MCKENNEY, Va., July 17, 2008 (PRIME NEWSWIRE) -- Bank of McKenney (Nasdaq:BOMK) today announced second quarter earnings of $320,000, only a slight decrease of 0.62% over 2007 second quarter earnings of $322,000, demonstrating a stabilizing earnings environment. Basic and diluted earnings per share of $0.17 were reported for the three months ended June 30, 2008, equaling those of the prior year's results for the same period. For the six-month period ended June 30, 2008, the Bank reported earnings of $614,000, a decrease of 8.49% when compared to $671,000 through the first six months of 2007. For the first two quarters of 2008 and 2007, earnings per basic and diluted share of $0.32 and $0.35, respectively, were recorded. Annualized returns on average assets and average equity for the first six months of 2008 were 0.74% and 6.66%, respectively, compared to 0.88% and 7.80%, respectively, for the same period in 2007. Margins have remained under pressure as a result of drastic rate reductions by the Federal Reserve over the past nine months. The cost of funds for deposits is dropping as this segment cycles through rate resets and improvement is anticipated over the second half of the year.
At the end of the second quarter, total assets were $164.8 million, representing a $3.6 million or 2.23% increase over the December 31, 2007 level of $161.2 million. Total deposits amounted to $137.6 million as of June 30, 2008, which represents a $10.1 million or 7.92% increase from the $127.5 million level as of December 31, 2007. On an annualized basis, deposits grew during the first two quarters at a rate of 15.84%. During the same period, total loans expanded by 2.15% or $2.3 million to the June 30, 2008 balance of $109.3 million. At June 30, 2008, the investment portfolio, including time deposits in other banks, was $36.0 million, a 19.60% increase in comparison to the December 31, 2007 $30.1 million level. Overnight federal funds sold decreased 89.47% from $7.6 million on December 31, 2007 to $0.8 million on June 30, 2008 as the Bank elected to retire certain Federal Home Loan Bank borrowings and reduce the overall cost of funds. Cumulatively, earning assets grew $1.4 million for the first half of 2008 or 0.97% on an annualized basis and represent 88.65% of total assets.
The allowance for loan losses was $957,000 as of June 30, 2008, or 0.88% of loans outstanding, compared to $925,000 as of December 31, 2007 or 0.86% of outstanding loans. Charges to the Reserve account for loan losses amounted to $152,000 as of June 30, 2008 or 0.12% of average outstanding loans for 2008. For the first six months of 2007, charges to the reserve of $221,000 were taken representing 0.20% of average loans outstanding for the period. Allocations to the reserve account of $160,000 were provisioned for the six months of 2008 compared to provision allocations of $20,000 for the same period of 2007.
The Bank works diligently to maintain quality in its loan portfolio and has historically maintained an average delinquency ratio well below 1%. Loans past due more than thirty days (excluding impaired and nonaccrual loans) measured $703,000 or 0.64% of total loans at June 30, 2008 as compared to December 31, 2007 delinquencies of $364,000, or 0.34% of total loans. Non-performing assets consist of impaired loans, non-accrual loans and real estate owned by the Bank resulting from a foreclosure proceeding. Normally, loans are placed on non-accrual when a loan is specifically determined to be impaired or when principal or interest is delinquent in excess of 90 days. On June 30, 2008, non-performing assets stood at $1.3 million or 1.21% of quarter-end loans. This compared to non-performing assets of $1.0 million, or 0.94%, of total loans outstanding for December 31, 2007.
Net interest income increased to $1,450,000 in the second quarter of 2008 from $1,419,000 in the comparable period in 2007. Noninterest income, exclusive of securities transactions, declined 9.17% or $41,000 in the second quarter of 2008 to $406,000 when compared to $447,000 for the same period in 2007. Service charges posted slightly lower results with a $1,000 or 0.46% decline when comparing the second quarter of 2008 to the second quarter of 2007. Lower mortgage rates in the second quarter moderately enticed the appetite of borrowers as the mortgage originations department experienced a $9,000 or 8.33% gain in the category for the second quarter of 2008 when compared to the same period of 2007. Other noninterest products and services, including those of the insurance and investment departments, increased by $8,000 over the $181,000 level recorded in the second quarter of 2007. Noninterest expense increased $123,000 or 8.87% to $1,510,000 during the second quarter 2008 from $1,387,000 for the same period in 2007. Salaries and benefits rose 5.30% or $46,000 while occupancy and furniture & equipment expenses increased $20,000 or 10.70%. Other operating expenses for the second quarter of 2008 grew $59,000 or 17.82% to level of $390,000.
