ASB HOLDING COMPANY
                       2003 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>

                               TABLE OF CONTENTS


Letter from the President and CEO...........................................1
Selected Consolidated Financial and Other Data..............................2
Management's Discussion and Analysis of Financial
  Condition and Results of Operations.......................................5
Report of Independent Auditors.............................................19
Consolidated Statements of Financial Condition.............................20
Consolidated Statements of Income..........................................21
Consolidated Statements of Changes in Shareholders' Equity.................22
Consolidated Statements of Cash Flows......................................23
Notes to Consolidated Financial Statements.................................25
Directors and Officers.....................................................45
Investor and Corporate Information.........................................46
Office Locations...........................................................47



<PAGE>

                        LETTER FROM THE PRESIDENT AND CEO


To Our Stockholders and Customers:


     We are pleased to present the first Annual  Report to  Stockholders  of ASB
Holding  Company (the  "Company"),  the holding  company  which owns 100% of the
outstanding  stock  of  American  Savings  Bank of NJ (the  "Bank").  2003 was a
historical  year  for  us,  as the  Company  completed  the  sale  of 30% of its
outstanding  common stock to the public on October 3, 2003. The remaining shares
of the stock of the Company are held by American Savings,  MHC, a federal mutual
holding company. As part of the Stock Offering,  ASB Holding Company sold to the
public  1,666,350  shares of common  stock at a price of $10.00 per  share,  and
raised net proceeds of approximately  $14.7 million.  Our common stock is traded
on the OTC  Bulletin  Board under the symbol  "ASBH." We believe that the mutual
holding  company form of  organization  and common stock  offering  will provide
capital  and  additional  investment  authority  and  flexibility  to expand our
business and services.

     By electing the mutual holding company form of organization,  as opposed to
a full stock company, we are dedicated to continue to serve our community, as we
have done since  1919,  when we were  originally  chartered  as  American-Polish
Building & Loan  Association  of  Bloomfield.  We will  continue  to support the
community as the "hometown bank" and provide  personalized  service and superior
products to our customers. We realize,  however, that we must also now strive to
enhance stockholder value for our public stockholders.

Financial Overview

         The Bank  continued to grow during our fiscal year ended  September 30,
2003.  Total  assets  and  equity  increased  27.5% and 2.1%,  respectively,  to
approximately  $427.1 million and $22.3 million.  Excluding stock  subscriptions
received,  assets would have increased  11.9% to  approximately  $374.9 million.
Loans and deposits  increased 26.1% and 10.7%,  respectively,  to  approximately
$262.8 million and $292.8 million.  With the completion of our stock offering on
October 3, 2003, after the completion of our fiscal year,  stockholder's  equity
increased  immediately to  approximately  $37.1 million.  Since our public stock
offering was not completed  until after the  completion of our 2003 fiscal year,
the enclosed financial statements do not reflect the results of our public stock
offering, and essentially only present the financial condition of the Bank.

     As stated in our Offering  Prospectus,  2003 was a  challenging  year. As a
result of the  historical  low interest  rates that existed  through most of the
year,  our return on assets and interest  rate margin  decreased and reduced our
net income. This reduction in our yield on assets, resulting from the prevailing
low market interest rates and massive refinancing which paid off higher yielding
loans and replaced them with lower market rate loans, will continue to adversely
affect  our  income  in  the  near   future.   However,   we  believe  that  the
implementation  of the new capital and  expansion of our business  will,  in the
long term, improve asset size, net income and our banking  franchise.  2004 will
be a challenging  year, as we evaluate ways to restructure our balance sheet and
utilize the stock proceeds.

Common Stock and Strategic Initiatives

     Our  Common  Stock was  originally  issued on October 3, 2003 at a price of
$10.00 per  share.  Since  then,  the stock has  generally  traded at a price of
$16.00 to $17.00 per share.  In

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<PAGE>

order to enhance future stockholder value, we intend during the upcoming year to
explore several stockholder and strategic  initiatives such as (1) branch office
expansion,  (2)  restructuring  of the  balance  sheet,  (3)  dividends  and (4)
implementation of stock benefit plans.

Thank You

     We would like to sincerely thank our officers,  directors and employees for
their commitment and dedication to American, our stockholders and our customers.
We continually  receive  compliments  from our customers  about the superior and
personalized  services  offered  by our  employees.  This  does  not  happen  by
accident.  The group of professionals that make up the American family work hard
toward our goal to service our customers and to support the community.

     We  thank  you for  your  support  as a  stockholder  of the  Company,  and
hopefully also as a customer of the Bank. As a stockholder of the Company, it is
in your best  interest to personally  conduct all of your banking  business with
American  Savings Bank and to encourage your friends and business  associates to
do so. Please  contact us to learn more about our  products.  As someone who has
worked for American since 1967 and served as President for over 16 years, I want
to  personally  thank you for your support and pledge to continue to advance the
interest  of  the  Company,   the  Bank,  the   community,   our  customers  and
stockholders.

                                          Sincerely,



                                          Joseph Kliminski
                                          President and Chief Executive Officer











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<PAGE>

                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The  following  table  sets  forth  selected   consolidated  summary  historical
financial  information  concerning the financial position of ASB Holding Company
including its subsidiary, American Savings Bank of NJ, for the periods and dates
indicated.  The  financial  data is derived in part from,  and should be read in
conjunction with, the consolidated financial statements and related notes of ASB
Holding Company contained later in this annual report.

                                                       At September 30,
                                                2003         2002         2001
                                                ----         ----         ----
                                                        (In thousands)
SELECTED FINANCIAL DATA:
Total assets                                  $427,066    $334,879      $258,208
Cash and cash equivalents                       38,365      17,330        22,109
Loans receivable, net                          262,844     208,374       166,322
Securities available-for-sale                  107,391      90,134        52,022
Securities held-to-maturity                      2,839       6,970        10,187
Federal Home Loan Bank stock                     3,150       2,200         2,300
Deposits                                       292,826     264,587       188,828
Total borrowings                                55,000      44,000        46,000
Total equity                                    22,339      21,872        20,155


                                                          Years ended
                                                         September 30,
                                                2003         2002         2001
                                                ----         ----         ----
                                                        (In thousands)
SELECTED OPERATING DATA:
Total interest income                          $17,476      $17,578      $16,052
Total interest expense                           8,870        8,829        9,140
                                               -------      -------      -------
    Net interest income                          8,606        8,749        6,912
Provision for loan losses                          254          105            2
                                               -------      -------      -------
Net interest income after
  provision for loan losses                      8,352        8,644        6,910
Noninterest income                                 718          595          458
Noninterest expense                              6,862        6,274        4,923
                                               -------      -------      -------
Income before income taxes                       2,208        2,965        2,445
Income tax provision                               805        1,075          888
                                               -------      -------      -------

    Net income                                 $ 1,403      $ 1,890      $ 1,557
                                               =======      =======      =======














                                       3


<PAGE>

<TABLE>
<CAPTION>
                                                                      At or for the
                                                                        year ended
                                                                       September 30,
                                                            2003           2002         2001
                                                            ----           ----         ----
<S>                                                      <C>           <C>           <C>
SELECTED FINANCIAL DATA*:
Performance Ratios:
   Return on average assets (1)                              0.39%         0.63%         0.68%
   Return on average equity (2)                              6.48          9.30          8.28
   Return on average equity excluding accumulated
     other comprehensive income (3)                          6.51          9.52          8.30
   Net interest rate spread (4)                              2.14          2.63          2.49
   Net interest margin (5)                                   2.44          3.00          3.10
   Operating (noninterest) expense to average
     total assets                                            1.89          2.09          2.16
   Efficiency ratio (6)                                     73.60         67.14         66.80
   Average interest-earning assets to average
     interest-bearing liabilities                          111.69        112.30        115.01

Capital Ratios:
   Equity to total assets at end of period                   5.23          6.53          7.81
   Average equity to average assets                          5.98          6.78          8.24

Asset Quality Ratios:
   Non-performing loans to total loans (7)                   0.20          0.27          0.36
   Non-performing assets to total assets (7)                 0.12          0.17          0.24
   Net charge-offs to average loans outstanding              0.00          0.00          0.00
   Allowance for loan losses to non-performing
     loans (7)                                             265.18        195.96        160.67
   Allowance for loan losses to total loans                  0.52          0.53          0.58

PER SHARE DATA:
Earnings per share:
   Basic and diluted                                $   14,027.09 $   18,899.42 $   15,570.36
</TABLE>


 *   Certain ratios were significantly  affected by stock subscriptions received
     totaling  $52.1  million at September  30, 2003 pending  completion  of the
     Company's initial public offering,  which closed on October 3, 2003. At the
     time of closing,  approximately $15.3 million became capital of the Company
     with the remainder returned on oversubscriptions.

(1)  Net income divided by average total assets.
(2)  Net income divided by average total equity.
(3)  Excludes  the FAS 115 market  value  adjustment,  net of tax,  of  $74,000,
     $475,000 and $52,000 for the periods ended  September  30, 2003,  September
     30, 2002 and September 30, 2001. FAS 115 market value adjustments represent
     gains/losses that have not been recognized through the income statement and
     are therefore excluded in this performance ratio. Changes in interest rates
     may  significantly  impact the market value  adjustments  of securities and
     therefore may cause  significant  fluctuations in ROE. Because these market
     value adjustments will only be realized if and when the securities are sold
     we believe this performance ratio is more meaningful to disclose  excluding
     the FAS 115 market value adjustments.
(4)  Difference  between weighted average yield on  interest-earning  assets and
     weighted average cost of interest-bearing liabilities.
(5)  Net interest income as a percentage of average interest-earning assets.
(6)  Noninterest  expense  divided  by  the  sum  of  net  interest  income  and
     noninterest income.
(7)  Nonperforming  loans consist of nonaccrual  loans and loans greater than 90
     days delinquent and still accruing.

