Touchstone Bankshares Reports 2022 Financial Results

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Touchstone Bankshares (OTC: TSBA) reported its Q4 and annual financial results for 2022, showing a net income of $4.1 million for the year, down 9% from 2021. Earnings per share were $1.24, compared to $1.33 the previous year. The bank experienced a notable 21% growth in total loans, totaling $487.2 million. However, it faced a significant deposit outflow in Q4, which management considered temporary. The bank raised $10 million in subordinated debt and completed a $1.5 million stock repurchase program. Additionally, noninterest income decreased by 7.7%, and noninterest expenses rose by 10.5% year-over-year.

Positive

• 21% increase in total loans, amounting to $487.2 million.
• Completed a $10 million subordinated debt raise.
• Successfully executed a $1.5 million stock repurchase program.

Negative

• Net income decreased 9% year-over-year from $4.4 million to $4.1 million.
• Noninterest income fell by 7.7%, totaling $3.6 million.
• Shareholders' equity declined 16.2% from $50.9 million to $42.6 million.

PRINCE GEORGE, Va., Jan. 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 and year ended December 31, 2022.

The Company reported net income available to common shareholders of $4.1 million and $1.2 million for the year and quarter ended December 31, 2022, respectively. For 2022, earnings per common share was $1.24 on a basic and diluted basis. This compares to $4.4 million of net income available to common shareholders for the year ended December 31, 2021, or $1.33 of earnings per common share on a basic and diluted basis. Return on average assets was 0.67% and 0.77% for years ended December 31, 2022, and 2021, respectively. Return on average common equity for the years ended December 31, 2022 and 2021 was 8.90% and 8.70%, respectively.

Basic and diluted earnings per common share for the quarter ended December 31, 2022, was $0.38 while return on average assets was 0.81% and return on average common equity was 11.72%. By comparison, the Company's net income available to common shareholders for the quarter ended December 31, 2021, was $1.2 million and basic and diluted earnings per common share was $0.37. The return on average assets was 0.81% for the quarter ended December 31, 2021.

James Black, President and CEO stated, "We experienced another year of positive momentum and success due to the commitment and diligence of the Touchstone team members. While the growth engine outpaced the earning performance for 2022, the larger asset base and market presence should add greater long-term value. With restrictive monetary policy and resilient economic conditions, albeit changing, we remain cautiously optimistic on macro-economic conditions and will navigate changing conditions accordingly."

He continued, "For 2022, we delivered double-digit loan growth, with total loans increasing $84.3 million or 21% over last year, while reducing nearly all Paycheck Protection Program loans. Additionally, we are strategically better postured for continued growth across our footprint with the hiring of various professionals and a new loan center in Raleigh, North Carolina. Like many financial institutions,  our focus in 2023 will be placed on deposit acquisition initiatives as liquidity is being drained from the financial system through restrictive monetary policy. During the fourth quarter, the Bank experienced a sizeable outflow of deposits that was concentrated with a few customers and deemed temporary. Management views the fourth quarter level of deposit outflow as a one-time event. However, we expect an especially competitive deposit market to pressure the net interest margin going forward."

He concluded by saying, "During the year, capital management was especially active with the completion of a $1.5 million common stock repurchase, a $10 million subordinated debt raise and a $.02 per share increase in the annual cash dividend. The Bank's capital position remained strong and is supported by favorable asset quality metrics."

Earnings

Year-over-Year Twelve Months

Net income available to common shareholders for the year ended December 31, 2022, was $4.1 million, or $1.24 per basic and diluted common share. This is a decrease of $400 thousand, or 9%, when compared with net income available to common shareholders of $4.4 million, or $1.33 basic diluted earnings per common share, for the year ended December 31, 2021.

Net interest income for the years ended December 31, 2022, and 2021, was $20.6 million and $18.8 million, respectively. The net interest margin improved 15 basis points from 3.52% in 2021 to 3.67% for 2022 as increases in volume and yields on interest-earning assets outpaced interest-bearing liabilities. However, the Bank experienced material repricing on its interest-bearing funding in the fourth quarter of 2022 and expects the margin to begin to contract during 2023 as competition for funding demand grows.

The Bank recorded no provision for loan losses in 2021. Comparatively, the Company recorded $605 million of provision for loan losses in 2022 as reserves were added in response to the Company's increase in total loans.

Noninterest income totaled $3.6 million for the year ended December 2022, a decrease of $296 thousand, or 7.7%, when compared to the $3.9 million recorded in 2021.

