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 September 30, 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
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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)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months or such
shorter period that the issuer was required to file such reports and (2) has
been subject to such filing requirements for the past ninety days:
Yes [X] No [ ]
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:
November 12, 2003 - 1,655,497 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 16
SIGNATURES 17
2
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, June 30,
ASSETS 2003 2003
<s> <c> <c>
Cash and due from banks $ 1,220 $ 2,932
Interest-bearing deposits in other financial institutions 1,107 4,678
-------- --------
Cash and cash equivalents 2,327 7,610
Certificates of deposit in other financial institutions 178 173
Investment securities available for sale - at market 13,019 13,005
Mortgage-backed securities available for sale - at market 11,856 12,130
Loans receivable - net 120,932 114,974
Office premises and equipment - at depreciated cost 1,890 1,829
Federal Home Loan Bank stock - at cost 1,072 1,061
Accrued interest receivable on loans 262 308
Accrued interest receivable on mortgage-backed securities 56 62
Accrued interest receivable on investments and interest-bearing deposits 133 230
Prepaid expenses and other assets 998 1,050
Prepaid federal income taxes 103 164
Deferred federal income taxes 103 159
-------- --------
Total assets $152,929 $152,755
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $130,375 $130,780
Advances from the Federal Home Loan Bank 4,429 4,188
Advances by borrowers for taxes and insurance 95 177
Accrued interest payable 445 72
Other liabilities 1,231 1,179
-------- --------
Total liabilities 136,575 136,396
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;
1,905,614 shares issued at both September 30, 2003 and
June 30, 2003 - -
Additional paid-in capital 9,895 9,895
Retained earnings, restricted 9,053 8,782
Shares acquired by stock benefit plans (285) (285)
Accumulated comprehensive income, unrealized gains
on securities designated as available for sale,
net of related tax effects 531 673
Less 250,117 and 243,267 shares of treasury stock
at September 30, 2003 and June 30 2003, respectively
- at cost (2,840) (2,706)
-------- --------
Total shareholders' equity 16,354 16,359
-------- --------
Total liabilities and shareholders' equity $152,929 $152,755
======== ========
3
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended September 30, 2003 and 2002
(In thousands, except per share data)
2003 2002
<s> <c> <c>
Interest income
Loans $1,992 $2,031
Mortgage-backed securities 32 129
Investment securities 170 303
Interest-bearing deposits and other - 11
------ ------
Total interest income 2,194 2,474
Interest expense
Deposits 726 1,058
Borrowings 14 21
------ ------
Total interest expense 740 1,079
------ ------
Net interest income 1,454 1,395
Provision for losses on loans 23 -
------ ------
Net interest income after provision for losses on loans 1,431 1,395
Other income
Gain on investment securities transactions - 5
Gain on sale of office premises and equipment 58 -
Other operating 153 128
------ ------
Total other income 211 133
General, administrative and other expense
Employee compensation and benefits 508 468
Occupancy and equipment 53 44
Data processing 109 131
Other operating 274 194
------ ------
Total general, administrative and
other expense 944 837
------ ------
Earnings before income taxes 698 691
Federal income taxes
Current 68 123
Deferred 129 80
------ ------
Total federal income taxes 197 203
------ ------
NET EARNINGS $ 501 $ 488
====== ======
EARNINGS PER SHARE
Basic $ .30 $ .32
====== ======
Diluted $ .29 $. 31
====== ======
4
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended September 30, 2003 and 2002
(In thousands)
2003 2002
<s> <c> <c>
Net earnings $ 501 $488
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities during
the period, net of taxes (benefits)
of $(73) and $16 in 2003 and 2002,
respectively (142) 32
Reclassification adjustment for realized
gains included in earnings,
net of tax of $2 in 2002 - (3)
----- ----
Comprehensive income $ 359 $517
===== ====
Accumulated comprehensive income $ 531 $879
===== ====
5
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30, 2003 and 2002
(In thousands)
2003 2002
<s> <c> <c>
Cash flows from operating activities:
Net earnings for the period $ 501 $ 488
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 91 73
Amortization of deferred loan origination fees (26) (23)
Depreciation and amortization 32 36
Provision for losses on loans 23 -
Federal Home Loan Bank stock dividends (11) (12)
Gain on sale of office premises and equipment (58) -
