Touchstone Bankshares Reports 2nd Quarter 2020 Financial Results and Announces Strategic Initiatives

PRINCE GEORGE, Va., July 16, 2020 /PRNewswire/ — Touchstone Bankshares, Inc. (the “Company”) (OTC Pink: TSBA), and its wholly-owned subsidiary,…

PRINCE GEORGE, Va., July 16, 2020 /PRNewswire/ — Touchstone Bankshares, Inc. (the “Company”) (OTC Pink: TSBA), and its wholly-owned subsidiary, Touchstone Bank (the “Bank”), reported net income of $457 thousand for the quarter ended June 30, 2020, a decrease of $379 thousand, or 45.3%, when compared to the $836 thousand of net income recorded for the same quarter in 2019. Return on average assets was 0.36% for the second quarter of 2020, a decrease of 39 basis points when compared to the 0.75% return on average assets recorded for the second quarter of 2019.  Basic and diluted earnings per common share for the quarter ended June 30, 2020 was $0.13. For the six months ended June 30, 2020, net income was $848 thousand and basic and diluted earnings per common share was $0.25.   

Strategic Initiatives

In announcing the Company’s strategic initiatives, James Black, President and CEO said, “As part of our strategic initiatives and in response to the rapidly evolving banking landscape, we took decisive action to implement an efficiency improvement plan. Like many financial institutions, there are various headwinds facing the industry and it is important that we proactively address these so we can be better positioned to take advantage of opportunities that are sure to arise.  The actions to improve efficiencies include consolidating the Boydton branch with the newest Clarksville branch effective December 31, 2020.  The Boydton branch will remain as a drive-thru and appointment-only branch until it closes. We will continue to maintain a significant presence in Mecklenburg County, Virginia and remain committed to delivering excellent customer service in the community.  Additionally, the Rivers Bend and Louisburg branch lobbies will not reopen but operate as drive-thru and appointment only. All other branch lobbies are now open and following CDC guidelines. As a result of better optimization within the branch infrastructure and lending division, we experienced a reduction in employees, including the Chief Lending Officer position. In aggregate, we expect the cost reductions to equate to over $500 thousand in annualized pre-tax savings. Meanwhile, significant advancements in digital offerings continue while customer acceptance and utilization has naturally elevated during these unprecedented times. We have recently found much success in this business model, realizing cost savings and exceeding customer needs. The team is committed and focused on maximizing productivity and efficiency while providing excellent customer service.

“Also noteworthy, we continued to bolster the loan loss reserve in the second quarter with the anticipation of credit challenges due to the impact of COVID-19, despite asset quality metrics that are currently favorable and a diversified loan portfolio.

“Even with these changes, our focus of providing superior customer service while creating outstanding value for our shareholders and communities remains the same. This was clearly demonstrated in our participation in the Paycheck Protection Program (“PPP”) where Touchstone Bank did a phenomenal job helping existing and non-bank customers. The team served over 450 clients and distributed over $31 million in PPP funds. I am very proud of our employee’s resilience, positive mindset, and performance during the quarter.” 

Earnings

Net interest income for both the quarters ended June 30, 2020 and June 30, 2019 was $4.3 million. Net interest income for the first quarter of 2020 was $4.6 million. The net interest margin for the second quarter of 2020 was 3.74% compared to 4.23% for the same period in 2019.  The decline in the margin was mainly attributable to the 225 basis points drop of the Federal Funds target rates during the preceding twelve months. The net interest margin for the first quarter of 2020 was 4.36%, which was boosted by a $357 thousand recovery from a purchased credit impaired loan (“PCI”) payoff.  Net interest income for the six months ended June 30, 2020 was $8.9 million compared to $8.5 million for the same period in 2019. The net interest margin declined 23 basis points to 4.04% for the six months ended June 30, 2020 when compared to the 4.27% recorded for the six months ended June 30, 2019. 

The Bank recorded a $300 thousand provision for loan losses in the second quarter of 2020, while a recovery of loan losses of $112 thousand was recorded in the second quarter of 2019. Year to date, the Bank has recorded provision for loan losses of $1.2 million compared to a recovery of loan losses of $37 thousand recorded for the same period in 2019.  Though credit quality metrics as of June 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 pandemic.

Noninterest income totaled $653 thousand for the quarter ended June 30, 2020, a decrease of $144 thousand, or 18.1%, when compared to the $797 thousand recorded for the same period in 2019.  The following table is a comparison of the components of noninterest income for the quarters end June 30, 2020 and 2019:



For the three months ended







June 30,







2020


2019


 Change $ 


 Change % 

(dollars in thousands)









Service charges on deposit accounts


$    367


$    403


$         (36)


-8.9%

Secondary market origination fees


68


55


13


23.6%

Bank-owned life insurance


57


63


(6)


-9.5%

Gain on security sales


27


75


(48)


-%

Other operating income


134


201


(67)


-33.3%

  Total 


$    653


$    797


$       (144)


-18.1%


 

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



For the six months ended







June 30,







2020


2019


 Change $ 


 Change % 

(dollars in thousands)









