Bank of Botetourt posts solid second quarter financial results

BUCHANAN, Va., July 24, 2020 /PRNewswire/ -- Buchanan-based Bank of Botetourt (OTCPK: BORT) announced today its unaudited financial results for the three months-end June 30, 2020. The Bank produced net income amounting to $1,172,000 or $0.68 per basic share in the second quarter. This amount compares to a net income of $1,104,000 or $0.64 per share, for the same period last year.  For the six months-ended the Bank produced net income amounting to $2,210,000 or $1.28 per basic share. This amount compares to a net income of $2,258,000 or $1.32 per share, for the same period last year. 

At June 30, 2020, select financial information and key highlights include:

• Return on average assets of 0.84%
• Return on average equity of 8.63%
• Book value of $30.28
• $1.19 million year-to-date provision for loan losses
• 455 loans for $29.5 million funded under the federal Paycheck Protection Program ("PPP")
• Loan extensions, skip-a-payments, and modifications totaled 230 loans with balances of $56.1 million
• Community Bank Leverage Ratio ("CBLR") of 9.44%

As a result of the solid financial performance, the Board of Directors voted to pay the $0.175 per share quarterly dividend, or $0.70 per share annualized which is payable on August 19, 2020 to shareholders of record August 12, 2020. President & CEO, G. Lyn Hayth, III stated "Our second quarter financial results exceeded budget expectations. We remain cautiously optimistic as we navigate the uncertain economic conditions amid the health pandemic. Bank of Botetourt assisted many customers with their financial needs during this unprecedented time. We continue to monitor the local and national economic conditions and will continue to work appropriately with impacted customers."

Results of Operations

Net income for the three months ended June 30, 2020 was $1,172,000 compared to $1,104,000 for the same period last year, representing an increase of $68,000 or 6.2%.  Basic and diluted earnings per share increased $0.04 from $0.64 at June 30, 2019 to $0.68 at June 30, 2020.  The increase in net income is primarily attributed to an increase in net interest income resulting from higher loan demand resulting in more loan interest income and fees on loans.

The Bank has realized continued strong loan demand in 2020 as net loans increased 10.6%. Interest and fees on loans at June 30, 2020 increased $230,000, or 4.5%, over the same three-month time period of 2019. Total interest income increased $166,000 or 3.1%. Interest expense increased by $74,000, or 6.5%, at June 30, 2020 over the same three-month time period of 2019.  The higher interest expense is a result of both interest expense related to borrowings and an increase the balances of interest-bearing deposits.  The resulting net interest income was $4,247,000 for the three months-ended June 30, 2020 compared to $4,155,000 for the three month-ended June 30, 2019, an increase of 2.2%.

The provision for loan losses was $745,000 for the three months ended June 30, 2020 as compared to $400,000 for June 30, 2019. The higher provision is due to an increase in a recession probability predictor in the Bank's environmental factors portion of the allowance for loan loss reserve calculation. With the far-reaching economic impacts resulting from COVID-19, the likelihood of recession necessitated the need for a higher provision beyond the overall growth in the loan portfolio.  In determining the estimated allowance, the Bank considered national and local unemployment trends, market conditions, social distancing impacts on area non-essential businesses, and customer requests for payment deferrals. Net charge-offs were $107,000 at June 30, 2020 as compared to 239,000 at June 30, 2019.

Noninterest income decreased by $83,000, or 8.6%, to $885,000 for the three months ended June 30, 2020 compared to $968,000 for same time period of 2019.  The decrease is attributable primarily to a decrease in fee income from services charges on deposit accounts and revenue from brokerage services.

Noninterest expense decreased $398,000 from $3,315,000 at June 30, 2019 to $2,917,000 at June 30, 2020.  The decrease is primarily related to an offset in the ASC-360 salaries cost from the high volume of PPP loans generated during the three-month time period.  The salaries expense offset is expected to reverse over the life of the PPP loans.

Income tax expense for the three months ended June 30, 2020 was $298,000 compared to $304,000 one year prior.

