Touchstone Bankshares Reports Third Quarter of 2022 Financial Results

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Touchstone Bankshares, Inc. (OTC Pink: TSBA) reported unaudited Q3 2022 results with a net income of $1.1 million, down from $1.2 million in Q3 2021, marking $0.33 earnings per share. Year-to-date net income reached $2.8 million, compared to $3.2 million last year. Loan growth was 14.7% year-over-year, with total assets increasing to $615 million. However, noninterest income decreased by 5.1% year-to-date. Operating costs rose due to talent acquisition and inflation. The bank anticipates improved profitability metrics despite challenges.

Positive

• Net interest income rose by 7.9% to $5.4 million for Q3 2022.
• Loan growth of 14.7% year-over-year with a healthy loan pipeline.
• Low delinquencies and strong credit quality metrics.

Negative

• Net income decreased to $1.1 million in Q3 2022 from $1.2 million in Q3 2021.
• Noninterest income down 5.1% year-to-date.
• Operating costs increased 12.4% due to inflation and staffing.

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:

 

	For the three months ended  September 30,
	2022	2021	Change $		Change %
(dollars in thousands)
Service charges on deposit accounts	$      532	$      479	$         53		11.1 %
Secondary market origination fees	69	22	47		213.6 %
Bank-owned life insurance	75	57	18		31.6 %
Loss on security sales	(135)	-	(135)		- %
Other operating income	300	214	86		40.2 %
Total	$      841	$      772	$         69		8.9 %

 

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:

 

	For the nine months ended  September 30,
	2022	2021	Change $		Change %
(dollars in thousands)
Service charges on deposit accounts	$    1,532	$   1,375	$         157		11.4 %
Secondary market origination fees	149	164	(15)		-9.1 %
Bank-owned life insurance	225	159	66		41.5 %
(Loss) Gain on security sales	(135)	211	(346)		-164.0 %
Loss on sale of fixed assets	(62)	-	(62)		-100.0 %
Other operating income	791	724	67		9.3 %
Total	$    2,500	$   2,633	$         (133)		-5.1 %

 

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 three months ended  September 30,
(dollars in thousands)	2022	2021	Change $		Change %
Salaries and employee benefits	$   2,690	$   2,184	$        506		23.2 %
Occupancy expense	334	251	83		33.1 %
Furniture and equipment expense	309	305	4		1.3 %
Data processing	139	244	(105)		-43.0 %
Telecommunications	169	215	(46)		-21.4 %
Legal and professional fees	155	66	89		134.8 %
FDIC assessments	56	54	2		3.7 %
Other noninterest expenses	982	981	1		0.1 %
Total	$   4,834	$    4,300	$         534		12.4 %

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:

 

	For the nine months ended  September 30,
	2022	2021	Change $		Change %
(dollars in thousands)
Salaries and employee benefits	$   7,574	$   6,369	$     1,205		18.9 %
Occupancy expense	954	808	146		18.1 %
Furniture and equipment expense	880	876	4		0.5 %
Data processing	342	791	(449)		-56.8 %
Telecommunications	619	613	6		1.0 %
Legal and professional fees	439	377	62		16.4 %
FDIC assessments	166	138	28		20.3 %
Other noninterest expenses	2,851	2,831	20		0.7 %
Total	$ 13,825	$ 12,803	$       1,022		8.0 %

 

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.

 

Touchstone Bankshares, Inc.
Consolidated Financial Highlights
(unaudited)
		For the Three Months Ended
(in thousands, except per share data)		September 30,		June 30,		March 31,		December 31,		September 30,
Selected Operating Data:		2022		2022		2022		2021		2021
Net interest income		$                  5,405		$              5,075		$              4,564		$              4,674		$              5,009
Provision for loan losses		105		500		-		-		-
Noninterest income		841		791		868		1,230		772
Noninterest expense		4,834		4,644		4,347		4,393		4,300
Income before income tax		1,307		722		1,085		1,511		1,481
Income tax (benefit) expense		240		117		(51)		284		279
Net income		1,067		605		1,136		1,227		1,202
Less: Preferred dividends		-		-		-		9		-
Net income available to common shareholders		$                  1,067		$                 605		$              1,136		$              1,218		$              1,202
Income per share available to common shareholders:
Basic		$                    0.33		$                0.18		$                0.35		$                0.37		$                0.36
Diluted		$                    0.33		$                0.18		$                0.34		$                0.37		$                0.36
Average common shares outstanding, basic		3,234,497		3,256,610		3,268,056		3,301,674		3,336,504
Average common shares outstanding, diluted		3,263,645		3,285,758		3,297,204		3,330,822		3,365,652
		Year to Date
		September 30,		September 30,
		2022		2021
Net interest income		$                15,044		$            14,129
Provision for loan losses		605		-
Noninterest income		2,500		2,633
Noninterest expense		13,825		12,803
Income before income tax		3,114		3,959
Income tax expense		306		738
Net income		2,808		3,221
Income per share available to common shareholders:
Basic		$                    0.86		$                0.97
Diluted		$                    0.86		$                0.96
Average common shares outstanding, basic		3,252,685		3,335,887
Average common shares outstanding, diluted		3,281,833		3,365,035

