Touchstone Bankshares Reports Third Quarter of 2022 Financial Results

PRINCE GEORGE, Va., Oct. 27, 2022 /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, 2022.

The Company reported net income of $1.1 million available to common shareholders for the quarter ended September 30, 2022. Basic and diluted earnings per common share for the quarter were $0.33. Return on average assets was 0.70% while return on average common equity was 9.62%. By comparison, the Company's net income for the quarter ended September 30, 2021 was $1.2 million and basic and diluted earnings per common share were $0.36. The return on average assets was 0.82% for the quarter ended September 30, 2021. For the quarter ended June 30, 2022, the Company reported net income available to common shareholders of $605 thousand or $0.18 per common share on a basic and diluted basis.

For the nine months ended September 30, 2022, net income was $2.8 million or $0.86 per common share on a basic and diluted basis. This compares to $3.2 million of net income for the nine months ended September 30, 2021, or $0.97 and $0.96 of net income available to common shareholders on a basic and diluted basis, respectively.

James Black, President and CEO stated, "Continuing the strong positive trends for the year, third quarter results showed moderate loan and deposit growth, increasing 3.1% and 1.4%, respectively, over the second quarter. Delinquencies remained at historical lows and the modest provision for loan losses was due predominately to loan growth. The bank continues to monitor economic and credit conditions along with preparation for the Current Expected Credit Losses ("CECL") adoption effective January 2023. Operating costs remained elevated due principally to talent acquisition and retention and overall inflation impacts. With continued focus and execution from the Touchstone team, we anticipate profitability metrics to improve."

Net interest income for the third quarter of 2022 was $5.4 million, compared to $5.0 million for the same period in 2021, an increase of $396 thousand, or 7.9%. Net interest income for the second quarter of 2022 was $5.1 million. On a linked quarter basis, the Company's cost of funds  was up two basis points to 42 basis points in the third quarter of 2022. The net interest margin for the quarter ended September 30, 2022, was 3.79% compared to 3.68% for the quarter ended September 30, 2021. The net interest margin for the second quarter of 2022 was 3.64%. The Company expects its net interest margin to remain relatively stable for the remainder of 2022.

Net interest income was $15.0 million and $14.1 million for the nine months ended September 30, 2022 and 2021, respectively. The year-to-date net interest margin for September 30, 2022, was 3.59%, compared to 3.55% for the same period last year. Cost of funds for the nine months ended September 30, 2022 was 40 basis points.

The Company recorded $105 thousand in provisions for loan losses in the third quarter of 2022 while no provision for loan losses were recorded in the first nine months of 2021. Year to date 2022, the Company has recorded $605 thousand in provisions for loans losses. Credit quality metrics remain strong with minimal non-performing assets and past due loans.

Noninterest income totaled $841 thousand for the quarter ended September 30, 2022, an increase of $69 thousand, or 8.9%, when compared to the same period in 2021. Noninterest income for the quarter ended June 30, 2022, was $791 thousand.

The following table is a comparison of the components of noninterest income for the three months ended September 30, 2022 and 2021:

Noninterest income totaled $2.5 million for the nine months ended September 30, 2022, a decrease of $133 thousand, or 5.1%, when compared to the same period in 2021. The following table is a comparison of the components of noninterest income for the nine months ended September 30, 2022 and 2021:

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, 2022, when compared to the same periods in 2021 were mainly due to an increase in ATM and debit card interchange fees and increased overdraft fees.
• Though home refinancing and purchases have slowed in 2022, the Company added a mortgage originator in the second quarter of 2022 as it looks to build a more robust mortgage secondary market program. Secondary mortgage originations have slowed for the Company in 2022, but the Company did post an increase in secondary market origination fees in the third quarter of 2022.
• The Company sold just over $6 million of its securities portfolio in the third quarter of 2022 at a pretax loss of $135 thousand to boost its on-balance sheet cash position for future loan fundings. In the second quarter of 2021, the Company sold some of its investment securities for gains.
• The increases in other operating income for the three and nine months ended September 30, 2022, compared to the same periods in 2021, respectively, were mainly due to increases in income from other investments.

