Touchstone Bankshares Reports First Quarter of 2021 Financial Results

Rhea-AI Summary

Touchstone Bankshares, Inc. (TSBA) announced its Q1 2021 results, reporting a net income of $919,000, up from $391,000 in Q1 2020. Earnings per share were $0.28 (basic) and $0.27 (diluted). Return on average assets improved to 0.69%, and return on average equity was 7.47%. Total assets increased by 20.3% year-over-year to $568.9 million, driven by a rise in deposits and loans, notably in the Paycheck Protection Program. Noninterest income rose by 15.8% to $871,000. However, net interest income decreased by 6.3% to $4.3 million, reflecting margin compression due to lower federal interest rates.

Positive

• Net income increased to $919,000 from $391,000 year-over-year.
• Return on average assets improved to 0.69%.
• Total assets rose 20.3% year-over-year to $568.9 million.
• Noninterest income grew by 15.8% year-over-year to $871,000.
• Total loans increased by 8.2% year-over-year.
• The allowance for loan losses remains stable at 1.16% of total loans.

Negative

• Net interest income decreased by 6.3% to $4.3 million.
• Net interest margin declined to 3.50% from 4.36% year-over-year.
• The company expects net interest margin to remain lower for the remainder of 2021.

PRINCE GEORGE, Va., April 29, 2021 /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, 2021.

The Company reported net income of $919 thousand available to common shareholders for the quarter ended March 31, 2021.  Basic and diluted earnings per common share for the quarter were $0.28 and $0.27, respectively. Return on average assets was 0.69% while return on average common equity was 7.47%. By comparison, the Company's net income for the quarter ended March 31, 2020 was $391 thousand and basic and diluted earnings per common share were $0.12. The return on average assets was 0.34%. For the fourth quarter of 2020, the Company reported net income available to common shareholders of $826 thousand or $0.25 per common share on a basic and diluted basis.

James Black, President and CEO stated  "We are pleased to deliver stronger financial results for the first quarter as we begin to emerge from the COVID-19 pandemic. During 2020, we prudently bolstered loan loss reserves and credit quality continues to perform well. The outlook for credit quality remains favorable, and it is expected that loan growth will improve as we expand our market presence and economic conditions recover.  We remain an active and proud participant in the Paycheck Protection Program, where gross funding recently exceeded $55 million. These accomplishments are due to a dedicated team that is focused on generating quality results for our clients, communities, and shareholders. We are eager about the performance that can be achieved for full year 2021."

Earnings

Net interest income for the first quarter of 2021 was $4.3 million, compared to $4.6 million for the same period in 2020, a decrease of $291 thousand, or 6.3%. Paycheck Protection Program ("PPP") loan fees recognized in net interest income totaled $287 thousand in the first quarter of 2021 while the first quarter of 2020's net interest income was aided by the collection of all the principal and interest due upon a purchased credit impaired ("PCI") loan. This collection resulted in additional interest income of $357 thousand. Net interest income for the fourth quarter of 2020 was $4.6 million. The Company's cost of funds were 52 basis points in the first quarter of 2021 which is 28 basis points lower than the 80 basis points cost of funds for the first quarter of 2020. The net interest margin for the quarter ended March 31, 2021 was 3.50% compared to 4.36% for the quarter ended March 31, 2020. The net interest margin for the fourth quarter of 2020 was 3.81%.  The Company continues to experience net interest margin compression mainly due to the 150 basis points decline in federal interest rates late first quarter of 2020 in response to the pandemic. The Company expects its net interest margin to remain lower for the remainder of 2021.

The Bank recorded no provision for loan losses in the first quarter of 2021 as credit metrics remain sound and the potential for credit losses from the pandemic appear to be subsiding. Comparatively, the Company recorded a $900 thousand provision for loan losses in the first quarter of 2020 and a total of $2.3 million of provision for loan losses in 2020 as reserves were added as a proactive measure as the credit impact from the pandemic was unknown.

Noninterest income totaled $871 thousand for the quarter ended March 31, 2021, an increase of $119 thousand, or 15.8%, when compared to the same period in 2020. Noninterest income for the quarter ended December 31, 2020 was $757 thousand. The following table is a comparison of the components of noninterest income for the three months ended March 31, 2021 and 2020:

		For the three months ended
		March 31,
		2021		2020		Change $		Change %
(dollars in thousands)
Service charges on deposit accounts		$      424		$      420		$             4		1.0%
Secondary market origination fees		54		49		5		10.2%
Bank-owned life insurance		51		61		(10)		-16.4%
Gain on security sales		10		83		(73)		-88.0%
Other operating income		332		139		193		138.8%
Total		$      871		$      752		$         119		15.8%

The increase in other operating income was mainly due to income distributions from and increased values in the Company's other investment funds as well as an increase in recoveries from loans charged off by legacy Citizens Community Bankshares before its merger into the Company in 2017. These recoveries are recognized in other operating income.  The increase in other operating income was partially offset by declines in bank-owned life insurance income and gain on security sales.

