OAKF Oak Hill Financial (MM)

JACKSON, Ohio, Jan. 11 /PRNewswire-FirstCall/ -- Oak Hill Financial, Inc. (NASDAQ:OAKF) today reported net earnings of $9,582,000, or $1.74 per diluted share, as compared to the $11,379,000, or $1.97 per diluted share, in net earnings for 2005. For the three months ended December 31, 2006, Oak Hill Financial recorded a net loss of $86,000, or $0.02 per share. The fourth quarter 2006 results compare to the $3,579,000, or $0.63 per diluted share, in net earnings that the company recorded for the quarter ended December 31, 2005. The net earnings for the fourth quarter and full-year 2005 include non- recurring tax savings of $261,000 and $1.0 million, respectively. Also, the 2005 earnings include $44,000 and $546,000 of merger-related charges for the fourth quarter and full year, respectively, and $205,000 of gains on the sales of branch locations for the full year, all resulting primarily from the company's acquisition of Lawrence Financial Holdings, Inc. on April 1, 2005. Excluding the non-recurring items, the company's net income from continuing operations in 2005 was $3,438,000 or $0.60 per diluted share, for the fourth quarter and $10,923,000, or $1.89 per diluted share, for the full year. A reconciliation of the company's non-GAAP results to GAAP results is included in the tables that accompany this release. The company's total assets at year-end 2006 were $1.28 billion, as compared to the $1.24 billion in total assets recorded at December 31, 2005. Net loans at December 31, 2006 were $1.02 billion, which was essentially unchanged from December 31, 2005. Discussing Oak Hill Financial's performance, President and CEO R. E. Coffman, Jr. cited the previously announced increase in the provision for loan loss expense as the principal cause of the company's fourth quarter results. The increase in provision for loan loss expense, which Oak Hill Financial announced on December 21, resulted from the sale or charge-off of various non- performing and adversely classified loans during the fourth quarter. "The actions we took during the quarter to clean up the loan portfolio set the stage long-term for continued improvement in asset quality and overall performance," said Coffman. "We believe that we have cleared the major hurdles in the loan area, but we still have more work to do. While we don't anticipate further large losses, we will continue to aggressively pursue resolution of our remaining credit issues." Coffman reiterated Oak Hill Financial's goal of reducing the non- performing assets/total assets and nonperforming loans/total loans ratios to below 1.00% by the end of 2007. "We have a strong plan in place for workout of the remaining nonperforming loans and for the sale of our other nonperforming assets. While these objectives will likely take several months to achieve, we believe that we can hit our targets on both ratios by year-end." Key Issue Review and Outlook Net Interest Margin - Oak Hill Financial's net interest margin for the fourth quarter was 3.27%, as compared to the 3.60% posted in the fourth quarter of 2005 and the 3.34% recorded for the third quarter of 2006. While the company has remained disciplined in its loan and deposit pricing, aggressive competitor pricing and a high volume of time deposits repricing upward during the fourth quarter impacted the net interest margin. Margin pressure is expected to continue in the first quarter, although the company has fewer low-cost liabilities repricing in the next few months, which should provide some support to the margin. Operating Expenses - Non-interest expenses from continuing operations were 2.90% of average assets for the fourth quarter of 2006, which compares to 2.60% for the fourth quarter of 2005 and 2.66% for the third quarter of 2006. On a linked-quarter basis, operating expenses increased 9.2%. During the fourth quarter, compensation and benefits expense increased due primarily to discretionary bonus compensation for staff employees and a reduction in deferred loan origination