<PAGE> 1
FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from _____ to _____.
Commission file number: 0-28648
-------
Ohio State Bancshares, Inc.
-------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Ohio 34-1579601
- ---------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
111 South Main Street, Marion, Ohio 43302
------------------------------------------
(Address of principal executive offices)
(614) 387-2265
-----------------------------
(Registrant's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Common stock, $10.00 par value Outstanding at May 9, 1997
121,200 common shares
Transitional small business disclosure format (check one)
Yes No X
--- ---
<PAGE> 2
OHIO STATE BANCSHARES, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 1997
Part I - Financial Information
<TABLE>
<CAPTION>
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED) Page
----
<S> <C>
Condensed Consolidated Balance Sheets ......................... 3
Condensed Consolidated Statements of Income ................... 4
Condensed Consolidated Statements of Changes in
Shareholders' Equity .......................................... 5
Condensed Consolidated Statements of Cash Flows ............... 6
Notes to the Consolidated Financial Statements ................ 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ........................................... 14
Part II - Other Information
Other Information ............................................. 18
Signatures .................................................... 19
</TABLE>
<PAGE> 3
OHIO STATE BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $2,324,702 $ 1,972,038
Federal funds sold 538,000 716,000
----------- -----------
Total cash and cash equivalents 2,862,702 2,688,038
Interest-earning deposits in other banks 499,000 499,000
Securities available for sale 8,522,106 8,089,532
Securities held to maturity (Fair value of $2,504,939 at
March 31, 1997 and $2,609,268 at December 31, 1996) 2,528,058 2,629,280
Loans, net of allowance for loan losses 28,228,244 27,572,913
Premises and equipment, net 900,204 914,569
Other real estate owned and repossessions 730 52,780
Accrued interest receivable 295,401 347,580
Other assets 296,998 262,194
----------- -----------
Total assets $44,133,443 $43,055,886
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $4,288,984 $ 4,328,870
Interest-bearing 34,676,407 35,140,100
----------- -----------
Total 38,965,391 39,468,970
Borrowed funds 1,500,000
Accrued interest payable 230,439 236,798
Other liabilities 175,676 124,138
----------- -----------
Total liabilities 40,871,506 39,829,906
Shareholders' equity
Common stock ($10.00 par value; 121,200
shares authorized; 121,200 shares issued and outstanding) 1,212,000 1,212,000
Additional paid-in capital 1,831,227 1,831,227
Retained earnings 299,378 224,862
Unrealized loss on securities
available for sale, net of tax (80,668) (42,109)
----------- -----------
Total shareholders' equity 3,261,937 3,225,980
----------- -----------
Total liabilities and shareholders' equity $44,133,443 $43,055,886
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3.
<PAGE> 4
OHIO STATE BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------
1997 1996
---------- -----------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 673,342 $ 565,591
Interest on securities
Taxable securities 136,582 187,935
Nontaxable securities 27,650 16,217
Other 9,922 21,055
---------- -----------
Total interest income 847,496 790,798
INTEREST EXPENSE
Deposits 376,331 381,137
Other borrowings 4,768 86
---------- -----------
Total interest expense 381,099 381,223
---------- -----------
NET INTEREST INCOME 466,397 409,575
Provision for loan losses 28,000 35,000
---------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 438,397 374,575
NONINTEREST INCOME
Fees for other customer services 49,327 48,400
Net realized gain on sales of securities available for sale 3,438
Other income 8,986 15,796
---------- -----------
Total noninterest income 58,313 67,634
NONINTEREST EXPENSE
Salaries and employee benefits 165,812 180,999
Occupancy expense 88,187 65,891
Office supplies 20,932 25,719
FDIC and state assessments 3,430 2,633
Taxes other than income 11,705 13,748
Legal and accounting 13,410 12,141
Advertising and public relations 19,577 9,098
Loss on other real estate owned and repossessions 9,000 12,000
Insurance 6,365 8,684
Credit card processing expense 12,671 14,622
Other expenses 44,105 42,153
---------- -----------
Total noninterest expense 395,194 387,688
---------- -----------
Income before federal income taxes 101,516 54,521
Income taxes 27,000 18,000
---------- -----------
NET INCOME $ 74,516 $ 36,521
========== ===========
Earnings per common share $ .61 $ .30
========== ===========
Weighted average shares outstanding 121,200 121,200
========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
4.
