<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 June 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 August 13, 1998, the latest practicable date, 4,405,540 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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Oak Hill Financial, Inc.
INDEX
Page
----
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 11
PART II - OTHER INFORMATION 15
SIGNATURES 16
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<TABLE>
OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 8,037 $ 9,840
Federal funds sold 3,215 3,773
Investment securities designated as available for
sale - at market 53,102 51,989
Loans receivable - net 311,130 285,249
Loans held for sale - at lower of cost or market 542 --
Office premises and equipment - net 5,021 4,608
Federal Home Loan Bank stock - at cost 2,755 2,659
Accrued interest receivable 2,550 2,346
Prepaid expenses and other assets 425 180
Cash surrender value of life insurance -- 591
Deferred federal income tax asset 804 682
-------- --------
Total assets $387,581 $361,917
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits $333,891 $301,965
Securities sold under agreements to repurchase 893 258
Advances from the Federal Home Loan Bank 15,171 24,705
Accrued interest payable and other liabilities 1,688 1,530
Federal income taxes payable 308 110
-------- --------
Total liabilities 351,951 328,568
Stockholders' equity
Common stock - $.50 stated value; authorized 5,000,000 shares,
4,416,165 and 3,529,390 shares issued at June 30, 1998 and
December 31, 1997 2,207 1,765
Additional paid-in capital 4,072 4,012
Retained earnings 29,234 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 145 190
-------- --------
Total stockholders' equity 35,630 33,349
-------- --------
Total liabilities and stockholders' equity $387,581 $361,917
======== ========
</TABLE>
3
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<TABLE>
OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
(Restated) (Restated)
<S> <C> <C> <C> <C>
Interest income
Loans $13,641 $11,310 $6,969 $5,776
Investment securities 1,670 1,913 868 996
Interest-bearing deposits and other 301 201 141 90
------- ------- ------ ------
Total interest income 15,612 13,424 7,978 6,862
Interest expense
Deposits 6,873 5,848 3,530 2,936
Borrowings 577 705 266 368
------- ------- ------ ------
Total interest expense 7,450 6,553 3,796 3,304
------- ------- ------ ------
Net interest income 8,162 6,871 4,182 3,558
Provision for losses on loans 589 342 312 236
------- ------- ------ ------
Net interest income after
provision for losses on loans 7,573 6,529 3,870 3,322
Other income
Gain on sale of loans 394 36 250 22
Service fees, charges and other operating 797 667 425 329
------- ------- ------ ------
Total other income 1,191 703 675 351
General, administrative and other expense
Employee compensation and benefits 2,483 2,098 1,195 1,089
Occupancy and equipment 633 598 324 258
Federal deposit insurance premiums 30 20 15 3
Franchise taxes 242 217 115 103
Other operating 1,154 1,078 595 645
------- ------- ------ ------
Total general, administrative
and other expense 4,542 4,011 2,244 2,098
------- ------- ------ ------
Earnings before income taxes 4,222 3,221 2,301 1,575
Federal income taxes
Current 1,466 1,100 757 475
Deferred (100) (36) (6) 41
------- ------- ------ ------
Total federal income taxes 1,366 1,064 751 516
------- ------- ------ ------
NET EARNINGS $ 2,856 $ 2,157 $1,550 $1,059
======= ======= ====== ======
EARNINGS PER SHARE
Basic $ .65 $ .49 $ .35 $ .24
======= ======= ====== ======
Diluted $ .64 $ .49 $ .34 $ .24
======= ======= ====== ======
</TABLE>
4
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<TABLE>
OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net earnings $2,856 $2,157 $1,550 $1,059
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities
designated as available for sale (45) (3) (89) 124
Reclassification adjustment for gains included
in net earnings 36 11 26 --
------ ------ ------ ------
Comprehensive income $2,847 $2,165 $1,487 $1,183
====== ====== ====== ======
Accumulated other comprehensive income $ 145 $ 190 $ 145 $ 190
====== ====== ====== ======
</TABLE>
5
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<TABLE>
OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(In thousands)
<CAPTION>
1998 1997
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 2,856 $ 2,157
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization 283 269
Amortization of premiums and discounts on investment securities - net 40 (18)
Amortization of deferred loan origination costs 202 146
Federal Home Loan Bank stock dividends (96) (74)
Loans originated for sale in secondary market (20,694) (3,640)
Proceeds from sale of loans in the secondary market 20,370 3,590
Gain on sale of loans (218) (36)
Provision for losses on loans 589 342
(Gain) loss on investment securities transactions (68) 16
Gain on sale of assets (4) (15)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (204) (285)
Prepaid expenses and other assets 346 (556)
Accrued expenses and other liabilities 356 442
Federal income taxes