For the first six months of 2008, net interest income increased to $2,897,000 from $2,876,000 in the comparable period in 2007. Average loans through the second quarter of 2008, when compared to the same period in 2007, grew to $109.0 million from $102.7 million, an increase of 6.13%. The average investment portfolio climbed from a 2007 first half average balance of $27.0 million to a $31.8 million average through the second quarter of 2008, or an increase of 17.78%. Average deposit growth has increased 11.92% or $11.6 million to $108.9 million over the same prior year period's average of $97.3 million. The Bank's prime based loan portfolio yields decreased 16 basis points when comparing the first half of 2008 to that period in 2007 while the investment portfolio in the same periods gained 29 basis points. Cumulatively, yields on earning assets decreased 27 basis points from a 2007 first-half average of 7.07% to an average of 6.80% for the current year's first half. Volume growth in the bank's interest bearing deposit products coupled with the negative short-term effects resulting from the recent and rapid monetary policy changes have pressured the net interest margin downward by 30 basis points to 3.94%. This growth in liquidity prompted a $6.0 million or 44.44% reduction in Federal Home Loan Bank borrowings later in the second quarter. These once extremely attractive rates had begun adversely affecting margins due to the aforementioned rate cuts, and this move should help boost margins going forward. Moreover, the shorter-lived deposit rate cycle has now begun re-pricing at substantially lower rates and will quickly result in added margin support through a much lower cost of funds.
Noninterest income, exclusive of securities transactions, rose 3.25% or $26,000 to $827,000 when compared to $801,000 for the same period in 2007. Service charges posted higher results with a $13,000 or 3.19% increase when comparing the first half of 2008 to that of 2007. In comparing these same two periods, the mortgage originations department climbed $56,000 or 29.63%. Other noninterest income decreased by $43,000 from the $203,000 level recorded in the first half 2007; however, the prior year's level included gains of $52,000 posted from the sale of a former branch office after its consolidation with newer offices nearby. Noninterest expense increased $193,000 or 6.97% to $2,961,000 during the first two quarters of 2008 from $2,768,000 for the same period in 2007. Separately within this category, salaries and benefits rose 6.07% or $104,000 while occupancy and furniture & equipment expenses increased $41,000 or 11.02%. Other operating expenses through June 30, 2008 grew $47,000 or 6.86% to a level of $732,000.
Richard M. Liles, President and Chief Executive Officer, stated, "We are very pleased with the quarterly and year-to-date results outlined above. Margin pressures are beginning to moderate after the intense rate cuts during the last few quarters. Our asset quality and capital position remains strong, and we hold no sub-prime loans or associated derivative investments. We of course feel the impacts of economic downturns when they occur and have made additional provisions accordingly; however, we are fortunate to be in a growth area. Sadly, all banks presently seem to be painted with the same brush, but we will weather this period of economic turbulence just as we have all those over the last 102 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.
BANK OF MCKENNEY AND SUBSIDIARY
Consolidated Balance Sheets Summary Data
June 30, 2008 (unaudited) and December 31, 2007
June 30, December 31,
ASSETS 2008 2007
------------ ------------
Cash and due from banks $ 5,220,281 $ 3,666,898
Federal funds sold 791,000 7,557,000
Interest-bearing time deposits in banks 3,013,819 --
Securities available for sale, at fair
market value 32,023,011 28,807,961
Restricted investments 974,525 1,274,025
Loans, net 108,348,361 106,102,635
Land, premises and equipment, net 8,360,425 8,361,377
Other real estate owned 199,063
Other assets 5,832,601 5,421,557
------------ ------------
Total Assets $164,763,086 $161,191,453
============ ============
LIABILITIES
Deposits $137,619,035 $127,519,072
Borrowed Funds 7,500,000 13,666,667
Other liabilities 1,387,380 1,937,013
------------ ------------
Total Liabilities $146,506,415 $143,122,752
------------ ------------
SHAREHOLDERS' EQUITY
Total shareholders' equity $ 18,256,671 $ 18,068,701
------------ ------------
Total Liabilities and Shareholders'
Equity $164,763,086 $161,191,453
============ ============
BANK OF MCKENNEY AND SUBSIDIARY
Consolidated Statements of Income Summary Data
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
------ ------ ------ ------
Interest and
dividend
income $2,501,340 $2,412,105 $5,021,300 $4,810,160
Interest
expense 1,051,710 992,739 2,124,603 1,934,136
---------- ---------- ---------- ----------
Net interest
income $1,449,630 $1,419,366 $2,896,697 $2,876,024
Provision for
loan losses 130,000 20,000 160,000 20,000
---------- ---------- ---------- ----------
Net interest
income after
provision
for loan
losses $1,319,630 $1,399,366 $2,736,697 $2,856,024
---------- ---------- ---------- ----------
Noninterest
income $ 632,492 $ 446,162 $1,076,979 $ 868,403
Noninterest
expense 1,510,010 1,386,540 2,960,744 2,768,377
---------- ---------- ---------- ----------
Net noninterest
expense 877,518 940,378 1,883,765 1,899,974
---------- ---------- ---------- ----------
Net income
before taxes $ 442,112 $ 458,988 $ 852,932 $ 956,050
Income taxes 122,415 136,858 239,031 285,414
---------- ---------- ---------- ----------
Net income $ 319,697 $ 322,130 $ 613,901 $ 670,636
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Basic & diluted
earnings per
share $ 0.17 $ 0.17 $ 0.32 $ 0.35
========== ========== ========== ==========
Weighted average
shares
outstanding 1,926,656 1,926,656 1,926,656 1,926,656
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