1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 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 EXCHANGE ACT
For the transition period from _____ to _____.
Commission file number: 0-28648
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Ohio State Bancshares, Inc.
-----------------------------------------------
(Exact name of small business issuer as specified in its charter)
Ohio 34-1816546
- ---------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
111 South Main Street, Marion, Ohio 43302
-----------------------------------------
(Address of principal executive offices)
(740) 387-2265
---------------------------
(Issuer's telephone number)
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common stock, $10.00 par value 146,000 common shares
outstanding at May 4, 2001
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
2
OHIO STATE BANCSHARES, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2001
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets ........................ 3
Condensed Consolidated Statements of Income................... 4
Condensed Consolidated Statements of Changes in
Shareholders' Equity ....................................... 5
Condensed Consolidated Statements of Cash Flows .............. 6
Notes to the Condensed Consolidated Financial Statements ..... 7
Item 2. Management's Discussion and Analysis........................... 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................. 17
Item 2. Changes in Securities......................................... 17
Item 3. Defaults Upon Senior Securities............................... 17
Item 4. Submission of Matters to a Vote of Security Holders........... 17
Item 5. Other Information............................................. 17
Item 6. Exhibits and Reports on Form 8-K.............................. 17
SIGNATURES .......................................................... 18
3
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
March 31, December 31,
2001 2000
---- ----
ASSETS
Cash and due from financial institutions $ 2,485,535 $ 2,295,635
Federal funds sold 4,594,000 2,414,000
------------ ------------
Cash and cash equivalents 7,079,535 4,709,635
Securities available for sale 11,986,271 10,397,644
Securities held to maturity (fair value March 31, 2001 -
$3,765,347, December 31, 2000 - $3,696,870) 3,663,419 3,664,874
Loans, net 52,506,383 52,166,770
Premises and equipment, net 1,089,083 1,002,708
Accrued interest receivable 519,114 492,098
Other assets 619,869 606,752
------------ ------------
$ 77,463,674 $ 73,040,481
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 6,600,330 $ 7,675,081
Interest-bearing 63,548,631 59,270,451
------------ ------------
Total 70,148,961 66,945,532
Federal Home Loan Bank borrowings 1,000,000 --
Accrued interest payable 339,008 300,910
Other liabilities 160,062 262,168
------------ ------------
Total liabilities 71,648,031 67,508,610
Shareholders' equity
Common stock, $10.00 par value; 500,000 shares authorized;
146,000 shares issued and outstanding 1,460,000 1,460,000
Additional paid-in capital 2,652,709 2,652,709
Retained earnings 1,652,848 1,492,741
Accumulated other comprehensive income (loss) 50,086 (73,579)
------------ ------------
Total shareholders' equity 5,815,643 5,531,871
------------ ------------
$ 77,463,674 $ 73,040,481
============ ============
See accompanying notes to the condensed consolidated financial statements.
3.
4
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
---------
2001 2000
---- ----
Interest and dividend income
Loans, including fees $1,232,844 $1,097,210
Taxable securities 183,820 182,851
Nontaxable securities 39,835 50,693
Federal funds sold and other 36,645 12,306
---------- ----------
Total interest and dividend income 1,493,144 1,343,060
Interest expense
Deposits 736,444 613,186
Other borrowings 8,456 8,345
---------- ----------
Total interest expense 744,900 621,531
---------- ----------
Net interest income 748,244 721,529
Provision for loan losses 75,000 75,000
---------- ----------
Net interest income after provision for loan losses 673,244 646,529
Noninterest income
Fees for customer services 95,375 64,591
Gain on sale of loan 68,232 --
Net gains (losses) on sales of securities available
for sale 6,020 --
Other 18,169 15,338
---------- ----------
Total noninterest income 187,796 79,929
Noninterest expense
Salaries and employee benefits 282,658 283,236
Occupancy and equipment 124,310 109,774
Office supplies 31,486 24,879
Professional fees 56,314 33,237
Advertising and public relations 25,008 15,829
Taxes, other than income 16,528 14,450
Loan collection and repossessions 10,687 25,249
Credit card processing 16,384 15,778
Director expenses 12,525 13,731
Other 60,250 47,832
---------- ----------
Total noninterest expense 636,150 583,995
---------- ----------
Income before income taxes 224,890 142,463
Income tax expense 64,783 41,605
---------- ----------
Net income $ 160,107 $ 100,858
========== ==========
Basic and diluted earnings per share $ 1.10 $ 0.69
========== ==========
Weighted average shares outstanding, basic and diluted 146,000 146,000
See accompanying notes to the condensed consolidated financial statements.
