Texas Community Bancshares, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with fiscal 2022. The company is a bank holding company operating through Broadstreet Bank, a Texas community bank focused on deposits and real estate lending in East Texas and the Dallas–Fort Worth area.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets, year-end | $452.0 million | $417.3 million |
| Net loans and leases, year-end | $279.9 million | $251.3 million |
| Deposits, year-end | $317.2 million | $296.1 million |
| FHLB advances, year-end | $76.9 million | $62.5 million |
| Stockholders’ equity, year-end | $53.7 million | $55.9 million |
| Net interest income | $11.1 million | $10.3 million |
| Net income (loss) | $(0.7) million | $1.8 million |
| Operating cash flow | $2.3 million | $3.1 million |
- Interest income rose 50.8% to $19.0 million, but interest expense increased 243.5% to $7.9 million. Net interest margin declined to 2.73% from 2.89%; the interest-rate spread narrowed to 2.27% from 2.70%.
- Net loss was $0.24 per diluted share, versus earnings of $0.58 per diluted share in 2022. Noninterest income was $0.4 million, including a $1.7 million net securities-sale loss; noninterest expense increased 22.4% to $12.0 million.
- Net cash increased $4.1 million. Cash from operations was $2.3 million, investing activities used $31.2 million, and financing activities provided $33.0 million.
- Year-end cash and cash equivalents were $13.1 million, plus $12.3 million of interest-bearing bank deposits. The Bank reported $72.6 million of unused FHLB capacity and $15.0 million of unused correspondent-bank credit lines.
- Core deposits were $198.5 million, or 62.6% of deposits, down from $206.7 million, or 69.8%. Potentially uninsured deposits were reported at $37.2 million, or about 11.7% of deposits.
- The Bank’s community bank leverage ratio was 10.76%, above the 9% threshold for well-capitalized status, but below 12.31% in 2022.
Material changes versus 2022
- Loans and leases grew 11.4%; total deposits rose 7.1%, while FHLB advances increased 23.0% to support loan growth and liquidity.
- Deposit mix shifted toward higher-cost funding: certificates of deposit increased to 37.4% of deposits from 30.2%. Average interest-bearing deposit cost rose to 2.08% from 0.63%.
- The allowance for credit losses ended at $3.1 million, or 1.09% of loans, versus $1.8 million, or 0.69%, in 2022. Adoption of CECL on January 1, 2023 reduced retained earnings by approximately $1.0 million.
- Available-for-sale securities declined to $93.3 million from $107.2 million after portfolio sales and restructuring. The company sold securities with a $1.7 million loss to reposition toward higher yields; total securities fell to $119.3 million from $135.0 million.
- Nonperforming assets were $1.3 million, or 0.30% of assets, versus $1.2 million, or 0.28%. Nonaccrual loans declined to $0.9 million from $1.2 million; foreclosed real estate was $0.2 million at year-end.
- Equity declined 3.9%, reflecting the annual loss, $2.2 million of share repurchases, and $0.4 million in dividends, partly offset by improved accumulated other comprehensive loss.
Outlook, commentary, risks and unusual items
- No quantitative earnings, growth, or margin guidance is provided. Management says it intends to grow and diversify lending prudently, increase commercial real estate and construction lending, build core deposits, and maintain strong liquidity and asset quality.
- Management reported monitoring deposit runoff and liquidity daily and conducting quarterly liquidity stress tests. It expects a substantial portion of time deposits maturing within one year ($81.8 million) to be retained; failure to retain deposits could require higher-cost funding or deposit pricing.
- Interest-rate risk is material. The company’s model estimates that an immediate 200-basis-point rate increase would reduce year-one net interest income by 2.27% and economic value of equity by 11.19%. These are model estimates, not forecasts, and depend on assumptions.
- At year-end, securities had $9.8 million of gross unrealized losses: $7.2 million on available-for-sale and $2.6 million on held-to-maturity holdings. Management attributed the losses primarily to interest rates, not credit quality. A $25 million interest-rate swap hedged a portion of the available-for-sale portfolio.
- Credit exposure includes real estate concentration: approximately 95% of loans were secured by real estate. Residential mortgage loans represented 60.8% of total loans; construction and land loans were 13.3%. Management identifies commercial real estate, construction, land, and business lending as higher-risk than residential mortgages.
- Unusual 2023 items included the securities-sale loss, CEO retirement and recruitment expenses, accelerated vesting and termination of a deferred incentive plan, and costs related to the bank name change and new branches. Management cites higher deposit costs, competition, inflation, uncertain economic conditions, real estate values, and cyber and third-party service-provider risks.
- Subsequent events: a new Lindale branch opened in January 2024 and a Tyler branch opened in February. In March 2024, the company sold 36 real estate loans with a $7.5 million amortized cost at a $1.0 million loss as part of a balance-sheet restructuring. It also reported repurchasing 11,000 additional shares through March 27, 2024.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal control.
Important facts for investors to verify
- Reconcile reported asset-quality figures: the detailed table reports nonperforming assets of $1.342 million and nonperforming loans of $1.106 million, while the selected financial data presents a 0.41% nonperforming-loan ratio and other narrative disclosures cite 0.33%. Confirm the intended definitions and calculations.
- Review the deposit base and upcoming maturities, including $37.2 million of potentially uninsured deposits and $81.8 million of time deposits maturing in 2024, against available liquidity and borrowing capacity.
- Assess whether loan yields and asset growth can offset continued funding-cost pressure and the lower net interest margin; monitor deposit mix and rates.
- Evaluate the securities portfolio’s unrealized losses, maturities, hedge performance, and potential effect of any need to sell securities before recovery.
- Examine credit quality and allowance adequacy, particularly real estate, construction and land exposures, after the CECL transition and amid changing local property and economic conditions.
- Track the financial and operational effects of the 2024 loan sale, branch expansion, share repurchases, and any further restructuring. The filing does not provide a clear quantitative outlook for these effects.