FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1996
[ ] Transition Report Pursuant to Section 13 or
15 (d) of the Securities Exchange Act of 1934
For the Transition Period From________ to______
Commission file number 0-20886
OHSL FINANCIAL CORP.
(Exact name of registrant as specified in its
charter)
DELAWARE 31-1362390
(State of Incorporation) (I.R.S. Employer
Identification No.)
5889 Bridgetown Road, Cincinnati, Ohio
(Address of principal executive office)
45248
(Zip Code)
(513) 574-3322
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding
12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock,
as of the latest practicable date.
CLASS SHARES OUTSTANDING AT MARCH 31, 1996
common stock, $.01 par value 1,224,468
FORM 10-QSB
INDEX
Part I. Financial Information:
Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3-4
Consolidated Statements of Income 5-6
Consolidated Statements of Changes in
Stockholders' Equity 7
Consolidated Statements of Cash Flows 8-9
Notes to Consolidated Financial Statements 10-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 12-15
Part II. Other Information:
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
December 31, March 31,
1995 1996
ASSETS
Cash and due from banks $ 4,565 $ 4,264
Short-term money market investments 6,807 10,054
Cash and cash equivalents 11,372 14,318
Interest-bearing balances with
financial institutions 600 600
Held-to-maturity securities (market
value of $27,570 and $27,875) 27,820 27,843
Available-for-sale securities 16,431 13,703
Loans held for sale 463 1,002
Loans receivable-net 143,876 142,151
Office properties and equipment-net 1,509 1,520
Federal Home Loan Bank stock, at cost 1,441 1,417
Accrued interest receivable 1,369 1,319
Other assets 581 203
Total Assets $ 205,462 $ 204,076
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 162,867 $ 159,314
Advances from Federal Home Loan Bank 15,100 17,400
Accounts payable on mortgage loans
serviced for others 374 286
Accrued interest payable 84 90
Advances from borrowers for taxes
and insurance 592 797
Other liabilities 924 735
Total Liabilities 179,941 178,622
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
(Dollars in thousands except per share data)
March 31, December 31,
1996 1995
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
3,500,000 shares authorized,
1,400,061 shares issued at
March 31, 1996 and 1,391,729
shares issued at
December 31, 1995 $ 14 $ 14
Additional paid-in capital 13,544 13,429
Retained earnings 14,745 14,526
Unamortized cost of bank incentive plan (37) (45)
Unearned shares held by employee
stock ownership plan (564) (594)
Treasury stock (119,208 and 107,580
shares at cost) (2,125) (1,904)
Net unrealized gain/(loss) on
available-for-sale
securities (56) 28
Total Stockholders' Equity 25,521 25,454
Total Liabilities and
Stockholders' Equity $ 205,462 $ 204,076
See accompanying notes to consolidated financial statements.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
Three months ended March 31,
1996 1995
INTEREST INCOME
Interest and fees on loans $ 3,085 $ 2,866
Interest on short-term money
market investments 126 27
Interest on interest-bearing
balances
with financial institutions 8 11
Interest on mortgage-backed
investments 320 179
Interest and dividends on other
investments 378 271
Total Interest Income 3,917 3,354
INTEREST EXPENSE
Interest on deposits 2,011 1,565
Interest on Federal Home Loan
Bank advances 228 232
Total Interest Expense 2,239 1,797
NET INTEREST INCOME 1,678 1,557
Less provision for loan losses 0 0
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,678 1,557
NON-INTEREST INCOME
Service charges and fees 55 54
Net gain/(loss) on loans
originated for sale (8) 36
Commission income 0 0
Other income 15 11
62 101
NON-INTEREST EXPENSE
Salaries and employee benefits 533 507
Occupancy and equipment expense 112 97
Computer service expense 74 75
Deposit insurance assessment 88 76
Franchise taxes 82 89
Other operating expenses 162 150
1,051 994
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(Dollars in thousands except per share data)
Three months ended March 31,
1996 1995
INCOME BEFORE INCOME TAXES $ 689 $ 664
Income tax provision $ 237 $ 230
NET INCOME $ 452 $ 434
EARNINGS PER SHARE (Note 3): $ 0.36 $ 0.34
See accompanying notes to consolidated financial statements.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
Three months ended March 31,
1996 1995
Balance at January 1 $ 25,454 $ 23,691
