<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20552
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1997
[ ] 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) 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 No X
--- ---
As of November 10, 1997, the latest practicable date, 634,168 shares of the
registrant's common stock, without par value, were issued and outstanding.
<PAGE> 2
OHIO STATE FINANCIAL SERVICES, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Financial Condition (Unaudited) as of
September 30, 1997 and December 31, 1996 3
Consolidated Statement of Operations (Unaudited)
for the Nine Months ended September 30, 1997 and 1996 4
Consolidated Statement of Operations (Unaudited)
for the Three Months ended September 30, 1997 and 1996 5
Consolidated Statement of Cash Flows (Unaudited)
for the Nine Months ended September 30, 1997 and 1996 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Default Upon Senior Securities 13
Item 4. Submissions of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
<PAGE> 3
OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and amounts due from banks $ 566,852 $ 450,252
Interest-bearing deposits with other institutions 6,464,889 1,985,410
------------ -----------
Total cash and cash equivalents 7,031,741 2,435,662
Interest bearing time deposits 1,300,000 800,000
Investment securities:
Securities held to maturity (fair value of $4,761,118
and $4,873,596) 4,676,911 4,781,206
Securities available for sale 356,800 339,300
------------ -----------
Total investment securities 5,033,711 5,120,506
Loans receivable, (net of allowance for loan losses
of $140,978 and $143,000) 24,516,775 24,892,321
Office properties and equipment, net 489,988 471,672
Accrued interest receivable 150,287 134,340
Other assets 36,743 74,153
------------ -----------
TOTAL ASSETS $ 38,559,245 $33,928,654
============ ===========
LIABILITIES AND RETAINED EARNINGS
Deposits $ 27,552,807 $28,791,121
Advances from borrowers for taxes and insurance 75,147 154,245
Accrued interest payable and other liabilities 489,430 212,945
------------ -----------
TOTAL LIABILITIES 28,117,384 29,158,311
------------ -----------
STOCKHOLDERS' EQUITY
Common Stock, 3,000,000 shares authorized, no par
or stated value - 634,168 shares issued and outstanding -- --
Additional paid-in capital 5,916,081 --
Unearned Employee Stock Ownership Plan shares (ESOP) (506,530)
Retained earnings - substantially restricted 5,032,310 4,770,343
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 10,441,861 4,770,343
------------ -----------
TOTAL LIABILITIES AND RETAINED EARNINGS $ 38,559,245 $33,928,654
============ ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements
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<PAGE> 4
OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
1997 1996
---------- ----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $1,458,234 $1,503,513
Interest-bearing deposits and investment securities 308,590 297,057
Mortgage-backed securities 65,521 78,561
Dividends on Federal Home Loan Bank stock 17,693 16,138
---------- ----------
Total interest and dividend income 1,850,038 1,895,269
---------- ----------
INTEREST EXPENSE
Deposits 872,957 867,719
Advances from Federal Home Loan Bank 961 --
---------- ----------
Total interest expense 873,918 867,719
---------- ----------
NET INTEREST INCOME 976,120 1,027,550
PROVISION FOR LOAN LOSSES -- --
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 976,120 1,027,550
---------- ----------
NONINTEREST INCOME
Service charges 7,862 14,338
Gain on sale of other real estate 2,245 --
Other income 25,918 22,894
---------- ----------
Total noninterest income 36,025 37,232
---------- ----------
NONINTEREST EXPENSE
Salaries and benefits 275,215 261,944
Occupancy and equipment 70,301 98,346
Deposit insurance premiums 19,171 251,931
Legal and accounting fees 20,229 20,545
Advertising and public relations 28,013 24,691
Franchise, payroll and other taxes 70,897 69,320
Stationery, printing and office expenses 28,019 17,843
Service bureau expense 37,410 42,747
Other expenses 66,974 76,953
---------- ----------
Total noninterest expense 616,229 864,320
---------- ----------
INCOME BEFORE INCOME TAXES 395,916 200,462
INCOME TAXES 133,949 66,335
---------- ----------
NET INCOME $ 261,967 $ 134,127
========== ==========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE> 5
OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
1997 1996
-------- ---------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $481,476 $ 494,518
Interest-bearing deposits and investment securities 111,321 99,049
Mortgage-backed securities 21,166 24,895
