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 December 31, 1997
-------------------------------------------
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)
Issuers' 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 February 6, 1998, the latest practicable date, 1,635,646 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 16 pages
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INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 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 10
PART II - OTHER INFORMATION 15
SIGNATURES 16
2
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
December 31, June 30,
ASSETS 1997 1997
<S> <C> <C>
Cash and due from banks $ 415 $ 376
Interest-bearing deposits in other financial institutions 6,671 3,474
--------- ---------
Cash and cash equivalents 7,086 3,850
Certificates of deposit in other financial institutions 2,793 4,258
Investment securities available for sale - at market 15,922 18,660
Mortgage-backed securities available for sale - at market 7,316 8,560
Loans receivable - net 77,350 74,136
Office premises and equipment - at depreciated cost 908 944
Federal Home Loan Bank stock - at cost 700 675
Accrued interest receivable on loans 156 95
Accrued interest receivable on mortgage-backed securities - 78
Accrued interest receivable on investments and interest-
bearing deposits 326 356
Prepaid expenses and other assets 437 604
Prepaid federal income taxes 112 62
Deferred federal income taxes 70 191
----------- ----------
Total assets $113,176 $112,469
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 90,809 $ 89,752
Advances from the Federal Home Loan Bank 2,869 2,884
Other borrowed money 400 500
Advances by borrowers for taxes and insurance 156 169
Accrued interest payable 79 112
Other liabilities 1,362 1,351
--------- ---------
Total liabilities 95,675 94,768
Shareholders' equity
Preferred stock, 1,000,000 shares authorized, no par
value; no shares issued - -
Common stock, 4,000,000 shares authorized, no par
value; 1,721,412 shares issued - -
Additional paid-in capital 8,046 8,023
Retained earnings, restricted 11,352 11,187
Shares acquired by stock benefit plans (1,677) (1,921)
Less 68,214 shares of treasury stock - at cost (900) -
Unrealized gains on securities designated as available for sale,
net of related tax effects 680 412
---------- ----------
Total shareholders' equity 17,501 17,701
-------- --------
Total liabilities and shareholders' equity $113,176 $112,469
======= =======
</TABLE>
3
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
For the six months For the three months
ended December 31, ended December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income
Loans $3,161 $2,883 $1,593 $1,449
Mortgage-backed securities 294 356 142 169
Investment securities 717 789 342 441
Interest-bearing deposits and other 116 185 47 89
------ ------ ------- -------
Total interest income 4,288 4,213 2,124 2,148
Interest expense
Deposits 2,366 2,234 1,172 1,123
Borrowings 108 65 53 33
------ ------- ------- -------
Total interest expense 2,474 2,299 1,225 1,156
----- ----- ----- -----
Net interest income 1,814 1,914 899 992
Provision for (recoveries of) losses on loans (4) 22 (4) -
-------- ------- -------- ----
Net interest income after provision for
(recoveries of) losses on loans 1,818 1,892 903 992
Other income
Gain on sale of investment securities 4 105 4 105
Other operating 135 109 70 57
------ ------ ------- -------
Total other income 139 214 74 162
General, administrative and other expense
Employee compensation and benefits 654 698 320 360
Occupancy and equipment 60 59 31 31
Federal deposit insurance premiums 28 647 14 48
Franchise taxes 160 121 82 51
Data processing 96 86 47 43
Other operating 213 285 105 144
------ ------ ------ ------
Total general, administrative and other expense 1,211 1,896 599 677
----- ----- ------ ------
Earnings before income taxes 746 210 378 477
Federal income taxes
Current 263 94 127 198
Deferred (17) (21) (3) (34)
------- ------- -------- -------
Total federal income taxes 246 73 124 164
------ ------- ------ ------
NET EARNINGS $ 500 $ 137 $ 254 $ 313
====== ====== ====== ======
EARNINGS PER SHARE
Basic $.32 $.08 $.16 $.19
=== === === ===
Diluted $.31 $.08 $.16 $.19
=== === === ===
</TABLE>
4
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
(In thousands)
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 500 $ 137
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of discounts and premiums on loans,
investments and mortgage-backed securities - net 17 47
Amortization of deferred loan origination fees (33) (26)
Depreciation and amortization 38 41
Amortization of expense related to stock benefit plans 267 290
Provision for (recoveries of) losses on loans (4) 22
Gain on sale of investment securities (4) (105)
Federal Home Loan Bank stock dividends (25) (24)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 47 154
