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 December 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
- ---------------------------------------------------------------------------
(Address of principal executive offices)
(740) 354-3177
- ---------------------------------------------------------------------------
(Issuer's telephone number)
- ---------------------------------------------------------------------------
(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:
February 12, 2004 - 1,663,670 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 12
PART II - OTHER INFORMATION 17
SIGNATURES 18
2
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<CAPTION
December 31, June 30,
ASSETS 2003 2003
<s> <c> <c>
Cash and due from banks $ 1,370 $ 2,932
Interest-bearing deposits in other financial institutions 3,936 4,678
-------- --------
Cash and cash equivalents 5,306 7,610
Certificates of deposit in other financial institutions 178 173
Investment securities available for sale - at market 13,338 13,005
Mortgage-backed securities available for sale - at market 11,403 12,130
Loans receivable - net 125,235 114,974
Office premises and equipment - at depreciated cost 1,850 1,829
Federal Home Loan Bank stock - at cost 1,082 1,061
Accrued interest receivable on loans 261 308
Accrued interest receivable on mortgage-backed securities 53 62
Accrued interest receivable on investments and interest-bearing
deposits 223 230
Prepaid expenses and other assets 702 1,050
Prepaid federal income taxes 453 164
Deferred federal income taxes 67 159
-------- --------
Total assets $160,151 $152,755
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $132,482 $130,780
Advances from the Federal Home Loan Bank 9,419 4,188
Advances by borrowers for taxes and insurance 185 177
Accrued interest payable 35 72
Other liabilities 1,022 1,179
-------- --------
Total liabilities 143,143 136,396
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;
1,913,787 and 1,905,614 shares issued at December 31, 2003 and
June 30, 2003, respectively - -
Additional paid-in capital 9,851 9,895
Retained earnings, restricted 9,522 8,782
Shares acquired by stock benefit plans (126) (285)
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 601 673
Less 250,117 and 243,267 shares of treasury stock at
December 31, 2003 and June 30 2003, respectively - at cost (2,840) (2,706)
-------- --------
Total shareholders' equity 17,008 16,359
-------- --------
Total liabilities and shareholders' equity $160,151 $152,755
======== ========
3
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
For the six months For the three months
ended December 31, ended December 31,
2003 2002 2003 2002
<s> <c> <c> <c> <c>
Interest income
Loans $3,992 $4,074 $2,000 $2,043
Mortgage-backed securities 79 244 47 115
Investment securities 346 550 175 247
Interest-bearing deposits and other - 22 - 11
------ ------ ------ ------
Total interest income 4,417 4,890 2,222 2,416
Interest expense
Deposits 1,431 2,021 705 963
Borrowings 33 51 18 30
------ ------ ------ ------
Total interest expense 1,464 2,072 723 993
------ ------ ------ ------
Net interest income 2,953 2,818 1,499 1,423
Provision for losses on loans 50 124 28 124
------ ------ ------ ------
Net interest income after provision for
losses on loans 2,903 2,694 1,471 1,299
Other income
Gain on sale of investment securities 10 12 10 7
Gain on sale of office premises 58 - - -
Other operating 313 268 160 140
------ ------ ------ ------
Total other income 381 280 170 147
General, administrative and other expense
Employee compensation and benefits 1,001 773 493 305
Occupancy and equipment 116 91 63 47
Franchise taxes 85 64 43 61
Data processing 212 206 103 75
Other operating 512 378 279 187
------ ------ ------ ------
Total general, administrative and other
expense 1,926 1,512 981 675
------ ------ ------ ------
Earnings before income taxes 1,358 1,462 660 771
Federal income taxes
Current 217 378 149 255
Deferred 129 80 - -
------ ------ ------ ------
Total federal income taxes 346 458 149 255
------ ------ ------ ------
