 million. Management's policy is to
maintain deposit rates at levels that are competitive with other local financial
institutions. Based on the competitive rates and on historical experience,
management believes that a significant portion of maturing deposits will remain
with the Bank. In addition, the Bank has the ability at March 31, 2005 to borrow
an additional $41.0 million from the FHLB of New York as a funding source to
meet commitments, and for liquidity purposes.
The following table discloses our contractual obligations as of March
31, 2005. Scheduled principal payments on amortizing borrowings are reported as
maturities.
Less Than After
Total 1 Year 1-3 Years 4-5 Years 5 Years
----- ------ --------- --------- -------
Federal Home Loan Bank advances(1).. $68,263 $16,558 $15,125 $21,580 $15,000
------- ------- ------- ------- -------
Total........................... $68,263 $16,558 $15,125 $21,580 $15,000
======= ======= ======= ======= =======
________________
(1) At March 31, 2005 the total collateralized borrowing limit was $109.3
million of which we had $68.3 million outstanding.
Our commercial commitments as of March 31, 2005 included lines of
credit totaling $13.2 million, construction loans in process totaling $4.2
million and other commitments to extend credit of $16.0 million.
In February 2004, we entered into an agreement to acquire real estate
to be used for a future branch site in Essex County. The total purchase price is
$1.7 million, out of which a balance of $1.53 million is due at closing. See
Note 6 to the Consolidated Financial Statements for additional information
regarding this commitment.
Capital
Consistent with its goals to operate a sound and profitable financial
organization, the Bank actively seeks to maintain a "well capitalized"
institution in accordance with regulatory standards. The Bank's total equity was
$33.9 million at March 31, 2005, or 7.76% of total assets on that date. As of
March 31, 2005, the Bank exceeded all capital requirements of the Office of
Thrift Supervision. The Bank's regulatory capital ratios at March 31, 2005 were
as follows: core capital 7.96%; Tier 1 risk-based capital 14.64%; and total
risk-based capital 15.34%. The regulatory capital requirements to be considered
well capitalized are 5.0%, 6.0%, and 10.0%, respectively.
Impact of Inflation
The financial statements included in this document have been prepared
in accordance with accounting principles generally accepted in the United States
of America. These principles require the
65
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation.
Our primary assets and liabilities are monetary in nature. As a result,
interest rates have a more significant impact on our performance than the
effects of general levels of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the price
of goods and services, since such prices are affected by inflation. In a period
of rapidly rising interest rates, the liquidity and maturities structures of our
assets and liabilities are critical to the maintenance of acceptable performance
levels.
The principal effect of inflation on earnings, as distinct from levels
of interest rates, is in the area of noninterest expense. Such expense items as
employee compensation, employee benefits and occupancy and equipment costs may
be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans that we have made. We are unable to determine the extent, if any,
to which properties securing our loans have appreciated in dollar value due to
inflation.
Recent Regulatory and Accounting Developments
EITF 03-1, Other-Than-Temporary Impairment. In March 2004, the FASB
Emerging Issues Task Force ("EITF") reached a consensus regarding EITF 03-1,
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments." The consensus clarifies the meaning of other-than-temporary
impairment and its application to investments classified as either
available-for-sale or held-to-maturity under SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," and investments accounted for under
the cost method or the equity method. The recognition and measurement guidance
for which the consensus was reached is to be applied to other-than-temporary
impairment evaluations. In September 2004, the Financial Accounting Standards
Board ("FASB") issued a final FASB Staff Position, FSP EITF Issue 03-01-1, which
has delayed the effective date for the measurement and recognition guidance of
EITF 03-01. The comment period is currently open related to this staff position.
The implementation date is unknown until further guidance is issued by the FASB.
We are currently evaluating the impact of adopting EITF 03-01.
FAS 123, Revised, requires all public companies to record compensation
cost for stock options provided to employees in return for employee service. The
cost is measured at the fair value of the options when granted, and this cost is
expensed over the employee service period, which is normally the vesting period
of the options. This will apply to awards granted or modified after the first
quarter or year beginning after December 15, 2005. Compensation cost will also
be recorded for prior option grants that vest after the date of adoption. The
effect on results of operations will depend on the level of future option grants
and the calculation of the fair value of the options granted at such future
date, as well as the vesting periods provided, and so cannot currently be
predicted. Notwithstanding options granted in the future, management has
evaluated the pro forma cost of the options granted on January 20, 2005. The pro
forma cost and impact on earnings per share for the six months ended March
31, 2005 are presented in Note 1 to the Consolidated Financial Statements.
66
We will begin to record compensation costs for stock options granted on
January 20, 2005 beginning on October 1, 2005. The estimated after-tax cost of
these options for each of the next five fiscal years is as follows:
2006 $ 215,946
2007 $ 215,946
2008 $ 215,946
2009 $ 215,946
2010 $ 53,986
Notwithstanding this additional cost, there will be no significant effect on our
financial position for options that vest after the adoption date as total equity
will not change. The estimated after- tax cost of options shown above includes
only the 259,923 options granted prior to March 31, 2005, and thus does not
reflect the 12,248 options granted in May 2005 or the options that may be
granted under the new stock option plan that we intend to adopt following this
stock offering.
67
Average Balance Sheet. The following tables set forth certain
information at March 31, 2005 and for the six months ended March 31, 2005 and
2004 and for the years ended September 30, 2004, 2003 and 2002. The average
yields and costs are derived by dividing income or expense by the average
balance of assets or liabilities, respectively, for the periods presented.
Average balances are derived primarily from daily balances.
At March 31, Six Months Ended March 31,
----------------- ------------------------------------------------------------
2005 2005 2004
----------------- --------------------------- ----------------------------
Interest Average Interest Average
Yield/ Average Earned/ Yield/ Average Earned/ Yield/
Balance Cost Balance Paid Cost Balance Paid Cost
------- ---- ------- ---- ---- ------- ---- ----
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(1).................. $333,554 5.36% $318,539 8,483 5.33% $270,680 7,405 5.47%
Investment securities(2).................. 84,518 3.42% 91,109 1,450 3.18% 105,579 1,587 3.01%
Other interest-earning assets(3).......... 5,971 3.38% 7,052 61 1.72% 5,978 25 0.84%
-------- -------- ------ -------- ------
Total interest-earning assets............. 424,043 4.94% 416,700 9,994 4.80% 382,237 9,017 4.72%
Noninterest-earning assets................ 16,911 14,805 ------ 11,060 ------
-------- -------- --------
Total assets.............................. $440,954 $431,505 $393,297
======== ======== ========
Interest-bearing liabilities:
NOW & money market........................ $ 34,018 1.18% $ 37,307 206 1.11% $ 21,913 109 0.99%
Savings deposits(4)....................... 134,637 1.58% 140,934 1,108 1.57% 131,707 1,033 1.57%
Certificates of deposit................... 135,295 2.94% 123,542 1,705 2.76% 118,306 1,458 2.46%
-------- -------- ------ -------- ------
Total interest-bearing deposits........... 303,950 2.14% 301,783 3,019 2.00% 271,926 2,600 1.91%
Federal Home Loan Bank advances........... 68,263 4.45% 61,780 1,404 4.54% 59,780 1,428 4.78%
-------- -------- ------ -------- ------
Total interest-bearing liabilities....... 372,213 2.56% 363,563 4,423 2.43% 331,706 4,028 2.43%
Noninterest-bearing deposits.............. 24,093 23,685 ------ 22,154 ------
Other noninterest-bearing liabilities..... 5,837 5,834 2,400
-------- -------- --------
Total liabilities......................... 402,143 393,082 356,260
Stockholders' equity...................... 38,811 38,423 37,037
-------- -------- --------
Total liabilities and equity.............. $440,954 $431,505 $393,297
======== ======== ========
Net interest spread(5).................... 2.38% $5,571 2.36% $4,989 2.29%
==== ====== ==== ====== ====
Net interest margin(6).................... 2.70% 2.67% 2.61%
==== ==== ====
Interest-earning assets as a percentage of
interest-bearing liabilities............ 113.92% 114.62% 115.23%
====== ====== ======
- ----------------
(1) Calculated net of deferred fees and loss reserves. Non-accruing loans have
been included as loans carrying a zero yield.
(2) Calculated based on amortized cost excluding FAS 115 market value
adjustment.
(3) Includes Federal Home Loan Bank stock at cost and term deposits with other
financial institutions.
(4) Includes money market savings accounts.
(5) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
68
Year Ended September 30,
---------------------------------------------------------------------------------
2004 2003 2002
-------------------------- --------------------------- ------------------------
Interest Average Interest Average Interest Average
Average Earned/ Yield/ Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Cost Balance Paid Cost Balance Paid Cost
-------- ------- ---- -------- ------- ---- -------- ------- ----
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(1).................. $278,632 $15,017 5.39% $238,474 $14,343 6.01% $186,974 $12,907 6.90%
Investment securities(2).................. 103,978 3,125 3.01% 100,787 2,918 2.90% 91,141 4,414 4.84%
Other interest-earning assets(3).......... 6,302 62 0.98% 13,462 215 1.60% 13,506 257 1.90%
-------- ------- -------- ------- -------- -------
Total interest-earning assets............. 388,912 18,204 4.68% 352,723 17,476 4.95% 291,621 17,578 6.03%
Noninterest-earning assets................ 10,755 ------- 9,459 ------- 8,223 -------
-------- -------- --------
Total assets.............................. $399,667 $362,182 $299,844
======== ======== ========
Interest-bearing liabilities:
NOW & money market........................ $ 23,086 225 0.97% $ 22,511 290 1.29% $ 14,381 211 1.47%
Savings deposits(4)....................... 136,100 2,109 1.55% 117,052 2,307 1.97% 86,475 2,196 2.54%
Certificates of deposit................... 116,926 2,912 2.49% 121,310 3,439 2.83% 114,965 4,158 3.62%
-------- ------- -------- ------- -------- -------
Total interest-bearing deposits........... 276,113 5,246 1.90% 260,873 6,036 2.31% 215,821 6,565 3.04%
Federal Home Loan Bank advances........... 60,125 2,859 4.76% 54,923 2,834 5.16% 43,859 2,264 5.16%
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities....... 336,238 8,105 2.41% 315,796 8,870 2.81% 259,680 8,829 3.40%
Noninterest-bearing deposits.............. 22,080 ------- 20,303 ------- 16,333 -------
Other noninterest-bearing liabilities..... 3,884 4,441 3,507
-------- -------- --------
Total liabilities......................... 362,202 340,540 279,520
Stockholders' equity...................... 37,465 21,642 20,324
-------- -------- --------
Total liabilities and equity.............. $399,667 $362,182 $299,844
======== ======== ========
Net interest spread(5).................... $10,099 2.28% $ 8,606 2.14% $8,749 2.63%
======= ==== ======== ==== ====== ====
Net interest margin(6).................... 2.60% 2.44% 3.00%
==== ==== ====
Interest-earning assets as a percentage of
interest-bearing liabilities............ 115.67% 111.69% 112.30%
====== ====== ======
- ---------------------
(1) Calculated net of deferred fees and loss reserves. Non-accruing loans have
been included as loans carrying a zero yield.
(2) Calculated based on amortized cost excluding FAS 115 market value
adjustment.
(3) Includes Federal Home Loan Bank stock at cost and term deposits with other
financial institutions.
(4) Includes money market savings accounts.
(5) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
69
Rate/Volume Analysis. The following table reflects the sensitivity of
our interest income and interest expense to changes in volume and in prevailing
interest rates during the periods indicated. Each category reflects the: (1)
changes in volume (changes in volume multiplied by old rate); (2) changes in
rate (changes in rate multiplied by old volume); (3) changes in rate/volume
(changes in rate multiplied by the change in volume); and (4) net change.
Six Months Ended Twelve Months Ended Twelve Months Ended
March 31, September 30, September 30,
-------------------------------- ---------------------------------- --------------------------------
2005 vs. 2004 2004 vs. 2003 2003 vs. 2002
-------------------------------- ---------------------------------- --------------------------------
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
------------------------- ---------------------------- ------------------------
Rate/ Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ --- ------ ---- ------ ---
(Dollars in thousands)
Interest and
dividend income:
Loans
receivable, net .... $ 1,309 $(197) $ (34) $ 1,078 $ 2,416 $(1,491) $ (251) $ 674 $3,555 $(1,661) $ (458) $1,436
Investment
securities ......... (218) 94 (13) (137) 91 112 4 207 466 (1,775) (187) (1,496)
Other interest-
earning assets ..... 4 27 5 36 (114) (83) 44 (153) -- (42) -- (42)
------- ----- ----- ------- ------- ------- ------- ------ ------ ------- ------- ------
Total interest-
earning assets ..... 1,095 (76) (42) 977 2,393 (1,462) (203) 728 4,021 (3,478) (645) (102)
------- ----- ----- ------- ------- ------- ------- ------ ------ ------- ------- ------
Interest expense:
NOW and money market . 76 12 9 97 7 (70) (2) (65) 119 (26) (14) 79
Savings deposits ..... 72 3 -- 75 375 (493) (80) (198) 777 (492) (174) 111
Certificates of
deposit ............ 65 174 8 247 (124) (418) 15 (527) 229 (899) (49) (719)
------- ----- ----- ------- ------- ------- ------- ------ ------ ------- ------- ------
Total interest-
bearing deposits ... 213 189 17 419 258 (981) (67) (790) 1,125 (1,417) (237) (529)
Federal Home Loan
Bank advances ....... 48 (70) (2) (24) 268 (222) (21) 25 571 (1) -- 570
------- ----- ----- ------- ------- ------- ------- ------ ------ ------- ------- ------
Total interest-
bearing
liabilities.......... 261 119 15 395 526 (1,203) (88) (765) 1,696 (1,418) (237) 41
------- ----- ----- ------- ------- ------- ------- ------ ------ ------- ------- ------
Change in net
interest income ...... $ 834 $(195) $ (57) $ 582 $ 1,867 $ (259) $ (115) $1,493 $2,325 $(2,060) $ (408) $ (143)
======= ===== ===== ======= ======= ======= ======= ====== ====== ======= ======= ======
70
Management of Interest Rate Risk and Market Risk
Qualitative Analysis. Because the income on the majority of our assets
and the cost of the majority of our liabilities are sensitive to changes in
interest rates, a significant form of market risk for us is interest rate risk,
or changes in interest rates. Notwithstanding the unpredictability of future
interest rates, we expect that changes in interest rates may have a significant,
adverse impact on our net interest income.
Our ability to make a profit largely depends on our net interest
income, which could be negatively affected by changes in interest rates. Net
interest income is the difference between:
o The interest income we earn on our interest-earning assets such
as loans and securities; and
o The interest expense we pay on our interest-bearing liabilities
such as deposits and amounts we borrow.
The rates we earn on our assets and the rates we pay on our liabilities
are generally fixed for a contractual period of time. We, like many savings
institutions, have liabilities that generally have shorter contractual
maturities than our assets. This imbalance can create significant earnings
volatility, because market interest rates change over time. In a period of
rising interest rates, the interest income earned on our assets may not increase
as rapidly as the interest paid on our liabilities. In a period of declining
interest rates the interest income earned on our assets may decrease more
rapidly, due to accelerated prepayments, than the interest paid on our
liabilities.
In addition, changes in interest rates can affect the average lives of
loans and mortgage-backed and related securities. A reduction in interest rates
results in increased prepayments of loans and mortgage-backed and related
securities, as borrowers refinance their debt in order to reduce their borrowing
cost. This causes reinvestment risk, because we are generally not able to
reinvest prepayments at rates that are comparable to the rates we previously
earned on the prepaid loans or securities. At March 31, 2005, 77.5% of our loan
portfolio was comprised of one- to four-family mortgage loans, which experienced
very high prepayment rates during recent years.
Our net interest rate spread, which is the difference between the
yields we receive on assets and the rates we pay on liabilities, increased
during fiscal 2004 after decreasing during fiscal 2003 and continued to improve
during the first half of fiscal 2005. For the year ended September 30, 2004 our
net interest rate spread was 2.28%, as compared to 2.14% for the year ended
September 30, 2003. Our net interest rate spread was 2.36% for the six months
ended March 31, 2005. In large part, the improvement in net interest rate spread
resulted from slowing asset prepayments attributable to interest rates rising
from their historical lows of fiscal 2003. During fiscal 2003, decreases in
market interest rates triggered rapid loan and security prepayments which caused
our net interest rate spread to shrink. Our spread shrank because the decrease
in the yields on our securities and loan portfolios was greater than the
decrease in the rates we paid on deposits and borrowings during that year. This
caused a decrease in our earnings, sometimes referred to as an "earnings
squeeze" which eased somewhat in fiscal 2004.
Depending upon the movement of market interest rates, our earnings may
continue to be impacted by an "earnings squeeze" in the future. For example, we
are vulnerable to an increase in interest rates because the majority of our loan
portfolio consists of longer-term, fixed rate loans and recently originated
hybrid ARMs that are fixed rate for an initial period of time. At March 31,
2005, excluding allowance
71
for loan losses and net deferred origination costs and including loans held for
sale, loans totaled $334.3 million comprising 75.8% of total assets. Of those
loans, fixed rate mortgages totaled $173.6 million or 39.4% of total assets
while hybrid ARMs, including 3/1, 5/1, 7/1 and 10/1 ARMs totaled $144.1 million
of 32.7% of total assets. In an increasing rate environment, our cost of funds
may increase more rapidly than the interest earned on our loan portfolio and
investment securities portfolio because our primary source of funds is deposits
with substantially shorter maturities than the maturities on our loans and
investment securities. Having interest-bearing liabilities that reprice more
frequently than interest-earning assets will be detrimental during periods of
rising interest rates and could cause our net interest rate spread to shrink
because the increase in the rates we would earn on our securities and loan
portfolios would be less than the increase in the rates we would pay on deposits
and borrowings. This could cause a decrease in our earnings and an "earnings
squeeze" just as the decrease in interest rates in prior periods had impacted
our earnings.
The Board of Directors has established an Asset/Liability Management
Committee, comprised of Joseph Kliminski, the Bank's Chief Executive Officer,
Fred Kowal, the Bank's President and Chief Operating Officer, Richard Bzdek, the
Bank's Executive Vice President and Corporate Secretary, Eric Heyer, the Bank's
Senior Vice President and Chief Financial Officer, Catherine Bringuier, the
Bank's Senior Vice President and Chief Lending Officer, Josephine Castaldo, the
Bank's Vice President of Branch Administration, and John Scognamiglio, the
Bank's Vice President and Controller which is responsible for monitoring
interest rate risk. The committee conducts regular, informal meetings, generally
on a weekly basis, to address the day-to-day management of the assets and
liabilities of the Bank, including review of the Bank's short term liquidity
position; loan and deposit pricing and production volumes and alternative
funding sources; current investments; average lives, durations and repricing
frequencies of loans and securities; and a variety of other asset and liability
management topics. The committee meets quarterly to formally review such
matters. The results of the committee's quarterly review are reported to the
full Board, which makes adjustments to the Bank's interest rate risk policy and
strategies, as it considers necessary and appropriate.
To reduce the effect of interest rate changes on net interest income,
we seek to utilize various strategies aimed at improving the matching of
interest-earning asset maturities to interest-bearing liability maturities. The
main elements of these strategies include seeking to:
(1) Originate and retain loans with adjustable rate features and fixed rate
loans with shorter maturities including commercial real estate loans;
(2) Originate longer term, fixed rate loans eligible for sale in the secondary
market and, if warranted, sell such loans;
(3) Lengthen the maturities of our liabilities through utilization of Federal
Home Loan Bank advances;
(4) Attract low cost checking and transaction accounts which tend to be less
interest rate sensitive; and
(5) Purchase short to intermediate term securities and maintain a securities
portfolio that provides a stable cash flow, thereby providing investable
funds in varying interest rate cycles.
Quantitative Aspects of Market Risk. The following table presents
American Bank of New Jersey's net portfolio value as of March 31, 2005. The net
portfolio value was calculated by the Office of Thrift Supervision, based on
information provided by the Bank.
72
Net Portfolio Value
Net Portfolio Value as % of Present Value of Assets
------------------------ ---------------------------------------
Changes in Net Portfolio Basis Point
Rates(1) $ Amount $ Change % Change Value Ratio Change
-------- -------- -------- -------- ----------- ------
(Dollars in thousands)
+300 bp 24,991 -23,067 -48% 5.98% -468 bp
+200 bp 33,146 -14,912 -31% 7.72% -293 bp
+100 bp 41,117 -6,940 -14% 9.33% -132 bp
0 bp 48,058 10.66%
- -100 bp 53,007 4,950 +10% 11.53% +87 bp
- -200 bp 53,372 5,314 +11% 11.49% +84 bp
- -----------------
(1) The -300 basis points scenario is not shown due to the low prevailing
interest rate environment. One basis point is 0.01% or one one-hundredth of
a percent. Thus, a 100, 200 or 300 basis point change is equivalent to a
change of 1.0%, 2.0% or 3.0%, respectively.
Future interest rates or their effect on net portfolio value or net
interest income are not predictable. Computations of prospective effects of
hypothetical interest rate changes are based on numerous assumptions, including
relative levels of market interest rates, prepayments, and deposit run-offs, and
should not be relied upon as indicative of actual results. Certain shortcomings
are inherent in this type of computation. Although certain assets and
liabilities may have similar maturity or periods of repricing, they may react at
different times and in different degrees to changes in the market interest
rates. The interest rate on certain types of assets and liabilities such as
demand deposits and savings accounts, may fluctuate in advance of changes in
market interest rates, while rates on other types of assets and liabilities may
lag behind changes in market interest rates. Certain assets such as adjustable
rate mortgages generally have features, which restrict changes in interest rates
on a short-term basis and over the life of the asset. In the event of a change
in interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making calculations set forth above.
Additionally, an increased credit risk may result as the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase.
Notwithstanding the discussion above, the qualitative interest rate
analysis findings presented herein indicate that a rapid increase in interest
rates would adversely affect our net interest margin and earnings. Given the low
interest rates prevalent in the current marketplace, management is continuing to
evaluate a variety of strategies to manage the earnings risks presented by an
upward movement in interest rates. These strategies include the continued sale
of longer term, fixed rate conforming loan originations into the secondary
market and the use of wholesale borrowings to match fund longer term, fixed rate
loan originations that are retained in portfolio.
73
For the year ended September 30, 2004, we sold a total of $4.8 million of loans
to the Federal National Mortgage Association. Gains on sales of mortgage loans
held for sale totaled $27,000 for 2004. Such sales contributed to a 14.9% or
$11.3 million reduction in the balance of fixed rate mortgage loans with
original maturities exceeding fifteen years during 2004.
We offer borrowers the option to lock in their interest rate prior to
closing their mortgage loans. Once a loan's rate is locked, we are exposed to
market value risk because the price at which we can sell the loan will vary with
movements in market interest rates. To manage that risk, we may take forward
commitments to sell loans at a fixed price. However, at March 31, 2005, the Bank
had no outstanding contracts to sell long term, fixed rate mortgage loans to
Federal National Mortgage Association. Loans sold under contracts drawn in the
future may generate additional gains or losses on sale of mortgage loans in
subsequent periods.
Finally, during fiscal 2004 we recognized a $125,000 penalty to prepay
$3.0 million of fixed rate FHLB advances with a weighted average cost of 6.28%.
In the future, we may evaluate the costs and benefits of further prepayments,
which may result in additional one time charges to earnings in the form of FHLB
prepayment penalties to further improve the Bank's net interest spread and
margin and enhance future earnings.
BUSINESS OF AMERICAN BANCORP OF NEW JERSEY, INC.
ASB Holding Company is currently the middle-tier federal stock holding
company of American Bank of New Jersey and ASB Investment Corp. and owns all of
the outstanding common stock of both entities. American Bank of New Jersey
previously converted from a federal mutual savings bank to the mutual holding
company form of organization in 1999. In 2003, ASB Holding Company was chartered
as the mid-tier stock holding company for American Bank of New Jersey. Also in
2003, ASB Holding Company undertook a minority stock offering and sold 30% of
its outstanding stock to the public with the remaining 70% held by American
Savings, MHC, its parent mutual holding company.
At the conclusion of this stock offering and the completion of the
mutual-to-stock conversion of American Savings, MHC, ASB Holding Company will
cease to exist, but will be succeeded by a newly formed New Jersey corporation
called American Bancorp of New Jersey, Inc., which will own all of the
outstanding common stock of American Bank of New Jersey and ASB Investment Corp.
As of March 31, 2005, ASB Holding Company had 5,554,500 shares of common stock
issued and outstanding. American Savings, MHC owns 3,888,150 shares, or 70%, of
ASB Holding Company's outstanding common stock. The remaining shares of common
stock are held by the public.
American Bancorp of New Jersey, Inc. has not engaged in any significant
business to date. Its primary activity will be to hold all of the stock of
American Bank of New Jersey and ASB Investment Corp., a wholly owned subsidiary
engaged in offering insurance and securities products. American Bancorp of New
Jersey, Inc. will invest the proceeds of the stock offering as discussed under
Use of Proceeds at page __. In the future, it may pursue other business
activities, including mergers and acquisitions, investment alternatives and
diversification of operations. There are, however, no current understandings or
agreements for these activities. American Bancorp of New Jersey, Inc. will not
maintain offices separate from those of American Bank of New Jersey or employ
any persons other than certain of American Bank of New Jersey's officers.
Officers of American Bancorp of New Jersey, Inc. will not be separately
compensated for their service.
74
BUSINESS OF AMERICAN BANK OF NEW JERSEY
General
American Bank of New Jersey was originally founded in 1919 as the
American-Polish Building & Loan Association of Bloomfield, New Jersey. It became
a state-chartered savings and loan association in 1948 and converted to a
federally chartered savings bank in 1995. It changed its name from American
Savings Bank of NJ to American Bank of New Jersey in 2005. The Bank's deposits
are federally insured by the Savings Association Insurance Fund as administered
by the Federal Deposit Insurance Corporation. American Bank of New Jersey is
regulated by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation.
Our core business is attracting and retaining retail deposits in order
to fund a variety of mortgage and consumer loan products. We operate as a
traditional community bank, offering retail banking services, one- to
four-family residential mortgage loans, home equity loans and lines of credit,
multi-family and non-residential mortgage loans and consumer loans. We also
invest in mortgage-backed securities and collateralized mortgage-backed
obligations. The principal source of funds for our lending and investing
activities is deposits, supplemented with Federal Home Loan Bank borrowings. Our
principal source of income is interest earned on loans and securities. Our
principal expense is interest paid on deposits and borrowings.
Market Area
Our main office is located in Bloomfield, New Jersey, and our branch
office is located in Cedar Grove, New Jersey. Our lending is concentrated in
northern New Jersey, and our predominant sources of deposits are the communities
in which our two offices are located as well as the neighboring communities. Our
business of attracting deposits and making loans is primarily conducted within
our market area. A downturn in the local economy could reduce the amount of
funds available for deposit and the ability of borrowers to repay their loans.
As a result, our profitability could decrease.
Competition
We face substantial competition in our attraction of deposits, which
are our primary source of funds for lending, and in the origination of loans.
Many of our competitors are significantly larger institutions and have greater
financial and managerial resources. Our ability to compete successfully is a
significant factor affecting our profitability.
Our competition for deposits and loans historically has come from other
insured financial institutions such as local and regional commercial banks,
savings institutions, and credit unions located in our primary market area. We
also compete with mortgage banking companies for real estate loans, and
commercial banks and savings institutions for consumer loans; and face
competition for funds from investment products such as mutual funds, short-term
money funds and corporate and government securities.
Lending Activities
General. We have traditionally focused on the origination of
one-to-four family loans, which comprise a significant majority of the total
loan portfolio. We also provide financing on multi-family dwellings, mixed-use
properties and other commercial real estate. Commercial business loans,
generally
75
secured by real estate, construction loans, home equity loans and consumer loans
make up the rest of the total loan portfolio. We have experienced substantial
loan growth over the last several years, with total loans receivable increasing
from $146.9 million at September 30, 2000 to $338.5 million at March 31, 2005, a
130% increase.
76
Loan Portfolio Composition. The following tables analyzes the
composition of our loan portfolio by loan category at the dates indicated.
At March 31, At September 30
----------------- ----------------------------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
---------------- --------------- --------------- ---------------- ---------------- ---------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
Type of Loans:
Mortgage loans:
One-to-four
family real
estate(1)........... $262,288 77.49% $251,531 80.17% $215,984 81.59% $167,564 79.06% $131,513 76.18% $108,678 73.97%
Multi-family and
commercial
real estate........ 55,454 16.38 43,197 13.77 36,202 13.68 29,503 13.92 24,903 14.42 21,867 14.88
Construction............ 8,132 2.40 7,175 2.29 1,233 0.47 4,875 2.30 9,402 5.45 10,697 7.28
Consumer................ 701 0.21 746 0.24 780 0.29 795 0.38 540 0.31 547 0.37
Home equity............. 11,249 3.32 10,666 3.40 8,893 3.36 6,904 3.26 5,863 3.40 4,903 3.34
Commercial.............. 663 0.20 398 0.13 1,610 0.61 2,298 1.08 417 0.24 238 0.16
-------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans
receivable....... 338,487 100.00% 313,713 100.00% 264,702 100.00% 211,939 100.00% 172,638 100.00% 146,930 100.00%
====== ====== ====== ====== ====== ======
Less:
Allowance for
loan losses......... (1,690) (1,578) (1,371) (1,117) (1,009) (1,003)
Net deferred
origination costs... 975 935 796 673 532 400
Loans in process...... (4,219) (4,100) (783) (3,121) (5,839) (5,369)
-------- -------- -------- -------- -------- --------
Total loans
receivable, net.. $333,553 $308,970 $263,344 $208,374 $166,322 $140,958
======== ======== ======== ======== ======== ========
- --------------
(1) Includes loans held for sale of $302,000, $500,000 and $452,000 at March
31, 2005, September 30, 2003 and September 30, 2000, respectively.
77
Loan Maturity Schedule. The following table sets forth the maturity of
our loan portfolio at March 31, 2005. Demand loans, loans having no stated
maturity, and overdrafts are shown as due in one year or less. This table shows
contractual maturities and does not reflect repricing or the effect of
prepayments. Actual maturities may differ.
At March 31, 2005
--------------------------------------------------------------------------------------------
Multi-family
One- to Four- and
Family Commercial
Real Estate Real Estate Construction Consumer Home Equity Commercial Total
----------- ----------- ------------ -------- ----------- ---------- -----
(In thousands)
Amounts Due:
Within 1 Year................... $ 536 $ 1,125 $3,715 $ 692 $ 17 $527 $ 6,612
-------- -------- ------ ----- ------- ---- --------
After 1 year:
Over 1 year to 5 years........ 2,358 1,454 4,417 9 50 71 8,359
Over 5 years to 10 years...... 31,584 5,100 - - 1,997 65 38,746
Over 10 years to 15 years..... 58,619 15,442 - - 7,957 - 82,018
Over 15 years................. 169,189 32,333 - - 1,228 - 202,750
-------- ------- ------ ----- ------- ---- --------
Total due after one year........ 261,750 54,329 4,417 9 11,232 136 331,873
-------- ------- ------ ----- ------- ---- --------
Total amount due................ $262,286 $55,454 $8,132 $ 701 $11,249 $663 $338,485
======== ======= ====== ===== ======= ==== ========
78
The following table sets forth the maturity of our loan portfolio at
September 30, 2004. Demand loans, loans having no stated maturity, and
overdrafts are shown as due in one year or less. This table shows contractual
maturities and does not reflect repricing or the effect of prepayments. Actual
maturities may differ.
At September 30, 2004
--------------------------------------------------------------------------------------------
Multi-family
One- to Four- and
Family Commercial
Real Estate Real Estate Construction Consumer Home Equity Commercial Total
----------- ----------- ------------ -------- ----------- ---------- -----
(In thousands)
Amounts Due:
Within 1 Year................... $ 789 $ 276 $1,025 $740 $ 19 $ 152 $ 3,001
- -------- ------- ------ ---- ------- ------- --------
After 1 year:
Over 1 year to 5 years........ 2,369 1,627 6,150 6 108 174 10,434
Over 5 years to 10 years...... 33,641 4,502 - - 1,765 72 39,980
Over 10 years to 15 years..... 58,483 12,934 - - 8,025 - 79,442
Over 15 years................. 156,249 23,858 - - 749 - 180,856
-------- ------- ------ ---- ------- ------- --------
Total due after one year........ 250,742 42,921 6,150 6 10,647 246 310,712
-------- ------- ------ ---- ------- ------- --------
Total amount due................ $251,531 $43,197 $7,175 $746 $10,666 $ 398 $313,713
======== ======= ====== ==== ======= ======= ========
79
The following table sets forth the dollar amount of all loans at March
31, 2005 due after March 31, 2006, which have fixed interest rates and which
have floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
One-to-four family real estate................. $153,365 $108,385 $261,750
Multi-family and commercial real estate........ 19,695 34,634 54,329
Construction................................... - 4,417 4,417
Consumer....................................... 9 - 9
Home equity.................................... - 11,232 11,232
Commercial..................................... 33 103 136
-------- -------- --------
Total........................................ $173,102 $158,771 $331,873
======== ======== ========
The following table sets forth the dollar amount of all loans at
September 30, 2004 due after September 30, 2005, which have fixed interest rates
and which have floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
One-to-four family real estate................. $156,752 $93,990 $250,742
Multi-family and commercial real estate........ 19,399 23,522 42,921
Construction................................... - 6,150 6,150
Consumer....................................... 6 - 6
Home equity.................................... - 10,647 10,647
Commercial..................................... 125 121 246
-------- -------- --------
Total........................................ $176,282 $134,430 $310,712
======== ======== ========
One- to Four-Family Mortgage Loans. Our primary lending activity
historically has consisted of the origination of one- to four-family mortgage
loans, most of which are secured by property located in northern New Jersey.
Going forward, this type of loan will continue to be the most significant
component of our total loan portfolio, however, we will also emphasize the
origination of commercial real estate loans, including construction loans, and
commercial and industrial loans.
We will generally originate a one- to four-family mortgage loan in an
amount up to 80% of the lesser of the appraised value or the purchase price of a
mortgaged property. For loans exceeding this guideline, private mortgage
insurance on the loan is typically required.
Our residential loans are originated with fixed or adjustable rates and
have terms of ten to thirty years. We also offer mortgage loans with bi-weekly
payments. The majority of our adjustable rate loan products provide for an
interest rate that is tied to the one-year Constant Maturity U.S. Treasury index
and have terms of up to thirty years with initial fixed rate periods of one,
three, five, seven, or ten years according to the terms of the loan. We also
offer an adjustable rate loan with a rate that adjusts every three years to the
three-year Constant Maturity U.S. Treasury index.
The fixed rate mortgage loans that we originate generally meet the
secondary mortgage market standards of the Federal National Mortgage
Association. For the purposes of interest rate risk management, we sell
qualifying one- to four-family residential mortgages in the secondary market to
the
80
Federal National Mortgage Association and other investors without recourse and
with servicing retained, and we have entered into a master selling and servicing
agreement with the Federal National Mortgage Association under which the Bank
sold $4.8 million in the year ended September 30, 2004 and $9.4 million in the
year ended September 30, 2003. Loan sales totaled $142,400 during the six months
ended March 31, 2005. Loan sales may increase or decrease in the future in
connection with interest rate risk management.
Substantially all of our residential mortgages include "due on sale"
clauses, which are provisions giving us the right to declare a loan immediately
payable if the borrower sells or otherwise transfers an interest in the property
to a third party. Property appraisals on real estate securing our one- to
four-family residential loans are made by state certified or licensed
independent appraisers approved by the Board of Directors. Appraisals are
performed in accordance with applicable regulations and policies. We require
title insurance policies on all first mortgage real estate loans originated.
Homeowners, liability, fire and, if required, flood insurance policies are also
required.
Multi-family and Commercial Mortgage Loans. We also originate loans on
multi-family and commercial real estate properties, including loans on apartment
buildings, retail/service properties, and other income-producing properties such
as mixed-use properties combining residential and commercial space. We generally
require no less than a 25% down payment or equity position for these mortgage
loans. Typically these loans are made with amortization terms of up to
twenty-five years. The majority of these loans are on properties located within
northern New Jersey and all are within the state.
The multi-family and commercial mortgage loan portfolio grew from $21.9
million at September 30, 2000 to $55.5 million at March 31, 2005, a 153%
increase. However, the growth of one- to four-family loans has kept pace so
multi-family and commercial mortgage loans as a percentage of the total loan
portfolio has remained fairly constant, increasing only 1.5% during that time.
We are currently pursuing strategies to grow this portfolio and intend to hire
several commercial real estate lenders to focus on this goal.
Multi-family and commercial mortgage loans generally are considered to
entail significantly greater risk than that which is involved with one- to
four-family real estate lending. The repayment of these loans typically is
dependent on the successful operations and income stream of the borrower and the
real estate securing the loan as collateral. These risks can be significantly
affected by economic conditions. In addition, commercial loans may carry larger
balances to single borrowers or related groups of borrowers than one- to
four-family loans. Furthermore, this type of real estate lending generally
requires substantially greater evaluation and oversight efforts compared to
one-to-four family mortgage lending.
Construction Lending. Essentially all of our construction lending is in
northern New Jersey. Our construction lending includes loans to individuals for
construction of a primary residence as well as loans to builders and developers
for single family, multi-unit and multi-house projects. We have no formal limits
as to the number of projects a builder may have under construction or
development, and make a case by case determination on loans to builders and
developers who have multiple projects under development. We generally do not
make construction loans to builders on a speculative basis. However, we will
allow a model unit without a contract in place. In some cases, we convert a
construction loan to the permanent end mortgage loan upon completion of
construction. We do not require, however, that construction loans be converted
to permanent end mortgage loans upon completion of construction.
