Bank of Botetourt posts exceptional 2021 results; Board votes to increase the cash dividend following last month's stock dividend

BUCHANAN, Va., Jan. 31, 2022 /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, 2021. Net income for the fiscal year ended 2021 amounted to $6,879,000, exceeding budget expectations. This amount compares to $4,631,000 for the same period of 2020, representing an increase of $2,248,000 or 48.5%. The increase in annual earnings is primarily attributed to less than anticipated contribution to the allowance loan losses and more revenue than projected from the Paycheck Protection Program ("PPP") and mortgage lending activities. Both basic and diluted earnings per share amounted to $3.58 at December 31, 2021 compared to $2.44 one year prior. Book value was $29.40 at December 31, 2021 as compared to $27.43 at December 31, 2020. Both earnings per share and book value for the comparative periods have been adjusted to reflect the 10% stock dividend paid on December 17, 2021. As a result of the exceptional financial performance, the Board of Directors voted to increase the quarterly dividend payment from $0.18 to $0.185 per share, or $0.74 per share annualized, payable on February 18, 2022 to shareholders of record February 11, 2022.  This represents an increase in dividend payment of 2.8%.

For the three months ended December 31, 2021, the Bank reported net income amounting to $1,501,000 or $0.77 per basic share in the fourth quarter. This amount compares to a net income of $1,326,000 or $0.70 per basic share, for the same period last year.

At December 31, 2021, select financial highlights include:

• Return on average assets of 1.06%
• Return on average equity of 12.12%
• Total deposit growth of 11.50%
• Total asset growth of 11.04%
• Net loans decreased 6.3%
• Community Bank Leverage Ratio of 9.14%
• Strong liquidity position
• Net interest margin of 2.99% at December 31, 2021 compared to 3.10% one year prior
• Outstanding PPP loans of $26,200,000 reported at December 31, 2020 decreased to $57,000 at December 31, 2021 after receiving SBA forgiveness on $26,143,000. The Bank recognized $781,000 in revenue from the forgiven loans.
• In 2021, the Bank participated in the next round of the SBA's PPP Program, generating $18,000,00 in new PPP loans. At December 31, 2021, $12,100,000 had been forgiven by the SBA leaving portfolio balance of $5,900,000. The Bank recognized $658,000 in revenue related to this tranche of PPP lending.
• At December 31, 2021, remaining PPP loan balances from both rounds totaled $6,000,000 with $460,000 in deferred revenue.
• Nine consecutive years of increased dividend payments
• Largest community bank headquartered in the Roanoke Metropolitan Statistical Area

President & CEO, G. Lyn Hayth, III stated "Bank of Botetourt posted exceptional financial results for 2021, exceeding budget expectations. SBA forgiveness of PPP loans and the subsequent revenue recognition contributed to our successful financial results.  In addition, strong and consistent revenue generated by our mortgage loan activity added to our profitability. Shareholders were rewarded with a 10% stock dividend in December and on January 26, 2022, the Board of Directors voted to increase the dividend payment to our shareholders from $0.18 to $0.185 per share."

Management Discussion & Analysis

Results of Operations

The Bank realized strong growth in 2021 as total consolidated assets increased 11.0%.  At December 31, 2021, total assets totaled $662,229,000 compared to $596,595,000 the prior year, an increase of $65,634,000.  During the year, the Bank expanded our footprint and opened a retail office in the Town of Vinton. 

Net income for the three months ended December 31, 2021 was $1,501,000 compared to $1,326,000 for the same period last year, representing an increase of $175,000 or 13.2%.  Basic and diluted earnings per share increased by $0.07 from $0.70 at December 31, 2020 to $0.77 at December 31, 2021.  The increase in net income is primarily due to a $281,000 increase in net interest income for the three-month period, $140,000 less bad debt expense than the same quarter one year prior, $119,000 in a one-time nonrecurring BOLI death claim proceeds, and partially offset by a $350,000 increase in salary and employee benefits.

