Oak Hill Financial 10-Q 2007 Q2 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 June 30, 2007

Commission File Number: 0-26876

OAK HILL FINANCIAL, INC.

(Exact name of Registrant as specified in its charter)

Ohio	31-1010517
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

14621 S. R. 93
Jackson, Ohio	45640
(Address of principal executive office)	(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 T 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 T 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 T

As of July 30, 2007, the latest practicable date, 5,345,816 shares of the Registrant’s common stock, $.50 stated value, were outstanding.

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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	14
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4:	Controls and Procedures	19
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	20
Item 6:	Exhibits	20
Signatures		21
Certifications		22

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PART I – FINANCIAL INFORMATION

Item 1: Financial Statements

Oak Hill Financial, Inc.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share data)	June30, 2007			December 31, 2006
	(Unaudited)
ASSETS
Cash and cash equivalents
Cash and due from banks	$	20,202		$	20,955
Federal funds sold		245			818
Interest-bearing deposits in other banks		1,681			1,474
Total cash and cash equivalents		22,128			23,247
Investment securities designated as available for sale – at market		158,866			153,010
Investment securities designated as held to maturity – at cost (approximate market value of $1,804 and $2,712 at June 30, 2007 and December 31, 2006, respectively)		1,519			2,559
Loans receivable – net		1,024,510			1,017,983
Loans held for sale – at lower of cost or market		239			90
Mortgage servicing assets – at cost (approximate fair value of $3,566 and $3,719 at June 30, 2007 and December 31, 2006, respectively)		3,205			3,288
Office premises and equipment – net		28,389			27,765
Federal Home Loan Bank stock – at cost		8,078			8,078
Real estate acquired through foreclosure		2,375			5,258
Accrued interest receivable on loans		4,886			4,765
Accrued interest receivable on investment securities		1,019			1,023
Goodwill		8,485			7,935
Core deposit intangible – net		2,720			3,111
Bank owned life insurance		13,038			13,454
Prepaid expenses and other assets		4,839			1,938
Prepaid federal income taxes		1,218			1,086
Deferred federal income taxes		1,097			1,045
TOTAL ASSETS	$	1,286,611		$	1,275,635
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand	$	95,074		$	94,256
Savings and time deposits		863,126			848,704
Total deposits		958,200			942,960
Securities sold under agreements to repurchase		56,948			56,341
Advances from the Federal Home Loan Bank		147,914			157,584
Notes payable		312			–
Subordinated debentures		23,000			23,000
Accrued interest payable and other liabilities		5,449			4,993
Total liabilities		1,191,823			1,184,878
Stockholders’ equity
Common stock – $.50 stated value; authorized 15,000,000 shares,5,874,634 shares issued at June 30, 2007 and December 31, 2006		2,937			2,937
Additional paid-in capital		13,166			13,611
Retained earnings		95,208			90,877
Treasury stock (529,080 and 565,659 shares at June 30, 2007 and December 31, 2006, respectively – at cost)		(15,304	)		(16,368	)
Accumulated comprehensive loss:
Unrealized loss on securities designated as available for sale, net of related tax benefits		(1,219	)		(300	)
Total stockholders’ equity		94,788			90,757
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,286,611		$	1,275,635

See accompanying notes to consolidated financial statements.

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Oak Hill Financial, Inc.

CONSOLIDATED STATEMENTS OF EARNINGS

	For the						For the
	Six Months Ended						Three Months Ended
	June 30,						June 30,
(In thousands, except share data)	2007			2006			2007			2006
	(Unaudited)
INTEREST INCOME
Loans	$	38,165		$	35,272		$	19,176		$	17,903
Investment securities		3,550			3,026			1,804			1,561
Interest-bearing deposits and other		445			320			267			183
Total interest income		42,160			38,618			21,247			19,647
INTEREST EXPENSE
Deposits		17,664			15,098			9,026			7,856
Borrowings		5,884			4,309			2,877			2,271
Total interest expense		23,548			19,407			11,903			10,127
Net interest income		18,612			19,211			9,344			9,520
Provision for losses on loans		825			1,273			282			1,073
Net interest income after provision for losses on loans		17,787			17,938			9,062			8,447
OTHER INCOME
Service fees, charges and other operating		4,171			4,230			2,225			2,239
Commission income		1,750			1,693			934			873
Bank owned life insurance		1,232			269			1,115			119
Gain on sale of loans		350			542			203			333
Gain (loss) on sale of securities		121			104			34			(35	)
Loss on sale of other real estate owned		(373	)		(44	)		(4	)		(22	)
Total other income		7,251			6,794			4,507			3,507
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE
Employee compensation and benefits		8,918			8,404			4,472			4,104
Occupancy and equipment		2,301			1,980			1,137			987
Federal deposit insurance premiums		58			63			28			31
Franchise taxes		640			796			348			480
Other operating		4,801			4,761			2,712			2,437
Amortization of core deposit intangible		391			512			175			228
Total general, administrative and other expense		17,109			16,516			8,872			8,267
Earnings before federal income taxes		7,929			8,216			4,697			3,687
FEDERAL INCOME TAX
Current		912			1,389			184			679
Deferred		443			339			552			14
Total federal income tax		1,355			1,728			736			693
NET EARNINGS	$	6,574		$	6,488		$	3,961		$	2,994
EARNINGS PER SHARE
Basic	$	1.23		$	1.18		$	.74		$	.55
Diluted	$	1.22		$	1.16		$	.73		$	.54
DIVIDENDS PER SHARE	$	.42		$	.38		$	.21		$	.20

