OAK reports quarter results

November 7, 2009
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BYRON CENTER — O.A.K. Financial Corp. (OTCBB: OKFC), a West Michigan-based bank holding company and parent company of Byron Bank, reported a 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.

According to a news release, 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 percent and total loans increased 6 percent and total deposits increased 10 percent. The bank continues to be well capitalized and has an equity-to-asset ratio of 8.49 percent at Sept. 30, 2009 compared to 8.37 percent at Dec. 31, 2008.

“It’s important to consider our third quarter performance against the backdrop of events within our economy, our markets and our industry,” Patrick K. Gill, president and CEO of OAK Financial Corp. and Byron Bank, said in a written statement. “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 percent 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 percent 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.

Total non-interest income was 18 percent 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 percent, 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 percent, or approximately 7 percent excluding the increase in the FDIC insurance.

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