August 16, 2010 at 19:57 PM EDT
Oak Ridge Financial Services Announces Second Quarter 2010 Results

Oak Ridge Financial Services, Inc. (Nasdaq:BKOR), parent company of Bank of Oak Ridge, headquartered in Oak Ridge, North Carolina, announced unaudited net income for the three months ended June 30, 2010, before adjusting for the effective dividend on preferred stock, of $15,000 compared to net income of $242,000 for the prior year period. After adjusting for $182,000 in dividends and accretion on preferred stock, net loss available for common shareholders for the current period was $167,000 or $0.09 per diluted share compared with diluted earnings per share of $0.04 for the quarter ended June 30, 2009. Earnings in the current period were positively impacted by an increased net interest margin as well as an increase in noninterest income. Negatively impacting net income were higher loan loss provisions in response to continuing economic weaknesses both locally and nationally, as well as an increase in noninterest operating expenses driven in part by a $300,000 Employee Stock Ownership Plan (“ESOP”) accrual.

Oak Ridge Financial Services President, Ron Black, in commenting on the results, noted, “Given the difficult economic environment, we are pleased that we were profitable in the second quarter of 2010 and were able to reduce our nonperforming assets from March 31, 2010 to June 30, 2010. Additionally, net income includes a $300,000 pretax ESOP accrual that the Company plans to use as an option to increase our common equity at some point in the future. We believe that the ESOP is a cost effective way to raise capital in this challenging economic environment.”

Mr. Black further commented “Our primary areas of focus for the rest of 2010 will be continuing to service our loan and other real estate owned portfolios and growing net interest income and noninterest income by providing extraordinary service to existing and prospective clients. We plan to continue to support our local economy by taking deposits, making loans, and providing financial advice for our clients in these difficult times. The community was incredibly supportive of our Bank in the first six months of 2010 and we had increases in loans and deposits. Lastly, at June 30, 2010 we were well-capitalized with ample capital for future growth. ”

About Bank of Oak Ridge

Bank of Oak Ridge, headquartered in Oak Ridge, NC, is a community Bank with five banking offices in Oak Ridge, Summerfield and Greensboro. The Bank’s independent financial advisory division, Oak Ridge Wealth Management, operates out of an office in downtown Greensboro. The Bank offers a complete line of banking and investment services, including savings and checking accounts, mortgage and business loans, extended weekday and Saturday branch banking hours, same-day deposits, cash management services, business and personal internet banking with balance alerts and reminders, internet bill payment, remote check capture for businesses, mobile banking and accounts designed specifically for seniors, small businesses and civic organizations. For more information, contact Bank of Oak Ridge at 336-644-9944, or visit www.bankofoakridge.com.

Forward-looking Information

This form contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Company. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management of the Company and on the information available to management at the time that these disclosures were prepared. These statements can be identified by the use of words like “expect,” “anticipate,” “estimate” and “believe,” variations of these words and other similar expressions.Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, (1) competition in the Company’s markets, (2) changes in the interest rate environment, (3) general national, regional or local economic conditions may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and the possible impairment of collectibility of loans, (4) legislative or regulatory changes, including changes in accounting standards, (5) significant changes in the federal and state legal and regulatory environment and tax laws, (6) the impact of changes in monetary and fiscal policies, laws, rules and regulations and (7) other risks and factors identified in the Company’s other filings with the Federal Deposit Insurance Corporation. The Company undertakes no obligation to update any forward-looking statements.

