<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
-------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-26876
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OAK HILL FINANCIAL, INC.
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(Exact name of registrant as specified in its charter)
Ohio 31-1010517
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14621 State Route 93
Jackson, Ohio 45640
- ------------------------------- ----------------------
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (614) 286-3283
Check whether the issuer (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
----- -----
As of May 9, 1997, the latest practicable date, 2,873,500 shares of the
registrant's common stock, $.50 stated value, were issued and outstanding.
Transitional Small Business Disclosure Format:
Yes No X
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Page 1 of 15 pages
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Oak Hill Financial, Inc.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 14
SIGNATURES 15
</TABLE>
<PAGE> 3
OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
<S> <C> <C>
Cash and due from banks $ 8,085 $ 7,378
Federal funds sold 3,920 4,135
Investment securities designated as
available for sale - at market 46,025 37,501
Loans receivable - net 197,070 190,396
Loans held for sale - at lower of cost or market 70 140
Office premises and equipment - net 3,341 3,403
Federal Home Loan Bank stock - at cost 1,612 1,585
Accrued interest receivable 1,552 1,435
Prepaid expenses and other assets 325 156
Deferred federal income tax asset 764 772
-------- --------
Total assets $262,764 $246,901
======== ========
</TABLE>
3
<PAGE> 4
OAK HILL FINANCIAL, INC.
STATEMENT OF LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
<S> <C> <C>
Deposits $227,235 $209,593
Securities sold under agreements to repurchase 35 130
Advances from the Federal Home Loan Bank 10,850 13,604
Accrued interest payable and other liabilities 753 545
Federal income taxes payable 327 66
-------- --------
Total liabilities 239,200 223,938
Stockholders' equity
Common stock - $.50 stated value; authorized 5,000,000 shares, 2,884,700
shares issued 1,442 1,442
Additional paid-in capital 4,227 4,227
Retained earnings 18,018 17,290
Treasury stock (11,200 shares at cost) (28) (28)
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects (95) 32
-------- --------
Total stockholders' equity 23,564 22,963
-------- --------
Total liabilities and stockholders' equity $262,764 $246,901
======== ========
</TABLE>
4
<PAGE> 5
OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended March 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Interest income
Loans $4,456 $3,862
Investment securities 647 517
Interest-bearing deposits and other 111 171
------ ------
Total interest income 5,214 4,550
Interest expense
Deposits 2,287 2,005
Borrowings 215 170
------ ------
Total interest expense 2,502 2,175
------ ------
Net interest income 2,712 2,375
Provision for losses on loans 81 138
------ ------
Net interest income after
provision for losses on loans 2,631 2,237
Other income
Gain on sale of loans 14 24
Gain on sale of securities designated as available for sale - 27
Service fees, charges and other operating 298 259
------ ------
Total other income 312 310
General, administrative and other expense
Employee compensation and benefits 852 783
Occupancy and equipment 275 221
Federal deposit insurance premiums 13 1
Franchise taxes 91 83
Other operating 366 339
------ ------
Total general, administrative
and other expense 1,597 1,427
------ ------
Earnings before income taxes 1,346 1,120
Federal income taxes
Current 372 330
Deferred 74 16
------ ------
Total federal income taxes 446 346
------ ------
NET EARNINGS $ 900 $ 774
====== ======
EARNINGS PER SHARE $ .31 $ .27
====== ======
</TABLE>
5
<PAGE> 6
OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from activities:
Net earnings for the period $ 900 $ 774
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization 116 84
Amortization of premium on investment securities (6) (23)
Amortization of deferred loan origination costs 32 45
Federal Home Loan Bank stock dividends (27) (18)
Loans originated for sale in secondary market (1,589) (3,018)
Proceeds from sale of loans in the secondary market 1,673 3,044
Gain on sale of loans (14) (24)
Provision for losses on loans 81 138
Gain on sale of investment securities - (27)
Gain on sale of office equipment - ( 7)
Increase(decrease) in cash due to changes in:
Accrued interest receivable (118) 39
Prepaid expenses and other assets (170) (128)
Accrued expenses and other liabilities 374 208
Federal income taxes
Current - 330
Deferred 74 16
------- -------
Net cash provided by operating activities 1,326 1,433
Cash flows provided by (used in) investing activities:
Loan principal repayments 29,605 14,714
Loan disbursements (36, 392) (17,531)
Principal repayments on mortgage-backed securities 207 221
Proceeds from maturity and redemption of investment securities 3,000 4,074
Proceeds from sale of investment
securities designated as available for sale - 2,000
Purchase of office premises and equipment (54) (20)
Proceeds from sale of office equipment - 32
Purchase of investment securities
securities designated as available for sale (11,916) (15,581)
Purchase of Federal Home Loan Bank stock - (131)
Increase in federal funds sold - net 215 1,238
------- -------
Net cash used in investing activities (15,335) (10,984)
------- -------
Net cash used in operating and investing
activities (balance carried forward) (14,009) (9,551)
======= =======
</TABLE>
6
<PAGE> 7
OAK HILL FINANCIAL, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended March 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net cash used in operating and investing
