Osage Bancshares 10QSB 2008 Q3 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

______________________________

FORM 10-QSB

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2008

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _________ to _________

Commission File Number 1-33224

OSAGE BANCSHARES, INC.

(Exact name of Small Business Issuer as specified in its Charter)

Maryland	32-0181888
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

239 East Main Street, Pawhuska, Oklahoma 74056

(Address of principal executive offices)

(918) 287-2919

(Issuer’s telephone number)

Not applicable

(Former name, former address and former fiscal year,

if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of April 30, 2008 there were 3,253,645 shares of the Registrant’s common stock, par value $.01 per share, outstanding.

Transitional Small Business Issuer Disclosure Format (check one): Yes o No x

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OSAGE BANCSHARES, INC.

PAWHUSKA, OKLAHOMA

INDEX

Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of March 31, 2008 (Unaudited) and June 30, 2007 3

Consolidated Statements of Income - (Unaudited) for the three and nine months ended

March 31, 2008 and 2007 4

Consolidated Statements of Cash Flows - (Unaudited) for the nine months ended

March 31, 2008 and 2007 5

Notes to Consolidated Financial Statements (Unaudited) 7

Item 2. Management’s Discussion and Analysis or Plan of Operation 11

Item 3. Controls and Procedures 18

PART II. OTHER INFORMATION

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds 19

Item 6. Exhibits 19

Signatures 21

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ITEM 1.FINANCIAL STATEMENTS

OSAGE BANCSHARES, INC.

Consolidated Balance Sheets

Assets

		March 31, 2008					June 30, 2007
		(unaudited)
Cash and due from banks		$		1,748,948			$		1,338,149
Interest bearing deposits with banks				288,548					823,671
Federal funds sold				6,715,000					2,808,000
Cash and cash equivalents				8,752,496					4,969,820
Available-for-sale securities				15,273,844					15,911,147
Held-to-maturity securities				9,637,706					6,962,431
Loans, net of allowance for loan losses of $393,194 and $402,402 at March 31, 2008 and June 30, 2007, respectively				97,607,040					88,721,198
Loans held for sale				121,600					——
Premises and equipment				1,551,556					1,455,651
Foreclosed assets held for sale, net				45,142					43,123
Interest receivable				554,319					476,381
Federal Home Loan Bank stock, at cost				1,869,400					1,808,300
Bank owned life insurance				2,222,491					2,163,928
Deferred income taxes				80,327					25,591
Income taxes receivable				81,047					—
Other				182,168					146,633
Total assets		$		137,979,136			$		122,684,203
Liabilities and Stockholders’ Equity
Liabilities
Deposits	$		88,643,797			$		72,703,614
Federal Home Loan Bank advances			16,000,000					13,000,000
Advances from borrowers held in escrow			665,660					761,165
Accrued interest and other liabilities			798,042					680,133
Total liabilities			106,107,499					87,144,912
Commitments and Contingencies			—					—
Equity Received from Contributions to the ESOP (65,497 and 42,640 shares at March 31, 2008 and June 30, 2007, respectively)			554,634					341,229
Stockholders’ Equity
Preferred stock, $.01 par value (5,000,000 shares authorized; none outstanding)			—					—
Common stock, $.01 par value (20,000,000 shares authorized; 3,253,645 and 3,603,590 shares issued and outstanding at March 31, 2008 and June 30, 2007, respectively, net of 288,000 allocated and unallocated ESOP shares)			29,656					33,156
Additional paid-in capital			26,770,873					27,255,732
Retained earnings			4,837,873					8,154,032
Accumulated other comprehensive loss			(321,399		)			(244,858		)
Total stockholders’ equity			31,317,003					35,198,062
Total liabilities and stockholders’ equity	$		137,979,136			$		122,684,203

See Notes to Consolidated Financial Statements

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OSAGE BANCSHARES, INC.