Oak Ridge Financial Services, Inc.
Unaudited Financial Highlights (dollars in thousands, except share and per share data)
(Unaudited)
Three months ended June 30,Six months ended June 30,
20102009Change20102009Change
Income Statement Data:
Total interest income $ 4,448 $ 5,045 (11.8 ) % $ 9,081 $ 9,740 (6.8 ) %
Total interest expense 1,2092,032 (40.5 ) 2,5184,261 (40.9 )
Net interest income 3,239 3,013 7.5 6,563 5,479 19.8
Provision for loan losses 784 303 158.7 1,137 669 70.0
Noninterest income 1,016 865 17.5 2,211 1,694 30.5
Noninterest expense 3,482 3,202 8.7 6,641 5,977 11.1
Income tax expense (benefit) (26)131 (119.8 ) 342185 84.9
Net income $15$242 (93.8 ) $654$342 91.2
Preferred stock dividends 96 97 (1.0 ) 192 161 19.3
Accretion of discount 8667 28.4 172111 55.0
Income (loss) available to common shareholders $(167)$78 (314.1 ) $290$70 314.3
Per share data and shares outstanding:
Basic net income (loss) per share (1) $ (0.09 ) $ 0.04 (325.0 ) % $ 0.16 $ 0.04 300.0 %
Diluted net income (loss) per share (1) (0.09 ) 0.04 (325.0 ) 0.16 0.04 300.0
Book value per common share at period end 11.90 11.19 6.4 11.90 11.19 6.4
Weighted average number of common shares outstanding (000's):
Basic 1,791.5 1,791.5 - % 1,791.5 1,791.5 - %
Diluted 1,791.5 1,791.5 - 1,791.5 1,791.5 -
Shares outstanding at period end 1,791.5 1,791.5 - 1,791.5 1,791.5 -
June 30,December 31,
Balance sheet data20102009Change
Total assets $ 342,702 $ 338,048 1.4 %
Loans receivable 253,322 251,300 0.8
Allowance for loan losses 3,814 3,667 4.0
Other interest-earning assets 68,583 65,812 4.2
Noninterest-bearing deposits 25,363 20,520 23.6
Interest-bearing deposits 269,968 271,164 (0.4 )
Borrowings 17,248 17,248 -
Stockholders' equity 27,993 27,592 1.5
Three months ended June 30,Six months ended June 30,
Selected performance ratios:2010200920102009
Return on average assets (2) 0.02 % 0.28 % 0.38 % 0.20 %
Return on average stockholders' equity (2) (3.11 ) 1.60 2.73 0.83
Net interest margin (2)(3) 3.27 3.82 3.10 3.54
Net interest spread (2)(4) 2.99 3.61 2.85 3.30
Noninterest income as a % of total revenue 23.9 22.3 25.2 23.6
Noninterest income as a % of average assets (2) 1.2 1.0 1.3 1.0
Efficiency ratio (5) 81.83 82.57 75.69 83.33
Noninterest expense as a % of average assets (2) 4.0 3.7 3.9 3.5
June 30,December 31,June 30,
Asset quality ratios (at period end):201020092009
Nonperforming assets to period-end loans (6) 2.64 % 1.61 % 1.06 %
Nonperforming assets to period-end assets (6) 1.95 % 1.20 % 0.75 %
Allowance for loan losses to period-end loans 1.51 1.20 0.74
Allowance for loan losses to total assets 1.11 1.46 1.23
Net loan charge-offs to average loans outstanding (2) 0.79 0.54 0.07
Oak Ridge Financial Services, Inc.
Unaudited Financial Highlights (dollars in thousands, except share and per share data)
(Unaudited)
June 30,December 31,June 30,
Capital ratios (Bank of Oak Ridge):201020092009
Total capital ratio 11.5 % 11.5 % 10.6 %
Tier 1 capital ratio 10.3 10.2 9.5
Leverage capital ratio 8.2 8.1 7.6
Three months ended June 30,Six months ended June 30,
Total Revenue20102009Change20102009Change
Net interest income $3,239$3,013 7.5 % $6,563$5,479 19.8 %
Fees and other revenue:
Service charges on deposit accounts 194 205 (5.4 ) 394 408 (3.4 )
Gain on sale of securities - - n/a 386 - n/a
Mortgage loan origination fees 123 145 (15.2 ) 184 301 (38.9 )
Investment and insurance commissions 278 162 71.6 470 336 39.9
Fee income from accounts receivable financing 236 181 30.4 426 355 20.0
Debit card interchange income 122 84 45.2 226 155 45.8
Income earned on bank owned life insurance 41 65 (36.9 ) 84 97 (13.4 )
Other service charges and fees 2223 (4.3 ) 4142 (2.4 )
Total noninterest income 1,016865 17.5 2,2111,694 30.5
Total revenue $4,255$3,878 9.7 $8,774$7,173 22.3
Three months ended June 30,Six months ended June 30,
Noninterest Expense20102009Change20102009Change
Salaries $ 1,320 $ 1,256 5.1 % $ 2,718 $ 2,484 9.4 %
Employee benefits 463 142 226.1 616 300 105.3
Occupancy expense 224 178 25.8 460 365 26.0
Equipment expense 225 174 29.3 419 344 21.8
Data and item processing 186 155 20.0 341 300 13.7
Professional and advertising 303 324 (6.5 ) 737 614 20.0
Stationary and supplies 68 53 28.3 129 108 19.4
Net loss on sale of foreclosed and repossessed assets 52 182 (71.4 ) 45 302 (85.1 )
Telecommunications expense 60 73 (17.8 ) 117 139 (15.8 )
FDIC assessment 138 219 (37.0 ) 269 292 (7.9 )
Accounts receivable financing expense 84 56 50.0 143 109 31.2
Other-than-temporary impairment loss 21 105 (80.0 ) 21 105 (80.0 )
Other 338285 18.6 626515 21.6
Total noninterest expense $3,482$3,202 8.7 $6,641$5,977 11.1
Three months ended June 30,Six months ended June 30,
Average Balances20102009Change20102009Change
Total assets $ 345,375 $ 348,769 (1.0 ) % $ 344,159 $ 341,419 0.8

%

Loans receivable 251,166 248,438 1.1 251,572 248,647 1.2
Allowance for loan losses 3,933 2,292 71.6 3,880 2,682 44.7
Other interest-earning assets 70,489 40,341 74.7 51,957 63,485 (18.2 )
Total deposits 274,282 238,642 14.9 292,159 294,288 (0.7 )
Total noninterest bearing deposits 22,907 21,506 6.5 21,568 23,420 (7.9 )
Borrowings 17,248 23,248 (25.8 ) 17,265 24,254 (28.8 )
Stockholders' equity 28,190 26,520 6.3 28,037 22,877 22.6
(1) Computed based on the weighted average number of shares outstanding during each period.
(2) Ratios for the three- and six-month periods ended June 30, 2010 are presented on an annualized basis.
(3) Net interest margin is net interest income divided by average interest earning assets.

(4) Net interest spread is the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities.

(5) Efficiency ratio is noninterest expense divided by the sum of net interest income and noninterest income.

(6) Nonperforming assets consist of non-accruing loans, restructured loans and foreclosed assets, where applicable.

Contacts:

Oak Ridge Financial Services, Inc.
Ron Black, President & CEO, 336-644-9944
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