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<PAGE>



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS

Forward-Looking Statements

     This report contains certain forward-looking  statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.   The  Company  intends  such
forward-looking  statements  to be covered  by the safe  harbor  provisions  for
forward-looking  statements  contained in the Private  Securities  Reform Act of
1995 as amended  and is  including  this  statement  for  purposes of these safe
harbor  provisions.  Forward-looking  statements,  which  are  based on  certain
assumptions  and describe  future plans,  strategies,  and  expectations  of the
Company,  are generally  identifiable by use of the words  "believe,"  "expect,"
"intend,"  "anticipate,"  "estimate,"  "project,"  or similar  expressions.  The
Company's  ability to predict  results or the actual  effect of future  plans or
strategies is inherently  uncertain.  Factors that could have a material adverse
affect  on  the  operations  and  future   prospects  of  the  Company  and  its
wholly-owned  subsidiaries include, but are not limited to, changes in: interest
rates; general economic conditions;  legislative/regulatory provisions; monetary
and fiscal  policies  of the U.S.  Government,  including  policies  of the U.S.
Treasury and the Federal  Reserve Board;  the quality or composition of the loan
or investment portfolios;  demand for loan products; deposit flows; competition;
demand for  financial  services in the  Company's  market area;  and  accounting
principles,  policies,  and guidelines.  These risks and uncertainties should be
considered in evaluating  forward-looking  statements, and undue reliance should
not be placed on such statements.

General

     The Company's results of operations depend primarily on earnings on its 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, and residential mortgage-related securities. Interest-bearing liabilities
consist  primarily of retail  deposits and borrowings from the Federal Home Loan
Bank of New York. As a result of the  historical low interest rates that existed
throughout  the last two  years,  our  return  on  assets  and  interest  margin
decreased and reduced our net income.  Return on average  assets  decreased from
..63%for the year ended  September  30, 2002 to .39% for 2003.  The net  interest
margin  decreased from 3.00% for the year ended  September 30, 2002 to 2.44% for
the same period in 2003. In a stable interest rate  environment,  we expect that
our net interest margin will stabilize.  However, our net interest margin may be
at risk of  further  declines  in a rising  or  falling  rate  environment.  See
"Management  of  Interest  Rate  Risk and  Market  Risk" on page 15 for  further
discussion.

     Our results of  operations  also depend on our  provision  for loan losses,
non-interest  income, and non-interest  expense.  Non-interest  expense includes
salaries  and  employee  benefits,  occupancy  expenses  and other  general  and
administrative expenses.  Non-interest income includes service fees and charges,
income on bank owned life  insurance  and gains on sales of loans  available for
sale.


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<PAGE>

     Our results of operations may also be affected  significantly by changes in
market interest rates,  economic and competitive  conditions in our market area,
and  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.

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 $109.4 million
at September 30, 1998 to $262.8 million at September 30, 2003 and total deposits
growing from $139.8 million at September 30, 1998 to $292.8 million at September
30, 2003.  American  Savings Bank of NJ opened its first branch office in August
2001,  and  deposits at the new Cedar Grove branch grew  rapidly.  To the extent
that new deposits  have  exceeded  loan  originations,  we have  invested  these
deposits primarily in mortgage-related securities.

     American Savings Bank of NJ's current strategy seeks to continue the growth
of the last several years.  The highlights of the Bank's growth strategy include
increasing  its volume of loan  originations  and the size of its loan portfolio
and expanding the branch office  network over the next several  years.  American
Savings  Bank of NJ intends to  continue  its  current  mix of deposit  and loan
products,  with the  latter  continuing  to  consist  primarily  of  residential
mortgages and multi-family, commercial, and other real estate mortgages. In June
2003,   we   organized  a  new   subsidiary,   ASB   Investment   Corp,   a  New
Jersey-incorporated company, for the purpose of selling insurance and investment
products,  including annuities,  to customers of American Savings Bank of NJ and
the general public,  with initial  activities  limited to the sale of fixed rate
annuities.

Comparison of Financial Condition at September 30, 2003 and September 30, 2002

     Our total assets increased by $92.2 million,  or 27.53%,  to $427.1 million
at September 30, 2003 from $334.9  million at September  30, 2002.  The increase
reflected growth in loans receivable,  securities and cash and cash equivalents,
funded by an increase in  deposits  and  borrowings.  Loans  receivable,  net of
allowance  for loan  losses,  increased  by $54.4  million,  or 26.10% to $262.8
million at September  30, 2003 from $208.4  million at September  30, 2002.  Our
increase  in loans  primarily  resulted  in a $47.9  million  increase of one-to
four-family  mortgage loans  reflecting  increased demand as borrowers sought to
take  advantage  of  lower  market  interest  rates.  The  loan  portfolio  also
experienced a slight change in composition as  multi-family  and non residential
mortgage loans  increased $6.7 million to $36.2 million while  commercial  loans
decreased  $682,000 to $1.6  million,  and  construction  loans  decreased  $1.3
million  to  $446,000  at  September   30,  2003.   Securities   classified   as
available-for-sale  increased  $17.3  million,  or 19.15%,  to $107.4 million at
September  30,  2003 from $90.1  million at  September  30, 2002 as we sought to
invest a  portion  of the funds  generated  by the  increase  in  deposits  into
interest  earning  assets.  The increase in  available-for-sale  securities  was
somewhat  offset as the  held-to-maturity  securities  portfolio  decreased $4.1
million or 59.27% to $2.8  million at  September  30, 2003 from $7.0  million at
September 30, 2002.  During 2002, we also purchased bank owned life insurance as
a means to help fund a supplemental  executive retirement plan, which had a cash
surrender value of $5.0 million at September 30, 2003. Cash and cash equivalents
increased  $21.0  million or 121.38% to $38.4 million at September 30, 2003 from
$17.3

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<PAGE>

million at September 30, 2002.  This growth was  attributable  to the receipt of
stock subscription  proceeds held in overnight investments pending completion of
the Company's initial public offering which closed October 3, 2003.

     Total deposits increased by $28.2 million,  or 10.67%, to $292.8 million at
September 30, 2003 from $264.6  million at September  30, 2002.  The majority of
this growth was in savings accounts and non  interest-bearing  checking accounts
which increased $26.3 million and $4.9 million, or 25.91% and 28.90%, during the
fiscal year ended September 30, 2003, respectively. The increased deposit growth
was used to fund loan originations and purchase securities.

     Stock  subscriptions  received  totaled $52.1 million at September 30, 2003
pending  completion of the Company's  initial  public  offering  which closed on
October 3, 2003.  At the time of closing,  approximately  $15.3  million  became
capital of the Company with the remainder returned on oversubscriptions.

     Federal Home Loan Bank advances  increased  $11.0  million,  or 25.00%,  to
$55.0  million at September  30, 2003 from $44.0  million at September 30, 2002.
These advances were drawn for the purpose of managing  interest rate risk as the
Company continued to originate longer term, fixed-rate loans held in portfolio.

     Equity increased  $467,000 or 2.14%, to $22.3 million at September 30, 2003
from $21.9 million at September 30, 2002,  reflecting income of $1.4 million for
the  year  offset  by a  $936,000  decrease  in  unrealized  after-tax  gains on
securities  available-for-sale  to a $405,000 loss at September 30, 2003, from a
$531,000  gain at September 30, 2002.  The change from an  unrealized  after tax
gain to an unrealized after tax loss on securities  available-for-sale  resulted
from  the  reinvestment  of  prepayments  on  higher  yielding   mortgage-backed
securities  and  collateralized  mortgage  obligations  into similar,  but lower
yielding  securities  during  the period  coupled  with the  movement  of market
interest rates to comparatively higher levels by September 30, 2003 having risen
sharply from their historical lows recorded earlier in the period.

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 yield on average earnings assets from 6.03% for the
year ended  September  30, 2002 to 4.95% for the year ended  September 30, 2003.
This reduction in yield was partially  offset by a $61.1 million increase in the
average  balance of  interest-earning  assets from  $291.6  million for the year
ended  September  30, 2002 to $352.7  million for the year ended  September  30,
2003.

     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


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<PAGE>

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 from 4.84% for the year ended  September 30, 2002
to 2.90% for the current year.  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 in 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 from 3.04% for the year ended September 30, 2002 to 2.31% for the year
ended  September  30,  2003,  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 the
same period in 2002.  The net  interest  rate spread  decreased to 2.14% for the
year ended  September 30, 2003 from 2.63% for the year ended September 30, 2002,
while the net interest margin  decreased  during the period 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,
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%.  The Bank is evaluating  the costs and benefits of  restructuring
its  portfolio of FHLB  advances.  To do so would likely result in a significant
one time charge to earnings in the form of FHLB prepayment  penalties  which, in
turn,  would lower the interest paid on borrowings and should improve the bank's
net interest spread and margin and enhance future earnings.  Notwithstanding the
implementation of this strategy,  we do not expect the trend of further declines
in our net interest  margin to continue in a stable  interest rate  environment.
However,  our net interest margin may be at risk of further declines in a rising
or falling rate environment.

