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Oak Ridge Financial Services, Inc. Announces Second Quarter 2016 Net Income, Redemption of Series A Preferred Stock

OAK RIDGE, N.C., July 25, 2016 (GLOBE NEWSWIRE) -- 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.

Banking Services | ATM Usage Worldwide | Mobile Banking | Online Billpay | Remote Deposit | Checking | Savings | Mortgage | Insurance | Lending | Wealth Management

Visit Us | To learn more, visit us during our extended weekday and Saturday hours at one of our convenient locations in Greensboro, Summerfield and Oak Ridge, North Carolina, or call 336.644.9944, or online at 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 collectability 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.
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

Contact: Thomas W. Wayne, President and CFO Phone: 336-644-9944

Source:Oak Ridge Financial Services