SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 16, 2002
OAK HILL FINANCIAL, INC.
(Exact Name of Registrant as specified in its charter)
Ohio 0-26876 31-1010517
- --------------- -------------------------- --------------------
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification
incorporation or Number)
organization)
14621 State Route 93
Jackson, Ohio 44640
(740) 286-3283
(Address, including zip code, and telephone number
including area code of Registrant's
principal executive offices)
Not Applicable
(Former name or former address, if changed since last report)
Item 5. Other Events.
On July 11, 2002, Oak Hill Financial, Inc., ("Oak Hill") issued a news
release announcing its earnings for the second quarter ended June 30, 2002. The
information contained in the news release, which is attached as Exhibit 99 to
this Form 8-K, is incorporated herein by this reference.
The information contained or incorporated by reference in this Current
Report on Form 8-K may contain forward-looking statements, including certain
plans, expectations, goals, and projections, which are subject to numerous
assumptions, risks, and uncertainties. Actual results could differ materially
from those contained or implied by such statements for a variety of factors,
including: changes in economic conditions; movements in interest rates;
competitive pressures on product pricing and services; success and timing of
business strategies; the nature and extent of legislative and regulatory actions
and reforms; and extended disruption of vital infrastructure.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description
99 Press release of Oak Hill Financial, Inc., dated
July 11, 2002, announcing the company's earnings
for the three and six months ended June 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
OAK HILL FINANCIAL, INC.
Date: July 16, 2002 By: /s/ H. Tim Bichsel
----------------------------------------
H. Tim Bichsel, Secretary
EXHIBIT INDEX
Exhibit No. Description
99 Press release of Oak Hill Financial, Inc., dated July 11, 2002,
announcing the company's earnings for the three and six months
ended June 30, 2002.
For Immediate Release
Thursday, July 11, 2002
Contact: David G. Ratz, Executive Vice President & COO
(740) 286-3283
Oak Hill Financial Posts 32% Increase in 2nd Quarter Earnings
Jackson, Ohio -- Oak Hill Financial, Inc. (Nasdaq NMS: OAKF) today reported net
earnings for the three months ended June 30, 2002 of $2,616,000, or $.48 per
diluted share, which exceeded analysts' consensus estimate of $.46 per share
(source: I/B/E/S as reported by nasdaq.com). The second quarter 2002 earnings
represent an increase of 31.9% over the $1,983,000, or $.38 per diluted share,
in net earnings that the company recorded for the quarter ended June 30, 2001.
Historical data has been restated as appropriate to reflect the August 31, 2001
acquisition of insurance agency McNelly, Patrick & Associates, which was
accounted for as a pooling-of-interests.
For the six months ended June 30, 2002, Oak Hill Financial recorded net earnings
from operations of $5,066,000, or $0.94 per diluted share, an increase of 36.0%
over the $3,726,000, or $.70 per diluted share, in net earnings for the first
six months of 2001. The earnings for the first six months of 2002 excluded a
pre-tax gain of $122,000 on the sale of a former branch location.
The company's total assets ended the second quarter of 2002 at $825.2 million,
an increase of 13.8% over the $724.9 million in total assets recorded at June
30, 2001, and 2.3% over the $806.6 million in assets on the books at March 31,
2002. Net loans at June 30, 2002 were $686.9 million, up 12.2% over the $612.3
million in net loans at June 30, 2001, and 2.6% over the $669.7 million in net
loans at the end of the first quarter of 2002.
Explaining the second quarter results, Oak Hill Financial President and CEO John
D. Kidd said, "As we have for the past several quarters, we were once again able
to increase revenues at a much faster pace than expenses. Revenues for the
quarter were up nearly 16 percent, with a 17 percent increase in net interest
income leading the way. At the same time, expenses were only up 8 percent. We're
still generating strong demand in commercial loans and mortgage loan origination
has remained at higher-than-expected levels. We also had excellent growth in
revenues from servicing real estate loans and our brokerage services."
Addressing the outlook for Oak Hill Financial, Kidd stated, "We believe that
earnings will continue on the upswing through the remainder of the year. We
expect continued growth in lending, particularly in the commercial area.
Non-interest income should also grow as we have several new programs and
products just coming into their own that should further drive revenues in this
area."
