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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1999
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 executive office) (Zip Code)
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 12, 1999, the latest practicable date, 4,372,265 shares of
the registrant's common stock, $.50 stated value, were issued and outstanding.
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Oak Hill Financial, Inc.
TABLE OF CONTENTS
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Page
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
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
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3: Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 16
Item 2: Changes in Securities and Use of Proceeds 16
Item 3: Default Upon Senior Securities 16
Item 4: Submission of Matters to a Vote of Security Holders 16
Item 5: Other Information 17
Item 6: Exhibits and Reports on Form 8-K 17
Signatures
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OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
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<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
<S> <C> <C>
Cash and due from banks $ 9,364 $ 10,100
Federal funds sold 104 9,687
Investment securities designated as available for sale - at market 51,616 57,143
Loans receivable - net 366,156 340,143
Loans held for sale - at lower of cost or market -- 550
Office premises and equipment - net 6,009 5,717
Federal Home Loan Bank stock - at cost 2,955 2,855
Accrued interest receivable 2,572 2,705
Prepaid expenses and other assets 629 176
Prepaid federal income tax -- 152
Deferred federal income tax asset 1,384 751
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Total assets $ 440,789 $ 429,979
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits $ 364,215 $ 366,090
Securities sold under agreements to repurchase 979 940
Advances from the Federal Home Loan Bank 34,224 23,784
Federal funds purchased 700 --
Accrued interest payable and other liabilities 1,895 1,695
Federal income taxes payable 78 --
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Total liabilities 402,091 392,509
Stockholders' equity
Common stock - $.50 stated value; authorized 15,000,000 shares, 4,420,365 and
4,415,865 shares issued at June 30, 1999 and December 31, 1998 2,210 2,208
Additional paid-in capital 4,144 4,106
Retained earnings 34,084 31,718
Treasury stock (48,100 shares at cost) (755) (755)
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects (985) 193
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Total stockholders' equity 38,698 37,470
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Total liabilities and stockholders' equity $ 440,789 $ 429,979
========= =========
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OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
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SIX MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
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Interest income
Loans $ 15,559 $ 13,641 $ 7,842 $ 6,969
Investment securities 1,669 1,670 798 868
Interest-bearing deposits and other 276 301 116 141
-------- -------- -------- --------
Total interest income 17,504 15,612 8,756 7,978
Interest expense
Deposits 7,274 6,873 3,568 3,530
Borrowings 727 577 375 266
-------- -------- -------- --------
Total interest expense 8,001 7,450 3,943 3,796
-------- -------- -------- --------
Net interest income 9,503 8,162 4,813 4,182
Provision for losses on loans 704 589 401 312
-------- -------- -------- --------
Net interest income after
provision for losses on loans 8,799 7,573 4,412 3,870
Other income
Gain on sale of loans 236 394 77 250
Gain on investment securities transactions 7 68 2 54
Service fees, charges and other operating 922 729 500 371
-------- -------- -------- --------
Total other income 1,165 1,191 579 675
General, administrative and other expense
Employee compensation and benefits 3,066 2,483 1,532 1,195
Occupancy and equipment 646 633 329 324
Federal deposit insurance premiums 29 30 11 15
Franchise taxes 222 242 99 115
Other operating 1,259 1,154 653 595
-------- -------- -------- --------
Total general, administrative
and other expense 5,222 4,542 2,624 2,244
-------- -------- -------- --------
Earnings before income taxes 4,742 4,222 2,367 2,301
Federal income taxes
Current 1,616 1,466 851 757
Deferred (26) (100) (64) (6)
-------- -------- -------- --------
Total federal income taxes 1,590 1,366 787 751
-------- -------- -------- --------
NET EARNINGS $ 3,152 $ 2,856 $ 1,580 $ 1,550
======== ======== ======== ========
EARNINGS PER SHARE
Basic $.72 $.65 $.36 $.35
==== ==== ==== ====
Diluted $.71 $.64 $.36 $.34
==== ==== ==== ====
</TABLE>
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OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
