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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from to
Commission File Number 0-23109
OHIO STATE FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
OHIO 31-1529204
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
435 Main Street, Bridgeport, OH 43912
(Address of principal executive offices)
(740) 635-0764
(Registrant's telephone number, including area code)
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
As of May 4, 2001, the latest practicable date, 495,398 shares of the
registrant's common stock, without par value, were outstanding.
Transitional Small Business Disclosure Format: Yes X No
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OHIO STATE FINANCIAL SERVICES, INC.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (Unaudited)
as of March 31, 2001, and December 31, 2000 3
Consolidated Statements of Operations (Unaudited)
for the Three Months ended March 31, 2001 and 2000 4
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months ended March 31, 2001 and 2000 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Default Upon Senior Securities 10
Item 4. Submissions of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
March 31, December 31,
2001 2000
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ASSETS
Cash and cash equivalents:
Cash and amounts due from banks $ 746,461 $ 723,369
Interest-bearing deposits with other institutions 2,731,576 2,236,501
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Total cash and cash equivalents 3,478,037 2,959,870
Interest bearing time deposits 400,000 500,000
Investment securities:
Available-for-sale (cost approximates fair value) 453,000 445,400
Held-to-maturity (fair value of $3,472,672
at 3/31/01; and $3,838,456 at 12/31/00) 3,460,954 3,874,600
Loans receivable, net 24,414,873 24,663,667
Office properties and equipment, net 432,901 443,532
Accrued interest receivable, loans, and investments 127,936 183,593
Other assets 39,559 34,512
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TOTAL ASSETS $32,807,260 $33,105,174
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LIABILITIES
Deposit accounts $24,258,407 $24,488,798
Advances by borrowers for taxes and insurance 111,847 204,130
Accrued interest payable and other liabilities 146,602 164,400
Deferred federal income taxes 103,925 103,925
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TOTAL LIABILITIES 24,620,781 24,961,253
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STOCKHOLDERS' EQUITY
Common stock, 3,000,000 shares authorized, no par
or stated value; 634,168 shares issued; 495,398
outstanding at 3/31/01, 495,704 outstanding at 12/31/00 -- --
Additional paid in capital 5,933,649 5,935,687
Treasury stock (138,770 shares at cost as of 3/31/01
and 138,464 shares at cost as of 12/31/00) (1,515,221) (1,512,409)
Unearned recognition and retention plan shares (RRP) (249,084) (264,916)
Unearned employee stock ownership plan shares (ESOP) (321,158) (338,340)
Retained earnings - substantially restricted 4,338,293 4,323,899
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TOTAL STOCKHOLDERS' EQUITY 8,186,479 8,143,921
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $32,807,260 $33,105,174
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See accompanying notes to the unaudited consolidated financial statements
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OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended March 31,
2001 2000
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INTEREST AND DIVIDEND INCOME
Loans $465,766 $446,627
Mortgage-backed securities 8,576 11,432
Interest-bearing deposits and investment securities 96,898 127,811
Dividends on Federal Home Loan Bank stock 7,694 6,969
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Total interest and dividend income 578,934 592,839
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INTEREST EXPENSE
Savings deposits 244,094 253,574
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Total interest expense 244,094 253,574
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NET INTEREST INCOME 334,840 339,265
PROVISION FOR LOAN LOSSES -- --
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 334,840 339,265
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NONINTEREST INCOME
Service charges 2,059 2,841
Other income and fees 6,778 10,015
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Total noninterest income 8,837 12,856
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NONINTEREST EXPENSE
Salaries and benefits 140,392 133,883
Occupancy expense 21,615 14,804
Furniture and equipment expense 6,531 6,866
Federal insurance premium 3,938 5,476
Legal and accounting fees 20,238 16,276
Advertising and public relations 4,950 6,914
Franchise, payroll, and other taxes 21,522 37,730
Stationery, printing, and office expenses 6,784 6,181
Service bureau expense 18,891 15,705
Other operating expenses 26,895 31,916
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Total noninterest expense 271,756 275,751
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INCOME BEFORE INCOME TAXES 71,921 76,730
PROVISION FOR INCOME TAXES 25,625 26,887
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NET INCOME $ 46,296 $ 49,483
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PER SHARE DATA
Basic $ .10 $ .10
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Diluted $ .10 $ .10
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AVERAGE SHARES OUTSTANDING-Basic 447,865 498,455
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AVERAGE SHARES OUTSTANDING-Diluted 458,793 513,418
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See accompanying notes to the unaudited consolidated financial statements.
