Touchstone Bank Reports Financial Results for Second Quarter 2018

PRINCE GEORGE, Va., Aug. 10, 2018 /PRNewswire/ -- Touchstone Bank (the "Bank") (OTC Pink: TSBA) today announced its unaudited results of operations for the second quarter of 2018.

The Bank reported net earnings of $458 thousand to common shareholders for the second quarter of 2018.  Earnings per share on a basic and dilutive basis were $0.14 and return on average assets was 0.43%.  For the second quarter of 2017, the Bank reported net income of $35 thousand or $0.02 per share on a basic and diluted basis.  

President & CEO James R. Black stated, "The second quarter earnings results were an improvement over the prior quarter and still reflect lingering costs associated with our merger and system integration. Although these costs are lower than the prior quarter, they remain elevated but are important in strengthening the foundation and infrastructure of the company.  We expect the related costs to slowly decline throughout future periods; however, investments in our business will continue as our focus remains on better positioning the bank and creating greater efficiencies to boost future earnings. We are extremely busy executing a laundry list of strategic initiatives, and I am confident the culmination of our actions will lead to enhanced customer service and shareholder value."

Earnings

Net interest income for the second quarter of 2018 was $4.1 million, compared to $2.2 million for the first quarter of 2017, an increase of 88.8% reflective of the second full quarter as a combined Bank.  The yield on earning assets was 4.96% for the second quarter of 2018, compared to 4.87% for the second quarter of 2017, with this 9-basis point improvement related primarily to loans comprising an increased proportion of total earning assets.  Because of increasing cost of funds in our market footprint as well as the addition of subordinated debt acquired in the merger, the cost of funds for the second quarter of 2018 was 0.55%, a 17-basis point increase over the second quarter of 2017. As a result, the net interest margin for the second quarter of 2018 was 4.39% compared to 4.47% for the same period of 2017. 

Noninterest income totaled $739 thousand for the second quarter of 2018, an increase of $283 thousand or 62.1% from the second quarter of 2017 resulting from the combined revenue streams created by the merger.  Deposit related service charge fee income for the second quarter increased by $65 thousand or 23.8% over the same period last year. Other non-interest income increased by $218 thousand or 119.9% over the same period last year driven largely by income from long term investments, bank owned life insurance and other ancillary fees.

Noninterest expense for the second quarter of 2018 was $4.1 million, an increase of $1.7 million or 67.9% over the second quarter of 2017.  Included in this comparison of noninterest expense is personnel expense which increased by $1.1 million or 97.3% and other operating expense which increased by $590 thousand or 43.7%. These measures are reflective of combined Bank operating expenses as well as conversion and integration costs brought by the merger.

Return on average common equity was 4.17% for the quarter ended June 30, 2018 compared to 0.54% for the same period in 2017 and return on average assets was 0.43% compared to 0.06% in 2017. In the second quarter of 2018, net income available to common shareholders was $458 thousand compared to $35 thousand for the same period in 2017, the variance being driven largely by increased net interest and fee income brought by the merger net of conversion integration related costs. This positive variance was supplemented by lower legal costs for the quarter as compared to the same period last year.

Balance Sheet

At June 30, 2018, total assets were $427.8 million, as compared to $ 439.0 million as of December 31, 2017 and $227.5 million as of June 30, 2017.  Net loans were $326.0 million, as compared to $ 336.7 million as of December 31, 2017 and $166.5 million as of June 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. To date, we experienced a handful of payoffs from a few larger commercial credits where the business owners were able to capitalize on successful sales of the business or for related purposes. However, the Bank has a healthy pipeline and anticipates net loan growth for the remainder of 2018. Deposits totaled $372.7 million at June 30, 2018, as compared to $ 382.0 million as of December 31, 2017 and $195.9 million as of June 30, 2017. We proactively reduced the level of institutional deposit funding as we are focused on expense management and gathering valuable core deposits.

Total equity at June 30, 2018 was $44.4 million, compared to $44.1 million at the end of 2017 and $26.4 million at June 30, 2017.  The year to date increase of $300 thousand or 0.7% was the result of net earnings offset by changes in other comprehensive income.

Asset Quality

The allowance for loan losses at June 30, 2018 was $2.0 million or 0.62% of total loans, compared to $1.6 million at June 30, 2017 and $1.6 million at December 31, 2017.  Net charge offs (recoveries) for the quarter ended June 30, 2018 were ($10) thousand, compared to $51 thousand at June 30, 2017.  Nonperforming loans, which exclude performing troubled debt restructurings, equaled $2.6 million or 0.78% of total loans at June 30, 2018 compared to $2.4 million or 1.45% at June 30, 2017 and $1.9 million or 0.57% at December 31, 2017.  One loan comprises nearly 50% of the non-performing loan balance; management continues to evaluate the risk embedded in that credit and take steps toward orderly resolution.  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 $739 thousand at June 30, 2018, compared to $526 thousand at June 30, 2017 and $673 thousand at December 31, 2017.  Nonperforming assets, which excludes performing troubled debt restructurings, equaled $3.3 million or 0.77% of total assets at June 30, 2018 compared to $3.0 million or 1.30% at June 30, 2017 and $2.6 million or 0.60% at December 31, 2017.

Capital

As of June 30, 2018, the Bank's total risk-based capital was 14.6% compared to 15.1% one year ago and 13.9% as of December 31, 2017. Tier 1 risk-based capital was 12.9% compared to 14.2% one year ago and 12.4% as of December 31, 2017. Tier 1 leverage capital was 9.9% compared to 11.5% one year ago and 12.2% 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 with approximately $427.8 million in total assets headquartered in Prince George, Virginia.  The Bank has ten branches and one loan center 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.

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SOURCE Touchstone Bank