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 March 31, 2000
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: 2,041,775 shares of the Company's Common
Stock ($1 par value) were outstanding as of May 10, 2000.
<PAGE>
INDEX
Page
Number(s)
Part I. Financial Information (unaudited):
Item 1.
Consolidated Financial Statements 3-7
Notes to Consolidated Financial Statements 8
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-17
Item 3
Quantitative and Qualitative Disclosures About Market Risk 17-18
Part II. Other Information
Item 6.
Exhibits and Reports on Form 8-K 19
Signatures 20
-2-
<PAGE>
O.A.K. FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS
AND SUBSIDIARY
- --------------------------------------------------------------------------------
<TABLE>
ASSETS
March 31, December 31,
2000 1999
(Unaudited)
------------- ------------
<S> <C> <C>
Cash and due from banks................................................. $ 9,440,645 $ 10,054,389
Available-for-sale securities - amortized cost of
$63,882,909 - 2000 ($62,592,629 - 1999).............................. 62,409,845 61,649,881
Loans receivable, net................................................... 303,745,688 284,279,189
Loans held for sale..................................................... 529,974 632,038
Accrued interest receivable............................................. 2,820,089 2,716,837
Premises and equipment, net............................................. 10,909,175 10,618,570
Restricted investments.................................................. 2,710,000 2,000,000
Other assets............................................................ 4,347,966 4,121,705
------------- -------------
Total assets $ 396,913,382 $ 376,072,609
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Interest bearing........................................................ $ 234,890,850 $ 215,159,729
Noninterest bearing..................................................... 37,731,437 39,006,319
------------- -------------
Total deposits 272,622,287 254,166,048
Borrowed funds.......................................................... 52,079,801 54,405,599
Securities sold under agreements to repurchase.......................... 27,549,836 24,424,351
Other liabilities....................................................... 2,696,363 1,819,097
------------- -------------
Total liabilities 354,948,287 334,815,095
------------- -------------
Stockholders' equity
Common stock, $1 par value; 4,000,000 shares authorized
2,041,775 shares issued and outstanding............................... 2,041,775 2,041,775
Additional paid-in capital.............................................. 6,265,446 6,259,681
Retained earnings....................................................... 35,072,443 34,078,585
Accumulated other comprehensive loss.................................... (972,219) (622,527)
Unallocated common stock held by ESOP................................... (442,350) (500,000)
------------- -------------
Total stockholders' equity 41,965,095 41,257,514
------------- -------------
Total liabilities and stockholders' equity $ 396,913,382 $ 376,072,609
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
O.A.K. FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME
AND SUBSIDIARY (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Three Months ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Interest Income
Loans.................................................... $ 6,559,037 $ 4,915,221
Available-for-sale securities............................ 918,388 772,414
Restricted investments................................... 44,349 22,697
Federal funds sold....................................... 37 0
------------ -------------
Total interest income.................................... 7,521,811 5,710,332
------------ -------------
Interest expense
Deposits................................................. 2,376,005 1,921,897
Borrowed funds........................................... 837,960 301,438
Securities sold under agreements to repurchase........... 278,282 129,278
------------ -------------
Total interest expense...................................... 3,492,247 2,352,613
------------ -------------
Net interest income......................................... 4,029,564 3,357,719
Provision for loan losses................................... 330,000 150,000
------------ -------------
Net interest income after provision for
loan losses............................................. 3,699,564 3,207,719
------------ -------------
Noninterest income
Service charges.......................................... 263,112 157,092
Net gain on sale of available-for-sale loans............. 56,788 320,467
Loan servicing fees...................................... 35,076 41,298
Net gain on sale of available-for-sale securities........ 2,000 0
Insurance premiums....................................... 260,945 295,381
Brokerage fees........................................... 85,818 48,846
Other.................................................... 49,371 42,125
------------ -------------
Total noninterest income.................................... 753,110 905,209
------------ -------------
Noninterest expenses
Salaries and employee benefits......................... 1,761,687 1,361,161
Occupancy.............................................. 186,735 134,307
Furniture and fixtures................................. 290,052 201,042
Michigan single business tax........................... 66,951 35,080
Printing and supplies.................................. 90,924 71,970
Other.................................................. 737,967 556,946
------------ -------------
Total noninterest expense................................... 3,134,316 2,360,506
------------ -------------
Income before federal income taxes.......................... 1,318,358 1,752,422
Federal income taxes........................................ 324,500 496,400
------------ -------------
Net income.................................................. $ 993,858 $ 1,256,022
============ =============
Net income per basic share of common stock.................. $ 0.49 $ 0.63
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
O.A.K. FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF
