Oak Hill Financial 10-Q 2007 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 2007

Commission File Number: 0-26876

OAK HILL FINANCIAL, INC.

(Exact name of Registrant as specified in its charter)

Ohio (State or other jurisdiction of incorporation or organization)	31-1010517 (I.R.S. Employer Identification Number)
14621 S. R. 93 Jackson, Ohio (Address of principal executive office)	45640 (Zip Code)

Registrant’s telephone number, including area code: (740) 286-3283

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ü                                No      

Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of  “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer               Accelerated filer  ü         Non-accelerated filer      

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes                                        No   ü

As of May 9, 2007, the latest practicable date, 5,338,896 shares of the Registrant’s common stock, $.50 stated value, were outstanding.

Oak Hill Financial, Inc.

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements
	Consolidated Statements of Financial Condition	3
	Consolidated Statements of Earnings	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	8
Item 2:	Management’s Discussion and Analysis of Financial Condition
	And Results of Operations	15
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4:	Controls and Procedures	18
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	19
Item 1A:	Risk Factors	19
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3:	Defaults Upon Senior Securities	19
Item 4:	Submission of Matters to a Vote of Security Holders	19
Item 5:	Other Information	19
Item 6:	Exhibits	19
Signatures		20
Certifications		22

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PART I – FINANCIAL INFORMATION

Item 1: Financial Statements

Oak Hill Financial, Inc.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	March 31,			December 31,
(In thousands, except share data)	2007			2006
	(Unaudited)
ASSETS
Cash and cash equivalents
Cash and due from banks	$	21,089		$	20,955
Federal funds sold		16,264			818
Interest-bearing deposits in other banks		1,605			1,474
Total cash and cash equivalents		38,958			23,247
Investment securities designated as available for sale – at market		147,428			153,010
Investment securities designated as held to maturity – at cost (approximate market
value of $1,698 and $2,712 at March 31, 2007 and December 31, 2006, respectively)		1,519			2,559
Loans receivable – net		1,026,818			1,017,983
Loans held for sale – at lower of cost or market		68			90
Mortgage servicing assets – at cost (approximate fair value of $3,740 and $3,719 at
March 31, 2007 and December 31, 2006, respectively)		3,294			3,288
Office premises and equipment – net		28,432			27,765
Federal Home Loan Bank stock – at cost		8,078			8,078
Real estate acquired through foreclosure		2,699			5,258
Accrued interest receivable on loans		4,777			4,765
Accrued interest receivable on investment securities		1,298			1,023
Goodwill		7,935			7,935
Core deposit intangible – net		2,895			3,111
Bank owned life insurance		13,571			13,454
Prepaid expenses and other assets		2,723			1,938
Prepaid federal income taxes		502			1,086
Deferred federal income taxes		1,108			1,045
TOTAL ASSETS	$	1,292,103		$	1,275,635
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand	$	98,534		$	94,256
Savings and time deposits		863,253			848,704
Total deposits		961,787			942,960
Securities sold under agreements to repurchase		56,091			56,341
Advances from the Federal Home Loan Bank		153,597			157,584
Subordinated debentures		23,000			23,000
Accrued interest payable and other liabilities		4,712			4,993
Total liabilities		1,199,187			1,184,878
Stockholders’ equity
Common stock – $.50 stated value; authorized 15,000,000 shares,
5,874,634 shares issued at March 31, 2007 and December 31, 2006		2,937			2,937
Additional paid-in capital		13,324			13,611
Retained earnings		92,369			90,877
Treasury stock (535,841 and 565,659 shares at March 31, 2007 and
December 31, 2006, respectively – at cost)		(15,500	)		(16,368	)
Accumulated comprehensive loss:
Unrealized loss on securities designated as available for sale, net
of related tax benefits		(214	)		(300	)
Total stockholders’ equity		92,916			90,757
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,292,103		$	1,275,635

See accompanying notes to consolidated financial statements.

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Oak Hill Financial, Inc.

CONSOLIDATED STATEMENTS OF EARNINGS

	For the Three Months Ended
	March 31,
(In thousands, except per share data)	2007			2006
	(Unaudited)
INTEREST INCOME
Loans	$	18,989		$	17,369
Investment securities		1,746			1,465
Interest-bearing deposits and other		178			137
Total interest income		20,913			18,971
INTEREST EXPENSE
Deposits		8,638			7,242
Borrowings		3,007			2,038
Total 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
OTHER INCOME
Service fees, charges and other operating		1,946			1,991
Commission income		816			820
Bank owned life insurance		117			150
Gain on sale of loans		147			209
Gain on sale of securities		87			139
Loss on sale of other real estate owned		(369	)		(22	)
Total other income		2,744			3,287
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE
Employee compensation and benefits		4,446			4,300
Occupancy and equipment		1,164			993
Federal deposit insurance premiums		30			32
Franchise taxes		292			316
Other operating		2,089			2,324
Amortization of core deposit intangible		216			284
Total general, administrative and other expense		8,237			8,249
Earnings before federal income taxes		3,232			4,529
FEDERAL INCOME TAXES
Current		728			710
Deferred		(109	)		325
Total federal income taxes		619			1,035
NET EARNINGS	$	2,613		$	3,494
EARNINGS PER SHARE
Basic	$	.49		$	.63
Diluted	$	.48		$	.62
DIVIDENDS PER SHARE	$	.21		$	.19

See accompanying notes to consolidated financial statements.

