For Immediate Release
Thursday, October 18, 2001
Contact: David G. Ratz, Chief Administrative Officer
(740) 286-3283
Oak Hill Financial Reports Increased Third Quarter Earnings
Jackson, Ohio -- Oak Hill Financial, Inc. (Nasdaq NMS: OAKF) today reported net
earnings from operations for the three months ended September 30, 2001 of
$2,168,000, or $.41 per diluted share, which exceeded analysts' consensus
estimate of $.395 per share (source I/B/E/S as reported on nasdaq.com). The
third quarter 2001 operating earnings exclude a $900,000 pre-tax gain on the
sale of a branch office of the company's Towne Bank subsidiary and pre-tax
expenses of $203,000 related to the company's August 31, 2001 merger with
employee benefits agency Innovative Financial Services, Inc., which operates
under the name McNelly, Patrick & Associates. Including those items, the
company's net income for the quarter ended September 30, 2001 was $2,628,000, or
$.50 per diluted share.
Oak Hill Financial's third quarter operating earnings represent an increase of
38.7% over the $1,563,000, or $.29 per diluted share, in net earnings that the
company recorded for the quarter ended September 30, 2000. For the nine months
ended September 30, 2001, the company's operating earnings were $5,905,000, or
$1.12 per diluted share, an increase of 15.8% over the $5,101,000 or $.93 in net
earnings recorded for the first nine months of 2000. All historical financial
information has been restated to reflect the Innovative Financial Services
merger, which was accounted for as a pooling of interests.
Oak Hill Financial's assets increased 8.8% over the prior year, ending the third
quarter of 2001 at $732.0 million, as compared to $672.8 million at September
30, 2000. The company's net loans at September 30, 2001 were $626.8 million, up
7.9% from September 30, 2000.
In summarizing the third quarter, Oak Hill Financial President and CEO John D.
Kidd stated, "We're very pleased with our overall results. The earnings increase
over last year was driven by a 17.3% increase in net interest income, and we
managed to increase the net interest margin even in light of the heavy interest
rate cuts during the quarter. Our secondary market mortgage originations
continued at very high levels. Also, the addition of Innovative Financial
Services brought us a new and substantial stream of non-interest income, which
will be of great benefit in mitigating any future fluctuations in the net
interest margin."
Commenting on the outlook for the company, Kidd stated, "Even with the
uncertainty in the economy, we still believe that earnings will continue to
improve through the end of this year and into the next. Our loan volume picked
up in the third quarter with increases in both commercial and residential real
estate loans, and there is a lot of activity in the pipeline. Also, the pace of
secondary market lending has not slowed, so our gain on sale of loans should
remain strong through at least the fourth quarter. Since we retain the servicing
on the vast majority of the secondary market loans we originate, we will also
generate considerable servicing income as well. Added to that, our operating
expenses are in check and other non-interest income is in line with
expectations, so we think the outlook is positive."
Page 1 of 10
Key Issue Review and Outlook
Net Interest Margin - Net interest margin increased from 3.99% for the second
quarter of 2001 to 4.12% for the third quarter. Considering the cuts in interest
rates during the quarter, management is very pleased with the margin
performance. The net interest margin benefited from the continued downward
repricing of time deposits and indexed liabilities tied to short-term Treasury
bills combined with contractual floors taking effect on many of its adjustable
rate loans. Also, core deposits are not highly rate sensitive, which has allowed
the company to adjust core rates without negatively impacting deposit balances.
While further rate cuts could put some pressure on the margin, management now
believes that a minor rate cut during the quarter will not materially affect the
margin. As a result, management currently expects the net interest margin for
the fourth quarter to remain at or above 4.10%. Given the company's current
asset/liability structure, the net interest margin should increase in a rising
rate environment.
Operating Expenses & Efficiency - The company's non-interest expense was 2.80%
of average assets for the third quarter of 2001, which compares to 2.65% the
third quarter of 2000. The increase is attributable to normal annual salary
adjustments (which are effective in July of each year), higher employee benefits
and incentive compensation costs, the cost of additional commercial lending
personnel, and initial expenses related to the upgrade of the company's data
processing system and facilities. Still, adjusting for the restatement required
by the Innovative Financial Services merger, the non-interest expense load was
about 10 basis points lower than management had anticipated.