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<CAPTION>
SIX MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
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Net earnings $ 3,152 $ 2,856 $ 1,580 $ 1,550
Other comprehensive income, net of tax:
Unrealized losses on securities
designated as available for sale (1,173) --
(902) (53)
Reclassification adjustment for gains included
in net earnings (5) (45) (1) (36)
------- ------- ------- -------
Comprehensive income $ 1,974 $ 2,811 $ 677 $ 1,461
======= ======= ======= =======
Accumulated other comprehensive income (loss) $ (985) $ 145 $ (985) $ 145
======= ======= ======= =======
</TABLE>
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OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(In thousands)
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<CAPTION>
1999 1998
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Cash flows from operating activities:
Net earnings for the period $ 3,152 $ 2,856
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization 270 283
Amortization of premiums and discounts on investment securities - net 77 40
Amortization of deferred loan origination costs 205 202
Federal Home Loan Bank stock dividends (100) (96)
Loans originated for sale in secondary market (14,473) (20,694)
Proceeds from sale of loans in the secondary market 15,163 20,370
Gain on sale of loans (140) (218)
Provision for losses on loans 704 589
Gain on investment securities transactions (7) (68)
Gain on sale of assets -- (4)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 133 (204)
Prepaid expenses and other assets (453) 346
Accrued expenses and other liabilities 200 356
Federal income taxes
Current 230 --
Deferred (26) (100)
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Net cash provided by operating activities 4,935 3,658
Cash flows provided by (used in) investing activities:
Loan principal repayments 78,907 79,655
Loan disbursements (105,829) (106,327)
Principal repayments on mortgage-backed securities 1,223 1,135
Proceeds from maturity and redemption of investment securities 13,745 11,000
Proceeds from investment securities transactions 179 2,987
Purchase of office premises and equipment (562) (696)
Proceeds from sale of assets -- 4
Purchase of investment securities
designated as available for sale (11,475) (16,274)
Decrease in federal funds sold - net 9,583 558
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Net cash used in investing activities (14,229) (27,958)
--------- ---------
Net cash used in operating and investing
activities (balance carried forward) (9,294) (24,300)
--------- ---------
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OAK HILL FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended June 30,
(In thousands)
<TABLE>
<CAPTION>
1999 1998
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Net cash used in operating and investing
activities (balance brought forward) $ (9,294) $ (24,300)
Cash flows provided by (used in) financing activities:
Proceeds from securities sold under agreement to repurchase 39 635
Net increase (decrease) in deposit accounts (1,875) 31,926
Proceeds from Federal Home Loan Bank advances 21,890 2,975
Repayment of Federal Home Loan Bank advances (11,450) (12,509)
Increase in fed funds purchased - net 700 --
Proceeds from issuance of shares under stock option plan 40 60
Dividends paid on common shares (786) (590)
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Net cash provided by financing activities 8,558 22,497
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Net decrease in cash and cash equivalents (736) (1,803)
Cash and cash equivalents at beginning of period 10,100 9,840
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Cash and cash equivalents at end of period $ 9,364 $ 8,037
========= =========
Supplemental disclosure of cash flow information: Cash paid during
the period for:
Federal income taxes $ 1,387 $ 1,332
========= =========
Interest on deposits and borrowed money $ 8,189 $ 7,493
========= =========
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as available
for sale, net of related tax effects $ (1,178) $ (45)
========= =========
Recognition of mortgage servicing rights in
accordance with SFAS No. 125 $ 96 $ 176
========= =========
</TABLE>
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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-Q 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 Oak
Hill Financial, Inc. (the "Company") included in the Annual Report on
Form 10-K for the year ended December 31, 1998. 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, 1999 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 Oak Hill Banks (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 a 5
for 4 stock dividend which was declared on April 28, 1998.