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Oak Hill Financial, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	For the Three Months Ended
	March 31,
(In thousands)	2007			2006
	(Unaudited)
Net earnings	$	2,613		$	3,494
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities designated as available for sale,
net of taxes (benefits) of $77 and $(63), respectively		143			(117	)
Reclassification adjustment for realized gains included in net earnings,
net of taxes of $31 and $49, respectively		(57	)		(90	)
Comprehensive income	$	2,699		$	3,287
Accumulated comprehensive loss	$	(214	)	$	(548	)

See accompanying notes to consolidated financial statements.

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Oak Hill Financial, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Three Months Ended
	March 31,
(In thousands)	2007			2006
	(Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings for the period	$	2,613		$	3,494
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization		423			358
Amortization of core deposit intangible		216			284
Gain on sale of securities		(87	)		(139	)
Amortization of premiums, discounts and mortgage servicing assets – net		187			116
Proceeds from sale of loans in secondary market		4,181			11,058
Loans disbursed for sale in secondary market		(4,084	)		(10,621	)
Gain on sale of loans		(75	)		(127	)
Amortization (accretion) of deferred loan origination (fees) costs		100			(75	)
Loss on sale of other real estate owned		369			22
Purchase of loans		—			(450	)
Federal Home Loan Bank stock dividends		—			(108	)
Provision for losses on loans		543			200
Compensation expense related to stock incentive plan		12			12
Bank owned life insurance income		(117	)		(150	)
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets		(785	)		(950	)
Accrued interest receivable		(287	)		(129	)
Accrued interest payable and other liabilities		(281	)		(27	)
Federal income taxes
Current		584			660
Deferred		(109	)		325
Net cash provided by operating activities		3,403			3,753
CASH FLOWS USED IN INVESTING ACTIVITIES:
Loan disbursements		(60,138	)		(78,454	)
Principal repayments on loans		50,153			75,932
Principal repayments on mortgage-backed securities designated
as available for sale		7,643			3,378
Proceeds from sale of investment securities designated
as available for sale		8,592			9,611
Proceeds from maturity of investment securities		6,580			38
Proceeds from disposition of assets		58			—
Proceeds from sale of other real estate owned		2,631			36
Purchase of investment securities designated
as available for sale		(16,102	)		(14,640	)
Purchase of office premises and equipment		(1,148	)		(2,227	)
Net cash used in investing activities		(1,731	)		(6,326	)
Net cash provided by (used in) operating and investing activities
(balance carried forward)		1,672			(2,573	)

See accompanying notes to consolidated financial statements.

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Oak Hill Financial, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	For the Three Months Ended
	March 31,
(In thousands)	2007			2006
	(Unaudited)
Net cash provided by (used in) operating and investing activities
(balance brought forward)	$	1,672		$	(2,573	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net proceeds (repayments) from (of) securities sold under agreement to repurchase		(250	)		12,207
Net increase in deposit accounts		18,828			2,336
Proceeds from Federal Home Loan Bank advances		23,000			23,000
Repayments of Federal Home Loan Bank advances		(26,987	)		(32,420	)
Dividends on common shares		(1,121	)		(1,054	)
Purchase of treasury shares		—			(2,384	)
Proceeds from issuance of shares under stock option plan		425			211
Tax benefit of stock options exercised		144			81
Net cash provided by financing activities		14,039			1,977
Net increase (decrease) in cash and cash equivalents		15,711			(596	)
Cash and cash equivalents at beginning of period		23,247			26,400
Cash and cash equivalents at end of period	$	38,958		$	25,804
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Federal income taxes	$	144		$	—
Interest on deposits and borrowings	$	11,824		$	9,394
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects	$	86		$	(207	)
Recognition of mortgage servicing assets in accordance with SFAS No. 140 and 156	$	72		$	82
Transfer from loans to real estate acquired through foreclosure	$	441		$	97
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of treasury stock in exchange for exercise of stock options	$	252		$	—

See accompanying notes to consolidated financial statements. 

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Oak Hill Financial, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three month periods ended March 31, 2007 and 2006

1. Basis of Presentation

Oak Hill Financial, Inc. (the “Company”) is a financial holding company the principal assets of which have been its ownership of Oak Hill Banks (“Oak Hill”) and Oak Hill Financial Insurance (“OHFI”). The Company also owns forty-nine percent of Oak Hill Title Agency, LLC (“Oak Hill Title”) which provides title services for commercial and residential real estate transactions.  Accordingly, the Company’s results of operations are primarily dependent upon the results of operations of its subsidiaries.

Oak Hill conducts a general commercial banking business in southern and central Ohio which consists of attracting deposits from the general public and applying those funds to the origination of loans for commercial, consumer and residential purposes. OHFI is an insurance agency specializing in group health insurance and other employee benefits.

Oak Hill’s profitability is significantly dependent on net interest income, which is the difference between interest income generated from interest-earning assets (i.e., loans and investments) and the interest expense paid on interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by Oak Hill can be significantly influenced by a number of competitive factors, such as governmental monetary policy, that are outside of management’s control.

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto of the Company included in the Annual Report on Form 10-K for the year ended December 31, 2006. However, all adjustments (consisting of normal recurring accruals), which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements, have been included. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the entire year.

2. Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Oak Hill and OHFI. Oak Hill Title is included in the financial statements of the Company with the 51% outside ownership being accounted for as minority interest. All intercompany balances and transactions have been eliminated.