Construction lending is generally considered to involve a higher degree
of credit risk than long-term permanent financing of residential properties. If
the estimate of construction cost proves to be
81
inaccurate, we may be compelled to advance additional funds to complete the
construction with repayment dependent, in part, on the success of the ultimate
project rather than the ability of a borrower or guarantor to repay the loan. If
we are forced to foreclose on a project prior to completion, there is no
assurance that we will be able to recover all of the unpaid portion of the loan.
In addition, we may be required to fund additional amounts to complete a project
and may have to hold the property for an indeterminate period of time.
For several years preceding fiscal 2004, the outstanding principal
balance of our construction loan portfolio experienced a significant reduction.
This resulted from our decision during that time to reduce our origination of
construction loans following the retirement of the loan officer who had
primarily overseen this portfolio. However, with the Bank's increasing strategic
emphasis in commercial real estate lending and our intention to hire several
lenders dedicated to the development of a commercial real estate portfolio, we
expect that our construction lending program will be fully reinstated. We will
seek to grow this portfolio, particularly with respect to construction loans to
builders and developers for multi-unit or multi-house projects.
Consumer Loans. Consumer loans consist of savings secured loans and
unsecured consumer loans. We will generally lend up to 90% of the account
balance on a savings secured loan. At March 31, 2005, the majority of the
$701,000 of consumer loans consisted of savings secured loans.
Consumer loans generally have shorter terms and higher interest rates
than residential loans. The consumer loan market can be helpful in improving the
spread between the average loan yield and the cost of funds and at the same time
improve the matching of rate sensitive assets and liabilities.
Unsecured consumer loans, and consumer loans secured by collateral
other than savings accounts, entail greater risks than residential mortgage
loans. Consumer loan repayment is dependent on the borrower's continuing
financial stability and is more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Finally, the application of various
federal laws, including federal and state bankruptcy and insolvency laws, may
limit the amount which can be recovered on consumer loans in the event of a
default.
Our underwriting standards for consumer loans include a determination
of the applicant's credit history and an assessment of the applicant's ability
to meet existing obligations and payments on the proposed loan. The stability of
the applicant's monthly income may be determined by verification of gross
monthly income from primary employment, and additionally from any verifiable
secondary income.
Home Equity Loans. Our home equity loan portfolio includes home equity
lines of credit and second mortgage term loans. Home equity lines of credit are
prime-based loans that are adjusted monthly. Home equity loans are primarily
originated in our market area and are generally made in amounts of up to 80% of
value on term loans and up to 80% of value on home equity lines of credit.
During 2001, we began offering home equity loans on investment properties in
addition to loans on primary residences. Loans on investment properties are made
in amounts of up to 65% of value on term loans and up to 60% of value of home
equity lines of credit.
Generally, our second mortgage loans have fixed rates for terms of up
to fifteen years. Collateral value is determined through a drive-by appraisal.
Second mortgages and home equity lines of credit do not require title insurance
but do require homeowner, liability, fire and, if required, flood insurance
policies.
82
Commercial Loans. We also originate commercial and industrial business
loans to a variety of professionals, sole proprietorships and small businesses,
primarily in our market area. These loans are generally secured by real estate.
We generally require the personal guarantee of the business owner. Commercial
lending products include term loans and lines of credit. Our commercial term
loans generally have terms from one to five years and are mostly fixed rate
loans. Our commercial lines of credit have terms from one to three years and are
mostly adjustable rate loans.
The commercial loan portfolio has grown slightly, from $238,000 at
September 30, 2000 to $663,000 at March 31, 2005. As part of our plan to grow
and diversify the loan mix by developing a separate and distinct commercial
lending business unit, we have recently hired a commercial and industrial lender
and intend over the next several years to hire several additional commercial
real estate and commercial business lenders.
Unlike single-family residential mortgage loans, which generally are
made on the basis of the borrower's ability to make repayment from his or her
employment and other income and which are secured by real property whose value
tends to be more easily ascertainable, commercial business loans typically are
made on the basis of the borrower's ability to make repayment from the cash flow
of the borrower's business. As a result, the availability of funds for the
repayment of commercial business loans may be substantially dependent on the
success of the business itself and the general economic environment. Commercial
business loans, therefore, have greater credit risk than residential mortgage
loans. In addition, commercial loans may carry larger balances to single
borrowers or related groups of borrowers than one- to four-family loans. In
addition, commercial lending generally requires substantially greater evaluation
and oversight efforts compared to residential or non-residential real estate
lending.
Loans to One Borrower. Under federal law, savings institutions have,
subject to certain exemptions, lending limits to one borrower or a group of
related borrowers in an amount equal to the greater of $500,000 or 15% of the
institution's unimpaired capital and surplus. Accordingly, as of March 31, 2005,
our loans to one borrower limit was approximately $5.4 million.
At March 31, 2005, our largest group of related borrowers had an
aggregate balance of approximately $5.0 million, representing six loans on
condominium units, nine loans secured by multi- family properties and one
single-family residential loan. At the same date, our second largest group of
related borrowers had an aggregate balance of approximately $3.0 million,
representing four loans secured by apartment buildings ranging from six units to
58 units. Our third largest group of related borrowers at that date had an
aggregate balance of approximately $2.7 million, representing two loans secured
by apartment buildings, one loan on a mixed use commercial and residential
property, one loan on a multi- family property, one single-family residential
loan and one home equity line of credit. At March 31, 2005, we had four
additional lending relationships exceeding $2.0 million, with outstanding
balances at that date ranging from $2.1 million to $2.5 million. All of these
lending relationships were current and performing in accordance with the terms
of their loan agreements as of March 31, 2005.
Our loans to one borrower limit will increase significantly following
the stock offering as we will have significantly greater capital.
Loan Originations, Purchases, Sales, Solicitation and Processing. Our
customary sources of loan applications include repeat customers, referrals from
realtors and other professionals, and "walk-in" customers. A majority of our
loan originations currently is produced by the Bank's one loan officer, whose
referral base consists of a variety of sources, including customers, realtors,
lawyers, title companies and accountants. As discussed above, however, we intend
to hire additional residential, commercial real
83
estate and commercial and industrial lenders over the next several years. We
have recently hired our first commercial and industrial lender.
We primarily originate our own loans and retain them in our portfolio.
Gross loan originations totaled $111.8 million for the year ended September 30,
2004. Net of principal repayments, loan growth totaled approximately $46.1
million for the fiscal year ended September 30, 2004. During the year ended
September 30, 2004 we purchased a total of $3.3 million of adjustable rate
mortgage loans. The Bank purchased no whole loans during the years ended
September 30, 2003 and 2002. During the year ended September 30, 2004, we sold
23 loans for $4.8 million. During the years ended September 30, 2003 and 2002 we
sold loans totaling $9.6 million and $258,000, respectively. During the six
months ended March 31, 2005, we sold loans totaling $142,400 and did not
purchase any whole loans. Loan sales are part of our interest rate risk
management strategy and may increase or decrease in the future. We generally
sell loans on a non-recourse basis, with servicing retained. At March 31, 2005,
loans serviced for the benefit of others totaled $15.9 million.
We occasionally purchase participations in loans originated through
other lending institutions including the Thrift Institutions Community
Investment Corporation of New Jersey ("TICIC"). At March 31, 2005, we had
participations totaling $5.0 million from a New Jersey thrift institution and
$1.6 from TICIC, and our participations through these entities were secured by
one-to-four family properties as well as multi-family or other non-one- to-four
family properties, such as assisted living facilities. We may also sell
participation interests in multi-family, commercial and other real estate loans
or construction loans if the total loan would otherwise exceed our loans-to-one
borrower limit.
Loan Commitments. We give written commitments to prospective borrowers
on all residential and non-residential mortgage loans. The total amount of
commitments to extend credit for mortgage and consumer loans as of March 31,
2005, was approximately $16.0 million, excluding commitments on unused lines of
credit of $13.2 million and undisbursed portions of construction loans totaling
$4.2 million.
Loan Approval Procedures and Authority. Our lending policies and loan
approval limits are recommended by senior management and approved by the Board
of Directors. Our loan origination underwriter has loan authority to approve
one-to four-family loans up to $359,600, the Federal National Mortgage
Association conforming loan limit. Our loan origination Manager has loan
authority to approve one-to four-family loans up to $500,000 with Federal
National Mortgage Association automated underwriting approvals. Our Loan
Committee consists of Officers Kliminski, Kowal, Bzdek and Bringuier. Each of
these officers has authority to approve one-to four-family loans up to $750,000.
One-to-four family loans between $750,000 and $1,000,000 require two signatures
from members of the Loan Committee. One-to four-family loans greater than
$1,000,000 require the approval of the Board of Directors.
Loans other than one-to four-family loans up to $750,000 require two
signatures from members of Loan Committee. Approval of a separate loan
sub-committee of the Board is required for non one-to four- family loans over
$750,000, or when aggregate exposure exceeds $1.5 million.
Asset Quality
Loan Delinquencies and Collection Procedures. The borrower is notified
by both mail and telephone when a loan is sixteen days past due. If the
delinquency continues, subsequent efforts are made to contact the delinquent
borrower and additional collection notices and letters are sent. When a loan is
ninety days delinquent, it is referred to an attorney for repossession or
foreclosure. All reasonable
84
attempts are made to collect from borrowers prior to referral to an attorney for
collection. In certain instances, we may modify the loan or grant a limited
moratorium on loan payments to enable the borrower to reorganize his financial
affairs, and we attempt to work with the borrower to establish a repayment
schedule to cure the delinquency.
As to mortgage loans, if a foreclosure action is taken and the loan is
not reinstated, paid in full or refinanced, the property is sold at judicial
sale at which we may be the buyer if there are no adequate offers to satisfy the
debt. Any property acquired as the result of foreclosure or by deed in lieu of
foreclosure is classified as real estate owned until it is sold or otherwise
disposed of. When real estate owned is acquired, it is recorded at the lower of
the unpaid principal balance of the related loan or its fair market value less
estimated selling costs. The initial writedown of the property is charged to the
allowance for loan losses. Adjustments to the carrying value of the properties
that result from subsequent declines in value are charged to operations in the
period in which the declines occur. At March 31, 2005, we held no real estate
owned.
Loans are reviewed on a regular basis and are placed on non-accrual
status when they are more than ninety days delinquent. Loans may be placed on a
non-accrual status at any time if, in the opinion of management, the collection
of additional interest is doubtful. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan. At March 31, 2005, we had approximately $352,000 of
loans that were held on a non-accrual basis.
85
Non-Performing Assets. The following table provides information
regarding our non-performing loans and other non-performing assets as of the
dates indicated.
At
March 31, At September 30,
--------- ---------------------------------------------------------
2005 2004 2003 2002 2001 2000
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
One-to-four family real estate.......................... $ 261 $ 445 $ 147 $ 147 $ 309 $ 374
Multi-family and commercial real estate................. 74 74 369 423 287 343
Construction............................................ - - - - - -
Consumer................................................ - - 1 - 21 -
Home equity............................................. 17 - - - 11 61
Commercial.............................................. - - - - - -
------ ------ ------ ----- ----- -----
Total................................................ $ 352 $ 519 $ 517 570 628 778
Accruing loans contractually past due 90 days or more..... - - - - - -
------ ------ ------ ----- ----- -----
Total non-performing loans................................ 352 519 517 570 628 778
Real estate owned......................................... - - - - - -
Other non-performing assets............................... - - - - - -
------ ------ ------ ----- ----- -----
Total non-performing assets............................... $ 352 $ 519 $ 517 $ 570 $ 628 $ 778
====== ====== ====== ===== ===== =====
Allowance for loan losses to non-performing loans......... 480.66% 304.05% 265.18% 195.96% 160.67% 128.92%
Total non-performing loans to total loans................. 0.11% 0.17% 0.20% 0.27% 0.36% 0.53%
Total non-performing loans to total assets................ 0.08% 0.12% 0.12% 0.17% 0.24% 0.35%
Total non-performing assets to total assets............... 0.08% 0.12% 0.12% 0.17% 0.24% 0.35%
86
During the year ended September 30, 2004, gross interest income of
$53,000 would have been recorded on loans accounted for on a non-accrual basis
if those loans had been current, and $39,000 of interest on such loans was
included in income for the year ended September 30, 2004.
During the six months ended March 31, 2005, gross interest income of
$14,000 would have been recorded on loans accounted for on a non-accrual basis
if those loans had been current, and $0 of interest on such loans was included
in income for the six months ended March 31, 2005.
Classified Assets. Management, in compliance with Office of Thrift
Supervision ("OTS") guidelines, has instituted an internal loan review program,
whereby non-performing loans are classified as substandard, doubtful or loss. It
is our policy to review the loan portfolio, in accordance with regulatory
classification procedures, on at least a quarterly basis. When a loan is
classified as substandard or doubtful, management evaluates the loan for
impairment. When management classifies a portion of a loan as loss, a reserve
equal to 100% of the loss amount is allocated against the loan.
An asset is considered "substandard" if it is inadequately protected by
the paying capacity and net worth of the obligor or the collateral pledged, if
any. Substandard assets include those characterized by the distinct possibility
that the insured institution will sustain some loss if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the weaknesses inherent
in those classified substandard, with the added characteristic that the
weaknesses present make collection or liquidation in full highly questionable
and improbable, on the basis of currently existing facts, conditions, and
values. Assets, or portions thereof, classified as "loss" are considered
uncollectible and of so little value that their continuance as assets without
the allocation of an impairment reserve is not warranted. Assets which do not
currently expose the insured institution to a sufficient degree of risk to
warrant classification in one of the aforementioned categories but which have
credit deficiencies or potential weaknesses are required to be designated
"special mention" by management.
Management's classification of assets is reviewed by the Board on a
regular basis and by the regulatory agencies as part of their examination
process. The following table discloses our classification of assets and
designation of certain loans as special mention as of March 31, 2005. At March
31, 2005, all of the classified assets and special mention designated assets
were loans.
At March 31,
2005
------------
(In thousands)
Special Mention........................ $1,366
Substandard............................ 268
Doubtful............................... 258
Loss................................... -
------
Total................................ $1,892
======
At March 31, 2005, approximately $17,000 of the loans classified as
"special mention," $261,000 of loans classified as "substandard" and $74,000 of
the loans classified as "doubtful" are included in the table under
non-performing assets.
Allowance for Loan Losses. The allowance for loan losses is a valuation
account that reflects our estimation of the losses in our loan portfolio to the
extent they are both probable and reasonable to estimate. The allowance is
maintained through provisions for loan losses that are charged to income in the
87
period they are established. We charge losses on loans against the allowance for
loan losses when we believe the collection of loan principal is unlikely.
Recoveries on loans previously charged-off are added back to the allowance.
Our methodology for calculating the allowance for lease and loan losses
is based upon FAS 5 and FAS 114. Under FAS 114, we identify and analyze certain
loans for impairment. If an impairment is identified on a specific loan, a loss
allocation is recorded in the amount of that impairment. Loan types subject to
FAS 114 are construction loans, multi-family mortgage loans, non-residential
mortgage loans and commercial (non-mortgage) loans. We also conduct a separate
review of all loans on which the collectibility of principal may not be
reasonably assured. We evaluate all classified loans individually and base our
determination of a loss factor on the likelihood of collectibility of principal
including consideration of the value of the underlying collateral securing the
loan.
Under our implementation of FAS 5, we segregate loans by loan category
and evaluate homogeneous loans as a group. The loss characteristics of
aggregated homogeneous loans are examined using two sets of factors: (1) annual
historical loss experience factors that consider the net charge-off history of
both the Bank and that of its regional peer group and (2) environmental factors.
Although there may be other factors that also warrant consideration, we consider
the following environmental factors:
o levels and trends of delinquencies and impaired loans;
o levels and trends of charge-offs and recoveries;
o trends in volume and terms of loans;
o changes to lending policies, procedures and practices;
o experience, ability and depth of lending management and staff;
o national, regional and local economic trends and conditions;
o industry conditions; and
o changes in credit concentration.
In recent years, our charge-offs have been low and, consequently, our
estimation of the amount of losses in the loan portfolio both probable and
reasonable to estimate has been more reflective of other factors.
Our allowance estimation methodology utilizes historical loss
experience and environmental factors such as the local and national economy,
loan growth rate, trends in delinquencies and non-performing loans, experience
of lending personnel, and other similar factors. However, we have had
significant growth in the past three years, part of which is attributable to the
new branch office opened in 2001. As a result of the significant loan growth, a
large portion of our loan portfolio is considered "unseasoned," meaning that the
loans were originated less than three years ago. Generally, unseasoned loans
demonstrate a greater risk of credit losses than their seasoned counterparts.
Moreover, in many cases, these unseasoned loans are obligations of borrowers
with whom the Bank has had no prior payment experience. In the absence of
adequate historical loss experience upon which the Bank can base its allowance
calculations, the Bank includes peer group information in its evaluation of the
allowance. The peer group information utilized by the Bank is that of OTS
regulated thrifts in the northeast region. Management believes that the majority
of thrifts in the northeast region have similar loan portfolio composition.
This estimation is inherently subjective as it requires estimates and
assumptions that are susceptible to significant revisions as more information
becomes available or as future events change. Future additions to the allowance
for loan losses may be necessary if economic and other conditions in the future
differ substantially from the current operating environment. In addition, the
OTS as an integral part of its
88
examination process, periodically reviews our loan and foreclosed real estate
portfolios and the related allowance for loan losses and valuation allowance for
foreclosed real estate. The OTS may require the allowance for loan losses or the
valuation allowance for foreclosed real estate to be increased based on its
review of information available at the time of the examination, which would
negatively affect our earnings.
89
The following table sets forth information with respect to our
allowance for loan losses for the periods indicated:
Six Months Ended Year Ended
March 31, September 30,
-------------------- -------------------------------------------------------
2005 2004 2004 2003 2002 2001 2000
-------- -------- -------- --------- -------- -------- --------
(Dollars in thousands)
Allowance balance at beginning of period.......... $ 1,578 $ 1,371 $ 1,371 $ 1,117 $ 1,009 $ 1,003 $ 999
Provision for loan losses......................... 112 54 207 254 105 2 22
Charge-offs:
One-to-four family real estate.................. - - - - - - (19)
Consumer........................................ - - - - (1) - -
-------- -------- -------- --------- -------- -------- --------
Total charge-offs............................ - - - - (1) - (19)
-------- -------- -------- --------- -------- -------- --------
Recoveries:
Consumer........................................ - - - - 4 4 1
-------- -------- -------- --------- -------- -------- --------
Total recoveries............................. - - - - 4 4 1
-------- -------- -------- --------- -------- -------- --------
Net (charge-offs) recoveries...................... - - - - 3 4 (18)
-------- -------- -------- --------- -------- -------- --------
Allowance balance at end of period................ $ 1,690 $ 1,425 $ 1,578 $ 1,371 $ 1,117 $ 1,009 $ 1,003
======== ======== ======== ========= ======== ======== ========
Total loans outstanding at end of period.......... $338,485 $275,774 $313,713 $264,702 $211,939 $172,638 $146,930
======== ======== ======== ======== ======== ======== ========
Average loans outstanding during period........... $318,539 $270,680 $278,632 $238,474 $186,974 $150,938 $128,463
======== ======== ======== ======== ======== ======== ========
Allowance as a % of total loans................... 0.50% 0.52% 0.50% 0.52% 0.53% 0.58% 0.68%
Net loans charge-offs as a % of average loans..... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01%
90
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of our allowance for loan losses by loan category and the percent
of loans in each category to total loans receivable, net, at the dates
indicated. The portion of the loan loss allowance allocated to each loan
category does not represent the total available for future losses which may
occur within the loan category since the total loan loss allowance is a
valuation allocation applicable to the entire loan portfolio.
At March 31, At September 30,
------------------- ---------------------------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
Percent Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
At end of
period allocated to:
One-to-four
family real
estate............ $ 783 77.49% $ 777 80.17% $ 685 81.59% $ 531 79.06% $ 366 76.18% $ 315 73.97%
Multi-family and
commercial
real estate....... 749 16.38 680 13.77 566 13.68 452 13.92 463 14.42 481 14.88
Construction........ 43 2.40 21 2.29 3 0.47 13 2.30 55 5.45 124 7.28
Consumer............ 4 0.21 4 0.24 3 0.29 3 0.38 2 0.31 2 0.37
Home equity......... 52 3.32 43 3.40 37 3.36 29 3.26 36 3.40 39 3.34
Commercial.......... 15 0.20 9 0.13 34 0.61 46 1.08 11 0.24 5 0.16
Unallocated......... 44 - 44 - 43 - 43 - 76 - 37 -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance.. $1,690 100.00% $1,578 100.00% $1,371 100.00% $1,117 100.00% $1,009 100.00% $1,003 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
91
Securities Portfolio
General. Federally chartered savings banks have the authority to invest
in various types of liquid assets. The investments authorized by the Bank's
board approved investment policy include U.S. government and government agency
obligations, mortgage-related securities of various U.S. government agencies or
government-sponsored entities and private corporate issuers (including
securities collateralized by mortgages), certificates of deposits of insured
banks and savings institutions and municipal securities. Our policy does not
permit corporate non-residential mortgage related securities. Our investment
securities portfolio at March 31, 2005 did not contain securities of any issuer
with an aggregate book value in excess of 10% of our equity, excluding those
issued by the United States Government or its agencies, other than an investment
in an adjustable rate mortgage mutual fund with a carrying value of
approximately $9.8 million at March 31, 2005.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires that securities be
categorized as "held-to-maturity," "trading securities" or "available-for-sale,"
based on management's intent as to the ultimate disposition of each security.
Statement No. 115 allows debt securities to be classified as "held-to-maturity"
and reported in financial statements at amortized cost only if the reporting
entity has the positive intent and ability to hold these securities to maturity.
Securities that might be sold in response to changes in market interest rates,
changes in the security's prepayment risk, increases in loan demand, or other
similar factors cannot be classified as "held-to-maturity."
We do not currently use or maintain a trading account. Securities not
classified as "held-to-maturity" are classified as "available-for-sale." These
securities are reported at fair value, and unrealized gains and losses on the
securities are excluded from earnings and reported, net of deferred taxes, as a
separate component of equity.
All of our securities carry market risk insofar as changes in market
rates of interest may cause a decrease in their market value. Investments in
securities are made based on certain considerations, which include the interest
rate, tax considerations, yield, settlement date and maturity of the security,
our liquidity position, and anticipated cash needs and sources. The effect that
the proposed security would have on our credit and interest rate risk and
risk-based capital is also considered. We purchase securities to provide
necessary liquidity for day-to-day operations, to aid in the management of
interest rate risk and when investable funds exceed loan demand.
Our investment policy, which is approved by the Board of Directors, is
designed to foster earnings and liquidity within prudent interest rate risk
guidelines, while complementing our lending activities. Generally, our
investment policy is to invest funds in various categories of securities and
maturities based upon our liquidity needs, asset/liability management policies,
investment quality, marketability and performance objectives. The
Asset/Liability Management Committee, comprised of Joseph Kliminski, the Bank's
Chief Executive Officer, Fred Kowal, the Bank's President and Chief Operating
Officer, Richard Bzdek, the Bank's Executive Vice President and Corporate
Secretary, Eric Heyer, the Bank's Senior Vice President and Chief Financial
Officer, Catherine Bringuier, the Bank's Senior Vice President and Chief Lending
Officer, Josephine Castaldo, the Bank's Vice President of Branch Administration,
and John Scognamiglio, the Bank's Vice President and Controller, is responsible
for the administration of the securities portfolio. This committee conducts
regular, informal meetings, generally on a weekly basis, and meets quarterly to
formally review the Bank's securities portfolio. The results of the committee's
quarterly review are reported to the full Board, which makes adjustment to the
investment policy and strategies as it considers necessary and appropriate.
92
We do not currently participate in hedging programs, interest rate
caps, floors or swaps, or other activities involving the use of off-balance
sheet derivative financial instruments, but we may do so in the future as part
of our interest rate risk management. Further, we do not invest in securities
which are not rated investment grade.
Actual maturities of the securities held by us may differ from
contractual maturities because issuers may have the right to call or prepay
obligations with and without prepayment penalties. At March 31, 2005, we had
$14.0 million of agency debenture securities in our portfolio of which $2.0
million may be called prior to their maturity.
Mortgage-related Securities. Mortgage-related securities represent a
participation interest in a pool of one- to four-family or multi-family
mortgages, although we focus primarily on mortgage-related securities secured by
one- to four-family mortgages. Our mortgage-related securities portfolio
includes mortgage-backed securities and collateralized mortgage obligations
issued by U.S. government agencies or government-sponsored entities, such as
Federal Home Loan Mortgage Corporation, the Government National Mortgage
Association, and the Federal National Mortgage Association, as well as by
private corporate issuers. The portfolio also includes an investment in an
adjustable rate mortgage mutual fund, with a carrying value of approximately
$9.8 million at March 31, 2005.
The mortgage originators use intermediaries (generally government
agencies and government-sponsored enterprises, but also a variety of private
corporate issuers) to pool and repackage the participation interests in the form
of securities, with investors such as us receiving the principal and interest
payments on the mortgages. Securities issued or sponsored by U.S. government
agencies and government-sponsored entities are guaranteed as to the payment of
principal and interest to investors. Privately issued securities typically offer
rates above those paid on government agency issued or sponsored securities, but
lack the guaranty of those agencies and are generally less liquid investments.
In the absence of an agency guarantee, our policy requires that we purchase only
privately-issued mortgage-related securities that have been assigned the highest
credit rating (AAA) by the applicable securities rating agencies. Limiting our
purchases of privately-issued mortgage-related securities to those with a AAA
rating reduces our added credit risk in purchasing non-agency guaranteed
securities. Moreover, because there is a robust secondary market for AAA-rated
privately-issued mortgage-related securities, much of the liquidity risk
otherwise associated with our investment in non-agency securities is mitigated.
Mortgage-backed securities are pass-through securities typically issued
with stated principal amounts, and the securities are backed by pools of
mortgages that have loans with interest rates that are within a specific range
and have varying maturities. The life of a mortgage-backed security thus
approximates the life of the underlying mortgages. Mortgage-backed securities
generally yield less than the mortgage loans underlying the securities. The
characteristics of the underlying pool of mortgages, i.e., fixed-rate or
adjustable-rate, as well as prepayment risk, are passed on to the certificate
holder. Mortgage-backed securities are generally referred to as mortgage
participation certificates or pass-through certificates.
Collateralized mortgage obligations are mortgage-derivative products
that aggregate pools of mortgages and mortgage-backed securities and create
different classes of securities with varying maturities and amortization
schedules as well as a residual interest with each class having different risk
characteristics. The cash flows from the underlying collateral are usually
divided into "tranches" or classes whereby tranches have descending priorities
with respect to the distribution of principal and interest repayment of the
underlying mortgages and mortgage-backed securities as opposed to pass through
mortgage-backed securities where cash flows are distributed pro rata to all
security holders. Unlike
93
mortgage-backed securities from which cash flow is received and prepayment risk
is shared pro rata by all securities holders, cash flows from the mortgages and
mortgage-backed securities underlying collateralized mortgage obligations are
paid in accordance with a predetermined priority to investors holding various
tranches of the securities or obligations. A particular tranche or class may
carry prepayment risk which may be different from that of the underlying
collateral and other tranches. Investing in collateralized mortgage obligations
allows us to better manage the prepayment and extension risk associated with
conventional mortgage-related securities. Management believes collateralized
mortgage obligations represent attractive alternatives relative to other
investments due to the wide variety of maturity, repayment and interest rate
options available. At March 31, 2005, collateralized mortgage obligations
comprised $37.8 million of our securities portfolio.
Other Securities. In addition, at March 31, 2005 we held an approximate
investment of $3.5 million in Federal Home Loan Bank of New York common stock
(this amount is not shown in the securities portfolio). As a member of the
Federal Home Loan Bank of New York, ownership of Federal Home Loan Bank of New
York common shares is required.
The following table sets forth the carrying value of our securities
portfolio at the dates indicated. Securities that are held-to-maturity are shown
at our amortized cost, and securities that are available-for- sale are shown at
the current market value.
At March 31, At September 30,
------------ -------------------------------------------
2005 2004 2003 2002
------- ------- -------- -------
(In thousands)
Securities Held-to-Maturity:
U.S. government and federal agency obligations...... $ 2,000 $ - $ - $ -
Collateralized mortgage non-agency obligations...... 2,785 - - -
Collateralized mortgage agency obligations.......... 90 107 193 3,076
Government National Mortgage Association............ 278 327 476 711
Federal Home Loan Mortgage Corporation.............. 445 490 657 986
Federal National Mortgage Association............... 2,928 1,870 1,513 2,197
------- ------- -------- -------
Total securities held-to-maturity................. 8,526 2,794 2,839 6,970
------- ------- -------- -------
Securities Available-for-Sale:
U.S. government and federal agency obligation....... 11,740 13,840 13,484 -
Collateralized mortgage non-agency obligations...... 599 1,234 4,962 19,177
Collateralized mortgage agency obligations.......... 34,311 42,870 61,685 57,346
Government National Mortgage Association............ 177 202 320 513
Federal Home Loan Mortgage Corporation.............. 4,854 5,219 346 885
Federal National Mortgage Association............... 14,482 16,261 16,664 2,213
Mutual fund......................................... 9,829 9,869 9,930 10,000
------- ------- -------- -------
Total securities available-for-sale............... 75,992 89,495 107,391 90,134
------- ------- -------- -------
Total............................................. $84,518 $92,289 $110,230 $97,104
======= ======= ======== =======
94
The following table sets forth certain information regarding the
carrying values, weighted average yields and maturities of our investment and
mortgage- backed securities portfolio at March 31, 2005. This table shows
contractual maturities and does not reflect repricing or the effect of
prepayments. Actual maturities may differ.
At March 31, 2005
---------------------------------------------------------------------------------------------------
More than More than More than
One Year Five Years Ten Years
One Year or Less to Five Years to Ten Years More than Total Securities
---------------- ----------------- ----------------- ----------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
U.S. Government and Federal
Agency....................... $3,952 2.18% $ 9,788 2.50% $ - -% $ - -% $13,740 2.37% $13,701
Mortgage-backed non-agency
obligations................. - - - - - - 3,384 4.02 3,384 4.02 3,318
Government National Mortgage
Association................. - - 7 6.47 - - 1,733 2.87 1,740 2.88 1,742
Federal Home Loan Mortgage
Association................. - - 1,477 3.26 8,297 3.15 18,533 3.46 28,307 3.32 28,308
Federal National Mortgage
Association................. - - - - 13,899 3.55 13,619 3.65 27,518 3.51 27,486
------ ------- ------- ------- ------- -------
Total...................... $3,952 2.18% $11,272 2.61% $22,196 3.40% $37,269 3.56% $74,689 3.24% $74,555
====== ======= ======= ======= ======= =======
95
The following table sets forth certain information regarding the
carrying values, weighted average yields and maturities of our investment and
mortgage- backed securities portfolio at September 30, 2004. This table shows
contractual maturities and does not reflect repricing or the effect of
prepayments. Actual maturities may differ.
At September 30, 2004
---------------------------------------------------------------------------------------------------
More than More than More than
One Year Five Years Ten Years
One Year or Less to Five Years to Ten Years More than Total Securities
---------------- ----------------- ----------------- ----------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
U.S. Government and Federal
Agency $ - -% $13,840 2.39% $ - -% $ - -% $13,840 2.37% $13,840
Mortgage-backed non-agency
obligations.................... - - - - - - 1,234 3.42 1,234 3.42 1,234
Government National Mortgage
Association.................... - - 16 6.97 - - 513 3.60 529 3.70 532
Federal Home Loan Mortgage
Association.................... 1 5.30 1,706 3.27 10,101 3.13 21,969 3.41 33,777 3.32 33,781
Federal National Mortgage
Association.................... - - - - 15,666 3.40 17,374 3.36 33,040 3.38 33,045
------ ------- ------- ------- ------- -------
Total.........................$ 1 5.30% $15,562 2.50% $25,767 3.30% $41,090 3.39% $82,420 3.19% $82,432
====== ======= ======= ======= ======= =======
96
Sources of Funds
General. Deposits are our major source of funds for lending and other
investment purposes. In addition, we derive funds from loan and mortgage-backed
securities principal repayments, and proceeds from the maturity, call and sale
of mortgage-backed securities and investment securities. Loan and securities
payments are a relatively stable source of funds, while deposit inflows are
significantly influenced by general interest rates and money market conditions.
Borrowings (principally from the Federal Home Loan Bank) are also used to
supplement the amount of funds for lending and investment.
Deposits. Our current deposit products include checking, savings, money
market, club accounts, certificates of deposit accounts ranging in terms from
thirty days to ten years, and individual retirement accounts. Deposit account
terms vary, primarily as to the required minimum balance amount, the amount of
time that the funds must remain on deposit and the applicable interest rate.
Deposits are obtained primarily from within New Jersey. Traditional
methods of advertising are used to attract new customers and deposits, including
print media, cable television, direct mail and inserts included with customer
statements. We have not in the past utilized the services of deposit brokers,
however, our current growth strategy includes a modest brokered CD program.
Although we did offer special savings programs in connection with the opening of
our Cedar Grove branch office, premiums or incentives for opening accounts are
generally not offered. We periodically select particular certificate of deposit
maturities for promotion.
The determination of interest rates is based upon a number of factors,
including: (1) our need for funds based on loan demand, current maturities of
deposits and other cash flow needs; (2) a current survey of general market rates
and rates of a selected group of competitors' rates for similar products; (3)
our current cost of funds and yield on assets; and (4) the alternate cost of
funds on a wholesale basis, in particular the cost of advances from the Federal
Home Loan Bank. Interest rates are reviewed by senior management on a weekly
basis.
At March 31, 2005, 41.2% our deposits were in certificates of deposit.
Our liquidity could be reduced if a significant amount of certificates of
deposit, maturing within a short period of time, were not renewed. Historically,
a significant portion of the certificates of deposit remain with us after they
mature and we believe that this will continue. However, the need to retain these
time deposits could result in an increase in our cost of funds.
At March 31, 2005, we had approximately $18.0 million of municipal
deposits at the Bank. Subsequent to March 31, 2005, a municipality with $14.5
million deposited with the Bank requested bids from other institutions for this
$14.5 million of deposits. Even if our bid wins and we retain these deposits,
the deposits will decrease over time because $9.3 million of that municipality's
total deposits are for a school construction project for which the municipality
will be withdrawing funds as construction proceeds.
97
The following table sets forth the distribution of deposits at the Bank
at the dates indicated and the weighted average nominal interest rates for each
period on each category of deposits presented.
At March 31, At September 30,
-------------------------- -------------------------------------------------------------------------------
2005 2004 2003 2002
-------------------------- ------------------------- --------------------------- -----------------------
Weighted Weighted Weighted Weighted
Percent Average Percent Average Percent Average Percent Average
of Total Nominal of Total Nominal of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- ---- ------ -------- ---- ------ -------- ---- ------ -------- ----
(Dollars in thousands)
Noninterest-
bearing demand
deposits........... $ 24,093 7.34% -% $ 22,599 7.00% -% $ 21,676 7.40% -% $ 16,816 6.36% -%
Interest-
bearing demand
deposits........... 34,018 10.37 1.18 38,696 11.99 1.06 21,721 7.42 0.98 27,733 10.48 1.55
Time deposits......... 135,295 41.24 2.94 143,401 44.44 1.60 127,720 43.62 1.60 118,605 44.82 3.14
Savings deposits...... 134,637 41.05 1.58 118,020 36.57 2.65 121,709 41.56 2.55 101,433 38.34 2.30
-------- ------ ---- -------- ------ ---- -------- ------ ---- -------- ------ ----
Total deposits... $328,043 100.00% 1.98% $322,716 100.00% 1.81% $292,826 100.00% 1.79% $264,587 100.00% 2.45%
======== ====== ==== ======== ====== ==== ======== ====== ==== ======== ====== ====
98
The following table sets forth the time deposits at the Bank classified
by interest rate as of the dates indicated.
At March 31, At September 30,
------------------- ----------------------------------------------------------------------
2005 2004 2003 2002
------------------- ----------------------- -------------------- ---------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
Interest Rate
0.00% - 0.99%...... $ - -% $ - -% $ 240 0.20% $ - -%
1.00% - 1.99%...... 36,415 26.92 51,664 43.78 56,504 46.43 498 0.42
2.00% - 2.99%...... 32,971 24.37 20,848 17.66 18,576 15.26 66,213 55.82
3.00% - 3.99%...... 34,763 25.69 16,353 13.86 23,047 18.94 28,792 24.28
4.00% - 4.99%...... 19,369 14.32 19,198 16.27 18,414 15.13 16,557 13.96
5.00% - 5.99%...... 11,334 8.38 9,494 8.04 3,941 3.24 5,129 4.32
6.00% - 6.99%...... 443 0.33 463 0.39 987 0.81 1,383 1.17
7.00% - 7.99%...... - - - - - - 33 0.03
-------- ------ -------- ------ -------- ------ -------- ------
Total............ $135,295 100.00% $118,020 100.00% $121,709 100.00% $118,605 100.00%
======== ====== ======== ====== ======== ====== ======== ======
The following table sets forth the amount and maturities of time
deposits at the Bank at March 31, 2005.
Amount Due
-------------------------------------------------------------------------------
After
March 31, March 31, March 31, March 31, March 31, March 31,
Interest Rate 2006 2007 2008 2009 2010 2010
--------- --------- --------- --------- --------- ---------
(In thousands)
0.00% - 0.99%........ $ - $ - $ - $ - $ - $ -
1.00% - 1.99%........ 36,410 6 - - - -
2.00% - 2.99%........ 28,541 4,345 84 - - -
3.00% - 3.99%........ 13,033 14,268 3,570 3,162 667 63
4.00% - 4.99%........ 5,382 692 6,192 3,481 1,796 1,826
5.00% - 5.99%........ 93 185 3,204 186 66 7,601
6.00% - 6.99%........ 392 - 50 - - -
------- ------- ------- ------ ------ ------
Total............ $83,851 $19,496 $13,100 $6,829 $2,529 $9,490
======= ======= ======= ====== ====== ======
99
The following table shows the amount of our certificates of deposit of
$100,000 or more by time remaining until maturity as of March 31, 2005.
