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 December 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 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 February 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
<PAGE>
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
<PAGE>
<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
December 31, June 30,
ASSETS 1998 1998
<S> <C> <C>
Cash and due from banks $ 4,484 $ 495
Interest-bearing deposits in other financial institutions 5,130 13,395
------- -------
Cash and cash equivalents 9,614 13,890
Certificates of deposit in other financial institutions 1,124 2,004
Investment securities available for sale - at market 17,402 11,835
Mortgage-backed securities available for sale - at market 11,217 8,924
Loans receivable - net 78,260 76,550
Office premises and equipment - at depreciated cost 923 932
Real estate acquired through foreclosure - net - 157
Federal Home Loan Bank stock - at cost 751 725
Accrued interest receivable on loans 55 125
Accrued interest receivable on mortgage-backed securities 78 70
Accrued interest receivable on investments and
interest-bearing deposits 282 308
Prepaid expenses and other assets 618 665
Prepaid federal income taxes 452 222
Deferred federal income tax assets - 30
------- -------
Total assets $120,776 $116,437
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 97,928 $ 93,477
Advances from the Federal Home Loan Bank 5,838 4,354
Other borrowed money - 2,500
Advances by borrowers for taxes and insurance 165 169
Accrued interest payable 79 118
Other liabilities 1,155 1,329
Deferred federal income taxes 223 -
------- -------
Total liabilities 105,388 101,947
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 8,663 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 931 714
Less 86,066 shares of treasury stock - at cost (1,143) (1,143)
------- -------
Total shareholders' equity 15,388 14,490
------- -------
Total liabilities and shareholders' equity $120,776 $116,437
======= =======
</TABLE>
3
<PAGE>
<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,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income
Loans $3,200 $3,161 $1,591 $1,593
Mortgage-backed securities 358 294 191 142
Investment securities 665 717 322 342
Interest-bearing deposits and other 46 116 16 47
----- ----- ----- -----
Total interest income 4,269 4,288 2,120 2,124
Interest expense
Deposits 2,440 2,366 1,217 1,172
Borrowings 169 108 70 53
----- ----- ----- -----
Total interest expense 2,609 2,474 1,287 1,225
----- ----- ----- -----
Net interest income 1,660 1,814 833 899
Provision for (recoveries of) losses on loans (1) (4) (1) (4)
----- ----- ----- -----
Net interest income after provision for
(recoveries of) losses on loans 1,661 1,818 834 903
Other income
Gain on sale of investment securities 29 4 29 4
Other operating 130 135 71 70
----- ----- ----- -----
Total other income 159 139 100 74
General, administrative and other expense
Employee compensation and benefits 595 654 307 320
Occupancy and equipment 59 60 30 31
Federal deposit insurance premiums 27 28 13 14
Franchise taxes 102 160 52 82
Data processing 110 96 51 47
Other operating 222 213 120 105
----- ----- ----- -----
Total general, administrative and other expense 1,115 1,211 573 599
----- ----- ----- -----
Earnings before income taxes 705 746 361 378
Federal income taxes
Current 62 263 (10) 127
Deferred 142 (17) 113 (3)
----- ----- ----- -----
Total federal income taxes 204 246 103 124
----- ----- ----- -----
NET EARNINGS $ 501 $ 500 $ 258 $ 254
===== ===== ===== =====
EARNINGS PER SHARE
Basic $.32 $.32 $.16 $.16
=== === === ===
Diluted $.31 $.31 $.16 $.16
=== === === ===
</TABLE>
4
<PAGE>
<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(In thousands)
For the six months For the three months
ended December 31, ended December 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net earnings $501 $500 $258 $254
Other comprehensive income, net of tax:
Unrealized holding gains on securities during
the period 236 271 141 259
Reclassification adjustment for realized gains
included in earnings (19) (3) (19) (3)
--- --- --- ---
Comprehensive income $718 $768 $380 $510
=== === === ===
</TABLE>
5
<PAGE>
<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
(In thousands)
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 501 $ 500
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 37 17
Amortization of deferred loan origination fees (32) (33)
Depreciation and amortization 35 38
Amortization of expense related to stock benefit plans 310 267
Provision for (recoveries of) losses on loans (1) (4)
Gain on sale of investment securities - (4)
Federal Home Loan Bank stock dividends (26) (25)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 88 47