3. Liquidity and Capital Resources

Like other financial institutions, the Company must ensure that sufficient funds are available to meet deposit withdrawals, loan commitments, and expenses. Control of the Company’s cash flow requires the anticipation of deposit flows and loan payments. The Company’s primary sources of funds are deposits, borrowings and principal and interest payments on loans. The Company uses funds from deposit inflows, proceeds from borrowings and principal and interest payments on loans primarily to originate loans, and to purchase short-term investment securities and interest-bearing deposits.

At March 31, 2007, the Company had $331.9 million of certificates of deposit maturing within one year. It has been the Company’s historic experience that such certificates of deposit will be renewed with Oak Hill at market rates of interest. It is management’s belief that maturing certificates of deposit over the next year will similarly be renewed with Oak Hill at market rates of interest.

In the event that certificates of deposit cannot be renewed at prevalent market rates, the Company can obtain up to $238.2 million in advances from the Federal Home Loan Bank of Cincinnati (“FHLB”). Also, as an operational philosophy, the Company seeks to obtain advances to help with asset/liability management and liquidity. At March 31, 2007, the Company had $153.6 million of outstanding FHLB advances and $12.4 million of letters of credit pledged for public deposits.

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Oak Hill Financial, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three month periods ended March 31, 2007 and 2006

3. Liquidity and Capital Resources

The Company engages in off-balance sheet credit-related activities that could require the Company to make cash payments in the event that specified future events occur. The contractual amounts of these activities represent the maximum exposure to the Company. However, certain off-balance sheet commitments are expected to expire or be only partially used; therefore, the total amount of commitments does not necessarily represent future cash requirements. These off-balance sheet activities are necessary to meet the financing needs of the Company’s customers. At March 31, 2007, the Company had total off-balance sheet contractual commitments consisting of $16.9 million to originate loans, $132.8 million in unused lines of credit and letters of credit totaling $11.7 million. Funding for these amounts is expected to be provided by the sources described above. Management believes the Company has adequate resources to meet its normal funding requirements. The lending commitments are generally backed by varying forms of collateral such as inventory, accounts receivable, equipment and other real estate.

The table below details the amount of loan commitments, unused lines of credit and letters of credit outstanding at March 31, 2007 by expiration period:

	One year		One to		After
(In thousands)	or less		three years		three years		Total
Loan commitments	$	16,943	$	—	$	—	$	16,943
Unused lines of credit		45,253		35,602		51,913		132,768
Letters of credit		1,466		10,277				11,743
	$	63,662	$	45,879	$	51,913	$	161,454

The table below details the amount of contractual obligations outstanding at March 31, 2007, by expiration date:

	One year		One to		After
(In thousands)	or less		three years		three years		Total
Advances and letters of credit from the Federal Home Loan Bank	$	58,901	$	41,722	$	65,374	$	165,997
Securities sold under agreement to repurchase		14,091				42,000		56,091
Subordinated debentures						23,000		23,000
Lease obligations		584		389		956		1,929
	$	73,576	$	21,424	$	152,017	$	247,017

4. Mortgage Servicing Assets

A summary of the Company’s mortgage servicing assets at March 31, 2007 and December 31, 2006 is as follows:

(In thousands)	March 31, 2007			December 31, 2006
Beginning balance	$	3,440		$	3,458
Recognition of mortgage servicing rights on sale of loans		72			367
Amortization		(87	)		(385	)
Ending balance		3,425			3,440
Beginning valuation allowance		(152	)		(130	)
Valuation allowance recorded		(9	)		(22	)
Valuation allowance recaptured		30			—
Ending valuation allowance		(131	)		(152	)
Net carrying value	$	3,294		$	3,288

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Oak Hill Financial, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three month periods ended March 31, 2007 and 2006

5. Earnings Per Share

Basic earnings per common share is computed based upon the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is computed including the dilutive effect of additional potential common shares issuable under stock options.  The computations were as follows for the three-month periods ended March 31:

	For the
	Three Months Ended
	March 31,
	2007		2006
Weighted-average common shares outstanding (basic)		5,324,538		5,567,489
Dilutive effect of assumed exercise of stock options		69,304		99,884
Weighted-average common shares outstanding (diluted)		5,393,842		5,667,373

Options to purchase 162,800 and 119,750 shares of common stock with a weighted-average exercise price of $34.89 and $37.12 were outstanding at March 31, 2007 and 2006, respectively, but were excluded from the computation of common share equivalents for the three month periods ended March 31, 2007 and 2006 because the exercise prices were greater than the average market price of the common shares.

6. Income Taxes

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) on January 1, 2007. Previously, the Company had accounted for tax contingencies in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies.” As required by FIN 48, which clarifies SFAS No. 109 “Accounting for Income Taxes,” the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company applied FIN 48 to all tax positions for which the statute of limitations remained open. As a result of the implementation of FIN 48, the Company was not required to record any liability for unrecognized tax benefits as of January 1, 2007. There have been no material changes in unrecognized tax benefits since January 1, 2007.

The Company is subject to income taxes in the U.S. federal jurisdiction, as well as, various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before 2003.

The Company is currently under examination by the Internal Revenue Service for the year ended December 31, 2004. The Company expects this examination to be concluded and settled in the next 12 months without material adverse effect to the consolidated financial statements.

The Company will recognize, if applicable, interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

7.  Critical Accounting Policies

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to use judgments in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.  The following critical accounting policies are based upon judgments and assumptions by management that include inherent risks and uncertainties.

