TSBA Touchstone Bankshares Inc (PK)

MCKENNEY, Va., Jan. 20, 2012 /PRNewswire/ -- Bank of McKenney (OTCBB: BOMK) today announced fourth quarter 2011 earnings of $352,000.  This is a $40,000 decrease over 2010 fourth quarter earnings of $392,000.  Fourth quarter earnings per basic and diluted common share for 2011 of $0.18 were reported as compared to $0.20 recorded during the 2010 fourth quarter.  For the year ended December 31, 2011, net income amounted to $1,396,000 compared to net income of $1,461,000 for the same period in the prior year.  Basic and diluted earnings per common share were $0.73 for the year ended December 31, 2011 compared to the prior year earnings per share of $0.77 per common share.  Weighted average shares outstanding for 2011 equaled 1,893,672 while weighted average shares outstanding during 2010 equaled 1,893,546.  Annual net earnings declined 4.45%, and this is primarily attributable to the opening of our newest branch coupled with the continued efforts to write down or off problematic credits in a conservative manner.  In 2009 and 2010, deteriorating markets prompted the write off of certain impaired credits deemed uncollectable as well as a significant buildup of loss reserves for potential further borrower defaults.  The Bank continued throughout 2011 to address troubled debts aggressively and add fortification to loss reserves.  Return on average equity for the period ended December 31, 2011 was 6.89% compared to 7.52% in 2010.  Return on average assets for the period ended December 31, 2011 was 0.70% compared to 0.79% in 2010.

Total assets amounted to $205.0 million on December 31, 2011, an increase of 6.72% or $12.9 million over the December 31, 2010 level of $192.1 million.  Total loans, as of December 31, 2011, grew to $149.1 million compared to $135.0 million as of December 31, 2010.  The loan portfolio was up $14.1 million or 10.44% over the December 31, 2010 level.  At year-end 2011, the investment portfolio stood at $24.8 million, which represents a 8.82% decrease when compared to the $27.2 million prior year-end balance.  On December 31, 2011, interest-bearing time deposits in other banks stood at $2.0 million representing a 4.76% decrease over the $2.1 million interest-bearing time deposit investments as of December 31, 2010.  Overnight federal funds sold grew $0.9 million or 10.47% from $8.6 million on December 31, 2010 to $9.5 million on December 31, 2011.  Cumulatively, these earning assets grew $12.5 million or 7.23% during 2011 and represent 90.44% of total assets.  Total deposits amounted to $180.4 million as of December 31, 2011, which represents a $12.4 million or 7.38% increase from the $168.0 million level as of December 31, 2010.  Total noninterest-bearing demand deposits were $30.3 million as of December 31, 2011, an increase of $3.1 million or 11.4% from the December 31, 2010 $27.2 million level.  During this same period, interest-bearing deposits climbed $9.3 million or 6.61% from $140.8 million to $150.1 million.  Total borrowings from the Federal Home Loan Bank of Atlanta (the "FHLB") decreased $0.4 million from $2.7 million on December 31, 2010 to $2.3 million as of December 31, 2011.  There was no additional borrowing through the FHLB during 2011.

The Bank continues to focus on delinquencies and nonperforming loans within the portfolio.  In 2010, these levels had dramatically improved from the highs of the prior year.  In 2011, certain credits demonstrated further deterioration as the economy struggled to maintain the stability experienced in 2010.  As a result, 2011 year-end past due and non-performing ratios of 1.84% and 2.94% respectively were recorded.  These ratios, at December 31, 2010, stood at 0.47% and 2.01%, respectively.   Management feels comfortable that further losses will continue to be minimized by collateral positions as well as the Bank's ability and willingness to work with the borrowers whenever and wherever possible.  Nevertheless, there may be further credits that need to be written down or off, and management has elected to continue building loan reserves at a more tempered pace.  After these additional allocations to reserves, the allowance for loan losses as a percentage of loans outstanding held steady with a decline of only 1 basis point from the December 31, 2010 level. 

The allowance for loan losses was $2,250,000 as of December 31, 2011, or 1.51% of loans outstanding, compared to $2,050,000 as of December 31, 2010 or 1.52% of outstanding loans.  Net charges to the reserve account for loan losses amounted to $625,000 as of December 31, 2011 or 0.44% of average outstanding loans for 2011.  For the 2010 period, net charges to the reserve of $601,000 were taken representing 0.47% of average loans outstanding for the period.  Allocations to the reserve account of $825,000 were provisioned for 2011 compared to provision allocations of $701,000 for the same period of 2010. 