<PAGE> 5
OHIO STATE BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Balance at beginning of period $3,225,980 $3,057,117
Net income 74,516 36,521
Change in unrealized loss on securities
available for sale (38,559) (56,593)
---------- ----------
Balance at end of period $3,261,937 $3,037,045
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
5.
<PAGE> 6
OHIO STATE BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------
1997 1996
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ $74,516 $ 36,521
Net income
Adjustments to reconcile net income to net cash from
operating activities
Net amortization of premiums 5,163 (536)
Provision for loan losses 28,000 35,000
Depreciation and amortization 31,904 26,889
Net realized gains on securities available for sale (3,438)
Federal Home Loan Bank stock dividend (2,400) (2,200)
Loss on sale of other real estate owned and repossessions 9,000 12,000
Change in accrued interest receivable 52,179 (84,180)
Change in accrued interest payable (6,359) 9,790
Change in other assets and other liabilities 36,598 (97,660)
------------ -----------
Net cash from operating activities 228,601 (67,814)
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Purchases (879,500) (1,508,557)
Proceeds from maturities and principal paydowns 386,962 939,248
Proceeds from sales 503,438
Securities held to maturity
Purchases (262,610)
Proceeds from maturities and principal paydowns 100,000
Net change in interest-earning deposits in other banks (99,000)
Net change in loans (702,431) (107,341)
Proceeds from sale of other real estate owned and
repossessions 62,150 50,889
Purchases of premises and equipment (17,539) (8,268)
------------ -----------
Net cash from investing activities (1,050,358) (492,201)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposit accounts (503,579) (673,850)
Net change in borrowed funds 1,500,000
------------ -----------
Net cash from financing activities 996,421 (673,850)
------------ -----------
Net change in cash and cash equivalents 174,664 (1,233,865)
Cash and cash equivalents at beginning of period 2,688,038 3,450,430
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,862,702 $ 2,216,565
============ ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
6.
<PAGE> 7
OHIO STATE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all
adjustments of a normal recurring nature which, in the opinion of management,
are necessary to present fairly the consolidated financial position of Ohio
State Bancshares, Inc. at March 31, 1997, and its results of operations and
cash flows for the periods presented. All such adjustments are normal and
recurring in nature. The accompanying consolidated financial statements have
been prepared in accordance with the instructions of Form 10-QSB and therefore
do not purport to contain all the necessary financial disclosures required by
generally accepted accounting principles that might otherwise be necessary in
the circumstances and should be read in conjunction with the financial
statements and notes thereto of Ohio State Bancshares, Inc. for the year ended
December 31, 1996 included in its 1996 Annual Report. Reference is made to the
accounting policies of Ohio State Bancshares, Inc. described in the notes to
financial statements contained in the 1996 annual report. Ohio State
Bancshares, Inc. has consistently followed these policies in preparing this
Form 10-QSB.
The accompanying consolidated financial statements include the accounts of Ohio
State Bancshares, Inc. ("OSB") and its wholly owned subsidiary, The Marion Bank
(the "Bank"). All significant intercompany transactions and balances have been
eliminated. At the annual shareholder meeting held April 13, 1995, the Bank's
shareholders approved a plan of reorganization whereby they would exchange
their shares of Bank stock for the common stock of a bank holding company. The
reorganization was consummated May 16, 1996. The transaction represented an
internal reorganization and the historical basis of assets and liabilities have
been carried forward without change.
