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Touchstone Bankshares Reports 3rd Quarter 2020 Financial Results

·15 min read

PRINCE GEORGE, Va., Oct. 30, 2020 /PRNewswire/ -- Touchstone Bankshares, Inc. (the "Company") (OTC Pink: TSBA), and its wholly-owned subsidiary, Touchstone Bank (the "Bank"), reported unaudited net income of $607 thousand for the quarter ended September 30, 2020, a decrease of $239 thousand, or 28.3%, when compared to the $846 thousand of net income recorded for the same quarter in 2019. Return on average assets was 0.47% for the third quarter of 2020, a decrease of 25 basis points when compared to the 0.72% return on average assets recorded for the third quarter of 2019. Basic and diluted earnings per common share for the quarter ended September 30, 2020 was $0.18. For the nine months ended September 30, 2020, net income was $1.5 million and basic and diluted earnings per common share were $0.44 and $0.43, respectively.

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

James Black, President and CEO commented "Our priority remains with taking care of our employees and customers and that stayed top of mind during the third quarter. Secondly, we strengthened the Company's financial posture and flexibility through a subordinated debt issuance, boosted loan loss reserves and executed a previously announced efficiency improvement plan. Each of the initiatives adding shareholder value and better positioning us for when we return to normality."

Earnings

Net interest income for the quarters ended September 30, 2020 and September 30, 2019 was $4.3 million and $4.4 million, respectively. Net interest income for the second quarter of 2020 was $4.3 million. The net interest margin for the third quarter of 2020 was 3.61% compared to 4.12% for the same period in 2019. This decline in the margin was mainly attributable to the drop of the Federal Funds target rates during the preceding twelve months. The net interest margin for the second quarter of 2020 was 3.74%. Net interest income for the nine months ended September 30, 2020 was $13.2 million compared to $12.9 million for the same period in 2019. The net interest margin declined 33 basis points to 3.89% for the nine months ended September 30, 2020 when compared to the 4.22% recorded for the nine months ended September 30, 2019.

The Bank recorded a $300 thousand provision for loan losses in the third quarter of 2020, while no provision for loan losses was recorded in the third quarter of 2019. Year to date, the Bank has recorded provision for loan losses of $1.5 million compared to a recovery of loan losses of $37 thousand recorded for the same period in 2019. Though credit quality metrics as of September 30, 2020 remain sound, the Bank is taking proactive measures by adding to the reserve in anticipation of the credit challenges it believes it could face in late 2020 and early 2021 due to the COVID-19 pandemic.

Noninterest income totaled $722 thousand for the quarter ended September 30, 2020, a decrease of $28 thousand, or 3.7%, when compared to the $750 thousand recorded for the same period in 2019.

The following table is a comparison of the components of noninterest income for the quarters ended September 30, 2020 and 2019:



For the three months ended







September 30,







2020


2019


Change $


Change %

(dollars in thousands)









Service charges on deposit accounts


$ 401


$ 439


$ (38)


-8.7%

Secondary market origination fees


103


53


50


94.3%

Bank-owned life insurance


57


63


(6)


-9.5%

Gain on security sales


2


14


(12)


-85.7%

Other operating income


159


181


(22)


-12.2%

Total


$ 722


$ 750


$ (28)


-3.7%

The following table is a comparison of the components of noninterest income for the nine months ended September 30, 2020 and 2019:



For the nine months ended







September 30,







2020


2019


Change $


Change %

(dollars in thousands)









Service charges on deposit accounts


$ 1,188


$ 1,154


$ 34


2.9%

Secondary market origination fees


221


165


56


33.9%

Bank-owned life insurance


175


189


(14)


-7.4%

Gain on security sales


113


89


24


27.0%

Other operating income


430


592


(162)


-27.4%

Total


$ 2,127


$ 2,189


$ (62)


-2.8%

Notable variances for the two noninterest income tables above:

  • The $38 thousand decline in service charges on deposit accounts for the three months ended September 30, 2020 compared to the same period in 2019 was mainly due to the decline in overdraft fee income, partially offset by an increase in ATM and card interchange fees.

