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, 2004
--------------
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.
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(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:
May 12, 2004 - 1,667,956 shares of common stock, no par value
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Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
1
INDEX
Page
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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)
March 31, June 30,
ASSETS 2004 2003
<s> <c> <c>
Cash and due from banks $ 1,416 $ 2,932
Interest-bearing deposits in other financial institutions 7,184 4,678
-------- --------
Cash and cash equivalents 8,600 7,610
Certificates of deposit in other financial institutions 179 173
Investment securities available for sale - at market 11,256 13,005
Mortgage-backed securities available for sale - at market 10,922 12,130
Loans receivable - net of allowance for loan losses
of $1.0 million at both March 31, 2004 and June 30, 2003 126,957 114,974
Real estate acquired through foreclosure 97 -
Office premises and equipment - at depreciated cost 1,851 1,829
Federal Home Loan Bank stock - at cost 1,093 1,061
Accrued interest receivable on loans 280 308
Accrued interest receivable on mortgage-backed securities 48 62
Accrued interest receivable on investments and interest-bearing deposits 136 230
Prepaid expenses and other assets 793 1,050
Prepaid federal income taxes 428 164
Deferred federal income taxes 34 159
-------- --------
Total assets $162,674 $152,755
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $132,930 $130,780
Advances from the Federal Home Loan Bank 10,947 4,188
Advances by borrowers for taxes and insurance 103 177
Accrued interest payable 413 72
Other liabilities 954 1,179
-------- --------
Total liabilities 145,347 136,396
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;
1,918,073 and 1,905,614 shares issued at March 31, 2004 and
June 30, 2003, respectively - -
Additional paid-in capital 10,083 9,895
Retained earnings, restricted 9,545 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 665 673
Less 250,117 and 243,267 shares of treasury stock at March 31, 2004
and June 30 2003, respectively - at cost (2,840) (2,706)
-------- --------
Total shareholders' equity 17,327 16,359
-------- --------
Total liabilities and shareholders' equity $162,674 $152,755
======== ========
3
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Nine months ended Three months ended
March 31, March 31,
2004 2003 2004 2003
<s> <c> <c> <c> <c>
Interest income
Loans $6,045 $6,090 $2,053 $2,016
Mortgage-backed securities 152 342 73 98
Investment securities 513 732 167 182
Interest-bearing deposits and other - 30 - 8
------ ------ ------ ------
Total interest income 6,710 7,194 2,293 2,304
Interest expense
Deposits 2,165 2,920 734 899
Borrowings 106 71 74 20
------ ------ ------ ------
Total interest expense 2,271 2,991 808 919
------ ------ ------ ------
Net interest income 4,439 4,203 1,485 1,385
Provision for losses on loans 81 169 31 45
------ ------ ------ ------
Net interest income after provision for
losses on loans 4,358 4,034 1,454 1,340
Other income
Gain on investment securities transactions 10 55 - 43
Gain on sale of office premises 58 - - -
Other operating 447 404 134 136
------ ------ ------ ------
Total other income 515 459 134 179
General, administrative and other expense
Employee compensation and benefits 1,568 1,227 567 454
Occupancy and equipment 172 137 56 46
Franchise taxes 129 104 44 40
Data processing 322 313 110 107
Other operating 719 572 206 194
------ ------ ------ ------
Total general, administrative and other expense 2,910 2,353 983 841
------ ------ ------ ------
Earnings before income taxes 1,963 2,140 605 678
Federal income taxes
Current 372 552 122 174
Deferred 129 79 33 (1)
------ ------ ------ ------
Total federal income taxes 501 631 155 173
------ ------ ------ ------
NET EARNINGS $1,462 $1,509 $ 450 $ 505
====== ====== ====== ======
EARNINGS PER SHARE
Basic $ .88 $ .99 $ .27 $ .32
====== ====== ====== ======
Diluted $ .85 $ .96 $ .26 $ .32
====== ====== ====== ======
4
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the nine months For the three months
ended March 31, ended March 31,
2004 2003 2004 2003
<s> <c> <c> <c> <c>
Net earnings $1,462 $1,509 $450 $ 505
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities during
the period, net of tax benefits (taxes) of $4, $20,
$(33) and $59 for each respective period (8) (39) 64 (114)
Reclassification adjustment for realized gains
included in earnings, net of taxes of $0, $19, $0
and $15 for each respective period - (36) - (28)