     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

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<PAGE>

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 the  comparative  prior period 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
identified by management which is secured by an assisted living facility in West
Orange,  NJ. At  September  30,  2003,  workout  options on this  impaired  loan
continued to be evaluated with the borrower.

     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.

     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
September 30, 2003 was maintained at a level that represented  management's best
estimate of  anticipated  losses in the loan  portfolio  to the extent they were
both probable and reasonably estimable.

     Noninterest  Income.  Noninterest income increased  $123,000,  or 20.67% to
$718,000 for the year ended September 30, 2003 compared to the prior period. 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  $25,000  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


                                       9
<PAGE>

marketing  expenses as deposit  branch  promotional  expenditures  for the Cedar
Grove branch were reduced significantly from the prior year's level.

     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
resulted in a current  year  increase  of $147,000  over the prior year when the
plan had been in place for only a portion of that 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
the  Company's  existing  human  resources as it converted to a public  company,
placed  greater  strategic  emphasis  on  commercial  lending and  expanded  its
deposit-related   products  and  services  to  support  its   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

                                       10
<PAGE>

Bank invests excess funds in short-term  interest-earning  assets, which provide
liquidity to meet lending  requirements.  The Bank also  generates  cash through
borrowings.  The Bank  utilizes  Federal Home Loan Bank advances to leverage its
capital base and provide funds for its lending and investment activities, and to
enhance its interest rate risk management.

         Liquidity management is both a daily and long-term function of business
management.  Excess  liquidity is generally  invested in short-term  investments
such as overnight  deposits or U.S. Agency  securities.  On a longer term basis,
the Bank  maintains a strategy of  investing  in various  loan  products  and in
securities collateralized by loans. The Bank uses its sources of funds primarily
to meet its ongoing  commitments,  to pay maturing  certificates  of deposit and
savings  withdrawals,  to fund loan commitments and to maintain its portfolio of
mortgage-backed securities and investment securities. At September 30, 2003, the
total  approved  loan  origination  commitments  outstanding  amounted  to $11.6
million.  At the same  date,  unused  lines of credit  were  $10.3  million  and
construction  loans in process were $783,000.  Certificates of deposit scheduled
to mature in one year or less at September 30, 2003,  totaled $87.6 million.  In
addition,  at September  30, 2003 the Company had stock  subscriptions  received
held on deposit at the Bank totaling $52.1 million, of which approximately $41.2
million was returned after the closing of the Company's  initial public offering
on  October  3, 2003 due to  oversubscriptions.  Although  the  average  cost of
deposits  has  decreased  throughout  2003,  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 September  30, 2003 to
borrow an  additional  $51.8 million from the Federal Home Loan Bank of New York
as a funding source to meet commitments and for liquidity purposes.

     The following  tables disclose our  contractual  obligations and commercial
commitments at of September 30, 2003. Balances are reported in thousands.

                                   Less Than                            After
                         Total      1 Year     1-3 Years   4-5 Years   5 Years
                         -----      ------     ---------   ---------   -------
Federal Home Loan Bank
  advances(1)            $55,000    $ 4,000    $11,000     $16,000     $24,000
                         -------    -------    -------     -------     -------

    Total                $55,000    $ 4,000    $11,000     $16,000     $24,000
                         =======    =======    =======     =======     =======

---------------
(1)  At September 30, 2003, the total collateralized  borrowing limit was $106.8
     million of which we had $55.0 million outstanding.


                          Total
                         Amounts    Less Than                             Over
                        Committed    1 Year    1-3 Years   4-5 Years    5 Years
                        ---------    ------    ---------   ---------    -------

Lines of credit(1)       $10,286    $   128    $   151     $   220      $ 9,787
Construction loans in
  process                    783        783
Other commitments to
  extend credit(1)        11,590     11,590       --          --           --
                         -------    -------    -------     -------      -------

    Total                $22,659    $12,501    $   151     $   220      $ 9,787
                         =======    =======    =======     =======      =======
-----------------
(1) Represents amounts committed to customers.

                                       11
<PAGE>

Capital

     Consistent  with its  goals to  operate a sound  and  profitable  financial
organization,  American  Savings  Bank of NJ actively  seeks to maintain a "well
capitalized"  institution in accordance with regulatory standards.  Total equity
was $22.2  million at September 30, 2003, or 5.21% of total assets on that date.
As of  September  30,  2003,  American  Savings  Bank of NJ exceeded all capital
requirements of the Office of Thrift Supervision.  American Savings Bank of NJ's
regulatory  capital  ratios at September 30, 2003 were as follows:  core capital
5.30%; Tier I risk-based capital,  11.23%; and total risk-based capital, 11.92%.
The regulatory capital  requirements to be considered well capitalized are 5.0%,
6.0% and 10.0%, respectively.

         As a result of the completion of the minority stock offering on October
3, 2003, the Company contributed $9.6 million to the Bank which, net of unearned
ESOP shares, increased total equity to $31.8 million.

Impact of Inflation

     The consolidated  financial  statements presented herein have been prepared
in accordance with accounting principles generally accepted in the United States
of America.  These principles  require the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation.

     Our primary  assets and  liabilities  are monetary in nature.  As a result,
interest  rates  have a more  significant  impact  on our  performance  than the
effects  of  general  levels  of  inflation.  Interest  rates,  however,  do not
necessarily  move in the same  direction or with the same magnitude as the price
of goods and services,  since such prices are affected by inflation. In a period
of rapidly rising  interest rates,  the liquidity and maturity  structure of our
assets and liabilities are critical to the maintenance of acceptable performance
levels.

     The  principal  effect of  inflation,  as distinct  from levels of interest
rates, on earnings 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.









                                       12


<PAGE>

Average Balances, Interest, and Average Yields/Cost

The  following  table  presents  certain  information  at and  for  the  periods
indicated  regarding  average  balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing  liabilities and average yields and
costs.  The yields and costs for the periods  indicated  are derived by dividing
income  or  expense  by  the  average   balances   of  assets  or   liabilities,
respectively,  for the periods  presented.  Average  balances  were derived from
average daily balances.

<TABLE>
<CAPTION>
                                  At September 30,                             Years Ended September 30,
                                                                               -------------------------
                                        2003                  2003                       2002                         2001
                                        ----                  ----                       ----                         ----

                                                           Interest  Average           Interest  Average            Interest Average
                                         Yield/   Average   Earned/  Yield/  Average    Earned/  Yield/   Average    Earned/  Yield/
                                 Balance Cost     Balance    Paid     Cost   Balance     Paid     Cost    Balance     Paid     Cost
                                 ------- ----     -------    ----     ----   -------     ----     ----    -------     ----     ----
<S>                           <C>       <C>    <C>       <C>       <C>     <C>       <C>        <C>     <C>       <C>        <C>
Interest-earning assets:
 Loans receivable, net(1)       $263,344  5.48%  $238,474  $ 14,343  6.01%   $186,974  $ 12,907   6.90%   $150,938  $ 11,542   7.65%
 Investment securities(2)        110,230  2.43    100,787     2,918  2.90      91,141     4,414   4.84      66,387     4,261   6.42
 Other interest-earning
  assets(3)                       40,309  0.85     13,462       215  1.60      13,506       257   1.90       5,687       249   4.38
                                --------  ----   --------  --------  ----    --------  --------   ----    --------  --------   ----
 Total interest-earning
  assets                         413,883  4.22    352,723    17,476  4.95     291,621    17,578   6.03     223,012     16,052  7.20
 Non-interest-earning assets      13,183            9,459                       8,223                        5,377
                                --------         --------                   ---------                     --------
 Total assets                   $427,066         $362,182                   $ 299,844                     $228,389
                                ========         ========                   =========                     ========

Interest-bearing liabilities:
 NOW & money market             $ 21,721  0.98%  $ 22,511  $    290  1.29%   $ 14,381  $    211   1.47%   $  8,758       149   1.71%
 Savings deposits(4)             179,857  1.59    117,052     2,307  1.97      86,475     2,196   2.54      39,201       895   2.28
 Certificates of deposit         121,709  2.55    121,310     3,439  2.83     114,965     4,158   3.62     106,845     5,835   5.46
                                --------  ----   --------  --------  ----    --------  --------   ----    --------  --------   ----
 Total interest-bearing
   deposits                      323,287  1.91    260,873     6,036  2.31     215,821     6,565   3.04     154,804     6,879   4.44
 FHLB advances                    55,000  5.13     54,923     2,834  5.16      43,859     2,264   5.16      39,094     2,261   5.78
                                --------  ----   --------  --------  ----    --------  --------   ----    --------  --------   ----
 Total interest-bearing
   liabilities                   378,287  2.38    315,796     8,870  2.81     259,680     8,829   3.40     193,898     9,140   4.71
                                                           --------                    --------   ----    --------  --------   ----
 Non-interest-bearing
   deposits                       21,676           20,303                      16,333                       12,637
 Other non-interest-bearing
   liabilities                     4,763            4,441                       3,507                        3,039
                                --------         --------                    --------                     --------
 Total liabilities               404,727          340,540                     279,520                      209,574
 Accumulated other
   comprehensive income             (405)              74                         475                           52
 Retained earnings & other
   equity                         22,744           21,568                      19,849                       18,763
                                --------         --------                    --------                     --------
 Total liabilities and equity   $427,066         $362,182                    $299,844                     $228,389
                                ========         ========                    ========                     ========

 Net interest spread(5)                   1.84%            $  8,606  2.14%             $  8,749   2.63%             $  6,912   2.49%
                                          ====             ========  ====              ========   ====              ========   ====
 Net interest margin(6)                   2.04%                      2.44%                        3.00%                        3.10%
                                          ====                       ====                         ====                         =====
 Ratio of interest-earning
   assets to interest-bearing
   liabilities                    109.41%          111.69%                     112.30%                      115.01%
                                 ========         ========                    ========                     ========
</TABLE>
---------------
(1)  Calculated net of deferred fees and loss reserves.  Non-accruing loans have
     been included as loans carrying a zero yield. Includes loans held for sale.
(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 and stock subscriptions  received in
     connection with the Company's  initial public offering which closed October
     3, 2003.
(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.

