<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 September 30, 1998
--------------------------------------------
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 0-26876
---------------------
OAK HILL FINANCIAL, INC.
- --------------------------------------------------------------------------------
(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: (740) 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 November 5, 1998, the latest practicable date, 4,386,565 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 18 pages
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Oak Hill Financial, Inc.
<TABLE>
<CAPTION>
INDEX
Page
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 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 12
PART II - OTHER INFORMATION 17
SIGNATURES 18
</TABLE>
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OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 8,216 $ 9,840
Federal funds sold 8,292 3,773
Investment securities designated as available for sale - at market 58,177 51,989
Loans receivable - net 329,551 285,249
Loans held for sale - at lower of cost or market 301 --
Office premises and equipment - net 5,282 4,608
Federal Home Loan Bank stock - at cost 2,805 2,659
Accrued interest receivable 2,494 2,346
Prepaid expenses and other assets 351 180
Cash surrender value of life insurance -- 591
Prepaid federal income tax 29 --
Deferred federal income tax asset 660 682
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Total assets $ 416,158 $ 361,917
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits $ 361,843 $ 301,965
Securities sold under agreements to repurchase 1,518 258
Advances from the Federal Home Loan Bank 13,317 24,705
Accrued interest payable and other liabilities 2,232 1,530
--------- ---------
Total liabilities 378,910 328,568
Stockholders' equity
Common stock - $.50 stated value; authorized 5,000,000 shares, 4,418,665 and
3,529,390 shares issued at September 30, 1998 and December 31, 1997 2,208 1,765
Additional paid-in capital 4,106 4,012
Retained earnings 30,511 27,410
Treasury stock (14,000 shares at cost) (28) (28)
Unrealized gains on securities designated as available
for sale, net of related tax effects 451 190
--------- ---------
Total stockholders' equity 37,248 33,349
--------- ---------
Total liabilities and stockholders' equity $ 416,158 $ 361,917
========= =========
</TABLE>
3
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OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
(Restated) (Restated)
<S> <C> <C> <C> <C>
Interest income
Loans $21,172 $ 17,530 $7,531 $6,220
Investment securities 2,516 2,821 846 908
Interest-bearing deposits and other 493 343 192 142
------- -------- ------ ------
Total interest income 24,181 20,694 8,569 7,270
Interest expense
Deposits 10,687 8,934 3,814 3,086
Borrowings 828 1,175 251 470
------- -------- ------ ------
Total interest expense 11,515 10,109 4,065 3,556
------- -------- ------ ------
Net interest income 12,666 10,585 4,504 3,714
Provision for losses on loans 920 797 331 455
------- -------- ------ ------
Net interest income after
provision for losses on loans 11,746 9,788 4,173 3,259
Other income
Gain on sale of loans 552 54 158 18
Service fees, charges and other operating 1,293 944 496 277
------- -------- ------ ------
Total other income 1,845 998 654 295
General, administrative and other expense
Employee compensation and benefits 3,850 3,267 1,367 1,169
Occupancy and equipment 944 896 311 298
Federal deposit insurance premiums 45 27 15 7
Franchise taxes 357 319 115 102
Other operating 1,816 2,538 662 1,460
------- -------- ------ ------
Total general, administrative
and other expense 7,012 7,047 2,470 3,036
------- -------- ------ ------
Earnings before income taxes 6,579 3,739 2,357 518
Federal income taxes
Current 2,025 1,547 759 471
Deferred 113 (11) 13 1
------- -------- ------ ------
Total federal income taxes 2,138 1,536 772 472
------- -------- ------ ------
NET EARNINGS $ 4,441 $ 2,203 $1,585 $ 46
======= ======== ====== ======
EARNINGS PER SHARE
Basic $ 1.01 $ .50 $ .36 $ .01
======= ======== ====== ======
Diluted $ .99 $ .49 $ .35 $ .01
======= ======== ====== ======
</TABLE>
4
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OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net earnings $ 4,441 $2,203 $ 1,585 $ 46
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
arising during the period 367 170 367 176
Reclassification adjustment for (gains) losses included
in net earnings (106) 69 (61) 59
------- ------ ------- ----
