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MCKENNEY, Va., July 16, 2012 /PRNewswire/ -- Bank of McKenney (OTCBB: BOMK) today announced second quarter earnings of $252,000, a decrease of 18.45% over 2011 second quarter earnings of $309,000.  The decline in net income is primarily the result of additional provisions made to loan loss reserves.  Basic and diluted earnings per share of $0.13 were reported for the three months ended June 30, 2012, a decrease of $0.03 per share over those of the prior year's results for the same period.  For the six-month period ended June 30, 2012, the Bank reported earnings of $636,000, a decline of 1.40% or $9,000 when compared to the $645,000 reported through the first six months of 2011.  For the first two quarters of 2012 and 2011, earnings per basic and diluted share of $0.34 were recorded.  Annualized returns on average assets and average equity for the first six months of 2012 were 0.62% and 6.17%, respectively, compared to 0.66% and 6.53%, respectively, for the same period in 2011.  Margins have continued to expand during the last two quarters as a result of the Bank's ongoing implementation of a plan to raise its loan-to-deposit ratio to a projected target of 85% to 90%.  As a result, the net interest margin stood at 4.63% for the first half of 2012.  This margin level reflects a 9 basis point gain in comparison with the same period of 2011.  

At the end of the second quarter of 2012, total assets were $208.5 million, representing a $3.5 million or 1.71% increase over the December 31, 2011 level of $205.0 million.  Total deposits amounted to $183.9 million as of June 30, 2012, which represents a $3.5 million or 1.94% increase from the $180.4 million level as of December 31, 2011.  On an annualized basis, deposits grew during the second quarter at a rate of 3.88%.  During the same period, total loans expanded by 0.80% or $1.2 million to the June 30, 2012 balance of $150.3 million.  Loans, on an annualized basis, grew at a rate of 1.61%.  Other real estate owned by the Bank increased $1.8 million to end the quarter at a level of $2.5 million.  At June 30, 2012, the investment portfolio, including time deposits in other banks, was $22.8 million, a $4.0 million or 14.93% decrease in comparison to the December 31, 2011 26.8 million level.  Overnight federal funds sold grew to $11.2 million representing a $1.7 million or 17.89% increase over the $9.5 million December 31, 2011 level.  Cumulatively, earning assets shrunk by $1.1 million for the first two quarters or 1.19% on an annualized basis and represent 88.39% of total assets.  The Bank has made significant improvements in delinquencies and nonperforming loans within the portfolio.  The Bank has and continues to successfully work through its problematic credits.  As of June 30, 2012, delinquency and nonperforming ratios of 0.40% and 2.90%, respectively, were reported.  These ratios, at December 31, 2011, stood at 1.84% and 2.94%, respectively.  Management continues to work with the borrowers where possible; however, the focus for 2012 is to resolve the most serious of the nonperforming assets in the portfolio. During the second quarter, the bank made major strides in accomplishing this goal.  Through liquidations, foreclosures, write downs and charge offs, impaired and nonaccrual loans were reduced to $1.9 million, a reduction of $1.8 million or 48.65% from the $3.7 million reported for December 31, 2011.

The allowance for loan losses was $1,993,000 as of June 30, 2012, or 1.33% of loans outstanding, compared to $2,250,000 as of December 31, 201 or 1.51% of outstanding loans.  Net charges to the Reserve account for loan losses amounted to $1,259,000 as of June 30, 2012 or 0.84% of average outstanding loans for 2012.  For the first six months of 2011, net charges to the reserve of $625,000 were taken representing 0.44% of average loans outstanding for the period.  Allocations to the reserve account of $1,002,000 were provisioned for the first six months of 2012 compared to provision allocations of $825,000 for the same period of 2011. 