activities (balance brought forward) $(14,009) $(9,551)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 17,642 9,555
Proceeds from Federal Home Loan Bank advances - 3,000
Repayment of Federal Home Loan Bank advances (2,754) (244)
Dividends paid on common shares (172) (145)
-------- -------
Net cash provided by financing activities 14,716 12,166
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Net increase in cash and cash equivalents 707 2,615
Cash and cash equivalents at beginning of period 7,378 6,250
-------- -------
Cash and cash equivalents at end of period $ 8,085 $ 8,865
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ - $ -
======== ========
Interest on deposits and borrowed money $ 2,461 $ 2,175
======== ========
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as available
for sale, net of related tax effects $ (127) $ (172)
======== ========
</TABLE>
7
<PAGE> 8
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and,
therefore, do not include information or footnotes necessary for a
complete presentation of financial position, results of operations and
cash flows in conformity with generally accepted accounting
principles. Accordingly, these financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto of the Company included in the Annual Report on Form 10-KSB
for the year ended December 31, 1996. However, all adjustments
(consisting only of normal recurring accruals) which, in the opinion
of management, are necessary for a fair presentation of the
consolidated financial statements have been included. The results of
operations for the three month periods ended March 31, 1997 and 1996,
are not necessarily indicative of the results which may be expected
for the entire year.
2. Principles of Consolidation
The consolidated financial statements include the accounts of Oak Hill
Financial, Inc. (the "Company") and its wholly owned subsidiary Oak
Hill Banks (the "Bank"). All significant intercompany balances and
transactions have been eliminated.
3. Earnings Per Share
Earnings per share for the three month periods ended March 31, 1997
and 1996 is based on 2,873,500 and 2,872,500 weighted average shares
outstanding, respectively.
4. Effects of Recent Accounting Pronouncements
In May 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 122 "Accounting
for Mortgage Servicing Rights", which requires that the Company
recognize as separate assets, rights to service mortgage loans for
others, regardless of how those servicing rights are acquired. An
institution that acquires mortgage servicing rights through either the
purchase or origination of mortgage loans and sells those loans with
servicing rights retained would allocate some of the cost of the loans
to the mortgage servicing rights.
SFAS No. 122 requires that securitizations of mortgage loans be
accounted for as sales of mortgage loans and acquisitions of
mortgage-backed securities. Additionally, SFAS No. 122 requires
that capitalized mortgage servicing rights and capitalized excess
servicing receivables be assessed for impairment. Impairment is
measured based on fair value.
SFAS No. 122 is applicable to fiscal years beginning after December
15, 1995, (January 1, 1996, as to the Company) to transactions in
which an entity acquires mortgage servicing rights and to impairment
evaluations of all capitalized mortgage servicing rights and
capitalized excess servicing receivables whenever acquired.
Retroactive application was prohibited. Management adopted SFAS No.
122 on January 1, 1996 without material effect on the Company's
consolidated financial position or results of operations.
8
<PAGE> 9
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Effects of Recent Accounting Pronouncements (continued)
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation", establishing financial accounting and
reporting standards for stock-based employee compensation plans. SFAS
No. 123 encourages all entities to adopt a new method of accounting to
measure compensation cost of all employee stock compensation plans
based on the estimated fair value of the award at the date it is
granted. Companies, are however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based
method of accounting, which generally does not result in compensation
expense recognition for most plans. Companies that elect to remain
with the existing accounting are required to disclose in a footnote to
the financial statements pro forma net earnings and, if presented,
earnings per share, as if SFAS No. 123 had been adopted. The
accounting requirements of SFAS No. 123 are effective for transactions
entered into during fiscal years that begin after December 15, 1995;
however, companies are required to disclose information for awards
granted in their first fiscal year beginning after December 31, 1994.
Management has determined that the Company will continue to account
for stock-based compensation pursuant to Accounting Principles Board
Opinion No. 25, and therefore SFAS No. 123 will have no effect on its
consolidated financial condition or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
of Financial Assets, Servicing Rights, and Extinguishment of
Liabilities," that provides accounting guidance on transfers of
financial assets, servicing of financial assets, and extinguishment of
liabilities. SFAS No. 125 introduces an approach to accounting for
transfers of financial assets that provides a means of dealing with
more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes
use of special purpose entities in the transaction or otherwise has
continuing involvement with the transferred assets. The new accounting
method referred to as the financial components approach, provides that
the carrying amount of the financial assets transferred be allocated
to components of the transaction based on their relative fair values.
