OAKF Oak Hill Financial (MM)

JACKSON, Ohio, Oct. 12 /PRNewswire-FirstCall/ -- Oak Hill Financial, Inc. (NASDAQ:OAKF) today reported net earnings for the three months ended September 30, 2006 of $3,180,000, or $0.58 per diluted share. The third quarter 2006 earnings compare to the $3,939,000, or $0.68 per diluted share, in net earnings that the company recorded for the quarter ended September 30, 2005. For the nine months ended September 30, 2006, Oak Hill Financial recorded net earnings of $9,668,000, or $1.74 per diluted share, as compared to the $7,800,000, or $1.34 per diluted share, in net earnings for the first nine months of 2005. The net earnings for the third quarter and first nine months of 2005 include gains of $24,000 and $205,000, respectively, on the sale of a former branch facilities and other fixed assets, and non-recurring tax savings of $261,000 and $783,000, respectively, resulting from a one-time tax savings of $1.0 million for the full year 2005. Also, the prior year's earnings include $49,000 and $502,000 of merger-related charges for the three and nine months ended September 30, 2005, respectively, resulting primarily from the company's acquisition of Lawrence Financial Holdings, Inc. on April 1, 2005. Including the non-recurring items, the company's net income was $3,787,000 or $0.65 per diluted share, for the third quarter of 2005 and $7,485,000, or $1.29 per diluted share, for the first nine months of 2005. The company's total assets ended the third quarter of 2006 at $1.26 billion, as compared to the $1.23 billion in total assets recorded at September 30, 2005. Net loans at September 30, 2006 were $1.02 billion, as compared to the $995.6 million in loans on the books at September 30, 2005. Discussing Oak Hill Financial's third quarter results, President and CEO R. E. Coffman, Jr. said, "We continue to focus on improving asset quality, and I am pleased to report that we were able to further reduce our non-performing assets by $3.1 million, or 16%, during the third quarter. Combined with the $5.5 million reduction in non-performing assets in the second quarter, we've cut non-performing assets by 35% since March 31. The result is a substantial improvement in the non-performing assets ratio from 2.01% at March 31, to 1.55% at June 30, and now to 1.31% at September 30." "Net earnings for the third quarter were up 6.2% over the second quarter," Coffman added. "While total loans were flat, we did see a linked-quarter increase in commercial real estate loans, which is the largest component of our portfolio. In other areas, the net interest margin held steady at the second quarter level, and net charge-offs were in line with our expectations." Looking forward, Coffman said, "We are very optimistic about further reductions in our nonperforming assets, and we continue to explore various avenues to further improve asset quality. While we expect continued pressure on the net interest margin, we believe that the recent enhancements we have implemented with respect to loan and deposit pricing will help to mitigate the effects of the inverted yield curve. In addition, loan demand in our market areas is beginning to show signs of rebounding, although loan volume is expected to be moderate through year end. Also, growth in the loan portfolio may be tempered by potential sales of nonperforming and classified loans, which we are actively pursuing, and net charge-offs may be similarly affected in the short term." Key Issue Review and Outlook Net Interest Margin -- Oak Hill Financial's net interest margin for the third quarter was 3.34%, as compared to the 3.72% posted in the third quarter of 2005 and unchanged from the 3.34% recorded for the second quarter of 2006. Although the current interest rate environment continues to constrain asset yields, the company has been able to slow the rate of increase in liability costs by repricing certain core deposit accounts and maintaining a disciplined approach to time deposit pricing. In addition, the company has taken advantage of opportunities to substitute lower-cost term borrowings for retail time deposits. Operating Expenses -- Non-interest expenses from continuing operations were 2.66% of average assets for the third quarter of 2006, which compares to 2.72% for the third quarter of 2005 and 2.64% for the second quarter of 2006. On a linked-quarter basis, operating expenses increased 2.3%. During