FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] 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 0-22461
O.A.K. FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2817345
State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2445 84th Street, S.W., Byron Center, Michigan 49315
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (616) 878-1591
-----------
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 (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 ____
The number of shares outstanding of each of the issuers classes of common stock,
as of the latest practicable date: 1,000,000 shares of the Company's Common
Stock ($1 par value) were outstanding as of October 31, 1997.
1
<PAGE>
INDEX
Page
Number(s)
Part I. Financial Information (unaudited):
Item 1.
Consolidated Financial Statements 3
Notes to Consolidated Financial Statements 7
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 6.
Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE>
O.A.K. FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS
AND SUBSIDIARY
- -------------------------------------------------------------------------------
<TABLE>
ASSETS
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
Cash and due from banks ................................................... $ 6,428,691 $ 6,399,085
Federal funds sold......................................................... 1,950,000 400,000
--------- -------
Cash and cash equivalents.................................................. 8,378,691 6,799,085
Available-for-sale securities at fair value - amortized cost of
$59,196,072 - 1997 and $58,073,774 - 1996............................... 59,774,911 58,071,403
Loans receivable, net...................................................... 155,449,621 142,693,370
Loans held for sale........................................................ 2,873,000 1,933,000
Accrued interest receivable................................................ 1,583,068 1,453,398
Premises and equipment, net................................................ 4,499,410 4,653,473
Other assets............................................................... 2,129,722 1,922,801
--------- ---------
Total assets............................................................... $ 234,688,423 $ 217,526,530
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Interest bearing........................................................... $ 158,058,725 $ 146,442,392
Noninterest bearing........................................................ 23,736,870 23,778,515
---------- ----------
Total deposits............................................................. 181,795,595 170,220,907
Borrowed funds............................................................. 5,000,000 2,800,000
Securities sold under agreements to repurchase............................. 9,468,337 7,336,298
Other liabilities.......................................................... 1,717,866 1,625,709
--------- ---------
Total liabilities.......................................................... 197,981,798 181,982,914
----------- -----------
Stockholders' equity
Common stock, $1 par value; 2,000,000 shares authorized;
1,006,174 shares issued and outstanding................................. 1,006,174 1,006,174
Additional paid-in capital................................................. 6,036,338 6,036,338
Retained earnings.......................................................... 29,282,068 28,258,182
Net unrealized gain on available-for-sale securities....................... 382,045 242,922
----------- -----------
Total stockholders' equity................................................. 36,706,625 35,543,616
---------- ----------
Total liabilities and stockholders' equity................................. $ 234,688,423 $ 217,526,530
============= =============
</TABLE>
See accompanying notes.
3
<PAGE>
O.A.K. FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME
AND SUBSIDIARY (Unaudited)
Nine months and three months ended September 30, 1997 and 1996
- -------------------------------------------------------------------------------
<TABLE>
Nine Months Three Months
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans ........................................ $10,942,791 $10,470,709 $ 3,957,471 $ 3,536,270
Available-for-sale securities ................ 2,755,239 2,547,010 922,224 843,523
Federal funds sold ........................... 59,188 88,748 30,639 58,148
----------- ----------- ----------- -----------
Total interest income ........................... 13,757,218 13,106,467 4,910,334 4,437,941
Interest expense
Deposits ..................................... 5,201,613 5,095,164 1,819,426 1,695,533
