Touchstone Bank Reports Financial Results for Third Quarter 2018

PRINCE GEORGE, Va., Nov. 5, 2018 /PRNewswire/ -- Touchstone Bank (the "Bank") TSBA today announced its unaudited results of operations for the third quarter of 2018.

The Bank reported net income of $456 thousand to common shareholders for the third quarter of 2018, bringing its year-to-date net income total to $944 thousand.  Earnings per share for the third quarter amounted to $0.14 on a basic and diluted basis and return on average assets was 0.43%. Basic and diluted earnings per share for 2018 year-to-date was $0.28.  For the third quarter of 2017, the Bank reported net income of $180 thousand or $0.09 per share on a basic and diluted basis. For 2017 year-to-date, net income was $586 thousand, or $0.31 and $0.30 per share on a basic and diluted basis, respectively. The 2017 results were prior to the Bank's merger with Citizens Community Bank ("CCB") in November of 2017.

President & CEO James R. Black stated, "It has almost been a year since the formation of Touchstone Bank and I am very proud of how the team has performed through the challenges of system conversions. The team has really dug in over this period and during the third quarter we made good progress on the real focus of banking. We hired and positioned new talent, experienced modest loan growth during the quarter and are keenly focused on improving earnings. The third quarter earnings results continued to reflect elevated costs due to the system conversion and merger along with infrastructure that is yet to be maximized. Our approach to improving future earnings performance is threefold. First, we are taking decisive action on ensuring a strong and high-quality balance sheet. This requires tough evaluation of and action on non-performing assets and aggressive credit risk management practices. Next, our focus is on revenue enhancement through prudent and profitable loan and deposit growth along with redesign of product offerings which are more relevant to our market. This allows us to effectively leverage our infrastructure and better yet, offer a more valuable product selection. The third step requires us to successfully execute on cost savings and efficiency initiatives. The team is currently assessing and executing various strategic initiatives that should improve efficiency and productivity."        

Earnings

Net interest income for the third quarter of 2018 was $4.2 million, compared to $2.3 million for the same period in 2017, an increase of $1.9 million, or 82.8%, which is reflective of the merger with CCB in November of 2017.  The yield on earning assets was 5.11% for the third quarter of 2018, compared to 5.12% for the same period in 2017.  Cost of funds for the third quarter of 2018 was 0.56%, a 15 basis-point increase over the 0.41% cost of funds incurred during the third quarter of 2017. The net interest margin for the third quarter of 2018 was 4.54% compared to 4.70% for the same period in 2017.  Several factors contributed to the margin results including one-time accounting adjustments related to acquisition accounting, and higher funding costs from acquisition of subordinated debt at merger, as well as different product mixes with different pricing strategies.  The relatively short duration of the interest sensitive components should ameliorate the impact to earnings fairly quickly,

Noninterest income totaled $928 thousand for the third quarter of 2018, an increase of $442 thousand, or 90.8%, from the same period in 2017 resulting from the combined revenue streams created by the merger with CCB.  Deposit-related service-charge fee income for the third quarter of 2018 was $370 thousand, an increase of $103 thousand, or 38.7%, over the $267 thousand recorded in the same period last year. Other non-interest income for the third quarter of 2018 totaled $558 thousand, an increase of $338 thousand, or 153.9%, over the $220 thousand recorded for the same period last year.  The increase in other non-interest income was mainly driven by a $250 thousand one-time conversion-related credit from our core platform service provider, as well as increases in income from long term investments, bank owned life insurance and other ancillary fees.

Noninterest expense for the third quarter of 2018 was $4.4 million, an increase of $2.1 million, or 91.0%, over the $2.3 million of noninterest expense incurred during the same period in 2017.  Included in this comparison of noninterest expense is personnel expense which increased by $1.1 million, or 98.3%, from $1.1 million recorded in the third quarter of 2017 to $2.2 million recorded in the third quarter of 2018. During the third quarter, the Bank hired its Chief Lending Officer and made other strategic additions to support and retail staff.  Other operating expense increased by $1.0 million, or 84.3%, from $1.2 million recorded in the third quarter of 2017 to $2.2 million recorded in the third quarter of 2018. These comparisons of noninterest expense between the quarters ended September 30, 2018 and 2017 are reflective of the combined Bank's operating expenses which include increased data processing expense, investment in technology infrastructure due to life cycle expiration, increased expenses associated with other real estate owned, and, to a lesser extent, conversion and integration costs to combine the legacy banks' network and operating systems. Income tax expense for the quarter includes a positive year-to-date adjustment to reflect the change in the Federal corporate tax rate.