------ ------ ---- -----
Comprehensive income $1,454 $1,434 $514 $ 363
====== ====== ==== =====
Accumulated comprehensive income $ 665 $ 775 $665 $ 775
====== ====== ==== =====
5
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
2004 2003
<s> <c> <c>
Cash flows from operating activities:
Net earnings for the period $ 1,462 $ 1,509
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 209 (59)
Amortization of deferred loan origination fees (108) (86)
Depreciation and amortization 118 94
Amortization of expense related to stock benefit plans 308 345
Provisions for losses on loans 81 169
Gain on investment securities transactions (10) (55)
Gain on sale of office premises (58) -
Federal Home Loan Bank stock dividends (32) (34)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 136 63
Prepaid expenses and other assets 257 (44)
Accrued interest payable 341 415
Other liabilities (225) 1,398
Federal income taxes
Current (264) (393)
Deferred 129 79
------- -------
Net cash provided by operating activities 2,344 3,401
Cash flows provided by (used in) investing activities:
Purchase of certificates of deposit - (72)
Proceeds from maturity of investment securities 7,710 14,065
Proceeds from sales of investment securities 500 4,001
Purchase of investment securities (6,611) (13,649)
Principal repayments on mortgage-backed securities 4,094 5,400
Purchase of mortgage-backed securities (3,061) (8,303)
Loan principal repayments 29,303 26,635
Loan disbursements (41,248) (32,758)
Proceeds from sale of real estate acquired through foreclosure - 445
Proceeds from sale of office premises 58 -
Purchase of office premises and equipment (140) (574)
------- -------
Net cash used in investing activities (9,395) (4,810)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 2,150 1,108
Proceeds from Federal Home Loan Bank advances 16,881 -
Repayment of Federal Home Loan Bank advances (10,122) (26)
Advances by borrowers for taxes and insurance (74) (52)
Purchase of treasury shares (134) (49)
Proceeds from exercise of stock options 39 805
Dividends paid and declared on common stock (699) (2,246)
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Net cash provided by (used in) financing activities 8,041 (460)
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Net increase (decrease) in cash and cash equivalents 990 (1,869)
Cash and cash equivalents at beginning of period 7,610 7,704
------- -------
Cash and cash equivalents at end of period $ 8,600 $ 5,835
======= =======
6
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
(In thousands)
2004 2003
<s> <c> <c>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 640 $ 945
======= =======
Interest on deposits and borrowings $ 1,930 $ 2,576
======= =======
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as available
for sale, net of related tax effects $ (8) $ (75)
======= =======
Transfer from loans to real estate acquired through foreclosure $ 97 $ -
======= =======
7
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine- and three-month periods ended March 31, 2004 and 2003
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 nine- and three-month periods
ended March 31, 2004, 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. Critical Accounting Policies
----------------------------
Certain of the Corporation's accounting policies are important to the
portrayal of the Corporation's financial condition, since they require
management to make difficult, complex or subjective judgments, some of which
may relate to matters that are inherently uncertain. Estimates associated
with these policies are susceptible to material changes as a result of
changes in facts and circumstances. Facts and circumstances which could
affect these judgments include, but without limitation, changes in interest
rates, changes in the performance of the economy or changes in the financial
condition of borrowers. Management believes that its critical accounting
policies include determining the allowance for loan losses and determining
the carrying value of mortgage servicing rights. The Corporation's critical
accounting policies are discussed in detail in its Annual Report to
Shareholders for the year ended June 30, 2003 (incorporated by reference
into the Corporation's Form 10-KSB filing) in Note A of the Notes to
Consolidated Financial Statements under "Allowance for Loan Losses." If
management were to underestimate the allowance for loan losses, earnings
could be reduced in the future as a result of greater than expected net loan
losses. Overestimations of the required allowance could result in future
increases in income, as loan loss recoveries increase or provisions for
losses on loans decrease.
