For Immediate Release
Friday, October 20, 2000
Contact: David G. Ratz, Chief Administrative Officer
(740) 286-3283
Oak Hill Financial Reports Third Quarter 2000 Results
Jackson, Ohio -- Oak Hill Financial, Inc. (Nasdaq NMS: OAKF) today reported net
earnings for the three months ended September 30, 2000 of $1,530,000, or $.29
per diluted share. The third quarter 2000 earnings compare to the $1,872,000, or
$.34 per diluted share, in operating net earnings, excluding merger-related
charges, that the company recorded for the quarter ended September 30, 1999
(when merger-related charges are included, the company posted a net loss of
$0.11 per share for the third quarter of 1999). All historical financial
information has been restated to reflect Oak Hill Financial's October 1, 1999
merger with Towne Financial Corp., which was accounted for as a pooling of
interests.
Oak Hill Financial's total assets increased 13.3% over the prior year, ending
the third quarter of 2000 at $672.4 million as compared to $593.7 million at
September 30, 1999. The company's net loans at September 30, 2000 were $580.8
million, up 23.1% from September 30, 1999.
In summarizing the third quarter, Oak Hill Financial President and CEO John D.
Kidd stated, "We're exceeding our growth objectives, but compression in the net
interest margin has continued to depress earnings." He cited both sustained
higher funding costs and aggressive competition on loan pricing as the causes of
the margin compression.
Key Issue Review and Outlook
The following discussion contains certain forward-looking statements related to
the future performance and condition of Oak Hill Financial, Inc. These
statements, which are subject to numerous risks and uncertainties, are presented
in good faith based on the company's current condition and management's
understanding, expectations, and assumptions regarding its future prospects as
of the date of this release. Actual results could differ materially from those
projected or implied by the statements contained herein. The factors that could
affect the company's future results are set forth in the periodic reports and
registration statements filed by the company with the Securities and Exchange
Commission.
Net Interest Margin - Net interest margin declined from 4.16% for the second
quarter to 3.89% for the third quarter. Pressure on the margin is expected to
continue through the fourth quarter, although management believes that the
magnitude of the compression will be somewhat less. While the company has a high
percentage of liabilities repricing in the fourth quarter, a significant portion
of assets will also be repricing in the same time period. Management does not
expect the net interest margin for the fourth quarter to fall below 3.75%.
Towne Bank - The company's Towne Bank subsidiary became part of Oak Hill
Financial with the October 1, 1999 acquisition of Towne Financial Corp. and the
conversion of its subsidiary, Blue Ash Building and Loan, from a thrift to a
commercial bank. Towne Bank has experienced substantial loan growth
year-to-date, interest revenues have increased, and operating expenses have been
reduced. However, the net interest margin at Towne Bank, which was significantly
lower than Oak Hill's margin prior to the merger, has been impacted by very high
retail deposit rates in the suburban Cincinnati market in which it competes.
Management considers Towne Bank to still be in transition from a thrift to a
commercial bank, but anticipates considerable improvement in Towne's financial
performance by end of the second quarter of 2001.
Stock Repurchase -- To further enhance shareholder value, the company continues
to implement its current stock repurchase program, which was announced on April
11, 2000. As of September 30, 2000, Oak Hill Financial had repurchased 220,695
shares of its common stock, which represents 69.0% of the 320,000 shares
authorized for the buyback program by the company's board of directors. The
current buyback program will continue through December 31, 2000. Additional
stock repurchases may be considered in the future, although the company has no
definite plans in this regard.
Investment Restructuring -- During the fourth quarter, Oak Hill Financial plans
to pursue the previously announced restructuring of its investment portfolio. Up
to $35 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.
Operating Expenses - At 2.35% of average assets for the third quarter,
non-interest expenses remain at a desirable level. Management does not
anticipate a significant change in operating expenses as a percentage of average
assets for the fourth quarter or for 2001.
Non-Interest Income - Non-interest income, excluding securities gains and
losses, continues a slow increase. Management expects this trend to continue
through the fourth quarter. For 2001, the company is targeting a moderate
increase in non-interest income through increased secondary market lending
activity, growth in its alternative investment program, and annual service
charge adjustments.
Asset Quality - Net charge-offs for the third quarter were 0.05% of total loans,
which was in line with prior quarters and consistent with management's
expectations. The nonperforming loans/total loans and nonperforming assets/total
assets ratios increased somewhat during the quarter to 0.62% and 0.57%,
respectively, at September 30. Nearly all of the increase was the result of a
single commercial real estate loan. Management believes that the company is very
well-secured on this loan, and no charge-off or write-down is expected. At this
point, no significant changes in asset quality are expected in the fourth
quarter.
Overall Strategy - Oak Hill Financial will continue to pursue adjustable-rate
commercial loans, commercial real estate loans and residential mortgage loans;
fixed-rate residential mortgage loans for sale in the secondary market; and
consumer loans. Management believes that commercial and commercial real estate
loans hold the greatest potential for growth and margin improvement within its
bank subsidiaries, and the year 2001 emphasis will be on these products.
