Bank of Botetourt sets record earnings in 2018; Board votes to increase dividend

News provided by

Jan 31, 2019, 16:34 ET

BUCHANAN, Va., Jan. 31, 2019 /PRNewswire/ -- Buchanan-based Bank of Botetourt (OTCPK: BORT) announced today its consolidated financial results for the quarter-ended and year-ended December 31, 2018. The Bank experienced net income amounting to $835,812 or $0.57 per basic share in the fourth quarter. This amount compares to a net income of $674,152 or $0.47 per share, for the same period last year.

Net income for the fiscal year 2018 amounted to $4,299,514, marking the highest recorded earnings in the Bank's 120 year history. This amount compares to $2,278,175 for the same period of 2017, representing an increase of $2,021,339 or 88.7%. Both basic and diluted earnings per share amounted to $2.98 at December 31, 2018 compared to $1.60 one year prior. Book value was $26.55 at December 31, 2018 as compared to $24.50 one year prior. As a result of the solid financial performance, the Board of Directors voted to increase the quarterly dividend from $0.15 to $0.16 per share, or $0.64 per share annualized which is payable on February 19, 2019 to shareholders of record February 11, 2019.
This represents an increase in dividend payment of 6.7%

President & CEO, G. Lyn Hayth, III stated "We are so gratified by the Bank's performance in 2018. Strong loan growth combined with a favorable interest rate environment allowed our Bank to surpass earnings expectations. As a result we are able to increase the dividend payment to our shareholders."

Management Discussion & Analysis

Results of Operations

Net income for the year ended December 31, 2018 was $4,299,514 compared to $2,278,175 for the same period last year, representing an increase of $2,021,339 or 88.7%. Basic and diluted earnings per share increased $1.38 from $1.60 at December 31, 2017 to $2.98 at December 31, 2018. The increase in net income is primarily due to higher interest income. The Bank has realized strong loan demand in 2018 as gross loans increased 12.6%. The generation of new loans combined with the net interest margin resulting from the effects of tightening monetary policy actions by the Federal Open Market Committee ("FOMC") during 2018 have been positive contributors to the Bank's interest income and net income.

Total interest income increased by $2,593,000 in 2018 as compared to 2017 due primarily to an increase in loan interest income. The increase was a result of loan growth and an increase in interest rates on variable rate loans, and to a lesser extent an increase in interest earned on investment securities, due from depository institutions and federal funds sold. Interest expense increased by $936,000 during the period due to the increase in interest-bearing deposits, competitive interest rates paid on the deposits, and interest expense related to an advance on borrowed funds during the first quarter. As a result, net interest income increased by $1,656,000 for the year ended December 31, 2018 compared to the same time period in 2017.

The provision for loan losses was $470,000 for the year ended December 31, 2018 and $450,000 for the year ended December 31, 2017. The nominal change in the provision is due to the overall stability of asset quality in the loan portfolio. Charge-offs increased by $98,000 from $258,000 for year ended December 31, 2017 to $356,000 for 2018. The Bank recovered $137,000 on prior charge-offs for the year ended December 31, 2018 compared to $47,000 the year ended December 31, 2017. The result is charge-offs exceeding recoveries by $219,000 at December 31, 2018 compared to charge-offs exceeding recoveries by $211,000 at December 31, 2017.

Noninterest income increased by $259,000, or 8.0%, to $3,514,000 for the year ended December 31, 2018 compared to $3,255,000 for the year ended December 31, 2017. The increase is attributable primarily to proceeds from a one-time nonrecurring insurance claim related to a loan in our portfolio for $108,000 and an increase in service charges for existing deposit accounts for $115,000. To a lesser extent there were also increases in income from title services by our subsidiaries. For the year ended December 31, 2018, noninterest expense increased by $138,000, or 1.1%, which is primarily a result of increases in outside services and professional fees, salaries and benefits, FDIC insurance assessments, communication, and ATM and debit card expenses. These expenses were partially offset by a decrease in foreclosed asset, net, when compared to the prior period.

Income tax expense for the year ended December 31, 2018 was $949,000 compared to $1,212,000 one year prior. There was a one-time nonrecurring tax adjustment of $116,000 occurring in the first quarter of 2018 which reduced the tax accrual and thereby lowered first quarter tax expense by the same amount.

