Touchstone Bankshares Reports 2021 Financial Results

Published: Jan. 28, 2022 at 1:57 PM CST

PRINCE GEORGE, Va., Jan. 28, 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 and year ended December 31, 2021.

The Company reported net income available to common shareholders of $3.9 million and $687 thousand for the year and quarter ended December 31, 2021, respectively. For 2021, earnings per common share was $1.17 on a basic and diluted basis. This compares to $2.3 million of net income available to common shareholders for the year ended December 31, 2020, or $0.69 and $0.68 of earnings per common share on a basic and diluted basis, respectively.  Return on average assets were 0.68% and 0.45% for years ended December 31, 2021, and 2020, respectively.  Return on average common equity for the years ended December 31, 2021 and 2020 were 7.67% and 4.65%, respectively.

Basic and diluted earnings per common share for the quarter ended December 31, 2021, was $0.21 while return on average assets was 0.46% and return on average common equity was 5.29%. By comparison, the Company's net income available to common shareholders for the quarter ended December 31, 2020, was $826 thousand and basic and diluted earnings per common share was $0.25. The return on average assets was 0.63% for the quarter ended December 31, 2020.

James Black, President and CEO stated "Our results and momentum are clearly attributable to a dedicated team focused on delivering excellent customer service and building the future of Touchstone Bank. Despite various one-time earnings adjustments, the company posted solid fourth quarter and year-to-date results. We experienced exceptional loan growth during the fourth quarter and expect double-digit loan growth for 2022. With expectations and planned growth continuing, we recently announced a $10.0 million subordinated debt raise to support our initiatives.  Although the debt cost will add earnings pressure in the near term, effective capital deployment should enhance shareholder value."

(PRNewsfoto/Touchstone Bank)
(PRNewsfoto/Touchstone Bank)(PRNewswire)

Earnings

Year-over-Year Twelve Months

Net income available to common shareholders for the year ended December 31, 2021, was $3.9 million, or $1.17 per basic and diluted common share. This is an increase of $1.6 million, or 71.3%, when compared with net income available to common shareholders of $2.3 million, or $0.69 basic and $0.68 diluted earnings per common share, for the year ended December 31, 2020. 

Net interest income for the years ended December 31, 2021, and 2020, was $18.8 million and $17.9 million, respectively. The increase in net interest income in 2021 was mainly due to fees associated with the Paycheck Protection Program ("PPP").  In 2021, the Company realized $1.6 million in PPP fee income versus $786 thousand in 2020.  This represents an increase of $855 thousand, or 108.8%.  The net interest margin fell 34 basis points from 3.86% in 2020 to 3.52% for 2021.  This decline was due to several factors including the unfavorable repricing of interest sensitive assets outpacing the favorable repricing of interest-bearing liability costs as well as the lower-yielding, highly liquid balance sheet due to the increase in deposits.

The Bank recorded no provision for loan losses in 2021. Comparatively, the Company recorded a $2.25 million of provision for loan losses in 2020 as reserves were added as a proactive measure because the credit impact from the COVID-19 pandemic was unknown.

Noninterest income totaled $3.9 million for the year ended December 2021, an increase of $979 thousand, or 33.9%, when compared to the $2.9 million recorded in 2020.

The following table is a comparison of the components of noninterest income for the years ended December 30, 2021, and 2020:



For the year ended







December 31,







2021


2020


 Change $ 


 Change % 

(dollars in thousands)









Service charges on deposit accounts


$       1,872


$       1,611


$          261


16.2%

Secondary market origination fees


224


272


(48)


-17.6%

Bank-owned life insurance


234


232


2


0.9%

Gain on security sales


218


113


105


92.9%

Gain on security fixed assets


320


-


320


0.0%

Other operating income


995


656


339


51.7%

  Total 


$       3,863


$       2,884


$          979


33.9%










Notable variances for the noninterest income table above:

  • The increase in service charges on deposit accounts year-over-year was mainly due to an increase in ATM and debit card interchange fees and an increase in volume of 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.
  • In the fourth quarter of 2021, the Company executed a sale-leaseback on its corporate headquarters building. The company recognized a $320 thousand gain on the sale and entered into a five-year lease with an option to renew after the initial five years.
  • The increase in other operating income was mainly due to increases in income from other investments.

