1
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 June 30, 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 August 3, 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 June 30, 2001, and December 31, 2000 3
Consolidated Statements of Operations (Unaudited)
for the Six Months ended June 30, 2001 and 2000 4
Consolidated Statements of Operations (Unaudited)
for the Three Months ended June 30, 2001 and 2000 5
Consolidated Statements of Cash Flows (Unaudited)
for the Six Months ended June 30, 2001 and 2000 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Default Upon Senior Securities 12
Item 4. Submissions of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
June 30, December 31,
2001 2000
------------ ------------
ASSETS
Cash and cash equivalents:
Cash and amounts due from banks $ 737,625 $ 723,369
Interest-bearing deposits with other institutions 1,342,922 2,236,501
----------- -----------
Total cash and cash equivalents 2,080,547 2,959,870
----------- -----------
Interest bearing time deposits 400,000 500,000
Investment securities:
Held-to-maturity (market value of $3,112,151
at 6/30/01; and $3,838,456 at 12/31/00) 3,131,173 3,874,600
Loans receivable, net 26,027,913 24,663,667
Office properties and equipment, net 422,584 443,532
Accrued interest receivable, loans and investments
(net of reserve for uncollected interest of $-0-
at 6/30/01; and $-0- at 12/31/00) 176,537 183,593
Other assets 565,573 479,912
----------- -----------
TOTAL ASSETS $32,804,327 $33,105,174
=========== ===========
LIABILITIES
Deposit accounts $24,235,810 $24,488,798
Advances by borrowers for taxes and insurance 177,580 204,130
Accrued interest payable and other liabilities 125,863 164,400
Deferred federal income taxes 103,925 103,925
----------- -----------
TOTAL LIABILITIES 24,643,178 24,961,253
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, 3,000,000 shares authorized,
no par or stated value; 634,168 shares issued;
495,398 outstanding at 6/30/01,
495,704 outstanding at 12/31/00 -- --
Additional paid in capital 5,937,631 5,935,687
Treasury stock (138,770 shares at cost as of 6/30/01
and 138,464 shares at cost as of 12/31/00) (1,515,221) (1,512,409)
Unearned recognition and retention plan shares (RRP) (232,900) (264,916)
Unearned employee stock ownership plan shares (ESOP) (305,893) (338,340)
Retained earnings - substantially restricted 4,277,532 4,323,899
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,161,149 8,143,921
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $32,804,327 $33,105,174
=========== ===========
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 Six Months Ended June 30,
2001 2000
---------- ----------
INTEREST AND DIVIDEND INCOME
Loans $ 947,919 $ 899,728
Mortgage-backed securities 16,845 22,342
Interest-bearing deposits
and investment securities 172,872 264,476
Dividends on Federal Home Loan Bank stock 15,611 14,437
---------- ----------
Total interest and dividend income 1,153,247 1,200,983
---------- ----------
INTEREST EXPENSE
Savings deposits 488,473 515,990
---------- ----------
NET INTEREST INCOME 664,774 684,993
PROVISION FOR LOAN LOSSES -- --
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 664,774 684,993
---------- ----------
NONINTEREST INCOME
Service charges 4,029 5,457
Other income and fees 16,484 14,303
---------- ----------
Total noninterest income 20,513 19,760
---------- ----------
NONINTEREST EXPENSE
Salaries and benefits 292,261 261,806
Occupancy expense 47,189 30,616
Furniture and equipment expense 18,037 13,195
Federal insurance premium 7,818 8,183
Legal, consulting and accounting fees 134,891 36,982
Advertising and public relations 6,922 8,687
Franchise, payroll and other taxes 46,841 54,380
Stationery, printing and office expenses 14,893 13,082
Service bureau expense 36,779 29,331
Other operating expenses 56,653 60,734
---------- ----------
Total noninterest expense 662,284 516,996
---------- ----------
INCOME BEFORE INCOME TAXES 23,003 187,757
PROVISION FOR INCOME TAXES 5,509 66,415
---------- ----------
NET INCOME $ 17,494 $ 121,342
========== ==========
PER SHARE DATA
Basic $ .04 $ .25
========== ==========
Diluted $ .04 $ .24
========== ==========
AVERAGE SHARES OUTSTANDING-Basic 449,010 485,269
========== ==========
AVERAGE SHARES OUTSTANDING-Diluted 459,422 500,233
