UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
-----------------------------------------------
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: February 12, 2003 - 1,573,895 shares
of common stock, no par value
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
1
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 16
SIGNATURES 17
CERTIFICATIONS 18
2
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
December 31, June 30,
ASSETS 2002 2002
Cash and due from banks $ 578 $ 1,428
Interest-bearing deposits in other financial institutions 7,727 6,276
------- -------
Cash and cash equivalents 8,305 7,704
Certificates of deposit in other financial institutions 100 100
Investment securities available for sale - at market 15,260 20,866
Mortgage-backed securities available for sale - at market 10,384 7,091
Loans receivable - net 111,878 109,015
Real estate acquired through foreclosure 445 -
Office premises and equipment - at depreciated cost 1,599 1,277
Federal Home Loan Bank stock - at cost 1,040 1,017
Accrued interest receivable on loans 244 216
Accrued interest receivable on mortgage-backed securities 57 41
Accrued interest receivable on investments and interest-bearing deposits 299 293
Prepaid expenses and other assets 455 646
Prepaid federal income taxes 114 -
Deferred federal income taxes - 6
------- -------
Total assets $150,180 $148,272
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $127,763 $126,872
Advances from the Federal Home Loan Bank 4,205 4,223
Advances by borrowers for taxes and insurance 174 162
Accrued interest payable 87 85
Other liabilities 1,354 1,307
Accrued federal income taxes - 169
Deferred federal income taxes 109 -
------- -------
Total liabilities 133,692 132,818
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;
1,769,851 and 1,760,681 shares issued at December 31, 2002 and
June 30, 2002, respectively - -
Additional paid-in capital 8,783 8,619
Retained earnings, restricted 9,753 9,152
Shares acquired by stock benefit plans (286) (537)
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 917 850
Less 237,219 and 232,819 shares of treasury stock at December 31, 2002
and June 30 2002, respectively - at cost (2,679) (2,630)
------- -------
Total shareholders' equity 16,488 15,454
------- -------
Total liabilities and shareholders' equity $150,180 $148,272
======= =======
3
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
For the six months For the three months
ended December 31, ended December 31,
2002 2001 2002 2001
Interest income
Loans $4,074 $4,034 $2,043 $1,968
Mortgage-backed securities 244 245 115 114
Investment securities 550 649 247 276
Interest-bearing deposits and other 22 3 11 2
----- ----- ----- -----
Total interest income 4,890 4,931 2,416 2,360
Interest expense
Deposits 2,021 2,808 963 1,297
Borrowings 51 83 30 37
----- ----- ----- -----
Total interest expense 2,072 2,891 993 1,334
----- ----- ----- -----
Net interest income 2,818 2,040 1,423 1,026
Provision for losses on loans 124 22 124 22
----- ----- ----- -----
Net interest income after provision for
losses on loans 2,694 2,018 1,299 1,004
Other income
Gain on sale of investment securities 12 31 7 -
Other operating 268 239 140 147
----- ----- ----- -----
Total other income 280 270 147 147
General, administrative and other expense
Employee compensation and benefits 773 708 305 318
Occupancy and equipment 91 91 47 45
Franchise taxes 64 91 61 46
Data processing 206 187 75 95
Other operating 378 370 187 198
----- ----- ----- -----
Total general, administrative and other expense 1,512 1,447 675 702
----- ----- ----- -----
Earnings before income taxes 1,462 841 771 449
Federal income taxes
Current 378 211 255 135
Deferred 80 34 - 1
----- ----- ----- -----
Total federal income taxes 458 245 255 136
----- ----- ----- -----
NET EARNINGS $1,004 $ 596 $ 516 $ 313
===== ===== ===== =====
EARNINGS PER SHARE
Basic $.67 $.40 $.35 $.21
=== === === ===
Diluted $.64 $.38 $.33 $.20
=== === === ===
4
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the six months For the three months
ended December 31, ended December 31,
2002 2001 2002 2001
Net earnings $1,004 $596 $516 $313
Other comprehensive income (loss), net of taxes:
Unrealized holding gains (losses) on securities during
the period, net of taxes (benefits) of $39, $3, $22
and $(9) during the respective periods 75 5 43 (17)
Reclassification adjustment for realized gains included
in earnings, net of taxes of $4 and $11 during the six-month
periods ended December 31, 2002 and 2001 and $2 during
the three-month period ended December 31, 2002 (8) (20) (5) -
----- --- --- ---
Comprehensive income $1,071 $581 $554 $296
===== === === ===
Accumulated comprehensive income $ 917 $764 $917 $764
===== === === ===
5
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
(In thousands)
2002 2001
Cash flows from operating activities:
Net earnings for the period $ 1,004 $ 596
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 82 12
Amortization of deferred loan origination fees (68) (49)
Depreciation and amortization 65 65
Amortization of expense related to stock benefit plans 345 340
Provision for losses on loans 124 22
Federal Home Loan Bank stock dividends (23) (25)
Gain on sale of investment securities (12) (31)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (50) 17
Prepaid expenses and other assets 191 336
Accrued interest payable 2 -
Other liabilities 47 299
Federal income taxes
Current (283) (139)
Deferred 80 34
------ ------
Net cash provided by operating activities 1,504 1,477
Cash flows provided by (used in) investing activities:
Purchase of investment securities (7,320) (14,826)
Proceeds from maturity of investment securities 9,904 17,855
Proceeds from sale of investment securities 2,958 32
Purchase of mortgage-backed securities (7,221) -
Principal repayments on mortgage-backed securities 4,024 2,307
Loan principal repayments 17,096 18,882
Loan disbursements (20,460) (19,348)
Purchase of office equipment (387) (5)
------ ------
Net cash provided by (used in) investing activities (1,406) 4,897
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts 891 (3,144)
Repayment of Federal Home Loan Bank advances (18) (17)
Advances by borrowers for taxes and insurance 12 (5)
Proceeds from issuance of shares under stock option plan 70 -
Purchase of treasury stock (49) (70)
Dividends paid on common stock (403) (369)
------ ------
Net cash provided by (used in) financing activities 503 (3,605)
------ ------
Net increase in cash and cash equivalents 601 2,769
Cash and cash equivalents at beginning of period 7,704 4,649
------ ------
Cash and cash equivalents at end of period $ 8,305 $ 7,418
====== ======
6
ASB Financial Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended December 31,
(In thousands)
2002 2001
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 688 $ 230
===== =====
Interest on deposits and borrowings $2,070 $2,875
===== =====
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ 67 $ (15)
===== =====
Transfers from mortgage loans to real estate acquired
through foreclosure $ 445 $ -
===== =====
7
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For six- and three-month periods ended December 31, 2002 and 2001
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, 2002. However, in the opinion of management, all
adjustments (consisting of only normal recurring accruals) which are
necessary for a fair presentation of the financial statements have been
included. The results of operations for the six- and three-month periods
ended December 31, 2002, are not necessarily indicative of the results which
may be expected for the entire fiscal year.
In June 2002, the Corporation's wholly-owned subsidiary, American Savings
Bank, fsb ("American" or the "Savings Bank") acquired substantially all of
the assets and liabilities of The Waverly Building and Loan Company
("Waverly"). The acquisition was accounted for using the purchase method of
accounting. The business combination with Waverly added approximately $5.6
million in assets and $4.6 million in liabilities to the Corporation at June
30, 2002. Consistent with the purchase method of accounting, the
Corporation's prior years operating results were not restated for the
acquisition.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Corporation and American. All significant intercompany items have been
eliminated.
3. Earnings Per Share
Basic earnings per common share are computed based upon the weighted-average
number of common shares outstanding during the period less shares in the
ESOP that are unallocated and not committed to be released. Weighted-average
common shares deemed outstanding give effect to 9,179 and 21,929 unallocated
ESOP shares for the six and three month periods ended December 31, 2002 and
2001, respectively. Diluted earnings per common share include the dilutive
effect of all additional potential common shares issuable under the
Corporation's stock option plan. The computations are as follows:
For the six months ended For the three months ended
December 31, December 31,
2002 2001 2002 2001
Weighted-average common shares
outstanding (basic) 1,503,904 1,501,710 1,502,586 1,499,560
Dilutive effect of assumed exercise
of stock options 75,218 46,549 85,672 46,548
--------- --------- --------- ---------
Weighted-average common shares
outstanding (diluted) 1,579,122 1,548,259 1,588,258 1,546,108
========= ========= ========= =========
8
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For six- and three-month periods ended December 31, 2002 and 2001
4. Effects of Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("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. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. Management adopted SFAS No.
