OAKF Oak Hill Financial (MM)

JACKSON, Ohio, Oct. 13 /PRNewswire-FirstCall/ -- Oak Hill Financial, Inc. (NASDAQ:OAKF) today reported net earnings from operations for the three months ended September 30, 2005 of $3,787,000, or $0.65 per diluted share, which exceeded analysts' consensus estimate of $0.573 per share (source: Thomson Financial as reported by nasdaq.com). The third quarter 2005 earnings represent a 14.5% increase over the $3,307,000, or $0.58 per diluted share, in net earnings from operations that the company recorded for the quarter ended September 30, 2004. For the nine months ended September 30, 2005, Oak Hill Financial recorded net earnings from operations of $7,485,000, or $1.29 per diluted share, as compared to the $9,702,000, or $1.70 per diluted share, in net earnings from operations for the first nine months of 2004. The operating earnings for the third quarter and first nine months of 2005 have been adjusted for 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 operating earnings do not include $24,000 and $205,000 of gains on the sale of former branch facilities, and $49,000 and $502,000 of merger-related charges, for the three and nine months ended September 30, 2005, respectively. The facilities sale and merger-related charges resulted from the company's acquisition of Lawrence Financial Holdings, Inc. on April 1, 2005. Including the non-recurring items, the company's U.S. GAAP (accounting principles generally accepted in the United States) net income was $3,939,000, or $0.68 per diluted share, for the third quarter of 2005 and $7,800,000, or $1.34 per diluted share, for the nine months ended September 30, 2005, which compares to U.S. GAAP net income of $3,214,000, or $0.57 per diluted share, for the third quarter of 2004, and $9,609,000, or $1.69 per diluted share, for the first nine months of 2004. The company's total assets ended the third quarter of 2005 at $1.23 billion, an increase of 20.8% over the $1.02 billion in total assets recorded at September 30, 2004. Net loans at September 30, 2005 were $995.6 million, up 13.8% over the $875.1 million in net loans at September 30, 2004. The year- over-year comparisons are enhanced by Oak Hill Financial's acquisitions of Ripley National Bank and Lawrence Financial Holdings. The fourth quarter 2004 acquisition of Ripley National added $58.6 million in assets and $39.1 million in loans to Oak Hill Financial's totals, while the Lawrence Financial transaction brought $116.9 million in assets and $76.5 million in loans to the company. Discussing the results of the third quarter, Oak Hill Financial President and CEO R. E. Coffman, Jr., said, "Overall, we are pleased with our performance. The company posted a healthy increase in earnings, which was driven primarily by improvement in the net interest margin, growth in non- interest income, and lower loan loss provision." "We are also making progress in improving our nonperforming loans and assets ratios," Coffman added, "and we had a favorable quarter in terms of loan recoveries. Our special assets and credit administration people are working diligently on the nonperforming loans, and we are firmly committed to further improvement in this area." "Conversely, our loan totals were static in the third quarter as loan demand in our market areas remained below average and we continued to experience payoffs on commercial loans. Also, some of the pricing we've seen for commercial and commercial real estate loans is below what we consider prudent in the current rate environment. As a result, rather than meet the competition's pricing, we have chosen not to pursue certain lending opportunities and have allowed a few larger existing credits to pay off. We are much more focused on the net interest margin and credit quality, not on growth solely for the sake of growth." Looking forward, Coffman said, "We continue to follow an aggressive plan to grow revenues while keeping a close eye on operating expenses. We have added to our commercial lending, mortgage origination, investment services, and insurance teams, and we are concentrating on growth in these areas. Also, we had considerable success in the third quarter growing our core transaction accounts and are in the process of rolling out new marketing programs to further build our retail customer base." Key Issue Review and Outlook