FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 0-25906
ASB FINANCIAL CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1429488
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
503 Chillicothe Street
Portsmouth, Ohio 45662
- ---------------------- ----------
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (614) 354-3177
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
As of November 8, 1996, the latest practicable date, 1,713,960 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 13 pages
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INDEX
Page
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PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II - OTHER INFORMATION 12
SIGNATURES 13
2
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<TABLE>
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, June 30,
ASSETS 1996 1996
------------- --------
<S> <C> <C>
Cash and due from banks $ 963 $ 411
Interest-bearing deposits in other financial institutions 3,504 3,425
--------- ---------
Cash and cash equivalents 4,467 3,836
Certificates of deposit in other financial institutions 6,205 6,702
Investment securities available for sale - at market 19,784 19,284
Mortgage-backed securities available for sale - at market 10,283 10,728
Loans receivable - net 69,610 68,455
Office premises and equipment - at depreciated cost 919 940
Real estate acquired through foreclosure - net 663 663
Federal Home Loan Bank stock - at cost 679 667
Accrued interest receivable on loans 94 120
Accrued interest receivable on mortgage-backed securities 94 110
Accrued interest receivable on investments and interest-
bearing deposits 475 479
Prepaid expenses and other assets 520 586
Prepaid federal income taxes 212 --
Deferred federal income taxes 293 352
--------- ---------
Total assets $ 114,298 $ 112,922
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 83,903 $ 83,395
Advances from the Federal Home Loan Bank 2,406 2,413
Advances by borrowers for taxes and insurance 93 162
Accrued interest payable 655 115
Other liabilities 1,888 1,219
Accrued federal income taxes -- 5
--------- ---------
Total liabilities 88,945 87,309
SHAREHOLDERS' EQUITY
Preferred stock, 1,000,000 shares authorized, no par
value; no shares issued -- --
Common stock, 4,000,000 shares authorized, no par
value; 1,713,960 shares issued and outstanding at
September 30, 1996 and June 30, 1996 -- --
Additional paid-in capital 16,496 16,496
Retained earnings 10,824 11,173
Shares acquired by stock benefit plans (2,180) (2,180)
Unrealized gain on securities designated as available for sale,
net of related tax effects 213 124
--------- ---------
Total shareholders' equity 25,353 25,613
--------- ---------
Total liabilities and shareholders' equity $ 114,298 $ 112,922
========= =========
3
</TABLE>
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<TABLE>
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended September 30,
(In thousands, except share data)
1996 1995
------- ------
<S> <C> <C>
Interest income
Loans $ 1,434 $1,349
Mortgage-backed securities 187 169
Investment securities 348 411
Interest-bearing deposits and other 96 97
------- ------
Total interest income 2,065 2,026
Interest expense
Deposits 1,111 1,056
Borrowings 32 5
------- ------
Total interest expense 1,143 1,061
------- ------
Net interest income 922 965
Provision for losses on loans 22 --
------- ------
Net interest income after provision for losses on loans 900 965
Other income 52 42
General, administrative and other expense
Employee compensation and benefits 338 303
Occupancy and equipment 28 29
Federal deposit insurance premiums 599 48
Franchise taxes 70 34
Other operating 184 145
------- ------
Total general, administrative and other expense 1,219 559
------- ------
Earnings (loss) before income taxes (credits) (267) 448
Federal income taxes (credits)
Current (104) 141
Deferred 13 9
------- ------
Total federal income taxes (credits) (91) 150
------- ------
NET EARNINGS (LOSS) $ (176) $ 298
======= ======
EARNINGS (LOSS) PER SHARE $ (.11) $ .19
======= ======
</TABLE>
4
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<TABLE>
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30,
(In thousands)
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) for the period $ (176) $ 298
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Amortization of discounts and premiums on loans,
investments and mortgage-backed securities - net (7) 34
Amortization of deferred loan origination fees (13) (14)
Depreciation and amortization 28 20
Provision for losses on loans 22 --
Federal Home Loan Bank stock dividends (12) (11)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 46 (128)
Prepaid expenses and other assets 66 20
Accrued interest payable 540 487
Other liabilities 669 28
Federal income taxes
Current (217) 119
Deferred 13 9
------- -------
Net cash provided by operating activities 959 862
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 1,480 1,333
Purchase of investment securities designated as available for sale (1,850) (996)
Purchase of investment securities designated as held to maturity -- (749)
Purchase of mortgage-backed securities designated as held to maturity -- (1,280)
Principal repayments on mortgage-backed securities 457 585
Loan principal repayments 3,816 3,847
Loan disbursements (4,980) (4,086)
Purchase of office premises and equipment (7) (12)
Decrease in certificates of deposit in other financial
institutions - net 497 1,232
------- -------
Net cash used in investing activities (587) (126)
------- -------
Net cash provided by operating and investing
activities (subtotal carried forward) 372 736
------- -------
</TABLE>
5
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ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended September 30,
(In thousands)
1996 1995
------ ------
<S> <C> <C>
Net cash provided by operating and investing
activities (subtotal brought forward) $ 372 $ 736