AND SUBSIDIARY COMPREHENSIVE INCOME
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Three Months ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Other comprehensive (loss) income
Unrealized losses on available-for-sale securities
arising during the year........................ $ (532,316) $ (353,390)
Reclassification adjustment for realized
gains included in net income..................... 2,000 0
----------- -----------
Comprehensive loss before income tax benefit......... (530,316) (353,390)
Income tax benefit related to comprehensive
loss............................................ 180,624 117,223
----------- -----------
Other comprehensive loss......................... (349,692) (236,167)
Net income........................................... 993,858 1,256,022
----------- -----------
Comprehensive income................................. $ 644,166 $ 1,019,855
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
O.A.K. FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF
AND SUBSIDIARY CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Three Months ended March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Shares of common stock issued and outstanding
Balance, beginning of period........................ 2,041,775 2,000,000
Common stock issued................................. - 13,000
Issuance of common stock for business combination... - 28,775
------------ ------------
Balance, end of period.............................. 2,041,775 2,041,775
============ ============
Common Stock
Balance, beginning of period........................ $ 2,041,775 $ 1,014,388
Common stock issued................................. - 13,000
Issuance of common stock for business combination... - 28,775
------------ ------------
Balance, end of period.............................. 2,041,775 2,041,775
------------ ------------
Additional paid-in capital
Balance, beginning of period........................ 6,259,681 5,622,680
Allocation of ESOP shares........................... 5,765 -
Common stock issued................................. - 637,001
------------ ------------
Balance, end of period.............................. 6,265,446 6,259,681
------------ ------------
Retained earnings
Balance, beginning of period........................ 34,078,585 31,592,372
Accumulated deficit in business combination......... - (270,207)
Net income.......................................... 993,858 1,256,022
------------ ------------
Balance, end of period.............................. 35,072,443 32,578,187
------------ ------------
Accumulated other comprehensive loss
Balance, beginning of period........................ (622,527) 836,250
Other comprehensive loss............................ (349,692) (236,167)
------------ ------------
Balance, end of period.............................. (972,219) 600,083
------------ ------------
Unallocated common stock held by ESOP
Balance, beginning of period........................ (500,000) -
Unearned ESOP compensation.......................... - (500,000)
Allocation of ESOP shares........................... 57,650 -
------------ ------------
Balance, end of period.............................. (442,350) (500,000)
------------ ------------
Total stockholders' equity............................... $ 41,965,095 $ 40,979,726
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
<PAGE>
O.A.K. FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF
AND SUBSIDIARY CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Three Months ended March 31,
----------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 993,858 $ 1,256,022
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization..................... 238,994 160,933
Provision for loan losses......................... 330,000 150,000
Proceeds from sales of loans held
for sale.................................... 4,266,808 21,652,278
Disbursements for loans held for sale............. (4,107,956) (22,180,604)
Net gain on sales of available-for-
sale securities (2,000) 0
Net gain on sales of loans held for sale.......... (56,788) (320,467)
Net amortization of investment premiums........... 28,581 42,203
Changes in operating assets and liabilities
which (used) provided cash:
Accrued interest receivable.................. (103,252) (155,093)
Other assets................................. (43,637) (133,103)
Other liabilities............................ 940,681 264,254
------------ -------------
Net cash provided by operating activities.................... 2,485,289 736,423
------------ -------------
Cash flows from investing activities:
Available-for-sale securities:
Proceeds from maturities.......................... 1,885,499 2,660,987
Purchases......................................... (3,204,360) (1,387,552)
Purchases of restricted investments..................... (710,000) 0
Net increase in loans held for investment............... (19,796,499) (7,011,298)
Purchases of premises and equipment..................... (529,599) (1,004,958)
Net cash used in investing activities........................ (22,354,959) (6,742,821)
------------ -------------
Cash flows from financing activities:
Net decrease in demand deposits, NOW
accounts and savings deposits..................... (2,128,518) (3,840,877)
Net increase in time deposits........................... 20,584,757 17,855,399
Net decrease in borrowed funds.......................... (2,325,798) (10,757,228)
Net increase in securities sold under agreements
to repurchase..................................... 3,125,485 1,395,739
Proceeds from sale of common stock...................... - 150,000
------------ -------------
Net cash provided by financing activities.................... 19,255,926 4,803,033
------------ -------------
Net decrease in cash and cash equivalents.................... (613,744) (1,203,365)
Cash and cash equivalents, beginning of period............... 10,054,389 8,939,918
------------ -------------
Cash and cash equivalents, end of period..................... $ 9,440,645 $ 7,736,553
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-7-
<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 three month period ended March 31,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Corporation's annual report on Form 10-K for the year ended December 31, 1999.
