Bank of McKenney's Profitability Continues

MCKENNEY, Va., Oct. 28, 2013 /PRNewswire/ -- Bank of McKenney (the "Bank") (OTCBB: BOMK) today announced record earnings of $1.3 million, or $0.68 per share for the nine-month period ending September 30, 2013.  Earnings increased $580,000, or $0.31 per share when compared to net income of $709,000, or $0.37 per share for the same nine-month period ended September 30, 2012.  The Bank also recorded strong earnings of $429,000, or $.23 per share, for the quarter ended September 30, 2013, an increase of 496%, or $0.19 per share over 2012 third quarter earnings of $72,000, or $.04 per share.

"Our ability to continue improving our margins by increasing our earning asset base, namely loans, and reducing our funding costs are the key drivers in our profitability.  Our credit quality also continues to improve and has stabilized, which is a testament to our sound underwriting culture as well as the character of our customers," stated Richard M. Liles, President and Chief Executive Officer.  "Our focus going forward continues to be meeting our customers' needs and exceeding their expectations as we steadily and deliberately grow our loan portfolio while looking to create efficiencies within our Bank."

Annualized returns on average assets and average equity for the first nine months of 2013 were 0.80% and 7.90%, respectively, compared to 0.46% and 4.55%, respectively, for the same period in 2012.  As a result, the net interest margin stood at 4.76% for the first three quarters of 2013 which is an increase of 12 basis points when compared to the 4.64% net interest margin recorded in the same period of 2012.

Balance Sheet

At September 30th, 2013, total assets were $217.7 million, representing a $5.7 million or 2.71% increase over the December 31, 2012 level of $211.9 million.  Total deposits amounted to $191.9 million at September 30, 2013, which represents a $4.7 million or 2.51% increase from the $187.2 million level as of December 31, 2012.  During the same nine-month period, total loans increased by 3.35% or $5.1 million to $157.0 million at September 30, 2013.  At September 30, 2013, the investment portfolio, including time deposits in other banks and restricted investments, was $26.8 million, a $3.7 million or 16.1% increase in comparison to the December 31, 2012 balance of $23.1 million. Federal funds sold decreased 18.2% from $13.7 million on December 31, 2012 to $11.2 million at September 30, 2013.  Cumulatively, earning assets grew $6.3 million for the first three quarters of 2013 or 3.3% and represent 89.87% of total assets.

Allowance for Loan Losses

The allowance for loan losses was $2.6 million as of September 30, 2013, or 1.63% of loans outstanding, compared to $2.3 million as of December 31, 2012 or 1.51% of outstanding loans.  Charged-off loans, net of recoveries, to the allowance for loan losses amounted to $40,000 as of September 30, 2013 or 0.03% of average outstanding loans for 2013.  For the three quarters ended September 30, 2012, net charge offs to the allowance of $1.3 million were taken representing 0.84% of average loans outstanding for the period.  Allocations to the reserve account of $300,000 were provisioned for the first three quarters of 2013 compared to provision allocations of $1.3 million for the same period of 2012.  The decline in the provision in 2013 when compared to the same period in 2012 reflects the improvement in the credit quality of our loan portfolio.

The Bank continues to focus on delinquent and nonperforming loans within the portfolio.  On September 30, 2013, the performing loans past due greater than 30 days as a percentage of total loans and nonperforming assets as a percentage of total assets stood at 0.69% and 1.13%, respectively.  These ratios, at December 31, 2012, stood at 0.71% and 1.81%, respectively. Management expects minimal further losses on remaining nonperforming assets.  As such, provision allocations have returned to more normal levels.

Quarterly Results

Net interest income increased $269,000 or 12.7% to $2.4 million for the third quarter of 2013 from $2.1 million for the comparable period in 2012.  The increase in net interest income was mainly due to the favorable repricing of our deposits and the increase in average loans outstanding for the third quarter of 2013 when compared to the third quarter of 2012. Though a large segment of the loan portfolio is index based, the Bank has prudently structured most of its loan relationships to include floors. This has promoted expansion in both the spread and margin as yields on earning assets remain stable while costs of funds continue declining during the abnormally low and lengthy rate cycle. The Bank recorded a provision for loan losses of $150,000 for the quarter ended September 30, 2013.  That is an improvement of $100.000, or 40% when compared to the same quarter in 2012. Noninterest income increased 7.8% or $30,000 in the third quarter of 2013 to $412,000 when compared to $382,000 for the same period in 2012.   Higher revenue by the mortgage originations department was recorded resulting in a $25,000 or 52.5% increase in the category for the third quarter of 2013 when compared to the same period of 2012.  Noninterest expense decreased by $171,000, or 7.71% to $2.0 million during the second quarter 2013 when compared to the level of $2.2 million reported for the same period in 2012. Driving the decline in noninterest expense was a $289,000 reduction in other real estate loan expense offset somewhat by an increase in salary and employee benefits of $75,000, or 6.8%, when comparing the third quarters of 2013 and 2012. 

