1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from to
Commission File Number 0-23109
OHIO STATE FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
OHIO 31-1529204
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
435 Main Street, Bridgeport, OH 43912
(Address of principal executive offices)
(740) 635-0764
(Registrant's telephone number, including area code)
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
As of August 5, 2000, the latest practicable date, 516,534 shares of the
registrant's common stock, without par value, were outstanding.
Transitional Small Business Disclosure Format: Yes X No
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2
OHIO STATE FINANCIAL SERVICES, INC.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (Unaudited)
as of June 30, 2000, and December 31, 1999 3
Consolidated Statements of Operations (Unaudited)
for the Six Months ended June 30, 2000 and 1999 4
Consolidated Statements of Operations (Unaudited)
for the Three Months ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows (Unaudited)
for the Six Months ended June 30, 2000 and 1999 6
Notes to Unaudited Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Default Upon Senior Securities 14
Item 4. Submissions of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
3
OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
June 30, December 31,
2000 1999
----------- -----------
ASSETS
Cash and cash equivalents:
Cash and amounts due from banks $ 341,289 $ 918,404
Interest-bearing deposits with other institutions 4,167,439 4,254,713
----------- -----------
Total cash and cash equivalents 4,508,728 5,173,117
Interest bearing time deposits 400,000 400,000
Investment securities:
Available-for-sale (cost approximates market value) 429,700 415,400
Held-to-maturity (market value of $3,749,476 at
6/30/00; and $3,509,472 at 12/31/99) 3,956,828 3,693,836
Loans receivable, net 24,623,030 24,140,672
Office properties and equipment, net 462,894 452,967
Accrued interest receivable, loans and investments
(net of reserve for uncollected interest of $-0-
at 6/30/00; and $-0- at 12/31/99) 183,540 149,114
Other assets 56,796 109,338
----------- -----------
TOTAL ASSETS $34,621,516 $34,534,444
=========== ===========
LIABILITIES
Deposit accounts $25,751,391 $25,540,796
Advances by borrowers for taxes and insurance 180,224 188,561
Accrued interest payable and other liabilities 383,965 129,833
Deferred federal income taxes 71,599 71,599
----------- -----------
TOTAL LIABILITIES 26,387,179 25,930,789
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, 3,000,000 shares authorized,
no par or stated value; 634,168 shares issued;
516,534 outstanding at 6/30/00, 572,337
outstanding at 12/31/99 - -
Additional paid in capital 5,939,995 5,946,184
Treasury stock (117,634 shares at cost as of
6/30/00 and 61,831 shares at cost as of 12/31/99) (1,321,470) (821,072)
Unearned recognition and retention plan shares (RRP) (280,518) (306,449)
Unearned employee stock ownership plan shares (ESOP) (388,222) (429,255)
Retained earnings - substantially restricted 4,284,552 4,214,247
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,234,337 8,603,655
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $34,621,516 $34,534,444
=========== ===========
See accompanying notes to the unaudited consolidated financial statements.
4
OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Six Months Ended June 30,
2000 1999
----------- -----------
INTEREST AND DIVIDEND INCOME
Loans $ 899,728 $ 921,246
Mortgage-backed securities 22,342 28,439
Interest-bearing deposits and
investment securities 264,476 229,289
Dividends on Federal Home Loan Bank stock 14,437 13,077
----------- -----------
Total interest and dividend income 1,200,983 1,192,051
----------- -----------
INTEREST EXPENSE
Savings deposits 515,990 497,590
Federal Home Loan Bank advances and notes payable - 8,539
----------- -----------
Total interest expense 515,990 506,129
----------- -----------
NET INTEREST INCOME 684,993 685,922
PROVISION FOR LOAN LOSSES - -
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 684,993 685,922
----------- -----------
NONINTEREST INCOME
Service charges 5,457 4,048
Other income and fees 14,303 8,148
----------- -----------
Total noninterest income 19,760 12,196
----------- -----------
NONINTEREST EXPENSE
Salaries and benefits 261,806 265,810
Occupancy expense 30,616 27,471
Furniture and equipment expense 13,195 16,176
Federal insurance premium 8,183 13,519
Legal and accounting fees 36,982 68,244
Advertising and public relations 8,687 16,826
Franchise, payroll and other taxes 54,380 79,638
Stationery, printing and office expenses 13,082 27,961
Service bureau expense 29,331 28,963
Other operating expenses 60,734 49,408
----------- -----------
Total noninterest expense 516,996 594,016
----------- -----------
INCOME BEFORE INCOME TAXES 187,757 104,102
PROVISION FOR INCOME TAXES 66,415 38,400
----------- -----------
NET INCOME $ 121,342 $ 65,702
=========== ===========
PER SHARE DATA
Basic $ .25 $ .13
===== =====
Diluted $ .24 $ .12
===== =====
AVERAGE SHARES OUTSTANDING-Basic 485,269 508,605
======= =======
AVERAGE SHARES OUTSTANDING-Diluted 500,233 530,186
======= =======
See accompanying notes to the unaudited consolidated financial statements.