costs, while depreciation and other occupancy expenses increased as a result of the opening of new branch and administrative facilities. Operating expenses for the year 2006 increased 8.4% over 2005, which resulted from increases in salaries and wages, depreciation and other occupancy expenses, credit and collections expense, and various other expense categories. The company's efficiency ratio from operations for the fourth quarter of 2006 was 69.5%, as compared to 58.7% in the prior year's quarter and 61.9% in the third quarter of 2006. Non-Interest Income - Non-interest income, including gain on sale of loans, was $3.0 million in the fourth quarter, as compared to $3.1 million in the fourth quarter of 2005 and $3.3 million in the third quarter of 2006. The linked-quarter change resulted from decreases in commissions income, gain on sale of loans and deposit service charges. Non-interest income for the year 2006 was $13.1 million, an increase of 12.8% over the $11.6 million in non- interest income for 2005. The year-over-year increase was fueled by growth in deposit service charges, investment and insurance commissions, ATM fee income, income from bank-owned life insurance, and mortgage origination income. Asset Quality - At December 31, 2006, the nonperforming loans/total loans and nonperforming assets/total assets ratios were 1.31% and 1.48%, respectively, as compared to the 1.33% and 1.31%, respectively, recorded at September 30, 2006, and the 2.35% and 2.01%, respectively posted at March 31, 2006, which represented the peak reported levels for these ratios. The fourth quarter change in the nonperforming assets ratio reflects a $2.6 million increase in other real estate owned during the quarter. The increase was primarily the result of the company acquiring a $3.0 million commercial property that had previously secured a nonperforming commercial real estate loan in that amount. While the change in the nonperforming loans ratio during the quarter was nominal, there was movement within the nonperforming loans category as the $3.0 million commercial real estate loan referenced above came off the nonperforming loan list and other non-performing loans were sold or charged- off. These reductions in nonperforming loans were offset by the addition of two commercial real estate loans with a remaining balance of $5.0 million following the charge-off of $2.0 million on these credits. The company's provision for loan loss expense in the fourth quarter was $4.0 million, which resulted from the sale or charge-off of various non- performing and adversely classified loans. In addition to the above charge- off, the sale of several other nonperforming and adversely classified loans resulted in charge-offs totaling $474,000. The remaining charge-offs taken in the fourth quarter involved various commercial real estate, residential real estate, and consumer loans, with the largest of these being a $400,000 charge- off on a $1.0 million commercial real estate loan that is currently in foreclosure. Consistent with generally accepted accounting principles and regulatory guidelines, the company uses various formulas to determine its ALLL. The methodology takes into consideration charge-offs as well as 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. Using this methodology, most of the loans involved in the fourth quarter charge-offs had previously been allocated specific amounts for expected losses in the ALLL. As a result, management's most recent analysis indicated that an ALLL/total loans ratio of 1.25% was appropriate at December 31, 2006. Asset/Loan Growth - On a linked-quarter basis, Oak Hill Financial's total assets increased at a 6.5% annualized rate during the fourth quarter, while net loans grew at a 1.8% annual pace. The linked-quarter loan growth was impacted by the sale and charge-off of nonperforming and classified loans and continued soft loan demand in the company's market areas. In addition, management has maintained conservative underwriting standards and a disciplined approach to loan pricing. On a linked-quarter basis, total deposits decreased at an annualized rate of 8.5% as the company maintained a conservative approach to pricing interest- bearing deposits and substituted lower-cost borrowings for non-core deposits. Expansion - During the fourth quarter, the company's Oak Hill Banks subsidiary opened a full-service banking office in Kettering, Ohio, a suburb of Dayton. The bank intends to establish a branch in suburban Columbus to complement its existing branch and loan production office in that area. 