UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
-------------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
Commission File Number 0-26876
OAK HILL FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1010517
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14621 S.R. 93
Jackson, OH 45640
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (740) 286-3283
-------------------------
Securities pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock without par value
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 ____
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant computed by reference to the sales price of the last trade of
such stock was $48,693,343.13 on March 13, 2001.
There were 5,097,631 shares of the registrant' s common stock outstanding
at March 13, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year
ended December 31, 2000 are incorporated by reference into Part II and IV.
Portions of the proxy statement dated March 13, 2001 for the Annual Meeting
of Stockholders to be held April 25, 2001 are incorporated by reference in to
Part III.
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TABLE OF CONTENTS
Page
Part I
Item 1. Business 3
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 26
Part III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and Management 26
Item 13. Certain Relationships and Related Transactions 26
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 26
Signatures 28
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PART I
Item 1. Business.
Oak Hill Financial, Inc.
Oak Hill Financial, Inc., an Ohio corporation (the "Company") formed in
1981, is a bank holding company registered under the Bank Holding Company Act of
1956, as amended (the "Act"), and is subject to regulation by the Federal
Reserve Board. The Company is a multi-bank holding company as defined in the Act
and is registered as such with the Board of Governors of the Federal Reserve
System. The Company engages indirectly in the business of commercial banking and
other permissible activities closely related to banking and consumer finance
lending through three wholly owned subsidiaries, Oak Hill Banks ("Oak Hill"),
Towne Bank ("Towne"), (collectively, hereinafter the "Banks"), and Action
Finance Company ("Action"). The Company provides management and similar services
for the Banks and Action. Since it does not conduct any operating businesses
itself, the Company must depend largely upon its subsidiaries for funds with
which to pay the expenses of its operation and, to the extent applicable, any
dividends on its outstanding shares of stock. For further information, see Note
A of the Notes to Consolidated Financial Statements appearing in the Company's
Annual Report to Stockholders, which is incorporated by reference in response to
this item.
The Company faces strong competition from both banking and non-banking
institutions. Its banking competitors include local and regional banks and bank
holding companies, as well as some of the largest banking organizations in the
United States. In addition, other types of financial institutions, such as
savings and loan associations and credit unions offer a wide range of loan and
deposit services that are directly competitive with those offered by the Banks.
The consumer is also served by brokerage firms and mutual funds that provide
checking services, credit cards, and other services similar to those offered by
the Banks. Major stores compete for loans by offering credit cards and retail
installment contracts. It is anticipated that competition from non-bank and
non-savings and loan organizations will continue to grow.
The range of services provided by the Company's subsidiaries to their
customers includes commercial lending, real estate lending, consumer credit,
credit card, and other personal loan financing. Each of the subsidiaries
operates under the direction of a Board of Directors and officers that are
separate from the Company.
Lending Activities
General. The Company generally makes loans in southern and central Ohio
where its branches are located. The Company's principal lending activities are
the origination of (i) conventional one-to-four family residential loans, and
(ii) commercial loans, most of which are secured by real estate located in the
Company's primary market area. These loan categories accounted for approximately
86% of the Company's loan portfolio at December 31, 2000. The Company also makes
consumer loans, including installment loans and second mortgages, and offers
credit cards.
Loan Portfolio Composition and Activity. The following table sets forth
the composition of the Company's loan portfolio in dollar amounts and in
percentages for each of the last five years, along with a reconciliation to
loans receivable, net of the allowance for loan losses.
At December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
Type of loan:
1-4 family
residential loans $240,593 40.1% $223,365 44.0% $179,972 43.8% $172,214 47.7% $144,185 48.4%
Commercial and other
loans 275,500 46.0 215,205 42.3 170,579 41.5 143,027 39.6 112,543 37.8
Consumer loans 88,585 14.8 74,045 14.6 63,873 15.5 48,196 13.4 43,216 14.5
Credit cards 1,605 0.3 1,486 0.3 1,405 0.3 1,360 0.4 1,111 0.4
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans 606,283 101.2 514,101 101.2 415,829 101.1 364,797 101.1 301,055 101.1
Less:
Allowance for loan
losses (7,197) (1.2) (6,132) (1.2) (4,583) (1.1) (4,000) (1.1) (3,169) (1.1)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total loans receivable,
net $599,086 100.0% $507,969 100.0% $411,246 100.0% $360,797 100.0% $297,886 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
-3-
The following is maturity information with respect to commercial loans
at December 31, 2000.
After one year After five years
Less than one year through five years through ten years After ten years
------------------ ------------------ ----------------- ---------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield Total
------ ----- ------ ----- ------ ----- ------ ----- -----
(Dollars in thousands)
$70,988 9.23% $34,536 9.10% $39,664 8.95% $130,311 8.85% $275,500
Loans Secured by One- to Four-Family Real Estate. A significant portion
of the Company's lending activity is the origination of permanent conventional
loans secured by one-to-four-family residences located within the Company's
primary market area. The Company typically makes adjustable rate mortgage loans
and holds the loans in portfolio. More than 47% of the Company's portfolio of
permanent conventional mortgage loans secured by one-to-four family residences
are adjustable rate. The Company also underwrites fixed rate, residential
mortgage loans, and may sell those loans in the secondary market to the Federal
Home Loan Mortgage Corporation ("FHLMC") or to the Federal National Mortgage
Association ("FNMA") or on a servicing-released basis to another financial
institution.
The Company makes fixed rate loans on one- to four-family residences up
to 95% of the value of the real estate and improvements (the "loan-to-value" or
"LTV") substantially all of which are sold in the secondary market. Residential
real estate loans are offered by the Company for terms of up to 30 years. The
Company requires private mortgage insurance for the amount of such loans in
excess of 80% of the value of the real estate securing such loans.
The aggregate amount of the Company's one-to-four family residential
real estate loans totaled approximately $240.6 million at December 31, 2000, and
represented 40.1% of loans at such date. At such date, loans secured by
residential real estate with outstanding balances of approximately $594,000, or
0.2%, of its total one-to-four family residential real estate loan balance, were
more than 90 days delinquent or nonaccruing.
Commercial Loans. The Company is also active in commercial lending,
primarily to smaller businesses in the Company's primary market area. These
loans are typically secured by commercial real estate and priced in relation to
the prime rate. Such loans generally have terms of up to 15 years and
loan-to-value ratios of up to 75%. To a much lesser degree, the Company will
also make unsecured commercial loans, which are also typically priced at spreads
to prime and have maturities of up to one year.
Loan officers review the borrower's financial statements, appraisals of
the collateral, and other related documents before recommending funding of a
commercial loan. The loan officer and the approving officer or committee then
determines that there is sufficient income to cover this and other loan
payments, that the collateral is of adequate liquidation value, that the
applicant has a good payment history and is capable of performing the
requirements of the loan. Other reviews and analysis are done as appropriate,
depending upon the complexity of the credit request.
Although a risk of nonpayment exists with respect to all loans, certain
specific types of risks are associated with different types of loans. The
primary risks associated with commercial loans are the quality of the borrower's
management and the impact of national and regional economic factors. The Company
mitigates these risks by maintaining a close working relationship with its
borrowers, by obtaining cross-collateralization and personal guarantees of its
loans, and by diversification within its loan portfolio.
Real estate is frequently a material component of the collateral for
the Company's loans. The expected source of repayment of these loans is
generally the operations of the borrower's business, but the real estate
provides an additional measure of security, particularly when the property is
owner-occupied. For this reason, real estate is considered additional collateral
on many of the Company's commercial loans.
Risks associated with real estate loans include fluctuating land
values, changes in tax policies, and concentration of loans within the Company's
market area. The Company mitigates these risks by generally providing loans to
experienced commercial real estate owners and developers. The risk is further
mitigated by the number of commercial real estate loans made to the user of the
property.
The aggregate amount of the Company's commercial loans without real
estate as primary or secondary collateral totaled approximately $81.3 million at
-4-
December 31, 2000, and represented 29.5% of commercial loans at that date. At
such date, commercial loans that were more than 90 days delinquent or
nonaccruing totaled approximately $21,000, or 0.03% of its commercial loan
portfolio. The aggregate amount of the Company's commercial loans with real
estate as primary or secondary collateral was approximately $194.2 million at
December 31, 2000, and at such date, approximately $1.7 million in outstanding
balances, or 0.9% of such loans were more than 90 days delinquent or
nonaccruing.
Consumer Loans. The Company offers several consumer loan products,
including installment loans and credit cards.
The Company has developed working relationships with several car
dealerships in its market area, and is able to do some financing of new and used
cars through these relationships. The Company generally finances cars that are
seven years old or newer. These loans generally have fixed rates and maturities
of 36 to 66 months.
To a lesser degree, the Company makes small unsecured loans to
creditworthy individuals. These loans are typically between $2,000 and $5,000,
at fixed rates, with maturities of less than five years. The Company also offers
a home equity loan product and, as a result of consumer demand, a credit card
product to its customers. Both products are underwritten to the same standards
as any of the Company's other consumer loan products.
Loan officers underwrite installment loan and other consumer loan
requests in such a manner to assure compliance with the various regulations and
the Company's underwriting standards. The payment history of applicants is very
important on these smaller loans, and is checked through in-house records as
well as credit bureaus. Normally, collateral, such as an automobile, is taken as
security and the value is checked through the N.A.D.A. book or another valuation
service. Income must be adequate to cover all monthly payments including the
proposed loan.
At December 31, 2000, the Company had approximately $90.2 million in
its consumer loan and credit card portfolio, which was 15.1% of the Company's
total loans. Approximately $583,000 of these loans were over 90 days delinquent
or nonaccruing on that date, which represented 0.6% of the portfolio.
Loan Solicitation and Processing. Loan originations are developed from
a number of sources, including continuing business with depositors, other
borrowers and real estate developers, solicitations by the Company's lending
staff, and walk-in customers.
Underwriting guidelines for all branches and loan types are set by
senior management at the home office. Consumer loan processing and underwriting
are decentralized; however, all other loans, including real estate and
commercial loans, are generally processed and underwritten centrally at the home
office. Loan applications generally are processed and underwritten at the branch
level. Loan officers and branch managers review the applications, as well as
credit bureau reports, appraisals, financial information, verifications of
income, and other documentation concerning the credit-worthiness of the
borrower, as applicable to each loan type.
Branch managers have the authority to approve loans up to $120,000 that
meet the underwriting criteria set by management, and area managers have
authority for amounts up to $300,000. Any loan greater than $300,000 must be
approved by senior management.
Income from Lending Activities. The Company earns interest and fee
income from its lending activities. The Company earns fees for originating loans
and for making commitments to originate loans and loan participations. Certain
fees, net of origination costs, are deferred and amortized over the life of the
loan. The Company also receives fees related to existing loans, such as late
charges. Income from loan origination and commitment fees and discounts varies
with the volume and type of loans and commitments made and with competitive and
economic conditions. Note A-4 to the Consolidated Financial Statements contains
a discussion of the manner in which fees and income are recognized for financial
reporting purposes.
Nonperforming Loans
General. Late charges on residential mortgages are assessed by the
Company if a payment is not received either by the 10th day following its due
date or 15th day if the loan has been sold in the secondary market and is being
serviced by the Company. Late charges on installment loans and commercial loans
are assessed by the Company if a payment is not received by the 10th day
following its due date. Any borrower whose payment was not received by this time
is mailed a past due notice. If the loan is still delinquent after a second past
due notice is mailed (generally around the 20th day of delinquency), a branch
employee will attempt to contact the customer to resolve any problem that might
exist.
When an advanced stage of delinquency appears (generally around the
60th day of delinquency) and if repayment cannot be expected within a reasonable
-5-
amount of time or a repayment agreement has not been reached, the Banks will
contact an attorney and request that the required 30-day prior notice of
foreclosure or repossession proceedings be prepared and delivered to the
borrower so that, if necessary, foreclosure proceedings may be initiated shortly
after the loan is 90 days delinquent. Historically, this procedure has aided in
achieving a low level of nonperforming loans and, as of December 31, 2000, only
$2.9 million or 0.47% of the Company's total loan portfolio was over 90 days
delinquent or nonaccruing. As of December 31, 2000, the Company's level of
nonperforming assets to total assets was 0.45%.
If a credit card account becomes 10 days delinquent, a notice is sent to
the account holder demanding that the payment be made to bring the account
current. Another notice is sent to the cardholder if the account becomes 20 days
delinquent. If payment is not received within 30 days, authorization requests
are denied, a message about the delinquency appears on the cardholder's account
statement, and a follow-up telephone call is made. These telephone collection
efforts and account statement messages continue until the account is deemed
uncollectible. Legal action is considered during this time. As of December 31,
2000, approximately $26,000 in outstanding balances, or 1.6% of credit card
loans were nonperforming.
On December 31, 2000, the Company held $232,000 in real estate and other
repossessed collateral acquired as a result of foreclosure, voluntary deed, or
other means. Such real estate is classified as "other real estate owned" until
it is sold and is recorded at the lower of cost (the unpaid principal balance at
the date of acquisition plus foreclosure and other related costs) or fair value
less estimated selling expenses. Any subsequent write-down is charged to
expense. Generally, unless the property is a one-to-four family residential
dwelling and well-collateralized, interest accrual ceases in 90 days, but no
later than the date of acquisition. From that date, all costs incurred in
maintaining the property are expensed. "Other real estate owned" is appraised
during the foreclosure process, prior to the time of acquisition, and losses are
recognized for the amount by which the book value of the related mortgage loan
exceeds the estimated net realizable value of the property.
At December 31, 2000 and 1999, the Company had investment in impaired
loans, as defined under SFAS No. 114, totaling approximately $695,000 and
$65,000, respectively. The Company maintained an allowance for credit losses
related to such impaired loans of $460,000 and $20,000 for the periods ended
December 31, 2000 and 1999, respectively.
The following is a summary of the Company's loan loss experience and
selected ratios for the periods presented.
Year Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands)
Allowance for loan losses
(beginning of period) $ 6,132 $ 4,583 $ 4,000 $ 3,169 $ 2,587
Loans charged off:
1-4 family residential real estate 219 80 139 22 51
Multi-family and commercial real estate 37 9 - - -
Commercial and industrial loans 2 186 180 68 79
Consumer loans 1,155 840 510 402 323
------- ------- ------- ------- -------
Total loans charged off 1,413 1,115 829 492 453
------- ------- ------- ------- -------
Recoveries of loans previously charged off:
1-4 family residential real estate 20 21 1 45 20
Multi-family and commercial real estate 3 - - - -
Commercial and industrial loans 1 6 15 5 -
Consumer loans 191 205 130 102 136
------- ------- ------- ------- -------
Total recoveries 215 232 146 152 156
------- ------- ------- ------- -------
Net loans charged off 1,198 883 683 340 297
Provision for loan losses 2,263 2,432 1,266 1,171 879
------- ------- ------- ------- -------
Allowance for losses on loans
(end of period) $ 7,197 $ 6,132 $ 4,583 $ 4,000 $ 3,169
======= ======= ======= ======= =======
Loans outstanding:
Average, net $557,038 $449,873 $387,057 $322,807 $268,861
End of period $606,283 $514,101 $415,829 $364,797 $301,055
Ratio of allowance for loan losses to
loans outstanding at end of period 1.19% 1.19% 1.10% 1.10% 1.05%
Ratio of net charge-offs to average
loans outstanding 0.22% 0.20% 0.18% 0.11% 0.11%
At December 31, 2000, 1999, and 1998 the Company had nonperforming
loans totaling $2.9 million, $3.2 million, and $2.4 million, respectively.
Interest income that would have been recognized if such loans had performed in
accordance with contractual terms totaled approximately $262,000, $287,000, and
$162,000, for the years ended December 31, 2000, 1999, and 1998. There was no
interest income recognized on such loans during any of the periods.
-6-
Allowance for Loan Losses. The amount of the allowance for loan losses
is based on management's analysis of risks inherent in the various segments of
the loan portfolio, management's assessment of known or potential problem
credits which have come to management's attention during the ongoing analysis of
credit quality, historical loss experience, current and anticipated economic
conditions and other factors. If actual circumstances and losses differ
substantially from management's assumptions and estimates, such allowance for
loan losses may not be sufficient to absorb all future losses, and net earnings
could be adversely affected. Loan loss estimates are reviewed periodically, and
adjustments, if any, are reported in earnings in the period in which they become
known. In addition, the Company maintains a portion of the allowance to cover
potential losses inherent in the portfolio that have not been specifically
identified.
Although management believes that it uses the best information available
to make such determinations and that the allowance for loan losses is adequate
at December 31, 2000, future adjustments to the allowance may 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. A downturn in the southern and central Ohio economy and
employment levels could result in the Company experiencing increased levels of
nonperforming assets and charge-offs, increased provisions for loan losses and
reductions in income. Additionally, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's allowance
for loan losses. Such agencies may require the recognition of additions to the
allowance based on their judgment of information available to them at the time
of their examination.