Net Interest Margin - Net interest margin for the third quarter was 3.72%, as compared to the 4.08% posted in the third quarter of 2004 and the 3.61% recorded for the second quarter of 2005. Management attributes the linked- quarter improvement in the margin to the company's continued discipline in loan and deposit pricing and recent increases in the prime rate. However, the flat yield curve is constraining asset yields somewhat, and the company continues to experience pressure on both loan rates and liability costs. Management believes that the margin can be maintained in the range attained in the second and third quarters. Operating Expenses - Non-interest expenses from operations were 2.72% of average assets for the third quarter of 2005, which compares to 2.64% for the third quarter of 2004 and 2.67% for the second quarter of 2005. The linked- quarter change is due primarily to increased compensation expense, including incentive and commission compensation, resulting from the addition of commercial lending, mortgage origination, and investment services personnel. Also, the non-interest expense ratio continues to be affected by the integration of Lawrence Financial, which had a higher level of operating expenses. However, the impact of Lawrence Federal on expenses is mitigating and the cost savings to date from the transaction are as expected and should be fully realized by mid-2006. The company's efficiency ratio from operations for the third quarter of 2005 was 58.9%, as compared to 52.5% in the prior year's quarter and 59.0% in the second quarter of 2005. Non-Interest Income - Non-interest income from operations, including gain on sale of loans, was $3.0 million in the third quarter, an increase of 23.8% over the third quarter of 2004 and 5.9% over the second quarter of 2005. The linked-quarter increase was the result of increases in deposit service charges, insurance commissions, gain on sale of loans, ATM fees, investment services income, and income from bank-owned life insurance. Offsetting the linked-quarter increase was a decline in the gain on the sale of investments and increased amortization of mortgage servicing rights, which the company accounts for as a reduction in other non-interest income. Asset Quality - At the end of the third quarter, the nonperforming loans/total loans and nonperforming assets/total assets ratios were 1.67% and 1.41%, respectively, an improvement from the 1.76% and 1.53%, respectively, recorded at June 30, 2005. The improvements were due to decreases of $1.5 million and $246,000 in nonaccrual loans and other real estate owned, respectively, which was partially offset by a $600,000 increase in loans 90 days past due. The largest of the company's nonperforming loans is a group of commercial real estate loans from a single relationship totaling $5.4 million. A $2.0 million charge-off on this relationship was reported by the company previously, and management believes that further losses on this relationship will be minimal. The second largest of the nonperforming loans, also reported previously, is a $3.4 million commercial real estate loan on which little or no loss is anticipated. The company's net charge-offs (non-annualized) were 0.02% of total loans for the quarter, as compared to 0.07% in the third quarter of 2004. The low net charge-offs were driven by strong recoveries during the quarter. Going forward, the company does not anticipate such a high level of recoveries and expects net charge-offs to be more in line with its historical range. Consistent with generally accepted accounting principles and regulatory guidelines, the company uses various formulas to determine its allowance for loan and lease losses (ALLL). 