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 September 30, 2000
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 October 27, 2000 the latest practicable date, 5,131,256 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
Page
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 10
Item 3: Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 15
Item 2: Changes in Securities and Use of Proceeds 15
Item 3: Default Upon Senior Securities 15
Item 4: Submission of Matters to a Vote of Security Holders 15
Item 5: Other Information 15
Item 6: Exhibits and Reports on Form 8-K 15
Signatures 16
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Oak Hill Financial, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, December 31,
ASSETS 2000 1999
<S> <C> <C>
Cash and due from banks $ 10,335 $ 14,675
Federal funds sold 122 3,854
Investment securities designated as held to maturity - at cost
(approximate market value of $4,891 at September 30, 2000) 4,947 -
Investment securities designated as available for sale - at market 54,010 53,338
Loans receivable - net 580,668 507,726
Loans held for sale - at lower of cost or market 163 243
Office premises and equipment - net 9,336 9,256
Federal Home Loan Bank stock - at cost 4,889 4,079
Accrued interest receivable 4,455 3,593
Goodwill - net 258 283
Prepaid expenses and other assets 1,139 312
Prepaid federal income tax 93 1,220
Deferred federal income tax asset 1,990 1,521
------- -------
Total assets $672,405 $600,100
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $541,596 $488,880
Securities sold under agreements to repurchase 129 1,172
Advances from the Federal Home Loan Bank 72,046 59,680
Notes payable 1,600 -
Guaranteed preferred beneficial interests in the Corporation's
junior subordinated debentures 5,000 -
Accrued interest payable and other liabilities 3,568 2,644
------- -------
Total liabilities 623,939 552,376
Stockholders' equity
Common stock - $.50 stated value; authorized 15,000,000 shares, 5,402,851 and
5,369,576 shares issued at September 30, 2000 and
December 31, 1999, respectively 2,701 2,683
Additional paid-in capital 4,937 4,650
Retained earnings 46,247 42,724
Treasury stock (271,595 and 50,900 shares - at cost at
September 30, 2000 and December 31, 1999, respectively) (4,117) (755)
Accumulated comprehensive loss:
Unrealized losses on securities designated as available
for sale, net of related tax effects (1,302) (1,578)
------- -------
Total stockholders' equity 48,466 47,724
------- -------
Total liabilities and stockholders' equity $672,405 $600,100
======= =======
</TABLE>
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Oak Hill Financial, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
(Restated) (Restated)
<S> <C> <C> <C> <C>
Interest income
Loans $36,554 $28,763 $13,043 $10,253
Investment securities 2,800 4,126 984 1,358
Interest-bearing deposits and other 317 526 96 131
------ ------ ------ ------
Total interest income 39,671 33,415 14,123 11,742
Interest expense
Deposits 17,589 14,376 6,497 4,781
Borrowings 3,459 1,985 1,399 891
------ ------ ------ ------
Total interest expense 21,048 16,361 7,896 5,672
------ ------ ------ ------
Net interest income 18,623 17,054 6,227 6,070
Provision for losses on loans 1,566 1,894 708 1,175
------ ------ ------ ------
Net interest income after
provision for losses on loans 17,057 15,160 5,519 4,895
Other income (loss)
Gain on sale of loans 87 467 21 4
Loss on investment securities transactions (6) (2,166) (6) (2,184)
Service fees, charges and other operating 1,856 1,564 654 591
------ ------ ------ ------
Total other income (loss) 1,937 (135) 669 (1,589)
General, administrative and other expense
Employee compensation and benefits 6,545 5,647 2,320 1,969
Occupancy and equipment 1,407 1,308 485 457
Federal deposit insurance premiums 75 90 26 31
Franchise taxes 394 405 128 138
Other operating 2,910 2,255 933 774
Merger-related expenses - 850 - 850
------ ------ ------ ------
Total general, administrative
and other expense 11,331 10,555 3,892 4,219
------ ------ ------ ------
Earnings (loss) before income taxes (credits) 7,663 4,470 2,296 (913)
Federal income taxes (credits)
Current 3,172 1,434 648 (377)
Deferred (610) 10 118 57
------ ------ ------ ------
Total federal income taxes (credits) 2,562 1,444 766 (320)
------ ------ ------ ------
NET EARNINGS (LOSS) $ 5,101 $ 3,026 $ 1,530 $ (593)
====== ====== ====== ======
EARNINGS (LOSS) PER SHARE
Basic $.97 $.57 $.30 $(.11)
=== === === ====
Diluted $.97 $.56 $.29 $(.11)
=== === === ====
</TABLE>
