##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2009

Commission File Number:
000-52640





OAK RIDGE FINANCIAL SERVICES, INC

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|North Carolina                                                 |  | 20-8550086                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

Post Office Box 2

2211 Oak Ridge Road

Oak Ridge, North Carolina 27310

(Address of principal executive offices)

(336) 644-9944

(Registrants telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                           |  |                      |  |                          |  |                             
|-------------------------- |  | -------------------- |  | ------------------------ |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer   ̈ |  | Non-accelerated filer   ̈ |  | Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

The number of shares outstanding of each of the registrants classes of common stock, as of August 10, 2009, was as follows:



|                           |  |                 
|-------------------------- |  | ----------------
|Class                      |  | Number of Shares
|Common Stock, no par value |  | 1,791,474       









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##### Table of Contents

Oak Ridge Financial Services, Inc.

Table of Contents



|                                                                                                                                                 |  |   
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | --
|Part I. Financial Information                                                                                                                    |  |   
|                                                                                                                                                 | 
|Item 1. Financial Statements                                                                                                                     |  |   
|                                                                                                                                                 | 
|Consolidated Balance Sheets at June 30, 2009 (unaudited) and December 31, 2008                                                                   |  | 3 
|                                                                                                                                                 | 
|Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008
(unaudited)                                      |  | 4 
|                                                                                                                                                 | 
|Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income for the six months ended June 30,
 2009 and 2008 (unaudited) |  | 5 
|                                                                                                                                                 | 
|Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008
(unaudited)                                                |  | 6 
|                                                                                                                                                 | 
|Notes to Unaudited Consolidated Financial Statements                                                                                             |  | 8 
|                                                                                                                                                 | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations                                                    |  | 20
|                                                                                                                                                 | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                                               |  | 27
|                                                                                                                                                 | 
|Item 4T. Controls and Procedures                                                                                                                 |  | 27
|                                                                                                                                                 | 
|Part II. Other Information                                                                                                                       |  |   
|                                                                                                                                                 | 
|Item 4. Submission of Matters to a Vote of Security Holders                                                                                      |  | 28
|                                                                                                                                                 | 
|Item 6. Exhibits                                                                                                                                 |  | 29
|                                                                                                                                                 | 
|Signature Page                                                                                                                                   |  | 31

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 Securities
Exchange Commission. The Company undertakes no obligation to update any forward-looking statements.



2



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##### Table of Contents

|Item 1. | Financial Statements
|------- | --------------------

Consolidated
Balance Sheets

June 30, 2009 and December 31, 2008

(Dollars in thousands)







|                                                                                                            |  |                 |         |               |   |         |  
|----------------------------------------------------------------------------------------------------------- |  | --------------- | ------- | ------------- | - | ------- | -
|                                                                                                            |  | 2009(Unaudited) |         | 2008(Audited) |  
|Assets                                                                                                      |  |                 |         |               |   |         |  
|                                                                                                            |  |                
|Cash and due from banks                                                                                     |  | $               | 12,711  |               | $ | 3,988   |  
|Interest-bearing deposits with banks                                                                        |  |                 | 6,714   |               |   | 2,314   |  
|                                                                                                            |  |                 |         |               |   |         |  
|Total cash and cash equivalents                                                                             |  |                 | 19,425  |               |   | 6,302   |  
|Federal funds sold                                                                                          |  |                 |        |               |   | 3,282   |  
|Securities available-for-sale                                                                               |  |                 | 55,236  |               |   | 35,594  |  
|Securities held-to-maturity (fair values of $10,128 and $12,781 in 2009 and 2008, respectively)             |  |                 | 11,545  |               |   | 13,155  |  
|Federal Home Loan Bank Stock, at cost                                                                       |  |                 | 1,252   |               |   | 1,462   |  
|Loans, net of allowance for loan losses of $3,034 in 2009 and $2,450 in 2008                                |  |                 | 243,975 |               |   | 243,031 |  
|Property and equipment, net                                                                                 |  |                 | 10,926  |               |   | 8,926   |  
|Foreclosed assets                                                                                           |  |                 | 849     |               |   | 1,508   |  
|Accrued interest receivable                                                                                 |  |                 | 1,467   |               |   | 1,297   |  
|Bank owned life insurance                                                                                   |  |                 | 4,528   |               |   | 4,431   |  
|Other assets                                                                                                |  |                 | 1,490   |               |   | 1,684   |  
|                                                                                                            |  |                 |         |               |   |         |  
|Total assets                                                                                                |  | $               | 350,693 |               | $ | 320,672 |  
|                                                                                                            |  |                 |         |               |   |         |  
|                                                                                                            |  |                
|Liabilities and Stockholders Equity                                                                        |  |                 |         |               |   |         |  
|                                                                                                            |  |                
|Liabilities                                                                                                 |  |                 |         |               |   |         |  
|Deposits:                                                                                                   |  |                 |         |               |   |         |  
|Noninterest-bearing                                                                                         |  | $               | 20,263  |               | $ | 18,181  |  
|Interest-bearing                                                                                            |  |                 | 278,179 |               |   | 252,423 |  
|                                                                                                            |  |                 |         |               |   |         |  
|Total deposits                                                                                              |  |                 | 298,442 |               |   | 270,604 |  
|                                                                                                            |  |                
|Short-term debt                                                                                             |  |                 |        |               |   | 7,000   |  
|Long-term debt                                                                                              |  |                 | 15,000  |               |   | 15,000  |  
|Junior subordinated notes related to trust preferred securities                                             |  |                 | 8,248   |               |   | 8,248   |  
|Accrued interest payable                                                                                    |  |                 | 461     |               |   | 502     |  
|Other liabilities                                                                                           |  |                 | 1,511   |               |   | 1,123   |  
|                                                                                                            |  |                 |         |               |   |         |  
|Total liabilities                                                                                           |  |                 | 323,662 |               |   | 302,477 |  
|                                                                                                            |  |                 |         |               |   |         |  
|                                                                                                            |  |                
|Commitments and contingencies                                                                               |  |                 |        |               |   |        |  
|                                                                                                            |  |                
|Stockholders equity                                                                                        |  |                 |         |               |   |         |  
|Preferred stock, Series A                                                                                   |  |                 | 6,990   |               |   |        |  
|Common stock, no par value; 50,000,000 shares authorized; 1,791,474 issued and outstanding in 2009 and 2008 |  |                 | 15,831  |               |   | 15,831  |  
|Warrants                                                                                                    |  |                 | 811     |               |   |        |  
|Retained earnings                                                                                           |  |                 | 2,589   |               |   | 2,470   |  
|Accumulated other comprehensive income (loss)                                                               |  |                 | 810     |               |   | (106    | )
|                                                                                                            |  |                 |         |               |   |         |  
|Total stockholders equity                                                                                  |  |                 | 27,031  |               |   | 18,195  |  
|                                                                                                            |  |                 |         |               |   |         |  
|Total liabilities and stockholders equity                                                                  |  | $               | 350,693 |               | $ | 320,672 |  
|                                                                                                            |  |                 |         |               |   |         |  

See Notes to Consolidated Financial Statements



3



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##### Table of Contents

Consolidated Statements of Operations (Unaudited)

For the three and six months ended June 30, 2009 and 2008

(Dollars in thousands except per share data)







|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|--------------------------------------------------- |  | --------------------------- | --------- | ------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                    |  | Three months ended June 30, |           | Six months ended June 30,
|                                                    |  | 2009                        |           | 2008                      |   | 2009      |  | 2008
|Interest and dividend income                        |  |                             |           |                           |   |           |  |      |           |  |   |          
|Loans and fees on loans                             |  | $                           | 3,832     |                           | $ | 3,859     |  | $    | 7,622     |  | $ | 7,873    
|Federal funds sold                                  |  |                             |          |                           |   | 17        |  |      | 1         |  |   | 109      
|Interest on deposits in banks                       |  |                             | 15        |                           |   | 29        |  |      | 28        |  |   | 71       
|Federal Home Loan Bank stock dividends              |  |                             |          |                           |   | 21        |  |      |          |  |   | 38       
|Taxable investment securities                       |  |                             | 1,198     |                           |   | 522       |  |      | 2,089     |  |   | 810      
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Total interest and dividend income                  |  |                             | 5,045     |                           |   | 4,448     |  |      | 9,740     |  |   | 8,901    
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|                                                    |  |                             |           |                          
|Interest expense                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Deposits                                            |  |                             | 1,898     |                           |   | 1,977     |  |      | 3,961     |  |   | 4,216    
|Short-term and long-term debt                       |  |                             | 134       |                           |   | 251       |  |      | 300       |  |   | 550      
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Total interest expense                              |  |                             | 2,032     |                           |   | 2,228     |  |      | 4,261     |  |   | 4,766    
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Net interest income                                 |  |                             | 3,013     |                           |   | 2,220     |  |      | 5,479     |  |   | 4,135    
|                                                    |  |                             |           |                          
|Provision for loan losses                           |  |                             | 303       |                           |   | 99        |  |      | 669       |  |   | 263      
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Net interest income after provision for loan losses |  |                             | 2,710     |                           |   | 2,121     |  |      | 4,810     |  |   | 3,872    
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|                                                    |  |                             |           |                          
|Noninterest income                                  |  |                             |           |                           |   |           |  |      |           |  |   |          
|Service charges on deposit accounts                 |  |                             | 205       |                           |   | 177       |  |      | 408       |  |   | 353      
|Mortgage loan origination fees                      |  |                             | 145       |                           |   | 137       |  |      | 301       |  |   | 232      
|Investment and insurance commissions                |  |                             | 162       |                           |   | 244       |  |      | 336       |  |   | 450      
|Fee income from accounts receivable financing       |  |                             | 181       |                           |   | 185       |  |      | 355       |  |   | 352      
|Income earned on bank owned life insurance          |  |                             | 65        |                           |   | 40        |  |      | 97        |  |   | 80       
|Other service charges and fees                      |  |                             | 107       |                           |   | 114       |  |      | 197       |  |   | 184      
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Total noninterest income                            |  |                             | 865       |                           |   | 897       |  |      | 1,694     |  |   | 1,651    
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|                                                    |  |                             |           |                          
|Noninterest expense                                 |  |                             |           |                           |   |           |  |      |           |  |   |          
|Salaries and employee benefits                      |  |                             | 1,398     |                           |   | 1,262     |  |      | 2,784     |  |   | 2,546    
|Occupancy expense                                   |  |                             | 178       |                           |   | 129       |  |      | 365       |  |   | 263      
|Equipment expense                                   |  |                             | 174       |                           |   | 140       |  |      | 344       |  |   | 280      
|Data and item processing                            |  |                             | 155       |                           |   | 128       |  |      | 300       |  |   | 212      
|Professional and advertising                        |  |                             | 324       |                           |   | 304       |  |      | 614       |  |   | 591      
|Stationary and supplies                             |  |                             | 53        |                           |   | 36        |  |      | 108       |  |   | 98       
|Other real estate expenses and write-downs          |  |                             | 182       |                           |   |          |  |      | 302       |  |   |         
|Telecommunications expense                          |  |                             | 73        |                           |   | 74        |  |      | 139       |  |   | 138      
|FDIC Assessment                                     |  |                             | 219       |                           |   | 62        |  |      | 292       |  |   | 112      
|Accounts receivable financing expense               |  |                             | 56        |                           |   | 58        |  |      | 109       |  |   | 145      
|Total other-than-temporary impairment loss          |  |                             | 105       |                           |   |          |  |      | 105       |  |   |         
|Other expense                                       |  |                             | 285       |                           |   | 230       |  |      | 516       |  |   | 446      
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Total noninterest expense                           |  |                             | 3,202     |                           |   | 2,423     |  |      | 5,978     |  |   | 4,831    
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Income before income taxes                          |  |                             | 373       |                           |   | 595       |  |      | 527       |  |   | 692      
|Income tax expense                                  |  |                             | 131       |                           |   | 211       |  |      | 185       |  |   | 247      
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Net income                                          |  |                             | 242       |                           |   | 384       |  |      | 342       |  |   | 445      
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Preferred stock dividends                           |  |                             | 97        |                           |   |          |  |      | 161       |  |   |         
|Accretion of discount                               |  |                             | 67        |                           |   |          |  |      | 111       |  |   |         
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Income available to common stockholders             |  | $                           | 78        |                           | $ | 384       |  | $    | 70        |  | $ | 445      
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|                                                    |  |                             |           |                          
|Basic earnings per weighted average common share    |  | $                           | 0.04      |                           | $ | 0.21      |  | $    | 0.04      |  | $ | 0.25     
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Diluted earnings per weighted average common share  |  | $                           | 0.04      |                           | $ | 0.21      |  | $    | 0.04      |  | $ | 0.25     
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Basic weighted average common shares outstanding    |  |                             | 1,791,474 |                           |   | 1,791,474 |  |      | 1,791,474 |  |   | 1,791,474
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          
|Diluted weighted average common shares outstanding  |  |                             | 1,791,474 |                           |   | 1,796,196 |  |      | 1,791,474 |  |   | 1,797,710
|                                                    |  |                             |           |                           |   |           |  |      |           |  |   |          

