Bank of McKenney (Nasdaq: BOMK) today announced record fourth quarter earnings of $358,000. This 4.07% increase over 2004 fourth quarter earnings of $344,000 was primarily attributable to prudent, strategic positioning to capitalize on the tightening bias demonstrated throughout 2005 by the Federal Reserve's Open Market Committee ("FOMC"). Fourth quarter earnings per basic and diluted share for 2005 and 2004 were $0.19 and $0.18 respectively. For the year ended December 31, 2005, the Bank reported earnings of $1,323,000, also a new record, and an increase of 5.92% compared to $1,249,000 for the prior year's end. Basic and diluted earnings per share of $0.69 were reported for the year ended December 31, 2005 on 1,926,656 weighted average shares outstanding. This compared to a prior year-end earnings per basic and diluted share of $0.65 on an equal number of weighted average shares outstanding. Annualized returns on average assets and average equity for 2005 were 0.95% and 8.35%, respectively, compared to 0.97% and 8.24%, respectively, for the same period in 2004.

Total assets amounted to $142.2 million on December 31, 2005, an increase of 7.48% or $9.9 million over the December 31, 2004 level of $132.3 million. Total loans, as of December 31, 2005, grew to $94.3 million compared to $93.7 million as of December 31, 2004. The loan portfolio was up $0.6 million or 0.64% over the December 31, 2004 level. At year-end 2005, the investment portfolio stood at $26.3 million, which represents a 24.06% increase over the $21.2 million prior year-end balance. During the third and fourth quarters, the Bank invested $3.2 million in six-month time deposit products of a neighboring local financial institution as a yield-enhancing alternative to overnight funds. Overnight federal funds sold increased $1.7 million, or 68.00%, from $2.5 million on December 31, 2004 to $4.2 million on December 31, 2005. Cumulatively, these earning assets grew $10.6 million or 9.03% during 2005 and represent 90.01% of total assets. Total deposits amounted to $110.7 million as of December 31, 2005, which represents a 0.36% decrease from the $111.1 million level as of December 31, 2004. Total demand deposits were $22.9 million as of December 31, 2005, an increase of $0.3 million or 1.33% over the December 31, 2004 level. During this same period, interest-bearing deposits declined $0.7 million or 0.79% from $88.5 million to $87.8 million. Total borrowings from the Federal Home Loan Bank increased $9.6 million from $4.7 million on December 31, 2004 to $14.3 million as of December 31, 2005. The Bank expanded its borrowings during a period of very attractive longer- term rates in the second quarter as part of a strategic lending and investing plan designed to capitalize on the flattening yield curve.

The net interest income for the year ended December 31, 2005 was $5.6 million compared to $5.3 million for the same period in 2004. This represents an increase of 5.66% over the net interest income earned during the 2004 fiscal year. Average loan balances were $94.2 million in 2005 as compared to $90.8 million in 2004. The related interest income from loans was $6.8 million in 2005 compared to $6.4 million in 2004. The average yield on loans increased from 7.07% in 2004 to 7.26% in 2005. The investment securities and other earning assets (such as federal funds sold) contributed $1.1 million to the total interest income level of $7.9 million in 2005. The yield on earning assets was 6.40% in 2005 and 6.22% in 2004. Consistent with asset growth the average interest bearing funding sources (deposit and purchased funds) grew to $99.7 million in 2005, which was $6.2 million, or 6.63% greater than the 2004 level of $93.5 million. The average cost of funds during 2005 climbed 44 basis points to 2.30%. The interest spread again narrowed for the twelve months of 2005 by 26 basis points to 4.10%. Accordingly, the net interest margin decreased for the twelve months of 2005 to 4.54% from 4.69% for the same period in 2004. The decrease in the net interest margin is primarily credited to the increased borrowing relationship with the Federal Home Loan Bank. Management elected to lock in long-term funds at a fixed rate in a strategic move to offer more flexible credit product durations and enhance long-term earnings. Analysis of the decisions at year's end has revealed the correctness of the assumptions made at the time the funds were borrowed. Although the initial effects of the decision on interest spread and margin were negative as expected, the credit product terms made available propelled the loan portfolio into growth for the year. The analysis demonstrated the move has surpassed the breakeven point and should add basis points to the margin in future periods.

For the year ended December 31, 2005, noninterest income, exclusive of securities transactions, grew to $1.43 million, representing a $60,000 or 4.38% increase over the 2004 level of $1.37 million. While service charges on deposits were flat for the year, other operating income grew $55,000 from $645,000 on December 31, 2004 to $700,000 on December 31, 2005. This 8.53% growth in other fees demonstrates success in the Bank's subsidiary offering insurance and investment products and services. Revenue growth was also experienced by the fixed rate mortgage department despite increasing rate pressure from continued tightening by the Federal Reserve's Open Market Committee. Noninterest expense in the 2005 fiscal year amounted to $5.0 million compared to the 2004 level of $4.8 million. The increase is directly related to expansionary activities occurring in the franchise. The largest component of noninterest expense is salaries and benefits. Salaries and benefits expense for the year ended December 31, 2005 was $3.2 million or $200,000 higher than the December 31, 2004 level of $3.0 million. The growth in personnel expense is related to the continued and planned growth of the institution, additional demands in compliance with more recent laws and regulations, and the ever-expanding product array of the company. Occupancy and furniture and equipment costs grew $11,000 over the 2004 level of $702,000. Other overhead costs decreased $8,000, or 0.70%, during 2005 to $1.1 million. Other overhead costs, while contained in 2005, remain higher due to recent laws and regulations that have mandated the need for additional and/or more extensive audit services.

In November 2005, the Bank acquired for expansion of its trade area 3.3 acres in central Prince George County at the intersection of Courthouse Road and Prince George Drive. Also, the Bank signed a contract on an additional 1.5 acres on Jefferson Park Road in western Prince George County near its border with the City of Hopewell. Closing on this parcel is slated for January 2006. These two strategic locations resulted from a year-long demographic study by the Board and management, the criteria being (1) natural and logical progression of the existing trade area; (2) potential sites demonstrating existing and projected growth; (3) selections having room for additional competition as opposed to those seemingly over-banked; and (4) opportunities in localities more receptive to the personalized style of service offered by a community bank.

Richard M. Liles, President and Chief Executive Officer, stated, "We are quite pleased with the record earnings of 2005, and we are anticipating growing margins and stronger earnings as we enter our 100th year of service. Moreover, we are extremely excited over the newly acquired parcels and the opportunity in the future to conveniently offer our products and services to the citizens of Prince George County and the City of Hopewell."

Bank of McKenney is a full-service community bank headquartered in McKenney, Virginia with six branches serving Southeastern Virginia and assets totaling $142 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.

BANK OF MCKENNEY AND SUBSIDIARY

Consolidated Balance Sheets Summary Data

December 31, 2005 (unaudited) and December 31, 2004

December 31, December 31,

ASSETS 2005 2004

Cash and due from banks $3,452,836 $4,717,886

Federal funds sold 4,241,000 2,526,000

Interest-bearing time deposits in banks 3,015,123 -

Securities available for sale, at fair

market value 25,037,687 20,433,458

Restricted investments 1,265,255 806,825

Loans, net 93,293,989 92,708,341