Dividends on Federal Home Loan Bank stock 6,135 5,511
-------- ---------
Total interest and dividend income 620,098 623,973
-------- ---------
INTEREST EXPENSE
Deposits 295,159 288,020
Advances from Federal Home Loan Bank -- --
-------- ---------
Total interest expense 295,159 288,020
-------- ---------
NET INTEREST INCOME 324,939 335,953
PROVISION FOR LOAN LOSSES -- --
-------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 324,939 335,953
-------- ---------
NONINTEREST INCOME
Service charges and other fees 2,840 4,920
Gain on sale of other real estate -- --
Other income 5,450 6,844
-------- ---------
Total noninterest income 8,290 11,764
-------- ---------
NONINTEREST EXPENSE
Salaries and benefits 95,107 90,702
Occupancy and equipment 24,264 37,728
Deposit insurance premiums 7,596 212,046
Legal and accounting fees 7,244 6,303
Advertising and public relations 9,311 10,448
Franchise, payroll and other taxes 25,325 22,510
Stationery, printing and office expenses 8,624 6,627
Service bureau expense 13,515 13,744
Other expenses 21,072 20,552
-------- ---------
Total noninterest expense 212,058 420,660
-------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 121,171 (72,943)
INCOME TAXES (BENEFIT) 41,062 (24,991)
-------- ---------
NET INCOME (LOSS) $ 80,109 $ (47,952)
======== =========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE> 6
OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
1997 1996
---------------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 261,971 $ 134,127
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 32,071 56,107
Investment accretion and amortization, net (2,566) (10,041)
Federal Home Loan Bank stock dividends (17,500) (16,000)
Deferred federal income taxes 7,497 --
Gain on sale of real estate owned (2,245) --
Decrease (increase) in accrued interest receivable
and other assets 21,459 (26,505)
Increase (decrease) in accrued interest payable
and other liabilities 268,988 160,223
----------- -----------
Net cash provided by operating activities 569,675 297,911
----------- -----------
INVESTING ACTIVITIES
Net increase in interest-bearing term deposits (500,000) --
Proceeds from maturity of held-to-maturity securities -- 400,000
Principal collected on mortgage-backed securities 106,861 144,748
Net decrease in loans 357,926 746,984
Proceeds from the sale of other real estate 19,865 --
Purchases of office properties and equipment (50,387) (23,057)
----------- -----------
Net cash provided by (used for) investing activities (65,735) 1,268,675
----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of stock
5,409,551 --
Net increase (decrease) in deposits (1,238,314) (398,893)
Net change in advances for taxes and insurance (79,098) (57,150)
----------- -----------
Net cash provided by (used for) financing activities 4,092,139 (456,043)
----------- -----------
Increase in cash and cash equivalents 4,596,079 1,110,543
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,435,662 1,177,023
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,031,741 $ 2,287,566
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 872,319 $ 885,425
Income taxes 25,569 125,888
Loans transferred to real estate acquired in settlement 17,620 --
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE> 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"), and its wholly-owned subsidiary, Trailway
Financial, Inc. 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, 1996, and related notes which are
included in the Company's Registration Statement on Form S-1 (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") whereby the Association was to convert from a mutual
savings and loan association to a capital stock savings and loan association
incorporated under Ohio law (the "Conversion") and simultaneously issue 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 carries no par or
stated value per share.
NOTE 3 - EFFECTS OF 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
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<PAGE> 8
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 investments in debt and equity
securities. The provisions of SFAS No. 130 are effective for fiscal years
beginning after December 15, 1997. Management does not believe the adoption of
SFAS No. 130 will have a material impact on the disclosure requirements of the
Registrant.
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 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 Registrant will adopt Statement No. 128 on December 31, 1997, and based on
current estimates, does not believe the effect of the adoption will have a
significant impact on the Registrant's financial position or results of
operations.