See Notes to Consolidated Financial Statements



4



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##### Table of Contents

Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income
(Unaudited)

Six months ended June 30, 2009 and 2008 (Unaudited)

(In thousands except shares of common stock)







|                                                                                                            |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   |                     |   |  |       |      |   |  |   |       |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------------- | - | ------------ | --------- | ------------------ | - | ------ | ---------------- | - | --- | ----------------------------------- |  | - | ------------------- | - |  | ----- | ---- | - |  | - | ----- | - |  | - | ------ | -
|                                                                                                            |  | Preferredstock,Series A |               |   | Common
Stock |           | Commonstockwarrant |   |        | Retainedearnings |   |     | Accumulatedothercomprehensiveincome |  |   | Comprehensiveincome |   |  | Total |     
|                                                                                                            |  |                         | Number Amount |   |              |           |                    |  
|Balance December 31, 2007                                                                                   |  | $                       |              |   |              | 1,791,474 |                    | $ | 15,831 |                  | $ |    |                                     |  | $ | 1,590               |   |  | $     | 263  |   |  |   |       |   |  | $ | 17,684 |  
|Unrealized loss, net of income tax benefit of $178                                                          |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   |                     |   |  |       | (456 | ) |  | $ | (456  | ) |  |   | (456   | )
|Net income                                                                                                  |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   | 445                 |   |  |       |      |   |  |   | 445   |   |  |   | 445    |  
|                                                                                                            |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   |                     |   |  |       |      |   |  |   |       |   |  |   |        |  
|Total comprehensive income                                                                                  |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   |                     |   |  |       |      |   |  | $ | (11   | ) |  |   |        |  
|Cumulative effect of a change in accounting principle                                                       |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   | (259                | ) |  |       |      |   |  |   |       |   |  |   | (259   | )
|                                                                                                            |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   |                     |   |  |       |      |   |  |   |       |   |  |   |        |  
|Balance June 30, 2008                                                                                       |  | $                       |              |   |              | 1,791,474 |                    | $ | 15,831 |                  | $ |    |                                     |  | $ | 1,776               |   |  | $     | (193 | ) |  |   |       |   |  | $ | 17,414 |  
|                                                                                                            |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   |                     |   |  |       |      |   |  |   |       |   |  |   |        |  
|                                                                                                            |  |                         |               |   |              |           |                    |  
|Balance December 31, 2008                                                                                   |  | $                       |              |   |              | 1,791,474 |                    | $ | 15,831 |                  | $ |    |                                     |  | $ | 2,470               |   |  | $     | (106 | ) |  |   |       |   |  | $ | 18,195 |  
|Unrealized loss, net of income tax expense of $495                                                          |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   |                     |   |  |       | 916  |   |  | $ | 916   |   |  |   | 916    |  
|Net income                                                                                                  |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   | 342                 |   |  |       |      |   |  |   | 342   |   |  |   | 342    |  
|                                                                                                            |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   |                     |   |  |       |      |   |  |   |       |   |  |   |        |  
|Total comprehensive income                                                                                  |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   |                     |   |  |       |      |   |  | $ | 1,258 |   |  |   |        |  
|Issuance of preferred stock in connection with Capital Purchase Program, net of discount on preferred stock |  |                         | 6,888         |   |              |           |                    |   |        |                  |   |     |                                     |  |   |                     |   |  |       |      |   |  |   |       |   |  |   | 6,888  |  
|Preferred stock dividends                                                                                   |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   | (112                | ) |  |       |      |   |  |   |       |   |  |   | (112   | )
|Issuance of common stock warrant in connection with Capital Purchase Program                                |  |                         |               |   |              |           |                    |   |        |                  |   | 812 |                                     |  |   |                     |   |  |       |      |   |  |   |       |   |  |   | 812    |  
|Costs associated with issuance of preferred stock and common warrants                                       |  |                         | (9            | ) |              |           |                    |   |        |                  |   | (1  | )                                   |  |   |                     |   |  |       |      |   |  |   |       |   |  |   | (10    | )
|Preferred stock accretion                                                                                   |  |                         | 111           |   |              |           |                    |   |        |                  |   |     |                                     |  |   | (111                | ) |  |       |      |   |  |   |       |   |  |   |       |  
|                                                                                                            |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   |                     |   |  |       |      |   |  |   |       |   |  |   |        |  
|Balance June 30, 2009                                                                                       |  | $                       | 6,990         |   |              | 1,791,474 |                    | $ | 15,831 |                  | $ | 811 |                                     |  | $ | 2,589               |   |  | $     | 810  |   |  |   |       |   |  | $ | 27,031 |  
|                                                                                                            |  |                         |               |   |              |           |                    |   |        |                  |   |     |                                     |  |   |                     |   |  |       |      |   |  |   |       |   |  |   |        |  

See Notes to Consolidated Financial Statements



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##### Table of Contents

Consolidated Statements of Cash Flows

Six months ended June 30, 2009 and 2008 (Unaudited)

(Dollars in thousands)







|                                                                        |  |      |         |   |      |   |         |  
|----------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                        |  | 2009 |         |   | 2008 |  
|Cash flows from operating activities                                    |  |      |         |   |      |   |         |  
|Net income                                                              |  | $    | 342     |   |      | $ | 445     |  
|Adjustments to reconcile net income to net cash provided by operations: |  |      |         |   |      |   |         |  
|Depreciation                                                            |  |      | 358     |   |      |   | 299     |  
|Provision for loan losses                                               |  |      | 669     |   |      |   | 263     |  
|Impairment on held-to-maturity security                                 |  |      | 104     |   |      |   |        |  
|Income earned on bank owned life insurance                              |  |      | (97     | ) |      |   | (80     | )
|Loss from sale of foreclosed assets                                     |  |      | 7       |   |      |   |        |  
|Income taxes payable                                                    |  |      | (270    | ) |      |   | (354    | )
|Net (accretion) amortization of discounts and premiums on securities    |  |      | (421    | ) |      |   | (120    | )
|Changes in assets and liabilities:                                      |  |      |         |   |      |   |         |  
|Accrued interest receivable                                             |  |      | (170    | ) |      |   | (95     | )
|Other assets                                                            |  |      | 194     |   |      |   | (185    | )
|Accrued interest payable                                                |  |      | (41     | ) |      |   | (101    | )
|Other liabilities                                                       |  |      | 658     |   |      |   | 61      |  
|                                                                        |  |      |         |   |      |   |         |  
|Net cash provided by operating activities                               |  |      | 1,333   |   |      |   | 133     |  
|                                                                        |  |      |         |   |      |   |         |  
|                                                                        |  |     
|Cash flows from investing activities                                    |  |      |         |   |      |   |         |  
|Net decrease in federal funds sold                                      |  |      | 3,282   |   |      |   | 5,950   |  
|Activity in available-for-sale securities:                              |  |      |         |   |      |   |         |  
|Purchases                                                               |  |      | (23,980 | ) |      |   | (5,692  | )
|Sales                                                                   |  |      |        |   |      |   |        |  
|Maturities and repayments                                               |  |      | 6,176   |   |      |   | 981     |  
|Activity in held-to-maturity securities:                                |  |      |         |   |      |   |         |  
|Purchases                                                               |  |      |        |   |      |   | (10,787 | )
|Maturities and repayments                                               |  |      | 1,582   |   |      |   | 492     |  
|Redemptions (purchases) of Federal Home Loan Bank stock                 |  |      | 210     |   |      |   | (368    | )
|Net increase in loans                                                   |  |      | (1,559  | ) |      |   | (22,136 | )
|Purchases of property and equipment                                     |  |      | (2,358  | ) |      |   | (653    | )
|Proceeds from sale of other real estate owned                           |  |      | 11      |   |      |   |        |  
|                                                                        |  |      |         |   |      |   |         |  
|Net cash used in investing activities                                   |  |      | (16,636 | ) |      |   | (32,213 | )
|                                                                        |  |      |         |   |      |   |         |  
|                                                                        |  |     
|Cash flows from financing activities                                    |  |      |         |   |      |   |         |  
|Net increase in deposits                                                |  |      | 27,838  |   |      |   | 24,000  |  
|Proceeds from issuance of preferred stock and warrant                   |  |      | 7,700   |   |      |   |        |  
|Proceeds from issuance of debt                                          |  |      |        |   |      |   | 13,000  |  
|Repayment of borrowings                                                 |  |      | (7,000  | ) |      |   | (7,000  | )
|Dividends paid on preferred stock                                       |  |      | (112    | ) |      |   |        |  
|                                                                        |  |      |         |   |      |   |         |  
|Net cash provided by financing activities                               |  |      | 28,426  |   |      |   | 30,000  |  
|                                                                        |  |      |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                    |  |      | 13,123  |   |      |   | (2,080  | )
|Cash and cash equivalents, beginning                                    |  |      | 6,302   |   |      |   | 10,108  |  
|                                                                        |  |      |         |   |      |   |         |  
|Cash and cash equivalents, ending                                       |  | $    | 19,425  |   |      | $ | 8,028   |  
|                                                                        |  |      |         |   |      |   |         |  

See Notes to Consolidated Financial Statements



6



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##### Table of Contents

Consolidated Statements of Cash Flows

Six months ended June 30, 2009 and 2008 (Unaudited)

(Dollars in thousands)







|                                                  |  |      |       |      |   |      
|------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                                  |  | 2009 |       | 2008
|Supplemental disclosure of cash flow information  |  |      |       |      |   |      
|                                                  |  |     
|Cash paid for:                                    |  |      |       |      |   |      
|Interest                                          |  | $    | 4,302 |      | $ | 4,867
|                                                  |  |      |       |      |   |      
|Taxes                                             |  | $    | 99    |      | $ | 600  
|                                                  |  |      |       |      |   |      
|                                                  |  |     
|Non-cash investing and financing activities       |  |      |       |      |   |      
|Other real estate acquired in settlement of loans |  | $    | 18    |      | $ |     
|                                                  |  |      |       |      |   |      

See Notes to Consolidated Financial Statements



7



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##### Table of Contents

Notes to Unaudited Consolidated Financial Statements





Note 1. Organization and Summary of Significant Accounting Policies

Organization

The results presented here are for Oak Ridge Financial Services, Inc. (the Company), the parent company of Bank of Oak Ridge (the Bank). In 2006,
the Banks Board of Directors and shareholders approved the formation of a bank holding company, of which the Bank would become a wholly owned subsidiary. The reorganization was effected through a share exchange in which each of the Banks
shareholders received one share of common stock of the Company in exchange for each of his or her shares of the Banks common stock. The Company became the Banks parent holding company in April of 2007. Because the Company has no separate
operations and conducts no business on its own other than owning the Bank, this discussion concerns primarily the business of the Bank. However, because the financial statements are presented on a consolidated basis, the Company and the Bank are
collectively referred to as the Company unless otherwise noted.

The Bank was organized and incorporated under the laws of the State of North
Carolina and commenced operations on April 10, 2000. Including its main office, the Bank operates five (5) full service branch offices in Oak Ridge, Summerfield, and Greensboro, North Carolina. As a state chartered bank, which is not a
member of the Federal Reserve, the Bank is subject to regulation by the North Carolina Commissioner of Banks (the Commissioner) and the Federal Deposit Insurance Corporation (the FDIC). The Bank has formed an investment
subsidiary, Oak Ridge Financial Corporation, that has not been funded and is inactive.

