SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________
Commission File No.
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(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. ⌧ NO ◻
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Smaller reporting company | ||
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There were
Texas Community Bancshares, Inc.
Form 10-Q
Table of Contents
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 31 | |||
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Texas Community Bancshares, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
September 30, 2022 and December 31, 2021
(Amounts in thousands, except share and per share data)
| September 30, |
| December 31, | |||
2022 | 2021 | |||||
(unaudited) | ||||||
Assets |
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Cash and due from banks |
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Federal funds sold | | | ||||
Cash and cash equivalents | | | ||||
Interest bearing deposits in banks | | | ||||
Securities available for sale | | | ||||
Securities held to maturity (fair values of $ | | | ||||
Loans receivable, net of allowance for loan and lease losses of $ | | | ||||
Net investment in direct financing leases | | | ||||
Accrued interest receivable | | | ||||
Premises and equipment | | | ||||
Bank-owned life insurance | | | ||||
Foreclosed assets | — | | ||||
Restricted investments carried at cost | | | ||||
Core deposit intangible | | | ||||
Mortgage servicing rights | | | ||||
Deferred income taxes | | | ||||
Other assets | | | ||||
$ | | $ | | |||
Liabilities and Shareholders' Equity |
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Liabilities |
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Noninterest bearing | $ | | $ | | ||
Interest bearing | | | ||||
Total deposits | | | ||||
Advances from Federal Home Loan Bank (FHLB) | | | ||||
Accrued expenses and other liabilities | | | ||||
Total liabilities | | | ||||
Shareholders' Equity | ||||||
Preferred stock, $ | ||||||
Common stock, $ | | | ||||
Additional paid in capital | | | ||||
Retained earnings | | | ||||
Accumulated other comprehensive loss | ( | ( | ||||
Unearned Employee Stock Ownership Program (ESOP) shares, at cost | ( | ( | ||||
Total shareholders' equity | | | ||||
$ | | $ | |
See Notes to Consolidated Financial Statement
1
Texas Community Bancshares, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 2022 and 2021
(Amounts in thousands, except share and per share data)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Interest Income |
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Loans, including fees | $ | | $ | | $ | | $ | | ||||
Debt securities |
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Taxable |
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Non taxable |
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Dividends on restricted investments |
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Federal funds sold |
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Deposits with banks |
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Total interest income |
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Interest Expense |
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Deposits |
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Advances from FHLB |
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Other |
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Total interest expense |
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Net Interest Income |
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Provision for Loan and Lease Losses |
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Net Interest Income After Provision for Loan and Lease Losses |
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Noninterest Income |
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Service charges on deposit accounts |
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Other service charges and fees |
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Net gain (loss) on securities transactions |
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Net gain (loss) on sale of other real estate owned |
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Net appreciation on bank-owned life insurance |
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Other income |
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Total noninterest income |
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Noninterest Expenses |
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Salaries and employee benefits |
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Occupancy and equipment expense |
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Data processing |
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Contract services |
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Director fees |
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Other expense |
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Total noninterest expenses |
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Income (Loss) Before Income Taxes |
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Income Tax Expense (Benefit) |
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Net Income (Loss) | $ | | $ | ( | $ | | $ | | ||||
Earnings (loss) per share - basic | $ | $ | ( | $ | $ | |||||||
Earnings (loss) per share - diluted | $ | $ | ( | $ | $ | |||||||
Weighted-average shares outstanding - basic | ||||||||||||
Weighted-average shares outstanding - diluted |
See Notes to Consolidated Financial Statements
2
Texas Community Bancshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
Three and Nine Months Ended September 30, 2022 and 2021
(Amounts in thousands, except share and per share data)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net Income (Loss) | $ | | $ | ( | $ | | $ | | ||||
Other items of comprehensive (loss) income | ||||||||||||
Net changes in fair value of available for sale securities, before tax |
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Reclassification adjustment for realized loss on sale of investment securities included in net income (loss) |
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Total other items of comprehensive (loss) income, before tax |
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Income tax benefit (expense) related to other items of comprehensive (loss) income |
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Total other items of comprehensive (loss) income, after tax |
| ( |
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Comprehensive (Loss) Income | $ | ( | $ | ( | $ | ( | $ | |
See Notes to Consolidated Financial Statements
3
Texas Community Bancshares, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity (Unaudited)
