Bank of Botetourt Surpasses 2020 Budget Expectations; Board Votes To Increase Dividend

BUCHANAN, Va., Jan. 28, 2021 /PRNewswire/ -- Buchanan-based Bank of Botetourt (OTCPK: BORT) announced today that it has filed its Call Report with the Federal Deposit Insurance Corporation and reports the following unaudited financial results for year ended December 31, 2020. Net income for the fiscal year ended 2020 amounted to $4,631,000, exceeding budget expectations. This amount compares to $4,979,000 for the same period of 2019, representing a decrease of $348,000 or 7.0%. The decrease in annual earnings is primarily attributed to a larger contribution to the allowance loan losses necessitated by loan growth and the economic uncertainty related to the COVID-19 health pandemic. Both basic and diluted earnings per share amounted to $2.68 at December 31, 2020 compared to $2.90 one year prior. Book value was $30.17 at December 31, 2020 as compared to $28.12 at December 31, 2019. As a result of the solid financial performance, the Board of Directors voted to increase the quarterly dividend payment from $0.175 to $0.18 per share, or $0.72 per share annualized which is payable on February 18, 2021 to shareholders of record February 11, 2021.  This represents an increase in dividend payment of 2.8%.

For the three months ended December 31, 2020, the Bank reported net income amounting to $1,326,000 or $0.77 per basic share in the fourth quarter. This amount compares to a net income of $1,238,000 or $0.72 per basic share, for the same period last year.

At December 31, 2020, select financial highlights include:

• Return on average assets of 0.83%
• Return on average equity of 8.89%
• Net loan growth of 8.1%
• Total deposit growth of 23.7%
• Total asset growth of 21.5%
• Community Bank Leverage Ratio of 9.26%
• Strong liquidity position
• Net interest margin of 3.10% at December 31, 2020, up from 3.07% at September 30, 2020, and down from 3.57% one year prior
• Outstanding Paycheck Protection Program ("PPP") loans of $26.2 million at December 31, 2020 compared to $30.1 million at September 30, 2020
• Deferred PPP loan servicing fees balance of $744,000 at December 31, 2020 compared to $1,000,000 at September 30, 2020
• Eight consecutive years of increased dividend payments

President & CEO, G. Lyn Hayth, III stated "Given the unprecedented circumstances of 2020 along with the significant economic consequences of the global health pandemic, we are thrilled with the solid financial performance of 2020. Although earnings are down 7% from 2019, it was a conscious and prudent decision by our Bank to reserve $1,150,000 more in our allowance for loan loss in 2020 over 2019 due to the uncertainty surrounding the economic impact on our borrowers. Yet, strong loan demand and historic deposit growth allowed our Bank to surpass earnings expectations. As a result, the Board of Directors voted to increase the dividend payment to our shareholders."

Management Discussion & Analysis

Results of Operations

The Bank realized strong loan demand in 2020 as gross loans increased 8.3%.  The generation of new loans during a pandemic, including the participation in the Small Business Administration's PPP program, was a positive contributor to the Bank's net income. Total interest income increased by $1,126,000 in 2020 as compared to 2019 due primarily to an increase in loan interest income as a result of loan growth and to a lesser extent an increase in interest earned on taxable investment securities.  Interest expense increased by $43,000 during the period due to the increase in interest expense related to an advance on borrowed funds, partially offset by a decrease in interest paid on deposit accounts. As a result, net interest income increased by $1,083,000 for the year ended December 31, 2020 compared to the same time period in 2019.

Net income for the three months ended December 31, 2020 was $1,326,000 compared to $1,238,000 for the same period last year, representing an increase of $88,000 or 7.1%.  Basic and diluted earnings per share increased $0.05 from $0.72 at December 31, 2019 to $0.77 at December 31, 2020.  The increase in net income is primarily due to $136,000 higher interest income, $280,000 less total interest expense, resulting in an increase in net interest income for the three-month period of $416,000.

The provision for loan losses was $1,980,000 for the year ended December 31, 2020 and $830,000 for the year ended December 31, 2019.  The three-month contribution to the allowance for loan losses was $370,000 compared to $210,000 for the same three-month time period one year prior.  While asset quality remains stable, the increase in the provision is primarily due to the growth of the portfolio and the economic uncertainty after government stimulus programs are exhausted. Net charge-offs increased by $468,000 from $248,000 for year ended December 31, 2019 to $716,000 for 2020. 

