UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
--------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission File Number: 0-25906
-------
ASB FINANCIAL CORP.
- ---------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Ohio 31-1429488
- -------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
503 Chillicothe Street, Portsmouth, Ohio 45662
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(Address of principal executive offices)
(740) 354-3177
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
May 14, 2003 - 1,628,895 shares of common stock, no par value
- ---------------------------------------------------------------------------
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
1
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
PART II - OTHER INFORMATION 18
SIGNATURES 19
CERTIFICATIONS 20
2
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, June 30,
ASSETS 2003 2002
<s> <c> <c>
Cash and due from banks $ 3,658 $ 1,428
Interest-bearing deposits in other financial institutions 2,177 6,276
-------- --------
Cash and cash equivalents 5,835 7,704
Certificates of deposit in other financial institutions 172 100
Investment securities available for sale - at market 16,232 20,866
Mortgage-backed securities available for sale - at market 10,032 7,091
Loans receivable - net 114,718 109,015
Office premises and equipment - at depreciated cost 1,757 1,277
Federal Home Loan Bank stock - at cost 1,051 1,017
Accrued interest receivable on loans 181 216
Accrued interest receivable on mortgage-backed securities 55 41
Accrued interest receivable on investments and
interest-bearing deposits 251 293
Prepaid expenses and other assets 690 646
Prepaid federal income taxes 224 -
Deferred federal income taxes - 6
-------- --------
Total assets $151,198 $148,272
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $127,908 $126,872
Advances from the Federal Home Loan Bank 4,197 4,223
Advances by borrowers for taxes and insurance 110 162
Accrued interest payable 500 85
Other liabilities 2,705 1,307
Accrued federal income taxes - 169
Deferred federal income taxes 35 -
-------- --------
Total liabilities 135,455 132,818
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; 1,866,114 and 1,760,681 shares
issued at March 31, 2003 and June 30, 2002,
respectively - -
Additional paid-in capital 9,478 8,619
Retained earnings, restricted 8,455 9,152
Shares acquired by stock benefit plans (286) (537)
Accumulated comprehensive income, unrealized gains
on securities designated as available for sale,
net of related tax effects 775 850
Less 237,219 and 232,819 shares of treasury stock
at March 31, 2003 and June 30 2002, respectively -
at cost (2,679) (2,630)
-------- --------
Total shareholders' equity 15,743 15,454
-------- --------
Total liabilities and shareholders' equity $151,198 $148,272
======== ========
3
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Nine months ended Three months ended
March 31, March 31,
2003 2002 2003 2002
<s> <c> <c> <c> <c>
Interest income
Loans $6,090 $5,975 $2,016 $1,941
Mortgage-backed securities 342 335 98 90
Investment securities 732 928 182 279
Interest-bearing deposits and other 30 9 8 6
------ ------ ------ ------
Total interest income 7,194 7,247 2,304 2,316
Interest expense
Deposits 2,920 3,894 899 1,086
Borrowings 71 114 20 31
------ ------ ------ ------
Total interest expense 2,991 4,008 919 1,117
------ ------ ------ ------
Net interest income 4,203 3,239 1,385 1,199
Provision for losses on loans 169 45 45 23
------ ------ ------ ------
Net interest income after provision
for losses on loans 4,034 3,194 1,340 1,176
Other income
Gain on investment securities
transactions 55 31 43 -
Other operating 404 342 136 103
------ ------ ------ ------
Total other income 459 373 179 103
General, administrative and other expense
Employee compensation and benefits 1,227 1,125 454 417
Occupancy and equipment 137 136 46 45
Franchise taxes 104 135 40 44
Data processing 313 280 107 93
------ ------ ------ ------
Other operating 572 554 194 201
------ ------ ------ ------
Total general, administrative and
other expense 2,353 2,247 841 800
Earnings before income taxes 2,140 1,320 678 479
Federal income taxes
Current 552 362 174 203
Deferred 79 33 (1) (53)
------ ------ ------ ------
Total federal income taxes 631 395 173 150
------ ------ ------ ------
NET EARNINGS $1,509 $ 925 $ 505 $ 329
====== ====== ====== ======
EARNINGS PER SHARE
Basic $ .99 $ .61 $ .32 $ .22
====== ====== ====== ======
Diluted $ .96 $ .60 $ .32 $ .21
