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 September 30, 1998
[ ] 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
SEPTEMBER 30, 1998
common stock, $.005 par value 2,442,554
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 Comprehensive Income 6
Consolidated Statements of Changes in
Stockholders' Equity 7
Consolidated Statements of Cash Flows 8
Notes to Consolidated Financial Statements 9-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-14
Part II. Other Information:
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security
Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
September 30, December 31,
1998 1997
ASSETS
Cash and due from banks $ 7,116 $ 4,652
Short-term investments 3,680 11,572
-------- -------
Cash and cash equivalents 10,796 16,224
Interest-bearing balances with
financial institutions 100 100
Held-to-maturity securities (market
value of $56,822 and $34,145) 56,412 33,854
Available-for-sale securities 9,800 10,774
Loans held for sale 427 730
Loans receivable-net 168,389 171,768
Office properties and equipment-net 1,951 2,148
Federal Home Loan Bank stock, at cost 1,943 1,630
Accrued interest receivable 1,567 1,355
Other assets 1,011 322
-------- -------
Total Assets $252,396 $238,905
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $186,532 $184,690
Advances from Federal Home Loan Bank 36,708 26,570
Accrued interest payable 246 233
Advances from borrowers for taxes
and insurance 472 737
Other liabilities 1,266 643
------- -------
Total Liabilities 225,224 212,873
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
(Dollars in thousands except per share data)
September 30, December 31,
1998 1997
STOCKHOLDERS' EQUITY
Common stock, $ .005 par value,
3,500,000 shares authorized,
2,870,820 shares issued at
September 30, 1998 and 2,852,790
shares issued at December 31, 1997 $ 14 $ 14
Additional paid-in capital 14,442 14,157
Retained earnings 16,554 15,795
Unamortized cost of bank incentive
plan --- (1)
Unearned shares held by employee
stock ownership plan (267) (356)
Treasury stock (372,892 and 368,792
shares, at cost) (3,663) (3,607)
Net unrealized gain on
available-for-sale securities 92 30
-------- -------
Total Stockholders' Equity 27,172 26,032
-------- -------
Total Liabilities and
Stockholders' Equity $252,396 $238,905
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 September 30, Nine months ended September 30,
1998 1997 1998 1997
INTEREST INCOME
Loans, including related fees $3,536 $3,554 $10,676 $10,389
Short-term money market
investments 72 112 435 200
Mortgage-backed investments 614 457 1,604 1,327
Other investments 454 383 1,282 1,249
------ ----- ------ -------
Total Interest Income 4,676 4,506 13,997 13,165
INTEREST EXPENSE
Deposits 2,360 2,306 7,066 6,615
Federal Home Loan Bank advances 459 413 1,335 1,126
------ ------ ------ ------
Total Interest Expense 2,819 2,719 8,401 7,741
------ ------ ------ ------
NET INTEREST INCOME 1,857 1,787 5,596 5,424
Less provision for loan losses 9 10 26 32
------ ----- ------ -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,848 1,777 5,570 5,392
NONINTEREST INCOME
Service charges and fees 76 62 199 168
Net gain on loans
originated for sale 75 16 234 47
Commission income 5 3 19 27
Other income 21 14 84 38
------ ----- ------ -------
177 95 536 280
NONINTEREST EXPENSE
Salaries and employee benefits 671 579 1,916 1,724
Occupancy and equipment
expense-net 179 165 518 504
Computer service expense 42 36 118 107
Deposit insurance assessment 28 27 85 82
Franchise taxes 88 84 255 251
Other operating expenses 204 226 601 663
------ ----- ------ -------
1,185 1,117 3,493 3,331
------ ----- ------ -------
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 September 30, Nine months ended September 30,