Noninterest expense for the three months ended March 31, 2021 was $4.1 million, an increase of $57 thousand, or 1.4%, when compared to the $4.0 million of noninterest expense incurred during the same period in 2020. Noninterest expense for the three months ended December 31, 2020 was $3.7 million. The following table is a comparison of the components of noninterest expense for the three months ended March 31, 2021 and 2020:

		For the three months ended
		March 31,
		2021		2020		Change $		Change %
(dollars in thousands)
Salaries and employee benefits		$   2,064		$   2,169		$       (105)		-4.8%
Occupancy expense		272		275		(3)		-1.1%
Furniture and equipment expense		286		263		23		8.7%
Data processing		269		250		19		7.6%
Telecommunications		186		181		5		2.8%
Legal and professional fees		120		53		67		126.4%
OREO losses and related expenses		-		1		(1)		-100.0%
FDIC assessments		38		29		9		31.0%
Other noninterest expenses		859		816		43		5.3%
Total		$   4,094		$   4,037		$           57		1.4%

The changes in expense categories above were mainly due to normal fluctuations and not any particular expense line item except for legal and professional fees.  The increase in legal and professional fees was mainly due to payments made to our outsourced PPP loan service provider.

Balance Sheet

At March 31, 2021, total assets were $568.9 million, compared to $473.0 million as of March 31, 2020, an increase of $95.9 million, or 20.3% as the Bank experienced a spike in deposits over the last twelve months which increased its cash and cash equivalent balances on the asset side of the balance sheet.  At December 31, 2020 total assets were $532.7 million.

A portion of the added cash was deployed in investment securities and PPP loans.  Investment securities at March 31, 2021 totaled $87.9 million, an increase of $28.6 million, or 48.4% when compared to $59.3 million of investment securities at March 31, 2020. Total loans increased $28.6 million, or 8.2%, when comparing total loans of $377.2 million at March 31, 2021 to total loans of $348.6 million at March 31, 2020.  PPP loans were the main driver in the increase in loans.  The Bank made $32.6 million in PPP loans in 2020 and $23.0 million in the first quarter of 2021. Total PPP loans outstanding at March 31, 2021 was $32.6 million. Loan activity outside of the Paycheck Protection Program subsided throughout the Bank's markets in 2020. However, the Bank added a new chief lending officer in the fourth quarter of 2020 and a regional market executive in 2021 to its commercial banking team with both lenders' primary lending area being the Richmond Virginia market. The Bank has a healthy loan pipeline as it enters the second quarter of 2021 and is optimistic about loan growth for the remainder of 2021. 

On the liability side of the balance sheet, deposits totaled $489.5 million at March 31, 2021, as compared to $390.7 million at March 31, 2020. Total deposits at December 31, 2020 were $445.8 million. The elevated deposit levels is a nationwide trend. Noninterest bearing deposits showed the greatest increase year over year, increasing $60.7 million to $170.6 million at March 31, 2021.   

Borrowings from the Federal Home Loan Bank ('FHLB") totaled $18.0 million at March 31, 2021.  FHLB borrowings totaled $27 million at March 31, 2020 and $21 million at December 31, 2020. $15 million of the $18 million of outstanding FHLB borrowings mature in June of 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 March 31, 2021.

Shareholders' Equity totaled $49.8 million at March 31, 2021. The Bank's Community Bank Leverage Ratio was 9.60% at March 31, 2021 and remains well capitalized as defined by regulatory guidelines.

Asset Quality

The allowance for loan losses at March 31, 2021 was $4.4 million, or 1.16%, of total loans. When discounting total loans for the PPP loans outstanding, the allowance for loan losses was 1.27% of total loans. The Bank believes the current level of allowance for loan loss reserves are adequate to cover anticipated losses as credit metrics remain stable. Most loans placed on deferral in response to the 2020 pandemic have returned to full payment terms. Total deferrals were $9.6 million at March 31, 2021.