The Company formed Oak Ridge Statutory Trust I (the
Trust) during 2007 to facilitate the issuance of trust preferred securities. The Trust is a statutory business trust formed under the laws of the state of Delaware, of which all common securities are owned by the Company. Under Financial
Accounting Standards Board (FASB) Interpretation No. (FIN) 46 (not yet reflected in FASB ASC), Consolidation of Variable Interest Entities,Oak Ridge Financial Statutory Trust I is not included in the Companys
consolidated financial statements. The Companys equity interests for junior subordinated debentures issued by the Company to the Trust are included in other assets.

The accounting and reporting policies of the Company follow generally accepted accounting principles and general practices within the financial services industry. In managements opinion, the financial
information, which is unaudited, reflects all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three- and six-month periods ended June 30, 2009 and 2008,
in conformity with accounting principles generally accepted in the United States of America (GAAP).

The preparation of financial statements
requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements, as well as the amounts of income and expense during the reporting period. Actual results could
differ from those estimates. Operating results for the three- and six-month periods ended June 30, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2009.

The balance sheet as of December 31, 2008 has been derived from audited financial statements. The unaudited financial statements of the Company have been prepared
in accordance with instructions from Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) considered necessary for a fair presentation have been included.

The organization and business of the Company, accounting policies
followed by the Company and other relevant information are contained in the notes to the financial statements filed as part of the Companys Annual Report on Form 10-K for the year ended December 31, 2008. This quarterly report should be
read in conjunction with the Annual Report.

Certain reclassifications have been made to the prior periods financial statements to place them on a
comparable basis with the current year. Net income and stockholders equity previously reported were not affected by these reclassifications.

Basis of Presentation

The accompanying consolidated financial statements include the accounts and transactions of the Company and
the Bank, its wholly owned subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation.



8



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##### Table of Contents

Notes to Unaudited Consolidated Financial Statements







Note 1. Organization and Summary of Significant Accounting Policies, continued



Reclassification

Certain reclassifications have been made to the prior periods financial statements to place them on a comparable basis with the current year. Net income and shareholders equity previously reported were not
affected by these reclassifications.

Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through August 14, 2009, the date the financial statements were issued.

Note 2. Earnings Per Share

Basic Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during
the period, after giving retroactive effect to stock splits and dividends.

Diluted Earnings per Share

The computation of diluted earnings per share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if dilutive potential common shares had been issued. The numerator is adjusted for any changes in income or loss that would result from the assumed conversion of those potential common
shares.

There were no dilutive potential common shares included in the computation of earnings per share at June 30, 2009, as their inclusion would
have been anti-dilutive. For the three- and six-months ended June 30, 2008, 4,722 and 6,236, respectively, potential common shares were included in the computation of diluted earnings per share.

Note 3. Securities

The amortized cost and fair value of securities,
with gross unrealized gains and losses, follows:



|                                           |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|------------------------------------------ |  | -------------- | ------ | -------------------- | - | --------------------- |  | - | --------- | - |  | - | ------
|                                           |  | June 30, 2009 
|                                           |  | AmortizedCost  |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|                                           |  | (in thousands)
|Available-for-sale                         |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|Government-sponsored enterprise securities |  | $              | 12,145 |                      | $ | 97                    |  | $ | (144      | ) |  | $ | 12,098
|Mortgage-backed securities                 |  |                | 41,271 |                      |   | 1,485                 |  |   | (118      | ) |  |   | 42,638
|Other domestic debt securities             |  |                | 500    |                      |   |                      |  |   |          |   |  |   | 500   
|                                           |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|Total securities available-for-sale        |  | $              | 53,916 |                      | $ | 1,582                 |  | $ | (262      | ) |  | $ | 55,236
|                                           |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|                                           |  |                |        |                     
|Held-to-maturity                           |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|Mortgage-backed securities                 |  |                | 11,545 |                      |   |                      |  |   | (1,416    | ) |  |   | 10,129
|                                           |  |                |        |                      |   |                       |  |   |           |   |  |   |       
|Total securities held-to-maturity          |  | $              | 11,545 |                      | $ |                      |  | $ | (1,416    | ) |  | $ | 10,129
|                                           |  |                |        |                      |   |                       |  |   |           |   |  |   |       



9



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##### Table of Contents

Notes to Unaudited Consolidated Financial Statements







Note 3. Securities, continued



|                                           |  |                   |        |                      |   |                       |  |   |           |   |  |   |       
|------------------------------------------ |  | ----------------- | ------ | -------------------- | - | --------------------- |  | - | --------- | - |  | - | ------
|                                           |  | December 31, 2008
|                                           |  | AmortizedCost     |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | FairValue
|                                           |  | (in thousands)   
|Available-for-sale                         |  |                   |        |                      |   |                       |  |   |           |   |  |   |       
|Government-sponsored enterprise securities |  | $                 | 2,045  |                      | $ | 108                   |  | $ |          |   |  | $ | 2,153 
|Mortgage-backed securities                 |  |                   | 33,222 |                      |   | 621                   |  |   | (902      | ) |  |   | 32,941
|Other domestic debt securities             |  |                   | 500    |                      |   |                      |  |   |          |   |  |   | 500   
|                                           |  |                   |        |                      |   |                       |  |   |           |   |  |   |       
|Total securities available-for-sale        |  | $                 | 35,767 |                      | $ | 729                   |  | $ | (902      | ) |  | $ | 35,594
|                                           |  |                   |        |                      |   |                       |  |   |           |   |  |   |       
|                                           |  |                   |        |                     
|Held-to-maturity                           |  |                   |        |                      |   |                       |  |   |           |   |  |   |       
|Mortgage-backed securities                 |  |                   | 13,155 |                      |   | 26                    |  |   | (400      | ) |  |   | 12,781
|                                           |  |                   |        |                      |   |                       |  |   |           |   |  |   |       
|Total securities held-to-maturity          |  | $                 | 13,155 |                      | $ | 26                    |  | $ | (400      | ) |  | $ | 12,781
|                                           |  |                   |        |                      |   |                       |  |   |           |   |  |   |       

The Bank had $1,255,000 and $1,462,000 at June 30, 2009 and December 31, 2008, respectively, of
investments in stock of the Federal Home Loan Bank of Atlanta (FHLB), which is carried at cost. The FHLB requires financial institutions to make equity investments in the FHLB in order to borrow money. The Bank is required to hold that
stock so long as it borrows from the FHLB.

Investment securities with amortized costs of $10,140,000 and $6,801,000 at June 30, 2009 and
December 31, 2008, respectively, were pledged as collateral on public deposits or for other purposes as required or permitted by law.

There were no
gross realized gains and losses for the six or three months ended June 30, 2009 or 2008.

The following tables detail unrealized losses and related
fair values in the Companys held-to-maturity and available-for-sale investment securities portfolios at June 30, 2009 and December 31, 2008. This information is aggregated by the length of time that individual securities have been in
a continuous unrealized loss position as of June 30, 2009 and December 31, 2008.



|                                           |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |      
|------------------------------------------ |  | ------------------- | ------ | -------------------- | - | --------- |  | ---------------- | - | --------- | - | ---------------- |  | - | ------ |  | - | -----
|                                           |  | Less Than 12 Months |        | 12 Months or Greater |   | Total    
|                                           |  | FairValue           |        | UnrealizedLosses     |   | FairValue |  | UnrealizedLosses |   | FairValue |   | UnrealizedLosses
|                                           |  | (in thousands)     
|June 30, 2009                              |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |      
|Available-for-sale                         |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |      
|Government sponsored enterprise securities |  | $                   | 9,959  |                      | $ | 144       |  | $                |  |           | $ |                 |  | $ | 9,959  |  | $ | 144  
|Mortgage-backed securities                 |  |                     | 6,285  |                      |   | 118       |  |                  |  |           |   |                 |  |   | 6,285  |  |   | 118  
|                                           |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |      
|Total temporarily impaired securities      |  | $                   | 16,244 |                      | $ | 262       |  | $                |  |           | $ |                 |  | $ | 16,244 |  | $ | 262  
|                                           |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |      
|                                           |  |                     |        |                      |   |          
|Held-to-maturity                           |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |      
|Government sponsored enterprise securities |  | $                   |       |                      | $ |          |  | $                |  |           | $ |                 |  | $ |       |  | $ |     
|Mortgage-backed securities                 |  |                     | 10,129 |                      |   | 1,416     |  |                  |  |           |   |                 |  |   | 10,129 |  |   | 1,416
|                                           |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |      
|Total temporarily impaired securities      |  | $                   | 10,129 |                      | $ | 1,416     |  | $                |  |           | $ |                 |  | $ | 10,129 |  | $ | 1,416
|                                           |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |      



10



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##### Table of Contents

Notes to Unaudited Consolidated Financial Statements







Note 3. Securities, continued



|                                           |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |    
|------------------------------------------ |  | ------------------- | ------ | -------------------- | - | --------- |  | ---------------- | - | --------- | - | ---------------- |  | - | ------ |  | - | ---
|                                           |  | Less Than 12 Months |        | 12 Months or Greater |   | Total    
|                                           |  | FairValue           |        | UnrealizedLosses     |   | FairValue |  | UnrealizedLosses |   | FairValue |   | UnrealizedLosses
|                                           |  | (in thousands)     
|December 31, 2008                          |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |    
|Available-for-sale                         |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |    
|Government sponsored enterprise securities |  | $                   |       |                      | $ |          |  | $                |  |           | $ |                 |  | $ |       |  | $ |   
|Mortgage-backed securities                 |  |                     | 17,793 |                      |   | 902       |  |                  |  |           |   |                 |  |   | 17,793 |  |   | 902
|                                           |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |    
|Total temporarily impaired securities      |  | $                   | 17,793 |                      | $ | 902       |  | $                |  |           | $ |                 |  | $ | 17,793 |  | $ | 902
|                                           |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |    
|                                           |  |                     |        |                      |   |          
|Held-to-maturity                           |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |    
|Government sponsored enterprise securities |  | $                   |       |                      | $ |          |  | $                |  |           | $ |                 |  | $ |       |  | $ |   
|Mortgage-backed securities                 |  |                     | 10,727 |                      |   | 400       |  |                  |  |           |   |                 |  |   | 10,727 |  |   | 400
|                                           |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |    
|Total temporarily impaired securities      |  | $                   | 10,727 |                      | $ | 400       |  | $                |  |           | $ |                 |  | $ | 10,727 |  | $ | 400
|                                           |  |                     |        |                      |   |           |  |                  |   |           |   |                  |  |   |        |  |   |    

Management considers the nature of the investment, the underlying causes of the decline in market value, the
severity and duration of the decline in market value and other evidence, on a security by security basis, in determining if the decline in market value is other than temporary. Management believes all unrealized losses presented in the table above
to be temporary in nature.

There were no debt securities that had been in a continuous unrealized loss position for more than twelve months at
June 30, 2009. In analyzing an issuers or a securities financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and
industry analysts reports. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other than temporary, with the exception of
one held-to-maturity security where, at the present time, the collection of all principal is not likely. As a result, the Company recognized a $105,000 impairment loss that is reflected in the Consolidated Statements of Operations for the three and
six months ended June 30, 2009.

Maturities of mortgage-backed securities are presented based on contractual amounts. Actual maturities will vary as the
underlying loans prepay. The scheduled maturities of securities at June 30, 2009 were as follows:



|                                       |  |                    |        |                  |   |               |  |           |        |  |   |       
|-------------------------------------- |  | ------------------ | ------ | ---------------- | - | ------------- |  | --------- | ------ |  | - | ------
|                                       |  | Available-for-Sale |        | Held-to-Maturity
|                                       |  | AmortizedCost      |        | FairValue        |   | AmortizedCost |  | FairValue
|                                       |  | (in thousands)    
|Due in one year or less                |  | $                  |       |                  | $ |              |  | $         |       |  | $ |      
|Due after one year through five years  |  |                    | 987    |                  |   | 1,080         |  |           |       |  |   |      
|Due after five years through ten years |  |                    | 17,178 |                  |   | 17,358        |  |           |       |  |   |      
|Due after ten years                    |  |                    | 35,032 |                  |   | 36,798        |  |           | 11,545 |  |   | 10,129
|                                       |  |                    |        |                  |   |               |  |           |        |  |   |       
|                                       |  | $                  | 53,197 |                  | $ | 55,236        |  | $         | 11,545 |  | $ | 10,129
|                                       |  |                    |        |                  |   |               |  |           |        |  |   |       



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##### Table of Contents

Note 4. Critical Accounting Policies

The Companys financial statements are prepared in accordance with GAAP. The notes to the audited financial statements included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2008 contain a summary of its significant accounting policies. Management believes the Companys policies with respect to the methodology for the determination of the allowance for loan losses, and asset impairment judgments,
such as the recoverability of intangible assets, involve a higher degree of complexity and require management to make difficult and subjective judgments that often require assumptions or estimates about highly uncertain matters. Accordingly, the
Company considers the policies related to those areas as critical.