====== ====== ====== ======
4
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Nine months ended Three months ended
March 31, March 31,
2003 2002 2003 2002
<s> <c> <c> <c> <c>
Net earnings $1,509 $ 925 $ 505 $ 329
Other comprehensive income (loss), net
of tax:
Unrealized holding losses on securities
during the period, net of tax benefits
of $20, $116, $59 and $118 in each
respective period (39) (225) (114) (230)
Reclassification adjustment for realized
gains included in earnings, net of
taxes of $19, $11 and $15 in each
respective period (36) (20) (28) -
------ ------ ------ ------
Comprehensive income $1,434 $ 680 $ 363 $ 99
====== ====== ====== ======
Accumulated comprehensive income $ 775 $ 534 $ 775 $ 534
====== ====== ====== ======
5
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
2003 2002
<s> <c> <c>
Cash flows from operating activities:
Net earnings for the period $ 1,509 $ 925
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of discounts and premiums on loans, deposits,
investments and mortgage-backed securities - net (59) 24
Amortization of deferred loan origination fees (86) (75)
Depreciation and amortization 94 97
Amortization of expense related to stock benefit plans 345 276
Provisions for losses on loans 169 45
Gain on investment securities transactions (55) (31)
Federal Home Loan Bank stock dividends (34) (34)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 63 32
Prepaid expenses and other assets (44) 259
Accrued interest payable 415 550
Other liabilities 1,398 (141)
Federal income taxes
Current (393) (3)
Deferred 79 33
-------- --------
Net cash provided by operating activities 3,401 1,957
Cash flows provided by (used in) investing activities:
Purchase of certificates of deposit (72) -
Proceeds from maturity of investment securities 14,065 21,018
Proceeds from sales of investment securities 4,001 32
Purchase of investment securities (13,649) (19,734)
Principal repayments on mortgage-backed securities 5,400 4,173
Purchase of mortgage-backed securities (8,303) (993)
Loan principal repayments 26,635 28,054
Loan disbursements (32,758) (27,200)
Proceeds from sale of real estate acquired through foreclosure 445 -
Purchase of office premises and equipment (574) (8)
-------- --------
Net cash provided by (used in) investing activities (4,810) 5,342
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts 1,108 (336)
Repayment of Federal Home Loan Bank advances (26) (25)
Advances by borrowers for taxes and insurance (52) (90)
Purchase of treasury stock (49) (70)
Proceeds from exercise of stock options 805 105
Dividends paid and declared on common stock (2,246) (556)
-------- --------
Net cash used in financing activities (460) (972)
-------- --------
Net increase (decrease) in cash and cash equivalents (1,869) 6,327
Cash and cash equivalents at beginning of period 7,704 4,649
-------- --------
Cash and cash equivalents at end of period $ 5,835 $ 10,976
======== ========
6
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
(In thousands)
2003 2002
<s> <c> <c>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 948 $ 325
======== ========
Interest on deposits and borrowings $ 2,576 $ 3,458
======== ========
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as available
for sale, net of related tax effects $ (75) $ (245)
======== ========
7
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine- and three-month periods ended March 31, 2003 and 2002
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements were prepared
in accordance with the 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
accounting principles generally accepted in the United States of America.
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, 2002. 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 nine- and three-month periods
ended March 31, 2003, are not necessarily indicative of the results which
may be expected for the entire fiscal year.
In June 2002, the Corporation's wholly-owned subsidiary, American Savings
Bank, fsb ("American" or the "Savings Bank") acquired substantially all of
the assets and liabilities of The Waverly Building and Loan Company
("Waverly"). The acquisition was accounted for using the purchase method of
accounting. The business combination with Waverly added approximately $5.6
million in assets and $4.6 million in liabilities to the Corporation at June
30, 2002. Consistent with the purchase method of accounting, the
Corporation's prior years operating results were not restated for the
acquisition.
2. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
the Corporation and American. All significant intercompany items have been
eliminated.
3. Earnings Per Share
------------------
Basic earnings per common share are computed based upon the weighted-average
number of common shares outstanding during the period less shares in the
ESOP that are unallocated and not committed to be released. Weighted-
average common shares deemed outstanding give effect to 9,179 and 21,929
unallocated ESOP shares for both of the nine- and three-month periods ended
March 31, 2003 and 2002, respectively. Diluted earnings per common share
include the dilutive effect of all additional potential common shares
issuable under the Corporation's stock option plan. The computations are as
follows:
For the nine months ended For the three months ended
March 31, March 31,
2003 2002 2003 2002
<s> <c> <c> <c> <c>
Weighted-average common shares
outstanding (basic) 1,525,651 1,509,951 1,570,530 1,523,636
Dilutive effect of assumed exercise
of stock options 44,532 42,134 43,902 43,426
--------- --------- --------- ---------
Weighted-average common shares
outstanding (diluted) 1,570,183 1,552,085 1,614,432 1,567,062
========= ========= ========= =========
8
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine- and three-month periods ended March 31, 2003 and 2002
4. Effects of Recent Accounting Pronouncements
-------------------------------------------
In June 2002, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and
Intangible Assets," which prescribes accounting for all purchased goodwill
and intangible assets. Pursuant to SFAS No. 142, acquired goodwill is not
amortized, but is tested for impairment at the reporting unit level annually
and whenever an impairment indicator arises. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2002. Management adopted SFAS No.
142 effective July 1, 2002, as required, without material effect on the
Corporation's financial position or results of operations.
In August 2002, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which carries over the recognition and
measurement provisions in SFAS No. 121. Accordingly, an entity must
recognize an impairment loss if the carrying value of a long-lived asset or
asset group (a) is not recoverable and (b) exceeds its fair value. Similar
to SFAS No. 121, SFAS No. 144 requires an entity to test an asset or asset
group for impairment whenever events or changes in circumstances indicate
that its carrying amount may not be recoverable. SFAS No. 144 differs from
SFAS No. 121 in that it provides guidance on estimating future cash flows to
test recoverability. SFAS No. 144 is effective for financial statements
issued for fiscal years beginning after December 15, 2002 and interim
periods within those fiscal years. Management adopted SFAS No. 144
effective July 1, 2002, without material effect on the Corporation's
financial condition or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 provides financial
accounting and reporting guidance for costs associated with exit or disposal
activities, including one-time termination benefits, contract termination
costs other than for a capital lease, and costs to consolidate facilities or
relocate employees. SFAS No. 146 is effective for exit or disposal
activities initiated after December 31, 2002. Management adopted SFAS No.
146 effective January 1, 2003, without material effect on the Corporation's
financial condition or results of operations.
In October 2002, the FASB issued SFAS No. 147, "Accounting for Certain
Financial Institutions: An Amendment of FASB Statements No. 72 and 144 and
FASB Interpretation No. 9," which removes acquisitions of financial
institutions from the scope of SFAS No. 72, "Accounting for Certain
Acquisitions of Banking and Thrift Institutions," except for transactions
between mutual enterprises. Accordingly, the excess of the fair value of
liabilities assumed over the fair value of tangible and intangible assets
acquired in a business combination should be recognized and accounted for as
goodwill in accordance with SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 147 also requires that the acquisition of a less-than-whole
financial institution, such as a branch, be accounted for as a business
combination if the transferred assets and activities constitute a business.
Otherwise, the acquisition should be accounted for as the acquisition of net
assets. SFAS No. 147 also amends the scope of SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," to include long-term
customer relationship assets of financial institutions (including mutual
enterprises) such as depositor- and borrower-relationship intangible assets
and credit card holder intangible assets.