142 effective July 1, 2002, as required, without material effect on the
Corporation's financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which carries over the recognition and
measurement provisions in SFAS No. 121. Accordingly, an entity must
recognize an impairment loss if the carrying value of a long-lived asset or
asset group (a) is not recoverable and (b) exceeds its fair value. Similar
to SFAS No. 121, SFAS No. 144 requires an entity to test an asset or asset
group for impairment whenever events or changes in circumstances indicate
that its carrying amount may not be recoverable. SFAS No. 144 differs from
SFAS No. 121 in that it provides guidance on estimating future cash flows to
test recoverability. SFAS No. 144 is effective for financial statements
issued for fiscal years beginning after December 15, 2001 and interim
periods within those fiscal years. Management adopted SFAS No. 144 effective
July 1, 2002, without material effect on the Corporation's financial
condition or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 provides financial
accounting and reporting guidance for costs associated with exit or disposal
activities, including one-time termination benefits, contract termination
costs other than for a capital lease, and costs to consolidate facilities or
relocate employees. SFAS No. 146 is effective for exit or disposal
activities initiated after December 31, 2002. SFAS No. 146 is not expected
to have a material effect on the Corporation's financial condition or
results of operations.
In October 2002, the FASB issued SFAS No. 147, "Accounting for Certain
Financial Institutions: An Amendment of FASB Statements No. 72 and 144 and
FASB Interpretation No. 9," which removes acquisitions of financial
institutions from the scope of SFAS No. 72, "Accounting for Certain
Acquisitions of Banking and Thrift Institutions," except for transactions
between mutual enterprises. Accordingly, the excess of the fair value of
liabilities assumed over the fair value of tangible and intangible assets
acquired in a business combination should be recognized and accounted for
as goodwill in accordance with SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 147 also requires that the acquisition of a less-than-whole
financial institution, such as a branch, be accounted for as a business
combination if the transferred assets and activities constitute a business.
Otherwise, the acquisition should be accounted for as the acquisition of net
assets. SFAS No. 147 also amends the scope of SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," to include long-term
customer relationship assets of financial institutions (including mutual
enterprises) such as depositor- and borrower-relationship intangible assets
and credit card holder intangible assets.
The provisions of SFAS No. 147 related to unidentifiable intangible assets
and the acquisition of a less-than-whole financial institution are effective
for acquisitions for which the date of acquisition is on or after October 1,
2002. The provisions related to impairment of long-term customer
relationship assets are effective October 1, 2002. Transition provisions for
previously recognized unidentifiable intangible assets are effective on
October 1, 2002, with earlier application permitted. SFAS No. 147 is not
expected to have a material effect on the Corporation's financial condition
or results of operations.
9
ASB Financial Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For six- and three-month periods ended December 31, 2002 and 2001
4. Effects of Recent Accounting Pronouncements (continued)
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method
of accounting used for stock-based employee compensation and the effect of
the method used on reported results. SFAS No. 148 is effective for fiscal
years beginning after December 15, 2002. The interim disclosure provisions
are effective for financial reports containing financial statements for
interim periods beginning after December 15, 2002. SFAS No. 148 is not
expected to have a material effect on the Corporation's financial condition
or results of operations.
10
ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from June 30, 2002 to December 31,
2002
At December 31, 2002, the Corporation's assets totaled $150.2 million, an
increase of $1.9 million, or 1.3%, over total assets at June 30, 2002.
Cash and cash equivalents increased by $601,000, or 7.8%, from June 30, 2002
levels, to a total of $8.3 million at December 31, 2002. Investment securities
totaled $15.3 million at December 31, 2002, a decrease of $5.6 million, or
26.9%, from June 30, 2002 levels. The decrease was due primarily to maturities
of $9.9 million and sales of $3.0 million, which were partially offset by
purchases of $7.3 million. Purchases of investment securities consisted
primarily of fixed-rate medium-term U.S. Government agency obligations.