========== ==========
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 June 30,
2001 2000
-------- ---------
INTEREST AND DIVIDEND INCOME
Loans $482,153 $453,101
Mortgage-backed securities 8,269 10,960
Interest-bearing deposits
and investment securities 75,974 136,616
Dividends on Federal Home Loan Bank stock 7,917 7,469
-------- --------
Total interest and dividend income 574,313 608,146
-------- --------
INTEREST EXPENSE
Savings deposits 244,379 262,417
-------- --------
NET INTEREST INCOME 329,934 345,729
PROVISION FOR LOAN LOSSES -- --
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 329,934 345,729
-------- --------
NONINTEREST INCOME
Service charges 1,970 2,617
Other income and fees 9,706 4,287
-------- --------
Total noninterest income 11,676 6,904
-------- --------
NONINTEREST EXPENSE
Salaries and benefits 151,869 127,920
Occupancy expense 25,574 14,812
Furniture and equipment expense 11,506 7,329
Federal insurance premium 3,880 2,706
Legal, consulting and accounting fees 114,653 20,706
Advertising and public relations 1,972 1,772
Franchise, payroll and other taxes 25,319 16,650
Stationery, printing and office expenses 8,108 6,900
Service bureau expense 17,888 13,627
Other operating expenses 29,760 28,825
-------- --------
Total noninterest expense 390,529 241,247
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (48,919) 111,386
PROVISION FOR (RECOVERY OF) INCOME TAXES (20,116) 39,528
-------- --------
NET INCOME (LOSS) $(28,803) $ 71,858
======== ========
PER SHARE DATA
Basic $ (.06) $ .15
======== ========
Diluted $ (.06) $ .15
======== ========
AVERAGE SHARES OUTSTANDING-Basic 450,156 472,176
======== ========
AVERAGE SHARES OUTSTANDING-Diluted 460,050 487,139
======== ========
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 Six Months Ended June 30,
2001 2000
----------- ----------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 17,494 $ 121,342
Adjustments:
Depreciation 20,947 20,511
Investment accretion and amortization, net (33) (136)
ESOP and RRP amortization 66,407 60,775
Accrued interest receivable and other assets (78,605) 3,816
Accrued interest payable and other liabilities (38,537) 254,132
----------- ----------
Net cash provided by (used for)
operating activities (12,327) 460,440
----------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Time deposits, net 100,000 --
Purchase of held-to-maturity securities -- (300,000)
Proceeds from the call of held-to-
maturity securities 700,000 --
Proceeds from redemptions of
mortgage-backed certificates 43,461 37,144
Net change in loans (1,364,246) (482,358)
Acquisition of office properties and equipment -- (30,438)
----------- ----------
Net cash used for investing activities (520,785) (775,652)
----------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Payment of dividends (63,861) (51,037)
Purchase of treasury stock (2,812) (500,398)
Change in deposits, net (252,988) 210,595
Change in mortgage escrow funds, net (26,550) (8,337)
----------- ----------
Net cash used for financing activities (346,211) (349,177)
----------- ----------
Change in cash and cash equivalents (879,323) (664,389)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,959,870 5,173,117
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,080,547 $4,508,728
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 486,963 $ 515,112
Income taxes 60,349 22,500
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. The adoption of SFAS No. 140 did
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 June 30, 2001 and December 31, 2000
- ------------------------------------------------------------------------
At June 30, 2001, the Company's assets decreased by approximately $301,000, or
.9%, to $32.8 million from $33.1 million at December 31, 2000. Total cash and
cash equivalents decreased by $879,000, or .3%, to $2.1 million at June 30,
2001, from $3.0 million at December 31, 2000. This decrease represented the
outflow of cash associated with the increase in loan production, the decrease in
deposits and mortgage escrow funds, and the payment of dividends, offset by
proceeds from the call of held-to-maturity securities and net change in term
deposits. Held-to-maturity securities decreased by approximately $743,000, or
19.2%, to $3.1 million at June 30, 2001, from $3.8 million at December 31, 2000.