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 508 1,205
Repayment of Federal Home Loan Bank advances (7) (8)
Advances by borrowers for taxes and insurance (69) (67)
Dividends paid on common shares (173) (127)
------- -------
Net cash provided by financing activities 259 1,003
Net increase in cash and cash equivalents 631 1,739
Cash and cash equivalents at beginning of period 3,836 5,926
------- -------
Cash and cash equivalents at end of period $ 4,467 $ 7,665
======= =======
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Federal income taxes $ 155 $ 30
======= =======
Interest on deposits and borrowings $ 603 $ 574
======= =======
Supplemental disclosure of noncash investing activities:
Unrealized gain on securities designated as available for
sale, net of related tax effects $ 89 $ 300
======= =======
</TABLE>
6
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ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 1996 and 1995
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of consolidated
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. Accordingly, these financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto of ASB Financial Corp. (the "Corporation")
included in the 1996 Annual Report to Shareholders for the year ended June 30,
1996. However, in the opinion of management, all adjustments (consisting of
only normal recurring accruals) which are necessary for a fair presentation of
the financial statements have been included. The results of operations for the
three month period ended September 30, 1996 are not necessarily indicative of
the results which may be expected for the entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Corporation and American Savings Bank, fsb (the "Savings Bank"). All
significant intercompany items have been eliminated.
3. Earnings Per Share
Earnings per share for the three months ended September 30, 1996 and 1995 is
based upon the weighted-average shares outstanding during the period plus
those stock options that are dilutive, less shares in the ASB Financial Corp.
Employee Stock Ownership Plan (the "ESOP") that are unallocated and not
committed to be released. Weighted-average common shares deemed outstanding
totaled 1,602,200 and 1,587,000 for the three months ended September 30, 1996
and 1995, respectively. There is no dilutive effect associated with the
Corporation's stock option plan.
4. Effects of Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", establishing financial accounting and reporting
standards for stock-based employee compensation plans. SFAS No. 123 encourages
all entities to adopt a new method of accounting to measure compensation cost
of all employee stock compensation plans based on the estimated fair value of
the award at the date it is granted. Companies are, however, allowed to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting, which generally does not result in
compensation expense recognition for most plans. Companies that elect to
remain with the existing accounting are required to disclose in a footnote to
the financial statements pro forma net earnings and, if presented, earnings
per share, as if SFAS No. 123 had been adopted. The accounting requirements of
SFAS No. 123 are effective for transactions entered into during fiscal years
7
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ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended September 30, 1996 and 1995
4. Effects of Recent Accounting Pronouncements (continued)
that begin after December 15, 1995; however, companies are required to
disclose information for awards granted in their first fiscal year beginning
after December 15, 1994. Management has determined that the Corporation will
continue to account for stock-based compensation pursuant to Accounting
Principles Board Opinion No. 25, and therefore SFAS No. 123 will have no
effect on its consolidated financial condition or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets, Servicing Rights, and Extinguishment of Liabilities", that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces
an approach to accounting for transfers of financial assets that provides a
means of dealing with more complex transactions in which the seller disposes
of only a partial interest in the assets, retains rights or obligations, makes
use of special purpose entities in the transaction, or otherwise has
continuing involvement with the transferred assets. The new accounting method,
referred to as the financial components approach, provides that the carrying
amount of the financial assets transferred be allocated to components of the
transaction based on their relative fair values. SFAS No. 125 provides
criteria for determining whether control of assets has been relinquished and
whether a sale has occurred. If the transfer does not qualify as a sale, it is
accounted for as a secured borrowing. Transactions subject to the provisions
of SFAS No. 125 include, among others, transfers involving repurchase
agreements, securitizations of financial assets, loan participations,
factoring arrangements, and transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless
related to a securitization of assets, and all the securitized assets are
retained and classified as held-to-maturity). A servicing asset or liability
that is purchased or assumed is initially recognized at its fair value.
Servicing assets and liabilities are amortized in proportion to and over the
period of estimated net servicing income or net servicing loss and are subject
to subsequent assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet only
if the debtor either pays the creditor and is relieved of its obligation for
the liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management does not believe that adoption of SFAS No. 125 will have a material
adverse effect on the Corporation's consolidated financial position or results
of operations.