  • Secondary mortgage fees are higher for both the three and nine months ended September 30, 2020 when compared to the same periods ended the prior year, respectively, due to the low interest rate environment which has created higher volumes on refinancing and home purchases.

  • The declines in other operating income for the three and nine months ended September 30, 2020 compared to the same periods in 2019, respectively, were mainly due to declines in income from other investments.

Noninterest expense for the three-month periods ended September 30, 2020 and 2019 were $4.0 million and $4.1 million, respectively. Noninterest expense for the second quarter of 2020 was $4.1 million.

The following table is a comparison of the components of noninterest expense for the quarters ended September 30, 2020 and 2019:



For the three months ended







September 30,







2020


2019


Change $


Change %

(dollars in thousands)









Salaries and employee benefits


$ 1,997


$ 2,279


$ (282)


-12.4%

Occupancy expense


274


234


40


17.1%

Funiture and equipment expense


306


298


8


2.7%

Data processing


197


208


(11)


-5.3%

Telecommunications


203


211


(8)


-3.8%

Legal and professional fees


254


157


97


61.8%

OREO losses and related expenses


10


11


(1)


-9.1%

FDIC assessments


60


-


60


0.0%

Other noninterest expenses


709


682


27


4.0%

Total


$ 4,010


$ 4,080


$ (70)


-1.7%

For the nine months ended September 30, 2020, noninterest expense was $12.1 million, an improvement of $217 thousand when compared to the $12.3 million of noninterest expense recorded in the first nine months of 2019. The following table is a comparison of the components of noninterest expense for the nine months ended September 30, 2020 and 2019:



For the nine months ended







September 30,







2020


2019


Change $


Change %

(dollars in thousands)









Salaries and employee benefits


$ 6,362


$ 6,622


$ (260)


-3.9%

Occupancy expense


809


765


44


5.8%

Funiture and equipment expense


851


928


(77)


-8.3%

Data processing


712


583


129


22.1%

Telecommunications


557


568


(11)


-1.9%

Legal and professional fees


500


446


54


12.1%

OREO losses and related expenses


22


23


(1)


-4.3%

FDIC assessments


134


99


35


35.4%

Other noninterest expenses


2,170


2,300


(130)


-5.7%

Total


$ 12,117


$ 12,334


$ (217)


-1.8%

Notable variances for the two noninterest expense tables above:

  • The declines in salaries and employee benefits for the three months and nine months ended September 30, 2020 when compared to the same periods in 2019, respectively, is mainly due to the decision by Management to reduce employee headcount via attrition as well as adjust bonus accruals for 2020 in response to the COVID pandemic.

  • Occupancy expense has increased for both the three months and nine months ended September 30, 2020 when compared to the same periods in 2019, respectively, due to paying the third-quarter 2019 lawn maintenance vendor invoice in the fourth quarter of 2019.

  • The $77 thousand decline in furniture and equipment expense for the nine months ended September 30, 2020 when compared to the same period in 2019 is mainly due to a one-time adjustment of $35 thousand made in the first quarter of 2020 as well as normal fluctuations.

  • Data processing increased $129 thousand for the nine months ended September 30, 2020 when compared to the same period in 2020. This is mainly due to fully utilizing vendor credits in 2019.

  • Legal and professional fees are higher for the three- and nine-month periods ended September 30, 2020 when compared to the same periods in 2019, respectively, due to legal expenses related to forming the bank holding company in 2020.

  • FDIC assessments are lower in 2019 versus 2020 due to available credits being applied in 2019.