SFAS No. 125 provides criteria for determining whether control of
assets has been relinquished and whether a sale has occurred. If the
transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125
include among others, transfers involving repurchase agreements,
securitizations of financial assets, loan participations, factoring
arrangements and transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets
recognizes either a servicing asset or liability for the servicing
contract (unless related to a securitizations of assets, and all the
securitized assets are retained and classified as held to maturity). A
servicing asset or liability that is purchased or assumed is initially
recognized at its fair value. Servicing assets and liabilities are
amortized in proportion to and over the period of estimated net
servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance
sheet only if the debtor either pays the creditor and is relieved of
its obligation for the liability or is legally released from being the
primary obligor.
9
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OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31,
1997, and is to be applied prospectively. Earlier or retroactive
application is not permitted. Management does not believe that
adoption of SFAS No. 125 will have a material adverse effect on the
Company's consolidated financial position or results of operation.
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share",
which requires companies to present basic earnings per share and, if
applicable, diluted earnings per share, instead of primary and fully
diluted earnings per share, respectively. Basic earnings per share is
computed without including potential common share, i.e. no dilutive
effect. Diluted earnings per share is computed taking into
consideration common shares outstanding and dilutive potential common
shares, including options, warrants, convertible securities and
contingent stock agreements. SFAS No. 128 is effective for periods
ending after December 15, 1997. Early application is not permitted.
Based upon the provisions of SFAS No. 128, the Corporation's basic and
diluted earnings per share for three months ended March 31, 1997 would
have been $.31 and $.31, respectively.
10
<PAGE> 11
OAK HILL FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from December 31, 1996 to
March 31, 1997
At March 31, 1997, the Company had total assets of $262.8
million, an increase of approximately $15.9 million, or 6.4%, over December 31,
1996 levels. The increase in total assets was funded primarily by growth in the
deposit portfolio of $17.6 million and undistributed net earnings of $728,000,
which were partially offset by a decrease in Federal Home Loan Bank advances of
$2.8 million.
Cash, federal funds sold and investment securities totaled
$58.0 million at March 31, 1997, an increase of $9.0 million, or 18.4%, over
December 31, 1996 levels. During the three months ended March 31, 1997,
management purchased $11.9 million of investment securities, while $3.0 million
of securities matured. Securities purchased consisted primarily of U.S.
treasury notes and U.S. government agency securities. The increase reflects
management's efforts to maintain adequate levels of liquidity while maximizing
yield on short-term investments.
Loans receivable and loans held for sale totaled $197.1
million at March 31, 1997, an increase of $6.6 million, or 3.5%, over the total
at December 31, 1996. Loan disbursements totaled approximately $41.2 million
during the 1997 three month period, while principal repayments and sales
amounted to $32.8 million and $1.7 million, respectively. Loan disbursements
increased by $20.6 million, or 116.7%, during the 1997 period, is compared to
the comparable period in 1996. Loans originated in 1997 were primarily
comprised of commercial loans, 1-4 family loans and residential loans.
The Company's allowance for loan losses amounted to $2.7
million at March 31, 1997, an increase of $91,000 or 3.5% over the total at
December 31, 1996. The allowance for loan losses represented 1.36% of the total
loan portfolio at March 31, 1997 and December 31, 1996, respectively. The
Company's allowance represented 320.1% and 326.2% of non-performing loans,
which totaled $852,000 and $808,000 at March 31, 1997 and December 31, 1996,
respectively.
The deposit portfolio totaled $227.2 million at March 31,
1997, an increase of $17.6 million, or 8.4%, over December 31, 1996 levels. The
increase resulted from management's marketing efforts and continued growth at
newer branch facilities.
The Bank is required to maintain minimum regulatory capital
pursuant to federal regulations. At March 31, 1997, the Bank's regulatory
capital substantially exceeded all regulatory capital requirements.
11
<PAGE> 12
OAK HILL FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three month periods ended March 31, 1997 and 1996
Comparison of Results of Operations for the Three Month Periods Ended
March 31, 1997 and 1996
General
Net earnings for the three months ended March 31, 1997
totaled $900,000, an increase of $126,000, or 16.3%, over the $774,000 in net
earnings reported in the comparable 1996 period. The increase in earnings in
the 1997 period is primarily attributable to a $394,000 increase in net
interest income after provision for losses on loans, which was partially offset
by a $170,000 increase in general, administrative and other expenses and an
increase in federal income tax provision of $100,000.
