OAKF Oak Hill Financial (MM)

JACKSON, Ohio, Jan. 12 /PRNewswire-FirstCall/ -- Oak Hill Financial, Inc. (NASDAQ:OAKF) today reported net earnings from operations for the three months ended December 31, 2005 of $3,438,000, or $0.60 per diluted share. The fourth quarter 2005 earnings represent a 1.3% increase over the $3,394,000, or $0.59 per diluted share, in net earnings from operations that the company recorded for the quarter ended December 31, 2004. For the twelve months ended December 31, 2005, Oak Hill Financial recorded net earnings from operations of $10,923,000, or $1.89 per diluted share, as compared to the $13,096,000, or $2.30 per diluted share, in net earnings from operations for the full year 2004. The operating earnings for the fourth quarter and full year 2005 have been adjusted for various non-recurring charges and expense reductions. Including the non-recurring items, the company's U.S. GAAP (accounting principles generally accepted in the United States) net income was $3,579,000, or $0.63 per diluted share, for the fourth quarter of 2005 and $11,379,000, or $1.97 per diluted share, for the twelve months ended December 31, 2005, which compares to U.S. GAAP net income of $1,053,000, or $0.18 per diluted share, for the fourth quarter of 2004, and $10,662,000, or $1.87 per diluted share, for the full year 2004. The company's total assets ended the fourth quarter of 2005 at $1.24 billion, an increase of 14.6% over the $1.08 billion in total assets recorded at December 31, 2004. Net loans at December 31, 2005 were $1.02 billion, up 11.2% over the $912.5 million in net loans at December 31, 2004. The year- over-year comparisons are enhanced by Oak Hill Financial's acquisition of Lawrence Financial Holdings, Inc. on April 1, 2005. The Lawrence Financial transaction added $116.9 million in assets and $76.5 million in loans to Oak Hill Financial's totals. Reviewing his company's performance, Oak Hill Financial President and CEO R.E. Coffman, Jr. said, "On balance, we are pleased with the quarter. Loans were up almost 8% annualized, and we had strong growth in several of our core deposit categories. Although our nonperforming loans are still not where we want them to be, net charge-offs remained low, and we kept operating expenses in check." Coffman continued, "I am very pleased with how our people have responded to the challenges of 2005. In the past few months, we have taken many positive steps to position Oak Hill Financial for a successful future. In 2006, we will continue to focus on credit quality, and we are confident that our credit administration and special assets teams will reduce our nonperforming loans. Also, we expect loan growth to be stronger in 2006, we will remain rational in our pricing and prudent in our underwriting, and we will not sacrifice the net interest margin and credit quality for the sake of growth." "We have strengthened our financial services, commercial lending, mortgage origination, and insurance areas, and we expect to see the results of these efforts in 2006. We have also been very successful in increasing the number of core deposit accounts and household relationships during the third and fourth quarters, and we will continue to target these areas. To support our development efforts, we are taking our sales training and monitoring programs to a higher level. We think we have a good sales culture now; we intend to turn it into a great sales culture in 2006." Key Issue Review and Outlook Net Interest Margin - Net interest margin for the fourth quarter was 3.60%, as compared to the 3.96% posted in the fourth quarter of 2004 and the 3.72% recorded for the third quarter of 2005. The fourth quarter margin was impacted by the sustained flat yield curve, which held down asset yields, and rising liability costs as financial institutions in the company's market areas aggressively increased deposit rates. However, while the margin declined on a linked-quarter basis, it hit the low point in October and improved as the quarter progressed. Going forward, the company will continue to take a disciplined approach to both loan and deposit pricing to preserve the margin. Although continued pressure is likely, management believes that the margin can be maintained at or near its current level. Operating Expenses - Non-interest expenses from operations were 2.67% of average assets for the fourth quarter of 2005, which compares to 2.70% for the fourth quarter of 2004 and 2.72% for the third quarter of 2005. On a linked- quarter