Prepaid expenses and other assets 167 183
Accrued interest payable (33) (17)
Other liabilities 11 5
Federal income taxes
Current (50) (263)
Deferred (17) (21)
--------- ---------
Net cash provided by operating activities 881 423
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 5,664 5,949
Purchase of investment securities (2,758) (3,207)
Proceeds from sale of investment securities 119 105
Principal repayments on mortgage-backed securities 1,354 1,145
Loan principal repayments 7,395 10,497
Loan disbursements (10,572) (11,065)
Purchase of office equipment (2) -
Decrease in certificates of deposit in other financial institutions - net 1,461 1,076
------- -------
Net cash provided by investing activities 2,661 4,500
------- -------
Net cash provided by operating and investing
activities (subtotal carried forward) 3,542 4,923
------- -------
</TABLE>
5
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended December 31,
(In thousands)
1997 1996
<S> <C> <C>
Net cash provided by operating and investing
activities (subtotal brought forward) $3,542 $4,923
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 1,057 4,011
Proceeds from Federal Home Loan Bank advances 1,000 -
Repayment of Federal Home Loan Bank advances (1,015) (14)
Proceeds from other borrowed money - 3,000
Repayment of other borrowed money (100) -
Advances by borrowers for taxes and insurance (13) (28)
Proceeds from exercise of stock options - 103
Purchase of treasury stock (900) -
Dividends paid on common stock (335) (8,951)
------ -----
Net cash used in financing activities (306) (1,879)
------ -----
Net increase in cash and cash equivalents 3,236 3,044
Cash and cash equivalents at beginning of period 3,850 3,836
----- -----
Cash and cash equivalents at end of period $7,086 $6,880
===== =====
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Federal income taxes $ 180 $ 367
====== ======
Interest on deposits and borrowings $2,507 $2,316
===== =====
Supplemental disclosure of noncash investing activities:
Unrealized gains on securities designated as available for
sale, net of related tax effects $ 268 $ 371
====== ======
</TABLE>
6
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ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended December 31, 1997 and 1996
1. Basis of Presentation
The accompanying unaudited 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 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. included in the Annual Report on Form 10-KSB
for the year ended June 30, 1997. 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 and six month periods
ended December 31, 1997 and 1996 are not necessarily indicative of the
results which may be expected for an entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
ASB Financial Corp. (the "Corporation") and American Savings Bank, fsb
("American" or the "Savings Bank"). All significant intercompany items have
been eliminated.
3. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period, 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 outstanding, which
gives effect to 114,563 unallocated ESOP shares, totaled 1,575,485 and
1,551,253 for the six and three month periods ended December 31, 1997,
respectively. Weighted-average common shares deemed outstanding, which gives
effect to 111,352 unallocated ESOP shares, totaled 1,619,645 and 1,620,812
for the six and three month periods ended December 31, 1996.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under
the Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
1,607,026 and 1,583,846 for the six and three month periods ended December
31, 1997, respectively, and 1,635,323 and 1,640,797 for the six and three
months ended December 31, 1996, respectively.
4. Effects of Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments 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
7
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ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and six months ended December 31, 1997 and 1996
4. Effects of Recent Accounting Pronouncements (continued)
assets. The new accounting method, known 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, 1997, and is
to be applied prospectively. Earlier or retroactive application is not
permitted. Management does not believe that adoption of SFAS No. 125 will
have a material adverse effect on the Corporation's consolidated financial
position or results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. It does not require a specific format for that financial
statement but requires that an enterprise display an amount representing
total comprehensive income for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of a statement of financial position. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required. SFAS No. 130 is not expected to have a material impact on the
Corporation's financial statements.