The provisions of SFAS No. 147 related to unidentifiable intangible assets
and the acquisition of a less-than-whole financial institution are effective
for acquisitions for which the date of acquisition is on or after October 1,
2002. The provisions related to impairment of long-term customer
relationship assets are effective October 1, 2002. Transition provisions
for previously recognized unidentifiable intangible assets are effective on
October 1, 2002, with earlier application permitted. Management adopted
SFAS No. 147 effective October 1, 2002, without material effect on the
Corporation's financial condition or results of operations.
9
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine- and three-month periods ended March 31, 2003 and 2002
4. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No.
123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In addition, SFAS No.
148 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method
of accounting used for stock-based employee compensation and the effect of
the method used on reported results. SFAS No. 148 is effective for fiscal
years beginning after December 15, 2002. The interim disclosure provisions
are effective for financial reports containing financial statements for
interim periods beginning after December 15, 2002. Management adopted the
disclosure provisions of SFAS No. 148 effective March 31, 2003, without
material effect on the Corporation's financial condition or results of
operations.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires a
guarantor entity, at the inception of a guarantee covered by the measurement
provisions of the interpretation, to record a liability for the fair value
of the obligation undertaken in issuing the guarantee. The Corporation has
financial letters of credit, which may require the Corporation to make
payment if the customer's financial condition deteriorates, as defined in
the agreements. FIN 45 requires the Corporation to record an initial
liability generally equal to the fees received for these letters of credit
when guaranteeing obligations. FIN 45 applies prospectively to letters of
credit the Corporation issues or modifies subsequent to December 31, 2002.
The maximum potential undiscounted amount of future payments of these
letters of credit as of March 31, 2003 are $312,000 and they expire through
September 2003. Amounts due under these letters of credit would be reduced
by any proceeds that the Corporation would be able to obtain in liquidating
the collateral for the loans, which varies depending on the customer.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 requires a variable
interest entity to be consolidated by a company if that company is subject
to a majority of the risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual
returns, or both. FIN 46 also requires disclosures about variable interest
entities that a company is not required to consolidate, but in which it has
a significant variable interest. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31,
2003. The consolidation requirements apply to existing entities in the
first fiscal year or interim period beginning after June 15, 2003. Certain
of the disclosure requirements apply in all financial statements issued
after January 31, 2003, regardless of when the variable interest entity was
established. Management has not established any variable entities
subsequent to January 31, 2003. Management is currently evaluating the
effect of the provisions of FIN 46 on its financial statements.
5. Stock Option Plan
-----------------
During fiscal 1996 the Board of Directors adopted the ASB Financial Corp.
Stock Option and Incentive Plan (the "Plan") that provided for the issuance
of 225,423 shares, as adjusted, of authorized but unissued shares of common
stock at fair value at the date of grant. In fiscal 1996, the Corporation
granted 197,521 options which have an adjusted exercise price of $7.64. The
number of options granted and the exercise price have been adjusted to give
effect to the return of capital and special dividend distributions paid by
the Corporation. The Plan provides that one-fifth of the options granted
become exercisable on each of the first five anniversaries of the date of
grant.
10
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine- and three-month periods ended March 31, 2003 and 2002
5. Stock Option Plan (continued)
-----------------
The Corporation accounts for the Plan in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation," which contains a fair value-based
method for valuing stock-based compensation that entities may use, which
measures compensation cost at the grant date based on the fair value of the
award. Compensation is then recognized over the service period, which is
usually the vesting period. Alternatively, SFAS No. 123 permits entities to
continue to account for stock options and similar equity instruments under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees." Entities that continue to account for stock options
using APB Opinion No. 25 are required to make pro forma disclosures of net
earnings and earnings per share, as if the fair value-based method of
accounting defined in SFAS No. 123 had been applied.
The Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for the Plan. Accordingly, no compensation cost has been
recognized for the Plan. Had compensation cost for the Corporation's stock
option plan been determined based on the fair value at the grant dates for
awards under the Plan consistent with the accounting method utilized in SFAS
No. 123, the Corporation's net earnings and earnings per share for the nine-
and three-month periods ended March 31, 2003 and 2002, would have been
reported as the pro forma amounts indicated below:
Nine months ended Three months ended
March 31, March 31,
2003 2002 2003 2002
<s> <c> <c> <c> <c>
Net earnings (In thousands) As reported $1,509 $925 $505 $329
Stock-based compensation, net of tax (2) (17) (1) (6)
Pro-forma $1,507 $908 $504 $323
Earnings per share
Basic As reported $ .99 $.61 $.32 $.22
Stock-based compensation, net of tax - (.01) - (.01)
Pro-forma $ .99 $.60 $.32 $.21
Diluted As reported $ .96 $.60 $.32 $.21
Stock-based compensation, net of tax - (.01) - (.01)
Pro-forma $ .96 $.59 $.32 $.20
The fair value of each option grant is estimated on the date of grant using
the modified Black-Scholes options-pricing model with the following
assumptions used for grants during fiscal 2001: dividend yield of 4.9%;
expected volatility of 20.0%; a risk-free interest rate of 5.0%; and an
expected life of ten years.
11
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine- and three-month periods ended March 31, 2003 and 2002
5. Stock Option Plan (continued)
-----------------
A summary of the status of the Corporation's Plan as of March 31, 2003 and
June 30, 2002 and 2001, and changes during the periods ending on those dates
is presented below:
Nine months ended Year ended
March 31, June 30,
2003 2002 2001
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
<s> <c> <c> <c> <c> <c> <c>
Outstanding at beginning of period 212,915 $7.69 226,672 $7.70 164,557 $10.08
Adjustment for special dividend
distributions - - - - 52,115 (2.44)
Granted - - - - 10,000 8.75
Exercised (105,433) 7.64 (13,757) 7.64 - -
Forfeited - - - - - -
------- ----- ------- ----- ------- ------
Outstanding at end of period 107,482 $7.75 212,915 $7.69 226,672 $ 7.70
======= ===== ======= ===== ======= ======
Options exercisable at period-end 100,982 $7.65 204,915 $7.65 216,672 $ 7.64
======= ===== ======= ===== ======= ======
Weighted-average fair value of
options granted during the period $ - $ - $ 1.34
===== ===== ======
The following information applies to options outstanding at March 31, 2003:
<s> <c>
Number outstanding 107,482
Range of exercise prices $7.64 - $8.75
Weighted-average exercise price $7.75
Weighted-average remaining contractual life 3.2 years
12
ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from
- ----------------------------------------------
June 30, 2002 to March 31, 2003
-------------------------------
At March 31, 2003, the Corporation's assets totaled $151.2 million, an
increase of $2.9 million, or 2.0%, over total assets at June 30, 2002.
Cash and cash equivalents decreased by $1.9 million, or 24.3%, from June 30,
2002 levels, to a total of $5.8 million at March 31, 2003. Investment
securities totaled $16.2 million at March 31, 2003, a decrease of $4.6
million, or 22.2%, from June 30, 2002 levels. The decrease was due
primarily to maturities of $14.1 million and sales of $4.0 million, which
were partially offset by purchases of $13.6 million. Purchases of
investment securities consisted primarily of fixed-rate medium-term callable
U.S. Government agency obligations. Mortgage-backed securities totaled
$10.0 million at March 31, 2003, an increase of $2.9 million, or 41.5%, over
the total at June 30, 2002, due primarily to purchases of $8.3 million,
which were partially offset by principal repayments of $5.4 million during
the period.
Loans receivable increased by $5.7 million, or 5.2%, during the nine-month
period ended March 31, 2003, to a total of $114.7 million. Loan
disbursements amounted to $32.8 million, which were partially offset by
principal repayments of $26.6 million. During the nine months ended March
31, 2003, loans originated consisted of $18.0 million of loans secured by
one- to four-family residential real estate, $4.2 million of loans secured
by nonresidential real estate, $8.1 million of commercial loans and $2.5
million of consumer loans.
