FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 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 0-20886
OHSL FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 31-1362390
(State of Incorporation) (I.R.S. Employer Identification No.)
5889 Bridgetown Road, Cincinnati, Ohio
(Address of principal executive office)
45248
(Zip Code)
(513) 574-3322
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days. Yes X No__
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AT JUNE 30, 1999
common stock, $.01 par value 2,458,417
<PAGE>
FORM 10-Q
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Statements of
Financial Condition 3-4
Consolidated Statements of Income 5-6
Consolidated Statements of Comprehensive
Income 7
Consolidated Statements of Changes in
Stockholders' Equity 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-17
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 18-20
Part II. Other Information:
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote
of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
June 30, December 31,
1999 1998
ASSETS
Cash and due from banks $1,552 $3,387
Short-term investments 1,061 15,625
Cash and cash equivalents 2,613 19,012
Interest-bearing balances with
financial institutions 100 100
Held-to-maturity securities (market
value of $89,866 and $65,526) 92,817 65,268
Available-for-sale securities 9,367 9,372
Loans held for sale 0 1,360
Loans receivable-net 170,578 164,595
Office properties and equipment-net 2,454 2,573
Real Estate Owned 213 ---
Federal Home Loan Bank stock, at cost 2,159 1,977
Accrued interest receivable 1,951 1,530
Other assets 1,579 1,389
Total Assets $283,831 $267,176
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $211,007 $206,755
Advances from Federal Home Loan Bank 43,173 31,118
Accrued interest payable 338 200
Advances from borrowers for taxes
and insurance 245 707
Other liabilities 1,387 1,370
Total Liabilities 256,150 240,150
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
(Dollars in thousands except per share data)
June 30, December 31,
1999 1998
STOCKHOLDERS' EQUITY
Common stock, $.005 par value, 3,500,000
shares authorized, 2,916,276 shares
issued at June 30, 1999 and 2,870,820
shares issued at December 31, 1998 $ 14 $ 14
Additional paid-in capital 14,901 14,512
Retained earnings 17,367 16,776
Unearned shares held by employee
stock ownership plan (178) (237)
Treasury stock (420,292 and 402,292
shares at cost) (4,344) (4,087)
Accumulated other comprehensive income (79) 48
Total Stockholders' Equity 27,681 27,026
Total Liabilities and
Stockholders' Equity $283,831 $267,176
See accompanying notes to consolidated financial statements.
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
INTEREST INCOME
Loans, including related fees $3,325 $3,491 $6,648 $7,140
Mortgage-backed investments 1, 114 554 2,029 990
Other investments 577 634 1,077 1,191
Total Interest Income 5,016 4,679 9,754 9,321
INTEREST EXPENSE
Deposits 2,448 2,355 4,848 4,706
Federal Home Loan Bank advances 514 474 930 876
Total Interest Expense 2,962 2,829 5,778 5,582
NET INTEREST INCOME 2,054 1,850 3,976 3,739
Less provision for loan losses 4 10 11 17
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,050 1,840 3,965 3,722
NONINTEREST INCOME
Service charges and fees 96 64 182 123
Net gain on loans
originated for sale 20 72 68 159
Commission income 4 9 6 14
Other income 40 36 75 63
160 181 331 359
NONINTEREST EXPENSE
Salaries and employee benefits 692 626 1,329 1,245
Occupancy and equipment
expense-net 176 170 358 339
Computer service expense 57 36 105 76
Deposit insurance assessment 30 29 58 57
Franchise taxes 67 85 146 167
Other operating expenses 255 204 486 424
1,277 1,150 2,482 2,308
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(Dollars in thousands except per share data)
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
INCOME BEFORE TAXES $933 $871 $1,814 $1,773
Income tax provision 319 325 617 664
NET INCOME $614 $546 $1,197 $1,109
EARNINGS PER SHARE $0.25 $0.23 $0.49 $0.46
EARNINGS PER SHARE,
ASSUMING DILUTION $0.25 $0.22 $0.48 $0.45
DIVIDENDS PER SHARE $0.125 $0.125 $0.25 $0.235
See accompanying notes to consolidated financial statements.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
Net Income $614 $546 $1,197 $1,109
Other comprehensive income,
net of tax:
Unrealized gains (losses)
on securities held during
period (93) (1) (127) 20
Comprehensive Income $521 $545 $1,070 $1,129
See accompanying notes to consolidated financial statements.