The data processing upgrade will facilitate long-term growth and provide
opportunities to enhance operating efficiency, customer services, fee income,
and product sales. While the company will occur higher direct costs and
depreciation expense pursuant to the upgrade, at this point management does not
anticipate a significant change in operating expenses as a percentage of average
assets for the fourth quarter of 2001 or for the year 2002.
The company's efficiency ratio improved from 58.7% in the third quarter of 2000
to 56.5% in the third quarter of 2001 as revenue growth offset the increase in
operating expenses. For 2002, management's objective is to reduce the efficiency
ratio below 55.0%.
Non-Interest Income - Total non-interest income in the third quarter was
$1,501,000, an increase of 25.1% over the second quarter of 2000. Of the
components of non-interest income, gain on sale of loans was up substantially
due to the low interest rate environment. Other non-interest income was up 6.1%
as a result of increases in certain fees and charges, investment services
income, aggressive collection of existing service charges, and cross-selling of
fee-producing services. Third quarter insurance commissions generated by
Innovative Financial Services were off 14.0%, but this was impacted by the
timing of premium payments (year-to-date, Innovative's commission income is up
9.9%). In addition to anticipating continued gains on the sale of mortgage
loans, management expects the upward trend in other non-interest income to
continue through the fourth quarter. For 2002, the company is targeting a
moderate increase in non-interest income primarily through the introduction of
new fee-producing services, growth in its insurance and non-deposit investment
programs, and annual service charge adjustments.
Asset Quality - The nonperforming loans/total loans and nonperforming
assets/total assets ratios increased during the quarter to 1.22% and 1.06%,
respectively, at September 30. This is a level that is unacceptable to
management, and the company is aggressively pursuing resolution of all
nonperforming loans. A borrower with three commercial real estate loans
continues to represent approximately 25 basis points of the nonperforming loan
ratio. These loans are currently in foreclosure, and negotiations with the
borrower to restructure the debt and improve the company's position are
underway. If the negotiations are successful, management believes that the loss
potential on these loans will be eliminated; otherwise, the potential loss is
estimated at $300,000. Another commercial real estate loan that is in
foreclosure accounts for 23 basis points of the nonperforming ratio. The company
is very well-secured on this loan, and management expects no charge-off to
result from it (since quarter end, the company acquired the property securing
this loan at a sheriff's sale and is currently pursuing its sale). Of the
remaining nonperforming loans, management projects a worst-case loss potential
of $500,000, with the largest potential loss from any single borrower of about
$100,000.
Page 2 of 10
Net charge-offs (non-annualized) for the third quarter were 0.07% of total
loans, which was slightly higher than management's expectations and represents a
more aggressive stance on charge-offs in response to current economic
conditions. For the nine months ended September 30, the annualized rate of 0.18%
is consistent with the company's 2001 objective of maintaining net charge-offs
at or below 0.20%. To protect against potential losses, this year the company
has taken loan loss provisions sufficient to build the allowance for loan losses
to its current level of 1.25%, as compared to 1.17% one year earlier. In
anticipation of the favorable resolution of several of the nonperforming
credits, the company has held the allowance steady through the third quarter.
However, if the current level of nonperforming loans continues, management may
make steps to further increase the allowance.
Overall Strategy - Reiterating its ongoing strategy, Oak Hill Financial will
continue to pursue revenue growth through originating adjustable-rate commercial
loans, commercial real estate loans and residential mortgage loans; fixed-rate
residential mortgage loans for sale in the secondary market; and consumer loans.
Management believes that commercial and commercial real estate loans hold the
greatest potential for margin improvement within its bank subsidiaries, and the
year 2002 emphasis will continue to be on these products. As evidenced by the
Innovative Financial Services merger, non-interest income growth and
diversification of non-interest revenues are also key elements of the company's
strategy. In particular, cross-selling of additional services (including
insurance services) to the company's diverse customer base will be a major focus
in the pursuit of non-interest income.
Asset/Loan Growth - The company's loans and assets grew modestly in the third
quarter, posting increases from June 30 to September 30 of 2.4% and 1.0%
(non-annualized), respectively. While loan volume remains high, several large
commercial real estate loans were paid off during the quarter as borrowers
pursued lower rates. As management has previously stated, the net interest
margin is given higher priority than growth, and to protect the margin
management was unwilling to offer the low rates necessary to retain these loans.
With the current economic uncertainty, the company has not yet set its 2002
growth targets for loans and assets, but it continues to be willing to accept a
lower growth rate to maintain the net interest margin and to improve credit
quality.
