Bank of Botetourt sets record earnings in 2019; Board votes to increase dividend

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Jan 30, 2020, 08:42 ET

BUCHANAN, Va., Jan. 30, 2020 /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, 2019. Net income for the fiscal year ended 2019 amounted to $4,979,000, marking the highest recorded earnings in the Bank's 120-year history. This amount compares to $4,300,000 for the same period of 2018, representing an increase of $679,000 or 15.8%. Both basic and diluted earnings per share amounted to $2.90 at December 31, 2019 compared to $2.98 one year prior. Book value was $28.12 at December 31, 2019 as compared to $26.55 one year prior. As a result of the solid financial performance, the Board of Directors voted to increase the quarterly dividend payment from $0.16 to $0.175 per share, or $0.70 per share annualized which is payable on February 18, 2020 to shareholders of record February 11, 2020. This represents an increase in dividend payment of 9.4%

For the three months ended December 31, 2019, the Bank reported net income amounting to $1,238,000 or $0.72 per basic share in the fourth quarter. This amount compares to a net income of $836,000 or $0.57 per basic share, for the same period last year.

At December 31, 2019, select financial highlights include:

Return on average assets of 1.07%
Return on average equity of 10.31%
Net loan growth of 10.8%
Total deposit growth of 12.4%
Total asset growth of 13.1%
Seven consecutive years of increased dividend payments

President & CEO, G. Lyn Hayth, III stated, "We are so happy to share the results of the Bank's solid performance in 2019. Strong loan growth combined with a favorable local economy 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 2019 as gross loans increased 10.8%. The generation of new loans during a favorable local economic period was a positive contributor to the Bank's interest income and net income. Total interest income increased by $2,865,000 in 2019 as compared to 2018 due primarily to an increase in loan interest income. The increase was a result of loan growth and to a lesser extent an increase in interest earned on excess funds at due from depository institutions and federal funds sold. Interest expense increased by $1,432,000 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 year. As a result, net interest income increased by $1,433,000 for the year ended December 31, 2019 compared to the same time period in 2019.

The provision for loan losses was $830,000 for the year ended December 31, 2019 and $470,000 for the year ended December 31, 2018. While asset quality remains stable, the increase in the provision is primarily due to the growth of the portfolio. In addition, management recognized a reserve for exposure related to a watchlist loan relationship. Net charge-offs increased by $29,000 from $219,000 for year ended December 31, 2018 to $248,000 for 2019.

Noninterest income increased by $491,000, or 15.9%, to $3,583,000 for the year ended December 31, 2019 compared to $3,092,000 for the year ended December 31, 2018. The increase is attributable primarily to gains on loans held for sale, service charge fee income on deposit accounts, income from sales of brokerage services and annuities, and to a lesser extent an increase in income from title services by our subsidiaries.

For the year ended December 31, 2019, noninterest expense increased by $602,000, or 4.7%, from $12,688,000 at December 31, 2018 to $13,290,000 at December 31, 2019. The increase is primarily a result of increases in salaries and benefits, marketing expense, franchise tax assessment, and ATM and debit card related expenses. These expenses were partially offset by a decrease in collections expense when compared to the prior period. In addition, these expenses were also partially offset by the Small Bank Assessment Credits from the Federal Deposit Insurance Corporation. The Bank used $95,600 in credits in 2019 for FDIC insurance assessment, thereby reducing expenses by the same amount. All credits were used at December 31, 2019 and expense reduction will not recur in 2020.

Income tax expense for the year ended December 31, 2019 was $1,169,000 compared to $886,000 one year prior.