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 fourth quarter, 63,700 shares were repurchased, which completed the 2006 buyback program. Oak Hill Financial is a financial holding company headquartered in Jackson, Ohio. Its subsidiary, Oak Hill Banks, operates 37 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) At December 31, (In thousands) 2006 2005 SUMMARY OF FINANCIAL CONDITION Total assets $1,275,967 $1,241,058 Interest-bearing deposits and federal funds sold 2,292 2,983 Investment securities 155,570 134,812 Loans receivable - net 1,021,361 1,015,083 Deposits 942,960 978,396 Federal Home Loan Bank advances and other borrowings 236,925 164,382 Stockholders' equity 91,089 94,081 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 Twelve Months Ended December 31, December 31, (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 (loss) (U.S. GAAP) $(86) $3,579 $9,582 $11,379 Non-recurring items, net of tax: Gain on sale of branch locations and other fixed assets - - - (133) Merger-related expenses - 28 - 355 Reduction in tax expense - (169) - (678) Net earnings (loss) from operations $(86) $3,438 $9,582 $10,923 Diluted earnings per share (U.S. GAAP) N/A $0.63 $1.74 $1.97 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) - (0.12) Diluted earnings per share from operations N/A $0.60 $1.74 $1.89 For the For the Three Months Ended Twelve Months Ended December 31, December 31, (In thousands, except share data) 2006 2005 2006 2005 RECONCILIATION OF NON-GAAP NET EARNINGS, DILUTED EARNINGS PER SHARE AND OTHER PERFORMANCE MEASURES (continued) Non-interest income (U.S. GAAP) $3,021 $3,082 $13,131 $11,638 Non-recurring items: Gain on sale of branch locations and other fixed assets - - - (205) Non-interest income from operations $3,021 $3,082 $13,131 $11,433 Non-interest expense (U.S. GAAP) $9,235 $8,107 $34,206 $31,045 Non-recurring items: Merger-related expenses - (44) - (546) Reduction in tax expense - 261 - 1,044 Non-interest expense from operations $9,235 $8,324 $34,206 $31,543 SUMMARY OF OPERATIONS (1)(2)(3) Interest income $20,643 $18,674 $79,743 $69,720 Interest expense 11,158 8,481 41,411 29,436 Net interest income 9,485 10,193 38,332 40,284 Provision for losses on loans 3,962 670 5,691 6,341 Net interest income after provision for losses on loans 5,523 9,523 32,641 33,943 Gain on sale of loans 107 216 849 1,085 Commissions income 747 710 3,331 2,781 Other non-interest income 2,167 2,156 8,951 7,567 General, administrative and other expense 9,235 8,324 34,206 31,543 Earnings (loss) before federal income tax (benefit) (691) 4,281 11,566 13,833 Federal income tax (benefit) (355) 1,218 2,984 3,910 Federal new markets tax credit (250) (375) (1,000) (1,000) Net earnings (loss) from operations $(86) $3,438 $9,582 $10,923 SELECTED PERFORMANCE RATIOS FROM OPERATIONS (1)(2)(3)(5)(6) Diluted earnings per share N/A $0.60 $1.74 $1.89 Return on average assets -0.03% 1.10% 0.76% 0.92% Return on average equity -0.36% 14.54% 10.28% 11.89% Non-interest expense to average assets 2.90% 2.67% 2.73% 2.66% Efficiency ratio 69.53% 58.65% 62.78% 57.93% At or For the At or For the Three Months Ended Twelve Months Ended December 31, December 31, (In thousands, except share data) 2006 2005 2006 2005 PER SHARE INFORMATION (U.S. GAAP) Basic earnings per share (4) $(0.02) $0.64 $1.76 $2.01 Diluted earnings per share (5) N/A $0.63 $1.74 $1.97 Dividends per share $0.21 $0.19 $0.78 $0.70 Book value per share $17.16 $16.79 OTHER STATISTICAL AND