Financial Condition

At December 31, 2018 total assets amounted to $434,764,000, an increase of 12.1% above total assets at December 31, 2017 of $387,736,000, an increase of $47,028,000. Loan demand exceeded 2018 budget expectations. Total net loans increased $42,739,000 or 12.6% from $337,665,000 at December 31, 2017 to $380,404,000 at December 31, 2018. Total deposits at December 31, 2018 amounted to $385,314,000, compared to $341,000,000 at December 31, 2017, an increase of 13.0% or $44,314,000. The increase in deposits organically funded the loan demand without reliance on borrowed funds. At December 31, 2018, total cash and cash equivalents amounted to $13,406,000 compared to $6,849,000 at December 31, 2017, thereby improving the Bank's liquidity position. The Bank had no borrowings at December 31, 2018. Investment securities, including restricted equity securities, decreased $2,767,000 as a result of maturing, called or redeemed investment securities. Management places daily excess deposits at the Federal Reserve Bank and earns interest on excess reserves. Total liabilities increased by $35,779,000 from $352,720,000 at December 31, 2017 to $388,499,000 at December 31, 2018 primarily attributed to deposit growth described.

Stockholders' equity totaled $46,265,000 at December 31, 2018 compared to $35,016,000 at December 31, 2017. The $11,249,000 increase during the period is primarily the result of net proceeds from a stock offering to existing shareholders, institutional investors, and other accredited investors. The Bank sold the offering's maximum of 275,000 shares of common stock at an offering price of $30.00 per share, or $8.25 million in gross proceeds. Net proceeds from the offering were approximately $7.6 million. Also contributing to the increase were net proceeds from the issuance of common stock from the Dividend Reinvestment and Stock Purchase Plan, net income for 2018, partially offset by accumulated other comprehensive loss and dividends paid.

Non-Performing Assets

Non-performing assets, which consist of nonaccrual loans and foreclosed properties decreased to $5.1 million at December 31, 2018 from $5.6 million at December 31, 2017. The decline is due to decreases in nonaccrual loans, partially offset by an increase in foreclosed property balances.

Nonaccrual loans were $821,000 at December 31, 2018 compared to $2.0 million at December 31, 2017. There were two new additions to nonaccrual loans during 2018 related to consumer loans. Six loans exited nonaccrual status, two residential lots, two land & development, one residential installment, and one commercial real estate. The net result was a reduction of $1.2 million 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 $1.3 million at December 31, 2018, compared to $3.3 million at December 31, 2017. The $2.0 million decrease is related to two land & development loans that were moved to other real estate owned, two residential lot loans that were moved to other real estate owned, one residential lot loan that paid off, and one residential lot loan that is currently performing according to contractual terms and was thereby removed from impairment status. Loss exposure on impaired loans at December 31, 2018 decreased to $4,000, compared to $33,000 at December 31, 2017 after obtaining current appraisals on collateral securing a significant number of impaired loans in the portfolio and estimating selling costs based on historical experience. At December 31, 2018, $4,000, or 0.12%, of the $3.4 million total allowance for loan losses was allocated for the loss exposure related to impaired loans.

Foreclosed assets consisted of twenty five properties totaling $4.2 million at December 31, 2018. 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 2018, the Bank recorded total write-downs on foreclosed properties in the amount of $283,000. 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, 2018 totaling $78,000.

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, 2018, troubled debt restructurings totaled $1.2 million, 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, 2018, $762,000 of troubled debt restructurings were on nonaccrual status. No new TDRs were identified in 2017 or 2018. 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 Ratios

Bank of Botetourt continues to be a Well Capitalized institution and exceed the BASEL III capital requirements. As of December 31, 2018, Bank of Botetourt reported tier 1 leverage capital of 10.90% and total capital of 14.20%. Both common equity tier 1 and tier 1 capital ratios were 13.25%. At December 31, 2017 the ratios were 9.36%, 11.89%, and 10.93%, respectively.

Strategic Initiatives

Bank of Botetourt's construction to expand and relocate its limited service office at 3214 Electric Road, Roanoke, VA to a standalone full-service office located at 3232 Electric Rd, Roanoke, VA in in process. The Bank previously received regulatory approval and the new Cave Spring office will be 2,660 square feet and include an ATM with deposit capabilities and will continue housing the Bank's mortgage company, Virginia Mountain Mortgage. The Bank anticipates this new location will open in the spring of 2019.