OSB's and the Bank's revenues, operating income and assets are primarily from
the banking industry. Loan customers are mainly located in Marion County, Ohio
and include a wide range of individuals, businesses and other organizations. A
major portion of loans are secured by various forms of collateral including
real estate, business assets, consumer property and other items, although
borrower cash flow may also be a primary source of repayment.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
based on available information. These estimates and assumptions affect the
amounts reported in the financial statements and the disclosures provided.
Future results could differ from these estimates. The collectibility of loans,
fair values of financial instruments and the status of contingencies are
particularly subject to change.
For the three months ended March 31, 1997 and 1996, OSB paid interest of
$387,458 and $371,433, respectively, and income taxes of $0 and $50,927,
respectively. Noncash transfers from loans to other real estate owned and
repossessions totaled $19,100 for the three months ended March 31, 1997 and
$23,129 for the three months ended March 31, 1996.
(Continued)
7.
<PAGE> 8
OHIO STATE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The provision for income taxes is based upon the effective tax rate expected to
be applicable for the entire year. Income tax expense is the sum of the
current year income tax due or refundable and the change in deferred tax assets
and liabilities. Deferred tax assets and liabilities are the expected future
tax consequences of temporary differences between the carrying amounts and tax
basis of assets and liabilities, computed using enacted tax rates. A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be
realized.
Statement of Financial Accounting Standards ("SFAS") No 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was issued by the Financial Accounting Standards Board ("FASB")
in 1996. It revises the accounting for transfers of financial assets, such as
loans and securities, and for distinguishing between sales and secured
borrowings. It was originally effective for some transactions in 1997 and
others in 1998. SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125" was issued in December 1996. SFAS No.
127 defers for one year the effective date of provisions related to securities
lending, repurchase agreements and other similar transactions. The remaining
portions of SFAS 125 will continue to be effective January 1, 1997. SFAS No.
125 did not have a material impact on OSB's financial statements.
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share" which is
effective for financial statements for periods ending after December 15, 1997,
including interim periods. SFAS No. 128 simplifies the calculation of earnings
per share by replacing primary EPS with basic EPS. It also requires dual
presentation of basic EPS and diluted EPS for entities with complex capital
structures. Basic EPS includes no dilution and is computed by dividing income
available to common shareholders by the weighted-average common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could share in earnings such as stock options, warrants or
other common stock equivalents. All prior period EPS data will be restated to
conform with the new presentation. This statement will not impact OSB as the
Company has no common stock equivalents at the present time.
(Continued)
8.
<PAGE> 9
OHIO STATE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - SECURITIES
Securities at March 31, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
March 31, 1997
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities $ 349,515 $ 3,202 $ 346,313
Obligations of U.S.
government agencies 2,003,578 32,133 1,971,445
Mortgage-backed securities 6,077,067 $ 2,772 89,731 5,990,108
---------- ---------- ---------- ----------
Total debt securities available
for sale 8,430,160 2,772 125,066 8,307,866
Other securities 214,240 214,240
---------- ---------- ---------- ----------
Total securities
available for sale $8,644,400 $ 2,772 $ 125,066 $8,522,106
========== ========== ========== ==========
HELD TO MATURITY
Obligation of U.S.
government agencies $ 500,000 $ 25,705 $ 474,295
Obligations of states and
political subdivisions 2,028,058 $ 14,382 11,796 2,030,644
---------- ---------- ---------- ----------
Total securities held
to maturity $2,528,058 $ 14,382 $ 37,501 $2,504,939
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Obligations of U.S.
government agencies $ 1,713,884 $ 739 $ 7,264 $ 1,707,359
Mortgage-backed securities 6,257,609 3,872 61,148 6,200,333
----------- ------------ ---------- -------------
Total debt securities available
for sale 7,971,493 4,611 68,412 7,907,692
Other securities 181,840 181,840
----------- ------------ ----------- -------------
Total securities available
for sale $ 8,153,333 $ 4,611 $ 68,412 $ 8,089,532
=========== ============ =========== =============
</TABLE>
(Continued)
9.