OPERATING DATA (U.S. GAAP) (6) Return on average assets -0.03% 1.15% 0.76% 0.96% Return on average equity -0.36% 15.14% 10.28% 12.39% Non-interest expense to average assets 2.90% 2.60% 2.73% 2.62% Net interest margin (fully-taxable equivalent) 3.27% 3.60% 3.36% 3.70% Total allowance for losses on loans to non-performing loans 95.16% 77.25% Total allowance for losses on loans to total loans 1.25% 1.33% Non-performing loans to total loans 1.31% 1.72% Non-performing assets to total assets 1.48% 1.45% Net charge-offs to average loans (actual for the period) 0.45% 0.03% 0.62% 0.50% Net charge-offs to average loans (annualized) 1.79% 0.12% 0.62% 0.50% Equity to assets at period end 7.14% 7.58% Efficiency ratio 69.53% 57.06% 62.78% 56.98% (1) Excludes $261,000 and $1,044,000 reduction in tax expense for the three and twelve months ended December 31, 2005 resulting from a tax savings of $1.0 million for 2005. (2) Does not include $44,000 and $546,000 of merger-related charges for the three and twelve months ended December 31, 2005. (3) Does not include $205,000 of gains on the sales of branch locations and other fixed assets for the twelve months ended December 31, 2005. (4) Based on 5,335,528, 5,616,138, 5,434,221 and 5,546,680 weighted- average shares outstanding for the three and twelve months ended December 31, 2006 and 2005, respectively. (5) Based on 5,412,182, 5,719,294, 5,520,423 and 5,685,557 weighted- average shares outstanding for the three and twelve months ended December 31, 2006 and 2005, respectively. (6) Annualized where appropriate. At December 31, (In thousands, except share data) 2006 2005 SUPPLEMENTAL DETAIL BALANCE SHEET - ASSETS Cash and cash equivalents 23,247 26,400 Trading account securities - - Securities available for sale 153,011 131,193 Securities held to maturity 2,559 3,619 Other securities 8,078 7,626 Total securities 163,648 142,438 Total cash and securities 186,895 168,838 Loans and leases held for investment (1) 1,030,907 1,024,998 Loans and leases held for sale (1) 90 410 Total loans and leases (1) 1,030,997 1,025,408 Allowance for losses on loans 12,924 13,653 Goodwill 7,935 7,935 Other intangible assets 3,111 4,068 Total intangible assets 11,046 12,003 Mortgage servicing rights 3,288 3,328 Purchased credit card relationships - - Other real estate owned 5,258 376 Bank owned life insurance 13,454 12,948 Other assets 37,953 31,810 Total assets 1,275,967 1,241,058 BALANCE SHEET - LIABILITIES Deposits 942,960 978,396 Borrowings 213,925 141,382 Other liabilities 4,985 4,191 Total liabilities 1,161,870 1,123,969 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 1,184,878 1,146,977 BALANCE SHEET - EQUITY Preferred equity - - Common equity 91,089 94,081 MEMO ITEM: Net unrealized gain (loss) on securities available for sale, net of tax 32 (341) End of period shares outstanding (2) 5,308,975 5,604,214 Options outstanding 434,383 484,233 Treasury shares held by the Company 565,659 270,420 (1) Data is net of unearned interest, gross of allowance for losses on loans (2) Excludes treasury shares At or For the At or For the Three Months Ended Twelve Months Ended December 31, December 31, (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) 63,700 55,400 330,055 269,945 Average price of shares repurchased(1) $27.38 $30.43 $28.59 $28.97 INCOME STATEMENT Interest income 20,643 18,674 79,743 69,720 Interest expense 11,158 8,481 41,411 29,436 Net interest income 9,485 10,193 38,332 40,284 Net interest income (fully-taxable equivalent) 9,843 10,572 39,812 41,557 Provision for losses on loans 3,962 670 5,691 6,341 Non-recurring expense: Merger-related expenses - 44 - 546 Nonrecurring income: Gain on sale of branch locations and other fixed assets - - - 205 Trading account income - - - - Foreign exchange income - - - - Trust income - - - - Commissions income 747 710 3,331 2,781 Service charges on deposits 1,385 1,322 5,392 4,508 Gain on sale of loans 107 216 849 1,085 Gain on investment securities transactions 42 (10) 187 498 Other non-interest income 740 844 