NET EARNINGS $1,012 $1,004 $ 511 $ 516
====== ====== ====== ======
EARNINGS PER SHARE
Basic $ .61 $ .67 $ .31 $ .35
====== ====== ====== ======
Diluted $ .59 $ .64 $ .30 $ .33
====== ====== ====== ======
4
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the six months For the three months
ended December 31, ended December 31,
2003 2002 2003 2002
<s> <c> <c> <c> <c>
Net earnings $1,012 $1,004 $511 $516
Other comprehensive income (loss), net of taxes (benefits):
Unrealized holding gains (losses) on securities during
the period, net of taxes (benefits) of $(33), $39, $36
and $22 during the respective periods (65) 75 77 43
Reclassification adjustment for realized gains included
in earnings, net of taxes of $3 and $4 during the six-month
periods ended December 31, 2003 and 2002 and $3 and $2
during the three-month periods ended December 31, 2003
and 2002 (7) (8) (7) (5)
------ ------ ---- ----
Comprehensive income $ 940 $1,071 $581 $554
====== ====== ==== ====
Accumulated comprehensive income $ 601 $ 917 $601 $917
====== ====== ==== ====
5
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
(In thousands)
2003 2002
<s> <c> <c>
Cash flows from operating activities:
Net earnings for the period $ 1,012 $ 1,004
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 161 82
Amortization of deferred loan origination fees (95) (68)
Depreciation and amortization 74 65
Amortization of expense related to stock benefit plans 308 345
Provision for losses on loans 50 124
Federal Home Loan Bank stock dividends (21) (23)
Gain on sale of investment securities (10) (12)
Gain on sale of office premises (58) -
Increase (decrease) in cash due to changes in:
Accrued interest receivable 63 (50)
Prepaid expenses and other assets 348 191
Accrued interest payable (37) 2
Other liabilities (157) 47
Federal income taxes
Current (289) (283)
Deferred 129 80
-------- --------
Net cash provided by operating activities 1,478 1,504
Cash flows provided by (used in) investing activities:
Purchase of investment securities (4,988) (7,320)
Proceeds from sale of office premises 58 -
Proceeds from maturity of investment securities 4,010 9,904
Proceeds from sale of investment securities 500 2,958
Purchase of mortgage-backed securities (2,783) (7,221)
Principal repayments on mortgage-backed securities 3,318 4,024
Loan principal repayments 22,001 17,096
Loan disbursements (32,145) (20,460)
Purchase of office equipment (95) (387)
-------- --------
Net cash used in investing activities (10,124) (1,406)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 1,702 891
Proceeds from Federal Home Loan Bank Advances 9,931 -
Repayment of Federal Home Loan Bank advances (4,700) (18)
Advances by borrowers for taxes and insurance 8 12
Proceeds from issuance of shares under stock option plan - 70
Purchase of treasury stock (134) (49)
Dividends paid on common stock (465) (403)
-------- --------
Net cash provided by financing activities 6,342 503
-------- --------
Net increase (decrease) in cash and cash equivalents (2,304) 601
Cash and cash equivalents at beginning of period 7,610 7,704
-------- --------
Cash and cash equivalents at end of period $ 5,306 $ 8,305
======== ========
6
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended December 31,
(In thousands)
2003 2002
<s> <c> <c>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 559 $ 688
====== ======
Interest on deposits and borrowings $1,501 $2,070
====== ======
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ (72) $ 67
====== ======
Transfers from mortgage loans to real estate acquired
through foreclosure $ - $ 445
====== ======
7
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six- and three-month periods ended December 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, 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 six- and three-month periods
ended December 31, 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 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 unallocated
ESOP shares for the six and three month periods ended December 31, 2002.