Prepaid expenses and other assets 47 167
Accrued interest payable (39) (33)
Other liabilities (174) 11
Federal income taxes
Current (230) (50)
Deferred 142 (17)
------ ------
Net cash provided by operating activities 658 881
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 8,634 5,664
Purchase of investment securities (13,858) (2,758)
Proceeds from sale of investment securities - 119
Purchase of mortgage-backed securities (3,900) -
Principal repayments on mortgage-backed securities 1,555 1,354
Loan principal repayments 14,564 7,395
Loan disbursements (16,241) (10,572)
Purchase of office equipment (26) (2)
Decrease in certificates of deposit in other financial institutions - net 880 1,461
Proceeds from sale of real estate acquired through foreclosure 157 -
------ ------
Net cash provided by (used in) investing activities (8,235) 2,661
------ ------
Net cash provided by (used in) operating and investing
activities (subtotal carried forward) (7,577) 3,542
------ ------
</TABLE>
6
<PAGE>
<TABLE>
ASB Financial Corp.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended December 31,
(In thousands)
1998 1997
<S> <C> <C>
Net cash provided by (used in) operating and investing
activities (subtotal brought forward) $(7,577) $3,542
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 4,451 1,057
Proceeds from Federal Home Loan Bank advances 2,000 1,000
Repayment of Federal Home Loan Bank advances (516) (1,015)
Repayment of other borrowed money (2,500) (100)
Advances by borrowers for taxes and insurance (4) (13)
Purchase of treasury stock - (900)
Dividends paid on common stock (130) (335)
------ -----
Net cash provided by (used in) financing activities 3,301 (306)
------ -----
Net increase (decrease) in cash and cash equivalents (4,276) 3,236
Cash and cash equivalents at beginning of period 13,890 3,850
------ -----
Cash and cash equivalents at end of period $ 9,614 $7,086
====== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 302 $ 180
====== =====
Interest on deposits and borrowings $ 2,648 $2,507
====== =====
Supplemental disclosure of noncash investing activities:
Unrealized gains on securities designated as available for
sale, net of related tax effects $ 217 $ 268
====== =====
</TABLE>
7
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended December 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,
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 six month periods ended December 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
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 77,756 unallocated ESOP shares, totaled 1,577,032 for each
of the six and three month periods ended December 31, 1998. Weighted-average
common shares deemed outstanding, which gives effect to 93,460 unallocated
ESOP shares, totaled 1,575,485 and 1,551,253 for the six and three month
periods ended December 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
1,598,441 and 1,594,061 for the six and three month periods ended December
31, 1998, and 1,607,026 and 1,583,846 for the six and three month periods
ended December 31, 1997.
8
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended December 31, 1998 and 1997
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 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. 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. SFAS No. 131 is not expected to have a 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
<PAGE>
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended December 31, 1998 and 1997
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
<PAGE>
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 December 31,
1998
At December 31, 1998, the Corporation's assets totaled $120.8 million, an
increase of $4.3 million, or 3.7%, over the $116.4 million of total assets at
June 30, 1998. The increase in assets was funded primarily by growth in deposits
of $4.5 million and net proceeds from Federal Home Loan Bank ("FHLB") advances
totaling $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 $5.2 million from June 30, 1998 levels, to a total of $10.7 million
at December 31, 1998. Investment securities totaled $17.4 million at December
31, 1998, an increase of $5.6 million, or 47.0%, from June 30, 1998 levels.
During the six months ended December 31, 1998, purchases of investment
securities totaled $13.9 million, which were partially offset by maturities of
$8.6 million.
Mortgage-backed securities totaled $11.2 million at December 31, 1998, an
increase of $2.3 million, or 25.7%, over the total at June 30, 1998. The
increase was due primarily to purchases of $3.9 million during the period, which
were partially offset by principal repayments of $1.6 million.