Consolidated Statements of Income

	Three Months Ended March 31,				Nine Months Ended March 31,
	2008		2007		2008		2007
Interest Income		(unaudited)				(unaudited)
Loans	$	1,623,360	$	1,362,466	$	4,729,704	$	4,037,712
Available-for-sale securities		183,696		205,451		592,696		624,306
Held-to-maturity securities		102,874		81,286		249,987		253,160
Deposits with other financial institutions		69,875		125,865		264,337		172,579
Other		16,694		23,166		61,470		75,204
Total interest income		1,996,499		1,798,234		5,898,194		5,162,961
Interest Expense
Deposits		760,309		619,042		2,117,905		1,680,900
Advances from Federal Home Loan Bank		167,317		161,857		490,250		898,142
Total interest expense		927,626		780,899		2,608,155		2,579,042
Net Interest Income		1,068,873		1,017,335		3,290,039		2,583,919
Provision for loan losses		—		—		—		10,000
Net interest income after provision for loan losses		1,068,873		1,017,335		3,290,039		2,573,919
Noninterest Income
Service charges on deposit accounts		83,460		89,120		269,576		284,740
Other service charges and fees		23,235		20,821		58,298		53,104
Gain on sale of mortgage loans		16,984		—		47,884		11,710
Net loan servicing fees		17,593		13,545		49,961		33,914
Other income		48,010		40,544		132,078		111,254
Total noninterest income		189,282		164,030		557,797		494,722
Noninterest Expense
Salaries and employee benefits		533,408		436,188		1,473,448		1,277,317
Net occupancy expense		73,166		67,012		224,869		196,007
Deposit insurance premium		2,688		2,206		7,701		6,226
Other operating expenses		291,377		215,680		840,007		597,866
Total noninterest expense		900,639		721,086		2,546,025		2,077,416
Income Before Income Taxes		357,516		460,279		1,301,811		991,225
Provision for Income Taxes		134,308		168,134		476,960		351,025
Net Income	$	223,208	$	292,145	$	824,851	$	640,200
Basic Earnings Per Share	$	0.07	$	0.09	$	0.25	$	0.19
Diluted Earnings Per Share	$	0.07	$	0.09	$	0.25	$	0.19
Cash Dividends Paid Per Share	$	0.085	$	0.06	$	0.255	$	0.36

See Notes to Consolidated Financial Statements

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OSAGE BANCSHARES, INC.

Consolidated Statements of Cash Flows

	Nine Months Ended March 31,
Operating Activities		2008			2007
Net income	$	824,851		$	640,200
Items not requiring (providing) cash
Depreciation		98,426			68,565
Provision (credit) for loan losses and foreclosed asset losses		(10,000	)		10,000
Amortization		27,697			63,884
Restricted stock plan and options expense		160,405			103,014
Deferred income taxes		(7,823	)		(7,660	)
Gain on sale of mortgage loans		(47,884	)		(11,710	)
(Gain)/loss on sale of foreclosed assets held for sale		(129	)		(9,021	)
Dividends on available-for-sale mutual funds		(486,631	)		(466,253	)
Stock dividends on Federal Home Loan Bank stock		(61,100	)		(75,000	)
Increase in cash surrender value of bank owned life insurance		(58,563	)		(56,015	)
Originations of loans held for delivery against commitments		(5,253,645	)		(1,342,090	)
Proceeds from nonrecourse sale of loans held for delivery against commitments		5,150,507			1,502,166
Amortization of employee stock ownership plan shares		213,405			177,759
Changes in
Interest receivable		(77,938	)		(32,009	)
Other assets		57,468			(56,763	)
Income taxes refundable		(165,869	)		—
Accrued interest and other liabilities		117,909			(32,002	)
Net cash provided by operating activities		481,086			477,065
Investing Activities
Net change in loans		(8,911,726	)		(4,814,856	)
Purchases of held-to-maturity securities		(3,447,593	)		—
Purchases of premises and equipment		(194,331	)		(234,906	)
Proceeds from sale of foreclosed assets		33,994			91,113
Proceeds from maturities and paydowns of held-to-maturity securities		772,984			939,187
Proceeds from maturities and paydowns of available-for-sale securities		993,358			1,943,355
Net cash used in investing activities		(10,753,314	)		(2,076,107	)

See Notes to Consolidated Financial Statements

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OSAGE BANCSHARES, INC.

Consolidated Statements of Cash Flows

(Continued)

	Nine Months Ended March 31,
	2008			2007
	(Unaudited)
Financing Activities
Net increase/(decrease) in demand, money market, NOW and savings deposits	$	1,286,411		$	(1,323,760	)
Net increase in certificates of deposit		14,653,772			13,463,248
Net decrease in Federal Home Loan Bank short-term borrowings		—			(20,850,000	)
Proceeds from Federal Home Loan Bank advances		5,000,000			2,000,000
Repayments of Federal Home Loan Bank advances		(2,000,000	)		(1,500,000	)
Shares repurchased under stock buyback plans		(3,263,791	)		—
Net decrease in advances from borrowers held in escrow		(95,505	)		(181,006	)
Payment of dividends (net of restricted stock dividends)		(880,714	)		(409,120	)
Tax benefits of employee benefit plans		20,125			32,307
Proceeds from sale of common stock, net		—			21,496,833
Proceeds from exercise of stock options (net of tax benefits)		—			27,607
Receipt of funds from Osage Federal MHC		—			86,996
Shares purchased and withheld for restricted stock plans		(665,394	)		(6,642	)
Net cash provided by financing activities		14,054,904			12,836,463
Increase in Cash and Cash Equivalents		3,782,676			11,237,421
Cash and Cash Equivalents, Beginning of Period		4,969,820			2,455,016
Cash and Cash Equivalents, End of Period	$	8,752,496		$	13,692,437
Supplemental Cash Flows Information
Real estate and other assets acquired in settlement of loans	$	25,884		$	96,949
Interest paid	$	2,540,389		$	2,542,797
Income taxes paid	$	629,944		$	355,773
Mutual fund dividends reinvested	$	486,631		$	466,253

See Notes to Consolidated Financial Statements

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OSAGE BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. OSAGE BANCSHARES, INC.

