<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from ____________ to ____________
Commission File Number 0-23109
Ohio State Financial Services, Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1529204
------------------------------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
435 Main Street, Bridgeport, OH 43912
-- -------------------------------------
(Address of principal executive offices)
(740) 635-0764
----------------------------
(Registrant's telephone
number, including area code)
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
--- ---
As of November 3, 2000, the latest practicable date, 499,384 shares of the
registrant's common stock, without par value, were outstanding.
Transitional Small Business Disclosure Format: Yes X No
--- ---
<PAGE> 2
OHIO STATE FINANCIAL SERVICES, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (Unaudited) as of
September 30, 2000, and December 31, 1999 3
Consolidated Statements of Operations (Unaudited)
for the Nine Months ended September 30, 2000 and 1999 4
Consolidated Statements of Operations (Unaudited)
for the Three Months ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months ended September 30, 2000 and 1999 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Default Upon Senior Securities 12
Item 4. Submissions of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
<PAGE> 3
OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and amounts due from banks $ 642,779 $ 918,404
Interest-bearing deposits with other institutions 3,108,934 4,254,713
------------ ------------
Total cash and cash equivalents 3,751,713 5,173,117
Interest bearing time deposits 400,000 400,000
Investment securities:
Available-for-sale (cost approximates market value) 437,500 415,400
Held-to-maturity (market value of $3,743,665 at 9/30/00;
and $3,509,472 at 12/31/99) 3,897,828 3,693,836
Loans receivable, net 24,493,981 24,140,672
Office properties and equipment, net 454,556 452,967
Accrued interest receivable, loans and investments (net of reserve
for uncollected interest of $-0- at 9/30/00; and $-0- at 12/31/99) 112,948 149,114
Other assets 50,151 109,338
------------ ------------
TOTAL ASSETS $ 33,598,677 $ 34,534,444
============ ============
LIABILITIES
Deposit accounts $ 25,003,209 $ 25,540,796
Advances by borrowers for taxes and insurance 113,066 188,561
Accrued interest payable and other liabilities 149,275 129,833
Deferred federal income taxes 71,599 71,599
------------ ------------
TOTAL LIABILITIES 25,337,149 25,930,789
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, 3,000,000 shares authorized, no par
or stated value; 634,168 shares issued; 510,534
outstanding at 9/30/00, 572,337 outstanding at 12/31/99 -- --
Additional paid in capital 5,936,773 5,946,184
Treasury stock (123,634 shares at cost as of 9/30/00
and 61,831 shares at cost as of 12/31/99) (1,374,595) (821,072)
Unearned recognition and retention plan shares (RRP) (264,334) (306,449)
Unearned employee stock ownership plan shares (ESOP) (359,358) (429,255)
Retained earnings - substantially restricted 4,323,042 4,214,247
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 8,261,528 8,603,655
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 33,598,677 $ 34,534,444
============ ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements
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<PAGE> 4
OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
2000 1999
---------- ----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $1,361,949 $1,376,943
Mortgage-backed securities 32,315 40,790
Interest-bearing deposits and investment securities 382,501 348,590
Dividends on Federal Home Loan Bank stock 22,255 20,140
---------- ----------
Total interest and dividend income 1,799,020 1,786,463
---------- ----------
INTEREST EXPENSE
Savings deposits 774,063 746,848
Federal Home Loan Bank advances and notes payable -- 8,539
---------- ----------
Total interest expense 774,063 755,387
---------- ----------
NET INTEREST INCOME 1,024,957 1,031,076
PROVISION FOR LOAN LOSSES -- --
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,024,957 1,031,076
---------- ----------
NONINTEREST INCOME
Service charges 11,504 6,208
Other income and fees 19,765 13,027
---------- ----------
Total noninterest income 31,269 19,235
---------- ----------
NONINTEREST EXPENSE
Salaries and benefits 396,083 400,460
Occupancy expense 43,575 41,001
Furniture and equipment expense 20,721 24,068
Federal insurance premium 12,359 20,085
Legal and accounting fees 61,553 82,841
Advertising and public relations 12,317 22,885
Franchise, payroll and other taxes 69,941 116,811
Stationery, printing and office expenses 18,347 40,802
Service bureau expense 45,215 43,263
