##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended June 30, 2008

Commission File No. 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)                        |  | (Zip Code)                          

(336) 644-9944

(Registrants telephone number, including area code)





Indicate by check mark whether
the registrant (1) 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.    x  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   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

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

State the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.



|                           |  |                              
|-------------------------- |  | -----------------------------
|Common Stock, no par value |  | 1,791,474 shares             
|Class                      |  | Outstanding at August 8, 2008









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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, 2008 (unaudited) and December 31, 2007                                                                   |  | 3 
|                                                                                                                                                 | 
|Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2007
(unaudited)                                      |  | 4 
|                                                                                                                                                 | 
|Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income for the six months ended June 30,
 2008 and 2007 (unaudited) |  | 5 
|                                                                                                                                                 | 
|Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007
(unaudited)                                                |  | 6 
|                                                                                                                                                 | 
|Notes to Unaudited Consolidated Financial Statements                                                                                             |  | 8 
|                                                                                                                                                 | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations                                                    |  | 16
|                                                                                                                                                 | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                                               |  | 23
|                                                                                                                                                 | 
|Item 4T. Controls and Procedures                                                                                                                 |  | 23
|                                                                                                                                                 | 
|Part II. Other Information                                                                                                                       |  |   
|                                                                                                                                                 | 
|Item 4. Submission of Matters to a Vote of Security Holders                                                                                      |  | 24
|                                                                                                                                                 | 
|Item 6. Exhibits                                                                                                                                 |  | 25
|                                                                                                                                                 | 
|Signature Page                                                                                                                                   |  | 27

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.



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##### Table of Contents



Consolidated Balance Sheets

June 30, 2008 (Unaudited) and December 31, 2007

(Dollars in thousands  except share data)







|                                                                                                            |  |      |         |   |      |   |        
|----------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------
|                                                                                                            |  | 2008 |         |   | 2007
|Assets                                                                                                      |  |      |         |   |      |   |        
|Cash and due from banks                                                                                     |  | $    | 5,193   |   |      | $ | 6,125  
|Interest-bearing deposits with banks                                                                        |  |      | 2,835   |   |      |   | 3,983  
|                                                                                                            |  |      |         |   |      |   |        
|Total cash and cash equivalents                                                                             |  |      | 8,028   |   |      |   | 10,108 
|Federal funds sold                                                                                          |  |      | 2,543   |   |      |   | 8,493  
|Trading assets                                                                                              |  |      | 804     |   |      |   | 802    
|Securities available-for-sale                                                                               |  |      | 21,426  |   |      |   | 17,353 
|Securities held-to-maturity (fair values of $10,787 in 2008)                                                |  |      | 10,315  |   |      |   |       
|Federal Home Loan Bank Stock, at cost                                                                       |  |      | 1,461   |   |      |   | 1,093  
|Loans, net of allowance for loan losses of $2,343 in 2008 and $2,120 in 2007                                |  |      | 232,574 |   |      |   | 210,701
|Property and equipment, net                                                                                 |  |      | 7,109   |   |      |   | 6,755  
|Accrued interest receivable                                                                                 |  |      | 1,314   |   |      |   | 1,219  
|Bank owned life insurance                                                                                   |  |      | 4,349   |   |      |   | 4,269  
|Other assets                                                                                                |  |      | 1,880   |   |      |   | 1,415  
|                                                                                                            |  |      |         |   |      |   |        
|Total assets                                                                                                |  | $    | 291,803 |   |      | $ | 262,208
|                                                                                                            |  |      |         |   |      |   |        
|                                                                                                            |  |     
|Liabilities and Stockholders Equity                                                                        |  |      |         |   |      |   |        
|                                                                                                            |  |     
|Liabilities                                                                                                 |  |      |         |   |      |   |        
|Deposits:                                                                                                   |  |      |         |   |      |   |        
|Noninterest-bearing                                                                                         |  | $    | 17,300  |   |      | $ | 14,771 
|Interest-bearing                                                                                            |  |      | 225,216 |   |      |   | 203,745
|                                                                                                            |  |      |         |   |      |   |        
|Total deposits                                                                                              |  |      | 242,516 |   |      |   | 218,516
|                                                                                                            |  |     
|Long-term debt                                                                                              |  |      | 22,000  |   |      |   | 16,000 
|Junior subordinated notes related to trust preferred securities                                             |  |      | 8,248   |   |      |   | 8,248  
|Accrued interest payable                                                                                    |  |      | 452     |   |      |   | 553    
|Other liabilities                                                                                           |  |      | 1,173   |   |      |   | 1,207  
|                                                                                                            |  |      |         |   |      |   |        
|Total liabilities                                                                                           |  |      | 274,389 |   |      |   | 244,524
|                                                                                                            |  |      |         |   |      |   |        
|Commitments and contingencies                                                                               |  |      |        |   |      |   |       
|                                                                                                            |  |     
|Stockholders equity                                                                                        |  |      |         |   |      |   |        
|Preferred stock, no par value, 10,000,000 shares authorized; no shares issued and outstanding               |  |      |        |   |      |   |       
|Common stock, no par value; 50,000,000 shares authorized; 1,791,474 issued and outstanding in 2008 and 2007 |  |      | 15,831  |   |      |   | 15,831 
|Retained earnings                                                                                           |  |      | 1,776   |   |      |   | 1,590  
|Accumulated other comprehensive income (loss)                                                               |  |      | (193    | ) |      |   | 263    
|                                                                                                            |  |      |         |   |      |   |        
|Total stockholders equity                                                                                  |  |      | 17,414  |   |      |   | 17,684 
|                                                                                                            |  |      |         |   |      |   |        
|Total liabilities and stockholders equity                                                                  |  | $    | 291,803 |   |      | $ | 262,208
|                                                                                                            |  |      |         |   |      |   |        

See Notes to Unaudited Consolidated Financial Statements



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Consolidated Statements of Operations (Unaudited)

For the three and six months ended June 30, 2008 and 2007

(Dollars in thousands  except
share data)