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OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31,
2001 2000
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CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 46,296 $ 49,483
Adjustments:
Depreciation 10,631 9,486
Investment accretion and amortization, net 23 (70)
ESOP and RRP amortization 30,976 30,549
Federal Home Loan Bank stock dividends (7,600) (6,900)
Accrued interest receivable and other assets 50,610 35,475
Accrued interest payable and other liabilities (17,798) (7,441)
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Net cash provided by operating activities 113,138 110,582
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CASH FLOW FROM INVESTING ACTIVITIES
Term deposits, net 100,000 --
Purchase of held-to-maturity securities -- (300,000)
Proceeds from the call of held-to-maturity securities 400,000 --
Proceeds from redemptions of mortgage-backed certificates 13,623 8,736
Net change in loans 248,794 156,967
Acquisition of office properties and equipment -- (2,026)
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Net cash provided by (used for) investing activities 762,417 (136,323)
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CASH FLOW FROM FINANCING ACTIVITIES
Payment of dividends (31,902) (26,366)
Purchase of treasury stock (2,812) (259,785)
Change in deposits, net (230,391) 811,483
Change in mortgage escrow funds, net (92,283) (80,733)
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Net cash provided by (used for) financing activities (357,388) 444,599
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Change in cash and cash equivalents 518,167 418,858
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,959,870 5,173,117
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,478,037 $ 5,591,975
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits $ 243,135 $ 253,190
Income taxes 10,229 --
See accompanying notes to the unaudited consolidated financial statements.
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OHIO STATE FINANCIAL SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Ohio State Financial Services, Inc.
(the "Company"), includes its wholly-owned subsidiary, Bridgeport Savings and
Loan Association (the "Association"). All significant inter-company balances and
transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-QSB and, therefore, do not
necessarily include all information that would be included in audited financial
statements. The information furnished reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results of
operations. All such adjustments are of a normal recurring nature. The results
of operations for the interim periods are not necessarily indicative of the
results to be expected for the full year.
These statements should be read in conjunction with the consolidated statements
as of and for the year ended December 31, 2000, and related notes which are
included on Form 10-KSB (file no. 0-23109).
NOTE 2 - RECENT ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 provides accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, by requiring the recognition of those
items as assets or liabilities in the statement of financial position, recorded
at fair value. SFAS No. 133 precludes a held-to-maturity security from being
designated as a hedge item. However, at the date of initial application of SFAS
No. 133, an entity is permitted to transfer any held-to-maturity security into
the available-for-sale or trading categories. The unrealized holding gain or
loss on such transferred securities shall be reported consistent with the
requirements of SFAS No. 115, "Accounting for Certain Investment in Debt and
Equity Securities." Such transfers do not raise an issue regarding an entity's
intent to hold other debt securities to maturity in the future. The FASB has
also issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133." SFAS No.
137 defers the effective date of SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The adoption of SFAS
No. 133 did not have a material impact on the Company.
The FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities." SFAS No. 138 addresses a limited number of issues
causing implementation difficulties for numerous entities that have adopted SFAS
No. 133 and amends the accounting and reporting standards for SFAS No. 133 for
certain derivative instruments and certain hedging activities as indicated in
the statement. The effective date of this statement is concurrent with the
effective date of SFAS. No. 133 (deferred by SFAS No. 137), which is for all
fiscal quarters beginning after June 15, 2000. The adoption of SFAS No. 138 did
not have a material impact on the Company.
FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." SFAS No. 140 replaces SFAS No. 125
and revises the standards for accounting for securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but it
carries over most of SFAS No. 125's provisions without reconsideration. Under
SFAS No. 140, after a transfer of financial assets, an entity must recognize the
financial and servicing assets it controls and the liabilities it has incurred,
and derecognize financial assets when control has been surrendered, and
derecognize liabilities when extinguished. A transfer of financial assets in
which the transferor surrenders control over those assets is accounted for as a
sale to the extent that consideration other than beneficial interests in the
transferred assets is received in exchange. This statement is generally
effective for activity occurring after March 31, 2001. Earlier or retroactive
application of this statement is not permitted. Management believes that the
adoption of SFAS No. 140 will not have a material impact on the Company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of Financial Condition at March 31, 2001,
and December 31, 2000
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At March 31, 2001, the Company's assets decreased by approximately $298,000, or
.9%, to $32.8 million from $33.1 million at December 31, 2000. Total cash and
cash equivalents increased by $518,000 to $3.5 million at March 31, 2001, from
$3.0 million at December 31, 2000. This increase represented the inflow of cash
associated with net cash provided by operating activities, proceeds from the
call of held-to-maturity securities, and a decrease in loan production, offset
by the net decrease in deposits and mortgage escrow funds and the payment of
dividends. Held-to-maturity securities decreased by approximately $414,000 to
$3.5 million at March 31, 2001, from $3.9 million at December 31, 2000. The
decrease reflected the call of U.S. Government securities in the amount of
$400,000 and the principal reduction of $14,000 in mortgage-backed certificates.