The allowance for loan losses is established as losses are estimated to have occurred
through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectibility of
the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

The
allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the collateral value or observable market price of the
impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on the historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover
uncertainties that could affect managements estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and
general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be
unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment
delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record,
and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the
loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures.



12



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##### Table of Contents

Notes to Unaudited Consolidated Financial Statements







Note 5. Stock-based Compensation

The Company has adopted both the Employee Stock Option Plan (Incentive Plan) and the Director Stock Option Plan (Nonstatutory Plan). Under each Plan up to 178,937 shares may be issued for a total of
357,874 shares. Options granted under both Plans expire no more than 10 years from date of grant. The option exercise price under both Plans shall be set by a committee of the Board of Directors at the date of grant, but shall not be less than 100
percent of fair market value at the date of the grant. Options granted under either Plan vest according to the terms of each particular grant.

Activity
under the Company Plans during the six months ended June 30, 2009 is summarized below:



|                           |  |                    |  |                   |  |                    |  |        
|-------------------------- |  | ------------------ |  | ----------------- |  | ------------------ |  | -------
|                           |  | Incentive Plan     |  | Nonstatutory Plan
|                           |  | AvailableFor Grant |  | Granted           |  | AvailableFor Grant |  | Granted
|Balance, December 31, 2008 |  | 6,163              |  | 170,674           |  | 3                  |  | 178,934
|Forfeited                  |  |                   |  |                  |  |                   |  |       
|                           |  |                    |  |                   |  |                    |  |        
|Balance, June 30, 2009     |  | 6,163              |  | 170,674           |  | 3                  |  | 178,934
|                           |  |                    |  |                   |  |                    |  |        

There were no options exercised during the six months ended June 30, 2009 and 2008.

A stock option may be exercised, in whole or in part, by giving written notice of exercise to the Corporate Secretary of the Company, or such other officer of the
Company as the Committee shall designate, specifying the number of shares to be purchased along with payment in full of the exercise price. The Committee may, in the relevant award agreement, also permit a participant (either on a selective or group
basis) to simultaneously exercise stock options and sell the shares of common stock thereby acquired, and use the proceeds from such sale as payment of the exercise price of such stock options. Payment instruments shall be received by the Company
subject to collection. The proceeds received by the Company upon exercise of any stock option may be used by the Company for general corporate purposes.

There were no options granted in the six months ended June 30, 2009.

Information regarding the stock options outstanding at June 30,
2009 is as follows (dollars in thousands):



|                         |  |                                  |  |                                          |  |                              |       |                         |   |  
|------------------------ |  | -------------------------------- |  | ---------------------------------------- |  | ---------------------------- | ----- | ----------------------- | - | -
|Range of Exercise Prices |  | NumberOutstandingand Exercisable |  | WeightedAverageRemainingContractual Life |  | WeightedAverageExercisePrice |       | AggregateIntrinsicValue
|$8.80-9.99               |  | 101,513                          |  | 1.83 Years                               |  | $                            | 8.80  |                         | $ | 
|$10.00-10.39             |  | 140,543                          |  | 5.17 Years                               |  | $                            | 10.00 |                         |   | 
|$10.40-11.20             |  | 107,552                          |  | 5.02 Years                               |  | $                            | 10.71 |                         |   | 
|                         |  |                                  |  |                                          |  |                              |       |                         |   |  
|                         |  | 349,608                          |  | 4.15 Years                               |  | $                            | 9.87  |                         | $ | 
|                         |  |                                  |  |                                          |  |                              |       |                         |   |  

The weighted average exercise price for options outstanding at June 30, 2009 was $9.87. There were no options
forfeited during the six months ended June 30, 2009. No compensation expense was recognized during the first six months of 2008 and 2009 as all outstanding stock options had vested.

Note 6. Guaranteed Preferred Beneficial Interest in the Companys Junior Subordinated Debentures

Oak Ridge
Statutory Trust I, a statutory business trust (the Trust), was created by the Company on June 28, 2007, at which time the Trust issued $8.0 million in aggregate liquidation amount of $1 par value preferred capital trust securities
that mature on June 28, 2037. Distributions are payable on the securities at the floating rate equal to the three-month London Interbank Offered Rate (LIBOR) plus 1.60%, and the securities may be prepaid at par by the Trust at any
time after June 17, 2012. The principal assets of the Trust are $8.3 million of the Companys junior subordinated debentures which mature on June 17, 2037, and bear interest at the floating rate equal to the three month LIBOR plus
1.60%, and which are callable by the Company after June 28, 2012. All $248,000 in the aggregate liquidation amount of the Trusts common securities are held by the Company.



13



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##### Table of Contents

Notes to Unaudited Consolidated Financial Statements







Note 7. Fair Value of Financial Instruments

Fair value estimates are made by management at a specific point in time, based on relevant information about the financial instrument and the market. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Companys entire holdings of a particular financial instrument nor are potential taxes and other expenses that would be incurred in an actual sale considered. Fair value estimates are based on
judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. Beginning with the year ended December 31, 2008, fair value estimates are determined in
accordance with Statement of Financial Standards (SFAS) 157 (FASB ASC 820-10-65). These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.
Changes in assumptions and/or the methodology used could significantly affect the estimates disclosed. Similarly, the fair values disclosed could vary significantly from amounts realized in actual transactions.

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and due from banks: The carrying amounts reported in the balance sheet for cash and due from banks approximate their fair values.

Interest-bearing deposits with banks: Fair values for time deposits are estimated using a discounted cash flow analysis that applies interest rates currently
being offered on certificates to a schedule of aggregated contractual maturities on such time deposits. Carrying values of interest-bearing deposits approximate their fair values.

Federal funds sold:The carrying amounts for Federal Home Loan Bank of Atlanta (FHLB) stock owned by the Bank approximate fair value.

Available-for-sale and held-to-maturity securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.

Federal Home Loan Bank Stock:The carrying amounts for Federal Home Loan Bank Stock approximate fair
value.

Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on
carrying amounts. The fair values for other loans are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates
include judgments regarding future expected loss experience and risk characteristics. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values, where applicable. The carrying amount of accrued
interest receivable approximates its fair value.

Bank owned life insurance:The carrying values of bank owned life insurance approximates the fair
value.

Deposit liabilities: The fair values disclosed for demand and savings deposits are, by definition, equal to the amount payable on demand at
the reporting date. The fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated contractual maturities on such
time deposits. The carrying amount of accrued interest payable approximates fair value.

Short-term debt:The carrying values of short-term debt
approximate their fair values.

Long-term debt:The fair values of the Companys junior subordinated debentures are estimated using discounted
cash flow analysis based on the Companys current incremental borrowing rates for similar types of borrowings.

Junior subordinated debentures:The fair values of the Companys long-term debt are estimated using discounted cash flow analysis based on the Companys current incremental borrowing rates for similar types of borrowings.

The following table presents the carrying values and estimated fair values of the Companys financial instruments at June 30, 2009 and December 31, 2008
(dollars in thousands):



|                                                                 |  |               |         |                     |   |               |  |                     |         |  |   |        
|---------------------------------------------------------------- |  | ------------- | ------- | ------------------- | - | ------------- |  | ------------------- | ------- |  | - | -------
|                                                                 |  | June 30, 2009 |         | December 31, 2008  
|                                                                 |  | CarryingValue |         | Estimated FairValue |   | CarryingValue |  | Estimated FairValue
|Financial assets:                                                |  |               |         |                     |   |               |  |                     |         |  |   |        
|Cash and cash equivalents                                        |  | $             | 19,425  |                     | $ | 19,411        |  | $                   | 6,302   |  | $ | 6,302  
|Federal funds sold                                               |  |               |        |                     |   |              |  |                     | 3,282   |  |   | 3,282  
|Securities, available-for-sale                                   |  |               | 55,236  |                     |   | 51,928        |  |                     | 35,594  |  |   | 35,594 
|Securities, held-to-maturity                                     |  |               | 11,545  |                     |   | 9,648         |  |                     | 13,155  |  |   | 13,155 
|Federal Home Loan Bank stock                                     |  |               | 1,252   |                     |   | 1,252         |  |                     | 1,462   |  |   | 1,462  
|Net loans                                                        |  |               | 243,975 |                     |   | 222,803       |  |                     | 243,031 |  |   | 243,031
|Bank owned life insurance                                        |  |               | 4,528   |                     |   | 4,528         |  |                     | 4,431   |  |   | 4,431  
|                                                                 |  |               |         |                    
|Financial liabilities:                                           |  |               |         |                     |   |               |  |                     |         |  |   |        
|                                                                 |  |               |         |                    
|Deposits                                                         |  | $             | 298,442 |                     | $ | 287,676       |  | $                   | 270,604 |  | $ | 271,699
|Short-term borrowings                                            |  |               |        |                     |   |              |  |                     | 7,000   |  |   | 7,000  
|Junior subordinated notes relating to trust preferred securities |  |               | 8,248   |                     |   | 8,009         |  |                     | 8,248   |  |   | 8,248  
|Long-term debt                                                   |  |               | 15,000  |                     |   | 14,566        |  |                     | 15,000  |  |   | 15,000 

Fair Value Hierarchy

Under SFAS 157 (FASB ASC 820-10-65), the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions
used to determine fair value. These levels are:



|        |  |                                                                                                                                                                                                                                                                                                                                                                                   
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1 |  | Valuation is based upon quoted prices for identical instruments traded in active markets.                                                                                                                                                                                                                                                                                         
|        | 
|Level 2 |  | Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation
techniques for which all significant assumptions are observable in the market.                                                                                                      
|        | 
|Level 3 |  | Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions
that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.



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##### Table of Contents

Notes to Unaudited Consolidated Financial Statements







Note 7. Fair Value of Financial Instruments, continued



The Company adopted SFAS 157 (FASB ASC 820-10-65) on January 1, 2007 which had no
material impact on the Companys financial statements. The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale are
recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets.
These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

There
were no changes to the techniques used to measure fair value during the period.

Following is a description of valuation methodologies used for assets and
liabilities recorded at fair value.

Investment Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured
using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the securitys credit rating, prepayment assumptions and other factors such as credit loss assumptions.
Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include
mortgage-backed securities issued by government sponsored entities, mortgage-backed securities issued by non government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed
securities in less liquid markets.

Loans

The
Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will
not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS 114 (ASC 310), Accounting by
Creditors for Impairment of a Loan,(SFAS 114). The fair value of impaired loans is estimated using one of several methods, including collateral value, market price and discounted cash flows. Those impaired loans not
requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At June 30, 2009, substantially all of the total impaired loans were evaluated based on the
fair value of the collateral. In accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on
an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the
appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Real Estate and
Repossessions Acquired in Settlement of Loans

Foreclosed assets are adjusted to fair value upon transfer of the loans to other real estate owned.
Real estate acquired in settlement of loans is recorded initially at estimated fair value of the property less estimated selling costs at the date of foreclosure. The initial recorded value may be subsequently reduced by additional allowances, which
are charged to earnings if the estimated fair value of the property less estimated selling costs declines below the initial recorded value. Fair value is based upon independent market prices, appraised values of the collateral or managements
estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not
available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.



