Touchstone Bankshares Reports Second Quarter of 2021 Financial Results

PRINCE GEORGE, Va., July 30, 2021 /PRNewswire/ -- Touchstone Bankshares, Inc. (the "Company") (OTC Pink: TSBA), and its wholly-owned subsidiary, Touchstone Bank (the "Bank"), reported unaudited results for the quarter ended June 30, 2021.

The Company reported net income of $1.1 million available to common shareholders for the quarter ended June 30, 2021. Basic and diluted earnings per common share for the quarter were $0.33. Return on average assets was 0.77% while return on average common equity was 8.71%. By comparison, the Company's net income for the quarter ended June 30, 2020 was $457 thousand and basic and diluted earnings per common share were $0.13. The return on average assets was 0.37% for the quarter ended June 30, 2020. For the quarter ended March 31, 2021, the Company reported net income available to common shareholders of $919 thousand or $0.28 and $0.27 per common share on a basic and diluted basis, respectively.

For 2021 year to date, net income was $2.0 million or $0.61 and $0.60 per common share on a basic and diluted basis, respectively.  This compares to $848 thousand of net income for the six months ended June 30, 2020, or $0.25 of net income available to common shareholders on a basic and diluted basis.

James Black, President and CEO stated, "We posted a solid quarter where the momentum of organic loan growth led the way. While successful on forgiveness with Paycheck Protection Program loans, expansion of the loan book and customer base also gained further traction. The loan pipeline remained strong and is expected to persist for the remainder of the year. Asset quality metrics remain sound, and we demonstrated continued earnings improvement. Our emphasis on profitable and sound growth should add to higher future operating leverage and greater market share."

Earnings

Net interest income for the second quarter of 2021 was $4.8 million, compared to $4.3 million for the same period in 2020, an increase of $517 thousand, or 12.2%. Paycheck Protection Program ("PPP") loan fees recognized in net interest income totaled $413 thousand and $106 thousand in the second quarters of 2021 and 2020, respectively. Net interest income for the first quarter of 2021 was $4.3 million. The Company's cost of funds were 43 basis points in the second quarter of 2021 which is 25 basis points lower than the 68 basis points cost of funds for the second quarter of 2020. The net interest margin for the quarter ended June 30, 2021, was 3.60% compared to 3.74% for the quarter ended June 30, 2020. The net interest margin for the first quarter of 2021 was 3.50%. The Company expects its net interest margin to remain relatively stable for the remainder of 2021.

Net interest income was $9.1 million and $8.9 million for the six months ended June 30, 2021 and 2020, respectively.  The year-to-date net interest margin for June 30, 2021, was 3.55%, compared to 4.04% for the same period last year. The net interest margin compression is mainly due to the 150 basis points decline in federal interest rates late first quarter of 2020 in response to the COVID-19 pandemic.

The Bank recorded no provision for loan losses in the first half of 2021 as credit metrics remain sound and the potential for credit losses from the pandemic appear to have mostly subsided. Comparatively, the Company recorded a $1.2 million of provision for loan losses in the first half of 2020 as reserves were added as a proactive measure because the credit impact from  the COVID-19 pandemic was unknown.

Noninterest income totaled $990 thousand for the quarter ended June 30, 2021, an increase of $337 thousand, or 51.6%, when compared to the same period in 2020. Noninterest income for the quarter ended March 30, 2021, was $871 thousand. The following table is a comparison of the components of noninterest income for the three months ended June 30, 2021 and 2020:                                        

	For the three months ended
	June 30,
	2021	2020	Change $	Change %
(dollars in thousands)
Service charges on deposit accounts	$      472	$      367	$         105	28.6%
Secondary market origination fees	89	68	21	30.9%
Bank-owned life insurance	51	57	(6)	-10.5%
Gain on security sales	201	27	174	644.4%
Other operating income	177	134	43	32.1%
Total	$      990	$      653	$         337	51.6%

Noninterest income totaled $1.9 million for the six months ended June 30, 2021, an increase of $455 thousand, or 32.4%, when compared to the same period in 2020. The following table is a comparison of the components of noninterest income for the six months ended June 30, 2021 and 2020:                                        