5
OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended June 30,
2000 1999
----------- -----------
INTEREST AND DIVIDEND INCOME
Loans $ 453,101 $ 455,498
Mortgage-backed securities 10,960 13,464
Interest-bearing deposits and
investment securities 136,616 124,299
Dividends on Federal Home Loan Bank stock 7,469 6,630
----------- -----------
Total interest and dividend income 608,146 599,891
INTEREST EXPENSE
Savings deposits 262,417 250,072
----------- -----------
NET INTEREST INCOME 345,729 349,819
PROVISION FOR LOAN LOSSES - -
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 345,729 349,819
----------- -----------
NONINTEREST INCOME
Service charges 2,617 2,295
Other income and fees 4,287 3,767
----------- -----------
Total noninterest income 6,904 6,062
----------- -----------
NONINTEREST EXPENSE
Salaries and benefits 127,920 135,047
Occupancy expense 14,812 12,616
Furniture and equipment expense 7,329 9,276
Federal insurance premium 2,706 6,688
Legal and accounting fees 20,706 41,000
Advertising and public relations 1,772 7,657
Franchise, payroll and other taxes 16,650 40,182
Stationery, printing and office expenses 6,900 12,523
Service bureau expense 13,627 12,311
Other operating expenses 28,825 24,550
----------- -----------
Total noninterest expense 241,247 301,850
----------- -----------
INCOME BEFORE INCOME TAXES 111,386 54,031
PROVISION FOR INCOME TAXES 39,528 19,554
----------- -----------
NET INCOME $ 71,858 $ 34,477
=========== ===========
PER SHARE DATA
Basic $ .15 $ .07
===== =====
Diluted $ .15 $ .07
===== =====
AVERAGE SHARES OUTSTANDING-Basic 472,176 503,362
======= =======
AVERAGE SHARES OUTSTANDING-Diluted 487,139 520,994
======= =======
See accompanying notes to the unaudited consolidated financial statements.
6
OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30,
2000 1999
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 121,342 $ 65,702
Adjustments:
Depreciation 20,511 19,730
Investment accretion and amortization, net (136) (129)
ESOP and RRP amortization 60,775 84,806
Federal Home Loan Bank stock dividends (14,300) (13,000)
Accrued interest receivable and other assets 18,116 (182,531)
Accrued interest payable and other liabilities 254,132 30,377
----------- -----------
Net cash provided by operating activities 460,440 4,955
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Term deposits, net - 300,000
Purchase of held to maturity securities (300,000) (3,197,498)
Proceeds from redemptions of mortgage-backed
certificates 37,144 123,878
Net change in loans (482,358) 483,735
Acquisition of office properties and equipment (30,438) (21,190)
----------- -----------
Net cash used for investing activities (775,652) (2,311,075)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Payment of dividends (51,037) (66,346)
Short-term borrowings, net - (892,543)
Purchase of treasury stock (500,398) (326,789)
Change in deposits, net 210,595 353,436
Change in mortgage escrow funds, net (8,337) (1,588)
----------- -----------
Net cash used for financing activities (349,177) (933,830)
----------- -----------
Change in cash and cash equivalents (664,389) (3,239,950)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,173,117 5,699,772
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,508,728 $ 2,459,822
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $515,112 $502,182
Income taxes 22,500 73,418
See accompanying notes to the unaudited consolidated financial statements.
7
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, 1999, and related notes
which are included on Form 10-KSB (file no. 0-23109).