Net interest income increased $180,000 or 9.11% to $2,156,000 in the second quarter of 2012 from $1,976,000 in the comparable period in 2011.  Noninterest income, exclusive of securities transactions, increased 6.33% or $26,000 in the second quarter of 2012 to $437,000 when compared to $411,000 for the same period in 2011.  Service charges posted slightly higher results with a $15,000 or 6.36% increase when comparing the second quarter of 2012 to the second quarter of 2011.  Lower revenue by the mortgage originations department was recorded resulting in a $18,000 or 20.00% decline in the category for the second quarter of 2012 when compared to the same period of 2011.  Other noninterest products and services, including those of the insurance and investment departments, were reported to be $114,000 or higher by $29,000 in comparison to the $85,000 level recorded in the second quarter of 2011.  Noninterest expense increased by $53,000 or 2.81% to $1,936,000 during the second quarter 2012 when compared to the level of $1,883,000 reported for the same period in 2010.  Salaries and benefits for the second quarter of 2012 declined 1.21% or $13,000 while occupancy and furniture & equipment expenses increased $19,000 or 7.57%.  Other operating expenses for the same period grew by $33,000 or 6.17% to a level of $568,000.   This increase is largely the result of unreimbursed legal fees as well as costs associated with the purchase and maintenance of other real estate owned by the Bank.

For the first six months of 2012, net interest income increased by $380,000 or 9.76% to $4,275,000 from $3,895,000 in the comparable period in 2011.  Average loans through the second quarter of 2012, when compared to the same period in 2011, grew to $150.5 million from $138.2 million, an increase of 8.90%.  The average investment portfolio including interest bearing time deposits in banks decreased from a 2011 first half average balance of $27.3 million to a $26.1 million average through the second quarter of 2012, a decrease of 4.40%.  Average deposit growth though June 30, 2012 has increased 6.45% or $11.1 million to $183.2 million over the same prior year period's average of $172.1 million.  The Bank's prime based loan portfolio yields decreased 17 basis points to 6.40% when comparing the first half of 2012 to that period in 2011.  Likewise, the investment portfolio in comparing the same periods decreased 59 basis points to 2.86%.  Cumulatively, yields on earning assets declined 17 basis points from the 2011 first-half average of 5.70% to the current year's first half average of 5.53%.  A prolonged period of lower deposit rates has facilitated further decreases in interest expenses associated with deposit and borrowing costs as demonstrated by the 30 basis point fall in the cost of funds rate.  As of June 30, 2012 the net interest margin expanded by a net 9 basis points to 4.63%, an 8.85% increase over the 4.54% margin reported for the same period in 2011.

Noninterest income, exclusive of securities transactions, increased 39.14% or $308,000 to $1,095,000 for the first six months of 2012 when compared to $787,000 for the same period in 2011.  Service charges posted higher results with a $37,000 or 8.13% increase when comparing the first half of 2012 to that of 2011.  In comparing these same two periods, the mortgage originations department's revenue fell $37,000 or 23.42% to $121,000.  Other noninterest income increased by $308,000 from the $174,000 level recorded in the first half 2011 to a 2012 level of $482,000.  This increase is primarily due to a tax-free gain realized on a bank-owned life insurance death benefit on a deceased employee covered by the plan.  Noninterest expense increased $166,000 or 4.60% to $3,776,000 during the first two quarters of 2012 from $3,610,000 for the same period in 2011.  Separately within this category, salaries and benefits rose 2.35% or $49,000 while occupancy and furniture & equipment expenses increased $24,000 or 4.90%.  Other operating expenses through June 30, 2012 grew $77,000 or 7.74% to a level of $1,072,000.  Additional legal fees and expenses related to other real estate owned by the Bank account for the majority of this increase.

Richard M. Liles, President and Chief Executive Officer, stated, "We set out with a goal for 2012 of bringing to a conclusion the majority of our remaining impaired credits.  We strive to work with our customers during difficult times, but eventually some reach a point where liquidations or foreclosures are the only viable alternatives.  During the second quarter, we reduced this portion of our portfolio by nearly 50%, and, despite significant provisions to loan reserves, we still made respectable earnings.  Our margins are expanding, our delinquencies are back well below 1%, and we've now made this significant improvement in our nonperforming assets.  The last quarter was not easy, but it was a necessary step toward closing the book on a very difficult and turbulent period in our Bank's as well as our nation's history."

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