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Oak Hill Financial, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net earnings (loss) $ 5,101 $ 3,026 $ 1,530 $ (593)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities
designated as available for sale,
net of tax of $141, $(1,393), $178, and $(740)
for the respective periods 272 (2,704) 341 (1,436)
Reclassification adjustment for losses included
in net earnings, net of tax of $2, $736, $2, and $742
for the respective periods 4 1,430 4 1,442
------ ------ ------ ------
Comprehensive income (loss) $ 5,377 $ 1,752 $ 1,875 $ (587)
====== ====== ====== ======
Accumulated other comprehensive loss $(1,302) $(1,130) $(1,302) $(1,130)
====== ====== ====== ======
</TABLE>
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Oak Hill Financial, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(In thousands)
2000 1999
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 5,101 $ 3,026
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization 623 566
Amortization of premiums and discounts on investment securities - net 31 160
Amortization of deferred loan origination costs 121 283
Federal Home Loan Bank stock dividends (244) (199)
Loans originated for sale in secondary market (6,780) (26,243)
Proceeds from sale of loans in the secondary market 6,890 28,716
Gain on sale of loans (30) (239)
Provision for losses on loans 1,566 1,894
Loss on investment securities transactions 6 2,166
(Gain) loss on sale of assets 20 (13)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (862) 115
Prepaid expenses and other assets (758) (811)
Accrued expenses and other liabilities 924 1,299
Federal income taxes
Current 1,127 (933)
Deferred (610) 10
------ ------
Net cash provided by operating activities 7,125 9,797
Cash flows provided by (used in) investing activities:
Loan principal repayments 160,530 137,026
Loan disbursements (235,739) (201,465)
Purchase of loans - (536)
Principal repayments on mortgage-backed securities
designated as available-for-sale 1,334 3,405
Principal repayments on mortgage-backed securities
designated as held-to-maturity - 3,615
Proceeds from maturity and redemption of investment securities 330 14,745
Proceeds from investment securities transactions 1,150 41,014
Purchase of office premises and equipment (720) (1,507)
Proceeds from sale of assets 533 39
Purchase of investment securities designated as available-for-sale (3,106) (16,088)
Purchase of investment securities designated as held-to-maturity (4,947) (1,039)
Decrease in federal funds sold - net 3,732 9,186
Purchase of Federal Home Loan Bank stock (566) (129)
------ ------
Net cash used in investing activities (77,469) (11,734)
------ ------
Net cash used in operating and investing
activities (balance carried forward) (70,344) (1,937)
------ ------
</TABLE>
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Oak Hill Financial, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended September 30,
(In thousands)
2000 1999
(Restated)
<S> <C> <C>
Net cash used in operating and investing
activities (balance brought forward) $ (70,344) $ (1,937)
Cash flows provided by (used in) financing activities:
Repayments of securities sold under agreement to repurchase (1,043) (232)
Net increase (decrease) in deposit accounts 52,716 (2,759)
Proceeds from Federal Home Loan Bank advances 1,921,841 496,929
Repayment of Federal Home Loan Bank advances (1,909,475) (455,332)
Proceeds from notes payable 2,100 -
Repayment of notes payable (500) -
Proceeds from issuance of shares under stock option plan 305 245
Proceeds from issuance of debt securities 5,000 -
Advances by borrowers for taxes and insurance - (241)
Purchase of treasury stock (3,362) -
Dividends paid on common shares (1,578) (1,261)
--------- -------
Net cash provided by financing activities 66,004 37,349
--------- -------
Net increase (decrease) in cash and cash equivalents (4,340) 35,412
Cash and cash equivalents at beginning of period 14,675 13,650
--------- -------
Cash and cash equivalents at end of period $ 10,335 $ 49,062
========= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 2,364 $ 2,346
========= =======
Interest on deposits and borrowed money $ 20,590 $ 16,519
========= =======
Supplemental disclosure of non-cash investing activities:
Transfers of loans held for investment to held for sale $ - $ 456
========= =======
Transfers of loans held for sale to held for investment $ - $ 873
========= =======
Transfer of allowance for loan losses from a general to a specific allocation $ - $ 22
========= =======
Transfer from loans to real estate acquired through foreclosure $ 663 $ 136