REORGANIZATION

On January 17, 2007, Osage Federal MHC (the “MHC”) completed its reorganization into stock form and Osage Bancshares, Inc. (the “Company”) succeeded to the business of the MHC’s former federal mid-tier holding company subsidiary, Osage Federal Financial, Inc., which ceased to exist. Each outstanding share of common stock of Osage Federal Financial, Inc. (other than those held by the MHC) was converted into 1.5739 shares of common stock of the Company. As part of the transaction, the Company sold a total of 2,513,880 shares to the public at $10 per share, including 201,828 shares purchased by the Company’s employee stock ownership plan with funds borrowed from the Company. The Company, which is a state-chartered corporation, owns 100% of Osage Federal Bank (the “Bank”).

At March 31, 2008, the consolidated financial statements of the Company included those of the Bank. All intercompany items have been eliminated. Prior to consummation of the reorganization, the Company had no assets or liabilities. For periods prior to January 17, 2007, the Company’s financial statements consist of those of Osage Federal Financial, Inc.

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-QSB and therefore, do not include all disclosures necessary for a complete presentation of the balance sheet, statements of income and statements of cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments (all of which are of a normal recurring nature) which are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. The balance sheet of the Company as of June 30, 2007 has been derived from the audited balance sheet of the Company as of that date. The statements of income for periods presented are not necessarily indicative of the results which may be expected for the entire year.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2007 filed with the Securities and Exchange Commission.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”. The statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies to other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. This statement does not require any new fair

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value measurements and is effective for the Company beginning July 1, 2008. Management has not completed its review of the new guidance; however, the effect of the statement’s implementation is not expected to be material to the Company’s financial statements or results of operations.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. This statement permits entities to choose to measure eligible items at fair value at specified election dates. For items for which the fair value option has been elected, unrealized gains and losses are to be reported in earnings at each subsequent reporting date. The fair value option is irrevocable unless a new election date occurs, may be applied instrument by instrument, with a few exceptions, and applies only to entire instruments and not to portions of instruments. This statement provides an opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting. Statement No 159 is effective for the Company beginning July 1, 2008. Management has not completed its review of the new guidance; however, the effect of the statement’s implementation is not expected to be material to the Company’s results of operations or financial position.

3. EARNINGS PER SHARE

Earnings per share (EPS) are presented based upon the outstanding shares of Osage Bancshares, Inc., and assume the shares issued in the January 17, 2007 conversion were outstanding the entire periods presented.

The Company completed two share buyback programs during the quarter ended March 31, 2008 totalling 349,945 shares. The effect of these buybacks are reflected both in the common and common diluted shares outstanding for the three months and nine months ended March 31, 2008 below.

EPS were computed as follows for the three and nine months ended March 31:

	Three Months Ended March 31,				Nine Months Ended March 31,
	2008		2007		2008		2007
Net income	$	223,208	$	292,145	$	824,851	$	640,200
Average common shares outstanding		3,177,991		3,320,562		3,275,133		3,297,677
Average common diluted shares outstanding		3,193,034		3,338,879		3,288,963		3,335,650
Basic earnings per share	$	0.07	$	0.09	$	0.25	$	0.19
Fully diluted earnings per share	$	0.07	$	0.09	$	0.25	$	0.19

For the three months and nine months ended March 31, 2008, the effects of approximately

177,000 stock options have been excluded from the calculation of diluted

earnings per share, and for the three months ended March 31, 2008, the effects of approximately 96,622 restricted stock shares have been excluded from the calculation of diluted earnings per share, because their effects would be antidilutive.

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4. OTHER COMPREHENSIVE INCOME

Other comprehensive income is comprised of the following:

	Three Months Ended March 31,					Nine Months Ended March 31,
	2008			2007		2008			2007
	(Unaudited)
Net Income	$	223,208		$	292,145	$	824,851		$	640,200
Other Comprehensive Income (Loss)
Unrealized gain (loss) on available-for-sale securities, net of income taxes		(85,030	)		19,998		(76,541	)		58,510
Comprehensive Income	$	138,178		$	312,143	$	748,310		$	698,710

5. CASH DIVIDENDS PAID PER SHARE

For the three months ended March 31, 2008, cash dividends paid per share represent the cash dividends paid on 3,564,295 shares of Osage Bancshares, Inc. stock. The Company acquired 39,295 shares purchased in the open market early in the quarter on which dividends were not paid. For the six months ended December 31, 2007 and three months ended March 31, 2007,cash dividends paid per share represent the cash dividends paid on 3,603,590 shares of Osage Bancshares, Inc. stock. For the six months ended December 31, 2006, cash dividends paid per share were restated to reflect the exchange ratio in the second-step conversion, and include cash dividends paid to all shareholders of Osage Federal Financial, Inc. other than Osage Federal MHC. Dividends that will be paid in the fourth quarter of fiscal 2008 will be reduced to reflect the repurchase of 349,945 shares under the two previously announced buyback plans that were completed during the three months ended March 31, 2008.