the third quarter, compensation and benefits expense increased due primarily to a reduction in deferred loan origination costs, and depreciation and other occupancy expenses increased as a result of the opening of new branch and administrative facilities. Conversely, the third quarter saw decreases in various other expense categories, including supplies, core processing amortization, credit and collections, and marketing. The company's efficiency ratio from operations for the third quarter of 2006 was 61.9%, as compared to 57.3% in the prior year's quarter and 59.8% in the second quarter of 2006. Non-Interest Income -- Non-interest income from operations, including gain on sale of loans, was $3.3 million in the third quarter, an increase of 10.9% over the third quarter of 2005 but a decrease of 5.4% from the second quarter of 2006. The linked-quarter change resulted from a decrease in gain on sale of loans, the company's receipt in the second quarter of a settlement payment related to its 2004 acquisition of Ripley National Bank, and increased amortization of mortgage servicing rights, which the company accounts for as a reduction in other non-interest income. Offsetting these items were linked- quarter increases in deposit service charges, insurance and investment services commissions, gain on sale of investments, and mortgage origination income. Asset Quality -- At the end of the third quarter, the nonperforming loans/total loans and nonperforming assets/total assets ratios were 1.33% and 1.31%, respectively, a decrease from the 1.79% and 1.55%, respectively, recorded at June 30, 2006. The improvement reflects a $4.8 million reduction in nonperforming loans during the quarter, and a $3.1 million decrease in total nonperforming assets. The reductions in nonperforming loans were primarily the result of the sale of commercial real estate securing loans of $1.8 million, $750,000, and $319,000, coupled with aggressive charge-offs and charge-downs in the nonperforming portfolio. Two of these properties were purchased by the company, which resulted in a $1.7 million linked-quarter increase in other real estate owned. Bolstered by strong recoveries, the company's net charge-offs (non- annualized) were 0.05% of average loans for the third quarter of 2006, as compared to 0.11% in the second quarter. Annualized net charge-offs stand at 0.23% through the first nine months of 2006, which is within the company's historical range of 0.20% to 0.25%. However, the potential sale of additional nonperforming loans could increase net charge-offs in the fourth quarter. Consistent with generally accepted accounting principles and regulatory guidelines, the company uses various formulas to determine its allowance for loan losses (ALL). The methodology takes into consideration not only charge- offs but also the rated quality of the company's loans based on loan review grades and the types and amounts of loans comprising the portfolio, while allowing some discretion by management to make adjustments based on near-term economic conditions. Management's ongoing analysis of the above factors indicated that an ALL/total loans ratio of 1.32% remained appropriate at September 30, 2006. Asset/Loan Growth -- Oak Hill Financial's total assets and net loans declined slightly during the third quarter. The linked-quarter change was the result of the reduction in nonperforming assets and continued below-average loan demand in the company's market areas. In addition, management continues to maintain tighter underwriting standards and a conservative approach to loan pricing. Total deposits decreased on a linked-quarter basis at an annualized 5.9% as the company experienced seasonal decline in several core deposit categories and maintained a conservative approach to pricing interest-bearing deposits. Stock Buyback -- On February 21, 2006, the company announced that its board of directors authorized the repurchase of 278,000 shares, or approximately 5.0 percent, of its outstanding common stock. During the third quarter, 16,700 shares were repurchased under the program, bringing the total number of shares repurchased since February 21 to 214,300. Oak Hill Financial is a financial holding company headquartered in Jackson, Ohio. Its subsidiary, Oak Hill Banks, operates 36 full-service banking offices and one bank loan production office in 16 counties across southern and central Ohio. A second subsidiary, Oak Hill Financial Insurance Agency, provides group health plans, benefits administration, and other insurance services to business and public-sector organizations 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. Additional information about Oak Hill Financial can be found on the company's website at http://www.oakf.com/. 