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.

Bank of Botetourt
Consolidated Balance Sheets
December 31, 2018 and 2017

	(unaudited) 2018			(audited) 2017
Assets
Cash and due from banks	$	7,385,958	$	6,535,297
Interest-bearing deposits with banks		5,533,852		314,101
Federal funds sold		486,000		-
Total cash and cash equivalents		13,405,810		6,849,398
Time deposits with banks		250,000		250,000
Investment securities available for sale		16,061,304		18,610,702
Restricted equity securities		399,801		617,501
Loans held for sale		316,721		453,287
Loans, net of allowance for loan losses of $3,393,168 in 2018 and $3,142,404 in 2017		380,403,793		337,665,197
Property and equipment, net		11,901,381		11,462,988
Accrued income		1,184,005		1,039,097
Foreclosed assets		4,230,724		3,634,555
Other assets		6,610,743		6,953,491
Total assets	$	434,764,282		387,736,216

Liabilities and Stockholders' Equity

*Liabilities*
Noninterest-bearing deposits	$	42,609,701	$	40,000,956
Interest-bearing deposits		342,704,290		300,999,123
Total deposits		385,313,991		341,000,079

Federal funds purchased		-		2,103,000
Other borrowings		-		6,000,000
Accrued interest payable		464,878		251,450
Other liabilities		2,720,425		3,365,467
Total liabilities		388,499,294		352,719,996

Commitments and contingencies		-		-

*Stockholders' equity*
Common stock, $1.50 par value; 2,500,000 shares authorized; 1,713,664 and 1,431,764 shares issued and outstanding in 2018 and 2017, respectively		2,570,496		2,147,646
Additional paid-in capital		11,168,057		3,791,803
Retained earnings		33,315,439		29,876,252
Accumulated other comprehensive loss		(789,004)		(799,481)
Total stockholders' equity		46,264,988		35,016,220
Total liabilities and stockholders' equity		434,764,282		387,736,216

Bank of Botetourt Consolidated Statements of Income Years-ended December 31, 2018 and 2017

		(unaudited)		(audited)
		2018		2017
*Interest income*
Loans and fees on loans	$	17,859,600	$	15,354,813
Federal funds sold		4,676		2,263
Investment securities:

Taxable		323,607		316,801
Exempt from federal income tax		33,312		41,154
Dividend income		26,673		17,289
Deposits with banks		192,806		115,653
Total interest income		18,440,674		15,847,973

*Interest expense*
Deposits		3,173,883		2,235,751
Federal funds purchased		2,033		3,133
Other borrowings		12,817		13,421
Total interest expense		3,188,733		2,252,305
Net interest income		15,251,941		13,595,668

*Provision for loan losses*		470,000		450,000
Net interest income after provision for loan losses		14,781,941		13,145,668

*Noninterest income*
Service charges on deposit accounts		743,183		628,389
ATM and debit card		935,269		865,995
Other service charges and fees		340,933		323,261
Mortgage origination fees		758,371		851,950
Commissions on title services		173,367		122,007
Net gain on sale of property and equipment		-		-
Other income		562,942		463,445
Total noninterest income		3,514,065		3,255,047

Noninterest expense
Salaries and employee benefits		6,112,110		6,063,844
Occupancy		766,385		723,941
Equipment		760,069		708,127
Foreclosed assets, net		440,265		832,069
Outside services		1,236,527		1,187,291
FDIC insurance premiums and assessment		313,600		253,178
ATM and debit card		660,060		560,536
Franchise tax		232,712		226,585
Telephone and communication		260,875		233,484
Other Professional fees		239,741		112,442
Marketing		375,686		396,049
Other operating expenses		1,649,794		1,725,218
Total noninterest expense		13,047,824		12,910,322
Income before income taxes		5,248,182		3,490,393

*Income tax expense*		948,668		1,212,218
Net income	$	4,299,514	$	2,278,175

*Basic earnings per share*	$	2.98	$	1.60
*Diluted earnings per share*	$	2.98	$	1.60
*Basic weighted average shares outstanding*		1,445,176		1,428,547
*Diluted weighted average shares outstanding*		1,445,176		1,428,547