BKOR Oak Ridge Financial Services Inc (PK)

Oak Ridge Financial Services, Inc. ("Oak Ridge"; the "Company") (OTCQB:BKOR), the parent company of Bank of Oak Ridge (the "Bank"), announced unaudited financial results for the third quarter and first nine months of 2013 today.

The Company's net income for the third quarter of 2013 was $423,000 compared to net income of $59,000 for the third quarter of 2012, an increase of $364,000. Net income available to common shareholders was $245,000 for the third quarter of 2013, an increase of $354,000 compared to a net loss to common shareholders of $109,000 in the third quarter of 2012. Diluted income per common share increased $0.20 to $0.14 for the third quarter of 2013 compared to a diluted loss per common share of $0.06 in the third quarter of 2012.

The Company's net income for the nine months ended September 30, 2013 was $857,000 compared to a net loss of $608,000 for the same period in 2012, or an increase of $1.5 million. Net income available to common shareholders was $323,000 for the nine months ended September 30, 2013, or an increase of $1.4 million compared to a net loss to common shareholders of $1.1 million for the same period in 2012. Diluted income per common share increased $0.80 to $0.18 for the nine months ended September 30, 2013 compared to diluted loss per common share of $0.62 for the same period in 2012.

Ron Black, President and CEO of the Company and the Bank, commented:

"During the third quarter, the Company continued to focus on its basic core banking business while undertaking a number of initiatives to improve its operating efficiency. From our various initiatives to become more efficient, we reduced our noninterest expense from $3.4 million in the third quarter of 2012 to $3.0 million in the third quarter of 2013, a decrease of $418,000 or 12.2%. On a year-to-date basis, we reduced our noninterest expense from $10.8 million in the first nine months of 2013 to $9.8 million during the same period in 2012, a decrease of $977,000 or 9.1%. I am thankful for the support of our clients, shareholders, employees and Board of Directors while we improve the earnings of the Bank."

Profitability as measured by the Company's annualized return on average assets was 0.33% and 0.49% for the nine and three months ended September 30, 2013, respectively, which is an increase over the loss on average assets of 0.23% and annualized return on average assets of 0.07% generated during the nine and three months ended September 30, 2012, respectively.

The company produced net interest income of $10.0 million during the first nine months of 2013, which was slightly lower than the $10.1 million generated for the same time period of 2012. The decline was primarily caused by lower interest income, which decreased $603,000 or approximately 5.0% to $11.4 million for the first nine months of 2013 as compared to the same time period of the prior year. Correspondingly, interest expense decreased $495,000 or approximately 26.8% to $1.3 million. The decreases in interest income and expense were primarily attributable to lower interest rates on loans and deposits.

The Company's net interest margin increased ten basis points to 4.14% for the first nine months of 2013 compared to 4.04% the first nine months of 2012, primarily as a result of active management of deposit pricing as well as the purchase of higher yielding municipal securities in 2013. The Company's net interest margin increased twenty-three basis points to 4.38% for the three months ended September 30, 2013 compared to 4.15% in the same period in 2012. The expansion of the net interest margin in the three months ended September 30, 2013 to the same period in 2012 was largely the result of the purchase of higher yielding municipal securities in the third quarter of 2013, as well as the receipt of approximately $135,000 in nonaccrual interest during the same period.

Material improvements in asset quality over the last year lowered the Company's provision for loan losses, which was $1.3 million for the first nine months of 2013 as compared to $3.4 million for the first nine months of 2012. This 62.6% decrease has been driven by a substantial decline in net charge-offs, which totaled $1.3 million through September 30, 2013 versus $3.4 million through the same point in time of the prior year.

The allowance for loan losses was $5.5 million as of September 30, 2013, which represented 2.08% of total loans outstanding. The allowance for loan losses was $5.5 million, or 2.12% of total loans outstanding, as of December 31, 2012. The slight decrease in the Company's allowance to total loans ratio is reflective of continued improvement in the Company's asset quality as referenced above. Nonperforming assets (including nonaccrual loans, accruing loans more than 90 days past due and foreclosed assets) declined to $8.1 million, or 2.3% of total assets, as of September 30, 2013, as compared to $13.4 million, or 4.1% of total assets, as of December 31, 2012. The allowance for loan loss was 75.6% of nonperforming loans as of September 30, 2013 versus 48.6% as of the prior year end, which management views as sufficient to offset potential future losses associated with problem loans.