Remaining Time Until Maturity Amount
----------------------------- ------
(In thousands)
Within three months....................... $8,515
Three through six months.................. 8,364
Six through twelve months................. 8,491
Over twelve months........................ 18,030
-------
Total $43,400
=======
The following table shows the amount of our certificates of deposit of
$100,000 or more by time remaining until maturity as of September 30, 2004.
Remaining Time Until Maturity Amount
----------------------------- ------
(In thousands)
Within three months....................... $ 5,313
Three through six months.................. 3,380
Six through twelve months................. 9,864
Over twelve months........................ 16,880
-------
Total $35,437
=======
Borrowings. To supplement our deposits as a source of funds for lending
or investment, we borrow funds in the form of advances from the Federal Home
Loan Bank. We regularly make use of Federal Home Loan Bank advances as part of
our interest rate risk management, primarily to extend the duration of funding
to match the longer term fixed rate loans held in the loan portfolio as part of
our growth strategy. During fiscal 2004 we recognized a $125,000 penalty to
prepay $3.0 million of fixed rate FHLB advances with a weighted average cost of
6.28%. In the future, we may evaluate the costs and benefits of further
prepayments, which may result in additional one time charges to earnings in the
form of FHLB prepayment penalties to further improve the Bank's net interest
spread and margin and enhance future earnings.
Advances from the Federal Home Loan Bank are typically secured by the
Federal Home Loan Bank stock we own and a portion of our residential mortgage
loans and may be secured by other assets, mainly securities which are
obligations of or guaranteed by the U.S. government. At March 31, 2005, our
borrowing limit with the Federal Home Loan Bank was approximately $109.3
million. Additional information regarding our Federal Home Loan Bank advances is
included under Note 8 of the Notes to the Financial Statements.
100
The following table sets forth certain information regarding our
borrowed funds.
At or For the
At or For the Year Ended September 30,
Six Months Ended ------------------------
March 31, 2005 2004 2003 2002
-------------- ----------- ---------- ----------
(Dollars in thousands)
Federal Home Loan Bank Advances:
Average balance outstanding.................. $ 61,780 $ 60,125 $ 54,923 $ 43,859
Maximum amount outstanding
at any month-end during the period......... $ 68,263 $ 65,500 $ 61,800 $ 48,500
Balance outstanding at end of period......... $ 68,263 $ 57,491 $ 55,000 $ 44,000
Weighted average interest rate during
the period................................ 4.54% 4.76% 5.16% 5.16%
Weighted average interest rate at end
of period................................. 4.45% 4.72% 5.13% 5.59%
Subsidiary Activity
In addition to American Bank of New Jersey, ASB Holding Company has one
service corporation subsidiary, ASB Investment Corp., a New Jersey corporation,
which was organized in June 2003 for the purpose of selling insurance and
investment products, including annuities, to customers of the Bank and the
general public through a third party networking arrangement. There has been very
little activity at this subsidiary and sales are currently limited to the sale
of fixed rate annuities.
American Bank of New Jersey has one subsidiary, American Savings
Investment Corp., which was formed in August 2004 under New Jersey law as an
investment company subsidiary. The purpose of this subsidiary is to invest in
stocks, bonds, notes and all types of equity, mortgages, debentures and other
investment securities. Holding investment securities in this subsidiary reduces
our New Jersey state income tax rate.
Personnel
As of March 31, 2005, we had 53 full-time employees and 16 part-time
employees. The employees are not represented by a collective bargaining unit. We
believe our relationship with our employees is satisfactory.
Properties and Equipment
At March 31, 2005, our net investment in property and equipment totaled
$4.1 million. We use an outside service company for data processing. The
following table sets forth the location of our main office, separate drive-up
facility and branch office, the year opened for each and the net book value of
101
each. Additionally, at March 31, 2005, we had security deposits totaling
$408,000 in connection with de novo branch site acquisitions.
Year
Facility Leased or Net Book Value at
Office Location Opened Owned March 31, 2005
- --------------- ------ ----- --------------
(In thousands)
Main Office
365 Broad Street
Bloomfield, New Jersey 07003 1965 Owned $1,377
Main Office Drive Up Facility
16 Pitt Street
Bloomfield, New Jersey 07003 1998 Owned $346
Full Service Branch
310 Pompton Avenue
Cedar Grove, New Jersey 07009 2001 Owned $1,928
Legal Proceedings
ASB Holding Company and its subsidiaries, from time to time, are a
party to routine litigation, which arises in the normal course of business, such
as claims to enforce liens, condemnation proceedings on properties in which
American Bank of New Jersey holds security interests, claims involving the
making and servicing of real property loans, and other issues incident to the
business of American Bank of New Jersey. There were no lawsuits pending or known
to be contemplated against us at March 31, 2005 that would have a material
effect on our operations or income.
REGULATION
Set forth below is a brief description of certain laws that relate to
the regulation of American Bank of New Jersey and American Bancorp of New
Jersey, Inc. The description does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations. We operate in a
highly regulated industry. This regulation and supervision establishes a
comprehensive framework of activities in which a federal savings bank may engage
and is intended primarily for the protection of the deposit insurance fund and
depositors.
Any change in applicable statutory and regulatory requirements, whether
by the OTS, the FDIC or the United States Congress, could have a material
adverse impact on the operations of American Bancorp of New Jersey, Inc. and
American Bank of New Jersey. The adoption of regulations or the enactment of
laws that restrict the operations of American Bank of New Jersey and/or American
Bancorp of New Jersey, Inc. or impose burdensome requirements upon one or both
of them could reduce their profitability and could impair the value of American
Bank of New Jersey's franchise which could hurt the trading price of American
Bancorp of New Jersey, Inc. common stock.
Regulation of American Bank of New Jersey
General. As a federally-chartered, SAIF-insured savings bank, American
Bank of New Jersey is subject to extensive regulation by the OTS and the FDIC.
This regulatory structure gives the regulatory
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authorities extensive discretion in connection with their supervisory and
enforcement activities and examination policies, including policies regarding
the classification of assets and the level of the allowance for loan losses. The
activities of federal savings banks are subject to extensive regulation
including restrictions or requirements with respect to loans to one borrower,
the percentage of non-mortgage loans or investments to total assets, capital
distributions, permissible investments and lending activities, liquidity
management, transactions with affiliates and community reinvestment. Federal
savings banks are also subject to reserve requirements of the Federal Reserve
System. A federal savings bank's relationship with its depositors and borrowers
is regulated by both state and federal law, especially in such matters as the
ownership of savings accounts and the form and content of the bank's mortgage
documents.
American Bank of New Jersey must file regular reports with the OTS and
the FDIC concerning its activities and financial condition, and must obtain
regulatory approvals prior to entering into certain transactions such as mergers
with or acquisitions of other financial institutions. The OTS regularly examines
American Bank of New Jersey and prepares reports to American Bank of New
Jersey's Board of Directors on deficiencies, if any, found in its operations.
Insurance of Deposit Accounts. The FDIC administers two separate
deposit insurance funds. Generally, the Bank Insurance Fund ("BIF") insures the
deposits of commercial banks and the Savings Association Insurance Fund ("SAIF")
insures the deposits of savings institutions. The FDIC is authorized to increase
deposit insurance premiums if it determines increases are appropriate to
maintain the reserves of either the BIF or SAIF or to fund the administration of
the FDIC. In addition, the FDIC is authorized to levy emergency special
assessments on BIF and SAIF members. The assessment rate for most savings
institutions, including American Bank of New Jersey, is currently 0%.
In addition, all FDIC-insured institutions are required to pay
assessments to the FDIC at an annual rate of approximately .0212% of insured
deposits to fund interest payments on bonds issued by the Financing Corporation
("FICO"), an agency of the Federal government established to recapitalize the
predecessor to the SAIF. These assessments will continue until the FICO bonds
mature in 2017.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) "Tier 1" or "core" capital equal to at
least 4% (3% if the institution has received the highest possible rating on its
most recent examination) of total adjusted assets, and (3) risk-based capital
equal to 8% of total risk-weighted assets. For American Bank of New Jersey's
compliance with these regulatory capital standards, see Historical and Pro Forma
Capital Compliance at page__.
In addition, the OTS may require that a savings institution that has a
risk-based capital ratio of less than 8%, a ratio of Tier 1 capital to
risk-weighted assets of less than 4% or a ratio of Tier 1 capital to total
adjusted assets of less than 4% (3% if the institution has received the highest
rating on its most recent examination) take certain action to increase its
capital ratios. If the savings institution's capital is significantly below the
minimum required levels of capital or if it is unsuccessful in increasing its
capital ratios, the OTS may restrict its activities.
For purposes of the OTS capital regulations, tangible capital is
defined as core capital less all intangible assets except for certain mortgage
servicing rights. Tier 1 or core capital is defined as common stockholders'
equity, non-cumulative perpetual preferred stock and related surplus, minority
interests in the equity accounts of consolidated subsidiaries, and certain
non-withdrawable accounts and pledged deposits of mutual savings banks. American
Bank of New Jersey does not have any non-withdrawable accounts or pledged
deposits. Tier 1 and core capital are reduced by an institution's intangible
assets, with
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limited exceptions for certain mortgage and non-mortgage servicing rights and
purchased credit card relationships. Both core and tangible capital are further
reduced by an amount equal to the savings institution's debt and equity
investments in "non-includable" subsidiaries engaged in activities not
permissible to national banks other than subsidiaries engaged in activities
undertaken as agent for customers or in mortgage banking activities and
subsidiary depository institutions or their holding companies.
The risk-based capital standard for savings institutions requires the
maintenance of total capital of 8% of risk-weighted assets. Total capital equals
the sum of core and supplementary capital. The components of supplementary
capital include, among other items, cumulative perpetual preferred stock,
perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, the portion of the allowance for loan losses
not designated for specific loan losses and up to 45% of unrealized gains on
equity securities. The portion of the allowance for loan and lease losses
includable in supplementary capital is limited to a maximum of 1.25% of
risk-weighted assets. Overall, supplementary capital is limited to 100% of core
capital. For purposes of determining total capital, a savings institution's
assets are reduced by the amount of capital instruments held by other depository
institutions pursuant to reciprocal arrangements and by the amount of the
institution's equity investments (other than those deducted from core and
tangible capital) and its high loan-to-value ratio land loans and
non-residential construction loans.
A savings institution's risk-based capital requirement is measured
against risk-weighted assets, which equal the sum of each on-balance-sheet asset
and the credit-equivalent amount of each off-balance- sheet item after being
multiplied by an assigned risk weight. These risk weights range from 0% for cash
to 100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
OTS rules require a deduction from capital for savings institutions
with certain levels of interest rate risk. The OTS calculates the sensitivity of
an institution's net portfolio value based on data submitted by the institution
in a schedule to its quarterly Thrift Financial Report and using the interest
rate risk measurement model adopted by the OTS. The amount of the interest rate
risk component, if any, deducted from an institution's total capital is based on
the institution's Thrift Financial Report filed two quarters earlier. The OTS
has indefinitely postponed implementation of the interest rate risk component,
and American Bank of New Jersey has not been required to determine whether it
will be required to deduct an interest rate risk component from capital.
Prompt Corrective Regulatory Action. Under the OTS Prompt Corrective
Action regulations, the OTS is required to take supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution's level of capital. Generally, a savings institution that has total
risk-based capital of less than 8.0%, or a leverage ratio or a Tier 1 core
capital ratio that is less than 4.0%, is considered to be undercapitalized. A
savings institution that has total risk-based capital less than 6.0%, a Tier 1
core risk-based capital ratio of less than 3.0% or a leverage ratio that is less
than 3.0% is considered to be "significantly undercapitalized." A savings
institution that has a tangible capital to assets ratio equal to or less than
2.0% is deemed to be "critically undercapitalized." Generally, the banking
regulator is required to appoint a receiver or conservator for an institution
that is "critically undercapitalized." The regulation also provides that a
capital restoration plan must be filed with the OTS within forty-five days of
the date an institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." In addition,
numerous mandatory supervisory actions become immediately applicable to the
institution, including, but not limited to, restrictions on growth, investment
activities, capital distributions, and affiliate transactions. The OTS may also
take any one of
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a number of discretionary supervisory actions against undercapitalized
institutions, including the issuance of a capital directive and the replacement
of senior executive officers and directors.
Dividend and Other Capital Distribution Limitations. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
make capital distributions, including cash dividends.
A savings institution that is a subsidiary of a savings and loan
holding company, such as American Bank of New Jersey, must file an application
or a notice with the OTS at least thirty days before making a capital
distribution. A savings institution must file an application for prior approval
of a capital distribution if: (i) it is not eligible for expedited treatment
under the applications processing rules of the OTS; (ii) the total amount of all
capital distributions, including the proposed capital distribution, for the
applicable calendar year would exceed an amount equal to the savings bank's net
income for that year to date plus the institution's retained net income for the
preceding two years; (iii) it would not adequately be capitalized after the
capital distribution; or (iv) the distribution would violate an agreement with
the OTS or applicable regulations.
American Bank of New Jersey is required to file a capital distribution
notice or application with the OTS before paying any dividend to American
Bancorp of New Jersey, Inc. However, capital distributions by American Bancorp
of New Jersey, Inc., as a savings and loan holding company, will not be subject
to the OTS capital distribution rules.
The OTS may disapprove a notice or deny an application for a capital
distribution if: (i) the savings institution would be undercapitalized following
the capital distribution; (ii) the proposed capital distribution raises safety
and soundness concerns; or (iii) the capital distribution would violate a
prohibition contained in any statute, regulation or agreement. In addition, a
federal savings institution cannot distribute regulatory capital that is
required for its liquidation account. See The Conversion - Liquidation Rights at
page __.
Qualified Thrift Lender Test. Federal savings institutions must meet a
qualified thrift lender ("QTL") test or they become subject to the business
activity restrictions and branching rules applicable to national banks. To
qualify as a QTL, a savings institution must either (i) be deemed a "domestic
building and loan association" under the Internal Revenue Code by maintaining at
least 60% of its total assets in specified types of assets, including cash,
certain government securities, loans secured by and other assets related to
residential real property, educational loans and investments in premises of the
institution or (ii) satisfy the statutory QTL test set forth in the Home Owners'
Loan Act by maintaining at least 65% of its "portfolio assets" in certain
"Qualified Thrift Investments" (defined to include residential mortgages and
related equity investments, certain mortgage-related securities, small business
loans, student loans and credit card loans, and 50% of certain community
development loans). For purposes of the statutory QTL test, portfolio assets are
defined as total assets minus intangible assets, property used by the
institution in conducting its business, and liquid assets equal to 20% of total
assets. A savings institution must maintain its status as a QTL on a monthly
basis in at least nine out of every twelve months. American Bank of New Jersey
met the QTL test as of March 31, 2005 and in each of the last twelve months and,
therefore, qualifies as a QTL.
Transactions with Affiliates. Generally, federal banking law requires
that transactions between a savings institution or its subsidiaries and its
affiliates must be on terms as favorable to the savings institution as
comparable transactions with non-affiliates. In addition, certain types of these
transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. In
addition,
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a savings institution may not extend credit to any affiliate engaged in
activities not permissible for a bank holding company or acquire the securities
of any affiliate that is not a subsidiary. The OTS has the discretion to treat
subsidiaries of savings institutions as affiliates on a case-by-case basis.
Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), every insured depository institution, including American Bank of New
Jersey, has a continuing and affirmative obligation consistent with its safe and
sound operation to help meet the credit needs of its entire community, including
low- and moderate-income neighborhoods. The CRA does not establish specific
lending requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community. The CRA requires the OTS
to assess the depository institution's record of meeting the credit needs of its
community and to take this record into account in its evaluation of certain
applications by the institution, such as a merger or the establishment of a
branch office by American Bank of New Jersey. An unsatisfactory CRA examination
rating may be used as the basis for the denial of an application by the OTS.
Federal Home Loan Bank System. American Bank of New Jersey is a member
of the FHLB of New York, which is one of twelve regional FHLBs. Each FHLB serves
as a reserve or central bank for its members within its assigned region. It is
funded primarily from funds deposited by financial institutions and proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
loans to members pursuant to policies and procedures established by the board of
directors of the FHLB.
As a member, American Bank of New Jersey is required to purchase and
maintain stock in the FHLB of New York in an amount equal to the greater of 1%
of our aggregate unpaid residential mortgage loans, home purchase contracts or
similar obligations at the beginning of each year or 5% of FHLB advances. We are
in compliance with this requirement. The FHLB imposes various limitations on
advances such as limiting the amount of certain types of real estate related
collateral to 30% of a member's capital and limiting total advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest-bearing reserves at specified
levels against their checking accounts and non-personal certificate accounts.
The balances maintained to meet the reserve requirements imposed by the Federal
Reserve System may be used to satisfy the OTS liquidity requirements.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System.
The USA Patriot Act. American Bank of New Jersey is subject to Office
of Thrift Supervision regulations implementing the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001, or the USA Patriot Act. The USA Patriot Act gives the
federal government powers to address terrorist threats through enhanced domestic
security measures, expanded surveillance powers, increased information sharing
and broadened anti-money laundering requirements. By way of amendments to the
Bank Secrecy Act, Title III of the USA Patriot Act takes measures intended to
encourage information sharing among bank regulatory agencies and law enforcement
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bodies. Further, certain provisions of Title III impose affirmative obligations
on a broad range of financial institutions, including banks, thrifts, brokers,
dealers, credit unions, money transfer agents and parties registered under the
Commodity Exchange Act. As of March 31, 2005, management of American Bank of New
Jersey believes all required actions to be taken by American Bank of New Jersey
under the USA Patriot Act have been completed.
Among other requirements, Title III of the USA Patriot Act and the
related regulations of the Office of Thrift Supervision impose the following
requirements with respect to financial institutions:
o Establishment of anti-money laundering programs that include, at minimum:
(i) internal policies, procedures, and controls; (ii) specific designation
of an anti-money laundering compliance officer; (iii) ongoing employee
training programs; and (iv) an independent audit function to test the
anti-money laundering program.
o Establishment of a program specifying procedures for obtaining identifying
information from customers seeking to open new accounts, including
verifying the identity of customers within a reasonable period of time.
o Establishment of appropriate, specific, and, where necessary, enhanced due
diligence policies, procedures, and controls designed to detect and report
money laundering.
o Prohibitions on establishing, maintaining, administering or managing
correspondent accounts for foreign shell banks (foreign banks that do not
have a physical presence in any country), and compliance with certain
record keeping obligations with respect to correspondent accounts of
foreign banks.
Bank regulators are directed to consider effectiveness in combating
money laundering when ruling on Bank Merger Act applications.
Regulation of American Bancorp of New Jersey, Inc.
General. Upon completion of the conversion, American Bancorp of New
Jersey, Inc., the newly formed New Jersey corporation, will be a savings and
loan holding company, subject to regulation and supervision by the OTS. In
addition, the OTS will have enforcement authority over American Bancorp of New
Jersey, Inc. and any non-savings institution subsidiaries. This permits the OTS
to restrict or prohibit activities that it determines to be a serious risk to
American Bank of New Jersey. This regulation is intended primarily for the
protection of the depositors and not for the benefit of stockholders of American
Bancorp of New Jersey, Inc.
Activities Restrictions. As a savings and loan holding company formed
after May 4, 1999, American Bancorp of New Jersey, Inc. will not be a
grandfathered unitary savings and loan holding company under the
Gramm-Leach-Bliley Act (the "GLB Act"). As a result, American Bancorp of New
Jersey, Inc. and its non-savings institution subsidiaries will be subject to
statutory and regulatory restrictions on their business activities. Under the
Home Owners' Loan Act, as amended by the GLB Act, the non-banking activities of
American Bancorp of New Jersey, Inc. will be restricted to certain activities
specified by OTS regulation, which include performing services and holding
properties used by a savings institution subsidiary, activities authorized for
savings and loan holding companies as of March 5, 1987, and non-banking
activities permissible for bank holding companies pursuant to the Bank Holding
Company Act of 1956 (the "BHC Act") or authorized for financial holding
companies pursuant to the GLB Act.
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Furthermore, no company may acquire control of American Bank of New Jersey
unless the acquiring company was a unitary savings and loan holding company on
May 4, 1999 (or became a unitary savings and loan holding company pursuant to an
application pending as of that date) or the company is only engaged in
activities that are permitted for multiple savings and loan holding companies or
for financial holding companies under the BHC Act as amended by the GLB Act.
Mergers and Acquisitions. American Bancorp of New Jersey, Inc. must
obtain approval from the OTS before acquiring more than 5% of the voting stock
of another savings institution or savings and loan holding company or acquiring
such a savings institution or savings and loan holding company by merger,
consolidation or purchase of its assets. In evaluating an application for
American Bancorp of New Jersey, Inc. to acquire control of a savings
institution, the OTS would consider the financial and managerial resources and
future prospects of American Bancorp of New Jersey, Inc. and the target
institution, the effect of the acquisition on the risk to the insurance funds,
the convenience and the needs of the community and competitive factors.
Sarbanes-Oxley Act of 2002. On July 30, 2002, the President signed into
law the Sarbanes-Oxley Act of 2002, or the Act, which implemented legislative
reforms intended to address corporate and accounting fraud. In addition to the
establishment of a new accounting oversight board that will enforce auditing,
quality control and independence standards and will be funded by fees from all
publicly traded companies, the Act places certain restrictions on the scope of
services that may be provided by accounting firms to their public company audit
clients. Any non-audit services being provided to a public company audit client
will require preapproval by the company's audit committee. In addition, the Act
makes certain changes to the requirements for partner rotation after a period of
time. The Act requires chief executive officers and chief financial officers, or
their equivalent, to certify to the accuracy of periodic reports filed with the
Securities and Exchange Commission, subject to civil and criminal penalties if
they knowingly or willingly violate this certification requirement. In addition,
under the Act, counsel will be required to report evidence of a material
violation of the securities laws or a breach of fiduciary duty by a company to
its chief executive officer or its chief legal officer, and, if that officer
does not appropriately respond, to report the evidence to the audit committee or
other similar committee of the board of directors or the board itself.
Under the Act, longer prison terms will apply to corporate executives
who violate federal securities laws; the period during which certain types of
suits can be brought against a company or its officers is extended; and bonuses
issued to top executives prior to restatement of a company's financial
statements are now subject to disgorgement if the restatement was due to
corporate misconduct. Executives are also prohibited from insider trading during
retirement plan "blackout" periods, and loans to company executives (other than
loans by financial institutions permitted by federal rules and regulations) are
restricted. In addition, a provision of the Act directs that civil penalties
levied by the Securities and Exchange Commission as a result of any judicial or
administrative action under the Act be deposited to a fund for the benefit of
harmed investors. The Federal Accounts for Investor Restitution provision also
requires the Securities and Exchange Commission to develop methods of improving
collection rates. The legislation accelerates the time frame for disclosures by
public companies, as they must immediately disclose any material changes in
their financial condition or operations. Directors and executive officers must
also provide information for most changes in ownership in a company's securities
within two business days of the change.
The Act also increases the oversight of, and codifies certain
requirements relating to audit committees of public companies and how they
interact with the company's "registered public accounting firm." Audit committee
members must be independent and are absolutely barred from accepting consulting,
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advisory or other compensatory fees from the issuer. In addition, companies must
disclose whether at least one member of the committee is a "financial expert"
(as this term is defined by the Securities and Exchange Commission) and if not,
why not. Under the Act, a company's registered public accounting firm is
prohibited from performing statutorily mandated audit services for a company if
the company's chief executive officer, chief financial officer, comptroller,
chief accounting officer or any person serving in equivalent positions had been
employed by the accounting firm and participated in the audit of the company
during the one-year period preceding the audit initiation date. The Act also
prohibits any officer or director of a company or any other person acting under
their direction from taking any action to fraudulently influence, coerce,
manipulate or mislead any independent accountant engaged in the audit of the
company's financial statements for the purpose of rendering the financial
statements materially misleading. The Act also requires the Securities and
Exchange Commission to prescribe rules requiring inclusion of any internal
control report and assessment by management in the annual report to
stockholders. The Act requires the company's registered public accounting firm
that issues the audit report to attest to and report on management's assessment
of the company's internal controls.
We anticipate that we will incur additional expense in complying with
the provisions of the Act and the resulting regulations.
TAXATION
Federal Taxation
Savings institutions are subject to the Internal Revenue Code of 1986,
as amended (the "Code"), in the same general manner as other corporations.
All thrift institutions are now subject to the same provisions as banks
with respect to deductions for bad debts. Thrift institutions that are treated
as "small banks" (the average adjusted bases for all assets of the institution
equals $500 million or less) under the Code may account for bad debts by using
the experience method for determining additions to their bad debt reserve.
Thrift institutions that are not treated as small banks must now use the
specific charge-off method.
American Bancorp of New Jersey, Inc. may exclude from its income 100%
of dividends received from American Bank of New Jersey as a member of the same
affiliated group of corporations. A 70% dividends received deduction generally
applies with respect to dividends received from corporations that are not
members of the same affiliated group.
ASB Holding Company's and American Bank of New Jersey's federal income
tax returns have not been audited by the IRS during the past five years.
State Taxation
ASB Holding Company and its subsidiaries file New Jersey income tax
returns and are subject to a state income tax that is calculated based on
federal taxable income, subject to certain adjustments. In July 2002, New Jersey
eliminated the 3% tax rate formerly applicable to thrift institutions located in
New Jersey, and these institutions are now subject to the 9% tax rate applicable
to New Jersey corporations. This change was retroactive to January 1, 2002. Our
state tax rate has been reduced by holding investment securities in American
Savings Investment Corp., a wholly owned subsidiary of American Bank of New
Jersey, formed in August 2004.
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The state income tax returns of ASB Holding Company and its
subsidiaries have not been audited during the past five years.
MANAGEMENT
Directors and Executive Officers of American Bancorp of New Jersey, Inc.
American Bancorp of New Jersey, Inc.'s Board of Directors is composed
of eight members each of whom serves for a term of four years. American Bancorp
of New Jersey, Inc.'s certificate of incorporation requires that directors be
divided into four classes, as nearly equal in number as possible, with
approximately one-fourth of the directors elected each year. American Bancorp of
New Jersey, Inc.'s executive officers are appointed annually by the Board and
serve at the Board's discretion.
The following table sets forth information with respect to the
directors and executive officers of American Bancorp of New Jersey, Inc.
Age at Current
September 30, Director Term
Name 2004 Position Since(1) Expires
- ---- ---- -------- -------- -------
Robert A. Gaccione 63 Director 2003 2007
Joseph Kliminski 61 Chief Executive Officer and 1986 2009
Director
Fred G. Kowal 51 President, Chief Operating Officer 2005 2008
and Director
H. Joseph North 72 Director 1991 2006
Stanley Obal 82 Director 1981 2009
W. George Parker 79 Chairman of the Board 1967 2006
Vincent S. Rospond 72 Director 1981 2008
James H. Ward, III 55 Vice Chairman of the Board 1991 2007
Richard M. Bzdek 51 Executive Vice President and N/A N/A
Secretary
Eric B. Heyer 42 Senior Vice President, Chief N/A N/A
Financial Officer and Treasurer
Catherine M. Bringuier 41 Senior Vice President and Chief N/A N/A
Lending Officer
- ----------------------
(1) Indicates the year the individual first became a director of American Bank
of New Jersey or ASB Holding Company. Each current director of ASB Holding
Company is an initial director of the newly formed American Bancorp of New
Jersey, Inc.
The business experience of each of our directors and executive officers
is set forth below. Each has held his or her present position for at least the
past five years, except as otherwise indicated.
Robert A. Gaccione has been a member of the Board since 2003. He has
been a senior partner of the law firm of Gaccione, Pomaco & Malanga, P.C. in
Belleville, New Jersey for thirty years. He is a former Federal Bureau of
Investigation agent. Mr. Gaccione also serves as an Essex County Tax Board
Commissioner. He served as a director of Franklin Community Bank, a commercial
bank located in Nutley, New Jersey for three years. Mr. Gaccione is a member and
the past president of the Belleville Rotary Club, is the president of the Clara
Maass Foundation and is a member of the Belleville Foundation.
Joseph Kliminski has been a member of the Board since 1986. He has been
employed by the Bank since 1967 and became President and Chief Executive Officer
of the Bank in 1987 and President and Chief
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Executive Officer of ASB Holding Company upon its formation in June 2003. Mr.
Fred Kowal succeeded Mr. Kliminski as President of the Bank and ASB Holding
Company in 2005. Mr. Kliminski continues to serve as Chief Executive Officer of
the Bank and ASB Holding Company and will also hold this position for American
Bancorp of New Jersey, Inc. Mr. Kliminski is a member and past president of the
Bloomfield Lions Club, is president of the Advisory Board to the Bloomfield Town
Council, chairman of the Bloomfield Education Foundation, and former chairman of
the Deborah Hospital Children of the World Golf Tournament. Mr. Kliminski also
serves on the Executive Committee of the Bloomfield Center Alliance, and is a
member and former president of the Board of Trustees of the Bloomfield Public
Library. He is also a former member of the Board of Governors of the New Jersey
League of Community Bankers and past president of the Essex County Savings
League.
Fred G. Kowal was appointed as President and Chief Operating Officer of
the Bank in March 2005 and was appointed as a member of the Board of ASB Holding
Company at the same time. In May 2005, he was appointed as President and Chief
Operating Officer of ASB Holding Company. He will serve in these same capacities
as an officer of American Bancorp of New Jersey, Inc. Mr. Kowal was previously
Chairman and Chief Executive Officer of Warwick Community Bancorp, Inc. until
its merger into Provident Bancorp, Inc. in October 2004. He joined Warwick
Community Bancorp, Inc. in 1999 and also served as Chairman of the Board of
Directors of The Warwick Savings Bank and as Chairman of the Board, President
and Chief Executive Officer of The Towne Center Bank, a de novo commercial bank
formed by Warwick Community Bancorp, Inc. in 1999. Prior to joining Warwick, he
served as Senior Vice President of First Union National Bank, where he worked
for 16 years, and as Senior Vice President of PNC Bank.
H. Joseph North has been a member of the Board since 1991. Mr. North
retired in 1987 as Town Administrator of Bloomfield, New Jersey after 20 years
of service as the municipality's Chief Administrative Officer. Mr. North began
his service to the Town of Bloomfield in 1958 as Town Clerk where his duties
included that of Corporation Secretary to the Municipality and Executive
Secretary to the Planning Board and Zoning Board of Adjustment. Mr. North is a
past president and a lifetime member of the New Jersey Municipal Management
Association and is a former member of the International City Management
Association. Mr. North is also a former president of the Bloomfield Lions Club,
Bloomfield Fifth Quarter Club and Bloomfield Tennis Federation and a former
member of the Board of Trustees of Bloomfield College.
Stanley Obal has been a member of the Board since 1981. Mr. Obal
retired in 1982 and was the owner of Obal's Inn, a tavern and restaurant in
Bloomfield, New Jersey.
W. George Parker has been a member of the Board since 1967 and Chairman
since 1990. Mr. Parker is the owner, president and chief executive officer of
Adco Chemical Company, located in Newark, New Jersey.
Vincent S. Rospond has been a member of the Board since 1981. He is an
attorney and the majority stockholder of the law firm of Rospond, Rospond &
Conte, P.A. in Bloomfield, New Jersey. Rospond, Rospond & Conte serves as
general counsel to the Bank. Mr. Rospond is the president and a trustee of
United Way of Bloomfield, is a member and the former legal counsel of Bloomfield
Chamber of Commerce, and is a member and the treasurer of North Jersey
Manufacturer's & Businessmen Association. He is also a member of the Cornell
Club of New Jersey, the Essex County Bar Association, the Newark Art Museum, the
Bloomfield Music Federation and the New Jersey Bar Association.
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James H. Ward, III has been a member of the Board since 1991 and Vice
Chairman since 2003. From 1998 to 2000, he was the majority stockholder and
Chief Operating Officer of Rylyn Group, which operated a restaurant in
Indianapolis, Indiana. Prior to that, he was the majority stockholder and Chief
Operating Officer of Ward and Company, an insurance agency in Springfield, New
Jersey, where he was employed from 1968 to 1998. He is now a retired investor.
Richard M. Bzdek is the Bank's Executive Vice President and Secretary
and became Executive Vice President and Secretary of the ASB Holding Company
upon its formation in June 2003. He will serve in these same capacities as an
officer of American Bancorp of New Jersey, Inc. He has been employed by the Bank
since 1975. Mr. Bzdek is the former president and a current director of the
Bloomfield Chamber of Commerce. He is a member of the Financial Managers Society
and serves as Vice Chairman on the Operations and Technology Committee of the
New Jersey League of Community Bankers. He is also the treasurer and a trustee
of United Way of Bloomfield and is a director and co-founder of the Bloomfield
Center Alliance.
Eric B. Heyer has served as Senior Vice President, Treasurer and Chief
Financial Officer for the Bank since 1997 and was appointed to these same
positions for ASB Holding Company upon its formation in June 2003. He will serve
in these same capacities as an officer of American Bancorp of New Jersey, Inc.
Mr. Heyer has been employed by the Bank since 1993. He was previously the chief
financial officer of Monarch Savings Bank in Kearny, New Jersey, where he was
employed from 1986 to 1993. Mr. Heyer is a member of the Financial Managers
Society. He has previously served as a trustee of Kingston United Methodist
Church and currently serves as vice chairman of the stewardship and finance
committee of Princeton United Methodist Church. Mr. Heyer also serves as a board
member of the Mental Health Clinic of Passaic in Clifton, New Jersey.
Catherine M. Bringuier has been the Bank's Senior Vice President and
Chief Lending Officer since January 2003. She has also served as the CRA Officer
since February 1993. Ms. Bringuier has been employed by the Bank since March
1990. She has previously held the position of compliance officer, internal loan
review officer, and Vice President of Lending Officer for commercial,
residential and consumer lending. Ms. Bringuier currently serves as a member of
the Commercial Lending Committee, Loan Servicing Committee, and the Residential
Lending & Affordable Housing Committee of the New Jersey League of Community
Bankers. Ms. Bringuier was also appointed to the Mortgage Steering Committee of
the New Jersey League. Ms. Bringuier is a member of the Commercial Loan
Committee and the Residential Lending Committee of the Mortgage Bankers
Association of New Jersey. She is a member and prior Vice President of Sunny
Acres Civic & Improvement Association in Cranford, New Jersey and is an
Assistant Den Leader for Cub Scout Pack 103, in Cranford, New Jersey.
Meetings and Committees of the Board of Directors
The Board of Directors conducts its business through meetings of the
Board and through activities of its committees. During the fiscal year ended
September 30, 2004, the Board of Directors met twenty-seven times, including
regularly scheduled and special meetings. No director attended fewer than 75% of
the total aggregate meetings of the Board of Directors plus meetings of
committees on which he served during the year ended September 30, 2004.
The Board maintains a Compensation Committee consisting of all
directors who are independent under the rules of the Nasdaq Stock Market. This
committee meets annually and as needed through the year. The responsibilities of
this committee include appraisal of the performance of officers of the Bank,
administration of management incentive compensation plans and review of the
directors' compensation.
112
This committee reviews industry compensation surveys and reviews the
recommendations of senior management on employee compensation matters.
The Audit Committee consists of Directors Parker, North and Ward, each
of whom is independent under the rules of the Nasdaq Stock Market. Each member
of the Audit Committee is qualified under the rules of the Nasdaq Stock Market
to serve as a member of the Audit Committee, however, none qualifies as an audit
committee financial expert within the meaning of the regulations of the
Securities and Exchange Commission. This committee meets quarterly and as needed
with the internal auditor and the external auditors. This committee's main
responsibilities include oversight of the internal auditor and the external
auditors and monitoring of management and staff compliance with the Board's
audit policies, and applicable laws and regulations.
Director Compensation
Board Fees. Directors are currently paid a fee of $500 per meeting for
each regular and special meeting attended. Directors also receive an annual
retainer of $2,500. No fees are paid for committee meetings other than audit
committee meetings, for which directors receive a fee of $750 per meeting. Each
director is also a director of American Bank of New Jersey and is paid $1,000
per meeting for each regular and special meeting of the Bank's Board attended.
Bank directors also receive an annual retainer of $8,000.
Directors who also serve as employees do not receive compensation as
directors.
Directors Consultant and Retirement Plan. The Directors Consultant and
Retirement Plan provides retirement benefits to directors on their retirement
date. "Retirement date" means the date of termination of service as a director
following a participant's completion of not less than twelve years of service as
a director, or not less than six years of service following a change in control;
provided however, the retirement date with regard to directors serving as of
August 27, 1996 who have completed not less than five years of service as of
August 27, 1996 shall be the date of termination of service as a director
without regard to whether the twelve years of service requirement has been
fulfilled. Upon death or disability, a director shall be deemed to have
terminated service as of that date.
If a director agrees to become a consulting director to our board upon
retirement, he will receive a monthly payment for 144 months equal to 0.0833
times the average of the annual retainers paid (exclusive of payment of fees for
meetings) for the highest three yearly periods during the immediately prior
ten-year period. In the event of a change in control, all directors will be
presumed to have reached the retirement date and each director will receive a
lump sum payment equal to the present value of future benefits payable.
Other Director Compensation. ASB Holding Company has adopted the 2005
Stock Option Plan and the 2005 Restricted Stock Plan, and stockholders of ASB
Holding Company approved these plans at the annual meeting held in January 2005.
Each non-employee director of ASB Holding Company was awarded options to
purchase shares of common stock under the option plan and shares of common stock
under the restricted stock plan. The number of options and the exercise price
will be adjusted in accordance with the exchange ratio in connection with the
conversion. The restricted stock awards will also be adjusted for the exchange
ratio in connection with the conversion. See 2005 Stock Awards at page __ for
details related to these stock plans.