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
Six months ended June 30,
1999 1998
Balance at January 1 $27,026 $26,032
Net income 1,197 1,109
Amortization of cost of bank
incentive plan --- 1
Purchase of treasury stock (257) ---
Stock options exercised 227 71
Dividends on common stock (606) (572)
ESOP shares earned during the period 221 193
Change in net unrealized gain on
available-for-sale securities (127) 20
Balance at June 30 $27,681 $26,854
See accompanying notes to consolidated financial statements.
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six months ended June 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,197 $1,109
Adjustments to reconcile net income
to net cash from operating activities 4,729 (262)
Net cash from operating activities 5,926 847
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of held-to-maturity securities (38,216) (39,537)
Purchase of available-for-sale securities (1,000) 0
Principal payments on held-to-maturity
securities 10,730 2,834
Principal payments on available-for-sale
securities 797 707
Proceeds from maturities and on
held-to-maturity securities 14,610
Proceeds from sales of available-for-sale
securities 0 0
Loans made to customers net of payments
received (9,789) 3,605
Purchase of property and equipment (56) (27)
Net cash from investing activities (37,534) (17,808)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 4,252 1,842
Payments on advances from Federal
Home Loan Bank (945) (16,822)
Proceeds from Federal Home Loan Bank advances 13,000 23,000
Net change in advances from borrowers
for taxes and insurance (462) (533)
Cash dividends (606) (572)
Purchase of treasury stock (257) ---
Stock options exercised 227 71
Net cash from financing activities 15,209 6,986
Net change in cash and cash equivalents (16,399) (9,975)
Cash and cash equivalents at beginning
of period 19,012 16,224
Cash and cash equivalents at end of period $2,613 $6,249
See accompanying notes to consolidated financial statements.
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements were prepared
in accordance with instructions for Form 10-Q and, therefore, do
not include information or footnotes necessary for a complete
presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
These interim financial statements were prepared in a manner
consistent with the annual financial statements and include all
adjustments (consisting of only normal recurring accruals) which,
in the opinion of management, are necessary for a fair
presentation of the financial statements.
2. Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of OHSL Financial Corp. (" OHSL" or "the Corporation"),
Oak Hills Savings and Loan Company, F.A. ("Oak Hills" or "the
Company"), and its subsidiary, CFSC, Inc.
3. Earnings Per Share
The calculation of earnings per share ( EPS ) is presented below.
Earnings per share are calculated by dividing the Corporation's
net income by the weighted average shares outstanding during the
period. Weighted average shares outstanding do not include any
shares held by the Company' s Employee Stock Ownership Plan
("ESOP" ) which have not been allocated to the ESOP's
participants.
For the three months ended June 30, this calculation is as
follows:
1999 1998
Net Income $614,000 $546,000
Weighted average shares outstanding
during the period 2,472,486 2,493,751
Less average unallocated ESOP shares
during the period 38,578 62,322
Average shares outstanding for EPS
calculation 2,433,908 2,431,429
Earnings per share $0.252 $0.225
For the six months ended June 30, this calculation is as follows:
1999 1998
Net Income $1,197,000 $1,109,000
Weighted average shares outstanding
during the period 2,469,180 2,489,005
Less average unallocated ESOP shares
during the period 41,546 65,290
Average shares outstanding for EPS
calculation 2,427,634 2,423,715
Earnings per share $0.493 $0.458
The calculation of diluted earnings per share involves the
recalculation of weighted average outstanding shares by assuming
that all unexercised stock options are exercised at the exercise
price (in this case, $5.00 per share). These shares therefore
increase the weighted average outstanding shares. It is then
assumed that the proceeds from this exercise, including the value
of the tax benefit derived by the Corporation due to the exercise
(the Corporation receives a tax benefit which corresponds to the
taxability of any options exercised by directors of the
Corporation), are used to repurchase shares at the average market
price during the period. These repurchases act to reduce the
weighted average outstanding shares for EPS calculation purposes.