The following table is a comparison of the components of noninterest income for the years ended December 30, 2022, and 2021:

 

		For the year ended
		December 31,
		2022		2021		Change $		Change %
(dollars in thousands)
Service charges on deposit accounts		$           2,046		$           1,872		$              174		9.3 %
Secondary market origination fees		184		224		(40)		-17.9 %
Bank-owned life insurance		300		234		66		28.2 %
BOLI death benefits		343		-		343		- %
(Loss) Gain on security sales		(135)		218		(353)		-161.9 %
(Loss) gain on sale of fixed assets		(90)		320		(410)		-128.1 %
Other operating income		919		995		(76)		-7.6 %
Total		$           3,567		$           3,863		$            (296)		-7.7 %

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 low interest rate environment in 2021 spurred home refinancing, but the rise in interest rates in 2022 tempered the refinancing and resulted in the decline in secondary market origination 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 a five-year lease with an option to renew after the initial five years. In 2022, the Bank sold a few fixed assets at loss.
• The decrease in other operating income was mainly due to decreases in income from other investments.

For the year ended December 31, 2022, noninterest expense was $19.0 million, an increase of $1.8 million, or 10.5% when compared to the $17.2 million of noninterest expense recorded in 2021. The following table is a comparison of the components of noninterest expense for the years ended December 31, 2022, and 2021:

 

		For the year ended
		December 31,
		2022		2021		Change $		Change %
(dollars in thousands)
Salaries and employee benefits		$         10,564		$           8,639		$           1,925		22.3 %
Occupancy expense		1,263		1,072		191		17.8 %
Furniture and equipment expense		1,165		1,164		1		0.1 %
Data processing		624		1,152		(528)		-45.8 %
Telecommunications		777		841		(64)		-7.6 %
Legal and professional fees		812		716		96		13.4 %
FDIC assessments		220		186		34		18.3 %
Other noninterest expenses		3,576		3,426		150		4.4 %
Total		$         19,001		$         17,196		$           1,805		10.5 %

Notable variances for the noninterest expense table above:

• The increase in salaries and employee benefits for 2022 when compared to the same period in 2021 was due to added staff as the Bank continues its expansion into the Richmond, Virginia and Raleigh, North Carolina MSAs and wage inflation. The Company anticipates salaries and employee benefits to continue to increase in 2023 due to wage inflation, but not at the pace of increase experienced in 2022.
• The increase in occupancy expense is due to the added lease expense associated with the sale-leaseback of the Company's corporate headquarter building discussed above as well as leasing office space in Raleigh, North Carolina beginning in 2022.
• The decrease in data processing expense in 2022 when compared to 2021 was mainly due to the accelerated use of additional credits provided by the Company's core provider. These credits expired in late 2022 and the Company expects data processing to normalize in 2023.
• The Bank favorably renegotiated its telecommunications contract in early 2022 which led to a reduction in telecommunications expense in 2022.

Year-over-Year Fourth Quarter

Net income available to common shareholders for the quarter ended December 31, 2022, was $1.2 million, or $0.38 per basic and diluted common share. This is an increase of $16 thousand, or 1.3%, when compared with net income available to common shareholders of $1.2 million, or $0.37 basic and diluted earnings per common share for the same period in 2021.

Net interest income for the quarters ended December 31, 2022, and 2021, was $5.6 million and $4.7 million, respectively. The net interest margin increased 56 basis points from 3.31% in the fourth quarter of 2021 to 3.87% for the same quarter in 2022 for the same factors as discussed above in the Year-over-Year Twelve Months section.

Noninterest income totaled $1.1 million for the quarter ended December 31, 2022, a decrease of $163 thousand, or 13.3%, when compared to the same period in 2021. 

The following table is a comparison of the components of noninterest income for the three months ended December 31, 2022, and 2021:

 

		For the three months ended
		December 31,
		2022		2021		Change $		Change %
(dollars in thousands)
Service charges on deposit accounts		$              514		$              497		$                17		3.4 %
Secondary market origination fees		35		58		(23)		-39.7 %
Bank-owned life insurance		75		75		-		0.0 %
BOLI death benefits		343		-		343		- %
Gain on security sales		-		6		(6)		- %
(Loss) gain on sale of fixed assets		(28)		320		(348)		-108.8 %
Other operating income		128		274		(146)		-53.3 %
Total		$           1,067		$           1,230		$            (163)		-13.3 %