Expansion - During the third quarter, the company's Towne Bank subsidiary
received regulatory approval to establish a messenger service which will provide
deposit pick-up and other off-site transaction services. The messenger service
is expected to facilitate continued growth in Towne's commercial depository and
cash management services. Also, the company's Oak Hill Banks subsidiary has
filed regulatory applications to establish a branch office in Proctorville,
Ohio, which is a growing part of the Huntington, West Virginia metropolitan
area. Management believes that this area holds high potential for both
commercial and residential lending.
Estimates - Management estimates that earnings per share will be in the range of
$.42 to $.44 for the fourth quarter of 2001 and $1.72 to $1.82 for fiscal 2002,
excluding any securities gains or losses or other non-recurring items.
Management has developed several possible scenarios under which the 2002
earnings estimate can be achieved and believes it is attainable even under a
low-growth scenario.
Oak Hill Financial is a financial holding company headquartered in Jackson,
Ohio. Three of its subsidiaries, Oak Hill Banks, Towne Bank, and Action Finance
Company, are involved in commercial banking and consumer finance. Combined, they
operate 23 full-service banking offices, two bank loan production offices, and
six consumer finance offices in 14 counties across southern and central Ohio. A
fourth subsidiary, Innovative Financial Services, is an insurance agency
specializing in group health insurance that services over 350 group plans
throughout the same region.
Forward-Looking Statements Disclosure
This release contains certain forward-looking statements related to the future
performance and condition of Oak Hill Financial, Inc. These statements, which
are subject to numerous risks and uncertainties, are presented in good faith
based on the company's current condition and management's understanding,
expectations, and assumptions regarding its future prospects as of the date of
this release. Actual results could differ materially from those projected or
implied by the statements contained herein. The factors that could affect the
company's future results are set forth in the periodic reports and registration
statements filed by the company with the Securities and Exchange Commission.
Page 3 of 10
Oak Hill Financial, Inc.
October 18, 2001 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At or for the
three months ended September 30, nine months ended September 30,
2001 2000 2001 2000
(unaudited) (unaudited)
SUMMARY OF FINANCIAL CONDITION(1)
Total assets $732,019 $672,814
Interest bearing deposits
and federal funds sold 7,336 122
Investment securities 62,389 59,157
Loans receivable -- net 626,810 580,831
Deposits 576,949 541,415
Federal Home Loan Bank
advances and other borrowings 94,188 78,777
Stockholders' equity 55,212 48,800
SUMMARY OF OPERATIONS(1)(2)
Interest income 14,764 14,124 44,991 39,676
Interest expense 7,460 7,896 23,964 21,049
------ ------ ------- -------
Net interest income 7,304 6,228 21,027 18,627
Provision for loan losses 547 708 1,619 1,566
------ ------ ------- -------
Net interest income after
provision for loan losses 6,757 5,520 19,408 17,061
Gain on sale of loans 365 28 896 99
Insurance commissions 460 535 1,659 1,510
Other non-interest income 676 637 2,129 1,827
Non-interest expense 5,039 4,382 15,289 12,843
------ ------ ------- -------
Earnings before federal income taxes 3,219 2,338 8,803 7,654
Federal income taxes 1,051 775 2,898 2,553
------ ------ ------- -------
Net earnings $ 2,168 $ 1,563 $ 5,905 $ 5,101
====== ====== ======= =======
Page 4 of 10
Oak Hill Financial, Inc.
October 18, 2001 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At or for the
three months ended September 30, nine months ended September 30,
2001 2000 2001 2000
(unaudited) (unaudited)
PER SHARE INFORMATION(1)
Basic earnings per share (3) $0.50 $0.29 $ 1.21 $0.94
==== ==== ===== ====
Diluted earnings per share (4) $0.50 $0.29 $ 1.20 $0.93
==== ==== ===== ====
Dividends per share (3) $0.11 $0.10 $ 0.32 $0.29
==== ==== ===== ====
Book value per share $10.49 $9.20
===== ====
SELECTED PERFORMANCE RATIOS FROM CONTINUING OPERATIONS(1)(2)(5)
Basic earnings per share (3) $0.41 $0.29 $ 1.13 $0.94
==== ==== ===== ====
Diluted earnings per share (4) $0.41 $0.29 $ 1.12 $0.93
==== ==== ===== ====
Return on average assets 1.19% 0.94% 1.10% 1.08%
Return on average equity 16.05% 12.70% 15.19% 13.94%
Non-interest expense to average assets 2.80% 2.65% 2.86% 2.73%
Dividend payout ratio 26.70% 33.46% 28.60% 30.93%
Efficiency ratio 56.45% 58.71% 58.96% 57.88%
OTHER STATISTICAL AND OPERATING DATA (5)
Net interest margin 4.12% 3.89% 4.03% 4.10%
Total allowance for loan losses
to nonperforming loans 103.25% 192.47%
Total allowance for loan losses
to total loans 1.25% 1.17%
Nonperforming loans to total loans 1.22% 0.61%
Nonperforming assets to total assets 1.06% 0.57%
Net charge-offs to average loans (actual for the period) 0.07% 0.05% 0.14% 0.15%
Net charge-offs to average loans (annualized) 0.27% 0.21% 0.18% 0.20%
Equity to assets at period end 7.54% 7.25%
(1) Restated as appropriate to reflect the merger with Innovative Financial
Services on August 31, 2001, which was accounted for as a
pooling-of-interests.
