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MCKENNEY, Va., July 13, 2011 /PRNewswire/ -- Bank of McKenney (OTCBB: BOMK) today announced second quarter earnings of $331,000, an increase of 5.41% over 2010 second quarter earnings of $314,000.  The growth in net income is primarily the result of loan portfolio growth coupled with a continued decline in the cost of funds for the Bank.  Basic and diluted earnings per share of $0.17 were reported for the three months ended June 30, 2011, matching those of the prior year's results for the same period.  For the six-month period ended June 30, 2011, the Bank reported earnings of $645,000, a decline of 14.46% or $109,000 when compared to the $754,000 reported through the first six months of 2010.  The aforementioned decrease in earnings is a result of certain gains realized during 2010 as the Bank realigned its investment portfolio in favor of shorter term placements.  For the first two quarters of 2011 and 2010, earnings per basic and diluted share of $0.34 and $0.40, respectively, were recorded.  Annualized returns on average assets and average equity for the first six months of 2011 were 0.66% and 6.53%, respectively, compared to 0.83% and 7.97%, respectively, for the same period in 2010.  Margins have expanded 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%.  At the close of June 2011, this ratio had risen to 80.8%, and, as a result, the net interest margin stood at 4.54% for the first half of 2011.  This margin level reflects a 36 basis point gain in comparison with the same period of 2010.

At the end of the second quarter of 2011, total assets were $197.4 million, representing a $5.3 million or 2.76% increase over the December 31, 2010 level of $192.1 million.  Total deposits amounted to $173.1 million as of June 30, 2011, which represents a $5.1 million or 3.04% increase from the $168.0 million level as of December 31, 2010.  On an annualized basis, deposits grew during the second quarter at a rate of 6.07%.  During the same period, total loans expanded by 5.33% or $7.2 million to the June 30, 2011 balance of $142.2 million.  Loans, on an annualized basis, grew at a rate of 10.67%.  At June 30, 2011, the investment portfolio, including time deposits in other banks, was $21.6 million, a $7.7 million or 26.28% decrease in comparison to the December 31, 2010 29.3 million level.  Overnight federal funds sold grew to $12.3 million representing a $3.70 million or 43.02% increase over the $8.6 million December 31, 2010 level.  Cumulatively, earning assets grew by $3.2 million for the first two quarters or 3.70% on an annualized basis and represent 89.21% of total assets.  The Bank remains focused on delinquencies and nonperforming loans within the portfolio.  While these ratios are still modestly elevated, the Bank has and continues to successfully work through its problematic credits.  As of June 30, 2011, delinquency and nonperforming ratios of 0.52% and 2.79%, respectively, were reported.  These ratios, at December 31, 2010, stood at 0.47% and 2.01%, respectively.  Management continues to feel comfortable that losses will be minimized by collateral positions as well as the Bank's ability and willingness to work with the borrowers where possible.  

The allowance for loan losses was $2,311,000 as of June 30, 2011, or 1.63% of loans outstanding, compared to $2,050,000 as of December 31, 2010 or 1.52% of outstanding loans.  Charges to the Reserve account for loan losses amounted to $40,000 as of June 30, 2011 or 0.01% of average outstanding loans for 2011.  For the first six months of 2010, charges to the reserve of $362,000 were taken representing 0.28% of average loans outstanding for the period.  Allocations to the reserve account of $268,000 were provisioned for the first six months of 2011 compared to provision allocations of $260,000 for the same period of 2010.  

Net interest income increased $230,000 or 13.17% to $1,976,000 in the second quarter of 2011 from $1,746,000 in the comparable period in 2010.  Noninterest income, exclusive of securities transactions, dipped 7.26% or $32,000 in the second quarter of 2011 to $409,000 when compared to $441,000 for the same period in 2010.  Service charges posted slightly higher results with a $7,000 or 3.06% increase when comparing the second quarter of 2011 to the second quarter of 2010.  Lower revenue by the mortgage originations department was recorded resulting in a $31,000 or 25.62% decline in the category for the second quarter of 2011 when compared to the same period of 2010.  Other noninterest products and services, including those of the insurance and investment departments, were reported to be $83,000 or lower by $8,000 in comparison to the $91,000 level recorded in the second quarter of 2010.  Noninterest expense increased by $194,000 or 11.66% to $1,858,000 during the second quarter 2011 when compared to the level of $1,664,000 reported for the same period in 2010.  Salaries and benefits for the second quarter of 2011 rose 10.03% or $98,000 while occupancy and furniture & equipment expenses increased $25,000 or 11.06%.  Other operating expenses for the same period grew by $71,000 or 15.40% to a level of $533,000.   This increase is largely the result of costs associated with the opening of our Rivers Bend temporary site which is slated to begin offering our full array of products in September.

For the first six months of 2011, net interest income increased by $549,000 or 16.41% to $3,895,000 from $3,346,000 in the comparable period in 2009.  Average loans through the second quarter of 2011, when compared to the same period in 2010, grew to $138.2 million from $125.2 million, an increase of 10.38%.  The average investment portfolio including interest bearing time deposits in banks increased from a 2010 first half average balance of $25.1 million to a $27.3 million average through the second quarter of 2011, an increase of 8.76%.  Average deposit growth through June 30, 2011 has increased 7.63% or $12.2 million to $172.1 million over the same prior year period's average of $159.9 million.  The Bank's prime based loan portfolio yields decreased only 8 basis points to 6.57% when comparing the first half of 2011 to that period in 2010.  Likewise, the investment portfolio in comparing the same periods decreased 76 basis points to 3.45%.  Cumulatively, yields on earning assets declined a mere 5 basis points from the 2010 first half average of 5.75% to the current year's first half average of 5.70%.  A prolonged period of lower deposit rates has facilitated further decreases in interest expenses associated with deposit and borrowing costs as demonstrated by the 47 basis point fall in the cost of funds rate.  As of June 30, 2011 the net interest margin expanded by a net 36 basis points to 4.54%, an 8.50% increase over the 4.18% margin reported for the same period in 2010.

Noninterest income, exclusive of securities transactions, declined 6.10% or $51,000 to $785,000 for the first six months of 2011 when compared to $836,000 for the same period in 2010.  Service charges posted higher results with a $15,000 or 3.41% increase when comparing the first half of 2011 to that of 2010.  In comparing these same two periods, the mortgage originations department's revenue fell $64,000 or 28.83% to $158,000.  Other noninterest income decreased by 1.79% or $2,000 from the $174,000 level recorded in the first half 2010 to a 2011 level of $172,000.  Noninterest expense increased $304,000 or 9.20% to $3,608,000 during the first two quarters of 2011 from $3,304,000 for the same period in 2010.  Separately within this category, salaries and benefits rose 7.10% or $138,000 while occupancy and furniture & equipment expenses increased $38,000 or 8.41%.  Other operating expenses through June 30, 2011 grew $128,000 or 14.11% to a level of $1,035,000.  Preparation of our new temporary site coupled with growing costs to complying with increasing regulatory burdens account for the majority of this increase.

Richard M. Liles, President and Chief Executive Officer, stated, "We are excited about 2011, and we are extremely pleased with the quarterly and year-to-date results outlined above.  Our margins are expanding due to strong loan portfolio growth.  Our delinquencies are back well below 1%, and our non-performing loans are slowly demonstrating improvement. Moreover, we are excitedly awaiting the September Rivers Bend Branch opening.  Our commitments to quality service, great products at competitive prices and truly dedicated employees remain unchanged as the key business model elements that have made us a success for over one hundred years."

Bank of McKenney is a full-service community bank headquartered in McKenney, Virginia with six 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