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.
• As noted above, the low interest rate environment in 2021 spurred home refinancing, but the rise in interest rates in 2022 tempered the refinancing and resulted in the decline in secondary market origination 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 a five-year lease with an option to renew after the initial five years. See discussion above.
• 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, 2022, and 2021:

 

		For the three months ended
		December 31,
		2022		2021		Change $		Change %
(dollars in thousands)
Salaries and employee benefits		$           2,990		$           2,222		$              768		34.6 %
Occupancy expense		309		264		45		17.0 %
Furniture and equipment expense		285		287		(2)		-0.7 %
Data processing		282		361		(79)		-21.9 %
Telecommunications		158		227		(69)		-30.4 %
Legal and professional fees		142		123		19		15.4 %
FDIC assessments		54		48		6		12.5 %
Other noninterest expenses		956		861		95		11.0 %
Total		$           5,176		$           4,393		$              783		17.8 %

See discussion in Year-over-Year Twelve Months section above for noninterest expense variances.  The increase in other noninterest expenses in the above table was due to several noninterest expense categories.

Balance Sheet

At December 31, 2022, total assets were $622.4 million, compared to $581.1 million at December 31, 2021, an  increase of $41.3 million, or 7.1%.

Total loans were $487.2 million at December 31, 2022. Total loans increased $84.3 million, or 20.9% during the year. Total loans increased $16.9 million, or 3.6%, during the fourth quarter of 2022 and the Bank has a healthy pipeline entering 2023. 

On the liability side of the balance sheet, deposits totaled $526.6 million at December 31, 2022, as compared to $517.4 million at December 31, 2021. Included in total deposits at December 31, 2022 were $20.4 million in brokered deposits. Retail deposits declined $10.6 million in 2022 as the Bank experienced an outflow of $40.7 million of retail deposits in the fourth quarter of 2022. The Bank replaced those deposits with the aforementioned $20.4 million in brokered CDs and $25 million in additional FHLB Borrowings.

In the fourth quarter of 2022, the Bank had $31.0 million in FHLB Borrowings. The Bank had no outstanding FHLB borrowings at December 31, 2021.

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 $42.6 million at December 31, 2022, a decline of $8.2 million, or 16.2% when compared to the $50.9 million of Shareholders' Equity at December 31, 2021. The decline was mainly due to the $10.9 million decrease in Accumulated Other Comprehensive Income which represents the unrealized loss of fair value in the Bank's available-for-sale investment securities. The decline in the fair value of the investment securities was attributed to the increases of the federal interest rates. Also, the Company initiated a $1.5 million stock repurchase program in the fourth quarter of 2021 which was completed in early third quarter of 2022. The Bank's Community Bank Leverage Ratio   was 10.13% at December 31, 2022 and remains well capitalized as defined by regulatory guidelines

Asset Quality

The allowance for loan losses at December 31, 2022, was $4.9 million, or 1.00%, of total loans. Loans past due 30 days or more and still accruing were $188 thousand at December 31, 2022, while nonaccrual loans, excluding purchased credit impaired loans, totaled $362 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. 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.

 

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:		2022		2022		2022		2022		2021
Net interest income		$                     5,555		$                5,405		$                5,075		$                4,564		$                4,674
Provision for loan losses		-		105		500		-		-
Noninterest income		1,067		841		791		868		1,230
Noninterest expense		5,176		4,834		4,644		4,347		4,393
Income before income tax		1,446		1,307		722		1,085		1,511
Income tax (benefit) expense		203		240		117		(51)		284
Net income		1,243		1,067		605		1,136		1,227
Less: Preferred dividends		9		-		-		-		9
Net income available to common shareholders		$                     1,234		$                1,067		$                   605		$                1,136		$                1,218
Income per share available to common shareholders:
Basic		$                       0.38		$                  0.33		$                  0.18		$                  0.35		$                  0.37
Diluted		$                       0.38		$                  0.33		$                  0.18		$                  0.34		$                  0.37
Average common shares outstanding, basic		3,238,317		3,234,497		3,256,610		3,268,056		3,301,674
Average common shares outstanding, diluted		3,267,465		3,263,645		3,285,758		3,297,204		3,330,822

 

