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Touchstone Bankshares Reports 2020 Financial Results

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PRINCE GEORGE, Va., Jan. 29, 2021 /PRNewswire/ -- Touchstone Bankshares, Inc. (the "Company") (OTC Pink: TSBA), and its wholly-owned subsidiary, Touchstone Bank (the "Bank"), reported unaudited results for the year ended December 31, 2020.

Bankshares (PRNewsfoto/Touchstone Bankshares, Inc.)
Bankshares (PRNewsfoto/Touchstone Bankshares, Inc.)

The Company reported net income of $2.28 million available to common shareholders for the year ended December 31, 2020. Basic and diluted earnings per common share for the year ended December 31, 2020 amounted to $0.69 and $0.68, respectively. Return on average assets was 0.45%. By comparison, the Company had net income of $3.28 million available to common shareholders for the year ended December 31, 2019. Basic and diluted earnings per common share for the year ended December 31, 2019 amounted to $0.99 and $0.98, respectively, and return on average assets was 0.72%. For the fourth quarter of 2020, the Company reported net income available to common shareholders of $826 thousand or $0.25 per share on a basic and diluted basis. For the quarter ended December 31, 2019, net income available to common shareholders was $1.1 million, or $0.32 per share on a basic and diluted basis.

"We ended the fourth quarter and full year on solid footing as the team responded and adapted exceptionally well with the challenging year of 2020" remarked James Black, President & CEO. "Notably, full year earnings declined approximately one-third from the prior year as we nearly doubled loan loss reserves. This reflected our conservative approach in reserves given the unknown economic fallout from COVID-19. We are stronger and even better poised to deliver higher results for our shareholders and customers. I am proud of the team's accomplishments and optimistic on the outlook for 2021, particularly as the pandemic subsides."

Earnings

Net interest income for the year ended December 31, 2020 was $17.9 million, compared to $17.1 million for the same period in 2019, an increase of $711 thousand, or 4.15%. Net interest income for the fourth quarters of 2020 and 2019 was $4.6 million and $4.3 million, respectively. Net interest income was $4.3 million for the third quarter of 2020. Net interest income in 2020 was aided by recognizing $786 thousand in fee income related to loans made under Paycheck Protection Program ("PPP loans"). The net interest margin for the year ended December 31, 2020 was 3.86% compared to 4.14% for the year ended December 31, 2019. The net interest margin for the fourth quarter of 2020 was 3.81% compared to 3.92% for the same period in 2019. The Bank experienced net interest margin compression in 2020 mainly due to a decline in interest rates in the first quarter of 2020 in response to the pandemic. However, the Bank was able to reduce its costs of funds to 68 basis points for the year ended December 31, 2020, partially offsetting the decline in rates on interest earning assets. The Bank expects more compression in its net interest margin in 2021, though not as dramatic a decline as seen in 2020.

The Bank recorded a $750 thousand provision for loan losses in the fourth quarter of 2020, bringing the 2020 year-to-date total to $2.25 million. The provision for loan losses for the year ended December 31, 2019 totaled $63 thousand. Though credit metrics remain stable, the lingering effects of the COVID-19 pandemic on several industries, namely hospitality and food service, remain uncertain and are still weighing on the Bank's credit portfolio. Management was conservative when providing to the loan loss reserve as the long-term credit impact from the pandemic remains unknown. More discussion about the allowance for loan losses is below under Asset Quality.

Noninterest income totaled $2.89 million for the year ended December 31, 2020, a decrease of $207 thousand, or 6.7%, when compared to the same period in 2019.

The following table is a comparison of the components of noninterest income for the years end December 31, 2020 and 2019:



For the year ended







December 31,







2020


2019


Change $


Change %

(dollars in thousands)









Service charges on deposit accounts


$ 1,611


$ 1,578


$ 33


2.1%

Secondary market origination fees


272


204


68


33.3%

Bank-owned life insurance


232


319


(87)


-27.3%

Gain on security sales


113


91


22


24.2%

Other operating income


656


899


(243)


-27.0%

Total


$ 2,884


$ 3,091


$ (207)


-6.7%










The following table is a comparison of the components of noninterest income for the quarters end December 31, 2020 and 2019:



For the three months ended







December 31,







2020


2019


Change $


Change %

(dollars in thousands)









Service charges on deposit accounts


$ 423


$ 424


$ (1)