<PAGE> 10
OHIO STATE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ------- ------- ----------
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury securities $ 99,912 $ 213 $ 100,125
Obligation of U.S.
government agencies 500,000 $32,755 467,245
Obligations of states and
political subdivisions 2,029,368 21,692 9,162 2,041,898
---------- ------- ------- ----------
Total securities held
to maturity $2,629,280 $21,905 $41,917 $2,609,268
========== ======= ======= ==========
</TABLE>
No securities classified as available for sale were sold during the three
months ended March 31, 1997. Proceeds from sales of securities classified as
available for sale were $503,438 during the three months ended March 31, 1996.
Gross gains of $3,438 were realized on those sales in 1996.
The amortized cost and fair values of securities at March 31, 1997, by
contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because certain borrowers may have the right to call or
repay obligations with or without penalties.
<TABLE>
<CAPTION>
Available-for-Sale Securities Held-to-Maturity Securities
-------------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one to five years $ 2,353,093 $ 2,317,758 $ 500,000 $ 474,295
Due in five years to ten years 464,930 470,677
Due after ten years 1,563,128 1,559,967
Mortgage-backed securities 6,077,067 5,990,108
Other securities 214,240 214,240
----------- ----------- ----------- -----------
$ 8,644,400 $ 8,522,106 $ 2,528,058 $ 2,504,939
=========== =========== =========== ===========
</TABLE>
Securities with a carrying value of approximately $4,644,000 at March 31, 1997
and $4,946,000 at December 31, 1996 were pledged to secure deposits and for
other purposes.
(Continued)
10.
<PAGE> 11
OHIO STATE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - LOANS
Loans at March 31, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Commercial $10,142,271 $10,395,804
Installment 14,608,372 13,967,939
Real estate 3,012,493 2,761,119
Credit card 562,245 554,928
Other 29,694 33,708
----------- -----------
28,355,075 27,713,498
Net deferred loan costs 161,436 140,557
Allowance for loan losses (288,267) (281,142)
----------- -----------
$28,228,244 $27,572,913
=========== ===========
</TABLE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses for the three months ended March 31,
1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance - January 1 $ 281,142 $ 252,174
Loans charged off (30,111) (36,045)
Recoveries 9,236 7,426
Provision for loan losses 28,000 35,000
---------- ----------
Balance - March 31 $ 288,267 $ 258,555
========== ==========
</TABLE>
Loans considered impaired under the provisions of SFAS No. 114 were not
material as of or during the three months ended March 31, 1997 and 1996. Loans
on which the accrual of interest has been discontinued because circumstances
indicate that collection is questionable amounted to $71,383 and $29,147 at
March 31, 1997 and December 31, 1996, respectively.
Loans with carrying values of $19,100 and $154,899 were transferred to other
real estate owned and repossessions at March 31, 1997 and December 31, 1996.
(Continued)
11.
<PAGE> 12
OHIO STATE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES
Various contingent liabilities are not reflected in the financial statements,
including claims and legal actions arising in the ordinary course of business.
In the opinion of management, after consultation with legal counsel, the
ultimate disposition of these matters is not expected to have a material affect
on the financial condition or results of operations.
At March 31, 1997 and December 31, 1996, reserves of $349,000 and $313,000 were
required as deposits with the Federal Reserve or as cash on hand. These
reserves do not earn interest.
Included in cash and cash equivalents at March 31, 1997 and December 31, 1996
was approximately $1,865,000 and $1,547,000, respectively, on deposit with the
Independent State Bank of Ohio.
Some financial instruments are used in the normal course of business to meet
the financing needs of customers and to reduce exposure to interest rate
changes. These financial instruments include commitments to extend credit,
standby letters of credit and financial guarantees. These involve, to varying
degrees, credit and interest-rate risk in excess of the amount reported in the
financial statements.