The following table summarizes nonperforming assets by category.
Year Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands)
Real estate:
Nonaccrual $ 436 $ 1,092 $ 371 $ 606 $ 347
Past due 90 days or more (1) 158 411 843 608 281
Commercial and industrial loans:
Nonaccrual 205 444 251 143 267
Past due 90 days or more (1) 1,487 744 596 82 82
Consumer and other:
Nonaccrual 422 320 65 147 221
Past due 90 days or more (1) 161 176 295 135 52
------- ------- ------- ------- -------
Total nonperforming loans 2,869 3,187 2,421 1,721 1,250
Other real estate owned 232 169 18 - -
------- ------- ------- ------- -------
Total nonperforming assets $ 3,101 $ 3,356 $ 2,439 $ 1,721 $ 1,250
======= ======= ======= ======= =======
Loans outstanding $606,283 $514,101 $415,829 $364,797 $301,055
Allowance for loan losses to
total loans 1.19% 1.19% 1.10% 1.10% 1.05%
Nonperforming loans to total loans 0.47 0.62 0.57 0.47 0.42
Nonperforming assets to total assets 0.45 0.56 0.43 0.36 0.31
Allowance for loan losses to
nonperforming loans 250.9% 192.4% 191.9% 232.4% 253.5%
(1) Represents accruing loans 90 days or more delinquent that are considered by
management to be well secured and in the process of collection.
As of December 31, 2000, the Company had no loans that were included in
the nonaccrual, past due 90 days or more or restructured categories, where the
borrowers were experiencing potential credit problems that raised doubts as to
the ability of those borrowers to comply with the present loan repayment terms.
-7-
Allocation of Allowance for Losses on Loans. The following table
presents an analysis of the allocation of the Company's allowance for losses on
loans at the dates indicated:
At December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
of total of total of total of total of total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Balance at end of period
applicable to:
Residential real estate $1,211 16.8% $1,357 22.1% $ 933 20.3% $ 892 22.3% $ 798 25.2%
Commercial real estate 1,295 18.0 921 15.0 711 15.5 544 13.6 450 14.2
Commercial and other loans 1,508 21.0 1,280 20.9 1,048 22.9 809 20.2 668 21.1
Consumer loans 1,903 26.4 1,263 20.6 906 19.8 721 18.0 467 14.7
Credit cards 53 0.7 59 1.0 56 1.2 54 1.4 44 1.4
Unallocated 1,227 17.1 1,252 20.4 929 20.3 980 24.5 742 23.4
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total $7,197 100.0% $6,132 100.0% $4,583 100.0% $4,000 100.0% $3,169 100.0%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Classified Assets. The FDIC regulations on classification of assets
require commercial banks to classify their own assets and to establish
appropriate general and specific allowances for losses, subject to FDIC review.
These regulations are designed to encourage management to evaluate assets on a
case-by-case basis and to discourage automatic classifications. Assets
classified as substandard or doubtful must be evaluated by management to
determine a reasonable general loss reserve to be included in total capital for
purposes of the Banks' risk-based capital requirement, but excluded from core
capital or tangible capital or in capital under accounting principles generally
accepted in the United States of America. Assets classified as loss must be
either written off or reserved for by a specific allowance that is not counted
toward capital for purposes of any of the regulatory capital requirements.
Investments. Investment securities primarily satisfy the Company's
liquidity needs and provide a return on residual funds after lending activities.
Pursuant to the Company's written investment policy, investments may be in
interest-bearing deposits, U.S. Government and agency obligations, trust
preferred securities, state and local government obligations and
government-guaranteed mortgage-backed securities. The Company does not invest in
securities that are rated less than investment grade by a nationally recognized
statistical rating organization. A goal of the Company's investment policy is to
limit interest rate risk.
All securities-related activity is reported to the Board of Directors of
the Company. General changes in investment strategy must be reviewed and
approved by the Company's Board of Directors. The Company's senior management
can purchase and sell securities on behalf of the Company in accordance with the
Company's stated investment policy.
-8-
The following table sets forth the carrying value of the Company's
investment portfolio as indicated and includes both investments designated as
available for sale and those designated as held to maturity.
At December 31,
2000 1999 1998 1997
---- ---- ---- ----
(Dollars in thousands)
Held-to-maturity:
U.S. Government and agency obligations $ - $ - $14,704 $12,604
Trust preferred securities 4,947 - - -
------ ------ ------ ------
Total investment securities held-to-maturity 4,947 - 14,704 12,604
Available-for-sale:
U.S. Government and agency obligations 49,277 49,936 75,266 63,849
State and local government obligations 7,046 3,402 9,766 3,204
------ ------ ------ ------
Total investment securities available-for-sale 56,323 53,338 85,032 67,053
------ ------ ------ ------
Total investment securities $61,270 $53,338 $99,736 $79,657
====== ====== ====== ======
The following table reflects the maturities of the Company's investment
securities at December 31, 2000.
Due in Due after one year Due after five years
one year or less through five years through ten years Due after ten years
---------------- ------------------ ----------------- -------------------
Amount Rate Amount Rate Amount Rate Amount Rate Total
------ ---- ------ ---- ------ ---- ------ ---- -----
Held-to-maturity:
Trust preferred securities $ - - $ - - $ - - $ 4,947 6.48% $ 4,947
Available-for-sale:
U.S. Government and
agency obligations 6,075 6.07% 4,498 5.99% 13,534 6.33% 25,170 7.42% 49,277
Municipal obligations 121 4.70% 856 4.66% 1,085 6.02% 4,984 5.25% 7,046
----- ---- ----- ---- ------ ---- ------ ---- ------
Total available-for-sale 6,196 6.05% 5,354 5.78% 14,619 6.31% 30,154 7.21% 56,323
----- ---- ----- ---- ------ ---- ------ ---- ------
Total investment securities $6,196 6.05% $5,354 5.78% $14,619 6.31% $35,101 7.11% $61,270
===== ==== ===== ==== ====== ==== ====== ==== ======
Source of Funds
Deposit Accounts. Savings deposits are a major source of the Company's
funds. The Company offers a number of alternatives for depositors designed to
attract both commercial and regular consumer checking and savings including
regular and money market savings accounts, NOW accounts, and a variety of
fixed-maturity, fixed-rate certificates with maturities ranging from 3 to 60
months. The Company also provides travelers' checks, official checks, money
orders, ATM services and IRA accounts.
-9-
The distribution of the Company's deposit accounts by type and rate is
set forth in the following table.
At December 31,
---------------
2000 1999 1998
---- ---- ----
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
Demand deposit accounts $45,792 8.1% $ 42,598 8.7% $ 39,655 8.5%
Savings accounts 40,451 7.2 45,901 9.4 50,842 10.9
NOW accounts 33,996 6.0 31,824 6.5 29,622 6.4
Money market deposit accounts 11,041 2.0 13,039 2.7 13,570 2.9
Premium investment accounts 47,512 8.5 30,150 6.2 21,012 4.5
Select investment accounts 14,609 2.6 12,728 2.6 16,456 3.5
------- ----- ------- ----- ------- -----
Total transaction accounts 193,401 34.4 176,240 36.1 171,157 36.7
Certificates of deposit:
2.00 - 4.99% 11,838 2.1 86,208 17.6 37,670 8.1
5.00 - 6.99% 353,726 62.9 225,869 46.2 255,997 55.0
7.00 - 8.00% 3,652 0.6 563 0.1 850 0.2
------- ----- ------- ----- ------- -----
Total certificates of deposit 369,216 65.6 312,640 63.9 294,517 63.3
------- ----- ------- ----- ------- -----
Total deposits $562,617 100.0% $488,880 100.0% $465,674 100.0%
======= ===== ======= ===== ======= =====
The following table presents various interest rate categories and certain
information concerning maturities of the Company's certificates of deposit at
December 31, 2000.
One to Over
Within three three
Certificates of Deposit Accounts one year years years Total
-------------------------------- -------- ----- ----- -----
(Dollars in thousands)
4.00% and less $ 1,464 $ 412 $ 1 $ 1,877
4.01% to 5.00% 8,567 1,096 536 10,199
5.01% to 6.00% 46,224 12,704 1,495 60,423
6.01% to 7.00% 263,998 30,112 867 294,977
7.01% to 8.00% 1,132 608 - 1,740
------- ------ ----- -------
Total $321,385 $44,932 $2,899 $369,216
======= ====== ===== =======
The following table sets forth the amount of the Company's certificates
of deposit that are $100,000 or greater, by time remaining until maturity, as of
December 31, 2000.
Maturity Period Amount
--------------- ------
(In thousands)
Three months or less $ 27,630
Over three months through six months 27,249
Over six through 12 months 51,171
Over 12 months 18,358
-------
Total $124,408
=======
-10-
Borrowings. Deposits and repayment of loan principal are the primary
source of funds for the Company's lending activities and other general business
purposes. However, during periods when the supply of lendable funds cannot meet
the demand for loans, the Company can obtain funds necessary through loans
(advances) from the Federal Home Loan Bank ("FHLB") of Cincinnati. Advances from
the FHLB may be on a secured or unsecured basis depending upon a number of
factors, including the purpose for which the funds are being borrowed and the
total of outstanding advances. The Company typically utilizes FHLB advances to
fund long-term fixed rate commercial loans and to meet short-term liquidity
needs. As of December 31, 2000, the Banks had outstanding FHLB advances totaling
$70.2 million. See Note F to the consolidated financial statements for
additional information regarding FHLB advances. The Company also has
arrangements to borrow funds from commercial banks.
In March 2000, a Delaware 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 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 made semi-annually at
an annual fixed interest rate of 10.875% 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 repurchasing the Company's common stock and providing general working
capital.
The following table sets forth the maximum amount of the Company's FHLB
advances and other borrowings outstanding at any month end during the periods
shown and the average aggregate balances of FHLB advances and other borrowings
for such periods:
Year ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Maximum amount outstanding:
FHLB advances $86,319 $71,147 $36,707
Junior subordinated debentures 5,000 - -
Other borrowings 2,443 - -
------ ------ ------
$93,762 $71,147 $36,707
====== ====== ======
Average amount of FHLB advances and other borrowings
outstanding $72,029 $54,192 $31,661
====== ====== ======
Weighted-average interest rate of total borrowings
based on quarter end balances 6.73% 6.14% 5.88%
The following table sets forth certain information as to the Company's
FHLB advances and other borrowings at the dates indicated.
December 31,
------------
2000 1999 1998
---- ---- ----
(Dollars in thousands)
FHLB advances $70,152 $59,680 $36,458
Junior subordinated debentures 5,000 - -
Other borrowings 2,443 1,172 955
------ ------ ------
Total borrowings $77,595 $60,852 $37,413
====== ====== ======
Asset and Liability Management. Net interest income, the difference
between the yield on interest-earning assets and the cost of interest-bearing
liabilities, is the principal component of the Company's net earnings. The
ability to maximize net interest income is largely dependent upon the
achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rate levels. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap", provides
an indication of the extent to which a financial institution's interest rate
-11-
spread will be affected by changes interest rates. A gap is considered positive
when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities and is considered negative when the amount
of interest-sensitive liabilities exceeds the amount of interest-sensitive
assets. Generally, during a period of rising interest rates, a negative gap
within shorter maturities would adversely affect net interest income, while a
positive gap within shorter maturities would result in an increase in net
interest income. Conversely, during a period of falling interest rates, a
negative gap within shorter maturities would result in an increase in net
interest income, while a positive gap within shorter maturities would have the
opposite effect.
In recognition of the foregoing factors, the Board of Directors of each
of the Banks and Action have implemented an asset and liability management
strategy directed toward improving each entity's interest rate sensitivity. The
principal common elements of such strategies include (1) meeting the consumer
preference for fixed-rate loans over the past several years by selling such
loans in the secondary market, (2) originating adjustable-rate mortgage loans
("ARMs") as demand increases coincident with an overall rise in interest rates
in the economy, (3) maintaining higher levels of liquid assets, such as cash,
short-term interest-earning deposits and short-term investment securities as a
hedge against rising interest rates in a lower interest rate environment, and
(4) utilizing FHLB advances and longer term certificates of deposit as funding
sources when available.
The following table contains information regarding the amounts of
various categories of assets and liabilities repricing within the periods
indicated:
December 31, 2000
Year Ending December 31,
2005 and
2001 2002 2003 2004 after Total
---- ---- ---- ---- ----- -----
Interest-earning assets:
Federal funds sold $ 77 $ - $ - $ - $ - $ 77
Interest-bearing deposits 365 - - - - 365
Investment securities 5,131 2,914 1,374 901 50,950 61,270
Loans receivable 129,827 57,740 47,971 26,634 336,914 599,086
Other interest-earnings assets - - - - 4,981 4,981
-------- -------- -------- -------- ------- -------
Total 135,400 60,654 49,345 27,535 392,845 665,779
Interest-bearing liabilities:
Deposits 358,692 94,827 59,717 13,885 35,496 562,617
Borrowings 46,657 4,026 6,642 1,543 18,727 77,595
-------- -------- -------- -------- ------- -------
Total 405,349 98,853 66,359 15,428 54,223 640,212
-------- -------- -------- -------- ------- -------
Excess (deficiency) of interest rate
sensitive assets over interest
sensitive liabilities $(269,949) $ (38,199) $ (17,014) $ 12,107 $338,622 $ 25,567
======== ======== ======== ======== ======= =======
Cumulative excess (deficiency) of
interest sensitive assets over
interest sensitive liabilities $(269,949) $(308,148) $(325,207) $(313,055) $ 25,567 $ 25,567
======== ======== ======== ======== ======= =======
Cumulative interest rate sensitivity
gap to total assets (38.86)% (44.36)% (46.81)% (45.07)% 3.68% 3.68%
====== ====== ====== ====== ==== ====
December 31, 1999
Year Ending December 31,
2005 and
2001 2002 2003 2004 after Total
---- ---- ---- ---- ----- -----
Interest-earning assets:
Federal funds sold $ 3,854 $ - $ - $ - $ - $ 3,854
Interest-bearing deposits 662 - - - - 662
Investment securities 1,773 4,820 2,194 3,259 41,292 53,338
Loans receivable 189,425 54,866 49,336 41,522 172,820 507,969
Other interest-earnings assets - - - - 4,079 4,079
-------- -------- -------- -------- ------- -------
Total 195,714 59,686 51,530 44,781 218,191 569,902
Interest-bearing liabilities:
Deposits 257,134 122,137 55,989 15,828 37,792 488,880
Borrowings 22,320 11,127 7,533 1,583 18,289 60,852
-------- -------- -------- -------- ------- -------
Total 279,454 133,264 63,522 17,411 56,081 549,732
-------- -------- -------- -------- ------- -------
Excess (deficiency) of interest rate
sensitive assets over interest
sensitive liabilities $( 83,740) $ (73,578) $ (11,992) $ 27,370 $162,110 $ 20,170
======== ======== ======== ======== ======= =======
Cumulative excess (deficiency) of
interest sensitive assets over
interest sensitive liabilities $( 83,740) $(157,318) $(169,310) $(141,940) $ 20,170 $ 20,170
======== ======== ======== ======== ======= =======
Cumulative interest rate sensitivity
gap to total assets (13.95)% (26.22)% (28.21)% (23.65)% 3.36% 3.36%
====== ====== ====== ====== ==== ====
-12-
Personnel
At December 31, 2000, the Company and its subsidiaries employed 257
persons on a full-time basis and 22 persons on a part-time basis.
Executive Offices
The Company's executive office is located at 14621 State Route 93,
Jackson, Ohio 45640 and its telephone number is (740) 286-3283.
Subsidiaries
The Company owns all of the outstanding stock of Oak Hill Banks, an Ohio
state-chartered bank, which was founded in 1902. The Company owns all of the
outstanding stock of Action Finance Company, a consumer finance company that was
formed in 1998. The Company owns all of the outstanding stock of Towne Bank, an
Ohio state-chartered bank. The Company owns all of the outstanding stock of Oak
Hill Capital Trust I, a Delaware statutory trust that was formed in 2000.
Regulation
Oak Hill Banks and Towne Bank, as Ohio state-chartered banks, are subject
to supervision and regular examination by the Superintendent of Financial
Institutions of the State of Ohio. The Banks are insured by the Federal Deposit
Insurance Corporation and are subject to the provisions of the Federal Deposit
Insurance Act. To the extent that the information below consists of summaries of
certain statutes or regulations, it is qualified in its entirety by reference to
the statutory or regulatory provisions described.
