OREANDA-NEWS. Oak Ridge Financial Services, Inc. (“Oak Ridge”; the “Company”) (OTCPink:BKOR), the parent company of Bank of Oak Ridge (the “Bank”), announced unaudited financial results for the second quarter of 2016 today.

The Company’s net income for the second quarter of 2016 was $743,000 compared to net income of $855,000 for the second quarter of 2015, a decrease of $112,000.  Net income available to common stockholders for the second quarter of 2016 was $626,000 compared to net income of $738,000 for the second quarter of 2015, a decrease of $112,000.  Basic and diluted income per common share decreased $0.08 to $0.26 for the second quarter of 2016 compared to diluted income per common share of $0.34 in the second quarter of 2015.

The Company’s net income for the first six months of 2016 was $1.3 million compared to net income of $1.6 million for the same period in 2015, a decrease of approximately $264,000.  Net income available to common stockholders for the first six months of 2016 was $1.1 million compared to net income of $1.3 million for the same period in 2015, a decrease of $264,000.  Basic and diluted income per common share decreased $0.15 to $0.46 for the first six months of 2016 compared to diluted income per common share of $0.61 for the same period in 2015. A gain on sale of investment securities of $674,000 in the three months ended March 31, 2015 offset by higher expenses in the three months ended March 31, 2015 in net cost of foreclosed assets and other expenses were the primary reasons for the higher net income in the six months ended June 30, 2016 compared to the same period in 2015. 

Profitability as measured by the Company’s annualized return on average assets was 0.81% and 0.95% for the three months ended June 30, 2016 and 2015, respectively. For the six months ended June 30, 2016 and 2015, annualized return on average assets was 0.71% and 0.88%, respectively.

Tom Wayne, President and Chief Financial Officer of the Company and the Bank, commented, “In the second quarter of 2016, there were multiple important accomplishments and milestones achieved.  First, we successfully deployed two interactive teller machines in the drive-thru lanes at each of our four branches, becoming the first North Carolina community bank to use this innovative technology to serve our clients. This new delivery channel allowed us to increase our full-service teller hours by 31% (Monday – Friday 7 am to 7 pm, Saturday 9 am to 1 pm) while essentially keeping our headcount the same as it was before we introduced the delivery channel. Second, on June 29, 2016, we closed on a subordinated debenture issuing totaling approximately $5.5 million net of fees, and on June 30, 2016, used the proceeds from the subordinated debenture issue to redeem the remaining $5.2 million in Series A Preferred Stock. Going forward, this will result in an estimated $219,000 or $0.09 per common share in annual after-tax savings which will accrue to common shareholders. Third, we continued to grow both loans and deposits in the second quarter of 2016 as compared to December 31, 2016. I am thankful for the continued support of our clients, employees and the Board of Directors during the second quarter of 2016.” 

The Company produced net interest income of $3.4 million during the three months ended June 30, 2016, which was approximately the same as net interest income during the same time period of 2015. Although total interest and dividend income increased $64,000 from 2015 to 2016, the increase was almost entirely offset by a $62,000 increase in interest expense during the same time period.

Noninterest income increased $86,000 or approximately 13.4% to $726,000 during the three months ended June 30, 2016 as compared to the same time period of 2015. The majority of the net increase was associated with a $64,000 lawsuit settlement received during the three months ended June 30, 2016 related to private label mortgage-backed-securities purchased by the Bank between 2008 and 2010, which was recorded in other service charges and fees. Additionally, a $36,000 impairment loss on securities was recorded during the three months ended June 30, 2015 where no impairment loss on securities was recorded during the same period in 2016. The remaining net decrease was caused by smaller increases and decreases in other noninterest income categories.

