Bank of McKenney Reports Double Digit Core Loan Growth and Records the Highest Profits In Its History

MCKENNEY, Va., Jan. 25, 2011 /PRNewswire/ -- Bank of McKenney (OTC Bulletin Board: BOMK) today announced banner fourth quarter 2010 earnings of $392,000.  This is a $152,000 increase over 2009 fourth quarter earnings of $240,000.  Fourth quarter earnings per basic and diluted share for 2010 of $0.20 were reported as compared to $0.12 recorded during the 2009 fourth quarter.  For the year ended December 31, 2010, net income amounted to $1,461,000 compared to net income of $432,000 for the same period in the prior year.  Basic and diluted earnings per share were $0.77 for the year ended December 31, 2010 compared to the prior year earnings per share of $0.22 per common share.  Weighted average shares outstanding for 2010 equaled 1,893,546 while weighted average shares outstanding during 2009 equaled 1,924,690.  Annual net earnings improved 238.19%, and this is primarily attributable to the improvement in major sectors of the credit markets.  In 2009, deteriorating markets prompted the write off of certain impaired credits deemed uncollectable as well as a significant buildup of loss reserves for potential further borrower defaults.  During 2010, the Bank continued to address troubled debts aggressively as well as add fortification to loss reserves; however, the pace of problematic loans decreased significantly throughout the year.  Return on average equity for the period ended December 31, 2010 was 7.52% compared to 2.37% in 2009.  Return on average assets for the period ended December 31, 2010 was 0.79% compared to 0.25% in 2009.

Total assets amounted to $192.1 million on December 31, 2010, an increase of 4.46% or $8.2 million over the December 31, 2009 level of $183.9 million.  Total loans, as of December 31, 2010, grew to $135.0 million compared to $122.7 million as of December 31, 2009.  The loan portfolio was up $12.3 million or 10.02% over the December 31, 2009 level.  At year-end 2010, the investment portfolio stood at $27.2 million, which represents a 6.21% decrease when compared to the $29.0 million prior year-end balance.  On December 31, 2010, interest-bearing time deposits in other banks stood at $2.1 million representing a 5.00% increase over the $2.0 million interest-bearing time deposit investments as of December 31, 2009.  Overnight federal funds sold declined $1.8 million or 17.31% from $10.4 million on December 31, 2009 to $8.6 million on December 31, 2010.  Cumulatively, these earning assets grew $8.8 million or 5.36% during 2010 and represent 90.01% of total assets. Total deposits amounted to $168.0 million as of December 31, 2010, which represents a $7.6 million or 4.74% increase from the $160.4 million level as of December 31, 2009.  Total noninterest-bearing demand deposits were $27.2 million as of December 31, 2010, a decrease of $1.9 million or 6.53% from the December 31, 2009 $29.1 million level.  During this same period, interest-bearing deposits climbed $9.6 million or 7.32% from $131.2 million to $140.8 million.  Total borrowings from the Federal Home Loan Bank of Atlanta (the "FHLB") decreased $0.3 million from $3.0 million on December 31, 2009 to $2.7 million as of December 31, 2010.  There was no additional borrowing through the FHLB during 2010.

The Bank continues to focus on delinquencies and nonperforming loans within the portfolio.  In 2009, these levels had grown to historically high levels due to the depressed economic conditions; however, delinquency and nonperforming ratios have dramatically improved throughout 2010 as demonstrated by year-end ratios of 0.47% and 2.01%, respectively.  These ratios, at December 31, 2009, stood at 1.25% and 3.01%, respectively.   Management has been very proactive in addressing impairments in the portfolio.  Further, management feels comfortable that further losses will continue to be minimized by collateral positions as well as the Bank's ability and willingness to work with the borrowers as the economy improves.  Nevertheless, there may be further credits that need to be written down or off, and management has elected to continue building loan reserves at a more tempered pace.  After these additional allocations to reserves, the allowance for loan losses as a percentage of loans outstanding had declined 7 basis points from the lofty December 31, 2009 level.  

The allowance for loan losses was $2,050,000 as of December 31, 2010, or 1.52% of loans outstanding, compared to $1,950,000 as of December 31, 2009 or 1.59% of outstanding loans.  Net charges to the reserve account for loan losses amounted to $601,000 as of December 31, 2010 or 0.47% of average outstanding loans for 2010.  For the 2009 period, net charges to the reserve of $1,049,000 were taken representing 0.89% of average loans outstanding for the period.  Allocations to the reserve account of $701,000 were provisioned for 2010 compared to provision allocations of $1,864,000 for the same period of 2009.  

