Texas Community Bancshares, Inc. [TCBS] Filings

10-Q 1 tcbs-20230930x10q.htm 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

⌧	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

◻	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. 001-40610

Texas Community Bancshares, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Maryland		86-2760335
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

215 West Broad Street, Mineola, Texas		75773
(Address of Principal Executive Offices)		(Zip Code)

(903) 569-2602

(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:



Common stock, $0.01 par value per share	TCBS	The Nasdaq Stock Market LLC
(Title of Each Class)	(Trading Symbol(s))	(Name of Each Exchange on Which Registered)

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. YES ⌧ NO ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ⌧ NO ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ◻		Accelerated filer ◻
Non-accelerated filer ⌧		Smaller reporting company ☒
		Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

There were 3,208,881 shares, par value $0.01 per share, of the Registrant’s common stock outstanding as of November 7, 2023.

Table of Contents

Texas Community Bancshares, Inc.

Form 10-Q

Table of Contents


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Consolidated Statements of Financial Condition at September 30, 2023 (unaudited) and December 31, 2022	1

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	2

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	3

	Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53

Item 4.	Controls and Procedures	54

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	55

Item 1A.	Risk Factors	55

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	55

Item 3.	Defaults Upon Senior Securities	55

Item 4.	Mine Safety Disclosures	55

Item 5.	Other Information	55

Item 6.	Exhibits	56

	Signatures	57

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Financial Condition

September 30, 2023 and December 31, 2022

(Amounts in thousands, except share and per share data)


	September 30,		December 31,
	2023		2022
	(unaudited)
Assets
Cash and due from banks	$	5,284	$	6,897
Federal funds sold		7,139		2,030
Cash and cash equivalents		12,423		8,927
Interest bearing deposits in banks		9,071		2,055
Securities available for sale		92,474		107,153
Securities held to maturity (fair values of $23,187 at September 30, 2023 and $24,615 at December 31, 2022)		26,895		27,827
Loans receivable, net of allowance for credit losses of $2,934 at September 30, 2023 and $1,755 at December 31, 2022		268,914		251,274
Net investment in direct financing leases		36		64
Accrued interest receivable		1,440		1,327
Premises and equipment, net		10,442		6,299
Bank-owned life insurance		6,204		6,125
Foreclosed assets		162		—
Restricted investments carried at cost		3,871		2,805
Core deposit intangible		298		397
Deferred income taxes		2,759		2,304
Financial derivative		926		—
Other assets		795		789
	$	436,710	$	417,346
Liabilities and Shareholders' Equity
Liabilities
Noninterest bearing	$	44,155	$	45,823
Interest bearing		255,740		250,254
Total deposits		299,895		296,077
Advances from Federal Home Loan Bank (FHLB)		79,378		62,494
Accrued expenses and other liabilities		4,184		2,905
Total liabilities		383,457		361,476
Shareholders' Equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding		—		—
Common stock, $0.01 par value, 19,000,000 shares authorized, 3,373,723 issued and 3,246,306 outstanding at September 30, 2023 and 3,296,843 issued and outstanding at December 31, 2022		34		33
Additional paid in capital		31,595		31,099
Retained earnings		32,407		34,083
Accumulated other comprehensive loss		(6,959)		(6,999)
Unearned Employee Stock Ownership Program (ESOP) shares, at cost		(2,248)		(2,346)
Treasury stock, at cost (127,417 shares at September 30, 2023)		(1,576)		—
Total shareholders' equity		53,253		55,870
	$	436,710	$	417,346

See Notes to Consolidated Financial Statements

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

Three and Nine Months Ended September 30, 2023 and 2022

(Amounts in thousands, except share and per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