113
Executive Compensation
Summary Compensation Table. The following table sets forth the
compensation awarded to or earned by ASB Holding Company's Chief Executive
Officer and certain other executive officers of ASB Holding Company and Bank for
the three fiscal years ended September 30, 2004. Mr. Fred Kowal's employment
commenced during the fiscal year ending September 30, 2005, and thus no
compensation is shown for him in the following table.
Annual Compensation
-------------------
Fiscal Year
Ended All Other
Name and Principal Position September 30, Salary Bonus Compensation
- --------------------------- ------------- ------ ----- ------------
Joseph Kliminski, Chief Executive Officer 2004 $250,000 $ 0 $188,101(1)
2003 242,255 73,228 212,140
2002 197,447 35,455 90,427
Richard M. Bzdek, Executive 2004 $164,147 $ 0 $ 44,290(2)
Vice President and Secretary 2003 162,244 30,492 46,498
2002 156,047 29,698 24,525
Eric B. Heyer, Senior Vice 2004 $145,000 $ 0 $ 32,617(3)
President, Treasurer and Chief 2003 139,615 50,322 31,019
Financial Officer 2002 122,308 24,283 15,724
Catherine M. Bringuier, Senior Vice 2004 $133,800 $ 25,000 $ 30,329(4)
President and Chief Lending Officer 2003 123,269 45,478 20,910
2002 100,692 18,601 9,107
- --------------
(1) For 2004, consists of (i) an accrual of $162,804 under Mr. Kliminski's
executive salary continuation agreement, (ii) an employer matching
contribution to the 401(k) Plan for Mr. Kliminski of $6,123, (iii) an
employer contribution to the Profit Sharing Plan for Mr. Kliminski of
$13,943, and (iv) the award of 292 shares under the ESOP as of December 31,
2003 based on the last reported sales price of the Common Stock of $17.90
on the date of the award.
(2) For 2004, consists of (i) an accrual of $21,249 under Mr. Bzdek's executive
salary continuation agreement, (ii) an employer matching contribution to
the 401(k) Plan for Mr. Bzdek of $4,647, (iii) an employer contribution to
the Profit Sharing Plan for Mr. Bzdek of $13,943, and (iv) the award of 249
shares under the ESOP as of December 31, 2003 based on the last reported
sales price of the Common Stock of $17.90 on the date of the award.
(3) For 2004, consists of (i) an accrual of $10,636 under Mr. Heyer's executive
salary continuation agreement, (ii) an employer matching contribution to
the 401(k) Plan for Mr. Heyer of $4,120, (iii) an employer contribution to
the Profit Sharing Plan for Mr. Heyer of $13,943, and (iv) the award of 219
shares under the ESOP as of December 31, 2003 based on the last reported
sales price of the Common Stock of $17.90 on the date of the award.
(4) For 2004, consists of (i) an accrual of $9,942 under Ms. Bringuier's
executive salary continuation agreement, (ii) an employer matching
contribution to the 401(k) Plan for Ms. Bringuier of $4,764, (iii) an
employer contribution to the Profit Sharing Plan for Ms. Bringuier of
$12,118 and (iv) the award of 195 shares under the ESOP as of December 31,
2003 based on the last reported sales price of the Common Stock of $17.90
on the date of the award.
Employment Agreements. The Bank has entered into employment agreements
with Mr. Kliminski, Mr. Kowal, Mr. Bzdek, Mr. Heyer and Ms. Bringuier. Mr.
Kliminski's, Mr. Kowal's, Mr. Bzdek's. Mr. Heyer's and Ms. Bringuier's current
base salaries are $258,750, $225,000, $169,892, $150,075, and $139,932,
respectively. Mr. Kliminski's and Mr. Kowal's employment agreements have a term
of three years while Mr. Bzdek's, Mr. Heyer's and Ms. Bringuier's agreements
have a term of two years. Each of the agreements provides for an annual one-year
extension of the term of the agreement upon determination of the Board of
Directors that the executive's performance has met the requirements and
standards of the Board, so that the remaining term of the agreement continues to
be three years, in the case
114
of Mr. Kliminski and Mr. Kowal, and two years, in the case of Mr. Bzdek, Mr.
Heyer and Ms. Bringuier. If the Bank terminates Mr. Kliminski or Mr. Kowal
without "just cause"as defined in the agreement, they will be entitled to a
continuation of their salary from the date of termination through the remaining
term of their agreement, but in no event for a period of less than two years. If
the Bank terminates Mr. Bzdek, Mr. Heyer or Ms. Bringuier without "just cause"
as defined in the agreement, they will be entitled to a continuation of their
salary from the date of termination through the remaining term of their
agreement. Mr. Kliminski's and Mr. Kowal's employment agreements provide that if
their employment is terminated without just cause within twenty-four months of a
change in control, they will be paid an amount equal to 2.999 times their
five-year average annual taxable cash compensation in either a lump sum or, at
their option, in periodic payments over a three-year period or the remaining
term of the agreement, whichever is less. Mr. Bzdek's, Mr. Heyer's and Ms.
Bringuier's employment agreements provide that if their employment is terminated
without just cause within twelve months of a change in control, they will be
paid an amount equal to 2.0 times their five-year average annual taxable cash
compensation in either a lump sum or, at their option, in periodic payments over
a two-year period or the remaining term of the agreement, whichever is less. If
change in control payments had been made under the agreements as of March
31,2005, the payments would have equaled approximately $792,311, $674,775,
$347,630, $285,919 and $260,667 to Mr. Kliminski, Mr. Kowal, Mr. Bzdek, Mr.
Heyer and Ms. Bringuier, respectively.
ASB Holding Company has entered into an employment agreement with Mr.
Kliminski, the terms of which are substantially the same as Mr. Kliminski's
employment agreement with the Bank. The agreement with ASB Holding Company
provides that if Mr. Kliminski's employment is terminated without "just cause"
as defined in the agreement, he will be entitled to a continuation of his salary
for three years from the date of termination. Any payments to Mr. Kliminski
under the employment agreement with ASB Holding Company will be reduced to the
extent that payments are made to Mr. Kliminski under his agreement with the
Bank. It is anticipated that American Bancorp of New Jersey, Inc. will enter
into a similar agreement with Mr. Kliminski.
Executive Salary Continuation Agreements. The Bank has implemented
executive salary continuation agreements for the benefit of Officers Kliminski,
Bzdek, Heyer and Bringuier. The executive salary continuation agreements will
provide benefits at age 65 that would be comparable to approximately 50% of Mr.
Kliminski's average base salary based upon the average of the three highest out
of the last five years of employment, and 30% of average salary for Officers
Bzdek, Heyer and Bringuier. The benefits will be paid in equal monthly
installments until the death of the participant. If a participant terminates
employment prior to age 65, then the retirement benefit equals the then accrued
balance of the participant's liability reserve account, and the benefit is paid
in equal monthly installments until the death of the participant. Upon
disability, the participant will receive the then accrued balance of the
participant's liability reserve account, and the benefit is payable either in a
lump sum or in 180 monthly installments. Upon a change in control of the Bank,
and the participant's termination, the participant will be deemed to reach age
65 and will receive full retirement benefits. As long as the agreement remains
in effect, upon the death of a participant, the participant's beneficiary will
be paid a death benefit under the terms of the Endorsement Method Split Dollar
Life Insurance Agreement between the participant and the Bank.
For fiscal 2004, we accrued $162,804 under Mr. Kliminski's executive
salary continuation agreement, $21,249 under Mr. Bzdek's executive salary
continuation agreement, $10,636 under Mr. Heyer's executive salary continuation
agreement and $9,942 under Ms. Bringuier's executive salary continuation
agreement. These accruals reflect the scheduled accruals under the plan in order
for the retirement benefit provided by the plan to be fully accrued at the
expected retirement date. The accrual for Mr. Kliminski is higher than for that
for the other officers due to the fewer number of months left to
115
accrue the full retirement benefit that will be payable to Mr. Kliminski at his
expected retirement date and also reflects a higher average base salary for Mr.
Kliminski and a higher percentage of the base provided under the plan, 50%
versus 30% for the other officers. When the plans were established for each
officer, there were 78 months until the expected retirement date for Mr.
Kliminski, compared to 196 months, 300 months and 298 months for Officers Bzdek,
Heyer and Bringuier. The amounts required to accrue the present value of the
retirement benefit provided for each individual are based upon assumptions for
discount rate, salary projections and life expectancy. These assumptions are
reviewed at least annually and provide the basis upon which monthly benefit
accruals are recorded. These accruals are generally recorded in equal amounts
from month to month with changes made to these amounts as required by assumption
changes.
401(k) Savings and Profit Sharing Plan. American Bank of New Jersey
sponsors a tax-qualified defined contribution savings plan for the benefit of
its employees. Employees become eligible to participate under the 401(k) Plan on
the first day of any month following the completion of twelve months of service.
Under the 401(k) Plan, employees may voluntarily elect to defer between 1% and
50% of compensation, not to exceed applicable limits under the Internal Revenue
Code. In calendar year 2004, an employee could defer up to the lower of $13,000
or 50% of his salary. Employees age 50 and over may make catch-up contributions
($3,000 in 2004). In addition, the 401(k) Plan provides for matching
contributions up to a maximum of 3% of a person's salary for each participant
under the 401(k) Plan. Employee contributions are immediately fully vested under
the 401(k) Plan and matching contributions are vested at a rate of 20% per year
after two years and completely vested after six years of service. Participants
under the 401(k) Plan are currently able to direct 401(k) Plan assets to be
invested in the stock of ASB Holding Company and will also be able direct 401(k)
Plan assets to be invested in shares of American Bancorp of New Jersey, Inc. in
and following the stock offering.
It is intended that the 401(k) Plan will operate in compliance with the
provisions of the Employee Retirement Income Security Act of 1974, as amended,
and the requirements of Section 401(a) of the Internal Revenue Code.
Contributions to the 401(k) Plan for employees may be reduced in the future or
eliminated as a result of contributions made to the Employee Stock Ownership
Plan. See Management - Potential Stock Benefit Plans - Employee Stock Ownership
Plan on page __.
Employee Stock Ownership Plan
American Bank of New Jersey has previously established an employee
stock ownership plan for the exclusive benefit of participating employees of
American Bank of New Jersey. We intend to continue this plan after the
conversion. Participating employees are employees who have completed one year of
service and have attained the age of 21. An application for a letter of
determination as to the tax-qualified status of the employee stock ownership
plan has been received by the IRS.
The employee stock ownership plan is funded by contributions made by
American Bank of New Jersey in cash or common stock. Benefits may be paid either
in shares of the common stock or in cash. In addition to the common stock
previously acquired by the plan with funds borrowed by American Bank of New
Jersey, with an outstanding loan balance at March 31, 2005 of $1,163,945, we
intend for the plan trust to borrow additional funds with which to acquire up to
8% of the common stock to be issued in the stock offering, or 600,000 shares at
the midpoint of the offering range, requiring a loan of $6.0 million. The
employee stock ownership plan intends to borrow the funds for the new stock
purchase and to refinance the existing plan trust debt. The combined outstanding
balance of the new debt and the refinanced debt will total $7.2 million. The new
loan is expected to be for a term of ten years at an annual interest rate equal
to the prime rate as published in The Wall Street Journal. The loan will be
secured by
116
the shares purchased and earnings of employee stock ownership plan assets.
Shares purchased with loan proceeds will be held in a suspense account for
allocation among participants as the loan is repaid. It is anticipated that all
contributions will be tax-deductible. This loan is expected to be fully repaid
in approximately ten years.
Contributions to the employee stock ownership plan and shares released
from the suspense account will be allocated among participants on the basis of
total compensation. All participants must be employed at least 1,000 hours in a
plan year, or have terminated employment following death, disability or
retirement, in order to receive an allocation. Participant benefits become fully
vested in plan allocations following five years of service. Employment before
the adoption of the employee stock ownership plan shall be credited for the
purposes of vesting. Contributions to the employee stock ownership plan by
American Bank of New Jersey and its subsidiaries are discretionary and may cause
a reduction in other forms of compensation, including our 401(k) Plan. As a
result, benefits payable under this plan cannot be estimated.
The Board of Directors appointed all non-employee directors to serve as
ESOP Trustees and as members of the ESOP Plan Committee. The ESOP Plan Committee
directs the vote of all unallocated shares and all shares allocated to
participants for which timely voting directions are not received.
2005 Stock Awards
Directors and officers have been awarded options to purchase shares of
common stock under the ASB Holding Company 2005 Stock Option Plan, at an
exercise price equal to the fair market value of the Common Stock on the date of
grant. Each non-employee director has been awarded 15,650 options. Chief
Executive Officer Kliminski was awarded 64,640 options. Officers Bzdek, Heyer
and Bringuier were awarded 31,980, 29,258 and 29,258 options, respectively.
These options are first exercisable at a rate of 20% one year after the date of
grant and 20% annually thereafter during continued service as an employee,
director or director emeritus. Upon disability, death, or a change in control,
these awards become 100% exercisable. The number of options and the exercise
price will be adjusted in accordance with the exchange ratio in connection with
the conversion.
Directors and officers have also been awarded shares of restricted
stock under the American Bank of New Jersey 2005 Restricted Stock Plan. Each
non-employee director has been awarded 4,899 shares of restricted stock. Chief
Executive Officer Kliminski was awarded 19,596 shares of restricted stock.
Officers Bzdek, Heyer and Bringuier were awarded 9,798, 8,982 and 8,982 shares
of restricted stock, respectively. Restricted stock awards are earned at the
rate of 20% one year after the date of grant and 20% annually thereafter during
periods of service as an employee, director or director emeritus. All awards
become immediately 100% vested upon death or disability or termination of
service following a change in control. The restricted stock awards will be
adjusted for the exchange ratio in connection with the conversion. The 2005
Restricted Stock Plan intends to continue to make stock purchases in the open
market from time to time to fund this plan after the completion of the stock
offering.
Potential Stock Benefit Plans
Stock Option Plan. We intend to adopt a new stock option plan for the
benefit of directors and officers following the passage of at least one year
from the completion of the conversion. We may, however, decide to adopt the
stock option plan sooner than one year following the conversion, but in no event
will the plan be adopted sooner than six months subsequent to the completion of
the conversion. If the stock option plan is implemented within one year of the
completion of the conversion, it will comply
117
with the OTS regulations related to stock option plans, including limitations on
vesting and allocation of awards. Any plan adopted within one year of the
completion of the conversion will be subject to stockholder approval at a
meeting of stockholders held no sooner than six months subsequent to the
completion of the conversion. The stock option plan may reserve an amount of
common stock equal to up to approximately 7.3% of the shares sold in the stock
offering for awards under the plan. No determinations have been made as to the
time of implementation of the stock option plan, the specific terms of the plan
or any allocation of awards that may be made under the plan.
The purpose of the stock option plan will be to attract and retain
qualified personnel in key positions, provide officers and directors with a
proprietary interest in American Bancorp of New Jersey, Inc. as an incentive to
contribute to our success and reward directors and officers for outstanding
performance. Although the terms of the stock option plan have not yet been
determined, it is expected that the stock option plan will provide for the grant
of: (1) options to purchase the common stock intended to qualify as incentive
stock options under the Code (incentive stock options); and (2) options that do
not so qualify (non-statutory stock options). Any stock option plan would be in
effect for up to ten years from the earlier of adoption by the Board of
Directors or approval by the stockholders. Options would expire no later than 10
years from the date granted and would expire earlier if the option committee so
determines or in the event of termination of employment. Options would be
granted based upon several factors, including length of service, job duties and
responsibilities and job performance.
Restricted Stock Plan. We also intend to establish a new restricted
stock plan to provide our directors and officers with an additional proprietary
interest in American Bancorp of New Jersey, Inc. We intend to adopt the
restricted stock plan after the passage of at least one year from the completion
of the conversion. We may, however, decide to adopt the restricted stock plan
sooner than one year following the conversion, but in no event will the plan be
adopted sooner than six months subsequent to the completion of the conversion.
If the restricted stock plan is implemented within one year of the completion of
the conversion, it will comply with the Office of Thrift Supervision regulations
related to restricted stock plans, including limitations on vesting and
allocation of awards. Any plan adopted within one year of the completion of the
conversion will be subject to stockholder approval at a meeting of stockholders
held no sooner than six months subsequent to the completion of the conversion.
The restricted stock plan is expected to provide for the award of common stock,
subject to vesting restrictions, to eligible directors and officers.
We expect to contribute funds to the restricted stock plan in an amount
sufficient to enable it to acquire up to approximately 3.6% of the shares sold
in the stock offering, provided, however, that, pursuant to the regulations of
the OTS, the plan will be limited to up to 3% if the plan is established within
one year of the conversion and if American Bank of New Jersey does not have in
excess of 10% tangible capital following the conversion.
Shares used to fund the restricted stock plan may be acquired through
open market purchases or provided from authorized but unissued shares. No
determinations have been made as to the specific terms of the restricted stock
plan or any allocation of awards that may be made under the plan.
Dilution. While our intention is to fund the existing and new stock
option plans and restricted stock plans through open market purchases,
stockholders will experience a reduction or dilution in ownership interest if
the plans are instead funded with newly-issued shares.
The issuance of authorized but unissued shares of stock to the new
stock option plan instead of open market purchases would dilute the voting
interests of existing stockholders by approximately 4.85%.
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If the 2005 Stock Option Plan is also funded with newly issued shares instead of
open market purchases, the aggregate dilution from both stock option plans would
be approximately 9.09%.
The issuance of authorized but unissued shares of stock to the new
restricted stock plan instead of open market purchases would dilute the voting
interests of existing stockholders by approximately 2.47%. If the 2005
Restricted Stock Plan is also funded with newly issued shares instead of open
market purchases, the aggregate dilution from both restricted stock plans would
be approximately 3.85%
As of July 31, 2005, we have no exercisable options outstanding.
Options previously granted under the 2005 Stock Option Plan are first
exercisable in January 2006. If any options are exercised during the first year
following the completion of the stock offering, they may be funded with
newly-issued shares as Office of Thrift Supervision regulations do not permit us
to repurchase our shares during the first year following the completion of the
stock offering except to fund the restricted stock plan or under extraordinary
circumstances.
OTS Limitations on Shares Reserved Under the Stock Option Plan and
Restricted Stock Plan. If we present the new restricted stock plan and new stock
option plan for a stockholder vote within one year of the conversion, current
Office of Thrift Supervision policy would require us to take into account shares
reserved under the existing stock option plan and restricted stock plan and
limit shares under the new plans accordingly. We would be required to limit the
shares under the new plans so that the existing and new restricted stock plans
together do not exceed 4% of the shares outstanding after the conversion and the
existing and new stock options plans together do not exceed 10% of the shares
outstanding after the conversion. Under these limitations, the new stock option
plan may not reserve an amount of common stock exceeding approximately 7.3% of
the shares sold in the stock offering and the new restricted stock plan may not
reserve an amount of common stock exceeding approximately 3.6% of the shares
sold in the stock offering. The dilution percentages shown above assume that the
plans are presented for a stockholder vote within one year of the conversion; if
the plans are voted on after the one year anniversary of the conversion, we will
not be subject to such limits. If we adopt the plans within one year of the
conversion, we will follow OTS policy as it stands at that time.
Transactions with Management and Others
Other than as disclosed below, no directors, officers or their
immediate family members were engaged in transactions with American Bancorp of
New Jersey, Inc., ASB Holding Company, American Bank of New Jersey or any
subsidiary involving more than $60,000 (other than through a loan with the Bank)
during either of the two years ended September 30, 2004.
Director Vincent S. Rospond is the majority stockholder of the law firm
of Rospond, Rospond & Conte, P.A., which serves as general counsel to American
Bank of New Jersey and to which the Bank paid approximately $40,000 and $25,000
in legal fees during the years ended September 30, 2004 and 2003. In addition,
the Bank engages this law firm in connection with residential loan closings, and
fees paid by borrowers in loan closings handled by this law firm totaled
approximately $48,000 and $86,000 during fiscal 2004 and 2003.
Director Robert A. Gaccione is a senior partner of the law firm of
Gaccione, Pomaco & Malanga, P.C. to which the Bank paid approximately $11,000
and $24,000 in legal fees during the years ended September 30, 2004 and 2003,
respectively. In addition, the Bank engages this law firm in connection with
commercial loan closings, and fees paid by borrowers in loan closings handled by
this law firm totaled approximately $38,000 and $37,000 during fiscal 2004 and
2003, respectively.
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Management believes that the transactions described above were on terms
at least as favorable to American Bank of New Jersey as the Bank would have
received in transactions with an unrelated party.
American Bank of New Jersey makes loans to its officers, directors and
employees in the ordinary course of business. The Bank waives its application
fee for mortgages to officers and employees on single-family owner-occupied
homes or second homes. It also reduces its application fee for mortgages on two-
to four-family owner-occupied homes by the amount of the application fee for
single family home mortgages and reduces its modification fee for one-to-four
family owner-occupied home mortgages or second home mortgages by the amount of
the application fee for single family home mortgages. Other than these
application fee waivers and reductions to officers and employees, these loans
are on substantially the same terms and conditions as those of comparable
transactions prevailing at the time with other persons. These loans also do not
include more than the normal risk of collectibility or present other unfavorable
features.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of July 31, 2005, the ownership of
American Savings, MHC, the ownership of American Bank of New Jersey's employee
stock ownership plan and the ownership of our executive officers and directors,
individually and as a group. Other than as set forth in the table, management
knows of no person or group that owns more than 5% of the outstanding shares of
common stock at July 31, 2005. Information regarding the planned purchases of
common stock in the stock offering by our directors and executive officers
(including in each case all "associates" of the directors and executive
officers) is set forth under Proposed Stock Purchases by Management at page
____. The business address of each owner shown below is 365 Broad Street,
Bloomfield, New Jersey 07003.
Name and Address Percent of Shares of
of Beneficial Owner Number of Shares(1)(2) Common Stock Outstanding
- ------------------- ---------------------- ------------------------
American Savings, MHC 3,888,150 70.0%
American Bank of New Jersey Bank Employee
Stock Ownership Plan Trust (the "ESOP") 133,308(3) 2.4
Robert A. Gaccione 15,000 *
Joseph Kliminski 41,531 *
Fred G. Kowal - *
H. Joseph North 2,000 *
Stanley Obal 10,000 *
W. George Parker 38,044 *
Vincent S. Rospond 40,800 *
James H. Ward, III 56,635 1.0
Richard M. Bzdek 35,407 *
Eric B. Heyer 12,768 *
Catherine M. Bringuier 6,754 *
------- ---
All directors and executive officers 258,939 4.7%
======= ===
as a group (11 persons)
- --------------------------
* Less than 1%.
(1) Includes shares of common stock held directly as well as by spouses or
minor children, in trust and other indirect ownership.
120
(2) Does not include shares underlying options and shares of restricted stock.
The option shares and restricted stock do not become exercisable or vested
within 60 days of July 31, 2005. See 2005 Stock Awards at page __.
(3) These shares are held in a suspense account and are allocated among
participants annually on the basis of compensation as the ESOP debt is
repaid. As of July 31, 2005, 16,913 shares have been allocated to ESOP
participants. The Board of Directors appointed all non-employee directors
to serve as ESOP Trustees and as members of the ESOP Plan Committee. The
ESOP Plan Committee directs the vote of all unallocated shares and shares
allocated to participants for which timely voting directions are not
received.
Proposed Stock Purchases by Management
The table below sets forth, for each of our directors and executive
officers the following information:
(1) the number of exchange shares to be held upon consummation of the
conversion, based upon their beneficial ownership of ASB Holding
Company common stock as of July 31, 2005;
(2) the proposed purchases of subscription shares, assuming
sufficient shares are available to satisfy their subscriptions;
and
(3) the total amount of our common stock to be held upon consummation
of the conversion.
The table below assumes that 10,714,285 shares are outstanding after
the stock offering, which includes the sale of 7,500,000 shares in the stock
offering (the midpoint) and the issuance of 3,214,285 shares in exchange for
shares of ASB Holding Company. See The Stock Offering - Limitations on Purchases
of Common Stock at page __. The table does not take into account any stock
benefit plans to be adopted following the stock offering. See Management -
Potential Stock Benefit Plans at page __.
Proposed Total
Common Stock Held
After the Stock Offering
------------------------
Number of Proposed Number of
Exchange Shares to be Number
Shares to be Purchased in of % of
Name Held(2) the Stock Offering(1) Shares Total
---- ------- --------------------- ------ -----
Robert A. Gaccione 28,934 12,500 41,434 * %
Joseph Kliminski 80,110 40,000 120,110 1.1
Fred G. Kowal - 40,000 40,000 *
H. Joseph North 3,857 1,000 4,857 *
Stanley Obal 19,289 2,500 21,789 *
W. George Parker 73,384 100,000 173,384 1.6
Vincent S. Rospond 78,700 40,000 118,700 1.1
James H. Ward, III 109,245 90,000 199,245 1.9
Richard M. Bzdek 68,297 10,000 78,297 *
Eric B. Heyer 24,628 5,000 29,628 *
Catherine M. Bringuier 13,028 10,000 23,028 *
------- ------- ------- ---
Total 316,000 351,000 850,472 7.9%
======= ======= ======= ===
- -------------------
* Less than 1%.
(1) Includes proposed subscriptions, if any, by associates. Does not include
the subscription order by the employee stock ownership plan. Purchases by
the employee stock ownership plan are expected to be 8% of the shares sold
in the stock offering.
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(2) Does not include shares underlying options and shares of restricted stock.
Option shares and restricted stock do not become exercisable or vested
within 60 days of July 31, 2005. See 2005 Stock Awards at page __.
THE CONVERSION
The Board of Directors adopted the plan authorizing the conversion on
May 17, 2005, subject to the approval of the OTS, members of American Savings,
MHC, stockholders of ASB Holding Company and the satisfaction of certain other
conditions. We received authorization from the OTS to conduct the conversion on
___________, 2005. OTS authorization does not constitute a recommendation or
endorsement of an investment in our stock by the OTS.
General
On May 17, 2005, the Board of Directors adopted the plan of conversion,
which was subsequently amended. In accordance with the plan, American Savings,
MHC will convert from a mutual holding company to a full stock corporation.
Public stockholders currently own 30% of ASB Holding Company and the remaining
70% is owned by American Savings, MHC. Upon consummation of the conversion,
American Savings, MHC will cease to exist. The stock held by the public
stockholders of ASB Holding Company will be converted into shares of American
Bancorp of New Jersey, Inc., a newly formed New Jersey corporation. After the
conversion, American Bank of New Jersey and ASB Investment Corp. will be wholly
owned subsidiaries of American Bancorp of New Jersey, Inc.
Share Exchange Ratio
OTS regulations provide that in a conversion of a mutual holding
company to stock form, the minority stockholders of ASB Holding Company will be
entitled to exchange their shares of common stock for common stock of the
converted holding company, provided that the Bank and the mutual holding company
demonstrate to the satisfaction of the OTS that the basis for the exchange is
fair and reasonable. Each publicly-held share of ASB Holding Company common
stock will, on the date of completion of the conversion, be automatically
converted into and become the right to receive a number of exchange shares
determined pursuant to the exchange ratio. The public stockholders of ASB
Holding Company common stock will own the same percentage of American Bancorp of
New Jersey, Inc. after the conversion as they currently hold in ASB Holding
Company, subject to additional purchases, or the receipt of cash in lieu of
fractional shares.
Based on the independent valuation, the 70% of the outstanding shares
of ASB Holding Company common stock held by American Savings, MHC as of the date
of the independent valuation and the 30% public ownership interest of ASB
Holding Company, the following table sets forth, at the minimum, mid- point,
maximum, and adjusted maximum of the offering range:
o the total number of subscription shares and exchange shares to be issued in
the conversion;
o the total shares of common stock outstanding after the conversion;
o the exchange ratio; and
o the number of shares an owner of ASB Holding Company will receive in the
exchange, adjusted for the number of shares sold in the stock offering.
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100 Shares of
ASB Holding Company
Shares of American Would be Exchanged for
Bancorp of New Jersey, Total Shares the Following Number
Inc. to be Exchanged of Common of Shares of
Shares to be Sold for Existing Shares of Stock to be Exchange American Bancorp
in the Stock Offering ASB Holding Company Outstanding Ratio of New Jersey, Inc.
--------------------- ------------------- ----------- ----- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
Minimum............ 6,375,000 70% 2,732,143 30% 9,107,143 1.63960% 163
Midpoint........... 7,500,000 70 3,214,285 30 10,714,285 1.92894 192
Maximum............ 8,625,000 70 3,696,429 30 12,321,429 2.21828 221
Adjusted maximum... 9,918,750 70 4,250,892 30 14,169,642 2.55102 255
Options to purchase shares of ASB Holding Company common stock will be
converted into options to purchase shares of American Bancorp of New Jersey,
Inc. common stock. Additionally, restricted stock awards of ASB Holding Company
will also be converted into restricted shares of American Bancorp of New Jersey,
Inc. common stock. At March 31, 2005 there were outstanding options to purchase
272,171 shares of ASB Holding Company common stock and there were 81,651
restricted stock awards of ASB Holding Company common stock outstanding. The
number of shares of common stock to be received upon exercise of these options
will be determined pursuant to the exchange ratio. The aggregate exercise price,
duration, and vesting schedule of these options and restricted stock awards will
not be affected.
Effect of the Conversion on Minority Stockholders
Effect on Stockholders' Equity Per Share of the Shares Exchanged. The
conversion will increase the stockholders' equity of the public stockholders of
ASB Holding Company common stock. At March 31, 2005, the stockholders' equity
per share of ASB Holding Company common stock was $6.99, including shares held
by American Savings, MHC. As set forth under the pro forma information set forth
for March 31, 2005, under Pro Forma Data at page __, pro forma stockholders'
equity per share is $10.28, $9.65, $9.19, and $8.79, respectively, at the
minimum, midpoint, maximum and adjusted maximum, respectively, of the offering
range.
Effect on Earnings per Share of the Shares Exchanged. The conversion
will also affect the public stockholders of ASB Holding Company common stock pro
forma earnings per share. For the six months ended March 31, 2005, basic and
diluted earnings per share of ASB Holding Company common stock was $0.22,
including shares held by American Savings, MHC. As set forth under the pro forma
information set forth for the six months ended March 31, 2005 under Pro Forma
Data at page __, pro forma earnings per share range from $0.13 to $0.08 for the
minimum to the adjusted maximum of the offering range.
Dissenters' and Appraisal Rights. Under OTS regulations, dissenters'
rights of appraisal are available to holders of common stock in connection with
the conversion. The following discussion is not a complete statement of the law
pertaining to dissenters' rights under the OTS Rules and Regulations, and is
qualified in its entirety by the full text of Section 552.14 of the OTS Rules
and Regulations, which is referred to as Section 552.14 and is reprinted in its
entirety as Appendix A to this prospectus. Any ASB Holding Company stockholder
who desires to exercise his or her dissenters' rights should review carefully
Section 552.14 and is urged to consult a legal advisor before electing or
attempting to exercise his or her rights. All references in Section 552.14 to a
"stockholder" and in this summary of dissenters' rights are to the record holder
of shares of ASB Holding Company Common Stock as to which dissenters' rights are
asserted. Subject to the exceptions stated below, holders of ASB Holding Company
Common Stock who
123
comply with the applicable procedures summarized below will be entitled to
exercise dissenters' rights under Section 552.14.
A stockholder electing to exercise his or her rights to dissent from
the conversion is required to file with ASB Holding Company (addressed to
Richard M. Bzdek, Secretary, ASB Holding Company, 365 Broad Street, Bloomfield,
New Jersey 07003), prior to voting on the plan of conversion, a written
statement identifying himself or herself and stating his or her intention to
demand appraisal of, and payment for, his or her shares. This demand must be
made in addition to, and separate from, any proxy or vote. A failure to vote on
the proposal to approve the plan of conversion will not constitute a waiver of
appraisal rights, but a vote for the plan of conversion will be deemed a waiver
of such rights. A vote against the plan of conversion will not be deemed to
satisfy the requirement to file the written statement. However, if a stockholder
returns a signed proxy but does not specify a vote against the plan of
conversion, or a direction to abstain, the proxy, if not revoked prior to the
ASB Holding Company stockholders' meeting, will be voted for approval of the
plan of conversion, which will have the effect of waiving that stockholder's
dissenters' rights.
Within ten days after the completion of the conversion and stock
offering, American Bancorp of New Jersey, Inc. shall (i) give written notice by
mail to any dissenting stockholder who has not voted in favor of the plan of
conversion, (ii) make a written offer to each dissenting stockholder to pay for
his or her shares at a specified price deemed by American Bancorp of New Jersey,
Inc. to be fair value of such shares, and (iii) inform any dissenting
stockholder that within 60 days of the completion of the conversion and stock
offering the dissenting stockholder must file a petition with the Office of
Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552, if the
stockholder and American Bancorp of New Jersey, Inc. do not agree as to the fair
market value.
If within 60 days of the completion of the conversion and stock
offering the fair value is agreed upon between American Bancorp of New Jersey,
Inc. and any dissenting stockholder, payment will be made within 90 days of the
completion of the conversion and stock offering. If within such period, however,
American Bancorp of New Jersey, Inc. and any dissenting stockholder do not agree
as to the fair value of such shares, such stockholder may file a petition with
the OTS demanding a determination of the fair market value of the stock. A copy
of such petition must be sent by registered or certified mail to American
Bancorp of New Jersey, Inc. Any such stockholder who fails to file the petition
within 60 days of the completion of the conversion and stock offering is deemed
to have accepted the terms of the Plan.
Each dissenting stockholder, within 60 days of the completion of the
conversion and stock offering, must submit his or her certificates to the
transfer agent for notation thereon that an appraisal and payment have been
demanded. Any stockholder who fails to submit his or her certificates will not
be entitled to appraisal rights and will be deemed to have accepted the terms of
the Plan.
Any stockholder who is demanding payment for his shares in accordance
with Section 552.14 shall not thereafter be entitled to vote or exercise any
rights of a stockholder except the right to receive payment for his shares
pursuant to the provisions of Section 552.14 and the right to maintain certain
legal actions. The respective shares for which payment has been demanded shall
not thereafter be considered outstanding for the purposes of any subsequent vote
of stockholders.
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Comparison of Stockholders' Rights of ASB Holding Company and American Bancorp
of New Jersey, Inc.
General. As a result of the conversion, the stockholders of ASB Holding
Company will become stockholders of American Bancorp of New Jersey, Inc. There
are certain differences in stockholder rights arising from distinctions between
ASB Holding Company's federal charter and bylaws and American Bancorp of New
Jersey, Inc.'s certificate of incorporation and bylaws, which are based on New
Jersey corporate law.
The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather as a summary of the
material differences affecting the rights of stockholders. The discussion herein
is qualified in its entirety by reference to American Bancorp of New Jersey,
Inc.'s certificate of incorporation and bylaws and the New Jersey Business
Corporation Act. Procedures for obtaining a copy of American Bancorp of New
Jersey, Inc.'s certificate of incorporation and bylaws can be found under Where
You Can Find Additional Information at page __. Special Meetings of
Stockholders. American Bancorp of New Jersey, Inc.'s certificate of
incorporation provides that special meetings of its stockholders may be called
by the president, the Board of Directors or a duly designated committee of the
Board of Directors. Stockholders of American Bancorp of New Jersey, Inc. may not
call a special meeting. ASB Holding Company's current federal charter provides
that special meetings of stockholders may be called by the chairman, the
president, a majority of the Board of Directors or the holders of not less than
one-tenth of the outstanding stock of ASB Holding Company.
Stockholder Nominations and Proposals. The current federal bylaws of
ASB Holding Company generally provide that stockholders may submit nominations
for election of director at an annual meeting of stockholders at least five days
before the date of any such meeting and may submit any new business to be taken
up at such a meeting by filing such in writing with ASB Holding Company at least
five days before the date of any such meeting.
American Bancorp of New Jersey, Inc.'s bylaws generally provide that
any stockholder desiring to make a nomination for the election of directors or a
proposal for new business at a meeting of stockholders must submit written
notice to American Bancorp of New Jersey, Inc. not less than 60 days prior to
the anniversary date of its immediately preceding annual meeting of
stockholders. Failure to comply with these advance notice requirements will
preclude such nominations or new business from being considered at the meeting.
Management believes that it is in the best interests of American Bancorp of New
Jersey, Inc. and its stockholders to provide sufficient time to enable
management to disclose to stockholders information about a dissident slate of
nominations for directors. This advance notice requirement may also give
management time to solicit its own proxies in an attempt to defeat any dissident
slate of nominations, should management determine that doing so is in the best
interest of stockholders, generally. Similarly, adequate advance notice of
stockholder proposals will give management time to study such proposals and to
determine whether to recommend to the stockholders that such proposals be
adopted. In certain instances, such provisions could make it more difficult to
oppose management's nominees or proposals, even if stockholders believe such
nominees or proposals are in their best interests.
Limitations on Acquisitions of Voting Stock and Voting Rights. American
Bancorp of New Jersey, Inc.'s certificate of incorporation provides that in no
event shall any record owner of any outstanding common stock which is
beneficially owned, directly or indirectly, by a person who beneficially owns in
excess of 10% of the then outstanding shares of common stock be entitled or
permitted to any vote
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in respect of the shares held in excess of such limit. There is no expiration
date for this voting restriction; it applies in perpetuity. ASB Holding
Company's current federal charter does not provide for a similar voting
restriction.
Amendment of Governing Instruments. No amendment of ASB Holding
Company's current federal charter may be made unless it is first proposed by the
Board of Directors, then preliminarily approved by the OTS, and thereafter
approved by the holders of a majority of the total votes eligible to be cast at
a legal meeting. American Bancorp of New Jersey, Inc.'s certificate of
incorporation may be amended by the vote of the holders of a majority of the
outstanding shares of its common stock, except that the provisions of the
certificate of incorporation governing the calling of meetings of stockholders,
stockholders' nominations and proposals, authorized capital stock, denial of
preemptive rights, the number and staggered terms of directors, removal of
directors, approval of certain business combinations, the evaluation of certain
business combinations, elimination of directors' liability, indemnification of
officers and directors, and the manner of amending the certificate of
incorporation and bylaws, each may not be repealed, altered, amended or
rescinded except by the vote of the holders of at least 80% of American Bancorp
of New Jersey, Inc.'s outstanding shares. This provision is intended to prevent
the holders of a lesser percentage of American Bancorp of New Jersey, Inc.'s
outstanding stock from circumventing any of the foregoing provisions by amending
the certificate of incorporation to delete or modify one of such provisions.
