<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number 000-23109
OHIO STATE FINANCIAL SERVICES, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Ohio 31-1529204
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
435 Main Street, Bridgeport, Ohio 43912
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (740) 635-0764
--------------
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Shares, without par value
--------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year: $2.4 million.
Based on the average of the bid and asked prices quoted by the OTC Bulletin
Board as of March 10, 2000, the aggregate market value of the common shares of
the issuer held by non-affiliates of the issuer, on that date, was $3.7 million.
At March 10, 2000, there were 543,720 common shares of the issuer outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Part II of Form 10-KSB: Portions of the Annual Report to Shareholders for the
fiscal year ended December 31, 1999, in Exhibit 13.
Part III of Form 10-KSB: Portions of the Proxy Statement for the 2000 Annual
Meeting of Shareholders, in Exhibit 20.
Transitional Small Business Disclosure Format Yes [ ] No [X]
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Ohio State Financial Services, Inc. ("OSFS") is a unitary savings and
loan holding company organized under Ohio law in March 1997. On September 26,
1997, OSFS acquired all of the common shares issued by Bridgeport Savings and
Loan Association, a savings and loan association organized under Ohio law (the
"Association"), upon the conversion of the Association from mutual to stock form
(the "Conversion"). The activities of OSFS have been limited primarily to
holding the common shares of the Association. Consequently, the following
discussion focuses primarily on the business of the Association.
As a savings and loan holding company, OSFS is subject to regulation,
supervision, and examination by the Office of Thrift Supervision (the "OTS"),
the Ohio Department of Commerce, Division of Financial Institutions (the
"Division"), and the Federal Deposit Insurance Corporation (the "FDIC"). The
Association is a member of the Federal Home Loan Bank (the "FHLB") of
Cincinnati, and the deposits of the Association are insured up to applicable
limits by the FDIC in the Savings Association Insurance Fund (the "SAIF").
The Association conducts business from its main office located in
Bridgeport, Ohio, and from one full-service branch located in Shadyside, Ohio.
The principal business of the Association is the origination of permanent
mortgage loans on one- to four-family residential real estate located in the
Association's primary market area, which consists of Belmont County, Ohio, and
Ohio and Marshall Counties, West Virginia. The Association also originates a
limited number of loans for the construction of one- to four-family residences
and permanent mortgage loans secured by nonresidential real estate in its market
area. In addition to real estate lending, the Association originates secured and
unsecured consumer loans. For liquidity and interest rate risk management
purposes, the Association invests in interest-bearing deposits in other
financial institutions, U.S. Government and agency obligations, and
mortgage-backed securities. Funds for lending and other investment activities
are obtained primarily from savings deposits, which are insured up to applicable
limits by the FDIC, principal repayments of loans, and maturities of investment
securities.
Interest on loans and investments is the Association's primary source
of income. The Association's principal expense is interest paid on deposit
accounts. Operating results are dependent to a significant degree on the net
interest income of the Association, which is the difference between interest
income earned on loans, mortgage-backed securities, and other investments and
interest paid on deposits. Like most thrift institutions, the Association's
interest income and interest expense are significantly affected by general
economic conditions and by the policies of various regulatory authorities.
LENDING ACTIVITIES
GENERAL. The Association's principal lending activity is the
origination of conventional fixed-rate real estate loans secured by one- to
four-family residences located in the Association's primary market area.
Although the Association currently originates loans for its portfolio and not
with the intention of selling such loans in the secondary market, fixed-rate
loans are generally underwritten according to secondary market guidelines. In
addition to real estate lending, the Association originates consumer loans,
including loans secured by deposit accounts, automobile loans, and unsecured
loans.
<PAGE> 3
LOAN PORTFOLIO COMPOSITION. The following table presents certain
information regarding the composition of the Association's loan portfolio at the
dates indicated:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------------
1999 1998 1997
-------------------------- -------------------------- -------------------------
Percent of Percent of Percent of
Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family $ 21,766 87.55% $ 20,238 80.60% $ 19,754 80.33%
Nonresidential 704 2.83 585 2.33 572 2.33
Land 5 .02 1 0.01 18 0.07
Construction 993 3.99 708 2.82 124 0.50
Consumer loans:
Automobiles 1,070 4.30 1,315 5.24 1,721 7.00
Savings accounts 193 .78 355 1.41 370 1.51
Other 112.45 .45 1,870 7.45 1,962 7.98
Commercial loans 19 .08 36 0.14 69 .28
--------- -------- ---------- ------- ----------- -------
Total loans 24,862 100.00% 25,108 100.00% 24,590 100.00%
====== ======= =======
Less:
Loans in process 595 367 36
Deferred loan fees (15) 5 36
Allowance for loan losses 141 141 141
-------- --------- ----------
Total loans, net $ 24,141 $ 24,595 $ 24,377
======== ========= ==========
</TABLE>
LOAN MATURITY. The following table sets forth certain information as of
December 31, 1999, regarding the dollar amount of loans maturing in the
Association's portfolio based on their contractual terms to maturity. Demand
loans and other loans having no stated schedule of repayments or no stated
maturity are reported as due in one year or less. Mortgage loans originated by
the Association in its portfolio generally include due-on-sale clauses that
provide the Association with the contractual right to deem the loan immediately
due and payable in the event the borrower transfers the ownership of the
property without the Association's consent. The table does not include the
effects of possible prepayments.
<TABLE>
<CAPTION>
During Due 1-3 Due 3-5 Due 5-10 Due 10-20 Due over
the year years years years years 20 years
ending after after after after after
12/31/00 12/31/00 12/31/00 12/31/00 12/31/00 12/31/00 Total
-------- -------- -------- -------- --------- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family $205 $163 $806 $6,171 $11,294 $3,127 $21,766
Nonresidential -- 16 90 207 391 -- 704
Land -- 5 -- -- -- -- 5
Construction -- -- -- -- 797 196 993
Consumer loans 256 455 590 74 -- -- 1,375
Commercial loans 15 4 -- -- -- -- 19
------- ------- ------- ------- ------- ------- -------
Total $476 $643 $1,486 $6,452 $12,482 $3,323 $24,862
======= ======= ======= ======= ======= ======= =======
</TABLE>
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The following table sets forth the dollar amounts of all loans
contractually due after December 31, 2000, and shows the amount of such loans
which have fixed interest rates and which have floating or adjustable interest
rates:
<TABLE>
<CAPTION>
Fixed Adjustable
rates rates Total
------- ---------- -------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family $19,590 $1,971 $21,561
Nonresidential 704 -- 704
Land 5 -- 5
Construction 993 -- 993
Consumer loans 1,119 -- 1,119
Commercial loans 4 -- 4
------- ------- -------
Total $22,415 $1,971 $24,386
======= ======= =======
</TABLE>
LOANS SECURED BY ONE- TO FOUR-FAMILY REAL ESTATE. The principal lending
activity of the Association is the origination of conventional loans secured by
first mortgages on one- to four-family residences, primarily single-family
residences, located within the Association's primary market area. At December
31, 1999, the Association's one- to four-family residential real estate loans
totaled approximately $21.8 million, or 87.55% of total loans.
OTS regulations and Ohio law limit the amount which the Association may
lend in relationship to the appraised value of the real estate and improvements
which will secure the loan at the time of loan origination. In accordance with
such regulations, the Association makes loans on one- to four-family residences
of up to 80% of the value of the real estate and improvements thereon (the
"LTV").
The Association currently offers fixed-rate loans with terms of up to
25 years, although most loans are originated with terms of 15 years. The
Association does offer adjustable-rate mortgage loans ("ARMs") for terms of up
to 25 years, but has originated very few ARMs since 1990. The maximum interest
rate adjustment period on the ARMs is five years, but can be any number of years
less than five. The interest rate adjustments on ARMs presently offered by the
Association are indexed to the quarterly National Average Cost of Funds to
SAIF-Insured Institutions. Rate adjustments are computed by adding a stated
margin, typically 2%, to the index, with a maximum adjustment of 5% over the
term of the loan.
The Association has purchased interests in loans from other Ohio
financial institutions at times when there was low loan demand in the
Association's primary market area. Such purchases consist of fixed-rate loans
which meet the Association's underwriting standards. The Association's loan
portfolio includes two participation interests in several single-family loans
secured by properties located in Columbus, Ohio. At December 31, 1999, the
outstanding balance of participation loans purchased, which is included in the
one- to four-family loans, was $2.5 million, or 10.0% of the Association's total
loan portfolio.
LOANS SECURED BY MULTIFAMILY RESIDENCES. The Association occasionally
originates loans secured by multifamily properties, which contain more than four
units. Multifamily loans are offered with fixed rates of interest for terms of
up to 25 years and have LTVs of up to 75%. The Association had no multifamily
loans in its portfolio at December 31, 1999.
NONRESIDENTIAL REAL ESTATE. The Association originates a limited number
of loans for the purchase of nonresidential real estate. The Association's
nonresidential real estate loans have fixed rates, terms of up to 25 years, and
LTVs of up to 80%. Among the properties securing nonresidential real estate
loans are two churches and a funeral home which are located in the Association's
primary market area.
Nonresidential real estate lending is generally considered to involve a
higher degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. The Association has endeavored to
reduce such risk by evaluating the credit history of the borrower, the location
of the real estate, the financial condition of the borrower, the quality and
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<PAGE> 5
characteristics of the income stream generated by the property, and the
appraisals supporting the property's valuation.
At December 31, 1999, approximately $704,000, or 2.83% of the
Association's total loans, were secured by mortgages on nonresidential real
estate.
LAND LOANS. The Association also originates a limited number of loans
secured by single-family land lots. The Association's land loans are generally
three year amortizing loans and require an LTV of 75% or less. At December 31,
1999, the Association had one land loan of approximately $5,000, or .02% of the
Association's total loans.
CONSTRUCTION LOANS. The Association originates a limited number of
loans for the construction of single-family residential real estate.
Construction loans are structured as permanent loans with fixed rates of
interest and terms of up to 25 years. During the first six months, while the
residence is being constructed, the borrower is required to pay interest only.
Construction loans have LTVs of up to 80%, with the value of the land counting
as part of the owner's equity. At December 31, 1999, the Association had
approximately $993,000, or 3.99% of its total loans, invested in construction
loans.
CONSUMER LOANS. The Association originates various types of consumer
loans, including home improvement loans, secured by savings accounts and motor
vehicles and unsecured loans. Consumer loans are made at fixed rates of
interest. Consumer loans secured by a deposit or savings account are made at an
interest rate that is 2% above the rate paid on the underlying deposit account.
Automobile loans are originated with terms of up to six years for new
automobiles and up to three years for used automobiles. All automobile loans are
originated directly by the Association.
The Association also makes closed-end home equity loans in an amount
which, when added to the prior indebtedness secured by the real estate, does not
exceed 80% of the estimated value of the real estate. Home equity loans are
secured by real estate. The Association does not offer home equity loans with a
line-of-credit feature.
Consumer loans may entail greater credit risk than do residential
mortgage loans. The risk of default on consumer loans increases during periods
of recession, high unemployment, and other adverse economic conditions. Although
the Association has not had significant delinquencies on consumer loans, no
assurance can be provided that delinquencies will not increase.
At December 31, 1999, the Association had approximately $1.4 million,
or 5.53% of its total loans, invested in consumer loans.
COMMERCIAL LOANS. The Association has occasionally made commercial
loans to businesses in its primary market area. At December 31, 1999, the
Association had approximately $19,000, or .08% of total loans, invested in six
commercial loans, which were made to local businesses. Five of the loans are
secured by company vehicles and one loan is unsecured.
LOAN SOLICITATION AND PROCESSING. Loan originations are generally
obtained from existing customers and members of the local community and from
referrals from real estate brokers, lawyers, accountants, and current and former
customers. The Association also advertises in the local print media and
periodically advertises on radio and television.
In underwriting real estate loans, the Association typically obtains a
credit report, verification of employment, and other documentation concerning
the creditworthiness of the borrower. An appraisal of the fair market value of
the real estate that will be given as security for the loan is prepared by a
certified fee appraiser approved by the Board of Directors. Upon the completion
of the appraisal and the receipt of information on the credit history of the
borrower, the application for a loan is submitted for review in accordance with
the Association's underwriting guidelines which are established annually by the
Board of Directors. The President of the Association has authority to approve
loans of less than $100,000. Loans for amounts greater than $100,000 must be
approved by the full Board of Directors of the Association, which meets twice a
month.
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<PAGE> 6
Borrowers are required to carry satisfactory fire and casualty
insurance and flood insurance, if applicable, and to name the Association as an
insured mortgagee. The Association obtains an attorney's opinion of title.
The procedure for approval of construction loans is the same as for
permanent real estate loans, except that an appraiser evaluates the building
plans, construction specifications, and estimates of construction costs. The
Association also evaluates the feasibility of the proposed construction project
and the experience and record of the builder. Once approved, the construction
loan is disbursed in installments based upon periodic inspections of
construction progress.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan, and the value of the collateral, if any. The President of the
Association has authority to approve secured consumer loans of up to $50,000,
and unsecured consumer loans of up to $25,000. The Assistant Vice President and
the Loan Manager of the Association each have the authority to approve
applications for secured consumer loans up to $25,000 and for unsecured loans up
to $10,000 and $2,000, respectively.
LOAN ORIGINATIONS AND PARTICIPATIONS. Currently, the Association is
originating fixed-rate loans for its portfolio and not with the intention of
selling such loans in the secondary market. The Association occasionally
purchases participation interests in fixed-rate loans originated by other
financial institutions which meet the Association's underwriting standards.
Typically, the Association purchases a 90% interest in the loan, with the seller
retaining a 10% interest and the servicing of the loan. At December 31, 1999,
the outstanding balance of participation loans purchased, which is included in
the one- to four-family loans, was $2.5 million, or 10.00% of the Association's
total loan portfolio. The Association has not purchased any loan participations
since 1995 See "Loans Secured by One- to Four-Family Real Estate."
The following table presents the Association's total loan origination,
participation, and repayment activity for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Total gross loans receivable at
beginning of period $25,108 $24,590 $25,138
-------- -------- --------
Loans originated:
Real estate:
One- to four-family 1,999 2,342 2,588
Nonresidential 200 10 210
Construction 795 734 --
Consumer 1,481 1,369 2,454
Commercial 15 -- --
-------- -------- --------
Total loans originated 4,490 4,455 5,252
Loan participations:
One- to four-family -- -- --
Loan principal repayments (4,736) (3,824) (5,786)
Charge-offs -- (42) --
Foreclosures -- (71) (14)
-------- -------- --------
Net loan activity (246) 518 (548)
-------- -------- --------
Total gross loans receivable at
end of period $24,862 $25,108 $24,590
======== ======== ========
</TABLE>
5
<PAGE> 7
The Association issues written commitments to prospective borrowers on
all approved mortgage loans and charges an application fee. Commitments expire
within 30 days of the date of issuance although they may be renewed or extended
in some instances. At December 31, 1999, the Association had $159,000 of
outstanding commitments to originate loans and $595,000 in undisbursed funds
related to construction loans. Management estimates that less than 1% of loan
commitments expire without being funded.
LOANS TO ONE BORROWER LIMITS. OTS regulations generally limit the
aggregate amount that a savings association may lend to any borrower to an
amount equal to 15% of the Association's unimpaired capital and unimpaired
surplus (the "Lending Limit Capital"). A savings association may lend to one
borrower an additional amount not to exceed 10% of the association's Lending
Limit Capital if the additional amount is fully secured by certain forms of
"readily marketable collateral." Real estate is not considered "readily
marketable collateral." In applying this limit, the regulations require that
loans to certain related or affiliated borrowers be aggregated. An exception to
this limit permits loans of any type to one borrower of up to $500,000.
Based on such limits, the Association would have been able to lend
approximately $893,000 to one borrower at December 31, 1999. The maximum amount
that the Association will lend to one borrower, however, is $500,000. The
largest amount the Association had outstanding to one borrower at December 31,
1999, was $391,000, which consisted of three loans, secured by real property. At
December 31, 1999, the loans were performing in accordance with their terms.
LOAN ORIGINATION AND OTHER FEES. The Association realizes loan
origination fees and other fee income from its lending activities. In addition,
the Association realizes income from late payment charges, application fees, and
fees for other miscellaneous services.
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments, and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 91 as an adjustment to yield over
the life of the related loan.
DELINQUENT LOANS, NONPERFORMING ASSETS, AND CLASSIFIED ASSETS. The
Association attempts to maintain a high level of asset quality through sound
underwriting policies and efficient collection practices.
To discourage late payments, the Association charges a late fee of 5%
of the payment amount after 15 days for loans originated since January 1, 1990.
When a loan is 30 days past due, the borrower is sent a delinquency notice and a
personalized letter and one of the Association's loan personnel will telephone
the borrower. When a loan becomes 60 days delinquent, additional contacts are
made and the loan is generally referred to an attorney for foreclosure, unless a
repayment schedule has been established.
Loans are reviewed on a monthly basis and are placed on nonaccrual
status when collection in full is considered doubtful by management. Generally,
loans past due more than 90 days as to principal or interest are placed on
nonaccrual status. Interest accrued and unpaid at the time a loan is placed on
nonaccrual status is charged against interest income. Subsequent cash payments
are generally applied to interest income unless, in the opinion of management,
the collection of principal and interest is doubtful. In those cases, subsequent
cash payments would be applied to principal.
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The following table reflects the amount of loans in a delinquent status
as of the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
Percent Percent Percent
of total of total of total
Number Amount loans Number Amount loans Number Amount loans
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days 25 $433 1.74% 5 $54 0.22% 21 $331 1.35%
60-90 days 3 52 .21 -- -- -- 12 294 1.20
Over 90 days -- -- 0.00 -- -- 0.00 6 98 0.40
---- ---- ---- ---- ---- ---- ---- ---- ----
Total delinquent
loans 28 $485 1.95% 5 $54 0.22% 39 $723 2.95%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
Nonperforming assets include nonaccruing loans, accruing loans which
are delinquent more than 90 days, real estate acquired by foreclosure or by
deed-in-lieu thereof, in-substance foreclosures, and repossessed assets.
The following table sets forth information with respect to the accrual
and nonaccrual status of the Association's loans and other nonperforming assets
at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
Real estate $ -- $ -- $ 64
Consumer -- -- 34
--------- --------- ---------
Total nonaccrual loans -- -- 98
--------- --------- ---------
Total nonperforming loans -- -- 98
Real estate owned -- -- --
--------- --------- ---------
Total nonperforming assets $ -- $ -- $ 98
========= ========= =========
Allowance for loan losses $141 $141 $141
========= ========= =========
Nonperforming assets as a percent of total assets -- -- 0.26%
Nonperforming loans as a percent of total loans -- -- 0.40%
Allowance for loan losses as a percent of
nonperforming loans -- -- 143.86%
</TABLE>
Real estate acquired in settlement of loans is classified separately on
the balance sheet at the lower of the recorded investment in the property or its
fair value minus estimated costs of sale. Prior to foreclosure, the loan is
written down to the value of the underlying collateral by a charge to the
allowance for loan losses, if necessary. Any subsequent write-downs are charged
against operating expenses. Operating expenses of such properties, net of
related income or loss on disposition, are included in other expenses. At
December 31, 1999, the Association had no real estate acquired in settlement of
loans.
The Association classifies its assets on a regular basis in accordance
with federal regulations. Problem assets are classified as "substandard,"
"doubtful", or "loss." "Substandard" assets have one or more defined weaknesses
and are characterized by the distinct possibility that the Association will
sustain some loss if the deficiencies are not corrected. "Doubtful" assets have
the same weaknesses as "substandard" assets, with the
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<PAGE> 9
additional characteristics that (i) the weaknesses make collection or
liquidation in full, on the basis of currently existing facts, conditions, and
values, questionable and (ii) there is a high possibility of loss. An asset
classified "loss" is considered uncollectible and of such little value that its
continuance as an asset of the Association is not warranted. In addition,
federal regulations also contain a "special mention" category consisting of
assets which do not currently expose an institution to a different degree of
risk to warrant classification, but which possess credit deficiencies or
potential weaknesses deserving management's close attention.
The aggregate amounts of the Association's classified assets at the
dates indicated were as follows:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------
1999 1998 1997
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Classified assets:
Substandard $ -- $ -- $71
Doubtful -- -- --
Loss -- -- --
---------- ---------- ----------
Total classified assets $ -- $ -- $71
========== ========== ==========
</TABLE>
The Association establishes a general allowance for loan losses for any
loan classified as substandard or doubtful. If an asset, or portion thereof, is
classified as loss, the Association establishes a specific allowance for loss in
the amount of 100% of the portion of the asset classified loss or charges off
the portion of any real estate loan deemed to be uncollectible. See "Allowance
for Loan Losses."
The Association analyzes each classified asset on a monthly basis to
determine whether changes in the classifications are appropriate under the
circumstances. Such analysis focuses on a variety of factors, including the
amount of any delinquency and the reasons for the delinquency, if any, the use
of the real estate securing the loan, the status of the borrower, and the
appraised value of the real estate. As such factors change, the classification
of the asset will change accordingly. At December 31, 1999, the Association had
classified $52,000 of assets as special mention.
ALLOWANCE FOR LOAN LOSSES. Management reviews on a quarterly basis the
allowance for loan losses as it relates to a number of relevant factors,
including, but not limited to, growth and changes in the composition of the loan
portfolio, trends in the level of delinquent and problem loans, current and
anticipated economic conditions in the primary lending area, past loss
experience, and possible losses arising from specific problem assets.
While management believes that it uses the best information available
to determine the allowance for loan losses, unforeseen market conditions could
result in adjustments and net income could be significantly affected if
circumstances differ substantially from the assumptions used in making the final
determination. In addition, the Association's determination as to the amount of
its allowance for loan losses is subject to review by the OTS as part of its
examination process, which may result in the establishment of an additional
allowance based upon the judgment of the OTS after a review of the information
available at the time of the OTS examination.
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<PAGE> 10
The following table sets forth an analysis of the Association's
allowance for loan losses for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1999 1998 1997
----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $141 $141 $143
----- ----- -----
Charge-offs -- (42) (2)
Recoveries -- 1 --
----- ----- -----
Net (charge-offs) recoveries -- (41) (2)
----- ----- -----
Provision for loan losses -- 41 --
----- ----- -----
Balance at end of year $141 $141 $141
===== ===== =====
Ratio of net (charge-offs) recoveries to average
loans outstanding during the year N/A (0.16)% (0.01)%
Ratio of allowance for loan losses to total loans 0.57% 0.56 % 0.57 %
</TABLE>
The following table sets forth the allocation of the allowance for loan
losses by category. The allocations are based on management's assessment of the
risk characteristics of each of the components of the total loan portfolio and
are subject to change as and when the risk factors of each such component
change. The allocation is not indicative of either the specific amounts or the
loan categories in which future charge-offs may be taken, nor should it be taken
as an indicator of future loss trends. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------
1999 1998 1997
-------------------------- ------------------------ --------------------------
Percent of loans Percent of loans Percent of loans
in each category in each category in each category
Amount to total loans Amount to total loans Amount to total loans
------ ---------------- ------ ---------------- ------ ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate:
One- to four-family $132 87.55% $117 80.60% $116 80.33%
Nonresidential 2 2.83 2 2.33 2 2.33
Construction -- 3.99 -- 2.82 -- 0.50
Land -- 0.02 -- 0.00 -- 0.07
Consumer 7 5.53 22 14.10 23 16.49
Commercial -- 0.08 -- 0.15 -- 0.28
------ ------ ------ ------ ------ ------
Total $141 100.00% $141 100.00% $141 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
9
<PAGE> 11
INVESTMENT ACTIVITIES
GENERAL. Federal regulation and Ohio law permit the Association to
invest in various types of investment securities, including interest-bearing
deposits in other financial institutions, U.S. Treasury and agency obligations,
mortgage-backed securities, and certain other specified investments. The Board
of Directors of the Association has adopted an investment policy which
authorizes management to make investments in U.S. Treasury obligations, U.S.
Government and agency securities, municipal obligations, mortgage-backed
securities, deposits in the FHLB, certificates of deposit in federally-insured
financial institutions, and federal funds at commercial banks. The Association's
investment policy is designed primarily to provide and maintain liquidity within
regulatory guidelines, to maintain a balance of high quality investments to
minimize risk, and to maximize return without sacrificing liquidity and safety.
See "REGULATION."
The Association's securities available-for-sale and investment
securities held-to-maturity at December 31, 1999, did not contain securities of
any issuer with an aggregate book value in excess of 10% of the Association's
equity, excluding those issued by the U.S. Government or its agencies. As of
December 31, 1999, the Association's investment portfolio was comprised of FHLB
stock, U.S. Government and agency securities, mortgage-backed securities, and
stock of a service provider, with an aggregate market value of $3.9 million.
At December 31, 1999, the Association held mortgage-backed securities
in its held-to-maturity investment portfolio with an amortized cost of $496,000.
The average yield on mortgage-backed securities at December 31, 1999, was 8.92%.
The Association's mortgage-backed securities at December 31, 1999, were all
issued by the Government National Mortgage Association (the "GNMA") or the
Federal Home Loan Mortgage Corporation (the "FHLMC"), representing participation
interests in direct pass-through pools of long-term mortgage loans originated
and serviced by the issuers of the securities. Expected maturities will differ
from contractual maturities due to scheduled repayments and because borrowers
may have the right to call or prepay obligations with or without prepayment
penalties.