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Oak Hill Financial, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three month periods ended March 31, 2007 and 2006

7. Critical Accounting Policies (continued)

Allowance for Losses on Loans:  The balance in the allowance is an accounting estimate of probable but unconfirmed and unrecorded asset impairment that has occurred in the Company’s loan portfolio as of the date of the consolidated financial statements. It is the Company’s policy to provide valuation allowances for estimated losses on loans based upon past loss experience, adjusted for changes in trends and conditions of the certain items, including:

· Local market areas and national economic developments;

· Levels of and trends in delinquencies and impaired loans;

· Levels of and trends in recoveries of prior charge-offs;

· Adverse situations that may affect specific borrowers’ ability to repay;

· Effects of any changes in lending policies and procedures;

· Credit concentrations;

· Experience, ability, and depth of lending management and credit administration staff;

· Volume and terms of loans; and

· Current collateral values, where appropriate.

When the collection of a loan becomes doubtful, or otherwise troubled, the Company records a loan loss provision equal to the difference between the fair value of the property securing the loan and the loan’s carrying value.  Unsecured credits are charged- off upon becoming contractually delinquent for greater than 90 days.  Major loans and major lending areas are reviewed periodically to determine potential problems at an early date. The allowance for loan losses is increased by charges to earnings and decreased by charge-offs (net of recoveries).

The Company accounts for its allowance for losses on loans in accordance with SFAS No. 5, “Accounting for Contingencies,” and SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.” Both Statements require the Company to evaluate the collectibility of both contractual interest and principal loan payments.  SFAS No. 5 requires the accrual of a loss when it is probable that a loan has been impaired and the amount of the loss can be reasonably estimated. SFAS No. 114 requires that impaired loans be measured based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or, as an alternative, at the loans’ observable market price or fair value of the collateral if the loan is collateral dependent.

A loan is defined under SFAS No. 114 as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. In applying the provisions of SFAS No. 114, the Company considers its investment in one-to-four family residential loans, consumer installment loans and credit card loans to be homogeneous and therefore excluded from separate identification for evaluation of impairment. These homogeneous loan groups are evaluated for impairment in accordance with SFAS No. 5.  With respect to the Company’s investment in commercial and other loans, and its evaluation of impairment thereof, management believes such loans are adequately collateralized and as a result impaired loans are carried as a practical expedient at the lower of cost or fair value.

It is the Company’s policy to charge off unsecured credits that are more than ninety days delinquent. Similarly, collateral- dependent loans which become more than ninety days delinquent are considered to constitute more than a minimum delay in repayment and are evaluated for impairment under SFAS No. 114 at that time.

Goodwill and Other Intangible Assets. The Company has recorded goodwill and core deposit intangibles as a result of merger and acquisition activity.

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Oak Hill Financial, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three month periods ended March 31, 2007 and 2006

7. Critical Accounting Policies (continued)

Goodwill represents the excess purchase price paid over the net book value of the assets acquired in a merger or acquisition. Pursuant to SFAS No. 142, “Goodwill and Intangible Assets,” goodwill is not amortized, but is tested for impairment at the reporting unit annually and whenever an impairment indicator arises. The evaluation involves assigning assets and liabilities to

reporting units and comparing the fair value of each reporting unit to its carrying value including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill is not considered impaired. However, if the carrying amount of the reporting unit exceeds the fair value, goodwill is considered impaired. The impairment loss equals the excess of carrying value over fair value.

Core deposit intangibles represent the value of long-term deposit relationships and are amortized over their estimated useful lives. The Company annually evaluates these estimated useful lives. If the Company determines that events or circumstances warrant a change in these estimated useful lives, the Company will adjust the amortization of the core deposit intangibles, which could affect future amortization expense.

8. Share-based Compensation

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which revises SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123(R) requires that cost related to the fair value of all equity-based awards to employees, including grants of employee stock options, be recognized in the financial statements.

The Company adopted the provisions of SFAS No. 123(R) effective January 1, 2006, using the modified prospective transition method, as permitted, and therefore have not restated its financial statements for prior periods. Under this method, the Company has applied the provisions of SFAS No. 123(R) to new equity-based awards and to equity-based awards modified, repurchased, or cancelled after January 1, 2006. In addition, the Company has recognized compensation cost for the portion of equity-based awards for which the requisite service period has not been rendered (“unvested equity-based awards”) that are outstanding as of January 1, 2006. The compensation cost recorded for unvested equity-based awards will be based on their grant-date fair value. For each of the three month periods ended March 31, 2007 and March 31, 2006, the Company recorded $12,000 in compensation cost for equity-based awards that vested during the respective three month periods ($8,000 after-tax). The Company has $48,000 of total unrecognized compensation cost related to non-vested equity-based awards granted under its stock incentive plan as of March 31, 2007, which is expected to be recognized over a weighted-average period of one year.

SFAS No. 123(R) requires that cash flows from the exercise of stock options resulting from tax benefits in excess of recognized cumulative compensation cost (“excess tax benefits”) be classified as financing cash flows. The Company had $144,000 and $81,000 of tax benefits classified as financing cash flows for the three months ended March 31, 2007 and March 31, 2006, respectively. At March 31, 2007, the intrinsic value of outstanding options totaled $2.0 million.

There were no options granted during the three months ended March 31, 2007 and March 31, 2006.

