FORM 10-QSB
U. S. 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, 1999
----------------------------------------------
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 small business issuer 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)
Issuer's telephone number: (740) 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 10, 1999, the latest practicable date, 1,654,788 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 18 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 Other Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 17
SIGNATURES 18
2
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, June 30,
ASSETS 1999 1998
<S> <C> <C>
Cash and due from banks $ 4,531 $ 495
Interest-bearing deposits in other financial institutions 3,611 13,395
------- -------
Cash and cash equivalents 8,142 13,890
Certificates of deposit in other financial institutions 650 2,004
Investment securities available for sale - at market 18,855 11,835
Mortgage-backed securities available for sale - at market 11,165 8,924
Loans receivable - net 79,282 76,550
Office premises and equipment - at depreciated cost 1,063 932
Real estate acquired through foreclosure - net - 157
Federal Home Loan Bank stock - at cost 764 725
Accrued interest receivable on loans 107 125
Accrued interest receivable on mortgage-backed securities 51 70
Accrued interest receivable on investments and
interest-bearing deposits 336 308
Prepaid expenses and other assets 637 665
Prepaid federal income taxes 219 222
Deferred federal income tax assets 49 30
------- -------
Total assets $121,320 $116,437
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 98,277 $ 93,477
Advances from the Federal Home Loan Bank 5,830 4,354
Other borrowed money - 2,500
Advances by borrowers for taxes and insurance 91 169
Accrued interest payable 685 118
Other liabilities 1,217 1,329
------- -------
Total liabilities 106,100 101,947
Shareholders' equity
Preferred stock, 1,000,000 shares authorized, no par value;
no shares issued - -
Common stock, 4,000,000 no par value shares authorized; 1,740,854
shares issued - -
Additional paid-in capital 8,355 8,304
Retained earnings, restricted 8,773 8,292
Shares acquired by stock benefit plans (1,418) (1,677)
Unrealized gains on securities designated as available for sale,
net of related tax effects 653 714
Less 86,066 shares of treasury stock - at cost (1,143) (1,143)
------- -------
Total shareholders' equity 15,220 14,490
------- -------
Total liabilities and shareholders' equity $121,320 $116,437
======= =======
</TABLE>
3
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Nine months ended Three months ended
March 31, March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans $4,781 $4,757 $1,581 $1,596
Mortgage-backed securities 537 428 179 134
Investment securities 1,026 1,068 361 351
Interest-bearing deposits and other 61 158 15 42
----- ----- ----- -----
Total interest income 6,405 6,411 2,136 2,123
Interest expense
Deposits 3,638 3,551 1,198 1,185
Borrowings 240 161 71 53
----- ----- ----- -----
Total interest expense 3,878 3,712 1,269 1,238
----- ----- ----- -----
Net interest income 2,527 2,699 867 885
Recoveries of losses on loans (1) (12) - (8)
----- ----- ----- -----
Net interest income after recoveries
of losses on loans 2,528 2,711 867 893
Other income
Gain on sale of investment securities 60 4 31 -
Other operating 196 192 66 57
----- ----- ----- -----
Total other income 256 196 97 57
General, administrative and other expense
Employee compensation and benefits 921 946 326 292
Occupancy and equipment 87 88 28 28
Federal deposit insurance premiums 41 43 14 15
Franchise taxes 152 213 50 53
Data processing 180 147 70 51
Other operating 320 309 98 96
----- ----- ----- -----
Total general, administrative and other expense 1,701 1,746 586 535
----- ----- ----- -----
Earnings before income taxes 1,083 1,161 378 415
Federal income taxes
Current 294 444 232 181
Deferred 13 (59) (129) (42)
----- ----- ----- -----
Total federal income taxes 307 385 103 139
----- ----- ----- -----
NET EARNINGS $ 776 $ 776 $ 275 $ 276
===== ===== ===== =====
EARNINGS PER SHARE
Basic $.49 $.50 $.17 $.18
=== === === ===
Diluted $.48 $.49 $.17 $.18
=== === === ===
</TABLE>
4
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(In thousands)
For the nine months For the three months
ended March 31, ended March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net earnings $776 $ 776 $275 $276
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period (21) 333 (258) 62
Reclassification adjustment for realized gains
included in earnings (40) (3) (20) -
--- ----- --- ---
Comprehensive income (loss) $715 $1,106 $ (3) $338
=== ===== === ===
</TABLE>
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 776 $ 776
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 38 6
Amortization of deferred loan origination fees (55) (66)
Depreciation and amortization 51 55
Amortization of expense related to stock benefit plans 310 297
Recoveries of losses on loans (1) (12)
Gain on sale of investment securities (60) (4)
Federal Home Loan Bank stock dividends (39) (38)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 9 21
Prepaid expenses and other assets 28 34
Accrued interest payable 567 592
Other liabilities (112) 10
Federal income taxes
Current 3 17
Deferred 13 (59)
------ ------
Net cash provided by operating activities 1,528 1,629
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 9,782 9,329
Proceeds from sales of investment securities - 119
Purchase of investment securities (16,808) (5,558)
Purchase of mortgage-backed securities (4,735) (2,572)
