OAK Financial Corporation (OTCBB: OKFC), a West Michigan-based bank holding company, reported third quarter net loss of $1,308,000 compared to net income of $737,000 for the third quarter of 2008. Basic and diluted earnings per share in the third quarter of 2009 were ($0.49), down from $0.27 reported for the third quarter of 2008. The decline in net income and earnings per share is largely due to a $3,100,000 increase in the provision for loan losses in addition to increases in loan collection expenses. Net income for the first nine months was $952,000, down 72% from the first nine months of 2008.
Total assets at September 30, 2009 equaled $840 million, a decrease of $1 million from the end of the second quarter of 2009 and an increase of $38 million from September 30, 2008. Total loans declined $9 million during the third quarter, which is a reflection of the difficult economic environment and lower borrowing needs of some of our customers. An increase in the consumers' savings rate contributed to the $14 million increase in total deposits during the third quarter and past year. Compared to one year ago, total assets increased 5% and total loans increased 6% and total deposits increased 10%. The bank continues to be well capitalized and has an equity-to-asset ratio of 8.49% at September 30, 2009 compared to 8.37% at December 31, 2008.
“It's important to consider our third quarter performance against the backdrop of events within our economy, our markets and our industry,” said Patrick K. Gill, President and CEO of OAK Financial Corporation and Byron Bank. “Our increased provision for loan losses was primarily attributable to one previously-performing real estate development-related borrower who notified us late in the quarter of their intent to default on their obligation. Our loan portfolio contains very few real estate development loans and, on an overall basis, continues to perform well. In addition, our pre-provision performance remains strong, despite elevated loan collections costs and dramatically higher FDIC premiums.”
The net interest margin improved to 3.44% in the third quarter 2009, which compares favorably to a net interest margin of 3.27% in the second quarter of 2009 and 3.31% for the third quarter of 2008. The net interest margin improvement reflects the decline in funding cost and stable loan yields. Net interest income increased $279,000 on a linked-quarter basis and improved $463,000 compared to the third quarter of 2008.
The provision for loan losses was $4,500,000 in the third quarter compared to $1,375,000 in the second quarter of 2009 and $1,400,000 during the third quarter of 2008. The higher provision for loan losses was necessary due to an increase in net loan losses and increase in non-performing loans, which is described below. The higher level of loan loss provision contributed to an increase in the allowance as a percent of total loans from 1.33% at the end of 2008 to 2.03% at September 30, 2009.
Total non-interest income was 18% higher in the third quarter of 2009, compared to the third quarter of 2008. The increase is attributed to a $404,000 increase in mortgage banking revenue, which is being influenced by mortgage refinance activity due to historically low mortgage interest rates. For the first nine-months, non-interest income increased $1,761,000, or 27%, almost entirely from the increase in mortgage refinance activity.
Total non-interest expense was $828,000 higher in the third quarter of 2009 compared to the third quarter of 2008. The increase is largely due to higher FDIC premiums, which are being assessed across the industry, and higher loan collection and related expense. On a year-to-date basis, operating expenses increased approximately 12%, or approximately 7% excluding the increase in the FDIC insurance. Non-performing assets continue to add to our operating expense through higher professional fees, loan collection costs, and losses and impairment charges associated with the disposition of other real estate.
Non-performing assets totaled $18.3 million at September 30, 2009, up $10.5 million from the prior quarter and $9.5 million from September 30, 2008. The increase in non-performing assets is primarily the result of placing two residential construction and development projects and several commercial loans secured by real estate on non-accrual. Total non-performing assets represent 2.18% of total assets compared to 0.63% at December 31, 2008 and 1.10% at September 30, 2008. At September 30, 2009, total non-performing assets consist of $4.9 million of other real estate, $12.7 million of loans that are not accruing interest and $0.7 million of loans that are past due 90 days or more and still accruing interest. Net loans charged-off as a percent of total average loans was 0.55% in the third quarter of 2009, compared to .40% in the second quarter of 2009 and 0.13% in the third quarter of 2008. Net loans charged-off in the third quarter totaled $961,000 compared to $207,000 during the third quarter of 2008. Year-to-date 2009, net loans charged-off totaled $1,901,000 compared to $960,000 for the same period in 2008.
OAK Financial Corporation owns Byron Bank and provides traditional banking services and products through 14 banking offices serving 14 communities in Kent, Ottawa and Allegan counties in West Michigan. Byron Bank owns a subsidiary, Byron Investment Services, which offers mutual fund products, securities brokerage services, retirement planning services, investment management and advisory services. Our other subsidiary, Byron Insurance Agency, delivers a broad range of personal and business insurance products. For information regarding stock transactions, please contact Kent King Securities at 1-888-804-8891, Howe Barnes at 1-800-800-4693, Royal Securities at 616-538-2550 or Stifel, Nicolaus & Co., Inc. at 616-942-1717.
