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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

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. 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.

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

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

1

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

2

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

3

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

4

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)

 

(