8
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ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and six months ended December 31, 1997 and 1996
4. Effects of Recent Accounting Pronouncements (continued)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 significantly changes
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about reportable segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. SFAS No. 131 uses a "management approach" to disclose financial
and descriptive information about the way that management organizes the
segments within the enterprise for making operating decisions and assessing
performance. For many enterprises, the management approach will likely
result in more segments being reported. In addition, SFAS No. 131 requires
significantly more information to be disclosed for each reportable segment
than is presently being reported in annual financial statements and also
requires that selected information be reported in interim financial
statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 is not expected to have a material impact on
the Corporation's financial statements.
9
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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, 1997 to
December 31, 1997
At December 31, 1997, the Corporation's assets totaled $113.2 million, an
increase of $707,000, or .6%, over the $112.5 million of total assets at June
30, 1997. The increase in assets was funded primarily by growth in savings
deposits of $1.1 million, which was partially offset by a decrease in borrowings
of $115,000 and a decrease in shareholders' equity of $200,000.
Liquid assets (i.e. cash, interest-bearing deposits and certificates of deposit)
increased by $1.8 million over June 30, 1997 levels, to a total of $9.9 million
at December 31, 1997. Investment securities totaled $15.9 million at December
31, 1997, a decrease of $2.7 million, or 14.7%, from June 30, 1997 levels.
During the six months ended December 31, 1997, maturities of investment
securities totaled $5.7 million, which were partially offset by purchases of
$2.8 million. Regulatory liquidity amounted to 10.5% at December 31, 1997.
Loans receivable increased by $3.2 million, or 4.3%, during the six month
period, to a total of $77.4 million at December 31, 1997. Loan disbursements
amounted to $10.6 million and were partially offset by principal repayments of
$7.4 million. The allowance for loan losses totaled $806,000 at December 31,
1997, a decrease of $14,000 from the $820,000 total at June 30, 1997.
Nonperforming loans totaled $1.0 million and $1.1 million at December 31, 1997
and June 30, 1997, respectively. The allowance for loan losses represented 78.3%
and 71.6% of nonperforming loans as of December 31, 1997 and June 30, 1997,
respectively. Although management believes that its allowance for loan losses at
December 31, 1997, is adequate based upon the available facts and circumstances,
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 $90.8 million at December 31, 1997, an increase of $1.1
million, or 1.2%, over June 30, 1997 levels. The growth in deposits can be
primarily attributed to management's efforts to maintain a moderate rate of
growth through marketing strategies.
Borrowings decreased by $115,000 during the six months ended December 31, 1997,
to a total of $3.3 million, due to scheduled principal repayments.
American 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 December 31, 1997, American's tangible and core capital totaled $14.1
million, or 12.7%, of adjusted total assets, which exceeded the minimum
requirements of $1.7 million and $3.3 million by $12.4 million and $10.7
million, respectively. American's risk-based capital of $14.7 million, or 27.6%
of risk-weighted assets, exceeded the current 8% requirement by $10.5 million.
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 Six Month Periods Ended December 31,
1997 and 1996
General
Net earnings amounted to $500,000 for the six months ended December 31, 1997, an
increase of $363,000, or 265%, over the $137,000 of net earnings reported for
the same period in 1996. The increase in earnings resulted primarily from the
absence of a one-time after-tax charge totaling $364,000 recorded in 1996 as a
result of the Savings Association Insurance Fund (SAIF) recapitalization
assessment, coupled with a $134,000 decrease in general, administrative and
other expense and a $26,000 decrease in the provision for losses on loans, which
were partially offset by a $100,000 decrease in net interest income, a $75,000
decrease in other income and a $173,000 increase in the provision for federal
income taxes.