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. The ALLL/total loans ratio began the third quarter at 1.32%. Management's ongoing analysis of the above factors indicated that the 1.32% ALLL/total loans ratio was still appropriate at September 30. Asset/Loan Growth - Oak Hill Financial's total assets increased at a 5.9% annual rate from June 30 to September 30, while net loans declined at an annualized 0.9%. The lack of linked-quarter growth was the result of below- average loan demand in the company's market areas, payoffs of several large loans during the quarter, and the company's continued focus on improving credit quality and disciplined loan pricing. Stock Buyback - In May, Oak Hill Financial announced a program under which it may repurchase up to 290,000 shares, or approximately 5.0%, of its outstanding common stock. The new program replaced the company's previous repurchase plan, which was announced in February 2004. During the third quarter of 2005, Oak Hill Financial repurchased 79,644 common shares under its new buyback program. A total of 216,295 common shares have been repurchased by the company under its buyback plans during the first nine months of 2005. Expansion - During the third quarter, the company's Oak Hill Banks affiliate broke ground on a new branch in Mt. Orab, Ohio, a growing community east of Cincinnati. In the fourth quarter, the bank expects to open Business Financial Centers in the Ohio communities of Athens and Lancaster to serve the lending, depository, and financial services needs of small- and mid-size businesses in those communities. Oak Hill Financial is a financial holding company headquartered in Jackson, Ohio. Its subsidiary, Oak Hill Banks, operates 34 full-service banking offices and three bank loan production offices in 15 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. 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 13, 2005 Press Release At September 30, (In thousands) 2005 2004 SUMMARY OF FINANCIAL CONDITION Total assets $1,229,228 $1,017,917 Interest-bearing deposits and federal funds sold 4,802 1,317 Investment securities 131,066 82,256 Loans receivable - net 995,632 875,135 Deposits 980,246 790,656 Federal Home Loan Bank advances and other borrowings 149,921 138,797 Stockholders' equity 93,860 84,889 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) 2005 2004 2005 2004 RECONCILIATION OF NON-GAAP NET EARNINGS, DILUTED EARNINGS PER SHARE AND OTHER PERFORMANCE RATIOS Net earnings (U.S. GAAP) $3,939 $3,214 $7,800 $9,609 Non-recurring items, net of tax: Gain on sale of branch locations and other fixed assets (16) - (133) - Merger-related expenses 33 93 327 93 Reduction in tax expense (169) - (509) - Net earnings from operations $3,787 $3,307 $7,485 $9,702 Diluted earnings per share (U.S. GAAP) $0.68 $0.57 $1.34 $1.69 Non-recurring items, net of tax: Gain on sale of branch locations and other fixed assets - - (0.02) - Merger-related expenses - 0.01 0.06 0.01 Reduction in tax expense (0.03) - (0.09) - Diluted earnings per share from operations $0.65 $0.58 $1.29 $1.70 Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) October 13, 2005 Press Release For the For the Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2005 2004 2005 2004 RECONCILIATION OF NON-GAAP NET EARNINGS, DILUTED EARNINGS PER SHARE AND OTHER PERFORMANCE RATIOS (continued) Non-interest income (U.S. GAAP) $3,013 $2,414 $8,556 $7,530 Non-recurring items Gain on sale of branch locations and other fixed assets (24) - (205) - Non-interest income from operations $2,989 $2,414 $8,351 $7,530 Non-interest expense (U.S. GAAP) $8,144 $6,745 $22,938 $19,669 Non-recurring items Merger-related expenses (49) (143) (502) (143) Reduction in tax expense 261 - 783 - Non-interest expense from operations $8,356 $6,602 $23,219 $19,526 SUMMARY OF OPERATIONS (1)(2)(3) Interest income $18,179 $14,933 $51,046 $43,495 Interest expense 7,760 5,230 20,955 15,106 Net interest income 10,419 9,703 30,091 28,389 Provision for losses on loans 212 1,002 5,671 2,285 Net interest income after provision for losses on loans 10,207 8,701 24,420 26,104 Gain on sale of loans 327 454 869 1,354 Insurance commissions 710 712 2,071 2,224 Other non- interest income 1,952 1,248 5,411 3,952 General, administrative and other expense 8,356 6,602 23,219 19,526 Earnings before federal income tax 4,840 4,513 9,552 14,108 Federal income taxes 1,428 1,456 2,692 4,656 Federal new markets tax credit (375) (250) (625) (250) Net earnings from operations $3,787 $3,307 $7,485 $9,702 SELECTED PERFORMANCE RATIOS FROM OPERATIONS (1)(2)(3)(5)(6) Diluted earnings per share $0.65 $0.58 $1.29 $1.70 Return on average assets 1.23% 1.32% 0.86% 1.33% Return on average equity 16.03% 15.80% 10.96% 15.85% Non-interest expense to average assets 2.72% 2.64% 2.65% 2.68% Efficiency ratio 58.86% 52.47% 57.67% 53.69% Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) October 13, 2005 Press Release For the For the Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except