See accompanying notes to consolidated financial statements.

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Oak Hill Financial, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	For the						For the
	Six Months Ended						Three Months Ended
	June 30,						June 30,
(In thousands)	2007			2006			2007			2006
Net earnings	$	6,574		$	6,488		$	3,961		$	2,994
Other comprehensive income (loss), net of related tax effects:
Unrealized losses on securities designated as available for sale, net of benefits of $(452), $(758), $(529) and$(695), respectively		(840	)		(1,408	)		(983	)		(1,291	)
Reclassification adjustment for realized (gains) losses included in net earnings, net of taxes (benefits) of $42, $36, $12 and $(12), respectively		(79	)		(68	)		(22	)		23
Comprehensive income	$	5,655		$	5,012		$	2,956		$	1,726
Accumulated comprehensive loss	$	(1,219	)	$	(1,817	)	$	(1,219	)	$	(1,817	)

See accompanying notes to consolidated financial statements.

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Oak Hill Financial, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Six Months Ended
	June 30,
(In thousands)	2007			2006
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings for the period	$	6,574		$	6,488
Adjustments to reconcile net earnings to net cash provided byoperating activities:
Depreciation and amortization		867			730
Amortization of core deposit intangible		391			512
Gain on sale of securities		(121	)		(104	)
Amortization of premiums, discounts and mortgage servicing rights – net		457			384
Proceeds from sale of loans in secondary market		9,489			17,546
Loans disbursed for sale in secondary market		(9,438	)		(17,262	)
Gain on sale of loans		(200	)		(329	)
Amortization (accretion) of deferred loan origination (fees) costs		194			(227	)
Loss on sale of other real estate owned		373			44
Purchase of loans		–			(451	)
Federal Home Loan Bank stock dividends		–			(219	)
Provision for losses on loans		825			1,273
Compensation expense related to stock incentive plan		23			23
(Increase) decrease in cash surrender value of bank owned life insurance		416			(269	)
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets		(2,901	)		(1,696	)
Accrued interest receivable		(117	)		(13	)
Accrued interest payable and other liabilities		456			205
Federal income taxes
Current		(132	)		(246	)
Deferred		443			339
Net cash provided by operating activities		7,599			6,728
CASH FLOWS USED IN INVESTING ACTIVITIES:
Loan disbursements		(125,102	)		(163,667	)
Principal repayments on loans		116,993			153,156
Principal repayments on mortgage-backed securities designated as available for sale		14,917			7,343
Proceeds from sale of investment securities designated as available for sale		12,756			13,900
Proceeds from maturity of investment securities		11,941			1,172
Proceeds from disposition of assets		58			–
Proceeds from sale of other real estate owned		2,951			544
Purchase of investment securities designated as available for sale		(45,985	)		(33,210	)
Purchase of insurance agency		(238	)		–
Purchase of office premises and equipment		(1,549	)		(4,232	)
Net cash used in investing activities		(13,258	)		(24,994	)
Net cash used in operating and investing activities (balance carried forward)		(5,659	)		(18,266	)

See accompanying notes to consolidated financial statements.

