-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FxZ3ZKimAeBN97unzmrQW6v+eIthvSkza0Y59nck5DeXTWXe0tYBj1KQYIMGJgVb uPhOW08obx+zu0wKwk95KA== 0001046386-98-000067.txt : 19980515 0001046386-98-000067.hdr.sgml : 19980515 ACCESSION NUMBER: 0001046386-98-000067 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASB FINANCIAL CORP /OH CENTRAL INDEX KEY: 0000944304 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 311429488 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-25906 FILM NUMBER: 98620075 BUSINESS ADDRESS: STREET 1: 503 CHILLICOTHE ST CITY: PORTSMOUTH STATE: OH ZIP: 45662 BUSINESS PHONE: 6143543177 MAIL ADDRESS: STREET 1: 503 CHILLICTHE ST CITY: PORTSMOUTH STATE: OH ZIP: 45662 10QSB 1 ASB FINANCIAL QUARTERLY STATEMENTS 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 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 ASB Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except share data) March 31, June 30, ASSETS 1998 1997 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 ======= =======
3 ASB Financial Corp.
CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except share data) Nine months ended Three months ended March 31, March 31, 1998 1997 1998 1997 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 === === === ===
4 ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended March 31, (In thousands) 1998 1997 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 ======= =======
5 ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the nine months ended March 31, (In thousands) 1998 1997 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) ===== =====
6 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 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 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 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 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 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 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 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 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 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 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 354 6,724 0 0 24,884 2,298 2,298 77,778 806 114,907 91,017 0 2,167 4,261 0 0 0 17,462 114,907 4,757 1,496 158 6,411 3,551 3,712 2,699 (12) 4 1,746 1,161 776 0 0 776 .50 .49 3.20 63 94 0 0 820 11 12 806 0 0 806
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