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, 1997
[ ] 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, 1997
common stock, $.01 par value 1,207,932
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)
March 31, December 31,
1997 1996
ASSETS
Cash and due from banks $ 6,298 $ 4,680
Short-term investments 950 3,693
-------- ---------
Cash and cash equivalents 7,248 8,373
Interest-bearing balances with
financial institutions 100 100
Held-to-maturity securities (market
value of $40,414 and $28,953) 40,926 29,162
Available-for-sale securities 11,684 13,969
Loans held for sale 414 436
Loans receivable-net 163,339 158,021
Office properties and equipment-net 2,333 2,398
Federal Home Loan Bank stock, at cost 1,545 1,518
Accrued interest receivable 1,635 1,371
Other assets 588 320
-------- --------
Total Assets $ 229,812 $ 215,668
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 173,641 $ 169,486
Advances from Federal Home Loan
Bank 28,303 19,116
Accrued interest payable 266 215
Advances from borrowers for taxes
and insurance 823 690
Other liabilities 1,410 965
------- -------
Total Liabilities 204,443 190,472
======= =======
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,
1997 1996
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 3,500,000
shares authorized, 1,411,893 shares
issued at March 31, 1997 and 1,401,611
shares issued at December 31, 1996 $ 14 $ 14
Additional paid-in capital 13,790 13,652
Retained earnings 15,097 14,839
Unamortized cost of bank incentive plan (11) (15)
Unearned shares held by employee
stock ownership plan (445) (475)
Treasury stock (158,470 and 147,351
shares at cost) (2,993) (2,751)
Net unrealized gain/(loss) on available-for-sale
securities (83) (68)
------- -------
Total Stockholders' Equity 25,369 25,196
------- -------
Total Liabilities and
Stockholders' Equity $ 229,812 $ 215,668
======= ========
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,
1997 1996
INTEREST INCOME
Loans, including related fees $ 3,393 $ 3,085
Short-term money market investments 45 126
Interest-bearing balances with
financial institutions 1 8
Mortgage-backed investments 378 320
Other investments 406 378
------- -------
Total Interest Income 4,223 3,917
INTEREST EXPENSE
Deposits 2,113 2,011
Federal Home Loan Bank advances 296 228
------- -------
Total Interest Expense 2,409 2,239
------- -------
NET INTEREST INCOME 1,814 1,678
Less provision for loan losses 16 0
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,798 1,678
NON-INTEREST INCOME
Service charges and fees 55 55
Net gain/(loss) on loans
originated for sale (2) (8)
Commission income 10 0
Other income 13 15
------- ------
76 62
NON-INTEREST EXPENSE
Salaries and employee benefits 586 533
Occupancy and equipment expense 171 112
Computer service expense 32 74
Deposit insurance assessment 27 88
Franchise taxes 82 82
Other operating expenses 166 162
------ ----
1,064 1,051
/TABLE
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,
1997 1996
INCOME BEFORE INCOME TAXES $ 810 $ 689
Income tax provision 285 237
------- --------
NET INCOME $ 525 $ 452
======= ========
EARNINGS PER SHARE (Note 3): $ 0.42 $ 0.36
======= ========
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,
1997 1996
Balance at January 1 $ 25,196 $ 25,454
Net income 525 452
Amortization of cost of bank incentive plan 4 8
Purchase of treasury stock (242) (221)
Stock options exercised 103 84
Dividends on common stock (267) (233)
ESOP shares earned during the period 65 61
Change in net unrealized gain/(loss) on
available-for-sale securities (15) (84)
-------- --------
Balance at March 31 $ 25,369 $ 25,521
======== ========
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,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 525 $ 452
Adjustments to reconcile net
income to net cash from
operating activities 656 (157)
-------- --------
Net cash from operating activities 1,181 295
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing
balances with financial institutions --- ---
Purchase of held-to-maturity securities (13,984) (4,791)
Purchase of available-for-sale securities --- (3,265)
Principal payments on held-to-maturity securities 309 65
Principal payments on available-for-sale securities 437 469
Proceeds from maturity of held-to-maturity
securities 2,000 4,750
Proceeds from sale of available-for-sale
securities 1,814 ---
Loans made to customers net of
payments received (5,932) (1,120)
Purchase of property and equipment (19) (27)
------ ------
Net cash from investing activities (15,375) (3,919)
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,
1997 1996
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits $ 4,155 $ 3,553
Payments on advances from Federal
Home Loan Bank (3,813) (6,300)
Proceeds from Federal Home Loan
Bank advances 13,000 4,000
Net change in advances from borrowers
for taxes and insurance 133 (205)
Cash dividends (267) (233)
Purchase of treasury stock (242) (221)
Stock options exercised 103 84
-------- ---------
Net cash from financing activities 13,069 678
-------- ---------
Net change in cash and cash equivalents (1,125) (2,946)
Cash and cash equivalents at beginning
of period 8,373 14,318
-------- --------
Cash and cash equivalents at end of period $ 7,248 $ 11,372
======== ========
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, 1997
and 1996 were 1,204,567 and 1,228,139, 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, 1997 1,244,961 1,246,043
Quarter ended March 31, 1996 1,271,918 1,271,918
Earnings Per Share: Fully
Primary Diluted
Quarter ended March 31, 1997 $ 0.42 $ 0.42
Quarter ended March 31, 1996 $ 0.36 $ 0.36
4. Accounting Changes
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.