Borrowed funds ............................... 206,812 108,007 83,843 28,984
Securities sold under agreements to repurchase 242,595 207,399 97,603 84,048
----------- ----------- ----------- -----------
Total interest expense .......................... 5,651,020 5,410,570 2,000,872 1,808,565
Net interest income ............................. 8,106,198 7,695,897 2,909,462 2,629,376
Provision for possible loan losses .............. 0 0 0 0
----------- ----------- ----------- -----------
Net interest income after provision for
possible loan losses ......................... 8,106,198 7,695,897 2,909,462 2,629,376
Noninterest income
Service charges .............................. 388,380 395,838 135,205 134,103
Net realized gain on sale of available-
for-sale securities ........................ 75,066 11,571 23,479 0
Other ........................................ 661,562 350,231 221,614 117,702
----------- ----------- ----------- -----------
Total noninterest income ........................ 1,125,008 757,640 380,298 251,805
Noninterest expenses
Salaries and employee benefits ............... 2,197,546 1,874,020 684,958 622,693
Occupancy .................................... 270,571 270,489 92,230 88,621
Furniture and fixtures ....................... 364,538 346,691 121,536 117,091
Michigan single business tax ................. 153,100 148,800 53,276 51,500
Federal Deposit Insurance Corporation premium 19,981 17,171 6,625 16,171
Other ........................................ 1,079,964 1,003,218 369,447 316,067
----------- ----------- ----------- -----------
Total noninterest expenses....................... 4,085,700 3,660,389 1,328,072 1,212,143
----------- ----------- ----------- -----------
Income before federal income taxes .............. 5,145,506 4,793,148 1,961,688 1,669,038
Federal income taxes ............................ 1,576,000 1,505,000 599,404 508,000
----------- ----------- ----------- -----------
Net income ...................................... $ 3,569,506 $ 3,288,148 $ 1,362,284 $ 1,161,038
=========== =========== =========== ===========
Net income per share ............................ $ 3.55 $ 3.27 $ 1.35 $ 1.15
=========== =========== =========== ===========
</TABLE>
See accompanying notes
4
<PAGE>
O.A.K. FINANCIAL CORPORATION CNSOLIDATED STATEMENTS OF
AND SUBSIDIARY CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
Nine Months Ended
September 30,
-------------------------------------
1997 1996
---- ----
<S> <C> <C>
Shares of common stock issued
and outstanding
Balance, beginning of period........................ 1,006,174 915,562
Common stock dividends.............................. 0 91,522
Repurchases and retirements......................... 0 (760)
----------- ----------
Balance, end of period.............................. 1,006,174 1,006,324
========= =========
Common stock
Balance, beginning of period........................ $ 1,006,174 $ 915,562
Common stock dividends.............................. 0 91,522
Repurchase and retirement of common shares.......... 0 (760)
----------- ----------
Balance, end of period.............................. 1,006,174 1,006,324
--------- ----------
Additional paid-in-capital
Balance, beginning of period........................ 6,036,338 6,084,056
Repurchase and retirement of common shares.......... 0 (39,918)
----------- ----------
Balance, end of period.............................. 6,036,338 6,044,138
--------- ---------
Retained earnings
Balance, beginning of period........................ 28,258,182 24,916,801
Net income.......................................... 3,569,506 3,288,148
Common stock dividends.............................. 0 (91,522)
Cash dividends...................................... (2,545,620) (439,303)
----------- -----------
Balance, end of period.............................. 29,282,068 27,674,124
---------- -----------
Net unrealized gain (loss) on available-for-
sale securities
Balance, beginning of period........................ 242,922 642,450
Change in net unrealized gain (loss) on available-
for-sale securities net of applicable
deferred income taxes ($71,669 in 1997,
$(311,765 in 1996)............................... 139,123 (644,015)
----------- ----------
Balance, end of period.............................. 382,045 (1,565)
----------- ----------
Total stockholders' equity.............................. $ 36,706,625 $ 34,723,021
========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
O.A.K. FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF
AND SUBSIDIARY CASH FLOWS
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
Nine Months Ended
September 30,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income ..................................... $ 3,569,506 $ 3,288,148