The following table sets forth the composition of the Association's
interest-bearing deposits and investment securities portfolio, including those
designated as available-for-sale, at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- ------------------------
Carrying Fair Carrying Fair Carrying Fair
value value value value value value
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits $ 4,255 $ 4,255 $ 4,792 $ 4,792 $ 2,654 $ 2,654
Interest-bearing time deposits 400 400 3,100 3,100 4,600 4,600
Investment securities:
Held-to-maturity:
U.S. Government and
federal agencies 3,198 2,988 300 307 3,299 3,310
Mortgage-backed
securities 496 522 667 712 847 914
Available-for-sale:
FHLB stock 400 400 374 374 348 348
Intrieve, Inc. stock 15 15 15 15 15 15
--------- --------- --------- --------- ---------- ---------
Total $ 8,764 $ 8,580 $ 9,248 $ 9,300 $ 11,763 $ 11,841
========= ========= ======== ========= ========= =========
</TABLE>
10
<PAGE> 12
The maturities of the Association's interest-bearing deposits and
investment securities (excluding mortgage-backed securities) at December 31,
1999, are indicated in the following table:
<TABLE>
<CAPTION>
At December 31, 1999
-----------------------------------------------------------------------------------------------
1 Year or Less After 1-5 Years After 5-10 Years After 10 Years
------------------ --------------------- ---------------------- -----------------------
Carrying Average Carrying Average Carrying Average Carrying Average
value yield value yield value yield value yield
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing $4,255 3.82% $ -- 0.00% $ -- 0.00% $ -- 0.00%
deposits
Interest-bearing
time deposits 300 5.72 100 6.35 -- 0.00 -- 0.00
Investment securities:
U.S. Government and
federal agencies -- 0.00 200 6.25 600 6.46 2,398 6.80
Intrieve, Inc. 15 0.00 -- 0.00 -- 0.00 -- 0.00
stock
FHLB stock 400 6.94 -- 0.00 -- 0.00 -- 0.00
------ ------ ------ ------
Total $4,970 4.18% $ 300 6.28% $600 6.46% $2,398 6.80%
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1999
-----------------------------------
Total
-----------------------------------
Carrying Market
value Yield value
----- ----- ------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-bearing $4,255 3.82% $4,255
deposits
Interest-bearing
time deposits 400 5.88 400
Investment securities:
U.S. Government and
federal agencies 3,198 6.70 2,988
Intrieve, Inc. 15 0.00 15
stock
FHLB stock 400 6.94 400
------ ------
Total $8,628 5.18% $8,058
====== ======
</TABLE>
The maturities of the Association's mortgage-backed securities portfolio
are indicated in the following tables:
<TABLE>
<CAPTION>
At December 31, 1999
- -------------------------------------------------------------------------------------------------
1 Year or Less After 1-5 Years After 5-10 Years After 10 Years
- ------------------ --------------------- ---------------------- -------------------------
Carrying Average Carrying Average Carrying Average Carrying Average
value yield value yield value yield value yield
- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
$-- 0.00% $5 9.50% $20 11.76% $471 9.48%
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1999
- ---------------------------------
Total
- ---------------------------------
Carrying Market
value Yield value
----- ----- ------
(Dollars in thousands)
<S> <C> <C>
$496 9.57% $522
</TABLE>
DEPOSITS AND BORROWINGS
GENERAL. Deposits have traditionally been the primary source of the
Association's funds for use in lending and other investment activities. In
addition to deposits, the Association derives funds from interest payments and
principal repayments on loans and income on earning assets. Loan payments are a
relatively stable source of funds, while deposit inflows and outflows fluctuate
in response to general interest rates and money market conditions. The
Association may also borrow funds from the FHLB as a source of funds.
DEPOSITS. Deposits are attracted principally from within the
Association's market area through the offering of a selection of deposit
instruments, including regular passbook savings accounts, NOW accounts, money
market accounts, and certificates of deposit. Interest rates paid, maturity
terms, service fees, and withdrawal penalties for the various types of accounts
are monitored weekly by the President and reviewed monthly by the Board of
Directors of the Association. The Association does not use brokers to attract
deposits. The amount of deposits from outside the Association's market area is
not significant.
11
<PAGE> 13
The following table sets forth the dollar amount of deposits in the
various types of accounts offered by the Association at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------
1999 1998 1997
--------------------- ----------------------- -----------------------
Percent Percent of Percent
of Total Total of Total
Amount Deposits Amount Deposits Amount Deposits
------ -------- ------ --------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts:
Regular savings accounts (1) $9,826 38.47% $9,686 38.06% $9,947 37.77%
NOW and Super NOW
accounts (2) 1,462 5.73 1,227 4.82 973 3.70
Money market accounts (3) 1,821 7.13 2,136 8.39 2,391 9.08
------- ------- ------- ------- ------- -------
Total transaction accounts 13,109 51.33 13,049 51.27 13,311 50.55
------- ------- ------- ------- ------- -------
Certificates of deposit
3.01 - 5.00% 7,476 29.27 5,866 23.05 6,303 23.94
5.01 - 7.00% 4,956 19.40 6,535 25.68 6,719 25.51
------- ------- ------- ------- ------- -------
Total certificates of deposit (4) 12,432 48.67 12,401 48.73 13,022 49.45
------- ------- ------- ------- ------- -------
Total deposits $25,541 100.00% $25,450 100.00% $26,333 100.00%
======= ======= ======= ======= ======= =======
</TABLE>
(1) The weighted average rate on passbook savings accounts was 3.0% at
December 31, 1999, 1998, and 1997, respectively.
(2) The weighted average rate on NOW and Super NOW accounts was 1.75% at
December 31, 1999, 1998, and 1997, respectively.
(3) The weighted average rate on money market accounts was 2.75% at
December 31, 1999, 1998, and 1997, respectively.
(4) The weighted average rate on all certificates of deposit was 4.96%,
5.07%, and 5.03% at December 31, 1999, 1998, 1997, respectively.
The following table shows rate and maturity information for the
Association's certificates of deposit at December 31, 1999:
<TABLE>
<CAPTION>
Amount Due
-------------------------------------------------------------------------------
Over 1 year Over 2 Years Over
Up to 1 Year to 2 Years to 3 Years 3 Years Total
------------ ---------- ---------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
3.01% to 5.00% $ 5,472 $ 1,182 $ 390 $ 432 $ 7,476
5.01% to 7.00% 2,440 1,955 130 431 4,956
-------- --------- ------- ------ ---------
Total certificates of deposit $ 7,912 $ 3,137 $ 520 $ 863 $ 12,432
======== ========= ======= ====== =========
</TABLE>
12
<PAGE> 14
At December 31, 1999, approximately $7.9 million of the Association's
certificates of deposit mature within one year. Based on past experience and the
Association's prevailing pricing strategies, management believes that a
substantial percentage of such certificates will be renewed with the Association
at maturity. If, however, the Association is unable to renew the maturing
certificates for any reason, borrowings of up to $7.9 million are available from
the FHLB of Cincinnati.
The following table presents the amount of the Association's
certificates of deposit of $100,000 or more by the time remaining until maturity
at December 31, 1999:
<TABLE>
<CAPTION>
Maturity Amount
-------- ------
(In thousands)
<S> <C>
3 months or less $ 1,099
Over 3 months to 6 months 628
Over 6 months to 12 months 1,136
Over 12 months 1,332
-------
Total $ 4,195
=======
</TABLE>
The majority of the above certificates of deposit are held by long-time
depositors at the Association and management believes that a substantial
percentage of such certificates will be renewed with the Association at
maturity.
The following table sets forth the Association's deposit account
balance activity for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1999 1998 1997
-------------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance $ 25,450 $ 26,333 $ 28,791
Net decrease before interest credited (903) (1,909) (3,597)
Interest credited 994 1,026 1,139
---------- ---------- ---------
Ending balance $ 25,541 $ 25,450 $ 26,333
======== ======== ========
Net increase (decrease) $ 91 $ (833) $ (2,458)
======== ========= =========
</TABLE>
BORROWINGS. The FHLB system functions as a central reserve bank
providing credit for its member institutions and certain other financial
institutions. See "REGULATION - Federal Home Loan Banks." As a member in good
standing of the FHLB of Cincinnati, the Association is authorized to apply for
advances from the FHLB of Cincinnati, provided certain standards of
creditworthiness have been met. Under current regulations, an association must
meet certain qualifications to be eligible for FHLB advances. The extent to
which an association is eligible for such advances will depend upon whether it
meets the Qualified Thrift Lender (the "QTL") test. See "REGULATION - Office of
Thrift Supervision - Qualified Thrift Lender Test." If an association meets the
QTL test, the association will be eligible for such advances only to the extent
it holds specified QTL test assets. At December 31, 1999, the Association was in
compliance with the QTL test. During the years ending December 31, 1999, 1998,
and 1997, the Association did not utilize FHLB advances.
During the year ended December 31, 1999, the Association had short-term
borrowings with two local financial institutions with average balances of
$69,000.
13
<PAGE> 15
COMPETITION
The Association faces competition for deposits and loans from branches
of two large independent commercial banks located in Bridgeport and branches of
two larger independent commercial banks and one branch of a super-regional
commercial bank in Shadyside. In addition, competing financial institutions
exist in surrounding communities located in the Association's market area. The
primary factors in competition for deposits are customer service and convenience
of office location. The Association competes for loan originations primarily
through the interest rates and loan fees it charges and through the efficiency
and quality of services it provides to borrowers. Competition is intense and is
affected by, among other things, the general availability of lendable funds,
general and local economic conditions, current interest rate levels, and other
factors which are not readily predictable. The Association does not offer all of
the products and services offered by some of its competitors, particularly
commercial banks.
EMPLOYEES
At December 31, 1999, the Association had 13 full-time employees and no
part-time employees. The Association believes that relations with its employees
are excellent. The Association offers health, life, and disability benefits to
all employees and has a defined benefit pension plan and a 401(k) plan for its
eligible full-time employees. None of the employees of the Association is
represented by a collective bargaining unit.
YEAR 2000
The Association evaluated both information technology systems (computer
systems) and non-information technology systems (e.g., vault timers and
electronic door locks) for Year 2000 risk. Based upon such evaluations,
management determined that the Association had Year 2000 risk in three areas:
(1) the Association's own computers (2) the computers of others used by the
Association's borrowers, and (3) the computers of others who provide the
Association with data processing. These risk areas are apparently in full
compliance and no material costs have been incurred subsequent to December 31,
1999.
REGULATION
GENERAL
OSFS is a savings and loan holding company within the meaning of the
Home Owners Loan Act, as amended (the "HOLA"). Consequently, OSFS is subject to
regulation, examination, and oversight by the OTS and must submit periodic
reports to the OTS concerning its activities and financial condition. In
addition, as a corporation organized under Ohio law, OSFS is subject to
provisions of the Ohio Revised Code applicable to corporations generally,
including laws which restrict takeover bids, tender offers, and control share
acquisitions involving public companies which have significant ties to Ohio.
As a savings and loan association chartered under the laws of Ohio, the
Association is subject to regulation, examination, and oversight by the
Superintendent of the Division (the "Ohio Superintendent"). Because the
Association's deposits are insured by the FDIC, the Association also is subject
to regulatory oversight by the FDIC. The Association must file periodic reports
with the OTS concerning its activities and financial condition. Examinations are
conducted periodically by federal and state regulators to determine whether the
Association is in compliance with various regulatory requirements and is
operating in a safe and sound manner. The Association is a member of the FHLB.
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was
enacted into law. The GLB Act repealed prior laws which had generally prevented
banks from affiliating with securities and insurance firms and made other
significant changes in the financial services in which various types of
financial institutions may engage.
Prior to the GLB Act, unitary savings and loan holding companies which
met certain requirements were the only financial institution holding companies
that were permitted to engage in any type of business activity, whether or not
the activity was a financial service. The GLB Act continues those broad powers
for unitary thrift holding
14
<PAGE> 16
companies in existence on May 4, 1999, including OSFS. Any thrift holding
company formed after May 4, 1999, however, will be subject to the same
restrictions as multiple thrift holding companies, which generally are limited
to activities that are considered incidental to banking.
The GLB authorizes a new "financial holding company," which can own
banks and thrifts and which are also permitted to engage in a variety of
financial activities, including insurance and securities underwriting and agency
activities, as long as the depository institutions it owns are well capitalized,
well managed and meet certain other tests.
The GLB Act is not expected to have a material effect on the activities
in which OSFS and the Association currently engage, except to the extent that
competition from other types of financial institutions may increase as they
engage in activities not permitted prior to enactment of the GLB Act.
OHIO SAVINGS AND LOAN REGULATION
The Ohio Superintendent is responsible for the regulation and
supervision of Ohio savings and loan associations in accordance with the laws of
the State of Ohio and imposes assessments on Ohio associations based on their
asset size to cover the costs of supervision and examination. Ohio law
prescribes the permissible investments and activities of Ohio savings and loan
associations, including the types of lending that such associations may engage
in and the investments in real estate, subsidiaries and corporate or government
securities that such associations may make. The ability of the Ohio associations
to engage in these state-authorized investments and activities is subject to
oversight and approval by the FDIC, if such investments or activities are not
permissible for a federally-chartered savings association. The Ohio
Superintendent also has approval authority over any mergers involving, or
acquisitions of control of, Ohio savings and loan associations. The Ohio
Superintendent may initiate certain supervisory measures or formal enforcement
actions against Ohio associations. Ultimately, if the grounds provided by law
exist, the Ohio Superintendent may place an Ohio association in conservatorship
or receivership.
In addition to being governed by the laws of Ohio specifically
governing savings and loan associations, the Association is also governed by
Ohio corporate law, to the extent such law does not conflict with the laws
specifically governing savings and loan associations.
OFFICE OF THRIFT SUPERVISION
GENERAL. The OTS is an office of the Department of the Treasury and is
responsible for the regulation and supervision of all federally-chartered
savings associations and all other savings associations, the deposits of which
are insured by the FDIC and the SAIF. The OTS issues regulations governing the
operation of savings associations, regularly examines such associations and
imposes assessments on savings associations based on their asset size to cover
the costs of general supervision and examination. The OTS also may initiate
enforcement actions against savings associations and certain persons affiliated
with them for violations of laws or regulations or for engaging in unsafe or
unsound practices. If the grounds provided by law exist, the OTS may appoint a
conservator or receiver for a savings association.
Savings associations are subject to regulatory oversight under various
consumer protection and fair lending laws. These laws govern, among other
things, truth-in-lending disclosures, equal credit opportunity, fair credit
reporting, and community reinvestment. Failure to abide by federal laws and
regulations governing community reinvestment could limit the ability of an
association to open a new branch or engage in a merger. Community reinvestment
regulations evaluate how well and to what extent an institution lends and
invests in its designated service area, with particular emphasis on low- to
moderate-income communities and borrowers in that area.
REGULATORY CAPITAL REQUIREMENTS. The Association is required by OTS
regulators to meet certain minimum capital requirements. The tangible capital
requirement requires savings associations to maintain "tangible capital" of not
less than 1.5% of their adjusted total assets. Tangible capital is defined in
OTS regulations as core capital minus any intangible assets.
15
<PAGE> 17
"Core capital" is comprised of common stockholders' equity (including
retained earnings), noncumulative preferred stock and related surplus, minority
interests in consolidated subsidiaries, certain nonwithdrawable accounts, and
pledged deposits of mutual associations. OTS regulations require savings
associations to maintain core capital of at least 4% of their total assets,
except for associations with the highest examination rating and acceptable
levels of risk.
OTS regulations require that savings associations maintain "risk-based
capital" in an amount not less than 8% of their risk-weighted assets. Risk-based
capital is defined as core capital plus certain additional items of capital
which, in the case of the Association, includes allowances for loan and lease
losses of $141,000 at December 31, 1999.
The OTS has adopted an interest rate risk component to the risk-based
capital requirement. Pursuant to the interest rate risk component, a savings
association must measure the effect of an immediate 200 basis point change in
interest rates on the value of its portfolio as determined under the methodology
of the OTS. If the measured interest rate risk is above the level deemed normal
under the regulation, the association will be required to deduct one-half of
such excess exposure from its total capital when determining its risk-based
capital. In general, an association with less than $300 million in assets and a
risk-based capital ratio in excess of 12% will not be subject to the interest
rate risk component.
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
associations. At each successively lower defined capital category, an
association is subject to more restrictive and more numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. In addition, the OTS
generally can downgrade an association's capital category, notwithstanding its
capital level, if, after notice and opportunity for hearing, the association is
deemed to be engaging in an unsafe or unsound practice because it has not
corrected deficiencies that resulted in it receiving a less than satisfactory
examination rating on matters other than capital or it is deemed to be in an
unsafe or unsound condition. All undercapitalized associations must submit a
capital restoration plan to the OTS within 45 days after becoming
undercapitalized. Such associations will be subject to increased monitoring and
asset growth restrictions and will be required to obtain prior approval for
acquisitions, branching, and engaging in new lines of business. Furthermore,
critically undercapitalized institutions must be placed in conservatorship or
receivership within 90 days of reaching that capitalization level, except under
limited circumstances. The Association's capital at December 31, 1999, met the
standards for the highest category, a "well-capitalized" institution.
Federal law prohibits a savings association from making a capital
distribution to anyone or paying management fees to any person having control of
the association if, after such distribution or payment, the association would be
undercapitalized. In addition, each company controlling an undercapitalized
association must guarantee that the association will comply with its capital
plan until the association has been adequately capitalized on an average during
each of four preceding calendar quarters and must provide adequate assurances of
performance. The aggregate liability pursuant to such guarantee is limited to
the lesser of (a) an amount equal to 5% of the association's total assets at the
time the institution became undercapitalized and (b) the amount that is
necessary to bring the association into compliance with all capital standards
applicable to such association at the time the association fails to comply with
its capital restoration plan.
LIQUIDITY. OTS regulations require that a savings association maintain
an average daily balance of liquid assets (such as cash, certain time deposits,
bankers' acceptances, and specified United States government, state, or federal
agency obligations) of not less than 4% of its net withdrawable savings deposits
plus borrowings payable in one year or less computed as of the end of the prior
quarter or based on the average daily balance during the prior quarter. Monetary
penalties may be imposed upon associations failing to meet these liquidity
requirements. The eligible liquidity of the Association at December 31, 1999,
was approximately $6.0 million, or 23.79%, and exceeded the applicable 4.0%
liquidity requirement by approximately $5.0 million.
QUALIFIED THRIFT LENDER TEST. Savings associations must meet one of two
tests in order to be a qualified thrift lender ("QTL"). The first test requires
a savings association to maintain a specified level of investments in assets
that are designated as qualifying thrift investments ("QTIs"). Generally, QTIs
are assets related to domestic residential real estate and manufactured housing,
although they also include credit card, student and small business
16
<PAGE> 18
loans and stock issued by any FHLB, the FHLMC or the Federal National Mortgage
Association. Under the QTL test, 65% of an institution's "portfolio assets"
(total assets less goodwill and other intangibles, property used to conduct
business and 20% of liquid assets) must consist of QTI on a monthly average
basis in nine out of every 12 months. The second test permits a savings
association to qualify as a QTL by meeting the definition of "domestic building
and loan association" under the Internal Revenue Code of 1986, as amended (the
"Code"). In order for an institution to meet the definition of a "domestic
building and loan association" under the Code, at least 60% of its assets must
consist of specified types of property, including cash, loans secured by
residential real estate or deposits, educational loans and certain governmental
obligations. The OTS may grant exceptions to the QTL tests under certain
circumstances. If a savings association fails to meet one of the QTL tests, the
association and its holding company become subject to certain operating and
regulatory restrictions and the savings association will not be eligible for new
FHLB advances. At December 31, 1999, the Association qualified as a QTL.
LENDING LIMIT. OTS regulations generally limit the aggregate amount
that a savings association can lend to one borrower to an amount equal to 15% of
the association's Lending Limit Capital. A savings association may lend to one
borrower an additional amount not to exceed 10% of the association's Lending
Limit Capital if the additional amount is fully secured by certain forms of
"readily marketable collateral." Real estate is not considered "readily
marketable collateral." Certain types of loans are not subject to the lending
limit. A general exception to the 15% limit provides that an association may
lend to one borrower up to $500,000 for any purpose. In applying the limit on
loans to one borrower, the regulations require that loans to certain related
borrowers be aggregated. At December 31, 1999, the Association was in compliance
with this lending limit.
TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to executive officers,
directors, and principal shareholders and their related interests must conform
to the lending limit on loans to one borrower, and the total of such loans to
executive officers, directors, principal shareholders, and their related
interests cannot exceed the association's Lending Limit Capital (or 200% of
Lending Limit Capital for qualifying institutions with less than $100 million in
deposits). Most loans to directors, executive officers, and principal
shareholders must be approved in advance by a majority of the "disinterested"
members of the board of directors of the association, with any "interested"
director not participating. All loans to directors, executive officers, and
principal shareholders must be made on terms substantially the same as offered
in comparable transactions with the general public or as offered to all
employees in a company-wide benefit program. Loans to executive officers are
subject to additional limitations. The Association was in compliance with such
restrictions at December 31, 1999.
All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An
affiliate of a savings association is any company or entity that controls, is
controlled by, or is under common control with the savings association. OSFS is
an affiliate of the Association. Generally, Sections 23A and 23B of the FRA (i)
limit the extent to which a savings association or its subsidiaries may engage
in "covered transactions" with any one affiliate to an amount equal to 10% of
such institution's capital stock and surplus, (ii) limit the aggregate of all
such transactions with all affiliates to an amount equal to 20% of such capital
stock and surplus, and (iii) require that all such transactions be on terms
substantially the same, or at least as favorable to the association, as those
provided in transactions with a non-affiliate. The term "covered transaction"
includes the making of loans, purchasing of assets, issuance of a guarantee, and
other similar types of transactions. In addition to the limits in Sections 23A
and 23B, a savings association may not make any loan or other extension of
credit to an affiliate unless the affiliate is engaged only in activities
permissible for a bank holding company and may not purchase or invest in
securities of any affiliate except shares of a subsidiary. The Association was
in compliance with these requirements and restrictions at December 31, 1999.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various
restrictions or requirements on the ability of associations to make capital
distributions. Capital distributions include, without limitation, payments of
cash dividends, repurchases and certain other acquisitions by an association of
its shares and payments to stockholders of another association in an acquisition
of such other association.
An application must be submitted and approval from the OTS must be
obtained by a subsidiary of a savings and loan holding company (i) if the
proposed distribution would cause total distributions for the calendar year to
exceed net income for that year to date plus the savings association's retained
net income for that year to date plus the retained net income for the preceding
two years; (ii) if the savings association will not be at least adequately
17
<PAGE> 19
capitalized following the capital distribution; (iii) if the proposed
distribution would violate a prohibition contained in any applicable statute,
regulation or agreement between the savings association and the OTS (or the
FDIC), or violate a condition imposed on the savings association in an
OTS-approved application or notice. If a savings association subsidiary of a
holding company is not required to file an application, it must file a notice of
the proposed capital distribution with the OTS. The Association paid $2.5
million in dividends to OSFS during 1999.
HOLDING COMPANY REGULATION. OSFS is a savings and loan holding company
within the meaning of the HOLA. As such, OSFS has registered with the OTS and is
subject to OTS regulations, examination, supervision, and reporting
requirements.
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings association or savings and loan holding company,
without prior approval of the OTS, or from acquiring or retaining more than 5%
of the voting shares of a savings association or holding company thereof, which
is not a subsidiary. Under certain circumstances, a savings and loan holding
company is permitted to acquire, with the approval of the OTS, up to 15% of the
previously unissued voting shares of an undercapitalized savings association for
cash without such savings association being deemed to be controlled by OSFS.
Except with the prior approval of the OTS, no director or officer of a savings
and loan holding company or person owning or controlling by proxy or otherwise
more than 25% of such holding company's stock may also acquire control of any
savings institution, other than a subsidiary institution, or any other savings
and loan holding company.
As a unitary savings and loan holding company, OSFS generally has no
restrictions on its activities. Such companies are the only financial
institution holding companies which may engage in any commercial, securities,
and insurance activities without restriction. The broad latitude to engage in
activities under current law can be restricted. If the OTS determines that there
is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness, or stability of its subsidiary savings association, the OTS
may impose such restrictions as deemed necessary to address such risk, including
limiting (i) payment of dividends by the savings association, (ii) transactions
between the savings association and its affiliates, and (iii) any activities of
the savings association that might create a serious risk that the liabilities of
OSFS and its affiliates may be imposed on the savings association.
Notwithstanding the foregoing rules as to permissible business activities of a
unitary savings and loan holding company, if the savings association subsidiary
of a holding company fails to meet the QTL test, then such unitary holding
company would become subject to the activities restrictions applicable to
multiple holding companies. At December 31, 1999, the Association met both those
tests.
If OSFS acquired control of another savings institution, other than
through a merger or other business combination with the Association, OSFS would
become a multiple savings and loan holding company. Unless the acquisition was
an emergency thrift acquisition and each subsidiary savings association met the
QTL test, the activities of OSFS and any of its subsidiaries (other than the
Association) would thereafter be subject to activity restrictions.
The OTS may approve acquisitions resulting in the formation of a
multiple savings and loan holding company that controls savings associations in
more than one state only if the multiple savings and loan holding company
involved controls a savings association that operated a home or branch office in
the state of the association to be acquired as of March 5, 1987, or if the laws
of the state in which the institution to be acquired is located specifically
permit institutions to be acquired by state-chartered institutions or savings
and loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
institutions). As under prior law, the OTS may approve an acquisition resulting
in a multiple savings and loan holding company controlling savings associations
in more than one state in the case of certain emergency thrift acquisitions.
Bank holding companies have had more expansive authority to make interstate
acquisitions than savings and loan holding companies since August 1995.
FEDERAL REGULATION OF ACQUISITIONS OF CONTROL OF OSFS AND THE
ASSOCIATION. In addition to the Ohio law limitations on the merger and
acquisition of the Association and OSFS, federal limitations generally require
regulatory approval of acquisitions at specified levels. Under pertinent federal
law and regulations, no person, directly or indirectly, or acting in concert
with others, may acquire control of the Association or OSFS without 60 days'
prior notice to the OTS. "Control" is generally defined as having more than 25%
ownership or voting power; however, ownership or voting power of more than 10%
may be deemed "control" if certain factors are in place. If
18
<PAGE> 20
the acquisition of control is by a company, the acquirer must obtain approval,
rather than give notice, of the acquisition.