The net income for the period is then divided by the "diluted"
weighted average shares outstanding to arrive at diluted earnings
per share.
The calculation of diluted earnings per share for the three months
ended June 30 is presented below:
1999 1998
Shares used to compute basic earnings
per share.. 2,433,908 2,431,429
Average option shares issued... 63,769 98,759
Less: shares repurchased with option
proceeds and tax benefit... (26,346) (38,796)
Weighted average shares for
diluted earnings per share... 2,471,331 2,491,392
Diluted earnings per share $0.248 $0.219
The calculation of diluted earnings per share for the six months
ended June 30 is presented below:
1999 1998
Shares used to compute basic earnings
per share.. 2,427,634 2,423,715
Average option shares issued... 75,642 103,466
Less: shares repurchased with option
proceeds and tax benefit... (30,882) (41,186)
Weighted average shares for diluted
earnings per share... 2,472,394 2,485,995
Diluted earnings per share $0.484 $0.446
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OHSL FINANCIAL CORP.
JUNE 30, 1999
MERGER AGREEMENT:
On August 3, 1999, an agreement was announced whereby the
Provident Financial Group, Inc., a financial services company with
headquarters in Cincinnati, Ohio, would acquire OHSL Financial
Corp. in a stock transaction valued at $57 million. Terms of the
deal call for Provident to exchange between .45 and .56 shares of
its common stock for each share of OHSL stock, with the actual
exchange ratio to be determined based on Provident's 10 day
average share price two days before the close of the transaction.
The Agreement values OHSL shares at $22.50 each. The deal is
subject to shareholder and regulatory approval and is expected to
close in December, 1999.
FINANCIAL CONDITION:
Total assets increased from $267.2 million at December 31, 1998 to
$283.8 million at June 30, 1999, an increase of $16.6 million or
6.2%. During the first six months of 1999, held-to-maturity
securities increased by $27.5 million and loans receivable
increased by $6.0 million. These increases were funded by
increases in deposits of $4.3 million, and advances from the
Federal Home Loan Bank of $12.1 million and by a decrease in cash
and cash equivalents of $16.4 million. These changes are largely
the result of the Company's investment strategy, wherein favorable
interest rate spreads will be captured from time-to-time in an
effort to increase net interest income. In addition, the Company
seeks to grow its deposit base in order to gain market share and
to enable it to cross-sell other products and services.
Loans receivable, as noted above, increased by $6.0 million in the
first six months of 1999. Due to the continuation of the low
interest rate environment, very strong mortgage loan refinancings
have been experienced. However, much of this activity represents
mortgage loan refinance rather than new originations. In
addition, as the Company seeks to manage its interest rate risk
position by selling certain longer term fixed rate loans in the
secondary market, a modest increase in loans receivable was
experienced at June 30, 1999 when compared to the prior year end.
Held-to-maturity securities increased by $27.5 million in 1999,
due largely to the Company's purchase of investment securities
during this time period. These purchases totaled $38.2 million,
and consisted of $16.1 million in U.S. Government Agency
securities, $4.0 million in mortgage backed investments, $17.4
million in collateralized mortgage obligations and $0.7 million in
other securities.
The stockholders' equity of OHSL increased by $655,000 during the
first six months of 1999. The major components of this increase
are the Corporation's net income of $1,197,000, which was somewhat
offset by dividends on the Corporation's common stock of $606,000.
