Bank Of McKenney Reports Consistent Results For The Third Quarter And Year-To-Date

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Dec 31, 2014, 03:30 ET

MCKENNEY, Va., Dec. 31, 2014 /PRNewswire/ -- Bank of McKenney (OTCBB: BOMK.OB) today announced third quarter earnings of $456,000, an increase of 6.3% over 2013 third quarter earnings of $429,000. Basic and diluted earnings per share of $0.24 were reported for the three months ended September 30, 2014. For the nine-month period ended September 30, 2014, the Bank reported earnings of $1,336,000, an increase of 3.7% when compared to $1,289,000 reported through the first nine months of 2013. For the first nine months of 2014 and 2013, basic earnings per share of $0.71 and $0.68 and diluted earnings per share of $.69 and $.67, respectively, were achieved. Annualized returns on average assets and average equity for the first nine months of 2014 were 0.81% and 8.0%, respectively, compared to 0.80% and 7.9%, respectively, for the same period in 2013. Net interest margins have declined slightly in 2014, at 4.73% year-to-date in 2014 compared to 4.90% for the same period in 2013.

Balance Sheet

At the end of the third quarter, total assets were $217.6 million, representing a 2.0% increase over the December 31, 2013 level of $213.4 million. Loans increased $2.3 million to $160.4 million compared to the balance at December 31, 2013. The investment portfolio increased $5.2 million over the same period. Federal funds sold increased from $5.2 million on December 31, 2013 to $6.3 million on September 30, 2014. Cumulatively, earning assets grew $5.5 million in the first nine months of 2014, or 2.9%, and represent 90.3% of total assets. Total deposits amounted to $190.4 million at September 30, 2014 compared to $188.0 million at December 31, 2013. Total shareholders' equity has increased $1.5 million year-to-date. As of September 30, 2014 the Tier 1 Leverage Ratio was 10.81% and Total Risk-based Capital Ratio was 14.37% compared to 10.36% and 14.05% for the same date in 2013.

Allowance for Loan and Lease Losses and Nonperforming Assets

Management continues its focus on delinquent loans and other nonperforming assets within the portfolio. On September 30, 2014, the delinquency (loans past due greater than 30 days) ratio as a percentage of total loans was .90% and 0.66% of total assets. These ratios as of December 31, 2013 were 1.1% and .81%, respectively. Delinquent loans as of September 30, 2014 totaled $1.4 million and at December 31, 2013 totaled $1.7 million. Two loans were past due more than 90 days totaling $631,000 as of September 30, 2014. Six loans on nonaccrual at September 30, 2014 totaled $1.7 million compared to four loans of $662,000 at December 31, 2013. Other Real Estate Owned (OREO) amounted to $1.8 million and $1.5 million at September 30, 2014 and December 31, 2013, respectively.

The Allowance for Loan and Lease Losses (ALLL) was $2.5 million as of September 30, 2014, or 1.54% of loans outstanding, compared to $2.6 million as of December 31, 2013 or 1.61% of outstanding loans. Net charges to the Allowance were approximately $250,000 during the nine-month period ended September 30, 2014. Provisions to the Allowance of $175,000 were recorded year-to-date for 2014 compared to provision of $300,000 for the same period of 2013.

Quarterly Results

Net income for the quarter increased $27,000 over the same quarter last year to $456,000. Net interest income decreased $125,000 or -5.21% to $2.3 million in the third quarter of 2014 from $2.4 million in the comparable period in 2013. Net interest income continues to decline as higher yielding loans and securities are maturing and rates on their replacements are generally lower. Interest costs are not expected to move lower in the foreseeable future. There was no provision for loan losses during the third quarter of 2014 compared to a provision of $150,000 for the quarter in 2013. Noninterest income decreased $22,000 in the third quarter of 2014 to $429,000 when compared to $451,000 for the same period in 2013. Income from all noninterest income sources remained relatively stable during the quarter. Noninterest expense increased by $47,000 during the third quarter of 2014 compared to the same period in 2013. Income tax expense for the quarter was $30,000 lower than the same period last year due to an income tax refund received during the period.