Net income 452 434
Amortization of cost of bank
incentive plan 8 16
Purchase of treasury stock (221) (52)
Stock options exercised 84 44
Dividends on common stock (233) (207)
ESOP shares earned during the period 61 53
Change in net unrealized gain/(loss) on
available-for-sale securities (84) 231
Balance at March 31 $ 25,521 $ 24,210
See accompanying notes to consolidated financial statements.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three months ended March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 452 $ 434
Adjustments to reconcile net
income to net cash from
operating activities (157) (103)
Net cash from operating activities 295 331
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing
balances with financial
institutions --- 546
Proceeds from maturity of
held-to-maturity securities 4,750 ---
Purchase of held-to-maturity
securities (4,791) (1,500)
Purchase of available-for-sale
securities (3,265) (200)
Principal payments on mortgage-backed
investments 534 432
Loans made to customers net of
payments received (1,120) (2,783)
Purchase of property and equipment (27) (53)
Net cash from investing activities (3,919) (3,558)
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
Three months ended March 31,
1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits $ 3,553 $ 6,723
Payments on advances from Federal
Home Loan Bank (6,300) (4,200)
Proceeds from Federal Home Loan
Bank advances 4,000 4,000
Net change in advances from borrowers
for taxes and insurance (205) (263)
Cash dividends (233) (207)
Purchase of treasury stock (221) (52)
Stock options exercised 84 44
Net cash from financing activities 678 6,045
Net change in cash and cash
equivalents (2,946) 2,818
Cash and cash equivalents at
beginning of period 14,318 6,231
Cash and cash equivalents at end of
period $ 11,372 $ 9,049
See accompanying notes to consolidated financial statements.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements were
prepared in accordance with 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 generally accepted
accounting principles. These interim financial statements were
prepared in a manner consistent with the annual financial
statements and include all adjustments (consisting of only
normal recurring accruals) which, in the opinion of management,
are necessary for a fair presentation of the financial statements.
2. Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of OHSL Financial Corp. ("OHSL" or "the
Corporation"), Oak Hills Savings and Loan Company, F.A. ("Oak
Hills" or "the Company"), and its subsidiary, CFSC, Inc.
3. Earnings Per Share
Primary and fully diluted earnings per share are based on
the weighted average number of shares of common stock
outstanding during the period, adjusted for the effect of common
stock equivalents. The stock options outstanding are
considered common stock equivalents. Weighted average shares
outstanding are increased by the number of shares issuable under
the options, assuming full exercise, and reduced by the number of
shares that could, hypothetically, be reacquired using the
proceeds from the exercise of those options. The weighted
average number of shares outstanding for the three month
periods ended March 31, 1996 and 1995 were 1,228,139 and
1,219,111, respectively. The following table presents the number
of shares used to compute earnings per share for the periods
indicated:
Fully
Primary Diluted
Quarter ended March 31, 1996 1,271,918 1,271,918
Quarter ended March 31, 1995 1,263,522 1,265,396
Earnings Per Share:
Fully
Primary Diluted
Quarter ended March 31, 1996 $ 0.36 $ 0.36
Quarter ended March 31, 1995 $ 0.34 $ 0.34
4. Accounting Changes
Effective January 1, 1995, OHSL adopted FAS No. 114
"Accounting by Creditors for the Impairment of a Loan," as
amended by FAS 118. Pursuant to this standard, loans considered
to be impaired were reduced to the present value of expected
future cash flows or to the fair value of collateral, by
allocating a portion of the allowance for loan losses to such
loans. Loans are deemed impaired when management concludes that
it is probable that the customer will be unable to comply with the
contractual terms of their loan, with respect to the timing and
amount of required payments. Management evaluates loans for
impairment in conjunction with the quarterly evaluation of
the allowance for loan losses. Generally, such evaluation is
limited to large commercial and commercial real estate loans.