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............. 319,243 319,328
Proceeds from sales of loans held
for sale ............................... 12,365,127 17,475,207
Disbursements for loans held for sale ..... (13,078,505) (17,680,961)
Net (gain) on sale of available-for-
sale securities ........................ (75,066) (11,571)
Net (gain) on loans held for sale ......... (226,622) (91,246)
Net amortization of investment premiums ... 160,287 165,446
Changes in operating assets and liabilities
which provided (used) cash:
Accrued interest receivable ........ (129,670) 24,366
Other assets ....................... (206,921) (214,163)
Other liabilities .................. 92,157 (347,572)
------------ ------------
Net cash provided by operating activities ......... 2,789,536 2,926,982
------------ ------------
Cash Flows from Investing Activities:
Available-for-sale securities:
Proceeds from maturities .................... 8,036,277 7,086,314
Proceeds from sales ......................... 3,028,076 3,160,608
Purchases ................................... (12,713,959) (5,379,936)
Net increase in loans held for investment ...... (12,756,251) (5,282,792)
Purchases of premises and equipment ............ (165,180) (345,672)
------------ ------------
Net cash used in investing activities ............. (14,571,037) (761,478)
------------ ------------
Cash Flows from Financing Activities:
Net increase in demand deposits, NOW
accounts and savings deposits ............... 1,280,382 7,138,738
Net increase (decrease) deposits ............... 10,294,306 (5,025,337)
Net increase in borrowed funds ................. 2,200,000 400,000
Net increase in securities sold under agreements
to repurchase ............................... 2,132,039 3,441,757
Common stock dividends paid .................... (2,545,620) (942,391)
Repurchase and retirement of common shares ..... 0 (40,678)
------------ ------------
Net cash provided by financing activities ......... 13,361,107 4,972,089
------------ ------------
Net increase in cash and cash equivalents ......... 1,579,606 7,137,593
Cash and cash equivalents, beginning of period .... 6,799,085 4,911,104
------------ ------------
Cash and cash equivalents, end of period .......... $ 8,378,691 $ 12,048,697
============ ============
</TABLE>
See accompanying notes.
6
<PAGE>
O.A.K. FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine month period ended September
30, 1997 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Corporation's annual report for the year ended December 31, 1996.
NOTE 2 COMPUTATION OF EARNINGS PER SHARE
The net income per share amounts are based on the weighted average number
of common shares outstanding. The weighted number of common shares outstanding
were 1,006,174 for the nine month period ended September 30, 1997 and 1,006,358
for the nine month period ended September 30, 1996.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share.
SFAS No. 128 simplifies the standards for computing earnings per share (EPS) and
makes them comparable to international EPS standards. It also replaces the
presentation of primary EPS with a presentation of basic EPS. Since the
Corporation has a simple capital structure, implementation of SFAS No. 128 is
not expected to have an impact on the Corporation's reporting of EPS. SFAS No.
128 is required to be implemented for periods ending after December 15, 1997.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
O.A.K. Financial Corporation (the "Corporation") is a single bank holding
company whose sole subsidiary is Byron Center State Bank (the "Bank"). The Bank
has seven banking offices serving seven communities in Kent, Ottawa and Allegan
Counties. Neither the Corporation nor the Bank has had any acquisition activity
in their respective histories.
The following is management's discussion and analysis of the factors that
influenced O.A.K. Financial Corporation's financial performance. The discussion
should be read in conjunction with the Corporation's 1996 annual report and with
the unaudited interim financial statements and notes.
NINE MONTHS ENDING SEPTEMBER 30, 1997 AND 1996
RESULTS OF OPERATIONS
Net income equaled $1,362,284 for the nine months ending September 30,
1997, compared to $1,161,038 for the same period in 1996. This is a 17.33%
increase over the same period in 1996. Net income for the nine month period
ended September 30, 1997 was $3,569,506, compared to $3,288,148 for the same
period in 1996. This is a 8.56% increase over the same period in 1996. Return on
average equity was 13.47% for the nine months ending September 30, 1997 and
13.11% for 1996. Return on average assets was 2.13% for the nine months ending
September 30, 1997 and 2.05% for 1996.