The company also announced its intention to file regulatory applications to
merge its two banking subsidiaries, Oak Hill Banks and Towne Bank, into a single
bank. "We believe that the cost savings from merging the two banks will
significantly enhance long-term shareholder value. The senior management teams
at the two banks have been working closely together for some time, and their
product lines and customer bases are very similar. We think the integration will
be relatively seamless with no negative impact on customer service."
Subject to regulatory approval, the target date for completion of the subsidiary
merger is December 31, 2002. Merger-related expenses are not expected to exceed
$250,000, and management projects that operating expenses can be reduced by at
least $300,000 in 2003 and $450,000 annually thereafter with the consolidation
of redundant data processing activities, various back-office functions, and
third-party expenses. The company does not anticipate any reduction in workforce
as a result of the merger.
Page 1 of 10
Key Issue Review and Outlook
Net Interest Margin - Net interest margin for the second quarter was 4.25%, up
from the 4.03% posted in the second quarter of 2001, but comparable to the 4.24%
recorded for the first quarter of 2002. Management believes that if the current
low rate environment continues, the net interest margin can be maintained at or
above 4.20% for the remainder of the year. If interest rates rise, the net
interest margin should increase.
Operating Expenses - Non-interest expense was 2.83% of average assets for the
second quarter of 2002, which compares to 2.94% for the second quarter of 2001
and 2.80% for the first quarter of 2002. Operating expenses during the second
quarter were slightly above the level expected by management, which was 2.80% or
less, due primarily to expenses incurred pursuant to the company's upgrade of
its core data processing system. Similarly, the company's efficiency ratio,
which was 57.0% for the second quarter of 2002, while significantly below the
prior year's 60.2%, was up from the 56.7% posted for the first quarter of 2002.
Management now estimates that non-interest expenses (excluding merger-related
expense) for the entire year 2002 will be in the range of 2.75% to 2.85% of
average assets, with the efficiency ratio falling in the range of 56.5% to 57.0%
Non-Interest Income - Non-interest income, including the gain on sale of loans,
was $1,974,000 in the second quarter, an increase of 10.8% over the second
quarter of 2001 and 17.9% over the first quarter of 2002. In addition to growth
in real estate servicing fees and revenues from brokerage services, the company
benefited from a gain on the sale of an OREO property. Offsetting the increases
were a moderate quarter-over-quarter decrease in insurance commissions due to
the timing of premium payments and a decline in service charges on deposit
accounts. The latter resulted from the core processing conversion early in the
quarter, and deposit service charges are expected to rebound in the third
quarter. In addition, gain on sale of loans was $313,000 in the second quarter,
as compared to $258,000 in the second quarter of 2001 and $395,000 in the first
quarter of 2002. Management believes that the demand for fixed-rate mortgages is
leveling off, and further increases in the gain on sale of mortgage loans are
not anticipated. To supplement its revenues from the gain on sale of loans, the
company is moving aggressively into SBA lending, and the second quarter gain on
sale of loans includes a $45,000 gain from SBA lending activity.
Asset Quality - The company's asset quality improved during the quarter, with
the nonperforming loans/total loans and nonperforming assets/total assets ratios
at 0.69% and 0.59%, respectively, at June 30, down from the 0.73% and 0.81%,
respectively, posted at March 31. The significant reduction in the
non-performing assets ratio was due primarily to the sale of OREO during the
quarter. Of the nonperforming loan ratio, a single borrower continues to
represent approximately 0.23% of the total, on which management believes that
the total potential loss to be $300,000 or less. There are no other individual
non-performing loans or borrowers that account for more than 0.06% of the
nonperforming loan ratio. The maximum loss on all other nonperforming loans
combined is expected to be $300,000 or less.
Net charge-offs (non-annualized) in the second quarter were 0.04% of total
loans, as compared to 0.03% in the first quarter. The annualized rate through
six months of 0.13% is low by historical standards. Management's objective for
2002 is to keep net-charge-offs under 0.20%. The allowance for loan losses ended
the second quarter at 1.29% of total loans.
Overall 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
growth and margin improvement within its bank subsidiaries.
Non-interest income growth and diversification of non-interest revenues are also
key elements of the company's strategy. Cross-selling additional services to the
company's diverse customer base remains a major focus in the pursuit of
non-interest income.
