Bank of McKenney Reports Another Record Year

MCKENNEY, Va., Feb. 11, 2015 /PRNewswire/ -- Bank of McKenney (the "Bank") (OTCBB: BOMK) today announced record net income of $1.9 million, or $0.99 earnings per share, for the year ended December 31, 2014 compared to net income of $1.7 million, or $0.90 earnings per share, for the same period ended December 31, 2013.  This increase represents an improvement of $180,000, or 10.62% when comparing year over year. Increased profits were mainly driven by a reduction in Provision for Loan Losses and modest gains on the sale of Other Real Estate Owned. Return on average equity increased to 7.92% for the year ended December 31, 2014 compared to 7.76% for the same period in 2013 and return on average assets was 0.86% compared to 0.78% in 2013. For the fourth quarter of 2014, the Bank recognized net income of $540,000 compared to $410,000 in the same period in 2013. 

Richard M. Liles, President and CEO commented, "We are pleased with the 2014 results. Many banks saw significant reduction of net interest income due to declining rates on loans and investment securities in 2014. Our interest margins were slightly diminished as we were disciplined in our approach to pricing and loan growth. We were able to achieve record results while investing in better technology and improving our capital position. We plan to continue these efforts as we position the Bank for controlled growth in the future."

2014 Results

Net interest income for the year ended December 31, 2014 was $9.1 million, a 1.66% decrease when compared to the December 31, 2013 level of $9.2 million.  Average loan balances increased $2.9 million to $161.0 million for the current year, representing a 1.84% improvement over the average loan portfolio of $158.1 million for the same period in 2013.  Interest income from loans was $9.5 million in 2014, down 4.73% from $10.0 million in 2013.  The average yield on loans decreased 36 basis points from 6.29% in 2013 to 5.93% in 2014.  Our yield on average earning assets was 5.26% in 2014 down from 5.58% in 2013, a decrease of 32 basis points.  Average demand deposits (Interest and non-interest bearing) increased 6.85% during 2014 to $81.4 million when compared to $76.2 million for the same period in 2013.  Average interest-bearing deposits were $152.9 million for 2014, representing a 73 basis point decrease, or $1.1 million less than the average 2013 level of $154.0 million.  Cumulatively, average interest-bearing funding sources (deposit and borrowed funds) were reduced to $154.4 million in 2014 which was $1.5 million or 0.93% less than the 2013 level of $155.9 million.  Interest expense for all interest-bearing liabilities totaled $1.0 million in 2014 which was 20.13% or $258,000 less than the 2013 level of $1.3 million.  The Bank was able to favorably reprice its cost of funds resulting in an average yield on interest-bearing liabilities of 0.66% during 2014 or 16 basis points lower than the 2013 level of 0.82%.  The interest spread in 2014 contracted by 16 basis points to 4.60%.  Likewise, net interest margin in 2014 was 4.73%, down 17 basis points from the 4.90% margin recorded for the same period in 2013.  Net interest margin decreased primarily due to lower yields on new loans due to competitive pressures in our markets.  The Bank had a slight uptick in non-interest income from $1.9 million recorded for the year ended December 31, 2013 to $2.0 million recorded in the same period in 2014.  The increase was primarily due to a gain realized on the disposal of property held as Other Real Estate Owned.  Noninterest expenses totaled $8.2 million for the 2014 calendar year, versus $8.0 million recorded for the year 2013, and increase of 2.03%. This increase was due to increased salary and employee benefit costs. Income tax expense was $760,000 in 2014 compared to $752,000 in 2013.

Balance Sheet

Total assets grew to $216.1 million at December 31, 2014, an increase of 1.30%, or $2.8 million over the December 31, 2013 level of $213.4 million.  Total loans at year-end 2014, grew $2.9 million, or 1.84%, to $158.0 million compared to $158.0 million as of December 31, 2013.  This increase was achieved in spite of receiving unexpected early pay-offs on $3.0 in purchased loan participations during 2014. During 2014 the investment portfolio grew to $25.2 million, which represents a $1.3 million increase, or 5.46% when compared to the $23.9 million prior year-end balance.  Cumulatively, interest-earning assets grew $4.7 million or 2.48% during 2014 and represent 90.52% of total assets.  Total deposits grew $1.2 million, 63 basis points, at December 31, 2014 totaling $189.2 million, when compared to 2013's year-end total of $188.0 million. Regulatory capital ratios improved during 2014 with Tier 1 leverage increasing from 10.27% at December 31, 2013 to 10.84%, an improvement of 5.55%. Total risk-based capital improved 3.15% to 14.42%.

Asset Quality and Allowance for Loan Losses

Nonperforming assets increased $1.2 million, or 56.81% to $3.4 million during 2014.  Total nonperforming assets represented 1.59% and 1.03% of total assets at December 31, 2014 and 2013, respectively. Most of the increase is in nonaccrual loans which totaled $1.9 million at year end 2014. This increase is primarily two loans that are expected to be resolved in the first half of 2015 and management anticipates no additional loss on these loans. Total other real estate owned was $1.6 million and $1.5 million at December 31, 2014 and 2013, respectively.  Other Real Estate Owned includes a loan of $650,000 for the sale of property that does not qualify for sale accounting treatment under GAAP. This loan is expected to be reclassified out of Other Real Estate Owned as soon as it meets the required down payment threshold.

The allowance for loan losses was $2.3 million as of December 31, 2014, or 1.43% of loans outstanding, compared to $2.55 million as of December 31, 2013 or 1.61% of outstanding loans.  Additions to the Allowance of $211,000 were provided for 2014 compared to provision charges of $600,000 for the same period of 2013.  The Bank was aggressive in managing problem loans in 2014 and net charge offs amounted to $459,000 for the year.

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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