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, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____ to _____.
Commission file number: 0-28648
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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common stock, $10.00 par value 190,000 common shares
outstanding at May 10, 2004
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
OHIO STATE BANCSHARES, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2004
Page
----
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................................................. 10
Item 3. Controls and Procedures.............................................................. 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................................... 15
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.... 15
Item 3. Defaults Upon Senior Securities..................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders................................. 15
Item 5. Other Information................................................................... 15
Item 6. Exhibits and Reports on Form 8-K.................................................... 15
SIGNATURES................................................................................... 16
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2004 2003
------------ ------------
ASSETS
Cash and due from financial institutions $ 4,102,630 $ 3,090,640
Interest-earning demand deposits 2,783,542 704,650
Federal funds sold 5,613,000 --
------------ ------------
Cash and cash equivalents 12,499,172 3,795,290
Interest-earning deposits 491,016 486,447
Securities available for sale 24,934,497 27,019,911
Loans, net 76,284,299 75,357,763
Premises and equipment, net 2,086,334 1,720,562
Accrued interest receivable 571,419 523,737
Other real estate owned 253,830 188,649
Other assets 1,879,886 1,769,813
------------ ------------
$119,000,453 $110,862,172
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 9,315,104 $ 8,420,635
Interest-bearing 83,011,680 78,586,417
------------ ------------
Total 92,326,784 87,007,052
Federal funds purchased -- 1,248,000
Borrowings 11,452,408 11,019,597
Subordinated debentures 3,000,000 --
Accrued interest payable 147,999 121,517
Other liabilities 895,821 605,856
------------ ------------
Total liabilities 107,823,012 100,002,022
Shareholders' equity
Common stock, $10.00 par value; 500,000 shares authorized;
190,000 shares issued and outstanding 1,900,000 1,900,000
Additional paid-in capital 5,045,227 5,045,227
Retained earnings 3,840,074 3,702,038
Accumulated other comprehensive income 392,140 212,885
------------ ------------
Total shareholders' equity 11,177,441 10,860,150
------------ ------------
$119,000,453 $110,862,172
============ ============
See accompanying notes to the condensed consolidated financial statements.
3.
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
---------
2004 2003
---------- ----------
Interest and dividend income
Loans, including fees $1,332,992 $1,171,611
Taxable securities 162,231 273,483
Nontaxable securities 80,551 77,475
Federal funds sold and other 18,488 20,921
---------- ----------
Total interest and dividend income 1,594,262 1,543,490
Interest expense
Deposits 407,644 471,795
Federal Home Loan Bank advances 96,773 87,074
Subordinated debentures and other borrowings 16,608 --
---------- ----------
Total interest expense 521,025 558,869
---------- ----------
Net interest income 1,073,237 984,621
Provision for loan losses 90,300 105,000
---------- ----------
Net interest income after provision for loan losses 982,937 879,621
Noninterest income
Fees for customer services 143,211 138,400
Net gains on sales of securities 13,134 --
Other 19,856 26,350
---------- ----------
Total noninterest income 176,201 164,750
Noninterest expense
Salaries and employee benefits 546,929 379,706
Occupancy and equipment 160,921 137,584
Office supplies 31,861 39,043
Professional fees 64,600 25,255
Advertising and public relations 20,243 27,467
Taxes, other than income 27,537 25,400
Loan collection and repossessions 19,858 28,029
Credit card processing 13,769 21,054
Director expenses 12,300 12,869
Other 86,698 72,169
---------- ----------
Total noninterest expense 984,716 768,576
---------- ----------
Income before income taxes 174,422 275,795
Income tax expense 36,386 55,797
---------- ----------
Net income $ 138,036 $ 219,998
========== ==========
Basic and diluted earnings per share $ .73 $ 1.16
========== ==========
Weighted average shares outstanding 190,000 190,000
See accompanying notes to the condensed consolidated financial statements.
4.