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##### Table of Contents

Notes to Unaudited Consolidated Financial Statements







Note 7. Fair Value of Financial Instruments, continued



Assets and liabilities recorded at fair value on a recurring basis as of June 30,
2009



|                                                                                              |  |       |        |         |   |         |  |         |        |  |   |      
|--------------------------------------------------------------------------------------------- |  | ----- | ------ | ------- | - | ------- |  | ------- | ------ |  | - | -----
|(Dollars in thousands)                                                                        |  | Total |        | Level 1 |   | Level 2 |  | Level 3
|Investment securities available-for-sale                                                      |  | $     | 55,236 |         | $ |        |  | $       | 54,736 |  | $ | 500  
|Total assets at fair value                                                                    |  | $     | 55,236 |         | $ |        |  | $       | 54,736 |  | $ | 500  
|Total liabilities at fair value                                                               |  | $     |       |         | $ |        |  | $       |       |  | $ |     
|                                                                                              |  |       |       
|Assets and liabilities recorded at fair value on a recurring basis as of December 31, 2008    |  |       |        |         |   |         |  |         |       
|                                                                                              |  |       |        |        
|(Dollars in thousands)                                                                        |  | Total |        | Level 1 |   | Level 2 |  | Level 3
|Investment securities available-for-sale                                                      |  | $     | 35,594 |         | $ | 4,113   |  | $       | 30,981 |  | $ | 500  
|Total assets at fair value                                                                    |  | $     | 35,594 |         | $ | 4,113   |  | $       | 30,981 |  | $ | 500  
|Total liabilities at fair value                                                               |  | $     |       |         | $ |        |  | $       |       |  | $ |     
|                                                                                              |  |       |       
|Assets and liabilities recorded at fair value on a nonrecurring basis as of June 30, 2009     |  |       |        |         |   |         |  |         |       
|                                                                                              |  |       |        |        
|(Dollars in thousands)                                                                        |  | Total |        | Level 1 |   | Level 2 |  | Level 3
|Impaired loans in accordance with SFAS 114                                                    |  | $     | 4,908  |         | $ |        |  | $       |       |  | $ | 4,908
|Real estate and repossessions acquired in settlement of loans                                 |  |       | 848    |         |   |        |  |         |       |  |   | 848  
|Total assets at fair value                                                                    |  | $     | 5,756  |         | $ |        |  | $       |       |  | $ | 5,756
|Total liabilities at fair value                                                               |  | $     |       |         | $ |        |  | $       |       |  | $ |     
|                                                                                              |  |       |       
|Assets and liabilities recorded at fair value on a nonrecurring basis as of December 31, 2008 |  |       |        |         |   |         |  |         |       
|                                                                                              |  |       |        |        
|(Dollars in thousands)                                                                        |  | Total |        | Level 1 |   | Level 2 |  | Level 3
|Impaired loans in accordance with SFAS 114                                                    |  | $     | 2,932  |         | $ |        |  | $       |       |  | $ | 2,932
|Real estate and repossessions acquired in settlement of loans                                 |  |       | 1,508  |         |   |        |  |         |       |  |   | 1,508
|Total assets at fair value                                                                    |  | $     | 4,440  |         | $ |        |  | $       |       |  | $ | 4,440
|Total liabilities at fair value                                                               |  | $     |       |         | $ |        |  | $       |       |  | $ |     

The table below presents a reconciliation for all assets and liabilities measured at fair value on
a recurring basis using significant unobservable inputs (level 3) during 2009.

Total Fair Value Measurements



|                                             |  |   |    
|-------------------------------------------- |  | - | ---
|Balance, December 31, 2008                   |  | $ | 500
|Total gains or losses (realized/unrealized): |  |   |    
|                                             | 
|Included in earnings                         |  |   |   
|Included in other comprehensive loss         |  |   |   
|Purchases, issuances, and settlements        |  |   |   
|Transfers in to/out of Level 3               |  |   |   
|                                             |  |   |    
|Balance, June 30, 2009                       |  | $ | 500
|                                             |  |   |    

There were no unrealized net gains included in net income related to assets held as of June 30,
2009.



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##### Table of Contents

Notes to Unaudited Consolidated Financial Statements







Note 8. U.S. Treasurys Troubled Asset Relief Program Capital Purchase Program

On January 30, 2009, the Company issued Series A Preferred Stock (the Preferred Stock) in the amount of $7,700,000 and a warrant to purchase 159,530
shares of common stock to the U.S. Treasury as a participant in the Troubled Asset Relief Program Capital Purchase Program. The Preferred Stock qualifies as Tier 1 capital for purposes of regulatory capital requirements and will pay cumulative
dividends at a rate of 5% per annum for the first five years and 9% per annum thereafter. Prior to January 30, 2012, unless the Company has redeemed all of the Preferred Stock or the U.S. Treasury has transferred all of the Preferred
Stock to a third party, the consent of the U.S. Treasury will be required to, among other things, declare or pay a common stock dividend or repurchase common stock except in limited circumstances. In addition, until the U.S. Treasury ceases to own
the Preferred Stock sold under the Troubled Asset Relief Program Capital Purchase Program, the compensation arrangements for senior executive officers must comply in all respects with the U.S. Emergency Economic Stabilization Act of 2008 and the
rules and regulations thereunder.

Note 9. Recent Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No. 162, (SFAS 168). SFAS 168 establishes
the FASB Accounting Standards CodificationTM(Codification) as
the source of authoritative GAAP for nongovernmental entities. The Codification does not change GAAP. Instead, it takes the thousands of individual pronouncements that currently comprise GAAP and reorganizes them into approximately 90 accounting
topics, and displays all topics using a consistent structure. Contents in each topic are further organized first by subtopic, then Section and finally paragraph. The paragraph level is the only level that contains substantive content. Citing
particular content in the Codification involves specifying the unique numeric path to the content through the topic, subtopic, section and paragraph structure. FASB suggests that all citations begin with FASB ASC, where ASC stands for
Accounting Standards Codification. SFAS 168, (FASB ASC 105-10-05, 10, 15, 65, 70) is effective for interim and annual periods ending after September 15, 2009 and will not have an impact on the Companys financial position but will
change the referencing system for accounting standards. The following pronouncements provide citations to the applicable codification by topic, subtopic and section in addition to the original standard type and number.

In December 2008 FASB issued FASB Staff Position (FSP) SFAS 132(R)-1 (FASB ASC 715-20-65), Employers Disclosures about Postretirement Benefit
Plan Assets, (FSP SFAS 132(R)-1). This FSP provides guidance on an employers disclosures about plan assets of a defined benefit pension or other postretirement plan. The objective of the FSP is to provide the users of
financial statements with an understanding of: (a) how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies; (b) the major categories of plan assets;
(c) the inputs and valuation techniques used to measure the fair value of plan assets; (d) the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period; and
(e) significant concentrations of risk within plan assets. The FSP also requires a nonpublic entity, as defined in SFAS 132, to disclose net periodic benefit cost for each period for which a statement of income is presented. FSP SFAS 132(R)-1
is effective for fiscal years ending after December 15, 2009. The Staff Position will require the Company to provide additional disclosures related to its benefit plans. The Company is presently evaluating this pronouncement and its impact on
its financial statements.

FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20, (FASB ASC 325-40-65)
(FSP EITF 99-20-1) was issued in January 2009. Prior to the FSP, other-than-temporary impairment was determined by using either Emerging Issues Task Force (EITF) Issue No. 99-20, Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets, (EITF 99-20) or SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities, (SFAS 115) depending on the type of security. EITF 99-20 required the use of market participant assumptions regarding future cash flows regarding the probability of collecting all cash flows previously projected.
SFAS 115 determined impairment to be other than temporary if it was probable that the holder would be unable to collect all amounts due according to the contractual terms. To achieve a more consistent determination of other-than-temporary
impairment, the FSP EITF 99-20-1 amends EITF 99-20 to determine any other-than-temporary impairment based on the guidance in SFAS 115, allowing management to use more judgment in determining any other-than-temporary impairment. FSP EITF 99-20-1 was
effective for reporting periods ending after December 15, 2008. Management has reviewed the Companys security portfolio and evaluated the portfolio for any other-than-temporary impairments.



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##### Table of Contents

Notes to Consolidated Financial Statements







Note 9. Recent Accounting Pronouncements, continued



On April 9, 2009, the FASB issued three staff positions related to fair value which are
discussed below.

FSP SFAS 115-2 and SFAS 124-2 (FASB ASC 320-10-65), Recognition and Presentation of Other-Than-Temporary Impairments,
(FSP SFAS 115-2 and SFAS 124-2) categorizes losses on debt securities available-for-sale or held-to-maturity determined by management to be other-than-temporarily impaired into losses due to credit issues and losses related to all other
factors. Other-than-temporary impairment (OTTI) exists when it is more likely than not that the security will mature or be sold before its amortized cost basis can be recovered. An OTTI related to credit losses should be recognized
through earnings. An OTTI related to other factors should be recognized in other comprehensive income. The FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. Annual
disclosures required in SFAS 115 and FSP SFAS 115-1 and SFAS 124-1 are also required for interim periods (including the aging of securities with unrealized losses).

FSP SFAS 157-4 (FASB ASC 820-10-65), Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly
recognizes that quoted prices may not be determinative of fair value when the volume and level of trading activity has significantly decreased. The evaluation of certain factors may necessitate that fair value be determined using a different
valuation technique. Fair value should be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, not a forced liquidation or distressed sale. If a transaction is considered to not be orderly,
little, if any, weight should be placed on the transaction price. If there is not sufficient information to conclude as to whether or not the transaction is orderly, the transaction price should be considered when estimating fair value. An
entitys intention to hold an asset or liability is not relevant in determining fair value. Quoted prices provided by pricing services may still be used when estimating fair value in accordance with SFAS 157; however, the entity should evaluate
whether the quoted prices are based on current information and orderly transactions. Inputs and valuation techniques are required to be disclosed in addition to any changes in valuation techniques.

FSP SFAS 107-1 and APB 28-1 (FASB ASC 825-10-65), Interim Disclosures about Fair Value of Financial Instruments requires disclosures about the fair value of
financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements and also requires those disclosures in summarized financial information at interim reporting periods A publicly traded company
includes any company whose securities trade in a public market on either a stock exchange or in the over-the-counter market, or any company that is a conduit bond obligor. Additionally, when a company makes a filing with a regulatory agency in
preparation for sale of its securities in a public market it is considered a publicly traded company for this purpose.

The three staff positions are
effective for periods ending after June 15, 2009, with early adoption of all three permitted for periods ending after March 15, 2009. The Company adopted the staff positions for its second quarter 10-Q. The staff positions had no material
impact on the financial statements. Additional disclosures have been provided where applicable.

Also on April 1, 2009, FASB issued FSP SFAS 141(R)-1
(FASB ASC 805-20-25, 30, 35, 50), Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. FSP SFAS 141(R)-1 requires that assets acquired and liabilities assumed in a business
combination that arise from a contingency be recognized at fair value. If fair value cannot be determined during the measurement period as determined in SFAS 141 (R), the asset or liability can still be recognized if it can be determined that it is
probable that the asset existed or the liability had been incurred as of the measurement date and if the amount of the asset or liability can be reasonably estimated. If it is not determined to be probable that the asset/liability existed/was
incurred or no reasonable amount can be determined, no asset or liability is recognized. The entity should determine a rational basis for subsequently measuring the acquired assets and assumed liabilities. Contingent consideration agreements should
be recognized initially at fair value and subsequently reevaluated in accordance with guidance found in paragraph 65 of SFAS 141 (R). FSP SFAS 141(R)-1 is effective for business combinations with an acquisition date on or after the beginning of the
Companys first annual reporting period beginning on or after December 15, 2008. The Company will assess the impact of FSP SFAS 141(R)-1 if and when a future acquisition occurs.



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##### Table of Contents

Notes to Consolidated Financial Statements







Note 9. Recent Accounting Pronouncements, continued



The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 111 (FASB ASC 320-10-S99-1) (SAB 111) on April 9, 2009 to amend Topic 5.M., Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities and to supplement FSP SFAS 115-2
and SFAS 124-2. SAB 111 maintains the staffs previous views related to equity securities; however debt securities are excluded from its scope. SAB 111 provides that other-than-temporary impairment is not necessarily the same as
permanent impairment and unless evidence exists to support a value equal to or greater than the carrying value of the equity security investment, a write-down to fair value should be recorded and accounted for as a realized loss. SAB 111
was effective upon issuance and had no impact on the Companys financial position.

SFAS 165 (FASB ASC 855-10-05, 15, 25, 45, 50, 55),
Subsequent Events, (SFAS 165) was issued in May 2009 and provides guidance on when a subsequent event should be recognized in the financial statements. Subsequent events that provide additional evidence about conditions that
existed at the date of the balance sheet should be recognized at the balance sheet date. Subsequent events that provide evidence about conditions that arose after the balance sheet date but before financial statements are issued, or are available to
be issued, are not required to be recognized. The date through which subsequent events have been evaluated must be disclosed as well as whether it is the date the financial statements were issued or the date the financial statements were available
to be issued. For nonrecognized subsequent events which should be disclosed to keep the financial statements from being misleading, the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made,
should be disclosed. The standard is effective for interim or annual periods ending after June 15, 2009. This standard was adopted and disclosures made for the second quarter ended June 30, 2009. The adoption of this statement did not have
a material impact on the Companys consolidated financial position or results of operations.

