UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 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.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Ohio 31-1429488
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
503 Chillicothe Street, Portsmouth, Ohio 45662
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(Address of principal executive offices) (Zip Code)
(740) 354-3177
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(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: November 15, 2004 -
1,701,063 shares of common stock, no par value
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 16
SIGNATURES 17
2
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, June 30,
ASSETS 2004 2004
<s> <c> <c>
Cash and due from banks $ 1,170 $ 2,078
Interest-bearing deposits in other financial institutions 3,755 5,307
-------- --------
Cash and cash equivalents 4,925 7,385
Certificates of deposit in other financial institutions 71 178
Investment securities available for sale - at market 12,401 12,487
Mortgage-backed securities available for sale - at market 12,117 11,768
Loans receivable - net 135,225 129,821
Office premises and equipment - at depreciated cost 1,827 1,814
Federal Home Loan Bank stock - at cost 1,116 1,104
Accrued interest receivable on loans 280 336
Accrued interest receivable on mortgage-backed securities 43 50
Accrued interest receivable on investments and interest-bearing deposits 120 130
Prepaid expenses and other assets 777 830
Prepaid federal income taxes 57 183
Deferred federal income taxes 247 285
-------- --------
Total assets $169,206 $166,371
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $136,708 $136,761
Advances from the Federal Home Loan Bank 12,601 10,899
Advances by borrowers for taxes and insurance 96 180
Accrued interest payable 426 52
Other liabilities 1,273 1,055
-------- --------
Total liabilities 151,104 148,947
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;
1,936,180 and 1,911,180 shares issued at September 30, 2004 and
June 30, 2004, respectively - -
Additional paid-in capital 10,357 10,165
Retained earnings, restricted 10,091 9,848
Shares acquired by stock benefit plans (126) (126)
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 620 377
Less 250,117 shares of treasury stock at September 30, 2004
and June 30 2004, respectively - at cost (2,840) (2,840)
-------- --------
Total shareholders' equity 18,102 17,424
-------- --------
Total liabilities and shareholders' equity $169,206 $166,371
======== ========
3
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended September 30, 2004 and 2003
(In thousands, except per share data)
2004 2003
<s> <c> <c>
Interest income
Loans $2,095 $1,992
Mortgage-backed securities 91 32
Investment securities 121 170
------ ------
Total interest income 2,307 2,194
Interest expense
Deposits 720 726
Borrowings 90 14
------ ------
Total interest expense 810 740
------ ------
Net interest income 1,497 1,454
Provision for losses on loans 21 23
------ ------
Net interest income after provision for losses on loans 1,476 1,431
Other income
Gain on sale of office premises and equipment - 58
Other operating 178 153
------ ------
Total other income 178 211
General, administrative and other expense
Employee compensation and benefits 531 508
Occupancy and equipment 57 53
Data processing 119 109
Other operating 256 274
------ ------
Total general, administrative and other expense 963 944
------ ------
Earnings before income taxes 691 698
Federal income taxes
Current 277 68
Deferred (87) 129
------ ------
Total federal income taxes 190 197
------ ------
NET EARNINGS $ 501 $ 501
====== ======
EARNINGS PER SHARE
Basic $ .30 $ .30
====== ======
Diluted $ .29 $ .29
====== ======
4
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended September 30, 2004 and 2003
(In thousands)
2004 2003
<s> <c> <c>
Net earnings $501 $ 501
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities during the period,
net of taxes (benefits) of $125 and $(73) in 2004 and 2003, respectively 243 (142)
---- -----
Comprehensive income $744 $ 359
==== =====
Accumulated comprehensive income $620 $ 531
==== =====
5
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30, 2004 and 2003
(In thousands)
2004 2003
<s> <c> <c>
Cash flows from operating activities:
Net earnings for the period $ 501 $ 501
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 30 91
Amortization of deferred loan origination fees (17) (26)
Depreciation and amortization 40 32
Provision for losses on loans 21 23
Federal Home Loan Bank stock dividends (12) (11)
Gain on sale of office premises and equipment - (58)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 73 149
Prepaid expenses and other assets 53 52
Accrued interest payable 374 373
Other liabilities 218 52
Federal income taxes
Current 123 61
Deferred (87) 129
-------- --------
Net cash provided by operating activities 1,317 1,368
Cash flows provided by (used in) investing activities:
Proceeds from maturities of investment securities 1,000 3,000
Proceeds from maturities of certificates of deposit 107 -
Proceeds from sale of office premises and equipment - 58
Purchase of investment securities (761) (3,074)
Principal repayments on mortgage-backed securities 1,152 2,059
Purchase of mortgage-backed securities (1,349) (2,036)
Loan principal repayments 10,317 9,066
Loan disbursements (15,689) (15,021)
Purchase of office premises and equipment (53) (93)
-------- --------
Net cash used in investing activities (5,276) (6,041)
Cash flows provided by (used in) financing activities:
Net decrease in deposit accounts (53) (405)
Proceeds from issuance of shares under stock option plan 192 -