4.
5
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
Three Months Ended
March 31,
---------
2001 2000
---- ----
Balance at beginning of period $ 5,531,871 $ 5,017,295
Comprehensive income:
Net income 160,107 100,858
Change in net unrealized gain (loss) on
securities available for sale, net of
reclassification and tax effects 123,665 11,073
------------- -------------
Total comprehensive income 283,772 111,931
------------- -------------
Balance at end of period $ 5,815,643 $ 5,129,226
============= =============
See accompanying notes to the condensed consolidated financial statements.
5.
6
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
---------
2001 2000
---- ----
Cash flows from operating activities
Net income $ 160,107 $ 100,858
Adjustments to reconcile net income to net cash from
operating activities
Net amortization of securities 6,657 5,683
Provision for loan losses 75,000 75,000
Depreciation and amortization 47,155 42,544
Gain on sale of loan (68,232) --
Net realized (gains) losses on sales of securities (6,020) --
Federal Home Loan Bank stock dividends (4,100) (3,600)
Change in deferred loan costs (41,264) 14,445
Change in accrued interest receivable (27,016) (44,802)
Change in accrued interest payable 38,098 498
Change in other assets and other liabilities (154,928) 153,152
----------- -----------
Net cash from operating activities 25,457 343,778
Cash flows from investing activities
Securities available for sale:
Purchases (2,584,148) --
Maturities, prepayments and calls 681,789 296,494
Sales 506,020 --
Loan originations and payments, net (2,051,459) (1,177,515)
Loan sale proceeds 1,722,342 --
Purchases of premises and equipment (133,530) (15,980)
----------- -----------
Net cash from investing activities (1,858,986) (897,001)
Cash flows from financing activities
Net change in deposits 3,203,429 1,904,381
Proceeds from advance of long-term borrowings 1,000,000 --
Net changes in short-term borrowings -- (1,000,000)
----------- -----------
Net cash from financing activities 4,203,429 904,381
----------- -----------
Net change in cash and cash equivalents 2,369,900 351,158
Cash and cash equivalents at beginning of period 4,709,635 3,131,869
----------- -----------
Cash and cash equivalents at end of period $ 7,079,535 $ 3,483,027
=========== ===========
Supplemental cash flow information:
Interest paid $ 706,802 $ 621,033
Income taxes paid 70,000 --
Supplemental noncash disclosures:
Transfers from loans to other real estate owned and repossessions $ 24,000 $ 42,700
See accompanying notes to the condensed consolidated financial statements.
6.
7
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the consolidated financial position of Ohio State Bancshares, Inc. at March 31,
2001, and its results of operations and cash flows for the periods presented.
All such adjustments are normal and recurring in nature. The accompanying
consolidated financial statements have been prepared in accordance with the
instructions of Form 10-QSB and, therefore, do not purport to contain all
necessary financial disclosures required by generally accepted accounting
principles that might otherwise be necessary in the circumstances, and should be
read in conjunction with the consolidated financial statements and notes thereto
of Ohio State Bancshares, Inc. for the year ended December 31, 2000, included in
its 2000 Annual Report. Reference is made to the accounting policies of Ohio
State Bancshares, Inc. described in the notes to consolidated financial
statements contained in its 2000 Annual Report. Ohio State Bancshares, Inc. has
consistently followed these policies in preparing this Form 10-QSB.
The accompanying consolidated financial statements include the accounts of Ohio
State Bancshares, Inc. ("OSB") and its wholly-owned subsidiary, The Marion Bank
("Bank"), together referred to as the Corporation. Intercompany transactions and
balances have been eliminated.