|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|--------------------------------------------------- |  | -------------------------- | --------- | - | ------------------------ | - | --------- | ---- |  | ---- | --------- |  | - | --------- | -
|                                                    |  | Three months endedJune 30, |           |   | Six months endedJune 30, |  
|                                                    |  | 2008                       |           |   | 2007                     |   |           | 2008 |  | 2007 |          
|Interest income                                     |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Loans and fees on loans                             |  | $                          | 3,859     |   |                          | $ | 3,579     |      |  | $    | 7,873     |  | $ | 6,965     |  
|Federal funds sold                                  |  |                            | 17        |   |                          |   | 59        |      |  |      | 109       |  |   | 101       |  
|Interest on deposits in banks                       |  |                            | 29        |   |                          |   | 6         |      |  |      | 71        |  |   | 13        |  
|Federal Home Loan Bank stock dividends              |  |                            | 21        |   |                          |   | 19        |      |  |      | 38        |  |   | 35        |  
|Taxable investment securities                       |  |                            | 522       |   |                          |   | 244       |      |  |      | 810       |  |   | 508       |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Total interest income                               |  |                            | 4,448     |   |                          |   | 3,907     |      |  |      | 8,901     |  |   | 7,622     |  
|                                                    |  |                            |           |  
|Interest expense                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Deposits                                            |  |                            | 1,977     |   |                          |   | 1,781     |      |  |      | 4,216     |  |   | 3,505     |  
|Federal funds purchased                             |  |                            |          |   |                          |   | 4         |      |  |      |          |  |   | 4         |  
|Short-term and long-term debt                       |  |                            | 251       |   |                          |   | 263       |      |  |      | 550       |  |   | 479       |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Total interest expense                              |  |                            | 2,228     |   |                          |   | 2,048     |      |  |      | 4,766     |  |   | 3,988     |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Net interest income                                 |  |                            | 2,220     |   |                          |   | 1,859     |      |  |      | 4,135     |  |   | 3,634     |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Provision for loan losses                           |  |                            | 99        |   |                          |   | 77        |      |  |      | 263       |  |   | 163       |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Net interest income after provision for loan losses |  |                            | 2,121     |   |                          |   | 1,782     |      |  |      | 3,872     |  |   | 3,471     |  
|                                                    |  |                            |           |  
|Noninterest income                                  |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Service charges on deposit accounts                 |  |                            | 177       |   |                          |   | 126       |      |  |      | 353       |  |   | 245       |  
|Trading income (loss)                               |  |                            | (5        | ) |                          |   | (235      | )    |  |      | 3         |  |   | (146      | )
|Mortgage loan origination fees                      |  |                            | 137       |   |                          |   | 119       |      |  |      | 232       |  |   | 223       |  
|Investment and insurance commissions                |  |                            | 244       |   |                          |   | 238       |      |  |      | 450       |  |   | 380       |  
|Fee income from accounts receivable financing       |  |                            | 185       |   |                          |   | 93        |      |  |      | 352       |  |   | 132       |  
|Income earned on bank owned life insurance          |  |                            | 40        |   |                          |   | 39        |      |  |      | 80        |  |   | 78        |  
|Other service charges and fees                      |  |                            | 119       |   |                          |   | 53        |      |  |      | 181       |  |   | 100       |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Total noninterest income                            |  |                            | 897       |   |                          |   | 433       |      |  |      | 1,651     |  |   | 1,012     |  
|                                                    |  |                            |           |  
|Noninterest expense                                 |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Salaries and employee benefits                      |  |                            | 1,262     |   |                          |   | 1,161     |      |  |      | 2,546     |  |   | 2,253     |  
|Occupancy expense                                   |  |                            | 129       |   |                          |   | 118       |      |  |      | 263       |  |   | 246       |  
|Equipment expense                                   |  |                            | 140       |   |                          |   | 129       |      |  |      | 280       |  |   | 262       |  
|Data and items processing                           |  |                            | 128       |   |                          |   | 61        |      |  |      | 212       |  |   | 134       |  
|Professional and advertising                        |  |                            | 304       |   |                          |   | 229       |      |  |      | 591       |  |   | 448       |  
|Stationary and supplies                             |  |                            | 49        |   |                          |   | 64        |      |  |      | 111       |  |   | 108       |  
|Telecommunications expense                          |  |                            | 74        |   |                          |   | 47        |      |  |      | 138       |  |   | 109       |  
|Other expense                                       |  |                            | 337       |   |                          |   | 211       |      |  |      | 690       |  |   | 474       |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Total noninterest expense                           |  |                            | 2,423     |   |                          |   | 2,020     |      |  |      | 4,831     |  |   | 4,034     |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Income before income taxes                          |  |                            | 595       |   |                          |   | 195       |      |  |      | 692       |  |   | 449       |  
|Income tax expense                                  |  |                            | 211       |   |                          |   | 59        |      |  |      | 247       |  |   | 141       |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Net income                                          |  | $                          | 384       |   |                          | $ | 136       |      |  | $    | 445       |  | $ | 308       |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Basic earnings per share                            |  | $                          | 0.21      |   |                          | $ | 0.08      |      |  | $    | 0.25      |  | $ | 0.17      |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Diluted earnings per share                          |  | $                          | 0.21      |   |                          | $ | 0.07      |      |  | $    | 0.25      |  | $ | 0.17      |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Basic weighted average shares outstanding           |  |                            | 1,791,474 |   |                          |   | 1,790,224 |      |  |      | 1,791,474 |  |   | 1,789,752 |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  
|Diluted weighted average shares outstanding         |  |                            | 1,796,196 |   |                          |   | 1,829,171 |      |  |      | 1,797,710 |  |   | 1,842,849 |  
|                                                    |  |                            |           |   |                          |   |           |      |  |      |           |  |   |           |  

See Notes to Unaudited Consolidated Financial Statements



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

For the six months ended June 30, 2008 and 2007

(In
thousands except shares of common stock)







|                                                                                                      |  |              |  |         |        |  |                           |         |   |                                            |   |       |       |  |   |      |   |  |   |        |  
|----------------------------------------------------------------------------------------------------- |  | ------------ |  | ------- | ------ |  | ------------------------- | ------- | - | ------------------------------------------ | - | ----- | ----- |  | - | ---- | - |  | - | ------ | -
|                                                                                                      |  | Common Stock |  | Surplus |        |  | RetainedEarnings(Deficit) |         |   | AccumulatedOtherComprehensiveIncome (Loss) |   |       | Total | 
|                                                                                                      |  | Shares       |  | Amount  |        |  |                           |        
|Balance, December 31, 2006                                                                            |  | 1,790,174    |  | $       | 5,370  |  | $                         | 10,450  |   |                                            | $ | 978   |       |  | $ | (345 | ) |  | $ | 16,453 |  
|                                                                                                      |  |              |  |         |        | 
|Comprehensive income                                                                                  |  |              |  |         |        |  |                           |         |   |                                            |   |       |       |  |   |      |   |  |   |        |  
|Net income                                                                                            |  |             |  |         |       |  |                           |        |   |                                            |   | 308   |       |  |   |     |   |  |   | 308    |  
|Net change in unrealized gain on investment securities available-for-sale, net of tax benefit of $21  |  |             |  |         |       |  |                           |        |   |                                            |   |      |       |  |   | (32  | ) |  |   | (32    | )
|                                                                                                      |  |              |  |         |        |  |                           |         |   |                                            |   |       |       |  |   |      |   |  |   |        |  
|Total comprehensive income                                                                            |  |              |  |         |        |  |                           |         |   |                                            |   |       |       |  |   |      |   |  |   | 276    |  
|Recapitalization to no par stock                                                                      |  |             |  |         | 10,450 |  |                           | (10,450 | ) |                                            |   |      |       |  |   |     |   |  |   |       |  
|Cumulative effect of a change in accounting principle                                                 |  |             |  |         |       |  |                           |        |   |                                            |   | (393  | )     |  |   | 345  |   |  |   | (48    | )
|Issuance of common stock                                                                              |  | 50           |  |         |       |  |                           |        |   |                                            |   |      |       |  |   |     |   |  |   |       |  
|                                                                                                      |  |              |  |         |        |  |                           |         |   |                                            |   |       |       |  |   |      |   |  |   |        |  
|Balance, June 30, 2007                                                                                |  | 1,790,224    |  | $       | 15,820 |  | $                         |        |   |                                            | $ | 893   |       |  | $ | (32  | ) |  | $ | 16,681 |  
|                                                                                                      |  |              |  |         |        |  |                           |         |   |                                            |   |       |       |  |   |      |   |  |   |        |  
|Balance, December 31, 2007                                                                            |  | 1,791,474    |  | $       | 15,831 |  | $                         |        |   |                                            | $ | 1,590 |       |  | $ | 263  |   |  | $ | 17,684 |  
|                                                                                                      |  |              |  |         |        | 
|Comprehensive income                                                                                  |  |              |  |         |        |  |                           |         |   |                                            |   |       |       |  |   |      |   |  |   |        |  
|Net income                                                                                            |  |             |  |         |       |  |                           |        |   |                                            |   | 445   |       |  |   |     |   |  |   | 445    |  
|Net change in unrealized gain on investment securities available-for-sale, net of tax benefit of $178 |  |             |  |         |       |  |                           |        |   |                                            |   |      |       |  |   | (456 | ) |  |   | (456   | )
|                                                                                                      |  |              |  |         |        |  |                           |         |   |                                            |   |       |       |  |   |      |   |  |   |        |  
|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 |  
|                                                                                                      |  |              |  |         |        |  |                           |         |   |                                            |   |       |       |  |   |      |   |  |   |        |  