The Company is subject to the provisions of the Bank Holding Company Act
of 1956, as amended (the "Act"), which requires a bank holding company to
register under the Act and to be subject to supervision and examination by the
Board of Governors of the Federal Reserve System. As a bank holding company, the
Company is required to file with the Board of Governors an annual report and
such additional information as the Board of Governors may require pursuant to
the Act. The Act requires prior approval by the Board of Governors of the
acquisition by a bank holding company, or any subsidiary thereof, of 5% or more
of the voting stock or substantially all the assets of any bank within the
United States.
As a bank holding company located in the State of Ohio, the Company is
not permitted to acquire a bank or other financial institution located in
another state unless such acquisition is specifically authorized by the statutes
of such state. The Act further provides that the Board of Governors shall not
approve any such acquisition that would result in a monopoly or would be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States, or the
effect of which may be to substantially lessen competition or to create a
monopoly in any section of the country, or that in any other manner would be in
restraint of trade, unless the anti-competitive effects of the proposed
transaction are clearly outweighed in the public interest by the probable effect
of the transaction in meeting the convenience and needs of the community to be
served.
The Act also prohibits a bank holding company, with certain exceptions,
from acquiring 5% or more of the voting stock of any company that is not a bank
and from engaging in any business other than banking or performing services for
its banking subsidiary without the approval of the Board of Governors. In
addition, the acquisition of a thrift institution must be approved by the Office
of Thrift Supervision pursuant to the savings and loan holding company
provisions of the Home Owners' Loan Act of 1933. On March 13, 2000, the
Financial Services Act of 1999, also known as the Gramm-Leach-Bliley Act, became
effective. This legislation repealed certain cross-industry affiliation
prohibitions and made certain other changes to the Act. It authorized a new form
of holding company, a financial holding company, which with certain exceptions
is authorized to undertake activities which are "financial in nature" and which
include banking, insurance and securities activities. Generally, the scope of
activities permitted to a financial holding company are broader than those
previously permitted to a bank holding company. A bank holding company may elect
to become a financial holding company. The Company has not filed such a request.
Under the Act, as amended by the Gramm-Leach-Bliley Act, the Company continues
to be permitted to engage in certain activities, including mortgage banking,
operating small loan companies, factoring, furnishing certain data processing
operations, holding or operating properties used by banking subsidiaries or
acquired for such future use, providing certain investment and financial advice,
leasing (subject to certain conditions) real or personal property, providing
management consulting advice to certain depository institutions, providing
securities brokerage services, arranging commercial real estate equity
-13-
financing, underwriting and dealing in government obligations and money market
instruments, providing consumer financial counseling, operating a collection
agency, owning and operating a savings association, operating a credit bureau
and conducting certain real estate investment activities and acting as insurance
agent for certain types of insurance. Certain other activities, including real
estate brokerage and syndication, land development, and property management not
related to credit transactions, are not permissible.
The Act and the regulations of the Board of Governors prohibit a bank
holding company and its subsidiaries from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property, or furnishing of services.
The Act also imposes certain restrictions upon dealing by affiliated
banks with the holding company and among themselves including restrictions on
interbank borrowing and upon dealings in respect to the securities or
obligations of the holding company or other affiliates.
The earnings of banks and consumer finance companies, and therefore the
earnings of the Company (and its subsidiaries), are affected by the policies of
regulatory authorities, including the Board of Governors of the Federal Reserve
System. An important function of the Federal Reserve Board is to regulate the
national supply of bank credit in an effort to prevent recession and to restrain
inflation. Among the procedures used to implement these objectives are open
market operations in U.S. Government securities, changes in the discount rate on
member bank borrowings, and changes in reserve requirements against member bank
deposits. These procedures are used in varying combinations to influence overall
growth and distribution of bank loans, investments and deposits, and their use
also may affect interest rates charged on loans or paid for deposits. Monetary
policies of the Federal Reserve Board have had a significant effect on the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The effect, if any, of such policies upon the future
business and earnings of the Company cannot accurately be predicted. The Company
makes no attempt to predict the effect on its revenues and earnings of changes
in general economic, industrial, and international conditions or in legislation
and governmental regulations.
Business Risks
Except for the historical information contained herein, the matters
discussed in this Form 10-K include certain forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are
intended to be covered by the safe harbors created thereby. Those statements
include, but may not be limited to, all statements regarding the intent, belief
and expectations of the Company and its management, such as statements
concerning the Company's future profitability. Investors are cautioned that all
forward-looking statements involve risks and uncertainties including, without
limitation, factors detailed from time to time in the Company's filings with the
Securities and Exchange Commission. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate. Therefore, there can be
no assurance that the forward-looking statements contained herein are
reasonable, and any of the assumptions could be inaccurate. Therefore, there can
be no assurance that the forward-looking statements included in this Form 10-K
will prove to be accurate, and in light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a presentation by the Company or any
other person that the objectives and plans of the Company will be achieved.
Growth Strategy. The Company has pursued and continues to pursue a
strategy of growth. The success of the Company's growth strategy will depend
largely upon its ability to manage its credit risk and control its costs while
providing competitive products and services. This growth strategy may present
special risks, such as the risk that the Company will not efficiently handle
growth with its present operations, the risk of dilution of book value and
earnings per share as a result of an acquisition, the risk that earnings will be
adversely affected by the start-up costs associated with establishing new
products and services, the risk that the Company will not be able to attract and
retain qualified personnel needed for expanded operations, and the risk that its
internal monitoring and control systems may prove inadequate.
Control by Management; Anti-Takeover Provisions. Evan E. Davis, John D.
Kidd and D. Bruce Knox (the "Principal Stockholders") own in the aggregate
approximately 33.5% of the outstanding shares of Common Stock of the Company. In
addition to Ohio and federal laws and regulations governing changes in control
of insured depository institutions, the Company's Articles of Incorporation and
Code of Regulations contain certain provisions that may delay or make more
difficult an acquisition of control of the Company. For example, the Company's
Articles of Incorporation do not exempt the Company from the provisions of
Ohio's "control share acquisition" and "merger moratorium" statutes. Assuming
that the Principal Stockholders continue to retain at least a majority of the
outstanding voting shares of the Company, such ownership position could be
expected to deter any prospective acquirer from seeking to acquire ownership or
control of the Company, and the Principal Stockholders would be able to defeat
any acquisition proposal that requires approval of the Company's stockholders,
if the Principal Stockholders chose to do so. In addition, the Principal
-14-
Stockholders may make a private sale of shares of common stock of the Company
that they own, including to a person seeking to acquire ownership or control of
the Company. The Company has 3,000,000 shares of authorized but unissued
preferred stock, par value $ .01 per share, which may be issued in the future
with such rights, privileges and preferences as are determined by the Board of
Directors of the Company. In December 1997, the Board of Directors of the
Company approved and adopted a stockholder rights plan that contemplates the
issuance of rights to purchase preferred stock of the Company to the Company's
common stockholders of record as of February 17, 1998, as set forth in the
Rights Agreement entered into between the Company and Fifth Third Bank on
January 23, 1998. On December 26, 2000, the Company amended the Rights Agreement
to appoint Registrar and Transfer Company as successor Rights Agent under the
Rights Agreement due to the resignation of Fifth Third Bank as Rights Agent. The
Board of Directors of the Company approved the appointment of Registrar and
Transfer Company pursuant to a resolution dated November 14, 2000.
Limited Trading Market; Shares Eligible for Future Sale; Possible
Volatility of Stock Price. The Common Stock is traded on the Nasdaq National
Market under the symbol "OAKF." During the 12 months ending March 13, 2001, the
average weekly trading volume in the Common Stock has been less than 20,200
shares per week. There can be no assurance given as to the liquidity of the
market for the Common Stock or the price at which any sales may occur, which
price will depend upon, among other things, the number of holders thereof, the
interest of securities dealers in maintaining a market in the Common Stock and
other factors beyond the control of the Company. The market price of the Common
Stock could be adversely affected by the sale of additional shares of Common
Stock owned by the Company's current shareholders. The Principal Shareholders
are permitted to sell certain limited amounts of Common Stock without
registration, pursuant to Rule 144 under the Securities Act. The market price
for the Common Stock could be subject to significant fluctuations in response to
variations in quarterly and yearly operating results, general trends in the
banking industry and other factors. In addition, the stock market can experience
price and volume fluctuations that may be unrelated or disproportionate to the
operating performance of affected companies. These broad fluctuations may
adversely affect the market price of the Common Stock.
Dependence on Management. The Company's success depends to a great extent
on its senior management, including its Chairman, Evan E. Davis; President, John
D. Kidd; Executive Vice President, Richard P. LeGrand; and Secretary, H. Tim
Bichsel; Chief Information Officer, D. Bruce Knox; Chief Administrative Officer,
David G. Ratz; Treasurer and Chief Financial Officer, Ronald J. Copher; and Vice
President, Ralph E. Coffman, Jr. The loss of their individual services could
have a material adverse impact on the Company's financial stability and its
operations. In addition, the Company's future performance depends on its ability
to attract and retain key personnel and skilled employees, particularly at the
senior management level. The Company's financial stability and its operations
could be adversely affected if, for any reason, one or more key executive
officers ceased to be active in the Company's management. The Company does not
own or currently plan to acquire "key man" life insurance on the lives of any of
its key employees.
Competition. Banking institutions operate in a highly competitive
environment. The Company competes with other commercial banks, credit unions,
savings institutions, finance companies, mortgage companies, mutual funds, and
other financial institutions, many of which have substantially greater financial
resources than the Company. Certain of these competitors offer products and
services that are not offered by the Company and certain competitors are not
subject to the same extensive laws and regulations as the Company. Additionally,
consolidation of the financial services industry in Ohio and in the Midwest in
recent years has increased the level of competition. Recent and proposed
regulatory changes may further intensify competition in the Company's market
area.
Holding Company Structure; Government Regulations and Policies. The Company
is a multi-bank holding company, the profitability of which is entirely
dependent on the profitability of the Banks and the upstream payment of
dividends from the Banks to the Company. Under state and federal banking law,
the payment of dividends by the Company and the Banks are subject to capital
adequacy requirements. The inability of the Banks to generate profits and pay
such dividends to the Company, or regulator restrictions on the payment of such
dividends to the Company even if earned, would have an adverse effect on the
financial condition and results of operations of the Company and the Company's
ability to pay dividends to the shareholders.
-15-
Item 2. Properties.
The registrant and its subsidiaries operate from 23 full-service
banking offices, 6 full-service consumer-financing offices, and 3 loan
production offices in Ohio. In addition, the Company operates two executive
offices in Jackson, Ohio and executive offices and an operations center in Blue
Ash, Ohio. The offices are located in the following counties:
Jackson - Oak Hill, Jackson, Ironmakers, Jackson Walmart, Wellston, executive
offices of Oak Hill Banks and Oak Hill Financial, Inc., Action Finance
Jackson, and Action Finance Wellston
Ross - Richmond Dale, Chillicothe, and Chillicothe K-Mart
Scioto - Wheelersburg, Portsmouth, West Portsmouth, and Action Finance
Portsmouth
Gallia - Gallipolis and Action Finance Gallipolis
Pickaway - Circleville and Action Finance Circleville
Warren - Franklin and Mason
Butler - Trenton and Middletown
Vinton - McArthur
Athens - Athens
Hamilton - Blue Ash, executive offices and operations center of Towne Bank, and
Cherry Grove
Fairfield - Lancaster loan production office
Franklin - Groveport loan production office
Adams - Action Finance West Union
Hocking - Logan loan production office
Clermont - Amelia
The following table indicates which properties the Company leases, the
term of the lease, and end of lease options. All leases are comparable to other
leases in the respective market areas and do not contain provisions detrimental
to the Company or its subsidiaries.
Beginning End of Lease Five Year Renewal Options
Branch and Length of Term One Two Three
- ------ ------------------ --- --- -----
Chillicothe 11/1/98 5 years X
Chillicothe K-Mart 6/28/94 5 years X
West Portsmouth 2/18/97 8 years X
Jackson Walmart 10/28/98 5 years X
Oak Hill Banks
Administrative Offices 10/1/98 5 years X
Action Finance Jackson 1/14/98 5 years X
Action Finance Wellston 1/3/98 5 years X
Action Finance West Union 10/1/99 5 years X
Action Finance Portsmouth 11/1/99 5 years X
Action Finance Circleville 11/1/00 5 years X
Action Finance Gallipolis 2/1/01 3 years One - three year renewal option
Groveport loan production 6/1/99 1 month Renewable on a monthly basis
Lancaster loan production 12/1/99 3 years Renegotiable at the end of the lease
Logan loan production 12/1/99 1 year Two - one year renewal options
Middletown 8/19/99 7 years Two - three year renewal options
Towne Bank operations 5/1/99 1 year One - one year renewal option
Item 3. Legal Proceedings.
Except for routine litigation incident to their business, the
registrant and its subsidiaries are not a party to any material pending legal
proceedings and none of their property is the subject of any such proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to the shareholders during the fourth quarter
of 2000.
-16-
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters.
SHAREHOLDER INFORMATION
The common stock of the Company is traded on the Nasdaq National Market
System under the symbol "OAKF."
The high and low sales prices for the Company common stock during each
quarter of 1999 and 2000 are as follows:
Quarter
Ended High Low
3/31/99 $19.75 $16.75
6/30/99 19.25 16.88
9/30/99 18.75 16.50
12/31/99 17.63 14.63
3/31/00 15.44 12.75
6/30/00 16.38 12.25
9/30/00 16.50 13.56
12/31/00 15.94 13.88
At March 13, 2001, the Company had approximately 2,400 stockholders of
record and 5,097,631 shares of common stock outstanding.
Dividends. The ability of the Company to pay cash dividends to
stockholders is limited by its ability to receive dividends from its subsidiary.
The State of Ohio places certain limitations on the payment of dividends by Ohio
state-chartered banks.
The Company declared the following dividends per share in 1999 and
2000:
Quarter Dividend
Ended Declared
3/31/99 $0.08
6/30/99 0.08
9/30/99 0.08
12/31/99 0.10
3/31/00 0.10
6/30/00 0.10
9/30/00 0.10
12/31/00 0.11
Future cash and stock dividends will be subject to determination and
declaration by the Board of Directors of the Company, taking into consideration,
among other factors, the Company's financial condition and results of
operations, investment opportunities, capital requirements, and regulatory
limitations.
Stock Transfer Agent. Inquiries regarding stock transfer, registration,
lost certificates, or changes in name and address should be directed in writing
to the Company's stock transfer agent:
The Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
(800) 456-0596
Annual Meeting of Shareholders. The Annual Meeting of Shareholders of Oak
Hill Financial, Inc. will be held on April 25, 2001, at 1:00 p.m. at the Ohio
State University Extension South District Office, 17 Standpipe Road, Jackson,
Ohio (the Extension Office is located just off State Route 93, 1.7 miles south
of Jackson).
-17-
Item 6. Selected Financial Data
At or For the Year Ended December 31,
2000 1999 1998 1997 1996
(In thousands, except share data)
SUMMARY OF FINANCIAL CONDITION (1) (2)
Total assets $694,637 $600,100 $552,649 $473,341 $407,461
Interest-bearing deposits
and federal funds sold 442 4,516 12,197 4,031 5,415
Investment securities 61,270 53,338 100,027 81,396 79,748
Loans receivable-- net (3) 599,086 507,969 411,246 360,797 297,886
Deposits 562,617 488,880 465,674 391,265 334,138
Federal Home Loan Bank (FHLB)
advances and other borrowings 77,595 60,852 37,413 37,708 33,086
Stockholders' equity 49,896 47,724 46,574 41,349 37,620
SUMMARY OF OPERATIONS (1) (2)
Interest income $ 54,578 $ 45,250 $ 41,599 $ 36,089 $ 30,954
Interest expense 29,510 22,419 21,339 18,626 15,891
------- ------- ------- ------- -------
Net interest income 25,068 22,831 20,260 17,463 15,063
Provision for loan losses 2,263 2,432 1,266 1,171 879
------- ------- ------- ------- -------
Net interest income after
provision for loan losses 22,805 20,399 18,994 16,292 14,184
Gain on sale of loans 174 477 1,418 250 229
Gain (loss) on sale of assets (390) (2,141) 281 (33) 99
Other non-interest income 2,521 2,072 1,550 1,427 1,442
General, administrative and other
expense (4) (5) 15,620 14,642 11,788 11,058 10,012
------- ------- ------- ------- -------
Earnings before federal income
taxes 9,490 6,165 10,455 6,878 5,942
Federal income taxes 3,172 2,083 3,415 2,441 1,938
------- ------- ------- ------- -------
Net earnings $ 6,318 $ 4,082 $ 7,040 $ 4,437 $ 4,004
======= ======= ======= ======= =======
PER SHARE INFORMATION (6)
Basic earnings per share $ 1.21 $ .77 $ 1.34 $ .84 $ .76
Book value 9.76 8.97 8.90 7.86 7.16
-18-
At or For the Year Ended December 31,
2000 1999 1998 1997 1996
OTHER STATISTICAL AND
OPERATING DATA
Return on average assets 0.98% 0.71% 1.37% 1.00% 1.05%
Return on average equity 12.94 8.48 15.86 11.28 11.10
Net interest margin 4.04 4.16 4.10 4.17 4.15
Interest rate spread during period 3.39 3.60 3.47 3.68 3.59
Non-interest expense to average assets 2.43 2.56 2.30 2.50 2.63
Total allowance for loan losses
to nonperforming loans 250.9 192.4 191.9 232.4 253.5
Total allowance for loan losses
to total loans 1.19 1.19 1.10 1.10 1.05
Nonperforming loans to total loans 0.47 0.62 0.58 0.47 0.42
Nonperforming assets to total assets 0.45 0.56 0.44 0.36 0.31
Net charge-offs to average loans 0.22 0.20 0.18 0.11 0.11
Equity to assets at period end 7.18 7.95 8.43 8.74 9.23
Dividend payout ratio 33.64 44.03 19.63 22.26 23.68
- ---------------------------------------------------------------------------------------------------------------------------
(1) The Company merged Unity Savings Bank with and into its Oak Hill Banks
subsidiary on October 2, 1997. The merger was accounted for as a
pooling-of-interests. Accordingly, the consolidated financial statements as
of and for the year ended December 31, 1996, have previously been restated
as if the merger had occurred January 1, 1996.