In addition, any merger of the Association must be approved by the OTS
as well as the Superintendent. Further, any merger of OSFS in which OSFS is not
the resulting company must also be approved by both the OTS and the
Superintendent.
FEDERAL DEPOSIT INSURANCE CORPORATION
DEPOSIT INSURANCE AND ASSESSMENTS. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
federally insured banks and savings and loan associations and safeguards the
safety and soundness of the banking and savings and loan industries. The FDIC
administers two separate insurance funds, the Bank Insurance Fund ("BIF") for
commercial banks and state savings banks and the SAIF for savings associations.
The Association is a member of the SAIF and its deposit accounts are insured by
the FDIC up to the prescribed limits. The FDIC has examination authority over
all insured depository institutions, including the Association, and has
authority to initiate enforcement actions against federally-insured savings
associations if the FDIC does not believe the OTS has taken appropriate action
to safeguard safety and soundness and the deposit insurance fund.
The FDIC is required to maintain designated levels of reserves in the
SAIF and in the BIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such rates if such target
level has been met. The FDIC has established a risk-based assessment system for
both SAIF and BIF members. Under this system, assessments vary based on the risk
the institution poses to its deposit insurance fund. The risk level is
determined based on the institution's capital level and the FDIC's level of
supervisory concern about the institution.
STATE-CHARTERED ASSOCIATION ACTIVITIES. The ability of state-chartered
associations to engage in any state-authorized activities or make any
state-authorized investments is limited if such activity is conducted or
investment is made in a manner different than that permitted for, or is subject
to different terms and conditions than those imposed on, federally chartered
savings associations. Engaging as a principal in any such activity or investment
not permissible for a federal association is subject to approval by the FDIC.
Such approval will not be granted unless certain capital requirements are met
and there is not a significant risk to the FDIC insurance fund. All of the
Association's activities and investments at December 31, 1999, were permissible
for a federal association.
FEDERAL RESERVE REQUIREMENTS
FRB regulations require savings associations to maintain reserves of 3%
of net transaction accounts (primarily NOW accounts) up to $44.3 million
(subject to an exemption of up to $5.0 million), and of 10% of net transaction
accounts in excess of $44.3 million. At December 31, 1999, the Association was
in compliance with the reserve requirements.
FEDERAL HOME LOAN BANKS
The FHLBs provide credit to their members in the form of advances. The
Association is a member of the FHLB of Cincinnati and must maintain an
investment in the capital stock of the FHLB of Cincinnati in an amount equal to
the greater of 1.0% of the aggregate outstanding principal amount of the
Association's residential mortgage loans, home purchase contracts and similar
obligations at the beginning of each year, or 5% of its advances from the FHLB
of Cincinnati. The Association was in compliance with this requirement with an
investment in stock of the FHLB of Cincinnati of $400,000 at December 31, 1999.
FHLB advances to member institutions who meet the QTL test are generally
limited to the lower of (i) 25% of the member's assets or (ii) 20 times the
member's investment in FHLB stock. At December 31, 1999, the Association's
maximum limit on advances was approximately $7.9 million. The granting of
advances is also subject to the FHLB's collateral and credit underwriting
guidelines.
19
<PAGE> 21
Upon the origination or renewal of a loan or advance, the FHLB is
required by law to obtain and maintain a security interest in collateral in one
or more of the following categories: fully-disbursed, whole first mortgage loans
on improved residential property, or securities representing a whole interest in
such loans; securities, issued, insured, or guaranteed by the United States
Government or an agency thereof; deposits in any FHLB; or other real estate
related collateral (up to 30% of the member association's capital) acceptable to
the FHLB, if such collateral has a readily ascertainable value and the FHLB can
perfect its security interest in the collateral.
The FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances. The standards take into account a member's performance under the
Community Reinvestment Act and its record of lending to first-time home buyers.
All long-term advances by the FHLB must be made only to provide funds for
residential housing finance.
TAXATION
FEDERAL TAXATION
OSFS and the Association are each subject to the federal tax laws and
regulations which apply to corporations generally. In addition to the regular
income tax, OSFS and the Association may be subject to the alternative minimum
tax which is imposed at a minimum tax rate of 20% on "alternative minimum
taxable income" (which is the sum of a corporation's regular taxable income,
with certain adjustments, and tax preference items), less any available
exemption. Such tax preference items include interest on certain tax-exempt
bonds issued after August 7, 1986. In addition, 75% of the amount by which a
corporation's "adjusted current earnings" exceeds its alternative minimum
taxable income computed without regard to this preference item and prior to
reduction by net operating losses, is included in alternative minimum taxable
income. Net operating losses can offset no more than 90% of alternative minimum
taxable income. The alternative minimum tax is imposed to the extent it exceeds
the corporation's regular income tax. Payments of alternative minimum tax may be
used as credits against regular tax liabilities in future years. However, the
Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain
"small corporations" for tax years beginning after December 31, 1997. A
corporation initially qualifies as a small corporation if it had average gross
receipts of $5,000,000 or less for the three tax years ending with its first tax
year beginning after December 31, 1996. Once a corporation is recognized as a
small corporation, it will continue to be exempt from the alternative minimum
tax for as long as its average gross receipts for the prior three-year period do
not exceed $7,500,000. In determining if a corporation meets this requirement,
the first year that it achieved small corporation status is not taken into
consideration.
The Association's average gross receipts for the three tax years ending
on December 31, 1999, are $2.5 million and as a result, the Association does
qualify as a small corporation exempt from the alternative minimum tax.
Prior to the enactment of the Small Business Jobs Protection Act (the
"Act"), which was signed into law on August 21, 1996, certain thrift
institutions, such as the Association, were allowed deductions for bad debts
under methods more favorable than those granted to other taxpayers. Qualified
thrift institutions could compute deductions for bad debts using either the
specific charge-off method of Section 166 of the Code or one of two reserve
methods of Section 593 of the Code. The reserve methods under Section 593 of the
Code permitted a thrift institution annually to elect to deduct bad debts under
either (i) the "percentage of taxable income" method applicable only to thrift
institutions, or (ii) the "experience" method that also was available to small
banks. Under the "percentage of taxable income" method, a thrift institution
generally was allowed a deduction for an addition to its bad debt reserve equal
to 8% of its taxable income (determined without regard to this deduction and
with additional adjustments). Under the "experience" method, a thrift
institution was generally allowed a deduction for an addition to its bad debt
reserve equal to the greater of (i) an amount based on its actual average
experience for losses in the current and five preceding taxable years, or (ii)
an amount necessary to restore the reserve to its balance as of the close of the
base year. A thrift institution could elect annually to compute its allowable
addition to bad debt reserves for qualifying loans either under the experience
method or the percentage of taxable income method. For tax years 1995, 1994, and
1993, the Association used the percentage of taxable income method.
20
<PAGE> 22
The Act eliminated the percentage of taxable income method of
accounting for bad debts by thrift institutions, effective for taxable years
beginning after 1995. Thrift institutions that are treated as small banks are
allowed to utilize the experience method applicable to such institutions, while
thrift institutions that are treated as large banks are required to use only the
specific charge off method.
A thrift institution required to change its method of computing
reserves for bad debts will treat such change as a change in the method of
accounting, initiated by the taxpayer and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires certain
amounts to be recaptured with respect to such change. Generally, the amounts to
be recaptured will be determined solely with respect to the "applicable excess
reserves" of the taxpayer. The amount of the applicable excess reserves will be
taken into account ratably over a six-taxable year period, beginning with the
first taxable year beginning after 1995, subject to the residential loan
requirement described below. In the case of a thrift institution that is treated
as a large bank, the amount of the institution's applicable excess reserves
generally is the excess of (i) the balances of its reserve for losses on
qualifying real property loans (generally loans secured by improved real estate)
and its reserve for losses on nonqualifying loans (all other types of loans) as
of the close of its last taxable year beginning before January 1, 1996, over
(ii) the balances of such reserves as of the close of its last taxable year
beginning before January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of
a thrift institution that is treated as a small bank, like the Association, the
amount of the institution's applicable excess reserves generally is the excess
of (i) the balance of its reserve year beginning before January 1, 1996, over
(ii) the greater of the balance of (a) its pre-1988 reserves or (b) what the
thrift's reserves would have been at the close of its last year beginning before
January 1, 1996, had the thrift always used the experience method.
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v)(generally a loan secured by
residential or church property and certain mobile homes), but only to the extent
that the loan is made to the owner of the property.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e), as modified by the Act, which require recapture in the case of
certain excessive distributions to shareholders. The pre-1988 reserves may not
be utilized for payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for any
other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first out
of the institution's post-1951 accumulated earnings and profits; second, out of
the pre-1988 reserves; and third, out of such other accounts as may be proper.
To the extent a distribution by the Association to OSFS is deemed paid out of
its pre-1988 reserves under these rules, the pre-1988 reserves would be reduced
and the gross income of the Association for tax purposes would be increased by
the amount which, when reduced by the income tax, if any, attributable to the
inclusion of such amount in its gross income, equals the amount deemed paid out
of the pre-1988 reserves. As of December 31, 1999, the pre-1988 reserves of the
Association for tax purposes totaled approximately $789,000. The Association
believes it had approximately $4.7 million of accumulated earnings and profits
for tax purposes as of December 31, 1999, which would be available for dividend
distributions, provided regulatory restrictions applicable to the payment of
dividends are met. See Note 8 to the financial statements. No representation can
be made as to whether the Association will have current or accumulated earnings
and profits in subsequent years.
The tax returns of the Association have been audited or closed without
audit through fiscal year 1996. In the opinion of management, any examination of
open returns would not result in a deficiency which could have a material
adverse effect on the financial condition of the Association.
21
<PAGE> 23
OHIO TAXATION
OSFS is subject to the Ohio corporation franchise tax, which as applied
to OSFS, is a tax measured by both net earnings and net worth. For tax years
beginning after December 31, 1998, the rate of tax is the greater of (i) 5.1% on
the first $50,000 of computed Ohio taxable income and 8.5% of computed Ohio
taxable income in excess of $50,000 or (ii) .400% times taxable net worth.
A special litter tax is also applicable to all corporations, including
OSFS, subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.
The Association is a "financial institution" for State of Ohio tax
purposes. As such, it is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.4% of the
book net worth of the Association determined in accordance with generally
accepted accounting principles for tax year 1999. For tax years 2000 and years
thereafter, the tax will be 1.3% of the book net worth. As a "financial
institution," the Association is not subject to any tax based upon net income or
net profits imposed by the State of Ohio.
22
<PAGE> 24
ITEM 2. DESCRIPTION OF PROPERTY
The following table sets forth certain information at December 31, 1999,
regarding the properties on which the main office and the branch office of the
Association are located:
<TABLE>
<CAPTION>
Owned Dated Square Net book
Location or leased acquired footage value Deposits
- -------- --------- -------- ------- ----- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
435 Main Street Owned 1964 4,744 $120,695 $18,751
Bridgeport, Ohio 43912
4000 Central Avenue Owned 1979 2,197 $274,394 $ 6,868
Shadyside, Ohio 43947
</TABLE>
The Association owns all of its electronic data processing equipment.
Such equipment includes several personal computers with a net book value of
approximately $10,000.
ITEM 3. LEGAL PROCEEDINGS
Neither OSFS nor the Association is presently involved in any legal
proceedings of a material nature. From time to time, the Association is a party
to legal proceedings incidental to its business to enforce its security interest
in collateral pledged to secure loans made by the Association.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the shareholders of OSFS
during the last quarter of the fiscal year ended December 31, 1999.
23
<PAGE> 25
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained in that portion of the Annual Report to
Shareholders for the fiscal year ended December 31, 1999 (the "Annual Report")
included in Exhibit 13 hereto under the caption "MARKET PRICE OF COMMON SHARES
OF OSFS AND RELATED SHAREHOLDER MATTERS" is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in that portion of the Annual Report included
in Exhibit 13 hereto under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" is incorporated herein by
reference.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements contained in that portion of the
Annual Report included in Exhibit 13 hereto in the "REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS AND CONSOLIDATED FINANCIAL STATEMENTS" is
incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
24
<PAGE> 26
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information contained in the definitive Proxy Statement for the
2000 Annual Meeting of Shareholders of OSFS (the "Proxy Statement"), which is
included in Exhibit 20 hereto, under the captions "PROPOSAL ONE-ELECTION OF
DIRECTORS," "EXECUTIVE OFFICERS" and "SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE" is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement, which is included in
Exhibit 20 hereto, under the caption "COMPENSATION OF EXECUTIVE OFFICERS AND
DIRECTORS" is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Proxy Statement, which is included in
Exhibit 20 hereto, under the caption "VOTING SECURITIES AND OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
For a list of Exhibits filed with this Annual Report on
Form 10-KSB, see the "Index to Exhibits" following the
signature page.
(b) No current report on Form 8-K was filed by OSFS during the
last quarter of the fiscal year covered by this Report.
25
<PAGE> 27
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on March 24, 2000.
OHIO STATE FINANCIAL SERVICES, INC.
By: /s/ Jon W. Letzkus
-----------------------------------
Jon W. Letzkus
Principal Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: /s/ Jon W. Letzkus Date: March 24, 2000
---------------------------------------------
Jon W. Letzkus
Principal Executive Officer
Principal Financial and Accounting Officer (pro tempore)
Director
By: /s/ John O. Costine Date: March 24, 2000
---------------------------------------------
John O. Costine
Director
By: /s/ Anton M. Godez Date: March 24, 2000
---------------------------------------------
Anton M. Godez
Director
By: /s/ William E. Reline Date: March 24, 2000
---------------------------------------------
William E. Reline
Director
By: /s/ Manuel C. Thomas Date: March 24, 2000
---------------------------------------------
Manuel C. Thomas
Director
26
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Location
- ----------- ----------- --------
<S> <C> <C>
3.1 Articles of Incorporation of Ohio Incorporated herein by reference to
State Financial Services, Inc. Exhibits 3.1 and 3.3 of Pre-Effective
("OSFS"), as amended through July 1, Amendment No. 1 to the Form S-1 of OSFS,
1997 dated August 1, 1997 (Registration No.
333-29649)
3.2 Regulations of OSFS Incorporated herein by reference to
Exhibit 3.2 to the Registration Statement
on Form S-1 of OSFS, dated June 20, 1997
(Registration No. 333-29649) (the "Form
S-1")
*10.1 Employment Agreement between Incorporated herein by reference to
Bridgeport Savings and Loan Exhibit 10.1 to the Annual Report on Form
Association (the "Association") and 10-KSB of OSFS for the fiscal year ended
Jon W. Letzkus December 31, 1998 (File No. 000-23109)
*10.2 Employment Agreement Extension Filed herein
between the Association and Jon W.
Letzkus
*10.3 Bridgeport Savings and Loan Filed herein
Association Recognition and Retention
Plan and Trust Agreement, as amended
on April 21, 1999
*10.4 Ohio State Financial Services, Inc. Filed herein
1998 Stock Option and Incentive Plan,
as amended on April 21, 1999
*10.5 Bridgeport Savings and Loan Incorporated herein by reference to
Association Employee Stock Ownership Exhibit 10.3 to the Form S-1
Plan
13 1999 Annual Report to Shareholders of Filed herein
OSFS
20 Proxy Statement for the 2000 Annual Filed herein
Meeting of Shareholders of OSFS
21 Subsidiaries of OSFS Incorporated herein by reference to
Exhibit 21 to the Annual Report on Form
10-KSB of OSFS for the fiscal year ended
December 31, 1997 (File No. 000-23109)
</TABLE>
<PAGE> 29
<TABLE>
<S> <C> <C>
23 Consent of Independent Auditors Filed herein
27 Financial Data Schedule Filed herein
</TABLE>
- --------------
*Indicates management contracts or compensatory plans or arrangements that are
required to be filed as an exhibit to this Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1999.
2
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT EXTENSION
This EMPLOYMENT AGREEMENT EXTENSION (hereinafter referred to as this "AGREEMENT
EXTENSION"), is entered into effective the 1st day of January, 2000, by and
between Bridgeport Savings and Loan Association, a savings and loan association
incorporated under Ohio law (hereinafter referred to as the "EMPLOYER") and Jon
W. Letzkus, an individual (hereinafter referred to as the "EMPLOYEE");
WITNESSETH
WHEREAS, the EMPLOYEE is currently employed as the President and
Managing Officer of the EMPLOYER; and
WHEREAS, the EMPLOYER and the EMPLOYEE are parties to an employment
agreement dated January 1, 2000 (the "EMPLOYMENT AGREEMENT"); and
WHEREAS, Section 1(b) of the EMPLOYMENT AGREEMENT provides that the
Board of Directors of the EMPLOYER may extend the term of the EMPLOYMENT
AGREEMENT for a one-year term beyond the then effective expiration date,
provided the Board has determined that the EMPLOYMENT AGREEMENT should be
extended; and
WHEREAS, as a result of the skill, knowledge and experience of the
EMPLOYEE, the Board of Directors of the EMPLOYER has determined that the
EMPLOYMENT AGREEMENT should be extended; and
WHEREAS, the EMPLOYEE desires to continue to serve as the President and
Managing Officer of the EMPLOYER and to consent to the extension of the
EMPLOYMENT AGREEMENT;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the EMPLOYER and the EMPLOYEE hereby agree as follows:
1. EXTENSION OF TERM OF EMPLOYMENT AGREEMENT. The term of the EMPLOYMENT
AGREEMENT is extended for a one year period and shall end on December 31, 2002
(the "EXTENDED TERM"), unless extended by the EMPLOYER with the consent of the
EMPLOYEE as provided in subsection (b) of Section 1 of the EMPLOYMENT AGREEMENT.
2. EFFECT OF PRIOR AGREEMENTS. All of the terms and conditions of the EMPLOYMENT
AGREEMENT shall remain in full force and effect during the EXTENDED TERM.
IN WITNESS WHEREOF, the EMPLOYER has caused this AGREEMENT EXTENSION to
be executed by its duly authorized officer, and the EMPLOYEE has consented to
and signed this AGREEMENT EXTENSION, each as of the day and year first above
written.
Attest: Bridgeport Savings and Loan Association
/s/ Anton M. Godez By: /s/ Manuel C. Thomas
- --------------------------- -------------------------------
Anton M. Godez its Chairman
Attest:
/s/ William E. Reline /s/ Jon W. Letzkus
- --------------------------- -----------------------------------
William E. Reline Jon W. Letzkus
<PAGE> 1
EXHIBIT 10.3
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
RECOGNITION AND RETENTION PLAN
AND TRUST AGREEMENT
ARTICLE I
DEFINITIONS
The following words and phrases when used in this Agreement with an
initial capital letter shall have the meanings set forth below. Wherever
appropriate, the masculine pronoun shall include the feminine pronoun and the
singular shall include the plural:
1.01 "Agreement" means the Amended and Restated Bridgeport Savings and
Loan Association Recognition and Retention Plan and Trust Agreement.
1.02 "Association" means Bridgeport Savings and Loan Association, a
savings and loan association organized under the laws of the State of Ohio.
1.03 "Award" means a right granted to a Director or an Employee under
this Plan to receive Plan Shares.
1.04 "Beneficiary" means the person or persons designated by a
Recipient to receive any benefits payable under this Plan in the event of such
Recipient's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's estate.
1.05 "Board" means the Board of Directors of the Association.
1.06 "Committee" means the Recognition and Retention Plan Committee
appointed by the Board pursuant to Article IV hereof.
1.07 "Common Shares" means common shares of the Corporation.
1.08 "Conversion" means the conversion of the Association from mutual
to stock form.
1.09 "Corporation" means Ohio State Financial Services, Inc., a savings
and loan holding company incorporated under the laws of the State of Ohio for
the purpose of holding all of the common shares of the Association issued in
connection with the Conversion.
1.10 "Director" means any person who is a member of the Board of
Directors of the Corporation, the Association or a Subsidiary.
1.11 "Employee" means any person who is employed by the Corporation,
the Association or a Subsidiary.
1.12 "Person" means an individual, corporation, partnership, trust,
bank, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.
1.13 "Plan" means the Recognition and Retention Plan established by
this Agreement.
1.14 "Plan Shares" means the Common Shares held pursuant to the Trust
or which may be purchased by the Trustee pursuant to Section 5.02 of this
Agreement.
1.15 "Plan Share Reserve" means the Common Shares held by the Trustee
pursuant to Sections 5.02 and 5.03 of this Agreement.
1.16 "Recipient" means any Director or Employee who receives an Award
under the Plan.
<PAGE> 2
1.17 "Subsidiary" means a subsidiary of the Association, if any, which,
with the consent of the Board, agrees to participate in the Plan.
1.18 "Trust" means the trust established by this Agreement.
1.19 "Trustee" means the person or persons or entity approved by the
Board pursuant to Sections 4.01 and 4.02 to hold legal title to the Plan assets
for the purposes set forth herein.
ARTICLE II
ESTABLISHMENT OF THE PLAN AND TRUST
2.01 The Association hereby establishes a Recognition and Retention
Plan and Trust upon the terms and subject to the conditions set forth in this
Agreement.
2.02 The Trustee hereby accepts the Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions of this Agreement.
ARTICLE III
PURPOSE OF THE PLAN
3.01 The purpose of the Plan is to reward and retain the Directors and
Employees of the Corporation, the Association and the Subsidiaries by providing
such Directors and Employees with an equity interest in the Corporation as
reasonable compensation for their contributions to the Corporation, the
Association and any Subsidiary.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 ROLE OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, which shall consist of not less than three members
of the Board. The Committee shall have all of the powers set forth in this Plan.
The interpretation and construction by the Committee of any provisions of this
Agreement or of any Award granted hereunder shall be final, conclusive and
binding. The Committee shall act by the vote, or the written consent, of a
majority of its members. The Committee shall report actions and decisions with
respect to the Plan to the Board upon request by the Board.
4.02 ROLE OF THE BOARD. The members of the Committee and the Trustee
shall be appointed or approved by and shall serve at the pleasure of the Board.
The Board may in its discretion from time to time remove members from or add
members to the Committee and may remove, replace or add one or more Trustees.
The Board, in its absolute discretion, may take any action under or with respect
to the Plan which the Committee is authorized to take and may reverse or
override any action taken or decision made by the Committee under or with
respect to the Plan or take any other action reserved to the Board under this
Agreement; provided, however, that the Board may not revoke any Award already
granted under this Agreement. All decisions, determinations and interpretations
of the Board shall be final, conclusive and binding upon all parties having an
interest in the Plan.
4.03 LIMITATION ON LIABILITY. No member of the Board or the Committee,
nor any Trustee, shall be liable for any determination made in good faith with
respect to the Plan or any Plan Shares or Awards granted under the Plan. If a
member of the Board or of the Committee or any Trustee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of anything done or not done by such member in such capacity under or
with respect to this Plan, the Association shall indemnify such member against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such member in connection with
such action, suit or proceeding if such member acted in good faith and in a
manner such member reasonably believed to be in or not opposed to the best
interests of the Corporation, the Association and any Subsidiary and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such member's conduct was unlawful.
<PAGE> 3
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall determine the
amounts (or the method of computing the amounts) to be contributed by the
Association to the Trust. Such amounts shall be paid to the Trustee at the time
of contribution. No contributions to the Trust by Directors or Employees shall
be permitted.
5.02 INVESTMENT OF TRUST ASSETS. Except as otherwise permitted by
Section 8.02 of this Agreement, the Trustee shall initially invest all of the
Trust's assets, after providing for any required withholding as needed for tax
purposes, exclusively in Common Shares; provided, however, that the Trust shall
not purchase a number of Common Shares equal to more than four percent (4%) of
the number of Common Shares issued in connection with the Conversion. After such
investment, the Common Shares shall be held by the Trustee in the Plan Share
Reserve until such Common Shares are subject to one or more Awards. Any funds
held by the Trust shall be invested by the Trustee in such accounts at the
Association or elsewhere or such other instruments or investments as the Trustee
shall determine to be appropriate.
5.03 EFFECT OF ALLOCATIONS, RETURNS AND FORFEITURES UPON PLAN SHARE
RESERVES. Upon the allocation of Awards under Section 6.02 of this Agreement, or
the decision of the Committee to return Plan Shares to the Corporation, the Plan
Share Reserve shall be reduced by the number of Plan Shares so allocated or
returned. Any Plan Shares subject to an Award which is subject to forfeiture by
the Recipient pursuant to Section 7.01 of this Agreement shall be retained in
the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 ELIGIBILITY. Directors and Employees are eligible to receive
Awards within the sole discretion of the Committee.
6.02 ALLOCATIONS. The Committee will determine which of the Directors
and Employees will be granted Awards and the number of Plan Shares covered by
each Award; provided, however, if this Plan is implemented prior to the first
anniversary of the effective date of the Conversion, the following restrictions
shall apply: (a) the aggregate number of Plan Shares covered by Awards to any
one Employee shall not exceed 25% of the total number of Plan Shares, (b) no
more than 5% of the Plan Shares shall be awarded to any Director who is not an
Employee, and (c) no more than 30% of the Plan Shares shall be awarded in the
aggregate to Directors who are not Employees. In the event Plan Shares are
forfeited for any reason or additional Plan Shares are purchased by the Trustee,
the Committee may, from time to time, determine which of the Employees and
Directors will be granted additional Awards to be awarded from forfeited or
additional Plan Shares.
In selecting the Directors and Employees to whom Awards will be granted
and the number of shares covered by such Awards, the Committee shall consider
the position, duties and responsibilities of the eligible Directors and
Employees, the value of their services to the Corporation, the Association and
any Subsidiary and any other factors the Committee may deem relevant.