The net interest income for the year ended December 31, 2011 was $8.1 million, a 12.86% increase when compared to the December 31, 2010 level of $7.2 million.  The average loan portfolio increased $13.8 million to $142.1 million for the current fiscal year, representing a 10.76% hike over the average loan portfolio assets of $128.3 million for the same period in 2010.  The related interest income from loans was $9.3 million in 2011, up 8.14% from the related interest income of $8.6 million in 2010.  The average yield on loans decreased from 6.74% in 2010 to 6.56% in 2011.  Average investments dipped only $0.1 million to $22.9 million for the current fiscal year, representing a 0.43% decrease below the average investment portfolio of $23.0 million in 2010.  The investment securities and other earning assets (such as federal funds sold) contributed $0.9 million to the interest income level of $10.2 million in 2011.  The yield on earning assets was 5.68% in 2011 and 5.82% in 2010.  Average demand deposits increased during 2011 to $28.5 million as compared to $26.7 million for the same period in 2010.  Average interest-bearing deposits were $146.8 million through the year ended December 31, 2011, and represented an increase of $11.4 million or 8.42% over the average 2010 level of $135.4 million.  Finally, average borrowed funds decreased $0.3 million from the December 31, 2010 level of $2.8 million to the December 31, 2011 level of $2.5 million.  Cumulatively, average interest bearing funding sources (deposit and purchased funds) grew to $149.3 million in 2011 which was $11.1 million or 8.03% greater than the 2010 level of $138.2 million.  Interest expense for all interest bearing liabilities totaled $2.0 million in 2011 which was 16.67% or $0.4 million less than the 2010 level of $2.4 million.  Cost of interest bearing liabilities was 1.32% during 2011 or 38 basis points lower than the 2010 level of 1.70%, the decrease being attributable to the effects of a prolonged period of historically low interest rates.  The interest spread expanded for the twelve months of 2011 by 24 basis points to 4.36%.  Likewise, the net interest margin grew for the twelve months of 2011 to 4.58%, up 19 basis points from the 4.39% margin recorded for the same period in 2010.  The increase in the net interest margin is due to the volume growth in the loan portfolio -- the highest yielding of the earning assets -- for 2011.  Though a large segment of the loan portfolio is prime based, the Bank has prudently structured most of its loan relationships to include floors.  This has promoted expansion in both the spread and margin as yields on earning assets remain stable while costs of funds continue collapsing during the abnormally low and lengthy rate cycle. 

For the year ended December 31, 2011, noninterest income, exclusive of securities transactions, declined $69,000 to $1,627,000, representing a 4.07% decrease from the 2010 level of $1,696,000.  Service charges on deposits grew 1.94% during the year and ended with a revenue increase of $18,000 to $947,000.  Though signs of slight improvement in housing are emerging, valuations remain lower and qualifying to borrow at the unprecedented low rates is impossible for many homeowners.  As a result, income generated by the Bank's fixed rate mortgage department declined $184,000 or 40.09% from $459,000 in 2010 to $275,000 in 2011.  Income generated on bank-owned life insurance rose $4,000 to $129,000 during 2011 while other income jumped $93,000 or 50.82% from $183,000 on December 31, 2010 to $276,000 on December 31, 2011.  This increase in other income stems primarily from stronger revenues experienced by the growing investment subsidiary during 2011.  Noninterest expense in the 2011 fiscal year amounted to $7,207,000 compared to the 2010 level of $6,623,000.  The increase is directly related to normal growth of the institution.  The largest component of noninterest expense is salaries and benefits.  Salaries and benefits expense for the year ended December 31, 2011 grew $286,000 or 7.44% from $3,846,000 in the prior year to $4,132,000.  Personnel expenses increased with staffing required for the opening of our seventh branch, the addition of a seasoned commercial loan officer, and nominal annual increases in benefits costs.  Occupancy and furniture and equipment costs grew $49,000 over the 2010 $921,000 level to $970,000.  Other overhead costs increased $200,000 or 10.91% during 2011 to $2,034,000, up from the 2010 level of $1,834,000.  Other overhead expense grew in one respect from ancillary costs associated with branch establishment in the forms of advertising, supplying the added voice and data communications, etc..  Also affecting other overhead expense was the outsourcing of certain network management functions formerly performed in-house.  Finally, overhead expense associated in complying with the massive volume of regulation emerging from the Dodd-Frank Wall Street Reform and Consumer Protection Act began to ramp up during 2011 and will likely explode into an added department and key staff in years to come.

Richard M. Liles, President and Chief Executive Officer, stated, "We had another solid year during 2011.  Notable positives include the opening of our seventh branch in a temporary location at the River's Bend Plaza in eastern Chesterfield County, continued growth in the loan portfolio with corresponding margin expansion and further focus on eliminating problematic or uncollectible portions of debts from the balance sheet.  These positives are poising us for significant bottom line growth in the future; however, the added revenues in 2011 have been utilized for further provisions into the loan loss reserves to continue addressing impaired credits, or portions thereof, deemed uncollected.  For the past three years, we have made large allocations to our reserves, and we expect this to continue being the case throughout 2012.  We are forecasting diminishing reserve allocations and dramatically lower levels of non-performing assets beyond the upcoming year, and, at that point, our biggest challenge will shift to how to best comply with hundreds of new regulations."

Bank of McKenney is a full-service community bank headquartered in McKenney, Virginia with seven branches serving Southeastern Virginia and assets totaling $205.0 million.

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