Touchstone Bankshares Reports 2023 First Quarter Financial Results

PRINCE GEORGE, Va., April 28, 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 March 31, 2023.

The Company reported a net loss of $(196) thousand available to common shareholders for the quarter ended March 31, 2023. Basic and diluted loss per common share for the quarter was $(0.06). Return on average assets was (0.13)% while return on average common equity was (1.89)%. Negatively affecting the results in the first quarter of 2023 was a $1.0 million provision for credit loss associated with the Bank's 2021 investment in Signature Bank's ("SBNY") subordinated debt. Also, the Bank recorded $215 thousand of pretax one-time expenses associated with a core-accounting conversion in the first quarter of 2023. Core earnings¹ (non-GAAP), which is net income available to common shareholders before the one-time expenses noted above, net of taxes, was $771 thousand, or $0.24 basic and diluted earnings per common share.

By comparison, the Company's net income for the quarter ended March 31, 2022 was $1.1 million and basic and diluted earnings per common share were $0.35 and $0.34, respectively. The return on average assets was 0.78% for the quarter ended March 31, 2022. For the fourth quarter of 2022, the Company reported net income available to common shareholders of $1.2 million, or $0.38 per common share on a basic and diluted basis.

James Black, President and CEO, stated "Touchstone Bank demonstrated strength and trust during the first quarter where there was extreme financial uncertainty and market volatility that ultimately led to the failure of two large financial institutions. Included in the results are the impacts of the Bank's subordinated debt investment in Signature Bank, which was one of the institutions taken into receivership by the Federal Deposit Insurance Corporation ("FDIC"). Despite this one-time charge, our capital position remained strong, with capital well in excess of regulatory standards." 

"During the quarter, the strength of the balance sheet and our community bank model proved itself, as we experienced growth in loans and deposits. In fact, deposits grew 4.4%, or $23 million, for the quarter, outpacing loan growth, as proactive liquidity risk management strategies were taking hold. We have a well-diversified and established deposit base with ample liquidity sources to cover uninsured deposits. The loan portfolio is equally as diversified, with excellent asset quality metrics." 

He continued, "Our strategic focus continued with the successful completion of a core conversion during the quarter, which was a significant and time-consuming project. By having this upgraded system, we expect to generate operational efficiencies and enhanced products and services for our valued customers and employees. With the prevailing industry headwinds, the need for greater efficiencies is more important than ever and is of notable focus."

Earnings

Net interest income before provision for credit losses for the first quarter of 2023 was $5.4 million, compared to $4.6 million for the same period in 2022, an increase of $870 thousand, or 19.1%. Net interest income for the fourth quarter of 2022 was $5.6 million. The Company's cost of funds were 104 basis points in the first quarter of 2023 which is 64 basis points higher than the 40 basis points cost of funds for the first quarter of 2022. The net interest margin for the quarter ended March 31, 2023 was 3.78% compared to 3.34% for the quarter ended March 31, 2022. The net interest margin for the fourth quarter of 2022 was 3.87%.

The Bank recorded a $1.0 million provision for credit loss in the first quarter of 2023, which was all associated with the Bank's 2021 investment in SBNY's subordinated debt. SBNY failed in March of 2023 and was taken into receivership by regulators. No provision for credit losses associated with loans was recorded in the first quarter of 2023 as loan credit metrics remain favorable. Loans past due and on nonaccrual remain at historically low levels. No provision for credit losses was recorded in the first quarter of 2022.

Noninterest income totaled $768 thousand for the quarter ended March 31, 2023, a $100 thousand decrease when compared to the $868 thousand recorded in the same period in 2022. 

The following table is a comparison of the components of noninterest income for the three months ended March 31, 2023, and 2022:

		For the three months ended
		March 31,
		2023		2022		Change $		Change %
(dollars in thousands)
Service charges on deposit accounts		$          473		$          479		$            (6)		-1.3 %
Secondary market origination fees		-		45		(45)		-100.0 %
Bank-owned life insurance		75		75		-		0.0 %
Other operating income		220		269		(49)		-18.2 %
Total		$          768		$          868		$        (100)		-11.5 %

Notable variances for the noninterest income table above:

• Secondary marketing fees declined due to the Company deciding to keep 1-4 family loans originated on-balance sheet.
• The decrease in other operating income was mainly due to income received in the first quarter of 2022 from the Bank's other investments.

