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Oak Ridge Financial Services Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 14, 2011 10:49AM
Oak Ridge Financial Services Inc. (BKOR) filed Quarterly Report for the period ended 2011-09-30.
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 $4.6 million of the CPP funds have been contributed to the Bank as additional equity capital. Approximately $3.3 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 13.5% at September 30, 2011, the Bank is above the minimum 10% requirement to be classified as well-capitalized. If the remaining $3.3 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 14.8% at September 30, 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.
Interest income decreased $231 thousand or 5.1% for the three months ended September 30, 2011 compared to the same three months of 2010. Interest income decreased $477 thousand or 3.5% for the nine months ended September 30, 2011 compared to the same nine months in 2010. The decreases for the three and nine months ended September 30, 2011 are primarily due to decreases in rates earned on these assets. The yield on average earning assets decreased 30 basis points for the three months ended September 30, 2011 to 5.19% from 5.49% for the same period in 2010. For the first nine months of 2011, the yield on average earning assets decreased 29 basis points to 5.29% compared to 5.58% at September 30, 2010. Management attributes the decrease in the yield on our earning assets to the decline in yields available on investments as well as a slight decline in the offering rates on new loans.
Our available-for-sale investment securities totaled $54.0 million at September 30, 2011, compared to $48.3 million at December 31, 2010. The overall increase was due to purchases of securities totaling approximately $15.3 million, repayments and accretion of discount of approximately $7.6 million, sales of approximately $1.9 million, and a decline in the unrealized gain of $24 thousand. Our held-to-maturity investment securities totaled $5.8 million at September 30, 2011 and $7.5 million at December 31, 2010, with the decline between these two periods resulting from principal payments and accretion of a discount of approximately $1.7 million. Investable funds not otherwise utilized are temporarily invested as Federal Funds sold or as interest-bearing balances at other banks, the level of which is affected by such considerations as near-term loan demand and liquidity needs. Subinvestment grade available-for-sale and held-to-maturity private label mortgage-backed securities are analyzed on a quarterly basis for impairment by utilizing an independent third party that performs an analysis of the estimated principal the Bank is expected to collect on these securities. The result of this analysis determines whether the Bank records an impairment loss on these securities. There were no impairment charges on subinvestment grade securities for the three and nine months ended September 30, 2011. There were impairment charges on subinvestment grade securities for the nine months ended September 30, 2010 of $21 thousand.
Stocks Discussed: BKOR,