	For the six months ended
	June 30,
	2021	2020	Change $	Change %
(dollars in thousands)
Service charges on deposit accounts	$       896	$      788	$         108	13.7%
Secondary market origination fees	142	118	24	20.3%
Bank-owned life insurance	102	118	(16)	-13.6%
Gain on security sales	211	111	100	90.1%
Other operating income	509	270	239	88.5%
Total	$    1,860	$   1,405	$         455	32.4%

Notable variances for the two noninterest income tables above:

• The increases in service charges on deposit accounts for the three and six months ended June 30, 2021,when compared to the same periods in 2020 were mainly due to an increase in ATM and debit card interchange fees during the second quarter of 2021.
• The Company began seeing an increase in secondary market origination fees in the second quarter of 2020 due to the 150-basis point drop in rates in the latter part of the first quarter of 2020 which spurred home refinancing and purchases. That momentum of increase volume of home refinancing and purchases have continued through the second quarter of 2021.
• The Company sold just over $6 million of its securities portfolio in the second quarter of 2021 to take advantage of the gains it had in its securities while disposing of certain lower-performing and odd-lot securities.
• The increases in other operating income for the three and six months ended June 30, 2021, compared to the same periods in 2020, respectively, were mainly due to increases in income from other investments.

The Company realized increases in most of its noninterest expenses categories in the second quarter of 2021. However, these increases were mostly due to nonrecurring items. Noninterest expense for the three-month periods ended June 30, 2021 and 2020 were $4.4 million and $4.1 million, respectively.  Noninterest expense for the first quarter of 2021 was $4.1 million. The following table is a comparison of the components of noninterest expense for the quarters ended June  30, 2021 and 2020:

	For the three months ended
	June 30,
	2021	2020	Change $	Change %
(dollars in thousands)
Salaries and employee benefits	$   2,121	$   2,195	$         (74)	-3.4%
Occupancy expense	285	260	25	9.6%
Furniture and equipment expense	285	282	3	1.1%
Data processing	278	265	13	4.9%
Telecommunications	212	173	39	22.5%
Legal and professional fees	191	122	69	56.6%
OREO losses and related expenses	1	11	(10)	-90.9%
FDIC assessments	46	45	1	2.2%
Other noninterest expenses	990	717	273	38.1%
Total	$   4,409	$    4,070	$         339	8.3%

For the six months ended June 30, 2021, noninterest expense was $8.5 million, an increase of $396 thousand when compared to the $8.1 million of noninterest expense recorded in the first six months of 2020.  The following table is a comparison of the components of noninterest expense for the six months ended June 30, 2021 and 2020:                                        

	For the six months ended
	June 30,
	2021	2020	Change $	Change %
(dollars in thousands)
Salaries and employee benefits	$   4,185	$   4,365	$       (180)	-4.1%
Occupancy expense	557	535	22	4.1%
Furniture and equipment expense	571	545	26	4.8%
Data processing	547	515	32	6.2%
Telecommunications	398	354	44	12.4%
Legal and professional fees	311	247	64	25.9%
OREO losses and related expenses	1	12	(11)	-91.7%
FDIC assessments	84	74	10	13.5%
Other noninterest expenses	1,849	1,460	389	26.6%
Total	$   8,503	$   8,107	$         396	4.9%

Notable variances for the two noninterest expense tables above:

• The declines in salaries and employee benefits for the three months and six months ended June 30, 2021 when compared to the same periods in 2020, respectively, is mainly due to the decision by Management to reduce employee headcount via attrition. However, the Company has added two senior-level commercial lenders in 2021 and plans to add a few more staff positions in the third quarter of 2021.
• Occupancy expense as well as furniture and equipment expense increased slightly for both the three months and six months ended June 30, 2021, when compared to the same periods in 2020, respectively. Management expects these modest increases to return to 2020 levels for the remainder of 2021.
• The increase in telecommunications was due to a one-time fee paid in relation to a project completed in the second quarter of 2021.
• Legal and professional fees are higher for the three and six-month periods ended June 30, 2021, when compared to the same periods in 2020, respectively, due to paying a third party to manage the Bank's PPP loan program as well as expenses paid in connection with talent recruitment.
• Other noninterest expenses were up for the both the three and six months ended June 30, 2021, when compared to the same periods in 2020 due to a one-time settlement of $99 thousand on a deposit-related fraud case and higher internet banking fees due to higher internet banking usage.

