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 December 31, 1996 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) Issuers' 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 February 7, 1997, the latest practicable date, 1,721,412 shares of the registrant's common stock, without par value, were issued and outstanding. Page 1 of 15 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 14 SIGNATURES 15 -2- ASB Financial Corp. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except share data) December 31, June 30, ASSETS 1996 1996 ------ ------ Cash and due from banks $ 954 $ 411 Interest-bearing deposits in other financial institutions 5,926 3,425 --------- --------- Cash and cash equivalents 6,880 3,836 Certificates of deposit in other financial institutions 5,626 6,702 Investment securities available for sale - at market 16,895 19,284 Mortgage-backed securities available for sale - at market 9,746 10,728 Loans receivable - net 69,027 68,455 Office premises and equipment - at depreciated cost 899 940 Real estate acquired through foreclosure - net 663 663 Federal Home Loan Bank stock - at cost 691 667 Accrued interest receivable on loans 71 120 Accrued interest receivable on mortgage-backed securities 88 110 Accrued interest receivable on investments and interest- bearing deposits 396 479 Prepaid expenses and other assets 403 586 Prepaid federal income taxes 258 -- Deferred federal income taxes 181 352 --------- --------- Total assets $ 111,824 $ 112,922 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits $ 87,406 $ 83,395 Advances from the Federal Home Loan Bank 2,399 2,413 Other borrowed money 3,000 -- Advances by borrowers for taxes and insurance 134 162 Accrued interest payable 98 115 Other liabilities 1,224 1,219 Accrued federal income taxes -- 5 --------- --------- Total liabilities 94,261 87,309 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 and 1,713,960 shares issued and outstanding at December 31, 1996 and June 30, 1996 -- -- Additional paid-in capital 8,023 16,496 Retained earnings 10,966 11,173 Shares acquired by stock benefit plans (1,921) (2,180) Unrealized gains on securities designated as available for sale, net of related tax effects 495 124 --------- --------- Total shareholders' equity 17,563 25,613 --------- --------- Total liabilities and shareholders' equity $ 111,824 $ 112,922 ========= ========= -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, 1996 1995 1996 1995 ------ ------ ------ ------ Interest income Loans $ 2,883 $ 2,688 $ 1,449 $ 1,339 Mortgage-backed securities 356 358 169 189 Investment securities 789 794 441 383 Interest-bearing deposits and other 185 202 89 105 ------- ------- ------- ------- Total interest income 4,213 4,042 2,148 2,016 Interest expense Deposits 2,234 2,119 1,123 1,063 Borrowings 65 11 33 6 ------- ------- ------- ------- Total interest expense 2,299 2,130 1,156 1,069 ------- ------- ------- ------- Net interest income 1,914 1,912 992 947 Provision for losses on loans 22 -- -- -- ------- ------- ------- ------- Net interest income after provision for losses on loans 1,892 1,912 992 947 Other income Gain on sale of investment securities 105 -- 105 -- Other 109 73 57 31 ------- ------- ------- ------- Total other income 214 73 162 31 General, administrative and other expense Employee compensation and benefits 698 566 360 263 Occupancy and equipment 59 59 31 30 Federal deposit insurance premiums 647 94 48 46 Franchise taxes 121 67 51 33 Data processing 86 84 43 39 Other operating 285 240 144 140 ------- ------- ------- ------- Total general, administrative and other expense 1,896 1,110 677 551 ------- ------- ------- ------- Earnings before income taxes 210 875 477 427 Federal income taxes Current 94 288 198 147 Deferred (21) 12 (34) 3 ------- ------- ------- ------- Total federal income taxes 73 300 164 150 ------- ------- ------- ------- NET EARNINGS $ 137 $ 575 $ 313 $ 277 ======= ======= ======= ======= EARNINGS PER SHARE $ .08 $ .36 $ .19 $ .17 ======= ======= ======= ======= -4- ASB Financial Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended December 31, (In thousands) 1996 1995 ------ ------ Cash flows from operating activities: Net earnings for the period $ 137 $ 575 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 47 69 Amortization of deferred loan origination fees (26) (26) Depreciation and amortization 41 40 Amortization of expense related to employee benefit plans 290 211 Provision for losses on loans 22 -- Gain on sale of investment securities (105) -- Federal Home Loan Bank stock dividends (24) (22) Increase (decrease) in cash due to changes in: Accrued interest receivable 154 (12) Prepaid expenses and other assets 183 102 Accrued interest payable (17) (28) Other liabilities 5 (28) Federal income