The provision for loan losses was $425,000 and $1,980,000 for the years ended December 31, 2021 and 2020, respectively. The three-month contribution to the allowance for loan losses was $230,000 compared to $370,000 for the same three-month time period one year prior.  The decrease in bad debt expense is due to a decrease in loans, a decrease in the historical loss factor on loans, and partially offset by an increase in exposure on impaired loans and inflationary concerns in the economy. In determining the estimated allowance, the Bank considered national and local unemployment trends, market conditions, and customer requests for payment deferrals.  Net charge-offs decreased by $727,000 from $716,000 for year ended December 31, 2020 to $(11,000) for 2021, whereby recoveries exceeded charge-offs.    

Noninterest income increased by $1,284,000, or 31.9%, to $5,314,000 for the year ended December 31, 2021 compared to $4,030,000 for the year ended December 31, 2020.  The increase is attributable primarily to ATM and debit card revenue, mortgage origination fees, and title insurance commissions from the Bank's subsidiary.  For the three-month period, noninterest income increased $439,000 primarily due to an increase in ATM and debit card revenue and a one-time nonrecurring BOLI death claim proceeds .

For the year ended December 31, 2021, noninterest expense increased by $2,139,000, or 15.3%, from $14,029,000 at December 31, 2020 to $16,168,000 at December 31, 2021.  The increase is primarily a result of increases in expenses related to salaries and employee benefits, outside services for cloud storage, marketing, franchise tax assessment, FDIC insurance premiums, ATM and debit card related activities, and equipment. For the three-months ended December 31, 2021 noninterest expense increased $681,000, or 18.0%, primarily due to an increase in salaries and employee benefits and outside services utilized by the Bank.

Income tax expense for the year ended December 31, 2021 was $1,688,000 compared to $1,143,000 one year prior. The 47.7% increase in income tax expense correlates with the increase in net income for the year.  For the three-months ended December 31, 2021, income tax expense was $301,000 compared to $297,000 at December 31, 2020.

Financial Condition

At December 31, 2021 total consolidated assets amounted to $662,229,000, an 11.0% increase from $596,595,000 at December 31, 2020, or $65,634,000. Total net loans decreased $28,766,000, or 6.3%, from $454,665,000 at December 31, 2020 to $425,899,000 at December 31, 2021. Total deposits at December 31, 2021 amounted to $597,122,000, compared to $535,547,000 at December 31, 2020, an increase of 11.5% or $61,575,000. At December 31, 2021, total cash and cash equivalents amounted to $143,123,000 compared to $98,907,000 at December 31, 2020, thereby significantly improving the Bank's liquidity position. The Bank strategically increased its investment securities available for sale by $43,777,000, or 318.3% to deploy excess liquidity.  In addition, the Bank increased its subordinated debt of other financial institutions investments, classified as held to maturity, by $5,900,000 from $3,050,000 at December 31, 2020 to $8,950,000 at December 31, 2021. Management places daily excess deposits at the Federal Reserve Bank and earns interest on excess reserves. Total liabilities increased by $60,314,000 from $542,778,000 at December 31, 2020 to $603,092,000 at December 31, 2021 primarily attributed to the deposit growth described.

Stockholders' equity totaled $59,137,000 at December 31, 2021 compared to $53,817,000 at December 31, 2020. The $5,320,000 increase during the period is the result net income from 2021, 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.  In addition, $4,999,000 was reclassified from retained earnings to common stock and additional paid-in capital to reflect the issuance of 174,539 shares from the 10% stock dividend paid on December 17, 2021.

Non-Performing Assets

Non-performing assets, which consist of nonaccrual loans and foreclosed properties decreased to $1,757,000 at December 31, 2021 compared to $3,247,000 at December 31, 2020.  The decrease is attributed to the sale of $1,961,000 in foreclosed properties, $327,000 in loans removed from nonaccrual status due to foreclosed property sales and charge-offs, $89,000 in principal payments received on nonaccrual loans, offset by the additions of $860,000 in new nonaccrual loans and $27,000 in one foreclosed property during 2021. 