For the year ended December 31, 2021, noninterest expense was $17.7 million, an increase of $2.0 million, or 12.4% when compared to the $15.8 million of noninterest expense recorded in 2020.  The following table is a comparison of the components of noninterest expense for the years ended December 31, 2021, and 2020:



 For the year ended 







December 31,







2021


2020


 Change $ 


 Change % 

(dollars in thousands)









Salaries and employee benefits


$       8,591


$       8,209


$          382


4.7%

Occupancy expense


1,072


1,074


(2)


-0.2%

Furniture and equipment expense


1,164


1,160


4


0.3%

Data processing


1,152


927


225


24.3%

Telecommunications


841


746


95


12.7%

Legal and professional fees


716


628


88


14.0%

OREO losses and related expenses


2


23


(21)


-91.3%

FDIC assessments


186


188


(2)


-1.1%

Other noninterest expenses


4,003


2,812


1,191


42.4%

  Total 


$     17,727


$     15,767


$       1,960


12.4%










Notable variances for the noninterest expense table above:

  • The increase in salaries and employee benefits for 2021 when compared to the same period in 2020 was mainly due to added staff. Also, in response to the Covid-19 pandemic, Management halted its accrual for bonuses in 2020, but not for 2021.
  • The increase in data processing expense in 2021 when compared to 2020 was mainly due to the use of additional credits provided by the Company's core provider in 2020. In the fourth quarter of 2021, the Company renegotiated its contract with the core provider and expects to see a reduction of data processing expenses going forward.
  • The increase in telecommunications was mostly due to a one-time fee paid in relation to a project completed in 2021.
  • Legal and professional fees were higher in 2021, when compared to the same period in 2020, mainly due to paying outsourced credit analysis assistance as well recruiter fees.
  • Other noninterest expenses was up in 2021 when compared to 2020 as the Company recorded a one-time expense of $530 thousand in the fourth quarter of 2021 related to a 2017 IRS penalty stemming from the failure to timely and correctly file various informational returns. The Company has filed an administrative appeal requesting abatement for reasonable cause. Other factors driving the year-over-year increase include a $103 thousand penalty associated with the early payoff of the $3 million FHLB note, a one-time settlement of $99 thousand on a deposit-related fraud case, higher internet banking fees due to higher internet banking usage, and several other elevated expense categories.

Year-over-Year Fourth Quarter

Net income available to common shareholders for the quarter ended December 31, 2021, was $687 thousand, or $0.21 per basic and diluted common share. This is a decrease of $139 thousand, or 16.8%, when compared with net income available to common shareholders of $826 thousand, or $0.25 basic and diluted earnings per common share for the same period in 2020. The Company recorded a $750 thousand provision for loan losses in the fourth quarter of 2020 versus no provision for loan losses recorded in the same period in 2021.  As discussed above, the Company recorded a one-time expense of $530 thousand in the fourth quarter of 2021 related to a 2017 IRS penalty.

Net interest income for the quarters ended December 31, 2021, and 2020, was $4.7 million and $4.6 million, respectively.  The net interest margin fell 50 basis points from 3.81% in 2020 to 3.31% for 2021 for the same factors as discussed above in the Year-over-Year Twelve Months section.

Noninterest income totaled $1.2 million for the quarter ended December 31, 2021, an increase of $473 thousand, or 62.5%, when compared to the same period in 2020.

The following table is a comparison of the components of noninterest income for the three months ended December 31, 2021, and 2020:



For the three months ended







December 31,







2021


2020


 Change $ 


 Change % 

(dollars in thousands)









Service charges on deposit accounts


$          601


$          423


$          178


42.1%

Secondary market origination fees


58


51


7


13.7%

Bank-owned life insurance


75


57


18


31.6%

Gain on security sales


6


-


6


100.0%

Gain on sale of fixed assets


320


-


320


100.0%

Other operating income


170


226


(56)


-24.8%

  Total 


$       1,230


$          757


$          473


62.5%










Notable variances for the noninterest income table above:

  • The increase in service charges on deposit accounts was mainly due to an increase in ATM and debit card interchange fees and increase in volume of overdraft fees.
  • In the fourth quarter of 2021, the Company executed a sale-leaseback on its corporate headquarters building. The company recognized a $320 thousand gain on the sale and entered into a five-year lease with an option to renew after the initial five years.
  • The decrease in other operating income was mainly due to declines in income from other investments.