Financial Condition

At December 31, 2019 total assets amounted to $491,660,000, an increase of 13.1% above total assets at December 31, 2018 of $434,764,000, an increase of $56,896,000. Loan demand exceeded 2019 budget expectations. Total net loans increased $41,013,000 or 10.8% from $380,404,000 at December 31, 2018 to $421,417,000 at December 31, 2019. Total deposits at December 31, 2019 amounted to $433,111,000, compared to $385,314,000 at December 31, 2018, an increase of 12.4% or $47,797,000. Loan demand was funded by the increase in deposits combined with a $5,000,000 borrowing from the Federal Home Loan Bank. At December 31, 2019, total cash and cash equivalents amounted to $26,761,000 compared to $13,406,000 at December 31, 2018, thereby improving the Bank's liquidity position. Investment securities, including restricted equity securities, increased $1,987,000 as a result of investment purchases exceeding 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 $52,892,000 from $388,499,000 at December 31, 2018 to $441,391,000 at December 31, 2019 primarily attributed to the deposit growth and borrowing described.

Stockholders' equity totaled $50,269,000 at December 31, 2019 compared to $46,265,000 at December 31, 2018. The $4,004,000 increase during the period is primarily the result net income from 2019, 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 decreased to $3,200,000 at December 31, 2019 from $5,100,000 at December 31, 2018. The decline is due to decreases in nonaccrual loans and foreclosed property balances.

Nonaccrual loans were $656,000 at December 31, 2019 compared to $821,000 at December 31, 2018. There were three new additions to nonaccrual loans during 2019, one raw land and two residential installment loans. Four loans exited nonaccrual status, one residential lot, one commercial real estate, one residential installment, and one consumer. The net result was a reduction of $165,000in 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 $1,500,000 at December 31, 2019, compared to $1,300,000 at December 31, 2018. The $200,000 increase is related to one raw land loan being moved to impaired status and one raw land loan, currently performing according to contractual terms, removed from impairment status. Loss exposure on impaired loans at December 31, 2019 increased to $310,000, compared to $4,000 at December 31, 2018 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, 2019, $310,000, or 7.8%, of the $3,975,000 total allowance for loan losses was allocated for the loss exposure related to impaired loans, including an amount management recognized as a reserve for exposure related to a watchlist loan relationship.

Foreclosed assets consisted of nineteen properties totaling $2,500,000 at December 31, 2019. The decrease in foreclosed assets included nine sales totaling $1,900,000 and three additions totaling $237,000. 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 2019, the Bank recorded total write-downs on foreclosed properties in the amount of $127,000. 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, 2019 totaling $96,000.

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, 2019, troubled debt restructurings totaled $1,200,000 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, 2019, $273,000 of troubled debt restructurings were on nonaccrual status. No new TDRs were identified in 2019 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, 2019, Bank of Botetourt reported tier 1 leverage capital of 10.39% and total capital of 13.92%. Both common equity tier 1 and tier 1 capital ratios were 12.91%. At December 31, 2018 the ratios were 10.90%, 13.78%, and 12.85%, respectively.

Strategic Initiatives

Bank of Botetourt is expanding its merchant card services program with the hiring of an officer to focus exclusively on growing this revenue stream as part of the Bank's treasury services. Bank management feels there is untapped potential in our markets to grow the number of participating merchants in the program.

In addition, Bank of Botetourt is now offering the Insured Cash Sweep ('ICS") service to its customers whereby they are eligible for multi-million-dollar FDIC insurance by working with our bank to place deposits throughout a nationwide network of participating institutions.

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, 2019 (unaudited) and December 31, 2018 (audited)

	(unaudited)	(audited)
	December 31	December 31
	2019	2018
Assets

Cash and due from banks	$ 6,914,000	$ 7,386,000
Interest-bearing deposits with banks	19,545,000	5,534,000
Federal funds sold	302,000	486,000
Total cash and cash equivalents	26,761,000	13,406,000
Time deposits with banks	250,000	250,000
Investment securities available for sale	17,793,000	16,061,000
Restricted equity securities	655,000	400,000
Loans held for sale	-	317,000
Loans, net of allowance for loan losses of $3,975,000 at	421,417,000	380,404,000
December 31, 2019 and $3,393,000 at December 31, 2018
Property and equipment, net	13,419,000	11,901,000
Accrued income	1,314,000	1,184,000
Foreclosed assets	2,536,000	4,231,000
Other assets	7,515,000	6,610,000
Total assets	491,660,000	434,764,000