1998 1997 1998 1997
------ ----- ------ -------
INCOME BEFORE TAXES $ 840 $ 755 $2,613 $2,341
Income tax provision 312 254 976 799
------ ----- ------ -------
NET INCOME $ 528 $ 501 $1,637 $1,542
------ ----- ------ -------
------ ----- ------ -------
EARNINGS PER SHARE $ 0.22 $0.21 $ 0.67 $ 0.64
------ ----- ------ -------
------ ----- ------ -------
EARNINGS PER SHARE,
ASSUMING DILUTION $ 0.21 $0.20 $ 0.66 $ 0.62
------ ----- ------ -------
------ ----- ------ -------
DIVIDENDS PER SHARE $0.125 $0.11 $ 0.36 $ 0.33
------ ----- ------ -------
------ ----- ------ -------
See accompanying notes to consolidated financial statements.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Three months ended September 30, Nine months ended September 30,
1998 1997 1998 1997
------ ----- ------ -------
Net Income $528 $501 $1,637 $1,542
Other comprehensive income,
net of tax:
Change in net unrealized gains
on available
for sale securities 42 26 62 49
---- ----- ------ ------
Comprehensive Income $570 $527 $1,699 $1,591
---- ----- ------ ------
---- ----- ------ ------
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)
Nine months ended September 30,
1998 1997
------- -------
Balance at January 1 $26,032 $25,196
Net income 1,637 1,542
Amortization of cost of bank
incentive plan 1 11
Purchase of treasury stock (56) (722)
Stock options exercised 90 130
Dividends on common stock (878) (793)
ESOP shares earned during the period 284 206
Change in net unrealized gain on
available-for-sale securities 62 49
------- -------
Balance at September 30 $27,172 $25,619
------- -------
------- -------
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)
Nine months ended September 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,637 $ 1,542
Adjustments to reconcile net income to net
cash from operating activities (827) (532)
-------- --------
Net cash from operating activities 810 1,010
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of held-to-maturity securities (52,972) (16,984)
Principal payments on held-to-maturity securities 5,385 1,553
Principal payments on available-for-sale securities 1,037 1,120
Proceeds from maturities and repayment
on held-to-maturity securities 25,071 9,000
Proceeds from sales of available-for-sale securities 0 1,814
Loans made to customers net of payments received 3,890 (12,068)
Purchase of property and equipment (50) (96)
-------- --------
Net cash from investing activities (17,639) (15,661)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 1,842 11,833
Payments on advances from Federal Home Loan Bank (17,862) (11,867)
Proceeds from Federal Home Loan Bank advances 28,000 18,500
Net change in advances from borrowers
for taxes and insurance 265 (214)
Cash dividends (878) (793)
Purchase of treasury stock (56) (722)
Stock options exercised 90 130
-------- --------
Net cash from financing activities 11,401 16,867
-------- --------
Net change in cash and cash equivalents (5,428) 2,216
Cash and cash equivalents at beginning of period 16,224 8,373
-------- --------
Cash and cash equivalents at end of period $10,796 $10,589
-------- --------
-------- --------
See accompanying notes to consolidated financial statements.
/TABLE
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
The calculation of earnings per share ( EPS ) is presented
below. Earnings per share are calculated by dividing the
Corporation's net income by the weighted average shares
outstanding during the period. The weighted average number of
shares have been retroactively restated to reflect a two-for-one
stock split distributed in April of 1998. Weighted average shares
outstanding do not include any shares held by the Company' s
Employee Stock Ownership Plan ("ESOP") which have not been
earned by the ESOP's participants.