Mortgage-backed securities totaled $10.4 million at December 31, 2002, an
increase of $3.3 million, or 46.4%, over the total at June 30, 2002, due
primarily to purchases of $7.2 million, which were partially offset by principal
repayments of $4.0 million during the period.
Loans receivable increased by $2.9 million, or 2.6%, during the six-month period
ended December 31, 2002, to a total of $111.9 million. Loan disbursements
amounted to $20.5 million and were substantially offset by principal repayments
of $17.1 million. During the six months ended December 31, 2002, loans
originated consisted of $11.2 million of loans secured by one- to four-family
residential real estate, $4.9 million of loans secured by nonresidential real
estate, $2.7 million of commercial loans and $1.7 million of consumer loans.
The allowance for loan losses totaled $963,000 and $855,000 at December 31, 2002
and June 30, 2002, respectively. Nonperforming and nonaccrual loans totaled $1.2
million and $707,000 at December 31, 2002 and June 30, 2002, respectively. The
allowance for loan losses represented 83.1% and 120.9% of nonperforming loans as
of December 31, 2002 and June 30, 2002, respectively. At December 31, 2002,
nonperforming loans consisted of $672,000 in one- to four-family residential
real estate loans and $487,000 in nonresidential real estate, consumer and other
loans. Management believes such loans are adequately collateralized and does not
expect to incur any losses on such loans. Although management believes that its
allowance for loan losses at December 31, 2002, 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 $127.8 million at December 31, 2002, an increase of $891,000,
or .7%, over June 30, 2002 levels. The increase in deposits was due primarily to
an increase in money market accounts.
Shareholders' equity totaled $16.5 million at December 31, 2002, an increase of
$1.0 million, or 6.7%, over June 30, 2002 levels. The increase resulted
primarily from net earnings of $1.0 million and a $67,000 increase in unrealized
gains on securities designated as available for sale, which were partially
offset by dividends on common shares totaling $403,000 and a $49,000 repurchase
of treasury shares.
American is required to meet minimum capital standards promulgated by the Office
of Thrift Supervision ("OTS"). At December 31, 2002, American's regulatory
capital was well in excess of the minimum capital requirements.
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 December 31,
2002 and 2001
General
Net earnings amounted to $516,000 for the three months ended December 31, 2002,
an increase of $203,000, or 64.9%, compared to the $313,000 of net earnings
reported for the same period in 2001. The increase in earnings resulted
primarily from a $397,000 increase in net interest income and a $27,000 decrease
in general, administrative and other expense, which were partially offset by
increases of $102,000 in the provision for losses on loans and $119,000 in the
provision for federal income taxes. The aforementioned increases in income and
expense are partially attributable to the acquisition of Waverly in June 2002.
Prior year results were not restated for the acquisition.
Net Interest Income
Interest income on loans increased by $75,000, or 3.8%, during the quarter ended
December 31, 2002, compared to the 2001 period. This increase was due primarily
to a $7.4 million, or 7.1%, increase in the average portfolio balance
outstanding year to year, which was partially offset by a 23 basis point
decrease in the weighted-average yield, to 7.37% for the 2002 quarter. Interest
income on investment securities, mortgage-backed securities and interest-bearing
deposits decreased by $19,000, or 4.8%, due primarily to a 35 basis point
decrease in the weighted-average yield, to 4.44% for the 2002 quarter, which was
partially offset by an $826,000, or 2.5%, increase in the average balance of the
related assets year to year.