Consumer loans and mortgage loans secured by one- to
four-family residential property are generally not evaluated
for impairment. Application of this Standard on January 1, 1995
did not result in any loans being designated as impaired.
Effective January 1, 1996, OHSL adopted Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." Management
does not believe OHSL has any material assets subject to this new
Standard. Effective January 1, 1996, OHSL adopted Financial
Accounting Standard No. 122, "Accounting for Mortgage
Servicing Rights." This Standard requires the basis of
mortgage loans originated and sold, with servicing retained, to be
allocated between the mortgage loan and the mortgage servicing
right, based upon the relative fair value of such assets. The
effect of this Standard will be to increase the gain, or reduce
the loss, recognized upon the sale of a mortgage loan and will
reduce future servicing fee income. The effect of adopting this
new Standard was not significant.
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OHSL FINANCIAL CORP.
MARCH 31, 1996
FINANCIAL CONDITION:
Total assets increased from $204.1 million at December 31, 1995 to
$205.5 million at March 31, 1996, an increase of $1.4 million.
During the first quarter of 1996, loans receivable increased by
$1.7 million and available-for-sale securities increased by $2.7
million. Advances from the Federal Home Loan Bank of Cincinnati
decreased by $2.3 million during this period. These changes
were funded principally by a $3.6 million increase in deposit
accounts and by a $2.9 million decrease in cash and
cashequivalents. These changes were driven largely by efforts
begun in 1995 to regain market share in the area of deposit
accounts. The Company has historically priced its deposit
products at or near mid-market in comparison to its local and
regional peers. Beginning in 1995 and continuing
throughout the first quarter of 1996, a strong effort was
made to reacquire deposit accounts by utilizing various
methods, including: (a) the introduction of new deposit
accounts with adjustable rate features; (b) a strong emphasis on
cross-selling of deposit products at the branch (retail) level;
(c) the introduction of financial incentives to branch employees;
(d) above-market rates paid on selected deposit account types;
and (e) advertising campaigns aimed at transaction account
customers. Loans receivable, as noted above, increased by $1.7
million in the first quarter of 1996. The company hired two
loan originators in the first quarter of 1996, and management
believes that their production will enable the Company to
increase originations during 1996 over comparable periods of
prior years, provided that a reasonable interest rate
environment for residential lending exists.
The balance of held-to-maturity securities remained constant
during the quarter ended March 31, 1996. Available-for-sale
securities increased by $2.7 million during this time
period. Due to an upward movement in interest rates in the
first quarter of 1996, the Company has concentrated its new
investment activity in adjustable rate securities
(primarily mortgage-backed securities) or securities with
limited average lives (such as collateralized mortgage
obligations). Management believes that these types of investments
offer the best combination of yield and interest rate risk
protection.
As stated above, the Company seeks to gain market share by
enhancing its deposit product offerings. The increase in
deposit balances in 1995 continued throughout the first
quarter of 1996, with an increase in deposit balances of $3.6
million during the first quarter of 1996. Due somewhat to the
continued success of this program, the Company reduced the
amount of advances from the Federal Home Loan Bank of Cincinnati
by $2.3 million during the quarter ended March 31, 1996.
The stockholders' equity of the Corporation increased by $67,000
during the three months ended March 31, 1996. The major
components of this increase are the Corporation's net income of
$452,000 and the exercise of stock options during the period of
$84,000. These increases were somewhat offset by the purchase of
treasury shares under a stock repurchase program of $221,000
and by dividends declared on the Corporation's common stock of
$233,000. Stockholders' equity increased to $25.5 million at
March 31, 1996.