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 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 provides accounting and
reporting standards for derivatives instruments, including certain derivative
instruments embedded in other contracts, by requiring the recognition of those
items as assets or liabilities in the statement of financial position,
recorded at fair value. SFAS No. 133 precludes a held-to-maturity security
from being designated as a hedge item. However, at the date of initial
application of SFAS No. 133, an entity is permitted to transfer any
held-to-maturity security into the available-for-sale or trading categories.
The unrealized holding gain or loss on such transferred securities shall be
reported consistent with the requirements of SFAS No. 115, "Accounting for
Certain Investment in Debt and Equity Securities." Such transfers do not
raise an issue regarding an entity's intent to hold other debt securities to
maturity in the future. The FASB has also issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the Effective
date of FASB Statement No. 133." SFAS No. 137 defers the effective date of
SFAS No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. Earlier adoption is permitted for any fiscal
quarter that begins after the issue date of SFAS No. 133. Management does not
believe the adoption of SFAS No. 133 will have a material impact on the
Company.
8
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale
by a Mortgage Banking Enterprise." SFAS No. 134 amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities," and SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," to require
that, after the securitization of mortgage loans held for sale, an entity
engaged in mortgage banking activities classify the resulting mortgage-backed
securities or other retained interests based on its ability and intent to sell
or hold those investments. SFAS No. 134 is effective for the first fiscal
quarter beginning after December 15, 1998, and its adoption did not have a
material impact on the Company.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of Financial Condition at June 30, 2000, and December 31, 1999
- -------------------------------------------------------------------------
At June 30, 2000, the Company's assets increased by approximately $87,000, or
.3%, to $34.6 million from $34.5 million at December 31, 1999. Total cash and
cash equivalents decreased by $664,000 to $4.5 million at June 30, 2000, from
$5.2 million at December 31, 1999. This decrease represented the outflow of
cash associated with the increase in loan production, the purchase of shares
for Treasury, and the purchase of held-to-maturity securities, offset by net
cash provided by operating activities. Held-to-maturity securities increased
by approximately $263,000 to $4.0 million at June 30, 2000, from $3.7 million
at December 31, 1999. The increase reflected the purchase of $300,000 United
States Agency obligations, offset by the principal reduction of $37,000 in
mortgage-backed certificates. Net loans receivable increased $482,000 to
$24.6 million at June 30, 2000, from $24.1 million at December 31, 1999. The
increase was primarily attributable to the $662,000 increase in mortgage
loans, offset by a $180,000 decrease in consumer loans.
Deposits increased $211,000, or .8%, from $25.5 million at December 31, 1999,
to $25.7 million at June 30, 2000, as a result of an increase in deposit
account interest rates at the Company. Accrued interest payable and other
liabilities increased $254,000 to $384,000 at June 30, 2000, compared to
$130,000 at December 31, 1999. The increase was due primarily to an overdraft
in a due from bank account of $260,000 as of June 30, 2000, which did not
occur as of December 31, 1999.
Shareholders' equity decreased $369,000, or 4.3%, to $8.2 million at June 30,
2000, compared to $8.6 million at December 31, 1999. The decrease was
attributable to the use of $500,000 to repurchase shares for Treasury and the
issuance of dividends in the amount of $51,000. Future dividend policies will
be determined by the Board of Directors in light of earnings and financial
condition of the Company, including applicable governmental regulations and
policies. The decrease in shareholders' equity was offset by net income of
approximately $121,000, the recognition of shares in the Employee Stock
Ownership Plan (the "ESOP") amounting to $35,000, and the recognition of
shares in the Recognition and Retention Plan (the "RRP") in the amount of
$26,000.
Comparison of Operating Results for the Six Months Ended June 30, 2000
- ----------------------------------------------------------------------
and 1999
- --------
NET INCOME. Net income increased $56,000, or 84.7%, from net income of
$65,000 for the six months ended June 30, 1999, compared to net income of
$121,000 for the same period in 2000. The increase in net income was
primarily the result of an increase in non-interest income of $8,000, or
62.0%, and a decrease in non-interest expenses of $77,000, or 13.0%, offset by
an increase in the provision for income taxes of $28,000, or 72.9%.
