UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
-----------------------------------------------
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)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: November 9, 2001 - 1,538,779 shares
of common stock
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 10
PART II - OTHER INFORMATION 13
SIGNATURES 14
2
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, June 30,
ASSETS 2001 2001
Cash and due from banks $ 3,394 $ 640
Interest-bearing deposits in other financial institutions 4,748 4,009
------- -------
Cash and cash equivalents 8,142 4,649
Investment securities available for sale - at market 17,442 20,658
Mortgage-backed securities available for sale - at market 7,857 8,716
Loans receivable - net 104,731 103,308
Office premises and equipment - at depreciated cost 1,367 1,394
Federal Home Loan Bank stock - at cost 802 788
Accrued interest receivable on loans 222 188
Accrued interest receivable on mortgage-backed securities 50 50
Accrued interest receivable on investments and interest-bearing deposits 203 295
Prepaid expenses and other assets 592 902
Prepaid federal income taxes 95 39
------- -------
Total assets $141,503 $140,987
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $120,391 $120,725
Advances from the Federal Home Loan Bank 4,249 4,257
Advances by borrowers for taxes and insurance 91 171
Accrued interest payable 894 129
Other liabilities 1,268 1,201
Deferred federal income taxes 25 1
------- -------
Total liabilities 126,918 126,484
Commitments - -
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;
1,746,924 shares issued - -
Additional paid-in capital 8,482 8,482
Retained earnings, restricted 8,492 8,393
Shares acquired by stock benefit plans (781) (781)
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 762 779
Less 208,145 shares of treasury stock - at cost (2,370) (2,370)
------- -------
Total shareholders' equity 14,585 14,503
------- -------
Total liabilities and shareholders' equity $141,503 $140,987
======= =======
3
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended September 30,
(In thousands, except per share data)
2001 2000
Interest income
Loans $2,066 $1,989
Mortgage-backed securities 131 153
Investment securities 317 345
Interest-bearing deposits and other 57 61
----- -----
Total interest income 2,571 2,548
Interest expense
Deposits 1,511 1,453
Borrowings 41 116
----- -----
Total interest expense 1,552 1,569
----- -----
Net interest income 1,019 979
Other income
Gain on sale of investment securities 31 25
Other operating 92 82
----- -----
Total other income 123 107
General, administrative and other expense
Employee compensation and benefits 415 392
Occupancy and equipment 46 44
Federal deposit insurance premiums 6 7
Franchise taxes 45 51
Data processing 93 85
Other operating 145 122
----- -----
Total general, administrative and other expense 750 701
----- -----
Earnings before income taxes 392 385
Federal income taxes
Current 76 107
Deferred 33 -
----- -----
Total federal income taxes 109 107
----- -----
NET EARNINGS $ 283 $ 278
===== =====
EARNINGS PER SHARE
Basic $.19 $.18
=== ===
Diluted $.18 $.18
=== ===
4
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended September 30,
(In thousands)
2001 2000
Net earnings $283 $ 278
Other comprehensive income, net of tax:
Unrealized holding gains on securities during the period,
net of tax of $2 and $201 in 2001 and 2000, respectively 3 391
Reclassification adjustment for realized gains included in earnings,
net of tax of $11 and $8 in 2001 and 2000, respectively (20) (17)
--- ----
Comprehensive income $266 $ 652
=== ====
Accumulated comprehensive income (loss) $762 $(218)
=== ====
5
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30,
(In thousands)
2001 2000
Cash flows from operating activities:
Net earnings for the period $ 283 $ 278
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 8 (47)
Amortization of deferred loan origination fees (24) (15)
Depreciation and amortization 27 30
Federal Home Loan Bank stock dividends (14) (14)
Gain on sale of investment securities (31) (25)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 58 48
Prepaid expenses and other assets 310 30
Accrued interest payable 765 750
Other liabilities 67 95
Federal income taxes
Current (56) 100
Deferred 33 -
------ -----
Net cash provided by operating activities 1,426 1,230
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 6,296 255
Proceeds from sale of investment securities 32 26
Purchase of investment securities (3,089) -
Principal repayments on mortgage-backed securities 833 384
Purchase of loans - (972)
Loan principal repayments 9,005 4,242
Loan disbursements (10,404) (5,585)
Purchase of office premises and equipment - (50)
------ -----
Net cash provided by (used in) investing activities 2,673 (1,700)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts (334) 2,519
Repayment of Federal Home Loan Bank advances (8) (1,508)
Advances by borrowers for taxes and insurance (80) (84)
Dividends paid on common shares (184) (172)
------ -----
Net cash provided by (used in) financing activities (606) 755
------ -----
Net increase in cash and cash equivalents 3,493 285
Cash and cash equivalents at beginning of period 4,649 5,069
------ -----
Cash and cash equivalents at end of period $ 8,142 $5,354
====== =====
6
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended September 30,
(In thousands)
2001 2000
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $787 $819
=== ===
Federal income taxes $ 53 $ -
=== ===
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $(17) $374
=== ===
7
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended September 30, 2001 and 2000
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, 2001. 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, 2001, 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 the accounts of
the Corporation and its wholly owned subsidiary, American Savings Bank, fsb
("American" or the "Savings Bank"). All significant intercompany items have
been eliminated.
3. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period, less shares in the ASB Financial Corp.
Employee Stock Ownership Plan (the "ESOP") that are unallocated and not
committed to be released. Weighted-average common shares outstanding, which
give effect to 34,918 unallocated ESOP shares, totaled 1,503,861 for the
three-month period ended September 30, 2001. Weighted-average common shares
deemed outstanding, which give effect to 49,633 unallocated ESOP shares,
totaled 1,519,925 for the three-month period ended September 30, 2000.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under
the Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
1,550,774 for the three-month period ended September 30, 2001, and 1,519,925
for the three-month period ended September 30, 2000. Incremental shares
related to the assumed exercise of stock options included in the computation
of diluted earnings per share totaled 46,913 for the three-month period
ended September 30, 2001.
Options to purchase 174,557 shares of common stock with a weighted-average
exercise price of $10.08 were outstanding at September 30, 2000, but were
excluded from the computation of common share equivalents for the three
months ended September 30, 2000, because their exercise prices were greater
than the average market price of the common shares.
8
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended September 30, 2001 and 2000
4. Effects of Recent Accounting Pronouncements
In September 2000, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 140
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which revises the standards for accounting
for securitizations and other transfers of financial assets and collateral
and requires certain disclosures, but carries over most of the provisions of
SFAS No. 125 without reconsideration. SFAS No. 140 is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. SFAS No. 140 is effective for
recognition and reclassification of collateral and for disclosures relating
to securitization transactions and collateral for fiscal years ending after
December 15, 2000. Management adopted SFAS No. 140 effective April 1, 2001
as required, without material effect on the Corporation's financial position
or results of operations.
In June 2001, the FASB issued SFAS No. 141 "Business Combinations," which
requires that all business combinations initiated after June 30, 2001 be
accounted for using the purchase method. The pooling-of-interests method of
accounting is prohibited except for combinations initiated before June 30,
2001. The remaining provisions of SFAS No. 141 relating to business
combinations accounted for by the purchase method, including identification
of intangible assets, accounting for negative goodwill and financial
statement presentation and disclosure, are effective for combinations
completed after June 30, 2001. Management adopted SFAS No. 141 effective
June 30, 2001, without material effect on the Corporation's financial
position or results of operations.
In June 2001, the FASB issued SFAS No. 142 "Goodwill and Intangible Assets,"
which prescribes accounting for all purchased goodwill and intangible
assets. Pursuant to SFAS No. 142, acquired goodwill is not amortized, but is
tested for impairment at the reporting unit level annually and whenever an
impairment indicator arises. All goodwill should be assigned to reporting
units that are expected to benefit from the goodwill. When an entity
reorganizes its reporting structure, goodwill should be reallocated to
reporting units based on the relative fair values of the units. Goodwill
impairment should be tested with a two-step approach. First, the fair value
of the reporting unit should be compared to its carrying value, including
goodwill. If the reporting unit's carrying value exceeds its fair value,
then any goodwill impairment should be measured as the excess of goodwill's
carrying value over its implied fair value. The implied fair value of
goodwill should be calculated in the same manner as goodwill is calculated
for a business combination, using the reporting unit's fair value as the
"purchase price." Therefore, goodwill's implied fair value will be the
excess of the "purchase price" over the amounts allocated to assets,
including unrecognized intangible assets, and liabilities of the reporting
unit. Goodwill impairment losses should be reported in the income statement
as a separate line item within operations, except for such losses included
in the calculation of a gain or loss from discontinued operations.