Table 1 Summary of Earnings Performance (in thousands, except per share data)
<TABLE>
Nine Months and Three Months Ending September 30,
Nine Months Three Months
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income ..................... $ 3,570 $ 3,288 $ 1,362 $ 1,161
Per Share .................... $ 3.55 $ 3.27 $ 1.35 $ 1.15
Earnings ratios:
Return on average assets...... 2.13% 2.05% 2.34% 2.12%
Return on average equity...... 13.47% 13.11% 15.04% 13.52%
</TABLE>
NET INTEREST INCOME
The following schedule presents the average daily balances, interest income
(on a fully taxable equivalent basis) and interest expense and average rates
earned and paid for the Bank's major categories of assets, liabilities, and
stockholders' equity for the periods indicated:
8
<PAGE>
Table 2 Interest Yields and Costs
<TABLE>
Nine months and three months ended September 30
Nine Months Three Months
---------------------------------------------------- --------------------------------------------------
1997 1996 1997 1996
Average Interest Yield/ Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
Balance Cost Balance Cost Balance Cost Balance Cost
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Fed. funds sold $ 1,410 $ 59 5.61% $ 2,218 $ 89 5.35% $ 2,142 $ 31 5.67% $ 4,366 $ 58 5.28%
Securities:
Taxable 41,566 2,022 6.51% 39,470 1,853 6.28% 41,559 673 6.42% 38,487 617 6.36%
Tax-exempt 16,289 1,018 8.35% 14,876 964 8.67% 16,580 346 8.27% 14,530 315 8.60%
Loans(1)(2) 153,439 10,964 9.55% 147,454 10,493 9.51% 159,169 3,964 9.88% 149,434 3,544 9.41%
Total earning assets/
total interest income 212,704 14,063 8.84% 204,018 13,399 8.78% 219,450 5,014 9.06% 206,817 4,534 8.70%
Cash and due from banks 4,898 4,410 5,231 4,762
Unrealized Gain/Loss 169 478 381 (45)
All other assets 8,568 8,031 8,567 8,118
Allowance for loan loss (2,458) (2,453) (2,530) (2,507)
Total Assets: $223,881 $214,484 $231,099 $217,145
======== ======== ======== ========
Liabilities and
Stockholders' Equity:
Interest bearing deposits:
MMDA, Savings/ $ 63,498 $ 1,424 3.00% $ 61,035 $ 1,363 2.99% $ 63,944 $ 489 3.04% $ 63,213 $ 471 2.95%
NOW accounts
Time 89,023 3,778 5.67% 89,234 3,732 5.59% 92,070 1,330 5.73% 87,349 1,225 5.56%
Fed. Funds Purchased 8,637 260 4.03% 8,167 233 3.82% 9,456 99 4.14% 8,984 85 3.76%
Other Borrowed Money 4,202 189 6.02% 1,894 82 5.81% 5,345 83 6.14% 1,908 28 5.79%
----- --- ----- -- ----- -- ----- --
Total interest bearing
Liabilities/total 165,360 $5,651 4.57% 160,330 $5,410 4.51% 170,815 $2,001 4.65% 161,454 $1,809 4.44%
------ ------ ------ ------
interest expense
Noninterest bearing 22,007 19,049 23,161 20,080
deposits
All other liabilities 1,717 1,512 1,784 1,525
Stockholders' Equity:
Unrealized Holding
Gain/Loss 112 315 251 (29)
Common Stock, 34,685 33,278 35,088 34,115
------ ------ ------ ------
Surplus,
Retained Earnings
Total liabilities and
stockholders' equity: $223,881 $214,484 $231,099 $217,145
======== ======== ======== ========
Interest spread 8,106 4.27% 7,696 4.27% 2,909 4.41% 2,629 4.26%
===== ===== ===== =====
Net interest income-FTE $8,412 $7,989 3,013 $2,725
====== ====== ===== ======
Net Interest Margin as a
Percentage of Average
Earning Assets 5.29% 5.24% 5.45% 5.23%
===== ===== ===== =====
</TABLE>
9
<PAGE>
(1) Non-accruing loans are not significant during the periods indicated, and
for purposes of the computations above, are included in the average daily
loan balances.
(2) Interest on loans includes net origination fees for the nine months ending
September 30, 1997 of $185,519 in 1997 and $203,241 in 1996. For the three
months ending September 30, 1997 and 1996 the amounts were $55,874 and
$65,526.
