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 March 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 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 MARCH 31, 1999
common stock, $.005 par value 2,429,478
<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 6
Consolidated Statements of Changes in
Stockholders' Equity 7
Consolidated Statements of Cash Flows 8
Notes to Consolidated Financial Statements 9-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-14
Item 3. Quantitative and Qualitative Disclosures of 15-16
Market Risk
Part II. Other Information:
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
<TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<CAPTION>
March 31, December 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,402 $ 3,387
Short-term investments 5,667 15,625
-------- --------
Cash and cash equivalents 8,069 19,012
Interest-bearing balances with
financial institution 100 100
Held-to-maturity securities (market
value of $84,456 and $65,526) 85,078 65,268
Available-for-sale securities 8,808 9,372
Loans held for sale 1,075 1,360
Loans receivable-net 165,644 164,595
Real Estate Owned 203 ---
Office properties and equipment-net 2,496 2,573
Federal Home Loan Bank stock, at cost 2,011 1,977
Accrued interest receivable 1,630 1,530
Other assets 1,643 1,389
-------- --------
Total Assets $276,757 $267,176
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit $212,696 $206,755
Advances from Federal Home Loan Bank 34,528 31,118
Accrued interest payable 230 200
Advances from borrowers for taxes
and insurance 461 707
Other liabilities 1,589 1,370
-------- --------
Total Liabilities 249,504 240,150
</TABLE>
<PAGE>
<TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
(Dollars in thousands except per share data)
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
STOCKHOLDERS' EQUITY
Common stock, $ .005 par value,
3,500,000 shares authorized,
2,893,272 shares issued at
March 31, 1999 and 2,870,820
shares issued at December 31,
1998 $ 14 $ 14
Additional paid-in capital 14,719 14,512
Retained earnings 17,058 16,776
Unearned shares held by employee
stock ownership plan (208) (237)
Treasury stock (402,292 shares
at cost) (4,344) (4,087)
Accumulated other comprehensive
income 14 48
-------- --------
Total Stockholders' Equity 27,253 27,026
Total Liabilities and
Stockholders' Equity $276,757 $267,176
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
<CAPTION>
Three months ended March 31,
1999 1998
-------- -------
<S> <C> <C>
INTEREST INCOME
Loans, including related fees $3,323 $3,649
Short-term money market
investments 225 183
Mortgage-backed investments 915 436
Other investments 275 374
------ ------
Total Interest Income 4,738 4,642
INTEREST EXPENSE
Deposits 2,400 2,351
Federal Home Loan Bank advances 416 402
------ ------
Total Interest Expense 2,816 2,753
------ ------
NET INTEREST INCOME 1,922 1,889
Less provision for loan losses 7 7
------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,915 1,882
NONINTEREST INCOME
Service charges and fees 86 59
Net gain on loans
originated for sale 48 87
Other income 37 32
------ ------
171 178
NONINTEREST EXPENSE
Salaries and employee benefits 637 619
occupancy and equipment expense-net 182 169
Computer service expense 48 40
Franchise taxes 79 82
Other operating expenses 259 248
------ ------
1,205 1,158
------ ------
</TABLE>
<PAGE>
<TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(Dollars in thousands except per share data)
<CAPTION>
Three months ended March 31,
1999 1998
-------- ---------
<S> <C> <C>
INCOME BEFORE TAXES $ 881 $ 902
Income tax provision 298 339
----- -----
NET INCOME $ 583 $ 563
----- -----
----- -----
EARNINGS PER SHARE $0.24 $0.23
----- -----
----- -----
EARNINGS PER SHARE,
ASSUMING DILUTION $0.24 $0.23
----- -----
----- -----
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
<CAPTION>
Three months ended March 31,
1999 1998
<S> <C> <C>
Net Income $583 $563
Other comprehensive income,
net of tax:
Unrealized gains (losses)
on securities held during
period (34) 21
---- ----
Comprehensive Income $549 $584
---- ----
---- ----
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
Three months ended March 31,
1999 1998
<S> <C> <C>
Balance at January 1 $27,026 $26,032
Net income 583 563
Purchase of treasury stock (257) ---
Stock options exercised 152 42
Dividends on common stock (301) (268)
ESOP shares earned during
the period 84 94
Change in net unrealized
gain/(loss) on available-
for-sale securities (34) 21
------- -------
Balance at March 31 $27,253 $26,484
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OHSL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Three months ended March 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 583 $ 563
Adjustments to reconcile net income to net
cash from operating activities 3,086 5,467
--------- ---------
Net cash from operating activities 3,669 6,030
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of held-to-maturity securities (26,779) (21,874)
Proceeds from maturities and repayments
on held-to-maturity securities 7,079 5,306
Proceeds from maturities and repayments
on available-for-sale securities 514 272
Loans made to customers net of payments received (4,117) (1,316)
Purchase of property and equipment (8) (14)
--------- ---------
Net cash from investing activities (23,311) (17,626)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 5,941 3,169
Payments on advances from Federal Home Loan Bank (590) (14,681)
Proceeds from Federal Home Loan Bank advances 4,000 23,000
Net change in advances from borrowers
for taxes and insurance (246) (303)
Cash dividends (301) (268)
Purchase of treasury stock (257) ---
Stock options exercised 152 42
--------- ---------
Net cash from financing activities 8,699 10,959
Net change in cash and cash equivalents (10,943) (637)
Cash and cash equivalents at beginning of period 19,012 16,224
--------- ---------
Cash and cash equivalents at end of period $ 8,069 $15,587
--------- ---------
--------- ---------
</TABLE>
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 weighted average shares outstanding during the
period. The weighted average number of shares have been
retroactively restated to reflect a two-for-one stock split
distributed in April, 1998. Weighted average shares outstanding
do not include unearned shares held by the Company' s Employee
Stock Ownership Plan (" ESOP").