8
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ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from June 30, 1996 to
September 30, 1996
At September 30, 1996, the Corporation's assets totaled $114.3 million, an
increase of $1.4 million, or 1.2%, over the $112.9 million of total assets at
June 30, 1996. The increase in assets was attributable to growth in the
deposit portfolio of $508,000 and by a temporary increase in other
liabilities.
Liquid assets (i.e. cash, interest-bearing deposits, certificates of deposit
and investment securities) increased by $634,000 over the three month period,
to a total of $30.5 million at September 30, 1996. Regulatory liquidity
amounted to $13.1 million, or 16.7%, at September 30, 1996.
Loans receivable increased by $1.2 million, or 1.7%, during the three month
period, to a total of $69.6 million at September 30, 1996. Loan disbursements
amounted to $5.0 million and were partially offset by principal repayments of
$3.8 million.
The allowance for loan losses totaled $884,000 at September 30, 1996 and June
30, 1996. At both September 30, 1996 and June 30, 1996, the allowance for loan
losses represented 266.3% of nonperforming loans, which totaled $1.9 million
at both dates. Although management believes that its allowance for loan losses
at September 30, 1996, is adequate based upon facts and circumstances
available to it, there can be no assurance that additions to such allowance
will not be necessary in future periods, which could adversely affect the
Corporation's results of operations.
Deposits totaled $83.9 million at September 30, 1996, an increase of $508,000,
or 0.6%, over June 30, 1996 levels. Management continued its conservative
pricing strategy with respect to deposit accounts during the current interest
rate environment.
The Savings Bank is required to meet each of three minimum capital standards
promulgated by the Office of Thrift Supervision ("OTS"), hereinafter described
as the tangible capital requirement, the core capital requirement and the
risk-based capital requirement. The tangible capital requirement mandates
maintenance of shareholders' equity less all intangible assets equal to 1.5%
of adjusted total assets. The core capital requirement provides for the
maintenance of tangible capital plus certain forms of supervisory goodwill
equal to 3% of adjusted total assets, while the risk-based capital requirement
mandates maintenance of core capital plus general loan loss allowances equal
to 8% of risk-weighted assets as defined by OTS regulations.
At September 30, 1996, the Savings Bank's tangible and core capital totaled
$17.2 million, or 15.9% of adjusted total assets, which exceeded the minimum
requirements of $1.6 million and $3.3 million by $15.6 million and $13.9
million, respectively. The Savings Bank's risk-based capital of $17.8 million,
or 36.4% of risk-weighted assets, exceeded the current 8% requirement by $13.9
million.
9
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ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended
September 30, 1996 and 1995
General
The Corporation recorded a net loss totaling $176,000 for the three months
ended September 30, 1996, a decrease of $474,000, or 159.1%, from the $298,000
of net earnings reported for the same period in 1995. The decline in earnings
resulted primarily from a $551,000 charge recorded in the current quarter
reflecting the assessment to recapitalize the Savings Association Insurance
Fund ("SAIF"), coupled with a $109,000 increase in general, administrative and
other expense and a $43,000 decrease in net interest income, which were
partially offset by a $241,000 decrease in the provision for federal income
taxes.
Net Interest Income
Net interest income declined by $43,000, or 4.5%, for the three months ended
September 30, 1996, compared to the 1995 period. Interest income on loans
increased by $85,000, or 6.3%, due primarily to a $6.6 million increase in the
average balance of loans outstanding year to year. Interest income on
investment securities and interest-bearing deposits declined by $64,000, or
12.6%, due primarily to a decrease in the average portfolio yield during the
year. Interest expense on deposits increased by $55,000, or 5.2%, due to a
$2.8 million increase in the weighted-average deposit balance outstanding,
coupled with an increase in the cost of deposits year to year. Interest
expense on borrowings increased by $27,000 due to a $1.5 million increase in
borrowings outstanding.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management
based on historical experience, the volume and type of lending conducted by
the Savings Bank, the status of past due principal and interest payments,
general economic conditions, particularly as such conditions relate to the
Savings Bank's market area, and other factors related to the collectibility of
the Savings Bank's loan portfolio. As a result of such analysis, management
recorded a $22,000 provision for losses on loans during the three month period
ended September 30, 1996. There can be no assurance that the allowance for
loan losses of the Savings Bank will be adequate to absorb losses on known
nonperforming assets or that the allowance will be adequate to cover losses on
nonperforming assets in the future.
Other Income
Other income increased by $10,000, or 23.8%, for the three months ended
September 30, 1996, compared to the same period in 1995, due primarily an
increase in rental income on real estate acquired through foreclosure and an
increase in miscellaneous non-operating income.
