Oak Ridge Financial Services Announces Increased 2008 Earnings

Oak Ridge Financial Services, Inc. (NASDAQ CM: BKOR), the holding company for Bank of Oak Ridge, today reported annual 2008 net income and diluted earnings per share of $1,038,000 and 58 cents, respectively, compared with annual net income and diluted earnings per share of $1,005,000 and 55 cents, respectively, for the same period in 2007. For the fourth quarter of 2008, the company reported net income and diluted earnings per share of $218,000 and 12 cents, compared with net income and diluted earnings per share of $398,000 and 22 cents, respectively, for the same period in 2007.

Oak Ridge Financial Services President, Ron Black, in commenting on the results, noted, “We are pleased with our profitability in the fourth quarter of 2008, and our increased annual earnings from 2007 to 2008 given the challenging economic environment we are operating in. Our primary areas of focus for 2009 are servicing our existing loan portfolio while supporting our local economy by taking deposits, making loans, and providing financial advice for our clients in these difficult times. The community was very supportive of our bank in 2008 and we had significant increases in loans, deposits and noninterest income, and in early 2008 we opened our fifth banking office, which was our third in Greensboro. At December 31, 2008 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 locations in Oak Ridge, Summerfield and 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, 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.

Financial Highlights (dollars in thousands, except share and per share data)

Three months ended December 31,Year Ended December 31,
20082007Change20082007Change
Income Statement Data:
Total interest income $ 4,683 $ 4,484 4.4

%

$ 18,041 $ 16,374 10.2

%

Total interest expense 2,2952,477 (7.3 ) 9,2428,813 4.9
Net interest income 2,388 2,007 19.0 8,799 7,561 16.4
Provision for loan losses 266 175 52.0 603 448 34.6
Non-interest income 769 817 (5.9 ) 3,316 2,564 29.3
Non-interest expense 2,5572,025 26.3 9,8888,141 21.5
Net income before provision for income taxes 334 624 (46.5 ) 1,624 1,536 5.7
Provision for income taxes 116226 (48.7 ) 586531 10.4
Net income $218$398 (45.2 ) $1,038$1,005 3.3
Per share data and shares outstanding: (1)
Basic net income per share $ 0.12 $ 0.22 (45.5

)%

$ 0.58 $ 0.56 3.6

%

Diluted net income per share 0.12 0.22 (45.5 ) 0.58 0.55 5.5
Book value at period end 10.16 9.87 2.9 10.16 9.87 2.9
Weighted average number of common shares outstanding (000's):
Basic 1,791.5 1,791.5 -

%

1,791.5 1,790.5 0.1

%

Diluted 1,791.5 1,799.4 (0.4 ) 1,791.5 1,827.5 (2.0 )
Shares outstanding at period end 1,791.5 1,791.5 - 1,791.5 1,791.5 -
December 31,December 31,
Balance sheet data20082007Change
Total assets $ 320,672 $ 262,208 22.3 %
Loans receivable 245,481 212,821 15.3
Allowance for loan losses 2,450 2,120 15.6
Other interest-earning assets 55,807 31,724 75.9
Noninterest bearing deposits 18,181 14,771 23.1
Total deposits 270,604 218,516 23.8
Borrowings 30,248 24,248 24.7
Stockholders' equity 18,195 17,685 2.9

Three months ended

December 31,

Year Ended

December 31,

Selected performance ratios:2008200720082007
Return on average assets (2) 0.27 % 0.63 % 0.35 % 0.44 %
Return on average stockholders' equity (2) 4.75 9.06 5.81 5.94
Net interest margin (2)(3) 3.19 3.42 3.67 3.67
Net interest spread (2)(4) 2.89 2.96 2.95 3.12
Noninterest income as a % of total revenue 24.4 28.9 27.4 25.3
Noninterest income as a % of average assets (2) 1.0 1.3 1.1 1.1
Efficiency ratio (5) 80.99 71.71 81.62 80.40
Noninterest expense as a % of average assets (2) 3.2 3.2 3.4 3.6
December 31,December 31,December 31,
Asset quality ratios (at period end):200820072006
Nonperforming assets to period-end loans (6) 1.09 % 0.18 % 0.22 %
Allowance for loan losses to period-end loans 1.00 1.00 1.07
Allowance for loan losses to total assets 0.76 0.81 0.82
Net loan charge-offs to average loans outstanding (2) 0.12 0.02 0.03
December 31,December 31,December 31,
Capital and liquidity ratios:200820072006
Equity to assets ratio 5.7 % 6.7 % 8.8 %
Loans to deposits 90.7 97.4 87.5

Oak Ridge Financial Services, Inc.

Financial Highlights (dollars in thousands, except share and per share data)
Three months ended December 31,Year Ended December 31,
Total Revenue20082007Change20082007Change
Net interest income $2,388$2,007 19.0

%

$8,799$7,561 16.4

%

Fees and other revenue:
Service charges on deposit accounts 230 181 27.1 805 586 37.4
Mortgage loan origination fees 94 111 (15.3 ) 424 427 (0.7 )
Investment and insurance commissions 127 299 (57.5 ) 814 925 (12.0 )
Trading income (1 ) 6 (116.7 ) (2 ) (129 ) n/a
Fee income from purchase of accounts receivable 182 106 71.7 743 342 117.3
Income earned on bank owned life insurance 42 43 (2.3 ) 162 161 0.6
Other 9571 33.8 370252 46.8
Total noninterest income 769817 (5.9 ) 3,3162,564 29.3
Total revenue $3,157$2,824 11.8 $12,115$10,125 19.7
Three months ended December 31,Year Ended December 31,
Noninterest Expense20082007Change20082007Change
Salaries and employee benefits $ 1,329 $ 1,135 17.1 % $ 5,213 $ 4,491 16.1 %
Occupancy 172 126 36.5 605 493 22.7
Equipment 161 148 8.8 600 555 8.1
Data and items processing 147 86 70.9 480 309 55.3
Professional and advertising 258 190 35.8 1,109 907 22.3
Stationary and supplies 55 41 34.1 247 199 24.1
Telecommunications expense 60 48 25.0 254 212 19.8
Other 375251 49.4 1,380975 41.5
Total noninterest expense $2,557$2,025 26.3 $9,888$8,141 21.5
Three months ended December 31,Year Ended December 31,
Average Balances20082007Change20082007Change
Total assets $ 316,410 $ 250,381 26.4 % $ 293,157 $ 227,232 29.0 %
Loans receivable 243,494 204,905 18.8 232,351 182,152 27.6
Allowance for loan losses 2,421 2,041 18.6 2,304 1,872 23.1
Other interest-earning assets 53,501 28,311 89.0 42,605 29,290 45.5
Total deposits 277,192 231,103 19.9 227,607 184,608 23.3
Borrowings 30,263 25,994 16.4 28,969 21,516 34.6
Stockholders' equity 18,195 17,434 4.4 17,815 16,928 5.2

(1) Computed based on the weighted average number of shares outstanding during each period.

(2) Ratios for the three-month periods ended December 31, 2008 and 2007 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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