========= =======
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ 276 $ (1,274)
========= =======
Recognition of mortgage servicing rights in
accordance with SFAS No. 125 $ 57 $ 228
========= =======
</TABLE>
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Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
On October 1, 1999, Oak Hill Financial, Inc. (the "Company")
combined with Towne Financial Corporation ("Towne Financial") and its
wholly-owned subsidiary Blue Ash Building and Loan Company ("Blue Ash")
in a transaction whereby Towne Financial was merged with and into the
Company and Blue Ash, renamed Towne Bank ("Towne"), became a
wholly-owned subsidiary of the Company. The transaction was accounted
for as a pooling-of-interests. Accordingly, the consolidated financial
statements have been restated to reflect the effects of the business
combination as of January 1, 1999. Pursuant to the merger agreement,
the Company issued 917,361 shares of common stock in exchange for the
shares of Towne.
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 the
Company included in the Annual Report on Form 10-K for the year ended
December 31, 1999. 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, 2000 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"), Towne, (collectively hereinafter the "Banks"), and Action
Finance Company ("Action"). 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.
Weighted-average common shares outstanding totaled 5,169,604,
5,262,156, 5,289,149, and 5,275,682 for the three and nine-month
periods ended September 30, 2000 and 1999, respectively. Diluted
earnings per share are 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 5,209,896, 5,265,478, 5,289,149, and 5,421,853 for the
three and nine-month periods ended September 30, 2000 and 1999,
respectively. There were 40,292, 3,322 and 146,171 incremental shares
related to the assumed exercise of stock options included in the
computation of diluted earnings per share for the three and nine-month
periods ended September 30, 2000 and the three-month period ended
September 30, 1999, respectively. Options to purchase 588,704 shares
of common stock with a weighted-average exercise price of $14.72 were
outstanding at September 30, 2000, but were excluded from the
computation of common share equivalents because their exercise prices
were greater than the average market price of the common shares.
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Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 of the embedded derivative is clearly and closely
related to the host contract. SFAS No. 133, as amended by SFAS No. 137,
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 effect on
the Company's financial position or results of operations.
In September 2000 the FASB issued SFAS No. 140 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", which revises the standards for accounting for
securitizations and other transfers of financial assets and collateral
and requires certain disclosures, but carries over most of the
provisions of SFAS No. 125 without reconsideration. SFAS No. 140 is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The
Statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions
and collateral for fiscal years ending after December 15, 2000. SFAS
No. 140 is not expected to have a material effect on the Company's
financial position or results of operations.
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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, 1999 to September
30, 2000
At September 30, 2000, the Company had total assets of $672.4
million, an increase of approximately $72.3 million, or 12.0%, over December 31,
1999 levels. The increase in total assets was funded primarily by growth in the
deposit portfolio of $52.7 million, undistributed net earnings of $3.5 million,
an increase in Federal Home Loan Bank advances of $12.4 million, and increases
of $1.6 million and $5.0 million in notes payable and capital securities,
respectively.
Cash, federal funds sold and investment securities totaled
$69.4 million at September 30, 2000, a decrease of $2.5 million, or 3.4%, from
December 31, 1999 levels. During the nine months ended September 30, 2000,
management purchased $8.1 million of investment securities, while $2.8 million
of securities matured, were called or were sold. Securities purchased consisted
primarily of U.S. government agency securities and trust preferred securities,
the latter of which were classified as held-to-maturity. Excess liquidity was
used primarily to fund new loan originations.
