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 March 31, 1998
----------------------------------------
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 May 11, 1998, the latest practicable date, 1,635,346 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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ASB Financial Corp.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, June 30,
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 354 $ 376
Interest-bearing deposits in other financial institutions 6,724 3,474
------- -------
Cash and cash equivalents 7,078 3,850
Certificates of deposit in other financial institutions 2,298 4,258
Investment securities available for sale - at market 15,148 18,660
Mortgage-backed securities available for sale - at market 9,736 8,560
Loans receivable - net 77,778 74,136
Office premises and equipment - at depreciated cost 953 944
Federal Home Loan Bank stock - at cost 713 675
Accrued interest receivable on loans 107 95
Accrued interest receivable on mortgage-backed securities 66 78
Accrued interest receivable on investments and interest-
bearing deposits 335 356
Prepaid expenses and other assets 570 604
Prepaid federal income taxes 45 62
Deferred federal income taxes 80 191
------- -------
Total assets $114,907 $112,469
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 91,017 $ 89,752
Advances from the Federal Home Loan Bank 3,861 2,884
Other borrowed money 400 500
Advances by borrowers for taxes and insurance 102 169
Accrued interest payable 704 112
Other liabilities 1,361 1,351
------- -------
Total liabilities 97,445 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 8,076 8,023
Retained earnings - restricted 11,464 11,187
Shares acquired by stock benefit plans (1,677) (1,921)
Less 86,066 shares of treasury stock - at cost (1,143) -
Unrealized gains on securities designated as available for sale,
net of related tax effects 742 412
------- -------
Total shareholders' equity 17,462 17,701
------- -------
Total liabilities and shareholders' equity $114,907 $112,469
======= =======
</TABLE>
3
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ASB Financial Corp.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Nine months ended Three months ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income
Loans $4,757 $4,383 $1,596 $1,500
Mortgage-backed securities 428 518 134 162
Investment securities 1,068 1,138 351 349
Interest-bearing deposits and other 158 253 42 68
------ ------ ------- -------
Total interest income 6,411 6,292 2,123 2,079
Interest expense
Deposits 3,551 3,374 1,185 1,140
Borrowings 161 113 53 48
------ ------ ------- -------
Total interest expense 3,712 3,487 1,238 1,188
----- ----- ----- -----
Net interest income 2,699 2,805 885 891
Provision for (recoveries of) losses on loans (12) 22 (8) -
------- ------- -------- ----
Net interest income after provision
for (recoveries of) losses on loans 2,711 2,783 893 891
Other income
Gain (loss) on sale of investment securities 4 103 - (2)
Other operating 192 178 57 69
------ ------ ------- -------
Total other income 196 281 57 67
General, administrative and other expense
Employee compensation and benefits 946 1,056 292 358
Occupancy and equipment 88 89 28 30
Federal deposit insurance premiums 43 650 15 3
Franchise taxes 213 175 53 54
Data processing 147 132 51 46
Other operating 309 400 96 115
------ ------ ------- ------
Total general, administrative and other expense 1,746 2,502 535 606
----- ----- ------ ------
Earnings before income taxes 1,161 562 415 352
Federal income taxes
Current 444 278 181 184
Deferred (59) (88) (42) (67)
------- ------- ------- -------
Total federal income taxes 385 190 139 117
------ ------ ------ ------
NET EARNINGS $ 776 $ 372 $ 276 $ 235
====== ====== ====== ======
EARNINGS PER SHARE
Basic $.50 $.23 $.18 $.14
=== === === ===
Diluted $.49 $.23 $.18 $.14
=== === === ===
</TABLE>
4
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ASB Financial Corp.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 776 $ 372
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 6 59
Amortization of deferred loan origination fees (66) (38)
Depreciation and amortization 55 60
Amortization of expense related to employee benefit plans 297 290
Provision for (recoveries of) losses on loans (12) 22
Gain on sale of investment securities (4) (103)
Federal Home Loan Bank stock dividends (38) (36)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 21 148
Prepaid expenses and other assets 34 17
Accrued interest payable 592 522
Other liabilities 10 45
Federal income taxes
Current 17 (82)
Deferred (59) (88)
--------- ---------
Net cash provided by operating activities 1,629 1,188
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 9,329 6,449
Proceeds from sales of investment securities 119 103
Purchase of investment securities (5,558) (4,804)
Purchase of mortgage-backed securities (2,572) -
Principal repayments on mortgage-backed securities 1,516 1,518
Loan principal repayments 13,851 13,555
Loan disbursements (17,415) (16,451)
Purchase of office premises and equipment (64) (11)
Decrease in certificates of deposit in other financial institutions - net 1,960 2,245
------- -------
Net cash provided by investing activities 1,166 2,604
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 1,265 3,929
Proceeds from Federal Home Loan Bank advances 3,000 2,000
Repayment of Federal Home Loan Bank advances (2,023) (2,022)
Proceeds from other borrowed money - 3,500
Repayment of other borrowed money (100) (3,000)
Advances by borrowers for taxes and insurance (67) (81)
Proceeds from exercise of stock options - 103
Purchase of treasury stock (1,143) -
Distributions paid on common stock (499) (9,124)
-------- -------
Net cash provided by (used in) financing activities 433 (4,695)
-------- -------
Net increase (decrease) in cash and cash equivalents 3,228 (903)
Cash and cash equivalents at beginning of period 3,850 3,836
------- -------
Cash and cash equivalents at end of period $ 7,078 $ 2,933
======= =======
</TABLE>
5
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ASB Financial Corp.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
(In thousands)
1998 1997
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 305 $ 367
====== =====
Interest on deposits and borrowings $3,120 $2,965
===== =====
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects $ 330 $ (37)
===== =====
</TABLE>
6
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ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended March 31, 1998 and 1997
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
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 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 nine month periods ended March 31, 1998 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
ASB Financial Corp. and its wholly owned subsidiary, 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 114,410 unallocated ESOP shares, totaled 1,559,070 and
1,525,198 for the nine and three month periods ended March 31, 1998,
respectively. Weighted-average common shares deemed outstanding, which gives
effect to 111,352 unallocated ESOP shares, totaled 1,621,710 and 1,620,812
for the nine and three month periods ended March 31, 1997.