Year-to-Date Results

Net income for the nine-months ended September 30, 2014 was $47,000 higher than the same period last year totaling $1.3 million. For the first nine months of 2014, net interest income decreased $104,000 over the same period in 2013 to $6.8 million. Yields on earning assets declined 33 basis points, or -5.9% from the 2013 nine-month average of 5.60% to the current year's nine-month average of 5.27%. Rates paid on deposits declined and the cost of funds rate was reduced to 67 basis points from 85 during the first nine months over the same period last year. For the nine months ended September 30, 2014 the interest spread declined -15 basis points and the net interest margin declined -17 basis points over the prior year.

Noninterest income increased from $1.3 million for the first nine months of 2013 to $1.6 million in the same period of 2014. Gains from sales of OREO were approximately $210,000 higher than the previous year and income from the bank's investment in Bankers Insurance increased $80,000 while income from the generation of secondary market mortgages fell by $43,000. Noninterest expense increased $270,000 or 4.5% to $6.4 million during the first three quarters of 2014 from $6.0 million for the same period in 2013. Separately within this category, salaries and benefits rose 6.5% or $230,000 while other operating expenses grew $40,000 or 2.3%. As previously stated the Provision for Loan Losses declined from $300,000 year-to-date in 2013 to $175,000 in 2014.

Richard M. Liles, President and Chief Executive Officer, stated, "The third quarter of 2014 was another good quarter. We continue to enjoy reasonable interest rate margins without pursuing riskier loans or investments. We have maintained a disciplined approach to lending on both terms and rates. Our local economy is fairly strong and the national economy seems to be experiencing the strongest growth in several years. State and local government spending remain areas of concern as well as uncertain federal funding for the military. We are optimistic these issues can be resolved and we will experience continued progress in our economic recovery."

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, 2014 (unaudited) and December 31, 2013

	September 30,	December 31,
ASSETS	2014	2013

Cash and due from banks	$ 5,732,686	$ 7,302,627
Federal funds sold	6,309,000	5,197,000
Interest-bearing time deposits in banks	-	3,003,195
Securities available for sale, at fair market value	29,135,949	23,913,402
Restricted investments	628,575	690,775
Loans, net	157,886,262	155,547,722
Land, premises and equipment, net	9,102,964	9,208,503
Other real estate owned, net	1,777,455	1,531,858
Other assets	7,049,153	6,971,985
Total Assets	$ 217,622,044	$ 213,367,067

LIABILITIES

Deposits	$ 190,413,190	$ 187,969,328
Borrowed Funds	1,416,666	1,666,666
Other liabilities	2,153,964	1,600,773
Total Liabilities	$ 193,983,820	$ 191,236,767

SHAREHOLDERS' EQUITY

Total shareholders' equity	$ 23,638,224	$ 22,130,300
Total Liabilities and Shareholders' Equity	$ 217,622,044	$ 213,367,067

BANK OF MCKENNEY AND SUBSIDIARY
Consolidated Statements of Income - Summary Data
(unaudited)

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013

Interest and dividend income	$ 2,520,839	$ 2,704,656	$ 7,597,871	$ 7,907,727
Interest expense	249,470	308,353	782,445	988,608
Net interest income	2,271,369	2,396,303	6,815,426	6,919,119
Provision for loan losses	-	150,000	175,000	300,000
Net interest income after provision for loan losses	2,271,369	2,246,303	6,640,426	6,619,119

Noninterest income	429,472	451,147	1,560,722	1,337,416
Noninterest expense	2,087,834	2,040,780	6,352,483	6,081,572
Net noninterest expense	1,658,362	1,589,633	4,791,761	4,744,156
Net securities (gains) and losses	-	(40,753)	-	12,238
Net income before taxes	613,007	615,917	1,848,665	1,862,725
Income taxes	157,295	187,239	512,897	574,389
Net income	$ 455,712	$ 428,678	$ 1,335,768	$ 1,288,336

Basic earnings per share	$ 0.24	$ 0.23	$ 0.71	$ 0.68
Diluted earnings per share	$ 0.24	$ 0.23	$ 0.69	$ 0.67

Basic weighted average shares outstanding	1,894,052	1,894,002	1,894,028	1,894,002
Diluted weighted average shares outstanding	1,926,606	1,926,656	1,926,582	1,926,656