The Company has a stock incentive plan that provides for grants of options of up to 1,200,000 authorized, but unissued shares of its common stock, restricted stock, stock appreciation rights, and other equity-based compensation. The following is a summary of the changes in outstanding options for the three months ended March 31, 2007 and the year ended December 31, 2006:

	Three Months Ended March 31, 2007					Year Ended December 31, 2006
				Weighted-					Weighted-
				Average					Average
				Exercise					Exercise
	Shares			Price		Shares			Price
Outstanding at beginning of period		434,383		$	23.27		484,233		$	23.14
Granted		–			–		–			–
Exercised		(37,150	)		17.09		(33,300	)		15.89
Forfeited		(6,300	)		34.37		(16,550	)		34.14
Outstanding at end of period		390,933		$	23.68		434,383		$	23.27
Exercisable at end of period		386,933		$	23.60		429,383		$	23.16
Weighted-average remaining contractual term				6.2 years					6.3 years

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Oak Hill Financial, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three month periods ended March 31, 2007 and 2006

8.Share-based Compensation (continued)

The following is a summary of the changes in restricted stock for the three months ended March 31, 2007 and the year ended December 31, 2006:

	Three Months Ended March 31, 2007				Year Ended December 31, 2006
			Fair Value					Fair Value
	Shares		at Grant		Shares			at Grant
Outstanding at beginning of period		1,234	$	30.30		3,594		$	31.72
Granted		1,000		27.98		—			—
Vested		—		—		(1,893	)		31.29
Cancelled		—		—		(467	)		37.21
Outstanding at end of period		2,234	$	29.26		1,234		$	30.30

9. Effects of Recent Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Instruments – an amendment of FASB Statements No. 133 and 140,” to simplify and make more consistent the accounting for certain financial instruments. Specifically, SFAS No. 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to permit fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. SFAS No. 155 amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” to allow a qualifying special purpose entity to hold a derivative instrument that pertains to a beneficial interest other than another derivative financial instrument.

SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006, or January 1, 2007 as to the Company, with earlier application allowed. The Company adopted SFAS No. 155 on January 1, 2007, as required, without material effect on the Company’s financial position or results of operations.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets – an amendment of SFAS No. 140,” to simplify the accounting for separately recognized servicing assets and servicing liabilities. Specifically, SFAS No. 156 amends SFAS No. 140 to require an entity to take the following steps:

· Separately recognize financial assets as servicing assets or servicing entities, each time it undertakes an obligation to service a financial asset by entering into certain kinds of servicing contracts;

· Initially measure all separately recognized servicing assets and liabilities at fair value, if practicable, and;

· Separately present servicing assets and liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities.

Additionally, SFAS No. 156 permits, but does not require, an entity to choose either the amortization method or the fair value measurement method for measuring each class of separately recognized servicing assets and servicing liabilities. SFAS No. 156 also permits a servicer that uses derivative financial instruments to offset risks on servicing to use fair value measurement when reporting both the derivative financial instrument and related servicing asset or liability.

SFAS No. 156 applies to all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006, or January 1, 2007 as to the Company, with earlier application permitted. The Company adopted SFAS No. 156 on January 1, 2007, utilizing the amortization method without effect on the Company’s financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement emphasizes that fair value is a market-based measurement and should be determined based on assumptions that a market participant would use when

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Oak Hill Financial, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three month periods ended March 31, 2007 and 2006

9.Effects of Recent Accounting Pronouncements (continued)

pricing an asset or liability. This Statement clarifies that market participant assumptions should include assumptions about risk as well as the effect of a restriction on the sale or use of an asset. Additionally, this Statement establishes a fair value hierarchy that provides the highest priority to quoted prices in active markets and the lowest priority to unobservable data. This Statement is effective for fiscal years beginning after November 15, 2007, or January 1, 2008 as to the Company, and interim periods within that fiscal year. The adoption of this Statement is not expected to have a material adverse effect on the Company’s financial position or results of operations.

In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes.” The interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” Specifically, FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax provision taken or expected to be taken on a tax return. FIN 48 also provides guidance on the related derecognition, classification, interest and penalties, accounting for interim periods, disclosure, and transition of uncertain tax positions. FIN 48 is effective for fiscal years beginning after December 15, 2006, or January 1, 2007 as to the Company. As previously stated, the Company adopted FIN 48 on January 1, 2007, as required, without material adverse effect on the Company’s financial position or results of operations.

In September 2006, the FASB ratified the Emerging Issues Task Force’s (EITF) Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,” which requires companies to recognize a liability and related compensation costs for endorsement split-dollar life insurance policies that provide a benefit to an employee extending to postretirement periods.  The liability should be recognized based on the substantive agreement with the employee.  This Issue is effective beginning January 1, 2008. The Issue can be adopted as either a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, or a change in accounting principle through retrospective application to all periods. The Company is in the process of evaluating the impact the adoption of Issue 06-4 will have on the financial statements, but currently does not believe the Issue will have a material adverse effect on financial condition or results of operations.

In September 2006, the FASB ratified a consensus opinion reached by the EITF on EITF Issue 06-5, “Accounting for Purchases of Life Insurance – Determining the Amount that Could be Realized in Accordance with FASB Technical Bulletin No. 85-4.” The guidance in Issue 06-5 requires policy holders to consider other amounts included in the contractual terms of an insurance policy, in addition to cash surrender value, for purposes of determining the amount that could be realized under the terms of the insurance contract. If it is probable that contractual terms would limit the amount that could be realized under the insurance contract, those contractual limitations should be considered when determining the realizable amounts. The amount that could be realized under the insurance contract should be determined on an individual policy (or certificate) level and should include any amount realized on the assumed surrender of the last individual policy or certificate in a group policy.