In 1996, the Financial Accounting Standards Board (FASB)
issued FAS 125-"Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." This Standard revises
the accounting for transfers of financial assets, such as loans
and securities, and provides guidance on distinguishing between
sales and secured borrowings. It affects certain transactions
beginning in 1997 and others in 1998. Management does not expect
this standard to have a significant effect on OHSL's financial
condition or results of operations.
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OHSL FINANCIAL CORP.
MARCH 31, 1997
FINANCIAL CONDITION:
Total assets increased from $215.7 million at December 31, 1996 to
$229.8 million at March 31, 1997, an increase of $14.1 million or
6.6%. During the first quarter of 1997, loans receivable increased
by $5.3 million and held-to-maturity securities increased by
$11.8 million. These changes were funded primarily by a $4.2
million increase in deposit accounts, by a $9.2 million
increase in advances from the Federal Home Loan Bank, by a
reduction in cash and cash equivalents of $1.1 million and by a
reduction in available-for-sale securities of $2.3 million.
The above changes are largely the result of growth initiatives
adopted by the Company, wherein the Company seeks to increase
its deposit base through a combination of new products and rate
incentives to customers, as well as a somewhat more aggressive
lending and investment strategy.
Loans receivable, as noted above, increased $5.3 million in the
first quarter of 1997. Due to the relatively low interest rate
environment which existed throughout the first quarter of 1997,
strong mortgage loan originations were experienced by the Company.
The addition of two loan origination officers in 1996 and the
training of branch personnel in the loan origination process also
contributed to this increase.
Held-to-maturity securities increased by $11.8 million during the
first quarter of 1997. During the first quarter of 1997, OHSL
purchased $14.0 million of held-to-maturity securities. These
securities consist of $3.9 million of U.S. Agency obligations, a
$5.0 million U.S. Agency mortgage-backed security and a $5.1 million
U.S. Agency collateralized mortgage obligation. The majority of
these securities were acquired to take advantage of a positive
interest rate spread over the related borrowing cost or to meet
liquidity requirements. Management was able to utilize Federal Home
Loan Bank advances with similar terms and characteristics to
fund these purchases and believes that the additional leveraging
of the balance sheet will improve profitability without exposing
OHSL to undue interest rate risk.
The stockholders' equity of OHSL increased by $173,000 during the
first quarter of 1997. The major components of this increase are the
Corporation's net income of $525,000 and the exercise of stock
options during the period by the Corporation's directors, officers
and employees of $103,000. These increases were somewhat offset
by the purchase of treasury shares under a stock repurchase
program of $242,000 and by dividends declared on the
Corporation's common stock of $267,000. Stockholders' equity
therefore increased to $25.4 million at March 31, 1997.
Results of Operations:
Net income for the three months ended March 31, 1997 was $525,000,
an increase of $73,000 or 16.2% over the net income for the three
months ended March 31, 1996. This represents earnings per share
(fully diluted) of $0.42 versus $0.36 for the same period in 1996.
Total interest income for the three months ended March 31, 1997 was
$4,223,000, compared to $3,917,000 for the same period in 1996.
This increase ($306,000 or 7.8%) is generally the result of
larger loan and securities balances carried during the first
quarter of 1997.
Total interest expense for the three months ended March 31, 1997
was $2,409,000 compared to $2,239,000 for the same period in 1996.
This increase ($170,000 or 7.6%) is generally attributable to the
higher levels of deposits and borrowings carried during the first
quarter of 1997, as OHSL strives to increase its market share of
lending and deposit products and to take advantage of spread
opportunities described above.
While both interest income and interest expense increased during
the first quarter of 1997, net interest income for the three
months ended March 31, 1997 totaled $1,814,000, an increase of
$136,000 or 8.1% over the same period in 1996.