ASB Holding Company's current federal bylaws may be amended by a
majority vote of the full Board of Directors or by a majority vote of the votes
cast by the stockholders of ASB Holding Company at any legal meeting. American
Bancorp of New Jersey, Inc.'s bylaws may only be amended by a two-thirds vote of
its Board of Directors or by the holders of at least 80% of its outstanding
stock.
Effects of the Conversion on Depositors, Borrowers and Members
Continuity. The stock offering will not have any effect on American
Bank of New Jersey's present business of accepting deposits and investing its
funds in loans and other investments permitted by law. The stock offering will
not result in any change in the existing services provided to depositors and
borrowers, or in existing offices, management, and staff. After the stock
offering, American Bank of New Jersey will continue to be subject to regulation,
supervision, and examination by the OTS and the FDIC.
Deposits and Loans. Each holder of a deposit account in American Bank
of New Jersey at the time of the stock offering will continue as an account
holder in American Bank of New Jersey after the stock offering, and the stock
offering will not affect the deposit balance, interest rate, or other terms.
Each deposit account will be insured by the FDIC to the same extent as before
the stock offering. Depositors will continue to hold their existing
certificates, savings records, checkbooks, and other evidence of their accounts.
The stock offering will not affect the loans of any borrower from American Bank
of New Jersey. The amount, interest rate, maturity, security for, and
obligations under each loan will remain contractually fixed as they existed
prior to the stock offering.
Voting Rights of Members. At present, all depositors of American Bank
of New Jersey are members of, and have voting rights in, American Savings, MHC
as to all matters requiring membership action. Upon completion of the
conversion, depositors and borrowers will cease to be members of American
Savings, MHC and will no longer be entitled to vote at meetings of American
Savings, MHC. Upon completion of the conversion, American Bancorp of New Jersey,
Inc. will be the sole stockholder of American Bank of New Jersey and have all
voting rights in American Bank of New Jersey. Stockholders of American Bancorp
of New Jersey, Inc. will have exclusive voting rights in the
126
corporation. Depositors of American Bank of New Jersey will not have voting
rights after the conversion except to the extent that they become our
stockholders through the purchase of common stock.
Tax Effects. We have received an opinion from Malizia Spidi & Fisch, PC
and an opinion from Crowe Chizek and Company LLC with regard to federal and
state income taxation, respectively, to the effect that the adoption and
implementation of the plan of conversion will not be taxable for federal or
state income tax purposes to American Bancorp of New Jersey, Inc., ASB Holding
Company, American Savings, MHC, the minority stockholders, members of American
Savings, MHC, eligible account holders, supplemental eligible account holders or
American Bank of New Jersey. See Federal and State Tax Consequences of the
Conversion at page __.
Effect on Liquidation Rights. Each depositor in American Bank of New
Jersey has both a deposit account in American Bank of New Jersey and a pro rata
ownership interest in the net worth of American Savings, MHC based upon the
balance in his or her account. This interest may only be realized in the event
of a complete liquidation of American Savings, MHC and American Bank of New
Jersey. However, this ownership interest is tied to the depositor's account and
has no tangible market value separate from the deposit account. Any depositor
who opens a deposit account obtains a pro rata ownership interest in American
Savings, MHC without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his or her account receives a portion or all of
the balance in the deposit account but nothing for his or her ownership interest
in the net worth of American Savings, MHC, which is lost to the extent that the
balance in the account is reduced or closed.
Consequently, depositors in a stock subsidiary of a mutual holding
company normally have no way of realizing the value of their ownership interest,
which has realizable value only in the unlikely event that American Savings, MHC
and American Bank of New Jersey are liquidated. If this occurs, the depositors
of record at that time, as owners, would share pro rata in any residual surplus
and reserves of American Savings, MHC after other claims, including claims of
depositors to the amounts of their deposits, are paid.
In the unlikely event that American Bank of New Jersey were to
liquidate after the conversion, all claims of creditors, including those of
depositors, also would be paid first, followed by distribution of the
"liquidation account" to depositors as of March 31, 2004 and June 30, 2005 who
continue to maintain their deposit accounts as of the date of liquidation, with
any assets remaining thereafter distributed to American Bancorp of New Jersey,
Inc. as the holder of American Bank of New Jersey's capital stock. Pursuant to
the rules and regulations of the Office of Thrift Supervision, a post-conversion
merger, consolidation, sale of bulk assets or similar combination or transaction
with another insured savings institution would not be considered a liquidation,
and the liquidation account would be assumed by the surviving institution. See
The Conversion - Liquidation Rights at page __.
Federal and State Tax Consequences of the Conversion
We have received opinions from Malizia Spidi & Fisch, PC, and from
Crowe Chizek and Company LLC federal and New Jersey tax consequences,
respectively, of the stock offering. The opinions have been filed as exhibits to
the registration statement of which this prospectus is a part and cover those
federal tax matters that are material to the transaction. The opinions are made
in reliance upon various statements, representations and declarations as to
matters of fact made by us, as detailed in the opinions. The opinions provide
that:
The transactions qualify as statutory mergers and each merger required
by the Plan qualifies as a reorganization within the meaning of Code Section
368(a)(1)(A). American Savings, MHC, American
127
Bancorp of New Jersey, Inc., ASB Holding Company, and American Bank of New
Jersey will be a party to a "reorganization" as defined in Code Section 368(b).
o American Savings, MHC will not recognize any gain or loss on the
transfer of its assets to American Bank of New Jersey in exchange
for American Bank of New Jersey liquidation interests for the
benefit of American Savings, MHC members who remain depositors of
American Bank of New Jersey.
o No gain or loss will be recognized by American Bank of New Jersey
upon the receipt of the assets of American Savings, MHC in
exchange for the transfer to the members of American Bank of New
Jersey liquidation interests.
o No gain or loss will be recognized by American Bank of New Jersey
upon the receipt of the assets of Interim Bank #2 (ASB Holding
Company) and Interim Bank #3 pursuant to the conversion.
o No gain or loss will be recognized by Interim Bank #2 (ASB
Holding Company following its conversion to a federal stock
savings bank) pursuant to the conversion.
o The reorganization of American Bancorp of New Jersey, Inc. as the
holding company of American Bank of New Jersey qualifies as a
reorganization within the meaning of Code Section 368(a)(1)(A) by
virtue of Code Section 368(a)(2)(E). Therefore, American Bank of
New Jersey, American Bancorp of New Jersey, Inc., and Interim
Bank #3 will each be a party to a reorganization, as defined in
Code Section 368(b).
o No gain or loss will be recognized by Interim Bank #3 upon the
transfer of its assets to American Bank of New Jersey pursuant to
the conversion.
o Members will recognize no gain or loss upon the receipt of
American Bank of New Jersey liquidation interests.
o No gain or loss will be recognized by American Bancorp of New
Jersey, Inc. upon the receipt of Bank Stock solely in exchange
for stock of American Bancorp of New Jersey, Inc.
o Current stockholders of ASB Holding Company will not recognize
any gain or loss upon their exchange of common stock solely for
shares of stock of American Bancorp of New Jersey, Inc.
o Each stockholder's aggregate basis in shares of stock of American
Bancorp of New Jersey, Inc. received in the exchange will be the
same as the aggregate basis of common stock surrendered in the
exchange before giving effect to any payment of cash in lieu of
fractional shares.
o No gain or loss will be recognized by American Bancorp of New
Jersey, Inc. on the receipt of money in exchange for stock of
American Bancorp of New Jersey, Inc. sold in the stock offering.
128
o No gain or loss will be recognized by Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members upon the
distribution to them of the non-transferable subscription rights
to purchase shares of stock of American Bancorp of New Jersey,
Inc.
The opinion in the last bullet above is predicated on representations
from American Bank of New Jersey, American Bancorp of New Jersey, Inc., ASB
Holding Company and American Savings, MHC that no person shall receive any
payment, whether in money or property, in lieu of the issuance of subscription
rights. The opinion in the last bullet above is based on the position that the
subscription rights to purchase shares of common stock received by Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members have a
fair market value of zero. In reaching their opinion stated in the second bullet
above, Malizia Spidi & Fisch, PC has noted that the subscription rights will be
granted at no cost to the recipients, will be legally non-transferable and of
short duration, and will provide the recipients with the right only to purchase
shares of common stock at the same price to be paid by members of the general
public in any community offering. Malizia Spidi & Fisch, PC believes that it is
more likely than not that the fair market value of the subscription rights to
purchase common stock is zero.
If the non-transferable subscription rights to purchase common stock
are subsequently found to have a fair market value, income may be recognized by
various recipients of the subscription rights (in certain cases, whether or not
the rights are exercised), and we may be taxed on the distribution of the
subscription rights.
We are also subject to New Jersey income taxes and have received an
opinion from Crowe Chizek and Company LLC that the stock offering will be
treated for New Jersey state tax purposes similarly to the treatment of the
stock offering for federal tax purposes.
Unlike a private letter ruling from the IRS, the federal and state tax
opinions have no binding effect or official status, and no assurance can be
given that the conclusions reached in any of those opinions would be sustained
by a court if contested by the IRS or the New Jersey tax authorities. Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members are
encouraged to consult with their own tax advisers as to the tax consequences in
the event the subscription rights are determined to have any market value.
Liquidation Rights
In the unlikely event of a complete liquidation of ASB Holding Company
prior to the conversion, all claims of creditors of ASB Holding Company,
including those of depositors to the extent of their deposit balances, would be
paid first. Thereafter, if there were any assets of ASB Holding Company
remaining, these assets would be distributed to stockholders, including American
Savings, MHC. In the unlikely event that American Savings, MHC and ASB Holding
Company are liquidated prior to the conversion, all claims of creditors would be
paid first. Then, if there were any assets of American Savings, MHC remaining,
members of American Savings, MHC would receive those remaining assets, pro rata,
based upon the deposit balances in their deposit account in American Bank of New
Jersey immediately prior to liquidation. In the unlikely event that American
Bank of New Jersey were to liquidate after the conversion, all claims of
creditors, including those of depositors, would be paid first, followed by
distribution of the "liquidation account" to certain depositors, with any assets
remaining thereafter distributed to American Bancorp of New Jersey, Inc. as the
holder of American Bank of New Jersey capital stock. Pursuant to the rules and
regulations of the Office of Thrift Supervision, a post-conversion merger,
consolidation, sale of bulk assets or similar combination or transaction with
another insured
129
savings institution would not be considered a liquidation and, in these types of
transactions, the liquidation account would be assumed by the surviving
institution.
The plan of conversion provides for the establishment, upon the
completion of the conversion, of a special "liquidation account" for the benefit
of Eligible Account Holders and Supplemental Eligible Account Holders (as those
terms are defined in the plan of conversion) in an amount equal to the greater
of:
(1) American Savings, MHC's ownership interest in the retained
earnings of ASB Holding Company as of the date of its latest
balance sheet contained in this prospectus; or
(2) the retained earnings of American Bank of New Jersey at the time
that American Bank of New Jersey reorganized into the mutual
holding company form of organization in 1999.
The purpose of the liquidation account is to provide Eligible Account
Holders and Supplemental Eligible Account Holders who maintain their deposit
accounts with American Bank of New Jersey after the conversion with an interest
in the unlikely event of the complete liquidation of American Bank of New Jersey
after the conversion. Each Eligible Account Holder and Supplemental Eligible
Account Holder that continues to maintain his or her deposit account at American
Bank of New Jersey, would be entitled, on a complete liquidation of American
Bank of New Jersey after the conversion, to an interest in the liquidation
account prior to any payment to the stockholders of American Bancorp of New
Jersey, Inc. Each Eligible Account Holder and Supplemental Eligible Account
Holder would have an initial interest in the liquidation account for each
deposit account, including savings accounts, checking accounts, money market
deposit accounts, and certificates of deposit, with a balance of $50 or more
held in American Bank of New Jersey as of the close of business on March 31,
2004, or June 30, 2005. Each Eligible Account Holder and Supplemental Eligible
Account Holder would have a pro rata interest in the total liquidation account
for each such deposit account, based on the proportion that the balance of each
such deposit account on March 31, 2004 or June 30, 2005 bears to the balance of
all deposit accounts in American Bank of New Jersey on these dates.
If, however, on any September 30 annual closing date commencing after
the completion of the conversion, the amount in any deposit account is less than
the amount in that deposit account on March 31, 2004 or June 30, 2005 or any
other annual closing date, then the interest in the liquidation account relating
to that deposit account would be reduced from time to time by the proportion of
the reduction, and the interest will cease to exist if the deposit account is
closed. In addition, no interest in the liquidation account would ever be
increased despite any subsequent increase in the related deposit account.
Payment pursuant to liquidation rights of Eligible Account Holders and
Supplemental Eligible Account Holders would be separate and apart from the
payment of any insured deposit accounts to a depositor. Any assets remaining
after the above liquidation rights of Eligible Account Holders and Supplemental
Eligible Account Holders are satisfied would be distributed to American Bancorp
of New Jersey, Inc. as the sole stockholder of American Bank of New Jersey.
Amendment or Termination of the Plan of Conversion
If deemed necessary or desirable by the Board of Directors, the plan
may be substantively amended, as a result of comments from regulatory
authorities or otherwise, at any time prior to the solicitation of proxies from
members and stockholders to vote on the plan and at any time thereafter with the
concurrence of the OTS. Any amendment to the plan made after approval by the
members and stockholders with the concurrence of the OTS shall not necessitate
further approval by the members or
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stockholders unless otherwise required by the OTS. The plan shall terminate if
the sale of all shares of stock is not completed within 24 months from the date
of the special meeting of members. Prior to the earlier of the special meeting
of members and the stockholders' meeting, the plan may be terminated by the
Board of Directors without approval of the OTS; after the special meeting or the
stockholders' meeting, the Board of Directors may terminate the plan only with
the approval of the OTS.
Conditions to the Conversion
We cannot complete our conversion and our stock offering unless:
(1) We sell a minimum of 6,375,000 shares of common stock;
(2) The plan of conversion is approved by a majority of the votes
eligible to be cast by members of American Savings, MHC;
(3) The plan of conversion is approved by at least two-thirds of the
votes eligible to be cast by stockholders of ASB Holding Company,
including those shares held by American Savings, MHC; and
(4) The plan of conversion is approved by a majority of the votes
eligible to be cast by stockholders of ASB Holding Company,
excluding those shares held by American Savings, MHC.
The plan of conversion must also be approved by the OTS, which has
given its conditional approval. If these conditions are not met before we
complete the stock offering, all funds received will be promptly returned with
interest at American Bank of New Jersey's passbook savings account rate and all
withdrawal authorizations will be canceled. The stock purchases of our officers
and directors will be counted for purposes of meeting the minimum number of
shares.
American Savings, MHC intends to vote its 70% ownership interest in
favor of the conversion. In addition, as of July 31, 2005, directors and
executive officers of ASB Holding Company and their associates beneficially own
_______ shares of ASB Holding Company, or ___% of the total outstanding shares.
They intend to vote those shares in favor of the conversion. Non-employee
directors serve as the trustee committee for American Bank of New Jersey 2005
Restricted Stock Plan and will direct the voting of 81,651 shares held in the
plan trust. Additionally, all non-employee directors of ASB Holding Company
serve as employee stock ownership plan trustees and in their fiduciary capacity
as trustees will vote the 116,395 unallocated shares held by the American Bank
of New Jersey employee stock ownership plan. The trustees will also vote the
16,913 allocated shares of the employee stock ownership plan for which no timely
voting directions have been received from plan participants.
THE STOCK OFFERING
The Board of Directors adopted the plan authorizing the conversion on
May 17, 2005, subject to the approval of the OTS. We received authorization from
the OTS to conduct the stock offering on ___________, 2005. OTS authorization
does not constitute a recommendation or endorsement of an investment in our
stock by the OTS.
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General
On May 17, 2005, the Board of Directors adopted the plan of conversion,
which was subsequently amended, pursuant to which American Bancorp of New
Jersey, Inc. will sell shares of common stock to eligible depositors of American
Bank of New Jersey in a subscription offering and, if necessary, to the general
public if a community and/or a syndicated community offering is held. The Board
of Directors unanimously adopted the plan after consideration of the advantages
and the disadvantages of the stock offering. After we receive the required
authorization from the OTS, the stock will be issued. The stock offering will be
accomplished in accordance with the procedures set forth in the plan, the
requirements of applicable laws and regulations, and the policies of the OTS.
We are offering between a minimum of 6,375,000 shares and a maximum of
8,625,000 shares of common stock in the offering (subject to adjustment to up to
9,918,750 shares if our estimated pro forma market value has increased at the
conclusion of the stock offering), which will expire at 12:00 noon, eastern
time, on ___________, 2005, unless extended. See Deadlines for Purchasing Stock
at page __. The minimum purchase is 25 shares of common stock (minimum
investment of $250). Our common stock is being offered at a fixed price of
$10.00 per share in the stock offering.
In accordance with Rule 15c2-4 of the Securities Exchange Act of
1934, pending completion or termination of the stock offering, subscription
funds received by us will be invested only in investments permissible under Rule
15c2-4.
Conduct of the Stock Offering
Subject to the limitations of the plan of stock issuance adopted by our
Board of Directors, shares of common stock are being offered in descending order
of priority in the subscription offering to:
o Eligible Account Holders (depositors at the close of business on March 31,
2004 with deposits of at least $50.00);
o the employee stock ownership plan;
o Supplemental Eligible Account Holders (depositors at the close of business
on June 30, 2005 with deposits of at least $50.00); and
o Other Members (depositors at the close of business on July 31, 2005 and
borrowers as of December 27, 1995, who continue as borrowers as of the
close of business on July 31, 2005).
To the extent that shares remain available and depending on market
conditions at or near the completion of the subscription offering, we may
conduct a community offering and possibly a syndicated community offering. The
community offering, if any, may commence simultaneously with, during or
subsequent to the completion of the subscription offering. A syndicated
community offering, if we conduct one, would commence just prior to, or as soon
as practicable after, the termination of the subscription offering. In any
community offering or syndicated community offering, we will first fill orders
for our common stock in an equitable manner as determined by the Board of
Directors in order to achieve a wide distribution of the stock. If an
oversubscription occurs in the stock offering by Eligible Account Holders, the
employee stock ownership plan may, in whole or in part, fill its order through
open market purchases subsequent to the closing of the stock offering, subject
to any required regulatory approval.
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Shares sold above the maximum of the offering range may be sold to the
employee stock ownership plan before satisfying remaining unfilled orders of
Eligible Account Holders to fill the plan's subscription, or the plan may
purchase some or all of the shares covered by its subscription after the stock
offering in the open market, subject to any required regulatory approval.
Subscription Offering
Subscription Rights. Non-transferable subscription rights to subscribe
for the purchase of common stock have been granted under the plan of stock
issuance to the following persons:
Priority 1: Eligible Account Holders. Each Eligible Account Holder
shall be given the opportunity to purchase, combined with shares received by
existing stockholders pursuant to the exchange ratio in the conversion, and
subject to the overall limitations described under The Stock Offering -
Limitations on Purchases of Common Stock, up to the greater of (i) the maximum
purchase limitation in the community offering (i.e., 150,000 shares or
$1,500,000), (ii) one-tenth of 1% of the total offering of shares of common
stock offered in the subscription offering, and (iii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of common stock offered in the subscription offering by a fraction, of
which the numerator is the amount of the qualifying deposits of the Eligible
Account Holder and the denominator is the total amount of all qualifying
deposits of all Eligible Account Holders. If there are insufficient shares
available to satisfy all subscriptions of Eligible Account Holders, shares will
be allocated to Eligible Account Holders so as to permit each subscribing
Eligible Account Holder to purchase a number of shares sufficient to make his or
her total allocation equal to the lesser of 100 shares or the number of shares
ordered. Thereafter, unallocated shares will be allocated to remaining
subscribing Eligible Account Holders whose subscriptions remain unfilled in the
same proportion that each subscriber's qualifying deposit bears to the total
amount of qualifying deposits of all subscribing Eligible Account Holders, in
each case on March 31, 2004, whose subscriptions remain unfilled. Subscription
rights received by officers and directors, based on their increased deposits in
American Bank of New Jersey in the one year preceding the eligibility record
date will be subordinated to the subscription rights of other eligible account
holders. To ensure proper allocation of stock, each Eligible Account Holder must
list on his or her order form all accounts in which he or she had an ownership
interest as of the Eligibility Record Date.
Priority 2: The Employee Plans. The tax qualified employee plans may be
given the opportunity to purchase in the aggregate up to 10% of the common stock
issued in the subscription offering. It is expected that the employee stock
ownership plan will purchase up to 8% of the common stock issued in the stock
offering. If an oversubscription occurs in the stock offering by Eligible
Account Holders, the employee stock ownership plan may, in whole or in part,
fill its order through open market purchases subsequent to the closing of the
stock offering, subject to any required regulatory approval.
Priority 3: Supplemental Eligible Account Holders. If there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the employee stock ownership plan and other tax-qualified
employee stock benefit plans, each Supplemental Eligible Account Holder shall
have the opportunity to purchase, combined with shares received by existing
stockholders pursuant to the exchange ratio in the conversion, and subject to
the overall limitations described under The Stock Offering - Limitations on
Purchases of Common Stock, up to the greater of (i) the maximum purchase
limitation in the community offering (i.e., 150,000 shares or $1,500,000), (ii)
one-tenth of 1% of the total offering of shares of common stock offered in the
subscription offering, and (iii) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of common stock
offered in the subscription offering by a fraction, of which the numerator is
the amount of the qualifying deposits
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of the Eligible Account Holder and the
denominator is the total amount of all qualifying deposits of all Eligible
Account Holders. If Supplemental Eligible Account Holders subscribe for a number
of shares which, when added to the shares subscribed for by Eligible Account
Holders and the employee stock ownership plan and other tax-qualified employee
stock benefit plans, if any, is in excess of the total number of shares offered
in the stock offering, the shares of common stock will be allocated among
subscribing Supplemental Eligible Account Holders first so as to permit each
subscribing Supplemental Eligible Account Holder to purchase a number of shares
sufficient to make his or her total allocation equal to the lesser of 100 shares
or the number of shares ordered. Thereafter, unallocated shares will be
allocated to each subscribing Supplemental Eligible Account Holder whose
subscription remains unfilled in the same proportion that each subscriber's
qualifying deposits bear to the total amount of qualifying deposits of all
subscribing Supplemental Eligible Account Holders, in each case on June 30,
2005, whose subscriptions remain unfilled. To ensure proper allocation of stock,
each Supplemental Eligible Account Holder must list on his or her order form all
accounts in which he or she had an ownership interest as of the Supplemental
Eligibility Record Date.
Priority 4: Other Members. To the extent that there are shares
remaining after satisfaction of subscriptions by Eligible Account Holders, our
tax-qualified employee stock benefit plans, and Supplemental Eligible Account
Holders, each member of American Savings, MHC (depositors and certain borrowers
of American Bank of New Jersey) on the voting record date of July 31, 2005 who
is not an Eligible Account Holder or Supplemental Eligible Account Holder
("Other Members") will receive, without payment therefor, nontransferable
subscription rights to purchase up to the greater of 150,000 shares of common
stock or one-tenth of 1% of the total offering of shares of common stock offered
in the subscription offering, subject to the overall purchase limitations. See
Limitations on Purchases of Common Stock at page __. If there are not sufficient
shares available to satisfy all subscriptions, available shares will be
allocated on a pro rata basis based on the size of the order of each Other
Member.
Restrictions on Transfer of Subscription Rights and Shares. The plan of
stock issuance prohibits any person with subscription rights, including Eligible
Account Holders and Supplemental Eligible Account Holders, from transferring or
entering into any agreement or understanding to transfer the legal or beneficial
ownership of the subscription rights or the shares of common stock to be issued
when subscription rights are exercised. Subscription rights may be exercised
only by the person to whom they are granted and only for his or her account.
Each person subscribing for shares will be required to certify that he or she is
purchasing shares solely for his or her own account and that he or she has no
agreement or understanding regarding the sale or transfer of the shares. The
regulations also prohibit any person from offering or making an announcement of
an offer or intent to make an offer to purchase subscription rights or shares of
common stock before the completion of the stock offering.
We will pursue any and all legal and equitable remedies in the event we
become aware of the transfer of subscription rights and will not honor orders
that we determine involve the transfer of subscription rights.
Deadlines for Purchasing Stock
The subscription offering will terminate at 12:00 noon, eastern time,
on ___________, 2005. We may extend this expiration date without notice to you
for up to 45 days, until ___________, 2005. Once submitted, your order is
irrevocable unless the stock offering is extended beyond ___________, 2005. We
may request permission from the Office of Thrift Supervision to extend the stock
offering beyond ___________, 2005, and the Office of Thrift Supervision may
grant one or more extensions of the stock offering of up to 90 days per
extension, but in no event may the stock offering be extended beyond
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___________, 2007. If the stock offering is extended beyond ___________, 2005,
we will be required to notify each subscriber and resolicit subscriptions.
During any extension period, subscribers will have the right to modify or
rescind their subscriptions, and, unless an affirmative response is received, a
subscriber's funds will be returned with interest at American Bank of New
Jersey's passbook savings account rate. A community offering and a syndicated
community offering, if these offerings are conducted, may terminate at any time
without notice but no later than ___________, 2005.
We may cancel the conversion and stock offering at any time prior to
the special meeting of members of American Savings, MHC to vote on the plan of
conversion and the special meeting of stockholders of ASB Holding Company to
vote on the plan of conversion. We may also cancel the conversion and stock
offering after the special meetings of members and stockholders if the OTS
concurs in our decision to do so. If we cancel the conversion and stock
offering, orders for common stock already submitted will be canceled and
subscribers' funds will be returned with interest at American Bank of New
Jersey's passbook savings account rate.
Community Offering and Syndicated Community Offering
Community Offering. If less than the total number of shares of common
stock to be subscribed for in the stock offering are sold in the subscription
offering and depending on market conditions at or near the completion of the
subscription offering, shares remaining unsubscribed may be made available for
purchase in the community offering to certain members of the general public. The
maximum amount of common stock that any person may purchase in the community
offering, subject to the overall purchase limitations described under The Stock
Offering - Limitations on Purchases of Common Stock at page __, is 150,000
shares, or $1,500,000. In the community offering, if any, shares will be
available for purchase by the general public, and preference may be given first
to existing stockholders and second to natural persons and trusts of natural
persons residing in counties in which American Bank of New Jersey has branch
offices. We will attempt to issue the shares in a manner that would promote a
wide distribution of common stock.
If purchasers in the community offering, whose orders would otherwise
be accepted, subscribe for more shares than are available for purchase, the
shares available to them will be allocated among persons submitting orders in
the community offering in an equitable manner we determine.
The community offering, if any, may commence simultaneously with,
during or subsequent to the completion of the subscription offering. The
community offering, if any, must be completed within 45 days after the
completion of the subscription offering unless otherwise extended by the OTS.
We, in our absolute discretion, reserve the right to reject any or all
orders in whole or in part which are received in the community offering, at the
time of receipt or as soon as practicable following the completion of the
community offering.
Syndicated Community Offering. If shares remain available after the
subscription offering, and depending on market conditions at or near the
completion of the subscription offering, we may offer shares to selected persons
through a syndicated community offering on a best-efforts basis conducted
through Keefe, Bruyette & Woods, Inc. in accordance with such terms, conditions
and procedures as may be determined by our Board of Directors. A syndicate of
broker-dealers (selected dealers) may be formed to assist in the syndicated
community offering. A syndicated community offering, if we conduct one, would
commence just prior to, or as soon as practicable after, the termination of the
subscription offering.
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Orders received in connection with the syndicated community offering,
if any, will receive a lower priority than orders received in the subscription
offering and community offering. Common stock sold in the syndicated community
offering will be sold at the same price as all other shares in the subscription
offering. A syndicated community offering would be open to the general public
beyond the local community, however, we have the right to reject orders, in
whole or in part, in our sole discretion in the syndicated community offering.
No person will be permitted, subject to the overall purchase limitations
described under The Stock Offering - Limitations on Purchases of Common Stock on
page __, to purchase more than 150,000 shares, or $1,500,000, of common stock in
the syndicated community offering.
The date by which orders must be received in the syndicated community
offering will be set by us at the time the syndicated community offering
commences; but if the syndicated community offering is extended beyond
___________, 2005, each purchaser will have the opportunity to maintain, modify,
or rescind his or her order. In that event, all funds received in the syndicated
community offering will be promptly returned with interest at American Bank of
New Jersey's passbook savings account rate to each purchaser unless he or she
requests otherwise.
Limitations on Purchases of Common Stock
The following additional limitations have been imposed on purchases of
shares of common stock:
1. The maximum number of shares which may be purchased in the stock
offering by any individual (or individuals through a single
account) shall not exceed 150,000 shares, or $1,500,000,
including shares received by existing stockholders pursuant to
the exchange ratio in the conversion. This limit applies to stock
purchases in total in the subscription, community and syndicated
community offerings.
2. The maximum number of shares that may be purchased by any
individual together with any associate or group of persons acting
in concert is 200,000 shares, or $2,000,000, including shares
received by existing stockholders pursuant to the exchange ratio
in the conversion. This limit applies to stock purchases in total
in the subscription, community and syndicated community
offerings. This limit does not apply to our employee stock
benefit plans, which in the aggregate may subscribe for up to 10%
of the common stock issued in the stock offering.
3. The maximum number of shares which may be purchased in all
categories in the stock offering by our officers and directors
and their associates in the aggregate shall not exceed 26% of the
total number of shares issued in the stock offering.
4. The minimum order is 25 shares, or $250.
5. If the number of shares otherwise allocable to any person or that
person's associates would be in excess of the maximum number of
shares permitted as set forth above, the number of shares
allocated to that person shall be reduced to the lowest
limitation applicable to that person, and then the number of
shares allocated to each group consisting of a person and that
person's associates shall be reduced so that the aggregate
allocation to that person and his or her associates complies with
the above maximums, and the maximum number of
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shares shall be reallocated among that person and his or her
associates in proportion to the shares subscribed by each (after
first applying the maximums applicable to each person
separately).
6. Depending on market or financial conditions, we may decrease or
increase the purchase limitations, provided that the maximum
purchase limitation may not be increased to a percentage in
excess of 5% of the stock offering. Notwithstanding the
foregoing, the maximum purchase limitation may be increased up to
9.99% as long as orders for more than 5% of the shares being
offered do not exceed, in the aggregate, 10% of the total
offering. If we increase the maximum purchase limitations, we are
only required to resolicit persons who subscribed for the maximum
purchase amount and may, in our sole discretion, resolicit
certain other large subscribers.
7. If the total number of shares offered increases in the stock
offering due to an increase in the maximum of the estimated
valuation range of up to 15% (the adjusted maximum) the
additional shares will be used in the following order of
priority: (a) to fill the employee stock ownership plan's
subscription up to 8% of the adjusted maximum (unless the
employee stock ownership plan elects to purchase stock subsequent
to the stock offering in the open market); (b) if there is an
oversubscription at the Eligible Account Holder level, to fill
unfilled subscriptions of Eligible Account Holders exclusive of
the adjusted maximum unless the employee stock ownership plan
elects to purchase stock subsequent to the stock offering in the
open market); (c) if there is an oversubscription at the
Supplemental Eligible Account Holder level, to fill unfilled
subscriptions of Supplemental Eligible Account Holders exclusive
of the adjusted maximum; (d) if there is an oversubscription at
the Other Members level, to fill unfilled subscriptions of Other
Members exclusive of the adjusted maximum; (e) to fill orders
received in a community offering exclusive of the adjusted
maximum, with preference given to persons who live in the local
community; and (f) to fill orders received in the syndicated
community offering exclusive of the adjusted maximum.
8. No person will be allowed to purchase any stock if that purchase
would be illegal under any federal law or state law or regulation
or would violate regulations or policies of the National
Association of Securities Dealers, Inc., particularly those
regarding free riding and withholding. We and/or our
representatives may ask for an acceptable legal opinion from any
purchaser regarding the legality of the purchase and may refuse
to honor any purchase order if that opinion is not timely
furnished.
9. We have the right to reject any order submitted by a person whose
representations we believe are untrue or who we believe is
violating, circumventing, or intends to violate, evade, or
circumvent the terms and conditions of the plan of stock
issuance, either alone or acting in concert with others.
10. The above restrictions also apply to purchases by persons acting
in concert under applicable regulations of the OTS. Under
regulations of the OTS, our directors are not considered to be
affiliates or a group acting in concert with other directors
solely as a result of membership on our Board of Directors.
11. In addition, in any community offering or syndicated community
offering, we must first fill orders for our common stock up to a
maximum of 2% of the total shares issued in the
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stock offering in a manner that will achieve a wide distribution
of the stock, and thereafter any remaining shares will be
allocated on an equal number of shares per order basis, until all
orders have been filled or the shares have been exhausted.
The term "associate" of a person is defined in the plan of stock
issuance to mean:
(1) any corporation or organization of which a person is an officer
or partner or is, directly or indirectly, the beneficial owner of
10% or more of any class of equity securities;
(2) any trust or other estate in which a person has a substantial
beneficial interest or as to which a person serves as trustee or
in a similar fiduciary capacity; or
(3) any relative or spouse of a person or any relative of a spouse,
who has the same home as that person.
For example, a corporation for which a person serves as an officer
would be an associate of that person and all shares purchased by that
corporation would be included with the number of shares which that person
individually could purchase under the above limitations.
The term "acting in concert" means:
(1) knowing participation in a joint activity or interdependent
conscious parallel action towards a common goal whether or not
pursuant to an express agreement; or
(2) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise.
A person or company which acts in concert with another person or
company ("other party") shall also be deemed to be acting in concert with any
person or company who is also acting in concert with that other party, except
that any tax-qualified employee stock benefit plan will not be deemed to be
acting in concert with its trustee or a person who serves in a similar capacity
solely for the purpose of determining whether stock held by the trustee and
stock held by the plan will be aggregated. We will presume that certain persons
are acting in concert based upon various facts, including the fact that persons
have joint account relationships or the fact that persons have filed joint
Schedules 13D with the Securities and Exchange Commission with respect to other
companies. We reserve the right to make an independent investigation of any
facts or circumstances brought to our attention that indicate that one or more
persons acting independently or as a group acting in concert may be attempting
to violate or circumvent the regulatory prohibition on the transferability of
subscription rights.
We have the right, in our sole discretion, to determine whether
prospective purchasers are "associates" or "acting in concert." These
determinations are in our sole discretion and may be based on whatever evidence
we believe to be relevant, including joint account relationships or shared
addresses on the records of American Bank of New Jersey.
Each person purchasing shares of the common stock in the stock offering
will be considered to have confirmed that his or her purchase does not conflict
with the maximum purchase limitation. If the purchase limitation is violated by
any person or any associate or group of persons affiliated or otherwise acting
in concert with that person, we will have the right to purchase from that person
at the $10.00
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purchase price per share all shares acquired by that person in
excess of that purchase limitation or, if the excess shares have
been sold by that person, to receive the difference between the
purchase price per share paid for the excess shares and the price
at which the excess shares were sold by that person. Our right to
purchase the excess shares will be assignable.
Common stock purchased in the stock offering will be freely
transferable, except for shares purchased by our directors and executive
officers. For certain restrictions on the common stock purchased by our
directors and executive officers, see Restrictions on Transferability by
Directors and Executive Officers at page __.
Ordering and Receiving Common Stock
Use of Order Forms. Rights to subscribe may only be exercised by
completion of an order form. Any person receiving an order form who desires to
subscribe for shares of common stock must do so prior to the applicable
expiration date by delivering by mail or in person a properly executed and
completed order form, together with full payment of the purchase price for all
shares for which subscription is made; provided, however, that if the employee
plans subscribe for shares during the subscription offering, the employee plans
will not be required to pay for the shares at the time they subscribe but rather
may pay for the shares upon completion of the stock offering. All subscription
rights will expire on the expiration date, whether or not we have been able to
locate each person entitled to subscription rights. Once tendered, subscription
orders cannot be revoked without our consent.
If a stock order form:
o is not delivered and is returned to us by the United States Postal Service
or we are unable to locate the addressee;
o is not received or is received after the applicable expiration date;
o is not completed correctly or executed; or
o is not accompanied by the full required payment for the shares subscribed
for, including instances where a savings account or certificate balance
from which withdrawal is authorized is unavailable, uncollected or
insufficient to fund the required payment, but excluding subscriptions by
the employee plans,
then the subscription rights for that person will lapse as though that person
failed to return the completed order form within the time period specified.
However, we may, but will not be required to, waive any irregularity on
any order form or require the submission of corrected order forms or the
remittance of full payment for subscribed shares by a date that we may specify.
The waiver of an irregularity on an order form in no way obligates us to waive
any other irregularity on any other order form. Waivers will be considered on a
case by case basis. We will not accept orders received on photocopies or
facsimile order forms, or for which payment is to be made by wire transfer or
payment from private third parties. Our interpretation of the terms and
conditions of the plan of stock issuance and of the acceptability of the order
forms will be final, subject to the authority of the OTS.
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To ensure that each purchaser receives a prospectus at least 48 hours
before the applicable expiration date, in accordance with Rule 15c2-8 of the
Securities Exchange Act of 1934, no prospectus will be mailed any later than
five days prior to the expiration date or hand delivered any later than two days
prior to the expiration date. Execution of the order form will confirm receipt
or delivery in accordance with Rule 15c2-8. Order forms will only be distributed
with a prospectus.