Gain on investment securities transactions - (5)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 149 (34)
Prepaid expenses and other assets 52 (18)
Accrued interest payable 373 484
Other liabilities 52 91
Federal income taxes
Current 61 (128)
Deferred 129 80
------- --------
Net cash provided by operating activities 1,368 1,032
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities 3,000 5,003
Proceeds from sale of office premises and equipment 58 -
Purchase of investment securities (3,074) (4,879)
Principal repayments on mortgage-backed securities 2,059 3,963
Purchase of mortgage-backed securities (2,036) (6,398)
Loan principal repayments 9,066 9,703
Loan disbursements (15,021) (10,708)
Purchase of office premises and equipment (93) (258)
------- --------
Net cash used in investing activities (6,041) (3,574)
Cash flows provided by (used in) financing activities:
Net decrease in deposit accounts (405) (814)
Proceeds from Federal Home Loan Bank advances 250 -
Repayment of Federal Home Loan Bank advances (9) (9)
Advances by borrowers for taxes and insurance (82) (85)
Purchase of treasury stock (134) (20)
Dividends paid on common shares (230) (202)
------- --------
Net cash used in financing activities (610) (1,130)
Net decrease in cash and cash equivalents (5,283) (3,672)
Cash and cash equivalents at beginning of period 7,610 7,704
------- --------
Cash and cash equivalents at end of period $ 2,327 $ 4,032
======= ========
6
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended September 30, 2003 and 2002
(In thousands)
2003 2002
<s> <c> <c>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 367 $595
===== ====
Federal income taxes $ - $230
===== ====
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $(142) $ 29
===== ====
7
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three-month periods ended September 30, 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, 2003. 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-month period ended
September 30, 2003, 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 all of the
accounts of the Corporation, American Savings Bank, fsb ("American"), ASB
Community Development Corporation and A.S.L. Services, Inc., American's
wholly-owned subsidiaries. All significant intercompany items have been
eliminated.
3. Earnings Per Share
------------------
Basic earnings per common share is computed based upon the weighted-average
number of common shares outstanding during the period less shares in the ASB
Financial Corp. Employee Stock Owenership Plan ("ESOP") that are unallocated
and not committed to be released. Weighted-average common shares deemed
outstanding give effect to 8,128 and 21,979 unallocated ESOP shares for the
three month periods ended September 30, 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 three months ended September 30, 2003 2002
<s> <c> <c>
Weighted-average common shares
outstanding (basic) 1,660,853 1,505,233
Dilutive effect of assumed exercise
of stock options 43,382 70,534
--------- ---------
Weighted-average common shares
outstanding (diluted) 1,704,235 1,575,767
========= =========
8
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three-month periods ended September 30, 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
Other 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 three-month periods ended September 30, 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 September 30, 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 September 30, 2003 totaled $289,000 and such letters
of credit expire at various times through September 2004. 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 interest entities
subsequent to January 31, 2003 and has no current intent to do so.
5. Stock Option Plan
-----------------
During fiscal 1996 the Board of Directors and shareholders 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 three-month periods ended September 30, 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
three-month periods ended September 30, 2003 and 2002, would have been
reported as the pro forma amounts indicated below:
Three months ended
September 30,
2003 2002
<s> <c> <c>
Net earnings (In thousands) As reported $501 $488
Stock-based compensation, net of tax (2) -
---- ----
Pro-forma $499 $488
==== ====
Earnings per share
Basic As reported $.30 $.32
Stock-based compensation, net of tax - -
---- ----
Pro-forma $.30 $.32
==== ====
Diluted As reported $.29 $.31
Stock-based compensation, net of tax - -
---- ----
Pro-forma $.29 $.31
==== ====
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 2003: dividend yield of 2.9% and
4.9%, respectively; expected volatility of 20.0% for both years; a risk-free
interest rate of 3.4% and 5.0%, respectively; and an expected life of ten
years for all grants.
