TC Bancshares, Inc. (OTCQX: TCBC) is a holding company that owns TC Federal Bank, a community bank serving customers in Georgia and Florida. With a history dating back to 1934, the bank has weathered numerous economic cycles and market shifts, emerging as a resilient institution focused on meeting the financial needs of its local communities.
Business Overview and History TC Federal Bank was originally chartered in 1934 as a mutual savings and loan association, wholly owned by its depositors. The bank opened its first branch location in Thomasville, Georgia, and has since expanded to operate a total of four branch locations, one each in Thomasville and Savannah, Georgia, as well as in Tallahassee and Jacksonville, Florida. In 2021, the institution underwent a reorganization, becoming a stock-based holding company structure with TC Bancshares, Inc. as the parent company. This transition allowed the bank to access capital markets and pursue strategic growth initiatives.
Throughout its history, TC Federal Bank has focused on providing single-family residential mortgage loans, commercial and multi-family real estate loans, and consumer lending products to customers in its market areas. The bank's deposit products have served as the primary source of funding for these lending activities. TC Federal Bank has navigated several challenges during its history, including difficulties related to the financial crisis and recession in the late 2000s. During this period, many of the bank's borrowers struggled with declining real estate values and economic conditions. The bank worked through this challenging time by collaborating with borrowers, managing its asset quality, and maintaining its capital position.
More recently, in 2023, the bank faced liquidity challenges stemming from a rise in interest rates and the need to sell investment securities at a loss. Despite these difficulties, the bank was able to manage the situation and maintain its operations without disruption to customers. Throughout its history, TC Federal Bank has remained focused on serving the financial needs of consumers and businesses in its local markets of Georgia and Florida, adapting to changes in the industry while maintaining its community banking philosophy and conservative underwriting practices.
The bank's core lending activities include residential mortgages, commercial real estate, multi-family, and commercial and industrial loans, reflecting its deep roots in the local markets it serves. As of March 31, 2024, the bank's loan portfolio stood at $382.53 million, with real estate loans accounting for 94.32% of the total. The largest segments within real estate loans were residential real estate loans at $148.13 million (38.72% of total loans), commercial real estate loans at $131.69 million (34.43%), and construction and land development loans at $51.68 million (13.51%). The bank also has exposure to home equity loans ($10.90 million), multi-family real estate loans ($18.42 million), consumer loans ($3.39 million), and commercial and industrial loans ($18.33 million).
The company has faced its share of challenges in recent years. In 2023, the bank navigated the impacts of the COVID-19 pandemic, which disrupted commercial real estate and led to increased loan loss provisions. Additionally, the bank's investment portfolio experienced unrealized losses as interest rates rose, putting pressure on the bank's capital ratios. Despite these headwinds, TC Bancshares maintained its well-capitalized status, with a Tier 1 capital ratio of 14.56% and a total risk-based capital ratio of 20.57% as of March 31, 2024.
In an effort to diversify its revenue streams and expand its geographic footprint, TC Bancshares has pursued a strategy of cautious growth, opening new branch locations in Savannah, Georgia, and Jacksonville, Florida, during 2023. These new branches contributed to a 2.8% increase in total deposits to $380.29 million as of March 31, 2024, compared to $369.9 million at the end of 2023. The deposit mix consisted of demand deposits ($47.56 million), interest-bearing demand deposits ($51.99 million), savings and money market accounts ($176.11 million), and certificates of deposit ($104.63 million).
Financial Performance and Ratios TC Bancshares' financial performance has been mixed in recent quarters. For the three months ended March 31, 2024, the company reported revenue of $3,628,145 and net income of $22,237, a significant decline from the $332,000 in net income recorded in the same period in 2023. This decrease was primarily driven by a 6.3% reduction in net interest income, as the bank's cost of funds rose more rapidly than the yield on its earning assets. The net interest margin declined by 50 basis points to 3.00% during this time.
The company's asset quality metrics have shown some strain, with nonperforming loans at $1.22 million, or 0.32% of total loans, as of March 31, 2024. The bank's allowance for credit losses stood at $4.89 million, or 1.28% of total loans, at the end of the first quarter of 2024. The company recorded a provision for credit losses of $30,000 during the first quarter of 2024, compared to $18,000 in the same period a year earlier.
Despite the challenges, TC Bancshares saw an increase in revenue, net income, operating cash flow (OCF), and free cash flow (FCF) compared to the prior year quarter. For the most recent quarter, the company reported OCF of $1,372,326 and FCF of $1,308,175.
Liquidity TC Bancshares' liquidity position remains strong, with a loan-to-deposit ratio of 95.5% as of March 31, 2024. The bank maintains ample borrowing capacity with various financial institutions. As of March 31, 2024, the company had $23.83 million in cash and cash equivalents. Additionally, it had $60.70 million in borrowing capacity with the Federal Home Loan Bank of Atlanta, $28.50 million in unsecured federal funds lines of credit, and $26.50 million in available borrowing capacity through the Federal Reserve Bank of Atlanta.
Risks and Challenges As a community bank, TC Bancshares faces a number of risks and challenges, including:
1. Interest Rate Risk: The bank's net interest margin is highly sensitive to changes in market interest rates, as evidenced by the recent compression in its net interest margin. Continued rate hikes by the Federal Reserve could further erode the bank's profitability.
2. Asset Quality Concerns: The bank's exposure to commercial real estate, particularly in the wake of the pandemic, raises concerns about potential credit quality deterioration and the need for additional loan loss provisions.
3. Regulatory Environment: As a publicly traded bank, TC Bancshares is subject to increased regulatory scrutiny and compliance requirements, which can add complexity and cost to its operations.
4. Competition: The bank operates in a highly competitive market, facing pressure from larger regional and national banks, as well as non-bank financial institutions, for loans and deposits.
5. Geographical Concentration: The bank's operations are primarily concentrated in Georgia and Florida, making it vulnerable to economic and real estate market conditions in these regions.
Outlook and Conclusion Despite the challenges faced by TC Bancshares, the bank has demonstrated resilience and a commitment to serving its local communities. The recent branch expansions in Savannah and Jacksonville, coupled with the bank's focus on deposit growth and diversification, suggest a strategy of cautious and measured growth.
However, the bank's near-term profitability remains under pressure, as rising interest rates squeeze its net interest margin and the potential for asset quality deterioration looms. Navigating these headwinds will require disciplined risk management, cost control, and a continued focus on core banking fundamentals.
TC Bancshares' ability to adapt to the evolving financial landscape and capitalize on opportunities in its markets will be key to its long-term success. The company's diversified loan portfolio, stable deposit base, and strong liquidity position provide a foundation for navigating the current economic conditions. However, the recent decline in net income and compression of the net interest margin highlight the challenges posed by the rising interest rate environment.
Investors should closely monitor the bank's progress in executing its strategic initiatives, managing the risks inherent in its business model, and improving its financial performance in the face of ongoing market pressures. The company's ability to maintain asset quality, grow its loan portfolio prudently, and optimize its funding mix will be crucial factors in determining its future success in the competitive banking landscape of the southeastern United States.