-0.2%

Secondary market origination fees


51


39


12


30.8%

Bank-owned life insurance


57


130


(73)


-56.2%

Gain on security sales


-


18


(18)


-100.0%

Other operating income


226


291


(65)


-22.3%

Total


$ 757


$ 902


$ (145)


-16.1%

The increase in secondary market fees was driven by the increased refinance activity due to the lower interest rate environment. The decrease in bank-owned life insurance was mainly due to receiving a $67 thousand death benefit in the fourth quarter of 2019. The decline in other operating income was mainly due to a reduction in income from the Company's other investment funds. The Company expects a more normal return on these investments in 2021 as the pandemic subsides.

Noninterest expense for the year ended December 31, 2020 was $15.8 million, a decrease of $378 thousand, or 2.3%, over the $16.1 million of noninterest expense incurred during the year ended December 31, 2019.

The following table is a comparison of the components of noninterest expense for the years end December 31, 2020 and 2019:



For the year ended







December 31,







2020


2019


Change $


Change %

(dollars in thousands)









Salaries and employee benefits


$ 8,209


$ 8,705


$ (496)


-5.7%

Occupancy expense


1,074


1,059


15


1.4%

Funiture and equipment expense


1,160


1,175


(15)


-1.3%

Data processing


927


745


182


24.4%

Telecommunications


746


762


(16)


-2.1%

Legal and professional fees


628


492


136


27.6%

OREO losses and related expenses


23


40


(17)


-42.5%

FDIC assessments


188


99


89


0.0%

Other noninterest expenses


2,812


3,068


(256)


-8.3%

Total


$ 15,767


$ 16,145


$ (378)


-2.3%










The following table is a comparison of the components of noninterest expense for the quarters end December 31, 2020 and 2019:



For the three months ended







December 31,







2020


2019


Change $


Change %

(dollars in thousands)









Salaries and employee benefits


$ 1,848


$ 2,082


$ (234)


-11.2%

Occupancy expense


265


295


(30)


-10.2%

Funiture and equipment expense


309


247


62


25.1%

Data processing


215


199


16


8.0%

Telecommunications


189


194


(5)


-2.6%

Legal and professional fees


184


(2)


186


-9300.0%

OREO losses and related expenses


1


16


(15)


-93.8%

FDIC assessments


54


43


11


25.6%

Other noninterest expenses


585


737


(152)


-20.6%

Total


$ 3,650


$ 3,811


$ (161)


-4.2%










The decline in salaries and employee benefits year-over-year was mainly due a reduction in the workforce as well as a reduction in bonus accruals. The increase in data processing was due to additional services and a few one-time expenses paid to our core processing vendor. The increase in legal and professional fees was mainly due to fees paid in connection with forming the bank holding company and fees paid to recruiters. The improvement in FDIC assessments was due to the ability to use credits in the third and fourth quarters of 2019 to offset the quarterly assessments. The decline in other noninterest expenses was due to several factors including a $147 thousand reduction in marketing and advertising expense, a $71 thousand reduction in loan collection expenses, and no losses on the sale of fixed assets in 2020 versus a $30 loss in 2019.

Balance Sheet

At December 31, 2020, total assets were $532.7 million, compared to $468.2 million as of December 31, 2019, an increase of $64.5 million, or 13.8%. Total loans increased $12.8 million, or 3.6%, when comparing total loans of $363.0 million at December 31, 2020 to total loans of $350.3 million at December 31, 2019. The main driver in the increase in loans was the PPP loans. The Bank made $34 million in PPP loans in 2020, of which $19.6 million was outstanding at December 31, 2020. Loan activity outside of the Paycheck Protection Program subsided throughout the Bank's markets during the pandemic but picked up towards year end. The Bank had a healthy pipeline entering the first quarter of 2021 and management is optimistic about loan growth in 2021. The Bank is also participating in the third round of the Paycheck Protection Program which began in January of 2021 and had over $10 million in approved applications.

Deposits totaled $445.8 million at December 31, 2020, as compared to $382.9 million as of December 31, 2019. The increase in deposits was a nationwide trend. Noninterest bearing deposits showed the greatest increase year over year, increasing $41.0 million to $143.9 million at December 31, 2020. Time deposits decreased $11.2 million year over year, showing a balance of $113.4 million at December 31, 2020. The added deposits pushed up cash balances on the asset side of the balance sheet. A portion of the added cash was deployed into investments. Investments were up $33.6 million, or 55.7%, when comparing the $93.9 million in investments at December 31, 2020 to the $60.3 million in investments at December 31, 2019.