Liabilities and Stockholders' Equity
Liabilities
Noninterest-bearing deposits	$ 44,090,000	$ 42,610,000
Interest-bearing deposits	389,021,000	342,704,000
Total deposits	433,111,000	385,314,000

Other Borrowings	5,000,000	-
Accrued interest payable	572,000	465,000
Other liabilities	2,708,000	2,720,000
Total liabilities	441,391,000	388,499,000

Commitments and contingencies	-	-

Stockholders' Equity
Common stock, $1.50 par value; 2,500,000 shares
authorized; 1,720,900 and 1,713,664 issued and
outstanding at December 31, 2019 and at December 31, 2018
respectively	2,581,000	2,570,000
Additional paid-in capital	11,365,000	11,168,000
Retained earnings	37,257,000	33,316,000
Accumulated other comprehensive loss	(934,000)	(789,000)
Total stockholders' equity	50,269,000	46,265,000
Total liabilities and stockholders' equity	491,660,000	434,764,000

Bank of Botetourt
Statements of Income
For the Twelve and Three Months Ended December 31, 2019 (unaudited) and 2018 (audited)

	Twelve Months Ended December 31		Three Months Ended December 31
	Twelve Months Ended December 31		Three Months Ended December 31
	2019	2018	2019	2018
Interest income
Loans and fees on loans	$ 20,642,000	$ 17,860,000	$ 5,374,000	$ 4,726,000
Investment securities:
U.S. Treasury and Government Agencies	181,000	196,000	43,000	48,000
All other securities	183,000	183,000	53,000	45,000
Due from depository institutions	294,000	197,000	100,000	46,000
Federal Funds Sold	6,000	5,000	1,000	2,000
Total Interest income	21,306,000	18,441,000	5,571,000	4,867,000

Interest expense
Deposits	4,592,000	3,174,000	1,257,000	917,000
Federal funds purchased	-	2,000	-	-
Other borrowings	29,000	13,000	29,000	-
Total Interest expense	4,621,000	3,189,000	1,286,000	917,000
Net Interest Income	16,685,000	15,252,000	4,285,000	3,950,000

Provision for loan losses	830,000	470,000	210,000	330,000
Net Interest Income after provision for loan losses	15,855,000	14,782,000	4,075,000	3,620,000

Noninterest income
Service charges on deposit accounts	738,000	674,000	205,000	175,000
Securities brokerage and annuities	131,000	57,000	27,000	13,000
Other income, net of gains (losses)	2,714,000	2,361,000	718,000	549,000
Total noninterest income	3,583,000	3,092,000	950,000	737,000

Noninterest expense
Salaries and employee benefits	6,478,000	6,112,000	1,803,000	1,578,000
Premises and fixed assets expense	1,326,000	1,341,000	281,000	328,000
Other expense	5,486,000	5,235,000	1,464,000	1,426,000
Total noninterest expense	13,290,000	12,688,000	3,548,000	3,332,000
Income before income taxes	6,148,000	5,186,000	1,477,000	1,025,000

Income tax expense	1,169,000	886,000	239,000	189,000
Net income	$ 4,979,000	$ 4,300,000	$ 1,238,000	$ 836,000

Basic earnings per share	$ 2.90	$ 2.98	$ 0.72	$ 0.57
Diluted earnings per share	$ 2.90	$ 2.98	$ 0.72	$ 0.57
Dividends declared per share	$ 0.64	$ 0.60	$ 0.16	$ 0.15
Basic weighted average shares outstanding	1,717,273	1,445,176	1,720,049	1,478,882
Diluted weighted average shares outstanding	1,717,273	1,445,176	1,720,049	1,478,882