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
1,592,141 and 1,563,618 for the nine and three month periods ended March 31,
1998, respectively, and 1,634,719 and 1,659,232 for the nine and three month
periods ended March 31, 1997, 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 nine months ended March 31, 1998 and 1997
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 adopted SFAS No. 125 effective January 1, 1998, as
required, without material 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 nine months ended March 31, 1998 and 1997
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 March 31, 1998
At March 31, 1998, the Corporation's assets totaled $114.9 million, an increase
of $2.4 million, or 2.2%, over the $112.5 million of total assets at June 30,
1997. The increase in assets was funded primarily by growth in deposits of $1.3
million and net proceeds from Federal Home Loan Bank advances totaling $1.0
million, which were partially offset by a decrease in shareholders' equity of
$239,000.
Liquid assets (i.e. cash, interest-bearing deposits and certificates of deposit)
increased by $1.3 million over June 30, 1997 levels, to a total of $9.4 million
at March 31, 1998. Investment securities totaled $15.1 million at March 31,
1998, a decrease of $3.5 million, or 18.8%, from June 30, 1997 levels. During
the nine months ended March 31, 1998, maturities of investment securities
totaled $9.3 million, which were partially offset by purchases of $5.6 million.
Loans receivable increased by $3.6 million, or 4.9%, during the nine month
period ended March 31, 1998, to a total of $77.8 million. Loan disbursements
amounted to $17.4 million and were partially offset by principal repayments of
$13.9 million. The allowance for loan losses totaled $806,000 at March 31, 1998,
a decrease of $14,000 from the $820,000 total at June 30, 1997. Nonperforming
loans totaled $157,000 and $1.1 million at March 31, 1998 and June 30, 1997,
respectively. The allowance for loan losses represented 513.4% and 71.6% of
nonperforming loans as of March 31, 1998 and June 30, 1997, respectively.
Although management believes that its allowance for loan losses at March 31,
1998, 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 $91.0 million at March 31, 1998, an increase of $1.3 million,
or 1.4%, over June 30, 1997 levels. The growth in deposits can be primarily
attributed to management's efforts to maintain a moderate rate of deposit growth
through marketing strategies.
Borrowings increased by $877,000 during the nine months ended March 31, 1998, to
a total of $4.3 million, due to proceeds from new Federal Home Loan Bank
advances, and were partially offset by scheduled principal repayments.
Shareholders' equity totaled $17.5 million at March 31, 1998, a decrease of
$239,000, or 1.4%, from June 30, 1997 levels. The decrease resulted primarily
from purchases of treasury stock totaling $1.1 million, which were partially
offset by undistributed net earnings of $277,000, amortization of stock benefit
plan expense totaling $244,000 and an increase in unrealized gains on securities
designated as available for sale of $330,000.
American is required to meet minimum capital standards promulgated by the Office
of Thrift Supervision ("OTS"). At March 31, 1998, American's regulatory capital
was well in excess of the minimum capital requirements.
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 Nine Month Periods Ended March 31, 1998
and 1997
General
Net earnings amounted to $776,000 for the nine months ended March 31, 1998, an
increase of $404,000, or 108.6%, over the $372,000 of net earnings reported for
the same period in 1997. The increase in earnings resulted primarily from the
absence of a one-time after-tax charge totaling $364,000 recorded in fiscal 1997
as a result of the Savings Association Insurance Fund (SAIF) recapitalization
assessment, coupled with a $205,000 decrease in general, administrative and
other expense and a $34,000 decrease in the provision for losses on loans, which
were partially offset by a $106,000 decrease in net interest income, an $85,000
decrease in other income and a $195,000 increase in the provision for federal
income taxes.