The decrease reflected the call of United States Government securities in the
amount of $700,000 and the principal reduction of $43,000 in mortgage-backed
certificates. Net loans receivable increased $1.4 million, or 5.5%, to $26.0
million at June 30, 2001, from $24.6 million at December 31, 2000. The increase
was primarily attributable to the $1.4 million increase in 1-4 family
residential mortgage loans.
Deposits decreased $253,000, or 1.0%, from $24.5 million at December 31, 2000,
to $24.2 million at June 30, 2001, as a result of lower deposit account interest
rates at the Company as compared to alternative investment products.
Shareholders' equity increased $17,000, or .2%, to $8.2 million at June 30,
2001. The increase was attributable to net income of $17,000, the recognition of
shares in the Employee Stock Ownership Plan (the "ESOP") amounting to $34,000,
and the recognition of shares in the Recognition and Retention Plan (the "RRP")
in the amount of $32,000. The increase was offset by the issuance of dividends
in the amount of $64,000. 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 Six Months Ended June 30, 2001 and 2000
- -------------------------------------------------------------------------------
NET INCOME. Net income decreased $104,000, or 85.6%, from net income of $121,000
for the six months ended June 30, 2000, compared net income of $17,000 for the
same period in 2001. The decrease in net income was primarily the result of an
increase in non-interest expenses of $145,000, or 28.1%, and a decrease in
interest and dividend income of $48,000, or 4.0%, offset by a decrease in
interest expense of $28,000, or 5.3% and a decrease in the provision for income
taxes of $61,000, or 91.7%.
NET INTEREST INCOME. Net interest income decreased $20,000, or 3.0%, from
$685,000 for the six months ended June 30, 2000, to $665,000 for the six months
ended June 30, 2001. Interest and dividend income decreased $48,000, or 4.0%,
from $1,201,000 for the six months ended June 30, 2000, to $1,153,000 for the
six months ended June 30, 2001. Interest expense decreased $28,000, or 5.3%,
from $516,000 for the 2000 period to $488,000 for the 2001 period.
INTEREST AND DIVIDEND INCOME. Total interest and dividend income decreased
$48,000, or 4.0%, for the six months ended June 30, 2001, compared to the same
period in 2000. Interest income on investments, including interest-bearing
deposits, decreased $91,000, or 34.6%, to $173,000 for the six months ended June
30, 2001, compared to $264,000 for the 2000 period. The decrease in interest
income on investments was directly attributable to the $2.7 million decrease in
the average balance of investments for the six months ended June 30, 2001,
compared to the 2000 period. Interest income on loans increased $48,000, or
5.4%, from $900,000 for the six months ended June 30, 2000, to $948,000 for the
six months ended June 30, 2001. The increase in interest income on loans was
primarily the result of an increase in the average balance of loans in the
amount of $958,000. Interest income on mortgage-backed securities decreased
$5,000, or 24.6%, to $17,000 for the six months ended June 30, 2001, compared to
$22,000 for the 2000 period.
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INTEREST EXPENSE. Total interest expense decreased by $28,000, or 5.3%, from
$516,000 for the six months ended June 30, 2000, to $488,000 for the six months
ended June 30, 2001. The Association's average outstanding deposits decreased
$1.8 million, from $25.9 million for the period ended June 30, 2000, to $24.1
million for the period ended June 30, 2001. The decrease in the average balance
of deposits was the result of customers investing funds in alternative
investment products.
PROVISION FOR LOAN LOSSES. No provisions for losses on loans were made for the
six months ended June 30, 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 June 30, 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 Company's results of operations.