11
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three-month periods ended September 30, 2003 and 2002
5. Stock Option Plan (continued)
-----------------------------
A summary of the status of the Corporation's Plan as of September 30, 2003
and June 30, 2003 and 2002, and changes during the periods ending on those
dates is presented below:
Three months ended Year ended
September 30, June 30,
2003 2003 2002
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 77,694 $8.89 212,915 $ 7.69 226,672 $7.70
Granted - - 9,712 16.50 - -
Exercised - - (144,933) 7.64 (13,757) 7.64
Forfeited - - - - - -
------ ----- -------- ------ ------- -----
Outstanding at end of period 77,694 $8.89 77,694 $ 8.89 212,915 $7.69
====== ===== ======== ====== ======= =====
Options exercisable at period-end 61,982 $7.71 61,982 $ 7.71 204,915 $7.65
====== ===== ======== ====== ======= =====
Weighted-average fair value of
options granted during the period N/A $ 5.28 N/A
=== ====== ===
The following information applies to options outstanding at September 30,
2003:
<s> <c>
Number outstanding 67,982
Range of exercise prices $7.64-$8.75
Number outstanding 9,712
Exercise price $16.50
Weighted-average exercise price $8.89
Weighted-average remaining contractual life 3.8 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, 2003 to September 30, 2003
-----------------------------------
At September 30, 2003, the Corporation's assets totaled $152.9 million, an
increase of $174,000, or .1%, over total assets at June 30, 2003.
Cash and cash equivalents decreased by $5.3 million, or 69.4%, from June 30,
2003 levels, to a total of $2.3 million at September 30, 2003. Investment
securities totaled $13.0 million at September 30, 2003, unchanged from June
30, 2003 levels. There were maturities of $3.0 million which were offset by
purchases of $3.1 million. Purchases of investment securities consisted
primarily of fixed-rate medium-term callable U.S. Government agency
obligations. Mortgage-backed securities totaled $11.9 million at September
30, 2003, a decrease of $274,000, or 2.3%, from the total at June 30, 2003,
due primarily to principal repayments of $2.1 million and a pre-tax decrease
in unrealized gains totaling $215,000, which were substantially offset by
purchases totaling $2.0 million.
Loans receivable increased by $6.0 million, or 5.2%, during the three-month
period ended September 30, 2003, to a total of $120.9 million. Loan
disbursements amounted to $15.0 million for the three months ended September
30, 2003, and were partially offset by principal repayments of $9.1 million.
During the three months ended September 30, 2003, loans originated consisted
of $10.0 million of loans secured by one- to four-family residential real
estate, $1.3 million of loans secured by nonresidential real estate, $2.3
million of commercial loans and $1.4 million of consumer loans.
The allowance for loan losses totaled $1.1 million and $1.0 million at
September 30, 2003 and June 30, 2003, respectively. Nonperforming and
nonaccrual loans totaled $1.2 million at both September 30, 2003 and June
30, 2003. The allowance for loan losses represented 89.8% and 82.8% of
nonperforming loans as of September 30, 2003 and June 30, 2003,
respectively. At September 30, 2003, nonperforming loans consisted of $1.0
million in one- to four-family residential real estate loans and $211,000 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 September 30, 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 $130.4 million at September 30, 2003, a decrease of
$405,000, or .3%, over June 30, 2003 levels. The decrease in deposits was
due primarily to the maturity of jumbo CD's.
Shareholders' equity totaled $16.4 million at September 30, 2003, virtually
unchanged from June 30, 2003 levels. Net earnings of $501,000, were
completely offset by dividends on common shares totaling $230,000, a
$142,000 net decrease in unrealized gains on securities designated as
available for sale and a $134,000 repurchase of treasury shares. Total
dividends on a per share basis totaled $.14 for the three months ended
September 30, 2003.
American is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision ("OTS"). At September 30, 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 September 30, 2003 and 2002
-----------------------------------------
General
- -------
Net earnings amounted to $501,000 for the three months ended September 30,
2003, an increase of $13,000, or 2.7%, compared to the $488,000 of net
earnings reported for the same period in 2002. The increase in earnings
resulted primarily from increases of $59,000 in net interest income and
$78,000 in other income, and a $6,000 decrease in the provision for federal
income taxes, which were partially offset by increases of $107,000 in
general, administrative and other expense and a $23,000 in the provision for
losses on loans.
Net Interest Income
- -------------------
Interest income on loans decreased by $39,000, or 1.9%, during the quarter
ended September 30, 2003, compared to the 2002 period. This decrease was
due primarily to a 48 basis point decrease in the weighted-average yield, to
6.76% for the 2003 quarter, which was partially offset by a $6.0 million, or
5.2%, increase in the average portfolio balance outstanding year to year.
Interest income on investment securities, mortgage-backed securities and
interest-bearing deposits decreased by $241,000, or 54.5%, due primarily to
a 282 basis point decrease in the weighted-average yield, to 2.6% for the
2003 quarter and a $274,000, or 2.2%, decrease in the average balance of the
related assets outstanding year to year.