6. SUBSEQUENT EVENTS

On April 1, 2008, the Company’s wholly owned subsidiary, Osage Federal Bank, completed its

all-cash acquisition of Barnsdall State Bank. Barnsdall State Bank had assets of $12.2 million and equity of $1.7 million at March 31, 2008. The results of this purchase will be included in the Company’s financial statements beginning in the quarter ended June 30, 2008.

On April 23, 2008, the Company’s Board of Directors declared a cash dividend of $0.085 per share payable May 20, 2008 to stockholders of record as of the close of business on May 6, 2008.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OR PLAN OF OPERATIONS

GENERAL

The following discussion and analysis is intended to assist in understanding the financial condition and results of operations of the Company.

FORWARD-LOOKING STATEMENTS

When used in this discussion and elsewhere in this Quarterly Report on Form 10-QSB, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advises readers that various factors, including regional and national economic conditions, substantial changes in level of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected. The Company does not undertake and specifically disclaims any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States and general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. The Company believes that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The allowance for loan losses is calculated with the objective of maintaining an allowance level believed by management to be sufficient to absorb estimated loan losses. Management’s determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, loss given default, expected commitment usage, the amounts and timing of expected future cash flows on impaired loans, value of collateral, estimated losses, and general amounts for historical loss experience. The process also considers economic conditions, uncertainties in estimating losses and inherent risks in the loan portfolio. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods.

Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Management has

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the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Company will receive full value for the securities. Furthermore, as of March 31, 2008, management also had the ability and intent to hold the securities classified as available for sale for a period of time sufficient for a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of March 31, 2008, management believes the impairments are temporary and no impairment loss has been realized in the Company’s consolidated income statement.

The Bank does not participate in subprime lending activities in the normal course of business. Periodically, the Bank may grant a credit extension to a borrower whose credit scores are marginal, but who has sufficient collateral or who has a positive payment history with the Bank. These balances at March 31, 2008 are considered to be immaterial.

Comparison of Financial Condition at March 31, 2008 and June 30, 2007

Our total assets increased by $15.3 million to $138.0 million at March 31, 2008 from $122.7 million at June 30, 2007 primarily due to growth in loans. Loans receivable, net grew $8.9 million or 10.0% in the same time period. Loans receivable, net increased to $97.6 million at March 31, 2008 from $88.7 million at June 30, 2007. This increase in loans receivable, net primarily resulted from a $4.1 million, or 34.2%, increase in loans secured by nonresidential real estate. Construction loans increased $3.3 million, or 117.3%. One- to four-family loans increased $2.0 million, or 3.3%. There were $122,000 of loans held for sale at March 31, 2008, and none at June 30, 2007. Cash and cash equivalents increased $3.8 million, from $5.0 million at June 30, 2007 to $8.8 million at March 31, 2008. This growth was a result of an increase in deposits, described below. Total securities increased to $24.9 million at March 31, 2008 from $22.9 million at June 30, 2007, as a result of $3.4 million in purchases of held-to-maturity securities, partially offset by normal paydowns.

Our total liabilities increased $19.0 million, or 21.8% mostly due to deposit growth of $15.9 million and a $3.0 million increase in Federal Home Loan Bank advances. Total deposits were $88.6 million at March 31, 2008, a $15.9 million, or 21.9% increase from $72.7 million at June 30, 2007. Certificates of deposit increased $14.7 million, from $51.5 million at June 30, 2007 to $66.2 million at March 31, 2008. Most of this growth was from increased public fund deposits and deposits generated from our rate promotions. In addition to the increase in certificates of deposit mentioned above, core deposits, including checking, savings, and money market accounts, increased $1.2 million net from June 30, 2007. Advances were $16.0 million at March 31, 2008, and increased $3.0 million, or 23.1%, from $13.0 million at June 30, 2007. The increase was primarily to fund the purchase of investment securities and for improving interest rate risk by lengthening the maturities of liabilities

Stockholders’ equity decreased $3.9 million to $31.3 million at March 31, 2008 from $35.2 million at June 30, 2007. This decrease in stockholders’ equity was primarily due to the buyback of 349,945 shares of common stock as announced in the two stock repurchase programs, and the buyback of 72,190 shares of common stock to fund the Osage Bancshares, Inc. 2007 Stock Compensation and Incentive Plan. In accordance with the Maryland General Corporation Law, the repurchased shares are treated as authorized but unissued. The total effect of these buybacks was a reduction in stockholders’ equity of $3.9 million. Net income and amortization of awards under the stock option plan and restricted stock plan increased stockholders’ equity by $825,000 and $160,000, respectively. The Company paid regular cash dividends of $881,000 (net of restricted stock dividends of $17,000), in the period ending

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March 31, 2008. Accumulated other comprehensive loss increased by $76,000 from $245,000 at June 30, 2007 to $321,000 at March 31, 2008.