The Corporation provides financial services through its main and branch office
in Marion, Ohio. Its primary deposit products are checking, savings, and term
certificate accounts, and its primary lending products are residential mortgage,
commercial, and installment loans. Substantially all loans are secured by
specific items of collateral including business assets, consumer assets and real
estate. Commercial loans are expected to be repaid from cash flow from
operations of businesses. Real estate loans are secured by both residential and
commercial real estate. The Corporation is primarily organized to operate in the
banking industry. Substantially all revenues and services are derived from
banking products and services in Marion County and contiguous counties.
Accordingly, the Corporation's operations are considered by management to be
aggregated in one reportable operating segment.
To prepare financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the
financial statements and the disclosures provided, and future results could
differ. The allowance for loan losses, fair values of financial instruments and
the status of contingencies are particularly subject to change.
Basic earnings per share is net income divided by the weighted average number of
common shares outstanding during the period. Diluted earnings per share is not
currently applicable since OSB has no potentially dilutive common shares.
Income tax expense is based on the effective tax rate expected to be applicable
for the entire year. Income tax expense is the total of the current year income
tax due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts for the
temporary differences between the carrying amounts and tax basis of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Statement of Financial Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" was adopted by the Corporation on January 1,
2001. SFAS No. 133 requires companies to record derivatives on the balance sheet
as assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
No. 133 does not allow hedging of a security which is classified as held to
maturity. The adoption of SFAS No. 133 on January 1, 2001 had no impact on the
Corporation's financial statements.
(Continued)
7.
8
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In September 2000, the Financial Accounting Standards Board issued SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." SFAS 140 replaces SFAS 125 and resolves various implementation
issues while carrying forward most of the provisions of SFAS 125 without change.
SFAS 140 revises standards for transfers of financial assets by clarifying
criteria and expanding guidance for determining whether the transferor has
relinquished control and the transfer is therefore accounted for as a sale. SFAS
140 also adopts new accounting requirements for pledged collateral and requires
new disclosures about securitizations and pledged collateral. SFAS 140 is
effective for transfers occurring after March 31, 2001 and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. The adoption of this standard has not had a material
effect on the Corporations's financial statements.
NOTE 2 - SECURITIES
Securities at March 31, 2001 and December 31, 2000 were as follows:
March 31, 2001
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----- ----- ------ -----
AVAILABLE FOR SALE
U.S. Treasury $ 99,909 $ 1,801 $ -- $ 101,710
U.S. government and federal agencies 7,140,267 60,629 (3,832) 7,197,064
Mortgage-backed 4,401,067 27,331 (10,041) 4,418,357
-------------- ----------- ----------- ---------------
Total debt securities 11,641,243 89,761 (13,873) 11,717,131
Other securities 269,140 -- -- 269,140
-------------- ----------- ----------- ---------------
Total $ 11,910,383 $ 89,761 $ (13,873) $ 11,986,271
============== =========== =========== ===============
HELD TO MATURITY
State and municipal $ 3,663,419 $ 122,010 $ (20,082) $ 3,765,347
============== =========== =========== ===============
December 31, 2000
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
AVAILABLE FOR SALE
U.S. Treasury $ 99,891 $ 798 $ -- $ 100,689
U.S. government and federal agencies 5,559,398 6,017 (66,328) 5,499,087
Mortgage-backed 4,584,798 1,519 (53,489) 4,532,828
-------------- ----------- ----------- ---------------
Total debt securities 10,244,087 8,334 (119,817) 10,132,604
Other securities 265,040 -- -- 265,040
-------------- ----------- ----------- ---------------
Total $ 10,509,127 $ 8,334 $ (119,817) $ 10,397,644
============== =========== =========== ===============
HELD TO MATURITY
State and municipal $ 3,664,874 $ 73,726 $ (41,730) $ 3,696,870
============== =========== =========== ===============
(Continued)
8.
