Touchstone Bankshares Reports 2021 Financial Results

PRINCE GEORGE, Va., Jan. 28, 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 and year ended December 31, 2021. The Company reported net income available to common shareholders of $3.9 million and $687 thousand for the year and quarter ended December 31, 2021, respectively. For 2021, earnings per common share was $1.17 on a basic and diluted basis. This compares to $2.3 million of net income available to common shareholders for the year ended December 31, 2020, or $0.69 and $0.68 of earnings per common share on a basic and diluted basis, respectively.  Return on average assets were 0.68% and 0.45% for years ended December 31, 2021, and 2020, respectively.  Return on average common equity for the years ended December 31, 2021 and 2020 were 7.67% and 4.65%, respectively. Basic and diluted earnings per common share for the quarter ended December 31, 2021, was $0.21 while return on average assets was 0.46% and return on average common equity was 5.29%. By comparison, the Company's net income available to common shareholders for the quarter ended December 31, 2020, was $826 thousand and basic and diluted earnings per common share was $0.25. The return on average assets was 0.63% for the quarter ended December 31, 2020. James Black, President and CEO stated "Our results and momentum are clearly attributable to a dedicated team focused on delivering excellent customer service and building the future of Touchstone Bank. Despite various one-time earnings adjustments, the company posted solid fourth quarter and year-to-date results. We experienced exceptional loan growth during the fourth quarter and expect double-digit loan growth for 2022. With expectations and planned growth continuing, we recently announced a $10.0 million subordinated debt raise to support our initiatives.  Although the debt cost will add earnings pressure in the near term, effective capital deployment should enhance shareholder value."

Earnings

Year-over-Year Twelve Months

Net income available to common shareholders for the year ended December 31, 2021, was $3.9 million, or $1.17 per basic and diluted common share. This is an increase of $1.6 million, or 71.3%, when compared with net income available to common shareholders of $2.3 million, or $0.69 basic and $0.68 diluted earnings per common share, for the year ended December 31, 2020.  Net interest income for the years ended December 31, 2021, and 2020, was $18.8 million and $17.9 million, respectively. The increase in net interest income in 2021 was mainly due to fees associated with the Paycheck Protection Program ("PPP").  In 2021, the Company realized $1.6 million in PPP fee income versus $786 thousand in 2020.  This represents an increase of $855 thousand, or 108.8%.  The net interest margin fell 34 basis points from 3.86% in 2020 to 3.52% for 2021.  This decline was due to several factors including the unfavorable repricing of interest sensitive assets outpacing the favorable repricing of interest-bearing liability costs as well as the lower-yielding, highly liquid balance sheet due to the increase in deposits. The Bank recorded no provision for loan losses in 2021. Comparatively, the Company recorded a $2.25 million of provision for loan losses in 2020 as reserves were added as a proactive measure because the credit impact from the COVID-19 pandemic was unknown. Noninterest income totaled $3.9 million for the year ended December 2021, an increase of $979 thousand, or 33.9%, when compared to the $2.9 million recorded in 2020. The following table is a comparison of the components of noninterest income for the years ended December 30, 2021, and 2020:

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 Company began seeing an increase in secondary market origination fees in the second quarter of 2020 due to the 150-basis point drop in federal interest rates in the latter part of the first quarter of 2020 which spurred home refinancing and purchases.
• 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 into a five-year lease with an option to renew after the initial five years.
• The increase in other operating income was mainly due to increases in income from other investments.

For the year ended December 31, 2021, noninterest expense was $17.7 million, an increase of $2.0 million, or 12.4% when compared to the $15.8 million of noninterest expense recorded in 2020.  The following table is a comparison of the components of noninterest expense for the years ended December 31, 2021, and 2020:

Notable variances for the noninterest expense table above:

• The increase in salaries and employee benefits for 2021 when compared to the same period in 2020 was mainly due to added staff. Also, in response to the Covid-19 pandemic, Management halted its accrual for bonuses in 2020, but not for 2021.
• The increase in data processing expense in 2021 when compared to 2020 was mainly due to the use of additional credits provided by the Company's core provider in 2020. In the fourth quarter of 2021, the Company renegotiated its contract with the core provider and expects to see a reduction of data processing expenses going forward.
• The increase in telecommunications was mostly due to a one-time fee paid in relation to a project completed in 2021.
• Legal and professional fees were higher in 2021, when compared to the same period in 2020, mainly due to paying outsourced credit analysis assistance as well recruiter fees.
• Other noninterest expenses was up in 2021 when compared to 2020 as the Company recorded a one-time expense of $530 thousand in the fourth quarter of 2021 related to a 2017 IRS penalty stemming from the failure to timely and correctly file various informational returns. The Company has filed an administrative appeal requesting abatement for reasonable cause. Other factors driving the year-over-year increase include a $103 thousand penalty associated with the early payoff of the $3 million FHLB note, a one-time settlement of $99 thousand on a deposit-related fraud case, higher internet banking fees due to higher internet banking usage, and several other elevated expense categories.