Noninterest expense totaled $5.5 million for the quarter ended March 31, 2023, an increase of $1.2 million, or 27.1%, when compared to the $4.3 million recorded in the same period in 2022. The following table is a comparison of the components of noninterest expense for the quarters ended March 31, 2023, and 2022:

		For the three months ended
		March 31,
		2023		2022		Change $		Change %
(dollars in thousands)
Salaries and employee benefits		$       3,082		$       2,327		$          755		32.4 %
Occupancy expense		313		295		18		6.1 %
Furniture and equipment expense		277		279		(2)		-0.7 %
Data processing		307		77		230		298.7 %
Telecommunications		149		222		(73)		-32.9 %
Legal and professional fees		174		193		(19)		-9.8 %
FDIC assessments		53		56		(3)		-5.4 %
Other noninterest expenses		1,170		898		272		30.3 %
Total		$       5,525		$       4,347		$       1,178		27.1 %

Notable variances for the noninterest expense table above:

• The increase in salaries and employee benefits for 2023 when compared to the same period in 2022 is mainly due to added staff, wage inflation, and one-time bonuses accrued for core conversion expenses ($112.5 thousand accrued as of March 31, 2023).
• The increase in occupancy expense is mostly due to a new lease for office space in the Raleigh, North Carolina MSA for a loan center. The loan center was opened in mid-2022.
• The increase in data processing expense in 2023 when compared to the same period in 2022 was mainly due to the use of additional credits provided by the Company's core provider in the first quarter of 2022. The credits were completed in October of 2022 and management believes the first quarter of 2023's data process expense will be the amount going forward.
• The decrease in telecommunications in 2023 versus 2022 was due to the Bank renegotiating its third-party telecommunication contract and management anticipates the first quarter of 2023's telecommunication expense will be this amount going forward.
• Legal and professional fees are lower for the three months ended March 31, 2023, when compared to the same period in 2022 mainly due to a nonrecurring $26 thousand recruiting fee paid in the first quarter of 2022.
• The $272 thousand increase in other noninterest expenses was due to several elevated expense categories. First, the Company began a rebranding campaign and had core-conversion related marketing which increased its marketing expense $90 thousand in the first quarter of 2023 when compared to the first quarter of 2022. Also, the Bank's Virginia Franchise Tax expense increased $22 thousand in the first quarter of 2023 when compared to the first quarter of 2022. The Bank had an increase of $74 thousand in appraisal fees due to a restructuring of its appraisal ordering process. The elevated appraisal expenses should subside beginning in the second quarter of 2023. Next, the Bank has third party information technology network support. Those network expenses increased $25 thousand in the first quarter of 2023 when compared to the first quarter of 2022 due to a few additional invoices for extra support needed in the first quarter of 2023. Lastly, the Bank had an increase of $29 thousand in its internet banking fees in the first quarter of 2023 when compared to the first quarter of 2022.

In the first quarter of 2022, the Bank recorded a one-time tax benefit of $241 thousand.

Balance Sheet

At March 31, 2023, total assets were $644.7 million, compared to $594.2 million at March 31, 2022, an  increase of $50.5 million, or 8.5%, as the Company continues to build its balance sheet. Total assets increased $22.3 million, or 3.8%, during the first quarter of 2023.

Total loans were $496.8 million at March 31, 2023. Total loans increased $9.6 million, or 7.9% on an annualized basis, during the quarter. Total loans increased $16.9 million, or 13.9% on an annualized basis, during the fourth quarter of 2022. 

On the liability side of the balance sheet, deposits totaled $549.5 million at March 31, 2023, as compared to $526.6 million at December 31, 2022. This represents an increase of $23.0, million or 17.5%, on an annualized basis. The Bank had $20.4 million of brokered time deposits included in its total deposits at March 31, 2023 and December 31, 2022.

In the fourth quarter of 2022, the Bank borrowed $25 million for the Federal Home Loan Bank ("FHLB"), which brought its total borrowings to $31 million, which was the balance outstanding at March 31, 2023 and December 31, 2022. 

At March 31, 2023, the Bank had $17.6 million of outstanding subordinated debt. In August of 2020, the Company issued $8 million of subordinated debt with a 10-year maturity and an initial 6.00% coupon. 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 $43.7 million at March 31, 2023. The Company's other accumulated comprehensive loss was $9.7 at March 31, 2023. The Bank's community bank leverage ratio  was 9.89% at March 31, 2023, and remains above the threshold for well capitalized status under regulatory guidelines.

Asset Quality

The allowance for loan losses at March 31, 2023, was $4.9 million, or 0.99%, of total loans. Loans past due 30 days or more and still accruing totaled $280 thousand at March 31, 2023, while nonaccrual loans totaled $356 thousand. The Company believes the current level of allowance for loan loss reserves are adequate to cover anticipated losses as credit metrics remain stable.

Liquidity/Funding

The Company believes it has sufficient on-and off-balance sheet liquidity sources to meet any liquidity event it may encounter. The Bank's estimated uninsured/uncollateralized deposits at March 31, 2023 was less than 20% of total deposits. Combined with unpledged available-for-sale securities, total liquid assets and unused borrowing capacity exceeded total estimated uninsured and uncollateralized deposits by 245%.