(2) The Company completed a merger with Towne Financial Corporation and its
subsidiary The Blue Ash Building and Loan Company on October 1, 1999. The
merger was accounted for as a pooling-of-interests. Accordingly, the
consolidated financial statements as of and for the years ended December
31, 1996 through 1998, inclusive, have previously been restated as if the
merger had occurred on January 1, 1996.
(3) Includes loans held for sale.
(4) Non-interest expense for 1997 includes $920,000 in pre-tax expenses
incurred pursuant to the merger with Unity Savings Bank.
(5) Non-interest expense for 1999 includes $1.4 million in pre-tax expenses, of
which $250,000 is included in "other operating expenses", incurred pursuant
to the merger with Towne Financial Corporation.
(6) Per share information ives retroactive effect to the issuance of 643,690
shares in the Unity transaction, the 5-for-4 stock split effected June 1,
1998, and the issuance of 917,361 shares in the Towne transaction.
-19-
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
OVERVIEW
The principal asset of Oak Hill Financial, Inc. ("Company") is its
ownership of Oak Hill Banks ("Oak Hill") and Towne Bank ("Towne"), (collectively
hereinafter "Banks"). Accordingly, the Company's results of operations are
primarily dependent upon the results of operations of the Banks. The Banks
conduct general commercial banking businesses that consist of attracting
deposits from the general public and using those funds to originate loans for
commercial, consumer, and residential purposes.
The Banks' profitability depends primarily on their net interest
income, which is the difference between interest income generated from
interest-earning assets (i.e., loans and investments) less the interest expense
incurred on interest-bearing liabilities (i.e., deposits and borrowed funds).
Net interest income is affected by the relative amounts of interest-earning
assets and interest-bearing liabilities, and the interest rates paid on these
balances. Additionally, and to a lesser extent, profitability is affected by
such factors as the level of non-interest income and expenses, the provision for
losses on loans, and the effective tax rate. Non-interest income consists
primarily of service charges and other fees and income from the sale of loans.
Non-interest expenses consist of compensation and benefits, occupancy-related
expenses, FDIC deposit insurance premiums, and other operating expenses.
Management's discussion and analysis of earnings and related financial
data are presented herein to assist investors in understanding the consolidated
financial condition and results of operations of the Company as of and for the
years ended December 31, 2000 and 1999. This discussion should be read in
conjunction with the consolidated financial statements and related footnotes
presented elsewhere in this report.
FORWARD LOOKING STATEMENTS
In the following pages, management presents an analysis of the
Company's financial condition as of December 31, 2000, and the results of
operations for the year ended December 31, 2000, as compared to prior periods.
In addition to this historical information, the following discussion and other
sections of this Annual Report contain forward-looking statements that involve
risks and uncertainties. Economic circumstances, the Company's operations and
the Company's actual results could differ significantly from those discussed in
the forward-looking statements. Some of the factors that could cause or
contribute to such differences are discussed herein but also include changes in
the economy and interest rates in the nation and the Company's general market
area. Without limiting the foregoing, some of the forward-looking statements
include management's establishment of an allowance for loan losses, and its
statements regarding the adequacy of such allowance for loan losses; and
management's belief that the allowance for loan losses is adequate.
FINANCIAL CONDITION
The Company's total assets amounted to $694.6 million as of December
31, 2000, an increase of $94.5 million, or 15.8%, over the $600.1 million total
at December 31, 1999. The increase was funded primarily through growth in
deposits of $73.7 million, or 15.1%, an increase in FHLB advances of $10.5
million, respective increases of $2.3 million and $5.0 million in notes payable
and guaranteed preferred beneficial interests in junior subordinated debentures
(hereinafter "subordinated debentures"), and an increase in stockholders' equity
of $2.2 million.
Cash and due from banks, federal funds sold, and investment securities,
including mortgage-backed securities, increased by $2.7 million, or 3.8%, to a
total of $74.6 million at December 31, 2000, compared to $71.9 million at
December 31, 1999. Investment securities increased by $7.9 million, as purchases
of $30.4 million exceeded maturities and repayments of $2.7 million and sales of
$21.7 million. Federal funds sold decreased by $3.8 million during 2000.
Loans receivable totaled $599.1 million at December 31, 2000, an
increase of $91.1 million, or 17.9%, over total loans at December 31, 1999. Loan
disbursements totaled $303.7 million during 2000, which were partially offset by
loan sales of $10.6 million and principal repayments of $198.8 million. Loan
origination and sales volume decreased by $21.1 million and $20.0 million,
respectively, as compared to the same period in 1999. The Company's allowance
for loan losses amounted to $7.2 million at December 31, 2000, an increase of
$1.1 million, or 17.4%, over the total at December 31, 1999. The allowance for
loan losses represented 1.19% of the total loan portfolio at both December 31,
2000 and 1999. Net charge-offs totaled approximately $1.2 million and $883,000
for the years ended December 31, 2000 and 1999, respectively. The Company's
allowance represented 250.9% and 192.4% of nonperforming loans, which totaled
$2.9 million and $3.2 million at December 31, 2000 and 1999, respectively.
Nonperforming loans were comprised of $549,000 in installment loans and $2.3
million of loans secured primarily by commercial real estate and one-to-four
family residential real estate. In management's opinion, all nonperforming loans
were adequately collateralized at December 31, 2000.
-20-
Deposits totaled $562.6 million at December 31, 2000, an increase of
$73.7 million, or 15.1%, over the $488.9 million total at December 31, 1999. The
increase resulted primarily from management's continuing marketing efforts and
competitive pricing with respect to mid-term certificate of deposit products
throughout the Banks' branch network. Proceeds from deposit growth were used
primarily to fund loan originations.
Advances from the Federal Home Loan Bank totaled $70.2 million at
December 31, 2000, an increase of $10.5 million, or 17.5%, over the December 31,
1999 total. Notes payable increased by $2.3 million. Proceeds from advances and
notes payable were primarily used to fund loan originations during the period.
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 subordinated debentures and common securities were used by the
Trust to purchase from the Company $5.0 million of subordinated debentures
maturing on March 8, 2030. The subordinated debentures are the sole asset 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 fixed
rate of interest of 10.875% and are reported as a component of interest expense
on borrowings. The net proceeds received by the Company were used for general
corporate purposes, including repurchasing the Company's stock and providing
general working capital.
The Company's stockholders' equity amounted to $49.9 million at
December 31, 2000, an increase of $2.2 million, or 4.6%, over the balance at
December 31, 1999. The increase resulted primarily from net earnings of $6.3
million and a $1.5 million decrease in the unrealized losses on securities
designated as available for sale, which were partially offset by $2.1 million in
dividends declared on common stock and purchases of treasury shares totaling
$3.9 million.
SUMMARY OF EARNINGS
The table on page 25 shows for each category of interest-earning assets
and interest-bearing liabilities, the average amount outstanding, the interest
earned or paid on such amount, and the average rate earned or paid for the years
ended December 31, 2000, 1999, and 1998. The table also shows the average rate
earned on all interest-earning assets, the average rate paid on all
interest-bearing liabilities, the interest rate spread, and the net interest
margin for the same periods. Changes in net interest income are attributable to
either changes in average balances (volume change) or changes in average rates
(rate change) for interest-earning assets and interest-bearing liabilities.
Volume change is calculated as change in volume times the old rate, while rate
change is calculated as change in rate times the old volume. The table on page 8
indicates the dollar amount of the change attributable to each factor. The
rate/volume change, the change in rate times the change in volume, is allocated
between the volume change and the rate change at the ratio each component bears
to the absolute value of their total.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND
1999
GENERAL. Net earnings for the year ended December 31, 2000 totaled $6.3
million, a $2.2 million, or 54.8%, increase over the amount reported in 1999.
The increase in earnings resulted primarily from a $2.2 million increase in net
interest income, a $1.9 million increase in other income, and a $169,000
decrease in the provision for losses on loans, which were partially offset by a
$978,000 increase in general, administrative and other expense and a $1.1
million increase in the provision for federal income taxes.
NET INTEREST INCOME. Total interest income for the year ended December
31, 2000, amounted to $54.6 million, an increase of $9.3 million, or 20.6%, over
the $45.3 million recorded for 1999. Interest income on loans totaled $50.4
million, an increase of $10.9 million, or 27.7%, over the 1999 period. This
increase resulted primarily from a $107.2 million, or 23.8%, increase in the
weighted-average ("average") portfolio balance from $449.9 million in 1999 to
$557.0 million in 2000, coupled with a 28 basis point increase in the average
yield from 8.76% in 1999 to 9.04% in 2000. Interest income on investment
securities and other interest-earning assets decreased by $1.6 million, or
27.5%. The decrease resulted primarily from a $36.1 million, or 36.2%, decrease
in the average portfolio balance to $63.5 million in 2000 from $99.6 million in
1999, which was partially offset by an 80 basis point increase in the average
yield, from 5.84% in 1999 to 6.64% in 2000.
Total interest expense amounted to $29.5 million for the year ended
December 31, 2000, an increase of $7.1 million, or 31.6%, over the $22.4 million
recorded in 1999. Interest expense on deposits increased by $5.3 million, or
27.5%, to a total of $24.8 million in 2000. The increase resulted primarily from
a $44.2 million, or 10.3%, increase in the average portfolio balance from $428.9
million in 1999 to $473.1 million in 2000, coupled with a 70 basis point
increase in the average cost of deposits from 4.53% in 1999 to 5.23% in 2000.
Interest expense on borrowings increased by $1.8 million, or 58.6%, during 2000.
This increase was due to a $17.8 million increase in average borrowings
outstanding coupled with a 107 basis point increase in the average cost of
borrowings from 5.52% in 1999 to 6.59% in 2000.
-21-
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $2.2 million, or 9.8%, for the year
ended December 31, 2000, as compared to 1999. The interest rate spread decreased
by 21 basis points to 3.39% in 2000 compared to 3.60% in 1999. The net interest
margin decreased by 12 basis points to 4.04% in 2000 from 4.16% in 1999.
PROVISION FOR LOSSES ON LOANS. The provision for losses on loans
represents a charge to earnings to maintain the allowance at a level management
believes is adequate to absorb losses in the loan portfolio. The Company's
provision for losses on loans amounted to $2.3 million for the year ended
December 31, 2000, a decrease of $169,000, or 6.9%, compared to the same period
in 1999. The provision for losses on loans in 2000 generally reflects the $91.2
million of growth in the loan portfolio during the year. The Company's loan
growth in 2000 was comprised primarily of a $61.4 million, or 19.2%, increase in
loans secured by residential real estate and a $26.2 million, or 20.8%, increase
in commercial and other loans. Net loan charge-offs amounted to $1.2 million in
2000, as compared to $883,000 in 1999.
Although management believes that it uses the best information
available in providing for possible loan losses and believes that the allowance
is adequate at December 31, 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 totaled $2.3 million for the year ended
December 31, 2000, an increase of $1.9 million, over the amount recorded in
1999. This increase resulted primarily from a $1.8 million decline in the loss
on sale of securities year-to-year and a $449,000, or 21.7%, increase in service
fees, charges, and other operating income, which were partially offset by a
$303,000 decrease in gain on sale of loans. During the third and fourth quarters
of 2000, the Company restructured the Banks' investment securities into
higher-yield obligations of state and political subdivisions and U.S. Government
and agency securities at a loss of $381,000.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense totaled $15.6 million for the year ended December 31, 2000, an
increase of $978,000, or 6.7%, over the 1999 total. The increase resulted
primarily from a $1.2 million, or 16.3%, increase in employee compensation and
benefits, a $665,000, or 18.8%, increase in other operating expenses, and an
increase of $244,000, or 14.7%, in occupancy and equipment, which were offset by
the absence of $1.1 million in merger-related expenses incurred in connection
with the October 1, 1999 merger of Towne Financial Corporation with and into the
Company and decreases of $26,000 and $13,000 in federal deposit insurance
premiums and franchise taxes, respectively.
The increase in employee compensation and benefits resulted primarily
from increased staffing levels required in connection with the establishment of
new branch locations, additional management staffing and normal merit increases.
The increase in other operating expense resulted primarily from an increase in
professional fees associated with the co-sourcing of the internal audit function
totaling $99,000, an increase in costs associated with ATM transaction charges
and data processing totaling $165,000, and a recognition of an impairment loss
totaling $185,000 relating to a former branch location. The remaining increase
of $235,000, or 6.6%, was due to pro-rata increases in other operating expenses
attendant to the Company's overall growth year-to-year. The increase in
occupancy and equipment expense was due primarily to a $145,000, or 67.5%,
increase in rent expense, coupled with increases in other occupancy-related
costs, in connection with new branch locations opened in 2000.
FEDERAL INCOME TAXES. The provision for federal income taxes amounted
to $3.2 million for the year ended December 31, 2000, an increase of $1.1
million, or 52.3%, over the $2.1 million recorded in 1999. The increase resulted
primarily from a $3.3 million, or 53.9%, increase in earnings before taxes. The
effective tax rates were 33.4% and 33.8% for the year ended December 31, 2000
and 1999, respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
1998
GENERAL. Net earnings for the year ended December 31, 1999 totaled $4.1
million, a $3.0 million, or 42.0%, decrease from the amount reported in 1998.
The decrease in earnings resulted primarily from a $2.9 million increase in
general, administrative and other expense, a $1.2 million increase in the
provision for losses on loans, and a $2.8 million decrease in other income,
which were partially offset by a $2.6 million increase in net interest income
and a $1.3 million decrease in the provision for federal income taxes.
-22-
NET INTEREST INCOME. Total interest income for the year ended December
31, 1999, amounted to $45.3 million, an increase of $3.7 million, or 8.8%, over
the $41.6 million recorded for 1998. Interest income on loans totaled $39.4
million, an increase of $2.4 million, or 6.4%, over the 1998 period. This
increase resulted primarily from a $62.8 million, or 16.2%, increase in the
average portfolio balance outstanding year-to-year, which was partially offset
by an 81 basis point decrease in the average yield, to 8.76% in 1999 from 9.57%
in 1998. Interest income on investment securities and other interest-earning
assets increased by $1.3 million, or 27.9%. The increase resulted primarily from
a 159 basis point increase in the average yield, from 4.25% in 1998 to 5.84% in
1999, which was partially offset by a $7.4 million, or 6.9%, decrease in the
average portfolio balance outstanding year-to-year.
Total interest expense amounted to $22.4 million for the year ended
December 31, 1999, an increase of $1.1 million, or 5.1%, over the $21.3 million
recorded in 1998. Interest expense on deposits increased by $31,000, or 0.2%, to
a total of $19.4 million in 1999. The increase resulted primarily from a $20.9
million, or 7.4%, increase in the average portfolio balance outstanding
year-to-year, which was partially offset by a 33 basis point decrease in the
average cost of deposits, to 4.53% in 1999 from 4.86% in 1998. Interest expense
on borrowings increased by $1.0 million, or 54.0%, during 1999. This increase
was due to a $22.5 million increase in average borrowings outstanding, which was
partially offset by a 62 basis point decrease in the average cost of borrowings,
to 5.52% in 1999 compared to 6.14% in 1998.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $2.6 million, or 12.7%, for the year
ended December 31, 1999, as compared to 1998. The interest rate spread increased
by 13 basis points from 3.47% in 1998 to 3.60% in 1999, while the net interest
margin increased by 6 basis points from 4.10% in 1998 to 4.16% in 1999.