See Notes to Unaudited Consolidated Financial Statements



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Consolidated Statements of Cash Flows (Unaudited)

For the six months ended June 30, 2008 and 2007

(In thousands)







|                                                                        |  |      |         |   |      |   |         |  
|----------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                        |  | 2008 |         |   | 2007 |  
|Cash flows from operating activities                                    |  |      |         |   |      |   |         |  
|Net income                                                              |  | $    | 445     |   |      | $ | 308     |  
|Adjustments to reconcile net income to net cash provided by operations: |  |      |         |   |      |   |         |  
|Depreciation                                                            |  |      | 299     |   |      |   | 257     |  
|Provision for loan losses                                               |  |      | 263     |   |      |   | 163     |  
|Income earned on bank owned life insurance                              |  |      | (80     | ) |      |   | (78     | )
|Net change in trading assets                                            |  |      | (2      | ) |      |   | 23,633  |  
|Deferred income tax expense                                             |  |      | (60     | ) |      |   | 154     |  
|Income taxes payable                                                    |  |      | (354    | ) |      |   |        |  
|Net (accretion) amortization of discounts and premiums on securities    |  |      | (120    | ) |      |   | 17      |  
|Changes in assets and liabilities:                                      |  |      |         |   |      |   |         |  
|Accrued interest receivable                                             |  |      | (95     | ) |      |   | (167    | )
|Other assets                                                            |  |      | (123    | ) |      |   | (432    | )
|Accrued interest payable                                                |  |      | (101    | ) |      |   | 33      |  
|Other liabilities                                                       |  |      | 61      |   |      |   | 29      |  
|                                                                        |  |      |         |   |      |   |         |  
|Net cash provided by operating activities                               |  |      | 133     |   |      |   | 23,917  |  
|                                                                        |  |      |         |   |      |   |         |  
|                                                                        |  |     
|Cash flows from investing activities                                    |  |      |         |   |      |   |         |  
|Net decrease (increase) in federal funds sold                           |  |      | 5,950   |   |      |   | (6,358  | )
|Activity in available-for-sale securities:                              |  |      |         |   |      |   |         |  
|Purchases                                                               |  |      | (5,692  | ) |      |   | (17,995 | )
|Maturities and repayments                                               |  |      | 981     |   |      |   |        |  
|Activity in held-to-maturity securities:                                |  |      |         |   |      |   |         |  
|Purchases                                                               |  |      | (10,787 | ) |      |   |        |  
|Maturities and repayments                                               |  |      | 492     |   |      |   |        |  
|Redemptions (purchases) of Federal Home Loan Bank stock                 |  |      | (368    | ) |      |   | 40      |  
|Net increase in loans                                                   |  |      | (22,136 | ) |      |   | (19,653 | )
|Purchases of property and equipment                                     |  |      | (653    | ) |      |   | (1,091  | )
|                                                                        |  |      |         |   |      |   |         |  
|Net cash used in investing activities                                   |  |      | (32,213 | ) |      |   | (45,057 | )
|                                                                        |  |      |         |   |      |   |         |  
|Cash flows from financing activities                                    |  |      |         |   |      |   |         |  
|Net increase in deposits                                                |  |      | 24,000  |   |      |   | 15,501  |  
|Proceeds from issuance of guaranteed preferred beneficial               |  |      |         |   |      |   |         |  
|Interests in the companys junior subordinated debentures               |  |      |        |   |      |   | 8,248   |  
|Proceeds from issuance of debt                                          |  |      | 13,000  |   |      |   |        |  
|Repayment of borrowings                                                 |  |      | (7,000  | ) |      |   | (1,500  | )
|                                                                        |  |      |         |   |      |   |         |  
|Net cash provided by financing activities                               |  |      | 30,000  |   |      |   | 22,249  |  
|                                                                        |  |      |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                    |  |      | (2,080  | ) |      |   | 1,109   |  
|Cash and cash equivalents, beginning                                    |  |      | 10,108  |   |      |   | 5,114   |  
|                                                                        |  |      |         |   |      |   |         |  
|Cash and cash equivalents, ending                                       |  | $    | 8,028   |   |      | $ | 6,223   |  
|                                                                        |  |      |         |   |      |   |         |  

See Notes to Unaudited Consolidated Financial Statements



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##### Table of Contents



Consolidated
Statements of Cash Flows (Unaudited)

For the six months ended June 30, 2008 and 2007

(In thousands)







|                                                             |  |      |       |      |   |       
|------------------------------------------------------------ |  | ---- | ----- | ---- | - | ------
|                                                             |  | 2008 |       | 2007
|Supplemental disclosure of cash flow information             |  |      |       |      |   |       
|Interest paid                                                |  | $    | 4,867 |      | $ | 3,995 
|                                                             |  |      |       |      |   |       
|Taxes paid                                                   |  | $    | 600   |      | $ | 16    
|                                                             |  |      |       |      |   |       
|Supplemental disclosure of non-cash investing activities     |  |      |       |      |   |       
|Reclassification of available-for sale and held-to-maturity |  |      |       |      |   |       
|Securities to trading                                        |  | $    |      |      | $ | 23,984
|                                                             |  |      |       |      |   |       
|Investment in non-bank subsidiary                            |  | $    |      |      | $ | 248   
|                                                             |  |      |       |      |   |       

See Notes to Unaudited Consolidated Financial Statements



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Notes to Unadited Consolidated Financial Statements





Note 1. Organization and Summary of Significant Accounting
Policies

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, her or its shares of the Banks common stock (the Reorginization). 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 Connecticut, of which all common securities are owned by the Company. Under Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 46, Consolidation of
Variable Interest Entities,Oak Ridge Financial Statutory Trust I is not included in the Companys consolidated financial statements. The junior subordinated debentures issued by the Company to the Trust are included in long-term debt and
the Companys equity interest in the Trust is 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. 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.

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, 2008 and 2007, 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, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2008.

The balance sheet as of December 31, 2007 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 generally accepted accounting principles 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-KSB for the year ended
December 31, 2007. 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.



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##### Table of Contents



Notes to
Unadited Consolidated Financial Statements







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.

Note 3. Fair Value Measurements

As discussed in Note 7, Statement of Financial Accounting Standards (SFAS) 157 defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy
which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in
markets that are not active and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant
unobservable inputs that reflect a companys own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The following is a description of the valuation methodologies used to measure and disclose fair value of financial assets and liabilities on a recurring or nonrecurring basis:

Trading assets and Securities Available-For-Sale

Trading assets and securities available-for-sale are
recorded at fair value on a recurring basis. Fair value is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1).