The following table is a comparison of the components of noninterest expense for the quarters ended December 31, 2021, and 2020:



For the three months ended







December 31,







2021


2020


 Change $ 


 Change % 

(dollars in thousands)









Salaries and employee benefits


$       2,222


$       1,848


$          374


20.2%

Occupancy expense


264


265


(1)


-0.4%

Furniture and equipment expense


287


309


(22)


-7.1%

Data processing


361


215


146


67.9%

Telecommunications


227


189


38


20.1%

Legal and professional fees


41


184


(143)


-77.7%

OREO losses and related expenses


-


1


(1)


-100.0%

FDIC assessments


48


54


(6)


-11.1%

Other noninterest expenses


1,474


585


889


152.0%

  Total 


$       4,924


$       3,650


$       1,274


34.9%

Notable variances for the noninterest expense table above:

  • The increase in salaries and employee benefits for 2021 when compared to the same period in 2020 is mainly due to added staff as well as management halted its accrual for bonuses in 2020, but not for 2021.
  • The increase in data processing expense in 2021 when compared to the same periods in 2020 was mainly due to the use of additional credits provided by the Company's core provider in 2020. See above discussion on data processing expense.
  • The increase in telecommunications in 2021 versus 2020 was due to the Bank switching over its services and temporarily paying for two vendors. However, this switch should reduce telecommunication costs going forward.
  • Legal and professional fees are lower for the three months ended December 31, 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 latter part of 2020.
  • See discussion in Year-over-Year Twelve Months section above for other noninterest expense variances.

Balance Sheet

At December 31, 2021, total assets were $581.1 million, compared to $532.7 million at December 31, 2020, an  increase of $48.4 million, or 9.1% as the Bank experienced a spike in deposits in 2021  which was used mainly to fund loan growth on the asset side of the balance sheet.

Total loans were $402.9 million at December 31, 2021.  Total loans increased $39.9 million, or 11.0% during the year. Total loans increased $25.9 million, or 6.9%, during the fourth quarter of 2021 and the Bank has a healthy pipeline entering into 2022. The Bank made $32.6 million in PPP loans  in 2020 and $29.9 million in 2021. Total PPP loans outstanding at December 31, 2021, were $8.5 million.  Loans, net of PPP loans grew $50.7 million, or 14.8% during 2021, with $32.1 million of that growth coming in the fourth quarter.

On the liability side of the balance sheet, deposits totaled $517.4 million at December 31, 2021, as compared to $445.8 million at December 31, 2020.  This represents an increase of $71.6 million or 16.1%.

In the fourth quarter of 2021, the Bank prepaid its outstanding $3.0 million FHLB note.  The Bank had no outstanding FHLB borrowings at December 31, 2021.  This compares to $21.0 million of FHLB borrowings at 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 December 31, 2021.

In January of 2022, the Company issued an additional $10.0 million of subordinated debt.  These notes have a maturity date of January 30, 2032, and carried an initial coupon of 4%.

Shareholders' Equity totaled $50.4 million at December 31, 2021. The Company initiated a stock repurchase program in the fourth quarter of 2021 in which 76,306 shares had been repurchased as of December 31, 2021. The Bank's Community Bank Leverage Ratio   was 9.18% at December 31, 2021, and remains well capitalized as defined by regulatory guidelines.

Asset Quality

The allowance for loan losses at December 31, 2021, was $4.4 million, or 1.09%, of total loans. Loans past due 30 days or more and still accruing were $127 thousand at December 31, 2021, while nonaccrual loans, excluding purchased credit impaired loans, totaled $253 thousand. 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.

Touchstone Bankshares, Inc.

Consolidated Financial Highlights 

(unaudited)














For the Three Months Ended 

(in thousands, except per share data)


December 31,


September 30,


June 30,


March 31,


December 31,

Selected Operating Data:


2021


2021


2021


2021


2020

Net interest income


$               4,674


$           5,009


$           4,772


$           4,348


$           4,647

Provision for loan losses


-


-


-


-


750

Noninterest income


1,230


772


990


871


757

Noninterest expense


4,924


4,300


4,409


4,094


3,650

Income before income tax 


980


1,481


1,353


1,125


1,004

Income tax expense


284


279


253


206


170

Net income 


696


1,202


1,100


919


834

Less: Preferred dividends


9


-


-


-


8

Net income available to common shareholders


$                  687


$           1,202


$           1,100


$              919


$              826












Income per share available to common shareholders:











Basic 


$                 0.21


$             0.36


$             0.33


$             0.28


$             0.25

Diluted


$                 0.21


$             0.36


$             0.33


$             0.27


$             0.25












Average common shares outstanding, basic


3,298,688


3,336,504


3,336,504


3,334,632


3,327,114

Average common shares outstanding, diluted


3,327,836


3,365,652


3,365,652


3,363,780


3,356,262

























For the year ended









December 31,


December 31,









2021


2020







Net interest income


$             18,803


$         17,857







Provision for loan losses


-


2,250







Noninterest income


3,863


2,884







Noninterest expense


17,727


15,767







Income before income tax 


4,939


2,724







Income tax expense 


1,022


435







Net income 


3,917


2,289







Less: Preferred dividends


9


8







Net income available to common











shareholders


$               3,908


$           2,281


















Income per share available to common shareholders:











Basic 


$                 1.17


$             0.69







Diluted


$                 1.17


$             0.68


















Average common shares outstanding, basic


3,326,511


3,326,507







Average common shares outstanding, diluted


3,355,659


3,355,786







Touchstone Bankshares, Inc.

Consolidated Financial Highlights (continued)

(unaudited)












(in thousands, except per share data)


December 31,


September 30,


June 30,


March 31,


December 31,

Balance Sheet Data:


2021


2021


2021


2021


2020

Total assets


$             581,136


$             586,843


$         563,828


$         568,881


$           532,732

Total loans


402,910


377,015


383,981


377,172


363,029

Allowance for loan losses


(4,375)


(4,445)


(4,440)


(4,386)


(4,357)

Core deposit intangible


815


882


953


1,026


1,102

Deposits


517,396


521,104


498,682


489,465


445,774

Borrowings


-


3,000


3,000


18,000


21,000

Subordinated debt


7,825


7,813


7,801


7,788


11,282

Preferred stock


58


58


58


58


58

Shareholders' equity


50,365


51,921


51,339


49,750


50,124

Book value per common share 


$                 15.41


$                 15.54


$             15.37


$             14.89


$               15.01

Tangible book value per common share 


$                 15.16


$                 15.28


$             15.08


$             14.59


$               14.68

Total common shares outstanding


3,265,615


3,336,504


3,336,504


3,336,504


3,334,445

Total preferred shares outstanding


29,148


29,148


29,148


29,148


29,148














December 31,


September 30,


June 30,


March 31,


December 31,



2021


2021


2021


2021


2020

Performance Ratios:


(QTD annualized)


(QTD annualized)


(QTD annualized)


(QTD annualized)


(QTD annualized)

Return on average assets


0.46%


0.82%


0.77%


0.69%


0.63%

Return on average common equity


5.29%


9.19%


8.72%


7.47%


6.63%

Net interest margin 


3.31%


3.68%


3.60%


3.50%


3.81%

Overhead efficiency (non-GAAP)


78.67%


74.37%


79.30%


78.60%


67.55%














December 31,


December 31,









2021


2020







Performance Ratios:


Year To Date


Year To Date







Return on average assets


0.68%


0.45%







Return on average common equity


7.67%


4.65%







Net interest margin 


3.52%


3.86%







Overhead efficiency (non-GAAP)


77.71%


76.43%































December 31,


September 30,


June 30


March 31,


December 31,

Asset Quality Data:


2021


2021


2021


2021


2020

Allowance for loan losses


$                 4,375


$                 4,445


$             4,440


$             4,386


$               4,357

Nonperforming loans (excluding PCI loans)


253


1,259


1,738


2,051


2,393

Other real estate owned, net of allowance


-


-


22


22


22

Nonperforming assets


253


1,259


1,760


2,073


2,415

Net charge-offs (recoveries), QTD


70


(5)


(54)


(29)


68












Asset Quality Ratios:











Allowance for loan losses to total loans


1.09%


1.18%


1.16%


1.16%


1.20%

Nonperforming loans to total loans


0.06%


0.33%


0.45%


0.54%


0.66%

Nonperforming assets to total assets


0.04%


0.21%


0.31%


0.36%


0.49%

YTD net charge-offs (recoveries) to average loans, annualized 


0.05%


(0.01%)


(0.06%)


(0.03%)


0.07%












Community Bank Leverage Ratio


9.18%


9.37%


9.37%


9.60%


9.63%












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