Net interest income is the principal source of income for the Corporation.
Tax equivalent net interest income increased $288,000 to $3,013,000 for the
three month period ended September 30, 1997, a 10.57% increase from the same
period in 1996. For the nine month period ended September 30, 1997 tax
equivalent net interest income increased $423,000 to $8,412,000, a 5.29%
increase from the same period in 1996. The major factors for the increase in net
interest income for the three months ended September 30, 1997 were non-interest
bearing deposits averaged $3,081,000 higher in 1997 than in the same period in
1996 and the loan portfolio balance averaged $9,735,000 higher in 1997 compared
to 1996. Also for the three months ended September 30, 1997, $208,662 of
non-accrual interest was paid. The major factors for the increase in net
interest income for the nine months ended September 30, 1997 was non-interest
bearing deposits averaged $2,958,000 higher in 1997 than in the same period in
1996 and the loan portfolio balance averaged $5,985,000 higher in 1997 compared
to 1996. Earning assets averaged $12,633,000, 6.11% higher for the three month
period ending September 30, 1997 compared to 1996; this volume change resulted
in an additional $305,000 in FTE interest income. The nine month period ending
September 30, 1997 earning assets averaged $8,686,000, a 4.26% increase. This
change in volume resulted in an additional $584,000 in FTE interest income. The
asset growth for the three months ended September 30, 1997 was primarily funded
by a 5.40%, $4,721,000 increase in time deposits and a $3,437,000 increase in
other borrowed money and a $3,081,000 increase in non-interest bearing deposits.
For the three months ended September 30, 1997 the average FTE interest rate
earned on assets increased .36%, increasing FTE interest income by $175,000. The
major factor of the increase was the non-accrual interest payment of $208,662.
The average interest rate paid on deposits, fed funds purchased and other
borrowed money increased .21%, increasing interest expense by $61,000. The net
difference between interest rates earned and paid was a $114,000 increase in FTE
net interest income. For the nine months ended September 30, 1997 the average
FTE interest rate earned on assets increased .06%, increasing FTE interest
income by $80,000 and average rate paid on deposits, fed funds purchased and
other borrowed money increased .06%, increasing interest expense by $76,000. The
net difference between interest rates earned and paid was a $39,000 increase in
FTE net interest income.
For the three months ended September 30, 1997 the net interest yield
increased .22% versus the same period in 1996. The net interest yield increased
.05% for the nine month period ending September 30, 1997 versus the same period
in 1996. Management expects the major deposit growth for the remainder of 1997
will be from time deposits which are a higher cost of funds than savings and NOW
accounts, as a result the FTE net interest yield may remain the same or decrease
slightly in the final quarter.
Net interest income is the difference between interest earned on loans,
securities, and other earning assets and interest paid on deposits and borrowed
funds. In Table 2 and Table 3 the interest earned on investments and loans is
expressed on a fully taxable equivalent (FTE) basis. Tax exempt interest is
increased to an amount comparable to interest subject to federal income taxes in
order to properly evaluate the effective yields earned on earning assets. The
tax equivalent adjustment is based on a federal income tax rate of 34%. Table 3
analyzes the reasons for the increases and decreases in interest income and
expense. The change in interest due to changes in both balance and rate has been
allocated to change due to balance and change due to rate in proportion to the
relationship of the absolute dollar amounts of change in each.
