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MCKENNEY, Va., April 17, 2012 /PRNewswire/ -- Bank of McKenney (OTCBB: BOMK) today announced earnings of $384,000 for the three-month period ending March 31, 2012, a 22.29% increase when compared to net income of $314,000 for the same period in 2011.  Basic and diluted earnings per share of $0.20 were recorded for the three months ended March 31, 2012 representing a $0.03 per share increase over those recorded for the three months ended March 31, 2011.  There were 1,893,812 weighted average common shares outstanding during the first quarter of 2012 and 1,893,546 weighted average common shares outstanding during the first quarter of 2011.  Return on average equity on an annualized basis during the first quarter of 2012 was 7.57% as compared to 6.46% for the first quarter of 2011.  Return on average assets during the first quarter of 2012, on an annualized basis, increased 9 basis points to 0.75% from the prior year level of 0.66%. 

At the end of the first quarter, total assets were $209.5 million, representing a $4.5 million or 2.20% increase over the December 31, 2011 level of $205.0 million.  Total deposits amounted to $184.9 million as of March 31, 2012, which represents a $4.5 million or 2.49% increase from the $180.4 million level as of December 31, 2011.  On an annualized basis, deposits grew during the first quarter at a rate of 9.98%.  During the same period, total loans expanded by 0.47% or $0.7 million to the March 31, 2012 balance of $149.8 million.  Loans, on an annualized basis, grew at a rate of 1.88%.  At March 31, 2012, the investment portfolio, including time deposits in other banks, was $26.7 million, a $0.1 million or 0.37% decrease in comparison to the December 31, 2011 $26.8 million level.  Overnight federal funds sold increased 38.95% from $9.5 million on December 31, 2011 to $13.2 million on March 31, 2012.  Cumulatively, earning assets grew $4.3 million for the first quarter or 9.28% on an annualized basis and represent 90.55% of total assets.  The Bank continues to focus on delinquent and nonperforming loans within the portfolio.  On March 31, 2012, the delinquency and nonperforming ratios as a percentage of total assets stood at 0.08% and 2.81%, respectively.  These ratios, at December 31, 2011, stood at 1.34% and 2.14%, respectively.  While the nonperforming factor remains higher than normal, substantial improvement was recorded in the delinquency factor.  Management believes nonperforming levels have peaked and has scheduled liquidations of the most problematic of these debts beginning in the second quarter on 2012.  In preparation thereof, the Bank has continued to make historically higher provisions to reserves.  On March 31, 2012, loan loss reserves had risen to 1.71% of total loans, an increase of 20 basis points over that of December 31, 2011.

Net interest income increased 10.42% or $200,000 to $2,119,000 in the first quarter of 2012 from $1,919,000 in the comparable period in 2011.  Average loans during the first quarter of 2012, when compared to the same period in 2011, grew to $149.8 million from $136.7 million, an increase of 9.58%.  The average investment portfolio including time balances with banks decreased from a first quarter 2011 average balance of $29.0 million to a $26.5 million average during the first quarter of 2012, or a decrease of 8.62%.  Average deposit balances have increased 6.87% or $11.7 million from the first quarter 2011 level of $170.4 million to an average 2012 first quarter level of $182.1 million.  Non-interest bearing demand deposits jump 11.83% or $3.3 million while interest bearing demand and savings deposits also grew a robust $5.7 million or 13.60% when comparing March 31, 2012 to March 31, 2011.  Time deposits experienced only modest average growth of 2.58% or $2.6 million when comparing the two periods.  Yields on earning assets decreased 13 basis points from a 2011 first-quarter average of 5.72% to an average of 5.59% for the current year's first quarter.  On the liability side of the balance sheet, the cost of funds fell to 1.14% for the first quarter of 2012 representing a decrease of 29 basis points below the first quarter 2011 level of 1.43%.  The resulting net interest margin was increased by 13 basis points to 4.66% when comparing it to the 4.53% margin recorded for the first three months of 2011.  The strengthening of the overall margin is reflective of a continued drop in the cost of funds, considerable loan growth and the use of floors within the majority of the Bank's variable rate loan portfolio.

Noninterest income, exclusive of securities transactions, rose by 75.27% or $283,000 from $376,000 in the first quarter of 2011 to $659,000 for the same period in 2012.  Service charges grew $21,000 or 9.55% when comparing the first quarter of 2012 to the first quarter of 2011.  A decline in mortgage demand in the first quarter of 2012 resulted in a decrease in the mortgage originations department of $17,000 or 25.37% when comparing the $50,000 in revenue recognized during the first quarter of 2012 to the revenue of $67,000 recognized during the first quarter in 2011.  Other non-interest products and services, including those of the insurance and investment departments and holdings in bank owned life insurance, spiked $279,000 to $368,000, or 313.48% when comparing the first quarter of 2012 to the same period in 2011.  This jump resulted primarily from a tax-free gain realized on a bank-owned life insurance death benefit on a deceased employee covered by the plan.  Noninterest expense increased $90,000 or 5.14% to $1,840,000 during the first quarter 2012 from $1,750,000 for the same period in 2011.  Salaries and benefits rose 6.05% or $61,000 on while occupancy and furniture equipment expenses increased $5,000 or 2.09%.  Other operating expenses increased $24,000 or 4.77% to $528,000 during the first quarter of 2012.  The major contributing factor in this increase was the costs associated with data processing.

Richard M. Liles, President and Chief Executive Officer, stated, "Margins and earnings continue demonstrating strength and expansion.  We continue ramping up reserves; however, delinquencies have returned to more normal levels, and there are liquidation plans in place during 2012 to exit the more serious of the nonperforming assets.  It is management's focus to have behind it by year's end the majority of the problem debts resulting from one of the worst recessions in our economy's history.  At that point, provisions to reserves should subside, and we can again return our attention to growth in returns on assets and equity in a post Dodd-Frank world."

Bank of McKenney is a full-service community bank headquartered in McKenney, Virginia with seven branches and serving Southeastern Virginia and assets totaling $209.5 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