The allowance for loan losses totaled $937,000 and $855,000 at March 31,
2003 and June 30, 2002, respectively. Nonperforming and nonaccrual loans
totaled $1.3 million and $707,000 at March 31, 2003 and June 30, 2002,
respectively. The allowance for loan losses represented 69.7% and 120.9% of
nonperforming loans as of March 31, 2003 and June 30, 2002, respectively.
At March 31, 2003, nonperforming loans consisted of $974,000 in one- to
four-family residential real estate loans and $371,000 in nonresidential
real estate, consumer and other loans. Management believes such loans are
adequately collateralized and does not expect to incur any losses on such
loans. Although management believes that its allowance for loan losses at
March 31, 2003, was 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 $127.9 million at March 31, 2003, an increase of $1.0
million, or .8%, over June 30, 2002 levels. The increase in deposits was
due primarily to an increase in money market accounts.
Shareholders' equity totaled $15.7 million at March 31, 2003, an increase of
$289,000, or 1.9%, over June 30, 2002 levels. The increase resulted
primarily from net earnings of $1.5 million and proceeds from exercises of
stock options totaling $805,000, which were partially offset by dividends on
common shares totaling $2.2 million, a $75,000 decrease in unrealized gains
on securities designated as available for sale and a $49,000 repurchase of
treasury shares. On March 25, 2003, the Corporation declared a special
dividend of $1.00 per share in addition to the regular quarterly dividend of
$.13 per share. Total dividends on a per share basis totaled $1.39 for the
nine months ended March 31, 2003.
American is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision ("OTS"). At March 31, 2003, American's
regulatory capital was well in excess of the minimum capital requirements.
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, 2003 and 2002
-------------------------------------
General
- -------
Net earnings amounted to $505,000 for the three months ended March 31, 2003,
an increase of $176,000, or 53.5%, compared to the $329,000 of net earnings
reported for the same period in 2002. The increase in earnings resulted
primarily from increases of $186,000 in net interest income and $76,000 in
other income, which were partially offset by increases of $41,000 in
general, administrative and other expense, $22,000 in the provision for
losses on loans and $23,000 in the provision for federal income taxes. The
aforementioned increases in income and expense are partially attributable to
the acquisition of Waverly in June 2002. Prior year results were not
restated for the acquisition.
Net Interest Income
- -------------------
Interest income on loans increased by $75,000, or 3.9%, during the quarter
ended March 31, 2003, compared to the 2002 period. This increase was due
primarily to a $10.4 million, or 10.1%, increase in the average portfolio
balance outstanding year to year, which was partially offset by a 50 basis
point decrease in the weighted-average yield, to 7.10% for the 2003 quarter.
Interest income on investment securities, mortgage-backed securities and
interest-bearing deposits decreased by $87,000, or 23.2%, due primarily to a
92 basis point decrease in the weighted-average yield, to 3.60% for the 2003
quarter, which was partially offset by an $841,000, or 2.7%, increase in the
average balance of the related assets outstanding year to year.
Interest expense on deposits decreased by $187,000, or 17.2%, for the three
months ended March 31, 2003, compared to the same quarter in 2002. This
decrease was due primarily to an 80 basis point decrease in the weighted-
average cost of deposits, to 2.78% for the quarter ended March 31, 2003,
which was partially offset by a $9.1 million, or 7.5%, increase in the
average balance of deposits outstanding year to year. Interest expense on
borrowings decreased by $11,000, or 35.5%, due primarily to a decrease in
the average balance of borrowings outstanding and a 65 basis point decrease
in the average cost of borrowings. The decrease in the yields on interest-
earning assets and the costs of interest-bearing liabilities was due
primarily to the overall decrease in interest rates in the economy.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $186,000, or 15.5%, to a total of
$1.4 million for the three months ended March 31, 2003. The interest rate
spread increased to 3.58% for the three months ended March 31, 2003, from
3.29% for the 2002 period, while the net interest margin increased to 3.81%
in the 2003 period, compared to 3.54% in the 2002 period.
