Oak Ridge Financial Services, Inc. Announces Third Quarter 2018 Earnings and a 10% Stock Dividend

OAK RIDGE, N.C., Oct. 29, 2018 (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 third quarter of 2018 and a 10% stock dividend, payable November 30, 2018 to stockholders of record as of November 15, 2018.

Third Quarter 2018 Highlights

• Net income available to common stockholders of $976,000 for the three months ended September 30, 2018, up $169,000, or 20.9%, from $807,000 for the same period in 2017  
• Basic and diluted earnings per share of $0.41 for the three months ended September 30, 2018, up $0.07 cents, or 20.6%, from $0.34 for the same period in 2017
• Annualized return on average common stockholders’ equity of 11.70% for the three months ended September 30, 2018, compared to 10.82% for the same period in 2017
• Period end loans of $356.8 million, up 5.8% (7.8% annualized) from December 31, 2017
• Period end deposits of $370.4 million, up 2.4% (3.4% annualized) from December 31, 2017
• Period end noninterest-bearing deposits of $55.9 million, up 6.7% (8.9% annualized) from December 31, 2017
• Nonperforming assets of $2.8 million, unchanged from December 31, 2017

Tom Wayne, President and Chief Financial Officer, reported, “We are very pleased with our return on average stockholders’ equity during the third quarter of 2018, and the year over year growth in our pretax net income, after tax net income and earnings per share. The Company experienced slower loan and noninterest-bearing deposit growth in the third quarter of 2018 compared to the first six months of 2018 as a result of a decrease in loan opportunities. Our net interest margin decreased 14 basis points from the second quarter of 2018, mostly due to the increased competition for deposits as a result of higher short term rates. However, I am very pleased with our overall performance in the first nine months of 2018 and thank our stockholders, our dedicated employees, our Board of Directors, and our clients for their continued support. The 10% stock dividend reflects the continued confidence we have in our financial performance and our commitment to enhancing shareholder value in our Company.”

The Company’s Board of Directors authorized the issuance of a 10% stock dividend to shareholders payable November 30, 2018 to shareholders of record as of November 15, 2018. Cash-in-lieu of fractional shares will be calculated based on the stock’s market value at the close of business on November 15, 2018.

The Bank’s capital ratios remain strong and exceeded all minimum regulatory requirements at September 30, 2018. As of September 30, 2018, stockholders’ equity was 7.4% of total assets, compared to 7.2% as of December 31, 2017. Book value per common share was $13.85 as of September 30, 2018, compared to $12.66 as of September 30, 2017.

With respect to the consolidated statement of operations for the three months ended September 30, 2018, net interest income was $3.9 million, which was an increase from $3.8 million during the same period in 2017. For the three months ended September 30, 2018, the net interest margin was 3.76% compared to 3.96% for the same period in 2017, a decrease of 20 basis points. For the nine months ended September 30, 2018, net interest income was $11.7 million, which was an increase from $10.7 million during the same period in 2017. The net interest margin was 3.83% for the nine months ended September 30, 2018, compared to 3.80% for the same period in 2017, an increase of 3 basis points.

The Company recorded negative provisions for loan losses of $7,000 and $40,000 for the three months ended September 30, 2018 and 2017, respectively. For the nine months ended September 30, 2018 the Company recorded a provision for loan losses of $59,000 compared with a negative provision of $60,000 for the same period in 2017.  The allowance for loan losses as a percentage of total loans was 1.00% at September 30, 2018 compared to 1.04% at December 31, 2017. The need to supplement the allowance for loan losses in 2018 was eliminated due to an improvement in various quantitative and qualitative factors used in the determination of the allowance. Nonperforming assets represented 0.63% of total assets at September 30, 2018, unchanged from December 31, 2017.