Noninterest income decreased $536,000 or approximately 18.8% to $2.3 million during the first nine months of 2013 as compared to the same time period of 2012. The majority of the net decline was associated with a $478,000 decrease in investment commissions as a result of the disposition of the Bank's former investment services division on July 1, 2012. Net of the decline in investment commissions, noninterest income declined 2.5% in the nine months ended September 30, 2013 compared to the same period in 2012.

Noninterest expense decreased $1.0 million or approximately 9.1% to $9.8 million for the first nine months of 2013 compared to $10.8 million for the same time period of 2012. This decrease is largely due to declines in salaries, employee benefits, occupancy expense, data and items processing, stationary and supplies, net cost of foreclosed assets, and other expense.

Total assets as of September 30, 2013 were $351.0 million, up approximately 2.4% or $8.1 million from $342.9 million as of December 31, 2012. The principal components of the Company's assets as of the end of the time period were $260.3 million in net loans, $18.1 million in cash and cash equivalents and $53.4 in available-for-sale and held-to-maturity securities. During the first nine months of 2013, net loans experienced an increase of $5.9 million as compared to $254.3 million as of December 31, 2012. Cash and cash equivalents increased approximately 6.1% or $1.0 million from $17.0 million as of December 31, 2012, and available-for-sale and held-to-maturity investment securities increased approximately 11.5% or $5.5 from $47.9 million.

Total liabilities as of September 30, 2013 were $325.7 million, up approximately 2.8% or $8.8 million from $316.9 million as of December 31, 2012. Higher levels of deposits drove the increase as interest-bearing deposits increased $9.6 million or approximately 3.6% from December 31, 2012 to September 30, 2013.

Total stockholders' equity as of September 30, 2013 was $25.3 million as compared to total stockholders' equity as of December 31, 2012 of $26.0 million. Most of the decrease was a result of a decline in accumulated other comprehensive income from $1.5 million as of December 31, 2012 to $339,000 as of September 30, 2013, driven by a decline in the market value of the Company's available-for-sale investment securities during that period of time. Additionally, the repayment of the warrant in February 2013 contributed to the increase in common stock and decrease in warrant from December 31, 2012 to September 30, 2012. Net income of $857,000 partially offset the declines noted above.

About Oak Ridge Financial Services, Inc.

Oak Ridge Financial Services, Inc. (OTCQB:BKOR) is the holding company for Bank of Oak Ridge. Bank of Oak Ridge (http://www.BankOfOakRidge.com) is a community bank with locations in Greensboro, Summerfield and Oak Ridge, North Carolina. The bank was established in 2000 with the goal of delivering Banking As It Should Be®. With a focus on providing personal attention and convenience for every client, we offer a complete range of banking services for individuals and businesses including Saturday and extended weekday hours at all locations, ATM usage world-wide, remote deposits for businesses, and a full line of checking accounts; savings accounts; mortgage services; insurance services; lending options; and wealth management services. Bank of Oak Ridge is a Member FDIC and Equal Housing Lender. For more information, call 336-644-9944 or visit the office location closest to you.

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.