Noninterest income increased by $160,000, or 4.1%, to $4,030,000 for the year ended December 31, 2020 compared to $3,870,000 for the year ended December 31, 2019.  The increase is attributable primarily to ATM and debit card revenue and mortgage origination fees.  For the three-month period, noninterest income increased $37,000 primarily due to an increase in ATM and debit card revenue and partially offset by a decrease in service charges on deposit accounts.

For the year ended December 31, 2020, noninterest expense increased by $532,000, or 3.9%, from $13,497,000 at December 31, 2019 to $14,029,000 at December 31, 2020.  The increase is primarily a result of increases in expenses related to outside services for cloud storage, marketing expense, franchise tax assessment, FDIC insurance premiums, ATM and debit card related expenses, and equipment expense. These expenses were partially offset by a decrease in occupancy expense, net foreclosed asset expense, other professional fees, and salaries and benefits.  For the three-months ended December 31, 2020 noninterest expense increased $167,000 primarily due to an increase in salaries and employee benefits and the FDIC insurance assessment.

Income tax expense for the year ended December 31, 2020 was $1,143,000 compared to $1,234,000 one year prior. The 7.4% decrease in income tax expense correlates with the decrease in net income for the year.  For the three-months ended December 31, 2020, income tax expense was $297,000 compared to $259,000 at December 31, 2019.

Financial Condition

At December 31, 2020 total consolidated assets amounted to $597,280,000, an increase of 21.5% above total assets at December 31, 2019 of $491,660,000, an increase of $105,620,000. Loan demand and growth exceeded 2020 budget expectations.  Total net loans increased $33,992,000 or 8.1% from $421,417,000 at December 31, 2019 to $455,409,000 at December 31, 2020. Total deposits at December 31, 2020 amounted to $535,547,000, compared to $433,111,000 at December 31, 2019, an increase of 23.7% or $102,436,000. Loan demand was funded by the increase in deposits. At December 31, 2020, total cash and cash equivalents amounted to $98,907,000 compared to $26,761,000 at December 31, 2019, thereby significantly improving the Bank's liquidity position.  Management places daily excess deposits at the Federal Reserve Bank and earns interest on excess reserves. Total liabilities increased by $102,072,000 from $441,391,000 at December 31, 2019 to $543,463,000 at December 31, 2020 primarily attributed to the deposit growth described.

Stockholders' equity totaled $53,817,000 at December 31, 2020 compared to $50,269,000 at December 31, 2019. The $3,548,000 increase during the period is primarily the result net income from 2020, net proceeds from the issuance of common stock from the Dividend Reinvestment and Stock Purchase Plan, partially offset by accumulated other comprehensive loss and dividends paid.

Non-Performing Assets

Non-performing assets, which consist of nonaccrual loans and foreclosed properties remained unchanged at $3,200,000 at December 31, 2020 and 2019, respectively.

Nonaccrual loans were $1,286,000 at December 31, 2020 compared to $656,000 at December 31, 2019. There were eight new additions to nonaccrual loans during 2020.  These additions were spread among various categories such as residential installment, residential construction, commercial, land and development, spec construction and consumer. One residential installment loan exited nonaccrual status after being charged-off.  The net result was an increase of $630,000 in nonaccrual loans.

A loan is considered impaired if it is probable that the Bank will be unable to collect all amounts due under the contractual terms of the loan agreement. Impaired loans amounted to $2,300,000 at December 31, 2020, compared to $1,500,000 at December 31, 2019.  The $800,000 increase is related to eight new loans identified as impaired, spread among the same various loan categories described above. Loss exposure on impaired loans at December 31, 2020 decreased to $98,000, compared to $310,000 at December 31, 2019 after obtaining current appraisals on collateral securing a significant number of impaired loans in the portfolio and estimating selling costs based on historical experience.

Foreclosed assets consisted of twelve properties totaling $2,000,000 at December 31, 2020 compared to $2,500,000 at December 31, 2019.  The decrease in foreclosed assets included nine sales with carrying values totaling $575,000, loss of sales of $99,000, and partially offset by two additions totaling $162,000.  Each quarter, management evaluates the carrying value of these properties to determine if a write-down to lower of cost of market value is warranted.  During 2020, the Bank recorded total write-downs on foreclosed properties in the amount of $76,000. All foreclosed properties are currently being marketed for sale. No additional material loss is anticipated.  The Bank had one loan secured by 1-4 family residential property in the process of formal foreclosure at December 31, 2020 totaling $48,000.