An acquired intangible asset, other than goodwill, should be amortized over
its useful economic life. The useful life of an intangible asset is
indefinite if it extends beyond the foreseeable horizon. If an asset's life
is indefinite, the asset should not be amortized until the life is
determined to be finite. Intangible assets being amortized should be tested
for impairment in accordance with SFAS No. 121. Intangible assets not being
amortized should be tested for impairment, annually and whenever there are
indicators of impairment, by comparing the asset's fair value to its
carrying amount.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001. SFAS No. 142 is not expected to have a material effect on the
Corporation's financial position or results of operations.
9
ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from June 30, 2001 to September 30,
2001
At September 30, 2001, the Corporation's assets totaled $141.5 million, an
increase of $516,000, or .4%, over total assets at June 30, 2001. The increase
in assets was funded by a $434,000 increase in liabilities and an $82,000
increase in shareholders' equity.
Liquid assets (i.e. cash and interest-bearing deposits) increased by $3.5
million, or 75.1%, over June 30, 2001 levels, to a total of $8.1 million at
September 30, 2001. Investment securities totaled $17.4 million at September 30,
2001, a decrease of $3.2 million, or 15.6%, from June 30, 2001 levels. The
decrease was due primarily to maturities of $6.3 million, which were partially
offset by purchases of $3.1 million. Mortgage-backed securities totaled $7.9
million at September 30, 2001, a decrease of $859,000, or 9.9%, from the total
at June 30, 2001, due primarily to principal repayments during the period.
Loans receivable increased by $1.4 million, or 1.4%, during the three-month
period ended September 30, 2001, to a total of $104.7 million. Loan
disbursements amounted to $10.4 million and were partially offset by principal
repayments of $9.0 million. During the three months ended September 30, 2001,
loans originated were comprised of $6.9 million of loans secured by one- to
four-family residential real estate, $2.4 million of loans secured by
nonresidential real estate and $1.1 million of consumer loans.
The allowance for loan losses totaled $713,000 at both September 30, 2001 and
June 30, 2001. Nonperforming and nonaccrual loans totaled $602,000 and $618,000
at September 30, 2001 and June 30, 2001, respectively. The allowance for loan
losses represented 118.4% and 115.4% of nonperforming loans as of September 30,
2001 and June 30, 2001, respectively. At September 30, 2001, nonperforming loans
were comprised of $563,000 in one- to four-family residential real estate and
$39,000 in 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,
2001, 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 $120.4 million at September 30, 2001, a decline of $334,000, or
.3%, from June 30, 2001 levels. The decrease in deposits was primarily
attributable to the current declining interest rate environment. While
management has generally pursued a strategy of moderate growth in the deposit
portfolio, it has historically not engaged in sporadic increases and decreases
in interest rates, nor has it offered the highest interest rates available in
its market area.
Advances from the FHLB totaled $4.2 million at September 30, 2001, a decrease of
$8,000, or .2%, compared to June 30, 2001 due to repayments made during the
quarter.
Shareholders' equity totaled $14.6 million at September 30, 2001, an increase of
$82,000, or .6%, over June 30, 2001 levels. The increase resulted primarily from
net earnings of $283,000, which were partially offset by dividends on common
shares totaling $184,000 and a $17,000 decline in unrealized gains on securities
designated as available for sale for the three-month period.
American is required to meet minimum capital standards promulgated by the Office
of Thrift Supervision ("OTS"). At September 30, 2001, American's regulatory
capital was well in excess of the minimum capital requirements.
10
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,
2001 and 2000
General
Net earnings amounted to $283,000 for the three months ended September 30, 2001,
an increase of $5,000, or 1.8%, compared to the $278,000 of net earnings
reported for the same period in 2000. The increase in earnings resulted
primarily from a $40,000 increase in net interest income and a $16,000 increase
in other income, which were partially offset by a $49,000 increase in general,
administrative and other expense and a $2,000 increase in the provision for
federal income taxes.