FASB issued SFAS 166 (not yet reflected in FASB ASC),
Accounting for Transfers of Financial Assets  an amendment of FASB Statement No. 140, (SFAS 166) in June 2009. SFAS 166 limits the circumstances in which a financial asset should be derecognized when the transferor
has not transferred the entire financial asset by taking into consideration the transferors continuing involvement. The standard requires that a transferor recognize and initially measure at fair value all assets obtained (including a
transferors beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. The concept of a qualifying special-purpose entity is removed from SFAS 140 along with the exception from applying
FIN 46(R). The standard is effective for the first annual reporting period that begins after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. The Company does not expect the standard to have any impact on the Companys financial position.

SFAS 167 (not yet
reflected in FASB ASC), Amendments to FASB Interpretation No. 46(R), (SFAS 167) was also issued in June 2009. The standard amends FIN 46(R) to require a company to analyze whether its interest in a variable interest
entity (VIE) gives it a controlling financial interest. A company must assess whether it has an implicit financial responsibility to ensure that the VIE operates as designed when determining whether it has the power to direct the
activities of the VIE that significantly impact its economic performance. Ongoing reassessments of whether a company is the primary beneficiary is also required by the standard. SFAS 167 amends the criteria to qualify as a primary beneficiary as
well as how to determine the existence of a VIE. The standard also eliminates certain exceptions that were available under FIN 46(R). SFAS 167 is effective as of the beginning of each reporting entitys first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. Comparative disclosures will be required for periods after the
effective date. The Company does not expect the standard to have any impact on the Companys financial position.

Other accounting standards that have
been issued or proposed by FASB or other standards-setting bodies are not expected to have a material impact on the Companys financial position, results of operations or cash flows.



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Comparison of Results of Operations for the Three-Month Periods Ending June 30, 2009 and 2008

Net
Income

For the three months ended June 30, 2009, the Companys net income decreased 37 percent to $242,000 compared to
$384,000 for the same period in 2008. Net income available to common stockholders decreased 80 percent to $78,000 in 2009 compared to $384,000 in 2008. Net income per diluted share decreased 50 percent to $0.04 compared to $0.08 for the prior year
period. Returns on average assets and average equity were 0.36 percent and 2.97 percent, respectively, for the three months ended June 30, 2009, compared to 0.53 percent and 8.80 percent for the three months ended June 30, 2008.

The increase in net income was a result of increases in net interest income and a decline in income tax expense, offset by declines in
noninterest income, and increases in the provision for loan losses, and noninterest expense. The decrease in net income available to common shareholders was a result to preferred stock dividends and accretion of discount in 2009 totalling $164,000.
There were no preferred stock dividends and accretion of discount in 2008.

Net Interest Income

Net interest income was $3.0 million for the three months ended June 30, 2009 compared to $2.2 million for the prior year. The 36 percent increase in
net interest income was due both to growth in average earning assets and an increase in the net interest margin in 2009 compared to 2008.

Net interest margin is interest income earned on loans, securities, and other earning assets, less interest expense paid on deposits and borrowings, expressed as a percentage of total average earning assets. The net interest margin for the
three months ended June 30, 2009 was 3.61 percent compared to 3.28 percent for the prior year period. The average yield on earning assets for the three months ended June 30, 2009 was 6.32 percent compared to 6.49 percent for the prior year
period, and the average cost of interest-bearing liabilities was 2.71 percent for the three months ended June 30, 2009 compared to 3.54 percent for the prior year period. The net interest margin has increased during the past year as
interest-bearing liabilities have repriced downward faster than interest-earning assets.

Provision for Loan Losses

The Companys provision for loan losses for the three months ended June 30, 2009 was $303,000 compared to $99,000 recorded in the prior year
period. Provisions for loan losses are charged to income to bring the allowance for loan losses to a level management deems appropriate. In evaluating the allowance for loan losses, management considers factors that include growth and composition of
the loan portfolio, historical loan loss experience, individual loans that may have estimated losses, and other relevant factors such as unemployment and changes in general interest rates. The increase in the provision for loan losses from 2008 to
2009 was primarily due to managements determination that a higher allowance for loan losses was needed due to the potential for higher loan charge-offs in future periods. The allowance for loan losses to total loans was 1.23 percent at
June 30, 2009, and 1.00 percent at December 31 and June 30, 2008.

Noninterest Income

Noninterest income totaled $865,000 for the three months ended June 30, 2009, down $32,000, or 4 percent, from $897,000 for the same period in
2008.

Service fees and charges, which represent a relatively stable and predictable source of noninterest income, totaled $205,000
for the three months ended June 30, 2009, a 16 percent increase over the $177,000 of service fees and charges earned for same period in 2008.

Mortgage loan fee income was positively impacted in 2009 by low mortgage rates as well as more mortgage originators in 2009 compared to 2008, and totaled $145,000 for the three months ended June 30, 2009, a 6 percent increase over the
$137,000 of mortgage loan fee income earned for 2008.

The Banks Investment Services Group, which services its banking offices, and
the Oak Ridge Wealth Management division, which was formed in 2005 and operates independently of the Bank, comprise all of the investment and insurance commissions noninterest income category. Investment and insurance commissions totaled $162,000
for the three months ended June 30, 2009, a 34 percent decrease under the $244,000 earned in 2008. A large part of this decrease was due to a decline in fees tied to the market value of assets under management due to lower market prices in 2009
on most investments.



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##### Table of Contents

Fee income from accounts receivable financing totaled $181,000 for the three months ended June 30,
2009, a 2 percent decrease under the $185,000 earned in the same period in 2008.

Income earned on bank owned life insurance totaled
$65,000 for the three months ended June 30, 2009, a 63 percent increase over the $40,000 earned in the same period in 2008. This increase was due to higher rates on the underlying insurance policies in 2009 as compared to 2008.

Other service charges and fees totaled $107,000 for the three months ended June 30, 2009, a 6 percent decrease under the $114,000 earned in 2008.
The decline was primarily caused by lower income earned off of customer debit card transactions in 2009 as compared to 2008, as well as lower income from other bank products and services.

Noninterest Expense

Noninterest expenses were
$3.1 million for the three months ended June 30, 2009 compared to $2.4 million for the prior year period. The $700,000 or 29 percent increase reflects the continuing efforts and associated expenses related to servicing existing Bank clients as
well as attracting new clients, as well as other real estate expenses and writedowns of $182,000 in the three months ended June 30, 2009 that were not present in the same prior year period.

Salaries and employee benefits for the three months ended June 30, 2009 were $1.4 million reflecting a $100,000 increase when compared to the $1.3
million for the same period in 2008. Most of the increase is due to average salary increases of approximately 4% that were effective January 1, 2009 and additional personnel hired in 2009, offset by lower investment and insurance commissions to
the Banks financial advisors and lower bonuses to managers and executives due to the generally weak economic conditions that are negatively affecting the Banks and the Companys financial performance.

Occupancy expenses for the three months ended June 30, 2009 were $178,000 reflecting a $49,000 increase when compared to $129,000 for the same
period in 2008. Increases in repairs and maintenance expenses associated with the Banks infrastructure and increases in rental expense for the new location for the Banks wealth management division contributed to the overall upward
movement in this expense category.

Equipment expenses for the three months ended June 30, 2009 were $174,000 reflecting a $34,000
increase when compared to $140,000 for the same period in 2008. Increased depreciation expense associated with 2008 and 2009 equipment purchases contributed to the majority of the increase in this expense category.

Data and item processing expenses for the three months ended June 30, 2009 were $155,000 reflecting a $27,000 increase when compared to $128,000 for
the same period in 2008. The increase in this expense was driven both by an increase in the number of products provided, such as mobile banking and merchant capture, as well as a continued increase in the number of Bank clients, which tends to
influence increases in expenses such as items processing, bill payment, internet banking, and telephone banking.

Stationary and supplies
for the three months ended June 30, 2009 were $53,000 reflecting a $17,000 increase when compared to $36,000 for the same period in 2008. The increase was due to increased mailings to clients and prospective clients as well as expenses
associated with the opening in early July of 2009 of the Companys new 14,000 square foot corporate center.

Other real estate owned
expenses and write-downs totaled $182,000 for the three months ended June 30, 2009. There was no real estate owned or associated expenses or write-downs in 2008. The write-downs in real estate owned were due to the continuing evaluation of the
net realizeable values of these types of assets that are on the Banks balance sheet. A general decline in local housing and real estate values during the first quarter of 2009 contributed to the write-downs. Bank management believes that the
local real estate market has improved slightly since June 30, 2009, a belief supported by the sale of two other real estate owned properties in the second quarter of 2009, and one sale subsequent to June 30, 2009.

FDIC assessment expense for the three months ended June 30, 2009 was $219,000 reflecting a $157,000 increase when compared to $62,000 for the same
period in 2008. The FDIC mandated a special assessment for all financial institutions in the second quarter of 2009 equivalent to 5 basis points on total assets minus tier one capital. For the Bank the special assessment amounted to $162,000. The
FDIC has not determined if additional special assessments will be required of all banks in a future period.

Professional and
telecommunication expenses and other expenses were relatively unchanged from 2008 to 2009, reflecting a strategy by the Bank to manage expenses due to the overall weak economic environment.



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Accounts receivable financing expense, which is largely influenced by the fee income from accounts
receivable financing, was relatively unchanged from 2008 to 2009.

Total other than temporary impairment losses were $105,000 for the three
months ended June 30, 2009, and was a result of managements determination that one private label mortgage-backed security was other than temporarily impaired.

Other expenses for the three months ended June 30, 2009 were $285,000 reflecting a $55,000 increase when compared to the $230,000 for the same period in 2008. Increases in appraisal fees, loan collection expense,
employee training, and charge offs from deposit accounts and activity contributed to the majority of the increase between the two periods.

Income
Taxes

Income tax expense was $131,000 for the three months ended June 30, 2009 and $211,000 for the same period in 2008. The
decrease in income tax expense from 2008 to 2009 was primarily due to lower net income before provision for income taxes in 2008 as compared to 2009.

Comparison of Results of Operations for the Six-Month Periods Ending June 30, 2009 and 2008

Net Income

For the six months ended June 30, 2009, the Companys net income decreased 23 percent to $342,000 compared to $445,000
for the same period in 2008. Net income available to common stockholders decreased 84 percent to $70,000 in 2009 compared to $445,000 in 2008. Net income per diluted share decreased 50 percent to $0.04 compared to $0.08 for the prior year period.
Returns on average assets and average equity were 0.20 percent and 2.12 percent, respectively, for the six months ended June 30, 2009, compared to 0.32 percent and 5.08 percent for the prior year period.

The increase in net income was a result of increases in net interest income and noninterest income and a decline in income tax expense, offset by
increases in the provision for loan losses, and noninterest expense. The decrease in net income available to common shareholders was a result to preferred stock dividends and accretion of discount in 2009 totalling $164,000. There were no preferred
stock dividends and accretion of discount in 2008.

Net Interest Income

Net interest income was $5.5 million for the six months ended June 30, 2009 compared to $4.1 million for the prior year. The 34 percent increase in
net interest income was due both to growth in average earning assets and an increase in the net interest margin in 2009 compared to 2008.

Net interest margin is interest income earned on loans, securities, and other earning assets, less interest expense paid on deposits and borrowings, expressed as a percentage of total average earning assets. The net interest margin for the
six months ended June 30, 2009 was 3.30 percent compared to 3.18 percent for the prior year period. The average yield on earning assets for the six months ended June 30, 2009 was 6.21 percent compared to 6.74 percent for the prior year
period, and the average cost of interest-bearing liabilities was 2.91 percent for the six months ended June 30, 2009 compared to 3.87 percent for the prior year period. The net interest margin has increased during the past year as
interest-bearing liabilities have repriced downward faster than interest-earning assets.