Borrowings from the Federal Home Loan Bank totaled $21.0 million at December 31, 2020. In January of 2021, the Bank paid down $3 million of outstanding FHLB borrowings while $15 million of outstanding FHLB borrowings mature in June of 2021.

In August of 2020, the Company issued $8 million of subordinated debt with a 10-year maturity with an initial 6.00% coupon, bringing total subordinated debt to $11.3 million as of December 31, 2020. In January of 2021, the Company began the process of redeeming the $3.5 million of legacy subordinated debt issued in February of 2016. These notes carry a 7% coupon and are redeemable in February of 2021.

Total equity at December 31, 2020 was $50.1 million, compared to $47.2 million at December 31, 2019. The bank holding company injected $3.5 million of capital into the Bank in December 2020 bringing its Community Bank Leverage Ratio to 9.63%. The Bank remains well capitalized as defined by regulatory guidelines.

Asset Quality

The allowance for loan losses at December 31, 2020 was $4.4 million, or 1.20%, of total loans, compared to $2.3 million, or 0.65% of total loans, at December 31, 2019. When discounting total loans for the PPP loans outstanding, the allowance for loan losses was 1.27% of total loans. The Bank believes the current level of allowance for loan loss reserves are adequate to cover anticipated losses. Charge offs, net of recoveries, for the quarter ended December 31, 2020 were $68 thousand, bringing the year-to-date total of net charge offs to $173 thousand. Nonperforming loans, excluding purchased credit impaired loans, were $2.4 million, or 0.66% of total loans at December 31, 2020. Other real estate owned at December 31, 2020 was $22 thousand.

Most loans placed on deferral during the 2020 pandemic have returned to full payment terms before the year's end. Total deferrals were $14.0 million at December 31, 2020. The Bank has $17.9 million in hotel-loan exposure and $6.4 million in restaurant exposure and is closely monitoring and working with its customers in these industries that were among the most negatively impacted by the pandemic.

SOURCE Touchstone Bankshares, Inc.

About Touchstone Bankshares, Inc.

Touchstone Bankshares, Inc. is the bank holding company for Touchstone Bank. The formation of Touchstone Bankshares, Inc. was finalized on July 1, 2020 with a one-for-one share exchange of Touchstone Bank preferred and common shares with Touchstone Bankshares, Inc. preferred and common shares, respectively. Touchstone Bank is a full-service community bank headquartered in Prince George, Virginia. The Bank has ten branches serving Southern and Central Virginia and two branches and a loan center serving Northern North Carolina. Visit www.touchstone.bank for more information.

Forward-Looking Statements

In addition to historical information, this press release may contain certain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. For this purpose, any statement that is not a statement of historical fact may be deemed to be a forward-looking statement. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to, the impacts of the ongoing COVID-19 pandemic; changes in interest rates and general economic conditions; the legislative/regulatory climate; monetary and fiscal policies of the U.S. Government; the quality or composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; demand for financial services in the Company's market area; mergers, acquisitions and dispositions; implementation of new technologies and the ability to develop and maintain secure and reliable electronic systems; and tax and accounting rules, principles, policies and guidelines.

Touchstone Bankshares, Inc.

Consolidated Financial Highlights

(unaudited)














For the Three Months Ended

(in thousands, except per share data)


December 31,


September 30,


June 30,


March 31,


December 31,

Selected Operating Data:


2020


2020


2020


2020


2019

Net interest income


$ 4,647


$ 4,316


$ 4,255


$ 4,639


$ 4,283

Provision for loan losses


750


300


300


900


100

Noninterest income


757


722


653


752


902

Noninterest expense


3,650


4,010


4,070


4,037


3,811

Income before income tax


1,004


728


538


454


1,274

Income tax expense


170


121


81


63


211

Net income


834


607


457


391


1,063

Less: Preferred dividends


8


-


-


-


8

Net income available to common shareholders


$ 826


$ 607


$ 457


$ 391


$ 1,055












Income per share available to common shareholders:









Basic


$ 0.25


$ 0.18


$ 0.13


$ 0.12


$ 0.32

Diluted


$ 0.25


$ 0.18


$ 0.13


$ 0.12


$ 0.32












Average common shares outstanding, basic


3,327,114


3,326,027


3,327,287


3,325,600


3,321,850

Average common shares outstanding, diluted


3,356,262


3,355,291


3,356,639


3,354,952


3,351,202

























For the years ended









December 31,


December 31,









2020


2019







Net interest income


$ 17,857


$ 17,146







Provision for loan losses


2,250


63







Noninterest income


2,884


3,091







Noninterest expense


15,767


16,145







Income before income tax


2,724


4,029







Income tax expense


435


743







Net income


2,289


3,286







Less: Preferred dividends


8


8







Net income available to common











shareholders


$ 2,281


$ 3,278


















Income per share available to common shareholders:









Basic


$ 0.69


$ 0.99







Diluted


$ 0.68


$ 0.98


















Average common shares outstanding, basic


3,326,507


3,320,989







Average common shares outstanding, diluted


3,355,786


3,350,367







Touchstone Bankshares, Inc.

Consolidated Financial Highlights (continued)

(unaudited)












(in thousands, except per share data)


December 31,


September 30,


June 30,


March 31,


December 31,

Balance Sheet Data:


2020


2020


2020


2020


2019

Total assets


$ 532,662


$ 527,110


$ 507,378


$ 472,950


$ 468,189

Total loans


363,029


374,047


372,219


348,565


350,276

Allowance for loan losses


(4,357)


(3,675)


(3,491)


(3,199)


(2,280)

Core deposit intangible


1,102


1,181


1,262


1,347


1,434

Deposits


445,774


441,490


430,585


390,689


382,924

Borrowings


21,000


21,000


21,000


27,000


30,000

Subordinated debt


11,282


11,279


3,524


3,533


3,542

Preferred stock


58


58


59


59


59

Shareholders' equity


50,124


49,922


49,208


48,338


47,219

Book value per common share


$ 15.01


$ 14.99


$ 14.77


$ 14.51


$ 14.18

Tangible book value per common share


$ 14.68


$ 14.64


$ 14.39


$ 14.11


$ 13.75

Total common shares outstanding


3,334,445


3,325,768


3,327,287


3,327,287


3,325,043

Total preferred shares outstanding


29,148


29,148


29,352


29,352


29,352














December 31,


September 30,


June 30,


March 31,


December 31,



2020


2020


2020


2020


2019

Performance Ratios:


(QTD annualized)


(QTD annualized)


(QTD annualized)


(QTD annualized)


(QTD annualized)

Return on average assets


0.63%


0.47%


0.37%


0.34%


0.89%

Return on average common equity


6.63%


4.84%


3.73%


3.30%


8.83%

Net interest margin


3.81%


3.61%


3.74%


4.36%


3.92%

Overhead efficiency (non-GAAP)


67.55%


79.59%


85.01%


76.05%


74.12%














December 31,


December 31,









2020


2019







Performance Ratios:


YTD


YTD







Return on average assets


0.45%


0.72%







Return on average common equity


4.65%


7.11%







Net interest margin


3.86%


4.14%







Overhead efficiency (non-GAAP)


76.43%


79.90%































December 31,


September 30,


June 30,


March 31,


December 31,

Asset Quality Data:


2020


2020


2020


2020


2019

Allowance for loan losses


$ 4,357


$ 3,675


$ 3,491


$ 3,199


$ 2,280

Nonperforming loans (excluding PCI loans)


2,393


2,868


4,456


2,383


807

Other real estate owned, net of allowance


22


22


53


82


82

Nonperforming assets


2,415


2,890


4,509


2,465


889

Net charge-offs (recoveries), QTD


68


116


8


(19)


56












Asset Quality Ratios:











Allowance for loan losses to total loans


1.20%


0.99%


0.94%


0.92%


0.65%

Nonperforming loans to total loans


0.66%


0.77%


1.20%


0.68%


0.23%

Nonperforming assets to total assets


0.45%


0.55%


0.89%


0.52%


0.19%

YTD net charge-offs (recoveries) to average loans, annualized

0.07%


0.12%


<0.01%


(0.02)%


0.06%












Community Bank Leverage Ratio


9.63%


9.20%


9.33%


9.83%


9.61%*












*Tier 1 Leverage Ratio











Cision
Cision

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SOURCE Touchstone Bankshares, Inc.