Noninterest expense increased $104,000 for the three months ended June 30, 2016 compared to the same period in 2015. Salaries were $1.6 million for the three months ended June 30, 2016 compared to $1.5 million during the same period in 2015.  Most of the increase during the period was caused by annual merit increases which occur on January 1 of each year. Employee benefits were $234,000 for the three months ended June 30, 2016 compared to $136,000 during the same period in 2015. Higher Employee Stock Ownership Plan accruals and employee health insurance contributed to most of the overall net increase in employee benefits from 2015 to 2016. Data and items processing expense increased from 2015 to 2016 due to the Bank’s continued investment in client facing and internal technology, including the eight new interactive teller machines the Bank put in service during the second quarter of 2016. Net cost of foreclosed assets declined from $41,000 for the three months ended June 30, 2015 to $0 for the three months ended June 30, 2016 due to a sharp decrease in foreclosed assets from 2015 to 2016. Other expense was $199,000 for the three months ended June 30, 2016 compared to $284,000 during the same period in 2015. Decreases in foreclosure expenses, educational conference expenses, and deposit related losses were the primary contributors to the decrease from 2015 to 2016. Other smaller increases and decreases in expense categories contributed to the remainder of the net decrease in noninterest expense from 2015 to 2016.

The Company produced net interest income of $6.7 million during the first six months of 2016, which was $38,000 lower than the amount recorded for the same time period in 2015. The decrease was primarily caused by higher interest expense, which increased $72,000 or approximately 7.1% to $1.1 million for the six months ended June 30, 2016 as compared to the same time period of the prior year. Total interest and dividend income increased $34,000 in the six months ended June 30, 2016 to $7.8 million, compared to the same period in 2015.  

Noninterest income decreased $635,000 or approximately 32.4% to $1.3 million during the six months ended June 30, 2016 as compared to the same time period of 2015. The majority of the net decrease was associated with gains on sale of securities of $674,000 in the first six months of 2015 compared to no gain on sale of securities during the same period in 2015. Smaller increases and decreases made up the remainder of the net increase in noninterest income in 2016 compared to 2015.

Noninterest expense was $6.2 million for the six months ended June 30, 2016 compared to $6.7 million for the same period in 2015. Decreases in net cost of foreclosed assets and other expenses contributed to most of the net increase. Losses on disposals of other real estate owned in 2015 compared to $13,000 in losses in 2016 caused the decrease in net cost of foreclosed assets. Lower expenses in 2016 compared to 2015 associated with nonperforming assets, dues and subscriptions, educational conference expenses, and deposit related losses contributed to the majority of the decrease in other expenses.

Total assets as of June 30, 2016 were $370.7 million, up approximately 2.6% or $9.5 million from $361.2 million as of December 31, 2015. The principal components of the Company’s assets as of June 30, 2016 were $286.1 million in net loans, $16.9 million in cash and cash equivalents and $48.9 million in available-for-sale and held-to-maturity securities. As of June 30, 2016, net loans were $286.1 million, up approximately 3.7% or $10.2 million from $276.0 million as of December 31, 2015. Cash and cash equivalents decreased approximately 6.1% or $1.1 million from $18.0 million as of December 31, 2015, and available-for-sale and held-to-maturity investment securities increased approximately 1.3% or $605,000 from $48.3 million as of December 31, 2015.

The allowance for loan losses was $3.8 million as of June 30, 2016, which represented 1.32% of total loans outstanding. The allowance for loan losses was $3.9 million, or 1.39% of total loans outstanding, as of December 31, 2015.  Material improvements in asset quality over the last year lowered the Company’s nonperforming assets to total assets to 0.82% as of June 30, 2016 compared to 1.14% as of June 30, 2015. Nonperforming assets decreased to $3.0 million as of June 30, 2016 from $4.1 million as of June 30, 2015.  This 26.2% decrease has been driven by significant efforts by the Bank to dispose of nonperforming assets. Nonperforming assets to total assets decreased from 1.14% as of December 31, 2015 to 0.83% as of June 30, 2016.