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,
2004 2003
----------- ------------
Balance at beginning of period $10,860,150 $ 10,219,086
Comprehensive income:
Net income 138,036 219,998
Change in net unrealized gain (loss) on
securities available for sale, net of
reclassification and tax effects 179,255 (68,186)
----------- ------------
Total comprehensive income 317,291 151,812
----------- ------------
Balance at end of period $11,177,441 $ 10,370,898
=========== ============
See accompanying notes to the condensed consolidated financial statements.
5.
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
---------
2004 2003
------------ -----------
Cash flows from operating activities
Net income $ 138,036 $ 219,998
Adjustments to reconcile net income to net cash from
operating activities
Net amortization of securities 14,708 54,830
Provision for loan losses 90,300 105,000
Depreciation and amortization 59,918 55,724
Net realized gains on sales of securities (13,134) --
Federal Home Loan Bank stock dividends (4,700) (5,100)
Change in deferred loan costs 24,522 10,331
Change in accrued interest receivable (47,682) (83,302)
Change in accrued interest payable 26,482 6,369
Change in other assets and other liabilities 85,292 (148,413)
------------ -----------
Net cash from operating activities 373,742 215,437
Cash flows from investing activities Securities available for sale:
Sales 2,393,105 --
Purchases (809,933) (6,350,230)
Maturities, prepayments and calls 772,398 4,364,494
Loan originations and payments, net (1,104,283) (1,422,838)
Maturity of certificate of deposit -- 101,016
Purchases of premises and equipment (425,690) (128,999)
------------ -----------
Net cash from investing activities 825,597 (3,436,557)
Cash flows from financing activities
Net change in deposits 5,319,732 1,764,187
Proceeds from issuance of subordinated debentures 3,000,000 --
Net change in federal funds purchased (1,248,000) --
Proceeds from advance of long-term borrowings 600,000 --
Principle repayments of long-term borrowings (167,189) (76,513)
------------ -----------
Net cash from financing activities 7,504,543 1,687,674
------------ -----------
Net change in cash and cash equivalents 8,703,882 (1,533,446)
Cash and cash equivalents at beginning of period 3,795,290 7,432,606
------------ -----------
Cash and cash equivalents at end of period $ 12,499,172 $ 5,899,160
============ ===========
Supplemental cash flow information:
Interest paid $ 494,543 $ 552,500
Income taxes paid -- 315,000
Supplemental noncash disclosures:
Transfers from loans to other real estate owned and repossessions $ 62,925 $ 18,700
See accompanying notes to the condensed consolidated financial statements.
6.
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,
2004, 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 accounting principles generally
accepted in the United States of America 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, 2003, included in its 2003 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 2003 Annual Report.
Ohio State Bancshares, Inc. ("Corporation") has consistently followed these
policies in preparing this Form 10-QSB. Income tax expense is based on the
effective tax rate expected to be applicable for the entire year.
NOTE 2 - SECURITIES
Securities at March 31, 2004 and December 31, 2003 were as follows:
March 31, 2004
--------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
AVAILABLE FOR SALE
U.S. Treasury $ 100,730 $ 10,286 $ -- $ 111,016
U.S. government and federal agencies 8,684,671 127,799 (1,425) 8,811,045
Mortgage-backed 6,589,465 71,646 (1,782) 6,659,329
State and municipal 7,088,826 377,822 (7,300) 7,459,348
Corporate 1,357,914 17,105 -- 1,375,019
----------- -------- -------- -----------
Total debt securities 23,821,606 604,658 (10,507) 24,415,757
Other securities 518,740 -- -- 518,740
----------- -------- -------- -----------
Total $24,340,346 $604,658 $(10,507) $24,934,497
=========== ======== ======== ===========
(Continued)
7.
