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 September 30, 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 November 10, 1999, the latest practicable date, 1,610,358 shares of the
registrant's common stock, without par value, were issued and outstanding.
Page 1 of 15 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 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 10
PART II - OTHER INFORMATION 14
SIGNATURES 15
2
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, June 30,
ASSETS 1999 1999
<S> <C> <C>
Cash and due from banks $ 2,110 $ 4,078
Interest-bearing deposits in other financial institutions 1,338 3,488
------- -------
Cash and cash equivalents 3,448 7,566
Certificates of deposit in other financial institutions 292 293
Investment securities available for sale - at market 19,812 19,372
Mortgage-backed securities available for sale - at market 9,560 10,232
Loans receivable - net 86,289 82,430
Office premises and equipment - at depreciated cost 1,225 1,047
Federal Home Loan Bank stock - at cost 792 778
Accrued interest receivable on loans 73 78
Accrued interest receivable on mortgage-backed securities 63 66
Accrued interest receivable on investments and
interest-bearing deposits 319 290
Prepaid expenses and other assets 505 714
Prepaid federal income taxes 82 200
Deferred federal income tax assets 311 182
------- -------
Total assets $122,771 $123,248
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $102,186 $100,954
Advances from the Federal Home Loan Bank 5,815 5,823
Advances by borrowers for taxes and insurance 83 168
Accrued interest payable 688 93
Other liabilities 1,258 1,170
------- -------
Total liabilities 110,030 108,208
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; 1,746,924
and 1,740,854 shares issued - -
Additional paid-in capital 8,488 8,427
Retained earnings, restricted 7,360 8,909
Shares acquired by stock benefit plans (1,418) (1,418)
Unrealized gains on securities designated as available for sale,
net of related tax effects 41 265
Less 136,566 and 86,066 shares of treasury stock - at cost (1,730) (1,143)
------- -------
Total shareholders' equity 12,741 15,040
------- -------
Total liabilities and shareholders' equity $122,771 $123,248
======= =======
</TABLE>
3
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended September 30,
(In thousands, except share data)
1999 1998
<S> <C> <C>
Interest income
Loans $1,668 $1,609
Mortgage-backed securities 156 167
Investment securities 386 343
Interest-bearing deposits and other 11 30
----- -----
Total interest income 2,221 2,149
Interest expense
Deposits 1,215 1,223
Borrowings 74 99
----- -----
Total interest expense 1,289 1,322
----- -----
Net interest income 932 827
Provision for losses on loans 1 -
----- -----
Net interest income after provision
for losses on loans 931 827
Other operating income 72 59
General, administrative and other expense
Employee compensation and benefits 372 288
Occupancy and equipment 24 29
Federal deposit insurance premiums 15 14
Franchise taxes 51 50
Data processing 69 59
Other operating 94 102
----- -----
Total general, administrative and other expense 625 542
----- -----
Earnings before income taxes 378 344
Federal income taxes
Current 119 72
Deferred (14) 29
----- -----
Total federal income taxes 105 101
----- -----
NET EARNINGS $ 273 $ 243
===== =====
EARNINGS PER SHARE
Basic $.17 $.16
=== ===
Diluted $.17 $.15
=== ===
</TABLE>
4
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended September 30,
(In thousands)
1999 1998
<S> <C> <C>
Net earnings $273 $243
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities during the period,
net of tax of $115 and $50 in 1999 and 1998, respectively (224) 95
--- ---
Comprehensive income $ 49 $338
=== ===
Accumulated comprehensive income $ 41 $809
=== ===
</TABLE>
5
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30,
(In thousands)
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 273 $ 243
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 4
Amortization of deferred loan origination fees (29) (16)
Depreciation and amortization 24 18
Federal Home Loan Bank stock dividends (14) (14)
Provision for losses on loans 1 -
Increase (decrease) in cash due to changes in:
Accrued interest receivable (21) 18
Prepaid expenses and other assets 209 121
Accrued interest payable 595 649
Other liabilities 88 77
Federal income taxes
Current 118 58
Deferred (14) 29
----- ------
Net cash provided by operating activities 1,236 1,187
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities - 4,560
Purchase of investment securities designated as available for sale (765) (6,501)
Principal repayments on mortgage-backed securities 652 743
Purchase of mortgage-backed securities - (2,900)
Loan principal repayments 4,206 8,179
Loan disbursements (8,037) (9,221)
Purchase of office premises and equipment (202) (17)
Decrease in certificates of deposit in other financial institutions - net 1 486
Proceeds from sale of real estate acquired through foreclosure - 157
----- ------
Net cash used in investing activities (4,145) (4,514)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 1,232 1,416