NONINTEREST INCOME. Noninterest income increased $1,000, or 3.8%, from $20,000
for the six months ended June 30, 2000, to $21,000 for the six months ended June
30, 2001.
NONINTEREST EXPENSE. Noninterest expense increased $145,000, or 28.1%, from
$517,000 for the six months ended June 30, 2000, to $662,000 for the 2001
period. The increase in noninterest expense was partly attributable to an
increase in salaries and benefits expense of $30,000, or 11.6%, from $262,000
for the six months ended June 30, 2000, to $292,000 for the six months ended
June 30, 2001, due to an increase in expenses related to the recognition of RRP
shares, increase in officer salaries, and a one-time payment of $15,000 to the
Company's directors for services regarding the Agreement and Plan of Merger (the
"Merger"), whereby Advance Financial Bancorp is to acquire all of the issued and
outstanding shares of the Company. Occupancy expense increased $16,000, or
54.1%, from $31,000 for the six months ended June 30, 2000, to $47,000 for the
six months ended June 30, 2001, as a result of an increase in maintenance
charges for the office building. Legal, consulting, and accounting fees
increased $98,000, from $37,000 for the six months ended June 30, 2000, to
$135,000 for the six months ended June 30, 2001, due to an increase in expenses
related to the Merger.
INCOME TAXES. The provision for income taxes totaled $5,000 for the six months
ended June 30, 2001, a decrease of $61,000, or 91.7%, from the $66,000 in the
same 2000 period, due to a decrease in pretax income.
Comparison of Operating Results for the
Three Months Ended June 30, 2001 and 2000
- ------------------------------------------
NET INCOME. Net income decreased $101,000, or 140.1%, from net income of $72,000
for the three months ended June 30, 2000, compared to a net loss of $29,000 for
the same period in 2001. The decrease in net income was primarily the result of
an increase in non-interest expenses of $149,000, or 61.8%, and a decrease in
interest and dividend income of $34,000, or 5.6%, offset by a decrease in
interest expense of $18,000, or 6.9% and a decrease in the provision for income
taxes of $60,000, or 150.9%.
NET INTEREST INCOME. Net interest income decreased $16,000, or 4.6%, from
$346,000 for the three months ended June 30, 2000, to $330,000 for the three
months ended June 30, 2001. Interest and dividend income decreased $34,000, or
5.6%, from $608,000 for the three months ended June 30, 2000, to $574,000 for
the three months ended June 30, 2001. Interest expense decreased $18,000, or
6.9%, from $262,000 for the 2000 period to $244,000 for the 2001 period.
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INTEREST AND DIVIDEND INCOME. Total interest and dividend income decreased
$34,000, or 5.6%, for the three months ended June 30, 2001, compared to the same
period in 2000. Interest income on investments, including interest-bearing
deposits, decreased $61,000, or 44.4%, to $76,000 for the three months ended
June 30, 2001, compared to $137,000 for the 2000 period. The decrease in
interest income on investments was directly attributable to the $3.3 million
decrease in the average balance of investments for the three months ended June
30, 2001, compared to the 2000 period, while the average yield decreased 50
basis points from 6.52% for the three months ended June 30, 2000, to 6.02% for
the same period in 2001. Interest income on loans increased $29,000, or 6.4%,
from $453,000 for the three months ended June 30, 2000, to $482,000 for the
three months ended June 30, 2001. The increase in interest income on loans was
primarily the result of an increase in the average balance of loans in the
amount of $1.3 million. Interest income on mortgage-backed securities decreased
$3,000, to $8,000 for the three months ended June 30, 2001, compared to $11,000
for the 2000 period.
INTEREST EXPENSE. Total interest expense decreased by $18,000, or 6.9%, from
$262,000 for the three months ended June 30, 2000, to $244,000 for the three
months ended June 30, 2001. Average outstanding deposits decreased $2.0 million,
or 7.5%, from $26.1 million for the period ended June 30, 2000, to $24.1 million
for the period ended June 30, 2001 which was the result of customers investing
funds in alternative investment products.