Noninterest income totaled $745,000 for the three months ended September 30, 2018, compared with $696,000 for the same period in 2017, a increase of $49,000 or 7.0%. The biggest contributor to the increase were gains on sale of SBA loans of $40,000 during the three months ended September 30, 2018, with no gains during the same period in 2017. Noninterest income totaled $2.4 million for the nine months ended September 30, 2018, compared with $2.0 million for the same period in 2017, an increase of $427,000 or 21.7%. The biggest contributor to the increase were gains on sale of SBA loans of $345,000 during the nine months ended September 30, 2018, compared to $61,000 during the same period in 2017.

Noninterest expense totaled $3.5 million in the three months ended September 30, 2018, an increase of $77,000, or 2.3%, from the same period in 2017. Two expense categories primarily contributed to the overall increase in noninterest expense. Salaries increased due to higher incentive payments in 2018 compared to 2017 and salary merit increases that took effect on January 1, 2018. Also, employee benefits increased due to lower post-retirement benefit costs in 2017 compared to 2018. Increases in salaries and employee benefits during the three months ended September 30, 2018 were partially offset by a decrease in professional and advertising expenses during the same period of time. Noninterest expense totaled $10.5 million in the nine months ended September 30, 2018, an increase of $828,000, or 8.5%, from 2017. Several expense categories contributed to the overall increase in noninterest expense. Salaries increased due to higher incentive payments in 2018 compared to 2017, salary merit increases that took effect on January 1, 2018, and commissions related to the gain on sale of SBA loans in 2018. Employee benefits increased due to lower post-retirement benefit costs in 2017 compared to 2018. Also, other expenses increased due to higher check and debit card losses in 2018 compared to 2017, as well as higher expenses in 2018 related to the gain on sale of SBA loans.

The enactment of the new federal tax law, signed in late December 2017, positively affected net income for the Company for the three and nine-month period ending September 30, 2018. The law reduced the corporate tax rate to 35% to 21%.

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 that delivers personal attention and convenience for every client. Bank of Oak Ridge has been named Best Bank in the Triad six years in a row, a 2017 Top Workplace, one of the Triad’s Healthiest Employers, and was the winner of the Better Business Bureau’s Torch award for ethics in 2016. 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 earnings release 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, and (6) the impact of changes in monetary and fiscal policies, laws, rules and regulations.  The Company undertakes no obligation to update any forward-looking statements.

Oak Ridge Financial Services, Inc.
Consolidated Balance Sheets
September 30, 2018 (unaudited) and December 31, 2017 (audited)
(Dollars in thousands)

	2018			2017
Assets
Cash and due from banks	$	8,296		$	8,673
Interest-bearing deposits with banks		9,115			18,497
Federal Funds sold		1,451			2,298
Total cash and cash equivalents		18,862			29,468
Securities available-for-sale		41,306			43,375
Securities held-to-maturity (fair values of $1,083 in 2018 and $1,257 in 2017)		938			1,108
Federal Home Loan Bank Stock, at cost		1,087			1,133
Loans, net of allowance for loan losses of $3,604 in 2018 and $3,538 in 2017		356,806			337,105
Property and equipment, net		9,398			8,631
Foreclosed assets		–			4
Accrued interest receivable		1,454			1,388
Bank owned life insurance		5,712			5,635
Other assets		5,325			2,865
Total assets	$	440,888		$	430,712
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Noninterest-bearing	$	55,852		$	52,361
Interest-bearing		314,508			309,360
Total deposits		370,360			361,721
Short-term borrowings		16,500			18,500
Long-term borrowings		1,325			1,000
Junior subordinated notes related to trust preferred securities		8,248			8,248
Subordinated debentures		5,574			5,553
Accrued interest payable		228			145
Other liabilities		5,977			4,460
Total liabilities		408,212			399,627
Stockholders’ equity
Common stock, no par value; 50,000,000 shares authorized; 2,358,518 and 2,360,680 issued and outstanding in 2018 and 2017, respectively		20,320			20,413
Retained earnings		12,169			9,784
Accumulated other comprehensive income		187			888
Total stockholders’ equity		32,676			31,085
Total liabilities and stockholders’ equity	$	440,888		$	430,712