Three and Nine Months Ended September 30, 2022 and 2021
(Amounts in thousands, except share and per share data)
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| Accumulated |
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Additional | Other | Unearned | Total | ||||||||||||||||||
Preferred | Common | Paid In | Retained | Comprehensive | ESOP | Shareholders' | |||||||||||||||
Three Months Ended September 30, 2022 and 2021 | Stock | Stock | Capital | Earnings | (Loss) Income | Shares | Equity | ||||||||||||||
Balance at July 1, 2022 | $ | — | $ | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Net Income |
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Stock based compensation expense | — | — | | | |||||||||||||||||
Net changes in fair value of available for sale securities, net of tax benefit of $ |
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ESOP shares committed to be released, |
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Balance at September 30, 2022 | $ | — | $ | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Balance at July 1, 2021 | $ | — | $ | — | $ | ( | $ | | $ | | $ | — | $ | | |||||||
Net Loss |
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Stock Issuance, net of conversion costs of $ | — | | | | |||||||||||||||||
Net changes in fair value of available for sale securities, net of tax expense of $ |
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Leveraged ESOP Shares, |
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ESOP shares committed to be released, |
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Balance at September 30, 2021 | $ | — | $ | | $ | | $ | | $ | | $ | ( | $ | |
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| Accumulated |
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Additional | Other | Unearned | Total | ||||||||||||||||||
Preferred | Common | Paid In | Retained | Comprehensive | ESOP | Shareholders' | |||||||||||||||
Nine Months Ended September 30, 2022 and 2021 | Stock | Stock | Capital | Earnings | (Loss) Income | Shares | Equity | ||||||||||||||
Balance at January 1, 2022 | $ | — | $ | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Net income |
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Stock based compensation expense | — | — | | — | — | — | | ||||||||||||||
Net changes in fair value of available for sale securities, net of tax benefit of $ |
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ESOP shares committed to be released, |
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Balance at September 30, 2022 | $ | — | $ | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Balance at January 1, 2021 | $ | — | $ | — | $ | — | $ | | $ | | $ | — | $ | | |||||||
Net income |
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Stock issuance, net of conversion costs of $ | — | | | — | — | — | | ||||||||||||||
Net changes in fair value of available for sale securities, net of tax expense of $ |
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Leveraged ESOP shares, |
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ESOP shares earned, |
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Balance at September 30, 2021 | $ | — | $ | | $ | | $ | | $ | | $ | ( | $ | |
See Notes to Consolidated Financial Statements
4
Texas Community Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2022 and 2021
(Amounts in thousands, except share and per share data)
Nine Months Ended | ||||||
September 30, | ||||||
| 2022 |
| 2021 | |||
Operating Activities |
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Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash from operating activities |
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Provision for loan and lease losses |
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Net amortization of securities |
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Depreciation and amortization |
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Net realized loss on sale of investment securities |
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Loss on sale of fixed assets |
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Stock based compensation |
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Gain on sale of other real estate owned |
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Appreciation on bank-owned life insurance |
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ESOP compensation expense for allocated shares | | — | ||||
Deferred income tax |
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Net change in |
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Accrued interest receivable |
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Mortgage servicing rights |
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Other assets |
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Accrued expenses and other liabilities |
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Net Cash from Operating Activities |
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Investing Activities |
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Net change in interest bearing deposits in banks |
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Activity in available for sale securities | ||||||
Purchases |
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Sales |
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Maturities, prepayments and calls |
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Activity in held to maturity securities |
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Purchases |
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Maturities, prepayments and calls |
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Purchases of restricted investments |
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Loan originations and principal collections, net |
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Net decrease (increase) in net investment in direct financing leases |
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Proceeds from sales of OREO and foreclosed assets |
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Purchases of premises and equipment |
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Net Cash used for Investing Activities |
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Financing Activities |
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Net increase in deposits |
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Advances from FHLB and other borrowings |
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Payments on long-term FHLB and other borrowings |
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Proceeds from issuance of common stock net of conversion costs |