8
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine- and three-month periods ended March 31, 2004 and 2003
4. 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 ASB
Financial Corp. Employee Stock Ownership Plan ("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 nine- and
three-month periods ended March 31, 2003. All ESOP shares were allocated for
the computation during the nine- and three-month periods ended March 31,
2004. 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,
2004 2003 2004 2003
<s> <c> <c> <c> <c>
Weighted-average common shares
outstanding (basic) 1,663,885 1,525,651 1,670,931 1,570,530
Dilutive effect of assumed exercise
of stock options 46,720 44,532 46,720 43,902
--------- --------- --------- ---------
Weighted-average common shares
outstanding (diluted) 1,710,605 1,570,183 1,717,651 1,614,432
========= ========= ========= =========
5. Stock Option Plan
-----------------
The Board of Directors and shareholders adopted the ASB Financial Corp.
Stock Option and Incentive Plan (the "Plan") in fiscal 1996. The Plan
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.
Coincident with adoption, the Corporation granted 197,521 options which have
an adjusted exercise price of $7.64. The number of options granted and the
exercise price were adjusted to give effect to returns of capital and
special dividend distributions paid by the Corporation. The Plan provided
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.
9
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine- and three-month periods ended March 31, 2004 and 2003
5. Stock Option Plan (continued)
-----------------
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, 2004 and 2003, would have been
reported at the pro forma amounts indicated below:
Nine months ended Three months ended
March 31, March 31,
2004 2003 2004 2003
<s> <c> <c> <c> <c>
Net earnings (In thousands) As reported $1,462 $1,509 $450 $505
Stock-based compensation, net of tax (17) (2) (6) (1)
------ ------ ---- ----
Pro-forma $1,445 $1,507 $444 $504
====== ====== ==== ====
Earnings per share
Basic As reported $ .88 $ .99 $.27 $.32
Stock-based compensation, net of tax (.01) - - -
------ ------ ---- ----
Pro-forma $ .87 $ .99 $.27 $.32
====== ====== ==== ====
Diluted As reported $ .85 $ .96 $.26 $.32
Stock-based compensation, net of tax (.01) - - -
------ ------ ---- ----
Pro-forma $ .84 $ .96 $.26 $.32
====== ====== ==== ====
The fair value of each option grant is estimated on the date of grant using
the modified Black-Scholes option-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; 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 March 31, 2004 and
June 30, 2003 and 2002, and changes during the periods ending on those dates
is presented below:
Nine months ended Year ended
March 31, June 30,
2004 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 (4,331) 7.65 (144,933) 7.64 (13,757) 7.64
Forfeited - - - - - -
------ ------ -------- ------ ------- -----
Outstanding at end of period 79,363 $10.25 77,694 $ 8.89 212,915 $7.69
====== ====== ======== ====== ======= =====
Options exercisable at period-end 59,651 61,982 $ 7.71 204,915 $7.65
====== ======== ====== ======= =====
Weighted-average fair value of
options granted during the period $11.41 $ 5.28 N/A
====== ====== =====
10
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine- and three-month periods ended March 31, 2004 and 2003
5. Stock Option Plan (continued)
-----------------
The following information applies to options outstanding at March 31, 2004:
<s> <c>
Number outstanding 63,651
Range of exercise prices $7.64-$8.75
Number outstanding 15,712
Range of exercise prices $16.50-$26.00
Weighted-average exercise price $10.25
Weighted-average remaining contractual life 5.0 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 March 31, 2004
- ------------------------------------------------------------------------------
At March 31, 2004, the Corporation's assets totaled $162.7 million, an
increase of $9.9 million, or 6.5%, over total assets at June 30, 2003.