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Oak Hill Financial, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	For the Six Months Ended
	June 30,
(In thousands)	2007			2006
	(Unaudited)
Net cash used in operating and investing activities (balance brought forward)	$	(5,659	)	$	(18,266	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from securities sold under agreement to repurchase		607			24,343
Net increase (decrease) in deposit accounts		15,250			(211	)
Proceeds from Federal Home Loan Bank advances		33,000			28,000
Repayments of Federal Home Loan Bank advances		(42,670	)		(26,642	)
Dividends on common shares		(2,243	)		(2,076	)
Purchase of treasury shares		–			(7,279	)
Proceeds from issuance of shares under stock option plan		442			367
Tax benefit of stock options exercised		154			118
Net cash provided by financing activities		4,540			16,620
Net decrease in cash and cash equivalents		(1,119	)		(1,646	)
Cash and cash equivalents at beginning of period		23,247			26,400
Cash and cash equivalents at end of period	$	22,128		$	24,754
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Federal income taxes	$	889		$	1,549
Interest on deposits and borrowings	$	23,805		$	19,369
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Unrealized losses on securities designated as available for sale, net of related tax benefits	$	(919	)	$	(1,476	)
Recognition of mortgage servicing rights in accordance with SFAS No. 140 and 156	$	150		$	213
Transfer from loans to real estate acquired through foreclosure	$	441		$	779
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of note payable in connection with the purchase of insurance agency	$	312		$	–
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 and six month periods ended June 30, 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 and six months ended June 30, 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 June 30, 2007, the Company had $371.3 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 $235.6 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 June 30, 2007, the Company had $147.9 million of outstanding FHLB advances and $7.4 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 and six month periods ended June 30, 2007 and 2006

3. Liquidity and Capital Resources (continued)

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 June 30, 2007, the Company had total off-balance sheet contractual commitments consisting of $15.9 million to originate loans, $125.6 million in unused lines of credit and letters of credit totaling $1.5 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 secured 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 June 30, 2007 by expiration period:

(In thousands)	One year or less		One to three years		After three years		Total
Loan commitments	$	15,947	$	-	$	-	$	15,947
Unused lines of credit		66,041		17,075		42,516		125,632
Letters of credit		1,298		212		-		1,510
	$	83,286	$	17,287	$	42,516	$	143,089

The table below details the amount of contractual obligations outstanding at June 30, 2007, by expiration date:

(In thousands)	One year or less		One to three years		After three years		Total
Advances and letters of credit from the Federal Home Loan Bank	$	38,400	$	48,308	$	68,606	$	155,314
Securities sold under agreement to repurchase		14,948		-		42,000		56,948
Subordinated debentures		-		-		23,000		23,000
Lease obligations		536		600		647		1,783
	$	53,884	$	48,908	$	134,253	$	237,045

4. Mortgage Servicing Assets

Activity with respect to the Company’s mortgage servicing assets for the periods ended June 30, 2007 and December 31, 2006 is as follows:

(In thousands)	June 30, 2007			December 31, 2006
Beginning balance	$	3,440		$	3,458
Recognition of mortgage servicing rights on sale of loans		150			367
Amortization		(194	)		(385	)
Ending balance		3,396			3,440
Beginning valuation allowance		(152	)		(130	)
Valuation allowance recorded		(39	)		(22	)
Valuation allowance recaptured		–			–
Ending valuation allowance		(191	)		(152	)
Net carrying value	$	3,205		$	3,288

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Oak Hill Financial, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three and six month periods ended June 30, 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 Six Months Ended June 30,				For the Three Months Ended June 30,
	2007		2006		2007		2006
Weighted-average common shares outstanding (basic)		5,333,287		5,512,408		5,341,939		5,457,931
Dilutive effect of assumed exercise of stock options		62,191		93,796		56,532		87,797
Weighted-average common shares outstanding (diluted)		5,395,478		5,606,204		5,398,471		5,545,728

Options to purchase 162,100 and 174,450 shares of common stock with a weighted-average exercise price of $34.90 and $34.99 were outstanding at June 30, 2007 and 2006, respectively, but were excluded from the computation of common share equivalents for the six and three month periods ended June 30, 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 and six month periods ended June 30, 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 and six month periods ended June 30, 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 has 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 the three and six months ended June 30, 2007 and 2006, the Company recorded $11,000 and $23,000 in compensation cost for equity-based awards that vested during the respective three and six month periods ($8,000 and $15,000 after-tax, respectively). The Company has $37,000 of total unrecognized compensation cost related to non-vested equity-based awards granted under its stock incentive plan as of June 30, 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 $154,000 and $118,000 of tax benefits classified as financing cash flows for the six months ended June 30, 2007 and June 30, 2006, respectively. At June 30, 2007, the intrinsic value of outstanding options totaled $1.4 million.

