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 March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from ____________ to ____________
Commission File Number 0-29649
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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)
(614) 635-0764
----------------------------
(Registrant's telephone
number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or 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
--- ---
As of May 7, 1998, the latest practicable date, 634,168 shares of the
registrant's common stock, without par value, were issued and outstanding.
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OHIO STATE FINANCIAL SERVICES, INC.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Financial Condition (Unaudited) as of
March 31, 1998 and December 31, 1997 3
Consolidated Statement of Operations (Unaudited)
for the Three Months ended March 31, 1998 and 1997 4
Consolidated Statement of Cash Flows (Unaudited)
for the Three Months ended March 31, 1998 and 1997 5
Notes to Unaudited Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Default Upon Senior Securities 11
Item 4. Submissions of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
3
OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
March 31, December 31,
1998 1997
------------ ------------
ASSETS Cash and cash equivalents:
Cash and amounts due from banks $ 516,411 $ 523,987
Interest-bearing deposits with other institutions 1,078,953 2,653,845
------------ ------------
Total cash and cash equivalents 1,595,364 3,177,832
Interest bearing time deposits 7,500,000 4,600,000
Investment securities:
Available for sale (at market value) 369,200 363,000
Held to maturity (market value of $2,208,340 at 3/31/98;
and $4,224,064 at 12/31/97) 2,131,080 4,146,588
Loans receivable, net 24,943,228 24,377,054
Office properties and equipment, net 478,870 482,950
Accrued interest receivable, loans and investments (net of reserve
for uncollected interest of $9,616 at 3/31/98; and $7,709 at 12/31/97) 168,225 173,639
Other assets 74,156 22,965
------------ ------------
TOTAL ASSETS $ 37,260,123 $ 37,344,028
============ ============
LIABILITIES
Deposit accounts $ 26,310,558 $ 26,333,439
Advances by borrowers for taxes and insurance 83,636 152,136
Accrued interest payable and other liabilities 150,335 221,978
Deferred federal income taxes 75,005 75,005
------------ ------------
TOTAL LIABILITIES 26,619,534 26,782,558
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, 3,000,000 shares authorized, no par
or stated value; 634,168 shares issued and outstanding
at 3/31/98 and 12/31/97 - -
Additional paid in capital 5,930,591 5,922,360
Unearned Employee Stock Ownership Plan shares (ESOP) (481,203) (493,867)
Retained earnings - substantially restricted 5,191,201 5,132,977
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,640,589 10,561,470
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,260,123 $ 37,344,028
============ ============
See accompanying notes to the unaudited consolidated financial statements
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OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the Three Months Ended March 31,
1998 1997
----------------- -----------------
INTEREST AND DIVIDEND INCOME
Loans $ 486,792 $ 489,363
Mortgage-backed securities 19,553 22,523
Interest-bearing deposits and investment securities 149,413 96,531
Dividends on Federal Home Loan Bank stock 6,221 5,598
----------------- -----------------
Total interest and dividend income 661,979 614,015
----------------- -----------------
INTEREST EXPENSE
Savings deposits 257,484 286,720
Federal Home Loan Bank advances - 505
----------------- -----------------
Total interest expense 257,484 287,225
----------------- -----------------
NET INTEREST INCOME 404,495 326,790
PROVISION FOR LOAN LOSSES - -
----------------- -----------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 404,495 326,790
----------------- -----------------
NONINTEREST INCOME
Service charges 1,698 2,104
Other income and fees 4,063 7,052
----------------- -----------------
Total noninterest income 5,761 9,156
----------------- -----------------
NONINTEREST EXPENSE
Salaries and benefits 118,379 90,818
Occupancy expense 15,805 14,647
Furniture and equipment expense 4,807 8,964
Federal insurance premium 8,015 4,621
Legal and accounting fees 20,926 5,287
Advertising and public relations 10,258 7,719
Franchise, payroll and other taxes 40,168 23,811
Stationery, printing and office expenses 12,487 10,125
Service bureau expense 13,945 12,464
Other operating expenses 29,897 22,285
----------------- -----------------
Total noninterest expense 274,687 200,741
----------------- -----------------
INCOME BEFORE INCOME TAXES 135,569 135,205
PROVISION FOR INCOME TAXES 48,169 45,703
----------------- -----------------
NET INCOME $ 87,400 $ 89,502
================= =================
PER SHARE DATA
Net earnings per share $ .15 $ -
======= ======
AVERAGE SHARES OUTSTANDING 585,415 -
======= ======
See accompanying notes to the unaudited consolidated financial statements.