 

 

Touchstone Bankshares, Inc.
Consolidated Financial Highlights (continued)
(unaudited)
(in thousands, except per share data)		September,		June 30,		March 31,		December 31,		September 30,
Balance Sheet Data:		2022		2022		2022		2021		2021
Total assets		$             615,031		$             604,026		$         594,192		$         581,136		$           586,843
Total loans		470,293		458,380		426,995		402,910		377,015
Allowance for loan losses		(4,895)		(4,825)		(4,326)		(4,375)		(4,445)
Core deposit intangible		627		687		749		815		882
Deposits		546,863		538,692		537,879		517,396		521,104
Borrowings		6,000		-		-		-		3,000
Subordinated debt		17,593		17,565		17,537		7,825		7,813
Preferred stock		58		58		58		58		58
Shareholders' equity		41,641		44,206		47,558		50,896		51,921
Book value per common share		$                 12.85		$                 13.62		$             14.49		$             15.57		$               15.54
Tangible book value per common share		$                 12.66		$                 13.41		$             14.26		$             15.32		$               15.28
Total common shares outstanding		3,235,777		3,241,917		3,278,558		3,265,615		3,336,504
Total preferred shares outstanding		29,148		29,148		29,148		29,148		29,148
		September,		June 30,		March 31,		December 31,		September 30,
		2022		2022		2022		2021		2021
Performance Ratios:		(QTD annualized)		(QTD annualized)		(QTD annualized)		(QTD annualized)		(QTD annualized)
Return on average assets		0.70 %		0.41 %		0.78 %		0.81 %		0.82 %
Return on average common equity		9.62 %		5.34 %		9.30 %		9.36 %		9.19 %
Net interest margin		3.79 %		3.64 %		3.34 %		3.31 %		3.68 %
Overhead efficiency (non-GAAP)		76 %		78 %		80 %		79 %		74 %
		September,		September,
		2022		2021
Performance Ratios:		YTD		YTD
Return on average assets		0.63 %		0.73 %
Return on average common equity		8.09 %		8.08 %
Net interest margin		3.59 %		3.55 %
Overhead efficiency (non-GAAP)		78 %		79 %

 

		September,		June 30,		March 31,		December 31,		September 30,
Asset Quality Data:		2022		2022		2021		2021		2021
Allowance for loan losses		$                 4,895		$                 4,825		$             4,326		$             4,375		$               4,445
Nonperforming loans (excluding PCI loans)		326		70		254		253		1,259
Other real estate owned, net of allowance		-		-		-		-		-
Nonperforming assets		326		70		254		253		1,259
Net charge-offs (recoveries)  , QTD		34		1		49		70		(5)
Asset Quality Ratios:
Allowance for loan losses to total loans		1.04 %		1.05 %		1.01 %		1.09 %		1.18 %
Nonperforming loans to total loans		0.07 %		0.02 %		0.06 %		0.06 %		0.33 %
Nonperforming assets to total assets		0.05 %		0.01 %		0.04 %		0.04 %		0.21 %
YTD net (recoveries) charge-offs  to average loans, annualized		0.01 %		<0.01%		0.05 %		0.05 %		(0.01 %)
Community Bank Leverage Ratio		10.11 %		9.99 %		9.59 %		9.27 %		9.48 %

 

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SOURCE Touchstone Bankshares, Inc.

FAQ

What were the earnings for Touchstone Bankshares in Q3 2022?

Touchstone Bankshares reported earnings of $1.1 million, or $0.33 per share, for Q3 2022.

How did Touchstone Bankshares perform in terms of net interest income?

The company reported a net interest income of $5.4 million for Q3 2022, up 7.9% from the previous year.

What is the year-to-date net income for Touchstone Bankshares as of September 30, 2022?

For the nine months ended September 30, 2022, the net income was $2.8 million.

How has Touchstone Bankshares' loan growth changed year-over-year?

Loans increased by 14.7% year-over-year as of September 30, 2022.

What challenges did Touchstone Bankshares face in operating costs?

Operating costs rose by 12.4% mainly due to talent acquisition and inflation impacts.