On Strong Loan Demand, A Growing Margin And A Return To Pre-Recession Reserve Provision Needs, Bank of McKenney Reports Best Second Quarter And Year-to-Date Results In Its 107 Year History

Jul 08, 2013, 16:05 ET from Bank of McKenney

MCKENNEY, Va., July 8, 2013 /PRNewswire/ -- Bank of McKenney (OTCBB: BOMK) today announced record second quarter earnings of $489,000, an increase of 93.28% over 2012 second quarter earnings of $253,000.  The growth in net income is primarily the result of strong margins, a growing loan-to-deposit ratio and provisions made to loan loss reserves more in line with pre-recession norms.  Basic and diluted earnings per share of $0.26 were reported for the three months ended June 30, 2013, double the $0.13 per share reported in the prior year's results for the same period.  For the six-month period ended June 30, 2013, the Bank reported earnings of $860,000, a jump of 35.01% or $223,000 when compared to the $637,000 reported through the first six months of 2012.  For the first two quarters of 2013 and 2012, earnings per basic and diluted share of $0.45 and $0.34, respectively, were recorded.  Annualized returns on average assets and average equity for the first six months of 2013 were 0.80% and 8.00%, respectively, compared to 0.62% and 6.17%, respectively, for the same period in 2012.  Margins have continued to expand during the last two quarters as a result of the Bank's growth in its loan-to-deposit ratio to 83%, nearing its targeted goal of 85% to 90%.  As a result, the net interest margin stood at 4.75% for the first half of 2013.  This margin level reflects a 12 basis point gain in comparison with the same period of 2012.

At the end of the second quarter, total assets were $215.7 million, representing a $3.8 million or 1.79% increase over the December 31, 2012 level of $211.9 million.  Total deposits amounted to $190.2 million as of June 30, 2013, which represents a $3.0 million or 1.60% increase from the $187.2 million level as of December 31, 2012.  On an annualized basis, deposits grew during the first two quarters at a rate of 3.21%.  During the same period, total loans expanded by 5.20% or $7.9 million to the June 30, 2013 balance of $159.8 million.  Loans, on an annualized basis, grew at a rate of 10.40%.  At June 30, 2013, the investment portfolio, including time deposits in other banks, was $26.9 million, a $3.9 million or 16.96% increase in comparison to the December 31, 2012 $23.0 million level.  Overnight federal funds sold decreased 50.36% from $13.7 million on December 31, 2012 to $6.8 million on June 30, 2013.  Cumulatively, earning assets grew $4.9 million for the first half of 2013 or 5.20% on an annualized basis and represent 89.71% of total assets.  The Bank continues to focus on delinquent and nonperforming loans within the portfolio.  On June 30, 2013, the delinquency ratio as a percentage of total loans and nonperforming ratios as a percentage of total assets stood at 0.71% and 1.79%, respectively.  These ratios, at December 31, 2012, stood at 0.71% and 1.81%, respectively.  Delinquency ratios remained below 1% and substantial further improvement is expected in the third quarter in the nonperforming factor as over $1.2 million in sales contracts on both nonperforming loans and other real estate owned are slated to close.  Management expects minimal further losses on remaining nonperforming assets.  As such, provision allocations have returned to more normal levels.

The allowance for loan losses was $2,410,000 as of June 30, 2013, or 1.51% of loans outstanding, compared to $2,300,000 as of December 31, 2012 or also 1.51% of outstanding loans.  Net charges to the reserve account for loan losses amounted to $40,000 as of June 30, 2013 or 0.03% of average outstanding loans for 2013.  For the first half of 2012, net charges to the reserve of $1,376,000 were taken representing 0.91% of average loans outstanding for the period.  Allocations to the reserve account of $150,000 were provisioned for the first two quarters of 2013 compared to provision allocations of $1,426,000 for the same period of 2012. 

Net interest income increased $203,000 or 9.42% to $2,359,000 in the second quarter of 2013 from $2,156,000 in the comparable period in 2012.  Noninterest income, exclusive of securities transactions, increased 1.60% or $7,000 in the second quarter of 2013 to $444,000 when compared to $437,000 for the same period in 2012.  Service charges posted slightly lower results with a $13,000 or 5.18% decrease when comparing the second quarter of 2013 to the second quarter of 2012.  Higher revenue by the mortgage originations department was recorded resulting in a $31,000 or 43.06% increase in the category for the second quarter of 2013 when compared to the same period of 2012.  Other noninterest products and services, including those of the insurance and investment departments, were reported to be $103,000 or lower by $11,000 in comparison to the $114,000 level recorded in the second quarter of 2012.  Noninterest expense increased by $100,000 or 5.17% to $2,036,000 during the second quarter 2013 when compared to the level of $1,936,000 reported for the same period in 2012.  Salaries and benefits for the second quarter of 2013 grew 9.60% or $102,000 while occupancy and furniture & equipment expenses increased $8,000 or 2.96%.  Other operating expenses for the same period decreased by $11,000 or 1.82% to a level of $592,000.