10
<PAGE>
Table 3 Change in Tax Equivalent Net Interest Income (in thousands)
<TABLE>
Nine Months and Three Months Ended September 30,
1997 Compared to 1996
Amount of
Increase/(Decrease)
Due to change in
Nine Months Three Months
Total Total
Amount Amount
of of
Average Increase/ Average Increase/
Volume Rate (Decrease) Volume Rate (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Federal funds sold............ $ (34) $ 4 $ (30) $ (31) $ 4 $ (27)
Securities:
Taxable................... 102 67 169 50 6 56
Tax Exempt................ 89 (35) 54 43 (12) 31
Loans....................... 427 44 471 243 177 420
----------- ----------- --------- ----------- ---------- ----------
Total interest income....... 584 80 664 305 175 480
Interest Expense
Interest bearing deposits
Savings/Now accounts........ 56 5 61 5 13 18
Time........................ (9) 55 46 68 37 105
Fed. Funds Purchased........ 14 13 27 5 9 14
Other Borrowed Money........ 104 3 107 53 2 55
----------- ------------ ---------- ----------- ------------ ------------
Total interest expense...... 165 76 241 131 61 192
----------- ----------- ---------- ---------- ----------- -----------
Net Interest Income $ 419 $ 4 $ 423 $ 174 $ 114 $ 288
========= ========== ========= ========= ========= ==========
(FTE)
</TABLE>
11
<PAGE>
Table 4 Noninterest Income (in thousands)
<TABLE>
Nine Months and Three Months Ended September 30,
1997 Compared to 1996
Nine Months Three Months
1997 1996 1997 1996
------ ------ ------ -----
<S> <C> <C> <C> <C>
Service charges on deposit accounts.... $ 388 $ 396 $ 135 $ 134
Net gains (losses) on asset sales:
Loans.............................. 227 91 79 31
Securities......................... 75 12 23 0
Other.................................. 435 259 143 87
----------- ----------- ------------ -----------
Total noninterest income.......... $ 1,125 $ 758 $ 380 $ 252
========= =========== =========== ==========
</TABLE>
Noninterest Income
Noninterest income consists of service charges on deposit accounts, service
fees, gains on investment securities available for sale and gains from sales of
Federal Home Loan Mortgage Corporation (Freddie Mac) loans. The Corporation
retains the servicing rights of these loans. Noninterest income increased
$128,000 or 51% for the three month period ending September 30, 1997 versus
1996. The increase was due to a $48,000 increase in gains on real estate
mortgage loan sales, a $39,000 increase in brokerage and annuity commissions and
a $23,000 increase on gains of securities available-for-sale. For the nine
months ended September 30, 1997 non-interest income increased 48% or $367,000.
The increase was due to a $136,000 increase in gain on real estate mortgage loan
sales, a $171,000 increase in brokerage and annuity commissions and a $63,000
increase on gains of securities available- for-sale.
Table 5 Noninterest Expense (in thousands)
<TABLE>
Nine Months and Three Months Ended September 30,
1997 and 1996
Nine Months Three Months
1997 1996 1997 1996
------ ------ ------ -----
<S> <C> <C> <C> <C>
Salaries and employee benefits......... $ 2,198 $ 1,874 $ 685 $ 623
Occupancy and equipment................ 635 617 214 206
FDIC assessment........................ 20 17 7 16
Postage................................ 62 55 27 22
Printing and supplies.................. 84 104 32 25
Marketing.............................. 117 148 44 20
Michigan Single Business Tax........... 153 149 53 52
Other.................................. 817 696 266 248
---------- ---------- ------------ ----------
Total noninterest expense......... $ 4,086 $ 3,660 $ 1,328 $ 1,212
========== ========== ============ ==========
</TABLE>
12
<PAGE>
Noninterest Expense
Noninterest expense increased $116,000 or 9.57% for the three month period
ending September 30, 1997 versus 1996. Salaries and employee benefits increased
$62,000 to $684,958 a 9.95% increase, this was the major factor for the increase
in non-interest expense. For the nine month period ended September 30, 1997
non-interest expense increased $426,000 to $4,085,700 or a 11.62% increase,
principally due to salaries and employee benefits which increased $324,000 to
$2,197,546 a 17.26% increase. The increase in salary and employee benefit
expense was related to increased staffing, annual hourly and salary pay
adjustments and increased medical insurance expenses. The other non-interest
expenses were relatively constant for the three and nine month period ended
September 30, 1997 versus 1996.