Comprehensive income $ 4,702 $2,442 $ 1,891 $284
======= ====== ======= ====
Accumulated other comprehensive income $ 451 $ 212 $ 451 $212
======= ====== ======= ====
</TABLE>
5
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OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(In thousands)
<TABLE>
<CAPTION>
1998 1997
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 4,441 $ 2,203
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization 426 436
Amortization of premiums and discounts on investment securities - net 33 (21)
Amortization of deferred loan origination costs 277 294
Federal Home Loan Bank stock dividends (146) (203)
Loans originated for sale in secondary market (29,258) (5,403)
Proceeds from sale of loans in the secondary market 29,249 5,597
Gain on sale of loans (292) (54)
Provision for losses on loans 920 797
(Gain) loss on investment securities transactions (160) 105
Gain on sale of assets (4) (15)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (148) (250)
Prepaid expenses and other assets 420 (532)
Accrued expenses and other liabilities 563 1,231
Federal income taxes
Current (226) (201)
Deferred 113 (11)
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Net cash provided by operating activities 6,208 3,973
Cash flows provided by (used in) investing activities:
Loan principal repayments 127,098 93,002
Loan disbursements (172,597) (126,032)
Principal repayments on mortgage-backed securities 1,932 1,679
Proceeds from maturity and redemption of investment securities 20,935 18,595
Proceeds from investment securities transactions 2,987 2,737
Purchase of office premises and equipment (1,100) (414)
Proceeds from sale of assets 4 25
Purchase of investment securities
designated as available for sale (31,519) (27,551)
Purchase of Federal Home Loan Bank stock -- (62)
Increase in federal funds sold - net (4,519) (1,272)
--------- ---------
Net cash used in investing activities (56,779) (39,293)
--------- ---------
Net cash used in operating and investing
activities (balance carried forward) (50,571) (35,320)
--------- ---------
</TABLE>
6
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OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended September 30,
(In thousands)
<TABLE>
<CAPTION>
1998 1997
(Restated)
<S> <C> <C>
Net cash used in operating and investing
activities (balance brought forward) $(50,571) $(35,320)
Cash flows provided by (used in) financing activities:
Proceeds from securities sold under agreement to repurchase 1,260 1,434
Net increase in deposit accounts 59,878 29,680
Proceeds from Federal Home Loan Bank advances 6,975 23,195
Repayment of Federal Home Loan Bank advances (18,363) (18,828)
Proceeds from issuance of shares under stock option plan 95 --
Dividends paid on common shares (898) (611)
-------- --------
Net cash provided by financing activities 48,947 34,870
-------- --------
Net decrease in cash and cash equivalents (1,624) (450)
Cash and cash equivalents at beginning of period 9,840 8,786
-------- --------
Cash and cash equivalents at end of period $ 8,216 $ 8,336
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 2,219 $ 1,309
======== ========
Interest on deposits and borrowed money $ 11,457 $ 10,047
======== ========
Supplemental disclosure of noncash investing activities:
Unrealized gains on securities designated as available
for sale, net of related tax effects $ 261 $ 239
======== ========
Recognition of mortgage servicing rights in
accordance with SFAS No. 125 $ 260 $ --
======== ========
</TABLE>
7
<PAGE> 8
OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
On October 1, 1997, Oak Hill Financial, Inc. (the "Company") merged
Unity Savings Bank with and into its subsidiary Oak Hill Banks (the
"Bank"), in a transaction that was accounted for as a
pooling-of-interests. Accordingly, the consolidated financial
statements for the three and nine month periods ended September 30,
1997, have been restated to reflect the effects of the business
combination as of January 1, 1997.
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, 1997. 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 and nine month
periods ended September 30, 1998 and 1997, 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 the
Company and its wholly owned subsidiaries the Bank and Action Finance
Company ("Action"). Action was incorporated during 1997 for the purpose
of conducting consumer finance lending operations. Action began such
operations during 1998 using two separate office locations. All
significant intercompany balances and transactions have been
eliminated.