CAUTIONARY STATEMENT:This press release contains certain forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning future growth in earning assets and net income, the sustainability of past results, and other expectations and/or goals.Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental and technological factors affecting our operations, markets, products, services, interest rates and fees for services. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.Further information concerning our business, including additional factors that could materially affect our financial results, is included in our filings with the Securities and Exchange Commission.
OAK FINANCIAL CORPORATION | CONSOLIDATED | |||||
(Dollars in thousands, except per share data) | September 30, | December 31, | ||||
2009 | 2008 | |||||
ASSETS | (Unaudited) | |||||
Cash and cash equivalents | $22,728 | $15,411 | ||||
Available-for-sale securities | 94,704 | 107,251 | ||||
Loans held for sale | 5,592 | 2,762 | ||||
Total loans | 692,677 | 686,932 | ||||
Allowance for loan losses | (14,078 | ) | (9,130 | ) | ||
Net Loans | 678,599 | 677,802 | ||||
Accrued interest receivable | 3,771 | 3,967 | ||||
Premises and equipment, net | 15,300 | 16,782 | ||||
Restricted investments | 5,261 | 5,101 | ||||
Other assets | 14,140 | 11,235 | ||||
Total assets | $840,095 | $840,311 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Deposits | ||||||
Non-interest bearing | $78,652 | $76,585 | ||||
Interest bearing | 622,533 | 600,684 | ||||
Total deposits | 701,185 | 677,269 | ||||
Federal funds purchased | - | 2,300 | ||||
Repurchase agreements | 5,600 | 20,350 | ||||
FHLB advances | 55,485 | 63,655 | ||||
Other borrowed funds | 1,198 | 1,030 | ||||
Other liabilities | 5,310 | 5,352 | ||||
Total liabilities | 768,778 | 769,956 | ||||
Stockholders' equity | ||||||
Preferred stock, no par value; 500,000 shares authorized | - | - | ||||
Common stock, $1 par value; 4,000,000 shares authorized; | 2,703 | 2,703 | ||||
Additional paid-in capital | 32,778 | 32,778 | ||||
Retained earnings | 33,339 | 34,171 | ||||
Accumulated other comprehensive income | 2,497 | 703 | ||||
Total stockholders' equity | 71,317 | 70,355 | ||||
Total liabilities and stockholders' equity | $840,095 | $840,311 | ||||
OAK FINANCIAL CORPORATION | CONSOLIDATED STATEMENTS OF INCOME | |||||||||
(Dollars in thousands except per share data) | Three Months ended | Nine Months ended | ||||||||
2009 | 2008 | 2009 | 2008 | |||||||
Interest Income | ||||||||||
Interest and fees on loans | $8,994 | $9,528 | $26,880 | $28,875 | ||||||
Available-for-sale securities | 938 | 1,245 | 2,984 | 3,753 | ||||||
Restricted investments | 50 | 60 | 129 | 155 | ||||||
Other interest income | 1 | 22 | 3 | 25 | ||||||
Total interest income | 9,983 | 10,855 | 29,996 | 32,808 | ||||||
Interest expense | ||||||||||
Deposits | 2,648 | 3,695 | 8,594 | 11,274 | ||||||
Federal funds purchased | 2 | 56 | 13 | 470 | ||||||
Repurchase agreements | 110 | 247 | 559 | 736 | ||||||
FHLB advances | 645 | 750 | 1,972 | 1,962 | ||||||
Other borrowed funds | 9 | 1 | 14 | 7 | ||||||
Total interest expense | 3,414 | 4,749 | 11,152 | 14,449 | ||||||
Net interest income | 6,569 | 6,106 | 18,844 | 18,359 | ||||||
Provision for loan losses | 4,500 | 1,400 | 6,850 | 3,005 | ||||||
Net interest income after provision for loan losses | 2,069 | 4,706 | 11,994 | 15,354 | ||||||
Non-interest income | ||||||||||
Service charges on deposit accounts | 1,343 | 1,414 | 3,870 | 4,053 | ||||||
Mortgage banking | 614 | 210 | 2,647 | 917 | ||||||
Net gain on sales of securities | 54 | - | 396 | 52 | ||||||
Insurance premiums and brokerage fees | 294 | 328 | 859 | 953 | ||||||
Other | 152 | 137 | 480 | 516 | ||||||
Total non-interest income | 2,457 | 2,089 | 8,252 | 6,491 | ||||||
Non-interest expenses | ||||||||||
Salaries | 2,682 | 2,568 | 8,072 | 7,812 | ||||||
Employee benefits | 608 | 537 | 1,841 | 1,734 | ||||||