Comparison of Operating Results for the Three Months Ended March 31, 2008 and 2007

General. Net income for the three months ended March 31, 2008 was $223,000 ($0.07 per diluted share), a $69,000, or 23.6%, decrease compared to net income of $292,000 ($0.09 per diluted share) for the three months ended March 31, 2007. The decrease in net income resulted mainly from an increase in noninterest expense, partially offset by increases in net interest income and noninterest income, and a decrease in the provision for income taxes.

Interest Income. Total interest income increased by $198,000, or 11.0%, to $2.0 million for the three months ended March 31, 2008 from $1.8 million for the same period in 2007 primarily due to an increase in the average balance of earning assets. The average balance of total interest-earning assets for the three months ended March 31, 2008 was $132.9 million, an increase of $13.8 million from the average balance of $119.1 million for the three months ended March 31, 2007. The yield on earning assets for the period decreased slightly, and was 6.09% compared to a yield of 6.12% in the same period in 2007.

The primary factor for the increase in interest income was a $261,000, or 19.1% increase in interest from loans. Average loans increased $15.0 million, or 18.4%, from $81.9 million in 2007 to $96.9 million in 2008. There was a slight 4 basis point increase in the average yield on loans to 6.79% for the 2008 period from 6.75% in the 2007 period, reflecting a higher mix of nonresidential real estate loans. These loans typically have a higher yield than fixed-rate 1- to 4-family loans. Even though the prime lending rate dropped by 200 basis points during the quarter ended March 31, 2008, most of our variable-rate loans are tied to the one-year Treasury rate, and reprice annually or less frequently.

Our average investment portfolio and cash investments totaled $34.1 million for the three months ended March 31, 2008, a $1.4 million decrease from the same period in 2007. The yield on these investments decreased to 4.24% compared to 4.72% in 2007. This yield decrease is primarily due to the 200 basis point drop in the rates on federal funds sold, which is the instrument in which we invest excess funds.

Interest Expense. Total interest expense was $928,000 for the three months ended March 31, 2008, an increase of $147,000 over the three months ended March 31, 2007. Average interest-bearing liabilities were $96.9 million for the period, an increase of $11.3 million, or 13.2% from the same period last year. During the same periods, the average cost of interest-bearing liabilities increased 18 basis points to 3.88%, compared to 3.70% in the same period last year.

Interest on deposits increased $141,000 over the same period last year. Average interest-bearing deposits were up $10.8 million between the two quarters, with certificates of deposit accounting for a $12.7 million increase. For the same time periods, passbook savings balances, money market savings, and transaction accounts decreased $1.5 million, $496,000, and $79,000, respectively. Our advertising campaign, called “You Pick ‘Em”, allows our customers to choose a certificate at a specific rate, with a term from 6 to 15 months. Average rates on certificates were constant at 4.41% for each of the two periods.

Interest expense on advances from the Federal Home Loan Bank of Topeka was up slightly from the prior year. Average advances and rates on those advances were fairly consistent between the two periods.

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Net Interest Income. Net interest income increased by $52,000 or 5.1%, to $1.1 million for the three months ended March 31, 2008 from $1.0 million for the three months ended March 31, 2007. The net interest rate spread was 2.25% for the current period, compared to 2.42% in the same period last year. The net interest margin decreased to 3.26% from 3.46% for the same periods. This change is reflective of the sharp drop in short-term interest rates during the current quarter. We have a significant amount of assets (primarily federal funds sold and interest-bearing deposits at other banks) that reprice immediately, while our liabilities do not reprice as quickly.

Provision for Loan Losses. No provision for loan losses was recorded in the quarters ended March 31, 2008 or 2007, and there were $6,000 of net charge-offs in the current quarter, and none in the prior period. Based on our stratification of the loan portfolios using historical loss factors and other data, management believes that the recorded allowance would cover both known and inherent losses in the portfolio that were both probable and estimable.

The evaluation of the level of loan loss allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. The level of the allowance is based on estimates and the ultimate losses may vary from these estimates. The allowance for loan losses was $393,000 at March 31, 2008 and $403,000 at March 31, 2007, and as a percentage of total loans outstanding was 0.40% and 0.48% at March 31, 2008 and 2007, respectively. The decrease in this ratio is mainly reflective of the increase in total loans outstanding. Our nonaccrual loans were only $19,000 at March 31, 2008, while we had none at March 31, 2007. The ratio of these loans to total loans is less than .02%.

Management assesses the allowance for loan losses monthly. While management uses available information to estimate losses on loans, loan loss provisions may be necessary based on changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require the Bank to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses as of March 31, 2008 was maintained at a level that represented management’s best estimate of losses in the loan portfolio to the extent they were both probable and reasonably estimable. However, there can be no assurance that the allowance of loan losses will be sufficient to offset any future loan losses.

