Bank of McKenney Posts Third Quarter And Year-to-Date Results

MCKENNEY, Va., Oct. 17, 2012 /PRNewswire/ -- Bank of McKenney (OTC BB: BOMK.OB) today announced strong third quarter 2012 earnings of $72,000 as compared to earnings of $399,000 during the third quarter of 2011.  Basic and diluted earnings per share of $0.04 were recorded for the quarter ended September 30, 2012, compared to a prior year's basic and diluted earnings per share of $0.21 for the same period.  For the nine-month period ended September 30, 2012, the Bank reported earnings of $709,000 which is a decrease of 32.02% when compared to earnings of $1,043,000 through the first nine months of 2011.  For the first three quarters of 2012 and 2011, earnings per basic and diluted share of $0.37 and $0.55, respectively, were recorded.  Annualized returns on average assets and average equity for the first nine months of 2012 were 0.46% and 4.55%, respectively, compared to 0.71% and 6.92%, respectively, for the same period in 2011.  Third quarter 2012 earnings were negatively impacted by a $300,000 charge on certain other real estate currently under contract for sale at $1.2 million in 2013.  Despite this one-time charge, margins have continued to expand through each of the three quarters in 2012 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 81.09%, and, as a result, the net interest margin stood at 4.64% for the first three quarters of 2012.  This margin level reflects an 8 basis point gain in comparison with the same period of 2011.   

At the end of the third quarter, total assets were $210.3 million, representing a $5.3 million or 2.59% increase over the December 31, 2011 level of $205.0 million.  Total deposits amounted to $185.2 million as of September 30, 2012, which represents a $4.8 million or 2.66% increase from the $180.4 million level as of December 31, 2011.  On an annualized basis, deposits grew during the third quarter at a rate of 3.55%.  During the same period, total loans expanded by 2.28% or $3.4 million to the September 30, 2012 balance of $152.5 million.  Loans, on an annualized basis, grew at a rate of 3.04%.  At September 30, 2012, the investment portfolio, including time deposits in other banks, was $20.3 million, a 24.25% decrease in comparison to the December 31, 2011 $26.8 million level.  Overnight federal funds sold grew to a September 30, 2012 level of $16.3 million, a 71.58% increase over the $9.5 million level reported on December 31, 2011.  Cumulatively, earning assets grew 3.7 million for the first three quarters or 2.66% on an annualized basis and represent 89.92% 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, 2012, the delinquency and nonperforming ratios stood at 0.76% and 2.72%, respectively.  These ratios, at December 31, 2011, were 1.84% and 2.94%, respectively.  Management has aggressively moved to clean up those nonperforming assets where liquidations were the only remaining viable option.  As a result, loans nonperforming have been reduced to $1.9 million on September 30, 2012 from $3.3 million as of December 31, 2011.  Certain of these relationships were purchased at foreclosure at conservative level resulting in $2.1 million in other real estate owned as of September 30, 2012.  This is a $1.4 million increase over the December 31, 2011 other real estate owned level of $709,000; however, management currently has a contract to sell its largest holding at $1.2 million in 2013.  The remaining nonperforming loans have sufficient collateral to negate any further substantial losses from being recognized. 

The allowance for loan losses was $2,241,000 as of September 30, 2012, or 1.47% of loans outstanding, compared to $2,250,000 as of December 31, 2011 or 1.51% of outstanding loans.  Charges to the Reserve account for loan losses amounted to $1,264,000 as of September 30, 2012 or 0.84% of average outstanding loans for 2012.  For the first nine months of 2011, charges to the reserve of $339,000 were taken representing 0.22% of average loans outstanding for the period.  Allocations to the reserve account of $1,252,000 were provisioned for the nine months of 2012 compared to provision allocations of $418,000 for the same period of 2011.  The added reserves were necessary to charge down nonperforming loans to liquidation values.

Net interest income increased 3.10% to $2,127,000 in the third quarter of 2012 from $2,063,000 in the comparable period in 2011.  Noninterest income, exclusive of securities transactions, declined 5.90% or $24,000 in the third quarter of 2012 to $383,000 when compared to $407,000 for the same period in 2011.  Service charges posted slightly lower results with a $6,000 or 2.45% decrease when comparing the third quarter of 2012 to the third quarter of 2011.  The mortgage originations department experienced a slight 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 2012 third quarter of $48,000 which represents a $3,000 or 5.88% decline during the period when compared to the third quarter of 2011.  Other noninterest products and services, including those of the insurance and investment departments, also decreased to $96,000 for the third quarter of 2012, $15,000 below the $111,000 level recorded in the third quarter of 2011.  Noninterest expense increased by $333,000 or 17.71% to $2,213,000 during the third quarter 2012 when compared to the level of $1,880,000 reported for the same period in 2011.  The most significant factor was $334,000 in charges to write down other real estate owned to values currently under contract.  Salaries and benefits for the third quarter of 2012 rose only 1.85% or $20,000 while occupancy and furniture & equipment expenses increased $9,000 or 3.72%.  Other operating expenses, exclusive of write downs of certain other real estate owned, declined by $34,000 or 6.09% to a level of $529,000 as of September 30, 2012.