Exposure to credit loss if the other party does not perform is represented by
the contractual amount for commitments to extend credit, standby letters of
credit and financial guarantees written. The same credit policies are used for
commitments and conditional obligations as are used for loans.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being used, the total commitments do not necessarily
represent future cash requirements. Standby letters of credit and financial
guarantees written are conditions commitments to guarantee a customer's
performance to a third party.
Commitments to extend credit (primarily in the form of undisbursed portions of
approved lines of credit) consist primarily of variable rate commitments. The
interest rates on these commitments ranged from 5.9% to 11.25% at March 31,
1997 and 5.9% to 10.9% at December 31, 1996. Outstanding commitments for
credit cards rates ranged from 14.25% to 17.90% and 14.25% to 16.75% as of
March 31, 1997 and December 31, 1996. Of the total outstanding balances on
these credit cards at March 31, 1997, 59% were fixed and 41% were variable rate
and at December 31, 1996, 62% were fixed rate and 38% were variable rate.
(Continued)
12.
<PAGE> 13
OHIO STATE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES (Continued)
A summary of the contractual amounts of financial instruments with off-balance
sheet risk at March 31, 1997 and December 31, 1996 follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Commitments to extend $3,757,000 $3,770,000
Credit card arrangements 979,000 1,010,000
</TABLE>
At March 31, 1997 and December 31, 1996, the Bank had a line of credit enabling
it to borrow up to $2,100,000 with the Federal Home Loan Bank of Cincinnati.
Borrowings under this line totaled $1,500,000 at March 31, 1997. No borrowings
were outstanding on this line of credit as of December 31, 1996. Advances
under the agreement are collateralized by a blanket pledge of the Bank's real
estate mortgage loan portfolio and Federal Home Loan Bank stock.
The Bank's new branch is leased under an operating lease. The lease term is
for twenty years. At the conclusion of the fifth, tenth and fifteenth years of
the lease, the rent shall be adjusted by 50% of the cumulative increase in the
Consumer Price Index over the previous five years with a minimum of 5% increase
and a maximum of 10% increase for any one five-year period. Rental expense was
$9,687 for the three months ended March 31, 1997.
Rental commitments under this noncancelable operating lease are:
<TABLE>
<CAPTION>
Year ending March 31,
<S> <C>
1998 $ 38,748
1999 38,748
2000 38,748
2001 38,748
2002 39,367
Thereafter 628,289
--------
$822,648
========
</TABLE>
13.
<PAGE> 14
OHIO STATE BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
The following discussion focuses on the consolidated financial condition of
Ohio State Bancshares, Inc. ("OSB") at March 31, 1997, compared to December 31,
1996, and the consolidated results of operations for the three months ended
March 31, 1997 compared to the same period in 1996. The purpose of this
discussion is to provide the reader with a more thorough understanding of the
consolidated financial statements. This discussion should be read in
conjunction with the interim consolidated financial statements and related
footnotes.
In addition to the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, OSB's operations and OSB's actual
results could differ significantly from those discussed in the forward-looking
statements. Some of the factors that could cause or contribute to such
differences are discussed herein but also include changes in the economy and
interest rates in the nation and in OSB's general market area.
Some of the forward-looking statements included herein are the statements
regarding the following:
1. Management's determination of the amount of loan loss allowance and
the amount of the loan loss provision;
2. The sufficiency of the Corporation's liquidity and capital
reserves.
See Exhibit 99, which is incorporated herein by reference.
The registrant is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the liquidity,
capital resources or operations except as discussed herein. Also, the
Registrant is not aware of any current recommendations by regulatory
authorities which would have such effect if implemented.
FINANCIAL CONDITION
OSB has experienced modest asset growth since December 31, 1996 as total assets
increased $1,078,000 or 2.50% from $43,056,000 at December 31, 1996 to
$44,133,000 at March 31, 1997. Maintaining a moderate growth rate while
increasing the loan to deposit ratio continues to be OSB's primary strategy.