PROVISION FOR LOSSES ON LOANS. The provision for losses on loans
represents a charge to earnings to maintain the allowance at a level management
believes is adequate to absorb losses in the loan portfolio. The Company's
provision for losses on loans amounted to $2.4 million for the year ended
December 31, 1999, an increase of $1.2 million, or 92.1%, compared to the same
period in 1998. The provision for losses on loans in 1999 generally reflects the
$96.7 million of growth in the loan portfolio over the year. The Company's loan
growth in 1999 was comprised primarily of a $56.5 million, or 21.5%, increase in
loans secured by residential real estate and a $34.7 million, or 37.9%, increase
in commercial and other loans. Net loan charge-offs amounted to $883,000 in
1999, as compared to $683,000 in 1998.
OTHER INCOME. Other income totaled $408,000 for the year ended December
31, 1999, a decrease of $2.8 million, from the amount recorded in 1998. This
decrease resulted primarily from a $2.1 million loss on sale of securities as
compared to a $281,000 gain on sale of securities in the 1998 period and a
$941,000 decrease in gain on sale of loans, which were partially offset by a
$522,000, or 33.7%, increase in service fees, charges, and other operating
income. The $2.1 million loss on sale of securities was incurred by Towne
Financial Corporation prior to its merger with and into the Company in order to
bring Towne Financial's portfolio into conformance with the Company's
asset/liability management and credit policies.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense totaled $14.6 million for the year ended December 31, 1999, an
increase of $2.9 million, or 24.2%, over the 1998 total. The increase resulted
primarily from expenses of $1.1 million incurred in connection with the
previously mentioned Towne merger, including $623,000 for the cost of employee
severance pay related thereto. In addition there was a $1.2 million, or 18.4%,
increase in employee compensation and benefits, a $557,000, or 18.7%, increase
in other operating expenses, and an increase of $9,000 in federal deposit
insurance premiums, which were partially offset by decreases of $8,000 and
$28,000 in occupancy and equipment and franchise taxes, respectively.
The increase in employee compensation and benefits resulted primarily
from 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 other operating expense resulted primarily from
increases in professional fees and costs attendant to the continued reporting
requirements of a public company, as well as, increases in expenses related to
the Company's overall growth and continuing marketing efforts year-to-year.
FEDERAL INCOME TAXES. The provision for federal income taxes amounted
to $2.1 million for the year ended December 31, 1999, a decrease of $1.3
million, or 39.0%, from the $3.4 million recorded in 1998. The decrease resulted
primarily from a $4.3 million, or 41.0%, decrease in earnings before taxes. The
effective tax rates were 33.8% and 32.7% for the year ended December 31, 1999
and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Like other financial institutions, the Company must ensure that
sufficient funds are available to meet deposit withdrawals, loan commitments,
and expenses. Control of the Company's cash flow requires the anticipation of
deposit flows and loan payments. The Company's primary sources of funds are
deposits, borrowings and principal and interest payments on loans. The Company
uses funds from deposit inflows, proceeds from borrowings and principal and
interest payments on loans primarily to originate loans, and to purchase
short-term investment securities and interest-bearing deposits.
At December 31, 2000, the Company had $321.4 million of certificates of
deposit maturing within one year. It has been the Company's historic experience
-23-
that such certificates of deposit will be renewed at market rates of interest.
It is management's belief that maturing certificates of deposit over the next
year will similarly be renewed at market rates of interest without a material
adverse effect on the results of operations.
In the event that certificates of deposit cannot be renewed at
prevalent market rates, the Company can obtain up to $161.4 million in advances
from the Federal Home Loan Bank of Cincinnati (FHLB). Also, as an operational
philosophy, the Company seeks to obtain advances to help with asset/liability
management and liquidity. At December 31, 2000, the Company had $70.2 million of
outstanding FHLB advances.
At December 31, 2000, loan commitments, or loans committed but not
closed, totaled $14.5 million. Additionally, the Company had unused lines of
credit and letters of credit totaling $64.6 million and $1.6 million,
respectively. Funding for these amounts is expected to be provided by the
sources described above. Management believes the Company has adequate resources
to meet its normal funding requirements.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("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 specifies new methods of accounting for hedging
activities, prescribes the items and transactions that may be hedged, and
specifies detailed criteria to be met to qualify for hedging accounting.
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an interest
rate or foreign exchange rate, that is applied to a notional amount, such as an
amount of currency, to determine the settlement amount(s). It generally requires
no significant initial investment and can be settled net or by delivery of an
asset that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract. SFAS No. 133, 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. Management
adopted SFAS No. 133 effective January 1, 2001, as required, without material
effect on the Company's consolidated 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.
-24-
AVERAGE BALANCES AND INTEREST RATES
Year Ended December 31,
2000 1999 1998
---- ---- ----
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ---- ------- ------- ----
(Dollars in thousands)
Interest-earning assets:
Loans receivable $557,038 $50,362 9.04% $449,873 $39,431 8.76% $387,057 $37,049 9.57%
Investment securities 62,049 4,120 6.64 86,329 5,208 6.03 93,476 3,829 4.10
Federal funds sold 803 62 7.72 12,567 587 4.67 11,794 661 5.60
Interest-earning deposits 647 34 5.26 685 24 3.50 1,707 60 3.51
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-earning assets 620,537 54,578 8.80 549,454 45,250 8.24 494,034 41,599 8.42
Non-interest-earning assets 20,991 22,856 18,383
------- ------- -------
Total assets $641,528 $572,310 $512,417
======= ======= =======
Interest-bearing liabilities:
Deposits $473,149 24,764 5.23 $428,915 19,426 4.53 $399,249 19,395 4.86
Borrowings 72,029 4,746 6.59 54,192 2,993 5.52 31,661 1,944 6.14
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-bearing liabilities 545,178 29,510 5.41 483,107 22,419 4.64 430,910 21,339 4.95
------ ---- ------ ---- ------ ----
Non-interest-bearing liabilities 47,516 41,076 37,125
Stockholders' equity 48,834 48,127 44,382
------- ------- -------
Total liabilities and $641,528 $572,310 $512,417
stockholders' equity ======= ======= =======
Net interest income and interest rate $25,068 3.39% $22,831 3.60% $20,260 3.47%
spread ====== ==== ====== ==== ====== ====
Net interest margin (1) 4.04% 4.16% 4.10%
==== ==== ====
Average interest-earning assets to
average interest-bearing liabilities 113.82% 113.73% 114.65%
====== ====== ======
(1) The net interest margin is the net interest income divided by the average
interest-earning assets.
RATE/VOLUME TABLE
Year Ended December 31,
-----------------------
2000 vs. 1999 1999 vs. 1998
------------- -------------
Increase (decrease) due to Increase (decrease) due to
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(Dollars in thousands)
Changes in interest income attributable to:
Loan receivable $ 9,632 $1,299 $10,931 $5,761 $(3,379) $2,382
Investment securities (1,667) 579 (1,088) (301) 1,680 1,379
Federal funds sold (926) 401 (525) 40 (114) (74)
Interest-earning deposits with banks (2) 12 10 (35) (1) (36)
------ ----- ------ ----- ------ -----
Total interest income $ 7,037 $2,291 $ 9,328 $5,465 $(1,814) $3,651
====== ===== ====== ===== ====== =====
Changes in interest expense attributable to:
Deposits $ 2,137 $3,201 $ 5,338 $1,396 $(1,365) $ 31
Borrowings 1,091 662 1,753 2,833 (1,784) 1,049
------ ----- ------ ----- ------ -----
Total interest expense $ 3,228 $3,863 $ 7,091 $4,229 $(3,149) $1,080
====== ===== ====== ===== ====== =====
Increase in net interest income $ 2,237 $2,571
====== =====
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
None.
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements of the Company, together with the
reports thereon of Grant Thornton LLP (dated February 8, 2001) are set forth on
pages F-1 hereof (see Item 14 of this Annual Report for Index).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial disclosure.
Not Applicable.
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
The information is contained under "Ownership of Common Stock by
Management" and "Election of Directors" in the Company's Proxy Statement dated
March 13, 2001, is incorporated herein by reference in response to this item.
The information contained under "Compliance With Section 16(a) of the
Securities Exchange Act" in the Company's Proxy Statement dated March 13, 2001,
is incorporated herein by reference in response to this item.
Item 11. Executive Compensation.
The information appearing under "Executive Compensation" in the
Company's Proxy Statement dated March 13, 2001, is incorporated herein by
reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information appearing under "Ownership of Common Stock by Principal
Shareholders" and "Ownership of Common Stock By Management" in the Company's
Proxy Statement dated March 13, 2001, is incorporated herein by reference in
response to this item.
Item 13. Certain Relationships and Related Transactions.
The information appearing under "Certain Transactions" in the Company's
Proxy Statement dated March 13, 2001, is incorporated herein by reference in
response to this item.
PART IV
Item 14. Exhibits and Reports on Form 8-K.
(a) Documents filed as a part of the Report:
(1) Report of Grant Thornton LLP, Independent Auditors
Consolidated Statements of Financial Condition as of December 31,
2000 and 1999
Consolidated Statements of Earnings for years ended December 31,
2000, 1999 and 1998
Consolidated Statements of Comprehensive Income for years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholder's Equity for years ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for years ended December
31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements for years ended
December 31, 2000, 1999 and 1998
(2) Financial Statement Schedules:
The information is contained in the Company's Annual Report to
Stockholders for the year ended December 31, 2000, is incorporated herein
by reference in response to this item.
-26-
(3) The following are filed as exhibits to this Annual Report on Form 10-K:
Exhibit
Number
*3(a).....................Second Amended and Restated Articles of Incorporation (reference is made to Form
SB-2, Exhibit 3(i), File No. 33-096216 and incorporated herein by reference).
*3(b).....................Restated Code of Regulations (reference is made to Form SB-2, Exhibit 3(ii), File No.
33-96216 and incorporated herein by reference).
*4(a).....................Reference is made to Articles FOURTH, FIFTH, SEVENTH, EIGHTH, TENTH AND ELEVENTH of the
Registrant's Restated Articles of Incorporation (contained in the Registrant's
Restated Articles of Incorporation filed as Exhibit 3(a) hereto) and Articles
II, III, IV, VI and VIII of the Registrant's Amended and Restated Code of
Regulations (contained in the Registrant's Amended and Restated Code of
Regulations filed as Exhibit 3(b) hereto).
*4(b).....................Rights Plan, dated January 23, 1998, between Oak Hill Financial, Inc., and Fifth Third
Bank, (reference is made to Exhibit 4.1 to the Form 8-A, filed with the Securities and
Exchange Commission on January 23, 1998 and incorporated herein by reference).
*4(c).....................Amended Rights Plan, dated December 26, 2000, between Oak Hill Financial, Inc., and
Registrar and Transfer Company, (reference is made to Exhibit 2 to the
Form 8-A12B/A, filed with the Securities and Exchange Commission on
February 21, 2001 and incorporated herein by reference).
*10(a)....................Oak Hill Financial, Inc. Amended and Restated 1995 Stock Option Plan (reference is
made to Form SB-2, Exhibit 10(a), File No. 33-96216 and incorporated herein by
reference).
*10(b)....................Employment Agreement between D. Bruce Knox and the Registrant, dated April 28, 1997,
(reference is made to Form S-4, Exhibit 10(b), file No. 333-30349, and incorporated
herein by reference).
*10(c)....................Executive Salary Continuation Agreement between D. Bruce Knox and Unity Savings Bank,
dated December 7, 1994, (reference is made to Form S-4, Exhibit 10(c), file No.
333-30349, and incorporated herein by reference).
*10(d)....................Executive Salary Continuation Agreement between George Knox and Unity Savings Bank,
dated December 7, 1994, (reference is made to Form S-4, Exhibit 10(d), file No.
333-30349, and incorporated herein by reference).
*10(e)....................Amendment, dated September 18, 1995 to the Executive Salary Continuation Agreement
between George Knox and Unity Savings Bank, (reference is made to Form S-4, Exhibit
10(e), file No. 333-30349, and incorporated herein by reference).
*10(f)....................Employment Agreement between Ron J. Copher and The Registrant, dated July 5, 1999.
*21.......................Subsidiaries of the Registrant (reference is made to Form SB-2, Exhibit 21, File No.
33-96216 and incorporated herein by reference).
23.......................Consent of Grant Thornton LLP.
24.......................Powers of Attorney.
*Incorporated by reference as indicated.
(b) Form 8-K's Filed in the Fourth Quarter
1. Form 8-K, dated October 27, 2000, filed with the Securities and
Exchange Commission on October 27, 2000.
-27-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
OAK HILL FINANCIAL, INC. Date
By: /s/ John D. Kidd March 13, 2001
---------------------
John D. Kidd, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
the report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
* Evan E. Davis Chairman of the Board March 13, 2001
- -----------------------
/s/ John D. Kidd President, Chief Executive Officer and Director
- ----------------------- (Principal Executive Officer) March 13, 2001
* Richard P. LeGrand Executive Vice President and Director March 13, 2001
- -----------------------
* H. Tim Bichsel Secretary March 13, 2001
- -----------------------
* Ron J. Copher Chief Financial Officer and Treasurer
- ----------------------- (Principal Financial and Accounting Officer) March 13, 2001
* Barry M. Dorsey Director March 13, 2001
- -----------------------
* C. Clayton Johnson Director March 13, 2001
- -----------------------
* Rick A. McNelly Director March 13, 2001
- -----------------------
* Donald R. Seigneur Director March 13, 2001
- -----------------------
/s/ H. Grant Stephenson Director March 13, 2001
- -----------------------
-28-
Signature Title Date
* D. Bruce Knox Chief Information Officer and Director March 13, 2001
- -----------------------
* Ralph E. Coffman, Jr. Vice President March 13, 2001
- -----------------------
* David G. Ratz Chief Administrative Officer March 13, 2001
- -----------------------
By: /s/ H. Grant Stephenson March 13, 2001
- -----------------------
H. Grant Stephenson,
attorney-in-fact for each of
the persons indicated
-29-
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Financial Condition.............................F-2
Earnings........................................F-3
Stockholders' Equity............................F-4
Comprehensive Income............................F-5
Cash Flows......................................F-6
Notes...........................................F-8
F-1
Oak Hill Financial, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
(In thousands, except share data)
2000 1999
ASSETS
Cash and due from banks $ 13,224 $ 14,675
Federal funds sold 77 3,854
Investment securities designated as available for sale-- at market 56,323 53,338
Investment securities held to maturity -- at cost (approximate market
value of $4,598 at December 31, 2000) 4,947 --
Loans receivable-- net 598,903 507,726
Loans held for sale-- at lower of cost or market 183 243
Office premises and equipment-- net 9,296 9,256
Federal Home Loan Bank stock-- at cost 4,981 4,079
Accrued interest receivable on loans 3,525 2,764
Accrued interest receivable on investment securities 688 829
Goodwill-- net 249 283
Prepaid expenses and other assets 715 312
Prepaid federal income taxes 625 1,220
Deferred federal income taxes 901 1,521
------- -------
TOTAL ASSETS $694,637 $600,100
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand $ 45,792 $ 42,598
Savings and time deposits 516,825 446,282
------- -------
Total deposits 562,617 488,880
Securities sold under agreement to repurchase 143 1,172
Advances from the Federal Home Loan Bank 70,152 59,680
Notes payable 2,300 --
Subordinated debentures 5,000 --
Accrued interest payable and other liabilities 4,529 2,644
------- -------
Total liabilities 644,741 552,376
Stockholders' equity
Common stock -- $.50 stated value; authorized 15,000,000 shares, 5,414,576
and 5,369,576 shares issued at December 31, 2000 and 1999 2,707 2,683
Additional paid-in capital 5,040 4,650
Retained earnings 46,913 42,724
Treasury stock (304,470 and 50,900 shares at cost
at December 31, 2000 and 1999) (4,680) (755)
Accumulated comprehensive loss:
Unrealized loss on securities designated as available
for sale, net of related tax effects (84) (1,578)
------- -------
Total stockholders' equity 49,896 47,724
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $694,637 $600,100
======= =======
The accompanying notes are an integral part of these statements.