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION; ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - SECURITIES (Continued)
December 31, 2003
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
AVAILABLE FOR SALE
U.S. Treasury $ 100,751 $ 6,890 $ -- $ 107,641
U.S. government and federal agencies 8,685,708 85,679 (78,782) 8,692,605
Mortgage-backed 7,195,484 57,066 (9,443) 7,243,107
State and municipal 8,835,518 287,454 (32,639) 9,090,333
Corporate 1,365,857 6,328 -- 1,372,185
----------- -------- --------- -----------
Total debt securities 26,183,318 443,417 (120,864) 26,505,871
Other securities 514,040 -- -- 514,040
----------- -------- --------- -----------
Total $26,697,358 $443,417 $(120,864) $27,019,911
=========== ======== ========= ===========
Sales of available for sale securities were as follows:
Three Months Ended
March 31,
---------
2004 2003
---- ----
Proceeds $ 2,393,105 $ --
Gross gains 29,721 --
Gross losses (16,587) --
NOTE 3 - LOANS
Loans at March 31, 2004 and December 31, 2003 were as follows:
March 31, December 31,
2004 2003
---- ----
Commercial $ 9,926,607 $ 10,000,448
Installment 22,335,208 23,147,507
Real estate 43,680,083 41,754,926
Credit card 712,670 777,901
Other 29,579 32,586
------------ ------------
76,684,147 75,713,368
Net deferred loan costs 464,047 488,569
Allowance for loan losses (863,895) (844,174)
------------ ------------
$ 76,284,299 $ 75,357,763
============ ============
(Continued)
8.
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,
2004 and 2003 was as follows:
2004 2003
--------- ---------
Balance - January 1 $ 844,174 $ 793,318
Loans charged-off (102,574) (87,958)
Recoveries 31,995 22,078
Provision for loan losses 90,300 105,000
--------- ---------
Balance - March 31 $ 863,895 $ 832,438
========= =========
Nonperforming loans were as follows:
March 31, December 31,
2004 2003
---- ----
Loans past due over 90 days still on accrual $230,016 $248,580
Loans on nonaccrual 384,244 483,314
Nonperforming loans include both smaller balance homogeneous loans that are
collectively evaluated for impairment and individually classified impaired
loans. At December 31, 2003 and March 31, 2004, there were no individually
classified impaired loans.
NOTE 4 - SUBORDINATED DEBENTURES
In February 2004, Ohio State Bancshares, Inc. ("Corporation") formed a special
purpose entity, Ohio State Bancshares Capital Trust I ("Trust"). The sole
purpose of the Trust was to issue $3,000,000 of variable-rate trust preferred
securities. The Trust then delivered the proceeds to the Corporation in exchange
for subordinated debentures with the same provisions and payment terms as the
issued trust preferred securities. In accordance with accounting principles
generally accepted in the U.S., the Trust is not consolidated in the financial
statements of the Corporation. However, the trust will have no operating
activities or cash flows outside of the trust preferred securities.
The subordinated debentures have the following terms:
Maturity: April 23, 2034
Coupon Payment: Quarterly at 285 basis points over the 3-month LIBOR rate
Call Options: Callable quarterly by the Corporation starting April 2009
at par. May be called prior to 2009, at par, if a material
change in tax treatment or the Federal Reserve capital
requirements occurs.
Put Options: None
9.
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. ("Corporation") and its wholly owned subsidiary, The
Marion Bank ("Bank"), at March 31, 2004, compared to December 31, 2003, and the
consolidated results of operations for the three months ended March 31, 2004,
compared to the same period in 2003. 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 in 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 a 7.34% increase in total assets since December
31, 2003, as total assets increased from $110,862,000 at December 31, 2003 to
$119,000,000 at March 31, 2004. Most of this growth is attributable to an
increase in funding. Total deposits increased $5,320,000, borrowings increased
$432,000 and the issuance of subordinated debentures added $3,000,000 to the
size of the Corporation. Most of this funding growth, along with a decrease in
debt securities, remained in cash and cash equivalents at March 31, 2004.
Cash and cash equivalents increased $8,704,000, or 229%, from December 31, 2003
through March 31, 2004. Cash levels at March 31, 2004 were higher than desirable
for long-term profitability goals, but was done due to a short-term drop in
interest rates and expected loan growth in 2004. As an example, the 5-year
treasury yield averaged 3.17% from October of 2003 through February 2004, but
fell to an average of 2.77% in March of 2004. Management felt the drop in
interest rates was temporary, resulting in debt securities being temporarily
overpriced. For this reason, along with expectations of strong loan growth in
the short-term, management did not invest excess funding. As of April 21, 2004,
the 5-year treasury yield has increased to 3.52%. Management expects cash levels
to be reduced over the next few months.