3. Earnings Per Share
------------------
Basic earnings per share is computed based upon the weighted-average
shares outstanding during the period, adjusted for the issuance of
804,613 shares in the Unity merger and a 5 for 4 stock dividend which
was declared on April 28, 1998. Weighted-average common shares
outstanding totaled 4,404,755, 4,401,636, 4,396,415, and 4,396,415 for
the three and nine month periods ended September 30, 1998 and 1997,
respectively. Diluted earnings per share is computed taking into
consideration common shares outstanding and dilutive potential common
shares to be issued under the Company's stock option plan.
Weighted-average common shares deemed outstanding for purposes of
computing diluted earnings per share totaled 4,478,871, 4,491,830,
4,454,310, and 4,440,137 for the three and nine month periods ended
September 30, 1998 and 1997, respectively.
4. Effects of Recent Accounting Pronouncements
-------------------------------------------
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments 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
8
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OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
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 securitization 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.
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 adopted SFAS No. 125,
effective January 1, 1998, as required, without material effect on the
Company's consolidated financial position or results of operation.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. SFAS
No. 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. It does not require a
specific format for the financial statement but requires that an
enterprise display an amount representing total comprehensive income
for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the
equity section of a statement of financial position. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods for
comparative purposes is required. Management adopted SFAS No. 130
effective January 1, 1998, as required without material impact on the
Company's financial statements.
9
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OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Effects of Recent Accounting Pronouncements (continued)
-------------------------------------------
In June 1997, the FASB issued SFAS No. 131, " Disclosure about Segments
of an Enterprise and Related Information." SFAS No. 131 significantly
changes the way that public business enterprises report information
about operating segments in annual financial statements and requires
that those enterprises report select information about reportable
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information
about the way that management organizes the segments within the
enterprise for making operating decisions and assessing performance.
For many enterprises, the management approach will likely result in
more segments being reported. In addition, SFAS No. 131 requires
significantly more information to be disclosed for each reportable
segment than is presently being reported in annual financial statements
and also requires that selected financial information be reported in
interim financial statements. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. SFAS No. 131 is not expected
to have a material impact on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to
recognize all derivatives in their financial statements as either
assets or liabilities measured at fair value. SFAS No. 133 also
specifies new methods of accounting for hedging activities, prescribes
the items and transactions that may be hedged, and specifies detailed
criteria to be met to qualify for hedging accounting.
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an
interest rate or foreign exchange rate, that is applied to a notional
amount, such as an amount of currency, to determine the settlement
amount(s). It generally requires no significant initial investment and
can be settled net or by delivery of an asset that is readily
convertible to cash. SFAS No. 133 applies to derivatives embedded in
other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. On adoption,
entities are permitted to transfer held-to-maturity debt securities to
an available-for-sale or trading category without calling into question
their intent to hold other debt securities to maturity in the future.
SFAS No. 133 is not expected to have a material impact on the Company's
financial statements.
5. Year 2000 Compliance Matters
----------------------------
As with all providers of financial services, the Company's operations
are heavily dependent on information technology systems. The Bank and
Action are addressing the potential problems associated with the
possibility that the computers that control or operate the Bank's and
Action's information technology system and infrastructure may not be
programmed to read four-digit dates codes and upon arrival of the year
2000, may recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data. The Bank and
Action are working with the companies that supply or service its
information technology systems to identify and remedy any year 2000
related problems.
In 1997, the Company developed a three phase program within the
guidelines of the Federal Financial Institutions Examination Council
(the "FFIEC"). Phase I Awareness and Assessment was to define the
problem, to establish a committee to oversee the project, to develop an
overall strategy, to identify all aspects that could be affected by the
Year 2000, to recognize vendor responsibilities, and to formulate
contingency plans.
10
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OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Year 2000 Compliance Matters (continued)
----------------------------
Phase II Renovation is to upgrade and replace equipment as necessary.
