Bank of McKenney Posts 10% Annualized Core Growth in Loans & Deposits and Strong Quarterly Earnings

MCKENNEY, Va., Oct. 12, 2011 /PRNewswire/ -- Bank of McKenney (OTC BB: BOMK) today announced strong third quarter 2011 earnings of $399,000 as compared to earnings of $316,000 during the third quarter of 2010.  Basic and diluted earnings per share of $0.21 were recorded for the quarter ended September 30, 2011, compared to a prior year's basic and diluted earnings per share of $0.17 for the same period.  For the nine-month period ended September 30, 2011, the Bank reported earnings of $1,043,000 which is a slight decrease of 2.52% when compared to earnings of $1,070,000 through the first nine months of 2010.  For the first three quarters of 2011 and 2010, earnings per basic and diluted share of $0.55 and $0.56, respectively, were recorded.  Annualized returns on average assets and average equity for the first nine months of 2011 were 0.71% and 6.92%, respectively, compared to 0.78% and 7.43%, respectively, for the same period in 2010.  Margins have continued to expand through each of the three quarters in 2011 as a result of the Bank's ongoing implementation of a plan to raise its loan-to-deposit ratio to a projected target of 85% to 90%.  During the third quarter, this ratio rose to 81.17%, and, as a result, the net interest margin stood at 4.56% for the first three quarters of 2011.  This margin level reflects a 28 basis point gain in comparison with the same period of 2010.

At the end of the third quarter, total assets were $205.2 million, representing a $13.1 million or 6.82% increase over the December 31, 2010 level of $192.1 million.  Total deposits amounted to $180.4 million as of September 30, 2011, which represents a $12.4 million or 7.38% increase from the $168.0 million level as of December 31, 2010.  On an annualized basis, deposits grew during the third quarter at a rate of 9.84%.  During the same period, total loans expanded by 7.93% or $10.7 million to the September 30, 2011 balance of $145.7 million.  Loans, on an annualized basis, grew at a rate of 10.57%.  At September 30, 2011, the investment portfolio, including time deposits in other banks, was $23.3 million, a 20.48% decrease in comparison to the December 31, 2010 $29.3 million level.  Overnight federal funds sold grew to a September 30, 2011 level of $16.7 million, a 94.19% increase over the $8.6 million level reported on December 31, 2010.  Cumulatively, earning assets grew 12.8 million for the first three quarters or 9.87% on an annualized basis and represent 90.50% of total assets.  The Bank continues to focus on delinquencies and nonperforming loans within the portfolio.  While these ratios remain elevated, improvement continued through the third quarter.  On September 30, 2011, the delinquency and nonperforming ratios stood at 0.69% and 2.35%, respectively.  These ratios, at December 31, 2010, were 0.47% and 2.01%, respectively.  Management continues to feel comfortable that losses will be minimized by collateral positions as well as the Bank's ability and willingness to work with the borrowers where possible.  

The allowance for loan losses was $2,163,000 as of September 30, 2011, or 1.48% of loans outstanding, compared to $2,050,000 as of December 31, 2010 or 1.52% of outstanding loans.  Charges to the Reserve account for loan losses amounted to $339,000 as of September 30, 2011 or 0.22% of average outstanding loans for 2011.  For the first nine months of 2010, charges to the reserve of $514,000 were taken representing 0.41% of average loans outstanding for the period.  Allocations to the reserve account of $418,000 were provisioned for the nine months of 2011 compared to provision allocations of $465,000 for the same period of 2010.  

Net interest income increased 11.21% to $2,063,000 in the third quarter of 2011 from $1,855,000 in the comparable period in 2010.  Noninterest income, exclusive of securities transactions, declined 12.47% or $58,000 in the third quarter of 2011 to $407,000 when compared to $465,000 for the same period in 2010.  Service charges posted higher results with an $7,000 or 2.94% increase when comparing the third quarter of 2011 to the third quarter of 2010.  The mortgage originations department experienced a significant decrease in revenue for the period as real estate value declines make qualifying for fixed mortgages challenging despite further rate declines.  The department reported income for the 2011 third quarter of $51,000 which represents a $91,000 or 64.08% decline during the period when compared to the third quarter of 2010.  Other noninterest products and services, including those of the insurance and investment departments, increased to $111,000 for the third quarter of 2011, $26,000 above the $85,000 level recorded in the third quarter of 2010.  Noninterest expense increased by $196,000 or 11.64% to $1,880,000 during the third quarter 2011 when compared to the level of $1,684,000 reported for the same period in 2010.  Salaries and benefits for the second quarter of 2011 rose 8.88% or $88,000 while occupancy and furniture & equipment expenses increased $14,000 or 6.14%.  Other operating expenses for the same period grew by $75,000 or 16.13% to a level of $559,000.   This increase is largely the result of costs associated with the opening of our Rivers Bend temporary site on September 27, 2011.