The following table presents the balances of assets measured at fair value on a recurring basis at June 30, 2008 (in thousands):



|                                           |  |                             |       |         |   |         |  |       |   |  |   |       
|------------------------------------------ |  | --------------------------- | ----- | ------- | - | ------- |  | ----- | - |  | - | ------
|                                           |  | Fair Value at June 30, 2008
|                                           |  | Level 1                     |       | Level 2 |   | Level 3 |  | Total
|Trading assets                             |  |                             |       |         |   |         |  |       |   |  |   |       
|Government-sponsored enterprise securities |  | $                           | 804   |         | $ |        |  | $     |  |  | $ | 804   
|Available-for-sale securities              |  |                             |       |         |   |         |  |       |   |  |   |       
|Government-sponsored enterprise securities |  |                             | 4,025 |         |   |        |  |       |  |  |   | 4,025 
|Corporate bonds                            |  |                             |      |         |   | 490     |  |       |  |  |   | 490   
|Mortgage-backed securities                 |  |                             |      |         |   | 16,911  |  |       |  |  |   | 16,911
|                                           |  |                             |       |         |   |         |  |       |   |  |   |       
|Total                                      |  | $                           | 4,829 |         | $ | 17,401  |  | $     |  |  | $ | 22,230
|                                           |  |                             |       |         |   |         |  |       |   |  |   |       



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##### Table of Contents



Notes to
Unaudited Consolidated Financial Statements







Note 3. Fair Value Measurements, continued



The following table presents the balance of assets measured at fair value on a nonrecurring basis at June 30,
2008, and the total losses resulting from these fair value adjustments for the six months ended June 30, 2008 (in thousands):



|               |  |                             |   |                             |   |         |  |       |     |              |   |     |  |   |   
|-------------- |  | --------------------------- | - | --------------------------- | - | ------- |  | ----- | --- | ------------ | - | --- |  | - | --
|               |  | Fair Value at June 30, 2008 |   | Six MonthsEndedJune 30,2008
|               |  | Level 1                     |   | Level 2                     |   | Level 3 |  | Total |     | Total losses
|Impaired loans |  | $                           |  |                             | $ | 89      |  | $     | 721 |              | $ | 810 |  | $ | 26
|               |  |                             |   |                             |   |         |  |       |     |              |   |     |  |   |   

There were no material liabilities carried at fair value, measured on a recurring or nonrecurring basis, at
June 30, 2008.

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-KSB for the year ended
December 31, 2007 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.



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##### Table of Contents



Notes to
Unaudited Consolidated Financial Statements







Note 4. Critical Accounting Policies, continued



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.

Note 5. Stock-based Compensation

The Bank 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 is set by a committee of the Board of Directors at the date of grant, and is not 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. In connection with the Reorganization, the Company assumed the Incentive Plan and the Nonstatutory Plan Options to acquire the Companys stock were issued
in substitution for the outstanding options to acquire Bank stock at the time of the Reorganization.

Activity under the Company plans during the six
months ended June 30, 2008 is summarized below:



|                                  |  |                    |  |         |                   |  |                    |  |        
|--------------------------------- |  | ------------------ |  | ------- | ----------------- |  | ------------------ |  | -------
|                                  |  | Incentive Plan     |  |         | Nonstatutory Plan
|                                  |  | AvailableFor Grant |  | Granted |                   |  | AvailableFor Grant |  | Granted
|Balance, December 31, 2007        |  | 3,600              |  | 173,237 |                   |  | 3                  |  | 178,934
|                                  |  |                    |  |        
|Additional options made available |  |                    |  |         |                   |  |                    |  |        
|Granted                           |  |                   |  |        |                   |  |                   |  |       
|Exercised                         |  |                   |  |        |                   |  |                   |  |       
|Forfeited                         |  | 2,563              |  | (2,563  | )                 |  |                   |  |       
|Expired                           |  |                   |  |        |                   |  |                   |  |       
|                                  |  |                    |  |         |                   |  |                    |  |        
|Balance, June 30, 2008            |  | 6,163              |  | 170,674 |                   |  | 3                  |  | 178,934
|                                  |  |                    |  |         |                   |  |                    |  |        

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.



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##### Table of Contents



Notes to
Unaudited Consolidated Financial Statements







Note 5. Stock-based Compensation, continued



Information regarding the stock options outstanding at June 30, 2008 is as follows (dollars in thousands, except
option prices):



|                         |  |                                  |  |                                          |  |                              |       |                         |   |   
|------------------------ |  | -------------------------------- |  | ---------------------------------------- |  | ---------------------------- | ----- | ----------------------- | - | --
|Range of Exercise Prices |  | NumberOutstandingand Exercisable |  | WeightedAverageRemainingContractual Life |  | WeightedAverageExercisePrice |       | AggregateIntrinsicValue
|$8.80-9.99               |  | 101,512                          |  | 2.83 Years                               |  | $                            | 8.80  |                         | $ | 71
|$10.00-10.39             |  | 140,544                          |  | 6.17 Years                               |  | $                            | 10.00 |                         |   |  
|$10.40-11.20             |  | 107,552                          |  | 6.02 Years                               |  | $                            | 10.71 |                         |   |  
|                         |  |                                  |  |                                          |  |                              |       |                         |   |   
|                         |  | 349,608                          |  | 5.15 Years                               |  | $                            | 9.87  |                         | $ | 71
|                         |  |                                  |  |                                          |  |                              |       |                         |   |   

On June 8, 2006, the shareholders adopted the Oak Ridge Financial Services, Inc. Long-Term Stock Incentive
Plan (the Omnibus Plan), which became effective upon the consummation of the Reorganization. The Omnibus Plan is a means to attract new talent and retain current personnel as the Company and the Bank each continue to grow. Employees and
directors of the Company and the Bank, who are designated as eligible participants by the Compensation Committee of the Companys Board of Directors (the Committee), may receive Awards (as defined below) under the Omnibus Plan. The
Omnibus Plan provides that employees eligible for Awards shall consist of key employees who are officers or managers of the Company and/or the Bank who are responsible for the management, growth and protection of the business of the Company and/or
the Bank and whose performance or contribution, in the sole discretion of the Committee, benefits or will benefit the Company in a significant manner. Non-employees (e.g., those with third party relationships such as non-employee directors of the
Company and/or the Bank) shall be eligible participants for Awards of non-qualified stock options (NSOs) and/or Restricted Stock (as defined in the Omnibus Plan) at the sole discretion of the Committee. Non-employees shall not be
eligible to receive incentive stock options (ISOs) or Performance Units (as defined in the Omnibus Plan). As of June 30, 2008, no Awards have been granted under the Omnibus Plan.

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.

Note 7. Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141(R), Business Combinations, (SFAS 141(R)) which replaces SFAS 141. SFAS 141(R) establishes
principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures goodwill
acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is
effective for acquisitions by the Company taking place on or after January 1, 2009. Early adoption is prohibited. Accordingly, a calendar year-end company is required to record and disclose business combinations following existing accounting
guidance until January 1, 2009. The Company will assess the impact of SFAS 141(R) if and when a future acquisition occurs.