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Loan to ESOP for purchase of common stock |
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Net Cash from Financing Activities |
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Net Change in Cash and Cash Equivalents |
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Cash and Cash Equivalents at Beginning of Period |
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Cash and Cash Equivalents at End of Period | $ | | $ | |
See Notes to Consolidated Financial Statements
5
Texas Community Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022 and 2021
(Amounts in thousands, except share and per share data)
Note 1 - Summary of Significant Accounting Policies
General
Texas Community Bancshares, Inc. (the “Company”), a Maryland corporation and registered bank holding company, was incorporated on March 5, 2021 to become the holding company for Mineola Community Bank, SSB (the “Bank”) upon the conversion of Mineola Community Mutual Holding Company (“MHC”) from a mutual holding company to a stock holding company (the “Conversion”). The Conversion was completed on July 14, 2021. The Company’s shares began trading on the NASDAQ under the symbol TCBS on July 15, 2021. In connection with the Conversion, the Company acquired
Following the Conversion, voting rights in the Company are held and exercised exclusively by the shareholders of the Company. Deposit account holders continue to be insured by the FDIC. In connection with the Conversion, liquidation accounts were established by the Company and the Bank in an aggregate amount equal to (i) the MHC’s ownership interest in the shareholders’ equity of Mineola Community Financial Group, Inc. (the former subsidiary holding company of the Bank) as of the date of the latest statement of financial condition included in the Company’s definitive prospectus dated May 14, 2021, plus (ii) the value of the net assets of the MHC as of the date of the MHC’s latest statement of financial condition before the consummation of the Conversion (excluding the MHC’s ownership interest in Mineola Community Financial Group, Inc.). Each eligible account holder and supplemental eligible account holder is entitled to a proportionate share of the liquidation accounts in the event of a liquidation of (i) the Company and the Bank or (ii) the Bank, and only in such events. This share will be reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below the amounts on the date of record and will cease to exist if the account is closed. The liquidation account will never be increased despite any increase after conversion in the related deposit balance. The Bank may not pay a dividend on its capital stock if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements. In addition, the Company is subject to certain regulations related to the payment of dividends and the repurchase of its capital stock.
The Conversion was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.
The Bank’s primary source of revenue is providing loans and banking services to consumers and commercial customers in Mineola, Texas and the surrounding area and the Dallas Fort Worth Metroplex. The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America (GAAP) and to general practices of the banking industry. Policies and practices which materially affect the determination of financial position, results of operations and cash flows are summarized as follows:
6
Texas Community Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022 and 2021
(Amounts in thousands, except share and per share data)
Interim Financial Statements
The interim unaudited consolidated financial statements as of September 30, 2022, and for the three and nine months ended September 30, 2022 and 2021, are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Such adjustments are the only adjustments contained in these unaudited consolidated financial statements. These unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission, and therefore certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been omitted. The results of operations for the nine months ended September 30, 2022, are not necessarily indicative of the results to be achieved for the remainder of the year ending December 31, 2022, or any other period. Certain prior period data presented in the consolidated financial statements has been reclassified to conform with the current period presentation. The accompanying consolidated financial statements have been derived from and should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company for the year ended December 31, 2021. Reference is made to the accounting policies of the Company described in the Notes to Consolidated Financial Statements contained in Form 10-K for the year ended December 31, 2021.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, which include Mineola Community Bank, S.S.B. and its wholly-owned subsidiary Mineola Financial Service Corporation, which is not actively being utilized. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan and lease losses.
7
Texas Community Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended September 30, 2022 and 2021
(Amounts in thousands, except share and per share data)
Stock Incentive Plan
Compensation cost is recognized for stock options and restricted stock awards issued to directors, based on the fair value of these awards at the date of the grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of the grant is used for restricted stock awards.
Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.
Earnings Per Share
Basic earnings per share is computed by dividing net income (loss) by the weighted–average number of common shares outstanding during the period, including allocated and committed-to-be-released ESOP shares and restricted stock awards granted on August 31, 2022, during the applicable period. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method. There were
The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share:
| Three Months Ended | Nine Months Ended | ||||||||||
| September 30, | September 30, | ||||||||||
| 2022 |
| 2021 | 2022 | 2021 | |||||||
Net Income (Loss) | $ | | $ | ( | $ | | $ | | ||||
Weighted average shares outstanding for basic earnings per share: |
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Average shares outstanding |
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Less: average unearned ESOP shares |
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Weighted average shares outstanding for basic earnings per share |
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Additional dilutive shares |
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Weighted average shares outstanding for dilutive earnings per share |
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Basic and dilutive earnings (loss) per share | | ( |