Proceeds from Federal Home Loan Bank advances 1,500 1,000
Repayment of Federal Home Loan Bank advances (1,508) (8)
Repayment of other borrowed money - (2,500)
Advances by borrowers for taxes and insurance (85) (75)
Distributions paid on common shares (1,822) (164)
Proceeds from exercise of stock options 61 -
Purchase of treasury stock (587) -
----- ------
Net cash used in financing activities (1,209) (331)
----- ------
Net decrease in cash and cash equivalents (4,118) (3,658)
Cash and cash equivalents at beginning of period 7,566 13,890
----- ------
Cash and cash equivalents at end of period $3,448 $10,232
===== ======
</TABLE>
6
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<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended September 30,
(In thousands)
1999 1998
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ - $ 10
==== ===
Interest on deposits and borrowings $ 694 $673
==== ===
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $(224) $ 95
==== ===
</TABLE>
7
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ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 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,
1999. However, in the opinion of management, all adjustments (consisting of
only normal recurring accruals) which are necessary for a fair presentation
of the financial statements have been included. The results of operations
for the three month period ended September 30, 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
give effect to 62,795 unallocated ESOP shares, totaled 1,577,463 for the
three month period ended September 30, 1999. Weighted-average common shares
deemed outstanding, which give effect to 77,756 unallocated ESOP shares,
totaled 1,557,590 for the three month period ended September 30, 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
1,600,851 and 1,584,344 for the three month periods ended September 30, 1999
and 1998, respectively.
Incremental shares related to the assumed exercise of stock options included
in the calculation of diluted earnings per share totaled 23,388 and 26,754
for the three month periods ended September 30, 1999 and 1998, respectively.
8
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ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended September 30, 1999 and 1998
4. Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("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.
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, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. 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.
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, 1999 to September 30,
1999
At September 30, 1999, the Corporation's assets totaled $122.8 million, a
decrease of $477,000, or .4%, from the $123.2 million of total assets at June
30, 1999. The decrease in assets was due primarily to distributions on common
shares totaling $1.8 million, which were partially offset by growth in deposits
of $1.2 million.
Liquid assets (i.e. cash, interest-bearing deposits and certificates of deposit)
decreased by $4.1 million from June 30, 1999 levels, to a total of $3.7 million
at September 30, 1999. Investment securities totaled $19.8 million at September
30, 1999, an increase of $440,000, or 2.3%, over June 30, 1999 levels. During
the three months ended September 30, 1999, purchases of investment securities
totaled $765,000.
Mortgage-backed securities totaled $9.6 million at September 30, 1999, a
decrease of $672,000, or 6.6%, from the total at June 30, 1999. The decrease was
due primarily to principal repayments of $652,000.
Loans receivable increased by $3.9 million, or 4.7%, during the three month
period ended September 30, 1999, to a total of $86.3 million. Loan disbursements
amounted to $8.0 million and were partially offset by principal repayments of
$4.2 million. The allowance for loan losses totaled $732,000 and $733,000 at
September 30, 1999 and June 30, 1999, respectively. Nonperforming and nonaccrual
loans totaled $292,000 and $379,000 at September 30, 1999 and June 30, 1999,
respectively. The allowance for loan losses represented 250.7% and 193.4% of
nonperforming loans as of September 30, 1999 and June 30, 1999, respectively.
Although management believes that its allowance for loan losses at September 30,
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 $102.2 million at September 30, 1999, an increase of $1.2
million, or 1.2%, over June 30, 1999 levels. The growth in deposits was
primarily attributable to management's efforts to maintain a moderate rate of
deposit growth through marketing strategies.
Shareholders' equity totaled $12.7 million at September 30, 1999, a decrease of
$2.3 million, or 15.3%, from June 30, 1999 levels. The decrease resulted
primarily from distributions on common shares totaling $1.8 million, treasury
stock purchases of $587,000 and a decrease in unrealized gains on securities
designated as available for sale of $224,000, which were partially offset by net
earnings of $273,000 and proceeds from the exercise of stock options totaling
$61,000.