taxes Current (263) (15) Deferred (21) 12 -------- -------- Net cash provided by operating activities 423 878 Cash flows provided by (used in) investing activities: Proceeds from maturity of investment securities 5,949 5,313 Purchase of investment securities (3,207) (6,143) Proceeds from sale of investment securities 105 -- Purchase of mortgage-backed securities -- (1,741) Principal repayments on mortgage-backed securities 1,145 1,129 Loan principal repayments 10,497 7,959 Loan disbursements (11,065) (11,013) Purchase of office equipment -- (16) Decrease in certificates of deposit in other financial institutions - net 1,076 1,505 -------- -------- Net cash provided by (used in) investing activities 4,500 (3,007) -------- -------- Net cash provided by (used in) operating and investing activities (subtotal carried forward) 4,923 (2,129) -------- -------- -5- ASB Financial Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the six months ended December 31, (In thousands) 1996 1995 ------ ------ Net cash provided by (used in) operating and investing activities (subtotal brought forward) $ 4,923 $ (2,129) Cash flows provided by (used in) financing activities: Net increase in deposit accounts 4,011 2,589 Repayment of Federal Home Loan Bank advances (14) (14) Proceeds from other borrowed money 3,000 -- Advances by borrowers for taxes and insurance (28) (106) Purchase of shares for employee benefit plans -- (88) Proceeds from exercise of stock options 103 -- Dividends paid on common stock (8,951) (256) -------- -------- Net cash provided by (used in) financing activities (1,879) 2,125 -------- -------- Net increase (decrease) in cash and cash equivalents 3,044 (4) Cash and cash equivalents at beginning of period 3,836 5,926 -------- -------- Cash and cash equivalents at end of period $ 6,880 $ 5,922 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Federal income taxes $ 367 $ 220 ======== ======== Interest on deposits and borrowings $ 2,316 $ 2,158 ======== ======== Supplemental disclosure of noncash investing activities: Transfer of investment and mortgage-backed securities to an available for sale classification in accordance with SFAS No. 115 $ -- $ 22,486 ======== ======== Unrealized gains on securities designated as available for sale, net of related tax effects $ 371 $ 516 ======== ======== -6- ASB Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the three and six months ended December 31, 1996 and 1995 1. BASIS OF PRESENTATION The accompanying unaudited 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. included in the Annual Report on Form 10-KSB for the year ended June 30, 1996. 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, 1996 and 1995 are not necessarily indicative of the results which may be expected for an entire fiscal year. 2. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of ASB Financial Corp. (the Corporation) and American Savings Bank, fsb (the Savings Bank). All significant intercompany items have been eliminated. 3. EARNINGS PER SHARE Earnings per share is computed based upon the weighted-average shares outstanding during the period plus those stock options that are dilutive, less shares in the ESOP that are unallocated and not committed to be released. Weighted-average common shares deemed outstanding, which gives effect to 95,482 unallocated ESOP shares, totaled 1,619,645 and 1,620,812 for the six and three month periods ended December 31, 1996, respectively. Weighted-average common shares deemed outstanding, which gives effect to 111,352 unallocated ESOP shares, totaled 1,602,608 for each of the six and three month periods ended December 31, 1995. There is no dilutive effect associated with the Corporation's stock option plan. 4. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", establishing financial accounting and reporting standards for stock-based employee compensation plans. SFAS No. 123 encourages all entities to adopt a new method of accounting to measure compensation cost of all employee stock compensation plans based on the estimated fair value of the award at the date it is granted. Companies are, however, allowed to continue to measure compensation cost for those plans using the intrinsic value based method of accounting, which generally does not result in compensation expense recognition for most plans. Companies that elect to remain with the existing accounting are required to disclose in a footnote to the financial statements pro forma net earnings and, if presented, earnings per share, as if SFAS No. 123 had been adopted. The -7- ASB Financial Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the three and six months ended December 31, 1996 and 1995 4. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS (continued) accounting requirements of SFAS No. 123 are effective for transactions entered into during fiscal years that begin after December 15, 1995; however, companies are required to disclose information for awards granted in their first fiscal year beginning after December 15, 1994. Management has determined that the Corporation will continue to account for stock-based compensation pursuant to Accounting Principles Board Opinion No. 25, and therefore the disclosure provisions of SFAS No. 123 will have no effect on its consolidated financial condition or results of operations. In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of Financial Assets, Servicing Rights, and Extinguishment 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 assets. The new accounting method, referred to 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 does not believe that adoption of SFAS No. 125 will have a material adverse effect on the Corporation's consolidated financial position or results of operations. -8- ASB Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DISCUSSION OF FINANCIAL CONDITION CHANGES FROM JUNE 30, 1996 TO DECEMBER 31, 1996 At December 31, 1996, the Corporation's assets totaled $111.8 million, a decrease of $1.1 million, or 1.0%, from the $112.9 million of total assets at June 30, 1996. The decrease in assets resulted primarily from the $8.6 million return of capital distribution paid in December 1996, which was partially offset by growth in the deposit portfolio of $4.0 million and by an increase in borrowings of $3.0 million. Liquid assets (i.e. cash, interest-bearing deposits and certificates of deposit) increased by $2.0 million over June 30, 1996 levels, to a total of $12.5 million at December 31, 1996. Investment securities totaled $16.9 million at December 31, 1996, a decrease of $2.4 million, or 12.4%, from June 30, 1996 levels. During the six months ended December 31, 1996, $1.5 million of investment securities were sold and the proceeds utilized to fund a return of capital to shareholders. In addition, maturities of investment securities totaled $4.4 million, which were partially offset by purchases of $3.2 million during the six months ended December 31, 1996. Regulatory liquidity amounted to $16.5 million, or 17.5%, at December 31, 1996. Loans receivable increased by $572,000, or .8%, during the six month period, to a total of $69.0 million at December 31, 1996. Loan disbursements amounted to $11.1 million and were almost entirely offset by principal repayments of $10.5 million. The allowance for loan losses totaled $884,000 at December 31, 1996 and June 30, 1996. Deposits totaled $87.4 million at December 31, 1996, an increase of $4.0 million, or 4.8%, over June 30, 1996 levels. The growth in deposits can be primarily attributed to management's efforts to maintain a moderate rate of growth through marketing strategies. Borrowings increased by $3.0 million during the six months ended December 31, 1996, to a total of $5.4 million. The increase resulted primarily from a $3.0 million short-term note used to partially fund the return of capital distribution. American is required to meet each of three minimum capital standards promulgated by the Office of Thrift Supervision (OTS), hereinafter described as the tangible capital requirement, the core capital requirement and the risk-based capital requirement. The tangible capital requirement mandates maintenance of shareholders' equity less all intangible assets equal to 1.5% of adjusted total assets. The core capital requirement provides for the maintenance of tangible capital plus certain forms of supervisory goodwill equal to 3% of adjusted total assets, while the risk-based capital requirement mandates maintenance of core capital plus general loan loss allowances equal to 8% of risk-weighted assets as defined by OTS regulations. At December 31, 1996, American's tangible and core capital totaled $17.8 million, or 16.0%, of adjusted total assets, which exceeded the minimum requirements of $1.7 million and $3.3 million by $16.1 million and $14.5 million, respectively. American's risk-based capital of $18.4 million, or 35.6% of risk-weighted assets, exceeded the current 8% requirement by $14.3 million. -9- ASB Financial Corp. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) DISCUSSION OF FINANCIAL CONDITION CHANGES FROM JUNE 30, 1996 TO DECEMBER 31, 1996 (continued) COMPARISON OF OPERATING RESULTS FOR THE SIX MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995 GENERAL Net earnings amounted to $137,000 for the six months ended December 31, 1996, a decrease of $438,000, or 76.2%, from the $575,000 of net earnings reported for the same period in 1995. The decrease in earnings resulted primarily from a $551,000 charge recorded as a result of the Savings Association Insurance Fund (SAIF) recapitalization assessment, coupled with a $235,000 increase in general, administrative and other expense and a $22,000 increase in the provision for losses on loans, which were partially offset by a $141,000 increase in other income and a $227,000 decrease in the provision for federal income taxes. NET INTEREST INCOME Net interest income remained constant for the six months ended December 31, 1996, compared to the 1995 period. Interest income on loans increased by $195,000, or 7.3%, due primarily to a $5.8 million increase in the average balance of loans outstanding year to year. Interest income on investment securities and interest-bearing deposits and other decreased by $22,000, or 2.2%, due primarily to a decline in yield, which was partially offset by a $1.7 million increase in the average portfolio balance outstanding. Interest expense on deposits increased by $115,000, or 5.4%, due primarily to a $4.7 million increase in average deposits outstanding. Interest expense on borrowings increased by $54,000, or 490.9%, due primarily to a $2.0 million increase in the average balance of borrowings outstanding. PROVISION FOR LOSSES ON LOANS The allowance for loan losses totaled $884,000 at both December 31, 1996 and June 30, 1996. Nonperforming loans totaled $1.2 million at both December 31, 1996 and June 30, 1996. The allowance for loan losses represented 75.2% and 76.3% of nonperforming loans as of December 31, 1996 and June 30, 1996, respectively. A provision for losses on loans is charged to earnings to bring the total allowance for loan losses to a level considered appropriate by management based on historical experience, the volume and type of lending conducted by the Savings Bank, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to the Savings Bank's market area, and other factors related to the collectibility of the Savings Bank's loan portfolio. As a result of such analysis, management recorded a $22,000 provision for losses on loans during the six month period ended December 31, 1996. 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. -10- 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, 1996 AND 1995 (continued) PROVISION FOR LOSSES ON LOANS (continued) The foregoing statement is a "forward-looking" statement within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Factors that could affect the adequacy of the loan loss allowance include, but are not limited to, the following: (1) changes in the national and local economy which may negatively impact the ability of borrowers to repay their loans and which may cause the value of real estate and other properties that secure outstanding loans to decline; (2) unforeseen adverse changes in circumstances with respect to certain large loan borrowers; (3) decreases in the value of collateral securing consumer loans to amounts equal to less than the outstanding balances of the consumer loans; and (4) determinations by various regulatory agencies that the Savings Bank must recognize additions to its loan loss allowance based on such regulators' judgment of information available to them at the time of their examinations. OTHER INCOME Other income increased by $141,000, or 193.2%, for the six months ended December 31, 1996, compared to the same period in 1995, due primarily to a $105,000 gain on sale of investment securities, coupled with a $30,000 increase in rental income on real estate acquired via foreclosure. GENERAL, ADMINISTRATIVE AND OTHER EXPENSE General, administrative and other expense increased by $786,000, or 70.8%, during the six months ended December 31, 1996, compared to the same period in 1995. This increase resulted primarily from the $551,000 charge recorded in 1996 in connection with the SAIF recapitalization, coupled with a $132,000, or 23.3%, increase in employee compensation and benefits, a $54,000, or 80.6%, increase in franchise taxes and a $45,000, or 18.8%, increase in other operating expenses. The increase in employee compensation generally reflects normal merit increases and increased costs attendant to the Corporation's stock benefit plans which were implemented in conjunction with the Savings Bank's mutual-to-stock conversion. The increase in franchise taxes resulted from the increase in the Corporation's shareholders' equity following the conversion to stock form. The increase in other operating expense resulted primarily from an increase in professional fees related to the return of capital distribution. Legislation to recapitalize the SAIF provided for a special assessment of $.657 per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF reserves to the level required by law. The Savings Bank had $83.9 million in SAIF deposits at March 31, 1995, resulting in an assessment of approximately $551,000, or $364,000 after tax, which was recorded as a charge to operations in the quarter ended September 30, 1996, and was paid in November 1996. -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, 1996 AND 1995 (continued) GENERAL, ADMINISTRATIVE AND OTHER EXPENSE (continued) The legislation also provides for reduced premium rates for healthy savings associations beginning in 1997, estimated to be a rate of $.064 per $100 of SAIF insured deposits. A component of the recapitalization plan provides for the merger of the SAIF and BIF on January 1, 1999, and for the elimination of the federal thrift charter and of the separate federal regulation of thrifts. Pursuant to the merger, the Savings Bank would then be required to convert to a new charter and become subject to federal regulation as a bank. At this time, management is unsure as to what, if any, impact the more restrictive activity limits and capital requirements of federal banking law would have on the Savings Bank or the Corporation. FEDERAL INCOME TAXES The provision for federal income taxes decreased by $227,000, or 75.7%, for the six months ended December 31, 1996, as compared to the same period in 1995. This decrease resulted primarily from the decrease in net earnings before taxes of $665,000, or 76.0%. The effective tax rates were 34.8% and 34.3% for the six months ended December 31, 1996 and 1995, respectively. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1995 GENERAL Net earnings amounted to $313,000 for the three months ended December 31, 1996, an increase of $36,000, or 13.0%, over the $277,000 of net earnings reported for the same period in 1995. The increase in earnings resulted primarily from a $45,000 increase in net interest income and a $131,000 increase in other income, which were partially offset by a $126,000 increase in general, administrative and other expense and a $14,000 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 DECEMBER 31, 1996 AND 1995 (continued) NET INTEREST INCOME Net interest income increased by $45,000, or 4.8%, for the three months ended December 31, 1996, compared to the 1995 period. Interest income on loans increased by $110,000, or 8.2%, due primarily to a $5.5 million increase in the average balance of loans outstanding year to year. Interest income on investment securities and interest-bearing deposits increased by $42,000, or 8.6%, due primarily to an increase in the average portfolio balance outstanding. Interest expense on deposits increased by $60,000, or 5.6%, due primarily to a $4.9 million increase in the balance of deposits outstanding year to year. Interest expense on borrowings increased by $27,000 due to an increase in the average balance of borrowings outstanding year to year. OTHER INCOME Other income totaled $162,000 for the three months ended December 31, 1996, an increase of $131,000, or 422.6%, over the comparable 1995 quarter. The increase resulted primarily from a $105,000 gain on sale of investment securities in 1996, coupled with an increase in rental income from operation of a parcel of real estate acquired through foreclosure. GENERAL, ADMINISTRATIVE AND OTHER EXPENSE General, administrative and other expense increased by $126,000, or 22.9%, during the three months ended December 31, 1996, compared to the same period in 1995. This increase resulted primarily from a $97,000, or 36.9%, increase in employee compensation and benefits and an $18,000, or 54.5%, increase in franchise taxes. The increase in employee compensation generally reflects normal merit increases and increased costs attendant to the Corporation's stock benefit plans implemented in conjunction with the mutual-to-stock conversion. The increase in franchise taxes resulted primarily from the increase in shareholders' equity following the Corporation's conversion to stock form. FEDERAL INCOME TAXES The provision for federal income taxes increased by $14,000, or 9.3%, for the three months ended December 31, 1996, as compared to the same period in 1995. This increase resulted primarily from the increase in net earnings before taxes of $50,000, or 11.7%. The effective tax rates were 34.4% and 35.1% for the three months ended December 31, 1996 and 1995, respectively. -13- ASB Financial Corp. PART II ITEM 1. LEGAL PROCEEDINGS Not applicable ITEM 2. CHANGES IN SECURITIES 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. Financial data schedule for the six months ended December 31, 1996. -14- 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, 1997 By: /s/ Gerald R. Jenkins _______________________________ Gerald R. Jenkins President and Chief Executive Officer Date: February 10, 1997 By: /s/ Robert M. Smith _______________________________ Robert M. Smith Executive Vice President and Chief Financial Officer