Oak Ridge Financial Services Announces Second Quarter 2009 Earnings

Oak Ridge Financial Services, Inc. (Nasdaq:BKOR), parent company of Oak Ridge Financial Services, Inc., headquartered in Oak Ridge, North Carolina, announced unaudited net income for the three months ended June 30, 2009, before adjusting for the effective dividend on preferred stock, of $242,000 compared to net income of $384,000 for the prior year period. After adjusting for $164,000 in dividends and accretion on preferred stock, net income available for common shareholders for the current period was $78,000 or $0.04 per diluted share compared with $0.21 per diluted share for the quarter ended June 30, 2008. Earnings in the current period were negatively impacted by higher loan loss provisions and other real estate owned write downs in response to current economic conditions, an increase in noninterest operating expenses, and a slight decrease in noninterest income, but were positively impacted by an increased net interest margin caused primarily by the Company’s liability rates decreasing faster than yields on earning assets.

Oak Ridge Financial Services President, Ron Black, in commenting on the results, noted, “Given the difficult economic environment, we are pleased with our profitability in the second quarter of 2009. During the first six months of 2009 our primary focus was servicing our loan portfolio, and we were very pleased with the results in this area, as evidenced by a decline in other real estate owned at June 30, 2009 from December 31, 2008, and stabilization in the level of nonperforming loans from December 31, 2008 to June 30, 2009. As a true community bank our primary purpose continues to be helping our clients succeed in this difficult economic environment.”

Mr. Black further commented “Our primary areas of focus for the rest of 2009 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 2009 and we had increases in loans and deposits. Lastly, at June 30, 2009 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, 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

June 30,

Six months ended

June 30,

20092008Change20092008Change
Income Statement Data:
Total interest income $ 5,045 $ 4,448 13.4 % $ 9,740 $ 8,901 9.4 %
Total interest expense 2,0322,228 (8.8 ) 4,2614,766 (10.6 )
Net interest income 3,013 2,220 35.7 5,479 4,135 32.5
Provision for loan losses 303 99 206.1 669 263 154.4
Non-interest income 865 897 (3.6 ) 1,694 1,651 2.6
Non-interest expense 3,2022,423 32.2 5,9774,831 23.7
Net income before provision for income taxes 373 595 (37.3 ) 527 692 (23.8 )
Provision for income taxes 131211 (37.9 ) 185247 (25.1 )
Net income $242$384 (37.0 ) $342$445 (23.1 )
Preferred stock dividends 97 - n/a 161 - n/a
Accretion of discount 67- n/a 111- n/a
Income available to common shareholders $78$384 (79.7 ) $70$445 (84.3 )
Per share data and shares outstanding: (1)
Basic net income per common share $ 0.04 $ 0.21

(81.0

) % $ 0.04 $ 0.25

(84.0

) %
Diluted net income per common share 0.04 0.21

(81.0

) 0.04 0.25

(84.0

)
Book value per common share at period end 11.22 9.26 21.2 11.22 9.26 21.2
Weighted average number of common shares outstanding (000's):
Basic 1,791.5 1,791.5 (0.0 ) % 1,791.5 1,791.5 - %
Diluted 1,791.5 1,796.2 (0.3 ) 1,791.5 1,797.7 (0.3 )
Shares outstanding at period end 1,791.5 1,791.5 - 1,791.5 1,791.5 (0.0 )

June 30,

2009

December 31,
2008
Balance sheet dataChange
Total assets $ 350,693 $ 320,672 9.4 %
Loans receivable 247,009 245,481 0.6
Allowance for loan losses 3,034 2,450 23.8
Other interest-earning assets 74,747 55,807 33.9
Noninterest-bearing deposits 20,263 18,181 11.5
Interest-bearing deposits 278,179 252,423 10.2
Borrowings 23,248 30,248 (23.1 )
Stockholders' equity 27,031 18,195 48.6