Principal repayments on mortgage-backed securities 2,429 1,516
Loan principal repayments 21,699 13,851
Loan disbursements (24,375) (17,415)
Purchase of office premises and equipment (182) (64)
Decrease in certificates of deposit in other financial institutions - net 1,354 1,960
Proceeds from sale of real estate acquired through foreclosure 157 -
------ ------
Net cash provided by (used in) investing activities (10,679) 1,166
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 4,800 1,265
Proceeds from Federal Home Loan Bank advances 2,000 3,000
Repayment of Federal Home Loan Bank advances (524) (2,023)
Repayment of other borrowed money (2,500) (100)
Advances by borrowers for taxes and insurance (78) (67)
Purchase of treasury stock - (1,143)
Distributions paid on common stock (295) (499)
------ ------
Net cash provided by financing activities 3,403 433
------ ------
Net increase (decrease) in cash and cash equivalents (5,748) 3,228
Cash and cash equivalents at beginning of period 13,890 3,850
------ ------
Cash and cash equivalents at end of period $ 8,142 $ 7,078
====== ======
</TABLE>
6
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
(In thousands)
1999 1998
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 302 $ 305
===== =====
Interest on deposits and borrowings $3,311 $3,120
===== =====
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects $ (61) $ 330
===== =====
</TABLE>
7
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ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine and three months ended March 31, 1999 and 1998
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,
1998. 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, 1999, 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 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 62,795 unallocated ESOP shares, totaled 1,581,909 and
1,591,993 for the nine and three month periods ended March 31, 1999.
Weighted-average common shares deemed 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.
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
1,600,414 and 1,609,479 for the nine and three month periods ended March 31,
1999, and 1,592,141 and 1,563,618 for the nine and three month periods ended
March 31, 1998.
8
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ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three months ended March 31, 1999 and 1998
4. Effects of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established 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. 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. Management adopted SFAS No. 130 effective
July 1, 1998, as required, without material impact on the Corporation's
financial statements.
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. Management adopted SFAS No. 131 effective July 1, 1998,
as required, without material impact on the Corporation's financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize
all derivatives in their financial statements as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies new methods
of accounting for hedging transactions, prescribes the items and
transactions that may be hedged, and specifies detailed criteria to be met
to qualify for hedge accounting.
9
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ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three months ended March 31, 1999 and 1998
4. Effects of Recent Accounting Pronouncements (continued)
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an
interest rate or foreign exchange rate, that is applied to a notional
amount, such as an amount of currency, to determine the settlement
amount(s). It generally requires no significant initial investment and can
be settled net or by delivery of an asset that is readily convertible to
cash. SFAS No. 133 applies to derivatives embedded in other contracts,
unless the underlying of the embedded derivative is clearly and closely
related to the host contract.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. On
adoption, entities are permitted to transfer held-to-maturity debt
securities to the available-for-sale or trading category without calling
into question their intent to hold other debt securities to maturity in the
future. SFAS No. 133 is not expected to have a material impact on the
Corporation's financial statements.
10
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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, 1998 to March 31, 1999
At March 31, 1999, the Corporation's assets totaled $121.3 million, an increase
of $4.9 million, or 4.2%, over the $116.4 million of total assets at June 30,
1998. The increase in assets was funded primarily through growth in deposits of
$4.8 million and an increase in advances from the Federal Home Loan Bank
("FHLB") of $1.5 million, which were partially offset by a decrease in other
borrowed money of $2.5 million.
Liquid assets (i.e. cash, interest-bearing deposits and certificates of deposit)
decreased by $7.1 million from June 30, 1998 levels, to a total of $8.8 million
at March 31, 1999. Investment securities totaled $18.9 million at March 31,
1999, an increase of $7.0 million, or 59.3%, over June 30, 1998 levels. During
the nine months ended March 31, 1999, purchases of investment securities totaled
$16.8 million, which were partially offset by maturities of $9.8 million.
Mortgage-backed securities totaled $11.2 million at March 31, 1999, an increase
of $2.2 million, or 25.1%, over the total at June 30, 1998. The increase was due
primarily to purchases of $4.7 million during the period, which were partially
offset by principal repayments of $2.4 million.