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. Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) October 12, 2006 Press Release At September 30, (In thousands) 2006 2005 SUMMARY OF FINANCIAL CONDITION Total assets $1,255,520 $1,229,228 Interest-bearing deposits and federal funds sold 1,884 4,802 Investment securities 144,574 131,066 Loans receivable - net 1,016,913 995,632 Deposits 963,522 970,246 Federal Home Loan Bank advances and other borrowings 193,422 149,921 Stockholders' equity 94,172 93,860 The Company discloses net earnings, diluted earnings per share and certain performance ratios adjusted for non-recurring items. Management believes that presenting this information is an additional measure of performance that investors can use to compare operating results between periods. These measures should not be considered an alternative to measurements required by accounting principles generally accepted in the United States of America ("U.S. GAAP"). In accordance with Securities and Exchange Commission Regulation G, reconciliation of the Company's U.S. GAAP information is presented in the tables below. For the For the Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except share data) 2006 2005 2006 2005 RECONCILIATION OF NON-GAAP NET EARNINGS, DILUTED EARNINGS PER SHARE AND OTHER PERFORMANCE MEASURES Net earnings (U.S. GAAP) $3,180 $3,939 $9,668 $7,800 Non-recurring items, net of tax: Gain on sale of branch locations and other fixed assets - (16) - (133) Merger-related expenses - 33 - 327 Reduction in tax expense - (169) - (509) Net earnings from operations $3,180 $3,787 $9,668 $7,485 Diluted earnings per share (U.S. GAAP) $0.58 $0.68 $1.74 $1.34 Non-recurring items, net of tax: Gain on sale of branch locations and other fixed assets - - - (0.02) Merger-related expenses - - - 0.06 Reduction in tax expense - (0.03) - (0.09) Diluted earnings per share from operations $0.58 $0.65 $1.74 $1.29 Non-interest income (U.S. GAAP) $3,316 $3,013 $10,110 $8,556 Non-recurring items: Gain on sale of branch locations and other fixed assets - (24) - (205) Non-interest income from operations $3,316 $2,989 $10,110 $8,351 Non-interest expense (U.S. GAAP) $8,455 $8,144 $24,971 $22,938 Non-recurring items: Merger-related expenses - (49) - (502) Reduction in tax expense - 261 - 783 Non-interest expense from operations $8,455 $8,356 $24,971 $23,219 SUMMARY OF OPERATIONS (1)(2)(3) Interest income $20,482 $18,179 $59,100 $51,046 Interest expense 10,846 7,760 30,253 20,955 Net interest income 9,636 10,419 28,847 30,091 Provision for losses on loans 456 212 1,729 5,671 Net interest income after provision for losses on loans 9,180 10,207 27,118 24,420 Gain on sale of loans 200 327 742 869 Commissions income 891 710 2,584 2,071 Other non-interest income 2,225 1,952 6,784 5,411 General, administrative and other expense 8,455 8,356 24,971 23,219 Earnings before federal income tax 4,041 4,840 12,257 9,552 Federal income taxes 1,111 1,428 3,339 2,692 Federal new markets tax credit (250) (375) (750) (625) Net earnings from operations $3,180 $3,787 $9,668 $7,485 SELECTED PERFORMANCE RATIOS FROM OPERATIONS (1)(2)(3)(5)(6) Diluted earnings per share $0.58 $0.65 $1.74 $1.29 Return on average assets 1.00% 1.23% 1.03% 0.86% Return on average equity 13.62% 16.03% 13.87% 10.96% Non-interest expense to average assets 2.66% 2.72% 2.67% 2.65% Efficiency ratio 61.88% 58.86% 60.59% 57.67% PER SHARE INFORMATION (U.S. GAAP) Basic earnings per share (4) $0.59 $0.69 $1.77 $1.37 Diluted earnings per share (5) $0.58 $0.68 $1.74 $1.34 Dividends per share $0.19 $0.17 $0.58 $0.51 Book value per share $17.55 $16.62 OTHER STATISTICAL AND OPERATING DATA (U.S. GAAP) (6) Return on average assets 1.00% 1.28% 1.03% 0.89% Return on average equity 13.62% 16.67% 13.87% 11.43% Non-interest expense to average assets 2.66% 2.66% 2.67% 2.62% Net interest margin (fully- taxable equivalent) 3.34% 3.72% 3.39% 3.73% Total allowance for losses on loans to non-performing loans 99.28% 79.32% Total allowance for losses on loans to total loans 1.32% 1.32% Non-performing