Results of Operations:
Net income for the three months ended March 31, 1996 was
$452,000, an increase of $18,000 or 4.1% over the net income for
the three months ended March 31, 1995. This represents
earnings per share (fully diluted) of $0.36 versus $0.34 for
the same period in 1995.
Total interest income for the three months ended March 31, 1996
was $3,917,000, compared to $3,354,000 for the same period
in 1995. This increase ($563,000 or 16.8%) is attributable to
the generally higher interest rate environment which existed
during the first quarter of 1996 when compared to the same period
in 1995. In addition, growth in the various categories of
interest-earning assets (specifically, loans receivable, held-
to-maturity securities and available-for-sale securities) was a
significant factor in this increase.
Total interest expense for the three months ended March 31, 1996
was $2,239,000 compared to $1,797,000 for the same period in
1995. This increase ($442,000 or 24.6%) was also the result of
the higher interest rate environment discussed previously,
wherein the Corporation must pay a higher rate of interest
on funds which are held as customer deposits or as borrowed
money.
While both interest income and interest expense increased
substantially, net interest income for the three months ended
March 31, 1996 totalled $1,678,000, an increase of $121,000 or
7.8% over the same period in 1995.
Noninterest income for the three months ended March 31, 1996
was $62,000 compared to $101,000 for the same period in
1995. This decrease is attributable to the loans
originated for sale category. For the three months ended March
31, 1996, a loss of $8,000 was recognized. While the company did
sell loans during this period for a gain of $9,000,
it recognized a loss of $17,000 on loans which it held for sale at
the end of the quarter, as such loans were valued at a discount
to the market at March 31, 1996. For the three
months ended March 31, 1995, a gain of $36,000 was recognized
on loans originated for sale.
Noninterest expense for the three months ended March 31, 1996 was
$1,051,000, compared to $994,000 for the same period in 1995.
This increase of $57,000 (or 5.7%) is attributable to an
increase in salaries and employee benefits of $26,000 (or 5.1%),
an increase in occupancy and equipment expense of $15,000 (or
15.5%), an increase in deposit insurance assessment of $12,000
or (15.8%) and an increase in other operating expenses of $12,000
(or 8.)%). These expenses were somewhat offset by decreases in
computer service expense of $1,000 (or 1.3%) and in franchise
taxes of $7,000 (or 7.9%).
The Company's deposits are insured by the Savings Association
Insurance Fund ("SAIF"), which is administered by the Federal
Deposit Insurance Corporation. Congress is currently considering
legislation designed to recapitalize the SAIF and to eliminate the
disparity between the insurance assessment charged to members to
the Bank Insurance Fund and the SAIF. Legislation is currently
being considered that would result in a special assessment of
$0.65 to $0.85 per $100 of deposits being charged to the Company.
Any such assessment would likely be tax deductible but would
reduce earnings and capital in the quarter in which it is
recorded. It is presently anticipated that the current SAIF
premium would be significantly reduced after such a special
assessment. At $0.75 per $100 of deposits, based on the
Company's March 31, 1996 deposit base, the net effect after tax
of such an assessment would be approximately $800,000.
The income tax provision for the three months ended March 31, 1996
was $237,000, compared to $230,000 for the same period in
1995. This increase of $7,000 (or 3.0%) is attributable to
the higher level of pre-tax earnings generated in the first
quarter of 1996 when compared to the same period in 1995.
Liquidity:
In general terms, liquidity is a measurement of the cash, cash
equivalents and other items which are convertible into cash in the
event that funds are needed in order to provide for future
operations. The primary sources of liquidity are cash,
short-term investments (such as Federal Funds and funds in
eligible "Overnight" type accounts), and qualifying securities
which mature within defined periods, such as one-year maturity
and five-year maturity obligations. Federal regulations require
the Corporation's subsidiary, Oak Hills Savings and Loan
Company, F.A., to maintain certain minimum levels of liquid
assets. Generally, current federal regulations require the liquid
assets (as defined) of the Company to be 5.0% of the Company's
total assets (also as defined). At March 31, 1996, the Company's
liquid assets totaled $15.1 million or 9.0%.