The increase in interest-earning deposits in other banks, securities available
for sale and securities held to maturity of $331,000, or 2.95% from December
31, 1996 to March 31, 1997 was consistent with the growth in total assets. It
is management's intent to use excess funds as they become available, plus the
proceeds from maturing securities and principle repayments from
14.
<PAGE> 15
OHIO STATE BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
mortgage-backed securities to retire short term Federal Home Loan Bank advances
or fund future loan commitments.
Net loans increased $655,000, or 2.38% during the period from December 31, 1996
to March 31, 1997. This growth was funded primarily by Federal Home Loan Bank
short term borrowings. Installment loan demand continued to be strong and
constituted $640,000 of the total loan growth.
Total deposits decreased $504,000, or (1.28%) from December 31, 1996 to March
31, 1997. The decrease in deposits was primarily due to the maturity of a
single purpose public fund deposit needed for library improvements and the
maturity of a block of high rate short term funds that OSB decided not to rebid
on. As a result, OSB had short-term borrowings of $1,500,000 at March 31, 1997
to compensate for the decline in deposits as well as to provide funds for
growth. OSB plans to be active in the new deposit market as deposits are
needed to fund loan demand.
RESULTS OF OPERATIONS
The operating results of OSB are affected by general economic conditions, the
monetary and fiscal policies of federal agencies and the regulatory policies of
agencies that regulate financial institutions. OSB's cost funds is influenced
by interest rates on competing investments and general market rates of
interest. Lending activities are influenced by consumer and business demand,
which in turn is affected by the interest rates at which such loans are made,
general economic conditions and the availability of funds for lending
activities.
OSB's net income is primarily dependent upon its net interest income, which is
the difference between interest income generated on interest-earning assets and
interest expense incurred on interest-bearing liabilities. Net income is also
affected by provisions for loan losses, service charges, gains on the sale of
assets and other income, noninterest expense and income taxes.
Net income for the three months ended March 31, 1997 was $75,000 or $38,000
more than the same period in 1996. The reason for the increase in earnings was
due to improved interest income.
Net interest income is the largest component of OSB's income and is affected by
the interest rate environment and the volume and composition of interest
earning assets and interest-bearing liabilities. Net interest income increased
by $57,000 for the three month period ending March 31, 1997 compared to the
same period in 1996. The increase in net interest income is attributable to
OSB increasing its loan to deposit ratio from 60% on December 31, 1995 to 72%
as of March 31, 1997. The increase in the loan to deposit ratio has resulted
in an improved net interest margin as loans typically earn a higher yield than
other investing alternatives. OSB's interest expense during the three month
period ending March 31, 1997 was almost identical to OSB's interest expense for
the three month period ending March 31, 1996.
15.
<PAGE> 16
OHIO STATE BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Noninterest income for the three months ended March 31, 1997 was comparable to
the same period in the prior year. Noninterest expense was up only $7,500 or
1.93% for the period ending March 31, 1997 versus the three months ending March
31, 1996. The minimal increase occurred despite the overhead expense
associated with the new branch which opened December 6, 1996.
CAPITAL RESOURCES
The Bank is subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities and certain
off-balance sheet items calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative judgments
by regulators about components, risk weightings and other factors, and the
regulators can lower classifications in certain cases. Failure to meet various
capital requirements can initiate regulatory action that could have a direct
material effect on the operations of the Bank.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
Capital to risk-
weighted assets
--------------- Tier 1 capital
Total Tier 1 to average assets
----- ------ -----------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
At March 31, 1997 and December 31, 1996, the actual capital ratios for the Bank
were:
<TABLE>
<Caption
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Total capital to risk weighted assets 11.4% 11.4%
Tier 1 capital to risk weighted assets 10.5 10.5
Tier 1 capital to average assets 7.7 7.4
</TABLE>
At March 31, 1997 and December 31, 1996, the Bank was categorized as well
capitalized.