9
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - SECURITIES (Continued)
Sales of available for sale securities were as follows:
Three Months Ended
March 31,
---------
2001 2000
---- ----
Proceeds $506,020 $ --
Gross gains 6,020 --
Gross losses -- --
The amortized cost and estimated fair values of securities at March 31, 2001, by
contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because certain borrowers may have the right to call or
repay obligations with or without penalties.
Available-for-Sale Securities Held-to-Maturity Securities
----------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
Due in one year or less $ 99,909 $ 101,710 $ -- $ --
Due in one to five years 2,262,223 2,296,518 -- --
Due in five to ten years 2,879,518 2,905,556 1,305,382 1,382,676
Due after ten years 1,998,526 1,994,990 2,358,037 2,382,671
Mortgage-backed securities 4,401,067 4,418,357 -- --
Other securities 269,140 269,140 -- --
-------------- --------------- --------------- --------------
$ 11,910,383 $ 11,986,271 $ 3,663,419 $ 3,765,347
============== =============== =============== ==============
Securities with a carrying value of approximately $6,540,000 at March 31, 2001
and $6,521,000 at December 31, 2000 were pledged to secure deposits and for
other purposes.
NOTE 3 - LOANS
Loans at March 31, 2001 and December 31, 2000 were as follows:
March 31, December 31,
2001 2000
---- ----
Commercial $ 13,182,612 $ 14,484,055
Installment 25,732,454 24,891,651
Real estate 12,900,554 12,087,058
Credit card 693,703 743,022
Other 53,182 35,556
---------------- ----------------
52,562,505 52,241,342
Net deferred loan costs 576,445 535,181
Allowance for loan losses (632,567) (609,753)
---------------- ----------------
$ 52,506,383 $ 52,166,770
================ ================
(Continued)
9.
10
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - LOANS (Continued)
Activity in the allowance for loan losses for the three months ended March 31,
2001 and 2000 was as follows:
2001 2000
---- ----
Balance - January 1 $ 609,753 $ 506,542
Loans charged-off (70,306) (119,597)
Recoveries 18,120 35,437
Provision for loan losses 75,000 75,000
------------ ------------
Balance - March 31 $ 632,567 $ 497,382
============ ============
The balance of loans evaluated for impairment on an individual basis at March
31, 2001 and December 31, 2000 and for the three months ended March 31, 2001 and
2000 was not material.
Nonperforming loans were as follows:
March 31, December 31,
2001 2000
---- ----
Loans past due over 90 days still on accrual $ 143,262 $ 6,013
Loans on nonaccrual 153,207 140,027
Nonperforming loans include smaller balance homogeneous loans such as
residential real estate, installment and credit card loans that are collectively
evaluated for impairment.
NOTE 4 - BORROWINGS
On January 24, 2001, the Bank borrowed $1,000,000 from the Federal Home Loan
Bank (FHLB). This borrowing matures on January 24, 2011, and has a fixed rate of
4.68% for one year. After one year, the FHLB may continue the fixed rate or
convert the borrowing to a variable rate tied to the three-month LIBOR index. If
the borrowing is converted to a variable rate, the Bank may payoff the debt with
no penalty. At no time is the borrowing callable by the FHLB.
The Bank has a line of credit agreement with the FHLB, which is collateralized
by a blanket pledge on eligible real estate loans and the Bank's FHLB stock. As
of March 31, 2001, the Bank has approximately $4,680,000 available for future
advances.
NOTE 5 - COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES
Various contingent liabilities are not reflected in the financial statements,
including claims and legal actions arising in the ordinary course of business.
In the opinion of management, after consultation with legal counsel, the
ultimate disposition of these matters is not expected to have a material effect
on the financial condition or results of operations.
(Continued)
10.
11
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 5 - COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES (Continued)
Some financial instruments, such as loan commitments, credit lines, letters of
credit, and overdraft protection, are issued to meet customer financing needs.
These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance-sheet
risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make
such commitments as are used for loans, including obtaining collateral at the
exercise of the commitment.
Commitments to extend credit, primarily in the form of undisbursed portions of
approved lines of credit, consist primarily of variable rate commitments. The
interest rates on these commitments ranged from 6.25% to 12.00% at March 31,
2001 and 6.25% to 12.50% at December 31, 2000. Outstanding commitments for
credit cards had interest rates ranging from 12.00% to 17.90% as of March 31,
2001 and from 12.00% to 18.00% as of December 31, 2000.