F-2
Oak Hill Financial, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31,
(In thousands, except share data)
2000 1999 1998
INTEREST INCOME
Loans $50,362 $39,431 $37,049
Investments
U.S. Government and agency securities 3,316 4,792 3,635
Obligations of state and political subdivisions 162 416 194
Other securities 642 -- --
Federal funds sold 62 587 661
Interest-bearing deposits 34 24 60
------ ------ ------
Total interest income 54,578 45,250 41,599
INTEREST EXPENSE
Deposits 24,764 19,426 19,395
Borrowings 4,746 2,993 1,944
------ ------ ------
Total interest expense 29,510 22,419 21,339
------ ------ ------
Net interest income 25,068 22,831 20,260
Less provision for losses on loans 2,263 2,432 1,266
------ ------ ------
Net interest income after provision for losses on loans 22,805 20,399 18,994
OTHER INCOME
Service fees, charges and other operating 2,521 2,072 1,550
Gain on sale of loans 174 477 1,418
Gain (loss) on sale of assets (390) (2,141) 281
------ ------ ------
Total other income 2,305 408 3,249
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE
Employee compensation and benefits 8,880 7,635 6,448
Occupancy and equipment 1,909 1,665 1,673
Federal deposit insurance premiums 100 126 117
Franchise taxes 531 544 572
Other operating 4,200 3,535 2,978
Merger-related expenses -- 1,137 --
------ ------ ------
Total general, administrative and other expense 15,620 14,642 11,788
------ ------ ------
Earnings before federal income taxes 9,490 6,165 10,455
FEDERAL INCOME TAXES
Current 3,321 2,465 3,370
Deferred (149) (382) 45
------ ------ ------
Total federal income taxes 3,172 2,083 3,415
------ ------ ------
NET EARNINGS $ 6,318 $ 4,082 $ 7,040
====== ====== ======
EARNINGS PER SHARE
Basic $1.21 $.77 $1.34
==== === ====
Diluted $1.21 $.76 $1.30
==== === ====
The accompanying notes are an integral part of these statements.
F-3
Oak Hill Financial, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 2000, 1999 and 1998
(In thousands, except share data)
Unrealized
gains (losses)
Employee on securities
Additional Stock designated as
Common paid-in Retained Treasury Ownership available
stock capital earnings stock Plan for sale Total
BALANCE AT JANUARY 1, 1998 $2,195 $4,017 $35,219 $ (28) $ (45) $ (9) $41,349
Stock dividend effected in the form
of a 5-for-4 stock split 440 -- (440) -- -- -- --
Issuance of 13,188 shares under stock
option plan 6 108 -- -- -- -- 114
Dividends declared of $.263 per share -- -- (1,385) -- -- -- (1,385)
Repurchase of 36,900 shares -- -- -- (727) -- -- (727)
Principal repayments on loan of ESOP -- -- -- -- 30 -- 30
Unrealized gains on securities designated
as available for sale, net of related
tax effects -- -- -- -- -- 153 153
Net earnings for the year -- -- 7,040 -- -- -- 7,040
----- ----- ------ ------ ---- ----- ------
BALANCE AT DECEMBER 31, 1998 2,641 4,125 40,434 (755) (15) 144 46,574
Issuance of 83,875 shares under stock
option plan 42 525 -- -- -- -- 567
Dividends declared of $.339 per share -- -- (1,792) -- -- -- (1,792)
Principal repayments on loan of ESOP -- -- -- -- 15 -- 15
Unrealized losses on securities
designated as available for sale,
net of related tax effects -- -- -- -- -- (1,722) (1,722)
Net earnings for the year -- -- 4,082 -- -- -- 4,082
----- ----- ------ ------ ---- ----- ------
BALANCE AT DECEMBER 31, 1999 2,683 4,650 42,724 (755) -- (1,578) 47,724
Issuance of 45,000 shares under stock
option plan 24 390 -- -- -- -- 414
Dividends declared of $.407 per share -- -- (2,129) -- -- -- (2,129)
Repurchase of 257,470 shares -- -- -- (3,925) -- -- (3,925)
Unrealized gains on securities
designated as available for sale,
net of related tax effects -- -- -- -- -- 1,494 1,494
Net earnings for the year -- -- 6,318 -- -- -- 6,318
----- ----- ------ ------ ---- ----- ------
BALANCE AT DECEMBER 31, 2000 $2,707 $5,040 $46,913 $(4,680) $ -- $ (84) $49,896
===== ===== ====== ====== ==== ===== ======
The accompanying notes are an integral part of these statements.
F-4
Oak Hill Financial, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2000, 1999 and 1998
(In thousands)
2000 1999 1998
Net earnings $6,318 $ 4,082 $7,040
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities
designated as available for sale, net of taxes (benefits)
of $640, $(1,615) and $174 in 2000, 1999
and 1998, respectively 1,242 (3,135) 338
Reclassification adjustment for realized
(gains) losses included in net earnings, net of
taxes (benefits) of $(129), $(728) and $96
in 2000, 1999 and 1998, respectively 252 1,413 (185)
----- ------ -----
Comprehensive income $7,812 $ 2,360 $7,193
===== ====== =====
Accumulated comprehensive income (loss) $ (84) $(1,578) $ 144
===== ====== =====
The accompanying notes are an integral part of these statements.
F-5
Oak Hill Financial, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
(In thousands)
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings for the year $ 6,318 $ 4,082 $ 7,040
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 838 769 835
(Gain) loss on sale of securities 381 2,167 (277)
Amortization of premiums and discounts
on investment securities-- net 35 187 158
Proceeds from sale of loans in secondary market 10,658 30,638 78,727
Loans disbursed for sale in secondary market (10,509) (27,922) (79,192)
Gain on sale of loans (89) (252) (684)
(Gain) loss on disposition of assets 9 (26) (4)
Loss on impairment of office premises 185 -- --
Amortization of deferred loan origination costs 174 333 320
Federal Home Loan Bank stock dividends (335) (398) (253)
Provision for losses on loans 2,263 2,432 1,266
Amortization of goodwill 34 34 33
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets (340) 401 (187)
Accrued interest receivable (620) (10) (503)
Accrued interest payable and other liabilities 1,885 (359) 241
Federal income taxes
Current 595 (1,050) (291)
Deferred (149) (382) 45
------- ------- -------
Net cash provided by operating activities 11,333 10,644 7,274
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Loan disbursements (293,153) (296,845) (250,914)
Principal repayments on loans 198,789 194,937 200,035
Principal repayments on mortgage-backed securities
designated as available for sale 1,896 3,929 4,509
Principal repayments on mortgage-backed securities
designated as held-to-maturity -- 3,615 2,844
Proceeds from sale of investment securities designated
as available for sale 21,673 41,014 12,784
Proceeds from maturity of investment securities 755 14,885 36,881
Proceeds from sale of assets 720 -- 4
Purchase of investment securities designated as
available for sale (25,462) (21,011) (70,735)
Purchase of investment securities designated as
held-to-maturity (4,947) (1,039) (4,739)
(Increase) decrease in federal funds sold-- net 3,777 7,533 (5,914)
Purchase of Federal Home Loan Bank stock (567) -- --
Purchase of office premises and equipment (1,105) (2,073) (1,932)
Decrease in certificates of deposit in other
institutions -- 1 177
Redemption of cash surrender value of life insurance-- net -- -- 591
------- ------- -------
Net cash used in investing activities (97,624) (55,054) (76,409)
------- ------- -------
Net cash used in operating and investing
activities (balance carried forward) (86,291) (44,410) (69,135)
------- ------- -------
F-6
Oak Hill Financial, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended December 31,
(In thousands)
2000 1999 1998
Net cash used in operating and investing
activities (balance brought forward) $ (86,291) $ (44,410) $(69,135)
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Proceeds (repayments) from securities sold under
agreement to repurchase (1,029) 232 682
Net increase in deposit accounts 73,737 23,206 74,409
Proceeds from Federal Home Loan Bank advances 3,251,616 1,518,512 25,500
Repayment of Federal Home Loan Bank advances (3,241,144) (1,495,290) (26,447)
Proceeds from notes payable 2,800 -- --
Repayment of notes payable (500) -- --
Advances by borrowers for taxes and insurance -- -- 45
Accounts payable on mortgage loans serviced -- -- 122
Proceeds from issuance of debt securities 5,000 -- --
Dividends on common shares (2,129) (1,792) (1,385)
Purchase of treasury stock (3,925) -- (727)
Proceeds from issuance of shares under stock option plan 414 567 114
--------- --------- -------
Net cash provided by financing activities 84,840 45,435 72,313
--------- --------- -------
Net increase (decrease) in cash and cash equivalents (1,451) 1,025 3,178
Cash and cash equivalents at beginning of year 14,675 13,650 10,472
--------- --------- -------
Cash and cash equivalents at end of year $ 13,224 $ 14,675 $ 13,650
========= ========= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Federal income taxes $ 3,363 $ 3,417 $ 3,491
========= ========= =======
Interest on deposits and borrowings $ 28,366 $ 22,326 $ 21,271
========= ========= =======
SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING ACTIVITIES:
Unrealized gains (losses) on securities designated as
available for sale, net of related tax effects $ 1,494 $ (1,722) $ 153
========= ========= =======
Recognition of mortgage servicing rights in
accordance with SFAS No. 125 $ 85 $ 225 $ 734
========= ========= =======
Transfers from loans to real estate acquired
through foreclosure $ 779 $ 278 $ 51
========= ========= =======
Transfer of loans from held for investment to
held for sale $ -- $ -- $ 820
========= ========= =======
The accompanying notes are an integral part of these statements.
F-7
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2000, 1999 and 1998
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
The business activities of Oak Hill Financial, Inc. ("Company") have
been limited primarily to holding the common shares of Oak Hill Banks ("Oak
Hill") and Towne Bank ("Towne"), (collectively hereinafter the "Banks").
Accordingly, the Company's results of operations are dependent upon the results
of the Banks' operations. The Banks conduct a general commercial banking
business in southern and central Ohio which consists of attracting deposits from
the general public and applying those funds to the origination of loans for
commercial, consumer and residential purposes. The Banks' profitability is
significantly dependent on net interest income, which is the difference between
interest income generated from interest-earning assets (i.e., loans and
investments) and the interest expense paid on interest-bearing liabilities
(i.e., customer deposits and borrowed funds). Net interest income is affected by
the relative amount of interest-earning assets and interest-bearing liabilities
and the interest received or paid on these balances. The level of interest rates
paid or received by the Banks' can be significantly influenced by a number of
competitive factors, such as governmental monetary policy, that are outside of
management's control.
On October 1, 1999, 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
merged with and into the Company and Blue Ash, renamed Towne Bank, became a
wholly-owned subsidiary of the Company. The transaction was accounted for as a
pooling-of-interests. Accordingly, the consolidated financial statements for the
year ended December 31, 1998, have been restated to reflect the effects of the
business combination as of January 1, 1998. Pursuant to the merger agreement,
the Company issued 917,361 shares of common stock in exchange for the shares of
Towne Financial.
The consolidated financial information presented herein has been
prepared in accordance with generally accepted accounting principles ("GAAP")
and general accounting practices within the financial services industry. In
preparing financial statements in accordance with GAAP, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from such estimates.
The following is a summary of the Company's significant accounting
policies which have been consistently applied in the preparation of the
accompanying consolidated financial statements.
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Oak Hill, Towne and Action Finance
Company ("Action"). Action was incorporated for the purpose of conducting
consumer finance lending operations. Action began such operations during 1998.
All significant intercompany balances and transactions have been eliminated.
2. INVESTMENT SECURITIES
The Company accounts for investment securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 requires that
investments be categorized as held to maturity, trading, or available for sale.
Securities classified as held to maturity are carried at cost only if the
Company has the positive intent and ability to hold these securities to
maturity. Trading securities and securities available for sale are carried at
fair value with resulting unrealized gains or losses recorded to operations or
stockholders' equity, respectively. At December 31, 2000 and 1999, the Company's
stockholders' equity reflected net unrealized losses on securities designated as
available for sale, net of applicable tax effects, totaling $84,000 and $1.6
million, respectively.
Realized gains and losses on sales of securities are recognized using the
specific identification method.
F-8
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
3. LOANS RECEIVABLE
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for premiums and discounts on loans purchased and sold and the
allowance for loan losses. Premiums and discounts on loans purchased and sold
are amortized and accreted to operations using the interest method over the
average life of the underlying loans.
Interest is accrued as earned unless the collectibility of the loan is
in doubt. Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income equal to
all interest previously accrued, and income is subsequently recognized only to
the extent that cash payments are received until, in management's judgment, the
borrower's ability to make periodic interest and principal payments has returned
to normal, in which case the loan is returned to accrual status.
Loans held for sale are carried at the lower of cost or market,
determined in the aggregate. Loans held for sale are identified at the point of
origination. In computing lower of cost or market, deferred loan origination
fees are deducted from the principal balance of the related loan. All loan sales
are made without further recourse to the Banks. At December 31, 2000 and 1999,
loans held for sale were carried at cost.
The Banks generally retain servicing on loans sold and agree to remit
to the investor loan principal and interest at agreed-upon rates. Mortgage
servicing rights are accounted for pursuant to the provisions of SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," which requires that the Banks recognize as separate assets,
rights to service mortgage loans for others, regardless of how those servicing
rights are acquired. An institution that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and sells those
loans with servicing rights retained must allocate some of the cost of the loans
to the mortgage servicing rights.
SFAS No. 125 requires that capitalized mortgage servicing rights and
capitalized excess servicing receivables be assessed for impairment. Impairment
is measured based on fair value. The mortgage servicing rights recorded by the
Banks, calculated in accordance with the provisions of SFAS No. 125, were
segregated into pools for valuation purposes, using as pooling criteria the loan
term and coupon rate. Once pooled, each grouping of loans was evaluated on a
discounted earnings basis to determine the present value of future earnings that
a purchaser could expect to realize from each portfolio. Earnings were projected
from a variety of sources including loan servicing fees, interest earned on
float, net interest earned on escrows, miscellaneous income, and costs to
service the loans. The present value of future earnings is the "economic" value
of the pool, i.e., the net realizable present value to an acquirer of the
acquired servicing.
The Banks recorded amortization related to mortgage servicing rights
totaling approximately $60,000, $174,000 and $112,000 for the years ended
December 31, 2000, 1999 and 1998, respectively. At December 31, 2000 and 1999,
the carrying value and fair value of the Banks' mortgage servicing rights
totaled approximately $964,000 and $1.0 million, respectively.
4. LOAN ORIGINATION AND COMMITMENT FEES
The Company accounts for loan origination fees and costs in accordance with SFAS
No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating
or Acquiring Loans and Initial Direct Costs of Leases". Pursuant to the
provisions of SFAS No. 91, all loan origination fees received, net of certain
direct origination costs, are deferred on a loan-by-loan basis and amortized to
interest income using the interest method, giving effect to actual loan
prepayments. Additionally, SFAS No. 91 generally limits the definition of loan
origination costs to the direct costs attributable to originating a loan, i.e.,
principally actual personnel costs.
Fees received for loan commitments are deferred and amortized over the
life of the related loan using the interest method.
5. ALLOWANCE FOR LOAN LOSSES
It is the Company's policy to provide valuation allowances for
estimated losses on loans based upon past loss experience, trends in the level
of delinquent and specific problem loans, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral
and current and anticipated economic conditions in the Banks'
F-9
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
primary market areas. When the collection of a loan becomes doubtful, or
otherwise troubled, the Company records a loan loss provision equal to the
difference between the fair value of the property securing the loan and the
loan's carrying value. Major loans and major lending areas are reviewed
periodically to determine potential problems at an early date. The allowance for
loan losses is increased by charges to earnings and decreased by charge-offs
(net of recoveries).
The Company accounts for impaired loans in accordance with SFAS No.
114, "Accounting by Creditors for Impairment of a Loan". This Statement requires
that impaired loans be measured based upon the present value of expected future
cash flows discounted at the loan's effective interest rate or, as an
alternative, at the loans observable market price or fair value of the
collateral.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. In
applying the provisions of SFAS No. 114, the Company considers its investment in
one-to-four family residential loans, consumer installment loans and credit card
loans to be homogeneous and therefore excluded from separate identification for
evaluation of impairment. With respect to the Company's investment in commercial
and other loans, and its evaluation of impairment thereof, such loans are
collateral dependent and as a result are carried as a practical expedient at the
lower of cost or fair value.
It is the Company's policy to charge off unsecured credits that are
more than ninety days delinquent. Similarly, collateral dependent loans which
are more than ninety days delinquent are considered to constitute more than a
minimum delay in repayment and are evaluated for impairment under SFAS No. 114
at that time.
At December 31, 2000 and 1999, the Company had investment in impaired
loans, as defined under SFAS No. 114, totaling approximately $695,000 and
$65,000, respectively. The Company maintained an allowance for credit losses
related to such impaired loans of $460,000 and $20,000 for the periods ended
December 31, 2000 and 1999, respectively.
6. OFFICE PREMISES AND EQUIPMENT
Depreciation and amortization are provided on the straight-line and
accelerated methods over the estimated useful lives of the assets, estimated to
be ten to fifty years for buildings and improvements and three to twenty-five
years for furniture, fixtures and equipment.
7. REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. The loan loss allowance is charged for any
write down in the loan's carrying value to fair value at the date of
acquisition. Real estate loss provisions are recorded if the properties' fair
value subsequently declines below the value determined at the recording date. In
determining the lower of cost or fair value at acquisition, costs relating to
development and improvement of property are considered. Costs relating to
holding real estate acquired through foreclosure, net of rental income, are
charged against earnings as incurred.