NET INTEREST INCOME. Net interest income decreased $1,000, or .1%, from
$686,000 for the six months ended June 30, 1999, to $685,000 for the six
months ended June 30, 2000. Interest and dividend income increased $9,000, or
.8%, from $1,192,000 for the six months ended June 30, 1999, to $1,201,000 for
the six months ended June 30, 2000. Interest expense increased $10,000, or
2.0%, from $506,000 for the 1999 period to $516,000 for the 2000 period.
INTEREST AND DIVIDEND INCOME. Total interest and dividend income increased
$9,000, or .8%, for the six months ended June 30, 2000, compared to the same
period in 1999. Interest income on investments, including interest-bearing
deposits, increased $35,000, or 15.4%, to $264,000 for the six months ended
June 30, 2000, compared to $229,000 for the 1999 period. The increase in
interest income on investments was directly attributable to the $150,000
increase in the average balance of investments for the six months ended June
30, 2000, compared to the 1999 period. Interest income on loans decreased
$22,000, or 2.3%, from $921,000 for the six months ended June 30, 1999, to
$899,000 for the six months ended June 30, 2000. The decrease in interest
income on loans was primarily the result of a decline in higher interest
earning consumer loans with an overall decrease in the average balance of
loans in the amount of $217,000. Interest income on mortgage-backed
securities decreased $6,000, or 21.4%, to $22,000 for the six months ended
June 30, 2000, compared to $28,000 for the 1999 period.
10
INTEREST EXPENSE. Total interest expense increased by $10,000, or 2.0%, from
the 1999 period to the 2000 period. Interest expense on notes payable
decreased in the amount of $8,000. The interest was fully expended during the
six months ended June 30, 1999, on the outstanding note payable balance
existing at December 31, 1998. Interest expense on notes payable was not
incurred during the six months ended June 30, 2000, since there were no
borrowed funds during the period. Interest expense on deposit accounts
increased $18,000, or 3.7%, from $498,000 for the six months ended June 30,
1999, to $516,000 for the six months ended June 30, 2000. The Association's
cost of deposit funds increased from 3.9% for the six months ended June 30,
1999, to 4.0% for the 2000 period and average outstanding deposits increased
$163,000, from $25.7 million for the period ended June 30, 1999, to $25.9
million for the period ended June 30, 2000. The increase in the average
balance of deposits was the result of customers investing funds in
certificates of deposit with interest rates higher than alternative investment
products.
PROVISION FOR LOAN LOSSES. No provisions for losses on loans were made for
the six months ended June 30, 2000, and 1999. Management judges the adequacy
of the allowance for loan losses and any additions to it based on a level
which is deemed adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the
portfolio, credit concentrations, trends in historical loss experience, known
and inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral,
and current economic conditions. Based on management's evaluation, the amount
of the allowance was deemed adequate with no additional provision necessary.
Although management believes that its loan loss allowance at June 30, 2000,
is adequate based upon the available facts and circumstances, there can be no
assurance that additions to such allowance will not be necessary in future
periods, which could adversely affect the Company's results of operations.
NONINTEREST INCOME. Noninterest income increased $8,000, or 62.0%, from
$12,000 for the six months ended June 30, 1999, to $20,000 for the six months
ended June 30, 2000. The increase was the direct result of a nonrecurring
item included in other income and fees for the six months ended June 30, 2000.
NONINTEREST EXPENSE. Noninterest expense decreased $77,000, or 13.0%, from
$594,000 for the six months ended June 30, 1999, to $517,000 for the 2000
period. The decrease in noninterest expense was partly attributable to a
decrease in legal and accounting fees of $31,000, or 45.8%, from $68,000 for
June 30, 1999, to $37,000 for June 30, 2000, due to a decrease in expenses
related to public filings. Franchise, payroll, and other tax expenses
decreased $25,000, or 31.7%, from $79,000 for June 30, 1999, to $54,000 for
June 30, 2000, due to the reduction of franchise tax expenses. Stationery,
printing, and office expenses decreased $15,000, or 53.2%, from $28,000 for
June 30, 1999, to $13,000 for June 30, 2000, due to the lapse of the Year 2000
risk. Other operating expenses increased by $12,000, or 22.9%, from $49,000
for June 30, 1999, to $61,000 for June 30, 2000, due to an increase in charges
related to the purchase of shares for Treasury and an increase in educational
convention expenses.