Asset/Loan Growth - The company's total assets grew at a 9.2% annual rate during
the second quarter, while loans increased at a 10.4% annual rate. As previously
released, the company's objectives for 2002 call for approximately 12% growth in
both loans and assets. Although asset growth slowed somewhat from the first
quarter's 14.7% pace, management believes that the 12% target can still be met
while maintaining credit quality and achieving the company's net interest margin
and earnings objectives.
Page 2 of 10
Estimates - The company has increased its estimate for the full year 2002 to a
range of $1.85 to $1.93 per share. Earnings per share for the third quarter of
2002 are expected to be in the range of $0.48 to $0.50. Management has developed
several possible scenarios under which the earnings estimates can be achieved
and believes they are attainable under low, moderate, and high-growth scenarios.
Oak Hill Financial is a financial holding company. Three of its subsidiaries,
Oak Hill Banks, Towne Bank, and Action Finance Company, are involved in
commercial banking and consumer finance. Combined, they operate 24 full-service
banking offices, three bank loan production offices, and six consumer finance
offices in 14 counties across southern and central Ohio. A fourth subsidiary,
McNelly, Patrick & Associates, is an insurance agency specializing in group
health insurance that services over 350 group plans throughout the same region.
The company also holds 49% of Oak Hill Title Agency, LLC, which provides title
services for commercial and residential real estate transactions.
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.
July 11, 2002 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At or for the
three months ended June 30, six months ended June 30,
2002 2001 2002 2001
(unaudited) (unaudited)
SUMMARY OF FINANCIAL CONDITION(1)
Total assets $825,201 $724,891
Interest bearing deposits
and federal funds sold 4,439 4,137
Investment securities 92,400 71,622
Loans receivable -- net 686,939 612,334
Deposits 655,694 584,307
Federal Home Loan Bank
advances and other borrowings 103,541 83,404
Stockholders' equity 61,770 52,215
SUMMARY OF OPERATIONS(1)(2)
Interest income 14,451 15,089 28,688 30,224
Interest expense 6,250 8,081 12,696 16,501
------- ------- ------- -------
Net interest income 8,201 7,008 15,992 13,723
Provision for loan losses 587 506 1,047 1,072
------- ------- ------- -------
Net interest income after
provision for loan losses 7,614 6,502 14,945 12,651
Gain on sale of loans 313 258 708 475
Insurance commissions 600 655 1,138 1,201
Other non-interest income 1,061 868 1,801 1,509
Non-interest expense 5,754 5,313 11,166 10,276
------- ------- ------- -------
Earnings before federal income taxes 3,834 2,970 7,426 5,560
Federal income taxes 1,218 987 2,360 1,834
------- ------- ------- -------
Net earnings $ 2,616 $ 1,983 $ 5,066 $ 3,726
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Page 4 of 10
Oak Hill Financial, Inc.
July 11, 2002 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At of for the
three months ended June 30, six months ended June 30,
2002 2001 2002 2001
(unaudited) (unaudited)
PER SHARE INFORMATION(1)
Basic earnings per share (3) $ 0.49 $ 0.38 $ 0.97 $ 0.71
===== ===== ===== =====
Diluted earnings per share (4) $ 0.48 $ 0.38 $ 0.95 $ 0.70
===== ===== ===== =====
Dividends per share (3) $ 0.12 $ 0.11 $ 0.24 $ 0.21
===== ===== ===== =====
Book value per share $11.62 $10.01
===== =====
SELECTED PERFORMANCE RATIOS FROM CONTINUING OPERATIONS(1)(2)(5)
Basic earnings per share (3 $ 0.49 $ 0.38 $ 0.96 $ 0.46
===== ===== ===== =====
Diluted earnings per share (4 $ 0.48 $ 0.38 $ 0.94 $ 0.46
===== ===== ===== =====
Return on average assets 1.29% 1.10% 1.28% 1.05%
Return on average equity 17.49% 15.39% 17.34% 14.62%
Non-interest expense to average assets 2.83% 2.94% 2.82% 2.90%
Dividend payout ratio 24.36% 28.00% 25.09% 29.81%
Efficiency ratio 57.03% 60.24% 56.85% 60.39%
OTHER STATISTICAL AND OPERATING DATA (1)(5)
Net interest margin (fully-taxable equivalent) 4.25% 4.03% 4.24% 4.02%
Total allowance for loan losses
to nonperforming loans 187.21% 142.05%
Total allowance for loan losses
to total loans 1.29% 1.26%
Nonperforming loans to total loans 0.69% 0.89%
Nonperforming assets to total assets 0.59% 0.77%
Net charge-offs to average loans (actual for the period) 0.04% 0.05% 0.06% 0.07%
Net charge-offs to average loans (annualized) 0.15% 0.18% 0.13% 0.14%
Equity to assets at period end 7.48% 7.20%
(1) Restated as appropriate to reflect the merger with Innovative Financial
Services on August 31, 2001, which was accounted for as pooling-of-
interests.