Proceeds from Federal Home Loan Bank advances 3,000 250
Repayment of Federal Home Loan Bank advances (1,298) (9)
Advances by borrowers for taxes and insurance (84) (82)
Purchase of treasury stock - (134)
Dividends paid on common shares (258) (230)
-------- --------
Net cash provided by (used in) financing activities 1,499 (610)
-------- --------
Net decrease in cash and cash equivalents (2,460) (5,283)
Cash and cash equivalents at beginning of period 7,385 7,610
-------- --------
Cash and cash equivalents at end of period $ 4,925 $ 2,327
======== ========
6
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended September 30, 2004 and 2003
(In thousands)
2004 2003
<s> <c> <c>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $436 $ 367
==== =====
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $243 $(142)
==== =====
7
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three-month periods ended September 30, 2004 and 2003
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements were prepared
in accordance with the instructions for Form 10-Q 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, 2004. 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, 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 Corp. 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
policy focuses primarily on determining the allowance for loan losses. This
critical accounting policy is discussed in detail in the Annual Report to
Shareholders for the year ended June 30, 2004 (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 three-month periods ended September 30, 2004 and 2003
4. 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 Ownership Plan ("ESOP") that are unallocated
and not committed to be released. At September 30, 2004, all ESOP shares
have been allocated and released. Weighted-average common shares deemed
outstanding give effect to 8,128 unallocated ESOP shares for the three month
period ended September 30, 2003. 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, 2004 2003
<s> <c> <c>
Weighted-average common shares
outstanding (basic) 1,685,248 1,660,853
Dilutive effect of assumed exercise
of stock options 27,739 43,382
--------- ---------
Weighted-average common shares
outstanding (diluted) 1,712,987 1,704,235
========= =========
5. Stock Option Plan
-----------------
During fiscal 1996 the Board of Directors and shareholders adopted the ASB
Financial Corp. 1995 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 per share 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 became 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 three-month periods ended September 30, 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 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, 2004 and 2003, would have been reported as the
pro forma amounts indicated below:
Three months ended
September 30,
2004 2003
<s> <c> <c>
Net earnings (In thousands) As reported $501 $501
Stock-based compensation, net of tax - (2)
---- ----
Pro-forma $501 $499
==== ====
Earnings per share
Basic As reported $.30 $.30
Stock-based compensation, net of tax - -
---- ----
Pro-forma $.30 $.30
==== ====
Diluted As reported $.29 $.29
Stock-based compensation, net of tax - -
---- ----
Pro-forma $.29 $.29
==== ====
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: dividend yield of
2.3% and 2.9%, respectively; expected volatility of 20.0% for both years; a
risk-free interest rate 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 September 30, 2004
and June 30, 2004 and 2003, and changes during the periods ending on those
dates is presented below:
Three months ended Year ended
September 30, June 30,
2004 2004 2003
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 78,128 $10.15 77,694 $ 8.89 212,915 $ 7.69
Granted - - 6,000 26.00 9,712 16.50
Exercised (25,000) 7.64 (5,566) 9.57 (144,933) 7.64
Forfeited - - - - - -
------- ------ ------ ------ -------- -------
Outstanding at end of period 53,128 $11.34 78,128 $10.15 77,694 $ 8.89
======= ====== ====== ====== ======== =======
Options exercisable at period-end 34,616 34,616 59,616 $ 7.87 61,982 $ 7.71
======= ====== ====== ====== ======== =======
Weighted-average fair value of
options granted during the period $ - $11.41 $ 5.28
====== ====== =======
10
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three-month periods ended September 30, 2004 and 2003
5. Stock Option Plan (continued)
-----------------
The following information applies to options outstanding at September 30,
2004:
<s> <c>
Number outstanding 38,616
Range of exercise prices $7.64-$8.75
Number outstanding 14,512
Range of exercise prices $16.50-$26.00
Weighted-average exercise price $11.34
Weighted-average remaining contractual life 5.8 years
11
ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward Looking Statements
Certain statements contained in this report that are not historical facts
are forward-looking statements that are subject to certain risks and
uncertainties. When used herein, the terms "anticipates," "plans,"
"expects," "believes," and similar expressions as they relate to ASB or its
management are intended to identify such forward looking statements. ASB's
actual results, performance or achievements may materially differ from those
expressed or implied in the forward-looking statements. Risks and
uncertainties that could cause or contribute to such material differences
include, but are not limited to, general economic conditions, interest rate
environment, competitive conditions in the financial services industry,
changes in law, governmental policies and regulations, and rapidly changing
technology affecting financial services.