There were no options granted during the six months ended June 30, 2007 and June 30, 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 six months ended June 30, 2007 and the year ended December 31, 2006:

	Six Months Ended June 30, 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		(43,150	)		17.05		(33,300	)		15.89
Forfeited		(7,000	)		34.22		(16,550	)		34.14
Outstanding at end of period		384,233		$	23.77		434,383		$	23.27
Exercisable at end of period		381,233		$	23.63		429,383		$	23.16
Weighted-average remaining contractual term				5.9 years					6.3 years

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Oak Hill Financial, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three and six month periods ended June 30, 2007 and 2006

8. Share-based Compensation (continued)

The following is a summary of the changes in restricted stock for the six months ended June 30, 2007 and the year ended December 31, 2006:

	Six Months Ended June 30, 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 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 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 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.

10. Subsequent Event

On July 19, 2007 WesBanco, Inc. (“WesBanco”) and Oak Hill Financial (“Oak Hill”) entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) providing for the merger of Oak Hill with and into WesBanco.  Under the terms of the Agreement and Plan of Merger, WesBanco will exchange a combination of its common stock and cash for Oak Hill common stock. Oak Hill shareholders will be entitled to receive either 1.256 shares of WesBanco common stock or cash in the amount of $38.00 per share for each share of Oak Hill common stock held subject to an overall allocation of 90% stock and 10% cash in the exchange.  Common stock received by Oak Hill shareholders is anticipated to qualify as a tax-free exchange. The transaction has been approved by the directors of both companies.

Consummation of the merger is subject to a number of customary conditions, including but not limited to (i) the approval of the Merger Agreement by the shareholders of WesBanco and Oak Hill, and (ii) the receipt of the required regulatory approvals.  The transaction is expected to close in December 2007.

In connection with the Merger Agreement, WesBanco has identified approximately $50 million of loans which will be sold upon combination.  Such loans primarily consist of Oak Hill’s internally criticized assets or represent credit concentrations that are not consistent with WesBanco’s lending philosophy.

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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 six and three month periods ended June 30, 2007 and 2006

Discussion of Financial Condition Changes from December 31, 2006 to June 30, 2007

The Company’s total assets amounted to $1.3 billion at June 30, 2007, an increase of $11.0 million, or 0.9%, over the total at December 31, 2006. The increase in assets was funded primarily through an increase in deposits of $15.2 million, or 1.6%, and a $607,000, or 1.1%, increase in repurchase agreements, which were partially offset by a decrease of $9.7 million, or 6.1%, in FHLB advances.

Cash and due from banks, federal funds sold, and investment securities, including mortgage-backed securities, increased by $3.7 million, or 2.1%, to a total of $182.5 million at June 30, 2007, compared to December 31, 2006. Investment securities increased by $4.8 million, as purchases of $46.0 million exceeded maturities and repayments of $26.9 million and sales of $12.8 million.  Federal funds sold decreased by $573,000 during the six-month period ended June 30, 2007.

Loans receivable, including loans held for sale and mortgage servicing assets, totaled $1.0 billion at June 30, 2007, an increase of $6.6 million, or 0.6%, over the comparable totals at December 31, 2006.  Loan disbursements and purchases totaled $134.5 million during the six-month period ended June 30, 2007, which were partially offset by loan sales of $9.4 million and principal repayments of $117.0 million. Loan disbursements and purchases decreased by $46.4 million when compared to the same period in 2006.  Sales volume decreased by $7.8 million when compared to the same period in 2006.  Loan originations declined primarily in the consumer loan area as competition in our market areas continues to intensify.  Growth in the loan portfolio during the six months ended June 30, 2007 was comprised of a $16.4 million, or 2.3%, increase in commercial and residential real estate loans, a $2.1 million, or 3.9%, increase in construction and land development loans, and a $2,000, or 0.1%, increase in credit card loans, which were partially offset by an $11.6 million, or 10.7%, decrease in installment loans and a $400,000, or 0.3% decrease in commercial and other loans.  The allowance for loan losses totaled $12.7 million at June 30, 2007, a decrease of $176,000, or 1.4%, from the total at December 31, 2006.  The allowance for loan losses represented 1.22% and 1.25% of the total loan portfolio at June 30, 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 six and three month periods ended June 30, 2007 and 2006

Net charge-offs totaled approximately $1.0 million and $1.2 million for the six months ended June 30, 2007 and 2006, respectively. The Company’s allowance represented 88.8% and 95.2% of the nonperforming loans, which totaled $14.4 million and $13.6 million at June 30, 2007 and December 31, 2006, respectively. At June 30, 2007, nonperforming loans were comprised of $8.7 million of loans secured primarily by commercial real estate, $1.2 million in commercial and other loans, $4.1 million secured by one-to-four family residential real estate, and $378,000 in installment and credit card loans loans. 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 June 30, 2007.