Effective February 1, 1999, the Corporation issued 28,775 shares of its
common stock in exchange for all of the outstanding common stock of Dornbush
Insurance Company, Inc. (FDIC) based on a conversion ratio of .719475 shares of
the Corporation's common stock, for a total value of $1,438,750. The merger was
accounted for as a pooling of interests. DIC's results were immaterial prior to
the merger and, accordingly, the Corporation's financial statements were not
restated for periods prior to the merger to reflect the financial position and
operations of DIC.
NOTE 2 STOCKHOLDERS' EQUITY
The net income per share amounts are based on the weighted average number
of common shares outstanding. The weighted average numbers of common shares
outstanding were 2,035,339 for the three month period ended March 31, 2000 and
2,009,056 shares for the same period in 1999.
In connection with the Corporation's 401(k) savings and profit-sharing
plan, one-third of the Corporation's payment into the profit-sharing plan is to
be paid in O.A.K. Corporation common stock pursuant to an employee stock
ownership plan (ESOP) established on January 29, 1999. On that date, the
Corporation loaned $500,000 to the ESOP to enable the ESOP to purchase 10,000
newly issued shares of the Corporation's common stock at a price of $50 per
share. The loan obligation of the ESOP is considered unearned employee benefit
expense and, as such, is presented in the accompanying consolidated financial
statements as a reduction of stockholders' equity. During the first quarter of
2000, 1,153 common shares with an average fair value of $55 per share were
released and allocated to plan participants and, accordingly, unearned ESOP
compensation was reduced by the $57,650 cost of the shares to the ESOP.
Additional paid-in capital was credited for the fair value of the shares
released in excess of their cost to the ESOP.
-8-
<PAGE>
ITEM 2. 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 eleven banking offices serving eleven communities in Kent, Ottawa and
Allegan Counties. Following the close of business on January 31, 1999 the
Corporation completed the merger of Dornbush Insurance Company Inc. (DIC) in a
stock for stock transaction. Total assets of DIC were $359,873. The transaction
was accounted for as a pooling-of-interests. Accordingly the assets, liabilities
and stockholders equity as reported by DIC prior to consummation, were combined
with the assets, liabilities and stockholder's equity of the Corporation. Under
the terms of the merger agreement, holders of DIC common stock received .719475
shares of O.A.K. Financial Corporation common stock, par value $1.00 per share,
for each share of DIC common stock resulting in the issuance of 28,775 shares of
the Corporation's common stock.
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 1999 annual report on Form
10-K and the audited financial statements and notes contained therein.
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
RESULTS OF OPERATIONS
Net income equaled $993,858 for the three months ended March 31, 2000,
compared to $1,256,022 for the same period in 1999. This is a 21% decrease over
the same period in 1999. Return on average equity was 9.61% for the three months
ended March 31, 2000 and 12.71% for 1999. Return on average assets was 1.04% for
the three months ended March 31, 2000 and 1.68% for the same period in 1999. The
following discussion explains reasons for changes in growth and financial
performance for the March 31, 2000 quarter. Costs reflected in that discussion
are expected to stabilize while earning assets are expected to grow.
Accordingly, management expects improved quarterly comparative financial
performance during the remainder of the year.