loans to total loans 1.33% 1.67% Non-performing assets to total assets 1.31% 1.41% Net charge-offs to average loans (actual for the period) 0.05% 0.02% 0.17% 0.48% Net charge-offs to average loans (annualized) 0.19% 0.10% 0.23% 0.64% Equity to assets at period end 7.50% 7.64% Efficiency ratio 61.88% 57.31% 60.59% 56.96% (1) Excludes $261,000 and $783,000 reduction in tax expense for the three and nine months ended September 30, 2005 resulting from a tax savings of $1.0 million for 2005. (2) Does not include $49,000 and $502,000 of merger-related charges for the three and nine months ended September 30, 2005. (3) Does not include $24,000 and $205,000 gains on the sales of branch locations and other fixed assets for the three and nine months ended September 30, 2006. (4) Based on 5,379,089, 5,688,601, 5,467,480 and 5,684,826 weighted- average shares outstanding for the three and nine months ended September 30, 2006 and 2005, respectively. (5) Based on 5,459,761, 5,797,053, 5,556,903 and 5,812,934 weighted- average shares outstanding for the three and nine months ended September 30, 2006 and 2005, respectively. (6) Annualized where appropriate. Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) October 12, 2006 Press Release At September 30, (In thousands, except share data) 2006 2005 SUPPLEMENTAL DETAIL BALANCE SHEET - ASSETS Cash and cash equivalents 21,243 26,889 Trading account securities - - Securities available for sale 140,972 127,442 Securities held to maturity 3,602 3,624 Other securities 7,958 7,517 Total securities 152,532 138,583 Total cash and securities 173,775 165,472 Loans and leases held for investment (1) 1,026,136 1,005,795 Loans and leases held for sale (1) 1,004 75 Total loans and leases (1) 1,027,140 1,005,870 Allowance for losses on loans 13,631 13,347 Goodwill 7,935 7,441 Other intangible assets 3,328 4,351 Total intangible assets 11,263 11,792 Mortgage servicing rights 3,404 3,109 Purchased credit card relationships - - Other real estate owned 2,682 498 Bank owned life insurance 13,343 12,836 Other assets 37,544 42,998 Total assets 1,255,520 1,229,228 BALANCE SHEET - LIABILITIES Deposits 963,522 980,246 Borrowings 170,422 126,921 Other liabilities 4,396 5,193 Total liabilities 1,138,340 1,112,360 Redeemable preferred stock - - Trust preferred securities 23,000 23,000 Minority interests 8 8 Other mezzanine level items - - Total mezzanine level items 23,008 23,008 Total liabilities and mezzanine level items 1,161,348 1,135,368 BALANCE SHEET - EQUITY Preferred equity - - Common equity 94,172 93,860 MEMO ITEM: Net unrealized gain (loss) on securities available for sale, net of tax (2) 305 (217) End of period shares outstanding (2) 5,365,974 5,647,760 Options outstanding 444,583 498,783 Treasury shares held by the Company 508,660 226,874 (1) Data is net of unearned interest, gross of allowance for losses on loans (2) Excludes treasury shares Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) October 12, 2006 Press Release At or For the At or For the Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except share data) 2006 2005 2006 2005 SUPPLEMENTAL DETAIL (continued) Repurchase plan announced? No No Yes Yes Number of shares to be repurchased in plan(1) N/A N/A 278,000 290,000 Number of shares repurchased during the period(1) 16,700 79,644 266,355 216,295 Average price of shares repurchased(1) $24.82 $29.96 $28.89 $28.61 INCOME STATEMENT Interest income 20,482 18,179 59,100 51,046 Interest expense 10,846 7,760 30,253 20,955 Net interest income 9,636 10,419 28,847 30,091 Net interest income (fully-taxable equivalent) 10,007 10,767 29,969 30,985 Provision for losses on loans 456 212 1,729 5,671 Non-recurring expense: Merger-related expenses - 49 - 502 Nonrecurring income: Gain on sale of branch locations and other fixed assets - 24 - 205 Trading account income - - - - Foreign exchange income - - - - Trust income - - - - Commissions income 891 710 2,584 2,071 Service charges on deposits 1,442 1,226 4,007 3,186 Gain on sale of loans 200 327 742 869 Gain on investment securities transactions 41 138 145 508 Other non-interest income 742 588 2,632 1,717 Total non-interest income 3,316 2,989 10,110 8,351 Employee compensation and benefits 4,545 4,437 12,949 12,012 Occupancy and equipment expense 1,063 1,037 3,043 3,090 Foreclosed property expense - - - - Amortization of intangibles 229 299 741 670 Other general, administrative