Interest expense on deposits decreased by $332,000, or 31.4%, for the three
months ended September 30, 2003, compared to the same quarter in 2002. This
decrease was due primarily to a 102 basis point decrease in the weighted-
average cost of deposits, to 2.22% for the quarter ended September 30, 2003,
and a $405,000, or .3%, decrease in the average balance of deposits
outstanding year to year. Interest expense on borrowings decreased by
$7,000, or 33.3%, due primarily to a 75 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
lagging effects of prior quarters' 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 $59,000, or 4.2%, to a total of
$1.5 million for the three months ended September 30, 2003. The interest
rate spread increased to 3.69% for the three months ended September 30,
2003, from 3.65% for the 2002 period, while the net interest margin
decreased to 3.89% in the 2003 period, compared to 3.92% 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 $23,000 during the three months ended
September 30, 2003, an increase of $23,000, or 100%, over the comparable
quarter in 2002 where no provision was recorded. 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 September 30, 2003 and 2002 (continued)
-----------------------------------------------------
Other Income
- ------------
Other income totaled $211,000 for the three months ended September 30, 2003,
an increase of $78,000, or 58.6% over the same period in 2002. The increase
was due primarily to a $58,000 gain on sale of office premises, as well as a
$25,000, or 9.5%, increase in other operating income, primarily from ATM
transaction fees and other charges.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $944,000 for the three
months ended September 30, 2003, an increase of $107,000, or 12.8%, over the
same period in 2002. This increase was comprised of increases of $40,000,
or 8.5%, in employee compensation and benefits, $9,000, or 20.5%, in
occupancy and equipment, and $80,000, or 41.2%, in other operating expenses,
which were partially offset by a $22,000, or 16.8%, decrease in data
processing costs. The increase in employee compensation and benefits was
due primarily to normal merit increases and an increase in staffing levels.
The increase in occupancy and equipment was due to higher depreciation
expense recognized in connection with the completion of a new branch
location. The increase in other operating expenses was due to increases in
legal, accounting and consultant costs. The decrease in data processing was
due primarily to the absence of costs associated with system upgrades that
were completed in the comparable quarter in 2002.
Federal Income Taxes
- --------------------
The provision for federal income taxes totaled $197,000 for the three months
ended September 30, 2003, a decrease of $6,000, or 3.0%, compared to the
same period in 2002. This decrease was a combination of an increase in net
earnings before taxes of $7,000, or 1.0%, and was offset by the effects of
$25,000 in New Markets Tax Credits which were awarded to ASB Community
Development Corporation in fiscal 2003. The effective tax rates were 28.2%
and 29.4% for the three-month periods ended September 30, 2003 and 2002,
respectively. The decrease in the effective tax rate for the 2003 quarter
was due to the Corporation's continued participation in the New Markets Tax
Credit program.
ITEM 3: Controls and Procedures
-----------------------
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 the end of the period covered by this report.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that the Corporation's disclosure controls and
procedures are effective.
There were no significant changes in the Corporation's internal controls
which materially affected, or are reasonably likely to materially affect
the Corporation's internal controls over financial reporting.
15
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
On October 22, 2003, the Corporation held its 2003 Annual
Meeting of Shareholders. Two matters were submitted to the
shareholders for a vote. The shareholders elected six directors
to terms expiring in 2004 by the following votes:
For Withheld
<s> <c> <c>
William J. Burke 1,482,357 1,000
Gerald R. Jenkins 1,470,026 13,731
Christoper H. Lute 1,483,157 600
Larry F. Meredith 1,474,889 8,868
Louis M. Schoettle 1,482,357 1,000
Robert M. Smith 1,470,526 13,231
The shareholders also ratified the selection of Grant Thornton
LLP as the Corporation's auditors for the 2004 fiscal year by
the following vote:
For: Against: Abstain:
<s> <c> <c>
1,478,850 2,700 2,206
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
---------
31.1 CEO Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 CFO Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 CEO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 CFO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
On August 5, 2003, the Corporation filed a Form 8-K regarding its
press release announcing earnings for the quarter and year ended
June 30, 2003
16
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: November 14, 2003 By: /s/ Robert M. Smith
----------------- -------------------------------
Robert M. Smith
President and Chief Executive
Officer
Date: November 14, 2003 By: /s/ Michael L. Gampp
----------------- -------------------------------
Michael L. Gampp
Chief Financial Officer
17