Deposits totaled $958.2 million at June 30, 2007, an increase of $15.2 million, or 1.6%, over the total at December 31, 2006. Total savings and time deposits increased by $14.4 million, or 1.7% during the period. Total demand deposits increased by $818,000, or 0.9% during the period. Brokered deposits totaled $38.3 million, or 4.0% of total deposits, with a weighted-average cost of 4.46% at June 30, 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 and to pay down FHLB advances.

Advances from the Federal Home Loan Bank totaled $147.9 million at June 30, 2007, a decrease of $9.7 million, or 6.1%, from the total at December 31, 2006. Securities sold under agreements to repurchase totaled $56.9 million at June 30, 2007, an increase of $607,000, or 1.1%, over the total at December 31, 2006.

The Company’s stockholders’ equity amounted to $94.8 million at June 30, 2007, an increase of $4.0 million, or 4.4%, over the balance at December 31, 2006. The increase resulted primarily from net earnings of $6.6 million and proceeds from options and related tax benefits of $619,000, which were partially offset by dividends of $2.2 million and a $919,000 increase in the unrealized loss on securities available for sale, net of tax.

Comparison of Results of Operations for the Six-Month Periods Ended June 30, 2007 and 2006

General

Net earnings for the six months ended June 30, 2007 totaled $6.6 million, an $86,000, or 1.3%, increase over net earnings reported in the comparable 2006 period. The increase in earnings resulted primarily from a $448,000 decrease in the provision for losses on loans, a $457,000 increase in total other income, and a $373,000 decrease in the provision for federal income tax expense, which were partially offset by a $593,000 increase in general, administrative and other expenses and a $599,000 decrease in net interest income.

Net Interest Income

Total interest income for the six months ended June 30, 2007, amounted to $42.2 million, an increase of $3.5 million, or 9.2%, over the comparable 2006 period. Interest income on loans totaled $38.2 million, an increase of $2.9 million, or 8.2%, over the 2006 period. This increase resulted primarily from a $9.9 million, or 1.0%, increase in the average portfolio balance, to a total of $1.0 billion for the six months ended June 30, 2007, coupled with a 49 basis point increase in the average fully-taxable equivalent yield, to 7.41% for the six month period ended June 30, 2007. Interest income on investment securities and other interest-earning assets increased by $649,000, or 19.4%. This increase resulted primarily from a $20.8 million, or 14.0%, increase in the average portfolio balance, to a total of $169.0 million for the six months ended June 30, 2007, coupled with a 7 basis point increase in the average fully-taxable equivalent yield, to 5.46% for the six months ended June 30, 2007.

Total interest expense amounted to $23.5 million for the six months ended June 30, 2007, an increase of $4.1 million, or 21.3%, over the comparable 2006 period. Interest expense on deposits increased by $2.6 million, or 17.0%, to a total of $17.7 million for the six months ended June 30, 2007. The increase resulted primarily from a 69 basis point increase in the average cost of deposits, to 4.13%, which was partially offset by a $24.5 million, or 2.8%, decrease in the average portfolio balance for the six months ended June 30, 2007. Interest expense on borrowings increased by $1.6 million, or 36.6%, for the six months ended June 30, 2007. The increase was due to a $61.2 million, or 36.0%, increase in the average borrowings outstanding for the six months ended June 30, 2007, coupled with a 2 basis point increase in the average cost of borrowings, to 5.13% for the six months ended June 30, 2007.

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Oak Hill Financial, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the six and three month periods ended June 30, 2007 and 2006

As a result of the foregoing changes in interest income and interest expense, net interest income decreased by $599,000, or 3.1%, for the six months ended June 30, 2007, as compared to the same period in 2006. The interest rate spread decreased 23 basis points, to 2.80% for the six months ended June 30, 2007, compared to 3.03% for the six months ended June 30, 2006. The fully-taxable equivalent net interest margin decreased 19 basis points, from 3.41% to 3.22% for the six months ended June 30, 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 an $825,000 provision for losses on loans for the six months ended June 30, 2007, a decrease of $448,000, or 35.2%, compared to same period in 2006. The provision for losses on loans for the six months ended June 30, 2007 gives effect to the $6.7 million of growth in the loan portfolio, net charge-offs of $1.0 million, and an approximate $600,000 reduction in allowance allocations due to improvement in the credit quality of internally classified loans. These factors culminated in a reduction in the allowance for losses on loans to 1.22% of total loans at June 30, 2007.