Table 1 Earnings Performance (in thousands, except per share data)
<TABLE>
Three Months Ended March 31,
-----------------------------------
2000 1999
---- ----
<S> <C> <C>
Net income........................... $ 994 $ 1,256
Per share.......................... $ 0.49 $ 0.63
Earnings ratios:
Return on average assets........... 1.04% 1.68%
Return on average equity........... 9.61% 12.71%
</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
shareholders' equity for the periods indicated:
-9-
<PAGE>
Table 2 Interest Yields and Costs
<TABLE>
Three Months ended March 31,
2000 1999
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
<S> <C> <C> <C> <C> <C> <C>
Assets:
Fed. funds sold $ 9 $ 0 5.53% $ 14 $ 0 4.75%
Securities:
Taxable 41,447 664 6.44% 34,351 520 6.14%
Tax-exempt 23,332 407 7.01% 20,139 384 7.74%
Loans(1)(2) 298,870 6,569 8.84% 229,128 4,926 8.72%
---------- --------- ---------- ---------
Total earning assets/total
interest income 363,658 7,640 8.45% 283,632 5,830 8.34%
--------- ---------
Cash and due from banks 8,852 7,814
Unrealized Gain (1,408) 1,173
All other assets 17,617 12,991
Allowance for loan losses (3,410) (2,883)
Total assets: $385,309 $302,727
========== ==========
Liabilities and
Stockholders' Equity:
Interest bearing deposits:
MMDA, Savings/ NOW accounts $ 88,780 595 2.70% $ 80,046 500 2.54%
Time 133,989 1,781 5.34% 109,540 1,422 5.26%
Fed. Funds Purchased 44,975 578 5.17% 23,902 239 4.06%
Other Borrowed Money 35,700 538 6.06% 13,056 192 5.96%
---------- --------- ---------- ---------
Total interest bearing
liabilities/total
interest expense 303,444 3,492 4.63% 226,544 2,353 4.21%
--------- ---------
Noninterest bearing deposits 38,943 33,689
All other liabilities 2,267 2,546
Stockholders' Equity:
Unrealized Holding (Losses) Gains (929) 773
Common Stock, Surplus,
Retained Earnings 41,584 39,175
---------- ----------
Total liabilities and
stockholders' equity: $385,309 $302,727
========== ==========
Interest spread 4,032 3.82% 3,358 4.13%
Net interest income-FTE $4,148 $3,477
========= =========
Net Interest Margin as a Percentage of Average Earning Assets
4.59% 4.97%
===== =====
</TABLE>
(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 three months ended
March 31, 2000 of $43,293 and $48,499 in 1999.
-10-
<PAGE>
Net interest income is the principal source of income for the Corporation.
Tax equivalent net interest income increased $671,000 to $4,148,000 for the
three month period ended March 31, 2000, a 19% increase from the same period in
1999. The major factors for the increase in net interest income for the three
months ended March 31, 2000 were that non-interest bearing deposits averaged
$5,254,000 higher in 2000 than in the same period in 1999, a 16% increase, and
the loan portfolio balance averaged $69,742,000 higher in 2000 compared to 1999,
a 30% increase. Earning assets averaged $80,026,000, 28% higher for the three
month period ended March 31,2000 compared to 1999; this volume change resulted
in an additional $1,703,000 in FTE interest income. The asset growth for the
three months ended March 31, 2000 was primarily funded by a 22% increase,
$24,449,000 in time deposits, and an 88% increase, or $21,073,000 in Fed Funds
Purchased, and a 173% increase, $22,644,000 in other borrowed money. For the
three months ended March 31, 2000 the average fully taxable equivalent (FTE)
interest rate earned on assets increased .11%, increasing FTE interest income by
$107,000. The major factor for the increase was higher yields on the loan
portfolio. The average interest rate paid on deposits, fed funds purchased and
other borrowed money increased .42%, increasing interest expense by $143,000.
The net difference between interest rates earned and paid was a $671,000
increase in FTE net interest income.
For the three months ended March 31, 2000 the net interest yield decreased
.38% versus the same period in 1999. Management expects this trend to continue,
since the majority of the deposit growth for the remainder of 2000 is expected
to be from time deposits which are a higher cost of funds than savings and NOW
accounts. As a result, the FTE net interest yield is expected to decrease
somewhat in the next nine months.
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 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.