For the first nine months of 2012, net interest income increased 7.47% to $6,402,000 from $5,957,000 in the comparable period in 2011.  Average loans through the third quarter of 2012, when compared to the same period in 2011, grew to $150.8 million from $140.2 million, an increase of 7.56%.  The average investment portfolio declined slightly from a 2011 nine-month average balance of $25.2 million to a $24.4 million average through the third quarter of 2012, or a decline of 3.17%.  Average deposit growth through the nine months of 2012 has increased 3.85% or $5.6 million to $151.0 million over the same prior year period's average of $145.4 million.  The Bank's prime based loan portfolio yields decreased 21 basis points when comparing the first nine months of 2012 to that period in 2011 while the investment portfolio in the same periods lost 48 basis points.  Cumulatively, yields on earning assets decreased 18 basis points from a 2011 nine-month average of 5.70% to an average of 5.52% for the current year's same period.  The cost of funds dropped an additional 29 basis points through the nine months ended September 30, 2012 as a result of the current and prolonged low rate environment to a level of 1.07% when compared to the 1.36% level reported for the same period in 2011. 

Noninterest income, exclusive of securities transactions, grew by 23.89% or $285,000 during the first nine months of 2012 to $1,478,000 when compared to $1,193,000 for the same period in 2011.  This jump resulted primarily from a tax-free gain of $272,000 realized during the first quarter of 2012 representing a bank-owned life insurance death benefit on a deceased employee covered by the plan.  Service charges posted higher results with a $31,000 or 4.43% increase when comparing the first nine months of 2012 to that of 2011.  In comparing these same two periods, the mortgage originations department revenues fell by $40,000 or 19.14% as qualifying borrowers and supporting real estate values remain sluggish.  Other noninterest income for the nine months ended September 30, 2012, exclusive to the tax-free gain on BOLI death benefit, grew by $22,000 or 7.75% to $306,000 from the level of $284,000 recorded through the third quarter of 2011.  Noninterest expense increased $498,000 or 9.07% to $5,989,000 during the first three quarters of 2012 from $5,491,000 for the same period in 2011.  Separately within this category, salaries and benefits rose 2.18% or $69,000 for the nine months ended September 30, 2012 while occupancy and furniture & equipment expenses increased $33,000 or 4.50%.  Other operating expenses through September 30, 2012 grew $397,000 or 24.89% to a level of $1,992,000.  The majority of this increase is attributable to $368,000 in write-downs of certain other real estate owned to contract prices during the first nine months of 2012.  During the first nine months of 2011, such write-downs and charges for other real estate amounted to $30,000.

Richard M. Liles, President and Chief Executive Officer, stated, "As conveyed in our second quarter earnings release, we have been very focused this year on bringing to a close the remaining nonperforming assets.  While a painful process with over $1.5 million in write-offs, we are proud to have still delivered $0.37 in per share earnings to our shareholders.  Our remaining nonperforming assets are conservatively valued at liquidation levels, and we have over 50% of our holdings in other real estate owned under contract to sell.  Moreover, current reserves are adequate, and we forecast the fourth quarter of 2012 as well as 2013 to yield robust earnings with a return to prerecession norms.  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 and assets totaling $210.3 million.

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, 2012 (unaudited) and December 31, 2011














September 30,


December 31,

ASSETS





2012


2011









Cash and due from banks




$          6,122,983


$    6,225,729

Federal funds sold




16,276,000


9,530,000

Interest-bearing time deposits in banks




3,000,666


2,002,961

Securities available for sale, at fair market value


16,640,309


24,014,765

Restricted investments




747,875


751,925

Loans, net





150,209,260


$ 146,836,049

Land, premises and equipment, net



7,764,638


7,584,921

Other real estate owned




2,121,564


708,815

Other assets





7,386,183


7,367,245

    Total Assets





$      210,269,478


$      205,022,410









LIABILITIES
















Deposits





$      185,236,850


$ 180,427,041

Borrowed Funds





2,083,333


2,333,333

Other liabilities





1,738,594


1,982,639

    Total Liabilities





$      189,058,777


$      184,743,013









SHAREHOLDERS' EQUITY















Total shareholders' equity




$        21,210,701


$        20,279,397

    Total Liabilities and Shareholders' Equity


$      210,269,478


$      205,022,410

























BANK OF MCKENNEY AND SUBSIDIARY

Consolidated Statements of Income Summary Data

(unaudited)










Three Months Ended


Nine Months Ended


September 30,


September 30,


2012


2011


2012


2011









Interest and dividend income

$          2,520,617


$          2,557,304


$          7,629,075


$          7,462,864

Interest expense

393,659


494,754


1,227,035


1,505,615

  Net interest income

$          2,126,958


$          2,062,550


$          6,402,040


$          5,957,249

  Provision for loan losses 

250,000


150,000


1,252,000


418,000

    Net interest income after provision for loan losses

$          1,876,958


$          1,912,550


$          5,150,040


$          5,539,249









Noninterest income

$             382,006


$             533,643


$          1,688,189


$          1,381,509

Noninterest expense

2,212,776


1,880,335


5,989,227


5,488,476

  Net noninterest expense

1,830,770


1,346,692


4,301,038


4,106,967

Net income before taxes

$               46,188


$             565,858


$             849,002


$          1,432,282

 Income taxes 

(26,260)


167,316


140,022


388,818

Net income (loss)

$               72,448


$             398,542


$             708,980


$          1,043,464









Basic & diluted earnings per share

$                   0.04


$                   0.21


$                   0.37


$                   0.55









Weighted average shares outstanding

1,894,002


1,893,792


1,893,898


1,893,629









SOURCE Bank of McKenney



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