6.03 FORM OF ALLOCATION. As promptly as practicable after a
determination is made pursuant to Section 6.02 of this Agreement that an Award
is to be made, the Committee shall notify the Recipient in writing of the grant
of the Award, the number of Plan Shares covered by the Award and the terms upon
which the Plan Shares subject to the Award may be earned. The date on which the
Committee determines that an Award is to be made or a later date designated by
the Committee shall be considered the date of grant of the Awards. The Committee
shall maintain records as to all grants of Awards under the Plan.
6.04 ALLOCATIONS NOT REQUIRED. None of the Directors or Employees,
either individually or as a group, shall have any right or entitlement to
receive an Award under the Plan. The Committee may, with the approval of the
Board, and shall, if so directed by the Board, return all Common Shares and
other assets in the Plan Share Reserve to the Corporation at any time and
thereafter cease issuing Awards.
6.05 SHAREHOLDER APPROVAL. If this Plan is implemented prior to the
first anniversary of the effective date of the Conversion, this Agreement shall
be submitted to the shareholders of the Corporation at an annual or
<PAGE> 4
special meeting to be held no sooner than six months after the effective date of
the Conversion and no Awards shall be granted hereunder until the shareholders
of the Corporation approve this Agreement.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(a) GENERAL RULES. Unless the Committee shall specifically
state a longer period of time over which Awards shall be earned and
non-forfeitable at the time an Award is granted, if this Plan is implemented
prior to the first anniversary of the effective date of the Conversion, Plan
Shares covered by each Award shall be earned and non-forfeitable by a Recipient
over a period of five years at the rate of one-fifth per year commencing on the
date which is one year after the date of the grant of such Award. As Plan Shares
become earned and non-forfeitable, any cash dividends, returned capital and
earnings thereon shall also be earned and non-forfeitable.
(b) REVOCATION. Unless otherwise permitted by applicable
laws and regulations, any Plan Shares and any cash dividends, returned capital
and earnings thereon that have not been earned and are not non-forfeitable in
accordance with Section 7.01(a) of this Agreement shall be forfeited in the
event that (i) a Recipient who is a Director ceases to serve on the Board or
(ii) a Recipient who is not a Director of the Association ceases to be an
Employee of the Association, except as otherwise provided in subsection (c) of
this Section 7.01.
(c) EXCEPTION FOR TERMINATIONS DUE TO DEATH OR DISABILITY.
All Plan Shares and cash dividends, returned capital and earnings thereon
subject to an Award held by a Recipient whose service as a Director or Employee
of the Corporation, the Association or any Subsidiary terminates due to (i)
death or (ii) disability (as determined by the Committee) shall be deemed fully
earned and non-forfeitable as of the later of the Recipient's last day of
service as a Director or as an Employee and shall be distributed as soon as
practicable thereafter.
(d) EXCEPTION FOR A CHANGE IN CONTROL. Nothwithstanding any
other provision of this Agreement, all Plan Shares subject to an Award held by a
Recipient shall be deemed to be immediately 100% earned and non-forfeitable in
the event of a change in control or imminent change in control of the
Corporation or the Association and shall be distributed as soon as practicable
thereafter. For purposes of this Section 7.01(d), "change in control" shall
mean: (i) the execution of an agreement for the sale of all, or a material
portion, of the assets of the Corporation or the Association; (ii) the execution
of an agreement for a merger or recapitalization of the Corporation or the
Association or any merger or recapitalization whereby the Corporation or the
Association is not the surviving entity; (iii) a change of control of the
Corporation or the Association, as defined or determined by the OTS; or (iv) the
acquisition, directly or indirectly, of the beneficial ownership (within the
meaning of the terms "beneficial ownership" as defined under Section 13(d) of
the Securities Exchange Act of 1934 and the rules promulgated thereunder) of
twenty-five percent (25%) or more of the outstanding voting securities of the
Corporation or the Association by any person, trust, entity or group. For
purposes of this Section 7.01(d), "imminent change in control" shall refer to
any offer or announcement, oral or written, by any person or any persons acting
as a group, to acquire control of the Corporation or the Association as to which
an application or notice has been filed with the OTS and such application has
been approved or such notice has not been disapproved.
7.02 DISTRIBUTION OF PLAN SHARES.
(a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Except as
otherwise provided in this Agreement, Plan Shares shall be distributed to the
Recipient or his or her Beneficiary, as the case may be, as soon as practicable
after they have been earned, together with any cash distributions, returned
capital and earnings thereon with respect to such Plan Shares that have been
earned.
(b) FORM OF DISTRIBUTION. All distributions of Plan Shares,
together with any shares representing stock dividends, shall be distributed in
the form of Common Shares. No fractional shares shall be distributed. Payments
representing cash dividends, returned capital and earnings thereon shall be made
in cash.
(c) WITHHOLDING. The Trustee may withhold from any cash
payment made under this Plan sufficient amounts to cover any applicable
withholding and employment taxes and, if the amount of such cash payment is not
sufficient, the Trustee may require the Recipient or Beneficiary to pay to the
Trustee the amount required to be withheld as a condition of delivering the Plan
Shares. The Trustee shall pay over to the Association or
<PAGE> 5
the Subsidiary which employs or employed such Recipient or which the Recipient
serves or served as a Director, any such amount withheld from or paid by the
Recipient or Beneficiary.
(d) REGULATORY EXCEPTIONS. Notwithstanding anything to the
contrary in this Agreement, no Plan Shares, upon becoming fully earned and
non-forfeitable, shall be distributed unless and until all of the requirements
of all applicable laws and regulations shall have been met.
7.03 VOTING OF PLAN SHARES. All Common Shares held by the Trustee in
the Plan Share Reserve which have not yet been earned by a Recipient pursuant to
Section 7.01 of this Agreement shall be voted by the Trustee. A Recipient shall
be entitled to direct the voting of Plan Shares which have been earned pursuant
to Section 7.01 of this Agreement but have not yet been distributed to him.
ARTICLE VIII
TRUST
8.01 TRUST. The Trustee shall receive, hold, administer, invest and
make distributions and disbursements from the Trust in accordance with the
provisions of the Plan and the Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
this Agreement.
8.02 MANAGEMENT OF TRUST. The Trustee shall have complete authority and
discretion with respect to the management, control and investment of the Trust,
and the Trustee shall invest all assets of the Trust, except those attributable
to cash dividends or returned capital paid with respect to Plan Shares not held
in the Plan Share Reserve, in Common Shares to the fullest extent practicable,
and except to the extent that the Trustee determines that the holding of monies
in cash or cash equivalents is necessary to meet the obligations of the Trust.
The Trustee shall have the power to do all things and execute such instruments
as may be deemed necessary or proper with respect to the duties of the Trustee
hereunder, including the following powers:
(a) To invest up to 100% of all Trust assets in Common
Shares without regard to any law now or hereafter in force limiting
investments for trustees or other fiduciaries. The investment
authorized herein may constitute the only investment of the Trust, and,
in making such investment, the Trustee is authorized to purchase Common
Shares from the Corporation or from any other source. Such Common
Shares so purchased may be outstanding, newly issued or treasury
shares;
(b) To invest any Trust assets not otherwise invested in
accordance with Section 8.02(a) of this Agreement in such deposit
accounts and certificates of deposit (including those issued by the
Association), obligations of the United States government or its
agencies or such other investments as shall be considered the
equivalent of cash;
(c) To sell, exchange or otherwise dispose of any property
at any time held or acquired by the Trust;
(d) To cause stocks, bonds or other securities to be
registered in the name of a nominee, without the addition of words
indicating that such security is an asset of the Trust (but accurate
records shall be maintained showing that such security is an asset of
the Trust);
(e) To hold cash without interest in such amounts as may be
reasonable, in the opinion of the Trustee, for the proper operation of
the Plan and the Trust;
(f) To employ brokers, agents, custodians, consultants and
accountants;
(g) To hire counsel to render advice with respect to the
rights, duties and obligations of the Trustee hereunder, and such other
legal services or representation as the Trustee may deem desirable; and
(h) To hold funds and securities representing the amounts to
be distributed to a Recipient or his or her Beneficiary as a
consequence of a dispute as to the disposition thereof, whether in a
segregated account or held in common with other assets of the Trust.
<PAGE> 6
Notwithstanding anything herein contained to the contrary, the Trustee shall not
be required to make any inventory, appraisal or settlement or report to any
court, or to secure any order of court for the exercise of any power herein
contained, or to give bond.
8.03 RECORDS AND ACCOUNTS. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Committee.
8.04 EARNINGS. All earnings, gains and losses with respect to Trust
assets shall be allocated, in accordance with a reasonable procedure adopted by
the Committee, to bookkeeping accounts for Recipients or to the general account
of the Trust, depending on the nature and allocation of the assets generating
such earnings, gains and losses. Without limiting the generality of the
foregoing, any earnings on cash dividends or returned capital received with
respect to Plan Shares shall be allocated (a) to accounts for Recipients, if
such shares which are the subject of outstanding Awards, and shall become earned
and distributed as specified in Article VII of this Agreement or (b) otherwise
to the Plan Share Reserve if such Plan Shares are not the subject of outstanding
awards.
8.05 EXPENSES. All costs and expenses incurred in the operation and
administration of the Plan shall be paid by the Association.
ARTICLE IX
MISCELLANEOUS
9.01 ADJUSTMENTS FOR CAPITAL CHANGES. The aggregate number of Plan
Shares available for issuance pursuant to the Awards and the number of Plan
Shares to which any Award relates shall be proportionately adjusted for any
increase or decrease in the total number of outstanding Common Shares issued
subsequent to the effective date of the Plan if such increase or decrease
resulted from any split, subdivision or consolidation of shares or other capital
adjustment, or other increase or decrease in such shares effected without
receipt or payment of consideration by the Corporation.
9.02 AMENDMENT AND TERMINATION OF PLAN. The Board may, by resolution,
at any time amend or terminate the Plan. The power to amend or terminate the
Plan shall include the power to direct the Trustee to return to the Corporation
or the Association all or any part of the assets of the Trust, including Common
Shares held in the Plan Share Reserve, as well as Common Shares and other assets
subject to Awards which are not yet earned by the Directors or Employees to whom
they are allocated; provided, however, that the termination of the Trust shall
not affect a Recipient's right to earn Awards and to the distribution of Common
Shares relating thereto, including earnings thereon, in accordance with the
terms of this Agreement and the grant by the Committee or the Board.
9.03 NONTRANSFERABLE. Awards shall not be transferable by a Recipient.
During the lifetime of the Recipient, an Award may only be earned by and paid to
the Recipient who was notified in writing of the Award by the Committee pursuant
to Section 6.03 of this Agreement. No Recipient or Beneficiary shall have any
right in or claim to any assets of the Plan or the Trust, nor shall the
Corporation, the Association or any Subsidiary be subject to any claim for
benefits hereunder.
9.04 DIRECTORSHIP RIGHTS. Neither this Agreement nor any grant of an
Award hereunder nor any action taken by the Trustee, the Committee or the Board
in connection with the Plan shall create any right, either express or implied,
on the part of any Director to continue to serve as a Director of the
Association or any Subsidiary.
9.05 EMPLOYMENT RIGHTS. Neither this Agreement nor any grant of an
Award hereunder nor any action taken by the Trustee, the Committee or the Board
in connection with the Plan shall create any right, either express or implied,
on the part of any Employee to continue in the employ of the Corporation, the
Association or any Subsidiary.
9.06 VOTING AND DIVIDEND RIGHTS. No Recipient shall have any voting or
dividend rights or other rights of a shareholder in respect of any Plan Shares
covered by an Award, except as expressly provided in Sections 7.01, 7.02 and
7.03 of this Agreement, prior to the time such Plan Shares are actually
distributed to such Recipient.
9.07 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Ohio, except to the extent that federal law shall
be deemed applicable.
<PAGE> 7
9.08 EFFECTIVE DATE. Subject to Section 6.05 of this Agreement, this
Agreement shall be effective as of the 15th day of April, 1998.
9.09 TERM OF PLAN. The Plan shall remain in effect until the earlier of
(a) the termination of the Plan by the Board or (b) the distribution of all
assets from the Trust. The termination of the Plan shall not affect any Awards
previously granted and such Awards shall remain valid and in effect until they
have been earned and paid or by their terms expire or are forfeited.
9.10 TAX STATUS OF TRUST. It is intended that the trust established
hereby be treated as a grantor trust of the Association under the provisions of
Section 671, et seq., of the Internal Revenue Code of 1986, as amended (26
U.S.C. Section 671 et seq.).
IN WITNESS WHEREOF, the following Trustees execute this Agreement,
accepting and binding themselves to undertake and perform the obligations and
duties of the Trustee hereunder and consenting to the foregoing Agreement
effective the ___ day of _________________, 1999.
By: ___________________________ (Trustee)
By: ___________________________ (Trustee)
IN WITNESS WHEREOF, the Association has caused this Agreement to be
executed by its duly authorized officer and duly attested, all as of the ___ day
of _________________, 1999.
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
By:______________________________________
Jon W. Letzkus
its President
ATTEST:
__________________________________
__________________________________
its_______________________________
<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED
OHIO STATE FINANCIAL SERVICES, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE. The purpose of the Amended and Restated Ohio State
Financial Services, Inc. 1998 Stock Option and Incentive Plan (this "Plan") is
to promote and advance the interests of Ohio State Financial Services, Inc. (the
"Company") and its shareholders by enabling the Company to attract, retain and
reward directors, managerial and other employees of the Company and any
Subsidiary (hereinafter defined), and to strengthen the mutuality of interests
between such directors and employees and the Company's shareholders by providing
such persons with a proprietary interest in pursuing the long-term growth,
profitability and financial success of the Company.
2. DEFINITIONS. For purposes of this Plan, the following terms shall
have the meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended, or any successor thereto, together with the rules, regulations
and interpretations promulgated thereunder.
(c) "Committee" means the Committee of the Board constituted
as provided in Section 3 of this Plan.
(d) "Common Shares" means the common shares, without par
value, of the Company or any security of the Company issued in
substitution, in exchange or in lieu thereof.
(e) "Company" means Ohio State Financial Services, Inc., an
Ohio corporation, or any successor corporation.
(f) "Employment" means regular employment with the Company or
a Subsidiary and does not include service as a director only.
(g) "Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any successor statute.
(h) "Fair Market Value" shall be determined as follows:
(i) If the Common Shares are traded on a
national securities exchange at the time of grant of the Stock
Option (hereinafter defined), then the Fair Market Value shall
be the average of the highest and the lowest selling price on
such exchange on the date such Stock Option is granted or, if
there were no sales on such date, then on the next prior
business day on which there was a sale.
(ii) If the Common Shares are quoted on The
Nasdaq Stock Market at the time of the grant of the Stock
Option, then the Fair Market Value shall be the mean between
the closing high bid and low asked quotation with respect to a
Common Share on such date on The Nasdaq Stock Market.
(iii) If the Common Shares are not traded on
a national securities exchange or quoted on The Nasdaq Stock
Market, then the Fair Market Value shall be as determined by
the Committee.
(i) "Incentive Stock Option" means any Stock Option granted
pursuant to the provisions of Section 6 of this Plan that is intended
to be and is specifically designated as an "incentive stock option"
within the meaning of Section 422 of the Code.
(j) "Non-Qualified Stock Option" means any Stock Option
granted pursuant to the provisions of Section 6 of this Plan that is
not an Incentive Stock Option.
<PAGE> 2
(k) "OTS" means the Office of Thrift Supervision, Department
of the Treasury.
(l) "Participant" means an employee or director of the Company
or a Subsidiary who is granted a Stock Option under this Plan.
Notwithstanding the foregoing, for the purposes of the granting of any
Incentive Stock Option under this Plan, the term "Participant" shall
include only employees of the Company or a Subsidiary.
(m) "Plan" means the Amended and Restated Ohio State Financial
Services, Inc. 1998 Stock Option and Incentive Plan, as set forth
herein and as it may be hereafter amended from time to time.
(n) "Stock Option" means an award to purchase Common Shares
granted pursuant to the provisions of Section 6 of this Plan.
(o) "Subsidiary" means any corporation or entity in which the
Company directly or indirectly controls 50% or more of the total voting
power of all classes of its stock having voting power and includes,
without limitation, Bridgeport Savings and Loan Association.
(p) "Terminated for Cause" means any removal of a director or
discharge of an employee for personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of a
material provision of any law, rule or regulation (other than traffic
violations or similar offenses), a material violation of a final
cease-and-desist order or any other action of a director or employee
which results in a substantial financial loss to the Company or a
Subsidiary.
3. ADMINISTRATION.
(a) This Plan shall be administered by the Committee to be
comprised of not less than three of the members of the Board who are
not employees of the Company or a Subsidiary. The members of the
Committee shall be appointed from time to time by the Board. Members of
the Committee shall serve at the pleasure of the Board and the Board
may from time to time remove members from, or add members to, the
Committee. A majority of the members of the Committee shall constitute
a quorum for the transaction of business. An action approved in writing
by a majority of the members of the Committee then serving shall be
fully as effective as if the action had been taken by unanimous vote at
a meeting duly called and held.
(b) The Committee is authorized to construe and interpret this
Plan and to make all other determinations necessary or advisable for
the administration of this Plan. The Committee may designate persons
other than members of the Committee to carry out its responsibilities
under such conditions and limitations as it may prescribe. Any
determination, decision or action of the Committee in connection with
the construction, interpretation, administration, or application of
this Plan shall be final, conclusive and binding upon all persons
participating in this Plan and any person validly claiming under or
through persons participating in this Plan. The Company shall effect
the granting of Stock Options under this Plan in accordance with the
determinations made by the Committee, by execution of instruments in
writing in such form as approved by the Committee.
4. DURATION OF, AND COMMON SHARES SUBJECT TO, THIS PLAN.
(a) Term. This Plan shall terminate on the date which is ten
(10) years from the date on which this Plan is adopted by the Board,
except with respect to Stock Options then outstanding. Notwithstanding
the foregoing, no Incentive Stock Option may be granted under this Plan
after the date which is ten (10) years from the date on which this Plan
is adopted by the Board or the date on which this Plan is approved by
the shareholders of the Company, whichever is earlier.
(b) Common Shares Subject to Plan. The maximum number of
Common Shares in respect of which Stock Options may be granted under
this Plan, subject to adjustment as provided in Section 9 of this Plan,
shall be ten percent of the total Common Shares sold in connection with
the conversion of Bridgeport Savings and Loan Association from mutual
to stock form.
<PAGE> 3
For the purpose of computing the total number of Common Shares
available for Stock Options under this Plan, there shall be counted against the
foregoing limitations the number of Common Shares subject to issuance upon the
exercise or settlement of Stock Options as of the dates on which such Stock
Options are granted. If any Stock Options are forfeited, terminated or exchanged
for other Stock Options, or expire unexercised, the Common Shares which were
theretofore subject to such Stock Options shall again be available for Stock
Options under this Plan to the extent of such forfeiture, termination or
expiration of such Stock Options.
Common Shares which may be issued under this Plan may be either
authorized and unissued shares or issued shares which have been reacquired by
the Company. No fractional shares shall be issued under this Plan.
5. ELIGIBILITY AND GRANTS. Persons eligible for Stock Options under
this Plan shall consist of directors and managerial and other key employees of
the Company or a Subsidiary who hold positions with significant responsibilities
or whose performance or potential contribution, in the judgment of the
Committee, will benefit the future success of the Company or a Subsidiary. In
selecting the directors and employees to whom Stock Options will be awarded and
the number of shares subject to such Stock Options, the Committee shall consider
the position, duties and responsibilities of the eligible directors and
employees, the value of their services to the Company and the Subsidiaries and
any other factors the Committee may deem relevant.
6. STOCK OPTIONS. Stock Options granted under this Plan may be in the
form of Incentive Stock Options or Non-Qualified Stock Options, and such Stock
Options shall be subject to the following terms and conditions as the Committee
shall deem desirable:
(a) Grant. Stock Options may be granted under this Plan on
terms and conditions not inconsistent with the provisions of this Plan
and in such form as the Committee may from time to time approve and
shall contain such additional terms and conditions, not inconsistent
with the express provisions of this Plan, as the Committee shall deem
desirable; provided, however, that no more than 25% of the shares
subject to Stock Options may be awarded to any individual who is an
employee of the Company or a Subsidiary, no more than 5% of such shares
may be awarded to any director who is not an employee of the Company or
a Subsidiary and no more than 30% of such shares may be awarded to
non-employee directors of the Company or a Subsidiary in the aggregate.
(b) Stock Option Price. The option exercise price per Common
Share purchasable under a Stock Option shall be determined by the
Committee at the time of grant; provided, however, that in no event
shall the exercise price of a Stock Option be less than 100% of the
Fair Market Value of the Common Shares on the date of the grant of such
Stock Option. Notwithstanding the foregoing, in the case of a
Participant who owns Common Shares representing more than 10% of the
outstanding Common Shares at the time an Incentive Stock Option is
granted, the option exercise price shall in no event be less than 110%
of the Fair Market Value of the Common Shares at the time an Incentive
Stock Option is granted to such Participant.
(c) Stock Option Terms. Subject to the right of the Company to
provide for earlier termination in the event of any merger, acquisition
or consolidation involving the Company, the term of each Stock Option
shall be fixed by the Committee; except that the term of an Incentive
Stock Option will not exceed ten years after the date the Incentive
Stock Option is granted; provided, however, that in the case of a
Participant who owns a number of Common Shares representing more than
10% of the Common Shares outstanding at the time an Incentive Stock
Option is granted, the term of the Incentive Stock Option granted to
such Participant shall not exceed five years.
(d) Exercisability. Except as set forth in Section 6(f) and
Section 7 of this Plan, Stock Options awarded under this Plan shall
become exercisable at the rate of one-third per year commencing on the
date that is one year after the date of the grant of the Stock Option
and shall be subject to such other terms and conditions as shall be
determined by the Committee at the date of grant.
(e) Method of Exercise. A Stock Option may be exercised, in
whole or in part, by giving written notice of exercise to the Company
specifying the number of Common Shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price in cash
or, if acceptable to the Committee in its sole discretion, in Common
Shares already owned by the Participant, or by surrendering outstanding
Stock Options. The Committee may also permit Participants, either on a
selective or aggregate basis, to simultaneously exercise Stock Options
and sell Common Shares thereby acquired, pursuant to a
<PAGE> 4
brokerage or similar arrangement, approved in advance by the Committee,
and use the proceeds from such sale as payment of the purchase price of
such shares.
(f) Special Rule for Incentive Stock Options. With respect to
Incentive Stock Options granted under this Plan, to the extent the
aggregate Fair Market Value (determined as of the date the Incentive
Stock Option is granted) of the number of shares with respect to which
Incentive Stock Options are exercisable under all plans of the Company
or a Subsidiary for the first time by a Participant during any calendar
year exceeds $100,000, or such other limit as may be required by the
Code, such Stock Options shall be Non-Qualified Stock Options to the
extent of such excess.
7. TERMINATION OF EMPLOYMENT OR DIRECTORSHIP.
(a) Except in the event of the death or disability of a
Participant, upon the resignation, removal or retirement from the board
of directors of any Participant who is a director of the Company or a
Subsidiary or upon the termination of Employment of a Participant who
is not a director of the Company or a Subsidiary, any Stock Option
which has not yet become exercisable shall thereupon terminate and be
of no further force or effect and, subject to extension by the
Committee, any Stock Option which has become exercisable shall
terminate if it is not exercised within 12 months of such resignation,
removal or retirement.
(b) Unless the Committee shall specifically state otherwise at
the time a Stock Option is granted, all Stock Options granted under
this Plan shall become exercisable in full on the date of termination
of a Participant's employment or directorship with the Company or a
Subsidiary because of his death or disability, and, subject to
extension by the Committee, all Stock Options shall terminate if not
exercised within 12 months of the Participant's death or disability.
(c) In the event the Employment or the directorship of a
Participant is Terminated for Cause, any Stock Option which has not
been exercised shall terminate as of the date of such termination for
cause.
8. NON-TRANSFERABILITY OF STOCK OPTIONS. No Stock Option under this
Plan and no rights or interests therein shall be assignable or transferable by a
Participant except by will or pursuant to the laws of descent and distribution.
During the lifetime of a Participant, Stock Options are exercisable only by, and
payments in settlement of Stock Options will be payable only to, the Participant
or his or her legal representative.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) The existence of this Plan and the Stock Options granted
hereunder shall not affect or restrict in any way the right or power of
the Board or the shareholders of the Company to make or authorize the
following: any adjustment, recapitalization, reorganization or other
change in the Company's capital structure or its business; any merger,
acquisition or consolidation of the Company; any issuance of bonds,
debentures, preferred or prior preference stocks ahead of or affecting
the Company's capital stock or the rights thereof; the dissolution or
liquidation of the Company or any sale or transfer of all or any part
of its assets or business; or any other corporate act or proceeding,
including any merger or acquisition which would result in the exchange
of cash, stock of another company or options to purchase the stock of
another company for any Stock Option outstanding at the time of such
corporate transaction or which would involve the termination of all
Stock Options outstanding at the time of such corporate transaction.
(b) In the event of any change in capitalization affecting the
Common Shares of the Company, such as a stock dividend, stock split,
recapitalization, merger, consolidation, spin-off, split-up,
combination or exchange of shares or other form of reorganization, or
any other change affecting the Common Shares, such proportionate
adjustments, if any, as the Board in its discretion may deem
appropriate to reflect such change shall be made with respect to the
aggregate number of Common Shares for which Stock Options in respect
thereof may be granted under this Plan, the maximum number of Common
Shares which may be sold or awarded to any Participant, the number of
Common Shares covered by each outstanding Stock Option, and the
exercise price per share in respect of outstanding Stock Options.