Noninterest Income. Noninterest income increased to $189,000 for the three months ended March 31, 2008 from $164,000 for the three months ended March 31, 2007. Gains on sales of loans increased $17,000 as we sold higher loan volumes to Freddie Mac. Comparing the two periods, interchange income from debit cards increased $7,000 due to increased card usage, and net loan servicing fees increased $4,000 due to lower amortization of originated mortgage servicing rights. Service charges on deposit accounts decreased $6,000 between the periods, reflecting lower insufficient check charges.

Noninterest Expense. Noninterest expense was $901,000 for the three months ended March 31, 2008, increasing $180,000 from $721,000 for the three months ended March 31, 2007. Salaries and benefits increased $97,000, or 22.3%. Stock and stock option awards given under the recently approved Osage Bancshares, Inc. 2007 Stock Compensation and Incentive Plan increased these expenses $49,000. Regular salary increases accounted for $33,000 due to raises and staffing levels. Occupancy expense increased $6,000 as a result of a branch renovation. Other operating expenses increased by $93,000. Audit and other SEC filing expenses increased $51,000, because of costs of compliance with the Sarbanes-Oxley Section 404 requirements and legal costs associated with the acquisition of Barnsdall State Bank. These legal costs will be capitalized in the fourth quarter of 2008. Directors’ fees and ATM fees increased $5,000 each. The FDIC adopted a new risk-based deposit insurance assessment system that

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required all FDIC-insured institutions to pay quarterly premiums beginning in 2007. Annual premiums range from 5 and 7 basis points for well-capitalized banks with the highest examination ratings, going up to 43 basis points for undercapitalized institutions. The Bank has been able to offset the premium with an estimated assessment credit of $82,000 for premiums paid prior to 1996.

Provision for Income Taxes. The provision for income taxes decreased $34,000, or 20.1%, reflecting a decrease in taxable income. The effective tax rate was 38% for the three months ended March 31, 2008, and 37% for the three months ended March 31, 2007. The increase in the effective tax rate reflects a higher proportion of taxable income in the current year and the nondeductibility of certain expense items.

Comparison of Operating Results for the Nine Months Ended March 31, 2008 and 2007

General. Net income for the nine months ended March 31, 2008 was $825,000 ($0.25 per diluted share), a $185,000, or 28.8%, increase compared to net income of $640,000 ($0.19 per diluted share) for the nine months ended March 31, 2007. The increase in net income resulted mainly from increases in net interest income and noninterest income, partially offset by increases in noninterest expense and provision for income taxes.

Interest Income. Total interest income increased by $735,000, or 14.2%, to $5.9 million for the nine months ended March 31, 2008 from $5.2 million for the same period in 2007 primarily due to an increase in the average balance of earning assets. The average balance of total interest-earning assets for the nine months ended March 31, 2008 was $128.4 million, an increase of $14.8 million from the average balance of $113.6 million for the nine months ended March 31, 2007. The yield on earning assets for the period increased 6 basis points, and was 6.12% compared to a yield of 6.06% in the same period in 2007.

The primary factor for the increase in interest income was a $692,000, or 17.1% increase in interest from loans. Average loans increased $12.8 million, or 15.9%, from $81.0 million in 2007 to $93.8 million in 2007. There was an 8 basis point increase in the average yield on loans to 6.72% for the 2008 period from 6.64% in the 2007 period, reflecting slightly higher long-term interest rates, repricing of variable-rate loans, and a change in the mix of loans.

Our average investment portfolio and cash investments totaled $32.8 million for the nine months ended March 31, 2008, a $1.9 million or 6.2% increase from the same period in 2007. The yield on these investments decreased slightly to 4.50% in the current period compared to 4.53% in 2007. This yield decrease is mainly attributable to a drop in short-term rates since September 2007.

Interest Expense. Total interest expense increased $29,000 or 1.1%, and was $2.6 million for both the nine months ended March 31, 2008 and 2007. The increase in interest expense resulted from the average cost of interest-bearing liabilities increasing slightly to 3.81% for the current period from 3.75% in the previous period, mostly offset by a $467,000, or .5%, decrease in the average balance of interest-bearing liabilities, to $91.1 million for the 2008 period compared to $91.5 million for the 2007 period.. We had a change in the mix of our interest-bearing liabilities, with average interest-bearing deposits up $9.4 million between the two periods, and average advances with FHLB decreasing $9.8 million. In the deposit categories, certificates of deposit accounted for an $11.5 million increase. For the same time periods, passbook savings account balances decreased $933,000, and money market savings account balances decreased $821,000. We have seen transfers of funds from lower-cost deposit accounts into higher-yielding certificates of deposits, and have also had $12.5 million of deposit growth from a public fund entity. Our advertising campaign called “You Pick ‘Em” allows our customers to choose a certificate at a specific rate, with a term from 6 to 15 months. Average rates on certificates are up 17 basis points between the two periods.