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Notes to
Unaudited Consolidated Financial Statements







Note 7. Recent Accounting Pronouncements, continued



In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements  an amendment of ARB No. 51 (SFAS 160). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Before this
statement, limited guidance existed for reporting noncontrolling interests (minority interest). As a result, diversity in practice exists. In some cases minority interest is reported as a liability and in others it is reported in the mezzanine
section between liabilities and equity. Specifically, SFAS 160 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financials statements and separate from the parents equity. The amount of
net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parents ownership interest in a subsidiary that do not result in
deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be
measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interests. SFAS 160 is effective
for the Company on January 1, 2009. Earlier adoption is prohibited. The Company believes the adoption of SFAS 160 will have no impact on its financial position, results of operations and cash flows.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161 requires
enhanced disclosures about an entitys derivative and hedging activities and thereby improving the transparency of financial reporting. It is intended to enhance the current disclosure framework in SFAS 133 by requiring that objectives for
using derivative instruments be disclosed in terms of underlying risk and accounting designation. This disclosure better conveys the purpose of derivative use in terms of the risks that the entity is intending to manage. SFAS 161 is effective for
the Company on January 1, 2009. This pronouncement does not impact accounting measurements but will result in additional disclosures if the Company is involved in material derivative and hedging activities at that time.

In February 2008, the FASB issued FASB Staff Position No. 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions
(FSP 140-3). This FSP provides guidance on accounting for a transfer of a financial asset and the transferors repurchase financing of the asset. This FSP presumes that an initial transfer of a financial asset and a repurchase
financing are considered part of the same arrangement (linked transaction) under SFAS No. 140. However, if certain criteria are met, the initial transfer and repurchase financing are not evaluated as a linked transaction and are evaluated
separately under Statement 140. FSP 140-3 will be effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years and earlier application is not permitted. Accordingly,
this FSP is effective for the Company on January 1, 2009. The Company is currently evaluating the impact, if any, the adoption of FSP 140-3 will have on its financial position, results of operations and cash flows.

In April 2008, the FASB issued FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). This FSP
amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The intent of
this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R), Business
Combinations, and other U.S. generally accepted accounting principles. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years and early
adoption is prohibited. Accordingly, this FSP is effective for the Company on January 1, 2009. The Company does not believe the adoption of FSP 142-3 will have a material impact on its financial position, results of operations or cash flows.



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##### Table of Contents



Notes to
Unaudited Consolidated Financial Statements







Note 7. Recent Accounting Pronouncements, continued



In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles, (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP (the GAAP Hierarchy). SFAS No. 162 will be effective 60 days following the SECs approval of the Public Company Accounting Oversight Boards amendments to AU Section 411, The
Meaning ofPresent Fairly in Conformity With Generally Accepted Accounting Principles. The FASB has stated that it does not expect SFAS No. 162 will result in a change in current practice. The application of SFAS No. 162 will
have no effect on the Companys financial position, results of operations or cash flows.

The FASB issued FASB Staff Position No. APB 14-1,
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP No. APB 14-1). Staff Position specifies that issuers of convertible debt instruments that may be
settled in cash upon conversion should separately account for the liability and equity components in a manner that will reflect the entitys nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP No. APB
14-1 provides guidance for initial and subsequent measurement as well as derecognition provisions. This Staff Position is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Early adoption is not permitted. The adoption of this Staff Position will have no material effect on the Companys financial position, results of operations or cash flows.

In June, 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating
Securities, (FSP EITF 03-6-1). This Staff Position provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and must be included in the
earnings per share computation. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period earnings per share data presented must be
adjusted retrospectively. Early application is not permitted. The adoption of this Staff Position will have no effect on the Companys financial position, results of operations or cash flows until it issues shares under its Omnibus Plan.

Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS 157) which provides a
framework for measuring and disclosing fair value under GAAP. SFAS 157 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are
made on a recurring basis (for example, available-for-sale investment securities) or on a nonrecurring basis (for example, impaired loans).



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##### Table of Contents



Notes to
Unaudited Consolidated Financial Statements







Note 7. Recent Accounting Pronouncements, continued



SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1 |  | Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active
exchange market, as well as U.S. Treasury, other U.S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.                                                                                                                                                                                                                                                                                                                                                   
|        | 
|Level 2 |  | Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can
be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and
derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain derivative
contracts and impaired loans.
|        | 
|Level 3 |  | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include
financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly-structured or long-term derivative contracts.                                                     

The Company has no liabilities carried at fair value or measured at fair value on a nonrecurring basis.

The Company is predominantly an asset based lender with real estate serving as collateral on a substantial majority of loans. Loans which are deemed to be
impaired are primarily valued on a nonrecurring basis at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be level 2 inputs. The aggregate carrying
amount of impaired loans at June 30, 2008 was $810,000.

FASB Staff Position No. FAS 157-2 delays the implementation of SFAS 157 until the first
quarter of 2009 with respect to goodwill, other intangible assets, real estate and other assets acquired through foreclosure and other non-financial assets measured at fair value on a nonrecurring basis.

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 Six-Month Periods Ending June 30, 2008 and 2007

Net
Income

For the six months ended June 30, 2008, the Company reported an increase in net income of 44 percent to $445,000
compared to $308,000 for the same period in 2007. Net income per diluted share increased 47 percent to $0.25 compared to $0.17 for the prior year period. Annualized returns on average assets and average equity were 0.32 percent and 5.08 percent,
respectively, for the six months ended June 30, 2008, compared to 0.29 percent and 3.74 percent for the prior year period.

The
primary factors contributing to the increase in net income from 2007 to 2008 were increases in net interest income and noninterest income, which were offset by increases in the provision for loan losses and noninterest expense.

Net Interest Income

Net interest income was
$4.1 million for the six months ended June 30, 2008 compared to $3.6 million for the prior year. The 14 percent increase in net interest income was due primarily to growth in average earning assets, but was offset by a decline in the net
interest margin due to earning assets repricing downward faster than interest-bearing liabilities.

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, 2008 was 3.18
percent compared to 3.71 percent for the prior year period. The average yield on earning assets for the current period was 6.74 percent compared to 7.68 percent for the prior year period, and the average cost of interest-bearing liabilities was 3.87
percent for the current period compared to 4.49 percent for the prior year period. The decline in interest rate spread from 3.19 percent to 2.87 percent was impacted by a decline in the ratio of average interest-earning assets to average
interest-bearing liabilities, which decreased from 110.15 percent at June 30, 2007 to 105.84 percent at June 30, 2008.

Between
September 18, 2007 and March 18, 2008, the Federal Reserve Board decreased short-term interest rates six times for a total of 300 basis points. The rapid decline in short-term interest rates immediately impacts the Companys yield on
variable rate loans, which represent approximately 39 percent of the Companys total interest-earning assets. However, the impact on interest-bearing liabilities, particularly certificates of deposit, occur as the fixed rate liabilities mature
and reprice at market interest rates. Therefore, when the Federal Reserve Board decreases short-term interest rates rapidly it has a short-term negative impact on the Companys net interest margin. Generally, once the fixed rate liabilities
reprice at market rates the net interest margin returns to previous levels. The Company is beginning to see fixed rate liabilities, primarily certificates of deposit, reprice at lower levels, but intense local competition for deposits could
negatively impact the Companys net interest margin in the future. The Company is attempting to negate the potential negative impact to its net interest margin by focusing on attracting lower-cost deposits, particularly business demand deposit
accounts.