The Company holds a number of life insurance policies, however, the policies do not contain any provisions that would restrict or reduce the cash surrender value of the policies. The consensus in EITF Issue 06-5 is effective for fiscal years beginning after December 15, 2006. The Company applied the guidance in EITF Issue 06-5 effective January 1, 2007 without material adverse effect on the Company’s financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115”. This Statement allows companies the choice to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board's long-term measurement objectives for accounting for financial instruments. This Statement is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007, or January 1, 2008 as to the Company, and interim periods within that fiscal year. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157, “Fair Value Measurements.” The Company is currently evaluating the impact the adoption of SFAS No. 159 will have on the financial statements.

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Forward-Looking Statements

This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements about the Company. These forward-looking statements include statements regarding financial condition, results of operations, plans, objectives, and the future performance and business of the Company, including management’s establishment of an allowance for loan losses, its statements regarding the adequacy of such allowance for loan losses, and management’s belief that the allowance for loan losses is adequate. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.

By their nature, forward-looking statements are subject to numerous assumptions, risks, and uncertainties. A number of factors could cause actual conditions, events, or results to differ significantly and materially from those described in the forward-looking statements.  These factors include, but are not limited to, those set forth below and under the heading “Business Risks” included in Item 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (“2006 Form 10-K”), and other factors described in the 2006 Form 10-K, and from time-to-time in other filings with the Securities and Exchange Commission.

Forward-looking statements speak only as of the date they are made. The Company assumes no obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events.

Risk Factors

Oak Hill Financial, like other financial companies, is subject to a number of risks, many of which are outside of management’s control.  Management strives to mitigate those risks while optimizing returns. Among the risks assumed are: (1) credit risk, which is the risk that loan customers or other counterparties will be unable to perform their contractual obligations, (2) market risk, which is the risk that changes in market rates and prices will adversely affect the Company’s financial condition or results of operations, (3) liquidity risk, which is the risk that the Company will have insufficient cash or access to cash to meet operating needs, (4) operational risk, which is the risk of loss resulting from inadequate or failed internal processes, people, systems, or external events, and (5) legal risk, which is the risk of legal proceedings against the Company as well as regulatory and governmental reviews or investigations that arise in the course of the Company’s business. The description of the Company’s business contained in Item 1 of its 2006 Form 10-K, while not all inclusive, discusses a number of business risks that, in addition to the other information in this report, readers should carefully consider.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Oak Hill Financial, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the three month periods ended March 31, 2007 and 2006

Discussion of Financial Condition Changes from December 31, 2006 to March 31, 2007

The Company’s total assets amounted to $1.3 billion at March 31, 2007, an increase of $16.5 million, or 1.3%, over the total at December 31, 2006. The increase in assets was funded primarily through an increase of $18.8 million, or 2.0% in deposits, which was partially offset by a decrease in FHLB advances of $4.0 million, or 2.5% and a $250,000 decrease in repurchase agreements.

Cash and due from banks, federal funds sold, and investment securities, including mortgage-backed securities, increased by $9.1 million, or 5.1%, to a total of $187.9 million at March 31, 2007, compared to December 31, 2006. Investment securities decreased by $6.6 million, as maturities and repayments of $14.2 million and sales of $8.6 million exceeded purchases of $16.1 million.  Federal funds sold increased by $15.4 million during the three-month period ended March 31, 2007.

Loans receivable, including loans held for sale, totaled $1.0 billion at March 31, 2007, an increase of $8.8 million, or 0.9%, over the comparable totals at December 31, 2006. Loan disbursements totaled $64.2 million during the three-month period ended March 31, 2007, which were partially offset by loan sales of $4.1 million and principal repayments of $50.2 million. Loan disbursements decreased by $24.9 million when compared to the same period in 2006. Sales volume decreased by $6.8 million as compared to the same period in 2006. Loan originations declined primarily in the residential real estate and consumer loan areas as competition in our market areas intensified. Growth in the loan portfolio during the three months ended March 31, 2007 was comprised of a $9.9 million, or 1.4%, increase in commercial and residential real estate loans, a $4.9 million, or 9.1% increase in construction and land development loans and a $1.2 million, or 0.8%, increase in commercial loans, which were partially offset by a $6.9 million, or 6.4%, decrease in installment loans and a $156,000, or 6.6%, decrease in credit card loans. The allowance for loan losses totaled $13.1 million at March 31, 2007, an increase of $139,000, or 1.1%, over the total at December 31, 2006. The allowance for loan losses represented 1.25% of the total loan portfolio at March 31, 2007 and December 31, 2006, respectively.

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Oak Hill Financial, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the three month periods ended March 31, 2007 and 2006

Net charge-offs totaled approximately $405,000 and $146,000 for the three months ended March 31, 2007 and 2006, respectively. The Company’s allowance represented 92.1% and 95.2% of the $14.2 million and $13.6 million of nonperforming loans at March 31, 2007 and December 31, 2006, respectively. At March 31, 2007, nonperforming loans were comprised of, $9.8 million of loans secured primarily by commercial real estate, $2.8 million of loans secured by one-to-four family residential real estate, $1.0 million of commercial and other loans and $546,000 in installment and credit card loans. The Company continues to diligently explore several avenues to improve the status of such loans in a timely manner. In management’s opinion, based upon its ongoing review, knowledge, and current information, the carrying value of commercial and non-residential credits are appropriate and all nonperforming loans were adequately collateralized or reserved for at March 31, 2007.