Weighted-average common shares outstanding totaled 4,370,666,
4,369,224, 4,401,736, and 4,400,050 for the three and six month periods
ended June 30, 1999 and 1998, 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 4,442,332,
4,443,620, 4,513,046, and 4,501,001 for the three and six month periods
ended June 30, 1999 and 1998, respectively. There were 71,666, 74,396,
111,310, and 100,951 incremental shares related to the assumed exercise
of stock options in the computation of diluted earnings per share for
the three and six month periods ended June 30, 1999 and 1998,
respectively.
4. Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards
Board (the "FASB") issued Statement of Financial Accounting Standards
("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.
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OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Effects of Recent Accounting Pronouncements (continued)
The definition of derivative financial instruments is complex,
but in general, it is an instrument with one or more underlyings, such
as 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 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 embedded derivative is clearly
and closely related to the host contract. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000. 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 date 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. Phase II Renovation is to upgrade and
replace equipment as necessary. Phase I and Phase II were largely
completed by December 31, 1998. During the phases 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 ISBO Link is the Bank's connection with the Independent State
Bank of Ohio. The ISBO Link processes wires, credit card applications,
and 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
the 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, which began during the fourth
quarter of 1998 was substantially completed at June 30, 1999. In this
phase, systems and equipment were tested to ensure year 2000 readiness.
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OAK HILL FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Year 2000 Compliance Matters
The Company believes that to ensure year 2000 readiness,
approximately $100,000 in costs will be incurred. Approximately 80% of
the costs were incurred as of June 30, 1999, while the remaining amount
is expected to be incurred during the second half of 1999. Although the
Company believes the 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 their systems, programs, and/or equipment year 2000 ready, the
Company's net earnings and financial condition could be adversely
affected.
6. Other Events
On March 11, 1999, the Company announced the signing of a
definitive agreement for the acquisition of Towne Financial Corporation
("Towne"). Under terms of the agreement, the Company will exchange
4.125 shares of its common stock for each of the 222,100 shares of
Towne stock, resulting in a transaction valued at approximately $17.6
million. The combination will be accounted for as a
pooling-of-interests. At March 31, 1999, Towne reported total assets of
$122.3 million, total deposits of $98.4 million, and stockholders'
equity of $9.5 million. The transaction is expected to be completed
during the fourth quarter of 1999, subject to the approval of both the
Company's and Towne's shareholders and subject to regulatory approval.
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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, 1998 to June 30,
1999
At June 30, 1999, the Company had total assets of $440.8
million, an increase of approximately $10.8 million, or 2.5%, over December 31,
1998 levels. The increase in total assets was funded primarily by growth in
undistributed net earnings of $2.4 million and an increase of $10.4 million in
Federal Home Loan Bank advances, which were partially offset by a decrease in
the deposit portfolio of $1.9 million.
Cash, federal funds sold and investment securities totaled
$61.1 million at June 30, 1999, a decrease of $15.8 million, or 20.6%, from
December 31, 1998 levels. During the six months ended June 30, 1999, management
purchased $11.5 million of investment securities, while $15.0 million of
securities matured or were called. Securities purchased consisted primarily of
U.S. government agency and mortgage-backed securities. The decrease reflects
management's use of excess liquidity to fund growth in the loan portfolio.
Loans receivable and loans held for sale totaled $366.2
million at June 30, 1999, an increase of $25.5 million, or 7.5%, over the total
at December 31, 1998. Loan disbursements totaled approximately $120.3 million
during the 1999 six month period, while principal repayments and sales amounted
to $78.9 million and $15.0 million, respectively. Loan disbursements decreased
by $6.7 million, or 5.3%, during the 1999 period, as compared to the comparable
period in 1998. Loans originated in 1999 were primarily comprised of commercial
and 1-4 family residential loans.
The Company's allowance for loan losses amounted to $4.6
million at June 30, 1999, an increase of $298,000, or 6.9%, over the total at
December 31, 1998. The allowance for loan losses represented 1.24% and 1.25% of
the total loan portfolio at June 30, 1999 and December 31, 1998, respectively.
The Company's allowance represented 358.1% and 313.8% of non-performing loans,
which totaled $1.3 million and $1.6 million at June 30, 1999 and December 31,
1998, respectively.