share data) 2005 2004 2005 2004 PER SHARE INFORMATION (U.S. GAAP) Basic earnings per share (4) $0.69 $0.58 $1.37 $1.73 Diluted earnings per share (5) $0.68 $0.57 $1.34 $1.69 Dividends per share $0.17 $0.15 $0.51 $0.45 Book value per share $16.62 $15.31 OTHER STATISTICAL AND OPERATING DATA (U.S. GAAP) (6) Return on average assets 1.28% 1.29% 0.89% 1.32% Return on average equity 16.67% 15.35% 11.43% 15.69% Non-interest expense to average assets 2.66% 2.70% 2.62% 2.70% Net interest margin (fully-taxable equivalent) 3.72% 4.08% 3.73% 4.09% Total allowance for losses on loans to non-performing loans 79.32% 141.47% Total allowance for losses on loans to total loans 1.32% 1.31% Non-performing loans total loans 1.67% 0.93% Non-performing assets to total assets 1.41% 0.87% Net charge-offs to average loans (actual for the period) 0.02% 0.07% 0.48% 0.17% Net charge-offs to average loans (annualized) 0.10% 0.29% 0.64% 0.23% Equity to assets at period end 7.64% 8.34% Efficiency ratio 57.31% 53.60% 56.96% 54.09% (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 and $143,000 of merger-related charges for the three and nine months ended September 30, 2004. (3) Does not include $24,000 and $205,000 of gains on the sale of branch locations and other fixed assets for the three and nine months ended September 30, 2005. (4) Based on 5,688,601, 5,543,405, 5,684,826 and 5,550,921 weighted- average shares outstanding for the three and nine months ended September 30, 2005 and 2004, respectively. (5) Based on 5,797,053, 5,679,855, 5,812,934 and 5,694,877 weighted- average shares outstanding for the three and nine months ended September 30, 2005 and 2004, respectively. (6) Annualized where appropriate. Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) October 13, 2005 Press Release At September 30, (In thousands, except share data) 2005 2004 SUPPLEMENTAL DETAIL BALANCE SHEET - ASSETS Cash and cash equivalents 26,889 21,725 Trading account securities - - Securities available for sale 127,442 78,611 Securities held to maturity 3,624 3,645 Other securities 7,517 6,183 Total securities 138,583 88,439 Total cash and securities 165,472 110,164 Loans and leases held for investment (1) 1,005,795 883,346 Loans and leases held for sale (1) 75 268 Total loans and leases (1) 1,005,870 883,614 Allowance for losses on loans 13,347 11,633 Goodwill 7,441 413 Other intangible assets 4,351 - Total intangible assets 11,792 413 Mortgage servicing rights 3,109 3,154 Purchased credit card relationships - - Other real estate owned 498 666 Bank owned life insurance 12,836 10,000 Other assets 42,998 21,539 Total assets 1,229,228 1,017,917 BALANCE SHEET - LIABILITIES Deposits 980,246 790,656 Federal Home Loan Bank advances and other borrowings 126,921 128,797 Other liabilities 5,193 3,567 Total liabilities 1,112,360 923,020 Redeemable preferred stock - - Trust preferred securities 23,000 10,000 Minority interests 8 8 Other mezzanine level items - - Total mezzanine level items 23,008 10,008 Total liabilities and mezzanine level items 1,135,368 933,028 BALANCE SHEET - EQUITY Preferred equity - - Common equity 93,860 84,889 MEMO ITEM: Net unrealized gain (loss) on securities available for sale, net of tax (2) (217) 901 End of period shares outstanding (2) 5,647,760 5,544,514 Options outstanding 498,783 464,733 Treasury shares held by the Company 226,874 109,069 (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 13, 2005 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) 2005 2004 2005 2004 SUPPLEMENTAL DETAIL (continued) Repurchase plan announced? No No Yes Yes Number of shares to be repurchased in plan(1) N/A N/A 290,000 300,000 Number of shares repurchased during the period(1) 79,644 - 216,295 134,936 Average price of shares repurchased(1) $29.96 $- $28.61 $32.38 INCOME STATEMENT Interest income 18,179 14,933 51,046 43,495 Interest expense 7,760 5,230 20,955 15,106 Net interest income 10,419 9,703 30,091 28,389 Net interest income (fully-taxable equivalent) 10,767 9,900 30,985 28,839 Provision for losses on loans 212 1,002 5,671 2,285 Non-recurring expense: Merger-related expenses 49 143 502 143 Non-recurring income: Gain on sale of branch locaitons and other fixed assets 24 - 205 - Trading account income - - - - Foreign exchange income - - - - Trust income - - - - Insurance commissions 710 712 2,071 2,224 Service