Year-to-Date Results

For the first nine months of 2013, net interest income increased by $517,000 or 8.08% to $6.9 million from $6.4 million in the comparable period in 2012.  Average loans through the third quarter of 2013, when compared to the same period in 2012, grew to $156.6 million from $150.8 million, an increase of 3.32%. The average investment portfolio balance including interest bearing time deposits in banks, increased from a 2012 year-to-date average balance of $24.4 million to a $25.3 million year-to-date 2013 average balance, a decrease of 6.13%.  Average deposits for the first nine months of 2013 increased 4.15% or $7.6 million to $191.1 million versus the same prior year period's average of $183.4 million.  The Bank's prime based loan portfolio yields increased 5 basis points to 6.42% when comparing the first half of 2013 to that period in 2012.  Yields in the investment portfolio in comparing the same periods decreased 82 basis points to 2.15%.  Cumulatively, yields on earning assets declined 9 basis points from the 2012 year-to-date average of 5.53% to the current year's first half average of 5.44%. A prolonged period of lower deposit rates has facilitated further decreases in interest expenses associated with deposit and borrowing costs as demonstrated by the 22 basis point fall in the interest bearing liabilities rate when comparing the first nine months of 2013 and 2012.  As of September 30, 2013 the interest spread rose by 13 basis points thereby expanding the net interest margin by the aforementioned 12 basis points.

Noninterest income decreased 21.50% or $363,000 to $1.3 million for the first nine months of 2013 when compared to $1.7 million for the same period in 2012.  This decrease is primarily attributable to a tax-free gain realized in 2012 of $272,000 on a bank-owned life insurance death benefit on a deceased employee covered by the plan. Also contributing to the decline in noninterest income was a loss in on sales of securities available for sale of $12,000 recorded for 2013 versus a gain on sales of securities available for sale of $210,000 in 2012.  This represents a decline of $222,000, or 105%. Partially offsetting these declines in noninterest income was an increase in the mortgage originations department's revenue of $96,000 or 56% to $265,000 compare to the $169,000 recorded in 2012. Noninterest expense increased $92,000 or 1.54% to $6.1 million during the first three quarters of 2013 from $6.0 million for the same period in 2012.  Separately within this category, salaries and employee benefits rose 8.5% or $275,000 while occupancy and furniture & equipment expenses increased $93,000 or 8.53%. The primary increase in the total non-interest expense category is attributable to the staffing needs of our loan department in underwriting and customer support as well as the overwhelming regulations continuing to emerge from Dodd-Frank and the Consumer Financial Protection Bureau.

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.

 

BANK OF MCKENNEY AND SUBSIDIARY

Consolidated Balance Sheets Summary Data

September 30, 2013 (unaudited) and December 31, 2012














September 30,


December 31,

ASSETS





2013


2012









Cash and due from banks





$          7,281,380


$          6,931,416

Federal funds sold





11,214,000


13,712,000

Interest-bearing time deposits in banks





3,000,547


3,004,071

Securities available for sale, at fair market value





23,076,053


19,305,754

Restricted investments





690,775


744,075

Loans, net





154,457,373


149,628,531

Land, premises and equipment, net





9,366,432


9,266,945

Other real estate owned





1,704,887


2,350,288

Other assets





6,886,471


6,989,276

    Total Assets





$      217,677,918


$      211,932,356









LIABILITIES
















Deposits





$      191,863,956


$      187,172,274

Borrowed Funds





1,750,000


2,000,000

Other liabilities





1,843,036


1,560,891

    Total Liabilities





$      195,456,992


$      190,733,165









SHAREHOLDERS' EQUITY
















Total shareholders' equity





$        22,220,926


$        21,199,191

    Total Liabilities and Shareholders' Equity





$      217,677,918


$      211,932,356

























BANK OF MCKENNEY AND SUBSIDIARY

Consolidated Statements of Income Summary Data

(unaudited)










Three Months Ended


Nine Months Ended


September 30,


September 30,


2013


2012


2013


2012









Interest and dividend income

$          2,704,656


$          2,520,617


$          7,907,727


$          7,629,075

Interest expense

308,353


393,659


988,607


1,227,035

  Net interest income

$          2,396,303


$          2,126,958


$          6,919,120


$          6,402,040

  Provision for loan losses 

150,000


250,000


300,000


1,252,000

    Net interest income after provision for loan losses

$          2,246,303


$          1,876,958


$          6,619,120


$          5,150,040









Noninterest income

$             411,752


$             382,006


$          1,325,178


$          1,688,189

Noninterest expense

2,042,138


2,212,776


6,081,572


5,989,227

  Net noninterest expense

1,630,386


1,830,770


4,756,394


4,301,038

Net income before taxes

$             615,917


$               46,188


$          1,862,726


$             849,002

 Income tax expense (benefit) 

187,239


(26,260)


574,389


140,022

Net income

$             428,678


$               72,448


$          1,288,337


$             708,980









Basic & diluted earnings per share

$                   0.23


$                   0.04


$                   0.68


$                   0.37









Weighted average shares outstanding

1,894,002


1,894,002


1,894,002


1,893,898

 

SOURCE Bank of McKenney



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