Interest Income
Loans, including fees	$	3,410	$	2,531	$	9,289	$	7,336
Debt securities
Taxable		1,232		562		3,652		1,307
Non taxable		44		39		137		114
Dividends on restricted investments		44		9		105		20
Federal funds sold		60		41		130		80
Deposits with banks		74		15		202		34
Financial derivative		112		—		145		—
Total interest income		4,976		3,197		13,660		8,891
Interest Expense
Deposits		1,443		300		3,676		908
Advances from FHLB		687		144		1,849		429
Other		2		3		7		8
Total interest expense		2,132		447		5,532		1,345
Net Interest Income		2,844		2,750		8,128		7,546
Provision for Credit Losses - loans		(10)		48		185		125
Provision for Credit Losses - off-balance sheet credit exposures		39		—		27		—
Provision for Credit Losses		29		48		212		125
Net Interest Income After Provision for Credit Losses		2,815		2,702		7,916		7,421
Noninterest Income
Service charges on deposit accounts		182		166		513		496
Other service charges and fees		338		261		918		795
Net loss on securities transactions		—		—		(1,687)		(29)
Net gain on sale of foreclosed assets		36		42		36		42
Net appreciation on bank-owned life insurance		28		26		79		75
Other income		8		4		37		22
Total noninterest income (loss)		592		499		(104)		1,401
Noninterest Expenses
Salaries and employee benefits		1,685		1,494		4,935		4,263
Occupancy and equipment expense		193		188		595		564
Data processing		244		225		686		619
Technology expense		123		98		347		293
Contract services		64		52		191		130
Director fees		102		96		299		287
Other expense		423		383		1,298		992
Total noninterest expenses		2,834		2,536		8,351		7,148
Income (Loss) Before Income Taxes		573		665		(539)		1,674
Income Tax Expense (Benefit)		117		126		(138)		328
Net Income (Loss)	$	456	$	539	$	(401)	$	1,346
Earnings (loss) per share - basic	$	0.15	$	0.18	$	(0.13)	$	0.45
Earnings (loss) per share - diluted	$	0.15	$	0.18	$	(0.13)	$	0.45
Weighted-average shares outstanding - basic		3,055,489		3,029,465		3,083,629		3,017,817
Weighted-average shares outstanding - diluted		3,055,489		3,029,465		3,083,629		3,017,817

See Notes to Consolidated Financial Statements

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

Three and Nine Months Ended September 30, 2023 and 2022

(Amounts in thousands, except share and per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net Income (Loss)	$	456	$	539	$	(401)	$	1,346

Other items of comprehensive loss
Debt Securities
Net changes in fair value of available for sale securities, before tax		(1,418)		(1,563)		(2,576)		(7,669)
Reclassification adjustment for realized loss on sale of investment securities included in net income (loss), before tax		—		—		1,687		29
Net changes in fair value of available for sale securities hedged, before tax		390		—		940		—
Total other items of comprehensive (loss) income, before tax		(1,028)		(1,563)		51		(7,640)

Income tax benefit (expense) related to other items of comprehensive (loss) income		216		328		(11)		1,604
Total other items of comprehensive (loss) income, after tax		(812)		(1,235)		40		(6,036)

Comprehensive Loss	$	(356)	$	(696)	$	(361)	$	(4,690)

See Notes to Consolidated Financial Statements

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity (Unaudited)

Three and Nine Months Ended September 30, 2023 and 2022

(Amounts in thousands, except share and per share data)


									Accumulated
					Additional				Other		Unearned				Total
	Preferred		Common		Paid In		Retained		Comprehensive		ESOP		Treeasury		Shareholders'
Three Months Ended September 30, 2023 and 2022	Stock		Stock		Capital		Earnings		Loss		Shares		Stock		Equity
Balance at July 1, 2023	$	—	$	34	$	31,405	$	32,048	$	(6,147)	$	(2,280)	$	(610)	$	54,450
Net income		—		—		—		456		—		—		—		456
Stock based compensation expense		—		—		182		—		—		—		—		182
Net changes in other comprehensive income (loss), net of tax		—		—		—		—		(812)		—		—		(812)
Cash dividend declared ($0.03 per share)		—		—		—		(97)		—		—		—		(97)
ESOP shares committed to be released, 3,258 shares		—		—		8		—		—		32		—		40
Treasury stock purchased, 77,150 shares		—		—		—		—		—		—		(966)		(966)
Balance at September 30, 2023	$	—	$	34	$	31,595	$	32,407	$	(6,959)	$	(2,248)	$	(1,576)	$	53,253