For the three months ended September 30, this calculation is as
follows:
1998 1997
Net Income $ 528,000 $ 501,000
---------- ----------
---------- ----------
Weighted average shares outstanding
during the period 2,498,337 2,470,108
Less average unearned ESOP shares
during the period 56,386 80,128
----------- ---------
Average shares outstanding for
EPS calculation 2,441,951 2,389,980
----------- ---------
----------- ---------
Earnings per share $ 0.216 $ 0.210
----------- ---------
----------- ---------
For the nine months ended September 30, this calculation is as
follows:
1998 1997
Net Income $1,637,000 $1,542,000
---------- ----------
---------- ----------
Weighted average shares outstanding
during the period 2,491,991 2,484,323
Less average unearned ESOP shares
during the period 62,322 80,128
----------- ---------
Average shares outstanding for
EPS calculation 2,429,669 2,404,195
----------- ---------
----------- ---------
Earnings per share $ 0.674 $ 0.641
----------- ---------
----------- ---------
The calculation of diluted earnings per share involves the
recalculation of weighted average outstanding shares by assuming
that all unexercised stock options are exercised at the exercise
price (in this case, $5.00 per share). These shares therefore
increase the weighted average outstanding shares. It is then
assumed that the proceeds from this exercise, including the value
of the tax benefit derived by the Corporation due to the exercise
(the Corporation receives a tax benefit which corresponds to the
taxability of any options exercised by directors of the
Corporation), are used to repurchase shares at the average market
price during the period. These repurchases act to reduce the
weighted average outstanding shares for EPS calculation purposes.
The net income for the period is then divided by the "diluted"
weighted average shares outstanding to arrive at diluted earnings
per share.
The calculation of diluted earnings per share for the three months
ended September 30 is presented below:
1998 1997
Net Income $ 528,000 $ 501,000
---------- ----------
---------- ----------
Shares used to compute basic earnings
per share 2,441,951 2,389,980
Average option shares issued 93,414 135,080
Less: shares repurchased with option
proceeds and tax benefit (38,914) (68,920)
----------- ---------
Weighted average shares for diluted
earnings per share 2,496,451 2,456,140
----------- ---------
----------- ---------
Diluted earnings per share $ 0.212 $ 0.204
----------- ---------
----------- ---------
The calculation of diluted earnings per share for the nine months
ended September 30 is presented below:
1998 1997
Net Income $1,637,000 $1,542,000
---------- ----------
---------- ----------
Shares used to compute basic earnings
per share 2,429,669 2,404,195
Average option shares issued 100,218 135,730
Less: shares repurchased with option
proceeds and tax benefit (40,004) (67,488)
----------- ---------
Weighted average shares for dilute
earnings per share 2,489,883 2,472,437
----------- ---------
----------- ---------
Diluted earnings per share $ 0.657 $ 0.624
----------- ---------
----------- ---------
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OHSL FINANCIAL CORP.
SEPTEMBER 30, 1998
FINANCIAL CONDITION:
Total assets increased from $238.9 million at December 31, 1997 to
$252.4 million at September 30, 1998, an increase of $13.5 million
or 5.6%. During the first nine months of 1998, held-to-maturity
securities increased by $22.6 million. This increase was funded
by a $1.8 million increase in deposits, a $10.1 million increase
in advances from the Federal Home Loan Bank, a decrease in cash
and cash equivalents of $5.4 million, and a decrease in loans
receivable of $3.4 million. The above changes are largely the
result of the Company's investment strategy, wherein favorable
interest rate spreads will be captured from time-to-time in an
effort to increase net interest income. In addition, the Company
seeks to grow its deposit base in order to gain market share and
to enable it to cross-sell other products and services.
Loans receivable, as noted above, decreased by $3.4 million in the
first nine months of 1998. Due to the continuation of the low
interest rate environment, very strong mortgage loan refinancing
activity has been experienced. To manage its interest rate risk
position, the company sold certain longer term fixed rate loans in
the secondary market. This has resulted in a reduction in loans
receivable during the first nine months of 1998.
Held-to-maturity securities increased by $22.6 million in 1998,
due largely to the Company's purchase of investment securities
during this time period. These purchases totaled $53.0 million,
and consisted of $13.4 million in investment-grade commercial
paper, $15.4 million in U.S. Government Agency securities, $22.8
million in U.S. Government mortgage-related securities, and$1.4
million in investment-grade tax free obligations. A portion
($10.0 million) of the U.S. Government mortgage-related securities
were acquired as part of an investment strategy wherein the
Company locks in certain interest rate spreads by funding the
investment purchase with a Federal Home Loan Bank advance of a
similar amount and / or term. The corresponding increase in
Federal Home Loan Bank advances of $10.1 million relates to this
investment strategy.