Table 6 Nonperforming Assets (in thousands)
<TABLE>
Nine Months Ended September 30, 1997 and 1996
1997 1996
------ -----
<S> <C> <C>
Nonaccrual loans ............................................. $ 189 $ 811
90 days or more past due & still accruing .................... 492 450
------ ------
Total Nonperforming Loans ............................... 681 1,261
Other real estate ............................................ 0 0
------ ------
Total Nonperforming Assets ............................... $ 681 $ 1,261
====== ======
Nonperforming loans as a percent of total loans .............. .42% .85%
Nonperforming loans as a percent of total assets.............. .42% .85%
Nonperforming loans as a percent of the loan loss reserve..... 26.85% 50.34%
</TABLE>
13
<PAGE>
Table 7 Loan Loss Experience (in thousands)
<TABLE>
Nine Months and Three Months Ended September 30,
1997 and 1996
Nine Months Three Months
1997 1996 1997 1996
------ ------ ------ -----
<S> <C> <C> <C> <C>
Loans:
Average daily balance of loans for the period....... $153,439 $147,454 $159,169 $149,434
Amount of loans outstanding at end of period........ $160,859 $148,952 $160,859 $148,952
Allowance for loan losses:
Balance at beginning of period...................... $ 2,376 $ 2,305 $ 2,505 $ 2,498
Loans charged off:
Real estate...................................... 0 0 0 0
Commercial....................................... 0 0 0 0
Consumer......................................... 80 42 55 19
---------- ----------- ---------- ----------
Total charge-offs.............................. 80 42 55 19
Recoveries of loans previously charged off
Real estate...................................... 0 56 0 0
Commercial....................................... 218 152 83 7
Consumer......................................... 22 34 3 19
----------- ----------- ---------- ----------
Total recoveries.............................. 240 242 86 26
---------- ---------- ---------- ----------
Net loans charged off (recoveries).................. (160) (200) (31) (7)
Additions to allowance charged to operations........ 0 0 0 0
---------- ---------- ---------- ---------
Balance at end of period...................... $ 2,536 $ 2,505 $ 2,536 $ 2,505
========= ========= ========= =========
Ratios:
Net loans charged off to avg loans outstanding...... -.10% -.14% -.02% .00%
Allowance for loan losses to loans outstanding...... 1.58% 1.68% 1.58% 1.68%
</TABLE>
Table 8 Average Daily Deposits (in thousands)
The following table sets forth the average deposit balances and the weighted
average rates paid thereon:
<TABLE>
Nine Months and Three Months Ended September 30, 1997 and 1996
Nine Months Three Months
------------- -------------
1997 1996 1997 1996
------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand........... $ 22,007 $ 19,049 $ 23,161 $ 20,080
MMDA/Savings and NOW accounts........ 63,498 3.00% 61,035 2.99% 63,944 3.04% 63,213 2.95%
Time................................. 89,023 5.67% 89,234 5.59% 92,070 5.73% 87,349 5.56%
-------- ----- -------- ----- -------- ----- -------- -----
Total Deposits................... $174,528 3.99% $169,318 4.02% $179,175 4.03% $170,642 3.94%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The following table summarizes time deposits in amounts of $100,000 or more
by time remaining until maturity as of September 30, 1997:
<TABLE>
Amount
<S> <C>
Three months or less......................... $ 2,528
Over 3 months through 6 months............... 941
Over 6 months through 1 year................. 3,575
Over 1 year.................................. 2,870
-------
$ 9,914
</TABLE>
14
<PAGE>
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Total assets increased $17,162,000, 7.89% to $234,688,000 from December 31,
1996 to September 30, 1997. The significant changes were an increase in loans of
$13,696,000, a 9.47% increase, cash and cash equivalents increased $1,580,000,
23.24% which was a result of additional Federal Funds sold. Deposits increased
$11,575,000, 6.80% to $181,796,000. Non-interest bearing deposits decreased
$42,000 and interest bearing deposits increased $11,616,000. Securities sold
under agreements to repurchase increased $2,132,000 and borrowed funds increased
$2,200,000.