Total liabilities as of June 30, 2016 were $343.6 million, up approximately 3.6% or $12.0 million from $331.5 million as of December 31, 2015. Higher levels of deposits drove the increase and were up $12.9 million or 4.2%, from December 31, 2015 to June 30, 2016. Changes in liabilities other than deposits contributed to the remaining change in total liabilities. Short- and long-term borrowings decreased $6.5 million and $250,000, respectively from December 31, 2015 to June 30, 2016. Subordinated debentures, net of legal and commission fees, were issued in the amount of $5.5 million on June 29, 2016, and $5.2 million of the proceeds from the subordinated debentures were used to redeem the Series A Preferred stock on June 30, 2016.

Total stockholders’ equity as of June 30, 2016 was $27.2 million as compared to total stockholders’ equity as of December 31, 2015 of $29.7 million. As noted above, the Company redeemed the Series A Preferred stock of $5.2 million on June 30, 2016. Increases from December 31, 2015 to June 30, 2016 in common stock of $424,000 and net income of $1.3 million, were offset by preferred dividends of $234,000 and a $1.2 million increase in accumulated other comprehensive income.

About Oak Ridge Financial Services, Inc.
Oak Ridge Financial Services, Inc. (OTCPink:BKOR) is the holding company for Bank of Oak Ridge. Bank of Oak Ridge is an employee owned community bank with a mission to provide Banking as It Should Be® by delivering personal attention and convenience for every client. Bank of Oak Ridge has been named Best Bank in the Triad five years in a row, as well as one of the Triad’s Healthiest Employers and Top Workplaces.  We offer a complete range of banking services for individuals and businesses. Bank of Oak Ridge is a Member of the FDIC and an Equal Housing Lender.

Oak Ridge Financial Services, Inc. 
Consolidated Balance Sheets
June 30, 2016 (unaudited) and December 31, 2015 (audited)
(Dollars in thousands)
         
     2016
   2015
Assets            
           
Cash and due from banks   $ 6,988   $ 6,357
Interest-bearing deposits with banks     8,689     9,611
Federal Funds sold     1,259     2,061
Total cash and cash equivalents     16,936     18,029
Securities available-for-sale     47,304     46,526
Securities held-to-maturity (fair values of $1,686 in 2016 and $1,936 in 2015)     1,598     1,771
Federal Home Loan Bank Stock, at cost     408     680
Loans held for sale     499     582
Loans, net of allowance for loan losses of $3,828 in 2016 and $3,898 in 2015     286,134     275,972
Property and equipment, net     8,691     8,056
Foreclosed assets     4     44
Accrued interest receivable     1,158     1,260
Bank owned life insurance     5,490     5,441
Other assets     2,510     2,870
Total assets   $ 370,732   $ 361,231
             
       
Liabilities and Stockholders’ Equity      
       
Liabilities      
Deposits:      
Noninterest-bearing   $ 44,409   $ 43,582
Interest-bearing     277,104     264,996
Total deposits     321,513     308,578
Short-term borrowings     2,000     8,500
Long-term borrowings     1,750     2,000
Junior subordinated notes related to trust preferred securities     8,248     8,248
Subordinated debentures     5,518     -
Accrued interest payable     147     122
Other liabilities     4,396     4,081
Total liabilities     343,572     331,529
       
       
Stockholders’ equity      
Preferred stock, Series A, no par value, $1,000 per share liquidation preference; 7,700 shares authorized; 0 and 5,200 issued and outstanding in 2016 and 2015, respectively     -     5,191
Common stock, no par value; 50,000,000 shares authorized; 2,387,954 and 2,257,891 issued and outstanding in 2016 and 2015, respectively     19,665     19,241
Retained earnings     5,339     4,329
Accumulated other comprehensive income     2,156     941
Total stockholders’ equity     27,160     29,702
Total liabilities and stockholders’ equity   $ 370,732   $ 361,231
             