Stockholders' equity increased to $27.7 million at June 30, 1999.
RESULTS OF OPERATIONS:
Net income for the six months ended June 30, 1999 was $1,197,000,
an increase of $88,000 or 7.9% over net income for the six months
ended June 30, 1998. This represents earnings per share of $0.48
versus $0.45 (fully diluted) for the same period in 1998.
Total interest income for the six months ended June 30, 1999 was
$9,754,000, compared to $9,321,000 for the same period in 1998.
This increase ($433,000 or 4.6%) is generally the result of larger
loan and investment balances carried during the first six months
of 1999 when compared to the same period in 1998.
Total interest expense for the six months ended June 30, 1999 was
$5,778,000, compared to $5,582,000 for the same period in 1998.
This increase ($196,000 or 3.5%) is generally attributable to the
higher levels of deposits and borrowings carried during the first
half of 1999, as OHSL strives to increase its market share of
deposit products and to take advantage of spread opportunities as
described above.
While both interest income and interest expense increased during
the first six months of 1999, net interest income for the six
months ended June 30, 1999 totaled $3,976,000, an increase of
$237,000 or 6.3% over the same period in 1998.
The Corporation's provision for loan losses totaled $11,000 for
the six months ended June 30, 1999, compared to $17,000 for the
same period in 1998. The credit quality of the Company's loan
portfolio remains very strong and is favorable when
compared the prior year (delinquent loans over 60 days totaled
$199,000 at June 30, 1999 compared to $403,000 at June 30, 1998).
Due to its strong credit quality, management believes that
moderate additions to its loan loss allowance are sufficient to
cover potential future losses.
Noninterest income for the six months ended June 30, 1999 was
$331,000, compared to $359,000 for the same period in 1998. This
decrease ($28,000 or 7.8%) is largely attributable to a decrease
in net gains on loans originated for sale. During the first half
of 1999, the Company sold $4.5 million of fixed rate, single
family loans in the secondary market, generating gains of $68,000,
compared to secondary market sales of $12.5 million (generating
gains of $159,000) in the first six months of 1998. Income from
service charges and fees during the six months ended June 30, 1999
totaled $182,000 compared to the same period in 1998. This
increase ($59,000) is primarily the result of higher fees earned
on customer checking accounts, ATM card user fees and debit card
fees.
Noninterest expense for the six months ended June 30, 1999 was
$2,482,000, compared to $2,308,000 for the same period in 1998.
This increase ($174,000 or 7.5%) is largely attributable to an
increase in salaries and employee benefits expense ($84,000),
computer service expense ($29,000) and other operating expenses
($62,000).
The above increase in salaries and employee benefits expense is
primarily the result of the hiring of personnel in 1999 to fill
positions created due to the Company's growth, coupled with merit
increases to the Company's staff and to salaries attributable to
the Company's takeover of the Sayler Park branch, which was
acquired from Cornerstone Bank in November 1998.
The above increase in computer service expense is largely the
result of higher costs charged by third party providers, including
higher costs for the processing of ATM transactions (ATM
transactions for 1999 reflect higher volumes than 1998) as well as
higher costs for the processing of customer checking account
transactions.
The above increase in other operating expenses is largely the
result of higher costs for legal services (increase of $17,000),
loan expenses ($18,000) , insurance expense ($19,000) and to the
amortization of goodwill associated with the acquisition of the
Sayler Park branch in 1998 ($38,000).
The income tax provision for the six months ended June 30, 1999
was $617,000, compared to $664,000 for the same period in 1998.
This decrease ($47,000) is attributable to the higher level of tax
exempt securities owned in 1999 compared to 1998.