Balance Sheet

At June 30, 2021, total assets were $563.8 million, compared to $507.4 million as of June 30, 2020, an increase of $56.5 million, or 11.1% as the Bank experienced a spike in deposits over the last twelve months which increased its cash and cash equivalent balances on the asset side of the balance sheet. At December 31, 2020, total assets were $532.7 million.

Investment securities at June 30, 2021, totaled $86.5 million, an increase of $19.2 million, or 28.6% when compared to $67.3 million of investment securities at June 30, 2020. Total loans increased $11.8 million, or 3.2%, when comparing total loans of $384.0 million at June 30, 2021, to total loans of $372.2 million at June 30, 2020. The Bank made $32.6 million in PPP loans in 2020 and $29.9 million in the first half of 2021. Total PPP loans outstanding at June 30, 2021, was $27.2 million. Loan activity outside of the Paycheck Protection Program subsided throughout the Bank's markets in 2020. However, the Bank added a new chief lending officer in the fourth quarter of 2020 and two regional market executives in 2021 to its commercial banking team. The chief lending officer and a newly-added regional market executive are serving the Richmond, Virginia MSA market while the other newly-added regional market executive serves the Raleigh, North Carolina MSA market. The Bank has a healthy loan pipeline as it enters the third quarter     of 2021 and is optimistic about continued loan growth for the remainder of 2021.

On the liability side of the balance sheet, deposits totaled $498.7 million at June 30, 2021, as compared to $430.6  million at June 30, 2020. Total deposits at December 31, 2020, were $445.8 million. The elevated deposit levels is a nationwide trend. Noninterest bearing deposits showed the greatest increase year over year, increasing $26.1 million to $165.5 million at June 30, 2021.

Borrowings from the Federal Home Loan Bank ('FHLB") totaled $3.0 million at June 30, 2021, as the Bank paid down $15 million of borrowings in early June of 2021. FHLB borrowings totaled $21 million at June 30, 2020, and December 31, 2020. 

In August of 2020, the Company issued $8 million of subordinated debt with a 10-year maturity and an initial 6.00% coupon. In February of 2021, the Company redeemed the $3.5 million of legacy subordinated debt issued in February of 2016. Those notes carried a 7% coupon. Subordinated debt totaled $7.8 million at June 30, 2021.

Shareholders' Equity totaled $51.3 million at June 30, 2021. The Bank's Community Bank Leverage Ratio was 9.37% at June 30, 2021 and remains well capitalized as defined by regulatory guidelines.

Asset Quality

The allowance for loan losses at June 30, 2021, was $4.4 million, or 1.16%, of total loans. When discounting total loans for the PPP loans outstanding, the allowance for loan losses was 1.24% of total loans. The Bank believes the current level of allowance for loan loss reserves are adequate to cover anticipated losses as credit metrics remain stable. Most loans placed on deferral in response to the 2020 pandemic have returned to full payment terms. Total deferrals were $9.3 million at June 30, 2021.

About Touchstone Bankshares, Inc.

Touchstone Bankshares, Inc. is the bank holding company for Touchstone Bank. The majority of the Company's business activities are conducted through Touchstone Bank. 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)	June 30,	March 31,	December 31,	September 30,	June 30,
Selected Operating Data:	2021	2021	2020	2020	2020
Net interest income	$     4,772	$     4,348	$          4,647	$          4,316	$              4,255
Provision for loan losses	-	-	750	300	300
Noninterest income	990	871	757	722	653
Noninterest expense	4,409	4,094	3,650	4,010	4,070
Income before income tax	1,353	1,125	1,004	728	538
Income tax expense	253	206	170	121	81
Net income	1,110	919	834	607	457
Less: Preferred dividends	-	-	8	-	-
Net income available to common shareholders	$           1,110	$              919	$             826	$              607	$                  457
Income per share available to common shareholders:
Basic	$       0.33	$         0.28	$       0.25	$       0.18	$              0.13
Diluted	$       0.33	$       0.27	$       0.25	$       0.18	$              0.13
Average common shares outstanding,
basic	3,336,504	3,334,632	3,327,114	3,326,027	3,327,287
Average common shares outstanding,
Diluted	3,365,652	3,363,780	3,356,262	3,355,291	3,356,639
	For the Six Months Ended
	June 30,	June 30,
	2021	2020
Net interest income	$     9,120	$     8,894
Provision for loan losses	-	1,200
Noninterest income	1,860	1,405
Noninterest expense	8,503	8,107
Income before income tax	2,477	992
Income tax expense	458	144
Net income	$          2,019	$             848
Basic	$          0.61	$              0.25
Diluted	$          0.60	$              0.25
Average common shares outstanding,
basic	3,335,573	3,326,443
Average common shares outstanding,
Diluted	3,364,721	3,355,795