Net loans receivable decreased $249,000 to $24.4 million at March 31, 2001, from
$24.7 million at December 31, 2000. The decrease was primarily attributable to
the $289,000 decrease in 1-4 family residential mortgage loans.
Deposits decreased $230,000, or .9%, from $24.5 million at December 31, 2000, to
$24.3 million at March 31, 2001, as a result of lower deposit account interest
rates at the Company as compared to alternative investment products. Advances by
borrowers for taxes and insurance decreased $92,000, or 45.2%, from $204,000 at
December 31, 2000, to $112,000 at March 31, 2001, due primarily to the payment
of customer property taxes during the month of February 2001. Accrued interest
payable and other liabilities decreased $18,000 to $147,000 at March 31, 2001,
compared to $165,000 at December 31, 2000.
Shareholders' equity increased $46,000, or .5%, to $8.2 million at March 31,
2001. The increase in shareholders' equity was attributable to net income of
approximately $46,000, the recognition of shares in the Employee Stock Ownership
Plan (the "ESOP") amounting to $15,000, and the recognition of shares in the
Recognition and Retention Plan (the "RRP") in the amount of $16,000. The
increase was offset by the issuance of dividends in the amount of $32,000.
Future dividend policies will be determined by the Board of Directors in light
of earnings and financial condition of the Company, including applicable
governmental regulations and policies.
Comparison of Operating Results for the Three Months Ended
March 31, 2001 and 2000
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NET INCOME. Net income decreased $3,000, or 6.4%, from net income of $49,000 for
the three months ended March 31, 2000, compared to net income of $46,000 for the
same period in 2001. The decrease in net income was primarily the result of a
decrease in net interest income of $4,000, or 1.3% and a decrease in
non-interest income of $4,000, or 31.3%, offset by a decrease in non-interest
expenses of $4,000, or 1.5%.
NET INTEREST INCOME. Net interest income decreased $4,000, or 1.3%, from
$339,000 for the three months ended March 31, 2000, to $335,000 for the three
months ended March 31, 2001. Interest and dividend income decreased $14,000, or
2.4%, from $593,000 for the three months ended March 31, 2000, to $579,000 for
the three months ended March 31, 2001. Interest expense decreased $9,000, or
3.7%, from $253,000 for the 2000 period to $244,000 for the 2001 period.
INTEREST AND DIVIDEND INCOME. Total interest and dividend income decreased
$14,000, or 2.4%, for the three months ended March 31, 2001, compared to the
same period in 2000. Interest income on investments, including interest-bearing
deposits, decreased $31,000, or 24.2%, to $97,000, for the three months ended
March 31, 2001, compared to $128,000 for the 2000 period. The decrease in
interest income on investments was directly attributable to the $2.1 million
decrease in the average balance of investments for the three months ended March
31, 2001, compared to the 2000 period. Interest income on loans increased
$19,000, or 4.3%, from $447,000 for the three months ended March 31, 2000, to
$466,000 for the three months ended March 31, 2001. The increase in interest
income on loans was the result of an increase in the average balance of loans in
the amount of $519,000 and the increase of 16 basis points in the yield on
loans. Interest income on mortgage-backed securities decreased $3,000, or 25.0%,
to $9,000, for the three months ended March 31, 2001, compared to $12,000 for
the 2000 period.
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INTEREST EXPENSE. Total interest expense decreased $9,000, or 3.7%, from
$253,000 for the 2000 period to $244,000 for the 2001 period. The average
outstanding deposits decreased $1.6 million, or 6.3%, which was the result of
customers investing funds in alternative investment products. The cost of
deposit funds increased from 3.93% for the three months ended March 31, 2000, to
4.02% for the 2001 period.