The Corporation's provision for loan losses totaled $16,000 for
the three months ended March 31, 1997. No provision for loan
losses was recorded for the first quarter of 1996. While the credit
quality of the Corporation's loan portfolio was actually better than
that of the prior year (non-performing loans totaled $0.7 million at
March 31, 1997 compared to $1.0 million at March 31, 1996),
management believes that the continued growth of the loan portfolio
and the desire of the Company to continue to increase its level of
multi-family, non-residential and consumer loans should be
accompanied by a modest increase in the provision for loan losses.
Noninterest income for the three months ended March 31, 1997 was
$76,000, compared to $62,000 for the same period in 1996.
This increase ($14,000 or 22.6%) is primarily attributable to an
increase in commission income earned by the Company's subsidiary,
CFSC, Inc. CFSC markets mutual fund and annuity products to the
customers of the Company and to other area residents. Commissions
are earned based upon products sold. During the first quarter of
1997, CFSC received commission income of $10,000. No commission
income was received by CFSC during the first quarter of 1996.
Management expects commission income to remain at somewhat higher
levels during 1997 than during 1996.
Noninterest expense for the three months ended March 31, 1997 was
$1,064,000, compared to $1,051,000 for the same period in 1996.
This increase ($13,000 or 1.2%) is largely attributable to an
increase in salaries and employee benefits expense of $53,000 and
an increase in occupancy and equipment expense of $59,000. These
increases were substantially offset by decreases in deposit
insurance assessments of $61,000 and in computer service expenses
of $42,000 when compared to the first quarter of 1996.
The increase in salaries and employee benefits expense is
primarily the result of the hiring of personnel in 1997 to fill
positions which were vacant in the first quarter of 1996, coupled
with merit increases to the Company's staff. Occupancy and
equipment expense increased as the result of the Company's
decision to handle its data processing operations internally and
due to the opening of a new branch office in mid-1996. During
1996, the Company utilized the services of an outside data
processing vendor. This change involves additional expenses in
the areas of maintenance contracts and depreciation expense on
equipment purchased as a result of this change. The Company
does, however, realize a substantial cost savings in the area of
computer service expense, as fees to outside vendors have been
significantly reduced.
The Company's deposits are insured by the Savings Association
Insurance Fund ("SAIF"), which is administered by the Federal
Deposit Insurance Fund. In September, 1996, Congress passed
legislation which recapitalized the SAIF and which, to a large part,
eliminated the disparity between the deposit insurance rates
charged to banks and the rates charged to members of SAIF
(principally thrifts). The Company was required, as part of
this recapitalization, to pay a one-time assessment of $927,000.
In return, the regular assessment rate paid by the Company
dropped from $0.23 per $100 of deposits in 1996 to $0.065 per
$100 of deposits in 1997. Accordingly, the Company's assessment
expense has declined substantially in the first quarter of 1997.
The income tax provision for the three months ended March 31, 1997
was $285,000, compared to $237,000 for the same period in 1996.
This increase ($48,000 or 20.3%) is attributable to the higher
level of pre-tax earnings generated in the first quarter of 1997
when compared to the same period in 1996.
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, 1997, the Company's liquid assets totaled
$11.0 million or 6.2%.
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 $25.4 million at March 31, 1997, an
increase of $173,000 from December 31, 1996. 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 4.0%. 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,
1997 is summarized below:
Amount Percent (%) of
(000) Applicable Assets
Tangible capital $ 20,032 8.92 %
Requirement 3,368 1.50
------- ----
Excess $ 16,664 7.42 %
======= ====
Core capital $ 20,032 8.92 %
Requirement 8,982 4.00
------- ----
Excess $ 11,050 4.92 %
======= ====
Risk-based capital $ 20,538 18.74 %
Requirement 8,768 8.00
------- -----
Excess $ 11,770 10.74 %
======= =====
At March 31, 1997, the book value per share of OHSL common stock
was $21.00 based upon 1,207,932 outstanding shares.
PART II: OTHER INFORMATION
OHSL FINANCIAL CORP.
MARCH 31, 1997
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
Not applicable.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
On January 31, 1997, 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, 1996. On March
5, 1997, 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 30 , 1997 By: /s/ Kenneth L. Hanauer
Kenneth L. Hanauer
President and Chief Executive
Officer
(Principal Executive Officer)
Date: April 30, 1997 By: /s/ Patrick J. Conden
Patrick J. Condren
Treasurer and Chief Financial
Officer
(Principal Financial and
Accounting Officer)