Current -- 186
Deferred (100) (36)
--------- --------
Net cash provided by operating activities 3,658 2,488
Cash flows provided by (used in) investing activities:
Loan principal repayments 79,655 65,127
Loan disbursements (106,327) (84,755)
Principal repayments on mortgage-backed securities 1,135 1,298
Proceeds from maturity and redemption of investment securities 11,000 7,706
Proceeds from investment securities transactions 2,987 44
Purchase of office premises and equipment (696) (115)
Proceeds from sale of assets 4 25
Purchase of investment securities
designated as available for sale (16,274) (14,161)
Purchase of Federal Home Loan Bank stock -- (54)
Decrease in federal funds sold - net 558 2,467
--------- --------
Net cash used in investing activities (27,958) (22,418)
--------- --------
Net cash used in operating and investing
activities (balance carried forward) (24,300) (19,930)
--------- --------
</TABLE>
6
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<TABLE>
OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended June 30,
(In thousands)
<CAPTION>
1998 1997
(Restated)
<S> <C> <C>
Net cash used in operating and investing
activities (balance brought forward) $(24,300) $(19,930)
Cash flows provided by (used in) financing activities:
Proceeds from securities sold under agreement to repurchase 635 --
Net increase in deposit accounts 31,926 15,050
Proceeds from Federal Home Loan Bank advances 2,975 15,375
Repayment of Federal Home Loan Bank advances (12,509) (9,163)
Proceeds from issuance of shares under stock option plan 60 --
Dividends paid on common shares (590) (439)
-------- --------
Net cash provided by financing activities 22,497 20,823
-------- --------
Net increase (decrease) in cash and cash equivalents (1,803) 893
Cash and cash equivalents at beginning of period 9,840 8,786
-------- --------
Cash and cash equivalents at end of period $ 8,037 $ 9,679
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 1,332 $ 912
======== ========
Interest on deposits and borrowed money $ 7,493 $ 6,543
======== ========
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ (45) $ 4
======== ========
Recognition of mortgage servicing rights in
accordance with SFAS No. 125 $ 176 $ --
======== ========
</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 six month periods ended June 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 six month
periods ended June 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 4,401,736, 4,400,050, 4,396,415, and 4,396,415 for
the three and six month periods ended June 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 4,513,046, 4,501,001,
4,440,467, and 4,432,319 for the three and six month periods ended June
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 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.
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
<PAGE> 10
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.
5. Other 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 and 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.
As of June 30, 1998, management has developed an estimate of expenses
that are reasonably likely to be incurred by the Bank or Action in
connection with this issue; however, the Company does not expect to
incur significant expenses to implement the necessary corrective
measures. No assurance can be given, however, that significant expense
will not be incurred in future periods. In the event that 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 earning 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.
10
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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 June 30,
- ----------------------------------------------------------------------------
1998
- ----
At June 30, 1998, the Company had total assets of $387.6
million, an increase of approximately $25.7 million, or 7.1%, over December 31,
1997 levels. The increase in total assets was funded primarily by growth in the
deposit portfolio of $31.9 million and undistributed net earnings of $2.3
million, which were partially offset by a decrease in Federal Home Loan Bank
advances of $9.5 million.
Cash, federal funds sold and investment securities totaled
$64.4 million at June 30, 1998, a decrease of $1.2 million, or 1.9%, from
December 31, 1997 levels. During the six months ended June 30, 1998, management
purchased $16.3 million of investment securities, while $12.1 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 $311.7
million at June 30, 1998, an increase of $26.4 million, or 9.3%, over the total
at December 31, 1997. Loan disbursements totaled approximately $127.0 million
during the 1998 six month period, while principal repayments and sales amounted
to $79.7 million and $20.2 million, respectively. Loan disbursements increased
by $38.6 million, or 43.7%, 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 $4.1
million at June 30, 1998, an increase of $339,000 or 9.1% over the total at
December 31, 1997. The allowance for loan losses represented 1.29% and 1.30% of
the total loan portfolio at June 30, 1998 and December 31, 1997, respectively.