Oak Ridge Financial Services, Inc.
Consolidated Statements of Operations
For the three months and nine months ended September 30, 2018 and 2017 (Unaudited)
(Dollars in thousands except per share data)                                                                                           

		Three months ended September 30,										Nine months ended September 30,
		2018					2017					2018				2017
Interest and dividend income
Loans and fees on loans		$	4,583				$	4,088				$	13,199			$	11,606
Interest on deposits in banks			83					44					224				101
Federal Home Loan Bank stock dividends			14					15					44				36
Investment securities			354					362					1,068				1,004
Total interest and dividend income			5,034					4,509					14,535				12,747
Interest expense
Deposits			826					495					2,095				1,360
Short-term and long-term debt			286					232					774				665
Total interest expense			1,112					727					2,869				2,025
Net interest income			3,922					3,782					11,666				10,722
Provision for loan losses			(7		)			(40		)			59				(60		)
Net interest income after provision for loan losses			3,929					3,822					11,607				10,782
Noninterest income
Service charges on deposit accounts			167					163					500				462
Gain on sale of securities			–					–					–				(4		)
Gain on sale of mortgage loans			59					52					153				88
Investment commissions			3					4					21				29
Insurance commissions			85					81					228				216
Gain on sale of SBA loans			40					–					345				61
Fee income from accounts receivable financing			47					53					159				142
Debit card interchange income			231					223					669				649
Income earned on bank owned life insurance			27					25					77				73
Other service charges and fees			86					84					243				252
Total noninterest income			745					696					2,395				1,968
Noninterest expense
Salaries			1,683					1,583					5,092				4,626
Employee benefits			319					216					888				571
Occupancy expense			196					190					626				597
Equipment expense			185					146					513				422
Loss (gain) on sale of property and equipment			–					(5		)			–				(5		)
Data and item processing			403					447					1,214				1,310
Professional and advertising			141					294					559				732
Stationary and supplies			76					79					180				186
Net cost of foreclosed assets			–					–					2				6
Impairment loss on securities			11					6					15				19
Telecommunications expense			116					102					362				339
FDIC assessment			53					62					163				176
Accounts receivable financing expense			15					17					51				47
Other expense			268					252					856				667
Total noninterest expense			3,466					3,389					10,521				9,693
Income before income taxes			1,208					1,118					3,481				3,057
Income tax expense			232					311					642				853
Net income and net income available to common stockholders		$	976				$	807				$	2,839			$	2,204
Basic net income per common share		$	0.41				$	0.34				$	1.19			$	0.93
Diluted income per common share		$	0.41				$	0.34				$	1.19			$	0.93
Basic weighted average common shares outstanding			2,374,971					2,360,680					2,383,007				2,364,713
Diluted weighted average common shares outstanding			2,383,439					2,371,239					2,391,313				2,375,092

Oak Ridge Financial Services, Inc.
Selected Quarterly Financial Ratios (unaudited)

Selected Financial Data	September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017
Return on average common stockholders’ equity1		11.70	%		11.42	%		12.44	%		8.88	%		10.82	%		10.82	%
Tangible book value per share	$	13.85		$	13.54		$	13.06		$	13.17		$	12.66		$	12.28
Return on average assets1		0.85	%		0.85	%		0.90	%		0.65	%		0.77	%		0.76	%
Net interest margin1		3.76	%		3.90	%		3.83	%		3.75	%		3.96	%		3.91	%
Net interest income to average assets1		3.53	%		3.68	%		3.57	%		3.59	%		3.62	%		3.58	%
Efficiency ratio		74.3	%		75.0	%		75.1	%		73.2	%		75.9	%		76.4	%
Nonperforming assets to total assets		0.63	%		0.63	%		0.65	%		0.65	%		0.71	%		0.70	%

¹Annualized

Contact: Tom Wayne, President and CFO
Phone: 336-644-9944