Asset/Loan Growth - The company's objectives for 2001 call for approximately 12%
growth in loans and assets, which is below the current rate of growth.
Management believes that the 12% target will strike the correct balance between
maintaining the company's growth momentum, which is viewed as key to its
long-term success, and supporting the net interest margin through
less-aggressive pricing of loans and deposits.
Expansion - In early 2000, the company's subsidiaries expect to open two
full-service branch banking offices (one of which is currently under
construction), one bank loan production office, and two consumer finance
offices.
Estimates - Oak Hill Financial reiterated its previous guidance that operating
earnings for the fourth quarter of 2000 are expected to be in the range of $.29
to $.33 per share. Based on the company's current condition and trends, internal
asset/liability analysis, expectations regarding interest rates, and other
anticipated operating conditions, management estimates that earnings per share
for 2001 will be in the range of $1.35 to $1.45, excluding any securities gains
or losses or other non-recurring items.
Oak Hill Financial is a community bank holding company headquartered in Jackson,
Ohio. Its subsidiaries, Oak Hill Banks, Towne Bank, and Action Finance Company,
operate 23 full-service banking offices, three bank loan production offices, and
four consumer finance offices in 15 counties across southern Ohio.
September 30,
2000 1999
(unaudited)
SUMMARY OF FINANCIAL CONDITION(1)
Total assets $672,405 $593,672
Interest bearing deposits
and federal funds sold 122 37,632
Investment securities 58,957 49,782
Loans receivable -- net 580,831 471,833
Deposits 541,596 462,915
Federal Home Loan Bank
advances and other borrowings 78,775 78,763
Stockholders' equity 48,466 47,325
For the three months For the nine months
ended September 30, ended September 30,
2000 1999 2000 1999
(unaudited) (unaudited)
SUMMARY OF OPERATIONS(1)(2)
Interest income $14,123 $11,742 $39,671 $33,415
Interest expense 7,896 5,672 21,048 16,361
------ ------ ------ ------
Net interest income 6,227 6,070 18,623 17,054
Provision for loan losses 708 469 1,566 1,188
------ ------ ------ ------
Net interest income after
provision for loan losses 5,519 5,601 17,057 15,866
Gain on sale of loans 21 4 87 467
Gain (loss) on investment securities transactions (6) 1 (6) 19
Other non-interest income 654 569 1,856 1,542
Non-interest expense 3,892 3,316 11,331 9,652
------ ------ ------ ------
Earnings before federal income taxes 2,296 2,859 7,663 8,242
Federal income taxes 766 987 2,562 2,751
------ ------ ------ ------
Net earnings $ 1,530 $ 1,872 $ 5,101 $ 5,491
====== ====== ====== ======
At or for the three months At or for the nine months
ended September 30, ended September 30,
2000 1999 2000 1999
(unaudited) (unaudited)
PER SHARE INFORMATION(1)
Basic earnings per share (3) $ 0.30 $(0.11) $ 0.97 $ 0.57
===== ===== ===== =====
Diluted earnings per share (4) $ 0.29 $(0.11) $ 0.97 $ 0.56
===== ===== ===== =====
Dividends per share (3) $ 0.10 $ 0.08 $ 0.30 $ 0.24
===== ===== ===== =====
Book value per share $ 9.45 $ 8.95
===== =====
SELECTED PERFORMANCE RATIOS EXCLUDING
MERGER-RELATED EXPENSES(1)(2)(5)
Basic earnings per share (3) $ 0.30 $ 0.35 $ 0.97 $ 1.04
===== ===== ===== =====
Diluted earnings per share (4) $ 0.29 $ 0.34 $ 0.97 $ 1.01
===== ===== ===== =====
Return on average assets 0.93% 1.28% 1.09% 1.30%
Return on average equity 12.51% 15.38% 14.03% 15.33%
Non-interest expense to average assets 2.35% 2.26% 2.41% 2.29%
Dividend payout ratio 34.19% 22.43% 30.93% 22.94%
OTHER STATISTICAL AND OPERATING DATA(1)(5)
Net interest margin 3.89% 4.32% 4.10% 4.22%
Total allowance for loan losses
to nonperforming loans 192.47% 308.28%
Total allowance for loan losses
to total loans 1.17% 1.26%
Nonperforming loans to total loans 0.61% 0.41%
Nonperforming assets to total assets 0.57% 0.33%
Net charge-offs to average loans 0.05% 0.03% 0.15% 0.13%
Equity to assets at period end 7.21% 7.97%
(1) Restated as appropriate to reflect the merger with Towne Financial
Corporation on October 1, 1999, which was accounted for as a
pooling-of-interests.
(2) Does not include $3.7 million, pre-tax, merger-related and restructuring
charges for the three and nine months ended September 30, 1999.
(3) Based on 5,169,604, 5,262,156, 5,289,149, and 5,275,682 weighted-average
shares outstanding for the three and nine month periods ended September 30,
2000, and September 30, 1999, respectively.