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OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31,
1998 1997
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 87,400 $ 89,502
Adjustments:
Depreciation 9,203 9,627
Investment accretion and amortization, net 190 (870)
ESOP amortization 20,894
Federal Home Loan Bank stock dividends (6,200) (5,500)
Deferred federal income taxes - 7,497
Accrued interest receivable and other assets (45,777) 35,064
Accrued interest payable and other liabilities (71,643) (21,803)
----------- -----------
Net cash used for operating activities (5,933) 113,517
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Term deposits, net (2,900,000) (400,000)
Proceeds from maturities of held to maturity securities 2,000,000 -
Proceeds from redemptions of mortgage-backed certificates 15,318 45,621
Net increase in loans (566,174) (142,134)
Acquisition of office properties and equipment (5,123) -
----------- -----------
Net cash used for investing activities (1,455,979) (496,513)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Payment of dividends (29,176) -
Change in deposits, net (22,881) 633,580
Change in mortgage escrow funds, net (68,499) (73,035)
----------- -----------
Net cash used for financing activities (120,556) 560,545
----------- -----------
Change in cash and cash equivalents (1,582,468) 177,549
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,177,832 2,435,662
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,595,364 $ 2,613,211
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period
for:
Interest on deposits and borrowings $ 257,275 $ 286,671
Income taxes 77,378 -
Loans transferred to real estate acquired in settlement - 17,620
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, 1997, and related notes which are
included on Form 10-KSB (file no. 0-29649).
NOTE 2 - CONVERSION TO A STOCK FORM OF OWNERSHIP AND FORMATION OF HOLDING
COMPANY
On March 24, 1997, the Board of Directors of the Association approved a plan of
conversion (the "Plan") providing for the conversion of the Association from a
mutual savings and loan association to a capital stock savings and loan
association incorporated under Ohio law (the "Conversion") and the simultaneous
issuance of all of its outstanding stock to a newly-formed holding company, Ohio
State Financial Services, Inc. After approval by the regulatory authorities and
the Association's members, the Conversion was completed on September 26, 1997.
As a result of this transaction, the Company was formed and the Association
became a wholly-owned subsidiary of the Company.
In connection with the conversion on September 26, 1997, the Company completed
the sale of 634,168 shares of common stock at $10.00 per share. From the
proceeds, $5,916,081 was allocated to additional paid in capital , which is net
of conversion costs of $425,599. The common shares of the Company have no par or
stated value per share. Included in the 634,168 shares were 50,653 acquired by
the ESOP.
NOTE 3 - RECENT ACCOUNTING STANDARDS
In June, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general- purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. It does not
require a specific format for the financial statement but requires an enterprise
display an amount representing total comprehensive income for the period in that
financial statement. SFAS No. 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
Statement of Financial Position. Under existing accounting standards, other
comprehensive income shall be classified separately into foreign currency items,
minimum pension liability adjustments, and unrealized gains and losses on
certain
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investments in debt and equity securities. The provisions of SFAS No. 130 became
effective for fiscal years beginning after December 15, 1997. The Company's
equity securities classified as available for sale consist of Federal Home Loan
Bank stock and stock in the Company's data processing servicer and reflect no
unrealized gain or loss due to their restricted nature. The adoption of SFAS No.
130 did not have a material impact on the disclosure requirements of the Company
due to the absence of any items of comprehensive income.
In February, 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
establishes standards for computing and presenting earnings per share ("EPS") by
entities with publicly-held common stock or potential common stock. SFAS No. 128
simplifies the standards for computing earnings per share previously found in
Accounting Principles Board ("APB") Opinion No. 15, "Earnings Per Share." Basic
EPS excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15. SFAS No. 128 supersedes APB Opinion
No. 15 and is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Earlier or retroactive application
is not permitted. The Company adopted SFAS No. 128 on December 31, 1997. The
Company did not have any common stock equivalents for any of the periods
presented, consequently, basic and diluted earnings per share were the same.
NOTE 4 - EARNINGS PER SHARE
The provisions of SFAS No. 128, "Earnings Per Share," are not applicable to the
three month period ended March 31, 1997, as the conversion from mutual to stock
form was not completed until September 26, 1997.
The company accounts for the 50,653 shares acquired by the ESOP in accordance
with Statement of Position 93-6; shares controlled by the ESOP are not
considered in the weighted average shares outstanding until the shares are
committed for allocation to employee accounts. At March 31, 1998, approximately
2,533 shares had been committed for allocation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On March 24, 1997, the Board of Directors of the Association approved the Plan
and the Conversion. After approval by the regulatory authorities and the
Association's members, the Conversion was completed on September 26, 1997, and
as a result, the holding company was formed (the "Company") and the Association
became a wholly-owned subsidiary of the Company. In connection with the
Conversion on September 26, 1997, the Company completed the sale of 634,168
shares (the "Offering") and received net proceeds of approximately $5,916,081.