Noninterest expense for the three-month periods ended September 30, 2022, and 2021 was $4.8 million and $4.3 million, respectively. Noninterest expense for the second quarter of 2022 was $4.6 million.

The following table is a comparison of the components of noninterest expense for the quarters ended September 30, 2022, and 2021:

For the nine months ended September 30, 2022, noninterest expense was $13.8 million, an increase of $1 million when compared to the $12.8 million of noninterest expense recorded in the first nine months of 2021.

The following table is a comparison of the components of noninterest expense for the nine months ended September 30, 2022, and 2021:

Notable variances for the two noninterest expense tables above:

• The increase in salaries and employee benefits for the three and nine months ended September 30, 2022, when compared to the same periods in 2021 is due to added staff and wage inflation.
• The increase in occupancy expense for the three and nine months ended September 30, 2022, when compared to the same periods in 2021, is mainly due to the new lease expense associated with the leasing of the Company's headquarters building. In November of 2021, the Company executed a sales-leaseback transaction on its headquarters building.
• The decrease in data processing expenses in 2022 when compared to the same periods in 2021 are mainly due to the use of additional credits provided by the Company's core provider. These credits are no longer available as of September of 2022 and the Company expects an uptick in its data processing expense moving forward.
• The Company has renegotiated its telecommunications contracts which is the driver in the decrease in telecommunications expense in the third quarter of 2022 when compared to the third quarter of 2021.
• Legal and professional fees are higher for the three and nine-month periods ended September 30, 2022, when compared to the same periods in 2021, respectively, mainly due to third party assistance in credit and human resources while the Company searched for additional staffing in these departments.

Balance Sheet

At September 30, 2022, total assets were $615.0 million, compared to $581.1 million as of December 31 2021, an  increase of $33.9 million, or 5.7% . 

Investment securities at September 30, 2022, totaled $75.8 million, a decrease of $19.3 million, or 20.3% when compared to $95.1 million of investment securities at December 31, 2021. Total loans increased $67.4 million, or 14.7%, when comparing total loans of $470.3 million at September 30, 2022, to total loans of $402.9 million at December 31, 2021. The Bank has a healthy loan pipeline as it enters the fourth quarter of 2022 and is optimistic about continued loan growth for the remainder of 2022 but expects more moderate loan growth for the remainder of the year.

On the liability side of the balance sheet, deposits totaled $546.9 million at September 30, 2022, as compared to $517.4 million at December 31, 2021. The Bank is beginning to experience pressure on deposit pricing as it looks to continue its deposit growth.

Borrowings from the Federal Home Loan Bank ('FHLB") totaled $6.0 million at September 30, 2022, while there were no outstanding borrowings at December 31, 2021. 

In January of 2022, the Company issued an additional $10.0 million of subordinated debt ("2022 notes"). The 2022 notes have a maturity date of January 30, 2032 and carried an initial coupon of 4%. This issuance, net of capitalized expenses, brings the total outstanding subordinated debt to $17.6 million at September 30, 2022.

Shareholders' Equity totaled $41.6 million at September 30, 2022. The Company's accumulated other comprehensive loss total $11.4 million at September 30, 2022. The accumulated other comprehensive loss is due to the unrealized losses from its investment security portfolio which is caused by the increase in interest rates. The Bank's Community Bank Leverage Ratio was 10.11% at September 30, 2022 and remains well capitalized as defined by regulatory guidelines.

Asset Quality

The allowance for loan losses at September 30, 2022, was $4.8 million, or 1.04%, of total loans. The Bank had minimum nonperforming assets and loans past due 30 days or greater. The Company believes the current level of allowance for loan losses are adequate to cover anticipated losses as credit metrics remain stable. The Company is on track to adopt the Current Expect Credit Loss model on January 1, 2023.

About Touchstone Bankshares, Inc.

Touchstone Bankshares, Inc. is the bank holding company for Touchstone Bank. Most 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 two loan centers 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.