American is required to meet minimum capital standards promulgated by the Office
of Thrift Supervision ("OTS"). At September 30, 1999, 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 Three Month Periods Ended September 30,
1999 and 1998
General
Net earnings amounted to $273,000 for the three months ended September 30, 1999,
an increase of $30,000, or 12.3%, over the $243,000 of net earnings reported for
the same period in 1998. The increase in earnings resulted primarily from a
$105,000 increase in net interest income and a $13,000 increase in other income,
which were partially offset by an $83,000 increase in general, administrative
and other expense and a $4,000 increase in the provision for federal income
taxes.
Net Interest Income
Net interest income increased by $105,000, or 12.7%, for the three months ended
September 30, 1999, compared to the 1998 period. Interest income on loans
increased by $59,000, or 3.7%, during the respective periods, while interest
income on investment and mortgage-backed securities and interest-bearing
deposits and other increased by $13,000, or 2.4%, due primarily to an increase
in the average balance of the related assets.
Interest expense on deposits decreased by $8,000, or .7%, due primarily to a
decrease of approximately 25 basis points in the weighted-average interest rate,
which was partially offset by a $4.7 million increase in the average balance of
deposits outstanding. Interest expense on borrowings decreased by $25,000, or
25.3%, due primarily to a 145 basis point decrease in the average cost of
borrowings from period to period.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Savings Bank, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Savings
Bank's market area, and other factors related to the collectibility of the
Savings Bank's loan portfolio. As a result of such analysis, management recorded
a provision of $1,000 for the three month period ended September 30, 1999. There
can be no assurance that the loan loss allowance will be adequate to absorb
losses on known nonperforming assets or that the allowance will be adequate to
cover losses on nonperforming assets in the future.
Other Income
Other income increased by $13,000, or 22.0%, for the three months ended
September 30, 1999, compared to the same period in 1998, due primarily to an
increase in both fees on deposit accounts and revenues from an agreement with a
third-party vendor of alternative investment products.
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 Three Month Periods Ended September 30,
1999 and 1998 (continued)
General, Administrative and Other Expense
General, administrative and other expense increased by $83,000, or 15.3%, during
the three months ended September 30, 1999, compared to the same period in 1998.
This increase resulted primarily from an $84,000, or 29.2%, increase in employee
compensation and benefits and a $10,000, or 16.9%, 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 coupled
with normal merit increases. The increase in data processing expense primarily
reflects an increase in transaction costs, coupled with the effects of the
Corporation's overall growth year to year.
Federal Income Taxes
The provision for federal income taxes totaled $105,000 for the three months
ended September 30, 1999, an increase of $4,000, or 4.0%, compared to the same
period in 1998. This increase resulted primarily from the increase in net
earnings before taxes of $34,000, or 9.9%, coupled with the effects of tax
credits from the Savings Bank's investment in a low income housing partnership.
The effective tax rates were 27.8% and 29.4% for the three months ended
September 30, 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'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.
American estimates its expenses related to the Year 2000 to be less than
$10,000.
12
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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 Intrieve actually fails at
Year 2000 critical dates. 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. The contingency plan, therefore,
primarily addresses action to deal with the possibility that the service
provider's system will be down for several days or weeks upon arrival of Year
2000. American can conduct and record transactions manually for a period of time
until the service provider is operational.
13
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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
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 three months ended
September 30, 1999.
14
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ASB Financial Corp.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 12, 1999 By: /s/Robert M. Smith
---------------------- -----------------------------------
Robert M. Smith
President, Chief Executive Officer
and Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,110
<INT-BEARING-DEPOSITS> 1,338
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,664
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 86,289
<ALLOWANCE> 732
<TOTAL-ASSETS> 122,771
<DEPOSITS> 102,186
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,029
<LONG-TERM> 5,815
0
0
<COMMON> 0
<OTHER-SE> 12,741
<TOTAL-LIABILITIES-AND-EQUITY> 122,771
<INTEREST-LOAN> 1,668
<INTEREST-INVEST> 542
<INTEREST-OTHER> 11
<INTEREST-TOTAL> 2,221
<INTEREST-DEPOSIT> 1,215
<INTEREST-EXPENSE> 1,289
<INTEREST-INCOME-NET> 932
<LOAN-LOSSES> 1
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 625
<INCOME-PRETAX> 378
<INCOME-PRE-EXTRAORDINARY> 273
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 273
<EPS-BASIC> .17
<EPS-DILUTED> .17
<YIELD-ACTUAL> 3.18
<LOANS-NON> 99
<LOANS-PAST> 193
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 733
<CHARGE-OFFS> 2
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 732
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 732
</TABLE>