Payment for Shares. For subscriptions to be valid, payment for all
subscribed shares will be required to accompany all properly completed order
forms on or prior to the expiration date specified on the order form unless we
extend the date. Employee plans subscribing for shares during the subscription
offering may pay for those shares upon completion of the stock offering. Payment
for shares of common stock may be made:
o by check or money order made payable to American Bank of New Jersey;
o for shares subscribed for in the subscription offering, by authorization of
withdrawal from deposit accounts maintained with American Bank of New
Jersey; or
o in cash, only if delivered in person.
In accordance with Rule 15c2-4 of the Securities Exchange Act of 1934,
subscribers' checks must be made payable to American Bank of New Jersey, and
checks received by the stock information center will be transmitted by noon of
the following business day directly to the segregated deposit account at
American Bank of New Jersey established to hold funds received as payment for
shares. We may, at our discretion, determine during the stock offering period
that it is in the best interest of American Bank of New Jersey to instead hold
subscription funds in an escrow account at another insured financial
institution.
Appropriate means by which account withdrawals may be authorized are
provided on the order form. Once a withdrawal has been authorized, none of the
designated withdrawal amount may be used by a subscriber for any purpose other
than to purchase the common stock for which a subscription has been made until
the stock offering has been completed or terminated. In the case of payments
authorized to be made through withdrawal from savings accounts, all sums
authorized for withdrawal will continue to earn interest at the contract rate
until the stock offering has been completed or terminated. Interest penalties
for early withdrawal applicable to certificate accounts will not apply to
withdrawals authorized for the purchase of shares, however, if a partial
withdrawal results in a certificate account with a balance less than the
applicable minimum balance requirement, the certificate shall be canceled at the
time of withdrawal, without penalty, and the remaining balance will earn
interest at the passbook savings account rate subsequent to the withdrawal. In
the case of payments made in cash or by check or money order, funds will be
placed in a segregated account and interest will be paid by American Bank of New
Jersey at the passbook savings account rate from the date payment is received
until the stock offering is completed or terminated. An executed order form,
once we receive it, may not be modified, amended, or rescinded without our
consent, unless the stock offering is not completed within 45 days after the
conclusion of the subscription offering, in which event subscribers may be given
the opportunity to increase, decrease, or rescind their subscription for a
specified period of time. If the stock offering is not completed for any reason,
all funds submitted pursuant to the offerings will be promptly refunded with
interest as described above.
Owners of self-directed IRAs may use the assets of their IRAs to
purchase shares of common stock in the offerings, provided that their IRAs are
not maintained on deposit at American Bank of New Jersey. Persons with IRAs
maintained at American Bank of New Jersey must have their accounts transferred
to
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an unaffiliated institution or broker to purchase shares of common stock in
the offerings. There is no early withdrawal or IRS interest penalties for these
transfers. Instructions on how to transfer self-directed IRAs maintained at
American Bank of New Jersey can be obtained from the stock information center.
Depositors interested in using funds in a American Bank of New Jersey IRA to
purchase common stock should contact the stock information center as soon as
possible so that the necessary forms may be forwarded, executed and returned
prior to the expiration date.
Federal regulations prohibit American Bank of New Jersey from lending
funds or extending credit to any person to purchase the common stock in the
stock offering.
Stock Information Center. Our stock information center is located at
365 Broad Street, Bloomfield, New Jersey 07003. The telephone number is (973)
___-____. The stock information center's hours of operation are 9:00 a.m. to
5:00 p.m., eastern time, Monday through Friday.
Exchange of Stock Certificates of Minority Stockholders
The conversion of common stock into shares of American Bancorp of New
Jersey, Inc. common stock will occur automatically on the date of completion of
the conversion. After this date, former holders of common stock will have no
further equity interest in ASB Holding Company, other than as stockholders of
American Bancorp of New Jersey, Inc., and there will be no further transfers of
shares of ASB Holding Company common stock on the stock transfer records of ASB
Holding Company.
As soon as practicable after the completion of the conversion, the
exchange agent will send a transmittal form to each stockholder of ASB Holding
Company. The transmittal forms are expected to be mailed within five business
days after the date of the completion of the conversion and will contain
instructions with respect to the surrender of certificates representing ASB
Holding Company common stock to be exchanged into American Bancorp of New
Jersey, Inc. common stock. It is expected that certificates for shares of
American Bancorp of New Jersey, Inc. common stock will be distributed within
five business days after the receipt of properly executed transmittal forms and
other required documents. Stockholders should not forward their stock
certificates to the exchange agent until they have received transmittal forms.
Until the certificates representing ASB Holding Company common stock
are surrendered for exchange after consummation of the conversion, in compliance
with the terms of the transmittal form, holders of these certificates will not
receive new certificates for shares of American Bancorp of New Jersey, Inc. All
shares of American Bancorp of New Jersey, Inc. common stock issued upon exchange
of shares of ASB Holding Company common stock shall be deemed to have been
issued in full satisfaction of all rights pertaining to shares of ASB Holding
Company common stock.
No fractional shares of our common stock will be issued to any
stockholder upon consummation of the conversion. For each fractional share that
would otherwise be issued, we will pay by check an amount equal to the product
obtained by multiplying the fractional share interest to which the holder would
otherwise be entitled by the subscription price. Payment for fractional shares
will be made as soon as practicable after the receipt by the exchange agent of
surrendered ASB Holding Company stock certificates.
If a certificate for ASB Holding Company common stock has been lost,
stolen or destroyed, the exchange agent will issue the consideration properly
payable upon receipt of appropriate evidence as to the loss, theft or
destruction, appropriate evidence as to the ownership of the certificate by the
claimant, and appropriate and customary indemnification.
141
Delivery of Stock Certificates of American Bancorp of New Jersey, Inc.
Certificates representing common stock of American Bancorp of New
Jersey, Inc. issued in the stock offering, to all persons other than minority
stockholders of ASB Holding Company, will be mailed to the persons entitled
thereto at the address noted on the order form as soon as practicable following
consummation of the stock offering. Any certificates returned as undeliverable
will be held until claimed by persons legally entitled thereto or otherwise
disposed of in accordance with applicable law. Until certificates for the common
stock are available and delivered to subscribers, subscribers may not be able to
sell the shares of stock for which they subscribed.
Restrictions on Repurchase of Shares
Generally, during the first year following the stock offering, we will
not be permitted to repurchase shares of our stock unless we can show
extraordinary circumstances. If extraordinary circumstances exist and if we can
show a compelling and valid business purpose for the repurchase, the OTS may
approve repurchases of up to 5% of the outstanding stock during the first year
after the stock offering. We anticipate that 2005 restricted stock plan, if
adopted during the first year following the stock offering, will be funded with
repurchases, subject to OTS approval. After the first year following the stock
offering, we can repurchase any amount of stock so long as the repurchase would
not cause us to become undercapitalized. If, in the future, the rules and
regulations regarding the repurchase of stock are liberalized, we may utilize
the rules and regulations then in effect.
How We Determined the $10.00 Per Share Price and the Number of Shares to Be
Issued in the Stock Offering
The plan of stock issuance requires that the purchase price of the
common stock must be based on the appraised pro forma market value of American
Bancorp of New Jersey, Inc. and American Bank of New Jersey, as determined on
the basis of an independent valuation. RP Financial, LC, a financial services
industry consulting firm whose members collectively have over 100 years of
experience in valuing financial institutions for conversions and stock
offerings, has been retained to make this valuation. We selected RP Financial,
LC based upon its experience and reputation in valuing stock offerings by
issuers such as American Bancorp of New Jersey, Inc. We have no prior
relationship with RP Financial, LC. For its services in making this appraisal,
RP Financial, LC's fees are estimated to be $45,000 and it will be reimbursed
for out-of-pocket expenses not to exceed $5,000. We have agreed to indemnify RP
Financial, LC and any employees of RP Financial, LC who act for or on behalf of
RP Financial, LC in connection with the appraisal against any and all loss,
cost, damage, claim, liability or expense of any kind, including claims under
federal and state securities laws, arising out of any misstatement, untrue
statement of a material fact or omission to state a material fact in the
information supplied by us to RP Financial, LC, unless RP Financial, LC is
determined to be negligent or otherwise at fault.
RP Financial, LC made its appraisal in reliance upon the information
contained in this prospectus, including the financial statements. RP Financial,
LC also considered the following factors, among others:
o the present and projected operating results and financial condition of
American Bancorp of New Jersey, Inc. and American Bank of New Jersey, which
were prepared by the Bank and then adjusted by RP Financial, LC to reflect
the net proceeds of this stock offering and the economic and demographic
conditions in the Bank's existing marketing area as prepared by RP
Financial, LC;
142
o certain historical, financial and other information relating to American
Bank of New Jersey prepared by the Bank; and
o the impact of the stock offering on our net worth and earnings potential as
calculated by RP Financial, LC.
The appraisal also incorporated an analysis of a peer group of
publicly-traded companies that RP Financial, LC considered to be comparable to
us. The peer group analysis conducted by RP Financial, LC included a total of 11
publicly-traded thrift holding companies with total assets of more than $100
million and less than $1 billion. RP Financial, LC excluded two companies which
otherwise met the foregoing criteria due to the lack of seasoned trading history
and reported financial statements as a publicly-traded company, or other factors
deemed relevant by RP Financial, LC. The analysis of comparable publicly traded
institutions included an evaluation of the average and median price-to-earnings
and price-to-book value ratios indicated by the market prices of the peer
companies. RP Financial, LC applied the peer group's pricing ratios, as adjusted
for certain qualitative valuation factors to account for differences between us
and the peer group, to our pro forma earnings and book value to derive our
estimated pro forma market value.
The Board of Directors reviewed the methodologies and the
appropriateness of the assumptions used by RP Financial, LC in addition to the
factors listed above, and the Board of Directors believes that these assumptions
were reasonable. On the basis of the foregoing, RP Financial, LC has advised us
that in its opinion, dated July 15, 2005, the estimated pro forma market value
of American Bancorp of New Jersey, Inc. following the conversion of American
Savings, MHC from the mutual holding company to the stock form of organization
ranged from a minimum of $91.1 million to a maximum of $123.2 million with a
midpoint of $107.1 million. Our Board of Directors determined that the common
stock should be sold at $10.00 per share. Based on the estimated valuation and
the $10.00 per share price, the number of shares of common stock that American
Bancorp of New Jersey, Inc. will issue, including shares issued in exchange for
shares of ASB Holding Company, will range from a minimum of 9,107,143 shares to
a maximum of 12,321,429 shares, with a midpoint of 10,714,285 shares.
The estimated valuation range may be amended with the approval of the
Office of Thrift Supervision or if necessitated by subsequent developments in
our financial condition or market conditions generally. In the event the
estimated valuation range is updated to amend the value of American Bancorp of
New Jersey, Inc. below $91.1 million, which is the minimum of the estimated
valuation range, or above $141.7 million, which is the maximum of the estimated
valuation range, as adjusted by 15%, a new appraisal will be filed with the
Office of Thrift Supervision.
Based upon current market and financial conditions and recent practices
and policies of the Office of Thrift Supervision, if we receive orders for
common stock in excess of $86,250,000 (the maximum of the estimated valuation
range of shares to be sold to the public) and up to $99,187,500 (the maximum of
the estimated valuation range of shares to be sold to the public, as adjusted by
15%), the Office of Thrift Supervision may require us to accept all of these
orders. We cannot guarantee, however, that we will receive orders for common
stock in excess of the maximum of the estimated valuation range of shares to be
sold to the public or that, if such orders are received, that all of these
orders will be accepted because our final valuation and the number of shares to
be issued are subject to the receipt of an updated appraisal from RP Financial,
LC which reflects this an increase in the valuation and the approval of an
increase by the Office of Thrift Supervision. In addition, an increase in the
number of shares to be sold above 8,625,000 shares will first be used, if
necessary, to fill the order of the employee stock ownership plan.
143
There is no obligation or understanding on the part of management to take and/or
pay for any shares in order to complete the stock offering.
The following table presents a summary of selected pricing ratios for
the peer group companies and the pricing ratios for American Bancorp of New
Jersey, Inc. reflecting the pro forma impact of the stock offering. Compared to
the median pricing ratios of the peer group, American Bancorp of New Jersey,
Inc.'s pro forma pricing ratios at the midpoint of the offering range indicated
a premium of 171.2% on a price-to-earnings basis and a discount of 27.1% on a
price-to-tangible book value basis. The estimated appraised value and the
resulting premiums or discounts took into consideration the potential financial
impact of the stock offering.
Price-to-earnings Price-to-book Price-to-tangible
multiple value ratio book value ratio
-------- ----------- ----------------
American Bancorp of New Jersey, Inc. (pro forma)(1)
Minimum.................................................. 38.07x 96.90% 96.90%
Midpoint................................................. 44.42x 103.31% 103.31%
Maximum.................................................. 50.67x 108.58% 108.58%
Maximum, as adjusted..................................... 57.72x 113.51% 113.51%
Valuation of peer group companies
as of July 15, 2005(2)
Average.................................................. 17.91% 144.37% 150.58%
Median................................................... 16.38x 141.69% 147.14%
- -------------
(1) Based on ASB Holding Company's financial data as of and for the twelve
months ended March 31, 2005.
(2) Reflects earnings for the most recent 12-month period for which data was
publicly available.
RP Financial, LC's valuation is not intended, and must not be
construed, as a recommendation of any kind as to the advisability of purchasing
shares of American Bancorp of New Jersey, Inc. RP Financial, LC did not
independently verify the consolidated financial statements and other information
we provided to them, nor did RP Financial, LC value independently our assets or
liabilities. The valuation considers American Bancorp of New Jersey, Inc. as a
going concern and should not be considered as an indication of the liquidation
value of American Bancorp of New Jersey, Inc. Moreover, because this valuation
is necessarily based upon estimates and projections of a number of matters, all
of which are subject to change from time to time, no assurance can be given that
persons purchasing common stock in the offerings will thereafter be able to sell
their shares at prices at or above the purchase price or in the range of the
valuation described above.
No sale of shares of common stock in the stock offering may be
completed unless RP Financial, LC confirms that nothing of a material nature has
occurred which would cause it to conclude that the aggregate value of the common
stock to be issued is materially incompatible with the estimate of our pro forma
market value. If this confirmation is not received, we may cancel the stock
offering, extend the stock offering period and establish a new estimated
valuation and offering range and/or estimated price range, extend, reopen or
hold a new stock offering or take any other action the Office of Thrift
Supervision may permit.
Depending upon market or financial conditions following the start of
the subscription offering, the total number of shares of common stock to be
issued may be increased or decreased without a resolicitation of subscribers,
provided that the product of the total number of shares issued times the
purchase price is not below the minimum or more than 15% above the maximum of
the estimated valuation range. If market
144
or financial conditions change so as to cause the aggregate value of the common
stock to be issued to be below the minimum of the estimated valuation range or
more than 15% above the maximum of this range, purchasers will be resolicited
and be permitted to continue their orders, in which case they will need to
reconfirm their subscriptions prior to the expiration of the resolicitation
offering or their subscription funds will be promptly refunded with interest, or
be permitted to modify or rescind their subscriptions. Any change in the
estimated valuation range must be approved by the Office of Thrift Supervision.
An increase in the number of shares of common stock to be issued as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and American Bancorp of New Jersey,
Inc.'s pro forma net income and stockholders' equity on a per share basis while
increasing pro forma net income and stockholders' equity on an aggregate basis.
A decrease in the number of shares of common stock to be issued would increase
both a subscriber's ownership interest and American Bancorp of New Jersey,
Inc.'s pro forma net income and stockholders' equity on a per share basis while
decreasing pro forma net income and stockholders' equity on an aggregate basis.
Copies of the appraisal report of RP Financial, LC, including any
amendments, and the detailed report of the appraiser setting forth the method
and assumptions for the appraisal are available for inspection at the main
office of American Bank of New Jersey and the other locations specified under
Where You Can Find More Information. In addition, the appraisal report is an
exhibit to the registration statement of which this prospectus is a part. The
registration statement is available on the SEC's website at www.sec.gov.
Pricing Characteristics and After-Market Trends
The following table, prepared by RP Financial, LC, presents for all
second-step conversions completed between January 1, 2002 and July 19, 2005, the
percentage stock appreciation from the initial trading date of the offering to
the dates shown in the table. The table also presents the average and the median
percentage stock appreciation from January 1, 2002 to July 19, 2005. This
information relates to stock appreciation experienced by other companies that
reorganized in different market areas and in different stock market and economic
environments. In addition, the companies may have no similarities to American
Bancorp of New Jersey, Inc. with regard to market area, earnings quality and
growth potential, among other factors. The information shown in the following
table was not included in the appraisal report, however, the appraisal prepared
by RP Financial did consider the after market trading experience of transactions
that closed three months prior to the July 15, 2005 valuation date used in the
appraisal.
This table is not intended to indicate how our stock may perform.
Furthermore, this table presents only short-term price performance and may not
be indicative of the longer-term stock price performance of these companies. The
increase in any particular company's stock price is subject to various factors,
including, but not limited to, the amount of proceeds a company raises, the
company's historical and anticipated operating results, the nature and quality
of the company's assets, the company's market area, and the quality of
management and management's ability to deploy proceeds (such as through loans
and investments, the acquisition of other financial institutions or other
businesses, the payment of dividends and common stock repurchases). In addition,
stock prices may be affected by general market and economic conditions, the
interest rate environment, the market for financial institutions and merger or
takeover transactions, the presence of professional and other investors who
purchase stock on speculation, as well as other unforeseeable events not in the
control of management. Before you make an investment decision, we urge you to
carefully read this prospectus, including, but not limited to, the Risk Factors
beginning on page __.
145
Second-Step Conversions Completed Between January 1, 2002 and July 19, 2005
Price Performance from Initial Trading Date
-----------------------------------------------------------------
Closing
Transaction Date 1 day 1 week 1 month July 19, 2005
- ----------- ---- ----- ------ ------- -------------
Hudson City Bancorp, Inc. 6/7/05 9.6% 10.8% 15.9% 17.4%
First Federal of Northern Michigan Bancorp, Inc. 4/4/05 -5.1% -8.0% -16.0% -5.6%
Rome Bancorp, Inc. 3/31/05 0.5% -2.5% -5.6% -0.3%
Roebling Financial Corp. 10/1/04 -1.0% -0.5% -8.0% -2.1%
DSA Financial Corporation 7/30/04 -2.0% -5.0% -7.0% 45.0%
Partners Trust Financial Group, Inc. 7/15/04 -0.1% -0.2% -1.9% 9.2%
Synergy Financial Group, Inc. 1/21/04 8.1% 8.0% 7.9% 17.5%
Provident Bancorp, Inc. 1/15/04 15.0% 11.5% 15.1% 21.4%
Bank Mutual Corporation 10/30/03 17.8% 18.5% 15.4% 11.1%
Jefferson Bancshares, Inc. 7/1/03 23.9% 25.0% 40.0% 28.2%
First Niagara Financial Group, Inc. 1/21/03 12.7% 14.5% 11.8% 49.7%
Wayne Savings Bancshares, Inc. 1/9/03 12.0% 12.0% 11.5% 57.5%
Sound Federal Bancorp, Inc. 1/7/03 10.0% 12.0% 16.1% 65.5%
Bridge Street Financial, Inc. 1/6/03 1.6% 7.0% 9.4% 81.5%
Citizens South Banking Corp. 10/1/02 -0.5% -6.0% -2.5% 21.0%
Brookline Bancorp, Inc. 7/10/02 10.6% 14.0% 15.5% 62.6%
Willow Grove Bancorp, Inc. 4/4/02 10.0% 15.5% 16.2% 51.6%
Average 7.2% 7.4% 7.9% 31.2%
Median 9.6% 10.8% 11.5% 21.4%
Data presented in the table reflects a small number of transactions.
There can be no assurance that our stock price will trade similarly to these
companies. There can also be no assurance that our stock price will not trade
below $10.00 per share, particularly as the substantial proceeds raised as a
percentage of pro forma stockholders' equity may have a negative effect on our
stock price performance. See Risk Factors - Our low return on equity after the
conversion may negatively impact the value of our common stock.
Plan of Distribution/Marketing Arrangements
We have retained Keefe, Bruyette & Woods, Inc., to consult with and to
advise and assist us, on a best efforts basis, in the distribution of our common
stock in this stock offering. The services that Keefe, Bruyette & Woods, Inc.
will provide include, but are not limited to:
o training the employees of American Bank of New Jersey who will perform
certain ministerial functions in the subscription offering and direct
community offering regarding the mechanics and regulatory requirements of
the stock offering process;
o managing the stock information center by assisting interested stock
subscribers and by keeping records of all stock orders; and
o preparing marketing materials.
146
For its services, Keefe, Bruyette & Woods, Inc., will receive a
management fee of $50,000 and a success fee of 1.00% of the aggregate purchase
price, less any shares of common stock sold to directors, officers, and
employees and the Tax-Qualified Employee Plans. The success fee paid to Keefe,
Bruyette & Woods, Inc., will be reduced by the amount of the management fee. In
the event that selected dealers are used to assist in the sale of our common
stock in the direct community offering, these dealers will be paid a fee of up
to 5.5% of the total purchase price of the shares sold by the dealers. We have
agreed to indemnify Keefe, Bruyette & Woods, Inc., against certain claims or
liabilities, including certain liabilities under the Securities Act of 1933, as
amended, and will contribute to payments Keefe, Bruyette & Woods, Inc. may be
required to make in connection with any such claims or liabilities. In addition,
Keefe, Bruyette & Woods, Inc., will be reimbursed for the fees of its legal
counsel in an amount not to exceed $40,000 and other reasonable out-of-pocket
expenses not to exceed $30,000.
Sales of shares of our common stock will be made by registered
representatives affiliated with Keefe, Bruyette & Woods, Inc., or by the
broker-dealers managed by Keefe, Bruyette & Woods, Inc. Keefe, Bruyette & Woods,
Inc. has undertaken that our common stock will be sold in a manner that will
ensure that the distribution standards of the Nasdaq National Market will be
met. A stock information center will be established at the main office of
American Bank of New Jersey located at 365 Broad Street, Bloomfield, New Jersey.
We will rely on Rule 3a4-1 of the Securities Exchange Act of 1934 and sales of
our common stock will be conducted within the requirements of this rule, so as
to permit officers, directors and employees to participate in the sale of our
common stock in those states where the law permits. No officer, director or
employee of ASB Holding Company, American Bank of New Jersey or American Bancorp
of New Jersey, Inc. will be compensated directly or indirectly by the payment of
commissions or other remuneration in connection with his or her participation in
the sale of common stock.
Restrictions on Transferability by Directors and Executive Officers
Shares of the common stock purchased by our directors or executive
officers cannot be sold for a period of one year following completion of the
stock offering, except for a disposition of shares after death. To ensure this
restriction is upheld, shares of the common stock issued to directors and
executive officers will bear a legend restricting their sale. Any shares issued
to directors and executive officers as a stock dividend, stock split, or
otherwise with respect to restricted stock will be subject to the same
restriction.
For a period of three years following the stock offering, our directors
and executive officers and their associates may not, without the prior approval
of the OTS, purchase our common stock except from a broker or dealer registered
with the SEC. This prohibition does not apply to negotiated transactions for
more than 1% of our common stock or purchases made for tax qualified or non-tax
qualified employee stock benefit plans which may be attributable to individual
directors or executive officers.
Restrictions on Agreements or Understandings Regarding Transfer of Common Stock
to be Purchased in the Stock Offering
Before the completion of the stock offering, no depositor may transfer
or enter into an agreement or understanding to transfer any subscription rights
or the legal or beneficial ownership of the shares of common stock to be
purchased in the stock offering. Depositors who submit an order form will be
required to certify that their purchase of common stock is solely for their own
account and there is no agreement or understanding regarding the sale or
transfer of their shares. We intend to pursue any and all legal and equitable
remedies after we become aware of any agreement or understanding, and will not
honor orders we reasonably believe to involve an agreement or understanding
regarding the sale or transfer of shares.
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RESTRICTIONS ON ACQUISITION OF AMERICAN BANCORP OF NEW JERSEY, INC.
General
The principal federal regulatory restrictions that affect the ability
of any person, firm or entity to acquire American Bancorp of New Jersey, Inc.,
American Bank of New Jersey or their respective capital stock are described
below. Also discussed are certain provisions in American Bancorp of New Jersey,
Inc.'s certificate of incorporation and bylaws which may be deemed to affect the
ability of a person, firm or entity to acquire American Bancorp of New Jersey,
Inc.
Statutory and Regulatory Restrictions on Acquisition
The Change in Bank Control Act provides that no person, acting directly
or indirectly or through or in concert with one or more other persons, may
acquire control of a savings institution unless the Office of Thrift Supervision
has been given 60 days prior written notice. The Home Owners' Loan Act provides
that no company may acquire "control" of a savings institution without the prior
approval of the Office of Thrift Supervision. Any company that acquires control
of a savings institution becomes a savings and loan holding company subject to
registration, examination and regulation by the Office of Thrift Supervision.
Pursuant to federal regulations, control of a savings institution is
conclusively deemed to have been acquired by, among other things, the
acquisition of more than 25% of any class of voting stock of the institution or
the ability to control the election of a majority of the directors of an
institution. Moreover, control is presumed to have been acquired, subject to
rebuttal, upon the acquisition of more than 10% of any class of voting stock, or
of more than 25% of any class of stock of a savings institution, where certain
enumerated "control factors" are also present in the acquisition.
The Office of Thrift Supervision may prohibit an acquisition of control
if:
o it would result in a monopoly or substantially lessen competition;
o the financial condition of the acquiring person might jeopardize the
financial stability of the institution; or
o the competence, experience or integrity of the acquiring person indicates
that it would not be in the interest of the depositors or of the public to
permit the acquisition of control by the acquiring person.
These restrictions do not apply to the acquisition of a savings
institution's capital stock by one or more tax-qualified employee stock benefit
plans, provided that the plans do not have beneficial ownership of more than 25%
of any class of equity security of the savings institution.
For a period of three years following completion of the conversion of
ASB Holding Company from the mutual to the stock form of organization, Office of
Thrift Supervision regulations generally prohibit any person from acquiring or
making an offer to acquire beneficial ownership of more than 10% of the stock of
American Bancorp of New Jersey, Inc. or American Bank of New Jersey without
Office of Thrift Supervision approval.
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Certificate of Incorporation and Bylaws of American Bancorp of New Jersey, Inc.
The following discussion is a summary of certain provisions of the
certificate of incorporation and bylaws of American Bancorp of New Jersey, Inc.
that relate to corporate governance. The description is necessarily general and
qualified by reference to the certificate of incorporation and bylaws. Certain
of these provisions, in addition to discouraging a takeover attempt which a
majority of our stockholders might determine to be in their best interest or in
which our stockholders might receive a premium over the current market prices
for their shares, may have the effect of rendering the removal of our management
more difficult.
Classified Board of Directors. The Board of Directors of American
Bancorp of New Jersey, Inc. is required by the certificate of incorporation to
be divided into four staggered classes which are as equal in size as is
possible. One class is required to be elected annually for four-year terms, and
classes are elected in series. A classified board promotes continuity and
stability of management of American Bancorp of New Jersey, Inc., but makes it
more difficult for stockholders to change a majority of the directors because it
generally takes at least three annual elections of directors for this to occur.
Authorized but Unissued Shares of Capital Stock. Following the stock
offering, American Bancorp of New Jersey, Inc. will have authorized but unissued
shares of preferred stock and common stock. See Description of Capital Stock at
page __. These shares could be used by the Board of Directors to make it more
difficult or to discourage an attempt to obtain control of American Bancorp of
New Jersey, Inc. through a merger, tender offer, proxy contest or otherwise.
Special Meetings of Stockholders. American Bancorp of New Jersey,
Inc.'s certificate of incorporation provides that special meetings of
stockholders may be called only by American Bancorp of New Jersey, Inc.'s
President or by its Board of Directors, except as provided by the New Jersey
Business Corporation Act.
Prohibition on Cumulative Voting. American Bancorp of New Jersey,
Inc.'s certificate of incorporation provides that there will not be cumulative
voting by stockholders for the election of American Bancorp of New Jersey,
Inc.'s directors. This could prevent minority stockholder representation on
American Bancorp of New Jersey, Inc.'s Board of Directors.
Restrictions on Acquisition of Shares and Vote Sterilization. American
Bancorp of New Jersey, Inc.'s certificate of incorporation provides that for a
period of five years from the date of completion of the conversion, no person
may offer to acquire or acquire the beneficial ownership of more than 10% of any
class of equity security of American Bancorp of New Jersey, Inc. In addition,
all shares owned over the 10% limit may not be voted in any matter submitted to
stockholders for a vote.
Procedures for Stockholder Nominations. American Bancorp of New Jersey,
Inc.'s bylaws provide that any stockholder wanting to make a nomination for the
election of directors or a proposal for new business at a meeting of
stockholders must send written notice to the Secretary of American Bancorp of
New Jersey, Inc. at least 60 days before the anniversary date of the prior
year's annual meeting. The bylaws further provide that the Board of Directors
may reject any nominations or proposals for new business that do not follow the
prescribed procedures. Management believes that it is in the best interests of
American Bancorp of New Jersey, Inc. and its stockholders to provide enough time
for management to disclose to stockholders information about a dissident slate
of nominations for directors. This advance notice requirement may also give
management time to solicit its own proxies in an attempt to defeat any dissident
slate of nominations if management thinks it is in the best interest of
stockholders generally. Similarly,
149
adequate advance notice of stockholder proposals will give management time to
study these proposals and to determine whether to recommend to the stockholders
that these proposals be adopted.
Procedures for Business Combinations. Our certificate of incorporation
prohibits any merger, consolidation, sale, liquidation, or dissolution (each, a
business combination) of American Bancorp of New Jersey, Inc. with any
"interested stockholder" for a period of five years following the interested
stockholder's stock acquisition date unless the business combination is approved
by a two-thirds vote of the Board prior to the stock acquisition date. An
interested stockholder is any person who, directly or indirectly, has the right
to vote or to sell 10% or more of the outstanding shares. Affiliates and
associates of an interested shareholder are also considered to be interested
shareholders.
In addition, our certificate of incorporation requires that at least
one of the following conditions be met to engage in a business combination with
an interested stockholder: (i) approval by a vote of two-thirds of the Board
prior to the interested stockholder's stock acquisition date and thereafter
approved by stockholders; (ii) approval by the affirmative vote of the holders
of at least 80% of the voting shares not beneficially owned by that interested
stockholder at a meeting called for that purpose; or (iii) satisfaction of
certain minimum price conditions, as set forth in our certificate of
incorporation.
In addition to the interested shareholder restrictions, our certificate
of incorporation also requires the affirmative vote of at least 80% of the
outstanding shares in order for us to enter into any merger, consolidation,
sale, liquidation, or dissolution of us, unless the transaction is approved by
two-thirds of our Board of Directors.
Director Qualification Provisions. American Bancorp of New Jersey,
Inc.'s bylaws provide several qualification provisions applicable to members of
its Board of Directors that serve to ensure the loyalty and professional
integrity of each individual director. In particular, the bylaws provide that
each director reside, at all times, within New Jersey within a 100 mile radius
of a branch office of American Bank of New Jersey. In addition, the bylaws
provide that each director be a shareholder of American Bancorp of New Jersey,
Inc. and, at all times, hold a minimum of 2,500 shares of its stock.
American Bancorp of New Jersey, Inc.'s bylaws also prohibit a person
from serving as a director if that individual is currently serving as a
management official of another depository institution or depository holding
company, as those terms are defined by the regulations of the OTS. Further, to
ensure the integrity and good character of American Bancorp of New Jersey,
Inc.'s directors, the bylaws prohibit an individual who has been subject to
conviction for a criminal offense involving dishonesty or breach of trust or who
has, within the past ten years, been subject to a cease and desist order for
similar conduct, or who has been found by a regulatory agency or a court to have
breached a fiduciary duty involving personal profit or to have committed certain
willful violations of the law from serving as a director or from nominating a
person to serve as a director.
American Bancorp of New Jersey, Inc.'s bylaws also prohibit a person
from serving as a director if that individual has a conflict of interest by
virtue of concurrently serving as an officer, director, advisor or consultant,
or in any similar capacity, to another financial institution which maintains an
office in New Jersey.
In addition to discouraging a takeover attempt which a majority of our
public stockholders might determine to be in their best interest or in which our
stockholders might receive a premium over the current market prices for their
shares, the effect of these provisions may render the removal of our management
more difficult.
150
Amendment to Certificate of Incorporation and Bylaws. Amendments to our
certificate of incorporation must be approved by our Board of Directors and also
by the holders of a majority of the shares. Approval by at least 80% of the
shares is required to amend provisions relating to preemptive rights;
stockholder meetings; cumulative voting; proxies; stockholder proposals and
nominations; directors; removal of directors; restrictions on the acquisition
and voting of more than 10% of the common stock; approval of business
combinations with interested stockholders; directors' and officers' liability;
and indemnification of officers and directors; amendment of the bylaws; and
amendment of the certificate of incorporation.
Our bylaws may be amended by a two-thirds vote of our Board of
Directors or by the holders of at least 80% of the shares.
DESCRIPTION OF CAPITAL STOCK
General
American Bancorp of New Jersey, Inc. is a newly formed New Jersey
incorporated company. It is authorized to issue 20,000,000 shares of common
stock, par value $0.10 per share and 10,000,000 shares of serial preferred
stock, par value $0.10 per share. Upon payment of the purchase price shares of
common stock issued in the stock offering will be fully paid and non-assessable.
Each share of common stock will have the same relative rights as, and will be
identical in all respects with, each other share of common stock. The common
stock will represent non-withdrawable capital, will not be an account of
insurable type and will not be insured by the FDIC or any other governmental
agency. The Board of Directors can, without stockholder approval, issue
additional shares of common stock.
Common Stock
Distributions. American Bancorp of New Jersey, Inc. can pay dividends
if, as and when declared by its Board of Directors, subject to compliance with
limitations that are imposed by law. See Dividend Policy at page __. The holders
of common stock of American Bancorp of New Jersey, Inc. will be entitled to
receive and share equally in dividends as may be declared by the Board of
Directors of American Bancorp of New Jersey, Inc. out of funds legally available
therefor. If American Bancorp of New Jersey, Inc. issues preferred stock, the
holders thereof may have a priority over the holders of the common stock with
respect to dividends.
Voting Rights. The holders of common stock will possess exclusive
voting rights in American Bancorp of New Jersey, Inc. The holder of shares of
common stock will be entitled to one vote for each share held on all matters
subject to stockholder vote and will not have any right to cumulate votes in the
election of directors.
Liquidation Rights. In the event of any liquidation, dissolution, or
winding-up of American Bancorp of New Jersey, Inc., the holders of the common
stock generally would be entitled to receive, after payment of all debts and
liabilities of American Bancorp of New Jersey, Inc. (including all debts and
liabilities of American Bank of New Jersey and distribution of the balance in
the special liquidation account of American Bank of New Jersey to eligible
account holders and supplemental eligible account holders), all assets of
American Bancorp of New Jersey, Inc. available for distribution. If preferred
stock is issued, the holders thereof may have a priority over the holders of the
common stock in the event of liquidation or dissolution.
151
Preemptive Rights; Redemption. Because the holders of the common stock
do not have any preemptive rights with respect to any shares that may be issued
by American Bancorp of New Jersey, Inc., the Board of Directors may sell shares
of capital stock of American Bancorp of New Jersey, Inc. without first offering
these shares to existing stockholders. The common stock will not be subject to
any redemption provisions.
Preferred Stock
We are authorized to issue up to 10,000,000 shares of serial preferred
stock and to fix and state voting powers, designations, preferences, or other
special rights of preferred stock and the qualifications, limitations and
restrictions of those shares as the Board of Directors may determine in its
discretion. Preferred stock may be issued in distinctly designated series, may
be convertible into common stock and may rank prior to the common stock as to
dividend rights, liquidation preferences, or both, and may have full or limited
voting rights. The issuance of preferred stock could adversely affect the voting
and other rights of holders of common stock.
The authorized but unissued shares of preferred stock and the
authorized but unissued and unreserved shares of common stock will be available
for issuance in future mergers or acquisitions, in future public offerings or
private placements. Except as otherwise required to approve the transaction in
which the additional authorized shares of preferred stock would be issued, no
stockholder approval generally would be required for the issuance of these
shares.
LEGAL AND TAX OPINIONS
The legality of the issuance of the common stock being offered and
certain matters relating to the stock offering and federal and state taxation
will be passed upon for us by Malizia Spidi & Fisch, PC, Washington, D.C. and
Crowe Chizek and Company LLC, Livingston, New Jersey. Certain legal matters will
be passed upon for Keefe, Bruyette & Woods, Inc. by Silver, Freedman & Taff,
L.L.P., Washington D.C.
EXPERTS
The consolidated financial statements of ASB Holding Company at
September 30, 2004 and for the three years ended September 30, 2004 have been
included in this prospectus in reliance upon the report of Crowe Chizek and
Company LLC, Livingston, New Jersey, appearing elsewhere in this prospectus, and
upon the authority of said firm as experts in accounting and auditing.
RP Financial, LC has consented to the publication in this document of a
summary of its letter to American Bancorp of New Jersey, Inc. setting forth its
conclusion as to the estimated pro forma market value of the common stock and
has also consented to the use of its name and statements with respect to it
appearing in this document.
REGISTRATION REQUIREMENTS
Our common stock will be registered with the SEC pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
We will be subject to the information, proxy solicitation, insider trading
restrictions, tender offer rules, periodic reporting and other requirements of
the SEC under the Exchange Act. We will not deregister the common stock under
the Exchange Act for a period of at least three years following the stock
offering.
152
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under
the Securities Act of 1933, as amended, with respect to the common stock offered
in this document. As permitted by the rules and regulations of the SEC, this
document does not contain all the information set forth in the registration
statement. This information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of the registration materials can be obtained from the
SEC at prescribed rates. You may obtain information on the operation of the
Public Reference Room by calling 1-800-SEC-0330. The SEC also maintains an
Internet address ("web site") that contains reports, proxy and information
statements and other information regarding registrants, including ASB Holding
Company, that file electronically with the SEC. The address for this web site is
"http://www.sec.gov." The statements contained in this document as to the
contents of any contract or other document filed as an exhibit to the Form S-1
are, of necessity, brief descriptions, and each statement is qualified by
reference to the complete contract or document.