Year 2000 Issues
It is well documented that some data processing systems may
experience processing difficulties upon encountering the
millennium change. This "Year 2000 Problem" is believed to be
material for virtually every public company. The following
section describes the steps which OHSL is taking to handle this
serious matter. It should be noted that this section in
particular, as well as the "Management Discussion and Analysis"
area in general, contains "forward-looking statements" which
represent the opinions of management. Such forward-looking
statements are subject to numerous risks and uncertainties which
obviously accompany any discussions of future actions,
performances or results. The reader of these discussions is
hereby cautioned of the uncertain nature of these discussions and
is urged to use caution in relying on such forward-looking
statements in forming any opinions concerning the future
performance of OHSL.
The overall responsibility for Year 2000 readiness rests with
Kenneth L. Hanauer, the Chief Executive Officer of OHSL. Due to
the many diverse areas which may be affected by the Year 2000
problem, a team approach is being utilized. Teams have been
formed to handle the following areas: (a) review and testing of
the Company's in-house data processing system; (b) review of
vendors (suppliers of critical services) ; (c) review of the major
loan customers (to determine whether interruptions of their
operations are likely and to assess the impact of such
interruptions on their ability to remit loan payments, for
example); (d) contingency planning; (e) review of the examination
results as provided by the Company's primary regulators.
The Company believes that its overall state of readiness at June
30, 1999 is satisfactory. An ongoing review of the in-house data
processing system is taking place, with the major data systems
already certified for Year 2000 compliance. The Company's major
vendors have all been contacted, with virtually all major vendors
reporting Year 2000 compliance for their products or service. The
customer contact group continues with the process of evaluating
responses from major customers. The contingency planning group is
working with all areas to assure uninterrupted operations and to
identify alternative courses of action in the event that mission
critical vendors are not Year 2000 ready. Although the above team
projects were substantially complete as of June 30, 1999, constant
monitoring and follow up will be required.
The Company's examination group works with our primary regulator,
the Office of Thrift Supervision, in reviewing our overall
progress and in addressing any areas where deficiencies are noted
by our regulators. The Company believes that its Year 2000
efforts are considered satisfactory to date by its primary
regulator.
The primary expense factor in addressing the Year 2000 Issue has
consisted of employee time. Year 2000 tasks have been
incorporated into the daily work routine of the Company's
employees, with only minimal interruption to work flow. It is
management's opinion that certain vendors will require additional
compensation for software upgrades that will need to be installed
in certain equipment in order to make such equipment Year 2000
compliant. It is management's opinion that such additional
expense will not exceed $25,000, and, as such, will not materially
impact the Company's financial performance.
The risks for the Company in the event that certain
mission-critical systems are not Year 2000 compliant are
substantial. As a financial institution, the largest volume of
transactions involve loan related matters (loan origination, loan
payments, escrow handling and so forth), and deposit accounts (new
account openings, deposits and withdrawals from accounts, interest
crediting, checking account transactions, etc.). The inability of
the Company to process these transactions in an efficient and
timely manner would greatly impact the Company's operations. No
estimate is available concerning possible lost revenue in the
event of a material Year 2000 problem, however, such loss of
revenue would likely be a material amount which could have a
serious negative impact on the Company's financial performance and
operations.
The contingency planning team is in the process of evaluating all
systems and outside vendors in order to determine which areas, if
any, require contingency plans. As of June 30, 1999 the
evaluation process continues, with contingency plans being
developed and tested. Decisions concerning which areas requiring
contingency plans will be made over the next several months as
further information is received.
Liquidity:
In general terms, liquidity is a measurement of the cash, cash
equivalents and other items which are convertible into cash in the
event that funds are needed in order to provide for future
operations. The primary sources of liquidity are cash, short-term
investments (such as Federal Funds and funds in eligible
"Overnight" type accounts), and qualifying securities as defined
by regulation. Federal regulations require the Corporation's
subsidiary, Oak Hills Savings and Loan Company, F.A., to maintain
certain minimum levels of liquidity. Generally, current federal
regulations require the liquid assets (as defined) of the Company
to be 4.0% of the Company's total assets (also as defined). At
June 30, 1999, the Company's liquid assets totaled $97.9 million
or 45.9%.