Loans receivable increased by $2.7 million, or 3.6%, during the nine month
period ended March 31, 1999, to a total of $79.3 million. Loan disbursements
amounted to $24.4 million and were partially offset by principal repayments of
$21.7 million. The allowance for loan losses totaled $746,000 at March 31, 1999,
a decrease of $13,000 from the $759,000 total at June 30, 1998. Nonperforming
loans totaled $186,000 and $240,000 at March 31, 1999 and June 30, 1998,
respectively. The allowance for loan losses represented 401.1% and 316.3% of
nonperforming loans as of March 31, 1999 and June 30, 1998, respectively.
Although management believes that its allowance for loan losses at March 31,
1999, 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 $98.3 million at March 31, 1999, an increase of $4.8 million,
or 5.1%, over June 30, 1998 levels. The growth in deposits was primarily
attributable to management's efforts to maintain a moderate rate of deposit
growth through marketing strategies.
Borrowings decreased by $1.0 million during the nine months ended March 31,
1999, to a total of $5.8 million, due to principal repayments of $3.0 million,
which were partially offset by proceeds from $2.0 million in new FHLB advances.
Shareholders' equity totaled $15.2 million at March 31, 1999, an increase of
$730,000, or 5.0%, over June 30, 1998 levels. The increase resulted primarily
from undistributed net earnings of $481,000 and amortization of expense related
to stock benefit plans of $310,000, which were partially offset by a decrease in
unrealized gains on securities designated as available for sale of $61,000.
American is required to meet minimum capital standards promulgated by the Office
of Thrift Supervision ("OTS"). At March 31, 1999, American's regulatory capital
was well in excess of the minimum capital requirements.
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,
1999 and 1998
General
Net earnings amounted to $776,000 for the nine months ended March 31, 1999, an
amount equal to the net earnings reported for the same period in 1998. A
$172,000 decrease in net interest income, and an $11,000 decrease in recoveries
of losses on loans were offset by a $60,000 increase in other income, a $45,000
decrease in general, administrative and other expense and a $78,000 decrease in
the provision for federal income taxes.
Net Interest Income
Net interest income decreased by $172,000, or 6.4%, for the nine months ended
March 31, 1999, compared to the 1998 period. Interest income on loans increased
by $24,000, or .5%, due primarily to an increase of approximately $1.6 million,
or 2.1%, 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 $30,000, or 1.8%, due primarily to a decrease in
yields available on such investments year to year.
Interest expense on deposits increased by $87,000, or 2.5%, due primarily to an
increase of approximately $5.9 million, or 6.6%, in the average balance of
deposits outstanding, partially offset by a decline in the cost of funds year to
year. Interest expense on borrowings increased by $79,000, or 49.1%, due
primarily to an increase in the average balance of borrowings outstanding.
Provision for (Recoveries 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. As a result of such analysis, management elected
not to record any provision for losses on loans for the nine month periods ended
March 31, 1999 and 1998, while realizing a $1,000 recovery of losses on loans.
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.
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 Nine Month Periods Ended March 31, 1999
and 1998 (continued)
Other Income
Other income increased by $60,000, or 30.6%, for the nine months ended March 31,
1999, compared to the same period in 1998. The increase resulted primarily from
a $56,000 increase in gain on sale of investment securities. Other operating
income consists 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 $45,000, or 2.6%, during
the nine months ended March 31, 1999, compared to the same period in 1998. This
decrease resulted primarily from a $25,000, or 2.6%, decrease in employee
compensation and benefits and a $61,000, or 28.6%, decrease in franchise taxes,
which were partially offset by a $33,000, or 22.4%, increase in data processing
expense and an $11,000, or 3.6%, increase in other operating expense. The
decrease in employee compensation and benefits resulted primarily from the
retirement of an officer and a reduction in current period expense due to
deferrals of loan origination costs under SFAS No. 91 related to the increase in
loan origination volume. The decrease in franchise taxes reflects the effects of
the reduction in equity year to year. The increases in data processing and other
operating expense generally reflects the effects of the Corporation's overall
growth year to year.
Federal Income Taxes
The provision for federal income taxes totaled $307,000 for the nine months
ended March 31, 1999, a decrease of $78,000, or 20.3%, compared to the same
period in 1998. This decrease resulted primarily from the decrease in net
earnings before taxes of $78,000, or 6.7%, coupled with the effects of tax
credits from the Savings Bank's investment in a low income housing partnership.
The effective tax rates were 28.3% and 33.2% for the nine months ended March 31,
1999 and 1998, respectively.