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Interest expense on FHLB advances decreased $408,000 for the nine months ended March 31, 2008, or 45.4%, compared to the nine months ended March 31, 2007, reflecting a decrease in the average balance of advances to $14.4 million for the 2008 period from $24.2 million for the 2007 period, combined with a 40 basis point decrease in the average cost. We used part of the equity we received during our conversion in January 2007 to pay off short-term advances, which were at higher rates than our longer-term advances.

Net Interest Income. Net interest income increased by $706,000, or 27.3%, to $3.3 million for the nine months ended March 31, 2008 from $2.6 million for the nine months ended March 31, 2007. The net interest rate spread increased slightly to 2.31% for the 2008 period from 2.30% for the 2007 period, while the net interest margin increased to 3.42% from 3.04% for the same periods. The improvement in the net interest margin reflects the equity received during the conversion.

Provision for Loan Losses. There was no provision for loan losses for the nine month period ended March 31, 2008, compared to a $10,000 provision for the nine month period ended March 31, 2007. There were $9,000 of net charge-offs in the nine months ended March 31, 2008 and $7,000 in the same period in 2007. Based on our stratification of the loan portfolios using historical loss factors and other data, management believes that the recorded allowance would cover both known and inherent losses in the portfolio that were both probable and estimable.

Noninterest Income. Noninterest income increased to $558,000 for the nine months ended March 31, 2008 from $495,000 for the nine months ended March 31, 2007. Gains on sales of mortgage loans were up $36,000 due to higher loan volumes sold, and service charges declined $15,000 due to lower insufficient check charges. Interchange income from debit cards increased $21,000 during the same periods due to increased card usage, and net loan servicing fees increased $16,000 due to lower amortization of originated mortgage servicing rights.

Noninterest Expense. Noninterest expense was $2.6 million for the nine months ended March 31, 2008, increasing $469,000 from $2.1 million for the nine months ended March 31, 2007. Salaries and benefits increased $196,000, or 15.4%. Regular salary increases accounted for $78,000 due to raises and staffing levels. Stock and stock option awards given under the recently approved Osage Bancshares, Inc. 2007 Stock Compensation and Incentive Plan increased these expenses $60,000. Employee insurance increased $20,000, and expense for the ESOP increased $17,000 because of a higher number of shares held after the stock conversion. Occupancy expense increased $29,000 mostly as a result of a branch renovation. Audit and other SEC filing expenses increased $147,000, because of being listed on the Nasdaq Stock Market, as well as additional expenses relating to the solicitation of proxies for the 2007 annual meeting, costs of compliance with the Sarbanes-Oxley Section 404 requirements and legal costs associated with the acquisition of Barnsdall State Bank. These legal costs will be capitalized in the fourth quarter of 2008. Advertising expense increased $51,000. We are continuing our “bank more” advertising campaign, which stresses customer service, internet banking, and being a hometown bank. The FDIC adopted a new risk-based deposit insurance assessment system that required all FDIC-insured institutions to pay quarterly premiums beginning in 2007. Annual premiums range from 5 and 7 basis points for well-capitalized banks with the highest examination ratings, going up to 43 basis points for undercapitalized institutions. The Bank has been able to offset the premium with an estimated assessment credit of $82,000 for premiums paid prior to 1996.

Provision for Income Taxes. The provision for income taxes increased $126,000, or 35.9%, reflecting an increase in taxable income. The effective tax rate was 37% for the nine months ended March 31, 2008, and 35% for the nine months ended March 31, 2007. The increase in the effective tax

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rate reflects a higher proportion of taxable income in the current year and the nondeductibility of certain expense items.

Liquidity and Capital Resources

We are required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure a safe and sound banking operation. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Historically, we have maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained.

Our liquidity, represented by cash and cash equivalents, is a product of our operating, investing and financing activities. Our primary sources of funds are deposits, scheduled payments, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements. We also generate cash through borrowings. We utilize FHLB advances to leverage our capital base and provide a portion of the funding needed to manage the interest rate risk presented by our core business of attracting and retaining retail deposits to fund mortgage and consumer loans.

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits, mutual funds, and collateralized mortgage obligations. On a longer term basis, we maintain a strategy of investing in various loan products. We use our sources of funds primarily to meet our ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, to fund loan commitments and to maintain our portfolio of mortgage-backed securities and investment securities. At March 31, 2008, the total approved loan origination commitments outstanding amounted to $6.5 million. At the same date, construction loans in process were $3.8 million. We also had $501,000 of unfunded commitments on lines of credit on that date, and $61,000 in standby letters of credit. We had $861,000 of commitments to sell loans to Freddie Mac. Certificates of deposit scheduled to mature in one year or less at March 31, 2008, totaled $42.9 million. Management’s policy is to maintain deposit rates at levels that are competitive with other local financial institutions. Based on the competitive rates and on historical experience, management believes that a significant portion of maturing deposits will remain with Osage Federal. In addition, at March 31, 2008, our total collateralized borrowing limit was $55.5 millionof which we had $16.0 million outstanding, giving us the ability at March 31, 2008 to borrow an additional $39.5 million from the FHLB of Topeka as a funding source to meet commitments and for liquidity purposes.