Cash and cash equivalents increased by $1.0 million, or 13.0%, from June 30,
2003 levels, to a total of $8.6 million at March 31, 2004. Investment
securities and certificates of deposit totaled $11.4 million at March 31,
2004, down $1.7 million, or 13.2%, from June 30, 2003 levels. There were
sales, maturities and premium amortization related to investment securities
totaling $8.2 million, which were partially offset by purchases of $6.6
million. Purchases of investment securities consisted primarily of fixed-
rate medium-term callable U.S. Government agency obligations. Mortgage-
backed securities totaled $10.9 million at March 31, 2004, a decrease of
$1.2 million, or 10.0%, from the total at June 30, 2003, due primarily to
principal repayments of $4.1 million, a pre-tax decline in unrealized gains
totaling $111,000 and premium amortization of $81,000, which were partially
offset by purchases totaling $3.1 million.
Loans receivable increased by $12.0 million, or 10.4%, during the nine-month
period ended March 31, 2004, to a total of $127.0 million. Loan
disbursements amounted to $41.2 million for the nine months ended March 31,
2004, and were partially offset by principal repayments of $29.4 million.
During the nine months ended March 31, 2004, loans originated consisted of
$23.0 million of loans secured by one- to four-family residential real
estate, $10.0 million of loans secured by nonresidential real estate, $5.3
million of commercial loans and $2.9 million of consumer loans.
The allowance for loan losses totaled $1.0 million at both March 31, 2004
and June 30, 2003. Nonperforming and nonaccrual loans totaled $1.0 million
at March 31, 2004, a decrease of $200,000, or 16.7%, from the total at June
30, 2003. The allowance for loan losses represented 100% and 82.8% of
nonperforming loans at March 31, 2004 and June 30, 2003, respectively. At
March 31, 2004, nonperforming loans consisted of $802,000 in one- to four-
family residential real estate loans and $198,000 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, 2004, 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 $132.9 million at March 31, 2004, an increase of $2.2
million, or 1.6%, over June 30, 2003 levels. The increase in deposits was
due primarily to increases in jumbo CD's and checking accounts.
Shareholders' equity totaled $17.3 million at March 31, 2004, an increase of
$1.0 million from the June 30, 2003 level. The increase was due to net
earnings of $1.5 million, $39,000 in proceeds from the exercise of stock
options and a $308,000 increase from stock benefit plans, including tax
benefits thereon, which were partially offset by dividends on common shares
totaling $699,000, an $8,000 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 $.42 for the nine
months ended March 31, 2004.
American is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision ("OTS"). At March 31, 2004, American's
regulatory capital exceeded the minimum capital requirements.
12
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, 2004 and 2003
-----------------------
General
- -------
Net earnings amounted to $1.5 million for the nine months ended March 31,
2004, a decrease of $47,000, or 3.1%, compared to the same period in 2003.
The decrease in net earnings resulted primarily from an increase of $557,000
in general, administrative and other expense, which was partially offset by
increases of $236,000 in net interest income, $56,000 in other income and
reductions of $130,000 in the provision for federal income taxes and $88,000
in the provision for loan losses.
Net Interest Income
- -------------------
Interest income on loans decreased by $45,000, or .7%, for the nine months
ended March 31, 2004, compared to the 2003 period. This decrease was due
primarily to a 58 basis point decrease in the weighted-average yield, to
5.88% for the 2004 nine-month period, which was partially offset by a $3.7
million, or 2.5%, increase in the average portfolio balance outstanding
period to period. Interest income on investment securities, mortgage-backed
securities and interest-bearing deposits decreased by $439,000, or 39.8%,
due primarily to an 81 basis point decrease in the weighted-average yield to
3.05% for the 2004 period and a $6.6 million, or 18.6%, decrease in the
average balance of the related assets outstanding period to period.