Other operating expenses 84,378 72,344
---------- ----------
Total noninterest expense 764,489 864,560
---------- ----------
INCOME BEFORE INCOME TAXES 291,737 185,751
PROVISION FOR INCOME TAXES 103,372 65,708
---------- ----------
NET INCOME $ 188,365 $ 120,043
========== ==========
PER SHARE DATA
Basic $ .39 $ .24
========== ==========
Diluted $ .38 $ .23
========== ==========
AVERAGE SHARES OUTSTANDING-Basic 478,045 508,194
========== ==========
AVERAGE SHARES OUTSTANDING-Diluted 492,054 525,736
========== ==========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE> 5
OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
----------------------------------------
2000 1999
-------- --------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $462,221 $455,697
Mortgage-backed securities 9,974 12,352
Interest-bearing deposits and investment securities 118,024 119,300
Dividends on Federal Home Loan Bank stock 7,818 7,063
-------- --------
Total interest and dividend income 598,037 594,412
INTEREST EXPENSE
Savings deposits 258,072 249,258
-------- --------
NET INTEREST INCOME 339,965 345,154
PROVISION FOR LOAN LOSSES -- --
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 339,965 345,154
-------- --------
NONINTEREST INCOME
Service charges 6,047 2,160
Other income and fees 5,463 4,879
-------- --------
Total noninterest income 11,510 7,039
-------- --------
NONINTEREST EXPENSE
Salaries and benefits 134,277 134,650
Occupancy expense 12,959 13,529
Furniture and equipment expense 7,526 7,892
Federal insurance premium 4,176 6,567
Legal and accounting fees 24,571 14,597
Advertising and public relations 3,630 6,059
Franchise, payroll and other taxes 15,561 37,173
Stationery, printing and office expenses 5,265 12,841
Service bureau expense 15,884 14,300
Other operating expenses 23,646 22,935
-------- --------
Total noninterest expense 247,495 270,543
-------- --------
INCOME BEFORE INCOME TAXES 103,980 81,650
PROVISION FOR INCOME TAXES 36,957 27,309
-------- --------
NET INCOME $ 67,023 $ 54,341
======== ========
PER SHARE DATA
Basic $ .15 $ .11
======== ========
Diluted $ .14 $ .10
======== ========
AVERAGE SHARES OUTSTANDING-Basic 460,397 506,678
======== ========
AVERAGE SHARES OUTSTANDING-Diluted 473,421 523,216
======== ========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE> 6
OHIO STATE FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 188,365 $ 120,043
Adjustments:
Depreciation 31,498 29,247
Investment accretion and amortization, net (227) (159)
ESOP and RRP amortization 102,601 134,202
Federal Home Loan Bank stock dividends (22,100) (20,000)
Accrued interest receivable and other assets 95,353 (115,059)
Accrued interest payable and other liabilities 19,443 51,505
----------- -----------
Net cash provided by operating activities 414,933 199,779
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Term deposits, net -- 1,600,000
Purchase of held-to-maturity securities (300,000) (2,897,549)
Proceeds from redemptions of mortgage-backed certificates 96,235 148,129
Net change in loans (353,309) 270,544
Acquisition of office properties and equipment (33,088) (21,190)
----------- -----------
Net cash used for investing activities (590,162) (900,066)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Payment of dividends (79,570) (92,491)
Short-term borrowings, net -- (892,543)
Purchase of treasury stock (553,523) (326,789)
Change in deposits, net (537,587) 58,211
Change in mortgage escrow funds, net (75,495) (78,319)
----------- -----------
Net cash used for financing activities (1,246,175) (1,331,931)
----------- -----------
Change in cash and cash equivalents (1,421,404) (2,032,218)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,173,117 5,699,772
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,751,713 $ 3,667,554
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 772,220 $ 753,653
Income taxes 67,500 114,118
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE> 7
OHIO STATE FINANCIAL SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Ohio State Financial Services, Inc.
(the "Company"), includes its wholly-owned subsidiary, Bridgeport Savings and
Loan Association (the "Association"). All significant inter-company balances and
transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-QSB and, therefore, do not
necessarily include all information that would be included in audited financial
statements. The information furnished reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results of
operations. All such adjustments are of a normal recurring nature. The results
of operations for the interim periods are not necessarily indicative of the
results to be expected for the full year.