Other Income

Other income totaled $7.3 million for the six months ended June 30, 2007, an increase of $457,000, or 6.7%, over the amount reported in the comparable 2006 period. This increase resulted primarily from a $996,000 non-taxable gain recorded on insurance proceeds from bank owned life insurance, a $57,000, or 3.4%, increase in commission income, and a $17,000, or 16.3%, increase in gain on sale of securities, which were partially offset by a $59,000, or 1.4%, decrease in service fees, charges and other income, a $192,000, or 35.4%, decrease in gain on sale of loans, and a $329,000 increase in loss on sale of other real estate owned.  The decrease in service charges and other income was due to the effects of amortization, impairment and impairment recovery of mortgage servicing asset which increased $166,000, a $42,000 decrease in real estate servicing fees, and a decrease in other miscellaneous non-interest income totaling $208,000, which were partially offset by an increase of $234,000 in service charges and deposits, and an increase in ATM fees totaling $123,000.  The $192,000 decline on gain on sale of loans is attributable to a decrease in sales volume of Small Business Administration and residential real estate loans with contributing effects of $122,000 and $70,000, respectively.  The increase in the loss of sale of other real estate owned is attributable to the sale during the period of a REO property with a carrying value totaling $3.0 million.

General, Administrative and Other Expense

General, administrative and other expense totaled $17.1 million for the six months ended June 30, 2007, an increase of $593,000, or 3.6%, over the amount reported in the 2006 period. The increase resulted primarily from a $514,000, or 6.1%, increase in employee compensation and benefits, a $40,000, or 0.8%, increase in other operating expenses, and a $321,000, or 16.2%, increase in occupancy and equipment expense in 2007, which were partially offset by a $156,000, or 19.6%, decrease in franchise taxes and a $121,000, or 23.6%, decrease in amortization of core deposit intangible.

   The increase in occupancy and equipment expense was due primarily to a $145,000, or 25.8%, increase in maintenance contracts and a $106,000, or 14.0%, increase in depreciation expense associated with the Company’s expansion in 2006.  Additionally, the Company experienced a $45,000, or 11.7%, increase in utilities, property taxes and insurance, and a $25,000, or 9.7%, increase in rent expense net of rental income.  The increase in compensation and benefits resulted primarily from a $368,000, or 29.4%, decrease in the amortization of net loan costs associated with SFAS No. 91, a $112,000, or 1.4%, increase in salaries and wages, a $38,000, or 5.6%, increase in payroll taxes, and a $16,000, or 20.4%, increase in director’s fees, which were partially offset by a $22,000, or 23.7%, decrease in other employee benefits.  The decrease in other expenses resulted primarily from a $152,000 decrease in costs associated with improvements to the Company’s core processing system, a $276,000, or 68.9%, decrease in dealer participation expense, a $125,000, or 33.5%, decrease in marketing expense, and a $28,000, or 25.3%, decrease in commissions paid, which were partially offset by a $222,000, or 40.4%, increase in credit and collection expense, a $90,000, or 27.0%, increase in ATM expense, a $46,000, or 70.9%, increase in employee training, a $62,000 increase in losses associated with bad checks and overdrafts in 2007, a $27,000, or 11.2%, increase in courier expense, and a $149,000 unfavorable mark-to-market adjustment on the Company’s interest rate swaps.

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Oak Hill Financial, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the six and three month periods ended June 30, 2007 and 2006

Federal Income Taxes

The provision for federal income taxes totaled $1.4 million for the six months ended June 30, 2007, a decrease of $373,000, or 21.6%, from the amount recorded in the comparable 2006 period. The decrease resulted primarily from a $50,000 increase in New Markets Tax Credits pursuant to the Bank’s qualified investment in Oak Hill Community Development Corp. and the absence of tax effects associated with the $996,000 non-taxable gain related to insurance proceeds from bank owned life insurance, all of which were partially offset by a $365,000, or 4.4%, increase in earnings before taxes.  The effective tax rates were 17.1% and 21.0% for the six months ended June 30, 2007 and 2006, respectively.

Comparison of Results of Operations for the Three-Month Periods Ended June 30, 2007 and 2006

General

Net earnings for the three months ended June 30, 2007 totaled $4.0 million, a $967,000, or 32.3%, increase over net earnings reported in the comparable 2006 period. The increase in earnings resulted primarily from a $791,000 decrease in the provision for losses on loans and a $1.0 million increase in other income, which were partially offset by a $43,000 increase in the provision for federal income tax, a $176,000 decrease in net interest income, and a $605,000 increase in general, administrative and other expenses.

