Bank of McKenney Reports Successful Year

MCKENNEY, Va., March 31, 2016 /PRNewswire/ -- Bank of McKenney (the "Bank") (OTCBB: BOMK) today announced net income of $1.7 million, or $0.90 earnings per common share, for the year ended December 31, 2015 compared to net income of $1.9 million, or $0.99 earnings per common share, for the same period ended December 31, 2014.  This decrease amounted to $160,000 when comparing year over year, mainly the result of an increase of $90,000 in Provision for Loan Losses and reduced gains on the sale of Other Real Estate Owned. Return on average equity was 7.03% for the year ended December 31, 2015 compared to 8.13% for the same period in 2014 and return on average assets was 0.79% compared to 0.86% in 2014. In the fourth quarter of 2015, the Bank recognized net income of $517,000 compared to $540,000 in the same period in 2014. 

Richard M. Liles, President and CEO stated "2015 proved to be a challenging but profitable year for the Bank. A number of initiatives to improve our technology were completed during the year and we are well positioned to capitalize on this effort in the future. We were disciplined in our approach to lending and maintained excellent margin even though total loans declined.  Improving our capital position in 2015 was achieved as total equity increased 5% and regulatory Total Capital increased almost 9%. We have initiatives in place for 2016 for modest growth and improved efficiency."

2015 Results

Net interest income for the year ended December 31, 2015 was $9.1 million, equal to our results in 2014.  Interest income and interest expense both declined by approximately $140,000. These reductions were the result of lower interest rates on new and renewed loans as well as lower costs of funding due mainly to higher balances in noninterest bearing accounts and a reduction in time deposits. Provision for loan losses increased during the year to $300,000, compared to $210,000 in 2014. This increase was the result of one borrower declaring bankruptcy during the year and the resulting impairment charges on those loans. Noninterest income was $100,000 lower in 2015 primarily due to lower gains on the sale of Other Real Estate Owned of $160,000, partially offset by increases in fee income on deposit accounts and secondary market mortgage originations. Noninterest expense and income tax expense were unchanged from 2014.

Net interest margins declined slightly to 4.60% in 2015 from 4.73% in 2014. Yield to average earning assets was 5.15% for 2015 compared to 5.26% in 2014.

Asset Quality and Allowance for Loan Losses

Loan quality was an issue that drew much of management's attention in 2015. As previously disclosed, a significant borrower unexpectedly declared bankruptcy in the first quarter. The borrower's loans created a $1.25 million increase in Troubled Debt Restructurings, Nonaccruals and Loans 90 days or more past due at December 31, 2015. All of the loans are secured by residential rental properties or undeveloped commercial lots. As of December 31, 2015 we had impairment reserves relating to these loans of $460,000 resulting in a current exposure of approximately $800,000. In addition to these loans, the Bank modified several loans during the year working with customers who are experiencing difficulties. We believe these loans are well collateralized and the borrowers will be able to ultimately repay the loans. Troubled Debt Restructurings increased another $2.0 million due to these loans, which were all performing to the modified terms as of December 31, 2015. Other Real Estate Owned decreased during the year by $750,000 to a year-end balance of $835,000.

The Allowance for Loan Losses was $2.6 million as of December 31, 2015, or 1.65% of loans outstanding, compared to $2.55 million as of December 31, 2014 or 1.43% of outstanding loans.  Additions to the Allowance of $300,000 were provided for in 2015 compared to provision charges of $210,000 for the same period of 2014.

Balance Sheet

Total assets grew $2.2 million (1%) totaling $218 million at year end compared to $216 million at December 31, 2014. Net Loans declined $3.4 million due to several large loans prepaying shortly before year end. Significant personnel resources are being reassigned to address this in 2016 with the intent of returning growth to the loan portfolio. We are very competitive in our rate structures, but will not sacrifice prudent underwriting standards to achieve loan growth. Investment securities decreased $1.9 million due to maturities and calls in 2015 but investments in Certificates of Deposits with other banks and a demand deposit money market account increased from zero at the end of 2014 to $7.5 million in 2015. Other assets grew $1.8 million primarily due to a $1.0 million purchase of additional Bank Owned Life Insurance and increases in cash value in our BOLI portfolio.

Total deposits grew $1.5 million in 2015. Noninterest bearing demand deposits grew $7.0 million (18%) to $45.8 million, interest bearing demand deposits grew $1.9 million to $45.3 million, savings deposits grew $2.4 million while time deposits declined $9.7 million.  Borrowed funds were reduced $300,000 during the year in accordance with the borrowing agreement.

Total equity at the end of 2015 was $24.8 million, an increase of $1.2 million or 5%. This increase was accomplished while maintaining the dividend payment of $.28 per share which amounted to $540,000 returned to our investors. One of the goals of 2015 was to increase capital ratios required for future growth.

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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