Comparison of Operating Results for the Three Month Periods Ended March 31, 1999
and 1998
General
Net earnings amounted to $275,000 for the three months ended March 31, 1999, a
decrease of $1,000, or 0.4%, from the $276,000 of net earnings reported for the
same period in 1998. The decrease in earnings resulted primarily from an $18,000
decrease in net interest income and a $51,000 increase in general,
administrative and other expense, which were partially offset by a $40,000
increase in other income and a $36,000 decrease in the provision for federal
income taxes.
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, 1999
and 1998 (continued)
Net Interest Income
Net interest income decreased by $18,000, or 2.0%, for the three months ended
March 31, 1999, compared to the 1998 period. Interest income on loans decreased
by $15,000, or .9%, during the respective periods, while interest income on
investment and mortgage-backed securities and interest-bearing deposits and
other increased by $28,000, or 5.3%, due primarily to an increase in the average
balance of the related assets.
Interest expense on deposits increased by $13,000, or 1.1%, due primarily to an
increase of approximately $7.2 million in the average balance of deposits
outstanding. Interest expense on borrowings increased by $18,000, or 34.0%, due
primarily to an increase in the average balance of borrowings outstanding.
Provision for (Recoveries of) Losses on Loans
Management elected not to record any provision for losses on loans for the three
month periods ended March 31, 1999 and 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.
Other Income
Other income increased by $40,000, or 70.2%, for the three months ended March
31, 1999, compared to the same period in 1998, due primarily to a $31,000
increase in gain on sale of investment securities. Other operating income
consists 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 increased by $51,000, or 9.5%, during
the three months ended March 31, 1999, compared to the same period in 1998. This
increase resulted primarily from a $34,000, or 11.6%, increase in employee
compensation and benefits and a $19,000, or 37.3%, increase in data processing
expense. The increase in employee compensation and benefits was due primarily to
an increase in expense related to the Corporation's stock benefit plans which
resulted from an increase in shares allocated to participants. The increase in
data processing expense reflects the effects of the Corporation's overall growth
from year to year.
14
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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, 1999
and 1998 (continued)
Federal Income Taxes
The provision for federal income taxes totaled $103,000 for the three months
ended March 31, 1999, a decrease of $36,000, or 25.9%, compared to the same
period in 1998. This decrease resulted primarily from the decrease in net
earnings before taxes of $37,000, or 8.9%, coupled with the effects of tax
credits from the Savings Bank's investment in a low income housing partnership.
The effective tax rates were 27.2% and 33.5% for the three months ended March
31, 1999 and 1998, respectively.
Year 2000 Compliance Matters
As with most providers of financial services, American's operations are heavily
dependent on information technology systems. American is addressing the
potential problems associated with the possibility that the computers that
control or operate American'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. American is working
with the companies that supply or service its information technology systems to
identify and remedy any year 2000 related problems.
American's primary data processing applications are handled by a third-party
service bureau, Intrieve, Inc. Intrieve has advised American that it has
implemented a fully Year 2000 compliant processing system that has been fully
tested as of January 1, 1999. Additionally, American's systems were tested in
November 1998 with satisfactory results. Management has also reviewed American's
ancillary equipment and is in the process of providing the appropriate remedial
measures without material cost.
As of the date of this Form 10-QSB, American has developed an estimate of
specific expenses that are reasonably likely to be incurred by American in
connection with this issue, however American 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 unlikely 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.
15
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ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters (continued)
In addition to possible expense related to its own systems, American could incur
losses if loan payments are delayed due to year 2000 problems affecting any
major borrowers in American's primary market area. Because American's loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses and American's primary market area is not significantly dependent
upon one employer or industry, American does not expect any significant or
prolonged difficulties that will affect net earnings or cash flow.
American has developed a contingency plan in case systems are not successfully
renovated in a timely manner or if they actually fail at Year 2000 critical
dates. The contingency plan states that American deems the likelihood of failure
of the service provider's efforts to renovate Year 2000 changes to the on-line
core account processing system to be remote; however, a more likely scenario is
that the service provider's system will be down for several days or weeks upon
arrival of Year 2000. The plan, therefore, primarily addresses action to deal
with the latter possibility rather than with a catastrophic event, and includes
the potential to conduct and record transactions manually until the service
provider is operational. The plan will be amended to address a catastrophic
event if testing results indicate greater concern.
16
<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
None.
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, 1999.
17
<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 12, 1999 By: /s/Robert M. Smith
------------------------- ---------------------------------
Robert M. Smith
President, Chief Executive Officer
and Chief Financial Officer
18
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