Provision for Loan Losses

The Companys provision for loan losses for the six months ended June 30, 2009 was $669,000 compared to $263,000 recorded in the prior year
period. Provisions for loan losses are charged to income to bring the allowance for loan losses to a level we deem appropriate. In evaluating the allowance for loan losses, we consider factors that include growth and composition of the loan
portfolio, historical loan loss experience, individual loans that may have estimated losses, and other relevant factors such as unemployment and changes in general interest rates. The increase in the provision for loan losses from 2008 to 2009 was
primarily due to managements determination that a higher allowance for loan losses was needed due to the potential for higher loan charge-offs in future periods. The allowance for loan losses to total loans was 1.23 percent at June 30,
2009, and 1.00 percent at December 31 and June 30, 2008.

Noninterest Income

Noninterest income totaled $1.7 million for the six months ended June 30, 2009, and was relatively unchanged from the same prior year period.



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Service fees and charges, which represent a relatively stable and predictable source of noninterest
income, totaled $408,000 for the six months ended June 30, 2009, a 16 percent increase over the $353,000 of service fees and charges earned for same period in 2008.

Mortgage loan fee income was positively impacted in 2009 by low mortgage rates as well as more mortgage originators in 2009 compared to 2008, and totaled $301,000 for the six months ended June 30, 2009, a 30
percent increase over the $232,000 of mortgage loan fee income earned for 2008.

The Banks Investment Services Group, which services
its banking offices, and the Oak Ridge Wealth Management division, which was formed in 2005 and operates independently of the Bank, comprise all of the investment and insurance commissions noninterest income category. Investment and insurance
commissions totaled $336,000 for the six months ended June 30, 2009, a 25 percent decrease under the $450,000 earned in 2008. A large part of the decrease in this category was due to a decline in fees tied to the market value of assets under
management due to lower market prices in 2009 on most investments.

Fee income from accounts receivable financing totaled $355,000 for the
six months ended June 30, 2009, a 1 percent increase over the $352,000 earned in the same period in 2008.

Income earned on bank owned
life insurance totaled $97,000 for the six months ended June 30, 2009, a 21 percent increase over the $80,000 earned in the same period in 2008. This increase was due to higher rates on the underlying insurance policies in 2009 as compared to
2008.

Other service charges and fees benefited from an increase in income earned off of customer debit card transactions, and totaled
$197,000 for the six months ended June 30, 2009, a 7 percent increase over the $184,000 earned in 2008.

Noninterest Expense

Noninterest expenses were $5.9 million for the six months ended June 30, 2009 compared to $4.8 million for the prior year period. The increase of
$1.1 million, or 23 percent, reflects the continuing efforts and associated expenses related to servicing existing Bank clients and attracting new clients, as well as other real estate expenses and writedowns of $302,000 in the six months ended
June 30, 2009 that were not present in the same prior year period.

Salaries and employee benefits for the six months ended
June 30, 2009 were $2.8 million reflecting a $300,000 increase when compared to the $2.5 million for the same period in 2008. Most of the increase is due to average salary increases of approximately 4% that were effective January 1, 2009
and additional personnel hired in 2009, offset by lower investment and insurance commissions to the Banks financial advisors and lower bonuses to managers and executives due to the generally weak economic conditions that are negatively
affecting the Banks and Companys financial performance.

Occupancy expenses for the six months ended June 30, 2009 were
$365,000 reflecting a $102,000 increase when compared to $263,000 for the same period in 2008. Increases in repairs and maintenance expenses associated with the Banks infrastructure and increases in rental expense for the new location for the
Banks wealth management division contributed to the overall upward movement in this expense category. Lastly, the Bank had five months of occupancy expenses in 2008 compared to six months of expenses in 2009 related to the Banks fifth
banking office, which opened on January 31, 2008.

Equipment expenses for the six months ended June 30, 2009 were $344,000
reflecting a $64,000 increase when compared to $280,000 for the same period in 2008. Increased depreciation expense associated with 2008 and 2009 equipment purchases contributed to the majority of the increase in this expense category.

Data and item processing expenses for the six months ended June 30, 2009 were $300,000 reflecting a $88,000 increase when compared to $212,000
for the same period in 2008. The increase in this expense was driven both by an increase in the number of products such as mobile banking and merchant capture as well as a continued increase in the number of bank clients, which tends to influence
increases in expenses such as items processing, bill payment, internet banking, and telephone banking.

Stationary and supplies for the six
months ended June 30, 2009 were $108,000 reflecting a $10,000 increase when compared to $98,000 for the same period in 2008. The increase was due to increased mailings to clients and prospective clients as well as expenses associated with the
opening in early July of 2009 of the Companys new 14,000 square foot corporate center.

Other real estate owned expenses and
write-downs totaled $302,000 for the six months ended June 30, 2009. There was no real estate owned or associated expenses or write-downs in 2008. The write-downs in real estate owned were due to the continuing evaluation of the net realizeable
values of these types of assets that are on the Banks balance sheet. A general



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##### Table of Contents

decline in local housing and real estate values during the first quarter of 2009 contributed to the write-downs. Bank management believes that the local real
estate market has improved slightly since June 30, 2009, a belief supported by the sale of two other real estate owned properties in the second quarter of 2009 and one sale subsequent to June 30, 2009.

FDIC assessment expense for the six months ended June 30, 2009 was $292,000 reflecting a $180,000 increase when compared to $112,000 for the same
period in 2008. The FDIC mandated a special assessment for all financial institutions in the second quarter of 2009 equivalent to 5 basis points on total assets minus tier one capital. For the Bank the special assessment amounted to $162,000. The
FDIC has not determined if additional special assessments will be required of all banks in a future period.

Professional and
telecommunication expenses and other expenses were relatively unchanged from 2008 to 2009, reflecting a strategy by the Bank to manage expenses due to the overall weak economic environment.

Accounts receivable financing expense, which is influenced by the fee income from accounts receivable financing, decreased $36,000 to $109,000 for the
six months ended June 30, 2009, compared to $145,000 for the same period in 2008. This expense represents the amount paid by the Bank to the vendor that provides the servicing of the accounts receivable program. For the most part, the expense
represents a participation, expressed as a percentage of revenue, in the Banks income from financing the receivable, and can vary anywhere from 25 to 35 percent. However, in the prior year this expense was higher due to the cost of acquiring
several new customers from an area bank that was exiting the accounts receivable financing business.

Total other than temporary impairment
losses were $105,000 for the six months ended June 30, 2009, and was a result of managements determination that one private label mortgage-backed security was other than temporarily impaired.

Other expenses for the six months ended June 30, 2009 were $516,000 reflecting a $70,000 increase when compared to $446,000 for the same period in
2008. Increases in appraisal fees, loan collection expense, employee training, and charge offs from deposit accounts and activity contributed to the majority of the increase between the two periods.

Income Taxes

Income tax expense was $185,000
for the six months ended June 30, 2009 and $247,000 for the same period in 2008. The decrease in income tax expense from 2008 to 2009 was primarily due to lower net income before provision for income taxes in 2008 as compared to 2009.

Analysis of Financial Condition from December 31, 2008 to June 30, 2009

Total assets increased to $350.1 million at June 30, 2009, or 9 percent, from $320.7 million at December 31, 2008. The primary contributors to
the growth between the two periods were increases in cash and due from banks, available-for-sale securities, loans receivable, and property and equipment of $8.7 million, $19.6 million, $1.0 million, and $2.0 million, respectively.

Cash and Due from Banks

Cash and due from
banks totaled $12.7 million at June 30, 2009, up $8.7 million, or 219 percent, from $4.0 million at December 31, 2008. The large increase was due to the inability of the Banks primary correspondent bank to place Federal Funds sold
with other banks. On Friday, May 1, 2009, Silverton Bank, National Association (Silverton), Atlanta, Georgia, the Banks primary correspondent bank, was closed by the Office of the Comptroller of the Currency (OCC).
Subsequently, the FDIC was named receiver.

Silverton Bridge Bank, N.A. has been chartered as a new national bank by the OCC and controlled
by the FDIC in accordance with section 11(n) of the Federal Deposit Insurance Act. A bridge bank allows a failed bank to be liquidated in an orderly fashion.

Subsequent to June 30, 2009, the Bank moved its primary correspondent banking relationship to the Federal Reserve Bank of Richmond. The Bank did not suffer any losses as a result of the failure of Silverton.

Federal Funds Sold

Due to the
lack of a Federal Funds program offering by the Banks correspondent bank, Federal Funds sold declined $3.3 million from December 31, 2008 to June 30, 2009.



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##### Table of Contents

Investment Securities

The Companys portfolios of investment securities, which are classified as either available-for-sale or held-to-maturity, consist of government-sponsored enterprise, government-sponsored enterprises guaranteed
mortgage-backed securities, and mortgage backed securities not guaranteed by government-sponsored enterprises.

Available-for-sale
securities totaled $55.2 million at June 30, 2009, up $19.6 million, or 55 percent, from $35.6 million at December 31, 2008. Funds from deposit growth were used to purchase during 2009 Small Business Administration (SBA)
government guaranteed securities and mortgage backed securities not guaranteed by government-sponsored enterprises, offset by repayments on existing available-for-sale securities.

Held-to-maturity securities totaled $11.5 million at June 30, 2009, down $1.7 million, or 12.9 percent, from $13.2 million at December 31,
2008. The decrease was due to repayments on existing held-to-maturity securities.

Loans Receivable

The Company makes both commercial and consumer loans to borrowers in all neighborhoods within its market areas, including low- and moderate-income areas.
The Company emphasizes commercial loans to small- and medium-sized businesses, real estate loans, and consumer loans.

Net loans receivable
totaled $244.0 million at June 30, 2009, up $1.0 million, from $243.0 million at December 31, 2008. The increase in loans is a result of the Banks continuing expansion in the Triad. Although the number of loan opportunities that meet
the Banks underwriting standards has declined, there are some opportunities with existing and new clients of the Bank.

Allowance for Loan
Losses and Asset Quality

The allowance for loan losses totaled $3.0 million at June 30, 2009, up $584,000, or 23 percent, from
$2.5 million at December 31, 2008.

The allowance for loan losses is maintained at a level considered adequate by management to
provide for anticipated loan losses based on managements assessment of various factors affecting the loan portfolio, including a review of problem loans, business conditions and loss experience and an overall evaluation of the quality of the
underlying collateral. The allowance is increased by provisions charged to operations and reduced by loans charged off, net of recoveries.

Nonperforming assets to period-end loans decreased from 1.09% at December 31, 2008 to 1.06% at June 30, 2009, and these nonperforming assets, which include loans greater than ninety days past due, decreased from $2.7 million at
December 31, 2008 to $2.3 million at June 30, 2009. Management has performed a detailed review of the value of both the collateral securing the nonperforming loans and other real estate owned that comprise total nonperforming assets. This
review occurred subsequent to June 30, 2009, and this valuation was the primary factor in the increase in the allowance for loan losses from 1.00% at December 31, 2008 to 1.23% at June 30, 2009. In managements opinion, the
nonperforming assets that were added to total nonperforming assets in the first and second quarters of 2009 were not impaired during the fourth quarter of 2008. Substantially all of the increase in nonperforming assets between the two periods is
comprised of loans secured by, or assets owned by the Bank that are either residential lots or residences.

Deposits

Deposits totaled $298.4 million at June 30, 2009, up $27.8 million, or 10 percent, from $270.6 million at December 31, 2008. The increase in
noninterest-bearing deposits was due to a Company wide focus on gathering noninterest-bearing deposits, particularly deposits held by business and non-profit entities, as well as the Companys continued expansion into Greensboro, North
Carolina. The Bank also believes that some portion of this increase can be attributed to the negative perception of larger financial institutions that has persisted since the current economic slowdown began.

Borrowings

Borrowings, which consist of short
and long-term debt, and junior subordinated notes related to trust preferred securities, totaled $23.2 million at June 30, 2009, down $7.0 million, or 23 percent, from $30.2 million at December 31, 2008. The increase in deposits noted
above provided the Bank with additional liquidity to repay a FHLB of Atlanta advance of $7.0 million at maturity.

Property and equipment, net

Property and equipment, net totaled $10.9 million at June 30, 2009, up approximately $2.0 million or 22%, from $8.9 million at
December 30, 2008. The increase is due to the construction of the Companys new corporate headquarters, which was completed in July of 2009.