Net Interest Income
Net interest income decreased by $100,000, or 5.2%, for the six months ended
December 31, 1997, compared to the 1996 period. Interest income on loans
increased by $278,000, or 9.6%, due primarily to a $6.8 million increase in the
average balance of loans outstanding year to year. Interest income on investment
and mortgage-backed securities and interest-bearing deposits and other decreased
by $203,000, or 15.3%, due primarily to a $5.8 million decrease in the average
portfolio balance outstanding.
Interest expense on deposits increased by $132,000, or 5.9%, due primarily to a
$5.0 million increase in average deposits outstanding. Interest expense on
borrowings increased by $43,000, or 66.2%, due primarily to an increase in the
average balance of borrowings outstanding.
The decline in the investment and mortgage-backed securities portfolios, as well
as the decline in interest-bearing deposits year to year, reflects use of these
assets to partially fund the return of capital distribution which was paid in
December 1996. The increase in average borrowings year to year was primarily due
to funding the return of capital distribution.
Provision for (Recovery of) 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. The recovery of losses on loans totaled $4,000
during the six month period ended December 31, 1997, compared to a $22,000
charge during the comparable period in 1996. There can be no assurance that the
allowance for loan losses of the Savings Bank will be adequate to cover losses
on nonperforming assets in the future.
11
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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 Six Month Periods Ended December 31,
1997 and 1996 (continued)
Other Income
Other income decreased by $75,000, or 35.0%, for the six months ended December
31, 1997, compared to the same period in 1996, due primarily to a $105,000 gain
on sale of investment securities recorded during the 1996 period, compared to a
$4,000 gain recorded during the 1997 six month period, which was partially
offset by a $26,000, or 23.9%, increase in other operating income, consisting
generally of fees on deposit accounts and revenues from an agreement with a
third-party vendor of alternative investment products.
General, Administrative and Other Expense
General, administrative and other expense decreased by $685,000, or 36.1%,
during the six months ended December 31, 1997, compared to the same period in
1996. This decrease resulted primarily from the absence of the $551,000 charge
recorded in 1996 in connection with the SAIF recapitalization, coupled with a
$44,000, or 6.3%, decrease in employee compensation and benefits, a $68,000, or
70.8%, decrease in federal deposit insurance premiums (exclusive of the
recapitalization assessment) and a $72,000, or 25.3%, decrease in other
operating expenses, which were partially offset by a $39,000, or 32.2%, increase
in franchise taxes. The decrease in employee compensation generally reflects a
decline in costs associated with the Corporation's stock benefit plans year to
year. The decrease in federal deposit insurance premiums is a result of lower
premium rates following the recapitalization of the SAIF in November 1996. The
decline in other operating expense was due primarily to professional fees
incurred in the 1996 period in connection with the return of capital
distribution, coupled with a decline in expenses for real estate acquired
through foreclosure. The increase in franchise taxes reflects the growth in
equity year to year.
Federal Income Taxes
The provision for federal income taxes increased by $173,000, or 237%, for the
six months ended December 31, 1997, compared to the same period in 1996. This
increase resulted primarily from the increase in net earnings before taxes of
$536,000, or 255%. The effective tax rates were 33.0% and 34.8% for the six
months ended December 31, 1997 and 1996, respectively.
Comparison of Operating Results for the Three Month Periods Ended December 31,
1997 and 1996
General
Net earnings amounted to $254,000 for the three months ended December 31, 1997,
a decrease of $59,000, or 18.8%, from the $313,000 of net earnings reported for
the same period in 1996. The decrease in earnings resulted primarily from a
$93,000 decrease in net interest income and an $88,000 decrease in other income,
which were partially offset by a $78,000 decrease in general, administrative and
other expense and a $40,000 decrease in the provision for federal income taxes.
12
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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 December 31,
1997 and 1996 (continued)
Net Interest Income
Net interest income decreased by $93,000, or 9.4%, for the three months ended
December 31, 1997, compared to the 1996 period. Interest income on loans
increased by $144,000, or 9.9%, due primarily to a $7.4 million increase in the
average balance of loans outstanding year to year. Interest income on investment
and mortgage-backed securities and interest-bearing deposits decreased by
$168,000, or 24.0%, due primarily to a decrease in the average portfolio balance
outstanding. Interest expense on deposits increased by $49,000, or 4.4%, due
primarily to a $4.4 million increase in the balance of deposits outstanding year
to year. Interest expense on borrowings increased by $20,000, or 60.6%, due to
an increase in the average balance of borrowings outstanding year to year.
