OAKF Oak Hill Financial (MM)

JACKSON, Ohio, April 12 /PRNewswire-FirstCall/ -- Oak Hill Financial, Inc. (NASDAQ:OAKF) today reported net earnings for the three months ended March 31, 2007 of $2,613,000, or $0.48 per diluted share. The first quarter 2007 earnings compare to the $3,494,000, or $0.62 per diluted share, in net earnings that the company recorded for the quarter ended March 31, 2006. The company's total assets ended the first quarter of 2007 at $1.29 billion, an increase of 3.7% over the $1.25 billion in total assets recorded at March 31, 2006. Net loans at March 31, 2007 were $1.03 billion, up 1.3% over the $1.02 billion in net loans at March 31, 2006. Reviewing the first quarter of 2007, Oak Hill Financial President and CEO R.E. Coffman, Jr. said, "The first quarter was consistent with our expectations. Although earnings are not yet where we want them to be, we believe that we're moving in the right direction. We're making progress on the net interest margin and, after no growth in 2006, we had moderate loan growth in the first quarter, led by a strong increase in commercial real estate and construction loans. In addition, we have put considerable emphasis on controlling operating expenses, and indeed expenses were significantly improved from the fourth quarter. We are also pleased with the growth in our core deposits, which were up across the board." "Asset quality and the net interest margin remain top priorities," Coffman added. "We have remained conservative in our loan pricing and underwriting, and that has impacted our loan growth somewhat. As we've said before, we will not sacrifice the margin or credit quality for the sake of growth. On the liability side, we've continued to hold our time deposit rates down while at the same time pursuing lower-cost core deposits." Looking forward, Coffman stated, "Going into 2007, for a number of reasons we expected the early part of the year to be the most challenging, and we are optimistic about our prospects for improved performance as the year progresses. We continue to focus on our non-performing and classified loans and to pursue multiple avenues for improvement in this area. We have a good pipeline for commercial and commercial real estate loans, and we are seeing the results of our upgraded sales training and management program." Key Issue Review and Outlook Net Interest Margin -- Net interest margin for the first quarter was 3.24%, which was within management's expected range. The first quarter 2007 net interest margin compares to the 3.48% recorded in the first quarter of 2006 and the 3.27% posted for the fourth quarter of 2006. While the net interest margin continues to be affected by the yield curve and aggressive competitive pricing in the company's market areas, the company has maintained a disciplined approach to both loan and deposit pricing. Also, the low point for the margin during the first quarter occurred in January, with moderate improvement in February and March. Downward pressure on the net interest margin is expected to mitigate in the coming periods, in particular because the company will have substantially less older, lower-cost time deposits repricing to higher rates than in prior quarters. Operating Expenses -- Non-interest expenses were 2.63% of average assets for the first quarter of 2007, down from 2.70% for the first quarter of 2006 and 2.90% for the fourth quarter of 2006. On a linked-quarter basis, operating expenses declined $738,000 due to decreases in compensation and benefits and various miscellaneous expenses. The company's efficiency ratio for the first quarter of 2007 was 63.8%, as compared to 60.1% in the first quarter of 2006, and an improvement from the 69.5% posted in the fourth quarter of 2006. Non-Interest Income -- Non-interest income from operations, including gain on sale of loans, was $2.8 million in the first quarter, as compared to $3.3 million in the first quarter of 2006 and $3.0 million in the fourth quarter of 2006. The linked-quarter change was the result of a seasonal decrease in service charges on deposits, loss on the sale of other real estate owned (OREO), and a decline in mortgage origination income. These were partially offset by increases in insurance and investment commissions, gain on sale of loans, gain on investment securities transactions, and lower amortization of mortgage servicing rights, which the company accounts for as an increase in other non-interest income. Asset Quality -- At the end of the first quarter, the nonperforming loans/total loans and nonperforming assets/total assets ratios were 1.36% and 1.31%, respectively, as compared to the 1.31% and 1.48%, respectively, recorded at December 31, 2006. The improvement in the nonperforming assets ratio was due primarily to the sale of $3.0 million of OREO property during the first quarter. As previously reported, the largest of the company's nonperforming loans is a commercial real estate loan with a balance of $5.0 million. The largest remaining OREO property is valued at $1.5 million. There were no other nonperforming loans or assets in excess of $750,000. The company's net charge-offs (non-annualized) were 0.04% of total loans for the quarter, as compared to 0.45% in the fourth quarter of 2006 and 0.01% in the first quarter of 2006. The company expects net charge-offs for the full year 2007 to be in line with its historical range of 0.20% to 0.25% annually. 