Consolidated Balance Sheets September 30, 2013 and December 31, 2012 (unaudited) (Dollars in thousands
	2013	2012
Assets
Cash and due from banks	$ 4,864	$ 5,134
Interest-bearing deposits with banks	13,227	11,909
Total cash and cash equivalents	18,091	17,043
Securities available-for-sale	50,081	43,937
Securities held-to-maturity (fair values of $3,341 in 2013 and $4,183 in 2012)	3,275	3,928
Federal Home Loan Bank Stock, at cost	411	528
Loans held for sale	—	1,787
Loans, net of allowance for loan losses of $5,516 in 2013 and $5,500 in 2012	260,255	254,347
Property and equipment, net	8,483	9,371
Foreclosed assets	759	2,116
Accrued interest receivable	1,320	1,514
Bank owned life insurance	5,178	5,078
Other assets	3,114	3,202
Total assets	$ 350,967	$ 342,851
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Noninterest-bearing	$ 40,374	$ 41,538
Interest-bearing	274,212	264,639
Total deposits	314,586	306,177
Junior subordinated notes related to trust preferred securities	8,248	8,248
Accrued interest payable	87	94
Other liabilities	2,768	2,342
Total liabilities	325,689	316,861
Commitments and contingencies	—	—
Stockholders' equity
Preferred stock, Series A, 7,700 shares authorized and outstanding; no par value, $1,000 per share liquidation preference	7,610	7,366
Common stock, no par value; 50,000,000 shares authorized; 1,810,946 and 1,808,445 issued and outstanding in 2013 and 2012, respectively	17,213	15,956
Warrant	—	1,361
Retained deficit	116	(208)
Accumulated other comprehensive income	339	1,515
Total stockholders' equity	25,278	25,990
Total liabilities and stockholders' equity	$ 350,967	$ 342,851

Consolidated Statements of Operations For the three and nine months ended September 30, 2012 and 2011 (Unaudited) (Dollars in thousands except per share data)
	Three months ended September 30,		Nine months ended September 30,
	2013	2012	2013	2012
Interest and dividend income
Loans and fees on loans	$ 3,524	$ 3,364	$ 9,922	$ 10,174
Interest on deposits in banks	12	6	30	35
Federal Home Loan Bank stock dividends	3	2	9	8
Taxable investment securities	496	495	1,428	1,775
Total interest and dividend income	4,035	3,867	11,389	11,992
Interest expense
Deposits	394	465	1,227	1,710
Short-term and long-term debt	42	44	122	134
Total interest expense	436	509	1,349	1,844
Net interest income	3,599	3,358	10,040	10,148
Provision for loan losses	567	833	1,279	3,419
Net interest income after provision for loan losses	3,032	2,525	8,761	6,729
Noninterest income
Service charges on deposit accounts	193	165	534	374
Gain (loss) on sale of securities	(25)	—	28	—
Gain on sale of property and equipment	3	51	—	58
Mortgage loan origination fees	68	202	315	493
Investment commissions	3	32	49	527
Insurance commissions	42	24	102	75
Fee income from accounts receivable financing	132	187	478	524
Debit card interchange income	222	204	649	589
Income earned on bank owned life insurance	30	35	99	104
Other service charges and fees	20	22	63	109
Total noninterest income	688	922	2,317	2,853
Noninterest expense
Salaries	1,362	1,486	4,321	4,801
Employee benefits	196	193	547	620
Occupancy expense	173	188	552	609
Equipment expense	227	235	709	678
Data and item processing	262	317	743	879
Professional and advertising	244	279	971	810
Stationary and supplies	39	72	159	244
Net cost of foreclosed assets	31	98	240	527
Telecommunications expense	112	85	298	238
FDIC assessment	78	79	227	233
Accounts receivable financing expense	35	51	130	152
Other-than-temporary impairment loss	—	1	—	1
Other expense	254	347	907	989
Total noninterest expense	3,013	3,431	9,804	10,781
Income (loss) before income taxes	707	16	1,274	(1,199)
Income tax expense (benefit)	284	(43)	417	(591)
Net income (loss)	$ 423	$ 59	$ 857	$ (608)
Preferred stock dividends	(97)	(96)	(290)	(290)
Accretion of discount	(81)	(72)	(244)	(218)
Loss available to common stockholders	$ 245	$ (109)	$ 323	$ (1,116)
Basic income( loss) per common share	$ 0.14	$ (0.06)	$ 0.18	$ (0.62)
Diluted income (loss) per common share	$ 0.14	$ (0.06)	$ 0.18	$ (0.62)
Basic weighted average common shares outstanding	1,810,946	1,808,745	1,810,946	1,808,745
Diluted weighted average common shares outstanding	1,810,946	1,808,745	1,810,946	1,808,745

CONTACT: Thomas W. Wayne, CFO
         Phone: 336-644-9944