The stockholders' equity of OHSL increased by $1,140,000 during
the first nine months of 1998. The major components of this
increase are the Corporation's net income of $1,637,000, which was
somewhat offset by dividends on the Corporation's common stock of
$878,000. Stockholders' equity increased to $27.2 million at
September 30, 1998.
RESULTS OF OPERATIONS:
Net income for the nine months ended September 30, 1998 was
$1,637,000, an increase of $95,000 or 6.2% over the net income for
the nine months ended September 30, 1997. This represents diluted
earnings per share of $0.66 versus $0.62 for the same period in
1997.
Total interest income for the nine months ended September 30, 1998
was $13,997,000, compared to $13,165,000 for the same period in
1997. This increase ($832,000 or 6.3%) is generally the result of
larger loan and investment balances carried during the first nine
months of 1998 when compared to the same period in 1997.
Total interest expense for the nine months ended September 30,
1998 was $8,401,000, compared to $7,741,000 for the same period in
1997. This increase ($660,000 or 8.5%) is generally attributable
to the higher levels of deposits and borrowings carried during the
first nine months of 1998, as OHSL strives to increase its market
share of deposit products and to take advantage of spread
opportunities as described above.
While both interest income and interest expense increased during
the first nine months of 1998, net interest income for the nine
months ended September 30, 1998 totaled $5,596,000, an increase of
$172,000 or 3.2% over the same period in 1997.
The Corporation's provision for loan losses totaled $26,000 for
the nine months ended September 30, 1998, compared to $32,000 for
the same period in 1997. The credit quality of the Company's loan
portfolio remains very strong and is favorable when compared to
the prior year (loans totaling $590,000 were classified as
substandard or doubtful at September 30, 1998 compared to $888,000
at September 30, 1997.) Due to strong credit quality, management
believes that moderate additions to its loan loss allowance are
sufficient to cover potential future losses.
Noninterest income for the nine months ended September 30, 1998
was $536,000, compared to $280,000 for the same period in 1997.
This increase ($256,000 or 91.4%) is largely attributable to an
increase in net gains on loans originated for sale. During the
first nine months of 1998, the Company sold $12.5 million of fixed
rate, single family loans in the secondary market, generating
gains of $234,000. The low interest rate environment which
existed during the first nine months of 1998 has resulted in
significantly increased refinancing activity. The Company manages
the interest rate risk associated with longer term, fixed rate
mortgage loans by selling certain loans in the secondary market.
By comparison, the sale of similar loan products in the first nine
months of 1997 was minimal, generating income of $47,000 for that
period in 1997.
Noninterest expense for the nine months ended September 30, 1998
was $3,493,000, compared to $3,331,000 for the same period in
1997. This increase ($162,000 or 4.9%) is largely attributable to
an increase in salaries and employee benefits expense of $192,000.
The above increase in salaries and employee benefits expense is
primarily the result of the hiring of personnel in 1998 to fill
positions created due to the Company's growth, coupled with merit
increases to the Company's staff, and increases in the ESOP
benefits expense and 401(k) benefits expense. The ESOP benefits
expense is based upon the average value of ESOP shares distributed
to eligible employees during the period. As the market price for
OHSL's common stock has increased substantially from its
September, 1997 level, the ESOP expense has risen proportionately.
In addition, the Company has continued with its funding of the
employees' 401(k) plan during 1998. As no funding for this plan
was provided during the first nine of 1997, this cost has also
increased during 1998 when compared to 1997.
The income tax provision for the nine months ended September 30,
1998 was $976,000, compared to $799,000 for the same period in
1997. This increase ($177,000 or 22.2%) is primarily attributable
to the higher level of pre-tax earnings generated in the first
nine months of 1998 when compared to the same period in 1997.