-11-
<PAGE>
Table 3 Change in Tax Equivalent Net Interest Income (in thousands)
<TABLE>
Three Months Ended March 31,
2000 Compared to 1999
Amount of
Increase/(Decrease)
Due to Change in
------------------------------------------------------
Total Amount
of
Average Increase/
Volume Rate (Decrease)
------- --------- ----------
Interest Income
<S> <C> <C> <C>
Federal funds sold...................... $ 0 $ 0 $ 0
Securities:
Taxable............................. 114 30 144
Tax Exempt.......................... 56 (33) 23
Loans................................. 1,533 110 1,643
-------- --------- --------
Total interest income................. 1,703 107 1,810
Interest Expense
Interest bearing deposits
Savings/Now accounts.................. 59 36 95
Time.................................. 325 34 359
Fed. Funds Purchased.................. 271 68 339
Other Borrowed Money.................. 341 5 346
-------- --------- --------
Total interest expense................ 996 143 1,139
-------- --------- --------
Net Interest Income (FTE) $ 707 $ ( 36) $ 671
======== ========= ========
</TABLE>
-12-
<PAGE>
Table 4 Noninterest Income (in thousands)
<TABLE>
Three Months ended March 31,
2000 1999
----- -----
<S> <C> <C>
Service charges on deposit accounts.................... $ 263 $ 157
Net gains on asset sales:
Loans.............................................. 57 320
Securities......................................... 2 0
Loan servicing fees.................................... 35 41
Insurance premium revenue.............................. 261 295
Brokerage revenue...................................... 86 49
Other.................................................. 49 43
---------- ----------
Total noninterest income.......................... $ 753 $ 905
========== ==========
</TABLE>
Noninterest Income
Noninterest income consists of service charges on deposit accounts, service
fees, gains on investment securities available for sale, gains from sales of
loans to Federal Home Loan Mortgage Corporation (Freddie Mac) and commissions
from insurance sales and brokerage revenue. The Corporation retains the
servicing rights on sold (Freddie Mac) loans. Noninterest income decreased
$152,000 or 17% for the three month period ended March 31, 2000 versus 1999. The
decrease was due to a $263,000 decrease in net gains on loan sales, resulting
from a less favorable interest rate environment which slowed new mortgage loan
business and caused a major slowdown in the refinance business. In addition,
service charges on deposit accounts increased $106,000, a 67% increase for the
three month period ended March 31, 2000 versus 1999.
Table 5 Noninterest Expense (in thousands)
<TABLE>
Three Months Ended March 31,
2000 1999
------ -----
<S> <C> <C>
Salaries and employee benefits........................ $ 1,762 $ 1,361
Occupancy and equipment............................... 477 335
FDIC assessment....................................... 13 8
Postage............................................... 29 41
Printing and supplies.............................. 91 72
Marketing............................................. 95 91
Michigan Single Business Tax.......................... 67 35
Other................................................. 600 418
---------- -----------
Total noninterest expense........................ $ 3,134 $ 2,361
========== ===========
</TABLE>
-13-
<PAGE>
Noninterest Expense
Noninterest expense increased $773,000 or 33% for the three month period
ended March 31, 2000 versus 1999. The major factors for the increase were a
$401,000 increase, or 29%, in salary and employee benefits, a $142,000 increase,
42%, in occupancy and equipment, a $32,000 increase, 91%, in Michigan Single
Business tax expense, a $19,000 increase, 26%, in printing and supplies expense.
The majority of these increases are all related to the $89,000,000 asset growth,
29% from March 31, 1999 to March 31, 2000 and the Kentwood branch opening in
February 1999. Staffing the new branch and additional personnel at the corporate
office to support the growth were the two major factors for the salary and
employee benefit expense increase. The increase in occupancy expense is related
to the building of permanent facilities in Allendale, MI and Hamilton, MI, which
were completed in the 3rd and 4th quarter 1999. These two branches were
previously located in leased space.
Table 6 Nonperforming Assets (in thousands)
<TABLE>
Three Months Ended March 31,
2000 1999
------ -----
<S> <C> <C>
Nonaccrual loans............................................. $ 337 $ 350
90 days or more past due & still accruing.................... 25 89
-------- --------
Total Nonperforming Loans............................... 362 439
Other real estate............................................ 0 116
-------- --------
Total Nonperforming Assets............................... $ 362 $ 555
======== ========
Nonperforming loans as a percent of total loans.............. .12% .19%
Nonperforming assets as a percent of total loans............. .12% .24%
Nonperforming loans as a percent of the loan loss reserve.... 10.02% 15.83%
</TABLE>
Nonperforming assets are comprised of loans for which the accrual of
interest has been discontinued, accruing loans 90 days or more past due in
payments, collateral for loans which have been in-substance foreclosed, and
other real estate which has been acquired primarily through foreclosure and is
awaiting disposition. Loans, including loans considered impaired under SFAS No.