and other expense 2,618 2,322 8,238 6,664 Total non-interest expenses 8,455 8,095 24,971 22,436 Net income before taxes 4,041 5,076 12,257 10,038 Federal income taxes 1,111 1,512 3,339 2,863 Federal new markets tax credit (250) (375) (750) (625) Net income before extraordinary items 3,180 3,939 9,668 7,800 Extraordinary items - - - - Net income 3,180 3,939 9,668 7,800 CHARGE-OFFS Loan charge-offs 1,520 1,665 3,688 6,908 Recoveries on loans 1,017 1,413 1,937 2,214 Net loan charge-offs 503 252 1,751 4,694 AVERAGE BALANCE SHEET Average loans and leases 1,030,925 1,012,772 1,031,747 984,481 Average other earning assets 158,141 136,153 151,532 125,175 (1) There were 52,055 shares repurchased at an average price of $32.40 under the plan announced on May 26, 2005. These shares completed the plan, and a new plan was announced on February 21, 2006. There were 16,700 and 214,300 shares repurchased at an average price of $24.82 and $28.02 for the three and nine months ended September 30, 2006 under the new plan. Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) October 12, 2006 Press Release For the At or Three Months Ended For the Nine Months Ended September 30, September 30, (In thousands, except share data) 2006 2005 2006 2005 SUPPLEMENTAL DETAIL (continued) AVERAGE BALANCE SHEET (continued) Average total earning assets 1,189,066 1,148,925 1,183,279 1,109,656 Average total assets 1,259,584 1,216,862 1,250,926 1,169,568 Average non- interest bearing deposits 90,785 92,647 91,977 88,362 Average total time deposits 541,593 592,743 556,058 583,770 Average other interest-bearing deposits 330,911 282,853 325,550 256,424 Average total interest-bearing deposits 872,504 875,596 881,608 840,194 Average borrowings 199,146 148,873 179,870 143,916 Average interest- bearing liabilities 1,071,650 1,024,469 1,061,478 984,110 Average preferred equity - - - - Average common equity 92,612 93,745 93,217 91,275 ASSET QUALITY AND OTHER DATA Non-accrual loans 13,514 16,021 Renegotiated loans - - Loans 90+ days past due and still accruing 217 806 Total non-performing loans 13,731 16,827 Other real estate owned 2,682 498 Total non-performing assets 16,413 17,325 ADDITIONAL DATA 1 - 4 family mortgage loans serviced for others 237,043 247,505 Proprietary mutual fund balances - - Fair value of securities held to maturity 3,884 3,881 Full-time equivalent employees 432 439 Total number of full-service banking offices 36 34 Total number of bank and thrift subsidiaries 1 1 Total number of ATMs 41 40 LOANS RECEIVABLE 1 - 4 family residential 234,290 236,898 Home equity 42,578 43,038 Multi-family residential 41,397 32,751 Commercial real estate 399,341 373,992 Construction and land development 51,830 57,298 Commercial and other 146,428 157,497 Consumer 109,133 102,348 Credit cards 2,143 2,049 Loans receivable - gross 1,027,140 1,005,871 Unearned interest - (1) Loans receivable - net of unearned interest 1,027,140 1,005,870 Allowance for losses on loans (13,631) (13,347) Loans receivable - net (1) 1,013,509 992,523 (1) Does not include mortgage servicing rights. Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) October 12, 2006 Press Release For the At or For the Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except share data) 2006 2005 2006 2005 SUPPLEMENTAL DETAIL (continued) DEPOSITS Transaction accounts Non-interest bearing 89,970 100,872 Interest-bearing 75,787 79,425 Savings accounts 52,541 69,946 Money market deposit accounts 203,593 138,084 Other core interest-bearing 384,742 420,786 Total core deposit accounts 806,633 809,113 Brokered deposits 45,549 90,535 Other non-core interest-bearing accounts 111,340 80,598 Total deposits 963,522 980,246 Yield/average earning assets (fully-taxable equivalent) 6.96% 6.40% 6.81% 6.26% Cost/average interest earnings assets 3.62% 2.68% 3.42% 2.53% Net interest income (fully- taxable equivalent) 3.34% 3.72% 3.39% 3.73% NEW MARKETS TAX CREDIT Qualified equity investment in Oak Hill Banks Community Development Corp. 20,000 10,000 Aggregate QEI New Markets Tax Credit Year Amount 2006 2007 2008 2009 2010 2011 2004 10,000 500 600 600 600 600 - 2005 10,000 500 500 600 600 600 600 Totals 20,000 1,000 1,100 1,200 1,200 1,200 600 DATASOURCE: Oak Hill Financial, Inc. CONTACT: David G. Ratz, Executive Vice President of Oak Hill Financial, Inc., +1-740-286-3283 Web site: http://www.oakf.com/

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