(2) Does not include $203,000 and $228,000, pre-tax, merger-related charges for
the three and nine months ended September 30, 2001, and a $900,000 gain on
the sale of the Towne Bank Amelia branch for the three and nine months
ended September 30, 2001.
(3) Based on 5,233,713, 5,237,620, 5,342,018, and 5,434,570 weighted-average
shares outstanding for the three and nine month periods ended September 30,
2001, and September 30, 2000, respectively.
(4) Based on 5,286,066, 5,280,365, 5,397,211, and 5,486,693 weighted-average
shares outstanding for the three and nine month periods ended September 30,
2001, and September 30, 2000, respectively.
(5) Annualized where appropriate.
Page 5 of 10
Oak Hill Financial, Inc.
October 18, 2001 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At or for the
three months ended September 30, nine months ended September 30,
2001 2000 2001 2000
(unaudited) (unaudited)
SUPPLEMENTAL DETAIL
BALANCE SHEET - ASSETS
Cash and cash equivalents 21,968 10,513
Trading account securities - -
Securities available for sale 58,982 54,210
Held to maturity securities 3,407 4,947
Other securities 5,282 4,889
Total securities 67,671 64,046
Total cash and securities 89,639 74,559
Loans and leases held for investment (1) 633,231 586,537
Loans and leases held for sale (1) 457 163
Total loans and leases (1) 633,688 586,700
Reserve for losses on loans 7,966 6,863
Goodwill 224 258
Other intangibles - -
Total intangible assets 224 258
Mortgage servicing rights 1,088 994
Purchased credit card relationships - -
Other real estate owned 61 238
Other assets 15,285 16,928
Total assets 732,019 672,814
BALANCE SHEET - LIABILITIES
Deposits 576,949 541,415
Borrowings 89,188 73,777
Other liabilities 5,670 3,822
Total liabilities 671,807 619,014
Redeemable preferred stock - -
Trust preferred securities 5,000 5,000
Minority interest - -
Other mezzanine level items - -
Total mezzanine level items 5,000 5,000
Total liabilities and mezzanine 676,807 624,014
(1) Data is net of discount, gross of reserve.
Page 6 of 10
Oak Hill Financial, Inc.
October 18, 2001 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At or for the
three months ended September 30, nine months ended September 30,
2001 2000 2001 2000
(unaudited) (unaudited)
SUPPLEMENTAL DETAIL (CONTINUED)
BALANCE SHEET - EQUITY
Preferred equity - -
Common equity 55,212 48,800
MEMO ITEM: Net unrealized gain (loss) on
securities held for sale (FASB 115 adjustment) 631 (1,228)
EOP shares outstanding (1) 5,261,208 5,303,670
Options outstanding 674,063 592,026
Treasury shares held by company 347,520 271,595
Repurchase plan announced? No No No Yes
# of shares to be repurchased in plan N/A 320,000 320,000 320,000
# of shares repurchased during period N/A 89,650 73,050 220,695
Average price of repurchased shares N/A $16.05 $14.11 $15.50
INCOME STATEMENT
Interest income 14,764 14,124 44,991 39,676
Interest expense 7,460 7,896 23,964 21,049
Net interest income 7,304 6,228 21,027 18,627
Net interest income (fully taxable equivalent) 7,396 6,255 21,248 18,712
Provision for loan losses 547 708 1,619 1,566
Nonrecurring income 900 - 900 -
Nonrecurring expense 203 - 228 -
Trading account income - - - -
Foreign exchange income - - - -
Trust revenue - - - -
Insurance commissions 460 535 1,659 1,510
Service charges on deposits 495 393 1,470 1,080
Gain on sale of loans 365 28 896 99
Gain (loss) on investment securities transactions (2) (6) 42 (6)
Other noninterest income 183 250 617 753
Total noninterest income 1,501 1,200 4,684 3,436
(1) Excludes treasury shares.