The factors which are expected to have a continuing impact on the
level of Oak Hills' liquidity are as follows: (1) loan demand; (2)
net deposit flows in subsequent periods; (3) corporate needs for
cash in order to fund ongoing operations; (4) other cash needs as
they may arise.
Based upon its projections, management anticipates that liquidity
will remain at or near current levels for the near future. Oak
Hills does have the ability to raise cash through borrowing
arrangements with the Federal Home Loan Bank of Cincinnati,
through the purchase of Federal funds and through other borrowing
sources. In addition, the parent company (OHSL Financial Corp.)
could also be a source of liquidity by lending funds to Oak Hills,
by guaranteeing the credit of Oak Hills or through other
arrangements. Management is of the opinion that current liquidity
levels are adequate.
Capital Resources:
OHSL's equity capital totaled $27.7 million at June 30, 1999, an
increase of $655,000 from December 31, 1998. As discussed more
fully in the Financial Condition section, the major components of
this increase include the net income for the six months ended June
30, 1999, which was partially offset by dividends declared on the
common stock.
Federal regulations require savings associations to maintain
certain minimum levels of regulatory capital. Regulations
currently require tangible capital, as defined by regulation,
divided by total assets (also as defined) to be at least 1.5%. The
regulations also require core capital, as defined by regulation,
divided by total assets (also as defined) to be at least 4.0%.
Finally, the regulations require total risk-based capital (as
defined) divided by total assets (as defined) to be at least 8.0%.
Oak Hills compliance with these requirements at June 30, 1999 is
summarized below:
Amount Percent (%) of
(000) Applicable Assets
Tangible capital $20,220 7.32%
Requirement 4,144 1.50%
Excess $16,076 5.82%
Core capital $20,220 7.32%
Requirement 11,015 4.00%
Excess $ 9,205 3.32%
Total risk-based capital $20,781 16.12%
Requirement 10.313 8.00%
Excess $10,468 8.12%
At June 30, 1999, the book value per share of OHSL common stock
was $11.26 based upon 2,458,417 outstanding shares.
Accounting Changes:
The Financial Accounting Standards Board (" FASB" ) issues
Financial Accounting Standards (" FAS" ) that affect OHSL. The
following FAS represent new and / or significant pronouncements in
this area.
FAS No. 133, " Accounting for Derivative Instruments and Hedging
Activities "
Effective January 1, 2000, FAS 133 will require all derivatives to
be recorded at fair value. Unless designated as hedges, changes
in these fair values will be recorded in the income statement.
Fair value changes involving hedges will generally be recorded by
offsetting gains and losses on the hedge and on the hedged item,
even if the fair value of the hedged item is not otherwise
recorded. Upon adoption of this Standard, entities may
redesignate securities as either available-for-sale or
held-to-maturity. Management does not expect adoption of this
Standard to have a material effect but the effect will depend upon
derivative holdings upon adoption.
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 3: QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market Risk Disclosures
The Company, and to a lesser extent the Corporation, is subject to
extensive market risk in the fluctuation of interest rates. Such
risk, which is common to virtually all financial institutions, is
referred to as interest rate risk. In its efforts to manage its
exposure to changes in interest rates, management closely monitors
the Company's interest rate risk. The Company has an
asset/liability committee consisting of all of the Company's
directors and executive officers. This committee meets at least
once per quarter to review the Company's interest rate risk
position and to make recommendations for adjusting such position
if necessary. In addition, the asset/liability committee reviews
the estimated effect on the Company's earnings and capital under
various interest rate scenarios.