10. AMENDMENT AND TERMINATION OF THIS PLAN. Without further approval of
the shareholders, the Board may at any time terminate this Plan or may amend it
from time to time in such respects as the Board may deem advisable, except that
the Board may not, without approval of the shareholders, make any amendment
which would
<PAGE> 5
(a) increase the aggregate number of Common Shares which may be issued under
this Plan (except for adjustments pursuant to Section 9 of this Plan), (b)
materially modify the requirements as to eligibility for participation in this
Plan, or (c) materially increase the benefits accruing to Participants under
this Plan. The above notwithstanding, the Board may amend this Plan to take into
account changes in applicable securities, federal income tax and other
applicable laws.
11. MODIFICATION OF OPTIONS. The Board may authorize the Committee to
direct the execution of an instrument providing for the modification of any
outstanding Stock Option which the Board believes to be in the best interests of
the Company; provided, however, that no such modification, extension or renewal
shall reduce the exercise price or confer on the holder of such Stock Option any
right or benefit which could not be conferred on him by the grant of a new Stock
Option at such time and shall not materially decrease the Participant's benefits
under the Stock Option without the consent of the holder of the Stock Option,
except as otherwise permitted under this Plan.
12. MISCELLANEOUS.
(a) Tax Withholding. The Company shall have the right to
deduct from any settlement made under this Plan, including the delivery
or vesting of Common Shares, any federal, state or local taxes of any
kind required by law to be withheld with respect to such payments or to
take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such taxes. If
Common Shares are used to satisfy tax withholding, such shares shall be
valued based on the Fair Market Value when the tax withholding is
required to be made.
(b) No Right to Employment. Neither the adoption of this Plan
nor the granting of any Stock Option shall confer upon any employee of
the Company or a Subsidiary any right to continued Employment with the
Company or a Subsidiary, as the case may be, nor shall it interfere in
any way with the right of the Company or a Subsidiary to terminate the
Employment of any of its employees at any time, with or without cause.
(c) Annulment of Stock Options. The grant of any Stock Option
under this Plan payable in cash is provisional until cash is paid in
settlement thereof. The grant of any Stock Option payable in Common
Shares is provisional until the Participant becomes entitled to the
certificate in settlement thereof. In the event the Employment or the
directorship of a Participant is Terminated for Cause, any Stock Option
which is provisional shall be annulled as of the date of such
termination.
(d) Other Company Benefit and Compensation Programs. Payments
and other benefits received by a Participant under a Stock Option made
pursuant to this Plan shall not be deemed a part of a Participant's
regular, recurring compensation for purposes of the termination
indemnity or severance pay law of any country and shall not be included
in, nor have any effect on, the determination of benefits under any
other employee benefit plan or similar arrangement provided by the
Company or a Subsidiary unless expressly so provided by such other plan
or arrangement, or except where the Committee expressly determines that
a Stock Option or portion of a Stock Option should be included to
accurately reflect competitive compensation practices or to recognize
that a Stock Option has been made in lieu of a portion of competitive
annual cash compensation. Stock Options under this Plan may be made in
combination with or in tandem with, or as alternatives to, grants,
stock options or payments under any other plans of the Company or a
Subsidiary. This Plan notwithstanding, the Company or any Subsidiary
may adopt such other compensation programs and additional compensation
arrangements as it deems necessary to attract, retain and reward
directors and employees for their service with the Company and its
Subsidiaries.
(e) Securities Law Restrictions. No Common Shares shall be
issued under this Plan unless counsel for the Company shall be
satisfied that such issuance will be in compliance with applicable
federal and state securities laws. Certificates for Common Shares
delivered under this Plan may be subject to such stock-transfer orders
and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Common Shares
are then listed, and any applicable federal or state securities law.
The Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(f) Stock Option Agreement. Each Participant receiving a Stock
Option under this Plan shall enter into an agreement with the Company
in a form specified by the Committee agreeing to the terms and
<PAGE> 6
conditions of the Stock Option and such related matters as the
Committee shall, in its sole discretion, determine.
(g) Cost of Plan. The costs and expenses of administering this
Plan shall be borne by the Company.
(h) Governing Law. This Plan and all actions taken hereunder
shall be governed by and construed in accordance with the laws of the
State of Ohio, except to the extent that federal law shall be deemed
applicable.
(i) Effective Date. This Plan shall be effective upon the
later of adoption by the Board and approval by the Company's
shareholders. This Plan shall be submitted to the shareholders of the
Company for approval at an annual or special meeting of shareholders
held within twelve (12) months of the adoption of the Plan by the
Board.
<PAGE> 1
Exhibit 13
----------
(COVER HAS MAP OF OHIO WITH A STAR INDICATING THE LOCATION OF BRIDGEPORT, OHIO)
OHIO
STATE
FINANCIAL
SERVICES,
INC.
1999 ANNUAL REPORT
<PAGE> 2
Dear Shareholder:
On behalf of the management and Board of Directors of Ohio State Financial
Services, Inc., I would like to present the 1999 Annual Report which gives you
an account of our activities during the 1999 fiscal year.
During 1999, the Board of Directors took steps in an effort to increase
shareholder value. In late 1999, we approved a repurchase of 5.00% of our common
shares which we completed early in the year 2000. The Board felt that the
repurchase of our common shares was a positive use of surplus funds at OSFS.
OSFS also paid four consecutive quarterly dividends to shareholders in 1999.
Thank you for your investment in OSFS and your patronage of Bridgeport Savings
and Loan Association. Be assured that OSFS and Bridgeport Savings and Loan
Association remain committed to supporting our local community, providing
friendly, professional service, and to following our mission statement that
requires that we run both organizations in a safe and sound manner.
I look forward to seeing you at our Annual Meeting on April 19, 2000, at 1:00
p.m., at the Ramada Plaza (formerly the McLure Hotel) in Wheeling. If I may be
of service to you, please call.
Sincerely,
/s/ Jon W. Letzkus
Jon W. Letzkus
Chairman of the Board and President
<PAGE> 3
BUSINESS OF OHIO STATE FINANCIAL SERVICES, INC.
Ohio State Financial Services, Inc. ("OSFS"), a savings and loan holding company
incorporated under Ohio law, owns all of the issued and outstanding common
shares of Bridgeport Savings and Loan Association ("Bridgeport"), a savings and
loan association incorporated under Ohio law. In September 1997, OSFS acquired
all of the common shares issued by Bridgeport upon its conversion from a mutual
savings and loan association to a stock savings and loan association (the
"Conversion"). The activities of OSFS have been limited primarily to holding the
common shares of Bridgeport.
Bridgeport conducts business from its main office located in Bridgeport, Ohio,
and from one full-service branch office located in Shadyside, Ohio. The
principal business of Bridgeport is the origination of permanent mortgage loans
secured by first mortgages on one- to four-family residential real estate
located in Bridgeport's primary market area which consists of Belmont County,
Ohio, and Ohio and Marshall Counties, West Virginia. Bridgeport also originates
a limited number of loans for the construction of one- to four-family residences
and permanent mortgage loans secured by multi-family and nonresidential real
estate in its market area. In addition to real estate lending, Bridgeport
originates secured and unsecured consumer loans. For liquidity and interest rate
risk management purposes, Bridgeport invests in interest-bearing deposits in
other financial institutions, U.S. Government and agency obligations, and
mortgage-backed securities. Funds for lending and other investment activities
are obtained primarily from savings deposits, which are insured up to applicable
limits by the Federal Deposit Insurance Corporation (the "FDIC"), principal
repayments on loans, and maturities of investment securities.
As a savings and loan holding company, OSFS is subject to regulation,
supervision, and examination by the Office of Thrift Supervision of the United
States Department of the Treasury (the "OTS"). As a savings and loan association
incorporated under Ohio law, Bridgeport is subject to regulation, supervision,
and examination by the OTS and the Ohio Department of Commerce, Division of
Financial Institutions (the "Division"). Bridgeport is also a member of the
Federal Home Loan Bank (the "FHLB") of Cincinnati.
-1-
<PAGE> 4
MARKET PRICE OF COMMON SHARES OF OSFS
AND RELATED SHAREHOLDER MATTERS
There were 543,720 common shares of OSFS outstanding on March 10, 2000, held of
record by approximately 178 shareholders. Price information with respect to the
common shares of OSFS is quoted on the OTC Bulletin Board under the symbol
"OSFS".
The table below sets forth the high and low bid prices for the common shares of
OSFS, together with the dividends declared per share for each quarter of 1999
and 1998. Price quotations reflect interdealer prices, without retail mark-up,
mark-down, or commission, and may not represent actual transactions.
High Bid Low Bid Cash Dividends Declared
-------- ------- -----------------------
1999
Quarter Ended:
March 31, 1999 $ 13.25 $ 11.00 $ .05
June 30, 1999 12.25 9.63 .05
September 30, 1999 10.75 9.50 .05
December 31, 1999 10.00 9.00 .05
1998
Quarter Ended:
March 31, 1998 $ 17.50 $ 15.13 $ .05
June 30, 1998 19.50 15.25 .05
September 30, 1998 16.00 13.50 .05
December 31, 1998 13.75 10.00 .05
(1) Additionally, in December 1998, OSFS paid a $2.00 cash per share return of
capital distribution.
Dividends are subject to determination and declaration by the Board of Directors
of OSFS, which takes into account the financial condition and results of
operation of OSFS, tax considerations, industry standards, economic conditions,
regulatory restrictions, and other factors which affect the payment of
dividends.
-2-
<PAGE> 5
SELECTED CONSOLIDATED
FINANCIAL INFORMATION AND OTHER DATA
The following table sets forth certain information concerning the consolidated
financial condition, earnings, and other data regarding OSFS at the dates and
for the periods indicated.
<TABLE>
<CAPTION>
At December 31,
Selected financial condition --------------------------------------------------------------------------
and other data: 1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets $34,534 $35,437 $37,344 $33,929 $34,553
Cash and cash
equivalents 5,173 5,700 3,178 2,436 1,777
Investment securities 4,013 3,789 8,263 4,936 5,505
Mortgage-backed
securities 496 667 847 984 1,191
Loans receivable, net 24,141 24,595 24,377 24,892 25,972
Deposit accounts 25,541 25,450 26,333 28,791 29,615
Short-term notes
payable -- 893 -- -- --
Shareholders' equity 8,604 8,702 10,561 4,770 4,558
Number of full-service
offices 2 2 2 2 2
</TABLE>
<TABLE>
<CAPTION>
Summary of earnings: Year Ended December 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest and dividend
income $2,375 $2,579 $2,534 $2,515 $2,478
Interest expense 1,004 1,030 1,146 1,158 1,108
------ ------ ------ ------ ------
Net interest income 1,371 1,549 1,388 1,357 1,370
Provision for losses on loans -- 41 -- -- --
------ ------ ------ ------ ------
Net interest income after
provision for losses on loans 1,371 1,508 1,388 1,357 1,370
Noninterest income 27 25 34 45 42
Noninterest expense (1) 1,131 1,157 866 1,083 865
------ ------ ------ ------ ------
Net income before
provision for income taxes 267 376 557 319 547
Provision for income taxes 91 149 194 107 186
------ ------ ------ ------ ------
Net income $ 176 $ 227 $ 363 $ 212 $ 361
====== ====== ====== ====== ======
</TABLE>
(1) Includes a non-recurring, pre-tax expense of $190,000 for the year ended
December 31, 1996, for a special one-time assessment to recapitalize the
Savings Association Insurance Fund (the "SAIF") administered by the FDIC.
-3-
<PAGE> 6
<TABLE>
<CAPTION>
Selected financial ratios:
At or for the Year Ended December 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Performance ratios:
Return on average assets (1) 0.51% 0.62% 1.02% 0.62% 1.06%
Return on average equity (1) 2.06 2.21 5.48 4.53 8.25
Interest rate spread 3.24 3.33 3.41 3.62 3.76
Net interest margin 4.12 4.38 4.07 4.08 4.17
Non-interest expense to average assets (1) 3.26 3.16 2.44 3.15 2.54
Efficiency ratio (2) 80.92 73.50 60.88 77.27 61.28
Net interest income to operating
expenses (1) 121.19 133.91 160.31 125.27 158.36
Average interest-earning assets to
average interest-bearing liabilities 129.26 136.15 119.52 113.28 112.04
Capital ratios:
Average equity to average assets 24.61 27.93 18.60 13.64 12.87
Equity to assets, end of period 24.91 24.56 28.28 14.06 13.19
Asset quality ratios:
Nonperforming assets to average assets (3) -- -- 0.28 0.20 0.02
Nonperforming assets to total assets (3) -- -- 0.26 0.50 0.02
Nonperforming loans to total loans -- -- 0.40 0.28 0.02
Allowance for loan losses to gross loans 0.57 0.56 0.57 0.57 0.55
Allowance for loan losses to
nonperforming loans -- -- 143.86 207.25 2383.33
Net recoveries to average loans -- 0.16 0.01 -- --
</TABLE>
(1) Includes a nonrecurring pre-tax expense of $190,000 for the year ended
December 31, 1996, for a special assessment to recapitalize the SAIF.
(2) Non-interest expense as a percentage of net interest income plus
non-interest income.
(3) Nonperforming assets include non-accrual loans, accruing loans more than 90
days past due, and real estate acquired in settlement of loans.
-4-
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
OSFS was incorporated for the purpose of owning all of Bridgeport's outstanding
common shares. As a result, the discussion that follows focuses on Bridgeport's
financial condition and results of operations. The following discussion and
analysis of the financial condition and results of operations of OSFS and
Bridgeport should be read in conjunction with and with reference to the
consolidated financial statements, and the notes thereto, included in this
Annual Report.
CHANGES IN FINANCIAL CONDITION
Total assets decreased by approximately $902,000, or 2.6%, to $34.5 million at
December 31, 1999, from $35.4 million at December 31, 1998. The decrease in
total assets was primarily due to an outlay of funds for the purchase of shares
for treasury in the amount of $327,000, dividends of $119,000, and the repayment
of matured short-term borrowings in the amount of $892,000. These decreases were
partially offset by funds provided from the net decrease in loans of $454,000.
Total cash and cash equivalents decreased by $527,000 to $5.2 million at
December 31, 1999, from $5.7 million at December 31, 1998. Management attempts
to maintain a level of cash equivalents which is desirable for meeting
Bridgeport's normal cash flow requirements for the funding of loans and
repayment of deposits. Management is in the process of evaluating investment
opportunities.
Interest-bearing term deposits decreased $2.7 million from $3.1 million at
December 31, 1998, to $400,000 at December 31, 1999, reflecting current
maturities.
Investment securities held-to-maturity increased $2.7 million from $967,000 at
December 31, 1998, to $3.7 million at December 31, 1999. This increase resulted
from the purchase of held-to-maturity securities of $3.2 million, offset by the
maturity of $300,000 of U.S. agency securities and principal reductions on
mortgage-backed securities of $171,000.
Loans receivable decreased approximately $454,000 to $24.1 million at December
31, 1999, from $24.6 million at December 31, 1998. The decrease was primarily
attributable to a combined decrease in one- to four-family residential mortgage
and consumer loans.
Total deposits increased by $91,000, or .4%, to $25.5 million at December 31,
1999. Short-term notes payable in the amount of $893,000 at December 31, 1998
were paid off as of December 31, 1999.
-5-
<PAGE> 8
Shareholders' equity decreased $98,000, or 1.1%, to $8.6 million at December 31,
1999, compared to $8.7 million at December 31, 1998. The decrease was the result
of purchasing OSFS common shares of $327,000 for treasury and the payment of
dividends in the amount of $119,000. The Board of Directors approved the payment
of quarterly cash dividends of $.05 per share. Future dividend policies will be
determined by the Board of Directors in light of the earnings and financial
condition of OSFS. Partially offsetting this decline were increases in
shareholders' equity resulting from net income of $176,000 and recognition of
shares in the Recognition and Retention Plan ("RRP") and Employee Stock
Ownership Plan ("ESOP") of $172,000.
COMPARISON OF OPERATING RESULTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
GENERAL. Net income decreased by $51,000, or 22.4%, from net income of $227,000
for the year ended December 31, 1998, to net income of $176,000 for the year
ended December 31, 1999. The decrease in net income was primarily the result of
a decrease in net interest income of $178,000, offset by a decrease in
noninterest expenses of $25,000, a decrease in the provision for loan losses of
$41,000, and a decrease in the provision for income taxes of $58,000.
NET INTEREST INCOME. Net interest income decreased $178,000, or 11.5%, from $1.5
million for the year ended December 31, 1998, to $1.4 million for 1999. The
decrease was attributable to a decrease in interest and dividend income of
$204,000, or 7.9%, from $2.6 million for the year ended December 31, 1998,
compared to $2.4 million for 1999, offset by a decrease in interest expense of
$26,000, or 2.6%.
INTEREST AND DIVIDEND INCOME. The decrease in interest and dividend income
resulted from a decrease in interest on loans of $128,000, or 6.6%, a decrease
in interest on investments, including interest-bearing deposits of $58,000, or
11.2%, and a decrease in mortgage-backed securities of $19,000, or 27.0%. The
decrease in interest on loans resulted from a decrease in the average balance of
loans outstanding of $625,000, or 2.5%, from $24.9 million for the year ended
December 31, 1998, to $24.3 million for 1999, combined with a 33 basis point
reduction in the yield on loans. The decrease in interest on investments was due
to a decrease in the average balance of interest-bearing deposits of $2.8
million, offset by an increase in the average balance of investment securities
of $1.4 million, representing the purchase of U. S. agency obligations. In
addition, the yield on interest-bearing deposits decreased from 5.48% for the
year ended December 31, 1998, to 5.21% for the year ended December 31, 1999. The
decrease in interest income from mortgage-backed securities was due to a
decrease in the average balance of mortgage-backed securities of $177,000 from
$749,000 for the year ended December 31, 1998, to $572,000 for 1999.
INTEREST EXPENSE. Total interest expense decreased by $26,000, or 2.6%, from
1998 to 1999. The decrease for the year ended December 31, 1999, was primarily
due to a decrease in the average volume of deposits of $228,000 from $25.9
million for 1998 to $25.7 million for 1999. The decrease in interest-bearing
liabilities was the result of higher rates offered by competing institutions in
Bridgeport's market area and by alternative investment products available to
-6-
<PAGE> 9
depositors. The decrease in interest on deposits was also due to a decrease in
the cost of funds of 6 basis points from 3.94% for 1998 to 3.88% for the year
ended December 31, 1999.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased to no
provision for the year ended December 31, 1999 compared to a $41,000 provision
for 1998. The allowance for loan losses was negatively impacted by a single
charge-off of $42,000 for a one- to four- family residential mortgage loan in
1998. While OSFS believes that overall asset quality has not declined during the
year, the charge to expense in 1998 was deemed necessary in order to maintain
the allowance at a desirable level 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 ability of the
borrowers to repay their loans, the estimated value of any underlying
collateral, and current economic conditions. There can be no assurance, however,
that future losses will not exceed estimated amounts or that additional
provisions for loan losses will not be required in future periods.
NON-INTEREST INCOME. Non-interest income increased $2,000, or 9.1%, from $25,000
for the year ended December 31, 1998, to $27,000 for 1999. The increase was due
to an increase in fee income of $13,000 which was offset by a decrease in the
gain on the sale of other real estate of $11,000 which did not occur for the
year ended December 31, 1999.
NON-INTEREST EXPENSE. Non-interest expense decreased $26,000, or 2.2%, from $1.2
million for the year ended December 31, 1998, to $1.1 million for 1999. Salaries
and benefits increased $20,000, or 3.9%, from $514,000 for the year ended
December 31, 1998 to $534,000 for 1999. The increase was attributable to an
increase of $39,000 relating to the ESOP and the RRP. Occupancy expense
decreased by $8,000, or 12.8%, from $62,000 for the year ended December 31,
1998, to $54,000 for 1999 due to a decrease in building maintenance costs.
Advertising and public relations decreased $5,000, or 15.0%, from $35,000 for
1998 to $30,000 for 1999. Other operating expenses decreased by $34,000, or
26.1%, from $133,000 for 1998 to $99,000 for 1999 resulting from a reduction in
administrative expenses associated with the company, the ESOP, and the RRP.
INCOME TAXES. The provision for income taxes for the year ended December 31,
1999, decreased by $58,000, or 39.0%, to $91,000 from $149,000 for 1998 as a
result of a decrease in net income before income taxes.
COMPARISON OF OPERATING RESULTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
GENERAL. Net income decreased by $136,000, or 37.5%, from net income of $363,000
for the year ended December 31, 1997, to net income of $227,000 for the year
ended December 31, 1998. The decrease in net income was primarily the result of
an increase in noninterest expense of $291,000 and an increase in the provision
for loan losses of $41,000, offset by an increase in net interest income of
$161,000 and a decrease in the provision for income taxes of $44,000.
-7-
<PAGE> 10
NET INTEREST INCOME. Net interest income increased $161,000, or 11.6%, from $1.4
million for the year ended December 31, 1997, to $1.5 million for 1998. The
increase was attributable to an increase in interest and dividend income of
$45,000 from $2.5 million for the year ended December 31, 1997, compared to $2.6
million for 1998, and by a decrease in interest expense of $116,000, or 10.1%,
from $1.1 million for 1997 compared to $1.0 million for the year ended December
31, 1998.
INTEREST AND DIVIDEND INCOME. The increase in interest and dividend income
resulted from an increase in interest on investments, including interest-bearing
deposits of $55,000, or 11.0%, for the year ended December 31, 1998, compared to
1997 and from an increase in interest on loans of $7,000 for the same years. The
increase in interest and dividend income was partially offset by a decrease in
interest income from mortgage-backed securities of $16,000, or 19.0%. The
increase in interest on investments was due to an increase in the average
balance of interest-bearing deposits of $3.7 million offset by a decrease in the
average balance of investment securities of $2.4 million representing maturities
of U. S. Government and agency obligations. In addition, the yield on
interest-bearing deposits increased from 5.32% for the year ended December 31,
1997, to 5.48% for the year ended December 31, 1998. The decrease in interest
income from mortgage-backed securities was due to a decrease in the average
balance of mortgage-backed securities of $164,000 from $913,000 for the year
ended December 31, 1997, to $749,000 for 1998. The increase in interest on loans
resulted from an increase in the average balance of loans outstanding of
$176,000, or .7%, from $24.7 million for the year ended December 31, 1997, to
$24.9 million for 1998, which was partially offset by a decline in the yield
from 7.91% to 7.88%.
INTEREST EXPENSE. Total interest expense decreased by $116,000, or 10.1%, from
$1.1 million for 1997 to $1.0 million for 1998. The decrease for the year ended
December 31, 1998, was primarily due to a decrease in the average volume of
deposits of $2.6 million from $28.5 million for 1997 to $25.9 million for 1998.
The decrease in interest-bearing liabilities was the result of higher rates
offered by competing institutions in Bridgeport's market area and by alternative
investment products available to depositors. The decrease in interest on
deposits was also due to a decrease in the cost of funds of 7 basis points from
4.01% for 1997 to 3.94% for the year ended December 31, 1998. The decrease in
interest on deposits was partially offset by an increase in interest on borrowed
funds of $8,000 from $1,000 for 1997 to $9,000 for 1998.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased to $41,000
for the year ended December 31, 1998 as compared to no provision for 1997. The
allowance for loan losses was negatively impacted by a single charge-off of
$42,000 for a residential mortgage loan. While OSFS believes that overall asset
quality has not declined during the year, the charge to expense was deemed
necessary in order to maintain the allowance at a desirable level 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 ability of the borrowers to repay their loans, the estimated
value of any underlying collateral, and current economic conditions. There can
be no assurance, however, that future losses will not exceed estimated amounts
or that additional provisions for loan losses will not be required in future
periods.
NON-INTEREST INCOME. Non-interest income decreased $9,000 from $34,000 for the
year ended December 31, 1997, to $25,000 for 1998. The decline was due to
decreases in fee income
-8-
<PAGE> 11
primarily from service charges which was partially offset by an increase in the
gain on the sale of other real estate of $8,000.
NON-INTEREST EXPENSES. Non-interest expense increased $291,000, or 33.6%, from
$866,000 for the year ended December 31, 1997, to $1.2 million for 1998.
Salaries and benefits increased $119,000, or 30.2%, from $395,000 for the year
ended December 31, 1997 to $514,000 for 1998. The increase was attributable to
increases of $64,000 and $50,000 relating to the ESOP and the RRP, respectively.
The RRP was initiated in April, 1998, while expenses attributable to the ESOP
began in September, 1997. Legal and accounting fees increased by $58,000 from
$39,000 for the year ended December 31, 1997, to $97,000 for 1998 due to an
increase in services for compliance with regulatory requirements and employee
benefit plans. Franchise, payroll, and other taxes increased $58,000 from
$90,000 for 1997 to $148,000 for 1998 primarily as a result of Ohio franchise
taxes assessed on the additional net worth resulting from the Conversion. Other
operating expenses increased by $45,000 from $88,000 for 1997 to $133,000 for
1998 resulting from additional administrative expenses associated with the
company, the ESOP, and the RRP.
INCOME TAXES. The provision for income taxes for the year ended December 31,
1998, decreased by $44,000, or 22.9%, to $149,000 from $193,000 for 1997 as a
result of a decrease in net income before income taxes.