Service charges on deposit accounts


$    788


$    711


$            77


10.8%

Secondary market origination fees


118


113


5


4.4%

Bank-owned life insurance


118


126


(8)


-6.3%

Gain on security sales


111


75


36


-%

Other operating income


270


414


(144)


-34.8%

  Total 


$ 1,405


$ 1,439


$          (34)


-2.4%

Notable variances for the two noninterest income tables above:

  • The $36 thousand decline in service charges on deposit accounts for the three months ended June 30, 2020 compared to the same period in 2019 was mainly due to the $48 thousand decline in overdraft fee income, partially offset by an increase in ATM and card interchange fees.
  • For the six months ended June 30, 2020, overdraft fee income is up $28 thousand when compared to the same period in 2019 due to the Bank implementing a new overdraft program late in the first of quarter 2019.
  • Also, ATM and card interchange fees are up $67 thousand as of year-to-date June 30, 2020, when compared to the same period in 2019.
  • The declines in other operating income for the three and six months ended June 30, 2020 compared to the same periods in 2019, respectively, were mainly due to declines of $49 thousand and $109 thousand in income from other investments, respectively.

Noninterest expense for each of the three-month periods ended June 30, 2020 and 2019 was $4.1 million.  Noninterest expense for the first quarter of 2020 was $4.0 million.

The following table is a comparison of the components of noninterest expense for the quarters end June 30, 2020 and 2019:



For the three months ended







June 30,







2020


2019


 Change $ 


 Change % 

(dollars in thousands)









Salaries and employee benefits


$ 2,195


$ 2,159


$           36


1.7%

Occupancy expense


260


275


(15)


-5.5%

Furniture and equipment expense


282


300


(18)


-6.0%

Data processing


265


210


55


26.2%

Telecommunications


173


182


(9)


-4.9%

Legal and professional fees


122


148


(26)


-17.6%

OREO losses and related expenses


11


9


2


22.2%

FDIC assessments


45


91


(46)


-50.5%

Other noninterest expenses


717


774


(57)


-7.4%

  Total 


$ 4,070


$ 4,148


$         (78)


-1.9%

For the six months ended June 30, 2020, noninterest expense was $8.1 million, an improvement of $147 thousand when compared to the $8.3 million of noninterest expense recorded in the first six months of 2019.

The following table is a comparison of the components of noninterest expense for the six months ended June 30, 2020 and 2019: 



For the six months ended







June 30,







2020


2019


 Change $ 


 Change % 

(dollars in thousands)









Salaries and employee benefits


$ 4,365


$ 4,343


$            22


0.5%

Occupancy expense


535


531


4


0.8%

Furniture and equipment expense


545


630


(85)


-13.5%

Data processing


515


421


94


22.3%

Telecommunications


354


357


(3)


-0.8%

Legal and professional fees


247


290


(43)


-14.8%

OREO losses and related expenses


12


12



0.0%

FDIC assessments


74


99


(25)


-25.3%

Other noninterest expenses


1,460


1,571


(111)


-7.1%

  Total 


$ 8,107


$ 8,254


$        (147)


-1.8%

Notable variances for the two noninterest expense tables above:

  • Data processing expense has increased for both the three and six months ended June 30, 2020 when compared to the same periods in 2019. This is mainly due to utilizing vendor credits in 2019.
  • Legal and professional fees are lower for the three- and six-month periods ended June 30, 2020 when compared to the same periods in 2019 mainly due to adjusting our accruals in 2020.
  • FDIC assessments are down due to credits being applied in 2020.
  • Other noninterest expenses are down for both the quarter and six months ended June 30, 2020 when compared to the same periods in 2019 due to normal fluctuations in several categories.

Balance Sheet

At June 30, 2020, total assets were $507.4 million, compared to $468.2 million as of December 31, 2019, an increase of $39.2 million, or 8.4%. Total loans, net of the $31.6 million of outstanding PPP loans, were $340.6 million at June 30, 2020, which was a decrease of $9.7 million, or 2.8%, 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 $430.6 million at June 30, 2020, compared to $382.9 million as of December 31, 2019.  Borrowings from the Federal Home Loan Bank totaled $21.0 million at June 30, 2020, compared to $30.0 million at December 31, 2019. 

Total equity at June 30, 2020 was $49.2 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 June 30, 2020 was $3.5 million, or 1.02% 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 June 30, 2020, were $8 thousand, bringing the Bank to a year-to-date net recoveries position of $11 thousand.  Nonperforming loans (excluding PCI loans) were $4.5 million, or 1.31% of total loans net of PPP loans, at June 30, 2020.  This is an increase of $3.6 million, or 452.2%, when compared to nonperforming loans of $807 thousand at December 31, 2019. In response to the COVID-19 pandemic, the Bank offered its borrowers an option to defer loan payments for an initial three months.  Total deferrals were $59.6 million, or 17% of the total loan portfolio, with the largest deferrals being in the hotel/motel industry ($17.6 million in deferrals) and restaurants ($5.6 million in deferrals).  The pace of deferral requests appears to have plateaued. The Bank plans to grant an additional three-month deferral to borrowers after management evaluates each borrower’s status when the initial three-month deferral period is over.  Other real estate owned at June 30, 2020 was minimal at $53 thousand.