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 six months ended For the three months ended
December 31, December 31,
2003 2002 2003 2002
<s> <c> <c> <c> <c>
Weighted-average common shares
outstanding (basic) 1,659,994 1,503,904 1,659,994 1,502,586
Dilutive effect of assumed exercise
of stock options 49,576 75,218 49,576 85,672
Weighted-average common shares
outstanding (diluted) 1,709,570 1,579,122 1,709,570 1,588,258
8
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six- and three-month periods ended December 31, 2003 and 2002
4. Effects of Recent Accounting Pronouncements
-------------------------------------------
In November 2002, the Financial Accounting Standards Board (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
pertaining to such letters of credit. FIN 45 requires the Corporation to
record an initial liability generally equal to the fees received for these
letters of credit. 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 December 31, 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.
In April 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities," which clarifies certain implementation issues raised by
constituents and amends SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities," to include the conclusions reached by the FASB on
certain FASB Staff Implementation Issues that, while inconsistent with
Statement 133's conclusions, were considered by the Board to be preferable;
amends SFAS No. 133's discussion of financial guarantee contracts and the
application of the shortcut method to an interest-rate swap agreement that
includes an embedded option and amends other pronouncements.
The guidance in Statement 149 is effective for new contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after
that date. Management adopted SFAS No. 149 effective July 1, 2003, as
required, without material effect on the Corporation's financial position or
results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," which
changes the classification in the statement of financial position of certain
common financial instruments from either equity or mezzanine presentation to
liabilities and requires an issuer of those financial statements to
recognize changes in fair value or redemption amount, as applicable, in
earnings. SFAS No. 150 requires an issuer to classify certain financial
instruments as liabilities, including mandatorily redeemable preferred and
common stocks.
9
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six- and three-month periods ended December 31, 2003 and 2002
4. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------------------
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003 and, with one exception, is effective at the beginning of
the first interim period beginning after June 15, 2003 (July 1, 2003 as to
the Corporation). The effect of adopting SFAS No. 150 must be recognized as
a cumulative effect of an accounting change as of the beginning of the
period of adoption. Restatement of prior periods is not permitted.
Management adopted SFAS No. 150 effective July 1, 2003, as required, without
material effect on the Corporation's financial condition or results of
operations.
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 provides
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.
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 six-
and three-month periods ended December 31, 2003 and 2002, would have been
reported as the pro forma amounts indicated below:
Six months ended Three months ended
December 31, December 31,
2003 2002 2003 2002
<s> <c> <c> <c> <c> <c>
Net earnings (In thousands) As reported $1,012 $1,004 $511 $516
Stock-based compensation, net of tax (14) (2) (8) (1)
------ ------ ---- ----
Pro-forma $ 998 $1,002 $503 $515
====== ====== ==== ====
Earnings per share
Basic As reported $ .61 $ .67 $.31 $.35
Stock-based compensation, net of tax (.01) - (.01) -
------ ------ ---- ----
Pro-forma $ .60 $ .67 $.30 $.35
====== ====== ==== ====
Diluted As reported $ .59 $ .64 $.30 $.33
Stock-based compensation, net of tax (.01) - (.01) -
------ ------ ---- ----
Pro-forma $ .58 $ .64 $.29 $.33
====== ====== ==== ====
10
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six- and three-month periods ended December 31, 2003 and 2002
5. Stock Option Plan (continued)
-----------------------------
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 2004 and 2003, respectively:
dividend yields of 2.3% and 2.9%, respectively; expected volatility of 40.0%
and 20.0%, respectively; a risk-free interest rates of 4.3% and 3.4%,
respectively; and an expected life of ten years for all grants.
A summary of the status of the Corporation's Plan as of December 31, 2003
and June 30, 2003 and 2002, and changes during the periods ending on those
dates is presented below:
Six months ended Year ended
December 31, 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 6,000 26.00 9,712 16.50 - -
Exercised (45) 8.75 (144,933) 7.64 (13,757) 7.64
Forfeited - - - - - -
------ ------ -------- ------ ------- -----
Outstanding at end of period 83,649 $10.11 77,694 $ 8.89 212,915 $7.69
====== ====== ======== ====== ======= =====
Options exercisable at period-end 63,937 $ 7.74 61,982 $ 7.71 204,915 $7.65
====== ====== ======== ====== ======= =====
Weighted-average fair value of
options granted during the period $11.41 $ 5.28 N/A
====== ====== =====
The following information applies to options outstanding at December 31,
2003:
Number outstanding 67,937
Range of exercise prices $7.64 - $8.75
Number outstanding 15,712
Exercise price $16.50 - $26.00
Weighted-average exercise price $10.11
Weighted-average remaining contractual life 5.13 years
11
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 December 31, 2003
----------------------------------
At December 31, 2003, the Corporation's assets totaled $160.2 million, an
increase of $7.4 million, or 4.8%, over total assets at June 30, 2003.