For the three months ended March 31, this calculation is as
follows:
1999 1998
Net Income $ 583,000 $ 563,000
-------- --------
-------- --------
Weighted average shares outstanding
during the period $2,465,839 2,481,522
Less average unearned ESOP
shares during the period 44,514 68,258
---------- ----------
Average shares outstanding for
EPS calculation 2,421,325 2,413,264
---------- ----------
---------- ----------
Earnings per share $0.24 $0.23
---------- ----------
---------- ----------
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 March 31 is presented below:
1999 1998
Weighted average outstanding shares
during the period $2,421,325 $2,413,264
Average options outstanding 83,988 107,700
Less shares repurchased with option
and tax benefit (35,034) (43,630)
---------- ----------
Weighted average shares for diluted
earnings per share 2,470,279 2,477,334
---------- ----------
---------- ----------
Diluted earning per share $0.24 $0.23
---------- ----------
---------- ----------
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OHSL FINANCIAL CORP.
MARCH 31, 1999
FINANCIAL CONDITION:
Total assets increased from $267.2 million at December 31, 1998 to
$276.8 million at March 31, 1999, an increase of $9.6 million or
3.6%. During the first three months of 1999, held-to-maturity
securities increased by $19.8 million and loans receivable
increased by $1.0 million. These changes were funded by increases
in deposits of $5.9 million and Federal Home Loan Bank advances of
$3.4 million and by a decrease in cash and cash equivalents of
$10.9 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 $1.0 million in the
first three months of 1999. Due to the continuation of the low
interest rate environment, very strong mortgage loan originations
have been experienced. However, much of this activity represents
mortgage loan refinances 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, only a minor increase in loans receivable has
been experienced during the first quarter of 1999.
Held-to-maturity securities increased by $19.8 million in the
first quarter of 1999, due largely to OHSL's purchase of
investment securities during this time period. These purchases
totaled $26.8 million, and consisted of $14.9 million in U.S.
Government Agency securities, $11.7 million in U.S. Government
mortgage-related securities and $0.2 million in investment grade
tax-free obligations. Certain of the U.S. Government mortgage-related
securities were acquired as part of an investment strategy
wherein the Company locks in favorable interest rate spreads by
funding the investment purchase with a Federal Home Loan Bank
advance of a similar amount and/or term. The corresponding
increase in Federal Home Loan Bank advances of $3.4 million
relates to this investment strategy.
The stockholders' equity of OHSL increased by $227,000 during the
first three months of 1999. The major components of this increase
are the Corporation's net income of $583,000, somewhat offset by
dividends on the Corporation's common stock of $301,000 and by the
purchase of treasury stock of $257,000. Stockholders' equity
therefore increased to $27.3 million at March 31, 1999.
RESULTS OF OPERATIONS:
Net income for the three months ended March 31, 1999 was $583,000,
an increase of $20,000 or 3.6% over net income for the three
months ended March 31, 1998. This represents earnings per share
(diluted) of $0.24 versus $0.23 for the same period in 1998.
Total interest income for the three months ended March 31, 1999
was $4,738,000, compared to $4,642,000 for the same period in
1998. This increase ($96,000 or 2.1%) is generally the result of
larger loan and investment balances carried during the first
quarter of 1999 when compared to the same period in 1998.