10
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ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended
September 30, 1996 and 1995 (continued)
General, Administrative and Other Expense
General, administrative and other expense increased by $660,000, or 118.1%,
during the three months ended September 30, 1996, compared to the same period
in 1995. This increase resulted primarily from the $551,000 charge recorded in
1996 in connection with the SAIF recapitalization, coupled with a $35,000, or
11.6%, increase in employee compensation and benefits, a $36,000, or 105.9%,
increase in franchise taxes and a $39,000, or 26.9%, increase in other
operating expenses. The increase in employee compensation generally reflects
normal merit increases and increased costs attendant to the Corporation's
stock benefit plans implemented in conjunction with the mutual-to-stock
conversion of the Savings Bank.
Legislation to recapitalize the SAIF provides for a special assessment of
$.657 per $100 of SAIF deposits held at March 31, 1995, in order to increase
SAIF reserves to the level required by law. The Savings Bank had $83.9 million
in SAIF deposits at March 31, 1995, resulting in an assessment of
approximately $551,000, or $364,000 after tax, which was recorded as a charge
in the quarter ended September 30, 1996, and will be paid in November 1996. In
connection with the recapitalization, it is anticipated that the FDIC will
refund a portion of the premium for the calendar fourth quarter equal to
approximately five basis points of SAIF insured deposits.
The legislation also provides for reduced premium rates for healthy savings
associations beginning in 1997, estimated to be a rate of $.064 per $100 of
SAIF insured deposits.
A component of the recapitalization plan provides for the merger of the SAIF
and BIF on January 1, 1999, assuming all savings associations have become
banks. Pending legislation introduced in late September 1996 proposes the
elimination of the thrift charter or of the separate federal regulation of
thrifts. As a result, the Savings Bank would be regulated as a bank under
federal laws which would subject it to the more restrictive activity limits
imposed on national banks. Under separate legislation recently enacted into
law, the Savings Bank is required to recapture as taxable income approximately
$780,000 of its bad debt reserve, which represents the post-1987 additions to
the reserve, and will be unable to utilize the percentage of earnings method
to compute its reserve in the future. The Savings Bank has provided deferred
taxes for this amount and will be permitted by such legislation to amortize
the recapture of its bad debt reserve over six years.
Federal Income Taxes
The provision for federal income taxes declined by $241,000, or 160.7%, for
the three months ended September 30, 1996, as compared to the same period in
1995. This decrease resulted primarily from the decline in net earnings before
taxes of $713,000, or 159.2%. The effective tax rates were 34.1% and 33.5% for
the three months ended September 30, 1996 and 1995, respectively.
11
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ASB Financial Corp.
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
On October 23, 1996, the Corporation held its Annual Meeting of
Shareholders. In connection therewith, two matters were submitted to
the shareholders for a vote. First, shareholders elected three
directors by the following votes:
Victor W. Morgan:
For: 1,346,046 Against: 4,500 Abstain: 5,050
Robert M. Smith:
For: 1,346,046 Against: 4,500 Abstain: 5,050
Louis M. Schoettle:
For: 1,346,046 Against: 4,500 Abstain: 5,050
The shareholders also ratified the selection of Grant Thornton LLP
as the Corporation's auditors for the 1997 fiscal year by the
following vote:
For: 1,337,696 Against: 7,800 Abstain: 5,050
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
Financial Data Schedule for three months ended September 30, 1996.
12
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ASB Financial Corp.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 8, 1996 By: Gerald R. Jenkins
________________________
Gerald R. Jenkins
President and Chief
Executive Officer
Date: November 8, 1996 By: Robert M. Smith
________________________
Robert M. Smith
Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 963
<INT-BEARING-DEPOSITS> 3504
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,067
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 69,610
<ALLOWANCE> 884
<TOTAL-ASSETS> 114,298
<DEPOSITS> 83,903
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2636
<LONG-TERM> 2406
0
0
<COMMON> 0
<OTHER-SE> 25,353
<TOTAL-LIABILITIES-AND-EQUITY> 114,298
<INTEREST-LOAN> 1434
<INTEREST-INVEST> 535
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<INTEREST-TOTAL> 2065
<INTEREST-DEPOSIT> 1111
<INTEREST-EXPENSE> 1143
<INTEREST-INCOME-NET> 922
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<EXPENSE-OTHER> 1219
<INCOME-PRETAX> (267)
<INCOME-PRE-EXTRAORDINARY> (176)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (176)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
<YIELD-ACTUAL> 7.53
<LOANS-NON> 1167
<LOANS-PAST> 332
<LOANS-TROUBLED> 0
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</TABLE>