A summary of the contractual amounts of financial instruments with
off-balance-sheet risk at March 31, 2001 and December 31, 2000 follows:
March 31, December 31,
2001 2000
---- ----
Commitments to extend credit $ 2,612,000 $ 2,328,000
Credit card arrangements 2,537,000 2,443,000
Letters of credit 10,000 10,000
NOTE 6 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows for the
three months ended March 31, 2001 and 2000:
Three Months Ended
March 31
--------
2001 2000
---- ----
Unrealized holding gains and losses on
available-for-sale securities $ 193,391 $ 16,777
Reclassification adjustments for (gains)
and losses later recognized as income (6,020) --
---------- -----------
Net unrealized gains and losses 187,371 16,777
Tax effect (63,706) (5,704)
---------- -----------
Other comprehensive income (loss) $ 123,665 $ 11,073
========== ===========
(Continued)
11.
12
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 7 - REGULATORY MATTERS
On February 10, 2000, the Corporation entered into a Memorandum of Understanding
("MOU") by and among The Marion Bank, Ohio Division of Financial Institutions
and the Federal Deposit Insurance Corporation, whereby the Bank had agreed to
comply with certain directives which were intended to correct operational
deficiencies and improve overall financial condition. Throughout 2000,
management satisfactorily completed all provisions of the MOU and on January 18,
2001, this agreement was dissolved. However, in order to continue operational
efficiencies and improve the financial condition of the Bank, the Board of
Directors resolved to, among other things, develop a long-term strategic plan,
maintain a tier 1 capital to average assets ratio of at least 7.0%, and reduce
concentrations in indirect automobile lending. If at the end of any quarter this
ratio falls below 7.0%, management will provide, in writing, a plan to restore
this ratio to the Ohio Division of Financial Institutions and the FDIC. The
actual tier 1 capital to average assets ratio for the Bank for the quarter
ending March 31, 2001 was 7.14%.
12.
13
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION;
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
INTRODUCTION
The following discussion focuses on the consolidated financial condition of Ohio
State Bancshares, Inc. at March 31, 2001, compared to December 31, 2000, and the
consolidated results of operations for the three months ended March 31, 2001,
compared to the same period in 2000. The purpose of this discussion is to
provide the reader with a more thorough understanding of the consolidated
financial statements than what could be obtained from an examination of the
financial statements alone. This discussion should be read in conjunction with
the interim consolidated financial statements and related footnotes.
When used in this Form 10-QSB or future filings by the Corporation with the
Securities and Exchange Commission, in press releases or other public or
shareholder communications, or in oral statements made with the approval of an
authorized executive officer, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project,"
"believe," or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The Corporation wishes to caution readers not to place undue reliance
on any such forward-looking statements, which speak only as of the date made,
and to advise readers that various factors, including regional and national
economic conditions, changes in levels of market interest rates, credit risks of
lending activities and competitive and regulatory factors, could affect the
Corporation's financial performance and could cause the Corporation's actual
results for future periods to differ materially from those anticipated or
projected. The Corporation does not undertake, and specifically disclaims, any
obligation to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
See Exhibit 99, which is incorporated herein by reference.
The Corporation is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the liquidity,
capital resources or operations except as discussed herein.
FINANCIAL CONDITION
The Corporation has experienced 6.06% asset growth since December 31, 2000, as
total assets increased $4,423,000 from $73,040,000 at December 31, 2000 to
$77,463,000 at March 31, 2001. Most of this growth is attributable to the
$3,203,000 growth in total deposits and the $1,000,000 growth in FHLB
borrowings. This $4,203,000 inflow of cash supported a $1,587,000 net increase
in securities, $340,000 net increase in loans, and $2,370,000 increase in cash
equivalents.