Provision for Losses on Loans
- -----------------------------
American charges a provision for losses on loans 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 American, the status of past due principal and interest
payments, general economic conditions, particularly as such conditions
relate to American's market area, and other factors related to the
collectibility of American's loan portfolio. The Corporation recorded a
provision for losses on loans totaling $45,000 during the three months ended
March 31, 2003, an increase of $22,000, or 95.7%, over the comparable
quarter in 2002. The current period provision was predicated primarily upon
an increase in commercial loans and loans secured by nonresidential real
estate and an increase in nonperforming loans. There can be no assurance
that the loan loss allowance will be adequate to absorb losses on known
nonperforming assets or that the allowance will be adequate to cover losses
on nonperforming assets in the future, which could adversely affect the
Corporation's results of operations.
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 March 31, 2003 and 2002 (continued)
-------------------------------------
Other Income
- ------------
Other income totaled $179,000 for the three months ended March 31, 2003, an
increase of $76,000, or 73.8% over the same period in 2002. The increase
was due to a $43,000 gain on the sale of investment securities, as well as a
$33,000, or 32.0%, increase in other operating income, primarily ATM
transaction fees and other charges.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $841,000 for the three
months ended March 31, 2003, an increase of $41,000, or 5.1%, over the same
period in 2002. This increase was comprised primarily of increases of
$37,000, or 8.9%, in employee compensation and benefits and $14,000, or
15.1%, in data processing. The increase in employee compensation and
benefits was due primarily to normal merit increases and an increase in
staffing levels due to the Waverly acquisition. The increase in data
processing was due primarily to costs associated with increased transaction
volume from growth in loans and deposits.
Federal Income Taxes
- --------------------
The provision for federal income taxes totaled $173,000 for the three months
ended March 31, 2003, an increase of $23,000, or 15.3%, compared to the same
period in 2002. This increase resulted primarily from an increase in net
earnings before taxes of $199,000, or 41.5%. The effective tax rates were
25.5% and 31.3% for the three-month periods ended March 31, 2003 and 2002,
respectively. The decrease in the effective tax rate for the 2003 quarter
was due to the Corporation's participation in a new lending tax credit
program in 2003.
Comparison of Operating Results for the Nine-Month
- --------------------------------------------------
Periods Ended March 31, 2003 and 2002
-------------------------------------
General
- -------
Net earnings amounted to $1.5 million for the nine months ended March 31,
2003, an increase of $584,000, or 63.1%, compared to the $925,000 of net
earnings reported for the same period in 2002. The increase in earnings
resulted primarily from increases of $964,000 in net interest income and
$86,000 in other income, which were partially offset by increases of
$124,000 in the provision for losses on loans, $106,000 in general,
administrative and other expense and $236,000 in the provision for federal
income taxes. The aforementioned increases in income and expense are
partially attributable to the acquisition of Waverly in June 2002. Prior
year results were not restated for the acquisition.
Net Interest Income
- -------------------
Interest income on loans increased by $115,000, or 1.9%, during the nine
months ended March 31, 2003, compared to the 2002 period. This increase was
due primarily to an $8.1 million, or 7.8%, increase in the average portfolio
balance outstanding year to year, which was partially offset by a 45 basis
point decrease in the weighted-average yield, to 7.28% for the 2003 period.
Interest income on investment securities, mortgage-backed securities and
interest-bearing deposits decreased by $168,000, or 13.2%, due primarily to
a 70 basis point decrease in the weighted-average yield, to 4.46% for the
2002 period, which was partially offset by a $635,000, or 2.0%, increase in
the average balance of the related assets outstanding year to year.
15
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, 2003 and 2002 (continued)
-------------------------------------
Net Interest Income (continued)
- -------------------
Interest expense on deposits decreased by $974,000, or 25.0%, for the nine
months ended March 31, 2003, compared to the 2002 period. This decrease was
due primarily to a 134 basis point decrease in the weighted-average cost of
deposits, to 2.99% for the period ended March 31, 2003, which was partially
offset by a $9.9 million, or 8.2%, increase in the average balance of
deposits outstanding year to year. Interest expense on borrowings decreased
by $43,000, or 37.7%, due primarily to a decrease in the average balance of
borrowings outstanding and a 69 basis point decrease in the average cost of
borrowings. The decrease in the yields on interest-earning assets and the
costs of interest-bearing liabilities was due primarily to the overall
decrease in interest rates in the economy.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $964,000, or 29.8%, to a total of
$4.2 million for the nine months ended March 31, 2003. The interest rate
spread increased to 3.67% for the nine months ended March 31, 2003, from
2.80% for the 2002 period, while the net interest margin increased to 3.88%
in the 2003 period, compared to 3.18% in the 2002 period.