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 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. Management's most recent analysis of the above factors indicated that an ALLL/total loans ratio of 1.25% was appropriate at March 31, 2007. Asset/Loan Growth -- Oak Hill Financial's total assets increased at a 5.2% annual rate from December 31, 2006 to March 31, 2007, while net loans grew at an annualized 3.5%. Although the company maintained a conservative approach to pricing interest-bearing deposits, total deposits nonetheless increased on a linked-quarter basis at an annualized 8.1% as the company had moderate or strong growth in all core deposit categories. 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, property and casualty insurance, 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) At or For the Three Months Ended March 31, (In thousands) 2007 2006 SUMMARY OF FINANCIAL CONDITION Total assets $1,292,047 $1,246,229 Interest-bearing deposits and federal funds sold 17,869 1,693 Investment securities 148,947 136,066 Loans receivable - net 1,030,180 1,017,074 Deposits 961,787 980,654 Federal Home Loan Bank advances and other borrowings 232,688 167,169 Stockholders' equity 92,809 94,234 SUMMARY OF OPERATIONS (U.S. GAAP) Interest income $20,913 $18,971 Interest expense 11,645 9,280 Net interest income 9,268 9,691 Provision for losses on loans 543 200 Net interest income after provision for losses on loans 8,725 9,491 Gain on sale of loans 147 209 Commission income 816 820 Other non-interest income 1,832 2,258 General, administrative and other expense 8,288 8,249 Earnings before federal income taxes 3,232 4,529 Federal income taxes 894 1,285 Federal new markets tax credit (275) (250) Net earnings $2,613 $3,494 At or For the Three Months Ended March 31, (In thousands, except share data) 2007 2006 PER SHARE INFORMATION (U.S. GAAP) Basic earnings per share (1) $0.49 $0.63 Diluted earnings per share (2) $0.48 $0.62 Dividends per share $0.21 $0.19 Book value per share $17.38 $17.00 OTHER STATISTICAL AND OPERATING DATA (U.S. GAAP) (3) Return on average assets 0.83% 1.14% Return on average equity 11.51% 15.03% Non-interest expense to average assets 2.63% 2.70% Net interest margin (fully-taxable equivalent) 3.24% 3.48% Total allowance for losses on loans to non-performing loans 92.11% 56.61% Total allowance for losses on loans to total loans 1.25% 1.33% Non-performing loans to total loans 1.36% 2.35% Non-performing assets to total assets 1.31% 2.01% Net charge-offs to average loans (actual for the period) 0.04% 0.01% Net charge-offs to average loans (annualized) 0.16% 0.06% Equity to assets at period end 7.18% 7.56% Efficiency ratio 63.79% 60.14% (1) Based on 5,324,538 and 5,567,489 weighted-average shares outstanding for the three months ended March 31, 2007 and 2006, respectively. (2) Based on 5,393,842 and 5,667,373 weighted-average shares outstanding for the three months ended March 31, 2007 and 2006, respectively. (3) Annualized where appropriate. At March 31, (In thousands, except share data) 2007 2006 SUPPLEMENTAL DETAIL BALANCE SHEET - ASSETS Cash and cash equivalents 38,958 25,804 Trading account securities 10,141 - Securities available for sale 137,287 132,453 Securities held to maturity 1,519 3,613 Other securities 8,078 7,734 Total securities 157,025 143,800 Total cash and securities 195,983 169,604 Loans and leases held for investment (1) 1,039,881 1,027,188 Loans and leases held for sale (1) 68 100 Total loans and leases (1) 1,039,949 1,027,288 Allowance for losses on loans 13,063 13,706 Goodwill 7,935 7,935 Other intangible assets 2,895 3,784 Total intangible assets 10,830 11,719 Mortgage servicing rights 3,294 3,492 Purchased credit card relationships - - Other real estate owned 2,699 865 Bank owned life insurance 13,571 13,098 Other assets 38,784 33,869 Total assets 1,292,047 1,246,229 BALANCE SHEET - LIABILITIES Deposits 961,787 980,654 Borrowings 209,688 144,169 Other liabilities 4,755 4,164 Total liabilities 1,176,230 1,128,987 