These statements should be read in conjunction with the consolidated statements
as of and for the year ended December 31, 1999, and related notes which are
included on Form 10-KSB (file no. 0-23109).
NOTE 2 - CONVERSION TO A STOCK FORM OF OWNERSHIP
AND FORMATION OF HOLDING COMPANY
On March 24, 1997, the Board of Directors of the Association approved a plan of
conversion (the "Plan") providing for the conversion of the Association from a
mutual savings and loan association to a capital stock savings and loan
association incorporated under Ohio law (the "Conversion") and the simultaneous
issuance of all of its outstanding stock to a newly-formed holding company, Ohio
State Financial Services, Inc. After approval by the regulatory authorities and
the Association's members, the Conversion was completed on September 26, 1997.
As a result of this transaction, the Company was formed and the Association
became a wholly-owned subsidiary of the Company.
In connection with the conversion on September 26, 1997, the Company completed
the sale of 634,168 shares of common stock at $10.00 per share. From the
proceeds, $5,916,081 was allocated to additional paid in capital, which is net
of conversion costs of $425,599. The common shares of the Company have no par or
stated value per share. Included in the 634,168 shares were 50,653 acquired by
the ESOP.
NOTE 3 - RECENT ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 provides accounting and
reporting standards for derivatives instruments, including certain derivative
instruments embedded in other contracts, by requiring the recognition of those
items as assets or liabilities in the statement of financial position, recorded
at fair value. SFAS No. 133 precludes a held-to-maturity security from being
designated as a hedge item. However, at the date of initial application of SFAS
No. 133, an entity is permitted to transfer any held-to-maturity security into
the available-for-sale or trading categories. The unrealized holding gain or
loss on such transferred securities shall be reported consistent with the
requirements of SFAS No. 115, "Accounting for Certain Investment in Debt and
Equity Securities." Such transfers do not raise an issue regarding an entity's
intent to hold other debt securities to maturity in the future. The FASB has
also issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective date of FASB Statement No. 133." SFAS No.
137 defers the effective date of SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. Earlier adoption is
permitted for any fiscal quarter that begins after the issue date of SFAS No.
133. Management does not believe the adoption of SFAS No. 133 will have a
material impact on the Company.
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<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of Financial Condition at September 30, 2000, and December 31, 1999
------------------------------------------------------------------------------
At September 30, 2000, the Company's assets decreased by approximately $936,000,
or 2.7%, to $33.6 million from $34.5 million at December 31, 1999. Total cash
and cash equivalents decreased by $1.4 million to $3.8 million at September 30,
2000, from $5.2 million at December 31, 1999. This decrease represented the
outflow of cash associated with the increase in loan production, decrease in
deposits, the purchase of shares for Treasury, and the purchase of
held-to-maturity securities, offset by net cash provided by operating
activities. Held-to-maturity securities increased by approximately $204,000 to
$3.9 million at September 30, 2000, from $3.7 million at December 31, 1999. The
increase reflected the purchase of $300,000 United States Agency obligations,
offset by the principal reduction of $96,000 in mortgage-backed certificates.
Net loans receivable increased $353,000 to $24.5 million at September 30, 2000,
from $24.1 million at December 31, 1999. The increase was primarily attributable
to the $484,000 increase in mortgage loans, offset by a $131,000 decrease in
consumer loans.
Deposits decreased $538,000, or 2.1%, from $25.5 million at December 31, 1999,
to $25.0 million at September 30, 2000, as a result of lower deposit account
interest rates at the Company as compared to alternative investment products.
Advances by borrowers for taxes and insurance decreased $75,000, or 40.0%, from
$188,000 at December 31, 1999, to $113,000 at September 30, 2000, due primarily
to the payment of customer property taxes during the month of August 2000.
Accrued interest payable and other liabilities increased $19,000 to $149,000 at
September 30, 2000, compared to $130,000 at December 31, 1999. The increase was
due primarily to an increase in accrued income taxes of $36,000 as a result of
the Company prepaying income taxes as of December 31, 1999, offset by a decrease
in other liabilities of $17,000 for the period.