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.

Touchstone Bank

Financial Highlights 

(unaudited)














For the Three Months Ended 

(in thousands, except per share data)


June 30,


March 31,


December 31,


September 30,


June 30, 

Selected Operating Data:


2020


2020


2019


2019


2019

Net interest income


$   4,255


$     4,639


$          4,283


$           4,388


$   4,296

Provision for (recovery of) loan losses


300


900


100



(112)

Noninterest income


653


752


902


750


797

Noninterest expense


4,070


4,037


3,811


4,080


4,148

Income before income tax 


538


454


1,274


1,058


1,057

Income tax expense


81


63


211


212


221

Net income 


457


391


1,063


846


836

Less: Preferred dividends




8



Net income available to common shareholders


$      457


$        391


$          1,055


$              846


$      836












Income per share available to common shareholders:










Basic 


$     0.13


$       0.12


$            0.32


$             0.26


$     0.25

Diluted


$     0.13


$       0.12


$            0.32


$             0.25


$     0.25












Average common shares outstanding, basic


3,327,287


3,325,600


3,321,850


3,321,458


3,321,443

Average common shares outstanding, diluted


3,356,639


3,354,952


3,351,202


3,350,810


3,350,795

























For the six months ended









June 30,


June 30,









2020


2019







Net interest income


$   8,894


$     8,475







Provision for (recovery of)  loan losses


1,200


(37)







Noninterest income


1,405


1,439







Noninterest expense


8,107


8,254







Income before income tax 


992


1,697







Income tax expense 


144


320







Net income 


$      848


$     1,377


















Income per share available to common shareholders:










Basic 


$     0.25


$       0.41







Diluted


$     0.25


$       0.41


















Average common shares outstanding, basic


3,326,443


3,320,313







Average common shares outstanding, diluted


3,355,795


3,349,717







 

Touchstone Bank

Financial Highlights (continued)

(unaudited)












(in thousands, except per share data)


June 30,


March 31,


December 31,


September 30,


June 30,

Balance Sheet Data:


2020


2020


2019


2019


2019

Total assets


$        507,378


$        472,950


$        468,189


$        471,623


$        458,083

Total loans


372,219


348,565


350,276


349,727


350,225

Allowance for loan losses


(3,491)


(3,199)


(2,280)


(2,236)


(2,328)

Core deposit intangible


1,262


1,347


1,434


1,523


1,615

Deposits


430,585


390,689


382,924


386,680


373,877

Borrowings


21,000


27,000


30,000


29,999


30,999

Subordinated debt


3,524


3,533


3,542


3,551


3,560

Preferred stock


59


59


59


59


59

Shareholders’ equity


49,208


48,338


47,219


47,446


46,193

Book value per common share 


$            14.77


$            14.51


$            14.18


$            14.27


$            13.89

Tangible book value per common share 


$            14.39


$            14.11


$            13.75


$            13.81


$            13.40

Total common shares outstanding


3,327,287


3,327,287


3,325,043


3,321,371


3,321,491

Total preferred shares outstanding


29,352


29,352


29,352


29,352


29,352














June 30,


March 31,


December 31,


September 30,


June 30,



2020


2020


2019


2019


2019

Performance Ratios:


(QTD annualized)


(QTD annualized)


(QTD annualized)


(QTD annualized)


(QTD annualized)

Return on average assets


0.36%


0.34%


0.89%


0.72%


0.75%

Return on average common equity


3.73%


3.30%


8.83%


7.17%


7.39%

Net interest margin 


3.74%


4.36%


3.92%


4.12%


4.23%

Overhead efficiency (non-GAAP)


85.01%


76.05%


74.12%


79.63%


82.65%














June 30,


June 30,









2020


2019







Performance Ratios:


YTD


YTD







Return on average assets


0.35%


0.63%







Return on average common equity


3.52%


6.16%







Net interest margin 


4.04%


4.27%







Overhead efficiency (non-GAAP)


79.56%


83.90%































June 30,


March 31,


December 31,


September 30,


June 30,

Asset Quality Data:


2020


2020


2019


2019


2019

Allowance for loan losses


$            3,491


$            3,199


$            2,280


$            2,236


$            2,328

Nonperforming loans (excluding PCI loans)


4,456


2,383


807


845


951

Other real estate owned, net of allowance


53


82


82


155


166

Nonperforming assets


4,509


2,465


889


1,000


1,117

Net charge-offs (recoveries), QTD


8


(19)


56


92


(81)












Asset Quality Ratios:











Allowance for loan losses to total loans


0.94%


0.92%


0.65%


0.64%


0.66%

Nonperforming loans to total loans


1.20%


0.68%


0.23%


0.24%


0.27%

Nonperforming assets to total assets


0.89%


0.52%


0.19%


0.21%


0.24%

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


<0.01%


(0.02)%


0.06%


0.10%


(0.09)%












Community Bank Leverage Ratio


9.33%


9.83%


9.61%*


9.80%*


9.93%*












*Tier 1 Leverage Ratio

 

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SOURCE Touchstone Bankshares, Inc.