8. FEDERAL INCOME TAXES
The Company accounts for federal income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes."
Pursuant to the provisions of SFAS No. 109, a deferred tax liability or
deferred tax asset is computed by applying the current statutory tax rates to
net taxable or deductible temporary differences between the tax basis of an
asset or liability and its reported amount in the consolidated financial
statements that will result in taxable or deductible amounts in future periods.
Deferred tax assets are recorded only to the extent that the amount of net
deductible temporary differences or carryforward attributes may be utilized
against current period earnings, carried back against prior years earnings,
offset against taxable temporary differences reversing in future periods, or
utilized to the extent of management's estimate of future taxable income. A
valuation allowance is provided for deferred tax assets to the extent that the
value of net deductible temporary differences and carryforward attributes
exceeds management's estimates of taxes payable on future taxable income.
Deferred tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
F-10
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
The Company's principal temporary differences between pretax financial
income and taxable income result primarily from the different methods of
accounting for deferred loan origination fees and costs, Federal Home Loan Bank
stock dividends, capitalized mortgage servicing rights, certain components of
retirement expense and the allowance for loan losses. A temporary difference is
also recognized for depreciation expense computed using accelerated methods for
federal income tax purposes.
9. AMORTIZATION OF GOODWILL
Goodwill arising from an acquisition is being amortized to operations
using the straight-line method over a fifteen year period. Management
periodically evaluates the carrying value of goodwill in relation to the
continuing earnings capacity of the acquired assets and assumed liabilities.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value of financial instruments, both assets and
liabilities whether or not recognized in the consolidated statement of financial
condition, for which it is practicable to estimate that value. For financial
instruments where quoted market prices are not available, fair values are based
on estimates using present value and other valuation methods.
The methods used are greatly affected by the assumptions applied,
including the discount rate and estimates of future cash flows. Therefore, the
fair values presented may not represent amounts that could be realized in an
exchange for certain financial instruments. The following methods and
assumptions were used by the Company in estimating its fair value disclosures
for financial instruments at December 31, 2000 and 1999.
Cash and cash equivalents. The carrying amounts presented in the
consolidated statements of financial condition for cash and cash equivalents are
deemed to approximate fair value.
Federal funds sold. The carrying amounts presented in the consolidated
statements of financial condition for federal funds sold are deemed to
approximate fair value.
Investment securities. For investment securities, fair value is deemed
to equal the quoted market price.
Loans receivable. The loan portfolio has been segregated into
categories with similar characteristics, such as one-to-four family residential
real estate, multi-family residential real estate, commercial, installment and
other. These loan categories were further delineated into fixed-rate and
adjustable-rate loans. The fair values for the resultant loan categories were
computed via discounted cash flow analysis, using current interest rates offered
for loans with similar terms to borrowers of similar credit quality. The
historical carrying amount of accrued interest on loans is deemed to approximate
fair value.
Federal Home Loan Bank stock. The carrying amount presented in the
consolidated statements of financial condition is deemed to approximate fair
value.
Deposits. The fair value of NOW accounts, savings accounts, demand
deposits, money market deposits and other transaction accounts is deemed to
approximate the amount payable on demand at December 31, 2000 and 1999. Fair
values for fixed-rate certificates of deposit have been estimated using a
discounted cash flow calculation using the interest rates currently offered for
deposits of similar remaining maturities.
Advances from the Federal Home Loan Bank. The fair value of advances
from the Federal Home Loan Bank has been estimated using discounted cash flow
analysis, based on the interest rates currently offered for advances of similar
remaining maturities.
Securities sold under agreement to repurchase. The carrying amounts of
securities sold under agreements to repurchase is deemed to approximate fair
value.
F-11
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
Notes payable. The fair value of notes payable has been estimated using
discounted cash flow analysis, based on the interest rates currently offered for
notes of similar remaining maturities.
Subordinated debentures. The fair value of the Corporation's
subordinated debentures has been estimated using discounted cash flow analysis,
based on the interest rates currently offered for instruments of similar
remaining maturities.
Commitments to extend credit. For fixed-rate and adjustable-rate loan
commitments, the fair value estimate considers the difference between current
levels of interest rates and committed rates. The difference between the fair
value and notional amount of outstanding loan commitments at December 31, 2000
and 1999, was not material.
Based on the foregoing methods and assumptions, the carrying value and
fair value of the Company's financial instruments are as follows:
December 31,
2000 1999
Carrying Fair Carrying Fair
value value value value
(In thousands)
Financial assets
Cash and due from banks $ 13,224 $ 13,224 $ 14,675 $ 14,675
Federal funds sold 77 77 3,854 3,854
Investment securities 61,270 60,921 53,338 53,338
Loans receivable 599,086 597,739 507,969 507,377
Federal Home Loan Bank stock 4,981 4,981 4,079 4,079
------- ------- ------- -------
$678,638 $676,942 $583,915 $583,323
======= ======= ======= =======
Financial liabilities
Deposits $562,617 $563,753 $488,880 $488,936
Advances from the Federal
Home Loan Bank 70,152 70,148 59,680 59,474
Securities sold under agreement to repurchase 143 143 1,172 1,172
Notes payable 2,300 2,300 -- --
Subordinated debentures 5,000 5,072 -- --
------- ------- ------- -------
$640,212 $641,416 $549,732 $549,582
======= ======= ======= =======
11. EARNINGS PER SHARE
Basic earnings per share is computed based upon the weighted-average
shares outstanding during the year. Weighted-average common shares outstanding
totaled 5,226,889, 5,290,140, and 5,258,180 for the years ended December 31,
2000, 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 to be outstanding for purposes of
computing diluted earnings per share totaled 5,227,938, 5,403,130, and 5,404,684
for the years ended December 31, 2000, 1999, and 1998, respectively.
There were 1,049, 112,990, and 146,504 incremental shares related to
the assumed exercise of stock options included in the computation of diluted
earnings per share for the years ended December 31, 2000, 1999 and 1998,
respectively. Options to purchase 435,875 and 152,875 shares of common stock
with a respective weighted-average exercise price of $17.12 and $16.62 were
outstanding at December 31, 2000 and 1999, respectively, 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.
F-12
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
12. CAPITALIZATION
The Company's authorized capital stock includes 1,500,000 shares of
$.01 per share par value voting preferred stock and 1,500,000 shares of $.01 per
share par value non-voting preferred stock. No preferred shares have been issued
at December 31, 2000 and 1999.
13. ADVERTISING
Advertising costs are expensed when incurred. The Company's advertising
expense totaled $311,000, $370,000, and $339,000 for the years ended December
31, 2000, 1999 and 1998, respectively.
14. CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents are
comprised of cash and due from banks.
15. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
2000 consolidated financial statement presentation.
NOTE B -- INVESTMENT SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investment securities at December 31 are shown below.
2000
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Held to maturity:
Trust preferred securities due after ten years $ 4,947 $ -- $349 $ 4,598
====== ==== === ======
Available for sale:
U.S Government and agency obligations $49,536 $206 $465 $49,277
Obligations of state and political subdivisions 6,916 134 4 7,046
------ --- --- ------
Total securities available for sale $56,452 $340 $469 $56,323
====== === === ======
1999
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
Available for sale:
U.S Government and agency obligations $52,314 $ 6 $2,384 $49,936
Obligations of state and political subdivisions 3,414 14 26 3,402
------ --- ----- ------
Total securities available for sale $55,728 $ 20 $2,410 $53,338
====== === ===== ======
The amortized cost and estimated fair value of investment securities
designated as available for sale, by term to maturity at December 31, are shown
below.
F-13
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
2000 1999
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
Due in three years or less $ 9,016 $ 9,058 $ 6,796 $ 6,767
Due after three years through five years 2,546 2,492 4,825 4,710
Due after five years through ten years 14,910 14,619 34,777 32,893
Due after ten years 29,980 30,154 9,330 8,968
------ ------ ------ ------
$56,452 $56,323 $55,728 $53,338
====== ====== ====== ======
Proceeds from sale of investment securities designated as available for
sale during the year ended December 31, 2000, totaled $21.7 million, resulting
in a realized loss of $381,000 on such sales.
Proceeds from sales of investment securities designated as available
for sale during the year ended December 31, 1999, totaled $41.0 million,
resulting in a realized loss of $2.1 million on such sales.
Proceeds from sales of investment securities designated as available
for sale during the year ended December 31, 1998, totaled $12.8 million,
resulting in a realized gain of $277,000 on such sales.
At December 31, 2000 and 1999, investment securities with an aggregate
book value of $44.7 million and $48.8 million, respectively, were pledged as
collateral for public deposits.
NOTE C -- LOANS RECEIVABLE
The composition of the loan portfolio, including loans held for sale,
is as follows at December 31:
2000 1999
(In thousands)
Real estate mortgage (primarily residential) $381,435 $320,033
Installment, net of unearned interest of $2,286 and $2,214 70,859 66,391
Commercial and other 152,384 126,191
Credit card 1,605 1,486
------- -------
606,283 514,101
Less:
Allowance for loan losses 7,197 6,132
------- -------
$599,086 $507,969
======= =======
The Company's lending efforts have historically focused on real estate
mortgages and consumer installment loans, which comprised approximately $452.3
million, or 75.5%, of the total loan portfolio at December 31, 2000, and
approximately $386.4 million, or 76.1%, of the total loan portfolio at December
31, 1999. Historically, such loans have been conservatively underwritten with
sufficient collateral or cash down payments to provide the Company with adequate
collateral coverage in the event of default. Nevertheless, the Company, as with
any lending institution, is subject to the risk that real estate values or
economic conditions could deteriorate in its primary lending areas within Ohio,
thereby impairing collateral values. However, management is of the belief that
real estate values and economic conditions in the Company's primary lending
areas are presently stable.
As stated previously, the Company has sold whole loans and
participating interests in loans in the secondary market, retaining servicing on
the loans sold. Loans sold and serviced for others totaled approximately $115.7
million, $118.1 million, and $112.2 million at December 31, 2000, 1999, and
1998, respectively.
F-14
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
The activity in the allowance for loan losses is summarized as follows
for the years ended December 31:
2000 1999 1998
(In thousands)
Balance at beginning of period $6,132 $4,583 $4,000
Provision charged to operations 2,263 2,432 1,266
Charge-offs (1,413) (1,115) (829)
Recoveries 215 232 146
----- ----- -----
Balance at end of period $7,197 $6,132 $4,583
===== ===== =====
At December 31, 2000, 1999 and 1998, the Company had nonaccrual and
nonperforming loans totaling approximately $2.9 million, $3.2 million and $2.4
million, respectively. Interest income that would have been recognized had
nonaccrual loans performed pursuant to contractual terms totaled approximately
$262,000, $287,000 and $162,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
NOTE D -- OFFICE PREMISES AND EQUIPMENT
Office premises and equipment are summarized at December 31 as follows:
2000 1999
(In thousands)
Land and buildings $10,100 $10,163
Furniture and equipment 5,154 4,524
Leasehold improvements 537 251
------ ------
15,791 14,938
Less accumulated depreciation and amortization (6,495) (5,682)
------ ------
$ 9,296 $ 9,256
====== ======
NOTE E -- DEPOSITS
Deposit balances at December 31 are summarized as follows:
Deposit type and 2000 1999
interest rate range Amount Rate Amount Rate
(Dollars in thousands)
Demand deposit accounts $ 45,792 -- $ 42,598 --
Savings accounts 40,451 2.65% 45,901 2.66%
NOW accounts 33,996 2.05% 31,824 2.04%
Money market deposit accounts 11,041 3.11% 13,039 3.13%
Premium investment accounts 47,512 5.81% 30,150 5.18%
Select investment accounts 14,609 4.85% 12,728 4.10%
------- -------
Total transaction accounts 193,401 176,240
Certificates of deposit
2.00-- 4.99% 11,838 86,208
5.00-- 6.99% 353,726 225,869
7.00-- 8.00% 3,652 563
------- -------
Total certificates of deposit 369,216 6.37% 312,640 5.35%
------- -------
Total deposits $562,617 5.17% $488,880 4.31%
======= ==== ======= ====
F-15
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
The Company had deposit accounts with balances in excess of $100,000
totaling $179.2 million and $139.3 million at December 31, 2000 and 1999,
respectively.
Interest expense on deposits is summarized as follows for the years
ended December 31:
2000 1999 1998
(In thousands)
NOW accounts $ 628 $ 635 $ 584
Savings accounts 1,200 1,406 1,457
Money market deposit accounts 345 424 409
Premium investment accounts 2,020 994 993
Select investment accounts 683 707 625
Certificates of deposit 19,888 15,260 15,327
------ ------ ------
$24,764 $19,426 $19,395
====== ====== ======
The contractual maturities of outstanding certificates of deposit are
summarized as follows at December 31:
2000 1999
(In thousands)
Less than one year $321,385 $232,063
One year through three years 44,932 74,220
More than three years 2,899 6,357
------- -------
$369,216 $312,640
======= =======
NOTE F -- ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at December
31, 2000 and 1999 by pledges of certain residential mortgage loans totaling
$94.7 million and $89.5 million, respectively, and the Banks' investment in
Federal Home Loan Bank stock, are summarized as follows:
Maturing in year December 31,
Interest rate ended December 31, 2000 1999
(Dollars in thousands)
5.80% to 6.50% 2000 $ -- $24,159
4.87% to 8.05% 2001 40,956 13,925
6.43% to 6.50% 2002 4,000 4,000
6.50% 2003 2,500 2,500
7.85% to 8.30% 2004 1,160 1,485
5.14% to 8.10% 2005 4,006 4,006
6.50% 2006 391 418
7.30% 2007 4,000 --
5.30% 2009 392 2,505
5.15% to 8.02% 2010 6,860 976
6.95% 2011 1,072 1,262
7.62% 2015 850 --
6.70% 2017 929 959
5.15% 2018 3,036 3,485
------ ------
$70,152 $59,680
====== ======
Weighted-average interest rate 6.36% 6.14%
==== ====
F-16
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
Oak Hill has established a relationship for letters of credit with the
FHLB, which totaled $7.2 million at December 31, 2000. The letters of credit,
which were unused at December 31, 2000, are collateralized by a pledge of
certain mortgage loans totaling $9.7 million. The letters of credit will expire
through July 2001.
NOTE G -- OTHER BORROWINGS
At December 31, 2000, Action had a $2.3 million note payable to another
financial institution. The note matures in 2003, bears interest at a rate of
9.00% and is collateralized by a pledge of a portion of the Company's shares of
Oak Hill.
NOTE H-- SUBORDINATED DEBENTURES
In March 2000, a Delaware 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 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 made semi-annually at
an annual fixed interest rate of 10.875% 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 repurchasing the Company's common stock and providing general working
capital.
NOTE I -- FEDERAL INCOME TAXES
The provision for federal income taxes differs from that computed at
the statutory corporate tax rate for the year ended December 31 as follows:
2000 1999 1998
(In thousands)
Federal income taxes computed at the statutory rate $3,227 $2,096 $3,555
Increase (decrease) in taxes resulting from:
Interest income on municipal loans and obligations
of state and political subdivisions (75) (144) (90)
Amortization of goodwill 11 11 11
Nondeductible merger-related expenses -- 102 --
Other 9 18 (61)
----- ----- -----
Federal income tax provision per consolidated
financial statements $3,172 $2,083 $3,415
===== ===== =====
F-17
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
The composition of the Company's net deferred tax asset at December 31
is as follows:
2000 1999
(In thousands)
Taxes (payable) refundable on temporary differences at statutory rate:
Deferred tax assets:
Book/tax difference of loan loss allowance $2,443 $1,799
Unrealized losses on securities designated as available for sale 45 812
Recapture of federal income taxes resulting from loss carrybacks -- 277
Deferred compensation benefits 107 --
Impairment losses 64 --
Other -- 4
----- -----
Total deferred tax assets 2,659 2,892
Deferred tax liabilities:
Deferred loan origination costs (350) (281)
Federal Home Loan Bank stock dividends (532) (533)
Book/tax difference of depreciation (94) (110)
Mortgage servicing rights (335) (323)
Mark-to-market adjustment (403) --
Book/tax difference on bad debt reserves (44) (124)
----- ------
Total deferred tax liabilities (1,758) (1,371)
----- ------
Net deferred tax asset $ 901 $1,521
===== =====
The Company has not recorded a valuation allowance for any portion of
the net deferred tax asset at December 31, 2000 and 1999, based on the amount of
income taxes subject to recovery in carryback years.