The Company transferred approximately $2,958,041 of the net proceeds to the
Association for the purchase of all of the capital stock of the Association. In
addition, $506,530 was loaned to the Association's Employee Stock Ownership Plan
("ESOP") for the purchase of shares in the Offering.
Comparison of Financial Condition at March 31, 1998 and December 31, 1997
- -------------------------------------------------------------------------
At March 31, 1998, the Company's assets decreased by approximately $84,000 to
$37,260,000 from $37,344,00 million at December 31, 1997. Total cash and cash
equivalents decreased by $1,583,000 to $1,595,000 at March 31, 1998, from
$3,178,000 at December 31, 1997. This decrease represented the outflow of cash
associated with the purchase of term deposits and increased loan production,
offset by maturities of held to maturity securities. Interest bearing time
deposits increased by $2,900,000 to $7,500,000 at March 31, 1998, from
$4,600,000 at December 31, 1997. The increase is the direct result of $2,700,000
purchased in Federal Home Loan Bank term deposits. Held to maturity securities
decreased by approximately $2,016,000 to $2,131,000 at March 31, 1998, from
$4,147,000 at December 31, 1997. The decrease reflected the maturity of
$2,000,000 in United States Government and Agency obligations. Net loans
receivable increased $566,000 to $24,943,000 at March 31, 1998, from $24,377,000
at December 31, 1997. The increase was primarily attributable to the increase in
mortgage loan production of $622,000.
Deposits decreased $23,000 from $26,334,000 at December 31, 1997, to $26,311,000
at March 31, 1998. Stockholders' Equity increased $79,000 to $10,641,000 at
March 31, 1998, compared to $10,562,000 at December 31, 1997. The increase was
attributable to net income of $87,400 and recognition of shares in the Employee
Stock Ownership Plan amounting to $21,000. In February, 1998, the Company paid a
dividend of $.05 per share, while maintaining capital ratios well in excess of
regulatory guidelines. Future dividend policies will be determined by the Board
of Directors in light of earnings and financial condition of the Company,
including applicable governmental regulations and policies.
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
- -----------------------------------------------------------------------------
1997
- ----
NET INCOME. Net income decreased $2,000, or 2.4%, from net income of $90,000 for
the three months ended March 31, 1997, as compared to net income of $88,000 for
the same period in 1998. The decrease in net income was primarily the result of
an increase in net interest income of $78,000 or, 23.8% offset by an increase in
non-interest expenses of $74,000, or 36.8% and a decrease in noninterest income
of $3,000.
NET INTEREST INCOME. Net interest income increased $78,000, or 23.8%, from
$327,000 for the three months ended March 31, 1997, to $405,000 for the three
months ended March 31, 1998. The company's net yield on interest-earning assets
increased from 3.94% for the three months ended March 31, 1997, to 4.49% for the
same period in 1998. Interest and dividend income increased $48,000, or 7.8%,
from $614,000 for the three months ended March 31, 1997, to $662,000 for the
three months ended March 31, 1998, while interest expense decreased $30,000, or
10.4%, from $287,000 for the 1997 period to $257,000 for the 1998 period.
INTEREST AND DIVIDEND INCOME. Total interest and dividend income increased
$48,000 for the three months ended March 31, 1998, compared to the same period
in 1997. Interest income on loans decreased $2,000, or .5%, from $489,000 for
the three months ended March 31, 1997, to $487,000 for the three months ended
March 31, 1998. The decrease in interest income on loans was primarily the
result of a decrease in the average balance of loans from $25,100,000 for the
three months ended March 31, 1997, to $24,600,000 for the three months ended
March 31, 1998,
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Interest income on investments, including interest-bearing deposits, increased
$51,000 to $175,000, for the three months ended March 31, 1998, compared to
$124,000 for the 1997 period. The increase in interest income on investments was
directly attributable to the investment of funds received in the Offering as the
average balance of investments increased $3.4 million for the three months ended
March 31, 1997, compared to the 1998 period.
INTEREST EXPENSE. Total interest expense decreased by $30,000 from the 1997
period to the 1998 period. The Association's cost of funds decreased from 3.94%
for the three months ended March 31, 1997, to 3.90% for the 1998 period, while
average outstanding deposits declined $2,755,000 from $29,095,000 for the period
ended March 31, 1997 to $26,340,000 for the same period ended March 31, 1998.
The decrease in the average balance of deposits was the result of customers
electing not to renew maturing certificates of deposit at prevailing interest
rates, and the withdrawal of deposits for the purchase of the Company's common
shares in connection with the conversion.