Provision for Loan Losses

The Companys provision for loan losses for the six months ended June 30, 2008 was $263,000 compared to $163,000 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. There were two factors that caused the significant increase in the provision from 2007 to 2008. First, the Company experienced greater loan growth in the first six months of 2008 compared to the same period in 2007. Some loan
loss provision is recognized when loans are originated so greater loan production generally leads to higher loan loss provisions. Second, based on managements review in the first six months of 2007 of the Companys loan portfolio, the
allowance for loan losses to total loans was reduced from 1.07 percent at December 31, 2006 to 1.04 percent at June 30, 2007. Net charge offs for the six months ended June 30, 2008 were $40,000 compared to $6,000 in the prior year
period. The allowance for loan losses to total loans was 1.00 percent at June 30, 2008 and December 31, 2007, and 1.04 percent at June 30, 2007.



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##### Table of Contents

Noninterest Income

Noninterest income totaled $1,651,000 for the six months ended June 30, 2008, up $639,000, or 63 percent, from $1,012,000 for the same period in 2007. Service fees and charges, which represent a relatively stable
and predictable source of noninterest income, totaled $353,000 for the six months ended June 30, 2008, a 44 percent increase over the $245,000 of service fees and charges earned for the same period in 2007. Even though mortgage loan fee income
increased from 2007 to 2008, the increased efforts of the mortgage originators were negatively impacted by the economic slowdown that began in the latter part of 2007 and continued into the first quarter of 2008. Mortgage loan origination fees
totaled $232,000 for the six months ended June 30, 2008, a 4 percent increase over the $223,000 of mortgage loan fee income earned for 2007. 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 $450,000 for the six months
ended June 30, 2008, an 18 percent increase over the $380,000 earned in 2007, largely due to increased revenue from both the Investment Services Group and the Oak Ridge Wealth Management business units. Fee income from accounts receivable
financing totaled $352,000 for the six months ended June 30, 2008, a 167 percent increase over the $132,000 earned in the same period in 2007. This increase is largely due to the addition of seven new customers in the first quarter of 2008.
Trading income was only $3,000 for the six months ended June 30, 2008. During the first six months of 2008 the Company held only one bond in its trading portfolio with a balance of approximately $800,000. Since this bond is relatively close to
its maturity date its changes in market value are relatively minimal. In the six months ended June 30, 2007, the Company recorded a $146,000 trading loss due to two factors  the Companys adoption of SFAS 159 on April 30, 2007,
and the subsequent sale of substantially all of the Companys investment portfolio in June of 2007. Income earned on bank owned life insurance was relatively unchanged from 2007 to 2008. Other service charges and fees benefited from the
Banks increased number of product offerings and deposit accounts, as well as higher debit card interchange income, and totaled $181,000 for the six months ended June 30, 2008, a 81 percent increase over the $100,000 earned in 2007.

Noninterest Expense

Noninterest expenses were $4.8 million for the six months ended June 30, 2008 compared to $4.0 million for the prior year period. The $800,000 or 20 percent increase reflects the continuing efforts to expand the Companys
infrastructure and branch network, and was specifically related to the opening of the Banks fifth banking location in January of 2008. Of the $800,000 increase in total noninterest expense, approximately $300,000 was in salaries and employee
benefits and other expenses, which are expenses impacted by the branch network and infrastructure improvements.

Salaries and employee
benefits for the six months ended June 30, 2008 were $2.6 million reflecting a $300,000 increase when compared to the $2.3 million for the same period in 2007. Increases in salaries and employee benefits were due to an increase in support
positions to service the Banks continued growth, as well as the opening of the Banks fifth banking location in January of 2008.

Occupancy expense was relatively unchanged from 2007 to 2008, as the increase in occupancy expense related to the opening of the Banks fifth banking office was offset by a reduction in depreciation expense related to the Banks
operations facility, which was opened in 2000 as the Banks original banking office and is now fully depreciated.

Equipment expense
was relatively unchanged from 2007 to 2008 as these expenses were not significantly impacted by the Banks continued growth, and were positively impacted by an emphasis on controlling such expenses.

Data and items processing expense for the six months ended June 30, 2008 were $212,000 reflecting a $78,000 increase when compared to $134,000 for
the prior year period. In March of 2008, the Bank negotiated a new three-year pricing agreement with the provider of its core processing banking system. The Banks growth over the prior three-year period caused the pricing on the new agreement
to be higher, since the software licensing fees are based on the Banks total assets at the time of renegotiation.



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##### Table of Contents

Professional and advertising expenses for the six months ended June 30, 2008 were $591,000,
reflecting a $143,000 increase when compared to $448,000 for the same period in 2007. Increases in accounting and auditing, marketing and advertising, shareholder communications, and expenses for outsourced services contributed to the overall
increase in professional and advertising expenses from 2007 to 2008.

Stationary and supplies expense was higher in the first six months
compared to the same period in 2007 due primarily to the opening of the Banks fifth banking office in January 2008. Telecommunications expense was higher due to the Companys continued growth, as well as the decision to equip certain
employees with mobile smartphones to allow them to work more efficiently and effectively.

Other noninterest expenses for the six months
ended June 30, 2008 were $690,000 reflecting a $216,000 increase when compared to $474,000 for the same period in 2007. Increases in FDIC insurance premiums of $102,000 and dues and memberships of $17,000 contributed to the overall increase in
other noninterest expenses. Additionally, expenses related to the servicing of the Banks accounts receivable financing program increased by $95,000 from 2007 to 2008. These increases were offset by decreases in expenses related to employee
travel, training and education, and charitable expenses.

Income Taxes

Income tax expense was $247,000 for the six months ended June 30, 2008 and $141,000 for the same period in 2007. The increase in income tax expense
from 2007 to 2008 was primarily due to higher net income before provision for income taxes in 2008 as compared to 2007.

Comparison of Results of
Operations for the Three-Month Periods Ending June 30, 2008 and 2007

Net Income

For the three months ended June 30, 2008, the Company reported an increase in net income of 182 percent to $384,000 compared to $136,000 for the same
period in 2007. Net income per diluted share increased 200 percent to $0.21 compared to $0.07 for the prior year period. Annualized returns on average assets and average equity were 0.53 percent and 8.80 percent, respectively, for the three months
ended June 30, 2008, compared to 0.25 percent and 3.32 percent for the prior year period.

The primary factors contributing to the
increase in net income from 2007 to 2008 were increases in the Companys net interest income and noninterest income, which were offset by increases in noninterest expense and income tax expense.

Net Interest Income

Net interest income was
$2.2 million for the three months ended June 30, 2008 compared to $1.9 million for the prior year period. The 19 percent increase in net interest income was due primarily to growth in average earning assets, but was offset by a decline in the
net interest margin due to earning assets repricing downward faster than interest-bearing liabilities.

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, 2008 was
3.28 percent compared to 3.71 percent for the prior year period. The average yield on earning assets for the current period was 6.49 percent compared to 7.70 percent for the prior year period, and the average cost of interest-bearing liabilities was
3.54 percent for the current period compared to 4.51 percent for the prior year period. The decline in interest rate spread from 3.19 percent to 2.95 percent was impacted by a decline in the ratio of average interest-earning assets to average
interest-bearing liabilities, which decreased from 110.16 percent at June 30, 2007 to 107.34 percent at June 30, 2008.