The deposit portfolio totaled $364.2 million at June 30, 1999,
a decrease of $1.9 million, or .5%, from December 31, 1998 levels. The decrease
resulted from a concerted effort by management to decrease the weighted-average
cost of time deposits while excess liquidity was redeployed, primarily to fund
new loan originations. Interest rates on certificates of deposit were
subsequently increased, and management anticipates that deposits will increase
in future quarters.
Advances from the Federal Home Loan Bank totaled $34.2 million
at June 30, 1999, an increase of $10.4 million, or 43.9%, over December 31,
1998. Proceeds from advances were used to fund new loan originations during the
period.
The Bank is required to maintain minimum regulatory capital
pursuant to federal regulations. At June 30, 1999, the Bank's regulatory capital
substantially exceeded all regulatory capital requirements.
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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, 1999 and 1998
Comparison of Results of Operations for the Six Month Periods Ended June 30,
1999 and 1998
General
Net earnings for the six months ended June 30, 1999 totaled
$3.2 million, an increase of $296,000, or 10.4%, over the $2.9 million in net
earnings reported in the comparable 1998 period. The increase in earnings in the
1999 period is primarily attributable to a $1.2 million increase in net interest
income after provision for losses on loans, which was partially offset by a
$26,000 decrease in other income, a $680,000 increase in general, administrative
and other expenses, and an increase in the federal income tax provision of
$224,000.
Net Interest Income
Total interest income for the six months ended June 30, 1999
increased by $1.9 million, or 12.1%, reflecting the effects of growth in average
interest-earning assets from $361.0 million to $417.5 million for the six month
periods ending June 30, 1998 and 1999, respectively, which was partially offset
by a decrease in the weighted-average yield year-to-year. Similarly, total
interest expense increased for the six months ended June 30, 1999 by $551,000,
or 7.4%, also reflecting the growth in average interest-bearing liabilities from
$306.6 million to $353.3 million for the six month periods ending June 30, 1998
and 1999, respectively, which was partially offset by a decrease in the
weighted-average cost of funds, for the six months ended June 30, 1999.
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $1.3 million, or 16.4%, for
the six months ended June 30, 1999, as compared to the comparable period in
1998. The interest rate spread amounted to 3.89% and 3.82% for the six months
ended June 30, 1999 and 1998, while the net interest margin totaled 4.59% and
4.56% for the six months ended June 30, 1999 and 1998, respectively.
Provision for Losses on Loans
The provision for losses on loans totaled $704,000 for the six
months ended June 30, 1999, an increase of $115,000 over the comparable 1998
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, 1999, 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 decreased for the six months ended June 30, 1999
by $26,000 or 2.2%, from the comparable 1998 period. The decrease resulted from
a $158,000, or 40.1%, decrease in gain on sale of loans and a $61,000 decrease
in gain on investment securities transactions, which were partially offset by a
$193,000, or 26.5%, increase in service fees, charges and other operating
income.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and six month periods ended June 30, 1999 and 1998
Comparison of Results of Operations for the Six Month Periods Ended June 30,
1999 and 1998 (continued)
General, Administrative and Other Expense
General, administrative and other expense increased for the
six months ended June 30, 1999 by $680,000, or 15.0%, over the comparable six
month period in 1998. The increase was due primarily to a $583,000, or 23.5%,
increase in employee compensation and benefits, a $13,000, or 2.1%, increase in
occupancy and equipment expense, and a $105,000, or 9.1%, increase in other
operating expenses. Federal deposit insurance premiums and franchise taxes
decreased $1,000 and $20,000, respectively.
The increase in employee compensation and benefits is due
primarily to additional staffing levels, primarily related to the start-up of
new branch facilities, coupled with normal merit increases and a decrease in
deferred costs related to a decline in the lending volume year-to-year. The
increase in occupancy and equipment expense is also attributable to the opening
of new branch facilities. The decrease in federal deposit insurance premiums
resulted primarily from a decrease in premium rates assessed in 1999. Other
operating expenses increased due primarily to costs incurred in connection with
the start-up of new branch facilities, coupled with pro-rata increases in
various operating costs associated with the Company's overall growth
year-to-year.