INCOME TAXES. The provision for income taxes totaled $66,000 for the six
months ended June 30, 2000, an increase of $28,000, or 73.0%, from the $38,000
in the same 1999 period, due to an increase in pretax income.
Comparison of Operating Results for the Three Months Ended June 30, 2000
- ------------------------------------------------------------------------
and 1999
- --------
NET INCOME. Net income increased $37,000, or 108.4%, from net income of
$34,000 for the three months ended June 30, 1999, compared to net income of
$71,000 for the same period in 2000. The increase in net income was primarily
the result of a decrease in non-interest expenses of $61,000, or 20.1%, offset
by an increase in the provision for income taxes of $20,000, or 102.2%.
NET INTEREST INCOME. Net interest income decreased $4,000, or 1.2%, from
$350,000 for the three months ended June 30, 1999, to $346,000 for the three
months ended June 30, 2000. Interest and dividend income increased $8,000, or
1.4%, from $600,000 for the three months ended June 30, 1999, to $608,000 for
the three months ended June 30, 2000, while interest expense increased
$12,000, or 4.9%, from $250,000 for the 1999 period to $262,000 for the 2000
period.
11
INTEREST AND DIVIDEND INCOME. Total interest and dividend income increased
$8,000, or 1.4%, for the three months ended June 30, 2000, compared to the
same period in 1999. Interest income on investments, including
interest-bearing deposits, increased $12,000, or 9.9%, to $137,000, for the
three months ended June 30, 2000, compared to $125,000 for the 1999 period.
The increase in interest income on investments was directly attributable to
the $46,000 increase in the average balance of investments for the three
months ended June 30, 2000, compared to the 1999 period, while the average
yield increased 56 basis points from 5.96% for the three months ended June 30,
1999, to 6.52% for the same period in 2000. Interest income on loans
decreased $2,000, or .5%, from $455,000 for the three months ended June 30,
1999, to $453,000 for the three months ended June 30, 2000. The decrease in
interest income on loans was primarily the result of a decline in higher
interest earning consumer loans with an overall decrease in the average
balance of loans in the amount of $27,000. Interest income on mortgage-backed
securities decreased $3,000, or 18.6%, to $11,000, for the three months ended
June 30, 2000, compared to $14,000 for the 1999 period.
INTEREST EXPENSE. Total interest expense increased by $12,000, or 4.9%, from
$250,000 for the three months ended June 30, 1999, to $262,000 for the three
months ended June 30, 2000. The Association's cost of deposit funds increased
from 3.85% for the three months ended June 30, 1999, to 4.02% for the 2000
period, while average outstanding deposits increased $117,000, or .5%, from
$26.0 million for the period ended June 30, 1999, to $26.1 million for the
period ended June 30, 2000. The increase in the average balance of deposits
was the result of customers investing funds in certificates of deposit which
interest rates are higher than alternative investment products.
PROVISION FOR LOAN LOSSES. No provisions for losses on loans were made for
the three months ended June 30, 2000 and 1999. Management judges the adequacy
of the allowance for loan losses and any additions to it based on a level
which is deemed adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the
portfolio, credit concentrations, trends in historical loss experience, known
and inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral,
and current economic conditions. Based on management's evaluation, the amount
of the allowance was deemed adequate with no additional provision necessary.
Although management believes that its loan loss allowance at June 30, 2000,
is adequate based upon the available facts and circumstances, there can be no
assurance that additions to such allowance will not be necessary in future
periods, which could adversely affect the Company's results of operations.
NONINTEREST INCOME. Noninterest income increased $1,000, or 13.9%, from
$6,000 for the three months ended June 30, 1999, to $7,000 for the three
months ended June 30, 2000, as a direct result of an increase in service fees
and other income.
NONINTEREST EXPENSE. Noninterest expense decreased $61,000, or 20.1%, from
$302,000 for the three months ended June 30, 1999, to $241,000 for the 2000
period. The decrease in noninterest expense was partly attributable to a
decrease in salaries and benefits expense of $7,000 from $135,000 for the
three months ended June 30, 1999, to $128,000 for the three months ended June
30, 2000, due to a reduction in expenses related to the recognition of ESOP
shares. Legal and accounting fees decreased $20,000, or 49.5%, from $41,000
for the three months ended June 30, 1999, to $21,000 for the three months
ended June 30, 2000, due to a decrease in expenses related to public filings.