Discussion of Financial Condition Changes from June 30, 2004 to September
30, 2004
At September 30, 2004, the Corporation's assets totaled $169.2 million, an
increase of $2.8 million, or 1.7%, over total assets at June 30, 2004.
Cash and cash equivalents decreased by $2.5 million, or 33.3%, from June 30,
2004 levels, to a total of $4.9 million at September 30, 2004. Investment
securities and certificates of deposit totaled $12.5 million at September
30, 2004, a decrease of $193,000, or 1.5%, from June 30, 2004 levels.
Maturities and discount accretion related to investment securities totaling
approximately $1.0 million, were partially offset by purchases of $761,000.
Purchases of investment securities consisted primarily of fixed-rate medium-
term callable U.S. Government agency obligations. Mortgage-backed
securities totaled $12.1 million at September 30, 2004, an increase of
$349,000, or 3.0%, from the total at June 30, 2004, due primarily to
purchases totaling $1.3 million, which were partially offset by principal
repayments of $1.2 million, a pre-tax increase in unrealized gains totaling
$181,000 and premium amortization of $29,000.
Loans receivable increased by $5.4 million, or 4.2%, during the three-month
period ended September 30, 2004, to a total of $135.2 million. Loan
disbursements amounted to $15.7 million for the three months ended September
30, 2004, and were partially offset by principal repayments of $10.3
million. During the three months ended September 30, 2004, loans originated
consisted of $6.6 million of loans secured by one- to four-family
residential real estate, $5.2 million of loans secured by nonresidential
real estate, $2.5 million of commercial loans and $1.4 million of consumer
loans.
The allowance for loan losses totaled $1.1 million at September 30, 2004 and
June 30, 2004. Nonperforming and nonaccrual loans totaled $1.0 million at
September 30, 2004, unchanged from the total at June 30, 2004. The
allowance for loan losses represented 110.0% and 99.9% of nonperforming
loans at September 30, 2004 and June 30, 2004, respectively. At September
30, 2004, nonperforming loans consisted of $772,000 in one- to four-family
residential real estate loans and $228,000 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, 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 $136.7 million at September 30, 2004, a decrease of
$53,000, or .04%, from June 30, 2004 levels. The decrease in deposits was
due primarily to decreases in jumbo CD's and checking accounts.
12
ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from June 30, 2004 to September
30, 2004 (continued)
Federal Home Loan Bank advances increased by $1.7 million, or 15.6%, during
the three month period ended September 30, 2004. Advances amounted to $3.0
million for the three months ended September 30, 2004, and were partially
offset by repayments of $1.3 million. The proceeds from the advances were
used to fund new loan originations.
Shareholders' equity totaled $18.1 million at September 30, 2004, an
increase of $678,000, or 3.9%, from the June 30, 2004 level. The increase
was due to net earnings of $501,000, $192,000 in proceeds from the exercise
of stock options, and a $243,000 net increase in unrealized gains on
securities, which were partially offset by dividends on common shares
totaling $258,000. Dividends totaled $.15 per share for the three months
ended September 30, 2004.
American is required to meet minimum regulatory capital requirements
promulgated by the Office of Thrift Supervision ("OTS"). At September 30,
2004, American's regulatory capital exceeded the minimum capital
requirements.
Comparison of Operating Results for the Three-Month Periods Ended September
30, 2004 and 2003
General
Net earnings totaled $501,000 for the three months ended September 30, 2004,
unchanged from the same period in 2003. An increase of $43,000 in net
interest income and decreases of $7,000 in the provision for federal income
taxes and $2,000 in the provision for loan losses were completely offset by
an increase of $19,000 in general, administrative and other expense and a
decrease of $33,000 in other income.
Net Interest Income
Interest income on loans increased by $103,000, or 5.2%, for the three
months ended September 30, 2004, compared to the 2003 period. This increase
was due primarily to a $15.1 million, or 12.7%, increase in the average
portfolio balance outstanding period to period, which was offset by a 45
basis point decrease in the weighted-average yield, to 6.25% for the 2004
three-month period. Interest income on investment securities, mortgage-
backed securities and interest-bearing deposits increased by $10,000, or
5.0%, due primarily to a 10 basis point increase in the weighted-average
yield, to 2.9% for the 2004 period and a $795,000, or 2.8%, increase in the
average balance of the related assets outstanding period to period.