(4) Based on 5,209,896, 5,265,478, 5,430,218, and 5,421,853 weighted-average
shares outstanding for the three and nine month periods ended September 30,
2000, and September 30, 1999, respectively.
(5) Annualized where appropriate.
September 30, 2000
SUPPLEMENTAL DETAIL (unaudited)
BALANCE SHEET - ASSETS
Cash and cash equivalents $ 10,457
Trading account securities -
Securities available for sale 54,010
Held to maturity securities 4,947
Other securities 4,889
Total securities 63,846
Total cash and securities 74,303
Loans and leases held for investment (1) 586,537
Loans and leases held for sale (1) 163
Total loans and leases (1) 586,700
Loan loss reserve 6,863
Goodwill 258
Total intangible assets 258
Mortgage servicing rights 994
Other real estate owned 238
Other assets 16,775
Total assets $ 672,405
BALANCE SHEET - LIABILITIES
Deposits 541,596
Borrowings 73,775
Other liabilities 3,568
Total liabilities 618,939
Trust preferred securities 5,000
Total liabilities and mezzanine $ 623,939
(1) Data is net of discount, gross of reserve.
For the three months For the nine months
ended September 30, 2000 ended September 30, 2000
(unaudited) (unaudited)
SUPPLEMENTAL DETAIL (CONTINUED)
BALANCE SHEET - EQUITY
Preferred equity $ -
Common equity $48,466
MEMO ITEM: Net unrealized gain (loss) on
securities held for sale (FASB 115 adjustment) $(1,302)
EOP shares outstanding (1) $5,131,256
Options outstanding 592,026
Treasury shares held by company 271,595
Repurchase plan announced? No Yes
# of shares to be repurchased in plan 320,000 320,000
# of shares repurchased during period 89,650 220,695
Average price of repurchased shares 16.05 15.50
For the three months For the nine months
ended September 30, 2000 ended September 30, 2000
(unaudited) (unaudited)
INCOME STATEMENT
Interest income $ 14,123 $ 39,671
Interest expense 7,896 21,048
Net interest income 6,227 18,623
Net interest income (FTE) 6,254 18,708
Provision for loan losses 708 1,566
Service charges on deposits 393 1,080
Gain on sale of loans 21 87
Loss on investment securities transactions (6) (6)
Other noninterest income 261 776
Total noninterest income 669 1,937
(1) Excludes treasury shares.
For the three months For the nine months
ended September 30, 2000 ended September 30, 2000
(unaudited) (unaudited)
SUPPLEMENTAL DETAIL (CONTINUED)
INCOME STATEMENT (CONTINUED)
Employee compensation and benefits expense $ 2,320 $ 6,545
Occupancy and equipment expense 485 1,407
Amortization of intangibles 8 25
Other noninterest expense 1,079 3,354
Total noninterest expense 3,892 11,331
Net income before taxes 2,290 7,657
Tax provision 766 2,562
Net income before extraordinary items 1,524 5,095
Extraordinary and after-tax items - -
Net income 1,524 5,095
CHARGEOFFS
Loan chargeoffs 312 971
Recoveries on loans 16 154
Net loan chargeoffs 296 817
AVERAGE BALANCE SHEET
Average loans and leases 571,863 543,609
Average other earning assets 64,378 63,114
Average total earning assets 636,241 606,723
Average total assets 658,131 627,782
Average total time deposits 341,287 326,277
Average other interest-bearing deposits 138,861 135,175
Average total interest-bearing deposits 480,148 461,452
Average borrowings 82,426 70,846
Average interest-bearing liabilities 562,574 532,298
Average common equity 48,656 48,563
For the three months For the nine months
ended September 30, 2000 ended September 30, 2000
(unaudited) (unaudited)
SUPPLEMENTAL DETAIL (CONTINUED)
ASSET QUALITY AND OTHER DATA
Nonaccrual loans $ 1,056
Renegotiated loans -
Other real estate owned 238
Total nonperforming assets 1,294
Loans 90+ days past due and still accruing 2,510
NPAs plus loans over 90 days delinquent 3,804
ADDITIONAL DATA
1-4 Family mortgage loans serviced for others $114,517
Held to maturity securities (fair value) $ 4,891
EOP employees (FTE) 270
Total number of full-service banking offices 23
Total number of bank and thrift subsidiaries 2
Total number of ATMs 21
LOANS RECEIVABLE
Real estate $258,233
Commercial real estate 165,860
Commercial and other 75,892
Consumer 87,731
Credit cards 1,352
-------
Loans - gross 589,068
Unearned interest (2,368)
-------
Loans - net of unearned interest 586,700
Reserve for loan losses (6,863)
-------
Loans - net(1) $579,837
=======
DEPOSITS
Non-interest bearing 43,748
Core interest bearing 391,026
Non-core interest bearing 106,822
-------
Total deposits 541,596
=======
Yield/average earning assets 8.83% 8.73%
Cost/average earning assets 4.94% 4.63%
Net interest margin 3.89% 4.10%
(1) Does not include mortgage servicing assets.