During the fourth quarter, the Company plans to pursue the
previously announced restructuring of its investment portfolio. Up to $35.0
million in investment securities will be replaced with quality, higher-yielding
instruments. The plan is expected to result in after-tax charges of up to $1.1
million in the fourth quarter, but going forward the Company should realize an
increase of up to 125 basis points in the annual yield on the replaced
investments.
Loans receivable and loans held for sale totaled $580.8
million at September 30, 2000, an increase of $72.9 million, or 14.3%, over the
total at December 31, 1999. Loan disbursements totaled approximately $242.5
million during the 2000 nine-month period, while principal repayments and sales
amounted to $160.5 million and $6.8 million, respectively. Loan disbursements
increased by $14.8 million, or 6.5%, during the 2000 period, as compared to the
comparable period in 1999. Loans originated in 2000 were primarily comprised of
commercial and 1- 4 family residential loans.
The Company's allowance for loan losses amounted to $6.9
million at September 30, 2000, an increase of $730,000, or 11.9%, over the total
at December 31, 1999. The allowance for loan losses represented 1.17% of the
total loan portfolio at September 30, 2000, as compared to 1.19% at December 31,
1999. Net charge-offs totaled approximately $817,000 and $564,000 for the nine
months ended September 30, 2000 and 1999, respectively. The Company's allowance
represented 192.5% and 192.4% of non-performing loans, which totaled $3.6
million and $3.2 million at September 30, 2000 and December 31, 1999,
respectively. Nonperforming loans at September 30, 2000 consisted of $634,000 in
installment loans and $3.0 million of loans secured primarily by commercial real
estate and 1 - 4 family residential real estate. In management's opinion, all
nonperforming loans at September 30, 2000 were adequately collateralized.
The deposit portfolio totaled $541.6 million at September 30,
2000, an increase of $52.7 million, or 10.8%, over December 31, 1999 levels. The
increase resulted primarily from management's marketing efforts and competitive
pricing with respect to midterm certificates of deposit products throughout the
Banks' branch network. Proceeds from deposit growth were utilized primarily to
fund loan originations.
Advances from the Federal Home Loan Bank totaled $72.0 million
at September 30, 2000, an increase of $12.4 million, or 20.7%, over December 31,
1999. Notes payable also increased by $1.6 million over December 1999. Proceeds
from advances and notes payable were used to fund loan originations during the
period.
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<PAGE>
Oak Hill Financial, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from December 31, 1999 to September
30, 2000 (continued)
In March 2000, a Delaware statutory business trust owned by
the Company (the "Trust"), issued $5.0 million of mandatorily redeemable debt
securities. The debt securities issued by the Trust are included in the
Company's regulatory capital, specifically as a component of Tier I capital. The
proceeds from the issuance of the debt securities and common securities were
used by the Trust to purchase from the Company $5.0 million of junior
subordinated debentures maturing on March 8, 2030. The subordinated debentures
are the sole assets of the Trust, and the Company owns all of the common
securities of the Trust. Interest payments on the debt securities are to be made
semi-annually at an annual interest rate of 10 7/8% and are reported as a
component of interest expense on borrowings. The net proceeds received by the
Company from the sale of the debt securities were used for general corporate
purposes, including repaying existing indebtedness, repurchasing the Company's
stock, extending credit to the Company's subsidiaries, and providing general
working capital.
The Bank is required to maintain minimum regulatory capital
pursuant to federal regulations. At September 30, 2000, the Banks' regulatory
capital substantially exceeded all regulatory capital requirements.
Comparison of Results of Operations for the Nine-Month Periods Ended September
30, 2000 and 1999
General
Net earnings for the nine months ended September 30, 2000
totaled $5.1 million, an increase of $2.1 million, or 68.6%, over the net
earnings reported in the comparable 1999 period. The increase in earnings in the
2000 period was primarily attributable to a $1.9 million increase in net
interest income after provision for losses on loans and a $2.1 million increase
in other income, which were partially offset by a $776,000 increase in general,
administrative and other expenses and an increase in the federal income tax
provision of $1.1 million.