Total interest expense for the three months ended March 31, 1999
was $2,816,000, compared to $2,753,000 for the same period in
1998. This increase ($63,000 or 2.3%) is generally attributable
to the higher levels of deposits and borrowings carried during the
first quarter 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 three months of 1999,
net interest income for the three months ended March 31, 1999
totaled $1,922,000, an increase of $33,000 or 1.7% over the same
period in 1998.
The Corporation's provision for loan losses totaled $7,000 for the
three months ended March 31, 1999. This amount is unchanged from
the provision for loan losses for the same period in 1998. The
credit quality of the Company's loan portfolio remains very
strong, with characteristics similar to the prior year. Due to
its strong credit quality, management believes that moderate
additions to its loan loss allowance are sufficient to cover
potential losses.
Noninterest income for the three months ended March 31, 1999 was
$171,000 compared to $178,000 for the same period in 1998. This
decrease ($7,000 or 3.9%) is largely attributable to a reduction
in net gains on loans originated for sale. During the first three
months of 1998, the Company sold $5.2 million of fixed rate,
single family loans in the secondary market, generating gains of
$87,000. In the first quarter of 1999, OHSL sold $3.4 million of
such loans, generating net gains of $48,000.
Due principally to the low interest rate environment which
continued during the first quarter of 1999, the Company sought to
minimize the additional interest rate risk associated with holding
long term, fixed rate mortgage loans by selling its current
production of these loans in the secondary market. Management
believes that such sales will continue if interest rates remain at
or near current levels.
The reduction in the net gain on loans originated for sale was
somewhat offset by an increase in service charges and fees of
$27,000 when compared to the same period in 1998.
Noninterest expense for the three months ended March 31, 1999 was
$1,205,000, compared to $1,158,000 for the same period in 1998.
This increase ($47,000 or 4.1%) is largely attributable to
modestly higher expenses in most categories of noninterest
expense.
The income tax provision for the three months ended March 31, 1999
was $298,000, compared to $339,000 for the same period in 1998.
This decrease ($41,000 or 12.1%) is attributable to the lower
level of pre-tax earnings generated in the first quarter of 1999
when compared to the same period in 1998 as well as to higher
levels of tax-free obligations carried in 1999 when 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 March
31, 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 over 75% reporting Year 2000
compliance for their products or service. The customer contact
group is currently in the process of evaluating responses from
major customers. The contingency planning group has the task of
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. The above team projects
were substantially complete as of March 31, 1999. Constant
monitoring and follow up will continue, however, through the Year
2000 time frame.
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 March 31, 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
March 31, 1999, the Company's liquid assets totaled $88.7 million
or 43.1%.
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 $27.3 million at March 31, 1999, an
increase of $227,000 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 first
quarter, which was partially offset by dividends declared on the
common stock and by repurchases of stock under OHSL's stock
repurchase program.
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 risk-based capital (as defined)
divided by total assets (as defined) to be at least 8.0%. Oak
Hills' compliance with these requirements at March 31, 1999 is
summarized below:
<TABLE>
Amount Percent (%) of
(000) Applicable Assets
<S> <C> <C>
Tangible capital $19,563 7.27%
Requirement 4,036 1.50%
------- ------
Excess $15,527 5.77%
------- ------
------- ------
Core capital $19,563 7.27%
Requirement 10,762 4.00%
------- ------
Excess $ 8,801 3.27%
------- ------
------- ------
Risk-based capital $20,115 16.06%
Requirement 10,021 8.00%
------- ------
Excess $10,094 8.06%
------- ------
------- ------
</TABLE>
At March 31, 1999, the book value per share of OHSL common stock
was $11.22 based upon 2,429,478 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.
Item 3: Qualitative and Quantitative Disclosures About Market Risk
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. Such sales in 1998
totaled $18.4 million. 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 in rates Percentage change in net portfolio
value at:
December 31, 1998 December 31, 1997
+200 basis points 24% -17%
+100 basis points -9% -8%
0 basis points 0% 0%
- -100 basis points 1% 4%
- -200 basis points 1% 6%
Management believes that its interest rate risk position is
comparable to its peers.<PAGE>
PART II: OTHER INFORMATION
OHSL FINANCIAL CORP.
MARCH 31, 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
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
On February __, 1999, the Registrant filed a Form 8-K to report
the issuance of a press release announcing earnings for the fourth
quarter and the year ended December 31, 1998. On March __, 1999,
the Registrant filed a From 8-K to report the payment of a cash
dividend.
<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: May 11, 1999 By: /s/ Kenneth L. Hanauer
-------------------------
Kenneth L. Hanauer
President and Chief Executive
Officer
(Principal Executive officer)
Date: May 11, 1999 By: /s/ Patrick J. Condren
-------------------------
Patrick J. Condren
Treasurer and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
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