Page 7 of 10
Oak Hill Financial, Inc.
October 18, 2001 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At or for the
three months ended September 30, nine months ended September 30,
2001 2000 2001 2000
(unaudited) (unaudited)
SUPPLEMENTAL DETAIL (CONTINUED)
INCOME STATEMENT (CONTINUED)
Employee compensation and benefits expense 2,870 2,625 9,13 7,407
Occupancy and equipment expense 536 501 1,555 1,462
Foreclosed property expense - - - -
Amortization of intangibles 8 8 25 25
Other general, administrative and other expense 1,625 1,248 4,575 3,949
Total noninterest expense 5,039 4,382 15,289 12,843
Net income before taxes 3,916 2,338 9,475 7,654
Tax provision 1,288 775 3,126 2,553
Net income before extraordinary items 2,628 1,563 6,349 5,101
Extraordinary and after-tax items - - - -
Net income 2,628 1,563 6,349 5,101
CHARGEOFFS
Loan chargeoffs 558 312 1,132 971
Recoveries on loans 134 16 282 154
Net loan chargeoffs 424 296 850 817
AVERAGE BALANCE SHEET
Average loans and leases 626,517 571,863 619,235 543,609
Average other earning assets 77,571 64,378 78,160 63,114
Average total earning assets 704,088 636,241 697,395 606,723
Average total assets 724,519 658,606 717,347 628,261
Average total time deposits 369,712 341,287 375,422 326,277
Average other interest-bearing deposits 155,173 138,861 153,790 135,175
Average total interest-bearing deposits 524,885 480,148 529,212 461,452
Average borrowings 91,074 82,426 84,790 70,846
Average interest-bearing liabilities 615,959 562,574 614,002 532,298
Average preferred equity - - - -
Average common equity 53,575 48,956 51,985 48,868
Page 8 of 10
Oak Hill Financial, Inc.
October 18, 2001 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At or for the
three months ended September 30, nine months ended September 30,
2001 2000 2001 2000
(unaudited) (unaudited)
SUPPLEMENTAL DETAIL (CONTINUED)
ASSET QUALITY AND OTHER DATA
Nonaccrual loans 4,884 1,056
Renegotiated loans - -
Other real estate owned 61 238
Total nonperforming assets 4,945 1,294
Loans 90+ days past due and still accruing 2,831 2,510
NPAs plus loans over 90 days delinquent 7,776 3,804
ADDITIONAL DATA
1-4 Family mortgage loans serviced for others 135,547 114,517
Proprietary mutual fund balances - -
Held to maturity securities (fair value) 3,350 4,891
EOP employees (full-time equivalent) 309 282
Total number of full-service banking offices 22 23
Total number of bank and thrift subsidiaries 2 2
Total number of ATMs 27 21
LOANS RECEIVABLE
Real estate 240,387 258,233
Commercial real estate 203,968 165,860
Commercial and other 106,539 75,892
Consumer 83,333 87,731
Credit cards 1,502 1,352
------- -------
Loans - gross 635,729 589,068
Unearned interest (2,041) (2,368)
------- -------
Loans - net of unearned interest 633,688 586,700
------- -------
Reserve for loan losses (7,966) (6,863)
------- -------
Loans - net(1) 625,722 579,837
======= =======
(1) Does not include mortgage servicing assets.
Page 9 of 10
Oak Hill Financial, Inc.
October 18, 2001 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At or for the
three months ended September 30, nine months ended September 30,
2001 2000 2001 2000
(unaudited) (unaudited)
SUPPLEMENTAL DETAIL (CONTINUED)
DEPOSITS
Non-interest bearing 50,324 43,748
Core interest bearing 412,087 390,845
Non-core interest bearing 114,538 106,822
------- -------
Total deposits 576,949 541,415
======= =======
Yield/average earning assets 8.32% 8.83% 8.63% 8.73%
Cost/average earning assets 4.20% 4.94% 4.59% 4.63%
Net interest margin 4.12% 3.89% 4.03% 4.10%
Page 10 of 10