Interest expense on deposits decreased by $6,000, or .8%, for the three
months ended September 30, 2004, compared to the same period in 2003. This
decrease was due primarily to an 11 basis point decrease in the weighted-
average cost of deposits, to 2.1% for the three months ended September 30,
2004, which was partially offset by a $5.7 million, or 4.3%, increase in the
average balance of deposits outstanding period to period. Interest expense
on borrowings increased by $76,000, or 542.9%, due to a 74 basis point
increase in the average cost of borrowings during the period and a $7.5
million, or 156.0%, 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 $43,000, or 3.0%, to a total of
$1.5 million for the three months ended September 30, 2004. The interest
rate spread decreased to 3.49% for the three months ended September 30,
2004, from 3.78% for the 2003 period, while the net interest margin
decreased to 3.67% in the 2004 period, compared to 3.95% in the 2003 period.
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, 2004 and 2003 (continued)
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 $21,000 during the three months ended
September 30, 2004, a decrease of $2,000, or 8.7%, from the comparable
three-month period in 2003. The reduction in the provision during the 2004
period was primarily influenced by a decline in nonperforming loans over the
year. 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.
Other Income
Other income totaled $178,000 for the three months ended September 30, 2004,
a decrease of $33,000, or 15.6%, from the same period in 2003. The decrease
was due to a reduction of $58,000 in gain on sale of office premises, which
was partially offset by a $25,000, or 16.3%, increase in other operating
income, primarily derived from increased ATM transaction fees and other
charges.
General, Administrative and Other Expense
General, administrative and other expense totaled $1.0 million for the three
months ended September 30, 2004, an increase of $19,000, or 2.0%, over the
same period in 2003. This increase was comprised of increases of $23,000,
or 4.5%, in employee compensation and benefits, $10,000, or 9.2%, in data
processing costs and $4,000, or 7.5%, in occupancy and equipment, which were
partially offset by a decrease of $18,000, or 6.6%, in other operating
expense. The increase in employee compensation and benefits was due
primarily to normal merit increases and incentives 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 data processing was due primarily to rising vendor costs. The
reduction in other operating expenses was due to decreases in legal,
accounting and compliance costs.
Federal Income Taxes
The provision for federal income taxes totaled $190,000 for the three months
ended September 30, 2004, a decrease of $7,000, or 3.6%, compared to the
same period in 2003. This decrease was due to a combination of a decline
in earnings before taxes of $7,000, or 1.0%, and the effects of New Markets
Tax Credits which were awarded to ASB Community Development Corp. in fiscal
2003. The effective tax rates were 27.5% and 28.2% for the three-month
periods ended September 30, 2004 and 2003, respectively.
14
ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the Corporation's market risk since the
disclosure included under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Asset and Liability
Management" in the Corporation's 2004 Annual Report to Shareholders which
was included as Exhibit B to the Corporation's Form 10-KSB for the year
ended June 30, 2004.
ITEM 4: Controls and Procedures
The Corporation's Chief Executive Officer and Chief Financial Officer have
evaluated the Corporation's disclosure controls and procedures (as defined
under Rules 13a-15(e) and 15d-15(e) 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.
15
ASB Financial Corp.
PART II
ITEM 1. Legal Proceedings
-----------------
Not applicable.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On October 27, 2004, the Corporation held its 2004 Annual Meeting
of Shareholders. The shareholders elected six directors to terms
expiring in 2005 by the following votes:
For Withheld
William J. Burke 1,476,100 5,500
Gerald R. Jenkins 1,461,519 20,081
Christopher H. Lute 1,476,100 5,000
Larry F. Meredith 1,458,969 22,631
Louis M. Schoettle 1,476,000 5,600
Robert M. Smith 1,476,100 5,500
The shareholders also ratified the selection of Grant Thornton LLP
as the Corporation's auditors for the 2005 fiscal year by the
following vote:
For: Against: Abstain:
1,474,088 2,300 5,212
ITEM 5. Other Information
-----------------
None.
ITEM 6. 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
16
ASB Financial Corp.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASB FINANCIAL CORP.
Date: November 15, 2004 By: /s/Robert M. Smith
----------------- --------------------------
Robert M. Smith
President
Date: November 15, 2004 By: /s/Michael L. Gampp
--------------------------
Michael L. Gampp
Chief Financial Officer
17