Oak Ridge Financial Services, Inc.
Consolidated Statements of Operations
For the three and six months ended June 30, 2016 and 2015
(Dollars in thousands except per share data)
       
      Three months ended June 30,    Six months ended June 30,
     2016   2015   2016   2015 
           
Interest and dividend income          
Loans and fees on loans   $ 3,527   $ 3,413   $ 6,974   $ 6,848  
Interest on deposits in banks     12     7     26     13  
Federal Home Loan Bank stock dividends     6     5     12     9  
Investment securities     368     424     756     864  
Total interest and dividend income     3,913     3,849     7,768     7,734  
           
Interest expense          
Deposits     502     445     969     913  
Short-term and long-term debt     58     53     125     109  
Total interest expense     560     498     1,094     1,022  
Net interest income     3,353     3,351     6,674     6,712  
Provision for loan losses      (125 )   (300 )   (50 )   (275 )
Net interest income after provision for loan losses     3,478     3,651     6,724     6,987  
           
Noninterest income          
Service charges on deposit accounts     175     188     347     374  
Gain on sale of securities     -     (4 )   -     674  
Gain (loss) on sale of property and equipment     -     -     (1 )   -  
Gain on sale of mortgage loans     29     31     40     74  
Investment commissions     17     7     19     20  
Insurance commissions     57     55     105     91  
Fee income from accounts receivable financing     46     72     104     140  
Debit card interchange income     232     231     455     434  
Income earned on bank owned life insurance     24     28     49     57  
Impairment loss on securities     -     (36 )   (7 )   (36 )
Other service charges and fees     146     68     215     133  
Total noninterest income     726     640     1,326     1,961  
           
Noninterest expense          
Salaries     1,551     1,457     3,067     2,914  
Employee benefits     234     136     451     509  
Occupancy expense     177     186     385     390  
Equipment expense     166     186     320     370  
Data and item processing     363     323     744     619  
Professional and advertising     224     214     404     377  
Stationary and supplies     60     61     125     142  
Net cost of foreclosed assets     -     41     13     279  
Telecommunications expense     105     71     207     262  
FDIC assessment     58     66     114     137  
Accounts receivable financing expense     14     22     31     42  
Other expense     199     284     366     645  
Total noninterest expense     3,151     3,047     6,227     6,686  
Income before income taxes     1,053     1,244     1,823     2,262  
Income tax expense      310     389     518     693  
Net income    $ 743   $ 855   $ 1,305   $ 1,569  
Preferred stock dividends     (117 )   (117 )   (234 )   (234 )
Net income available to common stockholders    $ 626   $ 738   $ 1,071   $ 1,335  
Basic net income per common share    $ 0.26   $ 0.34   $ 0.46   $ 0.61  
Diluted income per common share    $ 0.26   $ 0.34   $ 0.46   $ 0.61  
Basic weighted average common shares outstanding      2,387,954     2,181,705     2,314,177     2,181,705  
Diluted weighted average common shares outstanding      2,398,997     2,186,451     2,325,220     2,189,307  
                           
Oak Ridge Financial Services, Inc.
Selected Quarterly Financial Ratios (unaudited)
             
Selected Financial Ratios   June 30,
2016		 March 31,
2016		 December 31,
2015		 September  30,
2015		 June 30,
2015
Return on average assets1     0.81 %   0.62 %   0.64 %   0.92 %   0.95 %
Return on average common stockholders' equity1     9.61 %   6.99 %   7.52 %   12.59 %   13.39 %
Net interest margin1     3.81 %   3.88 %   3.96 %   3.92 %   3.92 %
Net interest income to average assets1     3.65 %   3.67 %   3.69 %   3.69 %   3.73 %
Efficiency ratio     77.3 %   78.4 %   76.8 %   75.8 %   76.3 %
Nonperforming assets to total assets     0.82 %   0.83 %   0.85 %   0.88 %   1.14 %
                                 
1Annualized