Net Interest Income
Total interest income for the nine months ended September 30,
2000 increased by $6.3 million, or 18.7%, reflecting the effects of growth in
average interest-earning assets from $540.9 million to $606.7 million for the
nine-month periods ending September 30, 1999 and 2000, respectively, and an
increase in the weighted-average yield from 8.26% in 1999 to 8.73% in 2000.
Similarly, total interest expense increased for the nine months ended September
30, 2000 by $4.7 million, or 28.6%, also reflecting the growth in average
interest-bearing liabilities from $472.1 million to $532.3 million for the
nine-month periods ending September 30, 1999 and 2000, respectively, and an
increase in the weighted-average cost of funds from 4.63% in 1999 to 5.28% in
2000.
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $1.6 million, or 9.2%, for
the nine months ended September 30, 2000, as compared to the comparable period
in 1999. The interest rate spread amounted to 3.45% and 3.63% for the nine
months ended September 30, 2000 and 1999, respectively, while the net interest
margin totaled 4.10% and 4.22% for the nine months ended September 30, 2000 and
1999, respectively.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and nine month periods ended September 30, 2000 and 1999
Comparison of Results of Operations for the Nine-Month Periods Ended September
30, 2000 and 1999 (continued)
Provision for Losses on Loans
The provision for losses on loans totaled $1.6 million for the
nine months ended September 30, 2000, a $328,000 decrease from the comparable
1999 period. The current period provision was primarily attributable to an
increase in the level of non-performing loans, coupled with the overall 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 September 30, 2000, 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,
2000 by $2.1 million, from the comparable 1999 period. The increase resulted
from the effects of a $2.2 million loss on investment securities transactions
recorded in the 1999 period and a $292,000, or 18.7%, increase in service fees,
charges and other operating income, which was partially offset by a decrease of
$380,000 in gain on sale of loans. The decrease in gain on sale of loans was due
primarily to a $21.6 million, or 75.9%, reduction in sales volume year-to-year.
The decline in sales volume reflects the less favorable market conditions
resulting from the increase in interest rates over the period. Management
expects such a decline in sales volume to continue in the current interest rate
environment. The increase in service fees, charges and other operating income
was due primarily to increased product and service fees, coupled with the
Company's overall growth year-to-year.
General, Administrative and Other Expense
General, administrative and other expense increased for the
nine months ended September 30, 2000 by $776,000, or 7.4%, over the comparable
nine-month period in 1999. The increase was due primarily to an $898,000, or
15.9%, increase in employee compensation and benefits, a $99,000, or 7.6%,
increase in occupancy and equipment expense, and a $655,000, or 29.0%, increase
in other operating expenses, which were partially offset by the effects of the
$850,000 in merger-related expenses recorded in the 1999 period.
The increase in employee compensation and benefits was due
primarily to increased staffing levels required in connection with the
establishment of four new Action offices, two Oak Hill loan production offices,
and two Towne branches, all of which were opened during the twelve month period
ending September 30, 2000, and additional management staffing, combined with
normal merit increases. The increases in occupancy and equipment expense, as
well as other operating expenses, resulted from expenses related to the addition
of these new branch facilities, combined with the Company's overall growth
year-to-year.
Federal Income Taxes
The provision for federal income taxes increased by $1.1
million, or 77.4%, during the nine months ended September 30, 2000, as compared
to the same period in 1999, due primarily to the $3.2 million, or 71.4%,
increase in pre-tax earnings year-to-year. The effective tax rates for the
nine-month periods ended September 30, 2000 and 1999 were 33.4% and 32.3%,
respectively.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and nine month periods ended September 30, 2000 and 1999
Comparison of Results of Operations for the Three-Month Periods Ended September
30, 2000 and 1999
General
Net earnings for the three months ended September 30, 2000
totaled $1.5 million, an increase of $2.1 million over the amount reported in
the comparable 1999 period. The increase in earnings in the 2000 period was
primarily attributable to a $624,000 increase in net interest income after
provision for losses on loans, a $2.3 million increase in other income, and a
$327,000 decrease in general, administrative and other expense, which were
partially offset by a $1.1 million increase in the federal income tax provision.