Federal Income Taxes
The provision for federal income taxes increased by
$224,000, or 16.4%, during the six months ended June 30, 1999, as compared to
the same period in 1998. The effective tax rates for the six month periods ended
June 30, 1999 and 1998 were 33.5% and 32.4%, respectively.
Comparison of Results of Operations for the Three Month Periods Ended June 30,
1999 and 1998
General
Net earnings for the three months ended June 30, 1999 totaled
$1.6 million, an increase of $30,000, or 1.9%, over the amount reported in the
comparable 1998 period. The increase in earnings in the 1999 period is primarily
attributable to a $542,000 increase in net interest income after provision for
losses on loans, which was partially offset by a $96,000 decrease in other
income, a $380,000 increase in general, administrative and other expenses and an
increase in the federal income tax provision of $36,000.
Net Interest Income
Total interest income for the three months ended June 30, 1999
increased by $778,000, or 9.8%, generally reflecting the effects of growth in
average interest-earning assets from $368.7 million to $417.8 million for the
three month periods ending June 30, 1998 and 1999, respectively, which was
partially offset by a decrease in the weighted-average yield year-to-year.
Similarly, total interest expense increased for the three months ended June 30,
1999 by $147,000, or 3.9%, reflecting the growth in average interest-bearing
liabilities from $344.4 million to $351.9 million, which was partially offset by
a decrease in weighted-average cost of funds year-to-year.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and six month periods ended June 30, 1999 and 1998
Comparison of Results of Operations for the Three Month Periods Ended June 30,
1999 and 1998 (continued)
Net Interest Income (continued)
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $631,000, or 15.1%, for the
three months ended June 30, 1999, as compared to the comparable quarter in 1998.
The interest rate spread amounted to 3.91% and 4.26% for the three months ended
June 30, 1999 and 1998, while the net interest margin totaled 4.62% and 4.55%
for the three months ended June 30, 1999 and 1998, respectively.
Provision for Losses on Loans
The provision for losses on loans totaled $401,000 for the
three months ended June 30, 1999, an increase of $89,000 from the comparable
1998 period. The increase in the provision was primarily attributable to 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, 1999, 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 decreased for the three months ended June 30,
1999 by $96,000, or 14.2%, from the comparable 1998 period. The decrease
resulted from a decrease of $173,000, or 69.2%, in gain on sale of loans and a
decrease of $52,000 in investment securities transactions, which were partially
offset by an increase of $129,000, or 34.8%, in service fees, charges and other
operating income.
General, Administrative and Other Expense
General, administrative and other expense increased for the
three months ended June 30, 1999 by $380,000, or 16.9%. The increase was due
primarily to a $337,000, or 28.2%, increase in employee compensation and
benefits, a $5,000, or 1.5%, increase in occupancy and equipment expense, and a
$58,000, or 9.7%, increase in other operating expenses. Federal deposit
insurance premiums and franchise taxes decreased $4,000 and $20,000,
respectively.
The increase in employee compensation and benefits was due
primarily to additional staffing levels, primarily related to the start-up of
new branch facilities, coupled with normal merit increases and a decrease in
deferred costs related to the decline in lending volume year-to-year. The
increase in occupancy and equipment expense is also attributable to the opening
of new branch facilities. The decrease in federal deposit insurance premiums
resulted primarily from a decrease in premium rates assessed in 1999. Other
operating expenses increased due primarily to costs incurred in connection with
the start-up of new branch facilities, coupled with pro-rata increases in
various operating expenses associated with the Company's overall growth
year-to-year.
- 14 -
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and six month periods ended June 30, 1999 and 1998
Comparison of Results of Operations for the Three Month Periods Ended June 30,
1999 and 1998 (continued)
Federal Income Taxes
The provision for federal income taxes increased by $36,000,
or 4.8%, during the three months ended June 30, 1999, as compared to the same
period in 1998. The effective tax rates for the three month periods ended June
30, 1999 and 1998 were 33.2% and 32.6%, respectively.