Loans receivable increased by $1.7 million, or 2.2%, during the six month period
ended December 31, 1998, to a total of $78.3 million. Loan disbursements
amounted to $16.2 million and were partially offset by principal repayments of
$14.6 million. The allowance for loan losses totaled $746,000 at December 31,
1998, a decrease of $13,000 from the $759,000 total at June 30, 1998.
Nonperforming loans totaled $406,000 and $240,000 at December 31, 1998 and June
30, 1998, respectively. The allowance for loan losses represented 183.7% and
316.3% of nonperforming loans as of December 31, 1998 and June 30, 1998,
respectively. Although management believes that its allowance for loan losses at
December 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 $97.9 million at December 31, 1998, an increase of $4.5
million, or 4.8%, over June 30, 1998 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 decreased by $1.0 million during the six months ended December 31,
1998, to a total of $5.8 million, due to principal repayments of $2.5 million of
other borrowed money, which were partially offset by proceeds from $2.0 million
in new FHLB advances.
Shareholders' equity totaled $15.4 million at December 31, 1998, an increase of
$898,000, or 6.2%, from June 30, 1998 levels. The increase resulted primarily
from undistributed net earnings of $371,000 and an increase in unrealized gains
on securities designated as available for sale of $217,000.
American is required to meet minimum capital standards promulgated by the Office
of Thrift Supervision ("OTS"). At December 31, 1998, American's regulatory
capital was well in excess of the minimum capital requirements.
11
<PAGE>
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,
1998 and 1997
General
Net earnings amounted to $501,000 for the six months ended December 31, 1998, an
increase of $1,000, or .2%, from the $500,000 of net earnings reported for the
same period in 1997. The increase in earnings resulted primarily from a $20,000
increase in other income, a $96,000 decrease in general, administrative and
other expense and a $42,000 decrease in the provision for federal income taxes
which were partially offset by a $154,000 decrease in net interest income.
Net Interest Income
Net interest income decreased by $154,000, or 8.5%, for the six months ended
December 31, 1998, compared to the 1997 period. Interest income on loans
increased by $39,000, or 1.2%, 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 $58,000, or 5.1%, due primarily
to a decrease in yields available on such investments year to year.
Interest expense on deposits increased by $74,000, or 3.1%, due primarily to an
increase of approximately $5.5 million, or 6.1%, 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 $61,000, or 56.5%, due
primarily to an increase in the average balance of borrowings outstanding.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Savings Bank, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Savings
Bank's market area, and other factors related to the collectibility of the
Savings Bank's loan portfolio. As a result of such analysis, management elected
not to record any provision for loan losses for the six month periods ended
December 31, 1998 and 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.
12
<PAGE>
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,
1998 and 1997 (continued)
Other Income
Other income increased by $20,000, or 14.4%, for the six months ended December
31, 1998, compared to the same period in 1997. The increase resulted primarily
from a $25,000 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 $96,000, or 7.9%, during
the six months ended December 31, 1998, compared to the same period in 1997.
This decrease resulted primarily from a $59,000, or 9.0%, decrease in employee
compensation and benefits and a $58,000, or 36.3%, decrease in franchise taxes,
which were partially offset by a $14,000, or 14.6%, increase in data processing
expense and a $9,000, or 4.2%, 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 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 $204,000 for the six months ended
December 31, 1998, a decrease of $42,000, or 17.1%, compared to the same period
in 1997. This decrease resulted primarily from the decrease in net earnings
before taxes of $41,000, or 5.5%, coupled with the effects of tax credits from
the Savings Bank's investment in a low income housing partnership. The effective
tax rates were 28.9% and 33.0% for the six months ended December 31, 1998 and
1997, respectively.
Comparison of Operating Results for the Three Month Periods Ended December 31,
1998 and 1997
General
Net earnings amounted to $258,000 for the three months ended December 31, 1998,
an increase of $4,000, or 1.6%, over the $254,000 of net earnings reported for
the same period in 1997. The increase in earnings resulted primarily from a
$26,000 increase in other income, a $26,000 decrease in general, administrative
and other expense and a $21,000 decrease in the provision for federal income
taxes, which were partially offset by a $66,000 decrease in net interest income.