Interest expense on deposits decreased by $755,000, or 25.9%, for the nine
months ended March 31, 2004, compared to the same period in 2003. This
decrease was due primarily to a 86 basis point decrease in the weighted-
average cost of deposits to 2.17% for the nine months ended March 31, 2004
which was partially offset by a $4.3 million, or 3.4%, increase in the
average balance of deposits outstanding period to period. Interest expense
on borrowings increased by $35,000, or 49.3%, due primarily to a 40 basis
point decrease in the average cost of borrowings during the period, which
was offset by a $3.4 million or 81.6% 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 effect 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 $236,000, or 5.6%, to a total of
$4.4 million for the nine months ended March 31, 2004. The interest rate
spread increased to 3.72% for the nine months ended March 31, 2004, from
3.67% for the 2003 period, while the net interest margin increased to 3.89%
in the 2004 period, compared to 3.88% in the 2003 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 $81,000 during the nine months ended
March 31, 2004, a decrease of $88,000, or 52.1%, from the comparable nine-
month period in 2003. The reduction in the provision during the 2004 period
was influenced by the decline in nonperforming loans. There can be no
assurance that the loan loss allowance will be adequate to absorb losses on
known nonperforming loans 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 Nine-Month Periods Ended
- ----------------------------------------------------------------
March 31, 2004 and 2003 (continued)
-----------------------
Other Income
- ------------
Other income totaled $515,000 for the nine months ended March 31, 2004, an
increase of $56,000, or 12.2%, over the same period in 2003. The increase
was due primarily to a $58,000 gain on sale of office premises, as well as a
$43,000, or 10.6%, increase in other operating income, primarily derived
from ATM transaction fees and other charges, which were partially offset by
a $45,000, or 81.8%, decrease in the gains on sales of investments.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $2.9 million for the nine
months ended March 31, 2004, an increase of $557,000, or 23.7%, over the
same period in 2003. This increase was comprised of increases of $341,000,
or 27.8%, in employee compensation and benefits, $35,000, or 25.5%, in
occupancy and equipment, $147,000, or 25.7%, in other operating expenses,
and $9,000, or 2.9%, in data processing costs. The increase in employee
compensation and benefits was due primarily to the effects of increased
benefit plan costs associated with the fluctuations in the Company's stock,
as well as normal merit increases and bonus amounts for employees. 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 compliance costs. The increase in data processing was
due primarily to rising vendor costs.
Federal Income Taxes
- --------------------
The provision for federal income taxes totaled $501,000 for the nine months
ended March 31, 2004, a decrease of $130,000, or 20.6%, compared to the same
period in 2003. This reduction was due to a combination of a decline in
earnings before taxes of $177,000, or 8.3%, and the effects of New Markets
Tax Credits which were awarded to ASB Community Development Corporation in
fiscal 2003. The effective tax rates were 25.5% and 29.5% for the nine-month
periods ended March 31, 2004 and 2003, respectively.
Comparison of Operating Results for the Three-Month Periods Ended
- -----------------------------------------------------------------
March 31, 2004 and 2003
-----------------------
General
- -------
Net earnings amounted to $450,000 for the three months ended March 31, 2004,
a decrease of $55,000, or 10.9%, compared to the $505,000 of net earnings
reported for the same period in 2003. The decrease in earnings resulted
primarily from an increase of $142,000 in general, administrative and other
expense and a $45,000 decrease in other income, which were partially offset
by an increase of $100,000 in net interest income, a decrease of $18,000 in
the provision for federal income taxes and a $14,000 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
- -----------------------------------------------------------------
March 31, 2004 and 2003 (continued)
-----------------------
Net Interest Income
- -------------------
Interest income on loans increased by $37,000, or 1.8%, during the quarter
ended March 31, 2004, compared to the 2003 period. This increase was due
primarily to a $10.9 million, or 9.5%, increase in the average portfolio
balance outstanding quarter to quarter, which was partially offset by a 49
basis point decline in the weighted average yield to 6.51% for the 2004
quarter. Interest income on investment securities, mortgage-backed
securities and interest-bearing deposits decreased by $48,000, or 16.7%, due
primarily to a 19 basis point decrease in the weighted-average yield to
3.15% for the 2004 quarter and a $4.1 million, or 12.1%, decrease in the
average balance of the related assets outstanding year to year.