(2) Does not include $122000, pre-tax gain on sale of a former branch location
for the six months ended June 30, 2002.
(3) Based on 5,301,841, 5,288,117, 5,216,296 and 5,239,606 weighted-average
shares outstanding for the three and six months ended June 30, 2002 and
2001, respectively.
(4) Based on 5,441,863, 5,399,225, 5,261,182 and 5,284,477 weighted-average
shares outstanding for the three and six months ended June 30, 2002 and
2001, respectively.
(5) Annualized where appropriate.
Page 5 of 10
Oak Hill Financial, Inc.
July 11, 2002 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At or for the
three months ended June30, six months ended June 30,
2002 2001 2002 2001
(unaudited) (unaudited)
SUPPLEMENTAL DETAIL
BALANCE SHEET - ASSETS
Cash and cash equivalents 22,988 20,081
Trading account securities - -
Securities available for sale 88,993 66,675
Held to maturity securities 3,407 4,947
Other securities 5,633 5,162
Total securities 98,033 76,784
Total cash and securities 121,021 96,865
Loans and leases held for investment (1) 693,972 617,553
Loans and leases held for sale (1) 589 1,592
Total loans and leases (1) 694,561 619,145
Reserve for losses on loans 8,966 7,843
Goodwill 413 233
Other intangibles - -
Total intangible assets 413 233
Mortgage servicing rights 1,344 1,032
Purchased credit card relationships - -
Other real estate owned 44 61
Other assets 16,784 15,398
Total assets 825,201 724,891
BALANCE SHEET - LIABILITIES
Deposits 655,694 584,307
Borrowings 98,541 78,404
Other liabilities 4,188 4,965
Total liabilities 758,423 667,676
Redeemable preferred stock - -
Trust preferred securities 5,000 5,000
Minority interest 8 -
Other mezzanine level items - -
Total mezzanine level items 5,008 5,000
Total liabilities and mezzanine 763,431 672,676
(1) Data is net of discount, gross of reserve.
Page 6 of 10
Oak Hill Financial, Inc.
July 11, 2002 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At or for the
three months ended June 30, six months ended June 30,
2002 2001 2002 2001
(unaudited) (unaudited)
SUPPLEMENTAL DETAIL (CONTINUED)
BALANCE SHEET - EQUITY
Preferred equity - -
Common equity 61,770 52,215
MEMO ITEM: Net unrealized gain (loss) on
securities held for sale (FASB 115 adjustment) 891 308
EOP shares outstanding (1) 5,310,558 5,216,708
Options outstanding 780,563 695,313
Treasury shares held by company 283,670 377,520
Repurchase plan announced? No No No No
# of shares to be repurchased in plan N/A N/A N/A 320,000
# of shares repurchased during period N/A N/A N/A 73,050
Average price of repurchased shares N/A N/A N/A $14.11
INCOME STATEMENT
Interest income 14,451 15,089 28,688 30,224
Interest expense 6,250 8,081 12,696 16,501
Net interest income 8,201 7,008 15,992 13,723
Net interest income (fully taxable equivalent) 8,353 7,079 16,293 13,852
Provision for loan losses 587 506 1,047 1,072
Nonrecurring income
Gain on sale of former branch location - - 122 -
Nonrecurring expense - - - -
Trading account income - - - -
Foreign exchange income - - - -
Trust revenue - - - -
Insurance commissions 600 655 1,138 1,201
Service charges on deposits 402 599 856 975
Gain on sale of loans 313 258 708 475
Gain (loss) on investment securities transactions 28 48 77 44
Other noninterest income 631 221 868 490
Total noninterest income 1,974 1,781 3,647 3,185
(1) Excludes treasury shares.
