Texas Community Bancshares, Inc. - Quarter Report: 2022 March (Form 10-Q)

Contract Amount

December 31,

Commitments to extend credit

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 March 31, 2022

◻	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 3,257,759 shares, par value $0.01 per share, of the Registrant’s common stock issued and outstanding as of May 10, 2022.

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 March 31, 2022 (unaudited) and December 31, 2021	1

	Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 (unaudited)	2

	Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended March 31, 2022 and 2021 (unaudited)	3

	Consolidated Statements of Shareholders’ and Members’ Equity for the Three Months Ended March 31, 2022 and 2021 (unaudited)	4

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.	Defaults Upon Senior Securities	40

Item 4.	Mine Safety Disclosures	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

	Signatures	42

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Financial Condition

March 31, 2022 and December 31, 2021

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


	March 31,		December 31,
	2022		2021
	(unaudited)
Assets
Cash and due from banks	$	5,828	$	5,651
Federal funds sold		19,742		16,264
Cash and cash equivalents		25,570		21,915
Interest bearing deposits in banks		5,335		14,955
Securities available for sale		63,978		56,800
Securities held to maturity (fair values of $30,084 at March 31, 2022 and $33,673 at December 31, 2021)		31,530		33,682
Loans receivable, net of allowance for loan and lease losses of $1,610 at March 31, 2022 and $1,592 at December 31, 2021		224,469		220,162
Net investment in direct financing leases		94		105
Accrued interest receivable		904		931
Premises and equipment		6,336		6,215
Bank-owned life insurance		6,044		6,020
Foreclosed assets		209		209
Restricted investments carried at cost		2,040		2,037
Core deposit intangible		496		529
Mortgage servicing rights, net		8		8
Deferred income taxes		1,383		651
Other assets		590		607
	$	368,986	$	364,826
Liabilities and Shareholders' Equity
Liabilities
Noninterest bearing	$	42,880	$	40,576
Interest bearing		238,796		234,357
Total deposits		281,676		274,933
Advances from Federal Home Loan Bank (FHLB)		27,053		27,571
Accrued expenses and other liabilities		2,181		2,190
Total liabilities		310,910		304,694
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, 3,257,759 shares issued and outstanding		33		33
Additional paid in capital		30,950		30,932
Retained earnings		32,720		32,329
Accumulated other comprehensive loss		(3,184)		(686)
Unearned Employee Stock Ownership Program ("ESOP") shares, at cost		(2,443)		(2,476)
Total shareholders' equity		58,076		60,132
	$	368,986	$	364,826

See Notes to Consolidated Financial Statement

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Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

Three Months Ended March 31, 2022 and 2021

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


	Three Months Ended
	March 31,
	2022		2021

Interest Income	(unaudited)
Loans, including fees	$	2,374	$	2,401
Debt securities
Taxable		335		142
Non taxable		38		36
Dividends on restricted investments		5		4
Federal funds sold		9		—
Deposits with banks		6		20
Total interest income		2,767		2,603
Interest Expense
Deposits		311		401
Advances from FHLB		144		160
Other		3		3
Total interest expense		458		564
Net Interest Income		2,309		2,039
Provision for Loan and Lease Losses		40		2
Net Interest Income After Provision for Loan and Lease Losses		2,269		2,037
Noninterest Income
Service charges on deposit accounts		165		129
Other service charges and fees		256		224
Net appreciation on bank-owned life insurance		25		26
Other income		7		4
Total noninterest income		453		383
Noninterest Expenses
Salaries and employee benefits		1,362		1,230
Occupancy and equipment expense		192		182
Data processing		191		224
Contract services		35		119
Director fees		96		75
Other expense		367		298
Total noninterest expenses		2,243		2,128
Income Before Income Taxes		479		292
Income Tax Expense		88		50
Net Income	$	391	$	242
Earnings per share - basic	$	0.13		N/A
Earnings per share - diluted	$	0.13		N/A
Weighted-average shares outstanding - basic		3,010,314		N/A
Weighted-average shares outstanding - diluted		3,010,314		N/A

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

Three Months Ended March 31, 2022 and 2021

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


	Three Months Ended
	March 31,
	2022		2021

	(unaudited)
Net Income	$	391	$	242

Other items of comprehensive (loss) income
Net changes in fair value of available for sale securities, before tax		(3,161)		(27)

Total other items of comprehensive (loss) income		(3,161)		(27)
Comprehensive (Loss) Income Before Tax		(2,770)		215
Income tax benefit related to other items of comprehensive (loss) income		663		6

Comprehensive (Loss) Income	$	(2,107)	$	221

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ and Members’ Equity (Unaudited)

