Touchstone Bankshares Reports Third Quarter of 2023 Financial Results

PRINCE GEORGE, Va., Oct. 30, 2023 /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, 2023.

The Company reported net income of $456 thousand available to common shareholders for the quarter ended September 30, 2023. Basic and diluted earnings per common share for the quarter were $0.14. Return on average assets was 0.28% while return on average common equity was 4.34%. By comparison, the Company's net income for the quarter ended September 30, 2022, was $1.1 million and basic and diluted earnings per common share were $0.33. Return on average assets was 0.70% for the quarter ended September 30, 2022.

For the nine months ended September 30, 2023, net income was $545 or $0.16 per common share on a basic basis and $0.17 per common share on a diluted basis. This compares to $2.8 million of net income for the nine months ended September 30, 2022, or $0.86 of net income available to common shareholders on a basic and diluted basis, respectively.

James Black, President and CEO stated, "Touchstone Bank maintained extremely strong asset quality metrics and capital levels well above regulatory standards. Year to date, the Bank also experienced favorable loan and deposit growth as the team continued to cultivate relationships in the communities we serve. With interest rates much higher and prevailing economic uncertainty, customers and the Bank are being even more selective which will lower future growth rates. Like many institutions, the Bank continued to experience net interest margin pressure while operating costs were elevated. As part of management's efforts to lower operating costs, a reduction in work force plan was implemented during the quarter, creating annualized savings of approximately $1.2 million. This added one-time charges during the period, which were offset from investment distributions and other expense accrual adjustments. While the current earnings are challenging, the continuous drive to streamline operations and create a more valuable funding base should improve profits and shareholder value."

Net interest income for the third quarter of 2023 was $5.1 million, compared to $5.4 million for the same period in 2022, a decrease of $327 thousand, or 6.1%. Net interest income for the second quarter of 2023 was $5.1 million. For the quarter ended September 30, 2023, the net interest margin, was 3.45%, up 1 basis point from the second quarter of 2023 and down 34 basis points from the third quarter of 2022. The Company experienced net interest margin compression due to cost of funds increases over the one-year period and the time needed for earning assets to reprice higher.

Net interest income was $15.6 million and $15.0 million for the nine months ended September 30, 2023, and 2022, respectively. Year to date, the net interest margin was stable at 3.59% for the comparative nine-month periods.

The Company recorded $75 thousand in provisions for loan losses in the third quarter of 2023, compared to $105 thousand in the third quarter of 2022. Year to date, the Company recorded $1.2 million of provisions for credit losses compared to $605 thousand for first nine months of 2022. Of this, a $1.0 million provision for credit losses was associated with the Signature Bank subordinated debt charge-off in the first quarter of 2023. As of September 30, 2023, credit quality metrics remained strong with minimal non-performing assets and past due loans.

Noninterest income totaled $930 thousand for the quarter ended September 30, 2023, an increase of $89 thousand, or 10.6%, when compared to the same period in 2022 as losses on securities sales occurred a year ago. Noninterest income for the second quarter of 2023 equaled $956 thousand.

The following table is a comparison of the components of noninterest income for the three months ended September 30, 2023, and 2022:

Noninterest income totaled $2.7 million for the nine months ended September 30, 2023, an increase of $153 thousand, or 6.1%, when compared to the same period in 2022. 

The following table is a comparison of the components of noninterest income for the nine months ended September 30, 2023, and 2022:

Notable variances for the two noninterest income tables above:

• Service charges on deposit accounts were lower due primarily small business and commercial accounts receiving higher earnings credit rates which offset previous fee opportunities. ATM fee income was down slightly over the respective nine-month comparative period.
• Though home refinancing and purchases slowed, prior year investments in personnel and related products and services pushed secondary mortgage revenue higher.
• 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.

Noninterest expense for the three-month periods ended September 30, 2023, and 2022 was $5.3 million and $4.8 million, respectively. Noninterest expense for the second quarter of 2023 was $5.6 million.

The following table is a comparison of the components of noninterest expense for the quarters ended September 30, 2023, and 2022:

For the nine months ended September 30, 2023, noninterest expense was $16.5 million, an increase of $2.7 million when compared to the $13.8 million of noninterest expense recorded in the first nine months of 2022.

The following table is a comparison of the components of noninterest expense for the nine months ended September 30, 2023, and 2022:

Notable variances for the two noninterest expense tables above:

• The increase in salaries and employee benefits for both the three- and nine-month periods above reflected additional staff during a growth and core conversion period along with wage inflation. With a core conversion completed during the first quarter management refocused efforts to streamline operations and improve efficiencies. This led to a reduction in the work force that was implemented during the third quarter of 2023. Approximately $200 thousand of one-time expenses were incurred with full cost savings being accretive during the fourth quarter of 2023.
• The increase in data processing expenses in 2023 when compared to the same periods in 2022 are mainly due to the use of additional credits provided by the Company's core provider in 2022 along with additional services and one-time charges. For the nine-month period in 2022, the Company utilized $613 thousand of data processing credits associated with contract renegotiations. Management is closely evaluating opportunities to reduce future data processing costs.
• The Company renegotiated its telecommunications contracts which lowered telecommunications expenses for both periods.
• Other noninterest expenses increased due to higher deposit fraud costs, marketing expenses for the Company rebranding and general operating costs. Management is closely evaluating this category for future cost savings opportunities.

Balance Sheet

At September 30, 2023, total assets were $660.9 million, compared to $615 million as of September 30, 2022, an increase of $45.9 million, or 7.5%. Investment securities on September 30, 2023, totaled $73.5 million, a decrease of $4 million, from one year ago. Total loans increased $42.2 million, or 9.0%, when comparing total loans of $470.3 million on September 30, 2022, and represented $25.2 million of growth since December 31, 2022. On the liability side of the balance sheet, deposits totaled $549.9 million on September 30, 2023, increasing $23.3 million or 4.4% since December 31, 2022, with the deposit mix shifting into higher yielding products. In comparison to the second quarter of 2023, total deposits increased $20.1 million or 3.5% with most growth in money markets and certificates of deposit.

Borrowings from the Federal Home Loan Bank ('FHLB") totaled $49.0 million on September 30, 2023, compared to $31.0 million in outstanding borrowings on December 31, 2022. 

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 on September 30, 2023.

Shareholders' Equity totaled $41.2 million on September 30, 2023. The Company's accumulated other comprehensive loss total $13.1 million on September 30, 2023. The accumulated other comprehensive loss is due to the unrealized losses from its available-for-sale securities portfolio which is caused primarily by higher interest rates. The Bank's Community Bank Leverage Ratio   was 9.71% on September 30, 2023, and remains well capitalized as defined by regulatory guidelines.

Asset Quality

The allowance for loan losses as of September 30, 2023, was $5.0 million, or .98%, 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.

Source: Touchstone Bankshares, Inc.

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.