Balance Sheet

At September 30, 2020, total assets were $527.1 million, compared to $468.2 million as of December 31, 2019, an increase of $58.9 million, or 12.6%. Total loans, net of the $32.5 million of outstanding Paycheck Protection Program loans ("PPP loans"), were $341.5 million at September 30, 2020, which was a decrease of $8.8 million, or 2.5%, when compared to total loans of $350.3 million at December 31, 2019. Loan demand has softened in the Bank's markets due to the COVID-19 pandemic. Deposits totaled $441.5 million at September 30, 2020, and increase of $58.6 million, or 15.3%, when compared to the $382.9 million as of December 31, 2019. Borrowings from the Federal Home Loan Bank totaled $21.0 million at September 30, 2020, compared to $30.0 million at December 31, 2019. The Company issued $8 million of subordinated debt in the third quarter of 2020 (the "2020 Notes"), bringing the net total subordinated debt to $11.3 million at September 30, 2020. The 2020 Notes have a maturity date of August 15, 2030 and carry a coupon of 6.00% for the first five years. Thereafter, the 2020 Notes will pay interest at 3-month SOFR plus 596 basis points, resetting quarterly. The Company is entitled to redeem the Notes without penalty, in whole or in part, on any interest payment date on or after August 15, 2025, or at any time, in whole but not in part, upon certain other specified events. The Company plans to use the proceeds from the placement of the 2020 Notes for general corporate purposes, including the potential repayment of the existing $3.5 million of subordinated debt in 2021 and to support capital levels at Touchstone Bank. The 2020 Notes have been structured to qualify as Tier 2 capital for regulatory purposes at the holding company.

Total equity at September 30, 2020 was $49.9 million, compared to $47.2 million at December 31, 2019. The Bank remains well capitalized as defined by regulatory guidelines.

Asset Quality

The allowance for loan losses at September 30, 2020 was $3.7 million, or 1.08% of total loans, net of PPP loans, compared to $2.3 million, or 0.65% of total loans, at December 31, 2019. Charge offs, net of recoveries, for the quarter ended September 30, 2020 were $116 thousand, bringing the year to date net charge-offs to $105 thousand. Nonperforming loans (excluding Purchased Credit Impaired loans, or "PCI loans") declined $1.6 million, or 35.6% during the third quarter to $2.9 million, or 0.85% of total loans, net of PPP loans, at September 30, 2020.

In response to the COVID-19 pandemic, the Bank offered its borrowers an option to defer loan payments for an initial three months ("initial deferral"). The Bank grants an additional three-month deferral ("second deferral") to borrowers after management evaluates each borrower's status after the initial three-month deferral period had ended. Initial deferrals were granted on 294 loans totaling approximately $64.1 million. At September 30, 2020, the Bank had twelve loans totaling of $13.7 million on second deferral. Of the twelve loans on second deferral, three loans totaling $8.3 million are hotel-related loans.

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 eleven 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)


September 30,


June 30,


March 31,


December 31,


September 30,

Selected Operating Data:


2020


2020


2020


2019


2019

Net interest income


$ 4,316


$ 4,255


$ 4,639


$ 4,283


$ 4,388

Provision for loan losses


300


300


900


100


-

Noninterest income


722


653


752


902


750

Noninterest expense


4,010


4,070


4,037


3,811


4,080

Income before income tax


728


538


454


1,274


1,058

Income tax expense


121


81


63


211


212

Net income


607


457


391


1,063


846

Less: Preferred dividends


-


-


-


8


-

Net income available to common shareholders


$ 607


$ 457


$ 391


$ 1,055


$ 846












Income per share available to common shareholders:









Basic


$ 0.18


$ 0.13


$ 0.12


$ 0.32


$ 0.26

Diluted


$ 0.18


$ 0.13


$ 0.12


$ 0.32


$ 0.25












Average common shares outstanding, basic


3,326,027


3,327,287


3,325,600


3,321,850


3,321,458

Average common shares outstanding, diluted


3,355,291


3,356,639


3,354,952


3,351,202


3,350,810

























For the nine months ended









September 30,


September 30,









2020


2019







Net interest income


$ 13,210


$ 12,863







Provision for (recovery of) loan losses


1,500


(37)