118, are generally placed on a nonaccrual basis when principal or interest is
past due 90 days or more and when, in the opinion of management, full collection
of principal and interest is unlikely. Management has been aggressively working
on the nonperforming loans, for the three month period ended March 31, 2000
versus 1999, nonperforming assets as a percent of total loans decreased .12%.
-14-
<PAGE>
Table 7 Loan Loss Experience (in thousands)
<TABLE>
Three Months Ended March 31,
2000 1999
------ -----
<S> <C> <C>
Loans:
Average daily balance of portfolio loans for the period....... $298,289 $224,024
Amount of portfolio loans outstanding at end of period........ 307,358 228,824
Allowance for loan losses:
Balance at beginning of period................................ 3,551 2,879
Loans charged off:
Commercial................................................. 160 0
Consumer................................................... 213 313
----------- -----------
Total charge-offs........................................ 373 313
Recoveries of loans previously charged off:
Commercial................................................. 25 8
Consumer................................................... 79 50
----------- -----------
Total recoveries........................................ 104 58
----------- -----------
Net loans charged off......................................... 269 255
Additions to allowance charged to operations 330 150
----------- -----------
Balance at end of period................................ $ 3,612 $ 2,774
=========== ===========
Ratios:
Net loans charged off to avg loans outstanding................ .09% .11%
Allowance for loan losses to loans outstanding................ 1.18% 1.21%
</TABLE>
Management has monitored and made changes to underwriting requirements in
the indirect consumer loan portfolio. The percentage of net loans charged off to
average loans outstanding reflects the positive result of the changes. The net
loans charged off percentage is at peer averages. Management believes that the
allowance for loan losses to loans outstanding percentage is adequate.
Table 8 Average Daily Deposits (in thousands)
The following table sets forth the average deposit balances and the weighted
average rates paid thereon:
<TABLE>
Three Months Ended March 31,
2000 1999
------------------------ -----------------------
Average Average
Balance Rate Balance Rate
------- ---- ------- ----
<S> <C> <C> <C> <C>
Noninterest bearing demand.................. $ 38,943 $ 33,689
MMDA/Savings and NOW accounts............... 88,780 2.70% 80,046 2.54%
Time........................................ 133,989 5.34% 109,540 5.26%
-------- ----- --------- -----
Total Deposits.......................... $261,712 3.65% $223,275 3.49%
======== ===== ======== =====
</TABLE>
-15-
<PAGE>
The following table summarizes time deposits in amounts of $100,000 or more
by time remaining until maturity as of March 31, 2000:
<TABLE>
Amount
------
<S> <C>
Three months or less..................................... $ 26,406
Over 3 months through 6 months........................... 8,522
Over 6 months through 1 year............................ 10,415
Over 1 year.............................................. 6,107
---------
$ 51,450
=========
</TABLE>
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
Total assets increased $20,841,000, or 5.54% to $396,913,000 from December
31, 1999 to March 31, 2000. The most significant change was an increase in loans
of $19,466,000, a 6.85% increase. Deposits increased $18,456,000, or 7.26% to
$272,622,000; noninterest bearing deposits decreased $1,275,000 and interest
bearing deposits increased $19,731,000. The Corporation expects loans and
deposits to increase through-out the remainder of the year. Borrowed funds
decreased $2,326,000 from December 31, 1999 to March 31, 2000; management
expects to be able to fund the loan growth with local core deposits. If
additional funding is needed the lowest cost source will be utilized.
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 2.38% of total
assets as of March 31, 2000 versus 2.67% as of December 31, 1999. For the three
month period ended March 31, 2000, $2,458,000 in net cash was provided from
operations, investing activities used $22,355,000, and financing activities
provided $19,256,000. The accumulated effect of the Corporation's operating,
investing and financing activities was a $614,000 decrease in cash and cash
equivalents during the three month period ended March 31, 2000.
The Corporation's liquidity is considered adequate by management.
CAPITAL
The capital of the Corporation consists of common stock, additional paid-in
capital and retained earnings reduced by accumulated other comprehensive loss.
For the three month period ended March 31, 2000 capital increased $708,000,
which includes a $350,000 increase in accumulated other comprehensive loss.