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 1,199,238 1,151,995 BALANCE SHEET - EQUITY Preferred equity - - Common equity 92,809 94,234 MEMO ITEM: Net unrealized loss on securities available for sale, net of tax (110) (548) End of period shares outstanding (2) 5,338,793 5,544,751 Options outstanding 390,933 464,533 Treasury shares held by the Company 535,841 329,883 (1) Data is net of unearned interest, gross of allowance for losses on loans. (2) Excludes treasury shares At or For the Three Months Ended March 31, (In thousands, except share data) 2007 2006 SUPPLEMENTAL DETAIL (continued) Repurchase plan announced? No Yes Number of shares to be repurchased in plan(1) N/A 278,000 Number of shares repurchased during the period(1) N/A 74,455 Average price of repurchased shares(1) N/A $32.02 INCOME STATEMENT Interest income 20,913 18,971 Interest expense 11,645 9,280 Net interest income 9,268 9,691 Net interest income (fully-taxable equivalent) 9,626 10,074 Provision for losses on loans 543 200 Non-recurring expense: Merger-related expenses - - Trading account income - - Foreign exchange income - - Trust income - - Commissions income 816 820 Service charges on deposits 1,230 1,207 Gain on sale of loans 147 209 Gain on investment securities transactions 138 139 Other non-interest income 464 912 Total non-interest income 2,795 3,287 Employee compensation and benefits 4,497 4,300 Occupancy and equipment expense 1,164 993 Foreclosed property expense - - Amortization of intangibles 216 283 Other general, administrative and other expense 2,411 2,673 Total non-interest expenses 8,288 8,249 Net income before taxes 3,232 4,529 Federal income taxes 894 1,285 Federal new markets tax credit (275) (250) Net income before extraordinary items 2,613 3,494 Extraordinary items - - Net income 2,613 3,494 CHARGE-OFFS Loan charge-offs 641 739 Recoveries on loans 236 593 Net loan charge-offs 405 146 (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 22,400 shares repurchased at an average price of $31.01 under the new plan. At or For the Three Months Ended March 31, (In thousands, except share data) 2007 2006 SUPPLEMENTAL DETAIL (continued) AVERAGE BALANCE SHEET Average loans and leases 1,038,231 1,029,689 Average other earning assets 165,717 145,463 Average total earning assets 1,203,948 1,175,152 Average total assets 1,276,845 1,239,280 Average non-interest bearing deposits 91,281 92,543 Average total time deposits 518,041 572,731 Average other interest-bearing deposits 335,003 310,478 Average total interest-bearing deposits 853,044 883,209 Average borrowings 235,717 164,945 Average interest-bearing liabilities 1,088,761 1,048,154 Average preferred equity - - Average common equity 92,052 94,280 ASSET QUALITY AND OTHER DATA Non-accrual loans 13,226 23,594 Renegotiated loans - - Loans 90+ days past due and still accruing 955 617 Total non-performing loans 14,181 24,211 Other real estate owned 2,699 865 Total non-performing assets 16,880 25,076 ADDITIONAL DATA 1 - 4 family mortgage loans serviced for others 231,460 245,772 Proprietary mutual fund balances - - Fair value of securities held to maturity 1,698 3,799 Full-time equivalent employees 427 430 Total number of full-service banking offices 36 35 Total number of bank and thrift subsidiaries 1 1 Total number of ATMs 42 40 LOANS RECEIVABLE 1 - 4 family residential 225,424 238,247 Home equity 41,007 43,437 Multi-family residential 35,614 38,464 Commercial real estate 419,291 389,034 Construction and land development 58,385 53,962 Commercial and other 157,187 152,401 Consumer 100,847 109,768 Credit cards 2,194 1,975 Loans receivable - gross 1,039,949 1,027,288 Unearned interest - - Loans receivable - net of unearned interest 1,039,949 1,027,288 Allowance for losses on loans (13,063) (13,706) Loans receivable - net (1) 1,026,886 1,013,582 (1) Does not include mortgage servicing rights. At or For the Three Months Ended March 31, (In thousands, except share data) 2007 2006 SUPPLEMENTAL DETAIL (continued) DEPOSITS Transaction accounts Non-interest bearing 98,534 91,788 Interest-bearing 70,759 75,952 Savings accounts 49,824 60,439 Money market deposit accounts 219,237 190,064 Other core interest-bearing 382,668 431,226 Total core deposit accounts 821,022 849,469 Brokered deposits 42,469 63,189 Non-core interest-bearing accounts 98,296 67,996 Total deposits 961,787 980,654 Yield/average earning assets (fully- taxable equivalent) 7.16% 6.68% Cost/average earning assets 3.92% 3.20% Net interest income (fully- taxable equivalent) 3.24% 3.48% NEW MARKETS TAX CREDIT Qualified equity investment in Oak Hill Banks Community Development Corp. 20,000 20,000 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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