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##### Table of Contents

Between September 18, 2007 and March 18, 2008, the Federal Reserve Board decreased short-term
interest rates six times for a total of 300 basis points. The rapid decline in short-term interest rates immediately impacts the Companys yield on variable rate loans, which represent approximately 39 percent of the Companys total
interest-earning assets. However, the impact on interest-bearing liabilities, particularly certificates of deposit, occur as the fixed rate liabilities mature and reprice at market interest rates. Therefore, when the Federal Reserve Board decreases
short-term interest rates rapidly it has a short-term negative impact on the Companys net interest margin. Generally, once the fixed rate liabilities reprice at market rates the net interest margin returns to previous levels. The Company is
beginning to see fixed rate liabilities, primarily certificates of deposit, reprice at lower levels, but intense local competition for deposits could negatively impact the Companys net interest margin in the future. The Company is attempting
to negate the potential negative impact to its net interest margin by focusing on attracting lower-cost deposits, particularly business demand deposit accounts.

Provision for Loan Losses

The Companys provision for loan losses for the three months ended June 30, 2008
was $99,000 compared to $77,000 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. There were two factors that caused the significant increase in the
provision from 2007 to 2008. First, the Company experienced greater loan growth in the second three months of 2008 compared to the same period in 2007. Some loan loss provision is recognized when loans are originated so greater loan production
generally leads to higher loan loss provisions. Second, based on managements review in the first three months of 2007 of the Companys loan portfolio, the allowance for loan losses to total loans was reduced from 1.06 percent at
March 31, 2007 to 1.04 percent at June 30, 2007. The allowance for loan losses to total loans was 1.00 percent at June 30, 2008 and December 31, 2007, and 1.04 percent at June 30, 2007.

Noninterest Income

Noninterest income totaled
$897,000 for the three months ended June 30, 2008, up $464,000, or 107 percent, from $433,000 for the same period in 2007. Service fees and charges, which represent a relatively stable and predictable source of noninterest income, totaled
$177,000 for the three months ended June 30, 2008, a 40 percent increase over $126,000 of service fees and charges earned for same period in 2007. The Company experienced a large trading loss of $235,000 in the three months ended June 30,
2007 due to the sale of substantially all of its investment portfolio in June of 2007 to improve the Banks asset liability position. During the same period in 2008 the Bank maintained a much smaller trading portfolio with minimal volatility
due to changes in interest rates. Due to greater calling and marketing efforts and despite an overall weaker economic environment, mortgage loan origination fees totaled $137,000 for the three months ended June 30, 2008, a 15 percent increase
over $119,000 of mortgage loan origination fees earned for the same period in 2007. 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 $244,000 for the three months ended June 30, 2008, a 2 percent increase over the
$238,000 earned in 2007, largely due to slightly higher revenue from the combined business units. Fee income from accounts receivable financing totaled $185,000 for the three months ended June 30, 2008, a 99 percent increase over $93,000 earned
in the same period in 2007. This increase is largely due to the addition of seven new customers in the first quarter of 2008. Income earned on bank owned life insurance was relatively unchanged from 2007 to 2008. Other service charges and fees
benefited from the Banks increased number of product offerings and deposit accounts, as well as higher debit card interchange income, and totaled $119,000 for the three months ended June 30, 2008, a 125 percent increase over $53,000
earned in 2007.



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##### Table of Contents

Noninterest Expense

Noninterest expenses were $2.4 million for the three months ended June 30, 2008 compared to $2.0 million for the prior year period. The $400,000 or 20 percent increase reflects the continuing efforts to expand
the Companys infrastructure and branch network, and was specifically related to the opening of the Banks fifth banking location in January of 2008. Of the $400,000 increase in total noninterest expense, approximately $100,000 was in
salaries and employee benefits and other expenses, which are expenses impacted by the branch network and infrastructure improvements.

Salaries and employee benefits for the three months ended June 30, 2008 were $1.3 million reflecting a $100,000 increase compared to $1.2 million for the same period in 2007. Increases in salaries and employee benefits were due to an
increase in support positions to service the Companys continued growth, as well as the opening of the Banks fifth banking location in January 2008.

Occupancy expense for the three months ended June 30, 2008 was $129,000 reflecting a $11,000 increase when compared to $118,000 for the prior year period. The increase in occupancy expense related to the opening
of the Banks fifth banking office was somewhat offset by a reduction in depreciation expense related to the Banks operations facility, which was opened in 2000 as the Banks original banking office and is now fully depreciated.

Equipment expense for the three months ended June 30, 2008 was $140,000 reflecting a $11,000 increase when compared to $129,000 for
the prior year period. Most of the increases were due to increased depreciation related to computer and related equipment purchases necessary to support the Companys continued growth.

Data and items processing expense for the three months ended June 30, 2008 were $128,000 reflecting a $67,000 increase when compared to $61,000 for
the prior year period. In March of 2008, the Bank negotiated a new three-year pricing agreement with the provider of its core processing banking system. The Banks growth over the prior three-year period caused the pricing on the new agreement
to be higher, since the software licensing fees are based on the Banks total assets at the time of renegotiation.

Professional and
advertising expenses for the three months ended June 30, 2008 were $304,000, reflecting a $75,000 increase when compared to $229,000 for the same period in 2007. Increases in accounting and auditing, marketing and advertising, and shareholder
communications contributed to the overall increase in professional and advertising expenses from 2007 to 2008.

Stationary and supplies
expenses were relatively unchanged from 2007 to 2008. Telecommunications expense was higher due to the Companys continued growth, as well as the decision to equip certain employees with mobile smartphones to allow them to work more efficiently
and effectively.

Other noninterest expenses for the three months ended June 30, 2008 were $337,000 reflecting a $126,000 increase
when compared to $211,000 for the same period in 2007. Increases in FDIC insurance premiums of $57,000 and dues and memberships of $7,000 contributed to the overall increase in other noninterest expenses. Additionally, expenses related to the
servicing of the Companys accounts receivable financing program increased by $23,000 from 2007 to 2008. These increases were offset by decreases in expenses related to employee travel, filing and recording fees, appraisal fees, and charitable
expenses.

Analysis of Financial Condition

Average earning assets increased to $261.2 million during the six months ended June 30, 2008, or 32 percent, from $197.4 million during the same period in 2007. Earning assets represented 92.9 percent of total assets during the six
months ended June 30, 2008, and 93.4 percent during the same period in 2007. The mix of average earning assets changed slightly from the six months ended June 30, 2007 to the same period in 2008, with loans increasing from 80.0 percent of
total assets in 2007 to 80.2 percent in 2008, and investment securities decreasing from 11.2 percent of total assets in 2007 to 10.0 percent in 2008, Federal funds sold and interest-bearing bank deposits increasing from 2.2 percent of total assets
in 2007 to 2.7 percent in 2008, and non-interest earning assets increasing from 6.6 percent of total assets in 2007 to 7.1 percent in 2008. The increase in non-interest earning assets from 2007 to 2008 was largely attributable to the completion of
the Banks fifth banking location in January of 2008.



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##### Table of Contents

Loans Receivable

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

Loans receivable totaled $232.6 million at June 30, 2008, up $21.9 million, or 10
percent, from $210.7 million at December 31, 2007. Two primary factors contributed to the strong growth in loans from the end of 2007 to the end of the second quarter in 2008. First, the Banks continued expansion into Greensboro led to
more commercial loan opportunities. Second, the weakening economy led large financial institutions to abandon entire lines of business that led to quality loan opportunities. In the second quarter loan growth moderated somewhat, due to a decrease in
the number of lending opportunities as a result of the slowing economy and the Banks continued strong underwriting standards.