NOTE 4 - EARNINGS PER SHARE
The provisions of Accounting Principles Board Opinion No. 15 "Earnings Per
Share," are not applicable to the nine and three month periods ended September
30, 1997 and 1996, as the conversion from mutual to stock form was completed on
September 26, 1997.
-8-
<PAGE> 9
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 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") at no par or stated value 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 SEPTEMBER 30, 1997, AND DECEMBER 31, 1996
- ------------------------------------------------------------------------------
At September 30, 1997, the Company's assets increased by approximately $4.6
million to $38.6 million, from $33.9 million at December 31, 1996. The increase
was attributable to the Offering. Total cash and cash equivalents increased by
$4.6 million to $7.0 million at September 30, 1997, from $2.4 million at
December 31, 1996. This increase represented the inflow of cash associated with
subscription orders received for the purchase of common shares in the Offering.
Net loans receivable decreased approximately $375,000 to $24.5 million at
September 30, 1997, from $24.9 million at December 31, 1996. The decrease was
primarily attributable to the decrease in mortgage loan participations of
$643,000 which was partially offset by a $290,000 increase in secured consumer
loans. Deposits decreased approximately $1.2 million, or 4.3%, to $27.6 million
at September 30, 1997, from $28.8 million at December 31, 1996. This decrease
primarily represents funds withdrawn by depositors which were used to purchase
common shares in the Offering.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
- --------------------------------------------------------------------------------
1996
- ----
Net income increased by $128,000, or 95.3%, from net income of $134,000 for the
nine months ended September 30, 1996, to net income of $262,000 for the nine
months ended September 30, 1997.
Net interest income decreased $51,000, or 5.0%, from $1.0 million for the nine
months ended September 30, 1996, to $976,000 for the same period in 1997. The
decrease was primarily attributable to a decline in the net yield on
interest-earning assets from 4.11% for the nine months ended September 30, 1996,
to 3.92% for the same period ended in 1997, a decrease of $500,000 in the
average balance of loans from $25.3 million for the 1996 period to $24.8 million
for the 1997 period and the reinvestment of funds in lower yielding short-term
interest-bearing deposits.
Interest and dividend income decreased $45,000, or 2.4%, for the nine months
ended September 30, 1997, compared to the 1996 period, primarily due to a
decline in the average balance of loans outstanding of $534,000, or 2.1%, during
the nine months ended September 30, 1997, compared to the same period in 1996.
The decrease in the average balance of loans resulted in a decline of $45,000 in
interest income on loans for the 1997 period as compared to the nine months
ended September 30, 1996. Interest income on mortgage-backed securities
decreased $13,000, or 16.6%, from $79,000 for the 1996 period to $66,000 for the
1997 period. The reduction is due to a decrease in the average balance of
mortgage-backed securities from $1.1 million for the nine months ended September
30, 1996 to $930,000 for the same nine months ended in 1997, reflecting
principal reductions. The decrease in interest income on loans and
mortgage-backed securities was partially offset by an increase in interest
income on investments, including interest-bearing deposits, of $13,000 from
$313,000 for the nine months ended September 30, 1996, to $326,000 for the 1997
period. The increase in interest income on investments was due to an increase in
the average balance of investments from $6.9 million for the nine months ended
September 30, 1996, to $7.7 million for the 1997 period. The increase in the
average balance of
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<PAGE> 10
investments was directly attributable to funds received in the Offering and by
funds provided by principal prepayments on loans and mortgage-backed securities.
Total interest expense increased by $6,000, or .7%, from $868,000 for the 1996
period to $874,000 for the 1997 period. The Association's cost of funds
increased from 3.92% for the nine months ended September 30, 1996, to 4.00% for
the 1997 period, but average outstanding deposits declined $387,000, or 1.3%,
from $29.5 million for the nine months ended September 30, 1996 to $29.1 million
for the same nine months ended September 30, 1997. The increase in the
Association's cost of funds was directly attributable to a lower concentration
of NOW and money market deposits and a higher concentration of regular savings
deposits in the 1997 period as compared to the 1996 period.