This phase is to be largely completed by the end of 1998. During this
phase, the following systems were considered to be mission critical:
Peerless 21 software, ISBO Link, and Fedline. Peerless 21 is the Bank's
main processing system, while the ISBO Link is the Bank's connection
with the Independent State Bank of Ohio. The ISBO Link processes wires,
credit card applications, as well, as fed funds. Fedline is the Bank's
connection with the Federal Reserve Bank. Wires, automated clearing
house (ACH), treasury tax and loan, and payer services are mission
critical applications processed on Fedline. The Company is in the
process of upgrading these systems as necessary. However, should any of
these mission critical systems fail to be Year 2000 ready, contingency
plans to warehouse transactions, to correspond with ISBO and the
Federal Reserve via telephone and fax, and to manually process payer
services and ACH are in place and to be used until such time that the
Year 2000 errors can be corrected. Phase III Validation is to begin
during the fourth quarter of 1998 and to be completed by early 1999. In
this phase, systems and equipment will be tested to ensure Year 2000
readiness.
The Company believes that to ensure Year 2000 readiness, approximately
$113,000 in costs will be incurred. Approximately 25% of the costs will
be incurred in 1998, while the remaining amount will be incurred in
1999. Although the Company believes that this estimate is reasonable at
this time, if the Bank and/or Action is ultimately required to purchase
replacement computer systems, programs, and/or equipment, or incur
substantial expense to make the Bank's and/or Action's systems,
programs, and/or equipment year 2000 compliant, the Bank's and/or
Action's net earnings and financial condition could be adversely
affected.
In addition to possible expense related to its own systems, the Bank
and/or Action could incur losses if loan payments are delayed due to
year 2000 problems affecting any major borrowers in the Bank's or
Action's primary market area. Because the Bank's and Action's loan
portfolios are highly diversified with regard to individual borrowers
and types of businesses, and the Bank's and Action's primary market
areas are not significantly dependent upon any one employer or
industry, the Bank and Action do not expect any significant or
prolonged difficulties that will effect net earnings or cash flow.
11
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OAK HILL FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from December 31, 1997 to
- -------------------------------------------------------------------
September 30, 1998
- ------------------
At September 30, 1998, the Company had total assets of $416.2
million, an increase of approximately $54.2 million, or 15.0%, over December 31,
1997 levels. The increase in total assets was funded primarily by growth in the
deposit portfolio of $59.9 million and undistributed net earnings of $3.5
million, which were partially offset by a decrease in Federal Home Loan Bank
advances of $11.4 million.
Cash, federal funds sold and investment securities totaled
$74.7 million at September 30, 1998, an increase of $9.1 million, or 13.8%, from
December 31, 1997 levels. During the nine months ended September 30, 1998,
management purchased $31.5 million of investment securities, while $22.9 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 $329.9
million at September 30, 1998, an increase of $44.6 million, or 15.6%, over the
total at December 31, 1997. Loan disbursements totaled approximately $201.9
million during the 1998 nine month period, while principal repayments and sales
amounted to $127.1 million and $29.0 million, respectively. Loan disbursements
increased by $70.4 million, or 53.6%, during the 1998 period, as compared to the
comparable period in 1997. Loans originated in 1998 were primarily comprised of
commercial and 1-4 family residential loans.
The Company's allowance for loan losses amounted to $4.3
million at September 30, 1998, an increase of $552,000 or 14.7% over the total
at December 31, 1997. The allowance for loan losses represented 1.29% and 1.30%
of the total loan portfolio at September 30, 1998 and December 31, 1997,
respectively. The Company's allowance represented 246.6% and 360.4% of
non-performing loans, which totaled $1.7 million and $1.0 million at September
30, 1998 and December 31, 1997, respectively.
The deposit portfolio totaled $361.8 million at September 30,
1998, an increase of $59.9 million, or 19.8%, over December 31, 1997 levels.
Proceeds from deposit growth were utilized to fund loan originations and to
repay advances from the Federal Home Loan Bank. 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 September 30, 1998, the Bank's regulatory
capital substantially exceeded all regulatory capital requirements.
12
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OAK HILL FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and nine month periods ended September 30, 1998 and 1997
Comparison of Results of Operations for the Nine Month Periods Ended
- --------------------------------------------------------------------
September 30, 1998 and 1997
- ---------------------------
General
- -------
Net earnings for the nine months ended September 30, 1998
totaled $4.4 million, an increase of $2.2 million, or 101.6%, over the $2.2
million in net earnings reported in the comparable 1997 period. The increase in
earnings in the 1998 period is primarily attributable to a $2.0 million increase
in net interest income after provision for losses on loans, an $847,000 increase
in other income, and a $35,000 decrease in general, administrative, and other
expenses, which were partially offset by a $602,000 increase in the federal
income tax provision.
