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MCKENNEY, Va., Aug. 8, 2014 /PRNewswire/ -- Bank of McKenney (OTCBB: BOMK) today announced record second quarter earnings of $539,000, an annualized increase of 20% over 2013 second quarter earnings of $489,000. Basic and diluted earnings per share of $0.28 were reported for the three months ended June 30, 2014. For the six-month period ended June 30, 2014, the Bank reported earnings of $880,000, an annualized increase of 4% when compared to $860,000 reported through the first six months of 2013. For the first six months of 2014 and 2013, earnings per basic and diluted share of $0.46 and $0.45, respectively, were achieved. Annualized returns on average assets and average equity for the first six months of 2014 were 0.80% and 7.8%, respectively, compared to 0.80% and 8.0%, respectively, for the same period in 2013. Interest margins have remained steady during the last two quarters, at 4.72% for the first half of 2014 compared to 4.75 for the same period in 2013.
At the end of the second quarter, total assets were $220.3 million, representing a 3.3% increase over the December 31, 2013 level of $213.4 million. Loans increased $1 million to 159.0 million compared to the balance at December 31, 2013. The investment portfolio reflected a significant increase of $5.8 million over the same period. Total deposits amounted to $193.8 million as of June 30, 2014, which represents a $5.8 million increase from the $188.0 million level as of December 31, 2013. Federal funds sold increased from $5.2 million on December 31, 2013 to $6.9 million on June 30, 2014. Cumulatively, earning assets grew $8.6 million for the first half of 2014, or 4.5%, and represent 90.5% of total assets. Total shareholders' equity increased $1.0 million during the six-month period.
Management continues its focus on delinquent loans and other nonperforming assets within the portfolio. On June 30, 2014, the delinquency (loans past due greater than 30 days) ratio as a percentage of total loans was 0.88% and was 0.63% of total assets. These ratios as of December 31, 2013 were 1.1% and .81%, respectively. Delinquent loans as of June 30, 2014 totaled $1.4 million compared to $1.7 million at December 31, 2013. There were two loans past due more than 90 days totaling $717,000 as of June 30, 2014. Four loans on nonaccrual at June 30, 2014 totaled $1.2 million compared to four loans of $662,000 at December 31, 2013. Other Real Estate Owned (OREO) amounted to $885,000 and $1,532,000 at June 30, 2014 and December 31, 2013, respectively. OREO balances are expected to increase in the third quarter, but continued losses in the portfolio are not anticipated.
The Allowance for Loan and Lease Losses (ALLL) was $2.7 million as of June 30, 2014, or 1.72% of loans outstanding, compared to $2.6 million as of December 31, 2013 or 1.61% of outstanding loans. Net charges and recoveries to the Allowance were minimal in the six-month period ended June 30, 2014. Provisions to the Allowance of $175,000 were recorded for the first two quarters of 2014 compared to provision of $150,000 for the same period of 2013.
Net interest income decreased $-63,000 or -2.68% to $2.3 million in the second quarter of 2014 from $2.4 million in the comparable period in 2013. Noninterest income, exclusive of securities transactions, increased $230,000 in the second quarter of 2014 to $690,000 when compared to $460,000 for the same period in 2013. This change was attributable to an increase in gain on sale of OREO. All other noninterest income sources remained relatively stable. Noninterest expense increased by $117,000 during the second quarter of 2014 when compared to the same period in 2013. Salaries and benefits for the second quarter of 2014 grew $97,000 and data processing and communication fees increased $45,000 while other loan expenses decreased by $-21,000. Increased data processing and communications costs are due to transitioning systems to newer technology that will produce savings in the future.
Average loan balances through the first six months of 2014 declined slightly from $158.4 million at December 31, 2013 to $158.1 million. This reduction was attributable to several purchased participation loans being paid-out which offset the organic loan growth during the period. Management does not anticipate similar reductions in the loan portfolio in the near future. The average investment portfolio, including interest bearing time deposits in banks, increased from a 2013 first half average balance of $24.5 million to a $29.7 million average through the second quarter of 2014, an increase of 21.25%. Average deposits though June 30, 2014 have increased 1.20% or $2.2 million to $193.7 million over the same prior year period's average of $191.4 million. For the first six months of 2014, net interest income increased $21,000 over the same period in 2013 to $4.5 million. Yields on earning assets declined 26 basis points, or -4.70% from the 2013 first-half average of 5.53% to the current year's first half average of 5.27%. Rates paid on deposits have continued to decline and the cost of funds rate was reduced to 69 basis points from 87 during the first six months over the same period last year. As of June 30, 2014 the interest spread declined 8 basis points and the net interest margin declined 9 basis points.
Noninterest income, exclusive of securities transactions, increased 27.64% or $245,000 to $1.1million for the first six months of 2014 when compared to $886,000 for the same period in 2013. Gains from sales of OREO were approximately $230,000 higher than the previous year and income from the bank's investment in Bankers Insurance increased $80,000 while income from the generation of secondary market mortgages fell by $62,000. Noninterest expense increased $223,000 or 5.54% to $4.3 million during the first two quarters of 2014 from $4.1 million for the same period in 2013. Separately within this category, salaries and benefits rose 6.69% or $156,000 while other operating expenses grew $68,000 or 3.97%. The primary increase in the total non-interest expense category is attributable to increased telephone and data charges incurred during a transition to a more cost efficient provider and education costs.
Richard M. Liles, President and Chief Executive Officer, stated, "The second quarter of 2014 was once again a record setting quarter. We are maintaining reasonable margins during a period when other financial institutions have seen considerable contraction in margin. Our local economy is fairly strong and the national economy seems to be experiencing a period of modest growth. The Board of Governors of the Federal Reserve have started easing their program of support based on securities purchases in the open market and anticipate they will cease these purchases at the end of October. The Fed's balance sheet at that time is expected to exceed $4.5 trillion, compared to approximately $1.0 trillion at the beginning of the recession in 2008. Never in our history has there been such an expansion of the Federal Reserve balance sheet. Unwinding these investments will take extreme caution and patience on the part of the Governors. State and local government spending are also areas of concern. We are optimistic these issues can be resolved with further strength in our economy."
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.
BANK OF MCKENNEY AND SUBSIDIARY
Consolidated Balance Sheets Summary Data
June 30, 2014 (unaudited) and December 31, 2013
Cash and due from banks
Federal funds sold
Interest-bearing time deposits in banks
Securities available for sale, at fair market value
Land, premises and equipment, net
Other real estate owned, net
Total shareholders' equity
Total Liabilities and Shareholders' Equity
Consolidated Statements of Income Summary Data
Three Months Ended
Six Months Ended
Interest and dividend income
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Net noninterest expense
Net income before taxes
Basic & diluted earnings per share
Weighted average shares outstanding
SOURCE Bank of McKenney