                                       13
<PAGE>

Rate/Volume Analysis

     The following  table  presents the effects of changing rates and volumes on
the interest income and interest  expense of the Company.  The rate column shows
the effects attributable to changes in rate (changes in rate multiplied by prior
volume).  The volume column shows the effects  attributable to changes in volume
(changes in volume  multiplied  by prior  rate).  The  rate/volume  column shows
changes  attributable  to  changes  in both  rate and  volume,  which  cannot be
segregated.

<TABLE>
<CAPTION>
                                                                            2003 - 2002
                                                                            -----------
                                                                        Increase (Decrease)
                                                                              Rate/
                                                       Volume      Rate      Volume       Net
                                                       ------      ----      ------       ---
                                                               (Dollars in thousands)
<S>                                                  <C>       <C>        <C>        <C>
Interest-earning assets:
    Loans receivable                                   $ 3,555   $(1,661)   $  (458)   $ 1,436
    Securities                                             466    (1,775)      (187)    (1,496)
    Other interest-earning assets                            0       (42)         0        (42)
                                                       -------   -------    -------    -------
       Total interest-earning assets                     4,021    (3,478)      (645)      (102)

Interest-bearing liabilities:
    NOW and money market accounts                          119       (26)       (14)        79
    Savings accounts                                       777      (492)      (174)       111
    Certificates of deposit                                229      (899)       (49)      (719)
                                                       -------   -------    -------    -------
       Total interest bearing deposits                   1,125    (1,417)      (237)      (529)
    FHLB advances                                          571        (1)         0        570
                                                       -------   -------    -------    -------
       Total interest-bearing liabilities                1,696    (1,418)      (237)        41
                                                       -------   -------    -------    -------

          Increase (decrease) in net interest income   $ 2,325   $(2,060)   $  (408)   $  (143)
                                                       =======   =======    =======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                                            2002 - 2001
                                                                            -----------
                                                                        Increase (Decrease)
                                                                              Rate/
                                                       Volume      Rate      Volume       Net
                                                       ------      ----      ------       ---
                                                               (Dollars in thousands)
<S>                                                  <C>       <C>        <C>        <C>
Interest-earning assets:
    Loans receivable                                   $ 2,755   $(1,122)   $  (268)   $ 1,365
    Securities                                           1,589    (1,046)      (390)       153
    Other interest-earning assets                          343      (141)      (194)         8
                                                       -------   -------    -------    -------
       Total interest-earning assets                     4,687    (2,309)      (852)     1,526

Interest-bearing liabilities:
    NOW and money market accounts                           96       (21)       (13)        62
    Savings accounts and certificates                    1,078       101        122      1,301
    Certificates of deposit                                443    (1,970)      (150)    (1,677)
                                                       -------   -------    -------    -------
       Total interest bearing deposits                   1,617    (1,890)       (41)      (314)
    FHLB advances                                          276      (243)       (30)         3
                                                       -------   -------    -------    -------
       Total interest-bearing liabilities                1,893    (2,133)       (71)      (311)
                                                       -------   -------    -------    -------

          Increase (decrease) in net interest income   $ 2,794   $  (176)   $  (781)   $ 1,837
                                                       =======   =======    =======    =======
</TABLE>

                                       14
<PAGE>

Management of Interest Rate Risk and Market Risk

     Qualitative  Analysis.  Because the majority of our assets and  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,  American  Savings  Bank  of NJ's
management  expects  that  changes  in  interest  rates may have a  significant,
adverse impact on the bank's 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 than the interest paid on our liabilities.

     In addition, changes in interest rates can affect the average life 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 earned on the
prepaid loans or securities. At September 30, 2003, 81.56% of our loan portfolio
was  comprised  of one- to  four-family  mortgage  loans,  which  have  recently
experienced a very high prepayment rate.

     Our net interest rate spread, which is the difference between the yields we
receive  on assets  and the  rates we pay on  liabilities,  has been  decreasing
during recent periods due to the  significant  decrease in market interest rates
to  historically  low  levels.  For the year ended  September  30,  2003 our net
interest  rate  spread  was  2.14%,  as  compared  to 2.63%  for the year  ended
September 30, 2002. Our investment  securities  portfolio  consists primarily of
adjustable  interest rate securities and securities  that have shorter  expected
maturities than residential mortgages, which provide protection against interest
rate risk if interest rates rise.  However,  as interest  rates have  decreased,
these securities have paid off or adjusted to lower yields. This decrease in the
yield on our securities portfolio, along with the modification or replacement of
loans in our existing loan portfolio  with lower rate loans,  has caused our net
interest  rate  spread to shrink  because  the  decrease  in the rates we pay on
deposits  and  borrowings  has been less than the  decrease in the yields on our
securities  and loan  portfolios.  This has caused a decrease  in our  earnings,
sometimes referred to as an "earnings  squeeze."  Depending upon the movement of
market interest rates,  our earnings may continue to be impacted by an "earnings
squeeze" in the future.


                                       15
<PAGE>

     We are also  vulnerable  to an  increase  in  interest  rates  because  the
majority of our loan  portfolio  consists  of  long-term,  fixed rate loans.  At
September 30, 2003, 70.57% of our loans with maturities of greater than one year
had fixed rates of interest,  and 82.87% of our loans had  maturities  of ten or
more years. In an increasing rate  environment,  our cost of funds will 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 recent  periods has impacted
our earnings.

     The  Board of  Directors  has  established  an  Asset/Liability  Management
Committee,  comprised  of  Joseph  Kliminski,  the  Bank's  President  and Chief
Executive Officer,  Richard Bzdek, the Bank's Executive Vice President and Chief
Operating  Officer,  Catherine  Bringuier,  the Bank's Senior Vice President and
Chief Lending  Officer,  Eric Heyer,  the Bank's Senior Vice President and Chief
Financial Officer,  and Josephine Castaldo,  the Bank's Vice President of Branch
Administration,  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 American
Savings  Bank  of NJ,  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
have  utilized  various  strategies  to enable us to  improve  the  matching  of
interest-earning asset maturities to interest-bearing  liability maturities. The
main elements of these strategies include seeking to:

     o    Originate loans with adjustable rate features or fixed rate loans with
          short maturities;

     o    Lengthen the  maturities of our  liabilities  through  utilization  of
          Federal Home Loan Bank advances;

     o    Attract low cost checking and  transaction  accounts  which tend to be
          less interest rate sensitive;

     o    Continue to originate loans eligible for sale in the secondary  market
          and, if warranted, sell long term fixed rate loans; and

     o    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.


                                       16
<PAGE>

     Quantitative  Aspects of Market Risk. The following table presents American
Savings  Bank of NJ's net  portfolio  value as of September  30,  2003.  The net
portfolio  value was  calculated by the Office of Thrift  Supervision,  based on
information provided by American Savings Bank of NJ.

<TABLE>
<CAPTION>

                                                        Net Portfolio
                                                        Value as % of
                    Net Portfolio Value            Present Value of Assets
                    -------------------            -----------------------
                                                             Net
                                                          Portfolio     Basis
   Changes in                                               Value       Point
    Rates(1)      $ Amount       $ Change     % Change      Ratio      Change
    --------      --------       --------     --------      -----      ------
                   (Dollars in thousands)

<S>               <C>            <C>           <C>        <C>         <C>
     +300 bp        19,804        -17,953       -48%        4.71%      -370 bp
     +200 bp        26,180        -11,577       -31%        6.09%      -232 bp
     +100 bp        32,302         -5,455       -14%        7.34%      -106 bp
        0 bp        37,757              -         -         8.41%
     -100 bp        37,927            170         -         8.37%        -4 bp
</TABLE>

---------------
(1)  The -200bp and -300bp  scenarios  are not shown due to the  abnormally  low
     prevailing interest rate environment.

     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
historically low interest rates prevalent in the current marketplace, management
is continuing  to evaluate a variety of strategies to manage the earnings  risks
presented by an upward movement in interest rates.  These strategies include the
continued sale of longer term, fixed rate conforming loan  originations into the
secondary market and the use of wholesale  borrowings to match fund longer term,
fixed rate loan originations that are retained in portfolio.  Additionally,  the
Bank is evaluating the costs and benefits of restructuring its portfolio of FHLB
advances.  To do so would  likely  result in a  significant  one time  charge to
earnings in the form of FHLB prepayment  penalties  which, in

                                       17
<PAGE>

turn,  would lower the interest paid on borrowings and should improve the bank's
net interest spread and margin and enhance future earnings.