Noninterest income


2,127


2,189







Noninterest expense


12,117


12,334







Income before income tax


1,720


2,755







Income tax expense


265


532







Net income


$ 1,455


$ 2,223


















Income per share available to common shareholders:









Basic


$ 0.44


$ 0.67







Diluted


$ 0.43


$ 0.66


















Average common shares outstanding, basic


3,326,304


3,320,699







Average common shares outstanding, diluted


3,355,626


3,350,086










Touchstone Bankshares, Inc.

Consolidated Financial Highlights (continued)

(unaudited)












(in thousands, except per share data)


September 30,


June 30,


March 31,


December 31,


September 30,

Balance Sheet Data:


2020


2020


2020


2019


2019

Total assets


$ 527,110


$ 507,378


$ 472,950


$ 468,189


$ 471,623

Total loans


374,047


372,219


348,565


350,276


349,727

Allowance for loan losses


(3,675)


(3,491)


(3,199)


(2,280)


(2,236)

Core deposit intangible


1,181


1,262


1,347


1,434


1,523

Deposits


441,490


430,585


390,689


382,924


386,680

Borrowings


21,000


21,000


27,000


30,000


29,999

Subordinated debt


11,279


3,524


3,533


3,542


3,551

Preferred stock


58


59


59


59


59

Shareholders' equity


49,922


49,208


48,338


47,219


47,446

Book value per common share


$ 14.99


$ 14.77


$ 14.51


$ 14.18


$ 14.27

Tangible book value per common share


$ 14.64


$ 14.39


$ 14.11


$ 13.75


$ 13.81

Total common shares outstanding


3,325,768


3,327,287


3,327,287


3,325,043


3,321,371

Total preferred shares outstanding


29,148


29,352


29,352


29,352


29,352

























September 30,


June 30,


March 31,


December 31,


September 30,



2020


2020


2020


2019


2019

Performance Ratios:


(QTD annualized)


(QTD annualized)


(QTD annualized)


(QTD annualized)


(QTD annualized)

Return on average assets


0.47%


0.37%


0.34%


0.89%


0.72%

Return on average common equity


4.84%


3.73%


3.30%


8.83%


7.17%

Net interest margin


3.61%


3.74%


4.36%


3.92%


4.12%

Overhead efficiency (non-GAAP)


79.59%


85.01%


76.05%


74.12%


79.63%

























September 30,


September 30,









2020


2019







Performance Ratios:


YTD


YTD







Return on average assets


0.39%


0.66%







Return on average common equity


3.98%


6.51%







Net interest margin


3.89%


4.22%







Overhead efficiency (non-GAAP)


79.59%


82.44%










































September 30,


June 30,


March 31,


December 31,


September 30,

Asset Quality Data:


2020


2020


2020


2019


2019

Allowance for loan losses


$ 3,675


$ 3,491


$ 3,199


$ 2,280


$ 2,236

Nonperforming loans (excluding PCI loans)


2,868


4,456


2,383


807


845

Other real estate owned, net of allowance


22


53


82


82


155

Nonperforming assets


2,890


4,509


2,465


889


1,000

Net charge-offs (recoveries), QTD


116


8


(19)


56


92












Asset Quality Ratios:











Allowance for loan losses to total loans


0.99%


0.94%


0.92%


0.65%


0.64%

Nonperforming loans to total loans


0.77%


1.20%


0.68%


0.23%


0.24%

Nonperforming assets to total assets


0.55%


0.89%


0.52%


0.19%


0.21%

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

0.12%


<0.01%


(0.02)%


0.06%


0.10%












Community Bank Leverage Ratio


9.20%


9.33%


9.83%


9.61%*


9.80%*












*Tier 1 Leverage Ratio




Cision
Cision

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SOURCE Touchstone Bankshares, Inc.