Provision for Losses on Loans
- -----------------------------
Management recorded a provision for losses on loans totaling $169,000 during
the nine months ended March 31, 2003, an increase of $124,000, compared to
the same period in 2002. The current period provision was predicated
primarily upon growth in the portfolio of loans secured by nonresidential
real estate and an increase in nonperforming loans. There can be no
assurance that the loan loss allowance will be adequate to absorb losses on
known nonperforming assets or that the allowance will be adequate to cover
losses on nonperforming assets in the future, which could adversely affect
the Corporation's results of operations.
Other Income
- ------------
Other income amounted to $459,000 for the nine months ended March 31, 2003,
an increase of $86,000, or 23.1%, compared to the same period in 2002, due
primarily to increased fee income of $62,000 on transaction accounts during
the nine month period and a $24,000 increase in the gain on sale of
investment securities year to year.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $2.4 million for the nine
months ended March 31, 2003, an increase of $106,000, or 4.7%, compared to
the same period in 2002. This increase was comprised primarily of increases
of $102,000, or 9.1%, in employee compensation and benefits and $33,000, or
11.8%, in data processing. These increases were partially offset by a
$31,000, or 23.0%, decrease in franchise tax expense. The increase in
employee compensation and benefits was due primarily to the effect of the
Waverly acquisition, increases in health and other benefit plan costs, as
well as normal merit increases year to year. The increase in data
processing also related to the effects of the acquisition of Waverly as
compared to the same period in 2002. The decrease in franchise taxes
resulted from refund claims filed on prior year tax liabilities.
16
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, 2003 and 2002 (continued)
-------------------------------------
Federal Income Taxes
- --------------------
The provision for federal income taxes totaled $631,000 for the nine months
ended March 31, 2003, an increase of $236,000, or 59.7%, compared to the
same period in 2002. This increase resulted primarily from an increase in
net earnings before taxes of $820,000, or 62.1%. The effective tax rates
were 29.5% and 29.9% for the nine-month periods ended March 31, 2003 and
2002, respectively.
ITEM 3: Controls and Procedures
-----------------------
(a) The Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Corporation's disclosure controls and
procedures (as defined under Rules 13a-14 and 15d-14 of the Securities
Exchange Act of 1934, as amended) as of a date within ninety days of the
filing date of this quarterly report on Form 10-QSB. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Corporation's disclosure controls and procedures are
effective.
(b) There were no significant changes in the Corporation's internal
controls or in any factors that could significantly affect these controls
subsequent to the date of the Chief Executive Officer and the Chief
Financial Officer's evaluation.
17
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
---------------------------------------------------
None.
ITEM 5. Other Information
-----------------
None.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits:
EX-99.1 Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350
EX-99.2 Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350
Reports on Form 8-K: None.
18
ASB Financial Corp.
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ASB FINANCIAL CORP.
Date: May 14, 2003 By: /s/ Robert M. Smith
------------ ---------------------------------
Robert M. Smith
President and Chief Executive
Officer
Date: May 14, 2003 By: /s/ Michael L. Gampp
---------------------------------
Michael L. Gampp
Chief Financial Officer
19
CERTIFICATION
-------------
I, Robert M. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ASB Financial
Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003 /s/ Robert M. Smith
------------------------------------
Robert M. Smith
President and Chief Executive Officer
20
CERTIFICATION
-------------
I, Michael L. Gampp, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ASB Financial
Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003 /s/ Michael L. Gampp
------------------------------------
Michael L. Gampp
Chief Financial Officer
21