There were no provisions for losses on loans during the nine month periods ended
September 30, 1997 and 1996. Management judges the adequacy of the allowance for
loan losses and any additions to it 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 September 30, 1997, 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 remained relatively constant between the nine months ended
September 30, 1997 and 1996, with only a $1,000 decrease from $37,000 in the
1996 period to $36,000 in the 1997 period. The decrease is primarily due to a
decrease in service charges which was partially offset by a gain on the sale of
real estate owned.
Noninterest expenses decreased $248,000, or 28.7%, from $864,000 for the nine
months ended September 30, 1996, to $616,000 for the 1997 period. The decrease
in noninterest expenses was primarily attributable to a one-time charge of
$190,000 in federal insurance premiums incurred in the 1996 period which
recapitalized the Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation by a one-time charge to SAIF-insured institutions
of 65.7 basis points per one hundred dollars of insurable deposits. In addition
the Association incurred a lower base deposit insurance premium as a result of
the legislation enacted from $.23 per $100 of deposit premiums for the nine
months ended September 30, 1996, to $.065 per $100 of deposits for the nine
months ended September 30, 1997. Occupancy and equipment expense decreased by
$28,000 from the 1996 to 1997 period, due to certain fixed assets being fully
depreciated for the nine months ended September 30, 1997 as compared to the same
period in 1996.
The provision for income taxes for the nine months ended September 30, 1997,
increased $68,000, or 101.9%, to $134,000, from $66,000 for the 1996 period as a
result of a increase in net income before income taxes.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------
AND 1996
- --------
Net income increased $128,000, or 267.0%, from a net loss of $48,000 for the
three months ended September 30, 1996, as compared to net income of $80,000 for
the same period in 1997.
Net interest income decreased $11,000, or 3.3%, from $336,000 for the three
months ended September 30, 1996, to $325,000 for the three months ended
September 30, 1997. The decrease was primarily due to a 31 basis point decline
in the Association's net interest margin from 3.58% for the three months ended
September 30, 1996, compared to 3.27% for the 1997 period. The Association's net
interest margin was negatively impacted by the
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<PAGE> 11
temporary investment of funds received in the Offering in lower yielding
interest-bearing deposits with other financial institutions.
Total interest and dividend income decreased $4,000 for the three months ended
September 30, 1997, compared to the same period in 1996. Interest income on
loans decreased $13,000, or 2.6%, from $495,000 for the three months ended
September 30, 1996, to $481,000 for the same period ended September 30, 1997.
The decrease in interest income on loans was the result of a decrease in the
average balance of loans from $25.1 million for the three months ended September
30, 1996, to $24.6 for the same three months ended in 1997. Interest income on
mortgage-backed securities decreased $4,000, to $21,000, for the three months
ended September 30, 1997, compared to $25,000 for the 1996 period. The reduction
is a result of the decrease in mortgage-backed securities due to principal
collected. The decrease in interest income on loans and mortgage-backed
securities was partially offset by an increase in interest income on
investments, including interest-bearing deposits, of $12,000 from $105,000, for
the three months ended September 30, 1996, to $117,000 for the three months
ended September 30, 1997. The increase in interest income on investments was
directly attributable to the investment of funds received in the Offering.
Total interest expense increased by $7,000 from the 1996 period to the 1997
period. The Association's cost of funds increased from 3.93% for the three
months ended September 30, 1996, to 4.03% for the 1997 period, but average
outstanding deposits declined $32,000. The increase in the Association's cost of
funds was directly attributable to a lower concentration of NOW and money market
deposits during the 1997 period and an increase in the average balance of higher
paying regular savings deposits as a result of funds received from the Offering.
There were no provisions for losses on loans for the three months ended
September 30, 1997 and 1996, based on management's evaluation of the loan
portfolio. There can be no assurance that the allowance for loan losses will be
adequate to cover losses on nonperforming assets in the future.
