Bank of McKenney Reports Second Quarter Earnings

MCKENNEY, Va., Sept. 23, 2015 /PRNewswire/ -- Bank of McKenney (OTCBB: BOMK) today announced earnings of $376,000 for the three-month period ending June 30, 2015, compared to net income of $539,000 for the same period in 2014.  The reduction of income was largely attributable to a non-recurring gain as a result of sales in the OREO portfolio in 2014 of $232,000. Basic and diluted earnings per share of $0.20 were recorded for the three months ended June 30, 2015.

Richard M. Liles, President and Chief Executive Officer, stated, "Our second quarter was challenging due to continued impact from a large borrower's bankruptcy in the first quarter of 2015. While we feel we have sufficiently accrued anticipated losses in this matter, there is always uncertainty in such proceedings and further provisions may be needed as the case moves forward. Increased competition for loans and deposits in our markets was another significant issue in the first six months of this year. We have declined to pursue certain loans and deposits due to the terms offered by some competitor banks. We will not enter into potentially unprofitable transactions purely to achieve growth. Continued pricing discipline for loans and deposits is more important to our long-term profitability than growth at this time."

Return on average equity on an annualized basis for the six months ended June 30, 2015 was 6.36% as compared to 7.85% for the first half of 2014.  Return on average assets during the same period of 2015 decreased to 0.70% from the prior year level of 0.81%.  For the rolling twelve month period ended June 30, 2015, return on average equity was 7.40% and return on average assets was .81%.

Tier 1 leverage capital was 11.12% and total regulatory capital was 14.79% as of June 30, 2015 compared to 10.84% and 14.42% respectively at December 31, 2104.

Balance Sheet

At the end of the second quarter, total assets were $217.1 million, representing a .5% increase over the December 31, 2014 level of $216.1 million.  Loans increased $5.4 million to 166.7 million compared to the balance at December 31, 2014. The investment portfolio decreased $5.4 million over the same period. Federal funds sold increased from $8.8 million on December 31, 2014 to $10.1 million on June 30, 2015.  Cumulatively, earning assets grew $1.6 million in the first six months of 2015, and represent 90.9% of total assets.  Other Real Estate Owned (OREO) amounted to $773,000 and $1.6 million at June 30, 2015 and December 31, 2014, respectively. Total deposits amounted to $189.6 million at June 30, 2015 compared to $189.2 million at December 31, 2014. Total shareholders' equity has increased $758 million year-to-date.

Allowance for Loan Losses

The Allowance for Loan and Lease Losses (ALLL) was $2.6 million as of June 30, 2015, or 1.56% of loans outstanding, compared to $2.3 million as of December 31, 2014 or 1.43% of outstanding loans.  There was no change in the Allowance due to charges or recoveries for the six-month period ended June 30, 2015. Provisions to the Allowance of $300,000 were recorded year-to-date for 2015 compared to a provision of $175,000 for the same period of 2014.

During the first quarter, a significant long-time customer in the real estate rental and development business declared Chapter 11 bankruptcy very unexpectedly. All of this customer's loans were modified at that time to interest only and their rates were reduced, resulting in a significant increase in the level of TDRs at June 30, 2015 compared to December 31, 2014. Exposure to this customer is approximately $1.4 million secured by multiple residential rental properties and undeveloped commercial lots. Collateral value was appraised and we took an impairment charge through the Provision for Loan Loss in the second quarter of $300,000.  The loans were not past due 30 days as of June 30, 2015, but became past due greater than 30 days during May and were placed on non-accrual status at that time.

On June 30, 2015, loans past due more than 30 days as a percentage of total loans were .68% and were 0.52% of total assets. These ratios as of December 31, 2014 were .80% and .60%, respectively. Delinquent loans as of June 30, 2015 totaled $1.1 million and at December 31, 2014 totaled $1.3 million. Four loans were past due more than 90 days totaling $531,000 as of June 30, 2015. Twenty three loans were on nonaccrual at June 30, 2015 totaling $2.8 million compared to six loans of $1.9 million at December 31, 2014.

Quarterly Results

Net interest income increased 2.41% or $55,000 to $2.4 million in the first quarter of 2015 from the comparable period in 2014. Increased loan volume and lower interest expense due to rate changes and fewer interest-bearing deposits provided for the increase. As previously discussed, there was a provision for loan loss in the quarter of $300,000 compared to $50,000 in the same period of 2014. Noninterest income was $252,000 less than the second quarter of 2014 due to a non-recurring gain on the sale of OREO in 2014. Noninterest expenses were $200,000 less due to cost containment efforts and reversal of some incentive accruals.

Year to Date Results

Net interest income increased $38,000 for the six months ended June 30, 2015 over the same period in 2014 to $4.6 million. This increase was primarily due to reduced deposit interest expense. Provisions for loan loss during the first half of the year totaled $300,000 compared to $175,000 in 2014. Noninterest income was $271,000 less in 2015 due to the non-recurring gain on OREO of $232,000 and income of $50,000 in 2014 from Bankers Insurance in 2014 to place that investment on equity method of accounting. Noninterest expense and income taxes are virtually unchanged one year over the other.

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.

SOURCE Bank of McKenney

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