The Bank historically makes a conscious effort to attempt work-out loan scenarios with past due customers.  In some cases, loan restructuring is appropriate.  Bank management has procedures and processes in place to identify, monitor, and report troubled debt restructurings. At December 31, 2020, troubled debt restructurings totaled $1,250,000 and were spread among various loan categories.  Interest rates on a majority of these loans were at prevailing market rates, with only minor concessions given on interest rate reductions from the original terms.  At December 31, 2020, $265,000 of troubled debt restructurings were on nonaccrual status.  One new TDR was identified in 2020 compared to none in 2019.  In addition, one TDR for $152,000 qualified to exit TRD status in 2020 and is performing within contractual terms.  Bank management supports a philosophy of working with its customers to pursue plausible options. We have had some general success with these efforts in the past, although these efforts typically produce mixed results.

Capital Ratio

The federal banking agencies jointly issued a final rule, effective January 1, 2020, that provided for an optional, simplified measure of capital adequacy, the community bank leverage ratio framework, for qualifying community banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. A qualifying community banking organization is defined as having less than $10 billion in total consolidated assets, a leverage ratio greater than 9%, off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and liabilities of 5% or less of total consolidated assets. It also cannot be an advanced approaches institution. Bank of Botetourt qualified to opt-in to the Community Bank Leverage Ratio ("CBLR").  At December 31, 2020 Bank of Botetourt reported its CBLR ratio at 9.26% which exceeds the required regulatory minimum ratio. The CARES Act temporarily reduced the CBLR minimum ratio from 9.0% to 8.0% through December 31, 2020.

Paycheck Protection Program

Bank of Botetourt is participating in the PPP Program initiated by the U.S. Department of the Treasury.  During 2020, the Bank has processed and received approval from the U.S. Small Business Administration on 488 applications for $30.1 million.  Bank of Botetourt funded these loans using its on-balance sheet liquidity. The Bank completed the requirements to borrow from the Payroll Protection Program Lending Facility ("PPPLF"), if needed, at the Federal Reserve Bank of Richmond. At December 31, 2020 the Bank did not borrow any funds from the PPPL facility.  The Bank earned and received $1,232,000 from the SBA for generating the PPP loans.  This revenue will be recognized over the life of the PPP loans. At December 31, 2020, the Bank recognized $488,000 of the PPP revenue. The remaining deferred PPP fees at December 31, 2020 was $744,000.  The forgiveness application process began in the fourth quarter of 2020 when 67 loans for $3.9 million were approved for forgiveness by the SBA.  As of December 31, 2020, the Bank had 421 PPP loans totaling $26.2 million remaining in its loan portfolio.

COVID-19 Customer & Employee Care

Bank of Botetourt continues to take numerous steps to assist our customers and employees during the pandemic.  For loan customers impacted by COVID-19, the Bank has granted extensions, skip-a-payment, and modifications consistent with regulatory guidance.  During the fourth quarter, additional requests for assistance slowed to only 6 requests bringing the total requests for 2020 to 257 loans.  Loan balances for all 257 customers requesting assistance during the year decreased from $57.1 million at September 30, 2020 to $55.0 million at December 31, 2020, indicating that timely payments and payoffs were made in the fourth quarter. For depositing customers, the Bank is permitting unlimited withdrawals from savings accounts without additional fee or penalty as announced and permitted by banking regulators. All of our offices remain open, although our lobbies are under controlled access. Facemasks are required for all parties consistent with the Governor's Executive Order 72.  Plexiglass shields and floor markers assist in complying with social distancing. The Bank had no layoffs as a result of COVID-19. Non-essential work travel is not permitted.  Bank employees must abide by travel restrictions set by President Biden and follow guidance from the Centers for Disease Control when returning to work. Approximately 20% of our workforce works remotely as we continue to use online meeting platforms for social distancing. The Bank's Human Resources department is working with local health departments in our various markets to enroll eligible employees for the COVID-19 vaccine in the appropriate essential worker group.

Strategic Initiatives

On December 16, 2020, the Bank's Board of Directors amended the Dividend Reinvestment and Stock Purchase Plan to make participation even more advantageous to its shareholders.  Beginning in 2021, systematic and one-time purchases of shares will be offered at a 3% discounted price.  The discount will be applied to the volume weighted average price for the three-week period before the purchase in February, May, August, and November. Shareholders can purchase up to $50,000 each quarter until the 159,000 remaining shares in the reserve for this program are exhausted. 

About Bank of Botetourt

Bank of Botetourt was chartered in 1899 and operates twelve retail offices in Botetourt, Rockbridge, Roanoke, and Franklin counties and the City of Salem, all in Virginia.  Bank of Botetourt also operates a mortgage division, Virginia Mountain Mortgage and a financial services division, Botetourt Wealth Management.

SOURCE Bank of Botetourt