Net Interest Income
Interest income on loans increased by $77,000, or 3.9%, during the three-month
period ended September 30, 2001, compared to the 2000 period, due primarily to
an approximate $10.6 million increase in the average portfolio balance
outstanding, which was partially offset by a 53 basis point decrease in the
weighted-average yield year to year. Interest income on investment and
mortgage-backed securities and interest-bearing deposits decreased by $54,000,
or 9.7%, due primarily to a 64 basis point decrease in the weighted-average
yield and a $1.8 million decrease in the average balance of the related assets
year to year.
Interest expense on deposits increased by $58,000, or 4.0%, due primarily to an
increase of approximately $9.9 million in the average balance of deposits
outstanding, which was partially offset by a 22 basis point decrease in the
weighted-average cost of deposits year to year. Interest expense on borrowings
decreased by $75,000, or 64.7%, due primarily to a $2.8 million decrease in the
average balance of borrowings outstanding and a 273 basis point decrease in the
average cost of borrowings.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $40,000, or 4.1%, to a total of $1.0 million
for the three months ended September 30, 2001. The interest rate spread
decreased to approximately 2.37% for the three months ended September 30, 2001,
from 2.69% for the 2000 period, while the net interest margin decreased to
approximately 2.79% in fiscal 2001, compared to 3.06% in 2000.
Provision for Losses on Loans
As a result of an analysis of historical experience, the volume and type of
lending conducted by the Savings Bank, the status of past due principal and
interest payments, general economic conditions, particularly as such conditions
relate to the Savings Bank's market area, and other factors related to the
collectibility of the Savings Bank's loan portfolio, management determined that
the allowance for loan losses was adequate, and therefore did not record a
provision for losses on loans for the three-month periods ended September 30,
2001 and 2000. There can be no assurance that the loan loss allowance will be
adequate to cover losses on nonperforming assets in the future.
11
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,
2001 and 2000 (continued)
Other Income
Other income increased by $16,000, or 15.0%, for the three months ended
September 30, 2001, compared to the same period in 2000, due primarily to a
$6,000 increase in gain on sale of investment securities and due to increased
service fees on ATM and other account transactions during the period, as well as
increased revenues related to sales of non-deposit investment products through
an agency arrangement with a third-party vendor.
General, Administrative and Other Expense
General, administrative and other expense increased by $49,000, or 7.0%, during
the three months ended September 30, 2001, compared to the same period in 2000.
This increase was comprised primarily of a $23,000, or 5.9%, increase in
employee compensation and benefits, an $8,000, or 9.4%, increase in data
processing expense and a $23,000, or 18.9%, increase in other operating expense.
The increase in employee compensation and benefits was due primarily to hiring
additional staff necessary to maintain the Corporation's growth from year to
year. The increase in data processing expense primarily reflects an increase in
transaction costs, and the effects of the Corporation's overall growth year to
year. The increase in other operating expense was due primarily to costs related
to the Corporation's investment in a low income housing partnership.
Federal Income Taxes
The provision for federal income taxes totaled $109,000 for the three months
ended September 30, 2001, an increase of $2,000, or 1.9%, compared to the same
period in 2000. This increase resulted primarily from the increase in net
earnings before taxes of $7,000, or 1.8%, which were partially offset by tax
credits from the Savings Bank's investment in a low income housing partnership.
The effective tax rate was 27.8% for both the three-month periods ended
September 30, 2001 and 2000.
12
ASB Financial Corp.
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in 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 24, 2001, the Corporation held its Annual Meeting of
Shareholders. Two matters were submitted to the shareholders for a
vote. The shareholders elected five directors to terms expiring in
2002 by the following votes:
For Against Abstain
William J. Burke 1,312,965 0 17,200
Lee O. Fitch 1,312,001 0 18,164
Gerald R. Jenkins 1,312,965 0 17,200
Louis M. Schoettle, M.D. 1,312,965 0 17,200
Robert M. Smith 1,305,375 0 24,790
The shareholders also ratified the selection of Grant Thornton LLP as
the Corporation's auditors for the 2002 fiscal year by the following
vote:
For: 1,304, 439 Against: 600 Abstain: 25,125
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits: None.
Reports on Form 8-K: None.
13
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.
Date: November 14, 2001 By: /s/Robert M. Smith
-------------------- --------------------------------------
Robert M. Smith
President and Chief Executive Officer
Date: November 14, 2001 By: /s/Michael L. Gampp
-------------------- --------------------------------------
Michael L. Gampp
Chief Financial Officer
14