basis, compensation and benefits, occupancy, and certain data processing expenses decreased. These reductions were offset by increases in professional fees and various miscellaneous expenses. The company's efficiency ratio from operations for the fourth quarter of 2005 was 58.7%, as compared to 55.3% in the prior year's quarter and 58.9% in the third quarter of 2005. For the year 2005, the non-interest expense to average assets and efficiency ratios from operations were 2.66% and 57.9%, respectively, versus 2.69% and 54.2% for the year 2004. With a continued focus on controlling operating expenses and further realization of the cost savings from the Lawrence Financial Holdings transaction, management expects that the non- interest expense to average assets and efficiency ratios can be improved in 2006. Non-Interest Income - Non-interest income from operations, including gain on sale of loans, was $3.1 million in the fourth quarter, an increase of 13.1% over the fourth quarter of 2004 and 3.1% over the third quarter of 2005. The linked-quarter increase was the result of increases in deposit service charges and recovery of impairment of mortgage servicing rights, which the company includes in non-interest income. Offsetting the linked-quarter increase were declines in the gain on the sale of loans and investment services income and a loss on the sale of investments. For the full year 2005, non-interest income increased 11.5%, with the increase due in part to the Lawrence Financial Holdings acquisition. For 2006, the company anticipates that non-interest income overall will continue to increase, with mortgage and SBA originations, brokerage and financial planning services, insurance commissions, title services, and service charges expected to be the largest contributors to growth. Asset Quality - At the end of the fourth quarter, the nonperforming loans/total loans and nonperforming assets/total assets ratios were 1.72% and 1.45%, respectively, as compared to the 1.67% and 1.41%, respectively, recorded at September 30, 2005. The increase is due to the movement to nonperforming status during the fourth quarter of a $1.0 million commercial real estate loan. As previously reported, the largest of the company's nonperforming loans remains a group of commercial real estate loans from a single relationship with a net carrying value of $5.4 million. 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 minimal losses are anticipated. The company's net charge-offs (non-annualized) were 0.03% of total loans for the quarter, as compared to 0.02% in the third quarter of 2005 and 0.08% in the fourth quarter of 2004. Going forward, the company expects net charge- offs 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 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. The ALL/total loans ratio began the fourth quarter at 1.32%. Management's ongoing analysis of the above factors indicated that an ALL/total loans ratio of 1.33% was appropriate at December 31. Asset/Loan Growth - Oak Hill Financial's total assets increased at a 3.8% annual rate from September 30 to December 31, while net loans grew at an annualized 7.8%. Total deposits declined slightly as the company allowed maturing brokered deposits to run-off and replaced them with borrowings. For 2006, management anticipates moderate loan growth in the range of the fourth quarter's growth rate. Stock Buyback - In May 2005, 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 fourth quarter of 2005, Oak Hill Financial repurchased 55,400 common shares under its new buyback program. A total of 269,945 common shares were repurchased by the company under its buyback plans during the full year 2005. Expansion - On January 5, the company's Oak Hill Banks affiliate opened a Business Financial Center in the Ohio community of Lancaster to serve the lending, depository, and financial services needs of small and mid-size businesses in that market. A second Business Financial Center will open in the first quarter in Athens, Ohio, where the company already has a full-service banking office. Also, a new bank branch in Mt. Orab, Ohio, a growing community east of Cincinnati, is currently under construction and is expected to open in the second quarter. Later in 2006 and into 2007, the company expects to pursue additional expansion opportunities in suburban Columbus and the Cincinnati- Dayton region. Estimates - Management estimates that earnings per share from operations for 2006 will be in the range of $2.45 to $2.55. Oak Hill Financial is a financial holding company headquartered in Jackson, Ohio. Its subsidiary, Oak Hill Banks, operates 35 full-service banking offices and three bank loan production offices 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. 