For the first nine months of 2011, net interest income increased 14.54% to $5,957,000 from $5,201,000 in the comparable period in 2010.  Average loans through the third quarter of 2011, when compared to the same period in 2010, grew to $140.2 million from $126.9 million, an increase of 10.48%.  The average investment portfolio grew slightly from a 2010 nine-month average balance of $24.7 million to a $25.2 million average through the third quarter of 2011, or an increase of 2.02%.  Average deposit growth through the nine months of 2011 has increased 8.18% or $11.0 million to $145.4 million over the same prior year period's average of $134.4 million.  The Bank's prime based loan portfolio yields decreased only 8 basis points when comparing the first nine months of 2011 to that period in 2010 while the investment portfolio in the same periods lost 65 basis points.  Cumulatively, yields on earning assets decreased a modest 7 basis points from a 2010 nine-month average of 5.77% to an average of 5.70% for the current year's same period.  The cost of funds dropped an additional 41 basis points through the nine months ended September 30, 2011 as a result of the current and prolonged low rate environment to a level of 1.36% when compared to the 1.77% level reported for the same period in 2010.  

Noninterest income, exclusive of securities transactions, declined 8.6% or $112,000 during the first nine months of 2011 to $1,191,000 when compared to $1,303,000 for the same period in 2010.  Service charges posted higher results with a $22,000 or 3.24% increase when comparing the first nine months of 2011 to that of 2010.  In comparing these same two periods, the mortgage originations department revenues fell sharply by $155,000 or 42.58% as qualifying borrowers and supporting real estate values have become more and more of a difficult combination to find.  Other noninterest income for the nine months ended September 30, 2011 grew by $21,000 or 8.05% to $282,000 from the level recorded through the third quarter of 2010.  Noninterest expense increased $500,000 or 10.02% to $5,488,000 during the first three quarters of 2011 from $4,988,000 for the same period in 2010.  Separately within this category, salaries and benefits, lead by the hiring of two commercial lenders and other support staff for the Rivers Bend market, rose 7.70% or $226,000 for the nine months ended September 30, 2011 while occupancy and furniture & equipment expenses increased $52,000 or 7.64%.  Other operating expenses through September 30, 2011 grew $200,000 or 14.56% to a level of $1,593,000.  Much of the additional occupancy and other expenses are also attributed to costs of opening our Rivers Bend branch.

Richard M. Liles, President and Chief Executive Officer, stated, "We are very pleased with our third quarter and year-to-date results.  We are also extremely excited about our new Rivers Bend Branch that officially opened on September 27, 2011.  The office is a temporary location that we will occupy twelve to eighteen months while the permanent branch is built directly across the street.  Being granted permission by regulatory authorities to establish a branch in this environment speaks very highly of the structure and soundness of Bank of McKenney.  I wish to express my thanks to our Board, employees, customers and shareholders for their continued dedication and support."

Bank of McKenney is a full-service community bank headquartered in McKenney, Virginia with seven branches serving Southeastern Virginia.

Certain statements in this document are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors. More information about these factors is contained in Bank of McKenney's filings with the Board of Governors of the Federal Reserve.

BANK OF MCKENNEY AND SUBSIDIARY

Consolidated Balance Sheets Summary Data

September 30, 2011 (unaudited) and December 31, 2010














September 30,


December 31,

ASSETS





2011


2010









Cash and due from banks





$          6,119,792


$          5,922,748

Federal funds sold





16,685,000


8,627,000

Interest-bearing time deposits in banks





2,000,438


2,050,220

Securities available for sale, at fair market value





20,453,367


26,413,912

Restricted investments





757,225


767,225

Loans, net





143,587,037


132,983,030

Land, premises and equipment, net





7,668,103


7,767,150

Other real estate owned





718,263


585,110

Other assets





7,162,986


6,983,108

   Total Assets





$      205,152,211


$      192,099,503









LIABILITIES
















Deposits





$      180,445,995


$      168,047,199

Borrowed Funds





2,416,666


2,666,666

Other liabilities





1,630,688


1,863,478

   Total Liabilities





$      184,493,349


$      172,577,343









SHAREHOLDERS' EQUITY
















Total shareholders' equity





$        20,658,862


$        19,522,160

   Total Liabilities and Shareholders' Equity





$      205,152,211


$      192,099,503



























BANK OF MCKENNEY AND SUBSIDIARY

Consolidated Statements of Income Summary Data

(unaudited)










Three Months Ended


Nine Months Ended


September 30,


September 30,


2011


2010


2011


2010









Interest and dividend income

$     2,557,304


$     2,412,567


$     7,462,864


$          7,018,456

Interest expense

    494,754


    557,613


    1,505,615


1,817,391

 Net interest income

$     2,062,550


$     1,854,954


$     5,957,249


$          5,201,065

 Provision for loan losses

    150,000


205,000


       418,000


465,000

   Net interest income after provision for loan losses    

$     1,912,550


$     1,649,954


$     5,539,249


$          4,736,065









Noninterest income

$        533,643


$        473,218


$     1,381,509


$          1,760,613

Noninterest expense

    1,880,335


    1,684,282


    5,488,476


4,988,283

 Net noninterest expense

    1,346,692


    1,211,064


    4,106,967


3,227,670

Net income before taxes

$        565,858


$        438,890


$     1,432,282


$          1,508,395

Income taxes

167,316


122,866


    388,818


438,796

Net income (loss)

$        398,542


$        316,024


$     1,043,464


$          1,069,599









Basic & diluted earnings per share

$              0.21


$              0.17


$              0.55


$                   0.56









Weighted average shares outstanding

    1,893,792


    1,893,546


    1,893,629


1,893,546



















SOURCE Bank of McKenney



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