		Year to Date
		December 31,		December 31,
		2022		2021
Net interest income		$                   20,599		$              18,803
Provision for loan losses		605		-
Noninterest income		3,567		3,863
Noninterest expense		19,001		17,196
Income before income tax		4,560		5,470
Income tax expense		509		1,022
Net income		4,051		4,448
Less: Preferred dividends		9		9
Net income available to common
shareholders		$                     4,042		$                4,439
Income per share available to common shareholders:
Basic		$                       1.24		$                  1.33
Diluted		$                       1.24		$                  1.33
Average common shares outstanding, basic		3,249,248		3,326,511
Average common shares outstanding, diluted		3,278,396		3,355,659

 

Touchstone Bankshares, Inc.
Consolidated Financial Highlights (continued)
(unaudited)
(in thousands, except per share data)		December,		September,		June 30,		March 31,		December 31,
Balance Sheet Data:		2022		2022		2022		2022		2021
Total assets		$                   622,402		$                   615,031		$              604,026		$              594,192		$                581,136
Total loans		487,216		470,293		458,380		426,995		402,910
Allowance for loan losses		(4,881)		(4,895)		(4,825)		(4,326)		(4,375)
Core deposit intangible		570		627		687		749		815
Deposits		526,553		546,863		538,692		537,879		517,396
Borrowings		31,000		6,000		-		-		-
Subordinated debt		17,621		17,593		17,565		17,537		7,825
Preferred stock		58		58		58		58		58
Shareholders' equity		42,647		41,641		44,206		47,558		50,896
Book value per common share		$                       13.12		$                       12.85		$                  13.62		$                  14.49		$                    15.57
Tangible book value per common share		$                       12.94		$                       12.66		$                  13.41		$                  14.26		$                    15.32
Total common shares outstanding		3,246,236		3,235,777		3,241,917		3,278,558		3,265,615
Total preferred shares outstanding		29,148		29,148		29,148		29,148		29,148
		December,		September,		June 30,		March 31,		December 31,
		2022		2022		2022		2022		2021
Performance Ratios:		(QTD annualized)		(QTD annualized)		(QTD annualized)		(QTD annualized)		(QTD annualized)
Return on average assets		0.81 %		0.70 %		0.41 %		0.78 %		0.81 %
Return on average common equity		11.72 %		9.62 %		5.34 %		9.30 %		9.36 %
Net interest margin		3.87 %		3.79 %		3.64 %		3.34 %		3.31 %
Overhead efficiency (non- GAAP)		79 %		76 %		78 %		80 %		79 %
		December,		December,
		2022		2021
Performance Ratios:		YTD		YTD
Return on average assets		0.67 %		0.77 %
Return on average common equity		8.90 %		8.70 %
Net interest margin		3.67 %		3.52 %
Overhead efficiency (non- GAAP)		78 %		78 %
		December,		September,		June 30,		March 31,		December 31,
Asset Quality Data:		2022		2022		2022		2022		2021
Allowance for loan losses		$                       4,881		$                       4,895		$                  4,825		$                  4,326		$                    4,375
Nonperforming loans (excluding PCI loans)		362		326		70		254		253
Other real estate owned, net of allowance		-		-		-		-		-
Nonperforming assets		362		326		70		254		253
Net charge-offs, QTD		15		34		1		49		70
Asset Quality Ratios:
Allowance for loan losses to total loans		1.00 %		1.04 %		1.05 %		1.01 %		1.09 %
Nonperforming loans to total loans		0.07 %		0.07 %		0.02 %		0.06 %		0.06 %
Nonperforming assets to total assets		0.06 %		0.05 %		0.01 %		0.04 %		0.04 %
YTD net charge-offs to average loans, annualized		0.02 %		0.02 %		<0.01%		0.05 %		0.05 %
Community Bank Leverage Ratio		10.13 %		10.11 %		9.99 %		9.59 %		9.27 %

 

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SOURCE Touchstone Bankshares, Inc.

FAQ

What were Touchstone Bankshares' earnings results for 2022?

Touchstone Bankshares reported a net income of $4.1 million for the year ending December 31, 2022, down from $4.4 million in 2021.

How much did Touchstone Bankshares' total loans increase in 2022?

Total loans increased by $84.3 million, or 21%, reaching $487.2 million.

What was the net income available to common shareholders for Q4 2022?

In Q4 2022, net income available to common shareholders was $1.2 million, or $0.38 per share.

What happened to Touchstone Bankshares' deposits in Q4 2022?

The bank experienced a significant outflow of deposits totaling $40.7 million, which management deemed a temporary event.

How did Touchstone Bankshares' noninterest expenses change in 2022?

Noninterest expenses rose by 10.5% year-over-year, reaching $19 million.