Net Interest Income
Total interest income for the three months ended September 30,
2000 increased by $2.4 million, or 20.3%, generally reflecting the effects of
growth in average interest-earning assets from $557.6 million to $636.2 million
for the three-month periods ending September 30, 1999 and 2000, respectively,
and an increase in the weighted-average yield from 8.35% in 1999 to 8.83% in
2000. Similarly, total interest expense increased for the three months ended
September 30, 2000 by $2.2 million, or 39.2%, reflecting the growth in average
interest-bearing liabilities from $489.4 million to $562.6 million for the
three-month periods ended September 30, 1999 and 2000, respectively, and an
increase in weighted-average cost of funds from 4.60% in 1999 to 5.58% in 2000.
As a result of the foregoing changes in interest income and
interest expense, net interest income increased by $157,000, or 2.6%, for the
three months ended September 30, 2000, as compared to the comparable period in
1999. The interest rate spread amounted to 3.25% and 3.75% for the three months
ended September 30, 2000 and 1999 respectively, while the net interest margin
totaled 3.89% and 4.32% for the three months ended September 30, 2000 and 1999,
respectively.
Provision for Losses on Loans
The provision for losses on loans totaled $708,000 for the
three months ended September 30, 2000, a decrease of $467,000, or 39.7%,
compared to the 1999 period. The current period provision was primarily
attributable to the increase in non-performing loans during the current period,
coupled with 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 September 30, 2000, 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, 2000 by $2.3 million from the comparable period in 1999. The increase
resulted from the effects of the $2.2 million loss on investment securities
transactions recorded in the 1999 period and a $63,000, or 10.7%, increase in
service fees, charges and other operating income, due primarily to increased
product and service fees, coupled with the Company's overall growth
year-to-year.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three and nine month periods ended September 30, 2000 and 1999
Comparison of Results of Operations for the Three-Month Periods Ended September
30, 2000 and 1999 (continued)
General, Administrative and Other Expense
General, administrative and other expense decreased for the
three months ended September 30, 2000 by $327,000, or 7.8%. The decrease was due
primarily to the effects of the $850,000 in merger-related expenses recorded in
the 1999 period, which was partially offset by a $351,000, or 17.8%, increase in
employee compensation and benefits, a $28,000, or 6.1%, increase in occupancy
and equipment expense, and a $159,000, or 20.5%, increase in other operating
expenses. Federal deposit insurance premiums and franchise taxes decreased
$5,000 and $10,000, respectively.
The increase in employee compensation and benefits was due
primarily to increased staffing levels required in connection with the
establishment of new branch locations and additional management staffing,
combined with normal merit increases. The increase in occupancy and equipment
expense, as well as other operating expenses, resulted primarily from expenses
related to the addition of new branch facilities, combined with the Company's
overall growth year-to-year.
Federal Income Taxes
The provision for federal income taxes increased by $1.1
million during the three months ended September 30, 2000, as compared to the
same period in 1999. The effective tax rates for the three-month periods ended
September 30, 2000 and 1999 were 33.4% and 35.0%, respectively.
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
Not applicable
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<PAGE>
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
On April 11, 2000, the Company announced its intention to repurchase
up to 320,000 shares, or approximately 6%, of its outstanding common
stock. The repurchase program will run through December 31, 2000. The
Company's Board of Directors approved the buyback program in light of
the existing market conditions and the capital position of the
Company. As of October 27, 2000, the Company had repurchased 220,695
shares at a weighted-average price of $15.50 per share.
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 October 27, 2000, filed with the Securities and
Exchange Commission on October 27, 2000.
Exhibits:
27.1 Financial Data Schedule for the nine-month period ended
September 30, 2000
27.2 Restated Financial Data Schedule for the nine-month period
ended September 30, 1999.
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<PAGE>
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: October 27, 2000 By: /s/John D. Kidd
---------------- --------------------------
John D. Kidd
President
Date: October 27, 2000 By: /s/Ron J. Copher
---------------- --------------------------
Ron J. Copher
Chief Financial Officer
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