Franchise, payroll, and other tax expenses decreased $24,000, or 58.6%, from
$40,000 for the three months ended June 30, 1999, to $16,000 for the three
months ended June 30, 2000, due to the decrease in franchise tax expenses.
Stationery, printing, and office expenses decreased $6,000, or 44.9%, from
$13,000 for the three months ended June 30, 1999, to $7,000 for the three
months ended June 30, 2000, due to the lapse of the Year 2000 risk.
INCOME TAXES. The provision for income taxes totaled $40,000 for the three
months ended June 30, 2000, an increase of $20,000, or 102.2%, from $20,000 in
the same 1999 period, due to an increase in pretax income.
12
Liquidity and Cash Flows
- ------------------------
The Association's primary sources of funds are deposits, amortization and
prepayment of loans, maturities of investment securities, and funds provided
from operations. While scheduled loan repayments are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions, and competition. In addition,
the Association invests excess funds in overnight deposits which provide
liquidity to meet lending requirements.
The Association has other sources of liquidity if a need for additional funds
arises. Additional sources of funds include Federal Home Loan Bank (the
"FHLB") of Cincinnati advances. At June 30, 2000, the Association's borrowing
capacity from the FHLB totaled approximately $8.3 million, of which there were
no advances outstanding.
As of June 30, 2000, the Association had $1.1 million in outstanding mortgage
and construction loan commitments. Management believes that it has adequate
sources to meet the actual funding requirements.
Management monitors the Association's tangible, core, and risk-based capital
ratios in order to assess compliance with the Office of Thrift Supervision
(the "OTS") regulations. At June 30, 2000, the Association exceeded the
minimum capital ratio requirements imposed by the OTS.
At June 30, 2000, the Association's capital ratios were as follows:
Association
Requirement Actual
Tangible capital 1.50% 18.71%
Core capital 3.00% 18.71%
Risk-based capital 8.00% 38.17%
13
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.
June 30, December 31,
2000 1999
------- -------
(dollars in thousands)
Loans on nonaccrual basis $ 0 $ 0
Loans past due 90 days still accruing 35 0
Renegotiated loans 0 0
------- -------
Total nonperforming loans 35 0
Other real estate 0 0
Repossessed assets 0 0
------- -------
Total nonperforming assets $ 35 $ 0
======= =======
Nonperforming loans as a percent
of total loans 0.14% 0.00%
======= =======
Nonperforming assets as a percent
of total assets 0.10% 0.00%
======= =======
Allowance for loan losses to
nonperforming loans 400.00% N/A
=======
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 June 30,
2000, 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.
14
PART II - OTHER INFORMATION
Item 1 - Legal proceedings
NONE
Item 2 - Changes in securities
NONE
Item 3 - Defaults upon senior securities
NONE
Item 4 - Submission of matters to a vote of security holders
The Annual Meeting of Shareholders of Ohio State Financial Services,
Inc., was held on April 19, 2000. The following are the votes cast on each
matter presented to the shareholders:
1. The election of directors for terms expiring in 2001:
FOR AGAINST
John O. Costine 403,739 16,100
Anton M. Godez 404,039 15,800
Jon W. Letzkus 404,039 15,800
William E. Reline 404,039 16,100
Manuel C. Thomas 387,985 31,854
2. The ratification of the selection of S. R. Snodgrass, A.C., as the
auditors of Ohio State Financial Services, Inc.:
FOR AGAINST ABSTAIN NON-VOTES
387,985 31,854 0 126,060
Item 5 - Other information
NONE
Item 6 - Exhibits and reports on Form 8-K
(a) List of Exhibits:
27. Financial Data Schedule (Electronic Filing Only)
99.1 Independent Accountant's Report
(b) None
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, hereunto duly authorized.
OHIO STATE FINANCIAL SERVICES, INC.
Date: August 5, 2000 By: /s/ Jon W. Letzkus
-----------------------------------
Jon W. Letzkus
President and Chief Executive
Officer
(Duly Authorized)
Date: August 5, 2000 By: /s/ James A. Trouten
-----------------------------------
James A. Trouten
Treasurer
(Duly Authorized)