Interest expense on deposits decreased by $334,000, or 25.8%, for the three
months ended December 31, 2002, compared to the same quarter in 2001. This
decrease was due primarily to a 133 basis point decrease in the weighted-average
cost of deposits, to 3.02% for the quarter ended December 31, 2002, which was
partially offset by an $8.5 million, or 7.1%, increase in the average balance of
deposits outstanding year to year. Interest expense on borrowings decreased by
$7,000, or 18.9%, due primarily to a decrease in the average balance of
borrowings outstanding and a 64 basis point decrease in the average cost of
borrowings. The decrease in the yields on interest-earning assets and the costs
of interest-bearing liabilities was due primarily to the overall decrease in
interest rates in the economy during 2002 and 2001.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $397,000, or 38.7%, to a total of $1.4 million
for the three months ended December 31, 2002. The interest rate spread increased
to 3.68% for the three months ended December 31, 2002, from 2.61% for the 2001
period, while the net interest margin increased to 3.94% in the 2002 period,
compared to 3.01% in the 2001 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 $124,000
during the three months ended December 31, 2002, an increase of $102,000
compared to the same period in 2001. The current period provision was predicated
primarily upon growth in the portfolio of loans secured by nonresidential real
estate and an increase in nonperforming loans. There can be no assurance that
the loan loss allowance will be adequate to absorb losses on known nonperforming
assets or that the allowance will be adequate to cover losses on nonperforming
assets in the future.
12
ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods Ended December 31,
2002 and 2001 (continued)
Other Income
Other income totaled $147,000 for both the three months ended December 31, 2002
and 2001. A $7,000 gain on sale of investment securities was offset by a $7,000,
or 4.8%, decrease in other operating income.
General, Administrative and Other Expense
General, administrative and other expense totaled $675,000 for the three months
ended December 31, 2002, a decrease of $27,000, or 3.8%, compared to the same
period in 2001. This decrease was comprised primarily of decreases of $13,000,
or 4.1%, in employee compensation and benefits, $20,000, or 21.1%, in data
processing and $11,000, or 5.6%, in other operating expense. The decrease in
employee compensation was due primarily to an increase in deferred loan
origination costs related to the increase in lending volume year to year,
partially offset by normal merit increases. The decrease in data processing was
due primarily to a one-time charge to upgrade the on-line system recorded in the
prior year. The decrease in other operating expense was due primarily to a
decline in amortization of the Corporation's investment in a low income housing
partnership.
Federal Income Taxes
The provision for federal income taxes totaled $255,000 for the three months
ended December 31, 2002, an increase of $119,000, or 87.5%, compared to the same
period in 2001. This increase resulted primarily from an increase in net
earnings before taxes of $322,000, or 71.7%. The effective tax rates were 33.1%
and 30.3% for the three-month periods ended December 31, 2002 and 2001,
respectively.
Comparison of Operating Results for the Six-Month Periods Ended December 31,
2002 and 2001
General
Net earnings amounted to $1.0 million for the six months ended December 31,
2002, an increase of $408,000, or 68.5%, compared to the $596,000 of net
earnings reported for the same period in 2001. The increase in earnings resulted
primarily from increases of $778,000 in net interest income and $10,000 in other
income, which were partially offset by increases of $102,000 in the provision
for losses on loans, $65,000 in general, administrative and other expense and
$213,000 in the provision for federal income taxes. The aforementioned increases
in income and expense are partially attributable to the acquisition of Waverly
in June 2002. Prior year results were not restated for the acquisition.
Net Interest Income
Interest income on loans increased by $40,000, or 1.0%, during the six months
ended December 31, 2002, compared to the 2001 period. This increase was due
primarily to a $3.4 million, or 3.6%, increase in the average portfolio balance
outstanding year to year, which was partially offset by an 18 basis point
decrease in the weighted-average yield, to 7.38% for the 2002 period. Interest
income on investment securities, mortgage-backed securities and interest-bearing
deposits decreased by $81,000, or 9.0%, due primarily to a 64 basis point
decrease in the weighted-average yield, to 4.90% for the 2002 period, which was
partially offset by a $3.1 million, or 10.3%, increase in the average balance of
the related assets year to year.
13
ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Six-Month Periods Ended December 31,
2002 and 2001 (continued)
Net Interest Income (continued)
Interest expense on deposits decreased by $787,000, or 28.0%, for the six months
ended December 31, 2002, compared to the 2001 period. This decrease was due
primarily to a 168 basis point decrease in the weighted-average cost of
deposits, to 3.09% for the period ended December 31, 2002, which was partially
offset by a $13.2 million, or 11.2%, increase in the average balance of deposits
outstanding year to year. Interest expense on borrowings decreased by $32,000,
or 38.6%, due primarily to a decrease in the average balance of borrowings
outstanding and a 138 basis point decrease in the average cost of borrowings.