16.
<PAGE> 17
LIQUIDITY
Liquidity management focuses on the ability to have funds available to meet the
loan and depository transaction needs of the Bank's customers and OSB's other
financial commitments. Cash and cash equivalent assets (which include deposits
this Bank maintains at other banks, federal funds sold and other short-term
investments) totaled $2,863,000 at March 31, 1997 and $2,688,000 at December
31, 1996. These assets provide the primary source of funds for loan demand and
deposit balance fluctuations. Additional sources of liquidity are securities
classified as available for sale and access to Federal Home Loan Bank advances,
as the Bank is a member of the Federal Home Loan Bank of Cincinnati.
Taking into account the capital adequacy, profitability and reputation
maintained by OSB, available liquidity sources are considered adequate to meet
current and projected needs.
17.
<PAGE> 18
OHIO STATE BANCSHARES, INC.
FORM 10-QSB
Quarter ended March 31, 1997
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There are no matters required to be reported under this item.
Item 2 - Changes in Securities
There are no matters required to be reported under this item.
Item 3 - Defaults Upon Senior Securities
There are no matters required to be reported under this item.
Item 4 - Submission of Matters to a Vote of Security Holders
There are no matters required to be reported under this item.
Item 5 - Other Information
There are no matters required to be reported under this item.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule (for SEC use only).
(b) Exhibit 99 - Safe Harbor Under Private Securities
Litigation Reform Act of 1995.
(c) No current reports on Form 8-K were filed by the small
business issuer during the quarter ended March 31, 1997.
18.
<PAGE> 19
OHIO STATE BANCSHARES, INC.
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.
OHIO STATE BANCSHARES, INC.
---------------------------
(Registrant)
Date: /s/ Gary E. Pendleton
----------------- ----------------------------
(Signature)
Gary E. Pendleton
President and Chief Executive
Officer
Date: /s/ William H. Harris
----------------- ----------------------------
(Signature)
William H. Harris
Executive Vice President and Cashier
19.
<PAGE> 20
OHIO STATE BANCSHARES, INC.
Index to Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
- ------- ----------- -----------
<S> <C> <C>
27 Financial Data Schedule (for SEC use only) 21
99 Safe Harbor Under the Private Incorporated by reference to
Securities Litigation Reform Act of Exhibit 99 to Annual Report on
1995 Form 10-KSB for the Year Ended
December 31, 1996 filed by the
Small Business Issuer on March
24, 1997.
</TABLE>
20.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
EXHIBIT-27
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED
AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,325
<INT-BEARING-DEPOSITS> 499
<FED-FUNDS-SOLD> 538
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,522
<INVESTMENTS-CARRYING> 2,528
<INVESTMENTS-MARKET> 2,505
<LOANS> 28,228
<ALLOWANCE> 288
<TOTAL-ASSETS> 44,133
<DEPOSITS> 38,965
<SHORT-TERM> 1,500
<LIABILITIES-OTHER> 406
<LONG-TERM> 0
0
0
<COMMON> 1,212
<OTHER-SE> 2,050
<TOTAL-LIABILITIES-AND-EQUITY> 44,133
<INTEREST-LOAN> 673
<INTEREST-INVEST> 164
<INTEREST-OTHER> 10
<INTEREST-TOTAL> 847
<INTEREST-DEPOSIT> 376
<INTEREST-EXPENSE> 381
<INTEREST-INCOME-NET> 466
<LOAN-LOSSES> 28
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 395
<INCOME-PRETAX> 102
<INCOME-PRE-EXTRAORDINARY> 75
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 4.71
<LOANS-NON> 71
<LOANS-PAST> 32
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 43
<ALLOWANCE-OPEN> 281
<CHARGE-OFFS> 30
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 288
<ALLOWANCE-DOMESTIC> 288
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 133
</TABLE>