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##### Table of Contents

Stockholders Equity

Stockholders equity totaled $27.0 million at June 30, 2009, up approximately $8.8 million, or 48.6 percent, from $18.2 million at December 31, 2008. The majority of the increase was due to the issuance
of $7.7 million in preferred stock and warrants to the U.S. Treasury as part of its Capital Purchase Program, as well as an increase in accumulated other comprehensive income of $916,000 from December 31, 2008 to June 30, 2009. Net income
of $342,000 for the six months ended June 30, 2009 also contributed to the increase, with the remaining decrease due to preferred stock dividends of $112,000 during the six-month period ended June 30, 2009.



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##### Table of Contents

|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Pursuant to Item 305(e) of Regulation S-K, the Company, as a smaller reporting company, is not required to provide the information required by this Item.



|Item 4T. | Controls And Procedures
|-------- | -----------------------

Our management, with the
participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures in accordance with Rule 13a-15 of the Securities Exchange Act of 1934
(the Exchange Act). Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2008
and concluded that the disclosure controls and procedures were not effective as a whole, and that the deficiency involving internal controls constituted a material weakness. The material weakness related to our early adoption of SFAS 159 on
April 30, 2007. We had previously reported our 2007 financial results in our 2007 Form 10-KSB, which included early adoption of SFAS 159 for our investment portfolio. In 2008, based on an SEC comment letter and further evaluation by management
of the Company, we amended our 2007 financial results in our 2008 Form 10-K and reversed our early adoption of SFAS 159. On June 8, 2009, the SEC notified the Company that it had completed its review of the Companys 2008 Form 10-K and had
no further comments at that time.

The material weakness resulted in the restatement of the previously reported financial statements and other related
financial disclosures. The Company has implemented new procedures to mitigate the risk of ineffective disclosure controls and procedures related to accounting for the adoption of new accounting standards in the future that include a thorough review
of all applicable guidance, consultation with our external auditors and legal counsel and other experts, including consultation with the SEC, if necessary.

We review our disclosure controls and procedures on an ongoing basis and may from time to time make changes aimed at enhancing their effectiveness. Based on their evaluation and on the new procedures noted above, our Chief Executive Officer
and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that we are able to record, process, summarize and report in a
timely manner the information required to be disclosed in reports we file under the Exchange Act.

We also review our internal control over financial
reporting, on an ongoing basis and may from time to time make changes aimed at enhancing their effectiveness.

Based on this evaluation, the Companys
management evaluated and concluded that the Companys internal control over financial reporting was ineffective as of December 31, 2008 as a result of a material weakness. A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Companys annual or interim financial statements will not be prevented or detected on a timely basis. The
material weakness was a result of our adoption of SFAS 159 noted above.

The Company has implemented new procedures to mitigate the risk of ineffective
internal controls over financial reporting related to accounting for the adoption of new accounting standards in the future that include a thorough review of all applicable guidance, consultation with our external auditors and legal counsel and
other experts, including consultation with the SEC, if necessary. The Company is continuously seeking to improve the efficiency and effectiveness of its operations and of its internal controls. This results in modifications to its processes
throughout the Company. However, other than noted above, there has been no change in its internal control over financial reporting that occurred during the Companys most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

|Part II. | Other Information
|-------- | -----------------



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

On
June 11, 2009, the Company held an annual meeting of shareholders for the purposes listed below.



|1. | Election of three directors for three-year terms;
|-- | -------------------------------------------------



|2. | Ratification of appointment of Elliott Davis, PLLC as independent auditor for the fiscal year ending December 31, 2009;
|-- | -----------------------------------------------------------------------------------------------------------------------



|3. | To transact such other business as may have properly come before the meeting or any adjournments thereof.
|-- | ---------------------------------------------------------------------------------------------------------

The results of the voting are set forth below:



|1. | Election of Directors:
|-- | ----------------------



|                  |  |           |  |         |  |         
|----------------- |  | --------- |  | ------- |  | --------
|Name              |  | For       |  | Against |  | Withheld
|Ronald O. Black   |  | 1,314,101 |  |        |  | 10,464  
|Francis R. Disney |  | 1,310,841 |  |        |  | 13,724  
|James W. Hall     |  | 1,311,896 |  |        |  | 12,669  



|2. | Ratification of appointment of Elliott Davis, PLLC as independent auditor for the fiscal year ending December 31, 2009:
|-- | -----------------------------------------------------------------------------------------------------------------------



|          |  |         |  |        
|--------- |  | ------- |  | -------
|For       |  | Against |  | Abstain
|1,315,837 |  | 4,930   |  | 3,797  



|3. | Non-binding say on pay resolution regarding our executive compensation policies and practices.
|-- | ------------------------------------------------------------------------------------------------



|          |  |         |  |        
|--------- |  | ------- |  | -------
|For       |  | Against |  | Abstain
|1,240,674 |  | 43,501  |  | 40,388 



|4. | Other matters:
|-- | --------------

No other matters came before the meeting.

The following directors are continuing in office: Douglas G. Boike, Lynda J. Anderson, Billy R. Kanoy, Stephen S. Neal, Ronald O. Black, Francis R.
Disney, James W. Hall, Herbert M. Cole, Craig S. Fleming, John S. Olmsted, and Manuel L. Perkins.



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|ITEM 6. | EXHIBITS
|------- | --------



|      |  |                    |  |                                                                                                                                                                                                                                                    
|----- |  | ------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|15(a) |  | Exhibits           |  |                                                                                                                                                                                                                                                    
|      |  |                   
|      |  | Exhibit (3)(i)     |  | Articles of Incorporation, incorporated herein by reference to Exhibit (3)(i) to the Form 8-K filed with the SEC on May 10, 2007.                                                                                                                  
|      |  |                   
|      |  | Exhibit (3)(ii)    |  | Bylaws, incorporated herein by reference to Exhibit (3)(ii) to the Form 8-K filed with the SEC on May 10, 2007.                                                                                                                                    
|      |  |                   
|      |  | Exhibit (4)(i)     |  | Specimen Stock Certificate, incorporated herein by reference to Exhibit 4 to the Form 8-K filed with the SEC on May 10, 2007.                                                                                                                      
|      |  |                   
|      |  | Exhibit (4)(ii)    |  | Articles of Amendment and Exhibits 4.2 and 4.3, incorporated herein by reference, to Exhibit 4.1 to the Form 8-k filed with the SEC on February 2, 2009.                                                                                           
|      |  |                   
|      |  | Exhibit (10)(i)    |  | Employment Agreement with Ronald O. Black, as amended, incorporated herein by reference to Exhibit (10)(i) to the Form 8-K filed with the SEC on March 28, 2008.                                                                                   
|      |  |                   
|      |  | Exhibit (10)(ii)   |  | Employment Agreement with L. William Vasaly, III, as amended, incorporated herein by reference to Exhibit (10)(ii) to the Form 8-K filed with the SEC on March 28, 2008.                                                                           
|      |  |                   
|      |  | Exhibit (10)(iii)  |  | Employment Agreement with Thomas W. Wayne, as amended, incorporated herein by reference to Exhibit (10)(iii) to the Form 8-K filed with the SEC on March 28, 2008.                                                                                 
|      |  |                   
|      |  | Exhibit (10)(iv)   |  | Outparcel Ground Lease between J.P. Monroe, L.L.C. and Bank of Oak Ridge dated June 1, 2002, incorporated herein by reference to Exhibit (10)(iv) to the Form 8-K filed with the SEC on March
28, 2008.                                            
|      |  |                   
|      |  | Exhibit (10)(v)    |  | Ground and Building Lease between KRS of Summerfield, LLC and Bank of Oak Ridge dated September 25, 2002, incorporated herein by reference to Exhibit (10)(v) to the Form 8-K filed with the
SEC on March 28, 2008.                                
|      |  |                   
|      |  | Exhibit (10)(vi)   |  | Ground Lease between Friendly Associates XVIII LLLP and Bank of Oak Ridge dated September 13, 2004, incorporated herein by reference to Exhibit (10)(vi) to the Form 8-K filed with the SEC on
March 28, 2008.                                     
|      |  |                   
|      |  | Exhibit (10)(vii)  |  | Bank of Oak Ridge Second Amended and Restated Director Stock Option Plan (amended March 16, 2004; approved by stockholders June 8, 2004), incorporated herein by reference to Exhibit 10(ix) to
the Form 8-K filed with the SEC on March 28, 2008. 
|      |  |                   
|      |  | Exhibit (10)(viii) |  | Bank of Oak Ridge Second Amended and Restated Employee Stock Option Plan (amended March 16, 2004; approved by stockholders June 8, 2004), incorporated herein by reference to Exhibit (10)(x)
to the Form 8-K filed with the SEC on March 28, 2008.
|      |  |                   
|      |  | Exhibit (10)(ix)   |  | Salary Continuation Agreements with Ronald O. Black, L. William Vasaly III and Thomas W. Wayne dated January 20, 2006, incorporated herein by reference to Exhibits (10)(ix) to (10)(xi) to
Form 8-K filed with the SEC on March 28, 2008.         
|      |  |                   
|      |  | Exhibit (10)(x)    |  | Amended Endorsement Split Dollar Agreement between Bank of Oak Ridge and Ronald O. Black, incorporated herein by reference to Exhibit (10)(xiii) to the Form 8-K filed with the SEC on December
21, 2007.                                          
|      |  |                   
|      |  | Exhibit (10)(xi)   |  | Amended Endorsement Split Dollar Agreement between Bank of Oak Ridge and L. William Vasaly III, incorporated herein by reference to Exhibit (10)(xiv) to the Form 8-K filed with the SEC on
December 21, 2007.                                     



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| |  |                    |  |                                                                                                                                                                                                                                                         
| |  | ------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit (10)(xii)  |  | Amended Endorsement Split Dollar Agreement between Bank of Oak Ridge and Thomas W. Wayne, incorporated herein by reference to Exhibit (10)(xv) to the Form 8-K filed with the SEC on
December 21, 2007.                                                 
| |  |                   
| |  | Exhibit (10)(xiii) |  | Indemnification Agreement, incorporated herein by reference to Exhibit (10)(xvi) to the Form 8-K filed with the SEC on March 7, 2008.                                                                                                                   
| |  |                   
| |  | Exhibit (10)(xiv)  |  | Contract for the Purchase and Sale of Real Property, incorporated herein by reference to Exhibit 99.1 to the Form 8-K filed with the SEC on January 14, 2008.                                                                                           
| |  |                   
| |  | Exhibit (10)(xv)   |  | Oak Ridge Financial Services, Inc. Long-Term Stock Incentive Plan, incorporated herein by reference to Exhibit (10)(xiii) to the Form 10-QSB filed with the SEC on May 15,
2007.                                                                        
| |  |                   
| |  | Exhibit (10)(xvi)  |  | Bank of Oak Ridge 2008 Semi-Annual Incentive Plan, incorporated herein by reference to Exhibit 10(xvi) to the Form 10-K filed with the SEC on March 31, 2009.                                                                                           
| |  |                   
| |  | Exhibit (10)(xvi)  |  | Form of Employment Agreement Amendment, dated January 30, 2009 among the Company, the Bank and the senior executive officers, incorporated herein by reference to Exhibit 10.2 of the Current
Report on Form 8-K filed with the SEC on February 2, 2009.
| |  |                   
| |  | Exhibit (14)       |  | Code of Ethics for Senior Officers Policy incorporated herein by reference to Exhibit 14 to the Form 8-K filed with the SEC on March 28, 2008.                                                                                                          
| |  |                   
| |  | Exhibit (31.1)     |  | Certification of Ronald O. Black. (filed herewith)                                                                                                                                                                                                      
| |  |                   
| |  | Exhibit (31.2)     |  | Certification of Thomas W. Wayne. (filed herewith)                                                                                                                                                                                                      
| |  |                   
| |  | Exhibit (32)       |  | Certificate of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350. (filed herewith)                                                                                                                                                           



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Oak Ridge Financial Services, Inc.

Signatures

In accordance with the requirements of
the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                      |  |                                      
|--------------------- |  | -------------------------------------
|                      |  | Oak Ridge Financial Services, Inc.   
|                      |  | (Registrant)                         
|                      | 
|Date: August 14, 2009 |  | /s/ Ronald O. Black                  
|                      |  | Ronald O. Black                      
|                      |  | President and Chief Executive Officer
|                      |  | (Duly Authorized Representative)     
|                      | 
|Date: August 14, 2009 |  | /s/ Thomas W. Wayne                  
|                      |  | Thomas W. Wayne                      
|                      |  | Chief Financial Officer              
|                      |  | (Duly Authorized Representative)     



31