Year-over-Year Fourth Quarter

Net income available to common shareholders for the quarter ended December 31, 2021, was $687 thousand, or $0.21 per basic and diluted common share. This is a decrease of $139 thousand, or 16.8%, when compared with net income available to common shareholders of $826 thousand, or $0.25 basic and diluted earnings per common share for the same period in 2020. The Company recorded a $750 thousand provision for loan losses in the fourth quarter of 2020 versus no provision for loan losses recorded in the same period in 2021.  As discussed above, the Company recorded a one-time expense of $530 thousand in the fourth quarter of 2021 related to a 2017 IRS penalty.

Net interest income for the quarters ended December 31, 2021, and 2020, was $4.7 million and $4.6 million, respectively.  The net interest margin fell 50 basis points from 3.81% in 2020 to 3.31% for 2021 for the same factors as discussed above in the Year-over-Year Twelve Months section.

Noninterest income totaled $1.2 million for the quarter ended December 31, 2021, an increase of $473 thousand, or 62.5%, when compared to the same period in 2020. 

The following table is a comparison of the components of noninterest income for the three months ended December 31, 2021, and 2020:

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.
• 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 into a five-year lease with an option to renew after the initial five years.
• 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, 2021, and 2020:

Notable variances for the noninterest expense table above:

• The increase in salaries and employee benefits for 2021 when compared to the same period in 2020 is mainly due to added staff as well as management halted its accrual for bonuses in 2020, but not for 2021.
• The increase in data processing expense in 2021 when compared to the same periods in 2020 was mainly due to the use of additional credits provided by the Company's core provider in 2020. See above discussion on data processing expense.
• The increase in telecommunications in 2021 versus 2020 was due to the Bank switching over its services and temporarily paying for two vendors. However, this switch should reduce telecommunication costs going forward.
• Legal and professional fees are lower for the three months ended December 31, 2021, when compared to the same periods in 2020, respectively, due to legal fees paid in connection with forming the bank holding company in the latter part of 2020.
• See discussion in Year-over-Year Twelve Months section above for other noninterest expense variances.

Balance Sheet

At December 31, 2021, total assets were $581.1 million, compared to $532.7 million at December 31, 2020, an  increase of $48.4 million, or 9.1% as the Bank experienced a spike in deposits in 2021  which was used mainly to fund loan growth on the asset side of the balance sheet. Total loans were $402.9 million at December 31, 2021.  Total loans increased $39.9 million, or 11.0% during the year. Total loans increased $25.9 million, or 6.9%, during the fourth quarter of 2021 and the Bank has a healthy pipeline entering into 2022. The Bank made $32.6 million in PPP loans  in 2020 and $29.9 million in 2021. Total PPP loans outstanding at December 31, 2021, were $8.5 million.  Loans, net of PPP loans grew $50.7 million, or 14.8% during 2021, with $32.1 million of that growth coming in the fourth quarter. On the liability side of the balance sheet, deposits totaled $517.4 million at December 31, 2021, as compared to $445.8 million at December 31, 2020.  This represents an increase of $71.6 million or 16.1%. In the fourth quarter of 2021, the Bank prepaid its outstanding $3.0 million FHLB note.  The Bank had no outstanding FHLB borrowings at December 31, 2021.  This compares to $21.0 million of FHLB borrowings at December 31, 2020.  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 $50.4 million at December 31, 2021. The Company initiated a stock repurchase program in the fourth quarter of 2021 in which 76,306 shares had been repurchased as of December 31, 2021. The Bank's Community Bank Leverage Ratio   was 9.18% at December 31, 2021, and remains well capitalized as defined by regulatory guidelines.

Asset Quality

The allowance for loan losses at December 31, 2021, was $4.4 million, or 1.09%, of total loans. Loans past due 30 days or more and still accruing were $127 thousand at December 31, 2021, while nonaccrual loans, excluding purchased credit impaired loans, totaled $253 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. 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.

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SOURCE Touchstone Bankshares, Inc.