     For the purpose of managing  interest  rate risk, we continue to maintain a
strategy  of  selling a portion  of our long term,  fixed  rate  mortgage  loans
originated into the secondary market.  For the year ended September 30, 2003, we
sold a  total  of  $9.4  million  of  loans  to the  Federal  National  Mortgage
Association while an additional $500,000 of closed loans remained on the balance
sheet and were denoted as "held for sale." Gains on sales of mortgage loans held
for sale totaled $151,000 for 2003.

     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.  Outstanding  contracts to sell long
term, fixed rate mortgage loans to Federal National Mortgage Association totaled
$481,000 at September  30, 2003.  Loans sold under these  contracts may generate
additional gains or losses on sale of mortgage loans in subsequent periods.

















                                       18
<PAGE>




                         REPORT OF INDEPENDENT AUDITORS



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, 2003 and 2002, and
the related consolidated statements of income, changes in equity, and cash flows
for the years then ended.  These financial  statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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, 2003 and 2002 and the results of its operations
and its cash  flows for the  years  then  ended in  conformity  with  accounting
principles generally accepted in the United States of America.




                                      /s/Crowe Chizek and Company LLC

Oak Brook, Illinois
October 24, 2003











                                       19

<PAGE>



                               ASB HOLDING COMPANY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                           September 30, 2003 and 2002
                        (In thousands except share data)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                      2003         2002
                                                                      ----         ----
<S>                                                              <C>          <C>
ASSETS
Cash and cash equivalents
     Cash and due from banks                                       $   1,206    $   2,170
     Interest-bearing deposits                                        31,259        6,860
     Federal funds sold                                                5,900        8,300
                                                                   ---------    ---------
         Total cash and cash equivalents                              38,365       17,330

Securities available-for-sale                                        107,391       90,134
Securities held-to-maturity (fair value:
  2003 - $2,864, 2002 - $7,023)                                        2,839        6,970
Loans receivable, net of allowance for loan losses
  2003 - $1,371; 2002 - $1,117                                       262,844      208,374
Loans held for sale                                                      500           --
Premises and equipment                                                 3,939        3,786
Federal Home Loan Bank stock, at cost                                  3,150        2,200
Cash surrender value of life insurance                                 5,028        4,477
Accrued interest receivable                                            1,255        1,313
Other assets                                                           1,755          295
                                                                   ---------    ---------

     Total assets                                                  $ 427,066    $ 334,879
                                                                   =========    =========

LIABILITIES AND EQUITY
Deposits
     Non-interest-bearing                                          $  21,676    $  16,816
     Interest-bearing                                                271,150      247,771
                                                                   ---------    ---------
         Total deposits                                              292,826      264,587
Stock subscriptions received                                          52,137           --
Advance payments by borrowers for taxes
  and insurance                                                        2,079        1,713
Federal Home Loan Bank advances                                       55,000       44,000
Accrued expenses and other liabilities                                 2,685        2,707
                                                                   ---------    ---------
     Total liabilities                                               404,727      313,007

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; 100 shares issued and outstanding                      --           --
     Additional paid in capital                                          100           --
     Retained earnings                                                22,644       21,341
     Accumulated other comprehensive income (loss)                      (405)         531
                                                                   ---------    ---------
         Total equity                                                 22,339       21,872
                                                                   ---------    ---------

              Total liabilities and equity                         $ 427,066    $ 334,879
                                                                   =========    =========
</TABLE>
--------------------------------------------------------------------------------

          See accompanying notes to consolidated financial statements

                                       20

<PAGE>

                               ASB HOLDING COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                     Years Ended September 30, 2003 and 2002
                        (In thousands except share data)

--------------------------------------------------------------------------------

                                                             2003       2002
                                                             ----       ----

Interest income
     Loans, including fees                               $   14,343   $   12,907
     Securities                                               2,918        4,414
     Federal funds sold and other                               215          257
                                                         ----------   ----------
         Total interest income                               17,476       17,578

Interest expense
     NOW and money market                                       290          211
     Savings                                                  2,307        2,196
     Certificates of deposit                                  3,439        4,158
     Federal Home Loan Bank advances                          2,834        2,264
                                                         ----------   ----------
         Total interest expense                               8,870        8,829
                                                         ----------   ----------

Net interest income                                           8,606        8,749

Provision for loan losses                                       254          105
                                                         ----------   ----------

Net interest income after provision
  for loan losses                                             8,352        8,644

Noninterest income
     Service charges on deposits                                265          240
     Income from cash surrender value of  life insurance        227          102
     Loss on sales of securities available-for- sale           (188)          --
     Gain on sales of loans held for sale                       151            7
     Other                                                      263          246
                                                         ----------   ----------
         Total noninterest income                               718          595

Noninterest expense
     Salaries and employee benefits                           4,507        3,969
     Data processing                                            543          486
     Occupancy and equipment                                    822          737
     Advertising                                                229          394
     Federal deposit insurance                                   43           36
     Other                                                      718          652
                                                         ----------   ----------
         Total noninterest expense                            6,862        6,274
                                                         ----------   ----------

Income before income taxes                                    2,208        2,965

Provision for income taxes                                      805        1,075
                                                         ----------   ----------


Net income                                               $    1,403   $    1,890
                                                         ==========   ==========

Earnings per share:
     Basic and diluted                                   $14,027.09   $18,899.42

--------------------------------------------------------------------------------

          See accompanying notes to consolidated financial statements

                                       21

<PAGE>

                               ASB HOLDING COMPANY
                  CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
                     Years Ended September 30, 2003 and 2002
                                 (In thousands)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                 Accumulated
                                                                                     Other
                                                          Additional             Comprehensive
                                                            Paid in    Retained      Income       Total
                                                            Capital    Earnings      (Loss)      Equity
                                                            -------    --------      ------      ------

<S>                                                     <C>          <C>          <C>         <C>
Balance at October 1, 2001                                $     --     $ 19,451     $    704    $ 20,155
Comprehensive income
    Net income                                                  --        1,890           --       1,890
    Unrealized holding loss on securities available-
      for-sale, net of tax effects                              --           --         (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
    Unrealized holding loss on securities available-
      for-sale, net of reclassification and tax effects         --           --         (936)       (936)
                                                                                                --------

       Total comprehensive income                                                                    467
                                                          --------     --------     --------    --------

Balance at September 30, 2003                             $    100     $ 22,644     $   (405)   $ 22,339
                                                          ========     ========     ========    ========

</TABLE>








--------------------------------------------------------------------------------

          See accompanying notes to consolidated financial statements

                                       22


<PAGE>



                               ASB HOLDING COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years Ended September 30, 2003 and 2002
                                 (In thousands)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                               2003        2002
                                                               ----        ----
<S>                                                       <C>          <C>
Cash flows from operating activities
    Net income                                              $   1,403    $   1,890
    Adjustments to reconcile net income to net cash
      provided by operating activities
       Depreciation and amortization                              371          378
       Net amortization of premiums and discounts               1,036          422
       Losses on sales of securities available-for-sale           188           --
       Provision for loan losses                                  254          105
       Increase in cash surrender value of life insurance        (227)        (102)
       Gain on sale of other real estate owned                     (3)          --
       Gain on sale of loans                                     (151)          (7)
       Proceeds from sales of loans                             9,561          265
       Net change in loans held for sale                         (500)          --
       Decrease (increase) in accrued interest receivable          58         (165)
       Decrease (increase) in other assets                       (979)         184
       Change in deferred income taxes                            142         (126)
       Increase (decrease) in other liabilities                   (22)         840
                                                            ---------    ---------
          Net cash provided by operating activities            11,131        3,684

Cash flows from investing activities
    Net increase in loans receivable                          (64,194)     (42,415)
    Principal paydowns on securities held-to-maturity           4,133        3,231
    Purchases of securities available-for-sale               (111,503)     (58,906)
    Sales of securities available-for-sale                     21,026           --
    Principal paydowns on securities available-for-sale        70,435       20,143
    Purchase of Federal Home Loan Bank stock                   (1,660)        (225)
    Redemption of Federal Home Loan Bank stock                    710          325
    Purchase of bank-owned life insurance                        (324)      (4,375)
    Purchase of premises and equipment                           (524)        (355)
    Proceeds from sale of other real estate owned                  63           --
                                                            ---------    ---------
       Net cash used in investing activities                  (81,838)     (82,577)

Cash flows from financing activities
    Net increase in deposits                                   28,239       75,759
    Stock subscriptions received                               52,137           --
    Net change in advance payments by borrowers
      for taxes and insurance                                     366          355
    Repayment of Federal Home Loan Bank of New
      York advances                                            (4,000)     (14,000)
    Federal Home Loan Bank of New York advances                15,000       12,000
                                                            ---------    ---------
       Net cash provided by financing activities               91,742       74,114
                                                            ---------    ---------

Net change in cash and cash equivalents                        21,035       (4,779)

Cash and cash equivalents at beginning of period               17,330       22,109
                                                            ---------    ---------

Cash and cash equivalents at end of period                  $  38,365    $  17,330
                                                            =========    =========
</TABLE>

--------------------------------------------------------------------------------

                                   (Continued)

                                       23
<PAGE>
                               ASB HOLDING COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years Ended September 30, 2003 and 2002
                              (Tables in thousands)

--------------------------------------------------------------------------------

                                                                 2003      2002
                                                                 ----      ----

Supplemental cash flow information:
    Cash paid during the period for
       Interest                                                $ 8,839   $ 8,790
       Income taxes, net of refunds                              1,049     1,031

Supplemental disclosures of noncash investing transactions:
    Conversion of loans to other real estate owned             $    60   $    --



















--------------------------------------------------------------------------------

          See accompanying notes to consolidated financial statements.