Copies of the plan of conversion are also available without charge.
153
ASB HOLDING COMPANY
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm F-1
Consolidated Statements of Financial Condition F-2
Consolidated Statements of Income F-3
Consolidated Statements of Changes in Equity F-4
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-10
Other schedules are omitted as they are not required or are not
applicable or the required information is shown in the consolidated financial
statements or related notes.
Financial statements of American Bancorp of New Jersey, Inc. have not
been provided because it has conducted no operations.
154
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
ASB Holding Company
Bloomfield, New Jersey
We have audited the accompanying consolidated statements of financial condition
of ASB Holding Company and subsidiaries as of September 30, 2004 and 2003, and
the related consolidated statements of income, changes in equity, and cash flows
for the three years ended September 30, 2004, 2003 and 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ASB Holding Company and
subsidiaries as of September 30, 2004 and 2003, and the results of its
operations and its cash flows for the three years ended September 30, 2004, 2003
and 2002 in conformity with U.S. generally accepted accounting principles.
/s/Crowe Chizek and Company LLC
Crowe Chizek and Company LLC
June 10, 2005
Livingston, New Jersey
F-1
ASB HOLDING COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 2005 (unaudited) and September 30, 2004 and 2003
(In thousands except share data)
- --------------------------------------------------------------------------------
March 31, September 30,
----------------------
2005 2004 2003
---- ---- ----
(unaudited)
ASSETS
Cash and cash equivalents
Cash and due from banks $ 2,383 $ 2,256 $ 1,206
Interest-bearing deposits 2,458 5,778 31,259
Federal funds sold -- -- 5,900
--------- --------- ---------
Total cash and cash equivalents 4,841 8,034 38,365
Securities available-for-sale 75,992 89,495 107,391
Securities held-to-maturity (fair value: 2005 - $8,392, 2004 - $2,806,
2003 - $2,864) 8,526 2,794 2,839
Loans receivable, net of allowance for loan losses 2005 - $1,690;
2004 - $1,578; 2003 - $1,371 333,252 308,970 262,844
Loans held for sale 302 -- 500
Premises and equipment 4,059 3,910 3,939
Federal Home Loan Bank stock, at cost 3,513 2,890 3,150
Cash surrender value of life insurance 7,375 6,242 5,028
Accrued interest receivable 1,471 1,359 1,255
Other assets 1,623 1,250 1,755
--------- --------- ---------
Total assets $ 440,954 $ 424,944 $ 427,066
========= ========= =========
LIABILITIES AND EQUITY
Deposits
Non-interest-bearing $ 24,093 $ 22,599 $ 21,676
Interest-bearing 303,950 300,117 271,150
--------- --------- ---------
Total deposits 328,043 322,716 292,826
Stock subscriptions received -- -- 52,137
Advance payments by borrowers for taxes and insurance 2,491 2,322 2,079
Federal Home Loan Bank advances 68,263 57,491 55,000
Accrued expenses and other liabilities 3,034 3,049 2,685
Common Stock in ESOP subject to contingent repurchase
obligation 312 52 --
--------- --------- ---------
Total liabilities 402,143 385,630 404,727
Commitments and contingent liabilities
Equity
Preferred stock $.10 par value; 5,000,000 shares authorized -- -- --
Common stock $.10 par value; 20,000,000 shares authorized;
5,554,500 shares issued and outstanding 555 555 --
Additional paid in capital 17,066 15,687 100
Unearned ESOP shares (1,131) (1,200) --
Unearned RSP shares (1,265) -- --
Retained earnings 24,848 24,806 22,644
Accumulated other comprehensive (loss) (950) (482) (405)
Amount reclassified on ESOP shares (312) (52) --
--------- --------- ---------
Total equity 38,811 39,314 22,339
--------- --------- ---------
Total liabilities and equity $ 440,954 $ 424,944 $ 427,066
========= ========= =========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-2
ASB HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Six months ended March 31, 2005 and 2004 (unaudited) and years ended
September 30, 2004, 2003 and 2002
(In thousands except share data)
- --------------------------------------------------------------------------------
Six Months Ended Years Ended
March 31, September 30,
-------------------- --------------------------------
2005 2004 2004 2003 2002
---- ---- ---- ---- ----
(unaudited)
Interest and dividend income
Loans, including fees $ 8,483 $ 7,405 $ 15,017 $ 14,343 $ 12,907
Securities 1,450 1,587 3,125 2,918 4,414
Federal funds sold and other 61 25 62 215 257
-------- -------- -------- -------- --------
Total interest income 9,994 9,017 18,204 17,476 17,578
Interest expense
NOW and money market 206 109 225 290 211
Savings 1,108 1,033 2,109 2,307 2,196
Certificates of deposit 1,705 1,458 2,912 3,439 4,158
Federal Home Loan Bank advances 1,404 1,428 2,859 2,834 2,264
-------- -------- -------- -------- --------
Total interest expense 4,423 4,028 8,105 8,870 8,829
-------- -------- -------- -------- --------
Net interest income 5,571 4,989 10,099 8,606 8,749
Provision for loan losses 112 54 207 254 105
-------- -------- -------- -------- --------
Net interest income after provision for loan losses 5,459 4,935 9,892 8,352 8,644
Noninterest income
Deposit service fees and charges 320 349 697 452 400
Income from cash surrender value of life insurance 133 115 207 227 102
Gain on sale of loans 1 21 27 151 7
Loss on sales of securities available-for-sale -- -- -- (188) --
Gain on sale of other real estate owned -- -- 176 3 --
Other 83 78 191 73 86
-------- -------- -------- -------- --------
Total noninterest income 537 563 1,298 718 595
Noninterest expense
Salaries and employee benefits 2,545 2,344 4,812 4,507 3,969
Occupancy and equipment 409 441 853 822 737
Data processing 293 334 652 543 486
Advertising 140 129 247 229 394
Federal deposit insurance 22 24 46 43 36
Borrowed funds prepayment penalty -- -- 125 -- --
Other 702 497 922 718 652
-------- -------- -------- -------- --------
Total noninterest expense 4,111 3,769 7,657 6,862 6,274
-------- -------- -------- -------- --------
Income before provision for income taxes 1,885 1,729 3,533 2,208 2,965
Provision for income taxes 691 668 1,371 805 1,075
-------- -------- -------- -------- --------
Net income $ 1,194 $ 1,061 $ 2,162 $ 1,403 $ 1,890
======== ======== ======== ======== ========
Earnings per share:
Basic and diluted $ 0.22 $ 0.20 $ 0.40 $ 0.36 $ 0.49
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Six months ended March 31, 2005 and 2004 (unaudited) and years ended September 30, 2004, 2003, and 2002
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated Amount
Other Reclassified
Additional Unearned Unearned Compre- on Compre-
Common Paid-in ESOP RSP Retained hensive ESOP Total hensive
Stock Capital Shares Shares Earnings Income Shares Equity Income
----- ------- ------ ------ -------- ------ ------ ------ ------
Balance at September 30, 2001 $ -- $ -- $ -- $ -- $ 19,451 $ 704 $ -- $ 20,155
Comprehensive income
Net income -- -- -- -- 1,890 -- -- 1,890
Change in unrealized gain on
securities available-for-sale,
net of taxes -- -- -- -- -- (173) -- (173)
Total comprehensive income -- -- -- -- -- -- -- -- $ 1,717
------ ------ ------ ------- -------- -------- ------- -------- =======
Balance at September 30, 2002 -- -- -- -- 21,341 531 -- 21,872
Initial funding of ASB Holding
Company -- 100 -- -- (100) -- -- --
Comprehensive income
Net income -- -- -- -- 1,403 -- -- 1,403
Change in unrealized gain on
securities available-for-sale,
net of taxes -- -- -- -- -- (936) -- (936)
Total comprehensive income -- -- -- -- -- -- -- -- $ 467
------ ------ ------ ------ -------- -------- ------- -------- =======
Balance at September 30, 2003 $ -- $ 100 $ -- $ -- $ 22,644 $ (405) $ -- $ 22,339
====== ====== ====== ====== ======== ======== ======= ========
- --------------------------------------------------------------------------------
(Continued)
F-4
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Six months ended March 31, 2005 and 2004 (unaudited) and years ended September 30, 2004, 2003, and 2002
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated Amount
Other Reclassified
Additional Unearned Unearned Compre- on Compre-
Common Paid-in ESOP RSP Retained hensive ESOP Total hensive
Stock Capital Shares Shares Earnings Income Shares Equity Income
----- ------- ------ ------ -------- ------ ------ ------ ------
Balance at September 30, 2003 $ -- $ 100 $ -- $ -- $ 22,644 $ (405) $ -- $ 22,339
Issuance of common stock,
net of issuance costs 555 15,506 (1,333) -- -- -- -- 14,728
ESOP shares earned -- 81 133 -- -- -- -- 214
Reclassification due to change
in fair value of common stock
in ESOP subject to contingent
repurchase obligation -- -- -- -- -- -- (52) (52)
Comprehensive income
Net income -- -- -- -- 2,162 -- -- 2,162
Change in unrealized gain on
securities available-for-sale,
net of taxes -- -- -- -- -- (77) -- (77)
Total comprehensive income -- -- -- -- -- -- $ 2,085
------ ------- ------- ------ -------- -------- ------- -------- =======
Balance at September 30, 2004 $ 555 $15,687 $(1,200) $ -- $ 24,806 $ (482) $ (52) $ 39,314
====== ======= ======= ====== ======== ========= ======= ========
- --------------------------------------------------------------------------------
(Continued)
F-5
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Six months ended March 31, 2005 and 2004 (unaudited) and years ended September 30, 2004, 2003, and 2002
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated Amount
Other Reclassified
Additional Unearned Unearned Compre- on Compre-
Common Paid-in ESOP RSP Retained hensive ESOP Total hensive
Stock Capital Shares Shares Earnings Income Shares Equity Income
----- ------- ------ ------ -------- ------ ------ ------ ------
Balance at September 30, 2004 $ 555 $15,687 $(1,200) $ -- $ 24,806 $ (482) $ (52) $ 39,314
RSP stock grants -- 1,332 -- (1,332) -- -- -- --
RPS shares earned -- -- -- 67 -- -- -- 67
ESOP shares earned -- 47 69 -- -- -- -- 116
Cash dividends paid
- $0.75 per share -- -- -- -- (1,152) -- -- (1,152)
Reclassification due to change
in fair value of common stock
in ESOP subject to contingent
repurchase obligation -- -- -- -- -- -- (260) (260)
Comprehensive income
Net income -- -- -- -- 1,194 -- -- 1,194
Change in unrealized gain on
securities available-for-sale,
net of taxes -- -- -- -- -- (468) -- (468)
Total comprehensive income -- -- -- -- -- -- -- -- $ 726
------ ------- ------- ------ -------- --------- ------- -------- =======
Balance at March 31, 2005 $ 555 $17,066 $(1,131) (1,265) $ 24,848 $ (950) $ (312) $ 38,811
====== ======= ======= ====== ======== ========= ======= ========
- --------------------------------------------------------------------------------
(Continued)
F-6
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Six months ended March 31, 2005 and 2004 (unaudited) and years ended September 30, 2004, 2003, and 2002
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated Amount
Other Reclassified
Additional Unearned Unearned Compre- on Compre-
Common Paid-in ESOP RSP Retained hensive ESOP Total hensive
Stock Capital Shares Shares Earnings Income Shares Equity Income
----- ------- ------ ------ -------- ------ ------ ------ ------
Balance at September 30, 2003 $ -- $ 100 $ -- $ -- $ 22,644 $ (405) $ -- $ 22,339
Issuance of common stock,
net of issuance costs 555 15,506 (1,333) -- -- -- -- 14,728
ESOP shares earned -- 46 67 -- -- -- -- 113
Reclassification due to change
in fair value of common stock
in ESOP subject to contingent
repurchase obligation -- -- -- -- -- -- (57) (57)
Comprehensive income
Net income -- -- -- -- 1,061 -- -- 1,061
Change in unrealized gain on
securities available-for-sale,
net of taxes -- -- -- -- -- 511 -- 511
Total comprehensive income -- -- -- -- -- -- -- -- $ 1,572
------ ------- ------- ------ -------- --------- ------- -------- =======
Balance at March 31, 2004 $ 555 $15,652 $(1,266) $ -- $ 23,705 $ 106 $ (57) $ 38,695
====== ======= ======= ====== ======== ========= ======= ========
- --------------------------------------------------------------------------------
(Continued)
F-7
ASB HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended March 31, 2005 and 2004 (unaudited) and years ended September 30, 2004, 2003 and 2002
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------------
Six Months Ended Years Ended
March 31, September 30,
---------------------- -----------------------------------
2005 2004 2004 2003 2002
---- ---- ---- ---- ----
(unaudited)
Cash flows from operating activities
Net income $ 1,194 $ 1,061 $ 2,162 $ 1,403 $ 1,890
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 180 216 417 371 378
Net amortization of premiums and discounts 66 175 292 1,036 422
Losses on sales of securities available-for-sale -- -- -- 188 --
ESOP compensation expense 116 113 214 -- --
RSP compensation expense 67 -- -- -- --
Provision for loan losses 112 54 207 254 105
Increase in cash surrender value of life insurance (133) (115) (207) (227) (102)
Gain on sale of other real estate owned -- -- (176) (3) --
Gain on sale of loans (1) (21) (27) (151) (7)
Proceeds from sales of loans 144 2,137 4,774 9,561 265
Net change in loans held for sale (302) 99 500 (500) --
Decrease (increase) in accrued interest receivable (112) 17 (104) 58 (165)
Decrease (increase) in other assets (104) 396 591 (979) 184
Change in deferred income taxes (20) 9 (34) 142 (126)
Increase (decrease) in other liabilities (15) (125) 364 (22) 840
--------- --------- --------- --------- ---------
Net cash provided by operating activities 1,192 4,016 8,973 11,131 3,684
Cash flows from investing activities
Net increase in loans receivable (24,537) (13,728) (51,289) (64,194) (42,415)
Purchases of securities held-to-maturity (6,227) (756) (922) -- --
Principal paydowns on securities held-to-maturity 490 606 954 4,133 3,231
Purchases of securities available-for-sale -- (9,016) (21,459) (111,503) (58,906)
Sales of securities available-for-sale -- -- -- 21,026 --
Calls of securities available-for-sale 2,000 -- 13,560 -- --
Principal paydowns on securities available-for-sale 10,725 18,238 25,387 70,435 20,143
Purchase of Federal Home Loan Bank stock (1,828) (745) (2,222) (1,660) (225)
Redemption of Federal Home Loan Bank stock 1,205 1,025 2,482 710 325
Purchase of bank-owned life insurance (1,000) -- (1,007) (324) (4,375)
Purchase of premises and equipment (329) (301) (388) (524) (355)
Proceeds from sale of other real estate owned -- -- 385 63 --
--------- --------- --------- --------- ---------
Net cash used in investing activities (19,501) (4,677) (34,519) (81,838) (82,577)
Cash flows from financing activities
Net increase in deposits 5,327 970 29,890 28,239 75,759
Stock subscriptions received (refunded or applied) -- (52,137) (52,137) 52,137 --
Net change in advance payments by borrowers for
taxes and insurance 169 141 243 366 355
Repayment of Federal Home Loan Bank of New
York advances (1,028) (2,000) (7,009) (4,000) (14,000)
Federal Home Loan Bank of New York advances -- -- 6,800 15,000 12,000
- --------------------------------------------------------------------------------
(Continued)
F-8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended March 31, 2005 and 2004 (unaudited) and years ended September 30, 2004, 2003 and 2002
(Tables in thousands)
- --------------------------------------------------------------------------------
Six Months Ended Years Ended
March 31, September 30,
---------------------- --------------------------------
2005 2004 2004 2003 2002
---- ---- ---- ---- ----
(unaudited)
Net change in Federal Home Loan Bank of New York
overnight lines of credit $ 11,800 $ 4,400 $ 2,700 $ -- $ --
Net proceeds from stock issuance -- 14,728 14,728 -- --
Cash dividends paid (1,152) -- --
-------- -------- -------- -------- --------
Net cash provided by financing activities 15,116 (33,898) (4,785) 91,742 74,114
-------- -------- -------- -------- --------
Net change in cash and cash equivalents (3,193) (34,559) (30,331) 21,035 (4,779)
Cash and cash equivalents at beginning of period 8,034 38,365 38,365 17,330 22,109
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ 4,841 $ 3,806 $ 8,034 $ 38,365 $ 17,330
======== ======== ======== ======== ========
Supplemental cash flow information:
Cash paid during the period for
Interest $ 4,422 $ 4,023 $ 8,101 $ 8,839 $ 8,790
Income taxes, net of refunds 910 626 1,166 1,049 1,031
Supplemental disclosures of noncash investing
transactions:
Conversion of loans to other real estate owned $ -- $ -- $ 209 $ 60 $ --
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-9
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation: ASB Holding Company is a
- -----------------------------------------------------
federally chartered corporation organized in June 2003 that was formed for the
purpose of acquiring all of the capital stock of American Savings Bank of NJ,
which was previously owned by American Savings, MHC, a federally-chartered
mutual holding company. American Savings Bank of NJ converted from a mutual to a
stock savings bank in a mutual holding company reorganization in 1999 in which
no stock was sold to any person other than American Savings, MHC. Currently all
of the outstanding stock of American Savings Bank of NJ is held by ASB Holding
Company. The MHC holds 70% of the outstanding stock of ASB Holding Company stock
with the remaining 30% held by the public.
The consolidated financial statements include the accounts of ASB Holding
Company ("the Company") and its wholly owned subsidiaries, American Bank of New
Jersey (formerly American Savings Bank of NJ) ("the Bank") and ASB Investment
Corp. ("the Investment Corp."), together referred to as "the Company."
Intercompany transactions and balances are eliminated in consolidation.
References to "we", "us", or "our" refer to the Bank or Company, or both, as the
context indicates. The Bank's name change to American Bank of New Jersey was
effective March 31, 2005.
The only business of the Company is the ownership of the Bank and the Investment
Corp. The Bank provides a full range of banking services to individual and
corporate customers in New Jersey. The Bank is subject to competition from other
financial institutions and to the regulations of certain federal and state
agencies and undergoes periodic examinations by those regulatory authorities.
The Investment Corp was organized for the purpose of selling insurance and
investment products, including annuities, to customers of the Bank and the
general public, with initial activities limited to the sale of fixed rate
annuities. The Investment Corp has had limited activity to date.
The accounting and reporting policies of the Company are based upon accounting
principles generally accepted in the United States of America and conform to
predominant practices within the banking industry. Significant accounting
polices followed by the Company are presented below.
Use of Estimates: In preparing the financial statements, management is required
- ----------------
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheets and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for losses on loans,
prepayment speed assumptions related to mortgage-backed securities and
collateralized mortgage obligations, and the valuation of real estate acquired
in connection with foreclosures or in satisfaction of loans.
- --------------------------------------------------------------------------------
(Continued)
F-10
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
A substantial portion of the Bank's loans are secured by real estate in the New
Jersey market. In addition, a substantial portion of real estate owned is
located in that same market. Accordingly, as with most financial institutions in
the market area, the ultimate collectibility of a substantial portion of the
Bank's loan portfolio and the recovery of the carrying amount of real estate
owned are susceptible to changes in market conditions.
Cash and Cash Equivalents: For purposes of the statements of cash flows, cash
- --------------------------
and cash equivalents include cash on hand and in banks; interest-bearing
deposits; and federal funds sold, which are generally sold for one-day periods.
Securities: Securities are classified as held-to-maturity and carried at
- ----------
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available-for-sale when they might be
sold before maturity. Securities available-for-sale are carried at fair value,
with unrealized holding gains and losses reported in other comprehensive income.
Interest income includes amortization of purchase premium or discount. Premiums
and discounts are amortized using the level yield method. Gains and losses on
sales are based on the amortized cost of the security sold. Securities are
written down to fair value when a decline in fair value is other than temporary.
Loans: Mortgages on real estate and other loans are stated at the outstanding
- -----
principal amount of the loans, net of deferred loan fees and the allowance for
loan losses. Interest income on loans is accrued and credited to interest income
as earned. Loans are generally placed on nonaccrual status when they become
delinquent 90 days or more as to principal or interest or when it appears that
principal or interest is uncollectible. Past due status is based on the
contractual terms of the loan. Interest accrued prior to a loan being placed on
nonaccrual status is subsequently reversed. Interest income on nonaccrual loans
is recognized only in the period in which it is ultimately collected. Loans are
returned to an accrual status when factors indicating doubtful collectibility no
longer exist.
The Bank defines the population of impaired loans to be all nonaccrual
commercial real estate, multi-family, and land loans. Impaired loans are
individually assessed to determine whether the loan's carrying value is not in
excess of the fair value of the collateral or the present value of the loan's
expected future cash flows. Smaller balance homogeneous loans that may be
collectively evaluated for impairment such as residential mortgage loans and
installment loans, are specifically excluded from the impaired loan portfolio.
- --------------------------------------------------------------------------------
(Continued)
F-11
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Held-For-Sale: Loans held-for-sale are carried at the lower of cost or
- --------------------
market, using the aggregate method. Gains and losses on sales of mortgage loans
are recognized at the time of sale.
Allowance For Loan Losses: The allowance for loan losses is a valuation
- ---------------------------
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required using past loan loss experience, peer group
information, the nature and volume of the portfolio, information about specific
borrower situations and estimated collateral values, economic conditions, and
other factors. Allocations of the allowance may be made for specific loans, but
the entire allowance is available for any loan that, in management's judgment,
should be charged off. Loan losses are charged against the allowance when
management believes that the uncollectibility of a loan balance is confirmed.
A loan is impaired when full payment under the loan terms is not expected. If a
loan is impaired, a portion of the allowance is allocated so that the loan is
reported net, at the present value of estimated future cash flow using the
loan's existing rate or at the fair value of collateral if repayment is expected
solely from the collateral.
Loan Fees: Loan fees and certain direct loan origination costs for originating
- ---------
mortgage loans are deferred and the net fee or cost is recognized into interest
income using the interest method over the contractual lives of the loans.
Real Estate Owned: When properties are acquired through foreclosure, they are
- -----------------
transferred at the lower of the book value or estimated fair value and any
required write-downs are charged to the allowance for loan losses. Subsequently,
such properties are carried at the lower of the adjusted cost or fair value less
estimated selling costs. Estimated fair value of the property is generally based
on an appraisal. The Bank maintains an allowance for real estate owned losses
for subsequent declines in estimated fair value. Expenses of holding foreclosed
properties, net of other income, are charged to operations as incurred. Gains
and losses from sales of such properties are recognized as incurred.
Premises and Equipment: Land is carried at cost. Office properties and equipment
- ----------------------
are carried at cost, less accumulated depreciation. Office buildings and
improvements are depreciated using the straight-line method with useful lives
ranging from 20 to 40 years. Furniture, fixtures, and equipment are depreciated
using the straight-line method with useful lives ranging from 3 to 10 years.
- --------------------------------------------------------------------------------
(Continued)
F-12
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mortgage Servicing Rights: Servicing assets represent the allocated value of
- ---------------------------
retained servicing rights on loans sold. Servicing assets are expensed in
proportion to, and over the period of, estimated net servicing revenues.
Impairment is evaluated based on the fair value of the assets, using groupings
of the underlying loans as to interest rates and then, secondarily, as to
prepayment characteristics. Fair value is determined using prices for similar
assets with similar characteristics, when available, or based upon discounted
cash flows using market-based assumptions. Any impairment of a grouping is
reported as a valuation allowance. Mortgage servicing rights totaled $71,714,
$80,930 and $70,289 at March 31, 2005, September 30, 2004 and 2003 and are
included with other assets on the balance sheet.
Income Taxes: The provision for income taxes is the total of the current year
- -------------
income tax due or refundable and the change in the deferred tax assets and
liabilities. Deferred tax assets and liabilities are the estimated future tax
consequences attributable to differences between the financial statements'
carrying amounts of existing assets and liabilities and their respective tax
bases, computed using enacted tax rates. The realization of deferred tax assets
is assessed and a valuation allowance provided, when necessary, for that portion
of the asset which is not likely to be realized. Management believes, based upon
current facts, that it is more likely than not there will be sufficient taxable
income in future years to realize the deferred tax assets.
Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but not
- --------------------------------
yet allocated to participants, is shown as a reduction of shareholders' equity.
Compensation expense is based on the market price of shares as they are
committed to be released to participant accounts. Dividends on allocated ESOP
shares reduce retained earnings; dividends on unearned ESOP shares reduce debt
and accrued interest. Participants may put their ESOP shares back to the Company
upon termination, and an amount of equity equal to these shares times current
market price is reclassified out of shareholders' equity.
Stock-Based Compensation: Employee compensation expense under stock options is
- -------------------------
reported using the intrinsic value method. No stock-based compensation cost is
reflected in net income, as all options granted had an exercise price equal to
or greater than the market price of the underlying common stock at date of
grant. The following table illustrates the effect on net income and earnings per
share if expense was measured using the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock-Based Compensation.
- --------------------------------------------------------------------------------
(Continued)
F-13
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
---March 31, 2005---
(unaudited)
Net income as reported $ 1,194
Deduct: Stock-based compensation expense determined
under fair value based method 54
---------
Pro forma net income $ 1,140
=========
Basic earnings per share as reported $ 0.22
Pro forma basic earnings per share $ 0.21
Diluted earnings per share as reported $ 0.22
Pro forma diluted earnings per share $ 0.21
Earnings Per Common Share: Basic earnings per common share is net income divided
- -------------------------
by the weighted average number of common shares outstanding during the period.
ESOP shares are considered outstanding for this calculation unless unearned. The
weighted average common shares outstanding were 5,438,940 and 5,424,565 for the
six months ended March 31, 2005 and 2004 (unaudited) and were 5,427,906,
3,888,150 and 3,888,150 for the years ended September 30, 2004, 2003 and 2002.
There were no potentially dilutive securities for the six month period ended
March 31, 2004 (unaudited) or the years ended September 30, 2004, 2003 and 2002.
Stock options for 259,923 shares of common stock were not considered in
computing diluted earnings per common share for the six months ended March 31,
2005 because they were antidilutive. Earnings per share for the years ended
September 30, 2003 and 2002 has been restated to reflect the conversion of 100
shares of Bank stock into 3,188,150 shares of Company stock representing 100%
ownership of the Bank prior to the minority stock offering.
Comprehensive Income: Comprehensive income consists of net income and other
- ---------------------
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available-for-sale, which are also recognized as separate
components of equity.
Loss Contingencies: Loss contingencies, including claims and legal actions
- -------------------
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
Reclassifications: Some items in the prior year financial statements were
- -----------------
reclassified to conform to the current presentation.
- --------------------------------------------------------------------------------
(Continued)
F-14
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Unaudited Periods: Balances as of March 31, 2005 and for the six months ended
- ------------------
March 31, 2005 and 2004 have not been audited. In the opinion of management, all
adjustments consisting of normal recurring adjustments that are necessary for a
fair presentation of the unaudited periods have been reflected.
NOTE 2 - MINORITY OFFERING
On October 3, 2003, the Company completed a minority stock offering and sold
1,666,350 shares of common stock in a subscription offering at $10 per share and
received proceeds of $16,060,000 net of offering costs of $603,000. The Company
contributed $9,616,000 or approximately 60% of the net proceeds to the Bank in
the form of a capital contribution. The Company loaned $1,333,000 to the Bank's
employee stock ownership plan and the ESOP used those funds to acquire 133,000
shares of common stock at $10 per share.
After the sale of the stock, the MHC holds 70%, or 3,888,150 shares, of the
outstanding stock of the Company, with the remaining 30% or, 1,666,350 shares
held by persons other than the MHC. The Company holds 100% of the Bank's
outstanding common stock. The Bank may not pay dividends to the Company if the
dividends would cause the Bank to fall below the "well capitalized" capital
threshold.
The Company had stock subscriptions received totaling $52,137,000 at September
30, 2003 pending completion of the Company's initial public offering. At the
time of closing on October 3, 2003, gross proceeds of $15,330,000 became capital
of the Company with the remainder returned on oversubscriptions.
- --------------------------------------------------------------------------------
(Continued)
F-15
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES
The fair value of securities available-for-sale was as follows:
Gross Gross
Fair Unrealized Unrealized
Value Gains Losses
----- ----- ------
March 31, 2005 (unaudited)
--------------------------
U.S. government and federal agency $ 11,740 $ - $ (257)
Mortgage-backed
FHLMC 4,854 11 (39)
FNMA 14,482 34 (550)
GNMA 177 1 (1)
Collateralized mortgage obligations
Agency 34,311 6 (553)
Non-agency 599 - (1)
Mutual fund 9,829 - (171)
------------ --------- ---------
$ 75,992 $ 52 $ (1,572)
============ ========= =========
September 30, 2004
------------------
U.S. government and federal agency $ 13,840 $ - $ (157)
Mortgage-backed
FHLMC 5,219 20 (26)
FNMA 16,261 54 (359)
GNMA 202 1 -
Collateralized mortgage obligations
Agency 42,870 41 (246)
Non-agency 1,234 3 (3)
Mutual fund 9,869 - (131)
------------ --------- ---------
$ 89,495 $ 119 $ (922)
============ ========= =========
September 30, 2003
------------------
U.S. government and federal agency $ 13,484 $ 6 $ (60)
Mortgage-backed
FHLMC 346 - (3)
FNMA 16,664 20 (341)
GNMA 320 7 -
Collateralized mortgage obligations
Agency 61,685 201 (403)
Non-agency 4,962 - (31)
Mutual fund 9,930 - (70)
------------ --------- ---------
$ 107,391 $ 234 $ (908)
============ ========= =========
- --------------------------------------------------------------------------------
(Continued)
F-16
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES (Continued)
The amortized cost and fair value of securities held-to-maturity were as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
March 31, 2005 (unaudited)
--------------------------
U.S. government and federal agency $ 2,000 $ - $ (40) $ 1,960
Mortgage-backed
FHLMC 445 1 - 446
FNMA 2,928 6 (38) 2,896
GNMA 278 2 - 280
Collateralized mortgage obligations
Agency 90 1 - 91
Non-agency 2,785 - (66) 2,719
---------- --------- ---------- ---------
$ 8,526 $ 10 $ (144) $ 8,392
========== ========= ========= =========
September 30, 2004
------------------
Mortgage-backed
FHLMC $ 490 $ 2 $ (1) $ 491
FNMA 1,870 11 (6) 1,875
GNMA 327 3 - 330
Collateralized mortgage obligations
Agency 107 3 - 110
---------- --------- --------- ---------
$ 2,794 $ 19 $ (7) $ 2,806
========== ========= ========= =========
September 30, 2003
------------------
Mortgage-backed
FHLMC $ 657 $ 3 $ (1) $ 659
FNMA 1,513 7 (4) 1,516
GNMA 476 14 - 490
Collateralized mortgage obligations
Agency 193 6 - 199
---------- --------- --------- ---------
$ 2,839 $ 30 $ (5) $ 2,864
========== ========= ========= =========
There were no securities sales during the six months ended March 31, 2005 or
2004 (unaudited). There were no securities sales during the year ended September
30, 2004 or 2002. Proceeds from sales of securities available for sale amounted
to $21,026,000 during the year ended September 30, 2003 resulting gross gains of
$0 and gross losses of $188,000.
- --------------------------------------------------------------------------------
(Continued)
F-17
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES (Continued)
The fair value of debt securities and carrying amount, if different, by
contractual maturity were as follows. Securities not due at a single maturity
date, primarily mortgage-backed securities, are shown separately.
Available-
Held-to-Maturity for-Sale
Carrying Fair Fair
Amount Value Value
------ ----- -----
March 31, 2005 (unaudited)
Due from one to five years $ 2,000 $ 1,960 $ 11,740
Mortgage-backed 6,526 6,432 54,423
Mutual fund - - 9,829
------------ ------------ ------------
Total $ 8,526 $ 8,392 $ 75,992
============ ============ ============
September 30, 2004
Due from one to five years $ - $ - $ 13,840
Mortgage-backed 2,794 2,806 65,786
Mutual fund - - 9,869
------------ ------------ ------------
Total $ 2,794 $ 2,806 $ 89,495
============ ============ ============
Securities with carrying values of $11,759,692 (unaudited), $11,386,213, and
$4,481,971 at March 31, 2005 and September 30, 2004 and 2003, respectively, were
pledged to secure public deposits and advances as required or permitted by law.
Available-for-sale securities with unrealized losses not recognized in income
are presented below by length of time the securities have been in an unrealized
loss position:
-------------------------------March 31, 2005-------------------------------
--------------
Less than 12 Months 12 Months or More Total
------------------- ----------------- -----
Fair Unrealized Fair Unrealized Fair Unrealized
Description of Securities Value Loss Value Loss Value Loss
- ------------------------- ----- ---- ----- ---- ----- ----
U.S. government and
federal agency $ 3,920 $ (80) $ 7,820 $ (177) $ 11,740 $ (257)
Mortgage backed 12,071 (135) 7,442 (409) 19,513 (544)
Collateralized mortgage
obligations 30,726 (486) 4,184 (62) 34,910 (548)
Mutual fund - - 9,829 (171) 9,829 (171)
--------- ---------- ---------- ---------- ---------- -----------
Total temporarily
impaired $ 46,717 $ (701) $ 29,275 $ (819) $ 75,992 $ (1,520)
========= ========== ========== ========== ========== ===========
- --------------------------------------------------------------------------------
(Continued)
F-18
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES (Continued)
-----------------------------September 30, 2004-----------------------------
------------------
Less than 12 Months 12 Months or More Total
------------------- ----------------- -----
Fair Unrealized Fair Unrealized Fair Unrealized
Description of Securities Value Loss Value Loss Value Loss
- ------------------------- ----- ---- ----- ---- ----- ----
U.S. government and
federal agency $ 8,885 $ (112) $ 4,955 $ (45) $ 13,840 $ (157)
Mortgage backed 6,520 (80) 8,649 (305) 15,169 (385)
Collateralized mortgage
obligations 29,307 (209) 4,831 (40) 34,138 (249)
Mutual fund - - 9,869 (131) 9,869 (131)
--------- ---------- ---------- ---------- ---------- -----------
Total temporarily
impaired $ 44,712 $ (401) $ 28,304 $ (521) $ 73,016 $ (922)
========= ========== ========== ========== ========== ===========
Held-to-maturity securities with unrealized losses not recognized in income are
as follows:
-------------------------------March 31, 2005-------------------------------
--------------
Less than 12 Months 12 Months or More Total
------------------- ----------------- -----
Fair Unrealized Fair Unrealized Fair Unrealized
Description of Securities Value Loss Value Loss Value Loss
- ------------------------- ----- ---- ----- ---- ----- ----
U.S. government and
federal agency $ 1,960 $ (40) $ - $ - $ 1,960 $ (40)
Mortgage-backed 3,540 (29) 82 (1) 3,622 (30)
Collateralized mortgage
obligations 2,810 (65) - - 2,810 (65)
--------- ----------- ---------- ---------- ---------- ------------
Total temporarily
impaired $ 8,310 $ (134) $ 82 $ (1) $ 8,392 $ (135)
========= ========== ========== ========== ========== ===========
-----------------------------September 30, 2004-----------------------------
------------------
Less than 12 Months 12 Months or More Total
------------------- ----------------- -----
Fair Unrealized Fair Unrealized Fair Unrealized
Description of Securities Value Loss Value Loss Value Loss
- ------------------------- ----- ---- ----- ---- ----- ----
Mortgage-backed $ 562 $ (6) $ 117 $ (1) $ 679 $ (7)
--------- ---------- ---------- ---------- ---------- -----------
Total temporarily
impaired $ 562 $ (6) $ 117 $ (1) $ 679 $ (7)
========= ========== ========== ========== ========== ===========
- --------------------------------------------------------------------------------
(Continued)
F-19
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES (Continued)
The Company evaluates securities for other-than-temporary impairment at least on
a quarterly basis, and more frequently when economic or market concerns warrant
such evaluation. Consideration is given to the length of time and the extent to
which the fair value has been less than amortized cost, the financial condition
and near-term prospects of the issuer, and the intent and ability of the Company
to retain its investment in the issuer for a period of time sufficient to allow
for any anticipated recovery in fair value. In analyzing an issuer's financial
condition, the Company may consider whether the securities are issued by the
federal government or its agencies, whether downgrades by bond rating agencies
have occurred, and the results of reviews of the issuer's financial condition.
At March 31, 2005 and September 30, 2004, securities with unrealized losses had
depreciated only 2.0% and 1.3% from the Company's amortized cost basis. These
unrealized losses related principally to changes in interest rates. As the
Company has the ability to hold these securities for the foreseeable future
since they are classified as either available-for-sale or held-to-maturity, no
declines were deemed to be other than temporary.
