Touchstone Bankshares Reports 3rd Quarter 2020 Financial Results

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.

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:

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

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 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:

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.

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.