Shareholders' equity decreased $342,000, or 4.0%, to $8.3 million at September
30, 2000, compared to $8.6 million at December 31, 1999. The decrease was
attributable to the use of $554,000 to repurchase shares for Treasury and the
issuance of dividends in the amount of $79,000. Future dividend policies will be
determined by the Board of Directors in light of earnings and financial
condition of the Company, including applicable governmental regulations and
policies. The decrease in shareholders' equity was offset by net income of
approximately $188,000, the recognition of shares in the Employee Stock
Ownership Plan (the "ESOP") amounting to $61,000, and the recognition of shares
in the Recognition and Retention Plan (the "RRP") in the amount of $42,000.
Comparison of Operating Results for the Nine Months
Ended September 30, 2000 and 1999
---------------------------------------------------
NET INCOME. Net income increased $68,000, or 56.9%, from net income of $120,000
for the nine months ended September 30, 1999, compared to net income of $188,000
for the same period in 2000. The increase in net income was the result of an
increase in non-interest income of $12,000, or 62.6%, and a decrease in
non-interest expenses of $100,000, or 11.6%, offset by an increase in the
provision for income taxes of $38,000, or 57.3%, and a decrease in net interest
income of $6,000, or 0.6%.
NET INTEREST INCOME. Net interest income decreased $6,000, or 0.6%, from
$1,031,000 for the nine months ended September 30, 1999, to $1,025,000 for the
nine months ended September 30, 2000. Interest and dividend income increased
$13,000, or 0.7%, from $1,786,000 for the nine months ended September 30, 1999,
to $1,799,000 for the nine months ended September 30, 2000. Interest expense
increased $19,000, or 2.5%, from $755,000 for the 1999 period to $774,000 for
the 2000 period.
INTEREST AND DIVIDEND INCOME. Total interest and dividend income increased
$13,000, or 0.7%, for the nine months ended September 30, 2000, compared to the
same period in 1999. Interest income on investments, including interest-bearing
deposits, increased $34,000, or 9.7%, to $382,000 for the nine months ended
September 30, 2000, compared to $348,000 for the 1999 period. The increase in
interest income on investments was directly attributable to the increase in the
average yield on investments to 6.46% for the nine months ended September 30,
2000,
-8-
<PAGE> 9
compared to 5.81% for the 1999 period. Interest income on loans decreased
$15,000, or 1.1%, from $1,377,000 for the nine months ended September 30, 1999,
to $1,362,000 for the nine months ended September 30, 2000. The decrease in
interest income on loans was primarily the result of a decline in higher
interest earning consumer loans with an overall decrease in the average balance
of loans in the amount of $77,000. Interest income on mortgage-backed securities
decreased $8,000, or 20.8%, to $32,000 for the nine months ended September 30,
2000, compared to $40,000 for the 1999 period.
INTEREST EXPENSE. Total interest expense increased by $19,000, or 2.5%, from the
1999 period to the 2000 period. Interest expense on notes payable decreased in
the amount of $8,000. The interest was fully expended during the nine months
ended September 30, 1999, on the outstanding note payable balance existing at
December 31, 1998. Interest expense on notes payable was not incurred during the
nine months ended September 30, 2000, since there were no borrowed funds during
the period. Interest expense on deposit accounts increased $27,000, or 3.6%,
from $747,000 for the nine months ended September 30, 1999, to $774,000 for the
nine months ended September 30, 2000. The Association's cost of deposit funds
increased from 3.87% for the nine months ended September 30, 1999, to 4.02% for
the 2000 period.
PROVISION FOR LOAN LOSSES. No provisions for losses on loans were made for the
nine months ended September 30, 2000, and 1999. Management judges the adequacy
of the allowance for loan losses and any additions to it based on a level which
is deemed adequate to absorb credit losses inherent in the loan portfolio. The
amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, and current
economic conditions. Based on management's evaluation, the amount of the
allowance was deemed adequate with no additional provision necessary. Although
management believes that its loan loss allowance at September 30, 2000, is
adequate based upon the available facts and circumstances, there can be no
assurance that additions to such allowance will not be necessary in future
periods, which could adversely affect the Company's results of operations.
NONINTEREST INCOME. Noninterest income increased $12,000, or 62.6%, from $19,000
for the nine months ended September 30, 1999, to $31,000 for the nine months
ended September 30, 2000. The increase was the direct result of a nonrecurring
item included in other income and fees for the nine months ended September 30,
2000.
