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 $1172000 or $068 per basic share in the second quarter This amount compares to a net income of $1104000 or $064 per share for the same period last year  For the six months-ended the Bank produced net income amounting to $2210000 or $128 per basic share This amount compares to a net income of $2258000 or $132 per share for the same period last year 

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

• Return on average assets of 084%
• Return on average equity of 863%
• Book value of $3028
• $119 million year-to-date provision for loan losses
• 455 loans for $295 million funded under the federal Paycheck Protection Program (PPP)
• Loan extensions skip-a-payments and modifications totaled 230 loans with balances of $561 million
• Community Bank Leverage Ratio (CBLR) of 944%

As a result of the solid financial performance the Board of Directors voted to pay the $0175 per share quarterly dividend or $070 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 $1172000 compared to $1104000 for the same period last year representing an increase of $68000 or 62%  Basic and diluted earnings per share increased $004 from $064 at June 30 2019 to $068 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 106% Interest and fees on loans at June 30 2020 increased $230000 or 45% over the same three-month time period of 2019 Total interest income increased $166000 or 31% Interest expense increased by $74000 or 65% 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 $4247000 for the three months-ended June 30 2020 compared to $4155000 for the three month-ended June 30 2019 an increase of 22%

The provision for loan losses was $745000 for the three months ended June 30 2020 as compared to $400000 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 $107000 at June 30 2020 as compared to 239000 at June 30 2019

Noninterest income decreased by $83000 or 86% to $885000 for the three months ended June 30 2020 compared to $968000 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 $398000 from $3315000 at June 30 2019 to $2917000 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 $298000 compared to $304000 one year prior

Net income for the six months ended June 30 2020 was $2210000 compared to $2258000 for the same period last year representing a decrease of $48000 or 21%  Basic and diluted earnings per share decreased $004 from $132 at June 30 2019 to $128 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 $1190000 at June 30 2020 compared to $595000 at June 30 2019  The 1000% 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 $576704000 an increase of 170% above total assets at December 31 2019 of $492817000 an increase of $83887000 Total net loans increased $44844000 or 106% from $421417000 at December 31 2019 to $466261000 at June 30 2020 Approximately $29500000 of the growth was related to PPP lending Total deposits at December 31 2019 amounted to $434268000 compared to $510126000 at June 30 2020 an increase of 175% or $75858000 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 $52154000 at June 30 2020 compared to $50269000 at December 31 2019 The $1885000 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 $3200000 at December 31 2019 to $4534000 at June 30 2020  The increase is attributable to an uptick in nonaccrual loans  Nonaccrual loans were $656000 at December 31 2019 compared to $2194000 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 $1500000 at December 31 2019 compared to $3000000 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 $310000 compared to $512000 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 $1069000 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 944% which exceeds the required regulatory minimum ratio The CARES Act temporarily reduced the CBLR minimum ratio from 90% to 80% through December 31 2020

Paycheck Protection Program

Bank of Botetourt is participating in the Paycheck Protection Program (PPP) initiated by the US Department of the Treasury on April 3 2020  As of June 30 2020 the Bank has processed and received approval from the US Small Business Administration on 455 applications for approximately $295 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 $1190000 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 $561 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