For the first six months of 2013, net interest income increased by $248,000 or 5.80% to $4,523,000 from $4,275,000 in the comparable period in 2012.  Average loans through the second quarter of 2013, when compared to the same period in 2012, grew to $155.5 million from $150.5 million, an increase of 3.32%.  The average investment portfolio including interest bearing time deposits in banks decreased from a 2012 first half average balance of $26.1 million to a $24.5 million average through the second quarter of 2013, a decrease of 6.13%.  Average deposit growth through June 30, 2012 has increased 4.53% or $8.3 million to $191.5 million over the same prior year period's average of $183.2 million.  The Bank's prime based loan portfolio yields increased 2 basis points to 6.42% when comparing the first half of 2013 to that period in 2012.  The investment portfolio in comparing the same periods decreased 47 basis points to 2.39%.  Cumulatively, yields on earning assets declined 8 basis points from the 2012 first-half average of 5.53% to the current year's first half average of 5.45%.  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 cost of funds rate.  As of June 30, 2013 the interest spread rose by 14 basis points thereby expanding the net interest margin by the aforementioned 12 basis points.

Noninterest income, exclusive of securities transactions, decreased 19.34% or $212,000 to $884,000 for the first six months of 2013 when compared to $1,096,000 for the same period in 2012.  Service charges decreased by $29,000 or 5.88% when comparing the first half of 2013 to that of 2012.  In comparing these same two periods, the mortgage originations department's revenue climbed $70,000 or 57.85% to $191,000.  Other noninterest income decreased by $253,000 from the $482,000 level recorded in the first half 2012 to a 2013 level of $229,000.  This decrease is primarily due 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.  Noninterest expense increased $263,000 or 6.97% to $4,039,000 during the first two quarters of 2013 from $3,776,000 for the same period in 2012.  Separately within this category, salaries and benefits rose 9.39% or $200,000 while occupancy and furniture & equipment expenses increased $43,000 or 8.37%.  Other operating expenses through June 30, 2013 grew $18,000 or 1.59% to a level of $1,149,000.  The primary increase in the total non-interest expense category is attributable to the staffing of the new Rivers Bend Branch in its permanent facility as well as operational support staff necessitated to comply with the overwhelming regulations continuing to emerge from Dodd-Frank.

Richard M. Liles, President and Chief Executive Officer, stated, "The second quarter of 2013 is the best the Bank has ever had in its long history.  It is so refreshing to again experience results more like those before the 2008-2009 financial crisis began.  Economies on local and national scales are improving; however, the process is gradual and may be affected by recent hints by the Federal Reserve that it may begin to slow its program of asset purchases commonly referred to as QE3.  This program, as well as others implemented by the Board of Governors over the past five years, has held interest rates artificially low to help stimulate economic growth.  Recent comments by Fed Governors have rapidly pushed interest rates to borrow money higher by nearly 1%.  While we applaud an eventual end to rate manipulation, we hope the Board of Governors will exercise caution in both their comments and the pace of their actions so as to not drive the economy back into a recession.  Overall, I remain cautiously optimistic."

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.



Consolidated Balance Sheets Summary Data

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

June 30,

December 31,




Cash and due from banks

$          6,707,000

$          6,931,416

Federal funds sold



Interest-bearing time deposits in banks



Securities available for sale, at fair market value



Restricted investments



Loans, net



Land, premises and equipment, net



Other real estate owned



Other assets



    Total Assets

$      215,655,249

$      211,932,356



$      190,240,491

$      187,172,274

Borrowed Funds



Other liabilities



    Total Liabilities

$      193,919,340

$      190,733,165


Total shareholders' equity

$        21,735,909

$        21,199,191

    Total Liabilities and Shareholders' Equity

$      215,655,249

$      211,932,356


Consolidated Statements of Income Summary Data


Three Months Ended

Six Months Ended

June 30,

June 30,





Interest and dividend income

$     2,685,343

$     2,560,556

$     5,203,071

$       5,108,458

Interest expense





  Net interest income

$     2,359,109

$     2,155,789

$     4,522,817

$       4,275,082

  Provision for loan losses 





    Net interest income after provision for loan losses

$     2,284,109

$     1,643,789

$     4,372,817

$       3,273,082

Noninterest income

$        460,110

$        589,685

$        913,426

$       1,306,183

Noninterest expense





  Net noninterest expense





Net income before taxes

$        708,328

$        297,009

$     1,246,809

$          802,814

 Income taxes 





Net income

$        489,322

$        252,597

$        859,659

$          636,532

Basic & diluted earnings per share

$              0.26

$              0.13

$              0.45

$                0.34

Weighted average shares outstanding






SOURCE Bank of McKenney