Cash and cash equivalents decreased by $2.3 million, or 30.3%, from June 30,
2003 levels, to a total of $5.3 million at December 31, 2003. Investment
securities totaled $13.3 million at December 31, 2003, up $300,000 from June
30, 2003 levels. There were sales, maturities and premium amortization
related to investment securities totaling $4.7 million which were offset by
purchases of $5.0 million. Purchases of investment securities consisted
primarily of fixed-rate medium-term callable U.S. Government agency
obligations. Mortgage-backed securities totaled $11.4 million at December
31, 2003, a decrease of $727,000, or 6.0%, from the total at June 30, 2003,
due primarily to principal repayments of $3.3 million and a pre-tax decrease
in unrealized gains totaling $111,000, which were partially offset by
purchases totaling $2.8 million.
Loans receivable increased by $10.3 million, or 8.9%, during the six-month
period ended December 31, 2003, to a total of $125.2 million. Loan
disbursements amounted to $32.1 million for the six months ended December
31, 2003, and were partially offset by principal repayments of $22.0
million. During the six months ended December 31, 2003, loans originated
consisted of $21.4 million of loans secured by one- to four-family
residential real estate, $5.0 million of loans secured by nonresidential
real estate, $3.3 million of commercial loans and $2.4 million of consumer
loans.
The allowance for loan losses totaled $1.1 million and $1.0 million at
December 31, 2003 and June 30, 2003, respectively. Nonperforming and
nonaccrual loans totaled $1.6 million at December 31, 2003, an increase of
$400,000, or 33.33%, from the total at June 30, 2003. The allowance for
loan losses represented 68.8% and 82.8% of nonperforming loans as of
December 31, 2003 and June 30, 2003, respectively. At December 31, 2003,
nonperforming loans consisted of $1.2 million in one- to four-family
residential real estate loans and $400,000 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 December
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 $132.5 million at December 31, 2003, a increase of $1.7
million, or 1.3%, over June 30, 2003 levels. The increase in deposits was
due primarily to increases in jumbo CD's and checking accounts.
Shareholders' equity totaled $17.0 million at December 31, 2003, an increase
of $649,000 from the June 30, 2003 level. Net earnings of $1.0 million and
$308,000 in increases from the amortization of stock benefit plans, were
offset by dividends on common shares totaling $465,000, a $72,000 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 six months ended December 31, 2003.
American is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision ("OTS"). At December 31, 2003, American's
regulatory capital exceeded the minimum capital requirements.
<PAGe> 12
ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Six-Month Periods
- ---------------------------------------------------------
Ended December 31, 2003 and 2002
--------------------------------
General
- -------
Net earnings amounted to $1.0 million for the six months ended December 31,
2003, an increase of $8,000, or .8%, compared to the same period in 2002.
The increase in net earnings resulted primarily from increases of $135,000
in net interest income and $101,000 in other income, and decreases of
$112,000 in the provision for federal income taxes, and $74,000 in the
provision for loan losses, which were substantially offset by increases of
$414,000 in general, administrative and other expense.