Securities available for sale and securities held to maturity increased
$1,587,000 from $14,063,000 at December 31, 2000 to $15,650,000 at March 31,
2001. The increase was primarily the result of $2,584,000 in purchases due to
excess funds provided from deposit growth and $187,000 in appreciation of
available for sale securities due to the general decline in interest rates,
partially offset by $1,182,000 of calls, principle paydowns and sales.
Net loans increased $340,000, or 0.65% during the period from December 31, 2000
to March 31, 2001. This is primarily due to net loan originations less payments
of $2,051,000 offset by a loan sale of $1,722,000. On February 16, 2001 the Bank
sold a commercial loan guaranteed by the United States Department of Agriculture
("USDA") for a pre-tax profit of $68,000. The Bank is not obligated to
repurchase this loan and is not subject to a penalty if the loan prepays.
Contributing to the net increase in loans was a $841,000, or 3.38%, increase in
consumer installment loans, a $813,000, or 6.73%, increase in real estate loans
and a $1,301,000, or 8.99%, decrease in commercial loans primarily due to the
loan sale.
13.
14
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION;
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The allowance for loan losses increased to $633,000, or 1.19% of total loans, as
of March 31, 2001 compared to $610,000, or 1.16% of total loans, at December 31,
2000. The increase is due to a provision for loan losses of $75,000 compared to
actual net charge-offs of $52,000. Management is actively monitoring problem
loans and has increased collection efforts to reduce charge-offs in future
periods. Should charge-offs, classified loans or delinquencies significantly
change, management will increase the provision for loan losses in order to
maintain the allowance for loan losses at a level adequate to absorb probable
losses in the loan portfolio.
Total deposits increased $3,203,000, or 4.79% from December 31, 2000 to March
31, 2001. The increase in deposits was primarily due to the cyclical cash needs
of customers and current market conditions. The additional cash was used to fund
securities and loan growth. Making up the net deposit growth for the quarter is
an increase of $2,574,000 in time deposits, $1,342,000 in interest-bearing
demand, $362,000 in savings, and a decrease in noninterest-bearing demand
deposits of $1,075,000.
RESULTS OF OPERATIONS
The operating results of the Corporation are affected by general economic
conditions, the monetary and fiscal policies of federal agencies and the
regulatory policies of agencies that regulate financial institutions. The
Corporation's cost of funds is influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
influenced by consumer and business demand, which, in turn, is affected by the
interest rates at which such loans are made, general economic conditions and the
availability of funds for lending activities.
The Corporation's net income is primarily dependent upon its net interest
income, which is the difference between interest income generated on
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Provisions for loan losses, service charges, gains on the sale of
assets and other income, noninterest expense and income taxes also affect net
income.
Net income for the three months ended March 31, 2001 was $160,000, or $59,000
more than the same period in 2000. The reason for the increase in earnings was
primarily due to an increase in noninterest income of $108,000 and an increase
of net interest income of $27,000 partially offset by an increase in noninterest
expense of $52,000.
Net interest income is the largest component of Corporation's income and is
affected by the interest rate environment and the volume and composition of
interest-earning assets and interest-bearing liabilities. Net interest income
increased by $27,000, or 3.70% for the three months ended March 31, 2001
compared to the same period in 2000. The increase in net interest income is
attributable to the Corporation's average earning assets increasing $4,094,000,
or 6.24%, from March 31, 2000 to March 31, 2001.
Noninterest income was up $108,000, or 134.95%, for the three months ended March
31, 2001 versus the same period in 2000. $68,000 of the increase is attributable
to the USDA guaranteed loan sale and $31,000 relates to increased fees for
customer service. Fees for customer service have increased due to the Bank's new
Bounce Protection program that allows all checking customers to overdraft their
accounts from $100 to $500, based upon the type of account, without getting
checks returned. The Bounce Protection program has resulted in customers
overdrafting more checks. However, the Bank's average overdraft balance has only
increased from $16,000 for the three months ending March 31, 2000 to $27,000 for
the three months ended March 31, 2001. The remaining $9,000 in increased
noninterest income relates to security gains and other noninterest income.