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)	March 31,		December 31,		September 30,		June 30,		March 31,
Selected Operating Data:	2021		2020		2020		2020		2020
Net interest income	$     4,348		$            4,647		$             4,316		$    4,255		$     4,639
Provision for loan losses	-		750		300		300		900
Noninterest income	871		757		722		653		752
Noninterest expense	4,094		3,650		4,010		4,070		4,037
Income before income tax	1,125		1,004		728		538		454
Income tax expense	206		170		121		81		63
Net income	919		834		607		457		391
Less: Preferred dividends	-		8		-		-		-
Net income available to common shareholders	$        919		$               826		$                607		$       457		$        391
Income per share available to common shareholders:
Basic	$       0.28		$              0.25		$               0.18		$      0.13		$       0.12
Diluted	$       0.27		$              0.25		$               0.18		$      0.13		$       0.12
Average common shares outstanding, basic	3,334,632		3,327,114		3,326,027		3,327,287		3,325,600
Average common shares outstanding, diluted	3,363,780		3,356,262		3,355,291		3,356,639		3,354,952

 

Touchstone Bankshares, Inc.
Consolidated Financial Highlights (continued)
(unaudited)
(in thousands, except per share data)	March 31,		December 31,		September 30,		June 30,		March 31,
Balance Sheet Data:	2021		2020		2020		2020		2020
Total assets	$           568,881		$           532,732		$           527,110		$           507,378		$           472,950
Total loans	377,172		363,029		374,047		372,219		348,565
Allowance for loan losses	(4,386)		(4,357)		(3,675)		(3,491)		(3,199)
Core deposit intangible	1,026		1,102		1,181		1,262		1,347
Deposits	489,465		445,774		441,490		430,585		390,689
Borrowings	18,000		21,000		21,000		21,000		27,000
Subordinated debt	7,788		11,282		11,279		3,524		3,533
Preferred stock	58		58		58		59		59
Shareholders' equity	49,750		50,124		49,922		49,208		48,338
Book value per common share	$               14.89		$               15.01		$               14.99		$               14.77		$               14.51
Tangible book value per common share	$               14.59		$               14.68		$               14.64		$               14.39		$               14.11
Total common shares outstanding	3,336,504		3,334,445		3,325,768		3,327,287		3,327,287
Total preferred shares outstanding	29,148		29,148		29,148		29,352		29,352
	March 31,		December 31,		September 30,		June 30,		March 31,
	2021		2020		2020		2020		2020
Performance Ratios:	(QTD annualized)		(QTD annualized)		(QTD annualized)		(QTD annualized)		(QTD annualized)
Return on average assets	0.69%		0.63%		0.47%		0.37%		0.34%
Return on average common equity	7.47%		6.63%		4.84%		3.73%		3.30%
Net interest margin	3.50%		3.81%		3.61%		3.74%		4.36%
Overhead efficiency (non-GAAP)	78.60%		67.55%		79.59%		85.01%		76.05%
	March 31,		December 31,		September 30,		June 30,		March 31,
Asset Quality Data:	2021		2020		2020		2020		2020
Allowance for loan losses	$               4,386		$               4,357		$               3,675		$               3,491		$               3,199
Nonperforming loans (excluding PCI loans)	2,051		2,393		2,868		4,456		2,383
Other real estate owned, net of allowance	22		22		22		53		82
Nonperforming assets	2,073		2,415		2,890		4,509		2,465
Net (recoveries) charge-offs , QTD	(29)		68		116		8		(19)
Asset Quality Ratios:
Allowance for loan losses to total loans	1.16%		1.20%		0.99%		0.94%		0.92%
Nonperforming loans to total loans	0.54%		0.66%		0.77%		1.20%		0.68%
Nonperforming assets to total assets	0.36%		0.45%		0.55%		0.89%		0.52%
YTD net (recoveries) charge-offs  to average loans, annualized	(0.03%)		0.07%		0.12%		<0.01%		(0.02)%
Community Bank Leverage Ratio	9.60%		9.63%		9.20%		9.33%		9.83%

 

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SOURCE Touchstone Bankshares, Inc.

FAQ

What were Touchstone Bankshares' Q1 2021 earnings results?

Touchstone Bankshares reported a net income of $919,000 and basic earnings per share of $0.28 for Q1 2021.

How did total assets change for Touchstone Bankshares in Q1 2021?

Total assets increased by 20.3% year-over-year to $568.9 million as of March 31, 2021.

What is the outlook for Touchstone Bankshares' credit quality?

The outlook for credit quality remains favorable with stable credit metrics and sufficient loan loss reserves.

How did noninterest income perform for Touchstone Bankshares in Q1 2021?

Noninterest income increased by 15.8% year-over-year to $871,000 for Q1 2021.

What challenges did Touchstone Bankshares face regarding net interest income?

Net interest income decreased by 6.3% due to margin compression from declining federal interest rates.