PROVISION FOR LOAN LOSSES. There were no provisions for losses on loans for the
three months ended March 31, 1998 and 1997. Management judges the adequacy of
the allowance for loan losses and any additions to it based on a level which is
deemed adequate to absorb credit losses inherent in the loan portfolio. The
amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, and current
economic conditions. Based on management's evaluation, the amount of the
allowance was deemed adequate with no additional provision necessary. Although
management believes that its loan loss allowance at March 31, 1998, 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 totaled $6,000 for the three months ended
March 31, 1998, a decrease of $3,000, from $9,000 for the 1997 period.
NONINTEREST EXPENSE. Noninterest expenses increased $74,000, or 36.8%, from
$201,000 for the three months ended March 31, 1997, to $275,000 for the 1998
period. The increase in noninterest expenses was partly attributable to an
increase in salaries and benefits of $28,000 from the 1997 to the 1998 period
resulting from costs associated with the employee stock ownership plan of
$21,000 and merit base pay increases. Franchise, payroll and other taxes
increased by $16,000 from the three months ended March 31, 1997 to the 1998
period. This increase is the direct result of an increase in franchise taxes
assessed on net worth which increased as a result of the Offering. Legal and
accounting fees increased $16,000, or 296%, from $5,000 for March 31, 1997 to
$21,000 for March 31, 1998. The increase in legal and accounting fees is due to
expenses related to public filings.
INCOME TAXES. The provision for income taxes totaled $48,000 for the three
months ended March 31, 1998, an increase of $2,000, or 5.4%, from the $46,000 in
the comparable 1997 period due to an increase in the effective rate on taxes
from 33.8% to 35.5% for the periods.
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 ("FHLB") of
Cincinnati advances. At March 31, 1998, the Association's total borrowing
capacity from the FHLB totaled approximately $7.1 million, of which there were
no advances outstanding.
As of March 31, 1998, the Association has $37,000 in outstanding mortgage and
construction loan commitments.
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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 OTS relations. At March 31, 1998, the
Association exceeded the minimum capital ratio requirements imposed by the OTS.
At March 31, 1998, the Association's capital ratios were as follows:
Association
Requirement Actual
----------- ------
Tangible capital 1.50% 23.40%
Core capital 3.00% 23.40%
Risk-based capital 8.00% 48.52%
Risk Elements
- -------------
The table below presents information concerning nonperforming assets which
include nonaccrual loans, renegotiated loans, loans 90 days or more past due,
other real estate loans, and repossessed assets. 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.
March 31, December 31,
1998 1997
-------- ---------
(dollars in thousands)
Loans on nonaccrual basis $ 94 $ 98
Loans past due 90 days still accruing 0 0
Renegotiated loans 0 0
-------- ---------
Total nonperforming loans 94 98
Other real estate 0 0
Repossessed assets 0 0
-------- ---------
Total nonperforming assets $ 94 $ 98
======== =========
Nonperforming loans as a percent of total loans 0.38% 0.40%
===== =====
Nonperforming assets as a percent of total assets 0.25% 0.26%
===== =====
Allowance for loan losses to nonperforming loans 150.00% 143.86%
======= =======
Nonperforming loans are primarily made up of one- to four-family residential
mortgages. The collateral requirements on loans reduce the risk of potential
losses to an acceptable level in management's opinion.
Management believes the level of the allowance for loan losses at March 31,
1998, is sufficient; however, there can be no assurance that the current
allowance for loan losses will be adequate to absorb all future loan losses. The
relationship between the allowance for loan losses and outstanding loans is a
function of the credit quality and known risk attributed to the loan portfolio.
The on-going loan review program and the credit approval process is used to
determine the adequacy of the allowance for loan losses.
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PART II - OTHER INFORMATION
Item 1 - Legal proceedings
NONE
Item 2 - Changes in securities
NONE
Item 3 - Defaults upon senior securities
NONE
Item 4 - Submission of matters to a vote of security holders
NONE
Item 5 - Other information
NONE
Item 6 - Exhibits and reports on Form 8-K
Financial Data Schedule
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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, thereunto duly authorized.
OHIO STATE FINANCIAL SERVICES, INC.
Date: May 11, 1998 By: /s/ Jon W. Letzkus
--------------------------------------
Jon W. Letzkus
President and Chief Executive Officer
(Principal Executive Officer)
Signature Title Date
--------- ----- ----
/s/ Jon W. Letzkus
- ----------------------------
Jon W. Letzkus President and CEO May 11, 1998
/s/ Michael P. Eddy Treasurer and
- ---------------------------- Chief Financial Officer May 11, 1998
Michael P. Eddy
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