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) January 12, 2006 Press Release At December 31, (In thousands) 2005 2004 SUMMARY OF FINANCIAL CONDITION Total assets $1,241,058 $1,083,040 Interest-bearing deposits and federal funds sold 2,983 2,705 Investment securities 134,812 92,023 Loans receivable - net 1,015,083 912,538 Deposits 978,396 862,096 Federal Home Loan Bank advances and other borrowings 164,382 131,660 Stockholders' equity 94,081 85,043 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 Three For the Twelve Months Ended Months Ended December 31, December 31, (In thousands, except share data) 2005 2004 2005 2004 RECONCILIATION OF NON-GAAP NET EARNINGS, DILUTED EARNINGS PER SHARE AND OTHER PERFORMANCE RATIOS Net earnings (U.S. GAAP) $3,579 $1,053 $11,379 $10,662 Non-recurring items, net of tax: Loss on sale of consumer finance loan portfolio - 2,115 - 2,115 Expenses related to the discontinuation of operations at consumer finance subsidiary - 215 - 215 Gain on sale of branch locations and other assets - - (133) - Merger-related expenses 28 11 355 104 Reduction in tax expense (169) - (678) - Net earnings from operations $3,438 $3,394 $10,923 $13,096 Diluted earnings per share (U.S. GAAP) $0.63 $0.18 $1.97 $1.87 Non-recurring items, net of tax: Loss on sale of consumer finance loan portfolio - 0.37 - 0.37 Expenses related to the discontinuation of operations at consumer finance subsidiary - 0.04 - 0.04 Gain on sale of branch locations and other assets - - (0.02) - Merger-related expenses - - 0.06 0.02 Reduction in tax expense (0.03) - (0.12) - Diluted earnings per share from operations $0.60 $0.59 $1.89 $2.30 Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) January 12, 2006 Press Release For the Three For the Twelve Months Ended Months Ended December 31, December 31, (In thousands, except share data) 2005 2004 2005 2004 RECONCILIATION OF NON-GAAP NET EARNINGS, DILUTED EARNINGS PER SHARE AND OTHER PERFORMANCE MEASURES (continued) Non-interest income (expense) (U.S. GAAP) $3,082 ($529) $11,638 $7,001 Non-recurring items: Loss on sale of consumer finance loan portfolio - 3,254 - 3,254 Gain on sale of branch locations and other assets - - (205) - Non-interest income from operations $3,082 $2,725 $11,433 $10,255 Non-interest expense (U.S. GAAP) $8,107 $7,606 $31,045 $27,275 Non-recurring items: Expenses related to the discontinuation of operations at consumer finance subsidiary - (331) - (331) Merger-related expenses (44) (17) (546) (160) Reduction in tax expense 261 - 1,044 - Non-interest expense from operations $8,324 $7,258 $31,543 $26,784 SUMMARY OF OPERATIONS (1)(2)(3) Interest income $18,674 $15,756 $69,720 $59,251 Interest expense 8,481 5,732 29,436 20,838 Net interest income 10,193 10,024 40,284 38,413 Provision for losses on loans 670 851 6,341 3,136 Net interest income after provision for losses on loans 9,523 9,173 33,943 35,277 Gain on sale of loans 216 528 1,085 1,882 Insurance commissions 710 826 2,781 3,050 Other non-interest income 2,156 1,371 7,567 5,323 General, administrative and other expense 8,324 7,258 31,543 26,784 Earnings before federal income tax 4,281 4,640 13,833 18,748 Federal income taxes 1,218 1,496 3,910 6,152 Federal tax credits (375) (250) (1,000) (500) Net earnings from operations $3,438 $3,394 $10,923 $13,096 SELECTED PERFORMANCE RATIOS FROM OPERATIONS (1)(2)(3)(5)(6) Diluted earnings per share $0.60 $0.59 $1.89 $2.30 Return on average assets 1.10% 1.26% 0.92% 1.31% Return on average equity 14.54% 15.78% 11.89% 15.83% Non-interest expense to average assets 2.67% 2.70% 2.66% 2.69% Efficiency ratio 58.65% 55.30% 57.93% 54.12% Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) January 12, 2006 Press Release At or For the At or For the three months ended twelve months ended December 31, December 31, (In thousands, except 2005 2004 2005 2004 share data) PER SHARE INFORMATION (U.S. GAAP) Basic earnings per share (4) $0.64 $0.19 $2.01 $1.92 Diluted earnings per share (5) $0.63 $0.18 $1.97 $1.87 Dividends per share $0.19 $0.17 $0.70 $0.62 Book value per share $16.79 $15.29 OTHER STATISTICAL AND OPERATING DATA (U.S. GAAP) (6) Return on average assets 1.15% 0.39% 0.96% 1.07% Return on average equity 15.14% 4.89% 12.39% 12.89% Non-interest