The factors which are expected to have a continuing impact on
the level of Oak Hills' liquidity are as follows: (1) loan
demand; (2) net deposit flows in subsequent periods; (3)
corporate needs for cash in order to fund ongoing operations; (4)
other cash needs as they may arise.
Based upon its projections, management anticipates that liquidity
will remain at or near current levels for the near future. Oak
Hills does have the ability to raise cash through borrowing
arrangements with the Federal Home Loan Bank of Cincinnati,
through the purchase of Federal funds and through other
borrowing sources. In addition, the parent company (OHSL
Financial Corp.) could also be a source of liquidity by lending
funds to Oak Hills, by guaranteeing the credit of Oak Hills or
through other arrangements. Management is of the opinion that
current liquidity levels are adequate.
Capital Resources:
OHSL's equity capital totaled $25.5 million at March 31, 1996, an
increase of $67,000 from December 31, 1995. As discussed more
fully in the Financial Condition section, the major components
of this increase include the net income for the quarter and the
exercise of stock options, which were partially offset by the
purchase of treasury stock and by dividends declared on the
common stock.
Federal regulations require savings associations to maintain
certain minimum levels of regulatory capital. Regulations
currently require tangible capital, as defined by regulation,
divided by total assets (also as defined) to be at least
1.5%. The regulations also require core capital, as defined by
regulation, divided by total assets (also as defined) to be at
least 3.0%. Finally, the regulations require risk-based
capital (as defined) divided by total assets (as defined) to be at
least 8.0%. Oak Hills' compliance with these requirements at
March 31, 1996 is summarized on the following page:
Amount Percent (%) of
(000) Applicable Assets
Tangible capital $ 19,788 9.89 %
Requirement 3,001 1.50
Excess $ 16,787 8.39 %
Core capital $ 19,788 9.89 %
Requirement 6,001 3.00
Excess $ 13,787 6.89 %
Risk-based capital $ 20,276 20.64 %
Requirement 7,861 8.00
Excess $ 12,415 12.64 %
At March 31, 1996, the book value per share of OHSL common
stock was $20.84 based upon
1,224,468 outstanding shares.
PART II: OTHER INFORMATION
OHSL FINANCIAL CORP.
MARCH 31, 1996
Item 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings.
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
(a) The annual meeting of stockholders was held on
April 18, 1996.
(b) The matters approved by stockholders at the annual
meeting and the number of votes cast for, against or
withheld (as well as the number of abstentions) as to each
matter are set forth below:
Election of the following
Directors for a three-
year term: For Withheld
Thomas M. Herron 1,045,163 51,833
William R. Hillebrand 1,041,713 55,283
Joseph J. Tenoever 1,043,572 53,433
Ratification of Crowe, Chizek & Company as auditors for
fiscal year ending December 31, 1996:
For 1,066,069
Against 10,817
Abstain 20,110
Stockholder Proposal
For 224,223
Against 566,518
Withheld 86,075
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
On January 26, 1996, the Registrant filed a Form 8-K to
report the issuance of a press release announcing earnings for the
fourth quarter and the year ended December 31, 1995.
On February 26, 1996, the Registrant filed a Form 8-K to report
the payment of a cash
dividend.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
OHSL Financial Corp.
Date: April 26, 1996 By: /s/
Kenneth L. Hanauer
President and Chief
Executive Officer
(Principal Executive Officer)
Date: April 26, 1996 By: /s/
Patrick J. Condren
Treasurer and Chief Financial
Officer (Principal Financial and
Accounting Officer)