Deposits totaled $961.8 million at March 31, 2007, an increase of $18.8 million, or 2.0%, over the total at December 31, 2006. Total savings and time deposits increased by $14.5 million, or 1.7% during the period with a weighted-average cost of 3.67%. Total demand deposits increased by $4.3 million, or 4.5% during the period. Brokered deposits totaled $42.5 million, or 4.2% of total deposits, with a weighted-average cost of 4.41% at March 31, 2007, as compared to the $39.5 million, or 4.2% of total deposits, with a 3.87% weighted-average cost at December 31, 2006.  Proceeds from deposit growth were used primarily to fund loan originations.

Advances from the Federal Home Loan Bank totaled $153.6 million at March 31, 2007, a decrease of $4.0 million, or 2.5%, from the total at December 31, 2006. Securities sold under agreements to repurchase totaled $56.1 million at March 31, 2007, a decrease of $250,000, from the total at December 31, 2006.

The Company’s stockholders’ equity amounted to $92.9 million at March 31, 2007, an increase of $2.2 million, or 2.4%, over the total at December 31, 2006. The increase resulted primarily from net earnings of $2.6 million and proceeds from stock options exercised of $425,000, which were partially offset by $1.1 million in dividends paid to shareholders.

Comparison of Results of Operations for the Three-Month Periods Ended March 31, 2007 and 2006

General

Net earnings for the three months ended March 31, 2007 totaled $2.6 million, an $881,000, or 25.2%, decrease from net earnings reported in the comparable 2006 period. The decrease in earnings resulted primarily from a $423,000 decrease in net interest income, a $543,000 decrease in other income and a $343,000 increase in the provision for losses on loans, which were partially offset by a $416,000 decrease in the provision for federal income taxes and a $12,000 decrease in general, administrative and other expenses..

Net Interest Income

Total interest income for the three months ended March 31, 2007, amounted to $20.9 million, an increase of $1.9 million, or 10.2%, over the comparable 2006 period. Interest income on loans totaled $19.0 million, an increase of $1.6 million, or 9.3%, over the 2006 period. This increase resulted primarily from an $8.5 million, or 0.8% increase in the average portfolio balance, to a total of $1.0 billion for the three months ended March 31, 2007, coupled with a 57 basis point increase in the average fully-taxable equivalent yield, to 7.44% for the three month period ended March 31, 2007. Interest income on investment securities and other interest-earning assets increased by $322,000, or 20.1%. This increase resulted primarily from a $20.3 million, or 13.9%, increase in the average portfolio balance, to a total of $165.7 million for the three months ended March 31, 2007, coupled with an 8 basis point increase in the average fully-taxable equivalent yield, to 5.43% for the three months ended March 31, 2007.

Total interest expense amounted to $11.6 million for the three months ended March 31, 2007, an increase of $2.4 million, or 25.5%, over the comparable 2006 period. Interest expense on deposits increased by $1.4 million, or 19.3%, to a total of $8.6 million for the three months ended March 31, 2007. The increase resulted primarily from a 78 basis point increase in the average cost of deposits, to 4.11%, which was partially offset by a $30.2 million, or 3.4%, decrease in the average portfolio balance, to a total of $853.0 million for the three months ended March 31, 2007. Interest expense on borrowings increased by $969,000, or 47.5%, for the three months ended March 31, 2007. The increase was due to a $70.8 million, or 42.9%, increase in the average borrowings outstanding for the three months ended March 31, 2007, coupled with a 16 basis point increase in the average cost of borrowings, to 5.17% for the three months ended March 31, 2007.

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Oak Hill Financial, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the three month periods ended March 31, 2007 and 2006

As a result of the foregoing changes in interest income and interest expense, net interest income decreased by $423,000, or 4.4%, for the three months ended March 31, 2007, as compared to the same period in 2006. The interest rate spread decreased 26 basis points, to 2.83% for the three months ended March 31, 2007, compared to 3.09% for the three months ended March 31, 2006. The fully-taxable equivalent net interest margin decreased 24 basis points, from 3.48% to 3.24% for the three months ended March 31, 2006 and 2007, respectively.

Provision for Losses on Loans

A provision for losses on loans is charged to earnings to bring the total allowance for loan losses to a level considered appropriate by management based on historical experience, the volume and type of lending conducted by the Company, the status of past due principal and interest payments, general economic conditions, particularly as such conditions relate to the Company’s market area, and other factors related to the collectibility of the Company’s loan portfolio.  As a result of such analysis, management recorded a $543,000 provision for losses on loans for the three months ended March 31, 2007, an increase of $343,000, compared to the same period in 2006. The provision for losses on loans for the three months ended March 31, 2007 was predicated upon an increase of $600,000 in nonperforming loans, from $13.6 million at December 31, 2006 to $14.2 million at March 31, 2007, the $8.8 million of growth in the loan portfolio, as well as net charge-offs of $405,000 during the quarter.