-9-
<PAGE> 12
AVERAGE BALANCE, YIELD, RATE, AND VOLUME DATA
The following table sets forth certain information relating to the average
balance sheet information of OSFS and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the years indicated. Such yields and costs are derived by dividing income or
expense by the average balance of interest-earning assets or interest-bearing
liabilities, respectively, for the years presented. Average balances are derived
from month-end balances.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ----------------------------- ------------------------------
Average Interest Average Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield Outstanding Earned/ Yield
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ------ ---- ------- ------ ---- ------- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 5,372 $ 280 5.21% $ 8,171 $ 448 5.48% $ 4,455 $ 237 5.32%
Investment securities (1) 3,044 212 6.96 1,597 101 6.32 4,032 258 6.40
Mortgage-backed securities 572 51 8.92 749 69 9.21 913 85 9.31
Loans receivable (2) 24,259 1,832 7.55 24,884 1,961 7.88 24,708 1,954 7.91
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-earning assets 33,247 2,375 7.14 35,401 2,579 7.29 34,108 2,534 7.43
------ ---- ------ ---- ------ ----
Noninterest-earning assets 1,432 1,252 1,447
------- ------- -------
Total assets $34,679 $36,653 $35,555
======= ======= =======
Interest-bearing liabilities:
NOW and money market
accounts $ 3,286 78 2.37 $ 3,274 80 2.44 $ 3,837 95 2.48
Regular savings accounts 9,917 300 3.03 9,836 296 3.01 10,295 314 3.05
Certificates of deposit 12,450 617 4.96 12,771 645 5.05 14,390 736 5.11
------- ------ ---- ------- ------ ---- ------- ------ ----
Total deposits 25,653 995 3.88 25,881 1,021 3.94 28,522 1,145 4.01
FHLB advances and
short-term notes 69 9 7.78 121 9 7.44 15 1 6.67
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities 25,722 1,004 3.90 26,002 1,030 3.96 28,537 1,146 4.02
------ ---- ------ ---- ------ ----
Noninterest-bearing liabilities 421 413 404
------- ------- -------
Total liabilities 26,143 26,415 28,941
Shareholders' equity 8,536 10,238 6,614
------- ------- -------
Total liabilities and
shareholders' equity $34,679 $36,653 $35,555
======= ======= =======
Net interest income $ 1,371 $ 1,549 $ 1,388
======= ======= =======
Interest rate spread 3.24% 3.33% 3.41%
==== ==== ====
Net interest margin 4.12% 4.38% 4.07%
==== ==== ====
Average interest-earning assets to
average interest-bearing liabilities 129.26% 136.15% 119.52%
====== ====== ======
</TABLE>
(1) Includes dividends on FHLB stock.
(2) Includes nonperforming loans.
-10-
<PAGE> 13
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected Bridgeport's interest income and interest expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior period rate), (ii)
changes in rate (change in rate multiplied by prior period volume) and (iii)
total changes in rate and volume. The combined effects of changes in both volume
and rate, which cannot be separately identified, have been attributed to the
mix.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
---------------------------------- ----------------------------------
Increase Total Increase Total
(Decrease) Due To Increase (Decrease) Due To Increase
Volume Rate Mix (Decrease) Volume Rate Mix (Decrease)
------ ---- --- ---------- ------ ---- --- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Interest-earning deposits $(153) $(22) $ 8 $(167) $ 198 $ 7 $ 6 $ 211
Investment securities 91 10 9 110 (156) (3) 2 (157)
Mortgage-backed securities (16) (2) 1 (17) (15) (1) -- (16)
Loans receivable (49) (82) 2 (129) 14 (7) -- 7
----- ---- --- ----- ----- ---- --- ------
Total interest income (127) (96) 20 (203) 41 (4) 8 45
----- ---- --- ----- ----- ---- --- ------
Interest-bearing liabilities:
Deposits (9) (16) -- (25) (106) (20) 2 (124)
FHLB advances and
short-term notes (4) 7 (3) -- 7 -- 1 8
----- ---- --- ----- ----- ---- --- ------
Total interest expense (13) (9) (3) (25) (99) (20) 3 (116)
----- ---- --- ----- ----- ---- --- ------
Increase (decrease) in net
interest income $(114) $(87) $23 $(178) $ 140 $ 16 $ 5 $ 161
===== ==== === ===== ===== ==== === ======
</TABLE>
ASSET AND LIABILITY MANAGEMENT
Bridgeport, like other financial institutions, is subject to interest rate risk
to the extent that its interest-earning assets reprice differently than its
interest-bearing liabilities. Interest rate risk is defined as the sensitivity
of an institution's earnings and net asset values to changes in interest rates.
As part of its effort to monitor and manage the interest rate risk of
Bridgeport, the Board of Directors has adopted an interest rate risk policy
which sets exposure limits for Bridgeport, specifies certain transactions that
Bridgeport may not engage in without prior Board authorization, and provides for
quarterly review by the Board of Directors of various interest rate risk
reports.
One of the methods utilized by Bridgeport to monitor interest rate risk is the
rate shock risk estimates contained in the quarterly rate shock risk reports
prepared by an outside consulting firm that specializes in interest rate risk
assessments. The reports assess Bridgeport's interest rate risk based on the
percent and dollar changes in Bridgeport's net portfolio value ("NPV") projected
over permanent and instantaneous parallel shifts in interest rates. The rate
shock methodology attempts to quantify interest rate risk as the change in
Bridgeport's NPV which would result from a theoretical change in current
interest rates. The management and the Board
-11-
<PAGE> 14
of Directors of Bridgeport attempt to maintain the projected change in NPV
within limits established by the Board of Directors.
Presented below, as of December 31, 1999, is an analysis of Bridgeport's
interest rate risk as measured by changes in NPV for instantaneous and parallel
shifts of 100 basis points in market interest rates, assuming rates would stay
constant over a twelve-month period. The table also contains the policy limits
set by the Board of Directors of Bridgeport as the maximum change in NPV that
the Board of Directors deems advisable in the event of various changes in
interest rates. Such limits have been established with consideration of the
dollar impact of various rate changes and Bridgeport's strong capital position.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------------------------------
Change in interest rate $ Change in NPV % Change in NPV Board Limit
(basis points) ---------------------- --------------- % Change in NPV
-------------- (Dollars in thousands) ---------------
<S> <C> <C> <C> <C>
+400 $(2,316) (45)% (50)%
+300 (1,822) (35) (38)
+200 (1,259) (24) (25)
+100 (634) (12) (15)
0 0 0 0
-100 612 12 15
-200 646 12 25
-300 357 7 38
-400 741 14 50
</TABLE>
The Board of Directors and management of Bridgeport believe that certain factors
afford Bridgeport the ability to operate successfully despite its high exposure
to interest rate risk. Although Bridgeport originates predominantly fixed rate
loans, such loans are typically secured by residential real estate for terms of
15 years or less. Bridgeport also manages its interest rate risk by maintaining
capital and liquid assets well in excess of regulatory requirements. At December
31, 1999, Bridgeport's tangible capital was 18.6% of total assets and its
liquidity ratio was 23.8%.
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types of assets
and liabilities may lag behind changes in market rates. Further, in the event of
a change in interest rates, expected rates of prepayment on loans and
mortgage-backed securities and early withdrawal levels from certificates of
deposit would likely deviate from those assumed in making the risk calculations.
-12-
<PAGE> 15
LIQUIDITY AND CAPITAL MANAGEMENT
The liquidity of OSFS and Bridgeport, which is primarily represented by cash and
cash equivalents, is a result of the funds used in or provided by Bridgeport's
operating, investing and financing activities. These activities are summarized
below for the years ended December 31, 1999, 1998, and 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Net income $ 176 $ 227 $ 363
Adjustments to reconcile net income
to net cash from operating activities 137 63 123
------- ------- -------
Net cash from operating activities 313 290 486
Net cash provided by (used in) investment activities 402 4,411 (2,694)
Net cash provided by (used in) financing activities (1,242) (2,179) 2,950
------- ------- -------
Net change in cash and cash equivalents (527) 2,522 742
Cash and cash equivalents at beginning of period 5,700 3,178 2,436
------- ------- -------
Cash and cash equivalents at end of period $ 5,173 $ 5,700 $ 3,178
======= ======= =======
</TABLE>
Bridgeport's principal sources of funds are deposits, loan and mortgage-backed
securities repayments, maturities of securities, and other funds provided by
operations. Bridgeport also has the ability to borrow from the FHLB of
Cincinnati. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan and mortgage-backed
security prepayments are influenced to a greater degree by interest rates,
general economic conditions, and competition. Bridgeport maintains investments
in liquid assets based upon management's assessment of (i) the need for funds,
(ii) expected deposit flows, (iii) the yields available on short-term liquid
assets, and (iv) the objectives of Bridgeport's asset and liability management
program.
OTS regulations presently require Bridgeport to maintain an average daily
balance of liquid assets, which may include, but are not limited to, investments
in U.S. Treasury and federal agency obligations in an amount equal to 4% of the
sum of Bridgeport's average daily balance of net withdrawable deposit accounts
and borrowings payable in one year or less. The liquidity requirement, which may
be changed from time to time by the OTS to reflect changing economic conditions,
is intended to provide a source of relatively liquid funds upon which Bridgeport
may rely, if necessary, to fund loan originations, deposit withdrawals, or other
short-term funding needs. At December 31, 1999, Bridgeport's regulatory
liquidity ratio was 23.8%. At such date, Bridgeport had commitments to originate
loans and loans in process totaling approximately $754,000 and no commitments to
purchase or sell loans. Bridgeport considers its liquidity and
-13-
<PAGE> 16
capital resources sufficient to meet its outstanding short-term and long-term
needs. See Note 6 to the Consolidated Financial Statements.
Bridgeport is required by applicable law and regulations to meet certain minimum
capital standards, which include a tangible capital requirement, a core capital
requirement or leverage ratio, and a risk-based capital requirement. Bridgeport
exceeded all of its regulatory capital requirements at December 31, 1999.
OTS regulations require a savings and loan association to maintain core capital
of at least 4% of its total assets. "Core capital" is comprised of common
shareholders' equity (including retained earnings), noncumulative preferred
stock and related surplus, minority interests in consolidated subsidiaries,
certain non-withdrawable accounts, pledged deposits of mutual associations and
intangible assets, primarily certain purchased mortgage servicing rights.
The tangible capital requirement requires a savings and loan association to
maintain "tangible capital" of not less than 1.5% of its adjusted total assets.
Tangible capital is defined in OTS regulations as core capital minus any
intangible assets.
OTS regulations require that a savings and loan association maintain "risk-based
capital" in an amount not less than 8% of its risk-weighted assets. Risk-based
capital is defined as core capital plus certain additional items of capital,
which in the case of Bridgeport, included $141,000 of Bridgeport's allowance for
loan losses at December 31, 1999.
The following table summarizes Bridgeport's regulatory capital requirements and
actual capital at December 31, 1999.
<TABLE>
<CAPTION>
Excess of Actual Capital
Over Current
Actual Capital Current Requirement Requirement Applicable Asset Total
------------------ ------------------- ------------------ ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible capital $5,954 18.7% $ 480 1.5% $5,474 17.2% $31,967
Tier 1 (core) capital 5,954 18.7 650 4.0 5,304 14.7 31,967
Risk-based capital 6,095 37.5 1,299 8.0 4,796 29.5 16,240
</TABLE>
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
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
-14-
<PAGE> 17
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 investments in debt and equity
securities. The provisions of SFAS No. 130 became effective for fiscal years
beginning after December 15, 1997. OSFS's equity securities classified as
available for sale consist of Federal Home Loan Bank ("FHLB") stock and stock in
OSFS'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 OSFS due to the absence of any items of
comprehensive income.
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 OSFS.
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
OSFS.
-15-
<PAGE> 18
YEAR 2000 COMPLIANCE MATTERS
GENERAL. Rapid and accurate data processing is essential to Bridgeport's
operations. Accordingly, prior to the Year 2000, Bridgeport evaluated both
information technology systems (computer systems) and non-information technology
systems (e.g., vault timers and electronic door locks) for Year 2000 risk. Based
upon such evaluations, management determined that Bridgeport had Year 2000 risk
in three areas: (1) Bridgeport's own computers, (2) the computers of others used
by Bridgeport's borrowers, and (3) the computers of others who provide
Bridgeport with data processing. These risk areas are apparently in full
compliance and no material costs have been incurred subsequent to December 31,
1999.
BRIDGEPORT'S OWN COMPUTERS. Bridgeport upgraded its computer system to reduce
the Year 2000 risk. Bridgeport has not experienced any material problems with
its own computers and does not expect to have material additional costs. The
upgrade costs were approximately $17,000.
COMPUTERS OF OTHERS USED BY BRIDGEPORT'S BORROWERS. Bridgeport evaluated most of
its borrowers and determined that the Year 2000 problem would not, on an
aggregate basis, impact its customers' ability to make payments to Bridgeport.
Bridgeport determined that most of its residential borrowers were not dependent
on their home computers for income and that none of its commercial borrowers was
so large that a Year 2000 problem would render it unable to collect revenue or
rent and, in turn, continue to make loan payments to Bridgeport. Bridgeport did
not incur material costs to address this risk area and determined that it was
Year 2000 compliant in this area. Since December 31, 1999, Bridgeport has not
experienced any material Year 2000 problems arising from the computers of others
used by its borrowers.
COMPUTERS OF OTHERS WHO PROVIDE BRIDGEPORT WITH DATA PROCESSING. Bridgeport
determined that the risk in this area was primarily focused on one third-party
service bureau that provided virtually all of Bridgeport's data processing.
Since December 31, 1999, Bridgeport has not experienced any material problems
arising from the Year 2000 compliance of the service bureau.
-16-
<PAGE> 19
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS AND
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 18
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 19 - 20
CONSOLIDATED STATEMENTS OF OPERATIONS 21
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 22
CONSOLIDATED STATEMENTS OF CASH FLOWS 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24 - 41
-17-
<PAGE> 20
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Ohio State Financial Services, Inc.
We have audited the accompanying consolidated statements of financial condition
of Ohio State Financial Services, Inc. and subsidiary as of December 31, 1999
and 1998, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ohio State Financial
Services, Inc. and subsidiary as of December 31, 1999 and 1998, and the results
of their operations, and cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ S.R. Snodgrass, A.C.
Wheeling, West Virginia
January 7, 2000
-18-
<PAGE> 21
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Cash and amounts due from banks $ 918,404 $ 907,682
Interest-bearing deposits with other institutions 4,254,713 4,792,090
----------- -----------
Total cash and cash equivalents 5,173,117 5,699,772
Interest-bearing time deposits 400,000 3,100,000
Investment securities:
Available-for-sale (cost approximates market value) 415,400 388,500
Held-to-maturity (market value of $3,509,472
at 12/31/99 and $1,018,809 at 12/31/98) 3,693,836 967,117
Loans receivable, net 24,140,672 24,594,506
Office properties and equipment, net 452,967 466,335
Accrued interest receivable, loans and
investments 149,114 157,227
Other assets 109,338 63,262
----------- -----------
TOTAL ASSETS $34,534,444 $35,436,719
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-19-
<PAGE> 22
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
LIABILITIES
<S> <C> <C>
Deposit accounts $ 25,540,796 $ 25,450,404
Short-term notes payable -- 892,543
Advances by borrowers for taxes and
insurance 188,561 182,061
Accrued interest payable and other liabilities 129,833 137,798
Deferred federal income taxes 71,599 72,264
------------ ------------
TOTAL LIABILITIES 25,930,789 26,735,070
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, no par or stated value, 3,000,000 shares authorized; 634,168
shares issued and 572,337 shares outstanding at December 31, 1999; 634,168
shares issued and 598,460 shares
outstanding at December 31, 1998 -- --
Additional paid in capital 5,946,184 5,947,185
Treasury stock, at cost, 61,831 shares at December 31,
1999; 35,708 shares at December 31, 1998 (821,072) (494,283)
Unearned recognition and retention plan shares (RRP) (306,449) (371,859)
Unearned employee stock ownership plan shares (ESOP) (429,255) (536,735)
Retained earnings-substantially restricted 4,214,247 4,157,341
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 8,603,655 8,701,649
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 34,534,444 $ 35,436,719
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-20-
<PAGE> 23
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $1,832,134 $1,960,533 $1,953,696
Mortgage-backed securities 50,554 69,268 85,485
Interest-bearing deposits and investment
securities 465,170 523,661 470,891
Dividends on Federal Home Loan Bank
Stock 27,083 25,690 23,939
---------- ---------- ----------
Total interest and dividend income 2,374,941 2,579,152 2,534,011
---------- ---------- ----------
INTEREST EXPENSE
Savings deposits 995,227 1,021,288 1,144,619
Federal Home Loan Bank advances and
notes payable 8,539 8,737 961
---------- ---------- ----------
Total interest expense 1,003,766 1,030,025 1,145,580
---------- ---------- ----------
Net interest income 1,371,175 1,549,127 1,388,431
PROVISION FOR LOSSES ON LOANS -- 41,191 --
---------- ---------- ----------
Net interest income after
provision for loan losses 1,371,175 1,507,936 1,388,431
---------- ---------- ----------
NONINTEREST INCOME
Service charges 9,191 6,514 15,433
Gains on sale of other real estate -- 10,705 2,245
Other income and fees 17,898 7,612 16,502
---------- ---------- ----------
Total noninterest income 27,089 24,831 34,180
---------- ---------- ----------
NONINTEREST EXPENSES
Salaries and benefits 534,442 514,198 394,955
Occupancy expense 54,172 62,126 61,419
Furniture and equipment expense 31,007 26,881 35,191
Machine rental and service bureau expense 58,045 60,810 50,814
Stationery, printing, and office expenses 52,085 49,538 39,856
Advertising and public relations 29,777 35,039 39,978
Franchise, payroll and other taxes 152,675 148,418 90,128
Federal deposit insurance premium 26,706 29,394 26,717
Legal and accounting fees 94,006 97,152 39,077
Other operating expenses 98,519 133,258 87,959
---------- ---------- ----------
Total noninterest expenses 1,131,434 1,156,814 866,094
---------- ---------- ----------
Income before income taxes 266,830 375,953 556,517
PROVISION FOR INCOME TAXES 91,159 149,449 193,883
---------- ---------- ----------
Net income $ 175,671 $ 226,504 $ 362,634
========== ========== ==========
PER SHARE DATA (FROM OCTOBER 1, 1997)
Basic $ .35 $ .40 $ .17
========== ========== ==========
Diluted $ .33 $ .39 $ .17
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-21-
<PAGE> 24
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Additional Earnings Unearned Unearned Total
Common Paid in Substantially Treasury Shares in Shares in Shareholders'
Stock Capital Restricted Stock RRP ESOP Equity
--------- ----------- ----------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ -- $ -- $ 4,770,343 $ -- $ -- $ -- $ 4,770,343
Net income -- -- 362,634 -- -- -- 362,634
Sale of common stock -- 5,916,081 -- -- -- (506,530) 5,409,551
Accrued compensation
expense-ESOP -- 6,279 -- -- -- 12,663 18,942
--------- ----------- ----------- ----------- --------- --------- ------------
Balance, December 31, 1997 -- 5,922,360 5,132,977 -- -- (493,867) 10,561,470
Net income -- -- 226,504 -- -- -- 226,504
Purchase of treasury stock -- -- -- (494,283) -- -- (494,283)
Purchase of plan shares -- -- -- -- (421,465) (101,306) (522,771)
ESOP shares earned -- 24,825 -- -- -- 58,438 83,263
RRP shares earned -- -- -- -- 49,606 -- 49,606
Dividends/distributions
($2.20/share) -- -- (1,202,140) -- -- -- (1,202,140)
--------- ----------- ----------- ----------- --------- --------- ------------
Balance, December 31, 1998 -- 5,947,185 4,157,341 (494,283) (371,859) (536,735) 8,701,649
Net income -- -- 175,671 -- -- -- 175,671
Purchase of treasury stock -- -- -- (326,789) -- -- (326,789)
ESOP shares earned -- (1,001) -- -- -- 107,480 106,479
RRP shares earned -- -- -- -- 65,410 -- 65,410
Dividends ($.20/share) -- -- (118,765) -- -- -- (118,765)
--------- ----------- ----------- ----------- --------- --------- ------------
Balance, December 31, 1999 $ -- $ 5,946,184 $ 4,214,247 $ (821,072) $(306,449) $(429,255) $ 8,603,655
========= =========== =========== =========== ========= ========= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-22-
<PAGE> 25
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 175,671 $ 226,504 $ 362,634
Adjustments:
Depreciation 38,921 37,685 38,437
Gain on real estate owned -- (10,705) (2,245)
Deferred federal income tax (665) (2,741) 19,497
Accretion of investment security discounts (221) (822) (3,743)
Provision for loan losses -- 41,191 --
ESOP and RRP amortization 171,889 132,869 18,942
Federal Home Loan Bank stock dividend (26,900) (25,500) (23,700)
Accrued interest receivable and other assets (37,963) (23,885) 11,889
Accrued interest payable and other liabilities (7,965) (84,180) 64,541
----------- ----------- ----------
Net cash provided by
operating activities 312,767 290,416 486,252
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Term deposits, net 2,700,000 1,500,000 (3,800,000)
Purchase of held to maturity securities (3,197,562) -- --
Proceeds from maturities of held
to maturity securities 300,000 3,000,000 500,000
Proceeds from redemptions of mortgage-
backed securities 171,064 180,293 138,361
Net change in loans 453,834 (309,530) 497,647
Acquisition of office properties and equipment (25,553) (21,070) (49,715)
Disposition of real estate owned -- 61,592 19,865
----------- ----------- ----------
Net cash provided by (used in)
investing activities 401,783 4,411,285 (2,693,842)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock -- -- 5,409,551
Change in deposits, net 90,392 (883,035) (2,457,682)
Short-term borrowings, net (892,543) 892,543 --
Purchase of treasury stock (326,789) (494,283) --
Transfers to ESOP and RRP -- (522,771) --
Payment of dividends/distributions (118,765) (1,202,140) --
Change in mortgage escrow funds, net 6,500 29,925 (2,109)
----------- ----------- ----------
Net cash provided by (used in)
financing activities (1,241,205) (2,179,761) 2,949,760
----------- ----------- ----------
Change in cash and cash equivalents (526,655) 2,521,940 742,170
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 5,699,772 3,177,832 2,435,662
----------- ----------- ----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 5,173,117 $ 5,699,772 $3,177,832
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-23-
<PAGE> 26
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the consolidated financial
statements of Ohio State Financial Services, Inc. (the "Company") and
Subsidiary. The accounting and reporting policies of the Company conform
to generally accepted accounting principles and to general practice within
the savings and loan industry. The following is a description of the more
significant of those policies.
Nature of Operations - The Company was organized under Ohio law in March
1997. The Company acquired 100% of the common shares of Bridgeport Savings
and Loan Association (the "Association"), a savings and loan association
organized under Ohio law, on September 26, 1997, upon its conversion from
mutual to stock form. The operating results of the Company depend
primarily upon the operating results of the Association. The Association
provides banking services to customers through its Bridgeport and
Shadyside, Ohio offices. The principal business of the Association is the
origination of permanent mortgage loans on one- to four-family residential
real estate located in the Association's primary market area, which
consists of Belmont County in Ohio, and Ohio and Marshall Counties in West
Virginia.
Use of Estimates - The financial statements have been prepared in
conformity with generally accepted accounting principles and, as such,
include amounts based on informed estimates and judgments of management
with consideration given to materiality. Actual results could differ from
those estimates.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and the Association, the Company's
wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Office Properties and Equipment - Land is carried at cost; buildings and
equipment are stated at cost, less accumulated depreciation. Maintenance,
repairs, and minor improvements are charged to operating expenses as
incurred. Major improvements and betterments are capitalized.
Depreciation is computed on the straight-line method for financial
reporting purposes over the following estimated useful lives:
Buildings and improvements 10 - 50 years
Furniture, fixtures and equipment 3 - 50 years
Automobiles 5 years
Real Estate - Real estate acquired in the settlement of loans is carried
at the lower of the recorded investment in the property or its fair value
minus estimated costs of sale.
Loan Fees, Discounts, and Premiums - Loan fees are accounted for in
conformity with requirements of the Statement of Financial Accounting
Standards No. 91. Accordingly, loan origination and commitment fees and
certain direct loan origination costs are deferred, and the net amount
amortized over the contractual lives of the related loans or commitments
as an adjustment of the related loan's yield using the interest method.
-24-
<PAGE> 27
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans Receivable - Loans receivable are stated at their unpaid principal
balance, net of the allowance for loan losses. Interest on loans is
credited to income as earned and is accrued only if it is considered
collectible. An allowance for uncollected interest on mortgage loans is
provided for all accrued interest on loans which are delinquent more than
90 days, resulting in interest previously accrued on those loans being
reversed from income, and thereafter, interest is recognized only to the
extent of payments received. Loans are returned to accrual status when
less than 90 days delinquent and when, in management's judgment,
collection is probable.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" and Statement of Financial Accounting Standards No. 118, "Accounting
by Creditors for Impairment of a Loan-Income Recognition and Disclosures"
(FAS 114 and 118). Impaired loans as defined by FAS 114 and 118 exclude
certain consumer loans and residential real estate loans. Loan impairment
is measured based on the present value of expected cash flows discounted
at the loan's effective interest rate or at the fair value of the
collateral if the loan is collateral dependent. Since the adoption of FAS
114 and 118, the Company has had no loans which management has determined
to be impaired.
Allowance for Loan Losses - The allowance for loan losses is maintained at
a level which, in management's judgment, is 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, specific impaired loans, and
economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated
cash flows. The allowance is increased by a provision for loan losses,
which is charged to expense and reduced by charge-offs, net of recoveries.
Changes in the allowance relating to impaired loans are charged or
credited to the provision for loan losses. Because of uncertainties
inherent in the estimation process, management's estimate of credit losses
inherent in the loan portfolio and the related allowance may change in the
near term.
Investment Securities - Debt securities, including mortgage-backed
securities acquired with the intent and ability to hold to maturity are
stated at cost and adjusted for amortization of premium and accretion of
discount, which are computed using a level yield method and are recognized
as adjustments of interest income. Under FAS No. 115, investment
securities in the portfolio are classified as either available-for-sale or
held-to-maturity. The Company does not currently conduct short term
purchase and sale transactions of investment securities which would be
classified as trading securities.