Three Months Ended March 31, 2022 and 2021

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


									Accumulated				Total
					Additional				Other		Unearned		Shareholders'
	Preferred		Common		Paid In		Retained		Comprehensive		ESOP		and Members’
Three Months Ended March 31, 2022 and 2021	Stock		Stock		Capital		Earnings		Income (Loss)		Shares		Equity
Balance at January 1, 2022	$	—	$	33	$	30,932	$	32,329	$	(686)	$	(2,476)	$	60,132
Net Income		—		—		—		391		—		—		391
Net changes in fair value of available for sale securities, net of tax benefit of $663		—		—		—		—		(2,498)		—		(2,498)
ESOP shares committed to be released, 3,258 shares		—		—		18		—		—		33		51
Balance at March 31, 2022	$	—	$	33	$	30,950	$	32,720	$	(3,184)	$	(2,443)	$	58,076

Balance at January 1, 2021	$	—	$	—	$	—	$	31,811	$	128	$	—	$	31,939
Net income		—		—		—		242		—		—		242
Conversion costs		—		—		(403)		—		—		—		(403)
Net changes in fair value of available for sale securities, net of tax benefit of $6		—		—		—		—		(21)		—		(21)
Balance at March 31, 2021	$	—	$	—	$	(403)	$	32,053	$	107	$	—	$	31,757

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

Three Months Ended March 31, 2022 and 2021

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


	Three Months Ended
	March 31,
	2022		2021

	(unaudited)
Operating Activities
Net income	$	391	$	242
Adjustments to reconcile net income to net cash from operating activities
Provision for loan and lease losses		40		2
Net amortization of securities		140		117
Depreciation and amortization		109		108
Appreciation on bank-owned life insurance		(25)		(26)
ESOP compensation expense for allocated shares		51		—
Deferred income tax		(68)		(4)
Net change in
Accrued interest receivable		27		229
Mortgage servicing rights		—		1
Other assets		(22)		40
Accrued expenses and other liabilities		30		186
Net Cash from Operating Activities		673		895
Investing Activities
Net change in interest bearing deposits in banks		9,620		(6,980)
Activity in available for sale securities
Purchases		(11,519)		—
Maturities, prepayments and calls		1,087		1,135
Activity in held to maturity securities
Purchases		—		(6,213)
Maturities, prepayments and calls		2,104		4,964
Purchases of restricted investments		(3)		(4)
Loan originations and principal collections, net		(4,346)		999
Net decrease (increase) in net investment in direct financing leases		11		(57)
Additions to premises and equipment		(197)		(58)
Net Cash used for Investing Activities		(3,243)		(6,214)
Financing Activities
Net increase in deposits		6,742		17,419
Payments on long-term FHLB and other borrowings		(517)		(560)
Conversion costs related to the conversion		—		(403)
Net Cash from Financing Activities		6,225		16,456
Net Change in Cash and Cash Equivalents		3,655		11,137
Cash and Cash Equivalents at Beginning of Period		21,915		8,073
Cash and Cash Equivalents at End of Period	$	25,570	$	19,210

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 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 100% ownership of the Bank and the Company offered and sold 3,207,759 shares of its common stock at $10.00 per share, for gross offering proceeds of $32,078. The cost of the conversion and issuance of common stock was approximately $1,684, which was deducted from the gross offering proceeds. The Company also contributed 50,000 shares of its common stock and $75 of cash to Texas Community Bancshares Foundation, Inc. (the “Foundation”), a charitable foundation formed in connection with the Conversion. The Bank’s employee stock ownership plan purchased 260,621 shares of the common stock sold by the Company, which was 8% of the 3,257,759 shares of common stock issued by the Company, including the shares contributed to the Foundation. The ESOP purchased the shares using a loan from the Company. The Company contributed $15,276 of the net proceeds from the offering to the Bank, loaned $2,606 of the net proceeds to the ESOP, contributed $75 to the Foundation and retained approximately $12,436 of the net proceeds.

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:

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

Interim Financial Statements

The interim unaudited consolidated financial statements as of March 31, 2022, and for the three months ended March 31, 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 three months ended March 31, 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 have 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.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted–average number of common shares outstanding during the period, including allocated and committed-to-be-released ESOP shares, 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 no dilutive shares as of March 31, 2022. There were no shares authorized or outstanding at March 31, 2021.


	Three Months Ended
	March 31, 2022
Net Income	$	391

Weighted average shares outstanding for basic earnings per share:
Average shares outstanding		3,257,759
Less: average unearned ESOP shares		(247,445)
Weighted average shares outstanding for basic earnings per share		3,010,314

Additional dilutive shares		—

Weighted average shares outstanding for dilutive earnings per share		3,010,314

Basic and dilutive earnings per share	$	0.13

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

Note 2 - Debt Securities

The amortized cost and fair value of securities, with gross unrealized gains and losses, follows:


	March 31, 2022
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
Available for Sale	Cost		Gains		Losses		Value
Debt Securities:
Residential mortgage-backed	$	18,076	$	1	$	(803)	$	17,274
Collateralized mortgage obligations		11,060		—		(773)		10,287
State and municipal		14,950		11		(1,069)		13,892
Corporate bonds		4,750		—		(387)		4,363
U.S. Government and agency		19,172		—		(1,010)		18,162
Total securities available for sale	$	68,008	$	12	$	(4,042)	$	63,978