Net Interest Income
- -------------------
Interest income on loans decreased by $82,000, or 2.0%, for the six months
ended December 31, 2003, compared to the 2002 period. This decrease was due
primarily to a 75 basis point decrease in the weighted-average yield, to
6.58% for the 2003 six month period, which was partially offset by a $10.0
million, or 9.0%, increase in the average portfolio balance outstanding
period to period. Interest income on investment securities, mortgage-backed
securities and interest-bearing deposits decreased by $391,000, or 47.9%,
due primarily to a 168 basis point decrease in the weighted-average yield,
to 3.00% for the 2003 period and a $6.5 million, or 18.8%, decrease in the
average balance of the related assets outstanding period to period.
Interest expense on deposits decreased by $590,000, or 29.2%, for the six
months ended December 31, 2003, compared to the same period in 2002. This
decrease was due primarily to a 101 basis point decrease in the weighted-
average cost of deposits, to 2.16% for the six months ended December 31,
2003 which was partially offset by a $4.7 million, or 3.7%, increase in the
average balance of deposits outstanding period to period. Interest expense
on borrowings decreased by $18,000, or 35.3%, due primarily to a 134 basis
point decrease in the average cost of borrowings during the period, which
was partially offset by a $1.9 million or 45.4% increase in the average
balance outstanding. The decrease in the yields on interest-earning assets
and the costs of interest-bearing liabilities was due primarily to the
lagging effects of decreases in interest rates in the economy.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $135,000, or 4.8%, to a total of
$3.0 million for the six months ended December 31, 2003. The interest rate
spread increased to 3.79% for the six months ended December 31, 2003, from
3.55% for the 2002 period, while the net interest margin increased to 3.95%
in the 2003 period, compared to 3.86% 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 $50,000 during the six months ended
December 31, 2003, an decrease of $74,000, or 59.7%, over the comparable six
month period in 2002. 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.
13
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, 2003 and 2002 (continued)
--------------------------------------------
Other Income
- ------------
Other income totaled $381,000 for the six months ended December 31, 2003, an
increase of $101,000 or 36.1% 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
$45,000, or 16.8%, increase in other operating income, primarily derived
from ATM transaction fees and other charges.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $1.9 million for the six
months ended December 31, 2003, an increase of $414,000, or 27.4%, over the
same period in 2002. This increase was comprised of increases of $228,000,
or 29.5%, in employee compensation and benefits, $25,000, or 27.5%, in
occupancy and equipment, $134,000, or 35.4%, in other operating expenses,
and a $6,000, or 2.9%, increase in data processing costs. The increase in
employee compensation and benefits was due primarily to normal merit
increases and additional bonus amounts for employees and the effects of
increased benefit plan costs associated with the market value of the
Company's stock. 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 other costs of compliance. The increase
in data processing was due primarily to rising vendor costs.
Federal Income Taxes
- --------------------
The provision for federal income taxes totaled $346,000 for the six months
ended December 31, 2003, a decrease of $112,000, or 24.5%, compared to the
same period in 2002. This reduction was a combination of a decline in net
earnings before taxes of $104,000, or 7.1%, and the effects of $100,000 in
New Markets Tax Credits which were awarded to ASB Community Development
Corporation in fiscal 2003. The effective tax rates were 25.5% and 31.3%
for the six-month periods ended December 31, 2003 and 2002, respectively.
Comparison of Operating Results for the Three-Month Periods
- -----------------------------------------------------------
Ended December 31, 2003 and 2002
--------------------------------
General
- -------
Net earnings amounted to $511,000 for the three months ended December 31,
2003, a decrease of $5,000, or 1.0%, compared to the $516,000 of net
earnings reported for the same period in 2002. The decrease in earnings
resulted primarily from an increase of $306,000 in general, administrative
and other expense, which was partially offset by increases of $76,000 in net
interest income and $23,000 in other income, and a decrease of $106,000 in
the provision for federal income taxes and a $96,000 reduction in the
provision for loan losses.