                                       24


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 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  and all of the  outstanding  stock of ASB  Holding  Company  is held by
American Savings MHC.

The  consolidated  financial  statements  include  ASB  Holding  Company and its
wholly-owned  subsidiaries,  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.

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 no 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
                                       25

<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 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 not 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.  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.

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.

--------------------------------------------------------------------------------

                                    Continued

                                       26

<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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

--------------------------------------------------------------------------------

                                    Continued

                                       27

<PAGE>
                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

servicing  rights totaled $70,289 and $11,122 at September 30, 2003 and 2002 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.

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.
The weighted  average  common  shares  outstanding  were 100 for the years ended
September 30, 2003 and 2002. There were no potentially  dilutive  securities for
the years ended September 30, 2003 and 2002.

As  described  in Note 2, on October 3, 2003,  the Company  completed a minority
stock  offering in which a total of 5,554,500  common shares were issued,  which
would have changed  materially  the number of common shares  outstanding if this
had occurred before the end of the period.

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.

New  Accounting  Pronouncements:  On October 1, 2002,  the Financial  Accounting
-------------------------------
Standards  Board issued  Statement of Financial  Accounting  Standards  No. 147,
"Acquisitions  of  Certain  Financial   Institutions."  Statement  No.  147  was
effective  October  1,  2002,  and  may be  early  applied.  Statement  No.  147
supersedes  Statement No. 72, "Accounting for Certain Acquisitions of Banking or
Thrift Institutions."  Statement No. 147 provides guidance on the accounting for
the acquisition of a financial institution, and applies to all such acquisitions
except those between two or more mutual  enterprises.  Adoption of Statement No.
147 on  October  1,  2002  did  not  have a  material  effect  on the  Company's
consolidated  financial position or results of operations as the Company had not
previously acquired any financial institution branches.

On December 31, 2002, the Financial  Accounting Standards Board issued Statement
of  Financial   Accounting  Standards  No.  148,  "Accounting  for  Stock  Based
Compensation  - Transition and  Disclosure."  Statement No. 148 is effective for
the 2002 annual  financial  statements as well as interim  financial  statements
starting in the first quarter of 2003. Statement No. 148 requires more prominent
disclosure  of how an entity's  accounting  policy for stock based  compensation
affects net income,  including  moving the pro-forma  table of the effect of not
following  FAS  123

--------------------------------------------------------------------------------

                                    Continued

                                       28

<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------


NOTE  1  -  SUMMARY  OF  SIGNIFICANT   ACCOUNTING  POLICIES

to Note 1, Summary of Significant  Accounting  Policies.  Statement No. 148 also
provides  additional  choices on how to adopt FAS 123. The adoption of Statement
No. 148 did not have any impact on the Company's  financial condition or results
of operations.

In April 2003,  the Financial  Accounting  Standards  Board issued  Statement of
Financial   Accounting  Standards  No.  149,  "Amendment  of  Statement  133  on
Derivative  Instruments and Hedging Activities."  Statement No. 149 is effective
for contracts  entered into or modified after June 30, 2003,  except for hedging
activities  designated  after June 30,  2003 and  Statement  133  Implementation
Issues that have been effective for fiscal quarters that began prior to June 15,
2003.  Statement No. 149 amends and clarifies financial accounting and reporting
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under Financial  Accounting Standards
Board No. 133,  "Accounting for Derivative  Instruments and Hedging Activities."
Adoption  of  Statement  No.  149 in April  2003 did not have any  impact on the
Company's financial condition or results of operations.

On May 31, 2003, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards  No. 150,  "Accounting  for  Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity." Statement No.
150 is effective for financial  instruments  entered into or modified  after May
31, 2003,  and  otherwise is  effective  at the  beginning of the first  interim
period  beginning  after  June  15,  2003,  except  for  mandatorily  redeemable
financial instruments of nonpublic entities.  Statement No. 150 requires that an
issuer  classify  components of financial  instruments  as liabilities or equity
based upon the particular  characteristics of such components.  If an instrument
contains both liability and equity components,  the separate components would be
reported in the balance sheet as a liability or equity,  as  applicable,  rather
than presenting those components on a aggregate basis entirely as a liability or
entirely as equity. Adoption of Statement No. 150 did not have any impact on the
Company's financial condition or results of operations.

In December 2002, the Financial Accounting Standards Board issued Interpretation
No.  45 (FIN  45),  "Guarantor's  Accounting  and  Disclosure  Requirements  for
Guarantees,  Including Indirect Guarantees of Indebtedness of Others." FIN 45 is
effective on a prospective basis to guarantees issued or modified after December
31, 2002.  FIN 45 requires a guarantor  to make  additional  disclosures  in its
interim and annual financial statements  regarding the guarantor's  obligations.
FIN 45 also requires,  under certain circumstances,  that a guarantor recognize,
at the  inception  of the  guarantee,  a  liability  for the  fair  value of the
obligation undertaken when issuing the guarantee. The adoption of FIN 45 did not
have any impact on the Company's financial condition or results of operation.

--------------------------------------------------------------------------------

                                    Continued

                                       29

<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In  January  2003,  FASB  issued FIN 46,  "Consolidation  of  Variable  Interest
Entities." FIN 46 requires a company to consolidate a variable  interest  entity
("VIE") if the company  has  variable  interests  that give it a majority of the
expected  losses or a majority of the expected  residual  returns of the entity.
FIN 46 is effective  immediately  for VIEs created after  January 31, 2003.  For
VIEs created  prior to February 1, 2003,  FIN 46 will apply in the first interim
period or fiscal year beginning after December 15, 2003. Management believes the
implementation  of FIN 46 will  not  have a  material  impact  on the  Company's
financial statements.

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.


NOTE  2- SUBSEQUENT EVENT

On February 10, 2003,  the Board of Directors of the Bank adopted a plan to form
ASB Holding  Company,  a new mid-tier  holding  company  subsidiary  of American
Savings,  MHC (the MHC), with the concurrent sale of the Company's  common stock
in an amount  equal to 30% of the pro forma  market value of the Company and the
Bank after giving effect to the offering.

On October 3, 2003,  the Company completed a minority  stock  offering and sold
1,666,350  shares of common  stock at $10 per share  and  received  proceeds  of
$14,727,000 net of conversion expenses of $603,000 and unfunded ESOP proceeds of
$1,333,000.  The Company contributed  $9,616,000 or approximately 65% of the net
proceeds to the Bank in the form of a capital contribution.

Accordingly, the MHC holds 70%, or 3,888,150 shares, of the outstanding stock of
the Company,  with the remaining 30% held by the public.  The Company holds 100%
of the Bank.  The Bank may not pay  dividends  to the  Company if the  dividends
would cause the Bank to fall below the "well capitalized" capital threshold.

Offering  costs were  deferred and deducted from the proceeds of the shares sold
in the stock  offering.  At September 30, 2003,  $408,311 of costs were deferred
and included in other assets on the balance sheet.

The  Company  also 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  gross

--------------------------------------------------------------------------------

                                    Continued

                                       30

<PAGE>
                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------

proceeds  of  $15,330,000  became  capital  of the  Company  with the  remainder
returned on oversubscriptions.


NOTE 3 - SECURITIES

The fair value of securities available-for-sale were as follows:

                                                    Gross         Gross
                                        Fair     Unrealized    Unrealized
                                        Value       Gains        Losses
                                        -----       -----        ------
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)
                                      ========    ========     ========

                                                    Gross         Gross
                                        Fair     Unrealized    Unrealized
                                        Value       Gains        Losses
                                        -----       -----        ------
2002
----

Mortgage-backed
    FHLMC                              $   885     $     4      $    --
    FNMA                                 2,213          35           (2)
    GNMA                                   513           6           --
Collateralized mortgage obligations
    Agency                              57,346         571          (14)
    Non-agency                          19,177         291           (7)
Mutual fund                             10,000          --           --
                                       -------     -------      -------

                                       $90,134     $   907      $   (23)
                                       =======     =======      =======

--------------------------------------------------------------------------------

                                    Continued

                                       31


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------


NOTE 3 - SECURITIES (Continued)

The amortized cost and fair value of securities held-to-maturity were as
follows:

<TABLE>
<CAPTION>
                                                       Gross         Gross
                                      Amortized     Unrealized    Unrealized      Fair
                                        Cost           Gains        Losses        Value
                                        ----           -----        ------        -----
2003
----
<S>                                 <C>            <C>           <C>          <C>
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
                                      =======        =======       =======      =======

2002
----
Mortgage-backed
    FHLMC                             $   986        $     8       $    --      $   994
    FNMA                                2,197             14            (2)       2,209
    GNMA                                  711             16            --          727
Collateralized mortgage obligations
    Agency                              3,076             26            (9)       3,093
                                      -------        -------       -------      -------

                                      $ 6,970        $    64       $   (11)     $ 7,023
                                      =======        =======       =======      =======
</TABLE>

Proceeds from sales of securities  amounted to $21,026,000 during the year ended
September 30, 2003  resulting in gross gains of $0 and gross losses of $188,000.
There were no securities sales during the year ended September 30, 2002.