Net Interest Income
- -------------------
Total interest income for the nine months ended September 30,
1998 increased by $3.5 million, or 16.9%, generally reflecting the effects of
growth in average interest-earning assets from $318.3 million to $370.5 million
for the nine month periods ending September 30, 1997 and 1998, respectively,
coupled with an increase in the weighted-average yield year-to-year. Similarly,
total interest expense increased for the nine months ended September 30, 1998 by
$1.4 million or 13.9%, also reflecting the growth in average interest-bearing
liabilities from $291.7 million to $314.6 million, as well as an increase in the
weighted-average cost of funds, during the respective nine month periods.
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $2.1 million, or 19.7%, for
the nine months ended September 30, 1998, as compared to the comparable period
in 1997. The interest rate spread amounted to 3.84% and 4.06% for the nine
months ended September 30, 1998 and 1997, while the net interest margin totaled
4.57% and 4.45% for the nine months ended September 30, 1998 and 1997,
respectively.
Provision for Losses on Loans
- -----------------------------
The provision for losses on loans totaled $920,000 for the
nine months ended September 30, 1998, an increase of $123,000 over the
comparable 1997 period. The increase in the provision was primarily attributable
to the growth in the loan 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 June 30, 1998, 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.
Other Income
- ------------
Other income increased for the nine months ended September 30,
1998 by $847,000, or 84.9%, over the comparable 1997 period. The increase
resulted from a $349,000, or 37.0% increase in service fees, charges and other
operating income and a $498,000 increase in gain on sale of loans. The increase
in gain on sale of loans is primarily attributable to an increase in the number
of loans sold as compared to the 1997 nine month period.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and nine month periods ended September 30, 1998 and 1997
Comparison of Results of Operations for the Nine Month Periods Ended September
- ------------------------------------------------------------------------------
30, 1998 and 1997 (continued)
- -----------------
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense decreased for the
nine months ended September 30, 1998 by $35,000, or 0.5%. The decrease was due
primarily to a $722,000, or 28.4%, decrease in other operating expenses, which
was partially offset by a $583,000, or 17.8%, increase in employee compensation
and benefits, a $48,000, or 5.4%, increase in occupancy and equipment expense,
and an increase in federal deposit insurance premiums and franchise taxes of
$18,000 and $38,000, respectively.
The increase in employee compensation and benefits is due
primarily to additional staffing levels, primarily related to the start-up of
the Action subsidiary, coupled with normal merit increases, which were partially
offset by an increase in deferred costs related to greater lending volume
year-to-year. The increase in occupancy and equipment expense is also
attributable to the opening of the Action subsidiary, as well as, costs incurred
in connection with the renovation of existing branches. The increase in federal
deposit insurance premiums resulted primarily from an increase in premium rates
assessed in 1998. The increase in franchise taxes resulted from greater levels
of stockholders' equity year-to-year. Other operating expenses decreased due
primarily to costs incurred in connection with the Unity merger in 1997, which
were partially offset by costs incurred with the inception of the Action
subsidiary, coupled with the Company's overall growth year-to-year.
Federal Income Taxes
- --------------------
The provision for federal income taxes increased by
$602,000, or 39.2%, during the nine months ended September 30, 1998, as compared
to the same period in 1997. The effective tax rates for the nine month periods
ended September 30, 1998 and 1997 were 32.5% and 41.1%, respectively.
Comparison of Results of Operations for the Three Month Periods Ended
- ---------------------------------------------------------------------
September 30, 1998 and 1997
- ---------------------------
General
- -------
Net earnings for the three months ended September 30, 1998
totaled $1.6 million, an increase of $1.5 million over the $46,000 in net
earnings reported in the comparable 1997 period. The increase in earnings in the
1998 period is primarily attributable to a $914,000 increase in net interest
income after provision for losses on loans, a $359,000 increase in other income,
and a $566,000 decrease in general, administrative and other expenses, which
were partially offset by a $300,000 increase in federal income tax provision.
