Touchstone Bankshares Reports Third Quarter of 2021 Financial Results

PRINCE GEORGE, Va., Oct. 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 quarter ended September 30, 2021.

The Company reported net income of $1.2 million available to common shareholders for the quarter ended September 30, 2021. Basic and diluted earnings per common share for the quarter were $0.36. Return on average assets was 0.82% while return on average common equity was 9.19%. By comparison, the Company's net income for the quarter ended September 30, 2020 was $607 thousand and basic and diluted earnings per common share were $0.18. The return on average assets was 0.47% for the quarter ended September 30, 2020. For the quarter ended June 30, 2021, the Company reported net income available to common shareholders of $1.1 million or $0.33 per common share on a basic and diluted basis.

For 2021 year to date, net income was $3.2 million or $0.97 and $0.96 per common share on a basic and diluted basis, respectively. This compares to $1.5 million of net income for the nine months ended September 30, 2020, or $0.44 and $0.43 of net income available to common shareholders on a basic and diluted basis, respectively.

James Black, President and CEO stated "Even with another year of pandemic disruption, I am proud of the third quarter and year-to-date results. We continue to expand customer relationships across all footprints, which has translated into solid growth metrics on both sides of the ledger. While maintaining credit discipline, the loan pipeline continued its upward momentum, and the pace is expected to carry into 2022. As an active participant in the Payroll Protection Program "PPP", we provided added financial support to our customers. We continue assisting them throughout the forgiveness period, which has brought outstanding PPP loan balances down to $15 million from a high of $33 million last quarter. The success and program results are another example of Touchstone teammates rallying together for our customers. As the PPP program winds down, associated revenues will diminish, thus the emphasis on increasing the loan book. This strategy aligns with our focus of profitably growing the institution through added operating leverage."

Earnings

Net interest income for the third quarter of 2021 was $5.0 million, compared to $4.3 million for the same period in 2020, an increase of $693 thousand, or 16.1%. Paycheck Protection Program ("PPP") loan fees recognized in net interest income totaled $491 thousand in the third quarter of 2021. Net interest income for the second quarter of 2021 was $4.8 million. The Company's cost of funds  was 39 basis points in the third quarter of 2021. The net interest margin for the quarter ended September 30, 2021, was 3.68% compared to 3.61% for the quarter ended September 30, 2020. The net interest margin for the second quarter of 2021 was 3.60%. The Company expects its net interest margin to remain relatively stable for the remainder of 2021.

Net interest income was $14.1 million and $13.2 million for the nine months ended September 30, 2021 and 2020, respectively. The year-to-date net interest margin for September 30, 2021, was 3.60%, compared to 3.89% 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 nine months of 2021. Comparatively, the Company recorded a $1.5 million of provision for loan losses in the first nine months of 2020 as reserves were added as a proactive measure because the credit impact from the COVID-19 pandemic was unknown.

Noninterest income totaled $772 thousand for the quarter ended September 30, 2021, an increase of $50 thousand, or 6.9%, when compared to the same period in 2020. Noninterest income for the quarter ended June 30, 2021, was $990 thousand.

The following table is a comparison of the components of noninterest income for the three months ended September 30, 2021 and 2020:

Noninterest income totaled $2.6 million for the nine months ended September 30, 2021, an increase of $506 thousand, or 23.8%, when compared to the same period in 2020. The following table is a comparison of the components of noninterest income for the nine months ended September 30, 2021 and 2020:                  

Notable variances for the two noninterest income tables above:

• The increases in service charges on deposit accounts for the three and nine months ended September 30, 2021, when compared to the same periods in 2020 were mainly due to an increase in ATM and debit card interchange fees and increased overdraft fees.
• 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 federal interest rates in the latter part of the first quarter of 2020 which spurred home refinancing and purchases. That momentum of increased volume of home refinancing and purchases began to slow for the Company in the third quarter of 2021 and the Company expects this slowdown to continue in the fourth 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 nine months ended September 30, 2021, compared to the same periods in 2020, respectively, were mainly due to increases in income from other investments as well as recoveries from loans charged off by Citizens Community Bank before its 2017 merger into the Company that are recognized in other operating income.

Noninterest expense for the three-month periods ended September 30, 2021, and 2020 were $4.3 million and $4.0 million, respectively.  Noninterest expense for the second quarter of 2021 was $4.4 million.

The following table is a comparison of the components of noninterest expense for the quarters ended September 30, 2021, and 2020:

For the nine months ended September 30, 2021, noninterest expense was $12.8 million, an increase of $686 thousand when compared to the $12.1 million of noninterest expense recorded in the first nine months of 2020.  The following table is a comparison of the components of noninterest expense for the nine months ended September 30, 2021, and 2020:

Notable variances for the two noninterest expense tables above:

• The increase in salaries and employee benefits for the three months ended September 30, 2021, when compared to the same period in 2020 is mainly due to added staff, namely additions to the commercial lending staff. Also, in response to the Covid-19 pandemic, Management halted its accrual for bonuses in 2020.
• The increase in data processing expenses in 2021 when compared to the same periods in 2020 are mainly due to the use of additional credits provided by the Company's core provider in 2020.
• The increase in telecommunications for the nine months ended September 30, 2021, was mostly due to a one-time fee paid in relation to a project completed in the second quarter of 2021.
• Legal and professional fees are lower for the three and nine-month periods ended September 30, 2021, when compared to the same periods in 2020, respectively, due to legal fees paid in connection with forming the bank holding company in the third quarter of 2020.
• Other noninterest expenses were up for the both the three and nine months ended September 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, higher internet banking fees due to higher internet banking usage, higher marketing expense, and several other elevated expense categories.

Balance Sheet

At September 30, 2021, total assets were $586.8 million, compared to $527.1 million as of September 30, 2020, an  increase of $59.7 million, or 11.3% 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 September 30, 2021, totaled $94.9 million, an increase of $12.9 million, or 15.7% when compared to $82.0 million of investment securities at September 30, 2020. Total loans remained relatively flat when comparing total loans of $377.0 million at September 30, 2021, to total loans of $374.0 million at September 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 September 30, 2021, were $14.6 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 fourth 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 $521.1 million at September 30, 2021, as compared to $441.5 million at September 30, 2020. Total deposits at December 31, 2020, were $445.8 million. The elevated  deposit levels is a nationwide trend.

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

Shareholders' Equity totaled $51.9 million at September 30, 2021. The Bank's Community Bank Leverage Ratio   was 9.48% at September 30, 2021 and remains well capitalized as defined by regulatory guidelines.

Asset Quality

The allowance for loan losses at September 30, 2021, was $4.4 million, or 1.18%, of total loans. When discounting total loans for the PPP loans outstanding, the allowance for loan losses was 1.23% 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.

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.

SOURCE Touchstone Bankshares, Inc.