Buchanan-based Bank of Botetourt (OTCPK: BORT) announced today its unaudited financial results for the three and nine months-end September 30, 2021. The Bank produced net income amounting to $1,816,000 or $1.04 per basic share in the third quarter. This amount compares to a net income of $1,095,000 or $0.64 per share, for the same period last year, an increase of $721,000 or 65.9%. For the nine months-ended the Bank produced net income amounting to $5,378,000 or $3.10 per basic share. This amount compares to a net income of $3,305,000 or $1.92 per share for the same period last year, an increase of $2,073,000 or 62.7%.
At September 30, 2021, select financial information and key highlights include:
- Return on average assets of 1.12%
- Return on average equity of 12.76%
- Book value of $33.71
- Total deposit growth of 10.0%
- Total asset growth of 9.6%
- Community Bank Leverage Ratio of 9.09%
- Strong liquidity position
- Net interest margin of 3.02% at September 30, 2021 compared to 3.07% one year prior.
- Outstanding Paycheck Protection Program (“PPP”) loans of $26.2 million reported at December 31, 2020 decreased to $0.4 million at September 30, 2021 after receiving SBA forgiveness on $25.8 million. The Bank recognized $747,000 in revenue from the forgiven loans.
- In 2021, the Bank participated in the next round of the SBA’s PPP Program, generating $18.0 million new PPP loans. At September 30, 2021, $8.9 million had been forgiven by the SBA leaving portfolio balance of $9.1 million. The bank recognized $523,000 in revenue related to this tranche of PPP lending.
- At quarter-end, remaining PPP loan balances from both rounds totaled $9.5 million with $629,000 in deferred revenue.
As a result of the solid financial performance, the Board of Directors voted to pay the $0.18 per share quarterly dividend, or $0.72 per share annualized which is payable on November 19, 2021 to shareholders of record November 12, 2021. President & CEO, G. Lyn Hayth, III stated, “Our third quarter financial results continued to exceed 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 has been a contributor to 2021 earnings.”
Results of Operations
Net income for the three months ended September 30, 2021 was $1,816,000 compared to $1,095,000 for the same period last year, representing an increase of $721,000 or 65.9%. Basic and diluted earnings per share increased $0.40 from $0.64 at September 30, 2020 to $1.04 at September 30, 2021. The increase in net income is primarily due to $499,000 in PPP loan revenue recognized and $243,000 in secondary market mortgage income.
The provision for loan losses was $195,000 for the three months ended September 30, 2021 as compared to $420,000 for the three months ended September 30, 2020. The decrease in the provision is due to a reduction in exposure on impaired loans, decreased recession probability due to the pandemic, and partially offset by inflation concern in the economy and the historic loss factor in the allowance for loan loss reserve calculation. In determining the estimated allowance, the Bank considered national and local unemployment trends, market conditions, and customer requests for payment deferrals.
At September 30, 2021 net loans decreased 4.74%. Interest and fees on loans at September 30, 2021 decreased $67,000 over the same three month time period of 2020. Interest expense decreased by $572,000 from $1,168,000 at September 30, 2020 to $596,000 at September 30, 2021. The lower interest expense is a result of lower interest rates paid on the balances of interest-bearing deposits than for the same time period of 2020 and less interest paid on a borrowing with a smaller principal balance.
Noninterest income increased by $174,000, or 18.1%, to $1,134,000 for the three months ended September 30, 2021 compared to $960,000 for same time period of 2020. The increase is attributable primarily to income from loans held-for-sale and income from title insurance subsidiaries, partially offset by the losses on sale of other real estate.
Noninterest expense increased $127,000 from $3,723,000 at September 30, 2020 to $3,850,000 at September 30, 2021. The increase is primarily related to an increase in salary and employee benefits expense for the quarter. The majority of the increase in salaries expense is related to the deferred costs of PPP lending activity.
Income tax expense for the three months ended September 30, 2021 was $411,000 compared to $221,000 one year prior. The increase in tax expense is due to higher revenue for the quarter.
Financial Condition
At September 30, 2021 total assets amounted to $655,108,000, an increase of 9.6% above total assets at December 31, 2020 of $597,794,000, an increase of $57,314,000. Total net loans decreased $21,559,000 or 4.7% from $454,680,000 at December 31, 2020 to $433,121,000 at September 30, 2021. Total deposits at December 31, 2020 amounted to $536,805,000, compared to $590,440,000 at September 30, 2021, an increase of 10.0% or $53,635,000. The increase in deposits is attributable to organic growth.
Stockholders’ equity totaled $58,558,000 at September 30, 2021 compared to $53,816,000 at December 31, 2020. The $4,742,000 increase during the period is net income for 2021, net proceeds from the issuance of common stock from the Dividend Reinvestment and Stock Purchase Plan, and partially offset by dividends paid and accumulated other comprehensive loss.
Non-Performing Assets
Non-performing assets, which consist of nonaccrual loans and foreclosed properties decreased from $3,200,000 at December 31, 2020 to $1,274,000 at September 30, 2021. The decrease is attributable to the sale of a foreclosed property during the quarter with gain on sale of approximately $10,000. Nonaccrual loans were $1,175,000 at September 30, 2021 compared to $1,286,000 at December 31, 2020. There was one new addition to nonaccruals during the quarter related to an owner occupied commercial real estate loan.
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 $1,964,000 at September 30, 2021 compared to $2,300,000 at December 31, 2020. Loss exposure on impaired loans decreased from $98,000 at December 31, 2020 to $6,600 at September 30, 2021 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 September 30, 2021, troubled debt restructurings (“TDRs”) totaled $1.2 million and were spread among various loan categories. No new TDRs have been identified in 2021.
Capital Ratios
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 September 30, 2021 Bank of Botetourt reported its CBLR ratio at 9.09% which meets the required regulatory minimum ratio. 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 September 30, 2021 both rounds of PPP lending totaled $44.2, with $34.7 receiving forgiveness from the SBA. As result, $9.5 million of PPP loans remain on the balance sheet at the end of the third quarter. Deferred PPP loan servicing fees totaled $629,000 at September 30, 2021 while the Bank recognized $1,270,000 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 assistance during the third quarter. 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 are eligible for and were encouraged to receive the COVID-19 vaccine. At September 30, 2021, the Bank had a bank-wide vaccination rate of 82%.
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