Net Interest Income
- -------------------
Total interest income for the three months ended September 30,
1998 increased by $1.3 million, or 17.9%, generally reflecting the effects of
growth in average interest-earning assets from $335.1 million to $390.5 million
for the three month periods ending September 30, 1997 and 1998, respectively,
coupled with an increase in the weighted-average yield year-to-year. Similarly,
total interest expense increased for the three months ended September 30, 1998
by $509,000 or 14.3%, reflecting the growth in average interest-bearing
liabilities from $286.5 million to $330.4 million during the respective three
month periods.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and nine month periods ended September 30, 1998 and 1997
Comparison of Results of Operations for the Three Month Periods Ended September
- -------------------------------------------------------------------------------
30, 1998 and 1997 (continued)
- -----------------------------
Net Interest Income (continued)
- -------------------------------
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $790,000, or 21.3%, for the
three months ended September 30, 1998, as compared to the comparable quarter in
1997. The interest rate spread amounted to 3.83% and 3.69% for the three months
ended September 30, 1998 and 1997, while the net interest margin totaled 4.58%
and 4.40% for the three months ended September 30, 1998 and 1997, respectively.
Provision for Losses on Loans
- -----------------------------
The provision for losses on loans totaled $331,000 for the
three months ended September 30, 1998, a decrease of $124,000 from the
comparable 1997 period. The decrease was primarily attributable to increased
provision incurred in 1997 in connection with the Unity merger.
Although management believes that it uses the best information
available in providing for possible loan losses and believes that the allowance
is adequate at September 30, 1998, 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.
Other Income
- ------------
Other income increased for the three months ended September
30, 1998 by $359,000 or 121.7% over the comparable 1997 period. The increase
resulted from an increase of $219,000, or 79.1% in service fees, charges and
other operating income and an increase of $140,000 increase in gain on sale of
loans. The increase in gain on sale of loans is primarily attributable to an
increase in the number of loans sold from the comparable 1997 period.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense decreased for the
three months ended September 30, 1998 by $566,000, or 18.6%. The decrease was
due primarily to a $798,000, or 54.7%, decrease in other operating expenses,
which was partially offset by a $198,000, or 16.9%, increase in employee
compensation and benefits, a $13,000, or 4.4%, increase in occupancy and
equipment expense, and an increase in federal deposit insurance premiums and
franchise taxes of $8,000 and $13,000, respectively. The decrease in other
operating expenses resulted primarily from costs recorded in the 1997 period
related to the Unity merger.
The increase in employee compensation and benefits is due
primarily to additional staffing levels, primarily related to the start-up of
the Action subsidiary, coupled with normal merit increases, 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 1998.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and nine month periods ended September 30, 1998 and 1997
Comparison of Results of Operations for the Three Month Periods Ended
- ---------------------------------------------------------------------
September 30, 1998 and 1997 (continued)
- ---------------------------------------
Federal Income Taxes
- --------------------
The provision for federal income taxes increased by
$300,000, or 63.6%, during the three months ended September 30, 1998, as
compared to the same period in 1997. The effective tax rates for the three month
periods ended September 30, 1998 and 1997 were 32.8% and 91.1%, respectively.
The effective tax rate for the 1997 quarter reflects the effects of certain
non-deductible merger-related expenses recorded during the period.
16
<PAGE> 17
OAK HILL FINANCIAL, INC.
PART II
ITEM 1. Legal Proceedings
-----------------
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
ITEM 5. Other Information
-----------------
None
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
The Company has filed the following current report on Form 8-K
with the Securities and Exchange Commission:
(a) A current report on Form 8-K, dated October 20, 1998, was
filed on October 21, 1998.
Exhibits: Financial Data Schedule for the nine months ended
September 30, 1998
17
<PAGE> 18
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: November 5, 1998 By: /s/ John D. Kidd
---------------- --------------------
John D. Kidd
President
Date: November 5, 1998 By: /s/ H. Tim Bichsel
---------------- --------------------
H. Tim Bichsel
Chief Financial Officer
18
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<ARTICLE> 9
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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0
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