LIQUIDITY
Management evaluates the Corporation's liquidity position on a regular
basis to assure that funds are available to meet borrower and depositor needs,
fund operations, pay cash dividends and to invest excess funds to maximize
income. The Corporation's sources of liquidity include cash and cash
equivalents, investment securities available for sale, principal payments
received on loans, Federal Funds Purchased, FHLB borrowings, deposits and the
issuance of common stock.
Cash and cash equivalents equaled 3.57% of total assets as of September 30,
1997 versus 3.13% as of December 31, 1996. For the nine month period ending
September 30, 1997, $2,790,000 in net cash was provided from operations,
investing activities used $14,571,000, and financing activities provided
$13,361,000. The accumulated effect of the Corporation's operating, investing
and financing activities was a $1,580,000 increase in cash and cash equivalents
during the nine month period ending September 30, 1997.
The Corporation's liquidity is considered adequate by management.
CAPITAL
The capital of the Corporation consists of common stock, additional paid in
capital, retained earnings and net unrealized gain (loss) on available for sale
securities. For the nine month period ending September 30, 1997 capital
increased $1,163,000, which includes a $139,000 unrealized gain on investment
securities available for sale.
There are minimum risk based capital regulatory guidelines placed on the
Corporation's capital by The Federal Reserve Board. The following table sets
forth the percentages required under the Risk Based Capital guidelines and the
Corporation's ratios as of September 30, 1997:
Table 9 Capital Resources (in thousands)
<TABLE>
As of September 30, 1997 and 1996
Regulatory Requirements
Adequately Well
Capitalized Capitalized 1997 1996
----------- ----------- ---- ----
<S> <C> <C> <C> <C>
Tier 1 capital........................ $35,616 $33,977
Tier 2 capital......................... 2,175 2,006
Total qualifying capital............ $37,791 $35,983
Ratio of equity to total assets
Tier 1 leverage ratio.................. 4% 5% 15.46% 15.70%
Tier 1 risk-based capital.............. 4% 6% 20.51% 21.24%
Total risk-based capital............... 8% 10% 21.77% 22.49%
</TABLE>
15
<PAGE>
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits -
27 Financial Data Schedule
(b) Reports on Form 8K - None.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on For 10-Q for the quarter
ended September 30, 1997 to be signed on its behalf by the undersigned hereunto
duly authorized.
O.A.K. FINANCIAL CORPORATION
/s/ John A. Van Singel
John A. Van Singel
(Chief Executive Officer)
/s/ Martin R. Braun
Martin R. Braun
(Principal Accounting Officer)
DATE: November 12, 1997
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information from SEC Form 10-Q
and is qualified in its entirety by reference to such financial information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,378,691
<INT-BEARING-DEPOSITS> 158,058,725
<FED-FUNDS-SOLD> 1,950,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 59,774,911
<INVESTMENTS-CARRYING> 59,196,072
<INVESTMENTS-MARKET> 59,774,911
<LOANS> 160,858,508
<ALLOWANCE> 2,535,887
<TOTAL-ASSETS> 234,688,423
<DEPOSITS> 181,795,595
<SHORT-TERM> 10,468,337
<LIABILITIES-OTHER> 1,717,866
<LONG-TERM> 4,000,000
0
0
<COMMON> 1,006,174
<OTHER-SE> 35,700,451
<TOTAL-LIABILITIES-AND-EQUITY> 234,688,423
<INTEREST-LOAN> 10,942,791
<INTEREST-INVEST> 2,755,239
<INTEREST-OTHER> 59,188
<INTEREST-TOTAL> 13,757,218
<INTEREST-DEPOSIT> 5,201,613
<INTEREST-EXPENSE> 5,651,020
<INTEREST-INCOME-NET> 8,106,198
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 75,066
<EXPENSE-OTHER> 4,085,700
<INCOME-PRETAX> 5,145,506
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,569,506
<EPS-PRIMARY> 3.55
<EPS-DILUTED> 3.55
<YIELD-ACTUAL> 4.27
<LOANS-NON> 189,000
<LOANS-PAST> 492,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,376,000
<CHARGE-OFFS> 80,000
<RECOVERIES> 240,000
<ALLOWANCE-CLOSE> 2,536,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