Securities available for sale decreased $2,086,000, or 7.72%, from December 31,
2003 through March 31, 2004. As previously mentioned, management felt that
general interest rates were temporarily low. This created an opportunity to sell
debt securities with long lives that would suffer price depreciation as interest
rates rise. Management sold approximately $1,500,000 of state and municipal
bonds with average lives greater than 10 years.
10.
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION;
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Net loans increased $927,000, or 1.23%, during the period from December 31, 2003
to March 31, 2004. The only notable fluctuations came from the real estate
portfolio, which increased 4.61%, and the installment portfolio, which decreased
3.51%. The decrease in the installment portfolio is typical for the first
quarter. In 2003, installment loans decreased 1.78% through the same period. As
the year progresses, management expects loan demand to increase, especially in
the real estate portfolio, as a result of staffing changes made in 2003.
Total deposits increased $5,320,000, or 6.11%, from December 31, 2003 to March
31, 2004. The increase in deposits was primarily due to increases in public fund
deposits of $2,138,000, out-of-market time deposits of $700,000, and a general
increase in balances of the core deposit base. Public fund deposits represent
deposits from local government and public entities such as libraries and
schools. Out-of-market deposits, also known as brokered deposits, are used
mainly by the Corporation to meet interest-bearing liability maturity needs not
met through local demand. At March 31, 2004, out-of-market time deposits totaled
$3,751,000 and are not considered a material source of funding.
Subordinated debentures of $3,000,000 were issued in February of 2004. This was
done to provide operating capital for future expansion without ownership
dilution of existing common shareholders. For regulatory capital purposes, the
subordinated debt is counted as tier 1 capital at the Corporation. For further
details about this transaction see Note 4 of the March 31, 2004 consolidated
financial statements.
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, 2004 was $138,000, or $82,000
less than the same period in 2003. The decrease in earnings was primarily due to
increases in noninterest expenses that exceeded the growth in revenue. The next
few paragraphs will discuss the major fluctuations in income.
Net Interest Income
Net interest income is the largest component of the 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 $88,000, or 9.00%, for the three months ended March 31, 2004
compared to the same period in 2003. The increase in net interest income is
attributable to increased average earning asset balances. The following table
shows the average balances and net yields on interest-earning assets for the
three months ended March 31, 2004 and 2003.
11.
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION;
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
1st Quarter 1st Quarter
2004 2003
---- ----
(A) Average interest-earning assets $108,009,000 $99,772,000
(B) Annualized net interest income 4,317,000 3,993,000
Net Yield on interest-earning assets (B/A) 4.00% 4.00%
Noninterest Income
Noninterest income was up $11,000, or 6.95%, for the three months ended March
31, 2004 versus the same period in 2003. The only major fluctuation in this
category was from net gains on sales of securities. The reasons for these
security sales were described earlier in this discussion.
Noninterest Expense
Noninterest expense was up $216,000, or 28.12%, for the three months ended March
31, 2004 versus the same period in 2003. The difference was mainly due to
increases in salaries and employee benefits, occupancy and equipment, and
professional fees. Salaries and employee benefits increased by $167,000, or
44.04%. $92,000 of this increase was due to higher supplemental retirement
accruals caused by lower discount rates, a change in the service period of a
covered executive, and a change in projected benefits. The remaining change in
salaries and employee benefits was due to the addition of two middle management
positions and normal pay increases. Occupancy and equipment was up $23,000, or
16.96%, and was due to the addition of a main frame computer system added late
in 2003, increased utility costs and normal growth. Professional fees increased
$40,000, or 155.79%, and were the result of fees for an amendment to the
Corporation's Code of Regulations and fees relating to growth strategies
currently being considered by the Board of Directors.