The Company's allowance represented 307.5% and 360.4% of non-performing loans,
which totaled $1.3 million and $1.0 million at June 30, 1998 and December 31,
1997, respectively.
The deposit portfolio totaled $333.9 million at June 30, 1998,
an increase of $31.9 million, or 10.6%, 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 June 30, 1998, the Bank's regulatory capital
substantially exceeded all regulatory capital requirements.
11
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OAK HILL FINANCIAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and six month periods ended June 30, 1998 and 1997
Comparison of Results of Operations for the Six Month Periods Ended June 30,
- ----------------------------------------------------------------------------
1998 and 1997
- -------------
General
- -------
Net earnings for the six months ended June 30, 1998 totaled
$2.9 million, an increase of $699,000, or 32.4%, 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 $1.0 million increase in net interest
income after provision for losses on loans and a $488,000 increase in other
income, which were partially offset by a $531,000 increase in general,
administrative and other expenses and an increase in the federal income tax
provision of $302,000.
Net Interest Income
- -------------------
Total interest income for the six months ended June 30, 1998
increased by $2.2 million, or 16.3%, reflecting the effects of growth in average
interest-earning assets from $313.7 million to $361.0 million for the six month
periods ending June 30, 1997 and 1998, respectively, coupled with an increase in
the weighted-average yield year-to-year. Similarly, total interest expense
increased for the six months ended June 30, 1998 by $897,000 or 13.7%, also
reflecting the growth in average interest-bearing liabilities from $268.8
million to $306.6 million, as well as an increase in the weighted-average cost
of funds, for the six months ended June 30, 1998.
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $1.3 million, or 18.8%, for
the six months ended June 30, 1998, as compared to the comparable period in
1997. The interest rate spread amounted to 3.82% and 3.71% for the six months
ended June 30, 1998 and 1997, while the net interest margin totaled 4.56% and
4.42% for the six months ended June 30, 1998 and 1997, respectively.
Provision for Losses on Loans
- -----------------------------
The provision for losses on loans totaled $589,000 for the six
months ended June 30, 1998, an increase of $247,000 over the comparable 1997
period. The increases in the provision were 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 six months ended June 30, 1998
by $488,000 or 69.4%, over the comparable 1997 period. The increase resulted
from a $130,000, or 19.5% increase in service fees, charges and other operating
income and a $358,000 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 six month period.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and six month periods ended June 30, 1998 and 1997
Comparison of Results of Operations for the Six Month Periods Ended June 30,
- ----------------------------------------------------------------------------
1998 and 1997 (continued)
- -------------------------
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense increased for the
six months ended June 30, 1998 by $531,000, or 13.2%. The increase was due
primarily to a $385,000, or 18.4%, increase in employee compensation and
benefits, a $35,000, or 5.9%, increase in occupancy and equipment expense, and
an increase in federal deposit insurance premiums and franchise taxes of $10,000
and $25,000, respectively. Other operating expenses also increased year-to-year
by $76,000 or 7.1%.
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. 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 increased due
primarily to costs incurred in connection with the inception of the Action
subsidiary, coupled with the Company's growth year-to-year.
Federal Income Taxes
- --------------------
The provision for federal income taxes increased by
$302,000, or 28.4%, during the six months ended June 30, 1998, as compared to
the same period in 1997. The effective tax rates for the six month periods ended
June 30, 1998 and 1997 were 32.4% and 33.0%, respectively.
Comparison of Results of Operations for the Three Month Periods Ended June 30,
- ------------------------------------------------------------------------------
1998 and 1997
- -------------
General
- -------
Net earnings for the three months ended June 30, 1998 totaled
$1.6 million, an increase of $491,000, or 46.4%, over the $1.1 million in net
earnings reported in the comparable 1997 period. The increase in earnings in the
1998 period is primarily attributable to a $548,000 increase in net interest
income after provision for losses on loans and a $324,000 increase in other
income, which were partially offset by a $146,000 increase in general,
administrative and other expenses and an increase in federal income tax
provision of $235,000.
Net Interest Income
- -------------------
Total interest income for the three months ended June 30, 1998
increased by $1.1 million, or 16.3%, generally reflecting the effects of growth
in average interest-earning assets from $319.9 million to $368.7 million for the
three month periods ending June 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 June 30, 1998 by $492,000 or 14.9%,
reflecting the growth in average interest-bearing liabilities from $272.6
million to $344.4 million, as well as an increase in weighted-average cost of
funds, during the respective three month periods.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and six month periods ended June 30, 1998 and 1997
Comparison of Results of Operations for the Three Month Periods Ended June 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 $624,000, or 17.5%, for the
three months ended June 30, 1998, as compared to the comparable quarter in 1997.