NONINTEREST EXPENSE. Noninterest expense decreased $100,000, or 11.6%, from
$864,000 for the nine months ended September 30, 1999, to $764,000 for the 2000
period. The decrease in noninterest expense was partly attributable to a
decrease in legal and accounting fees of $21,000, or 25.7%, from $83,000 for
September 30, 1999, to $62,000 for September 30, 2000, due to a decrease in
expenses related to public filings. Franchise, payroll, and other tax expenses
decreased $47,000, or 40.1%, from $117,000 for September 30, 1999, to $70,000
for September 30, 2000, due to the reduction of franchise tax expenses.
Stationery, printing, and office expenses decreased $22,000, or 55.0%, from
$40,000 for September 30, 1999, to $18,000 for September 30, 2000, due to the
lapse of the Year 2000 risk.
INCOME TAXES. The provision for income taxes totaled $103,000 for the nine
months ended September 30, 2000, an increase of $38,000, or 57.3%, from the
$65,000 in the same 1999 period, due to an increase in pretax income.
Comparison of Operating Results for the Three Months
Ended September 30, 2000 and 1999
----------------------------------------------------
NET INCOME. Net income increased $13,000, or 23.3%, from net income of $54,000
for the three months ended September 30, 1999, compared to net income of $67,000
for the same period in 2000. The increase in net income was primarily the result
of a decrease in non-interest expenses of $23,000, or 8.5%, offset by an
increase in the provision for income taxes of $10,000, or 35.3%.
-9-
<PAGE> 10
NET INTEREST INCOME. Net interest income decreased $5,000, or 1.5%, from
$345,000 for the three months ended September 30, 1999, to $340,000 for the
three months ended September 30, 2000. Interest and dividend income increased
$4,000, or 0.6%, from $594,000 for the three months ended September 30, 1999, to
$598,000 for the three months ended September 30, 2000, while interest expense
increased $9,000, or 3.5%, from $249,000 for the 1999 period to $258,000 for the
2000 period.
INTEREST AND DIVIDEND INCOME. Total interest and dividend income increased
$4,000, or 0.6%, for the three months ended September 30, 2000, compared to the
same period in 1999. Interest income on investments, including interest-bearing
deposits, decreased $1,000, or 1.1%, to $118,000, for the three months ended
September 30, 2000, compared to $119,000 for the 1999 period. The decrease in
interest income on investments was directly attributable to the $625,000
decrease in the average balance of investments for the three months ended
September 30, 2000, compared to the 1999 period, offset by an average yield
increase of 49 basis points from 6.06% for the three months ended September 30,
1999, to 6.55% for the same period in 2000. Interest income on loans increased
$7,000, or 1.4%, from $455,000 for the three months ended September 30, 1999, to
$462,000 for the three months ended September 30, 2000. The increase in interest
income on loans was primarily the result of an overall increase in the average
balance of loans in the amount of $314,000. Interest income on mortgage-backed
securities decreased $2,000, or 19.3%, to $10,000, for the three months ended
September 30, 2000, compared to $12,000 for the 1999 period.
INTEREST EXPENSE. Total interest expense increased by $9,000, or 3.5%, from
$249,000 for the three months ended September 30, 1999, to $258,000 for the
three months ended September 30, 2000. The Association's cost of deposit funds
increased from 3.88% for the three months ended September 30, 1999, to 4.08% for
the 2000 period, while average outstanding deposits decreased $380,000, or 1.5%.
The decrease in the average balance of deposits was the result of customers
investing funds in alternative investment products.
PROVISION FOR LOAN LOSSES. No provisions for losses on loans were made for the
three months ended September 30, 2000 and 1999. Management judges the adequacy
of the allowance for loan losses and any additions to it based on a level which
is deemed adequate to absorb credit losses inherent in the loan portfolio. The
amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, and current
economic conditions. Based on management's evaluation, the amount of the
allowance was deemed adequate with no additional provision necessary. Although
management believes that its loan loss allowance at September 30, 2000, is
adequate based upon the available facts and circumstances, there can be no
assurance that additions to such allowance will not be necessary in future
periods, which could adversely affect the Company's results of operations.