 

Touchstone Bankshares, Inc.
Consolidated Financial Highlights (continued)
(unaudited)
(in thousands, except per share data)	June 30,	March 31,	December 31,	September 30,	June 30,
Balance Sheet Data:	2021	2021	2020	2020	2020
Total assets	$           563,828	$           568,881	$           532,732	$           527,110	$           507,378
Total loans	383,981	377,172	363,029	374,047	372,219
Allowance for loan losses	(4,440)	(4,386)	(4,357)	(3,675)	(3,491)
Core deposit intangible	953	1,026	1,102	1,181	1,262
Deposits	498,682	489,465	445,774	441,490	430,585
Borrowings	3,000	18,000	21,000	21,000	21,000
Subordinated debt	7,801	7,788	11,282	11,279	3,524
Preferred stock	58	58	58	58	59
Shareholders' equity	51,339	49,750	50,124	49,922	49,208
Book value per common share	$               15.37	$               14.89	$               15.01	$               14.99	$               14.77
Tangible book value per common share	$               15.08	$               14.59	$               14.68	$               14.64	$               14.39
Total common shares outstanding	3,336,504	3,336,504	3,334,445	3,325,768	3,327,287
Total preferred shares outstanding	29,148	29,148	29,148	29,148	29,352
	June 30,	March 31,	December 31,	September 30,	June 30,
	2021	2021	2020	2020	2020
Performance Ratios:	(QTD annualized)	(QTD annualized)	(QTD annualized)	(QTD annualized)	(QTD annualized)
Return on average assets	0.77%	0.69%	0.63%	0.47%	0.37%
Return on average common equity	8.71%	7.47%	6.63%	4.84%	3.73%
Net interest margin	3.60%	3.50%	3.81%	3.61%	3.74%
Overhead efficiency (non-GAAP)	79.30%	78.60%	67.55%	79.59%	85.01%
	June 30,	June 30,
	2021	2020
Performance Ratios:	(YTD annualized)	(YTD annualized)
Return on average assets	0.73%	0.35%
Return on average common equity	8.08%	3.52%
Net interest margin	3.55%	4.04%
Overhead efficiency (non-GAAP)	78.96%	79.56%
	June 30,	March 31,	December 31,	September 30,	June 30,
Asset Quality Data:	2021	2021	2020	2020	2020
Allowance for loan losses	$               4,440	$               4,386	$               4,357	$               3,675	$               3,491
Nonperforming loans (excluding PCI loans)	1,738	2,051	2,393	2,868	4,456
Other real estate owned, net of allowance	22	22	22	22	53
Nonperforming assets	1,760	2,073	2,415	2,890	4,509
Net (recoveries) charge-offs, QTD	(54)	(29)	68	116	8
Asset Quality Ratios:
Allowance for loan losses to total loans	1.16%	1.16%	1.20%	0.99%	0.94%
Nonperforming loans to total loans	0.45%	0.54%	0.66%	0.77%	1.20%
Nonperforming assets to total assets	0.31%	0.36%	0.45%	0.55%	0.89%
YTD net (recoveries) charge-offs to average loans, annualized	(0.06%)	(0.03%)	0.07%	0.12%	<0.01%
Community Bank Leverage Ratio	9.37%	9.60%	9.63%	9.20%	9.33%

 

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SOURCE Touchstone Bankshares, Inc.