Texas Community Bancshares, Inc. (TCBS)·Q1 2024 Earnings Summary

Executive Summary

• TCBS reported a net loss of $2.7M for Q1 2024, driven by strategic balance sheet repositioning including loan sales and fair value write-downs; basic and diluted losses per share were $(0.90) and $(0.89), respectively, versus $(0.33) in Q1 2023 .
• Net interest income rose 12.6% YoY to $3.0M and net interest margin improved 11 bps to 2.79%, reflecting repricing strategies initiated in 2023 that accelerated asset repricing relative to liabilities .
• Noninterest income swung to a loss of $3.6M, primarily due to a $1.5M loss on sale of 54 performing loans and a $2.3M valuation allowance to mark 81 residential mortgage loans held for sale to fair value; noninterest expense increased 16.4% to $3.1M due to branch expansion, equity award vesting, and higher FDIC assessments and audit costs .
• Balance sheet strengthened on liquidity and deposits: cash and interest-bearing deposits rose sequentially, deposits increased to $331.8M, and the community bank leverage ratio stood at 10.09% (well above the 9.0% “well capitalized” threshold); shareholders’ equity was $51.5M at quarter end .
• Board declared a $0.04 quarterly cash dividend payable June 28, 2024, to holders of record as of June 14, 2024, supporting capital return continuity amid repositioning efforts .

What Went Well and What Went Wrong

What Went Well

• Net interest margin expanded to 2.79% (+11 bps YoY) as repricing strategies increased the speed of asset repricing vs liabilities; average asset yields rose 88 bps while average liability costs rose 86 bps .
• Asset quality remained strong: net charge-offs to average loans were 0.01%; past due loans were 0.41% and nonaccrual loans were 0.44% of the portfolio at March 31, 2024 .
• Management expects positive redeployment into higher-yielding, more commercially focused loans, improving diversification and interest rate risk—“The sales allow us to reinvest in higher yielding loans while also improving both loan portfolio diversification and the interest rate risk position of the balance sheet” .

What Went Wrong

• Net loss widened to $2.7M in Q1 2024, with EPS of $(0.90) basic and $(0.89) diluted, largely driven by losses on loan sales and fair value markdowns of loans held for sale .
• Noninterest income deteriorated to a $(3.6)M loss, including a $1.5M loss (net of MSRs) on sale of 54 performing loans ($12.4M) and a $2.3M valuation allowance marking 81 loans ($17.0M) down to $14.7M fair value; also included a $283k demolition loss .
• Operating costs rose: noninterest expense increased 16.4% YoY to $3.1M, with higher salaries (equity award vesting), occupancy (new branch locations), data processing, audit and accounting (loan review), FDIC assessments, office supplies and marketing; plus nonrecurring demolition and legal fees .

Financial Results

Income Statement (Three Months Ended March 31; $USD Millions unless noted)

Notes:

• Average yields/pricing commentary: asset yields +88 bps YoY; liability costs +86 bps YoY, supporting NIM expansion .
• Noninterest income components detailed below .

Noninterest Income Drivers (Q1 2024)

• Loss on sale of loans: $1.5M (net of mortgage servicing rights) from sale of 54 performing loans totaling $12.4M .
• Valuation allowance: $2.3M to mark 81 residential mortgage loans totaling $17.0M to $14.7M fair value .
• Demolition loss: $0.283M; OREO sale gain: $0.037M .

Operating Expense Detail (Q1 2024 vs Q1 2023; $USD Millions)

(Company provided increases, not full category totals for some line items; totals reconciled in “Noninterest expense” above .)

Balance Sheet Snapshot (Sequential; $USD Thousands)

Asset Quality KPIs

(“Past due” and “nonaccrual” were disclosed for Q1 2024; not disclosed for Q1 2023 .)

Guidance Changes

(No formal quantitative guidance ranges were provided; management commentary focused on balance sheet repositioning and redeployment .)

Earnings Call Themes & Trends

Note: No earnings call transcript was available for Q1 2024; themes are derived from the press releases and 8-Ks .

Management Commentary

• “The loss experienced in the first quarter was the result of deliberate actions taken as part of an ongoing strategic plan to reposition the balance sheet and improve the future performance of the Company. The reported loss was primarily the result of loans sold, and the fair value write-down on pending loan sales. All loans sold were performing loans.” — Jason Sobel, President & CEO .
• “The sales allow us to reinvest in higher yielding loans while also improving both loan portfolio diversification and the interest rate risk position of the balance sheet. Activity thus far in the second quarter suggests positive redeployment into higher yielding more commercially focused loans.” — Jason Sobel .
• “We believe we are stronger and better positioned to capitalize on opportunities with the changes that were initiated. We remain committed to executing our strategic plan while creating long-term value for our shareholders.” — Jason Sobel .

Q&A Highlights

• No Q1 2024 earnings call transcript was found; no Q&A highlights are available [ListDocuments returned none for earnings-call-transcript].

Estimates Context

• Attempts to retrieve Wall Street consensus (S&P Global) for EPS and revenue for Q1 2024 and prior quarters were unsuccessful due to data access limits (“Daily Request Limit Exceeded”). As a result, estimate comparisons are unavailable at this time [functions.GetEstimates error].
• Given the strategic loss drivers (loan sale and valuation allowance), sell-side models may need to adjust noninterest income and credit cost assumptions to reflect ongoing portfolio repositioning .

Key Takeaways for Investors

• Quarter reflects intentional near-term P&L compression to accelerate balance sheet repositioning; losses stemmed from loan sales and fair value write-downs, not credit deterioration .
• Core spread trends improved: NIM rose to 2.79% with repricing strategies taking hold; average asset yields outpaced liability cost increases, a positive setup for forward NII momentum if redeployment proceeds as indicated .
• Liquidity and deposits strengthened sequentially, with cash and interest-bearing balances rising and deposits up to $331.8M; FHLB advances stable, providing funding flexibility for de-risking and redeployment .
• Asset quality remained solid (low charge-offs, manageable past due/nonaccrual levels), and allowance reversal was tied to loans exiting allowance calculus via sale plan, not weakening credit .
• OpEx pressures persist from branch growth and governance/compensation transitions; investors should monitor cost normalization as strategic actions mature .
• Capital position remained well capitalized (CBLR 10.09%), and the Board’s $0.04 dividend supports return continuity as repositioning progresses .
• Near-term narrative: watch for updates on redeployment pace into higher-yielding commercial loans and resultant yield/mix shift in Q2; absence of formal guidance suggests trading may hinge on subsequent disclosure cadence and balance sheet trajectory .