13
<PAGE>
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,
1998 and 1997 (continued)
Net Interest Income
Net interest income decreased by $66,000, or 7.3%, for the three months ended
December 31, 1998, compared to the 1997 period. Interest income on loans
decreased by $2,000, or .1%, during the respective periods, while interest
income on investment and mortgage-backed securities and interest-bearing
deposits and other decreased by $2,000, or .4%, due primarily to a decrease in
yields available on such investments year to year.
Interest expense on deposits increased by $45,000, or 3.8%, due primarily to an
increase of approximately $6.4 million in the average balance of deposits
outstanding. Interest expense on borrowings increased by $17,000, or 32.1%, due
primarily to an increase in the average balance of borrowings outstanding.
Provision for Losses on Loans
As a result of an analysis of 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 management elected not to
record any provision for loan losses for the three month periods ended December
31, 1998 and 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.
Other Income
Other income increased by $26,000, or 35.1%, for the three months ended December
31, 1998, compared to the same period in 1997, due primarily to a $25,000
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 $26,000, or 4.3%, during
the three months ended December 31, 1998, compared to the same period in 1997.
This decrease resulted primarily from a $13,000, or 4.1%, decrease in employee
compensation and benefits and a $30,000, or 36.6%, decrease in franchise taxes,
which were partially offset by a $15,000, or 14.3%, increase in other operating
expenses. The decrease in employee compensation and benefits resulted primarily
from the retirement of an officer and increased deferrals of loan origination
costs under SFAS No. 91. The decrease in franchise taxes reflects the effects of
the reduction in equity year to year. The increase in other operating expense
generally reflects pro-rata increases due to the Corporation's overall growth
year to year.
14
<PAGE>
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,
1998 and 1997 (continued)
Federal Income Taxes
The provision for federal income taxes totaled $103,000 for the three months
ended December 31, 1998, a decrease of $21,000, or 16.9%, compared to the same
period in 1997. This decrease resulted primarily from the decrease in net
earnings before taxes of $17,000, or 4.5%, coupled with the effects of tax
credits from the Savings Bank's investment in a low income housing partnership.
The effective tax rates were 28.5% and 32.8% for the three months ended December
31, 1998 and 1997, 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. The service bureau 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
<PAGE>
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. American does not consider contingency planning to be a
static process; therefore, 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 six months ended
December 31, 1998.
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: February 10, 1999 By: /s/Robert M. Smith
---------------------- -----------------------------------
Robert M. Smith
President, Chief Executive Officer
and Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,484
<INT-BEARING-DEPOSITS> 5,130
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,619
<INVESTMENTS-CARRYING> 1,124
<INVESTMENTS-MARKET> 1,124
<LOANS> 78,260
<ALLOWANCE> 746
<TOTAL-ASSETS> 120,776
<DEPOSITS> 97,928
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,622
<LONG-TERM> 5,838
0
0
<COMMON> 0
<OTHER-SE> 15,388
<TOTAL-LIABILITIES-AND-EQUITY> 120,776
<INTEREST-LOAN> 3,200
<INTEREST-INVEST> 1,023
<INTEREST-OTHER> 46
<INTEREST-TOTAL> 4,269
<INTEREST-DEPOSIT> 2,440
<INTEREST-EXPENSE> 2,609
<INTEREST-INCOME-NET> 1,660
<LOAN-LOSSES> (1)
<SECURITIES-GAINS> 29
<EXPENSE-OTHER> 1,115
<INCOME-PRETAX> 705
<INCOME-PRE-EXTRAORDINARY> 501
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 501
<EPS-PRIMARY> .32
<EPS-DILUTED> .31
<YIELD-ACTUAL> 2.94
<LOANS-NON> 358
<LOANS-PAST> 48
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 759
<CHARGE-OFFS> 10
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 746
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 746
</TABLE>