Balance at July 1, 2022	$	—	$	33	$	30,978	$	33,136	$	(5,487)	$	(2,411)	$	—	$	56,249
Net income		—		—		—		539		—		—		—		539
Stock based compensation expense		—		—		21		—		—		—		—		21
Net changes in other comprehensive income (loss), net of tax		—		—		—		—		(1,235)		—		—		(1,235)
ESOP shares committed to be released, 3,258 shares		—		—		20		—		—		33		—		53
Balance at September 30, 2022	$	—	$	33	$	31,019	$	33,675	$	(6,722)	$	(2,378)	$	—	$	55,627


									Accumulated
					Additional				Other		Unearned				Total
	Preferred		Common		Paid In		Retained		Comprehensive		ESOP		Treasury		Shareholders'
Nine Months Ended September 30, 2023 and 2022	Stock		Stock		Capital		Earnings		Loss		Shares		Stock		Equity
Balance at January 1, 2023	$	—	$	33	$	31,099	$	34,083	$	(6,999)	$	(2,346)	$	—	$	55,870
Cumulative change in accounting principle (adoption of ASC 326)		—		—		—		(1,010)		—		—		—		(1,010)
Balance at January 1, 2023 (as adjusted for change in accounting principle)		—		33		31,099		33,073		(6,999)		(2,346)		—		54,860
Net loss		—		—		—		(401)		—		—		—		(401)
Stock based compensation expense		—		—		467		—		—		—		—		467
Issuance of restricted stock awards		—		1		—		—		—		—		—		1
Net changes in other comprehensive income (loss), net of tax		—		—		—		—		40		—		—		40
Cash dividends declared ($0.02 per share in Q1 and $0.03 per share in Q2 and Q3)		—		—		—		(265)		—		—		—		(265)
ESOP shares committed to be released, 9,774 shares		—		—		29		—		—		98		—		127
Treasury stock purchased, 127,417 shares		—		—		—		—		—		—		(1,576)		(1,576)
Balance at September 30, 2023	$	—	$	34	$	31,595	$	32,407	$	(6,959)	$	(2,248)	$	(1,576)	$	53,253

Balance at January 1, 2022	$	—	$	33	$	30,932	$	32,329	$	(686)	$	(2,476)	$	—	$	60,132
Net income		—		—		—		1,346		—		—		—		1,346
Stock based compensation expense		—		—		21		—		—		—		—		21
Net changes in other comprehensive income (loss), net of tax		—		—		—		—		(6,036)		—		—		(6,036)
ESOP shares committed to be released, 9,774 shares		—		—		66		—		—		98		—		164
Balance at September 30, 2022	$	—	$	33	$	31,019	$	33,675	$	(6,722)	$	(2,378)	$	—	$	55,627

See Notes to Consolidated Financial Statements

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended September 30, 2023 and 2022

(Amounts in thousands, except share and per share data)


	Nine Months Ended
	September 30,
	2023		2022
Operating Activities
Net (loss) income	$	(401)	$	1,346
Adjustments to reconcile net income to net cash from operating activities
Provision for credit losses - loans		185		125
Provision for credit losses - off-balance sheet credit exposures		27		—
Net (accretion) amortization of securities		(32)		355
Depreciation and amortization		316		324
Net realized loss on sales of securities available for sale		1,687		29
Loss on sale of fixed assets		—		10
Gain on foreclosed assets		(36)		(42)
Appreciation on bank-owned life insurance		(79)		(75)
ESOP compensation expense for allocated shares		127		164
Stock-based compensation		467		21
Deferred income tax		(466)		(20)
Loss on fair value adjustment of fair value hedges		14		—
Net change in
Accrued interest receivable		(113)		(134)
Other assets		(46)		(219)
Accrued expenses and other liabilities		1,320		663
Net Cash from Operating Activities		2,970		2,547
Investing Activities
Net change in interest bearing deposits in banks		(7,016)		14,596
Activity in available for sale securities
Purchases		(9,511)		(44,465)
Sales		17,027		10,822
Maturities, prepayments and calls		4,730		4,209
Activity in held to maturity securities
Purchases		(2,139)		—
Maturities, prepayments and calls		2,960		4,732
Purchases of restricted investments		(1,066)		(65)
Loan originations and principal collections, net		(18,988)		(20,075)
Net decrease in net investment in direct financing leases		28		41
Proceeds from sales of OREO and foreclosed assets		—		243
Purchases of premises and equipment		(4,360)		(

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