The decrease in the yields on interest-earning assets and the costs of
interest-bearing liabilities was due primarily to the overall decrease in
interest rates in the economy during 2002 and 2001.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $778,000, or 38.1%, to a total of $2.8 million
for the six months ended December 31, 2002. The interest rate spread increased
to 3.73% for the six months ended December 31, 2002, from 2.46% for the 2001
period, while the net interest margin increased to 3.92% in the 2002 period,
compared to 2.98% in the 2001 period.
Provision for Losses on Loans
Management recorded a provision for losses on loans totaling $124,000 during the
six months ended December 31, 2002, an increase of $102,000, compared to the
same period in 2001. The current period provision was predicated primarily upon
growth in the portfolio of loans secured by nonresidential real estate and an
increase in nonperforming loans. There can be no assurance that the loan loss
allowance will be adequate to absorb losses on known nonperforming assets or
that the allowance will be adequate to cover losses on nonperforming assets in
the future.
Other Income
Other income amounted to $280,000 for the six months ended December 31, 2002, an
increase of $10,000, or 3.7%, compared to the same period in 2001, due primarily
to increased fee income of $24,000 on transaction accounts during the six month
period and an increase in the cash surrender value of life insurance, which were
partially offset by a $19,000 decrease in gain on sale of investment securities
year to year.
General, Administrative and Other Expense
General, administrative and other expense totaled $1.5 million for the six
months ended December 31, 2002, an increase of $65,000, or 4.5%, compared to the
same period in 2001. This increase was comprised primarily of increases of
$65,000, or 9.2%, in employee compensation and benefits and $19,000, or 10.2%,
in data processing. These increases were partially offset by a $27,000, or
29.7%, decrease in franchise tax expense. The increase in employee compensation
and benefits was due primarily to the effect of the Waverly acquisition,
increases in health and other benefit plan costs, as well as normal merit
increases year to year. The increase in data processing also related to the
effects of the acquisition of Waverly as compared to the same period in 2001.
The decrease in franchise taxes resulted from refund claims filed on prior year
tax liabilities.
14
ASB Financial Corp.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Six-Month Periods Ended December 31,
2002 and 2001 (continued)
Federal Income Taxes
The provision for federal income taxes totaled $458,000 for the six months ended
December 31, 2002, an increase of $213,000, or 86.9%, compared to the same
period in 2001. This increase resulted primarily from the increase in net
earnings before taxes of $621,000, or 73.8%. The effective tax rates were 31.3%
and 29.1% for the six-month periods ended December 31, 2002 and 2001,
respectively.
ITEM 3: Controls and Procedures
(a) The Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Corporation's disclosure controls and
procedures (as defined under Rules 13a-14 and 15d-14 of the Securities Exchange
Act of 1934, as amended) as of a date within ninety days of the filing date of
this quarterly report on Form 10-QSB. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the
Corporation's disclosure controls and procedures are effective.
(b) There were no significant changes in the Corporation's internal
controls or in any factors that could significantly affect these controls
subsequent to the date of the Chief Executive Officer and the Chief Financial
Officer's evaluation.
15
ASB Financial Corp.
PART II
ITEM 1. Legal Proceedings
Not applicable.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits:
EX-99.1 Certification of Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350
EX-99.2 Certification of Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350
Reports on Form 8-K: None.
16
ASB Financial Corp.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ASB FINANCIAL CORP.
Date: February 14, 2003 By: /s/Robert M. Smith
--------------------- --------------------------------------
Robert M. Smith
President and Chief Executive Officer
Date: February 14, 2003 By: /s/Michael L. Gampp
--------------------- --------------------------------------
Michael L. Gampp
Chief Financial Officer
17
CERTIFICATION
I, Robert M. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ASB Financial
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003 /s/Robert M. Smith
-------------------------------------
Robert M. Smith
President and Chief Executive Officer
18
CERTIFICATION
I, Michael L. Gampp, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ASB Financial
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003 /s/Michael L. Gampp
-----------------------------------------
Michael L. Gampp
Chief Financial Officer
19