Bank of McKenney announced net income of $1.7 million, or $0.90 earnings per common share, for the year ended December 31, 2015.
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This compares to net income of $1.9 million, or $0.99 earnings per common share, for the same period ended December 31, 2014.
This decrease amounted to $160,000 when comparing year over year, mainly the result of an increase of $90,000 in Provision for Loan Losses and reduced gains on the sale of Other Real Estate Owned.
Return on average equity was 7.03% for the year ended December 31, 2015 compared to 8.13% for the same period in 2014 and return on average assets was 0.79% compared to 0.86% in 2014. In the fourth quarter of 2015, the Bank recognized net income of $517,000 compared to $540,000 in the same period in 2014.
Net interest income for the year ended December 31, 2015 was $9.1 million, equal to bank's results in 2014. Interest income and interest expense both declined by approximately $140,000.
These reductions were the result of lower interest rates on new and renewed loans as well as lower costs of funding due mainly to higher balances in noninterest bearing accounts and a reduction in time deposits.
Provision for loan losses increased during the year to $300,000, compared to $210,000 in 2014. This increase was the result of one borrower declaring bankruptcy during the year and the resulting impairment charges on those loans.
Noninterest income was $100,000 lower in 2015 primarily due to lower gains on the sale of Other Real Estate Owned of $160,000, partially offset by increases in fee income on deposit accounts and secondary market mortgage originations. Noninterest expense and income tax expense were unchanged from 2014.
Net interest margins declined slightly to 4.60% in 2015 from 4.73% in 2014. Yield to average earning assets was 5.15% for 2015 compared to 5.26% in 2014.
Loan quality was an issue that drew much of management's attention in 2015. As previously disclosed, a significant borrower unexpectedly declared bankruptcy in the first quarter.
The borrower's loans created a $1.25 million increase in Troubled Debt Restructurings, Nonaccruals and Loans 90 days or more past due at December 31, 2015.
All of the loans are secured by residential rental properties or undeveloped commercial lots.
As of December 31, 2015 Bank of McKenney had impairment reserves relating to these loans of $460,000 resulting in a current exposure of approximately $800,000. In addition to these loans, the Bank modified several loans during the year working with customers who are experiencing difficulties.
Bank of McKenney believes these loans are well collateralized and the borrowers will be able to ultimately repay the loans. Troubled Debt Restructurings increased another $2.0 million due to these loans, which were all performing to the modified terms as of December 31, 2015.
Other Real Estate Owned decreased during the year by $750,000 to a year-end balance of $835,000.
The Allowance for Loan Losses was $2.6 million as of December 31, 2015, or 1.65% of loans outstanding, compared to $2.55 million as of December 31, 2014 or 1.43% of outstanding loans.
Additions to the Allowance of $300,000 were provided for in 2015 compared to provision charges of $210,000 for the same period of 2014.
Total assets grew $2.2 million (1%) totaling $218 million at year end compared to $216 million at December 31, 2014. Net Loans declined $3.4 million due to several large loans prepaying shortly before year end. Significant personnel resources are being reassigned to address this in 2016 with the intent of returning growth to the loan portfolio.
Bank of McKenney is very competitive in its rate structures, but will not sacrifice prudent underwriting standards to achieve loan growth.
Investment securities decreased $1.9 million due to maturities and calls in 2015 but investments in Certificates of Deposits with other banks and a demand deposit money market account increased from zero at the end of 2014 to $7.5 million in 2015.
Other assets grew $1.8 million primarily due to a $1.0 million purchase of additional Bank Owned Life Insurance and increases in cash value in banks' BOLI portfolio.
Total deposits grew $1.5 million in 2015. Noninterest bearing demand deposits grew $7.0 million (18%) to $45.8 million, interest bearing demand deposits grew $1.9 million to $45.3 million, savings deposits grew $2.4 million while time deposits declined $9.7 million.
Borrowed funds were reduced $300,000 during the year in accordance with the borrowing agreement.
Total equity at the end of 2015 was $24.8 million, an increase of $1.2 million or 5%.
This increase was accomplished while maintaining the dividend payment of $.28 per share which amounted to $540,000 returned tobanks' investors.
One of the goals of 2015 was to increase capital ratios required for future growth. ■