PROVISION FOR LOAN LOSSES. No provisions for losses on loans were made for the
three months ended March 31, 2001 and 2000. Management judges the adequacy of
the allowance for loan losses and any additions to it based on a level which is
deemed adequate to absorb credit losses inherent in the loan portfolio. The
amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, and current
economic conditions. Based on management's evaluation, the amount of the
allowance was deemed adequate with no additional provision necessary. Although
management believes that its loan loss allowance at March 31, 2001, is adequate
based upon the available facts and circumstances, there can be no assurance that
additions to such allowance will not be necessary in future periods, which could
adversely affect the results of operations.
NONINTEREST INCOME. Noninterest income decreased $4,000, or 31.3%, from $13,000
for the three months ended March 31, 2000, to $9,000 for the three months ended
March 31, 2001, as a direct result of a decrease in service fees and other
income.
NONINTEREST EXPENSE. Noninterest expense decreased $4,000, or 1.5%, from
$276,000 for the three months ended March 31, 2000, to $272,000 for the 2001
period. The decrease in noninterest expense was partly attributable to a
decrease in franchise, payroll, and other tax expenses of $16,000, or 43.0%,
from $38,000 for the three months ended March 31, 2000, to $22,000 for the three
months ended March 31, 2001, due to the decrease in franchise tax expenses.
Salaries and benefits expense increased $6,000, or 4.9%, from $134,000 for the
three months ended March 31, 2000, to $140,000 for the three months ended March
31, 2001, as a result of an increase in employee benefits. Occupancy expense
increased $7,000, or 46.0%, from $15,000 for the three months ended March 31,
2000, to $22,000 for the three months ended March 31, 2001, as a result of an
increase in maintenance charges for the office building.
INCOME TAXES. The provision for income taxes totaled $26,000 for the three
months ended March 31, 2001, a decrease of $1,000, or 4.7%, from $27,000 in the
same 2000 period, due to a decrease in pretax income.
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Liquidity and Cash Flows
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The Association's primary sources of funds are deposits, amortization and
prepayment of loans, maturities of investment securities, and funds provided
from operations. While scheduled loan repayments are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions, and competition. In addition, the
Association invests excess funds in overnight deposits which provide liquidity
to meet lending requirements.
The Association has other sources of liquidity if a need for additional funds
arises. Additional sources of funds include the Federal Home Loan Bank (the
"FHLB") of Cincinnati advances. At March 31, 2001, the Association's borrowing
capacity from the FHLB totaled approximately $8.8 million, of which there were
no advances outstanding.
As of March 31, 2001, the Association had $780,000 in outstanding mortgage and
construction loan commitments. Management believes that it has adequate sources
to meet the actual funding requirements.
Management monitors the Association's tangible, core, and risk-based capital
ratios in order to assess compliance with the Office of Thrift Supervision (the
"OTS") regulations. At March 31, 2001, the Association exceeded the minimum
capital ratio requirements imposed by the OTS.
At March 31, 2001, the Association's capital ratios were as follows:
Association
Requirement Actual
Tangible capital 1.50% 20.01%
Core capital 3.00% 20.01%
Risk-based capital 8.00% 39.53%
Risk Elements
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A loan is classified as nonaccrual when, in the opinion of management, there are
serious doubts about collectibility of interest and principal. Once the accrual
of interest is discontinued, future income is recognized only when cash is
received. Renegotiated loans are those loans which terms have been renegotiated
to provide a reduction or deferral of principal or interest as a result of the
deterioration of the financial condition of the borrower. There were no
nonperforming assets outstanding as of March 31, 2001, and December 31, 2000.
Management believes the level of the allowance for loan losses at March 31,
2001, is sufficient; however, there can be no assurance that the current
allowance for loan losses will be adequate to absorb all future loan losses. The
relationship between the allowance for loan losses and outstanding loans is a
function of the credit quality and known risk attributed to the loan portfolio.
The on-going loan review program and the credit approval process is used to
determine the adequacy of the allowance for loan losses.
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PART II - OTHER INFORMATION
Item 1 - Legal proceedings
NONE
Item 2 - Changes in securities
NONE
Item 3 - Defaults upon senior securities
NONE
Item 4 - Submission of matters to a vote of security holders
NONE
Item 5 - Other information
NONE
Item 6 - Exhibits and reports on Form 8-K
(a) List of Exhibits:
99.1 Independent Accountant's Report
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, hereunto duly authorized.
OHIO STATE FINANCIAL SERVICES, INC.
Date: May 4, 2001 By: /s/ Jon W. Letzkus
-------------------------------------
Jon W. Letzkus
President and Chief Executive Officer
(Duly Authorized)
Date: May 4, 2001 By: /s/ James A. Trouten
-------------------------------------
James A. Trouten
Treasurer
(Duly Authorized)
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