Year 2000 Issues:
It is well documented that some data processing systems may
experience processing difficulties upon encountering the
millennium change. This "Year 2000 Problem" is believed to be
material for virtually every public company. The following
section describes the steps which OHSL is taking to handle this
serious matter. It should be noted that this section in
particular, as well as the "Management Discussion and Analysis"
area in general, contains "forward-looking statements" which
represent the opinions of management. Such forward-looking
statements are subject to numerous risks and uncertainties which
obviously accompany any discussions of future actions,
performances or results. The reader of these discussions is
hereby cautioned of the uncertain nature of these discussions and
is urged to use caution in relying on such forward-looking
statements in forming any opinions concerning the future
performance of OHSL.
The overall responsibility for Year 2000 readiness rests with
Kenneth L. Hanauer, the Chief Executive Officer of OHSL. Due to
the many diverse areas which may be affected by the Year 2000
problem, a team approach is being utilized. Teams have been
formed to handle the following areas: (a) review and testing of
the Company's in-house data processing system; (b) review of
vendors (suppliers of critical services) ; (c) review of the major
loan customers (to determine whether interruptions of their
operations are likely and to assess the impact of such
interruptions on their ability to remit loan payments, for
example); (d) contingency planning; (e) review of the examination
results as provided by the Company's primary regulators and our
own internal efforts..
The Company believes that its overall state of readiness at
September 30, 1998 is satisfactory. An ongoing review of the in-house
data processing system is taking place, with the major data
systems already certified for Year 2000 compliance. The Company's
major vendors have all been contacted, with approximately 75%
reporting Year 2000 compliance for their products or service. The
customer contact group is currently in the process of evaluating
responses from major customers. The contingency planning group
has the task of working with all areas to assure uninterrupted
operations and to identify alternative courses of action in the
event that mission critical vendors are not Year 2000 ready. It
is presently expected that all of the above team projects will be
substantially complete as of December 31, 1998. Constant
monitoring and follow up will continue, however, through the Year
2000 time frame.
The Company's examination group works with our primary regulator,
the Office of Thrift Supervision, in reviewing our overall
progress and in addressing any areas where deficiencies are noted
by our regulators. The Company believes that its Year 2000
efforts are considered satisfactory to date by its primary
regulator.
The primary expense factor in addressing the Year 2000 Issue has
consisted of employee time. Year 2000 tasks have been
incorporated into the daily work routine of the Company's
employees, with only minimal interruption to work flow. It is
management's opinion that certain vendors will require additional
compensation for software upgrades that will need to be installed
in certain equipment in order to make such equipment Year 2000
compliant. It is management's opinion that such additional
expense will not exceed $25,000, and, as such, will not materially
impact the Company's financial performance. OHSL standardized
virtually all of its data processing in 1996 during the conversion
to its in-house processor, the benefits of which are now being
realized in relatively minimal dollar expenditures to assure Year
2000 compliance.
The contingency planning team is in the process of evaluating all
systems and outside vendors in order to determine which areas, if
any, require contingency plans. As of September 30, 1998 the
evaluation process continues, with contingency plans being
developed and tested. Decisions concerning which areas requiring
contingency plans will be made over the next several months as
further information is received.
The risks for the Company in the event that certain mission-critical
systems are not Year 2000 compliant are substantial. As
a financial institution, the largest volume of transactions
involve loan related matters (loan origination, loan payments,
escrow handling and so forth), and deposit accounts (new account
openings, deposits and withdrawals from accounts, interest
crediting, checking account transactions, etc.). The inability of
the Company to process these transactions in an efficient and
timely manner would greatly impact the Company's operations. No
estimate is available concerning possible lost revenue in the
event of a material Year 2000 problem, however, such loss of
revenue would likely be a material amount which could have a
serious negative impact on the Company's financial performance and
operations.
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 as defined
by regulation. Federal regulations require the Corporation's
subsidiary, Oak Hills Savings and Loan Company, F.A., to maintain
certain minimum levels of liquidity. Generally, current federal
regulations require the liquid assets (as defined) of the Company
to be 4.0% of the Company's total assets (also as defined). At
September 30, 1998, the Company's liquid assets as defined by
regulation totaled $63.2 million or 33.6%.