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 March 31, 2000:
-16-
<PAGE>
Table 9 Capital Resources (in thousands)
<TABLE>
Regulatory Requirements
March 31,
-----------------------------
Adequately Well
Capitalized Capitalized 2000 1999
----------- ----------- ---- ----
<S> <C> <C> <C> <C>
Tier 1 capital...................... $42,255 $38,657
Tier 2 capital...................... 3,612 2,774
------- -------
Total qualifying capital......... $45,867 $41,431
======= =======
Ratio of equity to total assets
Tier 1 leverage ratio............... 4% 5% 10.98% 12.85%
Tier 1 risk-based capital........... 4% 6% 12.86% 15.22%
Total risk-based capital............ 8% 10% 13.96% 16.32%
</TABLE>
Impact of Inflation
The majority of assets and liabilities of financial institutions are
monetary in nature. Generally, changes in interest rates have a more significant
impact on earnings of the Bank than inflation. Although influenced by inflation,
changes in rates do not necessarily move in either the same magnitude or
direction as changes in the price of goods and services. Inflation does impact
the growth of total assets, creating a need to increase equity capital at a
higher rate to maintain an adequate equity to assets ratio, which in turn
reduces the amount of earnings available for cash dividends.
Forward Looking Statements
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Corporation intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Corporation, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Corporation's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Corporation and the subsidiaries include,
but are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Corporation's market area and accounting principles, policies and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Further information concerning the Corporation and its business,
including additional factors that could materially affect the Corporation's
financial results, is included in the Corporation's filings with the Securities
and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A derivative financial instrument includes futures, forwards, interest rate
swaps, option contracts, and other financial instruments with similar
characteristics. The Corporation currently does not enter into futures,
forwards, swaps, or options. However, the Corporation is party to financial
instruments with off-balance sheet risk in the normal course of business to meet
the financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. These instruments
involve to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated balance sheets. Commitments to
extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.
-17-
<PAGE>
Commitments generally have fixed expiration dates and may require collateral
from the borrower if deemed necessary by the Corporation. Standby letters of
credit are conditional commitments issued by the Corporation to guarantee the
performance of a customer to a third party up to a stipulated amount and with
specified terms and conditions.
Commitments to extend credit and standby letters of credit are not recorded
as an asset or liability by the Corporation until the instrument is exercised.
The Corporation's exposure to market risk is reviewed on a regular basis by
the Asset/Liability Committee. Interest rate risk is the potential of economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss of current fair
market values. The objective is to measure the effect on net interest income and
to adjust the balance sheet to minimize the inherent risk while at the same time
maximize income. Management realizes certain risks are inherent and that the
goal is to identify and minimize the risks. Tools used by management include the
standard GAP report and a simulation model. The Corporation has no market risk
sensitive instruments held for trading purposes. Management believes the
Corporation's market risk is reasonable at this time.
-18-
<PAGE>
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on 8-K
(a) Exhibits -
27 Financial Data Schedule
(b) Reports on Form 8K - None.
-19-
<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 March 31, 2000 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 Financial and Accounting Officer)
DATE: 5/12/00
-20-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,440,645
<INT-BEARING-DEPOSITS> 234,890,850
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 62,409,845
<INVESTMENTS-CARRYING> 63,882,909
<INVESTMENTS-MARKET> 62,409,845
<LOANS> 304,275,662
<ALLOWANCE> 3,612,241
<TOTAL-ASSETS> 396,913,382
<DEPOSITS> 272,622,287
<SHORT-TERM> 39,633,917
<LIABILITIES-OTHER> 2,696,363
<LONG-TERM> 39,800,000
0
0
<COMMON> 2,041,775
<OTHER-SE> 39,923,320
<TOTAL-LIABILITIES-AND-EQUITY> 396,913,382
<INTEREST-LOAN> 6,559,037
<INTEREST-INVEST> 962,737
<INTEREST-OTHER> 37
<INTEREST-TOTAL> 7,521,811
<INTEREST-DEPOSIT> 2,376,005
<INTEREST-EXPENSE> 3,492,247
<INTEREST-INCOME-NET> 4,029,564
<LOAN-LOSSES> 330,000
<SECURITIES-GAINS> 2,000
<EXPENSE-OTHER> 3,134,316
<INCOME-PRETAX> 1,318,358
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 993,858
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.49
<YIELD-ACTUAL> 3.82
<LOANS-NON> 337,000
<LOANS-PAST> 25,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,551,000
<CHARGE-OFFS> 373,000
<RECOVERIES> 104,000
<ALLOWANCE-CLOSE> 3,612,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