charges on deposits 1,226 927 3,186 2,637 Gain on sale of loans 327 454 869 1,354 Gain on investment securities transactions 138 74 508 276 Other non-interest income 588 247 1,717 1,039 Total non-interest income 2,989 2,414 8,351 7,530 Employee compensation and benefits 4,437 3,665 12,012 10,743 Occupancy and equipment expense 1,037 826 3,090 2,446 Foreclosed property expense - - - - Amortization of intangibles 299 - 670 - Other general, administrative and other expense 2,322 2,111 6,664 6,337 Total non-interest expenses 8,095 6,602 22,436 19,526 Net income before taxes 5,076 4,370 10,038 13,965 Federal income taxes 1,512 1,406 2,863 4,606 Federal new markets tax credit (375) (250) (625) (250) Net income before extraordinary items 3,939 3,214 7,800 9,609 Extraordinary items - - - - Net income 3,939 3,214 7,800 9,609 CHARGE-OFFS Loan charge-offs 1,665 783 6,908 1,957 Recoveries on loans 1,413 138 2,214 468 Net loan charge-offs 252 645 4,694 1,489 AVERAGE BALANCE SHEET Average loans and leases 1,012,772 872,202 984,481 851,543 Average other earning assets 136,153 92,507 125,175 91,275 (1) The existing plan, approved on February 26, 2004, was rescinded and a new plan was announced on May 26, 2005. Under the existing plan, 32,000 shares were repurchased at an average price of $27.70 during the nine months ended September 30, 2005. Under the new plan, 79,644 and 184,295 shares were repurchased at an average price of $29.96 and $28.76 during the three and nine months ended September 30, 2005, respectively. Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) October 13, 2005 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) 2005 2004 2005 2004 SUPPLEMENTAL DETAIL (continued) AVERAGE BALANCE SHEET (continued) Average total earning assets 1,148,925 964,709 1,109,656 942,818 Average total assets 1,216,862 994,237 1,169,568 971,656 Average non-interest bearing deposits 92,647 70,780 88,362 69,406 Average total time deposits 592,743 508,413 583,770 496,657 Average other interest- bearing deposits 282,853 206,731 256,424 201,374 Average total interest- bearing deposits 875,596 715,144 840,194 698,031 Average borrowings 148,873 124,430 143,916 120,701 Average interest-bearing liabilities 1,024,469 839,574 984,110 818,732 Average preferred equity - - - - Average common equity 93,745 83,275 91,275 81,783 ASSET QUALITY AND OTHER DATA Non-accrual loans 16,021 5,104 Renegotiated loans - - Loans 90+ days past due and still accruing 806 3,119 Total non-performing loans 16,827 8,223 Other real estate owned 498 666 Total non-performing assets 17,325 8,889 ADDITIONAL DATA 1 - 4 family mortgage loans serviced for others 247,505 252,859 Proprietary mutual fund balances - - Fair value of securities held to maturity 3,881 3,919 Full-time equivalent employees 439 359 Total number of full- service banking offices 34 27 Total number of bank and thrift subsidiaries 1 1 Total number of ATMs 40 31 LOANS RECEIVABLE 1 - 4 family residential 236,898 179,504 Home equity 43,038 41,002 Multi-family residential 32,751 24,007 Commercial real estate 373,992 327,759 Construction and land development 57,298 59,222 Commercial and other 157,497 173,900 Consumer 102,348 77,870 Credit cards 2,049 1,687 Loans receivable - gross 1,005,871 884,951 Unearned interest (1) (1,337) Loans receivable - net of unearned interest 1,005,870 883,614 Allowance for losses on loans (13,347) (11,633) Loans receivable - net (1) 992,523 871,981 (1) Does not include mortgage servicing rights. Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) October 13, 2005 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) 2005 2004 2005 2004 SUPPLEMENTAL DETAIL (continued) DEPOSITS Transaction accounts Non-interest bearing 100,872 68,974 Interest-bearing 79,425 74,503 Savings accounts 69,946 49,668 Money market deposit accounts 138,084 81,602 Other core interest-bearing 420,786 343,150 Total core deposit accounts 809,113 617,897 Non-core interest-bearing accounts 171,133 172,759 Total deposits 980,246 790,656 Yield/average earning assets (fully-taxable equivalent) 6.40% 6.24% 6.26% 6.23% Cost/average interest earnings assets 2.68% 2.16% 2.53% 2.14% Net interest income (fully-taxable equivalent) 3.72% 4.08% 3.73% 4.09% DATASOURCE: Oak Hill Financial, Inc. CONTACT: David G. Ratz, Executive Vice President of Oak Hill Financial, Inc., +1-740-286-3283

Copyright