Net Interest Income

Total interest income for the three months ended June 30, 2007, totaled $21.2 million, an increase of $1.6 million, or 8.1%, from the comparable 2006 period. Interest income on loans totaled $19.2 million, an increase of $1.3 million, or 7.1%, over the 2006 period. This increase resulted primarily from a $11.2 million, or 1.1%, increase in the average portfolio balance, to a total of $1.0 billion for the three months ended June 30, 2007, coupled with a 41 basis point increase in the average fully-taxable equivalent yield, to 7.38% for the three month period ended June 30, 2007. Interest income on investment securities and other interest-earning assets increased by $327,000, or 18.8%. This increase resulted primarily from a $20.5 million, or 13.5%, increase in the average portfolio balance, to a total of $172.2 million for the three months ended June 30, 2007, coupled with a 9 basis point increase in the average fully-taxable equivalent yield, to 5.49% for the three months ended June 30, 2007.

Total interest expense amounted to $11.9 million for the three months ended June 30, 2007, an increase of $1.8 million, or 17.5%, over the comparable 2006 period. Interest expense on deposits increased by $1.2 million, or 14.9%, to a total of $9.0 million for the three months ended June 30, 2007. The increase resulted primarily from a 62 basis point increase in the average cost of deposits, to 4.16%, which was partially offset by an $18.8 million, or 2.1%, decrease in the average portfolio balance, to a total of $870.4 million for the three months ended June 30, 2007. Interest expense on borrowings increased by $606,000, or 26.7%, for the three months ended June 30, 2007. The increase was due to a $51.8 million, or 29.6%, increase in the average borrowings outstanding for the three months ended June 30, 2007 and a 12 basis point increase in the average cost of borrowings, to 5.08% for the three months ended June 30, 2007.

As a result of the foregoing changes in interest income and interest expense, net interest income decreased by $176,000, or 1.8%, for the three months ended June 30, 2007, as compared to the same period in 2006. The interest rate spread decreased 19 basis points, to 2.76% for the three months ended June 30, 2007, compared to 2.95% for the three months ended June 30, 2006. The fully-taxable equivalent net interest margin decreased 15 basis points, from 3.34% to 3.19% for the three months ended June 30, 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 $282,000 provision for losses on loans for the three months ended June 30, 2007, a decrease of $791,000, or 73.7%, compared to same period in 2006. The provision for losses on loans for the three months ended June 30, 2007 was primarily predicated upon the $2.5 million decline in the loan portfolio and an approximate $600,000 reduction in allowance allocations related to improvement in the credit quality of internally classified loans. These factors culminated in a reduction in the allowance for losses on loans to 1.22% of total loans at June 30, 2007.

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Oak Hill Financial, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the six and three month periods ended June 30, 2007 and 2006

Other Income

Other income totaled $4.5 million for the three months ended June 30, 2007, an increase of $1.0 million, or 28.5%, over the amount reported in the comparable 2006 period. This increase resulted primarily from a $996,000 non-taxable gain recorded on insurance proceeds from bank owned life insurance, a $61,000, or 7.0%, increase in commission income, a $69,000 increase in gain on investment securities transactions, and an $18,000, or 81.8%, decrease in loss on other real estate owned , which were partially offset by a $130,000, or 39.0%, decrease in gain on sale of loans and a $14,000, or 0.6%, decrease in service fees, charges and other income. The decrease in service charges and other income was due to the effects of amortization, impairment and impairment recovery of mortgage servicing assets totaling $37,000, a $21,000 decrease in real estate servicing fees, and a decrease in other miscellaneous non-interest income totaling $239,000, which were partially offset by an increase of $211,000 in service charges and deposits and an increase in ATM fees totaling $72,000 in the 2007 quarter.

General, Administrative and Other Expense

General, administrative and other expense totaled $8.9 million for the three months ended June 30, 2007, an increase of $605,000, or 7.3%, over the amount reported in the 2006 period. The increase resulted primarily from a $368,000, or 9.0%, increase in employee compensation and benefits, a $150,000, or 15.2%, increase in occupancy and equipment, and an $87,000, or 2.7%, net increase in the operating expense categories of deposit insurance, amortization of core deposit intangible, franchise taxes, and other operating expenses.

The increase in occupancy and equipment expense was due primarily to a $46,000, or 16.2%, increase in maintenance contracts and a $57,000, or 14.7%, increase in depreciation expense.  Additionally, the Company experienced a $24,000, or 13.5%, increase in utilities, property taxes and insurance, and a $23,000 increase in rent expense net of rental income.  The increase in compensation and benefits resulted primarily from a $214,000, or 5.3%, increase in salaries and wages, a $32,000, or 10.7%, increase in payroll taxes, a $119,000, or 17.9%, decrease in net loan costs capitalized pursuant to SFAS No. 91, and a $15,000, or 43.9%, increase in director’s fees, which were partially offset by a $12,000, or 29.6%, decrease in other employee benefits.  The increase in other expenses resulted primarily from $204,000, or 66.5%, increase in credit and collection expense, a $99,000 increase in contributions, a $40,000, or 23.1%, increase in ATM expense, and a $58,000 increase in employee training, which were partially offset by a $54,000 decrease in costs associated with improvements to the Company’s core processing system, a $125,000, or 64.3%, decrease in dealer participation expense, and a $132,000, or 27.5%, decrease in franchise tax expense.