The fair  value  of debt  securities  and  carrying  amount,  if  different,  at
September 30, 2003 by contractual  maturity were as follows.  Securities not due
at a single  maturity  date,  primarily  mortgage-backed  securities,  are shown
separately.





--------------------------------------------------------------------------------

                                    Continued

                                       32


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------


NOTE 3 - SECURITIES (Continued)

                                                               Available
                                      Held-to-Maturity         for Sale
                                  Carrying        Fair           Fair
                                   Amount         Value          Value
                                   ------         -----          -----

    Due from one to five years   $     --       $     --       $ 13,484
    Mortgage-backed                 2,839          2,864         83,977
    Mutual fund                        --             --          9,930
                                 --------       --------       --------

         Total                   $  2,839       $  2,864       $107,391
                                 ========       ========       ========

Securities  with carrying  values of $4,481,971  and $2,665,410 at September 30,
2003 and 2002, respectively, were pledged to secure public deposits and advances
as required or permitted by law.

NOTE 4 - LOANS

Loans at period-end were as follows:
                                         2003         2002
                                         ----         ----
   Mortgage loans:
       One-to-four-family            $ 215,484    $ 167,564
       Multi-family and commercial      36,202       29,503
       Construction                      1,233        4,875
   Consumer                                780          795
   Home equity                           8,893        6,904
   Commercial                            1,610        2,298
                                     ---------    ---------
       Total loans                     264,202      211,939

   Allowance for loan losses            (1,371)      (1,117)
   Net deferred loan costs                 796          673
   Loans in process                       (783)      (3,121)
                                     ---------    ---------

    Loans, net                       $ 262,844    $ 208,374
                                     =========    =========


--------------------------------------------------------------------------------

                                    Continued

                                       33


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 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 in the ordinary course of business is as follows:

<TABLE>
<CAPTION>
                                                                 2003            2002
                                                                 ----            ----

<S>                                                         <C>            <C>
     Beginning balance                                        $       520    $       285
         New loans                                                    624            307
         Effect of changes in related parties                         265              -
         Repayments                                                  (267)           (72)
                                                              -----------    -----------

     Ending balance                                           $     1,142    $       520
                                                              ===========    ===========
</TABLE>

Activity in the allowance for loan losses was as follows:

<TABLE>
<CAPTION>
                                                                 2003            2002
                                                                 ----            ----

<S>                                                         <C>            <C>
     Balance at beginning of year                             $     1,117    $     1,009
     Provision charged to income                                      254            105
     Charge-offs                                                        -             (1)
     Recoveries                                                         -              4
                                                              -----------    -----------

         Balance at end of year                               $     1,371    $     1,117
                                                              ===========    ===========
</TABLE>

Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
financial  statements.  At  September  30, 2003 and 2002,  the unpaid  principal
balances of these loans totaled $16,103,798 and $14,817,842, respectively.




--------------------------------------------------------------------------------

                                    Continued

                                       34


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------


NOTE 4 - LOANS (Continued)

Impaired loans were as follows:

                                                             2003        2002
                                                             ----        ----

     Period-end loans with no allocated allowance
       for loan losses                                      $   294    $   528
     Period-end loans with allocated allowance
       for loan losses                                          250        175
                                                            -------    -------

         Total                                              $   544    $   703
                                                            =======    =======

     Amount of the allowance for loan losses allocated      $   125    $    88
     Average of impaired loans during the period                623        695
     Interest income recognized during impairment                18         26
     Cash-basis interest income recognized                       18         26

Nonperforming loans were as follows:

                                                             2003        2002
                                                             ----        ----

     Loans past due over 90 days still on accrual           $    --    $    --
     Nonaccrual loans                                           517        570

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:

                                                             2003        2002
                                                             ----        ----

     Securities                                             $   352    $   400
     Loans receivable                                           903        913
                                                            -------    -------

                                                            $ 1,255    $ 1,313
                                                            =======    =======
--------------------------------------------------------------------------------

                                    Continued

                                       35


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------


NOTE 6 - PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

                                        2003        2002
                                        ----        ----

Land                                   $  840      $  840
Office buildings and improvements       3,248       3,077
Furniture and equipment                 3,305       2,952
                                       ------      ------
                                        7,393       6,869
Less accumulated depreciation           3,454       3,083
                                       ------      ------

    Total                              $3,939      $3,786
                                       ======      ======


NOTE 7 - DEPOSITS

Deposit accounts are summarized as follows:

                                        2003        2002
                                        ----        ----

Demand deposits                      $ 21,676    $ 16,816
NOW and money market accounts          21,721      27,733
Savings accounts                      127,720     101,433
Certificates of deposit               121,709     118,605
                                     --------    --------

    Total deposits                   $292,826    $264,587
                                     ========    ========

Certificates of deposit accounts with balances over $100,000 totaled $27,756,666
and $25,566,318 at September 30, 2003 and 2002, respectively.  All other deposit
accounts with balances over $100,000  totaled  $70,174,744  and  $54,000,447  at
September 30, 2003 and 2002,  respectively.  Deposit  balances over $100,000 are
not federally insured.




--------------------------------------------------------------------------------

                                    Continued

                                       36


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------


NOTE 7 - DEPOSITS (Continued)

Scheduled maturities of certificates of deposit were as follows:

                  2004                                      $   87,624
                  2005                                          13,541
                  2006                                           2,534
                  2007                                          10,878
                  2008 and thereafter                            7,132
                                                            ----------

                                                            $  121,709
                                                            ==========


NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES

The Bank has  multiple  advances  with the  Federal  Home Loan Bank  (FHLB) with
maturities  through 2013 and rates  ranging from 2.80% to 6.94% at September 30,
2003.  One $2.0  million  advance  with a coupon of 5.797%  maturing  in 2008 is
callable in 2005. The remaining $53.0 million of FHLB advances are non-callable.
Scheduled repayments and maturities of fixed rate advances from the Federal Home
Loan Bank are as follows:

                                   Weighted
                                 Average Rate
                                     2003              2003       2002
                                     ----              ----       ----

     Maturing in 2003                  --%         $     --       4,000
     Maturing in 2004                5.52             4,000       4,000
     Maturing in 2005                6.24             2,000       2,000
     Maturing in 2006                4.11             9,000       4,000
     Maturing in 2007                5.52             4,000       4,000
     Maturing in 2008                5.51            12,000      11,000
     Maturing in 2009                4.96             6,000       4,000
     Maturing in 2010                5.15             6,000       4,000
     Maturing in 2011                5.18             6,000       4,000
     Maturing in 2012                5.22             5,000       3,000
     Maturing in 2013                4.79             1,000          --
                                                   --------    --------

                                     5.13          $ 55,000    $ 44,000
                                                   ========    ========



--------------------------------------------------------------------------------

                                    Continued

                                       37


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------


NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES (Continued)

At  September  30,  2003  and  2002,  the  advances  are  secured  primarily  by
mortgage-backed  securities,  mortgage loans,  and all stock in the Federal Home
Loan  Bank  under a  blanket  collateral  agreement  for the  amount of the note
outstanding. At September 30, 2003, the Bank's borrowing limit with the FHLB was
approximately $106.8 million.


NOTE 9 - INCOME TAXES

An analysis of the provision for income taxes is as follows:

                                           2003             2002
                                           ----             ----

Current                                  $   663          $ 1,201
Deferred                                     142             (126)
                                         -------          -------

                                         $   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:

                                           2003            2002
                                           ----            ----

Federal income
  tax expense at statutory rate          $   751          $ 1,008
Increase in taxes resulting from
    State income taxes, net of
      federal benefit                        120              154
    Tax-exempt income from
      life insurance                         (77)             (35)
    Other, net                                11               12
    Deferred tax adjustment -
      state tax rate change                   --              (64)
                                         -------          -------

         Income tax expense              $   805          $ 1,075
                                         =======          =======




--------------------------------------------------------------------------------

                                    Continued

                                       38


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 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:

                                                               2003        2002
                                                               ----        ----

Deferred tax assets
    Unrealized loss on securities available-for-sale         $  269          --
    Provision for loan losses                                   527         438
    Deferred loan origination fees                                9          13
    Accrued expenses and other liabilities                      620         529
                                                             ------      ------
         Total gross deferred tax assets                      1,425         980

Deferred tax liabilities
    Depreciation                                                148         116
    Deferred loan origination costs                             535         397
    Unrealized gain on securities available-for-sale             --         353
    Other                                                       182          34
                                                             ------      ------
         Total gross deferred tax liabilities                   865         900
                                                             ------      ------

             Net deferred tax asset                          $  560      $   80
                                                             ======      ======

Effective  for the Bank on January 1, 2002,  the State of New Jersey  enacted an
income tax rate  change for savings  institutions  from 3% to 9%. This change in
tax rate has been reflected in the current period and the deferred inventory has
been adjusted accordingly.