Interest expense on deposits decreased by $165,000, or 18.4%, for the three
months ended March 31, 2004, compared to the same quarter in 2003. This
decrease was due primarily to a 56 basis point decrease in the weighted-
average cost of deposits to 2.21% for the quarter ended March 31, 2004,
which was partially offset by a $3.5 million, or 2.7%, increase in the
average balance of deposits outstanding quarter to quarter. Interest expense
on borrowings increased by $54,000, or 270%, due primarily to an 87 basis
point increase in the average cost of borrowings and a $6.5 million, or
154%, increase in the average borrowings outstanding. The decrease in the
yields on interest-earning assets and the costs of interest-bearing deposit
liabilities were due primarily to the effect 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 $100,000, or 7.2%, to a total of
$1.5 million for the three months ended March 31, 2004. The interest rate
spread increased to 3.61% for the three months ended March 31, 2004, from
3.58% for the 2003 period, while the net interest margin decreased to 3.80%
in the 2004 period, compared to 3.81% in the 2003 period.
Provision for Losses on Loans
- -----------------------------
The Corporation recorded a provision for losses on loans totaling $31,000
during the three months ended March 31, 2004, a decrease of $14,000, or
31.1%, from the comparable quarter in 2003. 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 $134,000 for the three months ended March 31, 2004, a
decrease of $45,000, or 25.1%, from the same period in 2003. The decrease
was due to the absence of a $43,000 gain on the sale of investment
securities as compared to the March 31, 2003 quarter and a $2,000, or 1.5%,
decrease in other operating income, primarily due to reduced 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
- -----------------------------------------------------------------
March 31, 2004 and 2003 (continued)
-----------------------
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense totaled $983,000 for the three
months ended March 31, 2004, an increase of $142,000, or 16.9%, over the
same period in 2003. This increase was comprised of increases of $113,000,
or 24.9%, in employee compensation and benefits, $10,000, or 21.7%, in
occupancy and equipment, $12,000, or 6.2%, in other operating expenses,
$3,000, or 2.8%, in data processing costs and $4,000, or 10%, in franchise
taxes. The increase in employee compensation and benefits was due primarily
to the effects of the increased benefit plan costs associated with the
fluctuations in the Company's stock, as well as normal merit increases and
bonus amounts for employees. 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 $155,000 for the three months
ended March 31, 2004, a decrease of $18,000, or 10.4%, compared to the same
period in 2003. This decline was due primarily to a decrease in earnings
before taxes of $73,000, or 10.8%. The effective tax rates were 25.6% and
25.5% for the three-month periods ended March 31, 2004 and 2003,
respectively. As stated previously, the difference between the Corporation's
effective tax rates and the 34% statutory rate results from utilization of
New Market Tax Credits.
ITEM 3: Controls and Procedures
-----------------------
The Corporation's 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 and Small Business Issuer Purchases of Equity
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
32.2 CFO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
On January 28, 2004, the Corporation filed a Form 8-K
regarding its press release announcing earnings for the
three- and six-month periods ending December 31, 2003.
17
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 17, 2004 By: /s/Robert M. Smith
----------------------- --------------------------
Robert M. Smith
President and Chief Executive
Officer
Date: May 17, 2004 By: /s/Michael L. Gampp
----------------------- --------------------------
Michael L. Gampp
Chief Financial Officer
18