-----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, Amo2ThKeHaTDVYcZDBsQvzDyWXSBSursT1JuhM0N8aFR3YusxWY4CYmUUYVcd7Kw 3EhRyZIRiDPYOs4ZsfpT+Q== 0001046386-99-000020.txt : 19990215 0001046386-99-000020.hdr.sgml : 19990215 ACCESSION NUMBER: 0001046386-99-000020 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990212 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: 99534444 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 QUARTERLY FINANCIAL STATEMENTS 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 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 ASB Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except share data) December 31, June 30, ASSETS 1998 1998 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 ======= =======
3 ASB Financial Corp.
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 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 === === === ===
4 ASB Financial Corp.
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 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 === === === ===
5 ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended December 31, (In thousands) 1998 1997 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 ------ ------
6 ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the six months ended December 31, (In thousands) 1998 1997 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 ====== =====
7 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 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 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 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 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 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 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 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 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 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 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 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 6-MOS JUN-30-1999 JUL-01-1998 DEC-31-1998 4,484 5,130 0 0 28,619 1,124 1,124 78,260 746 120,776 97,928 0 1,622 5,838 0 0 0 15,388 120,776 3,200 1,023 46 4,269 2,440 2,609 1,660 (1) 29 1,115 705 501 0 0 501 .32 .31 2.94 358 48 0 0 759 10 1 746 0 0 746
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