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) investment
strategies adopted by the Company; (4) corporate needs for cash in
order to fund ongoing operations; (5) 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 $27.2 million at September 30, 1998,
an increase of $1,140,000 from December 31, 1997. As discussed
more fully in the Financial Condition section, the major component
of this increase was the net income for the nine months ended
September 30, 1998, which was partially offset 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 September 30, 1998 is
summarized below:
Amount Percent (%) of
(000) Applicable Assets
Tangible capital $21,294 8.64%
Requirement 3,696 1.50%
------- ------
Excess $17,598 7.14%
------- ------
------- ------
Core capital $21,294 8.64%
Requirement 9,856 4.00%
------- ------
Excess $11,438 4.64%
------- ------
------- ------
Risk-based capital $21,840 17.77%
Requirement 9,831 8.00%
------- ------
Excess $12,009 9.77%
------- ------
------- ------
At September 30, 1998, the book value per share of OHSL common
stock was $11.12 based upon 2,442,554 outstanding shares.
Accounting Changes:
The Financial Accounting Standards Board ("FASB") issues Financial
Accounting Standards ("FAS") that affect OHSL. The following FAS
represent new and / or significant pronouncements in this area.
FAS No. 130, "Reporting Comprehensive Income"
FAS No. 130 is effective for both interim and year-end financial
statements for fiscal years beginning after December 15, 1997 and
establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial
statements. Comprehensive income is defined as all changes in
equity other than those resulting from investments by owners or
distributions to owners. Net income is, therefore, a component of
comprehensive income. OHSL's only current item of other
comprehensive income is unrealized gains or losses on securities
available for sale. The Standard does not mandate a specific
format for reporting comprehensive income, but it does require
that all items that are required to be recognized as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
The Consolidated Statements of Comprehensive Income are included
in Form 10-QSB on page 6.
FAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information"
FAS No. 131 is effective for reported periods included in year-end
financial statements for fiscal years beginning after December 15,
1997 and for all reported periods in interim financial statements
for reporting periods, following the first required full fiscal
year disclosure. FAS No. 131 establishes new guidance for the way
that public business enterprises report information about
operating segments in annual financial statements and requires
that those enterprises report selected information about
reportable operating segments in interim financial reports issued
to stockholders. FAS No. 131 supersedes the industry approach to
segment disclosures previously required by FAS No. 14, Financial
Reporting for Segments of a Business Enterprise, replacing it with
a method of segment reporting which is based on the structure of
the enterprise's internal organization reporting. The Statement
also establishes standards for related disclosures about products
and services, geographic areas and major customers. Management
does not believe that implementation of this Standard will result
in the identification of other reportable business segments at
this time.
PART II: OTHER INFORMATION
OHSL FINANCIAL CORP.
SEPTEMBER 30, 1998
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
The Securities and Exchange Commission has recently
amended Rule 14a-4 to provide that with respect to a
shareholder proposal to be presented at an annual
shareholders' meeting other than pursuant to Rule 14a-8
(i.e., which is not to be included in the registrant's
proxy statement), the registrant's management may
exercise discretionary voting authority under proxies
solicited by it for the meeting if it receives notice of
the proposed non-Rule 14a-8 shareholder action less than
45 days prior to the calendar date its proxy materials
were mailed for the prior year's annual meeting.
As this new provision applies to OHSL, in the event
notice of a non-Rule 14a-8 shareholder proposal to be
presented at the Company's 1999 Annual Meeting of
Shareholders is received by the Company after February 1,
1999, OHSL's management will be permitted to exercise
discretionary voting authority under proxies solicited by
it with respect to the 1999 Annual Meeting.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
On July 21, 1998, the Registrant filed a Form 8-K to
report the issuance of a press release announcing
earnings for the second quarter of 1998.
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: October 10, 1998 By: /s/ Kenneth L. Hanauer
--------------------------
Kenneth L. Hanauer
President and Chief Executive Officer
(Principal Executive Officer)
Date: October 10, 1998 By: /s/ Patrick J. Condren
---------------------------
Patrick J. Condren
Treasurer and Chief Financial Officer
(Principal Financial and Accounting
Officer)