Other Income
Other income totaled $74,000 for the three months ended December 31, 1997, a
decrease of $88,000, or 54.3%, from the comparable 1996 quarter. The decrease
resulted primarily from a $101,000 decrease in gain on sale of investment
securities, which was partially offset by an increase in other operating income.
Provision for (Recovery of) 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. The recovery of losses on loans totaled $4,000
during the three month period ended December 31, 1997. There can be no assurance
that the allowance for loan losses of the Savings Bank will be adequate to cover
losses on nonperforming assets in the future.
General, Administrative and Other Expense
General, administrative and other expense decreased by $78,000, or 11.5%, during
the three months ended December 31, 1997, compared to the same period in 1996.
This decrease resulted primarily from a $40,000, or 11.1%, decrease in employee
compensation and benefits, a $34,000, or 70.8%, decrease in federal deposit
insurance premiums and a $39,000, or 27.1%, decrease in other expenses, which
were partially offset by a $31,000, or 60.8%, increase in franchise taxes, for
the reasons discussed above.
13
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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 December 31,
1997 and 1996 (continued)
Federal Income Taxes
The provision for federal income taxes decreased by $40,000, or 24.4%, for the
three months ended December 31, 1997, compared to the same period in 1996. This
decrease resulted primarily from the decrease in net earnings before taxes of
$99,000, or 20.8%. The effective tax rates were 32.8% and 34.4% for the three
months ended December 31, 1997 and 1996, respectively.
Other Matters
As with all providers of financial services, the Savings Bank's operations are
heavily dependent on information technology systems. The Savings Bank is
addressing the potential problems associated with the possibility that the
computers that control or operate the Savings Bank's information technology
system and infrastructure may not be programmed to read four-digit date codes
and, upon arrival of the year 2000, may recognize the two-digit code "00" as the
year 1900, causing systems to fail to function or to generate erroneous data.
The Savings Bank is working with the companies that supply or service its
information technology systems to identify and remedy any year 2000 related
problems.
As of the date of this Form 10-QSB, the Savings Bank has not identified any
specific expenses that are reasonably likely to be incurred by the Savings Bank
in connection with this issue and does not expect to incur significant expense
to implement the necessary corrective measures. No assurance can be given,
however, that significant expense will not be incurred in future periods. In the
event that the Savings Bank is ultimately required to purchase replacement
computer systems, programs and equipment, or incur substantial expense to make
the Savings Bank's current systems, programs and equipment year 2000 compliant,
the Savings Bank's net earnings and financial condition could be adversely
affected.
In addition to possible expense related to its own systems, the Savings Bank
could incur losses if loan payments are delayed due to year 2000 problems
affecting any major borrowers in the Savings Bank's primary market area. Because
the Savings Bank's loan portfolio is highly diversified with regard to
individual borrowers and types of businesses and the Savings Bank's primary
market area is not significantly dependent upon one employer or industry, the
Savings Bank does not expect any significant or prolonged difficulties that will
affect net earnings or cash flow.
14
<PAGE>
ASB Financial Corp.
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable
ITEM 5. Other Information
Effective January 1, 1998, Robert M. Smith was named President
and Chief Executive Officer of ASB Financial Corp. and American
Savings Bank, fsb. Gerald R. Jenkins, who retired as President
and CEO, remains a director of both companies.
ITEM 6. Exhibits and Reports on Form 8-K
Form 8-K: None.
Exhibits: Financial data schedule for the six months
ended December 31, 1997.
15
<PAGE>
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: February 6, 1998 By: /s/Robert M. Smith
Robert M. Smith
President, Chief Executive Officer
and Chief Financial Officer
16
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