The interest rate spread amounted to 4.26% and 3.75% for the three months ended
June 30, 1998 and 1997, while the net interest margin totaled 4.55% and 4.46%
for the three months ended June 30, 1998 and 1997, respectively.
Provision for Losses on Loans
- -----------------------------
The provision for losses on loans totaled $312,000 for the
three months ended June 30, 1998, an increase of $76,000 from the comparable
1997 period. 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 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 three months ended June 30,
1998 by $324,000 or 92.3% over the comparable 1997 period. The increase resulted
from an increase of $96,000, or 29.2% in service fees, charges and other
operating income and an increase of $228,000 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 increased for the
three months ended June 30, 1998 by $146,000, or 7.0%. The increase was due
primarily to a $106,000, or 9.7%, increase in employee compensation and
benefits, a $66,000, or 25.6%, increase in occupancy and equipment expense, and
an increase in federal deposit insurance premiums and franchise taxes of $12,000
and $12,000, respectively. Other operating expenses decreased year-to-year by
$50,000 or 7.8%.
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.
Federal Income Taxes
- --------------------
The provision for federal income taxes increased by
$235,000, or 45.5%, during the three months ended June 30, 1998, as compared to
the same period in 1997. The effective tax rates for the three month periods
ended June 30, 1998 and 1997 were 32.6% and 32.8%, respectively.
14
<PAGE> 15
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
---------------------------------------------------
None
ITEM 5. Other Information
-----------------
Any shareholder proposal submitted outside the processes of Rule 14a-8
under the Securities Exchange Act of 1934 for presentation to the
Company's 1999 Annual Meeting of Shareholders will be considered
untimely for purposes of Rule 14a-4 and 14a-5 if notice thereof is
received by the Company after February 10, 1999.
On July 21, 1998, the Company announced that it had completed a
secondary public offering of 875,000 shares of the Company stock at
$20.00 per share. The shares were registered under the Securities Act
of 1933, as amended, by a Registration Statement on Form S-3. The
shares were sold by certain shareholders of the Company, and the
Company did not receive any proceeds from the sale. McDonald & Company
Securities, Inc. and Advest, Inc. acted as underwriters on the
transaction. On July 28, 1998, the above named underwriters excercised
an option and purchased an additional 50,000 shares from the selling
shareholders.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
Reports on Form 8-K: None Exhibits: Financial Data Schedule for the six
month period ended June 30, 1998.
15
<PAGE> 16
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: August 13, 1998 By: /s/ John D. Kidd
--------------- --------------------------------
John D. Kidd
President
Date: August 13, 1998 By: /s/ H. Tim Bichsel
--------------- --------------------------------
H. Tim Bichsel
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,971
<INT-BEARING-DEPOSITS> 66
<FED-FUNDS-SOLD> 3,215
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 53,102
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 311,672
<ALLOWANCE> 4,083
<TOTAL-ASSETS> 387,581
<DEPOSITS> 333,891
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,889
<LONG-TERM> 15,171
0
0
<COMMON> 2,207
<OTHER-SE> 33,423
<TOTAL-LIABILITIES-AND-EQUITY> 387,581
<INTEREST-LOAN> 13,641
<INTEREST-INVEST> 1,670
<INTEREST-OTHER> 301
<INTEREST-TOTAL> 15,612
<INTEREST-DEPOSIT> 6,873
<INTEREST-EXPENSE> 7,450
<INTEREST-INCOME-NET> 8,162
<LOAN-LOSSES> 589
<SECURITIES-GAINS> 68
<EXPENSE-OTHER> 4,542
<INCOME-PRETAX> 4,222
<INCOME-PRE-EXTRAORDINARY> 4,222
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,856
<EPS-PRIMARY> .65
<EPS-DILUTED> .64
<YIELD-ACTUAL> 8.72
<LOANS-NON> 1,057
<LOANS-PAST> 244
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,301
<ALLOWANCE-OPEN> 3,744
<CHARGE-OFFS> 321
<RECOVERIES> 71
<ALLOWANCE-CLOSE> 4,083
<ALLOWANCE-DOMESTIC> 4,083
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