expense to average assets 2.60% 2.83% 2.62% 2.74% Net interest margin (fully-taxable equivalent) 3.60% 3.96% 3.70% 4.05% Total allowance for losses on loans to non-performing loans 77.25% 186.83% Total allowance for losses on loans to total loans 1.33% 1.28% Non-performing loans total loans 1.72% 0.69% Non-performing assets to total assets 1.45% 0.73% Net charge-offs to average loans (actual for the period) 0.03% 0.08% 0.50% 0.26% Net charge-offs to average loans (annualized) 0.12% 0.33% 0.50% 0.26% Equity to assets at period end 7.58% 7.84% Efficiency ratio 57.06% 57.99% 56.98% 55.11% (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 and $17,000 and $160,000 of merger-related charges for the three and twelve months ended December 31, 2004. Also does not include a $3.3 million loss on the sale of the consumer finance loan portfolio and $331,000 of expenses related to the discontinuation of operations at the consumer finance subsidiary for the three and twelve months ended December 31, 2004. (3) Does not include $205,000 of gains on the sale of branch locations and other assets for the twelve months ended December 31, 2005. (4) Based on 5,616,138, 5,667,513, 5,546,680 and 5,549,855 weighted- average shares outstanding for the three and twelve months ended December 31, 2005 and 2004, respectively. (5) Based on 5,719,294, 5,789,330, 5,685,557 and 5,692,468 weighted- average shares outstanding for the three and twelve months ended December 31, 2005 and 2004, respectively. (6) Annualized where appropriate. Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) January 12, 2006 Press Release At December 31, (In thousands, except share data) 2005 2004 SUPPLEMENTAL DETAIL BALANCE SHEET - ASSETS Cash and cash equivalents 26,400 31,997 Trading account securities - - Securities available for sale 131,193 88,383 Securities held to maturity 3,619 3,640 Other securities 7,626 6,590 Total securities 142,438 98,613 Total cash and securities 168,838 130,610 Loans and leases held for investment (1) 1,024,998 924,129 Loans and leases held for sale (1) 410 256 Total loans and leases (1) 1,025,408 924,385 Allowance for losses on loans 13,653 11,847 Goodwill 5,020 1,674 Other intangible assets 4,068 1,270 Total intangible assets 9,088 2,944 Mortgage servicing rights 3,328 3,146 Purchased credit card relationships - - Other real estate owned 376 1,614 Bank owned life insurance 12,948 10,118 Other assets 34,725 22,070 Total assets 1,241,058 1,083,040 BALANCE SHEET - LIABILITIES Deposits 978,396 862,096 Federal Home Loan Bank advances and other borrowings 141,382 113,660 Other liabilities 4,191 4,233 Total liabilities 1,123,969 979,989 Redeemable preferred stock - - Trust preferred securities 23,000 18,000 Minority interests 8 8 Other mezzanine level items - - Total mezzanine level items 23,008 18,008 Total liabilities and mezzanine level items 1,146,977 997,997 BALANCE SHEET - EQUITY Preferred equity - - Common equity 94,081 85,043 MEMO ITEM: Net unrealized gain (loss) on securities available for sale, net of tax (673) 605 End of period shares outstanding (2) 5,604,165 5,557,281 Options outstanding 484,233 582,466 Treasury shares held by the Company 270,420 96,302 (1) Data is net of unearned interest, before consideration of allowance for losses on loans (2) Excludes treasury shares Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) January 12, 2006 Press Release At or For the At or For the Three Months Ended Twelve Months Ended December 31, December 31, (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) 55,400 - 269,945 134,936 Average price of shares repurchased(1) $30.43 - $28.97 $32.38 INCOME STATEMENT Interest income 18,674 15,756 69,720 59,251 Interest expense 8,481 5,732 29,436 20,838 Net interest income 10,193 10,024 40,284 38,413 Net interest income (fully-taxable equivalent) 10,572 10,218 41,557 39,057 Provision for losses on loans 670 851 6,341 3,136 Non-recurring expense: Loss on sale of consumer finance loan portfolio - 3,254 - 3,254 Expenses related to the discontinuation of operations at consumer finance subsidiary - 331 - 331 Merger-related expenses 44 17 546 160 Non-recurring income: Gain on sale of branch locations and other assets - - 205 - Trading account income - - - - Foreign exchange income - - - - Trust income - - - - Insurance commissions 710 826 2,781 3,050 Service charges on deposits 1,322 925 4,508 3,562 Gain on sale of loans 216 528 1,085 1,882 Gain on investment securities transactions (10) - 498 276 Other non-interest income 