Net Interest Income
Net interest income decreased by $106,000, or 3.8%, for the nine months ended
March 31, 1998, compared to the 1997 period. Interest income on loans increased
by $374,000, or 8.5%, due primarily to a $6.7 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
$255,000, or 13.4%, due primarily to a $4.3 million decrease in the average
portfolio balance outstanding.
Interest expense on deposits increased by $177,000, or 5.2%, due primarily to a
$4.7 million increase in the average balance of deposits outstanding. Interest
expense on borrowings increased by $48,000, or 42.5%, 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 $8.6 million return of capital distribution in
December 1996. The increase in average borrowings year to year was primarily due
to utilization of borrowings to fund 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 $12,000
during the nine month period ended March 31, 1998, compared to a $22,000
provision recorded during the comparable period in fiscal 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.
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 Nine Month Periods Ended March 31, 1998
and 1997 (continued)
Other Income
Other income decreased by $85,000, or 30.2%, for the nine months ended March 31,
1998, compared to the same period in 1997, due primarily to a $103,000 gain on
sale of investment securities recorded during the 1997 period, compared to a
$4,000 gain recorded during the 1998 nine month period, which was partially
offset by a $14,000, or 7.9%, 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 $756,000, or 30.2%,
during the nine months ended March 31, 1998, compared to the same period in
1997. This decrease resulted primarily from the absence of the $551,000 charge
recorded in fiscal 1997 in connection with the SAIF recapitalization, coupled
with a $110,000, or 10.4%, decrease in employee compensation and benefits, a
$56,000, or 56.6%, decrease in federal deposit insurance premiums (exclusive of
the recapitalization assessment) and a $91,000 , or 22.8%, decrease in other
operating expenses, which were partially offset by a $38,000, or 21.7%, increase
in franchise taxes. The decrease in employee compensation and benefits resulted
from the retirement of an officer, increased deferrals of loan origination costs
under SFAS No. 91 and a reduction of stock benefit plan expense. The decrease in
federal deposit insurance premiums is a result of lower premium rates following
the recapitalization of the SAIF in 1996. The decline in other operating expense
was due primarily to professional fees incurred in fiscal 1997 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 $195,000, or 102.6%, for the
nine months ended March 31, 1998, compared to the same period in fiscal 1997.
This increase resulted primarily from the increase in net earnings before taxes
of $599,000, or 106.6%. The effective tax rates were 33.2% and 33.8% for the
nine months ended March 31, 1998 and 1997, respectively.
Comparison of Operating Results for the Three Month Periods Ended March 31, 1998
and 1997
General
Net earnings amounted to $276,000 for the three months ended March 31, 1998, an
increase of $41,000, or 17.4%, over the $235,000 of net earnings reported for
the same period in 1997. The increase in earnings resulted primarily from a
$71,000 decrease in general, administrative and other expense and a $2,000
increase in net interest income after provision for losses on loans, which were
partially offset by a $10,000 decrease in other income and a $22,000 increase 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 March 31, 1998
and 1997 (continued)
Net Interest Income
Net interest income decreased by $6,000, or .7%, for the three months ended
March 31, 1998, compared to the 1997 period. Interest income on loans increased
by $96,000, or 6.4%, 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 $52,000,
or 9.0%, due primarily to a decrease in the average portfolio balance
outstanding. Interest expense on deposits increased by $45,000, or 3.9%, due
primarily to a $3.5 million increase in the balance of deposits outstanding year
to year. Interest expense on borrowings increased by $5,000, or 10.4%, due to an
increase in the average balance of borrowings outstanding year to year.
Other Income
Other income totaled $57,000 for the three months ended March 31, 1998, a
decrease of $10,000, or 14.9%, from the comparable 1997 quarter. The decrease
resulted primarily from a $12,000 decrease in other operating income, which was
partially offset by the absence of losses on sales of investment securities
during the current period.
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 $8,000
during the three month period ended March 31, 1998. 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 $71,000, or 11.7%, during
the three months ended March 31, 1998, compared to the same period in 1997. This
decrease resulted primarily from a $66,000, or 18.4%, decrease in employee
compensation and benefits and a $19,000, or 16.5%, decrease in other operating
expense, which were partially offset by a $12,000 increase in federal deposit
insurance premiums. The change in general, administrative and other expense
totals were attributable to the reasons set forth 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 March 31, 1998
and 1997 (continued)
Federal Income Taxes
The provision for federal income taxes increased by $22,000, or 18.8%, for the
three months ended March 31, 1998, compared to the same period in 1997. This
increase resulted primarily from the increase in net earnings before taxes of
$63,000, or 17.9%. The effective tax rates were 33.5% and 33.2% for the three
months ended March 31, 1998 and 1997, 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. 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
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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
None.
ITEM 6. Exhibits and Reports on Form 8-K
Form 8-K: None.
Exhibits:
27 Financial data schedule for the nine months ended
March 31, 1998.
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: May 11, 1998 By: /s/Robert M. Smith
----------------------- ------------------
Robert M. Smith
President, Chief Executive Officer
and Chief Financial Officer
16
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