Three months ended

June 30,

Six months ended

June 30,

Selected performance ratios:2009200820092008
Return on average assets (2) 0.28 % 0.53 % 0.20

%

0.32 %
Return on stockholders' equity (2) 3.65 8.80 2.99 5.08
Return on common stockholders' equity (2) 2.97 8.80 2.12 5.08
Net interest margin (2)(3)

3.82

3.28

3.54

3.18
Net interest spread (2)(4)

3.61

2.95

3.30

2.87
Noninterest income as a % of total revenue 22.3 28.8 23.6 28.5
Noninterest income as a % of average assets (2) 1.0 1.2 1.0 1.2
Efficiency ratio (5) 82.57 77.74 83.33 83.49
Noninterest expense as a % of average assets (2) 3.7 3.4 3.5 3.4
June 30,
2009
December 31,
2008
Asset quality ratios (at period end):
Nonperforming assets to period-end loans (6) 1.06 % 1.09 %
Nonperforming assets to period-end assets (6) 0.74 0.61
Allowance for loan losses to period-end loans 1.23 1.00
Allowance for loan losses to total assets 0.87 0.76
Net loan charge-offs to average loans outstanding (2) 0.07 0.12
Oak Ridge Financial Services, Inc.
Financial Highlights (dollars in thousands, except share and per share data)
June 30,
2009
December 31,
2008
Capital and liquidity ratios:
Equity to assets ratio 7.7 % 5.7 %
Loans to deposits

82.2

90.7

Three months ended

June 30,

Six months ended

June 30,

Total Revenue20092008Change20092008Change
Net interest income $3,013$2,220 35.7 % $5,479$4,135 32.5 %
Fees and other revenue:
Service charges on deposit accounts 205 177 15.8 408 353 15.6
Mortgage loan origination fees 145 137 5.8 301 232 29.7
Investment and insurance commissions 162 244 (33.6 ) 336 450 (25.3 )
Fee income from purchase of accounts receivable 181 185 (2.2 ) 355 352 0.9
Income earned on bank owned life insurance 65 40 62.5 97 80 21.3
Other 107114 (6.1 ) 197184 7.1
Total noninterest income 865897 (3.6 ) 1,6941,651 2.6
Total revenue $3,878$3,117 24.4 $7,173$5,786 24.0

Three months ended

June 30,

Six months ended

June 30,

Noninterest Expense20092008Change20092008Change
Salaries and employee benefits $ 1,398 $ 1,262 10.8 % $ 2,784 $ 2,546 9.3 %
Occupancy 178 129 38.0 365 263 38.8
Equipment 174 140 24.3 344 280 22.9
Data and items processing 155 128 21.1 300 212 41.5
Professional and advertising 324 304 6.6 614 591 3.9
Stationary and supplies 53 36 47.2 108 98 10.2
Telecommunications expense 73 74 (1.4 ) 139 138 0.7
Other real estate expenses and writedowns 182 - n/a 302 - n/a
FDIC assessment 219 62 253.2 292 112 160.7
Accounts receivable financing expense 56 58 (3.4 ) 109 145 (24.8 )
Other-than-temporary impairment loss 105 - n/a 105 - n/a
Other 285230 23.9 515446 15.5
Total noninterest expense $3,202$2,423 32.2 $5,977$4,831 23.7

Three months ended

June 30,

Six months ended

June 30,

Average Balances20092008Change20092008Change
Total assets $ 348,769 $

288,299

21.0

% $ 341,419 $ 281,148 21.4 %
Loans receivable 248,438

230,875

7.6

248,647 225,398 10.3
Allowance for loan losses 2,797

2,292

22.0

2,682 2,232 20.2
Other interest-earning assets 67,513

40,341

67.3

63,485 35,757 77.5
Total deposits 297,231

238,642

24.6

308,700 234,577 31.6
Borrowings 23,248

30,176

(23.0

)

24,254 27,599 (12.1 )
Stockholders' equity 26,520 16,425 61.5 22,877 17,561 30.3
(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, 2009 and 2008 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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