Other Income

Other income totaled $2.7 million for the three months ended March 31, 2007, a decrease of $543,000, or 16.5%, from the amount reported in the comparable 2006 period. This decrease resulted primarily from a $45,000, or 2.3%, decrease in service fees, charges and other income, a $33,000, or 22.0%, decrease in the incremental cash surrender value of bank owned life insurance, a $62,000, or 29.7%, decrease in the gain on sale of loans, a $347,000 increase in loss on sale of other real estate owned, a $52,000, or 37.4%, decrease in the gain on the sale of investment securities, and a $4,000, or 0.5%, decrease in commission income. The decrease in service fees, charges and other income was due primarily to the effects of  mortgage servicing rights amortization, impairment and impairment recovery income totaling $129,000 and a $19,000 decrease in real estate loan servicing fees, which were partially offset by an increase in ATM fees totaling $51,000, an increase in service charges on deposits totaling $23,000, and an increase in other miscellaneous non-interest income totaling $29,000 in the 2007 quarter. The $62,000 decline in gain on sale of loans is attributable to a decrease in the sales volume of Small Business Administration and residential real estate loans with contributing effects of $19,000 and $43,000, respectively. The increase in the loss on sale of other real estate owned is attributable to the sale during the quarter of a REO property with a carrying value totaling $3.0 million.

General, Administrative and Other Expense

General, administrative and other expense totaled $8.2 million for the three months ended March 31, 2007, a decrease of $12,000, or 0.1%, from the amount reported in the 2006 period. The decrease resulted primarily from a $235,000, or 10.1%, decrease in other operating expenses, a $68,000, or 23.9%, decrease in amortization of core deposit intangible, and a $24,000, or 7.6%, decrease in franchise taxes in 2007, which were partially offset by a $146,000, or 3.4%, increase in employee compensation and benefits and a $171,000, or 17.2%, increase in occupancy and equipment.

The increase in occupancy and equipment expense was due primarily to a $100,000, or 35.5%, increase in maintenance contracts, and a $50,000, or 13.2%, increase in depreciation expense associated with the Company’s expansion in 2006. Additionally, the Company experienced a $32,000, or 66.1%, decrease in rental income, and a $20,000, or 9.9%, increase in utilities, property taxes and insurance, which were partially offset by a $34,000, or 19.9%, decrease in rent expense.  The increase in compensation and benefits resulted primarily from a $248,000, or 42.6%, decrease in net loan costs associated with SFAS No. 91, a $2,000, or 2.7%, increase in retirement plan expense, and a $6,000, or 1.6% increase in payroll tax expense, which were partially offset by a $102,000, or 2.5% decrease in salaries and wages and a $9,000 decrease on other employee benefits. The decrease in other expenses resulted primarily from a $150,000 decrease in dealer participation expense, a $98,000 decrease in costs associated with improvements to the Company’s core processing system, a $40,000, or 23.2% decrease in marketing expense and a $40,000, or 22.2% decrease in telephone expense, which were partially offset by a $50,000, or 31.4%, increase in ATM expense, an $18,000, or 7.5%, increase in credit and collection expenses, a $37,000, or 13.1% increase in professional fees, and a $31,000 increase in losses associated with bad checks and overdrafts in 2007.

Federal Income Taxes

The provision for federal income taxes amounted to $619,000 for the three months ended March 31, 2007, a decrease of $416,000, or 40.2%, from the amount recorded in the comparable 2006 period. The decrease resulted primarily from a $1.3 million, or 28.6%, decrease in earnings before taxes, coupled with a $25,000 increase in New Markets Tax Credits pursuant to the Bank’s qualified investment in Oak Hill Banks Community Development Corp. The effective tax rates were 19.2% and 22.9% for the three months ended March 31, 2007 and 2006, respectively.

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Oak Hill Financial, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the three month periods ended March 31, 2007 and 2006

Subsequent Event

On April 19, 2007, the Company announced the purchase of Meeker & Meeker, Inc., a property and casualty insurance agency. The acquisition is not material to the Company’s operations.

Item 3: Quantitative and Qualitative Disclosure About Market Risk

There has been no significant change from disclosures included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Item 4: Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure.

At the end of the period covered by this report, the Company’s management, with the participation of its chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 promulgated under the Exchange Act. Based upon this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective at March 31, 2007.

The Company’s management also conducted an evaluation of internal control over financial reporting to determine whether any changes occurred during the quarter ended March 31, 2007. Based on this evaluation, there were no changes in the Company’s internal control over financial reporting made during the quarter ended March 31, 2007, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Oak Hill Financial, Inc.

PART II – OTHER INFORMATION

Item 1: Legal Proceedings

Not applicable.

Item 1A: Risk Factors

There have been no material changes from risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3: Defaults Upon Senior Securities

Not applicable.

Item 4: Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5: Other Information

Not applicable.

Item 6: Exhibits

Exhibits:

Exhibit Number Description

31(a) Certification of Chief Executive Officer, R. E. Coffman, Jr., dated May 9, 2007, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (“SOX”).

31(b) Certification of Interim Chief Financial Officer, Dale B. Shafer, dated May 9, 2007, pursuant to Section 302 of SOX.

32(a) Certification of Chief Executive Officer, R. E. Coffman, Jr., dated May 9, 2007, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of SOX.

32(b) Certification of Interim Chief Financial Officer, Dale B. Shafer, dated May 9, 2007, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of SOX.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Oak Hill Financial, Inc.
Date: May 9, 2007	By:	/s/ R. E. Coffman, Jr.
		R. E. Coffman, Jr.
		President & Chief Executive Officer
Date: May 9, 2007	By:	/s/ Dale B. Shafer
		Dale B. Shafer
		Interim Chief Financial Officer

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