Net income for the six months ended June 30, 2020 was $2,210,000 compared to $2,258,000 for the same period last year, representing a decrease of $48,000 or 2.1%.  Basic and diluted earnings per share decreased $0.04 from $1.32 at June 30, 2019 to $1.28 at June 30, 2020.  The decrease in net income is primarily attributed to an increase in a higher provision for loan losses related to the uncertain economic conditions related to the COVID-19 health pandemic. Provision for loan losses totaled $1,190,000 at June 30, 2020 compared to $595,000 at June 30, 2019.  The 100.0% increase is related to growth in the portfolio as well as accounting for the environmental factors related to the large span of industries negatively impacted by the social distancing guidance, unemployment claims, and the anticipated expiration of the temporary increase in unemployment compensation benefits under the Federal Pandemic Unemployment Compensation program.

Financial Condition

At June 30, 2020 total assets amounted to $576,704,000, an increase of 17.0% above total assets at December 31, 2019 of $492,817,000, an increase of $83,887,000. Total net loans increased $44,844,000 or 10.6% from $421,417,000 at December 31, 2019 to $466,261,000 at June 30, 2020. Approximately $29,500,000 of the growth was related to PPP lending. Total deposits at December 31, 2019 amounted to $434,268,000, compared to $510,126,000 at June 30, 2020, an increase of 17.5% or $75,858,000. The majority of the increase in deposits was organic growth. In addition, a substantial majority of the PPP loan proceeds were deposited to accounts at the Bank. 

Stockholders' equity totaled $52,154,000 at June 30, 2020 compared to $50,269,000 at December 31, 2019. The $1,885,000 increase during the period is net income for 2020, net proceeds from the issuance of common stock from the Dividend Reinvestment and Stock Purchase Plan, a reduction in accumulated other comprehensive loss and partially offset by dividends paid.

Non-Performing Assets

Non-performing assets, which consist of nonaccrual loans and foreclosed properties increased from $3,200,000 at December 31, 2019 to $4,534,000 at June 30, 2020.  The increase is attributable to an uptick in nonaccrual loans.  Nonaccrual loans were $656,000 at December 31, 2019 compared to $2,194,000 at June 30, 2020.  There were nine new additions to nonaccruals loans during the quarter, five of which are related to one spec construction and land development borrower.

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 $1,500,000 at December 31, 2019, compared to $3,000,000 at June 30, 2020. The increase is related to the addition of 13 impaired loans in various loan categories.  Loss exposure on impaired loans at December 31, 2019 was $310,000 compared to $512,000 and June 30, 2020 after obtaining current appraisals on collateral securing a significant number of impaired loans in the portfolio and estimating selling costs based on historical experience.

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 June 30, 2020, troubled debt restructurings ("TDRs") totaled $1,069,000 and were spread among various loan categories. No new TDRs have been identified in 2020.

Capital Ratios

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 and elected to opt-in to the Community Bank Leverage Ratio ("CBLR").  As of June 30, Bank of Botetourt reported its CBLR ratio at 9.44% 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 Paycheck Protection Program ("PPP") initiated by the U.S. Department of the Treasury on April 3, 2020.  As of June 30, 2020, the Bank has processed and received approval from the U.S. Small Business Administration on 455 applications for approximately $29.5 million.  Bank of Botetourt initially has funded these loans using its on-balance sheet liquidity. The Bank is assessing its anticipated liquidity needs for the remainder of 2020 and will replenish a portion of liquidity used to fund the PPP loans, if needed, by borrowing from the newly created Payroll Protection Program Lending Facility ("PPPLF") at the Federal Reserve Bank of Richmond. The Bank earned $1,190,000 from the SBA for generating the PPP loans.  This revenue will be recognized over the life of the PPP loans.

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 for 230 loans with balances of $56.1 million. 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. When customers enter our branches, facemasks are required for all parties.  Plexiglass shields and social distancing floor markers have been installed in our offices.   For our employees, we continue to provide flexible work practices as approximately 30% to work remotely and thereby promote social distancing.  We have had no layoffs as a result of COVID-19. Non-essential work travel is not permitted.  We continue to use online meeting platforms for social distancing.

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.

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SOURCE Bank of Botetourt