The net interest income for the year ended December 31, 2010 was $7.2 million, a 5.88% increase when compared to the December 31, 2009 level of $6.8 million.  The average loan portfolio increased $10.7 million to $128.3 million for the current fiscal year, representing a 9.10% hike over the average loan portfolio assets of $117.6 million for the same period in 2009.  The related interest income from loans was $8.6 million in 2010, up 6.17% from the related interest income of $8.1 million in 2009.  The average yield on loans decreased from 6.91% in 2009 to 6.74% in 2010.  Average investments dipped $7.8 million to $23.0 million for the current fiscal year, representing a 25.32% decrease below the average investment portfolio of $30.8 million in 2009.  The investment securities and other earning assets (such as federal funds sold) contributed $0.9 million to the interest income level of $9.6 million in 2010.  The yield on earning assets was 5.82% in 2010 and 6.44% in 2009.  Average demand deposits increased during 2010 to $26.7 million as compared to $25.9 million for the same period in 2009.  Average interest-bearing deposits were $135.4 million through the year ended December 31, 2010, and represented an increase of $10.3 million or 8.23% over the average 2009 level of $125.1 million.  Finally, average borrowed funds decreased $0.4 million from the December 31, 2009 level of $3.2 million to the December 31, 2010 level of $2.8 million.  Cumulatively, average interest bearing funding sources (deposit and purchased funds) grew to $135.4 million in 2010 which was $10.0 million or 7.80% greater than the 2009 level of $128.2 million.  Interest expense for all interest bearing liabilities totaled $2.4 million in 2010 which was 20.00% or $0.6 million less than the 2009 level of $3.0 million.  Cost of interest bearing liabilities was 1.70% during 2010 or 64 basis points lower than the 2009 level of 2.34%, the decrease being attributable to the effects of a prolonged period of historically low interest rates.  The interest spread expanded for the twelve months of 2010 by 2 basis points to 4.12%.  Despite the slight expansion in the interest spread,  the net interest margin decreased for the twelve months of 2010 to 4.39% from 4.49% for the same period in 2009.  The decrease in the net interest margin is due to the volume growth in earning assets for 2010.  Though a large segment of the loan portfolio is prime based, the Bank has prudently structured most of its loan relationships to include floors.  This has protected the spread and margin from collapsing during the abnormally low and lengthy rate cycle.  

For the year ended December 31, 2010, noninterest income, exclusive of securities transactions, declined $38,000 to $1,741,000, representing a 2.14% decrease from the 2009 level of $1,779,000.  Service charges on deposits grew 5.21% during the year and ended with a revenue increase of $46,000 to $929,000.  Income generated by the Bank's fixed rate mortgage department declined $47,000 or 9.29% from $506,000 in 2009 to $459,000 in 2010.  Income generated on bank-owned life insurance dipped $3,000 to $125,000 during 2010 while other income decreased $34,000 from $262,000 on December 31, 2009 to $228,000 on December 31, 2010.  This 12.98% decrease in other income stems primarily from lower revenues experienced by the investment subsidiary as a result of the conversion to a new broker/dealer during 2010.  Losses recognized on sales of other real estate owned during 2010 also negatively impacted other income when comparing to 2009.  Noninterest expense in the 2010 fiscal year amounted to $6,668,000 compared to the 2009 level of $6,622,000.  The increase is directly related to normal growth of the institution.  The largest component of noninterest expense is salaries and benefits.  Salaries and benefits expense for the year ended December 31, 2010 grew $167,000 or 4.54% to $3,846,000.  Personnel expenses increased with the addition of a commercial loan officer and nominal annual increases in benefits costs.  Occupancy and furniture and equipment costs grew $51,000 over the 2009 level to $921,000.  Other overhead costs decreased $172,000 or 8.30% during 2010 to $1,901,000, down from the 2009 level of  $2,073,000.  Other overhead expense declined as a result of the FDIC special assessment as well as legal and professional fees incurred to return to a private company status both of which inflated other overhead expense during 2009.

Richard M. Liles, President and Chief Executive Officer, stated, "I am extremely pleased to report a year during which Bank of McKenney realized the greatest earnings in its long history.  This is especially gratifying after 2009 when the prolonged collapse in the real estate market reached our market area creating historically high levels in non-performing assets and charged off credits that caused significantly lower earnings.  We attribute our success in 2010 to the aggressive manner in which we have identified and managed problem debts in the loan portfolio.  We made large allocations to our reserves in both 2009 and 2010 and have proactively written down or off assets deemed uncollectible.  Simultaneously, our lenders have successfully grown the loan portfolio as demand is slowly beginning to return thereby creating sound business opportunities.  It is because of this that we are happy to inform you of our newest branch expansion into the Rivers Bend section of Chesterfield County.  We'll be opening a temporary office in February of 2011 while the construction of the permanent site occurs.  Bank of McKenney continues as a success story, and I thank our directors, management team, employees, investors and patrons for their loyalty through both good times and difficult ones."

Bank of McKenney is a full-service community bank headquartered in McKenney, Virginia with six branches serving Southeastern Virginia and assets totaling $192.1 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.

SOURCE Bank of McKenney