NOTE J -- RELATED PARTY TRANSACTIONS
In the normal course of business, the Company has made loans to its
directors, officers, and their related business interests. In the opinion of
management, such loans are consistent with sound banking practices and are
within applicable regulatory lending limitations. The balance of such loans
outstanding at December 31, 2000, 1999, and 1998 totaled approximately $1.9
million, $2.7 million and $2.2 million, respectively.
The Company had also received demand and time deposits of approximately
$14.9 million, $10.5 million and $18.4 million at December 31, 2000, 1999 and
1998 from directors, officers and their related business interests.
NOTE K -- EMPLOYEE BENEFIT PLANS
The Company has a profit-sharing and 401(k) plan covering all employees
who have attained the age of twenty-one and completed three months of continuous
service. The profit-sharing plan is non-contributory and contributions to the
plan are at the discretion of the Board of Directors. The Company contributed
$150,000 and $165,000 to the plan for the years ended December 31, 2000 and
1998, respectively. The Company did not contribute to the plan for the year
ended December 31, 1999.
F-18
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
The 401(k) plan allows employees to make voluntary, tax-deferred
contributions up to 15% of their base annual compensation. The Company provides,
at its discretion, a 50% matching of funds for each participant's contribution,
subject to a maximum of 6% of base compensation. For 1998, if the participant
elected to invest their contributions in the common stock of Oak Hill Financial,
Inc., the Company provided a 100% matching of each participant's contribution.
The Company's matching contributions under the 401(k) plan totaled $127,000,
$99,000 and $175,000 for the years ended December 31, 2000, 1999, and 1998,
respectively.
Towne Bank had established an Employee Stock Ownership Plan ("ESOP")
which was to provide retirement benefits for substantially all employees who had
completed six months of service and had attained the age of twenty-one. The ESOP
originally borrowed $207,000 from an independent third-party lender, payable
over a seven year period, to purchase stock. The sole security of the loan was
the acquired stock and, while Towne had not guaranteed the loan, future
contributions to retire the loan were paid to the ESOP from retained earnings.
During 1999, the loan was repaid in full. Towne recognized expenses totaling
$15,000 and $30,000 related to the ESOP for the years ended December 31, 1999
and 1998, respectively. Towne's ESOP was terminated during 2000.
NOTE L -- COMMITMENTS
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers, including commitments to extend credit. Such commitments involve, to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the statement of financial condition. The contract or
notional amounts of the commitments reflect the extent of the Company's
involvement in such financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations
as those utilized for on-balance-sheet instruments.
At December 31, 2000, the Company had outstanding commitments of
approximately $14.5 million to originate residential and commercial loans. Also,
the Company had unused lines of credit and letters of credit totaling
approximately $64.6 million and $1.6 million, respectively, as of December 31,
2000. In the opinion of management, outstanding loan commitments equaled or
exceeded prevalent market interest rates as of December 31, 2000, such
commitments were underwritten in accordance with normal loan underwriting
policies, and all disbursements will be funded via normal cash flow from
operations and existing excess liquidity.
The Company has also entered into lease agreements for office premises
and equipment under operating leases which expire at various dates through 2009.
The following table summarizes minimum payments due under lease agreements by
year:
Year ending
December 31, (Dollars in thousands)
2001 $ 338
2002 317
2003 225
2004 185
2005 and thereafter 391
-----
$1,456
=====
Total rental expense under operating leases was $359,000, $304,000 and $250,000
for the years ended December 31, 2000, 1999 and 1998, respectively.
F-19
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
NOTE M -- REGULATORY CAPITAL
Oak Hill and Towne are subject to the regulatory capital requirements
of the Federal Deposit Insurance Corporation (the "FDIC"). Failure to meet
minimum capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken, could
have direct material effect on the Banks' financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Banks must meet specific capital guidelines that involve quantitative
measures of the Banks' assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Banks' capital accounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
The FDIC has adopted risk-based capital guidelines to which the Banks
are subject. The guidelines establish a systematic analytical framework that
makes regulatory capital requirements more sensitive to differences in risk
profiles among banking organizations. Risk-based capital ratios are determined
by allocating assets and specified off-balance-sheet commitments to four
risk-weighting categories, with higher levels of capital being required for the
categories perceived as representing greater risk.
These guidelines divide the capital into two tiers. The first tier
("Tier 1") includes common equity, certain non-cumulative perpetual preferred
stock (excluding auction rate issues) and minority interests in equity accounts
of consolidated subsidiaries, less goodwill and certain other intangible assets
(except mortgage servicing rights and purchased credit card relationships,
subject to certain limitations). Supplementary ("Tier 2") capital includes,
among other items, cumulative perpetual and long-term limited-life preferred
stock, mandatory convertible securities, certain hybrid capital instruments,
term subordinated debt, and the allowance for loan losses, subject to certain
limitations, less required deductions. Banks are required to maintain a total
risk-based capital (the sum of Tier 1 and Tier 2 capital) ratio of 8%, of which
4% must be Tier 1 capital. The FDIC may, however, set higher capital
requirements when particular circumstances warrant. Banks experiencing or
anticipating significant growth are expected to maintain capital ratios,
including tangible capital positions, well above minimum required levels.
During the years ended December 31, 2000 and 1999, each of the Banks
was notified by its primary federal regulator that it was categorized as
"well-capitalized" under the regulatory framework for prompt corrective action.
To be categorized as "well-capitalized" the Banks must maintain minimum Tier 1
capital, total risk-based capital, and Tier 1 leverage ratios of 6%, 10%, and
5%, respectively. At December 31, 2000, Oak Hill was well-capitalized and Towne
was adequately capitalized.
As of December 31, 2000 and 1999, management believes that Oak Hill and
Towne have met all of the capital adequacy requirements to which they are
subject. The Banks' Tier 1 capital, total risk-based capital, and Tier 1
leverage ratios at December 31, 2000 and 1999 are set forth in the following
table.
F-20
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
Oak Hill Banks As of December 31, 2000
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Total capital $41,232 10.8% $30,577 > 8.0% $38,222 > 10.0%
- -
(to risk-weighted assets)
Tier 1 capital $36,508 9.6% $15,289 > 4.0% $22,933 > 6.0%
- -
(to risk-weighted assets)
Tier 1 leverage $36,508 7.7% $18,893 > 4.0% $23,616 > 5.0%
- -
As of December 31, 1999
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Total capital $35,855 11.5% $24,861 > 8.0% $31,076 > 10.0%
- -
(to risk-weighted assets)
Tier 1 capital $31,966 10.3% $12,430 > 4.0% $18,645 > 6.0%
- -
(to risk-weighted assets)
Tier 1 leverage $31,966 7.5% $16,976 > 4.0% $21,221 > 5.0%
- -
Towne Bank As of December 31, 2000
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Total capital $15,299 9.8% $12,480 > 8.0% $15,601 > 10.0%
- -
(to risk-weighted assets)
Tier 1 capital $13,345 8.6% $ 6,240 > 4.0% $ 9,360 > 6.0%
- -
(to risk-weighted assets)
Tier 1 leverage $13,345 6.7% $ 7,990 > 4.0% $ 9,988 > 5.0%
- -
As of December 31, 1999
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
Total capital $13,630 10.3% $10,588 > 8.0% $13,235 > 10.0%
- -
(to risk-weighted assets)
Tier 1 capital $11,793 8.9% $5,294 > 4.0% $7,941 > 6.0%
- -
(to risk-weighted assets)
Tier 1 leverage $11,793 6.8% $6,927 > 4.0% $8,658 > 5.0%
- -
F-21
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
The Company's management believes that under the current regulatory
capital regulations the Banks will continue to meet their minimum capital
requirements in the foreseeable future. However, events beyond the control of
the Company, such as increased interest rates or a downturn in the economy in
the primary market areas, could adversely affect future earnings and
consequently, the ability to meet future minimum regulatory capital
requirements.
NOTE N -- STOCK OPTION PLAN
The Company has a stock option plan that provides for grants of options
for up to 1,200,000 of authorized, but unissued shares of its common stock. The
Company accounts for its stock option plan in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation," which contains a fair value-based
method for valuing stock-based compensation that entities may use, which
measures compensation cost at the grant date based on the fair value of the
award. Compensation is then recognized over the service period, which is usually
the vesting period. Alternatively, SFAS No. 123 permits entities to continue to
account for stock options and similar equity instruments under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities that continue to account for stock options using APB
Opinion No. 25 are required to make pro forma disclosures of net earnings and
earnings per share, as if the fair value-based method of accounting defined in
SFAS No. 123 had been applied.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plan. Accordingly, no compensation cost has been
recognized for the plan. Had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant dates for awards under
the plan consistent with the accounting method utilized in SFAS No. 123, the
Company's net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
2000 1999 1998
Net earnings (In thousands) As reported $6,318 $4,082 $7,040
===== ===== =====
Pro forma $6,025 $3,613 $6,758
===== ===== =====
Basic earnings per share As reported $1.21 $ .77 $1.34
==== ===== ====
Pro forma $1.15 $ .68 $1.29
==== ===== ====
Diluted earnings per share As reported $1.21 $ .76 $1.30
==== ===== ====
Pro forma $1.15 $ .67 $1.25
==== ===== ====
The fair value of each option granted is estimated on the date of grant
using the modified Black-Scholes options-pricing model with the following
weighted-average assumptions used for grants in 2000, 1999, and 1998,
respectively: dividend yield of 2.5% for 2000 and 1999 and 4.0% for 1998;
expected volatility of 10.0% for all years, risk-free interest rates of 6.00%
for 2000 and 1999 and 5.50% for 1998, and expected lives of 10 years.
A summary of the status of the Company's Stock Option Plan as of
December 31, 2000, 1999 and 1998 and changes during the periods ended on those
dates is presented below:
F-22
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
Outstanding at beginning of year 625,301 $14.23 542,126 $12.13 438,689 $10.41
Granted 137,000 14.75 172,875 16.75 120,750 17.25
Exercised (45,000) 7.42 (83,875) 5.40 (13,188) 6.23
Forfeited (4,000) 16.84 (5,825) 15.97 (4,125) 2.79
------- ------- -------
Outstanding at end of year 713,301 $14.75 625,301 $14.23 542,126 $12.13
======= ===== ======= ===== ======= =====
Options exercisable at year-end 644,801 609,674 396,025
======= ======= =======
Weighted-average fair value of
options granted during the year $ 3.24 $ 4.11 $ 2.27
===== ===== =====
The following information applies to options outstanding at December
31, 2000:
Number outstanding 713,301
Range of exercise prices $2.79 - $18.05
Weighted-average exercise price $14.75
Weighted-average remaining contractual life 8.0 years
F-23
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
NOTE O-- OAK HILL FINANCIAL, INC. CONDENSED FINANCIAL INFORMATION
The following condensed financial statements summarize the financial
position of Oak Hill Financial, Inc. as of December 31, 2000 and 1999, and the
results of its operations and its cash flows for each of the years ended
December 31, 2000, 1999 and 1998.
Oak Hill Financial, Inc.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
December 31,
(In thousands)
2000 1999
ASSETS
Cash and due from banks $ 268 $ 65
Interest-bearing deposits in Oak Hill Banks 1,203 2,161
Investment in Oak Hill Banks 36,432 30,467
Investment in Action Finance Co. 2,061 1,975
Investment in Oak Hill Capital Trust I 155 --
Investment in Towne Bank 13,681 12,277
Office premises and equipment-- net 936 1,105
Prepaid expenses and other assets 1,116 222
------ ------
Total assets $55,852 $48,272
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 801 $ 548
Junior subordinated debentures 5,155 --
------ ------
Total liabilities 5,956 548
Stockholders' equity
Common stock 2,707 2,683
Additional paid-in capital 5,040 4,650
Retained earnings 46,913 42,724
Less cost of treasury stock (4,680) (755)
Unrealized losses on securities designated as
available for sale, net of related tax effects (84) (1,578)
------ ------
Total stockholders' equity 49,896 47,724
------ ------
Total liabilities and stockholders' equity $55,852 $48,272
====== ======
F-24
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
Oak Hill Financial, Inc.
CONDENSED STATEMENTS OF EARNINGS
Year ended December 31,
(In thousands)
2000 1999 1998
REVENUE
Interest income $ 166 $ 61 $ 41
Equity in earnings of subsidiaries 6,763 4,498 7,205
----- ----- -----
Total revenue 6,929 4,559 7,246
EXPENSES
Interest expense 435 -- --
General and administrative 405 574 292
----- ----- -----
Total expenses 840 574 292
----- ----- -----
Earnings before federal income
tax credits 6,089 3,985 6,954
Federal income tax credits (229) (97) (86)
----- ----- -----
NET EARNINGS $6,318 $4,082 $7,040
===== ===== =====
F-25
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999 and 1998
Oak Hill Financial, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
Year ended December 31,
(In thousands)
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings for the year $6,318 $4,082 $7,040
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Undistributed earnings of consolidated subsidiaries (5,900) (1,176)
(3,531)
Depreciation of office premises and equipment 205 -- --
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets (955) (1,210) 7
Other liabilities 253 155 112
----- ----- -----
Net cash provided by (used in) operating activities (79) 1,851 3,628
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Action Finance Company -- -- (2,000)
Investment in Oak Hill Capital Trust I (155) -- --
Purchase of office premises and equipment (36) -- --
(Increase) decrease in interest-bearing deposits 958 (589) (568)
----- ----- -----
Net cash provided by (used in) investing activities 767 (589) (2,568)
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 1,600 -- --
Repayment of notes payable (1,600) -- --
Proceeds from exercise of stock options 414 567 114
Proceeds from issuance of debt securities 5,155 -- --
Purchase of treasury stock (3,925) -- (727)
Dividends on common shares (2,129) (1,792) (1,385)
----- ----- -----
Net cash used in financing activities (485) (1,225) (1,998)
----- ----- -----
Net increase (decrease) in cash and cash equivalents 203 37 (938)
Cash and cash equivalents at beginning of year 65 28 966
----- ----- -----
Cash and cash equivalents at end of year $ 268 $ 65 $ 28
===== ===== =====
F-26
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the years ended December 31, 2000, 1999, and 1998
NOTE P -- SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
Obligations for securities sold under agreements to repurchase were
collateralized at December 31, 2000 and 1999 by investment securities with a
book value including accrued interest of approximately $3.0 million and $3.1
million and a market value of approximately $3.0 million and $3.1 million,
respectively. The maximum balance of repurchase agreements outstanding at any
month-end during the years ended December 31, 2000 and 1999 was $479,000 and
$1.9 million, respectively, and the average month-end balance outstanding for
2000 and 1999 was approximately $392,000 and $934,000, respectively.
NOTE Q -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Company's quarterly results for the
years ended December 31, 2000 and 1999.
Three Months Ended
March 31, June 30, September 30, December 31,
2000: (In thousands, except per share data)
Total interest income $12,402 $13,146 $14,123 $14,907
Total interest expense 6,242 6,910 7,896 8,462
------ ------ ------ ------
Net interest income 6,160 6,236 6,227 6,445
Provision for losses on loans 360 498 708 697
Other income 621 647 669 381
General, administrative and other expense 3,771 3,668 3,892 4,302
------ ------ ------ ------
Earnings before income taxes 2,650 2,717 2,296 1,827
Federal income taxes 885 911 766 610
------ ------ ------ ------
Net earnings $ 1,765 $ 1,806 $ 1,530 $1,217
====== ====== ====== =====
Basic earnings per share $.33 $.34 $.30 $.24
=== === === ===
Diluted earnings per share $.33 $.34 $.30 $.24
=== === === ===
Three Months Ended
March 31, June 30, September 30, December 31,
1999: (In thousands, except per share data)
Total interest income $10,818 $10,855 $11,742 $11,835
Total interest expense 5,425 5,264 5,672 6,058
------ ------ ------ ------
Net interest income 5,393 5,591 6,070 5,777
Provision for losses on loans 310 409 1,175 538
Other income (loss) 768 686 (1,589) 543
General, administrative and other expense 3,150 3,186 4,219 4,087
------ ------ ------ ------
Earnings (loss) before income taxes (credits) 2,701 2,682 (913) 1,695
Federal income taxes (credits) 886 878 (320) 639
------ ------ ----- ------
Net earnings (loss) $ 1,815 $ 1,804 $ (593) $ 1,056
====== ====== ======= ======
Basic earnings (loss) per share $.34 $.34 $(.11) $.20
=== === ==== ===
Diluted earnings (loss) per share $.34 $.33 $(.11) $.20
=== === ==== ===
F-27
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Oak Hill Financial, Inc.
We have audited the accompanying consolidated statements of financial
condition of Oak Hill Financial, Inc. as of December 31, 2000 and 1999 and the
related consolidated statements of earnings, stockholders' equity, comprehensive
income and cash flows for each of the years in the three year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Oak
Hill Financial, Inc. as of December 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the years in the three
year period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Grant Thornton LLP
Cincinnati, Ohio
February 8, 2001
F-28