Income Tax Expense
Income tax expense decreased $20,000 from the three months ended March 31, 2004
versus the same period in 2003. This was entirely the result of lower net income
before income tax. The effective tax rate was approximately 20% for both
periods.
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:
12.
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION;
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
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, 2004 and December 31, 2003, the actual capital ratios for the Bank
were:
March 31, December 31,
2004 2003
---- ----
Total capital to risk-weighted assets 13.6% 11.8%
Tier 1 capital to risk-weighted assets 12.6 10.8
Tier 1 capital to average assets 8.9 7.6
At March 31, 2004 and December 31, 2003, the Bank was categorized as well
capitalized. On March 30, 2004, the Corporation added $1,600,000 in capital to
the Bank as additional paid-in capital from some of the proceeds of the
subordinated debt.
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) and cash flows expected from the securities
portfolio within 90 days at March 31, 2004 and December 31, 2003 are listed
below. 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.
March 31, December 31,
2004 2003
---- ----
Cash and cash equivalent assets $ 12,499,000 $ 3,795,000
Security portfolio cashflows expected
to be received within 90 days 1,102,000 1,026,000
------------- -------------
$ 13,601,000 $ 4,821,000
============= =============
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.
13.
OHIO STATE BANCSHARES, INC.
PART I - FINANCIAL INFORMATION;
ITEM 3. CONTROLS AND PROCEDURES
Any control system, no matter how well designed and operated, can provide only
reasonable (not absolute) assurance that its objectives will be met.
Furthermore, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, have been detected.
DISCLOSURE CONTROLS AND PROCEDURES
The Corporation's management, with the participation of the Corporation's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of its disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange
Act)) as of the end of the period covered by this report. Based on such
evaluation, the Corporation's Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the Corporation's
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by the Corporation in the reports that it files or submits under the
Exchange Act.
INTERNAL CONTROL OVER FINANCIAL REPORTING
There have not been any changes in the Corporation's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the fiscal quarter to which this report relates
that have materially affected, or are reasonably likely to materially affect,
the Corporation's internal control over financial reporting.
14.
OHIO STATE BANCSHARES, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 2004
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
There are no matters required to be reported under this Item.
Item 2 - Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities:
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 31.1 - Section 302 Certification of the Chief Executive Officer
(b) Exhibit 31.2 - Section 302 Certification of the Chief Financial Officer
(c) Exhibit 32.1 - Section 906 Certification of the Chief Executive Officer
(d) Exhibit 32.2 - Section 906 Certification of the Chief Financial Officer
(e) No current reports on Form 8-K were filed by the small business issuer
during the quarter ended March 31, 2004.
15.
OHIO STATE BANCSHARES, INC.
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 10, 2004 /s/ Gary E. Pendleton
------------------------------
(Signature)
Gary E. Pendleton
President and Chief Executive
Officer
Date: May 10, 2004 /s/ Todd M. Wanner
------------------------------
(Signature)
Todd M. Wanner
Vice President and Chief
Financial Officer
16.
OHIO STATE BANCSHARES, INC.
Index to Exhibits
EXHIBIT NUMBER DESCRIPTION DATE FILED
- -------------- ----------- ----------
3.1 Amended Articles of Incorporation of
the Corporation 03/29/2000
3.2 Code of Regulations of the Corporation 03/29/2000
10.1 Lease Agreement Between Henney and
Cooper, Inc. and The Marion Bank for
Branch on Richland Road in Marion, Ohio 03/24/1997
10.2 Executive Indexed Salary Continuation
Plan Agreement for President 03/24/1997
10.3 Executive Indexed Salary Continuation
Plan Agreement for Executive Officers 03/27/1998
10.4 Executive Change of Control Agreement 03/30/2001
31.1 Section 302 Certification of the
Chief Executive Officer Attached
31.2 Section 302 Certification of the
Chief Financial Officer Attached
32.1 Section 906 Certification of the
Chief Executive Officer Attached
32.2 Section 906 Certification of the
Chief Financial Officer Attached
99.1 Safe Harbor under the Private Securities
Litigation Reform Act of 1995 03/26/1999
17.