Nonaccrual loans were $1,730,000 at December 31, 2021 compared to $1,286,000 at December 31, 2020. There were three new additions to nonaccrual loans during 2021. These additions were spread among various loan categories such as commercial real estate and consumer. One commercial real estate loan and one land and development loan exited nonaccrual status after being charged-off.  One spec construction loan and one land and development loan exited nonaccrual status after the collateral sale proceeds were applied.  The remaining balance was charged-off.  Lastly, one consumer loan exited nonaccrual status after being paid in full.  The net result was an increase of $444,000 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 $2,915,000 at December 31, 2021, compared to $2,300,000 at December 31, 2020.  The $615,000 increase is related to three new loans identified as impaired offset by the sale of impaired assets, spread among the same various loan categories described above. Loss exposure on impaired loans at December 31, 2021 increased to $204,000 from $98,000 at December 31, 2020 after obtaining current appraisals on collateral securing impaired loans in the portfolio and estimating selling costs based on historical experience.

Foreclosed assets consisted of one property totaling $27,000 at December 31, 2021 compared to $2,000,000 at December 31, 2021.  The decrease in foreclosed assets included thirteen sales with carrying values totaling $2,000,000 which resulted in loss on sales of $364,000. Each quarter, management evaluates the carrying value of these properties to determine if a write-down to the lower of cost or market value is warranted.  During 2021, the Bank recorded total write-downs on foreclosed properties in the amount of $335,000. The one remaining foreclosed properties is currently being marketed for sale. No additional material loss is anticipated.  The Bank had no loans secured by 1-4 family residential property in the process of formal foreclosure at December 31, 2021.

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, 2021, troubled debt restructurings ("TDRs") totaled $1,200,000 and were spread among various loan categories. No new TDRs have been identified in 2021.

Capital Ratio

Bank of Botetourt qualified for and adopted the optional, simplified measure of capital adequacy, the community bank leverage ratio framework, 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").  As of December 31, 2021 Bank of Botetourt reported its CBLR ratio at 9.14% which meets the required regulatory minimum ratio. This compares to a CBLR of 9.26% one year prior. The CARES Act temporarily reduced the CBLR minimum ratio from 9.0% to 8.5% through December 31, 2021.

Paycheck Protection Program

Bank of Botetourt was a participant in the Paycheck Protection Program ("PPP") initiated by the U.S. Department of the Treasury.  At December 31, 2021 both rounds of PPP lending totaled $44,200,000 with $38,200,000 receiving forgiveness from the SBA. As result, $6,000,000 of PPP loans remained on the balance sheet at December 31, 2021. Deferred PPP loan servicing fees totaled $460,000 at December 31, 2021 while the Bank recognized $1,439,000 in revenue during 2021.

COVID-19 Customer & Employee Care

Bank of Botetourt assisted our customers and employees during the pandemic. For loan customers impacted by COVID-19, the Bank granted extensions, skip-a-payment, and modifications consistent with regulatory guidance. With the decline in requests for assistance, Bank of Botetourt ended its COVID relief program during the second quarter of 2021. Consistently, there were no additional requests for COVID-related assistance during the remainder of 2021. All of the Bank's offices are open will full access and all employees who worked from home during the pandemic have returned to the office environment.  All Bank employees were encouraged to receive the  COVID-19 vaccine and booster when eligible.  At December 31, 2021, the Bank had a bank-wide vaccination rate of 81%.

About Bank of Botetourt

Bank of Botetourt was chartered in 1899 and operates thirteen retail offices in Botetourt, Rockbridge, Roanoke, and Franklin counties, the City of Salem, and the Town of Vinton, 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