Federal Income Taxes

The provision for federal income taxes amounted to $736,000 for the three months ended June 30, 2007, an increase of $43,000, or 6.2%, over the amount recorded in the comparable 2006 period. The increase resulted primarily from a $1.0 million, or 27.4%, increase in earnings before taxes, which was more than  offset by a $25,000 increase in New Markets Tax Credits and the $996,000 non-taxable gain related to insurance proceeds from bank owned life insurance. The effective tax rates were 15.7% and 18.8% for the three months ended June 30, 2007 and 2006, respectively.

Subsequent Event

As previously discussed, on July 19, 2007 WesBanco, Inc. (“WesBanco”) and Oak Hill Financial (“Oak Hill”) entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) providing for the merger of Oak Hill with and into WesBanco.  Under the terms of the Agreement and Plan of Merger, WesBanco will exchange a combination of its common stock and cash for Oak Hill common stock. Oak Hill shareholders will be entitled to receive either 1.256 shares of WesBanco common stock or cash in the amount of $38.00 per share for each share of Oak Hill common stock held subject to an overall allocation of 90% stock and 10% cash in the exchange.  Common stock received by Oak Hill shareholders is anticipated to qualify as a tax-free exchange. The transaction has been approved by the directors of both companies.

Consummation of the merger is subject to a number of customary conditions, including but not limited to (i) the approval of the Merger Agreement by the shareholders of WesBanco and Oak Hill, and (ii) the receipt of the required regulatory approvals.  The transaction is expected to close in December 2007.

In connection with the Merger Agreement, WesBanco has identified approximately $50 million of loans which will be sold upon combination.  Such loans primarily consist of Oak Hill’s internally criticized assets or represent credit concentrations that are not consistent with WesBanco’s lending philosophy.

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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 June 30, 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 June 30, 2007. Based on this evaluation, there were no changes in the Company’s internal control over financial reporting made during the quarter ended June 30, 2006, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item1: 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

(a) The Company had its 2007 Annual Meeting of Shareholders (“Annual Meeting”) on April 17, 2007. Holders of 4,194,766 common shares of the Company were present, in person or by proxy, representing 78.6% of the Company’s 5,338,543 common shares outstanding.

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Item 4: Submission of Matters to a Vote of Security Holders (continued)

(b) and (c) The following persons were elected Class I members of the Company’s Board of Directors to serve until the 2009 Annual Meeting or until their successors are duly elected and qualified. Each person received the number of votes indicated below:

Name	Votes For		Votes Withheld
R. E. Coffman, Jr.		3,841,342		353,424
John D. Kidd		3,872,695		322,071
D. Bruce Knox		3,871,645		323,121
Neil S. Strawser		3,871,638		323,128

The continuing Class II Directors, whose terms expire at the 2008 Annual Meeting, are Candice R. DeClark-Peace, Barry M. Dorsey, Ed.D, Donald R. Seigneur, William S. Siders, H. Grant Stephenson, and Donald P. Wood.

The proposal for ratification of the appointment of Grant Thornton LLP as independent registered public accounting firm for the Company for the year ending December 31, 2007, was approved with 4,161,147 votes FOR, 28,903 votes AGAINST and 4,716 votes ABSTAIN.

Item 5: Other Information

Not applicable.

Item 6: Exhibits

Exhibits:

Exhibit Number	Description
31.1	Certification of Chief Executive Officer, R. E. Coffman, Jr., dated July 31, 2007, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (“SOX”).
31.2	Certification of Chief Financial Officer, Dale B. Shafer, dated July 31, 2007, pursuant to Section 302 of SOX.
32.1	Certification of Chief Executive Officer, R. E. Coffman, Jr., dated July 31, 2007, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of SOX.
32.2	Certification of Chief Financial Officer, Dale B. Shafer, dated July 31, 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: July 31, 2007	By	/s/ R. E. Coffman, Jr.
		R. E. Coffman, Jr.
		President & Chief Executive Officer
Date: July 31, 2007	By:	/s/ Dale B. Shafer
		Dale B. Shafer
		Interim Chief Financial Officer

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