Noninterest income totaled $8,000 for the three months ended September 30, 1997,
a decrease of $3,000, or 30%, from $11,000 for the 1996 period, as the result of
a decrease in service charges on deposit accounts.
Noninterest expenses decreased $209,000, or 49.6%, from $421,000 for the three
months ended September 30, 1996, to $212,000 for the 1997 period. The decrease
in noninterest expenses was primarily attributable to a one-time charge of
$190,000 in federal insurance premiums for the 1996 period to recapitalize the
SAIF. In addition the Association incurred a lower base deposit insurance
premium as a result of the legislation enacted from $.23 per $100 of deposit
premiums for the three months ended September 30, 1996, to $.065 per $100 of
deposits for the three months ended September 30, 1997. Occupancy and equipment
expense decreased by $13,000 from the 1996 to 1997 period. The decrease is due
to certain fixed assets being fully depreciated for the three months ended
September 30, 1997 as compared to the same period in 1996.
The provision for income taxes totaled $41,000 for the three months ended
September 30, 1997, an increase of $66,000, or 264.3%, from the $25,000 tax
benefit in the comparable 1996 period, due to a increase in net income before
taxes.
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.
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<PAGE> 12
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 September 30, 1997, the Association's total borrowing
capacity from the FHLB totaled approximately $6.7 million, of which there were
no advances outstanding.
As of September 30, 1997, the Association has $78,000 in outstanding mortgage
and construction loan commitments. Management believes that it has adequate
sources to meet the actual funding requirements.
Management monitors both the Company's and the Association's tangible, core, and
risk-based capital ratios in order to assess compliance with OTS relations. At
September 30, 1997, the Company and the Association exceeded the minimum capital
ratio requirements imposed by the OTS.
At September 30, 1997, the Association's and Company's capital ratios were as
follows:
<TABLE>
<CAPTION>
Association Company
Requirement Actual Actual
----------- ------ ------
<S> <C> <C> <C>
Tangible capital 1.50% 20.72% 27.08%
Core capital 3.00% 20.72% 27.08%
Risk-based capital 8.00% 46.45% 58.85%
</TABLE>
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. At the time 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 borrower.
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(dollars in thousands)
<S> <C> <C>
Loans on nonaccrual basis $168 $69
Loans past due 90 days or more 0 0
Renegotiated loans 0 0
---- ----
Total nonperforming loans 168 69
Other real estate 0 0
Repossessed assets 0 0
---- ----
Total nonperforming assets $168 $69
==== ====
Nonperforming loans as a percent of total loans 0.69% 0.28%
==== ====
Nonperforming assets as a percent of total assets 0.44% 0.50%
==== ====
Allowance for loan losses to nonperforming loans 83.92% 48.25%
</TABLE>
-12
<PAGE> 13
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 September 30,
1997, 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.
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
NONE
-13-
<PAGE> 14
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: November 12, 1997 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 November 12, 1997
/s/ Michael P. Eddy Treasurer and
- ------------------------- Chief Financial Officer November 12, 1997
Michael P. Eddy
-14-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 567
<INT-BEARING-DEPOSITS> 7,765
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 357
<INVESTMENTS-CARRYING> 4,677
<INVESTMENTS-MARKET> 4,801
<LOANS> 24,517
<ALLOWANCE> 141
<TOTAL-ASSETS> 38,559
<DEPOSITS> 27,553
<SHORT-TERM> 0
<LIABILITIES-OTHER> 564
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 10,442
<TOTAL-LIABILITIES-AND-EQUITY> 38,559
<INTEREST-LOAN> 1,458
<INTEREST-INVEST> 392
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,850
<INTEREST-DEPOSIT> 873
<INTEREST-EXPENSE> 874
<INTEREST-INCOME-NET> 976
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 616
<INCOME-PRETAX> 396
<INCOME-PRE-EXTRAORDINARY> 262
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.92
<LOANS-NON> 168
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 143
<CHARGE-OFFS> 2
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 141
<ALLOWANCE-DOMESTIC> 141
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
