OAK Financial Corporation, Parent Company of Byron Bank, Reports Second Quarter Results

Business Wire, July 17, 2009

BYRON CENTER, Mich. -- OAK Financial Corporation (OKFC), a West Michigan-based bank holding company, reported second quarter net income of $1,010,000 compared to $1,199,000 for the second quarter of 2008. Basic and diluted earnings per share in the second quarter of 2009 were $0.38, a decline of 14% from the $0.44 reported for the second quarter of 2008. The decline in net income and earnings per share reflects an increase in the provision for loan losses, and higher FDIC insurance expense, partially offset by gains on the sale of mortgages. Net income for the first six months was $2,260,000, down 16%, from the first six months of 2008.

Total assets at June 30, 2009 equaled $841 million, an increase of $4 million from the end of the first quarter of 2009 and an increase of $54 million from June 30, 2008. Total loans increased $6 million during the second quarter and $73 million for the last 12 months. Compared to one year ago, total assets increased 7% and total loans increased 12%. Total deposits increased $5 million during the second quarter and $97 million, or 16% for the last 12 months. The bank continues to be well capitalized and has an equity-to-asset ratio of 8.45% at June 30, 2009 compared to 8.37% at December 31, 2008.

“When considered in the context of the enormous challenges that continue to confront our economy, our local markets and our industry, I’m very satisfied with our overall year-to-date performance,” said Patrick K. Gill, President and CEO of OAK Financial Corporation and Byron Bank. “Nonetheless, we remain very vigilant with respect to asset quality and even more attentive than usual to our core operating metrics. At the same time, however, we’re taking careful advantage of unprecedented opportunities to build both our reputation and our business.”

The net interest margin improved 13 basis points, to 3.27%, in the second quarter compared to 3.14% in the first quarter of 2009. The net interest margin improvement reflects the decline in funding cost and stable loan yields. Net interest income increased $305,000 on a linked-quarter basis and improved $55,000 over the second quarter of 2008.

The provision for loan losses was $1,375,000 in the second quarter compared to $975,000 in the first quarter of 2009 and $930,000 during the second 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 1.50% at June 30, 2009.

Total non-interest income increased 23% during the second quarter of 2009, compared to the second quarter of 2008. The significant increase was the result of a $670,000 increase in mortgage banking revenue. The increase in mortgage banking revenue resulted from high volumes of mortgage refinance activity due to historically low mortgage interest rates. For the first six-months, non-interest income increased $1,393,000, or nearly 32%, almost entirely from the increase in mortgage refinance activity.

During the second quarter, the FDIC insurance expense increased $579,000, reflecting the special assessment on all insured financial institutions equal to approximately 5 basis points of total assets, less tier one equity. Excluding the increase in FDIC insurance expense, operating expenses would have declined approximately 3% during the second quarter of 2009 compared to the second quarter of 2008. This decline is the result of expense control measures that have been put into place. On a year-to-date basis, operating expenses increased approximately 11%, or approximately 5%, excluding the increase in the FDIC insurance. Non-performing loans 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. Total salary expense reflects both the reversal of all management bonuses and higher mortgage commission expense resulting from the strong mortgage refinance activity.

Non-performing assets totaled $7.8 million at June 30, 2009, up $0.3 million from the prior quarter and $1.1 million from June 30, 2008. Total non-performing assets, represent 0.93% of total assets and compared to 0.63% at December 31, 2008 and 0.85% at June 30, 2008. At June 30, 2009, total non-performing assets consist of $3.9 million of other real estate, $3.5 million of loans that are not accruing interest and $0.4 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 0.40% in the second quarter of 2009, compared to .14% in the first quarter of 2009 and 0.13% in the second quarter of 2008. Net loans charged-off in the second quarter totaled $695,000 compared to $195,000 during the second quarter of 2008. Year-to-date 2009, net loans charged-off totaled $940,000 compared to $753,000 for the same period in 2008.