844 446 2,561 1,485 Total non-interest income 3,082 2,725 11,433 10,255 Employee compensation and benefits 4,095 3,776 16,107 14,519 Occupancy and equipment expense 977 954 4,067 3,400 Foreclosed property expense - - - - Amortization of intangibles 283 72 953 72 Other general, administrative and other expense 2,708 2,456 9,372 8,793 Total non-interest expenses 8,063 7,258 30,499 26,784 Net income before taxes 4,498 1,038 14,536 15,003 Federal income taxes 1,294 235 4,157 4,841 Federal new markets tax credit (375) (250) (1,000) (500) Net income before extraordinary items 3,579 1,053 11,379 10,662 Extraordinary items - - - - Net income 3,579 1,053 11,379 10,662 CHARGE-OFFS Loan charge-offs 839 1,588 7,747 3,545 Recoveries on loans 541 823 2,755 1,291 Net loan charge-offs 298 765 4,992 2,254 AVERAGE BALANCE SHEET Average loans and leases 1,022,153 924,372 993,976 869,849 Average other earning assets 141,576 101,438 129,309 93,816 (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 twelve months ended December 31, 2005. Under the new plan, 55,400 and 237,945 shares were repurchased at an average price of $30.43 and $29.14 during the three and twelve months ended December 31, 2005, respectively. Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) January 12, 2006 Press Release At or For the At or For the Three Months Ended Twelve Months Ended December 31, December 31, (In thousands, except share data) 2005 2004 2005 2004 SUPPLEMENTAL DETAIL (continued) AVERAGE BALANCE SHEET (continued) Average total earning assets 1,163,729 1,025,810 1,123,285 963,665 Average total assets 1,235,698 1,070,287 1,186,236 997,026 Average non-interest bearing deposits 100,077 80,293 91,315 72,142 Average total time deposits 589,104 547,112 585,114 509,340 Average other interest- bearing deposits 299,984 218,093 267,404 205,576 Average total interest- bearing deposits 889,088 765,205 852,518 714,916 Average borrowings 146,016 135,869 144,445 124,514 Average interest-bearing liabilities 1,035,104 901,074 996,963 839,430 Average preferred equity - - - - Average common equity 93,800 85,565 91,853 82,708 ASSET QUALITY AND OTHER DATA Non-accrual loans 16,695 5,549 Renegotiated loans - - Loans 90+ days past due and still accruing 979 791 Total non-performing loans 17,674 6,340 Other real estate owned 376 1,614 Total non-performing assets 18,050 7,954 ADDITIONAL DATA 1 - 4 family mortgage loans serviced for others 246,200 252,079 Proprietary mutual fund balances - - Fair value of securities held to maturity 3,851 3,906 Full-time equivalent employees 422 377 Total number of full- service banking offices 34 29 Total number of bank and thrift subsidiaries 1 1 Total number of ATMs 40 35 LOANS RECEIVABLE 1 - 4 family residential 237,138 199,987 Home equity 42,967 41,744 Multi-family residential 37,241 25,215 Commercial real estate 381,966 347,303 Construction and land development 52,612 63,132 Commercial and other 164,527 173,766 Consumer 106,775 68,074 Credit cards 2,183 2,020 Loans receivable - gross 1,025,409 921,241 Unearned interest (1) (2) Loans receivable - net of unearned interest 1,025,408 921,239 Allowance for losses on loans (13,653) (11,847) Loans receivable - net (1) 1,011,755 909,392 (1) Does not include mortgage servicing rights. Oak Hill Financial, Inc. SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited) January 12, 2006 Press Release At or For the At or For the Three Months Ended Twelve Months Ended December 31, December 31, (In thousands, except 2005 2004 2005 2004 share data) SUPPLEMENTAL DETAIL (continued) DEPOSITS Transaction accounts Non-interest bearing 97,575 88,712 Interest-bearing 79,329 65,395 Savings accounts 64,128 58,978 Money market deposit accounts 159,060 89,539 Other core interest-bearing 427,647 365,125 Total core deposit accounts 827,739 667,749 Non-core interest-bearing accounts 150,657 194,347 Total deposits 978,396 862,096 Yield/average earning assets (fully-taxable equivalent) 6.49% 6.18% 6.32% 6.22% Cost/average interest earnings assets 2.89% 2.22% 2.62% 2.17% Net interest income (fully-taxable equivalent) 3.60% 3.96% 3.70% 4.05% NEW MARKETS TAX CREDIT Qualified equity investment in Oak Hill Banks Community Development Corp. 20,000 10,000 QEI New Markets Tax Credit Year Amount 2004 2005 2006 2007 2008 2009 2010 2011 2004 10,000 500 500 500 600 600 600 600 - 2005 10,000 - 500 500 500 600 600 600 600 Totals 20,000 500 1,000 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

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