14
ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods
- -----------------------------------------------------------
Ended December 31, 2003 and 2002 (continued)
--------------------------------------------
Net Interest Income
- -------------------
Interest income on loans decreased by $43,000, or 2.2%, during the quarter
ended December 31, 2003, compared to the 2002 period. This decrease was due
primarily to a 84 basis point decline in the weighted-average yield, to
6.47% for the 2003 quarter, which was partially offset by a $11.8 million,
or 10.6%, increase in the average portfolio balance outstanding year to
year. Interest income on investment securities, mortgage-backed securities
and interest-bearing deposits decreased by $151,000, or 40.5%, due primarily
to a 95 basis point decrease in the weighted-average yield, to 3.15% for the
2003 quarter and a $7.8 million, or 21.7%, decrease in the average balance
of the related assets outstanding year to year.
Interest expense on deposits decreased by $258,000, or 26.8%, for the three
months ended December 31, 2003, compared to the same quarter in 2002. This
decrease was due primarily to a 89 basis point decrease in the weighted-
average cost of deposits, to 2.12% for the quarter ended December 31, 2003
which was partially offset by a $5.3 million, or 4.2%, increase in the
average balance of deposits outstanding period to period. Interest expense
on borrowings decreased by $12,000, or 40.0%, due primarily to a 188 basis
point decrease in the average cost of borrowings, which was partially offset
by a $3.2 million, or 76.3%, increase in the average borrowings outstanding.
The decrease in the yields on interest-earning assets and the costs of
interest-bearing liabilities was due primarily to the lagging effects of the
overall decline in interest rates in the economy.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $76,000, or 5.3%, to a total of
$1.5 million for the three months ended December 31, 2003. The interest
rate spread increased to 3.80% for the three months ended December 31, 2003,
from 3.53% for the 2002 period, while the net interest margin increased to
3.95% in the 2003 period, compared to 3.85% 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 $28,000 during the three months ended
December 31, 2003, a decrease of $96,000, or 77.4%, over the comparable
quarter in 2002. 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 totaled $170,000 for the three months ended December 31, 2003,
an increase of $23,000, or 15.6%, over the same period in 2002. The
increase was due primarily to a $3,000 or 42.9% increase in the gain on sale
of investment securities and a $20,000, or 14.3%, increase in other
operating income, primarily from ATM transaction fees and other charges.
15
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, 2003 and 2002 (continued)
--------------------------------------------
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $981,000 for the three
months ended December 31, 2003, an increase of $306,000, or 45.3%, over the
same period in 2002. This increase was comprised of increases of $188,000,
or 61.6%, in employee compensation and benefits, $16,000, or 34.0%, in
occupancy and equipment, $92,000, or 49.2%, in other operating expenses and
$28,000, or 37.3%, in data processing costs which were slightly offset by an
$18,000, or 29.5%, decrease in franchise taxes. The increase in employee
compensation and benefits was due primarily to normal merit increases,
additional bonus amounts for employees and the effects of the increased
benefit plan costs associated with the market value of the Company's stock
period to period. 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 other costs of compliance. The decrease
in data processing was due primarily to costs associated with system
upgrades and increased transaction volume.
Federal Income Taxes
- --------------------
The provision for federal income taxes totaled $149,000 for the three months
ended December 31, 2003, a decrease of $106,000, or 41.6%, compared to the
same period in 2002. This decrease was due to a decrease in net earnings
before taxes of $111,000, or 14.4%, and the effects of $50,000 in New
Markets Tax Credits which were awarded to ASB Community Development
Corporation in fiscal 2003. The effective tax rates were 22.6% and 33.0%
for the three-month periods ended December 31, 2003 and 2002, respectively.
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 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.
16
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
(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
31.2 CFO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
On October 27, 2003, the Corporation filed a Form 8-K
regarding its press release announcing earnings for the
three month period ending September 30, 2003.
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: February 17, 2004 By: /s/Robert M. Smith
---------------------------- -------------------------------
Robert M. Smith
President and Chief Executive
Officer
Date: February 17, 2004 By: /s/Michael L. Gampp
---------------------------- -------------------------------
Michael L. Gampp
Chief Financial Officer
18