In managing its asset/liability mix, the Company may, at times,
place somewhat greater emphasis on maximizing its net interest
income rather than on the strict matching of the interest rate
sensitivity of its assets and liabilities. The Board of Directors
believes that the increased net income resulting from a modest
mismatch in the estimated maturity of its asset and liability
portfolios can often provide high enough returns to justify the
increased exposure which may result from such a mismatch. The
Board of Directors has established limits on the Company's
interest rate risk based on the interest rate risk simulation
model utilized by its primary regulator, the OTS. There can be no
assurance, however, that management's efforts to limit interest
rate risk will be successful.
To the extent consistent with interest rate spread objectives, the
Company attempts to reduce its interest rate risk by taking
various steps. First, the Company routinely seeks to sell its
longer term, fixed rate mortgage loans in the secondary market.
Second, the Company holds a significant portfolio of multi-family
and commercial real estate loans having short terms to maturity
and/or adjustable rate features. Third, the Company has invested
a substantial portion of its mortgage-related securities in
products having relatively short average lives. The Company also
maintains a sizeable portfolio of short-term investments, such as
mutual funds, commercial paper and overnight type funds, which
will provide a cushion in the event of an increase in interest
rates. Fourth, the Company has from time to time offered
attractive interest rates and other promotions to attract
transaction accounts, which are considered to be more resistant to
change in interest rates than certificate accounts. Finally, the
Company may from time to time utilize longer-term borrowings from
the Federal Home Loan Bank in an effort to extend the term to
maturity of its liabilities.
The OTS provides quarterly Interest Rate Risk Exposure Reports for
the associations which it regulates. These reports project the
impact on the Company's "net portfolio value" under specified
interest rate movements. Net portfolio value generally consists
of the estimated value of the Company's interest sensitive assets
less the estimated value of its interest sensitive liabilities
under different interest rate scenarios. Under this methodology,
assets and liabilities (including such "off-balance sheet" items
as commitments to make loans, unused lines of credit and other
items not yet reflected as assets and liabilities) are valued
following an immediate and permanent interest rate shock. The
resulting impact of such interest rate shocks - which are provided
for rate increases and decreases of 100, 200, 300 and 400 basis
points - are reviewed by the asset/liability committee. The
estimated impact of such interest rate shocks is provided in both
dollars and percentages. The asset/liability committee reviews
such estimated changes and compares them with guidelines adopted
in this area. These guidelines specify the maximum percentage
change which the Company is willing to accept in a given interest
rate shock environment. Any deviations in excess of board
guidelines must be analyzed by management, with prompt corrective
measures outlined for board approval.
Management and the board of directors believe that interest rate
shocks up to 200 basis points (increase and decrease) offer the
most likely scenario and the Company's interest rate risk is
primarily designed to protect the Company's net portfolio value in
those circumstances. The following table reflects the estimated
change in the Company's net portfolio value under various interest
rate shock scenarios.
Immediate change Percentage change in
in rates net portfolio value at:
March 31, December 31, December 31,
1999 1999 1997
+200 basis points -26% -24% -17%
+100 basis points -11% -9% -8%
0 basis points 0% 0% 0%
- -100 basis points 3% 1% 4%
- -200 basis points 1% 1% 6%
Management believes that its interest rate risk position reflects
somewhat greater interest rate risk than its peer group.
<PAGE>
PART II: OTHER INFORMATION
OHSL FINANCIAL CORP.
JUNE 30, 1999
Item 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not Applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
On April 20, 1999, the Registrant filed a Form 8-K to
report the issuance of a press release announcing
earnings for the first quarter of 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
OHSL Financial Corp.
Date: August 16, 1999 By: /S/ Charles F. Hertlein, Jr.
Charles F. Hertlein, Jr., Esq.
Attorney-in-fact for
Kenneth L. Hanauer
President and Chief Executive
Officer
(Principal Executive officer)
Date: August 16, 1999 By: /S/ Charles F. Hertlein, Jr.
Charles F. Hertlein, Jr., Esq.
Attorney-in-fact for
Patrick J. Condren
Treasurer and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
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