NOTE 4 - LOANS
Loans at period-end were as follows:
March 31, --------September 30,-------
2005 2004 2003
---- ---- ----
(unaudited)
Mortgage loans:
One-to-four-family $ 261,986 $ 251,531 $ 215,484
Multi-family and commercial 55,454 43,197 36,202
Construction 8,132 7,175 1,233
Consumer 701 746 780
Home equity 11,249 10,666 8,893
Commercial 663 398 1,610
------------ ------------ ------------
Total loans 338,185 313,713 264,202
Allowance for loan losses (1,690) (1,578) (1,371)
Net deferred loan costs 975 935 796
Loans in process (4,219) (4,100) (783)
------------ ------------ ------------
Loans, net $ 333,251 $ 308,970 $ 262,844
============ ============ ============
- --------------------------------------------------------------------------------
(Continued)
F-20
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 4 - LOANS (Continued)
Certain directors and officers of the Bank and companies with which they are
affiliated have obtained loans from the Bank on various occasions. A summary of
such loans made by the Bank is as follows:
March 31, ---------------September 30,-------------
2005 2004 2003 2002
---- ---- ---- ----
(unaudited)
Beginning balance $ 1,007 $ 1,142 $ 520 $ 285
New loans - 3 624 307
Effect of changes in related parties - 32 265 -
Repayments (44) (170) (267) (72)
----------- ----------- ----------- -----------
Ending balance $ 963 $ 1,007 $ 1,142 $ 520
=========== =========== =========== ===========
Activity in the allowance for loan losses was as follows:
Six Months Ended Years Ended
---------March 31,-------- ---------------September 30,--------------
2005 2004 2004 2003 2002
---- ---- ---- ---- ----
(unaudited)
Balance at beginning of year $ 1,578 $ 1,371 $ 1,371 $ 1,117 $ 1,009
Provision charged to income 112 54 207 254 105
Charge-offs - - - - (1)
Recoveries - - - - 4
----------- ----------- ----------- ----------- -----------
Balance at end of year $ 1,690 $ 1,425 $ 1,578 $ 1,371 $ 1,117
=========== =========== =========== =========== ===========
Mortgage loans serviced for others are not included in the accompanying
financial statements. At March 31, 2005 and 2004, the unpaid principal balances
of these loans totaled $15,864,921 (unaudited) and $16,327,366 (unaudited). At
September 30, 2004, 2003 and 2002 the unpaid principal balances of these loans
totaled $16,936,826, $16,103,798, and $14,817,842, respectively.
Impaired loans were as follows:
March 31, -------September 30,------
2005 2004 2003
---- ---- ----
(unaudited)
Period-end loans with no allocated allowance
for loan losses $ - $ - $ 294
Period-end loans with allocated allowance
for loan losses 258 259 250
----------- ----------- -----------
Total $ 258 $ 259 $ 544
=========== =========== ===========
- --------------------------------------------------------------------------------
(Continued)
F-21
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 4 - LOANS (Continued)
March 31, -------September 30,------
2005 2004 2003 2002
---- ---- ---- ----
(unaudited)
Amount of the allowance for loan losses allocated $129 $129 $125 $ 88
Average of impaired loans during the period 259 398 623 695
Interest income recognized during impairment 5 19 18 26
Cash-basis interest income recognized 5 19 18 26
Nonperforming loans were as follows:
March 31, -------September 30,------
2005 2004 2003
---- ---- ----
(unaudited)
Loans past due over 90 days still on accrual $ - $ - $ -
Nonaccrual loans 352 519 517
Nonperforming loans and impaired loans are defined differently. Some loans may
be included in both categories, whereas other loans may only be included in one
category.
NOTE 5 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
March 31, -------September 30,------
2005 2004 2003
---- ---- ----
(unaudited)
Securities $ 292 $ 307 $ 352
Loans receivable 1,179 1,052 903
----------- ----------- -----------
$ 1,471 $ 1,359 $ 1,255
=========== =========== ===========
- --------------------------------------------------------------------------------
(Continued)
F-22
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
March 31, -------September 30,------
2005 2004 2003
---- ---- ----
(unaudited)
Land $ 840 $ 840 $ 840
Office buildings and improvements 3,700 3,413 3,248
Furniture and equipment 3,570 3,528 3,305
----------- ----------- -----------
8,110 7,781 7,393
Less accumulated depreciation 4,051 3,871 3,454
----------- ----------- -----------
Total $ 4,059 $ 3,910 $ 3,939
=========== =========== ===========
An agreement dated February 22, 2004 to purchase real estate was signed for the
acquisition of a future branch site in Essex County. Total purchase price is
$1,700,000. The above amounts include $206,905 incurred for a deposit on the
contract of sale and professional fees in connection with the acquisition. The
balance of $1,530,000 is due in cash at closing and will be recorded upon
closing. This agreement is contingent on certain items as detailed in the
contract including but not limited to (i) Title to be conveyed shall be
marketable and insurable; (ii) Municipal and county approvals shall be obtained
by the buyer and the closing will be extended to the extent such approvals are
delayed by no fault of the buyer; and (iii) To the extent environmental
inspections result in a clean up or other action by governmental authorities the
seller will have completed all environmental requests made by the buyer
including removal of underground tanks at its own cost and expense and complete
any and all site investigation and remediation activities.
A second agreement dated December 17, 2004 to purchase real estate was signed
for the acquisition of a future branch site in Passaic County. Total purchase
price is $1,475,000. The March 31, 2005 amounts above include $158,651 incurred
for a deposit on the contract of sale and professional fees in connection with
the acquisition. The balance of $1,327,500 is due in cash at closing and will be
recorded upon closing. This agreement is contingent on certain items as detailed
in the contract including but not limited to (i) Title to be conveyed shall be
marketable and insurable; (ii) Municipal and county approvals shall be obtained
by the buyer and the closing will be extended to the extent such approvals are
delayed by no fault of the buyer; and (iii) To the extent environmental
inspections result in a clean up or other action by governmental authorities the
seller will have completed all environmental requests made by the buyer
including removal of underground tanks at its own cost and expense and complete
any and all site investigation and remediation activities.
- --------------------------------------------------------------------------------
(Continued)
F-23
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 7 - DEPOSITS
Deposit accounts are summarized as follows:
March 31, -------September 30,------
2005 2004 2003
---- ---- ----
(unaudited)
Demand deposits $ 24,093 $ 22,599 $ 21,676
NOW and money market accounts 34,018 38,696 21,721
Savings accounts 134,637 143,401 127,720
Certificates of deposit 135,295 118,020 121,709
------------ ------------ ------------
Total deposits $ 328,043 $ 322,716 $ 292,826
============ ============ ============
Certificates of deposit accounts with balances over $100,000 totaled $39,200,209
(unaudited), $31,536,775, and $27,756,666 at March 31, 2005 and September 30,
2004 and 2003, respectively. All other deposit accounts with balances over
$100,000 totaled $90,655,046 (unaudited), $97,668,361, and $70,174,744 at March
31, 2005 and September 30, 2004 and 2003, respectively. Deposit balances over
$100,000 are not federally insured.
Scheduled maturities of certificates of deposit were as follows:
March 31, 2005
--------------
(unaudited)
2006 $ 83,851
2007 19,496
2008 13,100
2009 6,829
2010 and thereafter 12,019
------------
$ 135,295
============
September 30, 2004
------------------
2005 $ 72,752
2006 11,717
2007 14,777
2008 6,324
2009 and thereafter 12,450
------------
$ 118,020
============
- --------------------------------------------------------------------------------
(Continued)
F-24
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 8 - FEDERAL HOME LOAN BANK OF NEW YORK ADVANCES
The Bank has multiple advances with the Federal Home Loan Bank with maturities
through 2013 and rates ranging from 3.01% to 6.19% at March 31, 2005 (unaudited)
and 2.80% to 6.19% at September 30, 2004. One $2.0 million advance with a coupon
of 5.797% maturing in 2008 is callable in 2005. Another advance for $1.8 million
with a coupon of 4.57% has a five year final maturity in June 2009, with a
twenty year amortization schedule. The remaining $64.5 million of Federal Home
Loan Bank advances are non-callable. In addition, there is an overnight line of
credit borrowing of $2.7 million as of September 30, 2004 with a coupon of 2.04%
which matures October 1, 2004. The overnight line of credit borrowing at March
31, 2005 totaled $14.5 million with a coupon of 3.01%. Scheduled repayments and
maturities of fixed rate advances from the Federal Home Loan Bank are as
follows:
Weighted
---------Average Rate-------
March 31, September 30, March 31, September 30,
2005 2004 2005 2004 2003
---- ---- ---- ---- ----
(unaudited) (unaudited)
Maturing in 2004 -% -% $ - $ - $ 4,000
Maturing in 2005 4.57 5.48 29 1,057 2,000
Maturing in 2006 3.51 3.51 8,060 8,060 9,000
Maturing in 2007 4.39 4.39 8,062 8,062 4,000
Maturing in 2008 5.51 5.51 12,065 12,065 12,000
Maturing in 2009 4.88 4.88 7,547 7,547 6,000
Maturing in 2010 5.15 5.15 6,000 6,000 6,000
Maturing in 2011 5.18 5.18 6,000 6,000 6,000
Maturing in 2012 5.22 5.22 5,000 5,000 5,000
Maturing in 2013 4.79 4.79 1,000 1,000 1,000
Overnight line of credit 3.01 2.04 14,500 2,700 -
----------- ----------- -----------
4.45% 4.72% $ 68,263 $ 57,491 $ 55,000
=========== =========== ===========
At March 31, 2005 and September 30, 2004, the advances are secured primarily by
mortgage loans totaling $84,277,032 and $90,957,818 and all stock in the Federal
Home Loan Bank totaling $3,513,000 and $2,890,000 under a blanket collateral
agreement for the amount of the note outstanding. At March 31, 2005, the Bank's
borrowing limit with the Federal Home Loan Bank was approximately $109.3
million.
- --------------------------------------------------------------------------------
(Continued)
F-25
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES
An analysis of the provision for income taxes is as follows:
Six Months Ended Years Ended
-------March 31,------ ------------September 30,----------
2005 2004 2004 2003 2002
---- ---- ---- ---- ----
(unaudited)
Current $ 671 $ 677 $ 1,382 $ 663 $ 1,201
Deferred 20 (9) (11) 142 (126)
--------- --------- --------- --------- --------
$ 691 $ 668 $ 1,371 $ 805 $ 1,075
========= ========= ========= ========= ========
A reconciliation of income tax expense at the statutory federal income tax rate
and the actual income tax expense was as follows:
Six Months Ended Years Ended
-------March 31,------ ------------September 30,----------
2005 2004 2004 2003 2002
---- ---- ---- ---- ----
(unaudited)
Federal income tax expense
at statutory rate $ 641 $ 588 $ 1,201 $ 751 $ 1,008
Increase in taxes resulting from
State income taxes, net of
federal benefit 74 99 204 120 154
Tax-exempt income from
life insurance (45) (39) (70) (77) (35)
Nondeductible ESOP expense 16 16 28 - 12
Other, net 5 4 8 11 (64)
--------- --------- --------- --------- --------
Income tax expense $ 691 $ 668 $ 1,371 $ 805 $ 1,075
========= ========= ========= ========= ========
- --------------------------------------------------------------------------------
(Continued)
F-26
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows:
March 31, -------September 30,------
2005 2004 2003
---- ---- ----
(unaudited)
Deferred tax assets
Unrealized loss on securities available-for-sale $ 569 $ 321 $ 269
Provision for loan losses 675 630 527
Deferred loan origination fees 3 3 9
Accrued expenses and other liabilities 708 693 620
----------- ----------- -----------
Total gross deferred tax assets 1,955 1,647 1,425
Deferred tax liabilities
Depreciation 203 203 148
Deferred loan origination costs 665 623 535
Other 66 198 182
----------- ----------- -----------
Total gross deferred tax liabilities 934 1,024 865
----------- ----------- -----------
Net deferred tax asset $ 1,021 $ 623 $ 560
=========== =========== ===========
Retained earnings includes allocations for federal income tax purposes
representing tax bad debt deductions of approximately $1,500,000 through March
31, 2005 (unaudited) and September 30, 2004 on which no tax has been paid and no
deferred federal income taxes have been provided. The related amount of deferred
tax liability is approximately $599,000. Reductions of amounts so allocated for
purposes other than tax bad debt losses will create income for tax purposes
only, which will be subject to the then current corporate income tax rate.
NOTE 10 - BENEFIT PLANS
The Bank has a directors' retirement plan that provides retirement benefits to
all members of the Board of Directors vested under the plan in accordance with
the plan document. During the six months ended March 31, 2005 and 2004 and the
years ended September 30, 2004, 2003, and 2002 the Bank accrued expenses related
to the plan totaling $15,069 (unaudited) and $29,080 (unaudited) and $55,179,
$124,404, and $185,613 respectively.
- --------------------------------------------------------------------------------
(Continued)
F-27
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 10 - BENEFIT PLANS (Continued)
The Bank has a 401(k) profit sharing plan covering substantially all employees.
Contributions to the plan are made at the discretion of the Board of Directors
and charged to expense annually. The plan also allows participant salary
deferrals into the plan along with a matching contribution provided by the Bank.
Total expenses related to the plan, including employer match and profit sharing
contributions, were $119,376 (unaudited) and $116,696 (unaudited) and $248,163,
$242,450, and $205,477 for the six months ended March 31, 2005 and 2004, and the
years ended September 30, 2004 , 2003, and 2002.
During 2002, the Bank implemented a supplemental executive retirement plan that
provides benefits to certain key officers in accordance with the plan document.
During the six months ended March 31, 2005 and 2004, and the years ended
September 30, 2004, 2003 and 2002, Bank expenses related to the plan totaled
$117,661 (unaudited) and $102,316 (unaudited) and $204,632, $233,332, and
$86,770. During 2002, the Bank also purchased bank-owned life insurance on the
individuals covered by the supplemental executive retirement plan.
In December 2002, the Bank and four of the Bank's officers entered into
employment agreements commencing on January 1, 2003. The Chief Executive
Officer's agreement was for a three-year term and the others were for two-year
terms. In the event of the involuntary termination of the officer's employment
following any change in control of the Bank or ASB Holding Company, absent just
cause, the officer shall be paid an amount equal to two times, or three times in
the case of the Chief Executive Officer, the officer's five-year average annual
taxable cash compensation. In the event the officer's employment is terminated
by the Bank without just cause, the Bank is obligated to continue to pay the
salary up to the date of termination of the remaining term of the agreement.
The Company has also entered into an employment agreement with the Chief
Executive Officer with terms of which are substantially the same as the
employment agreement with the Bank. However, it provides that if employment is
terminated without just cause as defined in the agreement, he will be entitled
to a continuation of his salary for three years from the date of termination.
NOTE 11 - ESOP PLAN
Employees participate in an employee stock option plan (ESOP). The ESOP borrowed
from the Company to purchase 133,308 shares of stock at $10.00 per share. The
Company makes discretionary contributions to the ESOP, as well as pays dividends
on unallocated shares to the ESOP, and the ESOP uses funds it receives to repay
the loan. When loan payments are made, ESOP shares are allocated to participants
based on relative compensation and expense is recorded. Dividends on allocated
shares increase participant accounts.
- --------------------------------------------------------------------------------
(Continued)
F-28
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 11 - ESOP PLAN (Continued)
Participants receive the shares at the end of employment. Under the terms of the
plan and in accordance with ERISA regulation, a participant may require stock
received to be repurchased unless the stock is traded on an established market.
The Over The Counter Bulletin Board is not considered to be an established
market for purposes of this regulation and a liability has been established to
reflect this repurchase obligation.
There were no discretionary contributions to the ESOP during the period ended
March 31, 2005 or the year ended September 30, 2004. Expense for period ended
March 31, 2005 and for the year ended September 30, 2004 was $113,978 and
$215,237, respectively.
Shares held by the ESOP were as follows:
March 31, September 30,
2005 2004
---- ----
(unaudited)
Allocated to participants 16,913 3,333
Unearned 116,395 129,975
----------- -----------
Total ESOP shares 133,308 133,308
----------- -----------
Fair value of unearned shares $ 2,147 $ 2,015
=========== ===========
Fair value of allocated shares subject
to repurchase obligation $ 312 $ 52
=========== ===========
NOTE 12 - STOCK-BASED COMPENSATION
At the annual meeting held on January 20, 2005, stockholders of ASB Holding
Company approved the ASB Holding Company 2005 Stock Option Plan and the American
Savings Bank of NJ 2005 Restricted Stock Plan. Subject to regulatory approval,
272,171 shares of common stock were made available under the 2005 Stock Option
Plan of which all received regulatory approval for award. On January 20, 2005,
259,923 options were awarded at a strike price of $17.37 with the remaining
12,248 shares awarded on May 6, 2005. Also subject to regulatory approval,
108,868 shares of common stock were made available under the 2005 Restricted
Stock Plan of which 81,651 received regulatory approval for award. On January
20, 2005, 76,752 shares of restricted stock were awarded with the remaining
4,899 shares awarded on May 6, 2005.
- --------------------------------------------------------------------------------
(Continued)
F-29
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 12 - STOCK-BASED COMPENSATION (Continued)
Options to buy stock are granted to directors, officers and employees under the
Company's Stock Option Plan. Exercise price is the market price at date of
grant, so there is no compensation expense recognized in the income statement.
The maximum option term is ten years, and options vest over five years.
A summary of the activity in the plan for the period ended March 31, 2005
(unaudited) is as follows.
Weighted
Average
Exercise
Shares Price
------ -----
Outstanding at
beginning of period - $ -
Granted 259,923 17.35
Exercised - -
Forfeited or expired - -
----------- -----------
Outstanding at
end of period 259,923 $ 17.35
=========== ===========
Options exercisable
at period end - -
=========== ===========
Weighted average remaining
contractual life 9.8 years
Shares of common stock issuable pursuant to outstanding options under the 2005
Stock Option Plan will be considered outstanding for purposes of calculating
earnings per share on a diluted basis. The Financial Accounting Standards Board
has announced a change in the required accounting methods applicable to stock
options effective after June 15, 2005, which the Securities and Exchange
Commission delayed for six months. Under such accounting requirements, the
Company will be required to recognize compensation expense related to stock
options outstanding based upon the fair value of such awards at the date of
grant over the period that such awards are earned.
For accounting purposes, the Bank is recognizing compensation expense for shares
of common stock awarded under the 2005 Restricted Stock Plan. Expense is being
recognized over the vesting period of five years from the date of award at the
fair market value of the shares on the date they were awarded.
The fair value of options granted are computed using the Black-Scholes option
pricing model, using the following weighted-average assumptions as of grant
date.
January 20, 2005
(unaudited)
Risk free interest rate 3.67%
Expected option life 5.0
Expected stock price volatility 22.00%
Dividend yield 0.00%
Weighted average fair value of options
granted during year $4.75
- --------------------------------------------------------------------------------
(Continued)
F-30
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to fund loans and previously approved
unused lines of credit. The Bank's exposure to credit loss in the event of
nonperformance by the parties to these financial instruments is represented by
the contractual amount of the instruments. The Bank uses the same credit policy
for commitments as it uses for on-balance-sheet items.
The contract amount of these financial instruments is summarized as follows:
March 31, -------September 30,------
2005 2004 2003
---- ---- ----
(unaudited)
Commitments to extend credit $ 16,032 $ 14,771 $ 11,590
Unused lines of credit 13,206 13,130 10,286
Construction loans in process 4,219 4,100 783
Fixed rate loan commitments totaled $3,461,400 at March 31, 2005 and have
interest rates ranging from 4.625% to 6.125%.
Since many commitments expire without being used, the amounts above do not
necessarily represent future cash commitments. Collateral may be obtained upon
exercise of a commitment. The amount of collateral is determined by management
and may include commercial and residential real estate and other business and
consumer assets.
NOTE 14 - REGULATORY CAPITAL REQUIREMENTS
ASB Holding Company as a unitary thrift holding company is not subject to
specific regulatory capital guidelines. The Bank is subject to various
regulatory capital requirements administered by the federal banking agencies.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required.
- --------------------------------------------------------------------------------
(Continued)
F-31
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 14 - REGULATORY CAPITAL REQUIREMENTS (Continued)
The Bank's actual and required capital amounts and ratios are presented below.
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action
-------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of March 31, 2005 (unaudited)
Total capital (to risk-weighted
assets) $ 36,546 15.34% $ 19,053 8.0% $ 23,817 10.0%
Tier I capital (to risk-weighted)
assets) 34,856 14.64 9,527 4.0 14,290 6.0
Tier I (core) capital (to adjusted
total assets) 34,856 7.96 17,524 4.0 21,905 5.0
As of September 30, 2004
Total capital (to risk-weighted
assets) $ 34,857 15.93% $ 17,505 8.0% $ 21,881 10.0%
Tier I capital (to risk-weighted)
assets) 33,279 15.21 8,752 4.0 13,129 6.0
Tier I (core) capital (to adjusted
total assets) 33,279 7.89 16,865 4.0 21,081 5.0
As of September 30, 2003
Total capital (to risk-weighted
assets) $ 24,015 11.9% $ 16,124 8.0% $ 20,155 10.0%
Tier I capital (to risk-weighted)
assets) 22,644 11.2 8,062 4.0 12,093 6.0
Tier I (core) capital (to adjusted
total assets) 22,644 5.3 17,099 4.0 21,374 5.0
As of March 31, 2005 (unaudited) and September 30, 2004, the most recent
notification from the Office of Thrift Supervision categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. There
are no conditions or events since that notification that management believes
have changed the Bank's category.
The following is a reconciliation of the Bank's equity under accounting
principles generally accepted in the United States of America ("GAAP") to
regulatory capital as of the dates indicated:
- --------------------------------------------------------------------------------
(Continued)
F-32
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 14 - REGULATORY CAPITAL REQUIREMENTS (Continued)
March 31, -------September 30,------
2005 2004 2003
---- ---- ----
(unaudited)
GAAP equity $ 33,941 $ 32,818 $ 22,239
Accumulated other comprehensive loss 915 461 405
----------- ----------- -----------
Tier I capital 34,856 33,279 22,644
General regulatory allowance for loan losses 1,690 1,578 1,371
----------- ----------- -----------
Total capital $ 36,546 $ 34,857 $ 24,015
=========== =========== ===========
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of financial instruments were as
follows:
March 31,
2005 -------------------September 30,-----------------
----
(unaudited) 2004 2003
---- ----
Estimated Estimated Estimated
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Financial assets
Cash and cash equivalents $ 4,841 $ 4,841 $ 8,034 $ 8,034 $ 38,365 $ 38,365
Securities available-for-sale 75,992 75,992 89,495 89,495 107,391 107,391
Securities held-to-maturity 8,526 8,392 2,794 2,806 2,839 2,864
Loans receivable, net 333,251 328,137 308,970 309,268 262,844 266,169
Loans held for sale 302 295 - - 500 500
Federal Home Loan Bank stock 3,513 3,513 2,890 2,890 3,150 3,150
Accrued interest receivable 1,471 1,471 1,359 1,359 1,255 1,255
Financial liabilities
Deposits 328,043 327,524 322,716 323,434 292,826 294,690
Stock subscriptions received - - - - 52,137 52,137
Advance payments by
borrowers for taxes and
insurance 2,490 2,490 2,322 2,322 2,079 2,079
Federal Home Loan Bank advances 68,263 69,167 57,491 59,959 55,000 59,490
Accrued interest payable 276 276 264 264 260 260
- --------------------------------------------------------------------------------
(Continued)
F-33
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
-
The methods and assumptions used to estimate fair value are described as
follows:
Carrying amount is the estimated fair value for cash and cash equivalents,
Federal Home Loan Bank stock, accrued interest receivable and payable, demand
deposits, stock subscriptions received, short-term debt, and variable rate loans
or deposits that reprice frequently and fully. Security fair values are based on
market prices or dealer quotes and, if no such information is available, on the
rate and term of the security and information about the issuer. For fixed rate
loans or deposits and for variable rate loans or deposits with infrequent
repricing or repricing limits, fair value is based on discounted cash flows
using current market rates applied to the estimated life and credit risk. Fair
values for impaired loans are estimated using discounted cash flow analysis or
underlying collateral values. Fair value of debt, including Federal Home Loan
Bank advances, is based on current rates for similar financing. The fair value
of off- balance-sheet items is based on the current fees or cost that would be
charged to enter into or terminate such arrangements. The fair value of these
off-balance-sheet items is not material.
NOTE 16 - OTHER COMPREHENSIVE LOSS
Other comprehensive loss components and related taxes were as follows.
Six Months Ended Years Ended
-------March 31,------ ------------September 30,----------
2005 2004 2004 2003 2002
---- ---- ---- ---- ----
(unaudited)
Unrealized holding losses on available-
for-sale securities $ (717) $ 851 $ (129) $ (1,746) $ (215)
Reclassification adjustments for losses
later recognized in income - - - 188 -
--------- --------- --------- --------- --------
Net unrealized gains and losses (717) 851 (129) (1,558) (215)
Tax effect 249 340 52 622 42
--------- --------- --------- --------- --------
Other comprehensive income (loss) $ (468) $ 511 $ (77) $ (936) $ (173)
========= ========= ========= ========= =========
- --------------------------------------------------------------------------------
(Continued)
F-34
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 17 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Interest Net Interest Net Earnings per Share
------------------
Income Income Income Basic and Fully Diluted
------ ------ ------ -----------------------
2005
- ----
First quarter $ 5,089 $ 2,846 $ 584 $ 0.11
Second quarter 4,905 2,725 610 0.11
2004
- ----
First quarter $ 4,453 $ 2,367 $ 474 $ 0.09
Second quarter 4,564 2,622 587 0.11
Third quarter 4,471 2,510 537 0.10
Fourth quarter 4,716 2,600 564 0.10
2003
- ----
First quarter $ 4,437 $ 2,184 $ 364 $ 0.09
Second quarter 4,405 2,154 269 0.07
Third quarter 4,413 2,227 500 0.13
Fourth quarter 4,220 2,042 270 0.07
2002
- ----
First quarter $ 4,236 $ 1,858 $ 282 $ 0.07
Second quarter 4,384 2,250 539 0.14
Third quarter 4,443 2,313 563 0.14
Fourth quarter 4,515 2,328 506 0.13
NOTE 18 - ADOPTION OF PLAN OF CONVERSION AND REORGANIZATION (UNAUDITED)
On May 17, 2005, the Board of Directors of the MHC and the Bank adopted a plan
to form a new state-chartered stock holding company, American Bancorp of New
Jersey, Inc. ("Holding Company"). Under the plan, the existing shares of the
Company's common stock owned by Public Stockholders will be converted pursuant
to an exchange ratio into shares of common stock of the Holding Company
("Holding Company Common Stock"). Simultaneously, with the Conversion and
Reorganization, the Holding Company will conduct a stock offering which
represents the 70% ownership interest in ASB Holding Company now owned by
American Savings, MHC. The Conversion will result in the Bank being wholly owned
by a state-chartered stock holding company which is owned by public
stockholders. Shares of conversion stock will be offered in a subscription
offering in descending order of priority to
- --------------------------------------------------------------------------------
(Continued)
F-35
ASB HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005 and 2004 (unaudited) and September 30, 2004, 2003 and 2002
(Tables in Thousands)
- --------------------------------------------------------------------------------
NOTE 18 - ADOPTION OF PLAN OF
CONVERSION AND REORGANIZATION (UNAUDITED) (Continued)
eligible deposit account holders, the Bank's tax qualified employee benefit
plan, then to other members of the Bank. Any shares of the Stock Holding
Company's common stock not sold in the subscription offering will be offered for
sale to the general public, giving preference to the bank's market area.
Upon completion of the plan, the public will own 100% of the outstanding stock
of the Holding Company. The Holding Company will own 100% of the Bank. The Bank
may not pay dividends to the Holding Company if the dividends would cause the
Bank to fall below the "well capitalized" capital threshold.
The Holding Company intends to contribute approximately 50% of the proceeds of
the offering to the Bank. The balance will be retained as the Holding Company's
initial capitalization and may be used for general business purposes including
investment in securities, repurchasing shares of its common stock and paying
dividends. The funds received by the Bank will be used for general business
purposes including originating loans and purchasing securities and may also be
used for growth through expansion of the branch office network.
Offering costs will be deferred and deducted from the proceeds of the shares
sold in the stock offering. If the offering is not completed, all costs will be
charged to expense. At March 31, 2005 (unaudited), no costs have been incurred.
The Plan provides for the establishment, upon completion of the conversion, of a
special "liquidation account" in an amount equal to the Bank's net worth as of
the latest practicable date prior to the conversion. This account is for the
benefit of eligible account holders and supplemental eligible account holders in
the event of liquidation of the Bank. The interest as to each deposit account
will be in the same proportion of the total liquidation account as the balance
of the deposit account on the qualifying dates was to the aggregate balance of
all deposit accounts of eligible account holders and supplemental account
holders on the qualifying dates. The liquidation account will be reduced in a
proportionate amount if the amount in any deposit account on any annual closing
date is less than it was on the respective qualifying dates. The liquidation
account will not be increased despite any increase in a deposit account after
the respective qualifying dates.
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APPENDIX A
Office of Thrift Supervision Regulations
Section 552.14 Dissenter and appraisal rights.
(a) Right to demand payment of fair or appraised value. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with 552.13 of this part shall have the
right to demand payment of the fair or appraised value of his stock: Provided,
That such stockholder has not voted in favor of the combination and complies
with the provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to 552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchanged or quoted on NASDAQ or any combination of such
shares of stock and cash.
(c) Procedure.
(1) Notice. Each constituent Federal stock association shall
notify all stockholders entitled to rights under this section, not less than
twenty days prior to the meeting at which the combination agreement is to be
submitted for stockholder approval, of the right to demand payment of appraised
value of shares, and shall include in such notice a copy of this section. Such
written notice shall be mailed to stockholders of record and may be part of the
management's proxy solicitation for such meeting.
(2) Demand for Appraisal and Payment. Each stockholder electing
to make a demand under this section shall deliver to the Federal stock
association, before voting on the combination, a writing identifying himself or
herself and stating his or her intention thereby to demand appraisal of and
payment for his or her shares. Such demand must be in addition to and separate
from any proxy or vote against the combination by the stockholder.
(3) Notification of Effective Date and Written Offer. Within ten
days after the effective date of the combination, the resulting association
shall;
(i) Give written notice by mail to stockholders of
constituent Federal Stock associations who have complied with the provisions of
paragraph (c)(2) of this section and have not voted in favor of the combination,
of the effective date of the combination;
(ii) Make a written offer to each stockholder to pay for
dissenting shares at a specified price deemed by the resulting association to be
the fair value thereof; and
(iii)Inform them that, within sixty days of such date, the
respective requirements of paragraphs (c)(5) and (6) of this section (set out in
the notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and
statement of income of the association the shares of which the dissenting
stockholder holds, for a fiscal year ending not more than sixteen months before
the date of notice and offer, together with the latest available interim
financial statements.
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(4) Acceptance of Offer. If within sixty days of the effective
date of the combination the fair value is agreed upon between the resulting
association and any stockholder who has complied with the provisions of
paragraph (c)(2) of this section, payment therefor shall be made within ninety
days of the effective date of the combination.
(5) Petition to be Filed if Offer Not Accepted. If within sixty
days of the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of the
stock of all such stockholders. A stockholder entitled to file a petition under
this section who fails to file such petition within sixty days of the effective
date of the combination shall be deemed to have accepted the terms offered under
the combination.
(6) Stock Certificates to be Noted. Within sixty days of the
effective date of the combination, each stockholder demanding appraisal and
payment under this section shall submit to the transfer agent his certificates
of stock for notation thereon that an appraisal and payment have been demanded
with respect to such stock and that appraisal proceedings are pending. Any
stockholder who fails to submit his stock certificates for such notation shall
no longer be entitled to appraisal rights under this section and shall be deemed
to have accepted the terms offered under the combination.
(7) Withdrawal of Demand. Notwithstanding the foregoing, at any
time within sixty days after the effective date of the combination, any
stockholder shall have the right to withdraw his or her demand for appraisal and
to accept the terms offered upon the combination.
(8) Valuation and Payment. The Director shall, as he or she may
elect, either appoint one or more independent persons or direct appropriate
Staff of the Office to appraise the shares to determine their fair market value,
as of the effective date of the combination, exclusive of any element of value
arising from the accomplishment or expectation of the combination. Appropriate
staff of the Office shall review and provide an opinion on appraisals prepared
by independent persons as to the suitability of the appraisal methodology and
the adequacy of the analysis and supportive data. The Director after
consideration of the appraisal report and the advice of the appropriate staff
shall, if he or she concurs in the valuation of the shares, direct payment by
the resulting association of the appraised fair market value of the shares, upon
surrender of the certificates representing such stock. Payment shall be made,
together with interest from the effective date of the combination, at a rate
deemed equitable by the Director.
(9) Costs and Expenses. The costs and expenses of any proceeding
under this section may be apportioned and assessed by the Director as he or she
may deem equitable against all or some of the parties. In making this
determination the Director shall consider whether any party has acted
arbitrarily, vexatiously, or not in good faith in respect to the rights provided
by this section.
(10) Voting and Distribution. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any purpose nor be
entitled to the payment of dividends or other distributions on the stock (except
dividends or other distribution payable to, or a vote to be taken by
stockholders of record at a date which is on or prior to, the effective date of
the combination): Provided, That if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and accepts
or is deemed to have accepted the terms offered upon the combination, such
stockholder shall thereupon be entitled to vote and receive the distributions
described above.
(11) Status. Shares of the resulting association into which
shares of the stockholders demanding appraisal rights would have been converted
or exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
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You should rely only on the information contained in this document or to that to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document does not constitute an offer to
sell, or the solicitation of an offer to buy, any of the securities offered
hereby to any person in any jurisdiction in which an offer or solicitation would
be unlawful. The affairs of American Bancorp of New Jersey, Inc. and of ASB
Holding Company and its subsidiaries may change after the date of this
prospectus. Delivery of this document and the sales of shares made hereunder
does not mean otherwise.
AMERICAN BANCORP OF NEW JERSEY, INC.
Proposed Holding Company for American Bank of New Jersey
Up to 12,321,429 Shares of Common Stock
(Including up to 8,625,000 newly issued shares and up to
3,696,429 shares
to be exchanged for shares of ASB Holding Company)
-----------------------------
PROSPECTUS
-----------------------------
Keefe, Bruyette & Woods, Inc.
___________, 2005
Until the later of ___________, 2005, or 25 days after commencement of the stock
offering, all dealers effecting transactions in these securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of the dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules filed as part of this
Registration Statement are as follows:
(a) Exhibits:
1 Form of Sales Agency Agreement with Keefe, Bruyette & Woods, Inc. *
2 Plan of Conversion and Reorganization*
3(i) Certificate of Incorporation of American Bancorp of New Jersey, Inc.*
3(ii) Bylaws of American Bancorp of New Jersey, Inc.*
4 Specimen Stock Certificate of ASB Holding Company*
5 Opinion of Malizia Spidi & Fisch, PC regarding legality of securities registered*
8.1 Federal Tax Opinion of Malizia Spidi & Fisch, PC*
8.2 State Tax Opinion of Crowe Chizek and Company LLC*
10.1 Employment Agreement between American Bank of New Jersey and Joseph
Kliminski(1) *
10.2 Employment Agreement between American Bank of New Jersey and Richard M.
Bzdek(1) *
10.3 Employment Agreement between American Bank of New Jersey and Eric B. Heyer(1) *
10.4 Form of Executive Salary Continuation Agreement(1) *
10.5 Employment Agreement between ASB Holding Company and Joseph Kliminski(2) *
10.6 Employment Agreement between American Bank of New Jersey and Catherine M.
Bringuier*
10.7 Employment Agreement between American Bank of New Jersey and Fred G. Kowal(3) *
10.8 ASB Holding Company 2005 Stock Option Plan(4) *
10.9 American Savings Bank of NJ 2005 Restricted Stock Plan(4) *
23.1 Consent of Crowe Chizek and Company LLC
23.2 Consent of RP Financial, LC*
23.3 Consent of Malizia Spidi & Fisch, PC (contained in its opinions filed as Exhibits 5.1 and
8.1) *
24 Power of Attorney (set forth on the signature page) *
99.1 Prospectus Supplement for Interests in the 401(K) Employees' Savings and Profit Sharing
Plan and Trust*
99.2 Letter of RP Financial, LC as to the value of subscription rights*
99.3 Conversion Valuation Appraisal Report prepared by RP Financial, LC*
99.4 Marketing Materials
99.5 Stock Order Form
99.6 Proxy Statement for Special Meeting of Stockholders of ASB Holding Company(5)*
______________
* Previously filed.
(1) Incorporated by reference to the Registration Statement of ASB Holding
Company on Form SB-2 (File No. 333-105472) filed with the SEC on May 22,
2003. American Savings Bank of NJ changed its name to American Bank of New
Jersey subsequent to entering into these agreements.
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(2) Incorporated by reference to ASB Holding Company's Annual Report on Form
10-KSB (File No. 000-31789) filed with the SEC on December 24, 2003.
(3) Incorporated by reference to the Form 8-K of ASB Holding Company (File No.
000-31789) filed with the SEC on April 18, 2005.
(4) Incorporated by reference to the Definitive Proxy Statement of ASB Holding
Company for the 2005 Annual Meeting of Stockholders (File No. 000-31789)
filed with the SEC on December 28, 2004. American Savings Bank of NJ
changed its name to American Bank of New Jersey subsequent to adopting the
restricted stock plan.
(5) Incorporated by reference to the Preliminary Proxy Statement of ASB Holding
Company for the Special Meeting of Stockholders (File No. 000-31789) filed
with the SEC on June 17, 2005.
(b) Financial Statement Schedules:
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or the notes thereto.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Bloomfield, New Jersey
on August 4, 2005.
American Bancorp of New Jersey, Inc.
By: /s/ Fred G. Kowal
-------------------------------------
Fred G. Kowal
President and Chief Operating Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated on August 4, 2005.
/s/ W. George Parker * /s/ Joseph Kliminski *
- -------------------------------------------- --------------------------------------
W. George Parker Joseph Kliminski
Chairman and Director Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Eric B. Heyer /s/ Vincent S. Rospond *
- -------------------------------------------- --------------------------------------
Eric B. Heyer Vincent S. Rospond
Senior Vice President, Treasurer and Director
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ H. Joseph North * /s/ James H. Ward, III *
- -------------------------------------------- --------------------------------------
H. Joseph North James H. Ward, III
Director Vice Chairman and Director
/s/ Stanley Obal * /s/ Robert Gaccione *
- -------------------------------------------- --------------------------------------
Stanley Obal Robert Gaccione
Director Director
/s/ Fred G. Kowal
- --------------------------------------------
Fred G. Kowal
President, Chief Operating Officer and Director
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