Allowance for
Loan Losses and Asset Quality

The allowance for loan losses totaled $2.3 million at June 30, 2008, up $223,000, or 11 percent,
from $2.1 million at December 31, 2007.

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.

As of June 30, 2008, the Bank did not have any loans that it considered to be subprime or investment securities with any significance of subprime 1-4 residential loans on its balance sheet. Nonperforming assets to period-end loans
increased slightly from 0.18% at December 31, 2007 to 0.28% at June 30, 2008, and nonperforming assets and accruing loans past due 90 days or more increased from $375,000 at December 31, 2007 to $647,000 at June 30, 2008. A
substantial portion of the nonperforming loans were secured by residential property or 1-4 family residences. The Bank did not have any other real estate owned at either December 31, 2007 or June 30, 2008.

Investments and other interest-earning assets

The Companys portfolios of investment securities, which are classified as trading, 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. Other interest-earning assets consist of interest-bearing deposits with banks and Federal Funds sold.

Investments and other interest-earning assets totaled $39.4 million at June 30, 2008, up $7.7 million, or 24 percent, from $31.7 million at
December 31, 2007. The large increase was due to the purchase in March of 2008 of $16.5 million in mortgage-backed securities not guaranteed by government sponsored enterprises.

Deposits

Deposits totaled $242.5 million at June 30, 2008, up $24.0 million, or 11
percent, from $218.5 million at December 31, 2007. Of the $24.0 million increase in total deposits from December 31, 2007 to June 30, 2008, $2.5 million of the increase was in noninterest-bearing deposits with the remaining increase
in interest-bearing deposits. 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.



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##### Table of Contents

Borrowings

Borrowings, which consist of short and long-term debt, and junior subordinated notes related to trust preferred securities, totaled $30.3 million at June 30, 2008, up $6.0 million, or 25 percent, from $24.3
million at December 31, 2007. The increase in borrowings, which consist of Federal Home Loan Bank of Atlanta advances, was to fund loan and investment growth during the first six months of 2008.

Stockholders Equity

Stockholders
equity totaled $17.4 million at June 30, 2008, down approximately $300,000, or 1.7 percent, from $17.7 million at December 31, 2007. In September 2006, FASB ratified the consensuses reached by the FASBs Emerging Issues Task Force
(EITF) relating to EITF 06-4, Accounting for the Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (EITF 06-4). EITF 06-4 was effective for the
Company on January 1, 2008. The Company did adopt EITF 06-04 on January 1, 2008 which resulted in a $259,000 decrease to retained earnings. This decrease to retained earnings was offset by net income of $445,000 for the six months ended
June 30, 2008. The remaining net change in stockholders equity was due to an decrease in accumulated other comprehensive income.



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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
|-------- | -----------------------

As of the end of
the period to which this report relates, the Company has carried out an evaluation, under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures in accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act).

The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There are inherent limitations to
the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, there can be no assurance that any design will succeed
in achieving its stated goal under every potential condition, regardless of how remote. While we have evaluated the operation of our disclosure controls and procedures and found them effective, there can be no assurance that they will succeed in
every instance to achieve their objective.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in enabling us to record, process, summarize and report effectively and in a timely manner the information required to be disclosed in reports we file under the Exchange Act. There have not
been any changes in our internal control over financial reporting that occurred during the last quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.



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##### Table of Contents

Oak Ridge Financial Services, Inc.

Part II. Other Information



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

On
May 8, 2008, the Company held an annual meeting of shareholders for the purposes listed below.



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



|2. | Ratification of appointment of Elliott Davis, PLLC as independent auditor for the fiscal year ending December 31, 2008;
|-- | -----------------------------------------------------------------------------------------------------------------------



|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
|Lynda J. Anderson |  | 1,350,931 |  |        |  | 12,400  
|Douglas G. Boike  |  | 1,351,081 |  |        |  | 12,250  
|Billy R. Kanoy    |  | 1,350,206 |  |        |  | 13,125  
|Stephen S. Neal   |  | 1,348,556 |  |        |  | 14,775  



|2. | Ratification of appointment of Elliott Davis, PLLC as independent auditor for the fiscal year ending December 31, 2008:
|-- | -----------------------------------------------------------------------------------------------------------------------



|          |  |         |  |        
|--------- |  | ------- |  | -------
|For       |  | Against |  | Abstain
|1,342,081 |  | 18,000  |  | 3,250  



|3. | 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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##### Table of Contents

|Item 6. | Exhibits
|------- | --------



|      |  |                    |  |                                                                                                                                                                                                                                                    
|----- |  | ------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|13(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)        |  | Specimen Stock Certificate, incorporated herein by reference to Exhibit 4 to the Form 8-K filed with the SEC on May 10, 2007.                                                                                                                      
|      |  |                   
|      |  | 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 Form 8-K filed
with the SEC on March 28, 2008.                     
|      |  |                   
|      |  | Exhibit (10)(x)    |  | Salary Continuation Agreements with L. William Vasaly III dated January 20, 2006, incorporated herein by reference to Exhibits (10)(x) to Form 8-K filed with the SEC on March 28,
2008.                                                           
|      |  |                   
|      |  | Exhibit (10)(xi)   |  | Salary Continuation Agreements with Thomas W. Wayne dated January 20, 2006, incorporated herein by reference to Exhibits (10)(xi) to Form 8-K filed with the SEC on March 28,
2008.                                                                



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##### Table of Contents

| |  |                     |  |                                                                                                                                                                                                                                             
| |  | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit (10)(xii)   |  | 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)(xiii)  |  | 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.                              
| |  |                    
| |  | Exhibit (10)(xiv)   |  | 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)(xv)    |  | 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)(xvi)   |  | 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)(xvii)  |  | 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)(xviii) |  | Loan Agreement by and between Oak Ridge Financial Services, Inc. and Silverton Bank, National Association dated June 30, 2008, incorporated herein by reference to Exhibit (10)(xviii) to Form
8-K filed with the SEC on July 1, 2008.      
| |  |                    
| |  | Exhibit (10)(xix)   |  | Stock Pledge Agreement by and between Oak Ridge Financial Services, Inc. and Silverton Bank, National Association dated June 30, 2008, incorporated herein by reference to Exhibit (10)(xix) to
Form 8-K filed with the SEC on July 1, 2008.
| |  |                    
| |  | Exhibit (31.1)      |  | Certification of Ronald O. Black.                                                                                                                                                                                                           
| |  |                    
| |  | Exhibit (31.2)      |  | Certification of Thomas W. Wayne.                                                                                                                                                                                                           
| |  |                    
| |  | Exhibit (32)        |  | Certificate of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                



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##### Table of Contents

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 8, 2008 |  |  |  | /s/ Ronald O. Black                            
| |  |                      |  |  |  | Ronald O. Black                                
| |  |                      |  |  |  | President and Chief Executive Officer          
| |  |                      |  |  |  | (Duly Authorized Representative)               
| |  |                      | 
| |  | Date: August 8, 2008 |  |  |  | /s/ Thomas W. Wayne                            
| |  |                      |  |  |  | Thomas W. Wayne                                
| |  |                      |  |  |  | Chief Financial Officer                        
| |  |                      |  |  |  | (Duly Authorized Representative)               



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