3,372 2,561 Total non-interest income 3,021 3,082 13,131 11,433 Employee compensation and benefits 4,767 4,095 17,518 16,107 Occupancy and equipment expense 1,104 977 4,147 4,067 Foreclosed property expense - - - - Amortization of intangibles 216 283 957 953 Other general, administrative and other expense 3,148 2,708 11,584 9,372 Total non-interest expenses 9,235 8,063 34,206 30,499 Net income (loss) before tax (benefit) (691) 4,498 11,566 14,536 Federal income tax (benefit) (355) 1,294 2,984 4,157 Federal new markets tax credit (250) (375) (1,000) (1,000) Net income (loss) before extraordinary items (86) 3,579 9,582 11,379 Extraordinary items - - - - Net income (loss) (86) 3,579 9,582 11,379 CHARGE-OFFS Loan charge-offs 5,032 839 8,720 7,747 Recoveries on loans 364 541 2,301 2,755 Net loan charge-offs 4,668 298 6,419 4,992 AVERAGE BALANCE SHEET Average loans and leases 1,033,164 1,022,153 1,032,104 993,976 Average other earning assets 161,783 141,576 154,116 129,309 (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 63,700 and 278,000 shares repurchased at an average price of $27.38 and $27.87 for the three and twelve months ended December 31, 2006 under the new plan. For the At or For the Three Months Ended Twelve Months Ended December 31, December 31, (In thousands, 2006 2005 2006 2005 except share data) SUPPLEMENTAL DETAIL (continued) AVERAGE BALANCE SHEET (continued) Average total earning assets 1,194,947 1,163,729 1,186,220 1,123,285 Average total assets 1,265,464 1,235,698 1,254,590 1,186,236 Average non- interest bearing deposits 91,148 100,077 91,768 91,315 Average total time deposits 532,405 589,104 550,096 585,114 Average other interest-bearing deposits 331,462 299,984 327,040 267,404 Average total interest-bearing deposits 863,867 889,088 877,136 852,518 Average borrowings 211,162 146,016 187,757 144,445 Average interest- bearing liabilities 1,075,029 1,035,104 1,064,893 996,963 Average preferred equity - - - - Average common equity 93,516 93,800 93,235 91,853 ASSET QUALITY AND OTHER DATA Non-accrual loans 13,413 16,695 Renegotiated loans - - Loans 90+ days past due and still accruing 168 979 Total non- performing loans 13,581 17,674 Other real estate owned 5,258 376 Total non- performing assets 18,839 18,050 ADDITIONAL DATA 1 - 4 family mortgage loans serviced for others 233,794 246,200 Proprietary mutual fund balances - - Fair value of securities held to maturity 2,712 3,851 Full-time equivalent employees 440 422 Total number of full-service banking offices 37 34 Total number of bank and thrift subsidiaries 1 1 Total number of ATMs 42 40 LOANS RECEIVABLE 1 - 4 family residential 229,020 237,138 Home equity 40,819 42,967 Multi-family residential 35,796 37,241 Commercial real estate 405,805 381,966 Construction and land development 53,493 52,612 Commercial and other 155,949 164,527 Consumer 107,765 106,775 Credit cards 2,350 2,183 Loans receivable - gross 1,030,997 1,025,409 Unearned interest - (1) Loans receivable - net of unearned interest 1,030,997 1,025,408 Allowance for losses on loans (12,924) (13,653) Loans receivable - net (1) 1,018,073 1,011,755 (1) Does not include mortgage servicing rights. For the At or For the Three Months Ended Twelve Months Ended December 31, December 31, (In thousands, except share data) 2006 2005 2006 2005 SUPPLEMENTAL DETAIL (continued) DEPOSITS Transaction accounts Non-interest bearing 94,256 97,575 Interest-bearing 70,369 79,329 Savings accounts 48,859 64,128 Money market deposit accounts 213,341 159,060 Other core interest-bearing 377,994 427,647 Total core deposit accounts 804,819 827,739 Brokered deposits 39,549 80,510 Other non-core interest-bearing accounts 98,592 70,147 Total deposits 942,960 978,396 Yield/average earning assets (fully-taxable equivalent) 6.97% 6.49% 6.85% 6.32% Cost/average interest earnings assets 3.70% 2.89% 3.49% 2.62% Net interest income (fully- taxable equivalent) 3.27% 3.60% 3.36% 3.70% 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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