Texas Community Bancshares is the holding company for Broadstreet Bank, a savings bank in East Texas with a balance sheet near a half billion. The franchise is in the first full phase of the payoff from a two-step balance sheet rebuild. The bank sold a residential mortgage block at a $3.8 million loss and trimmed securities to rotate assets into higher-yielding commercial and construction lending. The second-quarter print shows that trade working. The net interest margin, the spread between what the bank earns on loans and what it pays on deposits expressed as a percentage of average earning assets, expanded 60 basis points to 3.69%. Net interest income rose 15.9% to $3.7 million. Net income jumped 43.1% to $970,000. That works out to $0.35 per diluted share.
The catch is that part of the quarter's income is one-off. Roughly a quarter of the $731,000 in noninterest income came from renting a multifamily building the bank took in foreclosure the prior fall, a property still sitting in other real estate owned, the account for assets taken back from defaulted borrowers and held for sale. Credit costs are also creeping up in line with the loan growth the company is deliberately pursuing, with the allowance for credit losses, the reserve set aside for expected loan losses, at 1.13% of loans. At $17.00 a share, the stock trades near the middle of its 52-week range. That is around 14 times trailing earnings and a discount to book value of $20.41 per share. The central debate is whether the margin expansion outlasts the one-off items and the credit costs of the construction push.