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Oak Ridge Financial Services Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 13, 2011 03:17PM
Oak Ridge Financial Services Inc. (BKOR) filed Quarterly Report for the period ended 2011-03-31.
Highlight of Business Operations:
The Company was able to bolster its capital levels through its $7.7 million participation in the Capital Purchase Program (CPP) on January 30, 2009. Of the total $7.7 million CPP funds received, to date $1.1 million of the CPP funds have been contributed to the Bank as additional equity capital. Approximately $6.8 million in unused capital, which includes approximately $100,000 in earnings since the Company received the CPP funds, are retained by the Company but could be pushed down to the Bank if needed. With total risk-based capital levels at the Bank of 12.0% at March 31, 2011, the Bank is above the minimum 10% requirement to be classified as well-capitalized. If the remaining $6.8 million of available capital at the Company were contributed to the Bank as additional equity capital, the Banks total risk-based capital ratio would be 14.7% at March 31, 2011 and would place it well above the minimum well-capitalized requirement of 10%. Despite healthy capital levels, due to significant uncertainty surrounding the depth or the length of the current economic slowdown, management continues to be diligent in its efforts to maintain healthy levels of excess capital above minimum requirements. In early 2011, the Companys Board of Directors and senior executives had two separate presentations with investment firms to look at the feasibility of raising common equity to allow the Company to repay the U.S. Treasury for its $7.7 million investment in the Company through the CPP. The Company has concluded that at the current time it is not feasible, due to weak equity market conditions, or preferable, due to the potential dilution of current shareholders, to raise equity in the open markets. However, the Company established an Employee Stock Ownership Plan (ESOP) in the second quarter of 2010 as one possible vehicle to generate equity. During the year ended December 31, 2010, the Company, at the request of the Board of Directors, made a $900,000 pre-tax ESOP accrual that may be converted to common equity of the Company at a later date. The Company believes that there are many advantages to an ESOP as a vehicle to raise capital, with the principal ones being favorable tax treatment of ESOP contributions, possible lower dilution to existing shareholders compared to an equity offering, and the promotion in our marketplace of every employee as a participant in the ESOP owning a part of the Company.
Employee benefits increased $36 thousand or 23.5% to $189 thousand for the three months ended March 31, 2011 compared to $153 thousand for the same period in 2010. The increase from 2010 to 2011 was largely a result of a $32 thousand increase in group health insurance premiums from 2010 to 2011.
Data and items processing expense decreased $17 thousand or 7.4% to $212 thousand for the three months ended March 31, 2011 compared to $229 thousand for the same period in 2010. A decrease in data and items processing expense of $33 thousand was due a conversion from outsourced items processing to in-house items processing that took place in June of 2010. Offsetting this decline were increases of $13 thousand in ATM and debit card expenses and foreign ATM rebates to the Banks customers. Smaller increases and decreases made up the rest of the net decrease in this expense category.
Professional and advertising expenses decreased $135 thousand or 37.5% to $225 thousand for the three months ended March 31, 2011 compared to $360 thousand for the same period in 2010. Declines of $95 thousand and $22 thousand in marketing expenses and consultant fees, respectively, from 2010 to 2011 contributed to most of the decrease. Other smaller increases and decreases made up the rest of the net decrease.
Other expense increased $39 thousand or 15.5% to $291 thousand for the three months ended March 31, 2011 compared to $252 thousand for the same period in 2010. Increases from 2010 to 2011 of $22 thousand and $29 thousand in employee recruitment fees and loan collection expenses, respectively, accounted for most of the increase and were offset by a decrease of $14 thousand in employee training expenses during the same period. Other smaller increases and decreases made up the rest of the net decrease.
Income tax expense decreased $298 thousand or 80.8% to $71 thousand for the three months ended March 31, 2011 compared to $369 thousand for the same period in 2010. The decrease in income tax expense was primarily attributable to two factors. First, net income before income tax expense decreased from $1.0 million in 2010 to $264 thousand in 2011. Second, the Company purchased approximately $8.3 million in municipal bonds in December of 2010 and January of 2011 on which the interest income was tax-exempt. The tax benefit from the municipal securities had the effect of lowering the Companys effective tax rate from 36.6% in 2010 to 26.9% in 2011.
Stocks Discussed: BKOR,