The initial determination of investments classified as available-for-sale
was based principally on the Company's asset/liability position and
potential liquidity needs. These securities are available for sale at any
time based upon management's assessment of changes in economic or
financial market conditions, interest rate or prepayment risk, liquidity
considerations, and other factors. Securities classified as
available-for-sale are carried at market value. Unrealized holding gains
and losses, net of tax, on available-for-sale securities are reported as a
net amount in a separate component of equity until realized. No unrealized
gain or loss is applicable to the Company's equity securities due to the
restricted nature of the securities.
-25-
<PAGE> 28
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. Under FAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Earnings Per Share - On September 26, 1997, the Company issued 634,168
common shares. Earnings per share data for the 1997 period have been
determined by dividing net income since October 1, 1997, of $100,667 by
the weighted average number of shares issued and outstanding since the
original issue date. Earnings from September 26, 1997 through September
30, 1997, were determined not to be meaningful. As discussed in Note 10,
the Company accounts for the shares acquired by the ESOP in accordance
with Statement of Position No. 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.
There were no convertible securities which would affect the numerator in
calculating basic and diluted earnings per share; therefore, net income as
presented on the Consolidated Statement of Operations for 1999 and 1998,
and net income, since inception, October 1, 1997, of $100,667 for 1997
will be used as the numerator. The following tables set forth a
reconciliation of the denominator of the basic and diluted earnings per
share computation:
<TABLE>
<CAPTION>
Denominator 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Denominator for basic earnings per share-
weighted-average shares 508,613 563,977 584,148
Employee stock options (antidilutive) -- -- --
Unvested RRP shares 17,015 14,517 --
------- ------- -------
Denominator for diluted earnings
per share-adjusted weighted-average
assumed conversions 525,628 578,494 584,148
======= ======= =======
</TABLE>
-26-
<PAGE> 29
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - INVESTMENTS
The carrying amounts and fair values of the Company's investment
securities at December 31, 1999 and 1998, are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Securities Available for Sale:
Federal Home Loan Bank stock (restricted) $ 400,400 $ -- $ -- $ 400,400
Intrieve Incorporated 15,000 -- -- 15,000
---------- ------- -------- ----------
Total available-for-sale 415,400 -- -- 415,400
---------- ------- -------- ----------
Securities to be Held-to-Maturity:
U. S. Government and federal agencies 3,197,600 1,509 211,605 2,987,504
Mortgage-backed securities 496,236 25,732 -- 521,968
---------- ------- -------- ----------
Total held-to-maturity 3,693,836 27,241 211,605 3,509,472
---------- ------- -------- ----------
Total $4,109,236 $27,241 $211,605 $3,924,872
========== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Securities Available-for-Sale:
Federal Home Loan Bank stock (restricted) $ 373,500 $ -- $ -- $ 373,500
Intrieve Incorporated 15,000 -- -- 15,000
---------- ------- -------- ----------
Total available-for-sale 388,500 -- -- 388,500
---------- ------- -------- ----------
Securities to be Held-to-Maturity:
U. S. Government and federal agencies 300,000 6,702 -- 306,702
Mortgage-backed securities 667,117 44,990 -- 712,107
---------- ------- -------- ----------
Total held-to-maturity 967,117 51,692 -- 1,018,809
---------- ------- -------- ----------
Total $1,355,617 $51,692 $ -- $1,407,309
========== ======= ======== ==========
</TABLE>
-27-
<PAGE> 30
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - INVESTMENTS (CONTINUED)
The book value and fair value of investment securities at December 31,
1999 and 1998, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------
Securities To Be Securities
Held-To-Maturity Available-For-Sale
--------------------------- ---------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $ -- $ --
Due from one year through five years 200,275 196,766 -- --
Due from five through ten years 600,000 558,798 -- --
Due after ten years 2,397,325 2,231,940
Equity securities -- -- 415,400 415,400
Mortgage-backed securities 496,236 521,968 -- --
-------- ---------- -------- --------
Total $3,693,836 $3,509,472 $415,400 $415,400
========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------
Securities To Be Securities
Held-To-Maturity Available-For-Sale
--------------------------- ---------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Due in one year or less $300,000 $ 306,702 $ -- $ --
Due from one year through five years -- -- -- --
Equity securities -- -- 388,500 388,500
Mortgage-backed securities 667,117 712,107 -- --
-------- ---------- -------- --------
Total $967,117 $1,018,809 $388,500 $388,500
======== ========== ======== ========
</TABLE>
-28-
<PAGE> 31
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - LOANS RECEIVABLE
Loans receivable consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Mortgage loans:
Construction $ 993,083 $ 708,100
1-4 family 21,766,320 20,237,712
Commercial 704,125 584,856
Land 4,834 1,535
------------ -----------
23,468,362 21,532,203
------------ -----------
Consumer loans:
Passbook loans 193,598 354,735
Other consumer loans 1,181,314 3,185,366
------------ -----------
1,374,912 3,540,101
------------ -----------
Commercial loans: 18,627 35,771
------------ -----------
Total 24,861,901 25,108,075
------------ -----------
Less:
Loans in process 595,085 367,387
Allowance for loan losses 141,170 141,170
Deferred loan fees (15,026) 5,012
------------ -----------
721,229 513,569
------------ -----------
Loans receivable, net $ 24,140,672 $24,594,506
============ ===========
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of period $141,170 $ 140,978 $ 143,000
Provision charged to income -- 41,191 --
Charge-offs, net -- (40,999) (2,022)
-------- --------- ---------
Balance, end of period $141,170 $ 141,170 $ 140,978
======== ========= =========
</TABLE>
-29-
<PAGE> 32
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Land $ 137,638 $ 137,638
Office buildings and improvements 631,486 631,486
Furniture, fixtures and equipment 484,543 458,990
Automobile 23,403 23,403
---------- ----------
Total 1,277,070 1,215,517
Less accumulated depreciation 824,103 785,182
---------- ----------
Net office properties and equipment $ 452,967 $ 466,335
========== ==========
</TABLE>
Depreciation charged to operations was $38,921, $37,685, and $38,437, for the
years ended December 31, 1999, 1998, and 1997.
NOTE 5 - DEPOSIT ANALYSIS
The Association's deposits by type are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1999 1998
------------------------- --------------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
NOW and Super NOW accounts $ 1,461,835 5.72% $ 1,227,432 4.82%
Money Market 1,821,286 7.13 2,135,896 8.39
Regular Savings 9,825,754 38.47 9,685,779 38.06
Certificates of Deposit 12,431,921 48.68 12,401,297 48.73
----------- ------ ----------- ------
Total $25,540,796 100.00% $25,450,404 100.00%
=========== ====== =========== ======
</TABLE>
Scheduled maturities of certificates of deposit are as follows:
December 31,
--------------------------------
1999 1998
----------- -----------
Within one year $ 7,911,387 $ 9,308,191
One to two years 3,137,096 1,931,502
Two to three years 520,155 709,792
Beyond three years 863,283 451,812
----------- -----------
Total $12,431,921 $12,401,297
=========== ===========
-30-
<PAGE> 33
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - DEPOSIT ANALYSIS (CONTINUED)
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was $4,194,650 at December 31, 1999, and $3,926,000 at December
31, 1998. Deposits in excess of $100,000 are not federally insured.
Interest expense by deposit category is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1999 1998 1997
-------- ---------- ----------
<S> <C> <C> <C>
NOW and Super NOW Accounts $ 22,177 $ 19,178 $ 19,092
Money Market 55,962 60,471 76,042
Regular Savings 299,578 296,128 313,974
Certificates of Deposit 617,510 645,511 735,511
-------- ---------- ----------
Total $995,227 $1,021,288 $1,144,619
======== ========== ==========
</TABLE>
NOTE 6 - SHORT-TERM BORROWINGS
Short-term borrowings matured during the year ended December 31, 1999. At
December 31, 1998, these borrowings consisted of notes payable to local
financial institutions and are summarized as follows:
Interest Remaining
Maturity Rate Principal
-------- ---- ---------
1-21-99 8.42% $ 92,503
2-11-99 8.01% 100,040
3-01-99 7.75% 700,000
--------
Total $892,543
========
The above borrowings were collateralized with term deposits.
-31-
<PAGE> 34
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift
Supervision. Failure to meet the minimum regulatory capital requirements
can initiate certain mandatory, and possible additional discretionary
actions by regulators, that if undertaken, could have a direct material
affect on the Association's financial statements. Under the regulatory
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Association must meet specific capital guidelines
involving quantitative measures of the Association's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Association's capital amounts and classification
under the prompt corrective action guidelines are also subject to
qualitative judgment by the regulators about components, risk weighting,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios of tangible
capital, core capital (Tier 1), and risk-based capital.
The most recent notification from the OTS categorized the Association as
"well capitalized" under the regulatory framework for prompt corrective
action. To be categorized as "well capitalized", the Association must
maintain minimum total risk-based, core (Tier 1), and tangible ratios set
forth in the table below. There are no conditions or events since that
notification that management believes have changed the institution's
category.
The Association's actual capital amounts and ratios are also presented in
the table. As of December 31, 1999, risk-based capital includes tangible
capital plus $141,000 of the Association's allowance for loan losses. As of
December 31, 1998, risk-based capital includes tangible capital plus
$131,000 of the Association's allowance for loan losses.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(In thousands) (In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total risk-based capital $6,095 37.53% $1,299 8.0% $1,624 10.0%
(To risk weighted assets)
Core (Tier 1) capital 5,954 36.66 650 4.0 974 6.0
(To risk weighted assets)
Core (Tier 1) capital 5,954 18.63 959 3.0 1,598 5.0
(To total assets)
Tangible capital 5,954 18.63 480 1.5 -- N/A
(To total assets)
</TABLE>
-32-
<PAGE> 35
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(In thousands) (In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total risk-based capital $8,446 50.44% $1,340 8.0% $1,675 10.0%
(To risk weighted assets)
Core (Tier 1) capital 8,315 49.65 670 4.0 1,005 6.0
(To risk weighted assets)
Core (Tier 1) capital 8,315 24.37 1,024 3.0 1,706 5.0
(To total assets)
Tangible capital 8,315 24.37 512 1.5 -- N/A
(To total assets)
</TABLE>
NOTE 8 - FEDERAL INCOME TAX
The Association was permitted until 1996 a special bad debts deduction limited
generally to eight percent of otherwise taxable income and subject to certain
limitations based on aggregate loans and savings account balances at the end
of the year. In 1996, the Small Business Job Protection Act (the "Act") was
signed into law. The Act eliminated the percentage of taxable income bad debt
deduction for thrift institutions and requires that bad debts for federal
income taxes be determined based primarily on the experience method. The Act
provides that bad debt reserves accumulated after 1987 are subject to
recapture over a six year period which began in 1996. The Act provides that
bad debt reserves accumulated prior to 1988 be exempt from recapture. If the
amounts that qualify as deductions for federal income tax purposes are later
used for purposes other than for bad debt losses, they will be subject to
federal income tax at the then corporate rate. Retained income at December 31,
1999 and 1998, included approximately $830,000 (pre-1988 reserves) for which
federal income tax has not been provided.
The provisions for Federal income taxes consist of:
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
-------- --------- --------
Current $ 91,824 $ 152,190 $174,386
Deferred (665) (2,741) 19,497
-------- --------- --------
Total $ 91,159 $ 149,449 $193,883
======== ========= ========
-33-
<PAGE> 36
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - FEDERAL INCOME TAX (CONTINUED)
The following temporary differences gave rise to the deferred tax (asset)
liability:
December 31,
----------------------
1999 1998
--------- --------
Income and expense recognized in the
financial statements on the accrual basis,
but on the cash basis for tax purposes $ 23,282 $ 30,802
Depreciation 687 3,085
FHLB stock dividends (incl. redemptions) 108,234 99,088
Difference in bad debt deduction (50,532) (44,486)
Deferred compensation (12,047) (15,008)
Other 1,975 (1,217)
--------- --------
Total $ 71,599 $ 72,264
========= ========
A reconciliation between the amount of reported income tax expense and the
amount computed by applying the Federal income tax rate to income before
income taxes is as follows:
Year Ended December 31,
----------------------------------------
1999 1998 1997
-------- --------- ---------
Tax at statutory rate (34%) $ 90,722 $ 127,824 $ 189,216
Increase (decrease) in taxes
resulting from:
Stock compensation 3,713 14,005 2,135
Nontaxable income (338) (850) (1,103)
Other (2,938) 8,470 3,635
-------- --------- ---------
Total $ 91,159 $ 149,449 $ 193,883
======== ========= =========
Effective rate 34.2% 39.8% 34.8%
NOTE 9 - RETIREMENT PLAN AND 401(K) THRIFT PLAN
The Association has a defined benefit plan for all eligible employees
through the Financial Institutions Retirement Fund. The plan covers and
enrolls as active members all employees who are expected to complete 1,000
hours of service in twelve consecutive months and have attained age
twenty-one. Because the plan is a multi-employer plan, plan information for
the Association separately is not determinable. Pension expense for the
years ended December 31, 1999, 1998, and 1997, was $-0-, $-0-, and $6,836,
respectively.
The Association has a profit-sharing plan which qualifies under Section
401(k) of the Internal Revenue Code. The plan is for all eligible employees
and allows the Association to match employee contributions to a maximum of
6% of their compensation. The Association suspended matching contributions
effective April, 1995. The Association's plan expenses for the years ended
December 31, 1999, 1998, and 1997, amounted to $1,900, $1,900, and $1,632,
respectively. Plan expenses consist solely of administrative costs.
-34-
<PAGE> 37
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
During the year ended December 31,1997, the Association adopted an ESOP for
the benefit of officers and employees who have met certain eligibility
requirements related to age and length of service. An ESOP trust was
created and acquired 50,653 shares of common stock in the Company's initial
public offering, using proceeds of a loan obtained from the Company, which
bears interest at an annual rate of 6.55%. The loan, which is secured by
the shares of stock purchased, calls for annual interest over a ten year
period and annual principal payments of $50,653 with the initial
installment due September 26, 1998.
The Association is scheduled to make annual contributions to the trust to
allow the trust to make the required loan payments to the Company. Shares
are released from collateral based upon the proportion of annual principal
payments made on the loan each year and allocated to qualified employees.
As shares are committed to be released from collateral based on the terms
of the loan, the Association reports compensation expense based upon the
fair value of the shares. Dividends, when paid on allocated ESOP shares,
are charged to retained earnings. Dividends paid on unallocated shares are
reported as compensation cost if used to repay debt. The Trust also used
dividends and the return of capital distribution on unallocated shares to
purchase additional shares of common stock at a cost of $101,306 during the
year ended December 31, 1998. Compensation expense for the ESOP for the
years ended December 31, 1999, 1998, and 1997 was $91,550, $85,317, and
$18,942, respectively.
The following table represents the components of the ESOP shares:
December 31,
1999 1998
-------- --------
Allocated shares 14,666 7,811
Shares distributed -- --
Unallocated shares 43,687 50,542
-------- --------
Total ESOP shares 58,353 58,353
======== ========
Fair value of ESOP shares
Allocated $133,827 $ 93,732
Unallocated 398,644 606,504
-------- --------
Total $532,471 $700,236
======== ========
-35-
<PAGE> 38
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - RECOGNITION AND RETENTION PLAN (RRP)
The Board of Directors adopted the RRP for directors and certain officers
and employees which was approved by shareholders at the annual meeting held
on April 15, 1998. The objective of the RRP is to enable the Association to
retain its corporate officers, key employees, and directors who have the
experience and the ability necessary to manage these entities. Directors,
officers, and key employees who are selected by members of the
Board-appointed committee are eligible to receive benefits under the RRP.
Directors of the Association serve as Trustees for the RRP, and have the
responsibility to invest all funds contributed by the Association to the
Trust created for the RRP.
In June, 1998, the Trust purchased, with funds contributed by the
Association, shares of the Company and 20,925 shares were awarded to
directors and employees and 4,442 shares remained unawarded. During the
year ended December 31, 1999, 1,015 in additional shares were awarded.
Directors, officers, and employees who terminate their employment with the
Association forfeit the right to any shares which were awarded but not
earned, except in the event of death or disability.
The Association granted 20,925 shares of common stock on April 15, 1998,
and granted an additional 1,015 shares on January 31, 1999. These shares
become earned and non-forfeitable over a five-year period on the
anniversary date of each award. On April 15, 1999, 3,937 shares became
earned and 61 shares were reacquired. The RRP shares purchased initially
will be excluded from shareholder's equity. The Company recognizes
compensation expense in the amount of fair value of the common stock at the
grant date, over the years during which the shares are earned and recorded
as an addition to shareholder's equity. Net compensation expense
attributable to the RRP amounted to $66,097 and $49,606 for the years ended
December 31, 1999 and 1998, respectively.
NOTE 12 - STOCK OPTION PLAN
The Board of Directors adopted a Stock Option Plan for the directors,
officers, and employees which was approved by shareholders at the annual
meeting held on April 15, 1998. An aggregate of 63,417 authorized but
unissued common shares of the Company were reserved for future issuance
under the Stock Option Plan. On April 1, 1998, the Company granted options
to purchase 55,808 common shares. At the time of the grant, the options
were exercisable over a five-year period beginning April 15, 1999. At the
annual meeting of shareholders of the Company in 1999, the Company's
shareholders approved an amendment to the Stock Option Plan which caused
the options to become exercisable over a three-year period beginning April
15, 1999. The stock options typically have expiration terms of ten years.
The per share exercise price of a stock option shall be, at a minimum,
equal to the fair value of a common share on the date the option is
granted. Proceeds from the exercise of the stock options are credited to
additional paid-in capital.
-36-
<PAGE> 39
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - STOCK OPTION PLAN (CONTINUED)
The Company adopted Statement of Financial Accounting Standards Statement
No. 123, "Accounting for Stock-Based Compensation". This statement
encourages, but does not require the Company to recognize compensation
expense for all awards of equity instruments issued. The statement
established a fair value based method of accounting for stock-based
compensation plans. The standard applies to all transactions in which an
entity acquires goods or services by issuing equity instruments or by
incurring liabilities in amounts based on the price of the entity's common
stock or other equity instruments. Statement No. 123 permits companies to
continue to account for such transactions under Accounting Principles Board
No. 25, "Accounting for Stock Issued to Employees," but requires disclosure
of pro forma net income and earnings per share as if the Company had
applied the new method.
Under Accounting Principles Board Opinion 25, no compensation expense has
been recognized with respect to the options granted under the stock option
plans. Had compensation expense been determined on the basis of fair value
pursuant to Statement No. 123, net income and earnings per share would have
been reduced as follows:
December 31,
1999 1998
---- ----
Net income:
As reported $175,671 $226,504
Pro forma $ 58,179 $120,612
Basic earnings per share:
As reported $ .35 .40
Pro forma $ .11 .21
Diluted earnings per share:
As reported $ .33 .39
Pro forma $ .11 .21
The following table presents share data related to the Stock Option Plan:
Shares Under Option
-----------------------
1999 1998
------ ------
Outstanding, beginning of year 52,003 --
Repricing during the period 8,878 --
Granted during the period 6,342 55,808
Forfeited during the period (3,171) (3,805)
Exercised during the period -- --
------ ------
Outstanding, end of period 64,052 52,003
====== ======
The option price as of December 31, 1998 was $17.375 per share. The
exercise price was changed in 1999 to $14.700 per share due to a special $2
per share return of capital distribution in December 1998.
-37-
<PAGE> 40
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the statement of
financial condition. The contract amounts of these instruments reflect the
extent of involvement the institution has in particular classes of
financial instruments. The institution uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.
The following represents financial instruments whose contract amounts
represent credit risk:
December 31,
1999 1998
-------- --------
Loans in process $595,085 $ 367,387
Commitments to originate loans - fixed rates 159,000 1,010,000
The interest rate range on fixed rate loan commitments was 7.50% to 8.00%
at December 31, 1999.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The institution evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the institution upon extension
of credit, is based on management's credit evaluation of the borrower.
Collateral held consists primarily of single-family residences.
Concentration of Credit Risk
The mortgage-backed securities held by the Company consist of FHLMC and
GNMA pass-through securities which are directly or inherently backed by the
full faith and credit of the United States Government.
The Company's real estate loans and loan commitments are primarily for
properties located throughout Eastern Ohio and Northern West Virginia.
Repayment of these loans is in part dependent upon the economic conditions
in this region. The Company evaluates each customer's creditworthiness on a
case-by-case basis and requires collateral on all real estate loans which
consists primarily of residential properties.
The Company also has concentration of credit risk exposure in cash. The
Company places its cash with high credit quality financial institutions. At
times, such investments may be in excess of the FDIC insurance limit. At
December 31, 1999, the Company had total deposits with financial
institutions of $405,300 in excess of the FDIC limits.
-38-
<PAGE> 41
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - RELATED PARTY TRANSACTIONS
Directors and officers of the Company and its wholly-owned subsidiary were
customers of, and had other transactions with, the Company in the ordinary
course of business during the years ended December 31, 1999, 1998, and
1997.
Loans and commitments included in such transactions were made with
substantially the same terms and collateral as those prevailing at the time
for comparable transactions with other persons. Loans to directors and
officers did not involve more than the normal risk of collectibility, or
present other unfavorable features. The loans to directors and officers at
December 31, 1999 and 1998, were not material in the aggregate amount.
NOTE 15 - CASH FLOWS INFORMATION
Cash equivalents include amounts due from banks and Federal Home Loan Bank
overnight accounts and term deposits with original maturities of ninety
days or less.
In addition, the Company made federal income tax payments during the years
ended December 31, 1999, 1998, and 1997, of $154,818, $251,778, and
$49,369, respectively. Cash payments for interest for the years ended
December 31, 1999, 1998, and 1997 were $1,003,990, $1,030,275, and
$1,146,763, respectively.
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized
in immediate settlements of the instruments. Statement 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. In addition, the value of long-term relationships with
depositors and other customers are not reflected. The value of these items
is significant. Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the corporation.
The following methods and assumptions were used in estimating fair value of
financial instruments as disclosed herein:
-39-
<PAGE> 42
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Cash and Cash Equivalents: For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Time Deposits: For those short-term instruments, the carrying amount is a
reasonable estimate of fair value.
Investment Securities and Securities Held for Sale: For debt securities and
marketable equity securities held for investment purposes and for sale,
fair values are based on quoted market prices or dealer quotes. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.
Loans: For certain homogeneous categories of loans, such as some
residential mortgages, fair value is estimated using the quoted market
prices for securities backed by similar loans. The fair value of other
types of loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Short-term Notes Payable and Advance Payments by Borrowers for Taxes and
Insurance: The fair value is equal to the current carrying value.
Deposit Liabilities: The fair value of demand deposits, savings accounts,
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining maturities.
The estimated fair values of the Company's financial instruments are as
follows:
December 31, 1999
-------------------------------
Carrying Estimated
Amount Fair Value
---------- ----------
Financial Assets:
Cash and cash equivalents $ 5,173,117 $ 5,173,117
Interest bearing time deposits 400,000 400,000
Securities available for sale 415,400 415,000
Securities held to maturity 3,693,836 3,509,472
Loans, net 24,140,672 23,592,911
Financial Liabilities:
Deposits 25,540,796 25,633,522
Advance payments by borrowers for
taxes and insurance 188,561 188,561
-40-
<PAGE> 43
OHIO STATE FINANCIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
December 31, 1998
--------------------------------
Carrying Estimated
Amount Fair Value
---------- ----------
Financial Assets:
Cash and cash equivalents $ 5,699,772 $ 5,699,772
Interest bearing time deposits 3,100,000 3,100,000
Securities available for sale 388,500 388,500
Securities held to maturity 967,117 1,018,809
Loans, net 24,594,506 24,376,611
Financial Liabilities:
Deposits 25,450,404 25,547,278
Advance payments by borrowers for
taxes and insurance 182,061 182,061
Short-term notes payable 892,543 892,543
NOTE 17 - CONVERSION AND REORGANIZATION
On March 24, 1997, the Board of Directors of the Association approved a
plan of conversion (the "Plan") pursuant to which the Association converted
from a mutual savings and loan association to a capital stock savings and
loan association incorporated under Ohio law and simultaneously issued all
of its outstanding common shares 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. The Company became a unitary savings and loan holding company
with its principal assets being the capital stock of the Association, the
investments made with the net proceeds retained from the sale of common
shares in the offering described below and a loan made to the ESOP to
facilitate the ESOP's purchase of common shares in the conversion.
In connection with the conversion, the Company completed the sale of
634,168 common shares 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 carry no par or stated
value per share.
In accordance with regulations, at the time that the Association converted
from a mutual savings and loan association to a permanent capital stock
savings and loan association, a portion of retained earnings was restricted
by establishing a liquidation account. The liquidation account will be
maintained for the benefit of eligible account holders who continue to
maintain their accounts at the Association after the conversion. The
liquidation account will be reduced annually to the extent that eligible
account holders have reduced their qualifying deposits. Subsequent
increases will not restore an eligible account holder's interest in the
liquidation account. In the event of a complete liquidation of the
Association each account holder will be entitled to receive a distribution
from the liquidation account in an amount proportionate to the current
adjusted qualifying balances for accounts then held.
-41-
<PAGE> 44
OHIO STATE FINANCIAL SERVICES, INC.
AND
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<S> <C>
BOARD OF DIRECTORS OF
OHIO STATE FINANCIAL SERVICES, INC. AND EXECUTIVE OFFICERS OF
BRIDGEPORT SAVINGS AND LOAN ASSOCIATION OHIO STATE FINANCIAL SERVICES, INC.