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ITEM 3.CONTROLS AND PROCEDURES

The Company’s management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Unregistered Sales of Equity Securities. Not applicable.

(b) Use of Proceeds. Not applicable

(c) Issuer Purchases of Equity Securities.

				(c) Total Number	(d) Maximum Number
				of Shares (or Units)	(or Approximate Dollar
		(b)		Purchased as Part Of	Value) of Shares (or
	(a) Total Number	Average Price		Publicly	Units) that May Yet Be
	Of Shares (or	Paid per Share		Announced Plans	Purchased Under the
Period	Units) Purchased	(or Unit		or Programs	Plans or Programs
January 1 through 31, 2008 (4)	44,295	$	9.23	44,295	140,750	(1)
February 1 through 29, 2008	140,750		9.40	140,750	160,000	(2)
March 1 through 31, 2008	169,900		9.27	169,900	160,000	(3)
Total	354,945	$	9.32	354,945	160,000

__________

(1) On November 30, 2007, the Registrant announced that it would purchase up to 72,190 shares of common stock on the open market to fund restricted stock awards under its 2007 Stock Compensation and Incentive Plan and on January 24, 2008, the Registrant announced that its Board of Directors had approved an open market stock repurchase plan for up to 5% of its outstanding shares (approximately, 180,000 shares).

(2) On February 19, 2008, the Registrant announced that it had completed its previously announced 5% stock repurchase program and its Board of Directors had approved a new stock repurchase program for up to 5% of outstanding shares (approximately 160,000 shares).

(3) On March 26, 2008, the Registrant announced that it had completed its previously announced 5% repurchase program and its Board of Directors had approved a new open market stock repurchase program for up to 5% of outstanding shares (approximately 160,000 shares).

(4) Includes 5,000 shares purchased on December 31, 2007 for the 2007 Stock Compensation and Incentive Plan at an average price of $8.61.

ITEM 6. EXHIBITS

The following exhibits are either being filed with or incorporated by reference in this quarterly report on Form 10-QSB:

Number	Description
3(i)	Articles of Incorporation *
3(ii)	Bylaws **
4	Form of Common Stock Certificate ***
10.1	Executive Salary Continuation Plan and Split Dollar Agreements with Mark S. White****
10.2	Executive Salary Continuation Plan and Split Dollar Agreements with Richard Trolinger****
10.3	Executive Salary Continuation Plan and Split Dollar Agreements with Martha Hayes****
10.4	Executive Salary Continuation Plan and Split Dollar Agreements with Sue Allen Smith****

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10.5	Director Supplemental Income Plan and Split Dollar Agreements with Mark A. Formby****
10.6	Director Supplemental Income Plan and Split Dollar Agreements with Harvey Payne****
10.7	Director Supplemental Income Plan and Split Dollar Agreements with Gary Strahan****
10.8	Osage Bancshares, Inc. 2004 Stock Option Plan*****
10.9	Osage Federal Bank 2004 Restricted Stock Plan*****
10.10	Osage Bancshares, Inc. 2007 Stock Compensation and Incentive Plan ******
10.11	Amendment to Executive Salary Continuation Plan and Split Dollar Agreements with Mark S. White *******
10.12	Amendment to Executive Salary Continuation Plan and Split Dollar Agreements with Richard Trolinger *******
10.13	Amendment to Executive Salary Continuation Plan and Split Dollar Agreements with Martha M. Hayes *******
10.14	Amendment to Executive Salary Continuation Plan and Split Dollar Agreements with Sue Allen Smith *******
10.15	Amendment to Director Supplemental Income Plan and Split Dollar Agreements with Mark A. Formby *******
10.16	Amendment to Director Supplemental Income Plan and Split Dollar Agreements with Harvey Payne *******
10.17	Amendment to Director Supplemental Income Plan and Split Dollar Agreements with Gary Strahan *******
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32	Section 1350 Certification

*	Incorporated by reference from Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 (File No. 333-137377).
**	Incorporated by reference from Registrant’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2007.
***	Incorporated by reference from the Registrant’s Registration Statement on Form S-1 (File No. 333-137377)
****	Incorporated by reference from the Quarterly Report on Form 10-QSB of Osage Federal Financial, Inc. for the Quarter Ended March 31, 2005.
*****	Incorporated by reference to the Registrant’s Registration Statement on Form S-8 (File No. 333-140308).
******	Incorporated by reference from Registrant’s Registration Statement on Form S-8 (File No. 333-149136).
*******	Incorporated by reference from Registrant’s Current Report on Form 8-K filed January 29, 2008.

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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.

OSAGE BANCSHARES, INC.

Date: May 12, 2008	/s/ Mark S. White
	Mark S. White, President
	(Duly Authorized Representative)

Date: May 12, 2008	/s/ Sue Allen Smith
	Sue Allen Smith, Vice President
	(Principal Financial Officer)

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