Page 7 of 10
Oak Hill Financial, Inc.
July 11, 2002 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At of for the
three months ended June 30, six months ended June 30,
2002 2001 2002 2001
(unaudited) (unaudited)
SUPPLEMENTAL DETAIL (CONTINUED)
INCOME STATEMENT (CONTINUED)
Employee compensation and benefits expense 3,368 3,187 6,588 6,264
Occupancy and equipment expense 590 492 1,191 1,019
Foreclosed property expense - - - -
Amortization of intangibles - 8 - 17
Other general, administrative and other expense 1,797 1,627 3,387 2,976
Total noninterest expense 5,755 5,313 11,166 10,276
Net income before taxes 3,833 2,970 7,548 5,560
Tax provision 1,217 987 2,401 1,834
Net income before extraordinary items 2,616 1,983 5,147 3,726
Extraordinary and after-tax items - - - -
Net income 2,616 1,983 5,147 3,726
CHARGEOFFS
Loan chargeoffs 359 331 652 574
Recoveries on loans 102 50 226 148
Net loan chargeoffs 257 281 426 426
AVERAGE BALANCE SHEET
Average loans and leases 689,411 617,677 676,498 615,533
Average other earning assets 97,919 87,066 97,563 78,602
Average total earning assets 787,330 704,743 774,061 694,135
Average total assets 815,684 724,791 800,805 713,995
Average total time deposits 406,376 381,478 404,781 378,324
Average other interest-bearing deposits 189,355 158,046 179,857 153,087
Average total interest-bearing deposits 595,731 539,524 584,638 531,411
Average borrowings 100,745 82,380 96,824 81,596
Average interest-bearing liabilities 696,476 621,904 681,462 613,007
Average preferred equity - - - -
Average common equity 60,000 51,638 58,912 51,373
Page 8 of 10
Oak Hill Financial, Inc.
July 11, 2002 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At or for the
three months ended June 30, six months ended June 30,
2002 2001 2002 2001
(unaudited) (unaudited)
SUPPLEMENTAL DETAIL (CONTINUED)
ASSET QUALITY AND OTHER DATA
Nonaccrual loans 4,365 4,983
Renegotiated loans - -
Other real estate owned 44 61
Total nonperforming assets 4,409 5,044
Loans 90+ days past due and still accruing 425 538
NPAs plus loans over 90 days delinquent 4,834 5,582
ADDITIONAL DATA
1-4 Family mortgage loans serviced for others 160,813 129,859
Proprietary mutual fund balances - -
Held to maturity securities (fair value) 3,233 4,933
EOP employees (full-time equivalent) 321 312
Total number of full-service banking offices 24 24
Total number of bank and thrift subsidiaries 2 2
Total number of ATMs 27 26
LOANS RECEIVABLE
Real estate 251,358 219,306
Commercial real estate 226,634 224,077
Commercial and other 141,463 89,391
Consumer 75,280 87,008
Credit cards 1,508 1,519
------- -------
Loans - gross 696,243 621,301
Unearned interest (1,682) (2,156)
------- -------
Loans - net of unearned interest 694,561 619,145
Reserve for loan losses (8,966) (7,843)
------- -------
Loans - net(1) 685,595 611,302
======= =======
(1) Does not include mortgage servicing assets.
Page 9 of 10
Oak Hill Financial, Inc.
July 11, 2002 Press Release
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
For the At or for the
three months ended June 30, six months ended June 30,
2002 2001 2002 2001
(unaudited) (unaudited)
SUPPLEMENTAL DETAIL (CONTINUED)
DEPOSITS
Non-interest bearing 58,463 50,365
Core interest bearing 464,529 418,488
Non-core interest bearing 132,702 115,454
------- -------
Total deposits 655,694 584,307
======= =======
Fully-taxable equivalent yield/average earning assets 7.44% 8.63% 7.55% 8.81%
Cost/average earning assets 3.19% 4.60% 3.31% 4.79%
Net interest margin 4.25% 4.02% 4.24% 4.02%
Page 10 of 10