Occupancy (net) | 471 | 471 | 1,436 | 1,366 | ||||||
Furniture and fixtures | 309 | 341 | 972 | 961 | ||||||
Loss on other real estate | 473 | 313 | 797 | 397 | ||||||
FDIC fees | 305 | 114 | 1,246 | 329 | ||||||
Other | 1,951 | 1,627 | 5,300 | 4,959 | ||||||
Total non-interest expenses | 6,799 | 5,971 | 19,664 | 17,558 | ||||||
Income before federal income taxes | (2,273 | ) | 824 | 582 | 4,287 | |||||
Federal income taxes (benefit) | (965 | ) | 87 | (370 | ) | 869 | ||||
Net income | ($1,308 | ) | $737 | $952 | $3,418 | |||||
Income per common share: | ||||||||||
Basic | ($0.49 | ) | $0.27 | $0.35 | $1.26 | |||||
Diluted | ($0.49 | ) | $0.27 | $0.35 | $1.26 | |||||
OAK FINANCIAL CORPORATION | CONSOLIDATED | ||||||||||||||
(Unaudited) | |||||||||||||||
3rd Qtr | 2nd Qtr | 1st Qtr | 4th Qtr | 3rd Qtr | |||||||||||
(Dollars in thousands except per share data) | 2009 | 2009 | 2009 | 2008 | 2008 | ||||||||||
Earnings | |||||||||||||||
Net interest income | $6,569 | $6,290 | $5,985 | $6,018 | $6,106 | ||||||||||
Provision for loan losses | $4,500 | $1,375 | $975 | $1,950 | $1,400 | ||||||||||
Non-interest income | $2,457 | $2,724 | $3,071 | ($1,183 | ) | $2,089 | |||||||||
Non-interest expense | $6,799 | $6,396 | $6,469 | $6,031 | $5,971 | ||||||||||
Net income | ($1,308 | ) | $1,010 | $1,250 | ($1,882 | ) | $737 | ||||||||
Basic earnings per share | ($0.49 | ) | $0.38 | $0.46 | ($0.69 | ) | $0.27 | ||||||||
Diluted earnings per share | ($0.49 | ) | $0.38 | $0.46 | ($0.69 | ) | $0.27 | ||||||||
Average shares outstanding | 2,703 | 2,703 | 2,703 | 2,703 | 2,703 | ||||||||||
Performance Ratios | |||||||||||||||
Return on average assets | (0.62 | %) | 0.48 | % | 0.60 | % | (0.92 | %) | 0.37 | % | |||||
Return on average equity | (7.18 | %) | 5.68 | % | 7.14 | % | (10.45 | %) | 4.06 | % | |||||
Net interest margin (tax-equivalent) | 3.44 | % | 3.27 | % | 3.14 | % | 3.20 | % | 3.31 | % | |||||
Efficiency ratio | 76.5 | % | 71.7 | % | 71.2 | % | 71.0 | % | 70.0 | % | |||||
Full-time equivalent employees | 203 | 205 | 206 | 205 | 204 | ||||||||||
Ending equity to ending assets | 8.49 | % | 8.45 | % | 8.32 | % | 8.37 | % | 8.92 | % | |||||
Book value per share | $26.38 | $26.28 | $25.75 | $26.03 | $26.49 | ||||||||||
Asset Quality | |||||||||||||||
Net loans charged-off | $961 | $695 | $245 | $1,873 | $207 | ||||||||||
Net charge-offs to total average loans (annualized) | 0.55 | % | 0.40 | % | 0.14 | % | 1.12 | % | 0.13 | % | |||||
Nonperforming assets | $18,287 | $7,828 | $7,492 | $5,332 | $8,838 | ||||||||||
Allowance for loan losses to total loans | 2.03 | % | 1.50 | % | 1.42 | % | 1.33 | % | 1.39 | % | |||||
Nonperforming assets to total assets | 2.18 | % | 0.93 | % | 0.90 | % | 0.63 | % | 1.10 | % | |||||
YTD | YTD | ||||||||||||||
(Dollars in thousands except per share data) | 9/30/09 | 9/30/08 | |||||||||||||
Earnings | |||||||||||||||
Net interest income | $18,844 | $18,359 | |||||||||||||
Provision for loan losses | $6,850 | $3,005 | |||||||||||||
Non-interest income | $8,252 | $6,491 | |||||||||||||
Non-interest expense | $19,664 | $17,558 | |||||||||||||
Net income | $952 | $3,418 | |||||||||||||
Basic earnings per share | $0.35 | $1.26 | |||||||||||||
Diluted earnings per share | $0.35 | $1.26 | |||||||||||||
Average shares outstanding | 2,703 | 2,703 | |||||||||||||
Performance Ratios | |||||||||||||||
Return on average assets | 0.15 | % | 0.59 | % | |||||||||||
Return on average equity | 1.78 | % | 6.32 | % | |||||||||||
Net interest margin (tax-equivalent) | 3.28 | % | 3.47 | % | |||||||||||
Efficiency ratio | 71.6 | % | 68.2 | % | |||||||||||
Asset Quality | |||||||||||||||
Net loans charged-off | $1,901 | $960 | |||||||||||||
Net charge-offs to total average loans (annualized) | 0.37 | % | 0.21 | % |
Contacts:
OAK Financial Corporation, Byron Center, Mich.
Patrick K. Gill,
President & CEO at (616) 588-7420, or
James A. Luyk, Executive
Vice President COO & CFO at (616) 588-7419