Return on average common equity was 4.06% for the quarter ended September 30, 2018 compared to 2.68% for the same period in 2017 and return on average assets was 0.43% for the quarter ended September 30, 2018, compared to 0.32% for the quarter ended September 30, 2017. In the third quarter of 2018, net income available to common shareholders was $456 thousand compared to $180 thousand for the same period in 2017, reflective of combined Bank operations.

Balance Sheet

At September 30, 2018, total assets were $424.1 million, compared to $ 439.0 million as of December 31, 2017 and $230.4 million as of September 30, 2017.  Net loans increased $2.5 million during the quarter to $328.5 million at September 30, 2018, as compared to $336.7 million as of December 31, 2017 and $167.2 million as of September 30, 2017. Loan activity throughout our markets remains stable and competitive while the Bank remains committed to profitable growth without compromise of asset quality, liquidity, or interest rate risk. The Bank continues to have a healthy loan pipeline and anticipates steady loan growth for the remainder of 2018. Deposits totaled $368.6 million at September 30, 2018, as compared to $ 382.0 million as of December 31, 2017 and $201.2 million as of September 30, 2017.  Deposit contraction has been by design as the Bank concentrates on building core relationships and reduces its dependency on non-core and institutional funding. 

Total equity at September 30, 2018 was $44.7 million, compared to $44.1 million at the end of 2017 and $26.6 million at September 30, 2017.  The year to date increase of $636 thousand, or 1.4%, was the result of net earnings offset by changes in other comprehensive income. 

Asset Quality

The allowance for loan losses at September 30, 2018 was $2.2 million, or 0.67%, of total loans, compared to $1.6 million at December 31, 2017 and September 30, 2017.  Net charge offs for the quarter ended September 30, 2018 were $103 thousand, compared to $134 thousand for the same period last year.  Nonperforming loans, which exclude performing troubled debt restructurings, were $2.8 million, or 0.85%, of total loans at September 30, 2018 compared to $1.9 million, or 0.57%, at December 31, 2017, and $1.9 million, or 1.10%, at September 30, 2017.  Management continues to evaluate the risk embedded in nonperforming credits and take steps toward an orderly resolution.  Third quarter provision expense was $300 thousand, and was earmarked for loan growth and to ensure adequate reserves for specific problem credits.  As always, appropriate risk management through maintenance of high asset quality standards and an adequate reserve for loan losses continue to be priorities for the Bank.    

Other real estate owned totaled $588 thousand at September 30, 2018, compared to $673 thousand at December 31, 2017, and $526 thousand at September 30, 2017.  The primary cause for the decrease was a write down on the value of one property.  Nonperforming assets, which exclude performing troubled debt restructurings, equaled $3.4 million, or 0.80%, of total assets at September 30, 2018, compared to $2.6 million, or 0.60%, at December 31, 2017, and $2.4 million, or 1.04%, at September 30, 2017.  One loan comprises 39% of the nonperforming asset total; management is committed to an orderly resolution of this loan, as with all of the nonperforming assets.

Capital

As of September 30, 2018, the Bank's total risk-based capital was 14.92% compared to 15.18% one year ago and 13.88% as of December 31, 2017. Tier 1 risk-based capital was 13.47% compared to 14.30% one year ago and 12.35% as of December 31, 2017. Tier 1 leverage capital was 10.19% compared to 11.74% one year ago and 12.24% as of December 31, 2017.   For purposes of determination of risk-based capital, the Bank's subordinated debt is a component of Tier 2 capital.  Capital ratios continue to remain above the minimum regulatory requirements for well capitalized institutions.

About Touchstone Bank

Touchstone Bank is a full-service community bank headquartered in Prince George, Virginia, with approximately $424.1 million in total assets.  The Bank has eleven branches serving Southern and Central Virginia and three branches serving Northern North Carolina. Visit www.touchstone.bank for more information.

Forward-Looking Statements

Certain statements in this document are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors. More information about these factors is contained in Touchstone Bank's filings with the Board of Governors of the Federal Reserve.

SOURCE Touchstone Bank