NONINTEREST INCOME. Noninterest income increased $5,000, or 63.5%, from $7,000
for the three months ended September 30, 1999, to $12,000 for the three months
ended September 30, 2000, as a direct result of an increase in service fees and
other income.
NONINTEREST EXPENSE. Noninterest expense decreased $23,000, or 8.5%, from
$270,000 for the three months ended September 30, 1999, to $247,000 for the 2000
period. The decrease in noninterest expense was partly attributable to a
decrease in franchise, payroll, and other tax expenses of $22,000, or 58.1%,
from $37,000 for the three months ended September 30, 1999, to $15,000 for the
three months ended September 30, 2000, due to the decrease in franchise tax
expenses. Stationery, printing, and office expenses decreased $8,000, or 59.0%,
from $13,000 for the three months ended September 30, 1999, to $5,000 for the
three months ended September 30, 2000, due to the lapse of the Year 2000 risk.
Legal and accounting fees increased $10,000, or 68.3%, from $15,000 for the
three months ended September 30, 1999, to $25,000 for the three months ended
September 30, 2000.
INCOME TAXES. The provision for income taxes totaled $37,000 for the three
months ended September 30, 2000, an increase of $10,000, or 35.3%, from $27,000
in the same 1999 period, due to an increase in pretax income.
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<PAGE> 11
Liquidity and Cash Flows
------------------------
The Association's primary sources of funds are deposits, amortization and
prepayment of loans, maturities of investment securities, and funds provided
from operations. While scheduled loan repayments are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions, and competition. In addition, the
Association invests excess funds in overnight deposits which provide liquidity
to meet lending requirements.
The Association has other sources of liquidity if a need for additional funds
arises. Additional sources of funds include Federal Home Loan Bank (the "FHLB")
of Cincinnati advances. At September 30, 2000, the Association's borrowing
capacity from the FHLB totaled approximately $8.5 million, of which there were
no advances outstanding.
As of September 30, 2000, the Association had $871,000 in outstanding mortgage
and construction loan commitments. Management believes that it has adequate
sources to meet the actual funding requirements.
Management monitors the Association's tangible, core, and risk-based capital
ratios in order to assess compliance with the Office of Thrift Supervision (the
"OTS") regulations. At September 30, 2000, the Association exceeded the minimum
capital ratio requirements imposed by the OTS.
At September 30, 2000, the Association's capital ratios were as follows:
Association
Requirement Actual
----------- -----------
Tangible capital 1.50% 19.36%
Core capital 3.00% 19.36%
Risk-based capital 8.00% 38.65%
Risk Elements
-------------
A loan is classified as nonaccrual when, in the opinion of management, there are
serious doubts about collectibility of interest and principal. Once the accrual
of interest is discontinued, future income is recognized only when cash is
received. Renegotiated loans are those loans which terms have been renegotiated
to provide a reduction or deferral of principal or interest as a result of the
deterioration of the financial condition of the borrower. There were no
nonperforming assets outstanding as of September 30, 2000, and December 31,
1999.
Management believes the level of the allowance for loan losses at September 30,
2000, is sufficient; however, there can be no assurance that the current
allowance for loan losses will be adequate to absorb all future loan losses. The
relationship between the allowance for loan losses and outstanding loans is a
function of the credit quality and known risk attributed to the loan portfolio.
The on-going loan review program and the credit approval process is used to
determine the adequacy of the allowance for loan losses.
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<PAGE> 12
PART II - OTHER INFORMATION
Item 1 - Legal proceedings
NONE
Item 2 - Changes in securities
NONE
Item 3 - Defaults upon senior securities
NONE
Item 4 - Submission of matters to a vote of security holders
NONE
Item 5 - Other information
NONE
Item 6 - Exhibits and reports on Form 8-K
(a) List of Exhibits:
27. Financial Data Schedule (Electronic Filing Only)
99.1 Independent Accountant's Report
(b) None
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<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, hereunto duly authorized.
OHIO STATE FINANCIAL SERVICES, INC.
Date: November 3, 2000 By: /s/ Jon W. Letzkus
---------------------------
Jon W. Letzkus
President and Chief Executive Officer
(Duly Authorized)
Date: November 3, 2000 By: /s/ James A. Trouten
---------------------------
James A. Trouten
Treasurer
(Duly Authorized)
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