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
Not applicable
- 15 -
<PAGE> 16
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
(a) The Company held its 1999 Annual meeting of Shareholders
on April 27, 1999. Holders of 3,792,522 Common Shares of the Company
were present representing 86.83% of the Company's 4,367,765 Common
Shares outstanding.
(b) The following persons were elected as Class I members of
the Company's Board of Directors to serve until the 2001 Annual Meeting
or until their successors are duly elected and qualified. Each person
received the number of votes for or the number of votes with authority
withheld indicated below.
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
<S> <C> <C>
Evan E. Davis 3,773,846 37,296
John D. Kidd 3,771,671 38,101
C. Clayton Johnson 3,771,721 40,051
Richard P. LeGrand 3,773,846 37,926
D. Bruce Knox 3,773,596 38,176
</TABLE>
The continuing Class II directors, whose terms expire at the
2000 Annual Meeting are: Barry M. Dorsey, Ed. D., Rick A.
McNelly, Donald R. Seigneur, and H. Grant Stephenson.
(c) The proposal to amend the Company's Third Amended and
Restated Articles of Incorporation to increase the authorized Common
Shares of the Company from 5,000,000 to 15,000,000 shares was approved
with 3,720,437 votes FOR, 75,533 votes AGAINST, and 15,802 votes
ABSTAIN.
The proposal to amend the Company's 1995 Stock Option Plan to
increase the number of shares of the Company's common stock issuable
upon exercise of stock options under the Plan from 500,000 to 800,000
shares was approved with 2,817,548 votes FOR, 93,038
- 16 -
<PAGE> 17
votes AGAINST, and 20,827 votes ABSTAIN.
The ratification of the appointment of Grant Thornton LLP as
independent auditors for the Company for the fiscal year ending
December 31, 1999, was approved with 3,796,619 votes FOR, 3,551 votes
AGAINST, and 11,602 votes ABSTAIN.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
The Company has filed the following current reports on Form 8-K with
the Securities and Exchange Commission:
(a) Form 8-K, dated July 7, 1999, filed with the Securities and
Exchange Commission on July 9, 1999
Exhibits: Financial Data Schedule for the six month period ended June
30, 1999.
-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: August 12, 1999 By:/s/John D. Kidd
-----------------------
John D. Kidd
President
Date: August 12, 1999 By:/s/Ronald J. Copher
-----------------------
Ronald J. Copher
Chief Financial Officer
- 18 -
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 9,297
<INT-BEARING-DEPOSITS> 67
<FED-FUNDS-SOLD> 104
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,616
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 366,156
<ALLOWANCE> 4,614
<TOTAL-ASSETS> 440,789
<DEPOSITS> 364,215
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,652
<LONG-TERM> 34,224
0
0
<COMMON> 2,210
<OTHER-SE> 36,488
<TOTAL-LIABILITIES-AND-EQUITY> 440,789
<INTEREST-LOAN> 15,559
<INTEREST-INVEST> 1,669
<INTEREST-OTHER> 276
<INTEREST-TOTAL> 17,504
<INTEREST-DEPOSIT> 7,274
<INTEREST-EXPENSE> 727
<INTEREST-INCOME-NET> 16,777
<LOAN-LOSSES> 704
<SECURITIES-GAINS> 7
<EXPENSE-OTHER> 5,222
<INCOME-PRETAX> 4,742
<INCOME-PRE-EXTRAORDINARY> 4,742
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,152
<EPS-BASIC> 0.72
<EPS-DILUTED> 0.71
<YIELD-ACTUAL> 8.46
<LOANS-NON> 601
<LOANS-PAST> 687
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,288
<ALLOWANCE-OPEN> 4,316
<CHARGE-OFFS> 510
<RECOVERIES> 104
<ALLOWANCE-CLOSE> 4,614
<ALLOWANCE-DOMESTIC> 4,614
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