John O. Costine Jon W. Letzkus
Partner President and Chairman
Costine Law Firm
Marianne Doyle
Anton M. Godez Vice President
President
General Welding Supply Company Sherri Yarbrough
Secretary
Jon W. Letzkus
President and Chairman
Ohio State Financial Services, Inc. EXECUTIVE OFFICERS OF
President and Managing Officer BRIDGEPORT SAVINGS AND LOAN ASSOCIATION
Bridgeport Savings and Loan Association
Jon W. Letzkus
William E. Reline President and Managing Officer
Consultant
Wheeling Machine Products Marianne Doyle
Assistant Vice President
Manuel C. Thomas
Officer Darlene V. Bennington
M. C. Thomas Insurance Agency, Inc. Treasurer and Secretary
Sherri Yarbrough
Director of Information Services
</TABLE>
-42-
<PAGE> 45
SHAREHOLDER SERVICES
Fifth Third Bank serves as transfer agent and dividend distributing agent for
the shares of OSFS. Communications regarding change of address, transfer of
shares, lost certificates, and dividends should be sent to:
Fifth Third Bank
Corporate Trust Services
Mail Drop 10AT66
38 Fountain Square Plaza
Cincinnati, Ohio 45263
(513) 579-5320
(800) 837-2755
ANNUAL MEETING
The Annual Meeting of Shareholders of OSFS will be held on April 19, 2000, at
1:00 p.m., local time, at the Ramada Plaza, 1200 Market Street, Wheeling, West
Virginia 26003. Shareholders are cordially invited to attend.
ANNUAL REPORT ON FORM 10-KSB
A copy of the Annual Report on Form 10-KSB of OSFS, as filed with the Securities
and Exchange Commission, will be available at no charge to shareholders upon
request to:
Ohio State Financial Services, Inc.
435 Main Street
Bridgeport, Ohio 43912
Attention: Sherri Yarbrough, Secretary
-43-
<PAGE> 1
EXHIBIT 20
OHIO STATE FINANCIAL SERVICES, INC.
435 MAIN STREET
BRIDGEPORT, OHIO 43912
(740) 635-0764
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the 2000 Annual Meeting of Shareholders of
Ohio State Financial Services, Inc. ("OSFS") will be held at the Ramada Plaza
(formerly, the McClure Hotel), 1200 Market Street, Wheeling, West Virginia
26003, on April 19, 2000, at 1:00 p.m., local time (the "Annual Meeting"), for
the following purposes, all of which are more completely set forth in the
accompanying proxy statement:
1. To reelect five directors of OSFS for terms expiring in 2001;
2. To ratify the selection of S. R. Snodgrass, A.C. as the auditors of
OSFS for the current fiscal year; and
3. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
Only shareholders of OSFS of record at the close of business on
February 19, 2000, will be entitled to receive notice of and to vote at the
Annual Meeting and at any adjournments thereof. Whether or not you expect to
attend the Annual Meeting, we urge you to consider the accompanying proxy
statement carefully and to SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY SO
THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND THE PRESENCE OF
A QUORUM MAY BE ASSURED. The giving of a proxy does not affect your right to
vote in person in the event you attend the Annual Meeting.
By Order of the Board of Directors
/s/ Jon W. Letzkus
Bridgeport, Ohio Jon W. Letzkus, President
March 20, 2000
<PAGE> 2
OHIO STATE FINANCIAL SERVICES, INC.
435 MAIN STREET
BRIDGEPORT, OHIO 43912
(740) 635-0764
PROXY STATEMENT
PROXIES
The enclosed proxy is solicited by the Board of Directors of Ohio State
Financial Services, Inc. ("OSFS") for use at the 2000 Annual Meeting of
Shareholders of OSFS to be held at the Ramada Plaza (formerly, the McClure
Hotel), 1200 Market Street, Wheeling, West Virginia 26003, on April 19, 2000, at
1:00 p.m., local time, and at any adjournments thereof (the "Annual Meeting").
Without affecting any vote previously taken, the proxy may be revoked by
executing a later dated proxy which is received by OSFS before the proxy is
exercised or by giving notice of revocation to OSFS in writing or in open
meeting before the proxy is exercised. ATTENDANCE AT THE ANNUAL MEETING WILL
NOT, OF ITSELF, REVOKE THE PROXY.
Each properly executed proxy received prior to the Annual Meeting and
not revoked will be voted as specified thereon or, in the absence of specific
instructions to the contrary, will be voted:
FOR the reelection of John O. Costine, Anton M. Godez, Jon W. Letzkus,
William E. Reline, and Manuel C. Thomas as directors of OSFS for terms
expiring in 2001; and
FOR the ratification of the selection of S. R. Snodgrass, A.C. ("S. R.
Snodgrass") as the auditors of OSFS for the current fiscal year.
The proxies may be solicited by the directors, officers and other
employees of OSFS and Bridgeport Savings and Loan Association, a wholly-owned
subsidiary of OSFS ("Bridgeport"), in person or by telephone, telegraph or mail
only for use at the Annual Meeting. The proxy will not be used for any other
meeting. The cost of soliciting the proxies will be borne by OSFS.
Only shareholders of record as of the close of business on February 19,
2000 (the "Record Date"), are entitled to vote at the Annual Meeting. Each such
shareholder will be entitled to cast one vote for each share owned. The records
of OSFS disclose that, as of the Record Date, there were 545,899 shares
outstanding and entitled to be voted at the Annual Meeting.
This proxy statement is first being mailed to shareholders of OSFS on
or about March 20, 2000.
<PAGE> 3
VOTE REQUIRED
QUORUM FOR THE ANNUAL MEETING
The presence, in person or by proxy, of the holders of a majority of
the shares entitled to be voted at the Annual Meeting will constitute a quorum
for the Annual Meeting. Shares represented by signed proxies will be counted
toward the presence of a quorum, even though they are marked "Abstain,"
"Against" or "Withhold Authority" on one or more matters.
Broker non-votes also are counted for purposes of determining the
presence or absence of a quorum. A broker non-vote occurs on an item when a
broker is not permitted to vote on that item because the broker has not received
specific instructions as to how to vote from the beneficial owner. Proxies
signed and submitted by brokers which have not been voted as described in the
previous sentence are referred to as broker non-votes.
ELECTION OF DIRECTORS
Under Ohio law and the Regulations of OSFS, the five nominees receiving
the greatest number of votes will be elected as directors. Shares as to which
voting authority is "withheld" will not be counted toward the election of the
individual nominees.
RATIFICATION OF SELECTION OF AUDITORS
The affirmative vote of the holders of a majority of the shares
represented in person or by proxy at the Annual Meeting is necessary to ratify
the selection of S. R. Snodgrass as auditors for OSFS for the current fiscal
year. The effect of an abstention or a broker non-vote is the same as a vote
against ratification.
2
<PAGE> 4
VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information with respect to the only
persons known to OSFS to beneficially own more than five percent of the
outstanding common shares of OSFS as of the Record Date:
Amount and Nature of Percent of
Name and Address Beneficial Ownership Shares Outstanding
- ---------------- -------------------- ------------------
Ohio State Financial Services, Inc.
Employee Stock Ownership Plan
435 Main Street
Bridgeport, Ohio 43912 58,353(1) 10.7%
Jerome H. and Sarah B. Davis
c/o David M. Perlmutter, Esq.
200 Park Avenue, Suite 4515
New York, New York 10166 48,500(2) 8.9%
Jeffrey L. Gendell
200 Park Avenue
Suite 3900
New York, New York 10166 39,300(3) 7.2%
Jon W. Letzkus
435 Main Street
Bridgeport, Ohio 43912 56,067(4) 10.0%
William E. Reline
435 Main Street
Bridgeport, Ohio 43912 29,497(5) 5.4%
- ---------------------------
(1) Consists of the shares held by First Bankers Trust Company, N.A., as
the Trustee for the Ohio State Financial Services, Inc. Employee Stock
Ownership Plan (the "ESOP"). The Trustee has sole voting power over
43,687 unallocated shares and shared voting power over 14,666 allocated
shares. The Trustee has shared investment power over all ESOP shares.
(2) Based on a Schedule 13D filed with the Securities and Exchange
Commission (the "SEC") by Jerome H. and Sarah B. Davis. Mr. Davis
reports sole voting and dispositive power over 18,000 of the reported
shares and Mr. and Ms. Davis report shared voting and dispositive power
over the remaining 30,500 shares.
(3) Based on a Schedule 13D filed with the SEC by Jeffrey L. Gendell
("Gendell"), Tontine Financial Partners, L.P., a Delaware limited
partnership ("Tontine"), and Tontine Management L.L.C., a Delaware
limited liability company ("TM"). Gendell, TM and Tontine report shared
voting and dispositive power over the reported shares.
(4) Mr. Letzkus has sole voting and investment power over 30,259 shares,
which include 12,492 shares that may be acquired upon the exercise of
an option awarded pursuant to the 1998 Stock Option and Incentive Plan
of OSFS (the "Stock Option Plan") and 1,268 shares that are expected to
vest in the next 60 days pursuant to the Recognition and
3
<PAGE> 5
Retention Plan of OSFS (the "RRP"). Mr. Letzkus has shared voting and
shared investment power over 4,317 shares allocated to his ESOP account
and 21,491 shares in his capacity as a Trustee of the RRP.
(5) Mr. Reline has sole voting and investment power over 8,006 shares which
include 2,498 shares that may be acquired upon the exercise of an
option awarded pursuant to the Stock Option Plan and 254 shares which
are expected to vest in the next 60 days pursuant to the RRP. Mr.
Reline has shared voting and investment power over 21,491 shares as a
Trustee of the RRP.
The following table sets forth information regarding the number of
common shares of OSFS beneficially owned by each director and by all directors
and executive officers of OSFS as a group as of the Record Date:
<TABLE>
<CAPTION>
Amount and nature of beneficial ownership
--------------------------------------------
Sole voting and Shared voting and Percent of
Name and address(1) investment power investment power shares outstanding
- ---------------- ---------------- ---------------- ------------------
<S> <C> <C> <C>
John O. Costine 3,006(2) 23,491(3) 4.8%
Anton M. Godez 10,206(2) 7,000 3.1%
Jon W. Letzkus 30,259(4) 25,808 (3) (5) 10.0%
William E. Reline 8,006(2) 21,491(3) 5.4%
Manuel C. Thomas 17,006(2) 3,000 3.6%
All directors and executive officers
of OSFS as a group (7 people) 80,285(6) 40,823(7) 21.0%
- -----------------------------
</TABLE>
(1) Each of the persons listed in this table may be contacted at the
address of OSFS.
(2) Includes 2,498 shares that may be acquired upon the exercise of options
awarded pursuant to the Stock Option Plan and 254 shares which are
expected to vest in the next 60 days pursuant to the RRP.
(3) Includes 21,491 shares held by the RRP with respect to which Messrs.
Costine, Reline, and Letzkus have shared voting and investment power as
Trustees.
(4) Includes 12,492 shares that may be acquired upon the exercise of
options awarded pursuant to the Stock Option Plan and 1,268 shares that
are expected to vest in the next 60 days pursuant to the RRP.
(5) Includes 4,317 shares allocated to the ESOP account of Mr. Letzkus.
(6) Includes 27,480 shares that may be acquired upon the exercise of
options awarded pursuant to the Stock Option Plan and 2,792 shares that
are expected to vest in the next 60 days pursuant to the RRP.
(7) Includes 7,257 shares allocated to the ESOP accounts of the executive
officers of OSFS and 21,491 shares held by the RRP as to which Messrs.
Costine, Reline, and Letzkus act as Trustees.
4
<PAGE> 6
PROPOSAL ONE - ELECTION OF DIRECTORS
ELECTION OF DIRECTORS
The Regulations of OSFS provide for a Board of Directors consisting of
five persons. In accordance with Section 2.03 of the Regulations, nominees for
election as directors may be proposed only by the directors or by a shareholder
entitled to vote for directors.
A nomination by a shareholder, for an annual meeting of shareholders at
which directors are to be elected, must be submitted in writing, either by
personal delivery or by first-class mail, postage prepaid, to the Secretary of
OSFS. The notice must be received by the Secretary not later than the sixtieth
day before the first anniversary of the most recent annual meeting of
shareholders held for the election of directors. If, however, the annual meeting
for the election of directors is not held on or before the thirty-first day
following such first anniversary, then the written notice must be received
within a reasonable time prior to the date of the annual meeting. Each written
nomination must state the name, age, business or residence address of the
nominee, the principal occupation or employment of the nominee, the number of
common shares of OSFS owned either beneficially or of record by each such
nominee and the length of time such shares have been so owned. The Chairman of
the meeting may disregard any nomination that is not made in compliance with the
nomination procedures described above.
The Board of Directors proposes the reelection at the Annual Meeting of
the following persons to terms which will expire in 2001:
Director of Director of
OSFS Bridgeport
Name Age(1) Position(s) held since(2) since
- ---- ------ ---------------- -------- -----
John O. Costine 75 Director 1997 1975
Anton M. Godez 74 Director 1997 1990
Jon W. Letzkus 56 Director, President, 1997 1989
and Chairman
William E. Reline 70 Director 1997 1992
Manuel C. Thomas 76 Director 1997 1985
- -----------------------------
(1) As of the Record Date.
(2) Each director of OSFS is also a director of Bridgeport and became a
director of OSFS in connection with the conversion of Bridgeport from
mutual to stock form and the formation of OSFS as the holding company
for Bridgeport.
If any nominee is unable to stand for election, any proxies granting
authority to vote for such nominee will be voted for such substitute as the
Board of Directors recommends.
JOHN O. COSTINE is a partner in the Costine Law Firm, a general
partnership, located in St. Clairsville, Ohio and has practiced law since 1950.
ANTON M. GODEZ has served as the President of the General Welding
Supply Company located in Martins Ferry, Ohio, since 1950.
5
<PAGE> 7
JON W. LETZKUS is the Chairman of the Board of OSFS, the President of
both OSFS and Bridgeport and the designated Managing Officer of Bridgeport. Mr.
Letzkus joined Bridgeport in September 1980 as a Vice President. Mr. Letzkus has
served as the President of Bridgeport since 1989.
WILLIAM E. RELINE retired from Cooper Industries, a mining equipment
manufacturing company, in 1989 and has been a consultant to Wheeling Machine
Products since 1996.
MANUEL C. THOMAS has been employed by M. C. Thomas Insurance Agency,
Inc. since 1954. Mr. Thomas has served as Chairman of the Board of Bridgeport
since 1989.
MEETINGS OF DIRECTORS
The Board of Directors of OSFS met five times for regularly scheduled
and special meetings during 1999. Each director of OSFS is also a director of
Bridgeport. The Board of Directors of Bridgeport met twenty-five times for
regularly scheduled and special meetings during 1999. During 1999, each of the
directors attended at least 75% of the aggregate of the total number of meetings
of the Board of Directors and the total number of meetings of all committees of
the Board of Directors of OSFS and Bridgeport on which he served.
COMMITTEES OF DIRECTORS
The Board of Directors of OSFS does not currently have any committees,
separate from its Board of Directors. The full Board of Directors of Bridgeport
determines compensation for Bridgeport's employees and makes decisions regarding
employee benefits and related matters. Mr. Letzkus does not participate in
discussions regarding his salary.
EXECUTIVE OFFICERS
In addition to Mr. Letzkus, the following persons are executive
officers of OSFS:
Name Age(1) Position(s) Held
- ---- --- ----------------
Marianne Doyle 40 Vice President of OSFS and Assistant Vice President
of Bridgeport
Sherri Yarbrough 32 Secretary of OSFS and Director of Information
Services Bridgeport
- ---------------------------------
(1) As of the Record Date.
MARIANNE DOYLE has served Bridgeport as the Assistant Vice President
since 1994 and OSFS as Vice President since 1997.
SHERRI YARBROUGH has served Bridgeport as the Director of Information
Services since 1990 and OSFS as Secretary since 1997.
6
<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid to Jon W. Letzkus, President and Chairman of OSFS and President and
Managing Officer of Bridgeport, for the fiscal years ended December 31, 1999,
1998 and 1997. No executive officer of OSFS or Bridgeport earned salary and
bonus in excess of $100,000 during 1999.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long Term
Compensation
Annual Compensation(1) Awards
------------------- -----------------------------
Securities
Name and Restricted Stock Underlying All Other
Principal Position(s) Year Salary ($) Bonus ($) Awards ($) Options (#) Compensation ($)
--------------------- ---- ---------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Jon W. Letzkus 1999 $81,000(2) $ 0 $ 0 0 $39,744(3)
President and 1998 81,000(2) 3,271 107,814(4) 15,854(5) 26,229(6)
Chairman of OSFS; 1997 73,500 10,075 0 0 0
President and
Managing Officer of
Bridgeport
- ------------------
</TABLE>
(1) Does not include amounts attributable to other miscellaneous benefits
received by Mr. Letzkus, the cost of which was less than 10% of his
compensation.
(2) Includes $2,500 for directors' fees of OSFS.
(3) Consists of $351, representing the premiums paid by OSFS for term life
insurance for Mr. Letzkus, and $39,393, representing the aggregate
value as of December 31, 1999 of the shares allocated to the ESOP
account of Mr. Letzkus.
(4) On April 15, 1998, Mr. Letzkus was awarded 6,342 common shares under
the RRP. Mr. Letzkus paid no consideration for the RRP shares. The RRP
shares will become earned and nonforfeitable at the rate of one-fifth
per year on the anniversary of the date of the award, beginning April
15, 1999, assuming continued employment with, or service on the Board
of Directors of, Bridgeport. The aggregate market value of the shares
awarded to Mr. Letzkus under the RRP on April 15, 1998, determined by
reference to the closing bid for shares of OSFS on the OTC Bulletin
Board on such date, was $107,814. The aggregate market value of the
5,073 shares awarded to Mr. Letzkus under the RRP which remain
unvested, as of December 31, 1999 was $46,291. In addition, dividends
and other distributions paid on RRP shares and earnings on such
dividends and distributions are distributed to Mr. Letzkus according to
the vesting schedule.
(5) On April 15, 1998, Mr. Letzkus was awarded an option to purchase 15,854
shares at an exercise price of $17.375 per share. Effective April 21,
1999, OSFS adjusted the number of shares subject to the option by a
multiplier of 1.1818, increasing the total number of shares subject to
the option to 18,737, and reduced the exercise price of the option to
$14.70 per share. The adjustments were made in connection with a return
of capital paid by OSFS which equally affected all of the shareholders
of OSFS.
7
<PAGE> 9
(6) Consists of the aggregate value as of December 31, 1998, of the shares
allocated to the ESOP account of Mr. Letzkus, and compensation of
$1,845 for unused sick time.
STOCK OPTIONS
OSFS granted no new options or stock appreciation rights to Mr. Letzkus
during the fiscal year ended December 31, 1999. The following table sets forth
information regarding the number and value of unexercised options held by Mr.
Letzkus at December 31, 1999:
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and 12/31/99 Option Values
--------------------------------------------------------------------------
Value of
Number of Securities Unexercised
Underlying Unexercised "In The Money"
Shares Acquired on Value Options at 12/31/99(#) Options
Name Exercise(#) Realized($) Exercisable/Unexercisable at Fiscal Year End(#)(1)
- ---- ----------- ----------- ------------------------- ------------------------
<S> <C> <C> <C> <C>
Jon W . Letzkus -0- N/A 6,246/12,491 N/A
</TABLE>
- ---------------------------
(1) On December 31, 1999, the fair market value of the unexercised option shares
granted pursuant to the Stock Option Plan did not exceed the per share
exercise price of the option.
DIRECTOR COMPENSATION
Each director of OSFS receives a fee of $500 per quarterly meeting of
the Board of Directors. Each director of Bridgeport who is not a full-time
employee of Bridgeport receives a fee of $250 per meeting of the Board of
Directors attended with three paid absences. OSFS and Bridgeport do not pay
committee fees.
EMPLOYMENT AGREEMENT
Mr. Letzkus and Bridgeport are parties to an employment agreement (the
"Employment Agreement"). The Employment Agreement provides for a salary of not
less than $78,500 and performance reviews by the Board of Directors not less
often than annually, at which time the Employment Agreement may be extended for
an additional one year. The Employment Agreement also provides for the inclusion
of Mr. Letzkus in any formally established employee benefit, bonus, pension, and
profit-sharing plans for which senior management personnel are eligible and for
vacation and sick leave in accordance with Bridgeport's prevailing policies.
The Employment Agreement is terminable by Bridgeport at any time. In
the event of termination by Bridgeport for "just cause," as defined in the
Employment Agreement, Mr. Letzkus has no right to receive any compensation or
other benefits for any period after such termination. In the event of
termination by Bridgeport other than for just cause, at the end of the term of
the Employment Agreement or in connection with a "change of control," as defined
in the Employment Agreement, Mr. Letzkus is entitled to a continuation of salary
payments for a period of time equal to the term of the Employment Agreement and
a continuation of benefits substantially equal to those being provided at the
date of termination of employment until the earliest to occur of the end of the
term of the Employment
8
<PAGE> 10
Agreement or the date on which Mr. Letzkus is included in another employer's
benefit plans as a full time employee.
The Employment Agreement also contains provisions with respect to the
occurrence within one year of a "change of control" of (1) the termination of
employment of Mr. Letzkus for any reason other than just cause, or (2) a
constructive termination resulting from a change in the capacity or
circumstances in which Mr. Letzkus is employed, including a material reduction
in his responsibilities or authority provided under the Employment Agreement. In
the event of any such occurrence, Mr. Letzkus is entitled to payment of an
amount equal to 2.99 times Mr. Letzkus' annual compensation immediately
preceding the termination of his employment. In addition, Mr. Letzkus is
entitled to continued coverage under all benefit plans until the earliest of the
expiration of two years from the effective date of the termination of employment
or the date on which he is included in another employer's benefit plans as a
full-time employee. The maximum which Mr. Letzkus may receive, however, is
limited to an amount which will not result in the imposition of a penalty tax
under Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended.
"Change of Control," as defined in the Employment Agreement, generally refers to
the acquisition by any person or entity of the ownership or power to vote more
than 25% of the voting stock of Bridgeport or OSFS, the control of the election
of a majority of the directors of Bridgeport or OSFS, or the exercise of a
controlling influence over the management or policies of Bridgeport or OSFS.
PROPOSAL TWO - RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected S. R. Snodgrass as the auditors of
OSFS for the current fiscal year and recommends that the shareholders ratify the
selection. Management expects that a representative of S. R. Snodgrass will be
present at the Annual Meeting, will have the opportunity to make a statement if
he or she so desires and will be available to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires OSFS executive officers and directors, and persons who beneficially own
more than 10% of the outstanding shares of OSFS, to file initial reports of
ownership and reports of changes in ownership of their equity securities of OSFS
with the SEC. OSFS executive officers, directors and greater than 10% beneficial
owners are required by SEC regulations to furnish OSFS with copies of all
Section 16(a) forms filed by them. Based solely on a review of the copies of
those forms furnished to OSFS and written representations from OSFS's executive
officers and directors, OSFS believes that all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than 10% beneficial
owners were complied with for fiscal 1999.
PROPOSALS OF SHAREHOLDERS AND OTHER MATTERS
Any proposals of shareholders intended to be included in the proxy
statement of OSFS for the 2001 Annual Meeting of Shareholders should be sent to
OSFS by certified mail and must be received by OSFS not later than November 20,
2000. Any proposals of shareholders to be presented at the 2001 Annual Meeting
but which are not included in the proxy materials related to that meeting, must
be received by February 3, 2001, or else the proxies designated by the Board of
Directors of OSFS for the 2001 Annual Meeting of Shareholders of OSFS may vote
in their discretion on any such proposal any shares for which
9
<PAGE> 11
they have been appointed proxies without mention of such matter in the proxy
statement or on the proxy card for such meeting.
Management knows of no other business which may be brought before the
Annual Meeting. It is the intention of the persons named in the enclosed proxy
to vote such proxy in accordance with their best judgment on any other matters
which may be brought before the Annual Meeting.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO FILL IN, SIGN AND
RETURN THE PROXY IN THE ENCLOSED RETURN ENVELOPE.
By Order of the Board of Directors
/s/ Jon W. Letzkus
Bridgeport, Ohio Jon W. Letzkus, President
March 20, 2000
10
<PAGE> 1
EXHIBIT 23
Board of Directors
Ohio State Financial Services, Inc.
435 Main Street
Bridgeport, OH 43912
INDEPENDENT AUDITOR'S CONSENT
We consent to the use of our report dated January 7, 2000, on the financial
statements of Ohio State Financial Services, Inc., as of December 31, 1999 and
1998, and for the three years in the period ended December 31, 1999, appearing
in Ohio State Financial Services, Inc.'s annual Form 10-KSB.
/s/ S.R. Snodgrass, A.C.
Wheeling, West Virginia
March 23, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AND CONSOLIDATED STATEMENTS OF
OPERATIONS OF OHIO STATE FINANCIAL SERVICES, INC. FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 918
<INT-BEARING-DEPOSITS> 5,573
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 415
<INVESTMENTS-CARRYING> 3,694
<INVESTMENTS-MARKET> 3,509
<LOANS> 24,141
<ALLOWANCE> 141
<TOTAL-ASSETS> 35,534
<DEPOSITS> 25,540
<SHORT-TERM> 0
<LIABILITIES-OTHER> 390
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 8,604
<TOTAL-LIABILITIES-AND-EQUITY> 34,534
<INTEREST-LOAN> 1,832
<INTEREST-INVEST> 543
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,375
<INTEREST-DEPOSIT> 995
<INTEREST-EXPENSE> 1,004
<INTEREST-INCOME-NET> 1,371
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,131
<INCOME-PRETAX> 267
<INCOME-PRE-EXTRAORDINARY> 176
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176
<EPS-BASIC> .35
<EPS-DILUTED> .33
<YIELD-ACTUAL> 4.12
<LOANS-NON> 0
<LOANS-PAST> 1
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 141
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 141
<ALLOWANCE-DOMESTIC> 141
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