Retained  earnings   includes   allocations  for  federal  income  tax  purposes
representing  tax  bad  debt  deductions  of  approximately  $1,500,000  through
September 30, 2003 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 years ended September 30, 2003 and 2002, the Bank
accrued   expenses   related  to  the  plan  totaling   $124,404  and  $185,613,
respectively.

--------------------------------------------------------------------------------

                                    Continued

                                       39


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 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 $242,450 and $205,477 for the years ended September 30, 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 years ended September 30, 2003 and 2002, Bank expenses related to the
plan  totaled  $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 Parent,  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 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Bank is party to financial  instruments with  off-balance-sheet  risk in the
normal course of business to meet the financing  needs of its  customers.  These
financial  instruments include commitments to fund loans and previously approved
unused  lines of credit.  The  Bank's  exposure  to credit  loss in the event of
nonperformance  by the parties to these financial  instruments is represented by
the contractual amount of the instruments.  The Bank uses the same credit policy
for commitments as it uses for on-balance-sheet items.



--------------------------------------------------------------------------------

                                    Continued

                                       40


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------



NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (Continued)

The contract amount of these financial instruments is summarized as follows:

                                                 2003        2002
                                                 ----        ----

     Commitments to extend credit              $ 11,590    $ 17,829
     Unused lines of credit                      10,286       9,357
     Construction loans in process                  783       3,121

Fixed rate loan  commitments  totaled  $3,827,000 at September 30, 2003 and have
interest rates ranging from 5.125% to 6.500%.

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 12 - REGULATORY CAPITAL REQUIREMENTS

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

                                       41


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------



NOTE 12 - REGULATORY CAPITAL REQUIREMENTS (Continued)

The Bank's actual and required capital amounts and ratios are presented below.

<TABLE>
<CAPTION>
                                                                                                 To Be Well
                                                                        For Capital           Capitalized Under
                                                                         Adequacy             Prompt Corrective
                                                  Actual                 Purposes                  Action
                                           --------------------    --------------------    --------------------
                                              Amount      Ratio       Amount      Ratio     Amount        Ratio
                                              ------      -----       ------      -----     ------        -----

<S>                                        <C>           <C>       <C>           <C>      <C>             <C>
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 September 30, 2002:
    Total capital (to risk-weighted
      assets)                                $22,440       13.9%     $12,946       8.0%     $16,182         10.0%
    Tier I capital (to risk-weighted
      assets)                                 21,341       13.2        6,473       4.0        9,709          6.0
    Tier I (core) capital (to adjusted
      total assets)                           21,341        6.4       13,374       4.0       16,717          5.0

</TABLE>

As of September 30, 2003, 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 (in thousands):

                                                         2003            2002
                                                         ----            ----
GAAP equity                                         $    22,239    $    21,872
Accumulated other comprehensive (income) loss               405           (531)
                                                    -----------    -----------
    Tier I capital                                       22,644         21,341
General regulatory allowance for loan losses              1,371          1,099
                                                    -----------    -----------

    Total capital                                   $    24,015    $    22,440
                                                    ===========    ===========

--------------------------------------------------------------------------------

                                    Continued

                                       42


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------


NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying  amount and estimated fair value of financial  instruments  were as
follows:

<TABLE>
<CAPTION>
                                                 2003                      2002
                                                 ----                      ----
                                                     Estimated                 Estimated
                                         Carrying       Fair       Carrying      Fair
                                          Amount        Value       Amount       Value
                                          ------        -----       ------       -----
<S>                                    <C>         <C>           <C>         <C>
Financial assets
    Cash and cash
      equivalents                        $ 38,365    $ 38,365      $ 17,330    $ 17,330
    Securities available-
      for-sale                            107,391     107,391        90,134
                                                                                 90,134
    Securities held-to-
      maturity                              2,839       2,864         6,970       7,023
    Loans receivable, net                 262,844     266,169       208,374     213,920
    Loans held for sale                       500         500            --          --
    Federal Home Loan
      Bank stock                            3,150       3,150         2,200       2,200
    Accrued interest
      receivable                            1,255       1,255         1,313       1,313

Financial liabilities
    Deposits                             $292,826    $294,690      $264,587    $266,408
    Stock subscriptions received           52,137      52,137            --          --
    Advance payments
      by borrowers for
      taxes and insurance                   2,079       2,079         1,713       1,713
    Federal Home Loan
      Bank advances                        55,000      59,490        44,000      47,870
    Accrued interest
      payable                                 260         260           229         229
</TABLE>


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-

--------------------------------------------------------------------------------

                                    Continued

                                       43


<PAGE>

                               ASB HOLDING COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           September 30, 2003 and 2002
                              (Tables in Thousands)

--------------------------------------------------------------------------------

NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

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 14 - OTHER COMPREHENSIVE LOSS

Other comprehensive loss components and related taxes were as follows.

                                                       2003        2002
                                                       ----        ----

     Unrealized holding losses on
       available-for-sale securities                $  (1,746)   $  (215)
     Reclassification adjustments for losses
       later recognized in income                         188          -
                                                    ---------    -------
     Net unrealized gains and losses                   (1,558)      (215)
     Tax effect                                           622         42
                                                    ---------    -------

Other comprehensive loss                            $    (936)   $  (173)
                                                    =========    =======


NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)

                      Interest   Net Interest    Net       Earnings per Share
                       Income      Income       Income   Basic and Fully Diluted
                       ------      ------       ------   -----------------------
2003
    First quarter     $ 4,437     $ 2,184       $ 364          $ 3,641.37
    Second quarter      4,405       2,154         269            2,688.79
    Third quarter       4,413       2,227         500            4,995.04
    Fourth quarter      4,220       2,042         270            2,701.89

2002
    First quarter     $ 4,236     $ 1,858       $ 282          $ 2,815.53
    Second quarter      4,384       2,250         539            5,390.71
    Third quarter       4,443       2,313         563            5,635.06
    Fourth quarter      4,515       2,328         506            5,058.12






--------------------------------------------------------------------------------


                                       44
<PAGE>

                             DIRECTORS AND OFFICERS

<TABLE>
<CAPTION>

Directors of ASB Holding
Company and American           Officers of                    Officers of
Savings Bank of NJ             ASB Holding Company            American Savings Bank of NJ
------------------             -------------------            ---------------------------

<S>                          <C>                            <C>
Joseph Kliminski               Joseph Kliminski               Joseph Kliminski
President and Chief            President and Chief            President and Chief
Executive Officer              Executive Officer              Executive Officer

W. George Parker               Richard M. Bzdek               Richard M. Bzdek
Chairman of the Board          Executive Vice President,      Executive Vice President,
President and Chief            Chief Operating Officer        Chief Operating Officer
Executive Officer of           and Secretary                  and Secretary
Adco Chemical Company
                               Eric B. Heyer                  Eric B. Heyer
James H. Ward III              Sr. Vice President,            Sr. Vice President,
Vice Chairman,                 Treasurer and Chief            Treasurer and Chief
Retired Investor               Financial Officer              Financial Officer

Robert A. Gaccione                                            Catherine Bringuier
Partner of the law firm                                       Sr. Vice President and
Gaccione, Pomaco                                              Chief Lending Officer
& Malanga P.C.
                                                              Robert J. Pavics
H. Joseph North                                               Vice President Internal
Retired Town Administrator                                    Auditor
of Bloomfield, NJ
                                                              Josephine Castaldo
Stanley Obal                                                  Vice President Branch
Retired owner of Obal's                                       Administrations
Inn tavern and restaurant
                                                              John Scognamiglio
Vincent S. Rospond                                            Vice President Controller
Attorney and majority
stockholder of the law firm
Rospond, Rospond & Conte,
P.A.

</TABLE>







                                       45


<PAGE>



                       INVESTOR AND CORPORATE INFORMATION

Annual Meeting

The annual  meeting of  stockholders  will be held at 4:00 p.m.,  on January 20,
2004  at the  Oakeside-Bloomfield  Cultural  Center  located  at 240  Belleville
Avenue, Bloomfield, New Jersey.

Stock Listing

ASB Holding  Company  common stock is listed on the OTC Bulletin Board under the
symbol "ASBH."

At November 28, 2003 there were 5,554,500  shares of ASB Holding  Company common
stock  outstanding  (including  unallocated  ESOP  shares)  and  there  were 634
registered holders of record.

Stockholder and General Inquiries          Transfer Agent


ASB Holding Company                        Registrar and Transfer Company
365 Broad Street                           10 Commerce Drive
Bloomfield, New Jersey 07003               Cranford, New Jersey 07016
(973) 748-3600                             (800) 525-7686
Attention: Eric B. Heyer
Investor Relations

Annual Reports

A copy of the ASB  Holding  Company's  Annual  Report  on  Form  10-KSB  without
exhibits for the year ended September 30, 2003, as filed with the Securities and
Exchange Commission, may be obtained without charge by contacting Eric B. Heyer,
Investor  Relations,  ASB Holding  Company,  365 Broad Street,  Bloomfield,  New
Jersey, 07003.













                                       46
<PAGE>

                                OFFICE LOCATIONS

Main Office
-----------
     365 Broad Street
     Bloomfield, New Jersey  07003
     (973) 748-3600

              Main Office Drive Up Facility
              16 Pitt Street
              Bloomfield, New Jersey 07003

Cedar Grove Branch
------------------
     310 Pompton Avenue
     Cedar Grove, New Jersey 07009
     (973) 239-6450


































                                       47