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 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, 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)	March 31,				December 31,					September 30,		June 30,		March 31,
Selected Operating Data:	2023				2022					2022		2022		2022
Net interest income	$        5,434				$       5,555					$          5,405		$           5,075		$           4,564
Provision for credit losses	1,009				-					105		500		-
Noninterest income	768				1,067					841		791		868
Noninterest expense	5,525				5,176					4,834		4,644		4,347
Income before income tax	(332)				1,446					1,307		722		1,085
Income tax (benefit) expense	(136)				203					240		117		(51)
Net (loss) income	(196)				1,243					1,067		605		1,136
Less: Preferred dividends	-				9					-		-		-
Net (loss) income available to common shareholders	$           (196)				$       1,234					$           1,067		$              605		$           1,136
(Loss) income per share available to common shareholders:
Basic	$          (0.06)				$         0.38					$             0.33		$             0.18		$             0.35
Diluted	$          (0.06)				$         0.38					$             0.33		$             0.18		$             0.34
Average common shares outstanding,
Basic Average common shares outstanding,	3,268,056				3,238,317					3,234,497		3,256,610		3,268,056
Diluted	3,297,204				3,267,465					3,263,645		3,285,758		3,297,204
(in thousands, except per share data)
1Reconciliation of non-GAAP	Year to Date
Financial Measures	March 31, 2023
Net loss before one-time adjustments	$          (196)
Provision for credit losses, net of tax effect	797
Core conversion expenses, net of tax effect	170
Core earnings1	$            771
Core earnings per share available to common shareholders:
Basic	$           0.24
Diluted	$           0.24
Average common shares outstanding,
Basic Average common shares outstanding,	3,268,056
Diluted	3,297,204

1Core earnings is determined by methods other than in accordance with U.S. generally accepted accounting principles ("GAAP"). Non-GAAP measures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

 

Touchstone Bankshares, Inc.
Consolidated Financial Highlights (continued)
(unaudited)
(in thousands, except per share data)		March,		December,		September,		June 30,		March 31,
Balance Sheet Data:		2023		2022		2022		2022		2022
Total assets		$             644,672		$             622,608		$         615,031		$         604,026		$           594,192
Total loans		496,820		487,216		470,293		458,380		426,995
Allowance for loan losses		(4,910)		(4,881)		(4,895)		(4,825)		(4,326)
Core deposit intangible		516		570		627		687		749
Deposits		549,527		526,553		546,863		538,692		537,879
Borrowings		31,000		31,000		6,000		-		-
Subordinated debt		17,648		17,621		17,593		17,565		17,537
Preferred stock		58		58		58		58		58
Shareholders' equity		43,747		42,647		41,641		44,206		47,558
Book value per common share		$                 13.40		$                 13.12		$             12.85		$             13.62		$               14.49
Tangible book value per common share		$                 13.25		$                 12.94		$             12.66		$             13.41		$               14.26
Total common shares outstanding		3,259,309		3,246,236		3,235,777		3,241,917		3,278,558
Total preferred shares outstanding		29,148		29,148		29,148		29,148		29,148
		March,		December,		December,		September,		June 30,
		2023		2022		2022		2022		2022
Performance Ratios:		(QTD annualized)		(QTD annualized)		(QTD annualized)		(QTD annualized)		(QTD annualized)
Return on average assets		-0.13 %		0.81 %		0.70 %		0.41 %		0.78 %
Return on average common equity		-1.89 %		11.72 %		9.62 %		5.34 %		9.30 %
Net interest margin		3.78 %		3.87 %		3.79 %		3.64 %		3.34 %
Overhead efficiency (non-GAAP)		88 %		79 %		76 %		78 %		80 %
		March,		December,		September,		June 30,		March 31,
Asset Quality Data:		2023		2022		2021		2021		2021
Allowance for loan losses		$                 4,910		$                 4,881		$             4,895		$             4,825		$               4,326
Nonperforming loans (excluding PCI loans)		356		362		326		70		254
Other real estate owned, net of allowance		-		-		-		-		-
Nonperforming assets		356		362		326		70		254
Net (recoveries) charge-offs, QTD		(29)		15		34		1		49
Asset Quality Ratios:
Allowance for loan losses to total loans		0.99 %		1.00 %		1.04 %		1.05 %		1.01 %
Nonperforming loans to total loans		0.07 %		0.07 %		0.07 %		0.02 %		0.06 %
Nonperforming assets to total assets		0.06 %		0.06 %		0.05 %		0.01 %		0.04 %
YTD net charge-offs to average loans, annualized		-0.02 %		0.02 %		0.02 %		<0.01%		0.05 %
Community Bank Leverage Ratio		9.89 %		10.13 %		10.11 %		9.99 %		9.59 %
Tangible common equity/tangible assets ratio		6.70 %		6.76 %		6.67 %		7.20 %		7.88 %

 

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SOURCE Touchstone Bankshares, Inc.