Noninterest expense was up $52,000, or 8.93%, for the three months ended March
31, 2001 versus the same period in 2000. The largest fluctuations in this
category came from professional fees, occupancy and equipment expense, and loan
collection and repossession expense. Professional fees have increased $23,000
compared to the prior year due to increased internal audit costs and final legal
bills relating to a lawsuit settlement recorded in fiscal year 2000.
14.
15
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION;
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Occupancy and equipment expenses have increased $15,000 due to the addition of a
new check sorter and software relating to statement preparation and internet
services. Loan collection and repossession expense has decreased by $15,000 due
to decreased repossession activity due to better collection efforts.
CAPITAL RESOURCES
The Bank is subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities and certain
off-balance-sheet items calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative judgments by
regulators about components, risk weightings and other factors, and regulators
can lower classifications in certain cases. Failure to meet various capital
requirements can initiate regulatory action having a direct material affect on
the operations of the Bank.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
Capital to risk-
weighted assets
--------------- Tier 1 capital
Total Tier 1 to average assets
----- ------ -----------------
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
At March 31, 2001 and December 31, 2000, the actual capital ratios for the Bank
were:
March 31, December 31,
2001 2000
---- ----
Total capital to risk-weighted assets 10.9% 10.6%
Tier 1 capital to risk-weighted assets 9.7 9.4
Tier 1 capital to average assets 7.1 7.1
At March 31, 2001 and December 31 2000, the Bank was categorized as well
capitalized. However, OSB must obtain prior written approval from the Federal
Reserve Bank before paying dividends to its shareholders.
LIQUIDITY
Liquidity management focuses on the ability to have funds available to meet the
loan and depository transaction needs of the Bank's customers and the
Corporation's other financial commitments. Cash and cash equivalent assets
(which include deposits this Bank maintains at other banks, federal funds sold
and other short-term investments) totaled $7,080,000 at March 31, 2001 and
$4,710,000 at December 31, 2000. These assets provide the primary source of
funds for loan demand and deposit balance fluctuations. Additional sources of
liquidity are securities classified as available for sale and access to Federal
Home Loan Bank advances, as the Bank is a member of the Federal Home Loan Bank
of Cincinnati.
15.
16
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION;
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Taking into account the capital adequacy, profitability and reputation
maintained by the Corporation, available liquidity sources are considered
adequate to meet current and projected needs. See the Condensed Consolidated
Statements of Cash Flows for a more detailed review of the Corporation's sources
and uses of cash.
16.
17
OHIO STATE BANCSHARES, INC.
FORM 10-QSB
Quarter ended March 31, 2001
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1 - Legal Proceedings:
-----------------
There are no matters required to be reported under this item.
Item 2 - Changes in Securities and Use of Proceeds:
-----------------------------------------
There are no matters required to be reported under this item.
Item 3 - Defaults Upon Senior Securities:
-------------------------------
There are no matters required to be reported under this item.
Item 4 - Submission of Matters to a Vote of Security Holders:
---------------------------------------------------
There are no matters required to be reported under this item.
Item 5 - Other Information:
-----------------
There are no matters required to be reported under this item.
Item 6 - Exhibits and Reports on Form 8-K:
--------------------------------
(a) Exhibit 99 - Safe Harbor Under Private Securities
Litigation Reform Act of 1995.
(b) No current reports on Form 8-K were filed by the small
business issuer during the quarter ended March 31, 2001.
17.
18
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.
OHIO STATE BANCSHARES, INC.
---------------------------
(Registrant)
Date: May 4, 2001 /s/ Gary E. Pendleton
---------------------- ---------------------
(Signature)
Gary E. Pendleton
President and Chief Executive Officer
Date: May 4, 2001 /s/ Todd M. Wanner
---------------------- ------------------
(Signature)
Todd M. Wanner
Vice President and Chief Financial Officer
18.
19
Index to Exhibits
- --------------------------------------------------------------------------------
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
- -------------- ----------- -----------
99 Safe Harbor Under the Private Incorporated by reference to
Securities Litigation Reform Act Exhibit 99 to Annual Report
of 1995 on Form 10-KSB for the year
ended December 31, 1999 filed
by the Small Business Issuer
on March 29, 2000.
19.