Net Interest Income
Total interest income for the three months ended March 31,
1997 increased by $664,000, or 14.6%, generally reflecting the effects of
growth in interest-earning assets from $212.9 million to $251.5 million for the
three month periods ending March 31, 1996 and 1997, respectively, coupled with
an increase in the weighted-average yield year-to-year. Similarly, total
interest expense increased for the three months ended March 31, 1997 by
$327,000 or 15.0%, also reflecting the growth in interest-bearing liabilities
from $181.3 million to $214.8 million, as well as an increase in the
weighted-average cost of funds, during the respective three month periods.
Provision for Losses on Loans
The provision for losses on loans totaled $81,000 for the
three months ended March 31, 1997, a decrease of $57,000 from the comparable
1996 period. The decrease in the provision for 1997 was primarily attributable
to net charge-offs of $77,000 for the three months ended March 31, 1996,
compared to net recoveries of approximately $10,000 for the same period ending
March 31, 1997. The provision was primarily attributable to growth in the
portfolio year-to-year.
Although management believes that it uses the best
information available in providing for possible loan losses and believes that
the allowance is adequate at March 31, 1997, future adjustments to the
allowance could be necessary and net earnings could be affected if
circumstances and/or economic conditions differ substantially from the
assumptions used in making the initial determinations.
General, Administrative and Other Expense
General, administrative and other expense increased for the
three months ended March 31, 1997 by $170,000, or 11.9%. The increase was due
primarily to a $69,000, or 8.8%, increase in employee compensation and
benefits, a $54,000, or 24.4%, increase in occupancy and equipment expense, and
an increase in federal deposit insurance premiums and franchise taxes of
$12,000 and $8,000, respectively. Other operating expenses also increased
year-to-year by $27,000 or 8.0%.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three month periods ended March 31, 1997 and 1996
Comparison of Results of Operations for the Three Month Periods Ended March 31,
1997 and 1996 (continued)
The increase in employee compensation and benefits is due
primarily to normal merit increases and the employment of additional staff for
a new banking office which opened during the first quarter, which were
partially offset by an increase in deferred costs related to greater lending
volume year-to-year. The increase in franchise taxes resulted from greater
levels of stockholders' equity in 1996. The increase in federal deposit
insurance premiums resulted primarily from an increase in premium rates
assessed in 1997. Other operating expenses increased due primarily to the
opening of a new branch facility during the first quarter of 1997.
Federal Income Taxes
The provision for federal income taxes increased by
$100,000, or 28.9%, during the three months ended March 31, 1997, as compared
to the same period in 1996. The effective tax rates for the three month periods
ended March 31, 1997 and 1996 were 33.1% and 30.9%, respectively.
Subsequent Event
On April 29, 1997, the Company announced the signing of a
definitive agreement for the acquisition of Unity Savings Bank, McArthur, Ohio
("Unity"). Under terms of the agreement, the Company will exchange 8.5 shares
of its common stock for each of the 93,250 shares of Unity stock, resulting in
a transaction valued at approximately $11.7 million. The combination will be
accounted for as a pooling of interests. At March 31, 1997, Unity reported
total assets of $65.1 million, total deposits of $48.1 million and stockholders
equity of $7.5 million. The transaction is expected to be consummated during
the third quarter of 1997, subject to the approval of both the Company's and
Unity's shareholders and subject to regulatory approval.
13
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OAK HILL FINANCIAL, INC.
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
None
14
<PAGE> 15
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.
Date: May 9, 1997 By: /s/ John D. Kidd
-----------------------------
John D. Kidd
President
Date: May 9, 1997 By: /s/ H. Tim Bichsel
-----------------------------
H. Tim Bichsel Chief
Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,085
<INT-BEARING-DEPOSITS> 110
<FED-FUNDS-SOLD> 3,920
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,025
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 197,140
<ALLOWANCE> 2,727
<TOTAL-ASSETS> 262,764
<DEPOSITS> 227,235
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,115
<LONG-TERM> 10,850
0
0
<COMMON> 1,442
<OTHER-SE> 22,150
<TOTAL-LIABILITIES-AND-EQUITY> 262,764
<INTEREST-LOAN> 4,456
<INTEREST-INVEST> 647
<INTEREST-OTHER> 111
<INTEREST-TOTAL> 5,214
<INTEREST-DEPOSIT> 2,287
<INTEREST-EXPENSE> 2,502
<INTEREST-INCOME-NET> 2,712
<LOAN-LOSSES> 81
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,597
<INCOME-PRETAX> 1,346
<INCOME-PRE-EXTRAORDINARY> 1,346
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 900
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
<YIELD-ACTUAL> 8.60
<LOANS-NON> 713
<LOANS-PAST> 139
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 852
<ALLOWANCE-OPEN> 2,636
<CHARGE-OFFS> 56
<RECOVERIES> 66
<ALLOWANCE-CLOSE> 2,727
<ALLOWANCE-DOMESTIC> 2,727
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