PROVISION FOR LOAN LOSSES. No provisions for losses on loans were made for the
three months ended June 30, 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 June 30, 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 Company's results of operations.
NONINTEREST INCOME. Noninterest income increased $5,000, from $7,000 for the
three months ended June 30, 2000, to $12,000 for the three months ended June 30,
2001, as a direct result of an increase other income.
NONINTEREST EXPENSE. Noninterest expense increased $149,000, or 61.8%, from
$242,000 for the three months ended June 30, 2000, to $391,000 for the 2001
period. The increase in noninterest expense was partly attributable to an
increase in salaries and benefits expense of $24,000, or 18.7%, from $128,000
for the three months ended June 30, 2000, to $152,000 for the three months ended
June 30, 2001, due to an increase in expenses related to the recognition of ESOP
and RRP shares and a one-time payment of $15,000 to the Company's directors for
services regarding the Merger. Occupancy expense increased $11,000, or 72.7%,
from $15,000 for the three months ended June 30, 2000, to $26,000 for the three
months ended June 30, 2001, as a result of an increase in maintenance charges
for the office building. Legal, consulting, and accounting fees increased
$94,000, from $21,000 for the three months ended June 30, 2000, to $115,000 for
the three months ended June 30, 2001, due to an increase in expenses related to
the Merger. Franchise, payroll, and other tax expenses increased $8,000, or
52.1%, from $17,000 for the three months ended June 30, 2000, to $25,000 for the
three months ended June 30, 2001, due to the increase in franchise tax expenses
INCOME TAXES. The recovery of income taxes totaled $20,000 for the three months
ended June 30, 2001. The provision for income taxes of $40,000 for the three
months ended June 30, 2001 decreased $60,000, due to pretax income of $111,000
during the period ending June 30, 2000 as compared to a pretax loss of $49,000
during the same period in 2001.
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Liquidity and Cash Flows
- ------------------------
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 Federal Home Loan Bank (the "FHLB")
of Cincinnati advances. At June 30, 2001, the Association's borrowing capacity
from the FHLB totaled approximately $8.8 million, of which there were no
advances outstanding.
As of June 30, 2001, the Association had $883,000 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 June 30, 2001, the Association exceeded the minimum
capital ratio requirements imposed by the OTS.
At June 30, 2001, the Association's capital ratios were as follows:
Association
Requirement Actual
Tangible capital 1.50% 19.60%
Core capital 3.00% 19.60%
Risk-based capital 8.00% 36.84%
Risk Elements
- -------------
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 June 30, 2001, and December 31, 2000.
Management believes the level of the allowance for loan losses at June 30, 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
The Annual Meeting of Shareholders of Ohio State Financial Services, Inc.,
was held on April 18, 2001. The following are the votes cast on each matter
presented to the shareholders:
1. The election of directors for terms expiring in 2002:
FOR AGAINST
John O. Costine 386,746 58,725
Anton M. Godez 386,746 58,725
Jon W. Letzkus 386,746 58,725
William E. Reline 386,746 58,725
Manuel C. Thomas 381,646 63,825
2. The ratification of the selection of S. R. Snodgrass, A.C., as the
auditors of Ohio State Financial Services, Inc.:
FOR AGAINST ABSTAIN
444,971 -0- 500
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
Form 8-K dated April 18, 2001, filed on April 26, 2001, reporting under
Item 5, the Agreement and Plan of Merger, which sets forth the terms
and conditions under which Advance Financial Bancorp, a Delaware
corporation, will acquire all of the issued and outstanding shares of
Ohio State Financial Service, Inc., an Ohio corporation. No financial
statements were filed as a part of such report.
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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: August 3, 2001 By: /s/ Jon W. Letzkus
-------------------------------------
Jon W. Letzkus
President and Chief Executive Officer
(Duly Authorized)
Date: August 3, 2001 By: /s/ Jon W. Letzkus
-------------------------------------
Jon W. Letzkus
President and Chief Executive Officer
(Principal Executive Officer)
(Principal Financial and Accounting
Officer-pro tempore)