Held to Maturity
Debt Securities:
Residential mortgage-backed	$	29,497	$	23	$	(1,453)	$	28,067
State and municipal		2,033		5		(21)		2,017
Total securities held to maturity	$	31,530	$	28	$	(1,474)	$	30,084


	December 31, 2021
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
Available for Sale	Cost		Gains		Losses		Value
Debt Securities:
Residential mortgage-backed	$	19,073	$	113	$	(401)	$	18,785
Collateralized mortgage obligations		11,202		—		(126)		11,076
State and municipal		11,670		36		(167)		11,539
Corporate bonds		2,500		—		(94)		2,406
U.S. Government and agency		13,224		—		(230)		12,994
Total securities available for sale	$	57,669	$	149	$	(1,018)	$	56,800

Held to Maturity
Debt Securities:
Residential mortgage-backed	$	31,277	$	374	$	(392)	$	31,259
State and municipal		2,405		15		(6)		2,414
Total securities held to maturity	$	33,682	$	389	$	(398)	$	33,673

During the three months ended March 31, 2022 and 2021, the Company had no sales of available for sale securities or held to maturity securities.

At March 31, 2022 and December 31, 2021, securities with a carrying value of $2,715 and $2,745, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2022, follows:


	Available for Sale				Held to Maturity
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year	$	—	$	—	$	—	$	—
Due from one to five years		15,911		15,236		770		774
Due in five to ten years		14,052		13,039		134		124
After ten years		8,909		8,142		1,129		1,119
Residential mortgage-backed		18,076		17,274		29,497		28,067
Collateralized mortgage obligations		11,060		10,287		—		—
Total	$	68,008	$	63,978	$	31,530	$	30,084

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:


	March 31, 2022
	Less than 12 months				12 months or longer
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized
Category (number of securities)	Value		Losses		Value		Losses
Residential mortgage-backed (57,10)	$	31,069	$	(1,435)	$	10,755	$	(821)
Collateralized mortgage obligations (5)		10,287		(773)		—		—
State and municipal (19)		14,866		(1,090)		—		—
Corporate bonds (8)		3,613		(387)		—		—
U.S. Government and agency (15)		18,162		(1,010)		—		—
Total	$	77,997	$	(4,695)	$	10,755	$	(821)


	December 31, 2021
	Less than 12 months				12 months or longer
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized
Category (number of securities)	Value		Losses		Value		Losses
Residential mortgage-backed (20,5)	$	22,903	$	(624)	$	5,666	$	(169)
Collateralized mortgage obligations (5)		11,076		(126)		—		—
State and municipal (9)		8,416		(173)		—		—
Corporate bonds (2)		906		(94)		—		—
U.S. Government and agency (13)		12,994		(230)		—		—
Total	$	56,295	$	(1,247)	$	5,666	$	(169)

Mortgage-backed Securities

The unrealized losses on the Company’s investments in residential mortgage-backed securities were caused by market interest rate increases and increases in prepayment speeds. The Company purchased those investments at a

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by agencies of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Because the decline in fair value is attributable to changes in market interest rates and increases in prepayment speeds and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022 or December 31, 2021.

U.S. Government and Agency

The unrealized losses on the Company’s investments in U.S. government and agency securities were caused by interest rate increases. The contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Because the decline in fair value is attributable to changes in market interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022 or December 31, 2021.

State and Municipal

The unrealized losses on the Company’s investments in state and municipal securities were caused by interest rate increases. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Because the decline in fair value is attributable to changes in market interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022 or December 31, 2021.

Corporate Bonds

The unrealized losses on the Company’s investments in corporate bond securities were caused by interest rate increases. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Because the decline in fair value is attributable to changes in market interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022 or December 31, 2021.

Other-Than-Temporary Impairment

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) evaluation by the Company of (a) its intent to sell a debt security prior to recovery and (b) whether it is more likely than not the Company will have to sell the debt security prior to recovery. As of March 31, 2022 and December 31, no investment securities were other-than- temporarily impaired.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

Note 3 - Loans and Leases

A summary of the balances of loans and leases follows:


	March 31,		December 31,
	2022		2021
Real estate	$	213,935	$	209,946
Agriculture		211		234
Commercial		6,745		6,141
Consumer and other		5,282		5,538
Subtotal		226,173		221,859
Less allowance for loan and lease losses		(1,610)		(1,592)
Loans and leases, net	$	224,563	$	220,267

Paycheck Protection Program Loans

In March 2020, the United States government passed legislation designed to help the nation’s economy recover from the coronavirus disease 2019 (“COVID‐19”) pandemic. This legislation is called the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) which provides economy‐wide financial stimulus in the form of financial aid to individuals, businesses, nonprofit entities, states and municipalities. The CARES Act temporarily added a new product titled the “Paycheck Protection Program” (PPP) to the U.S. Small Business Administration’s loan program. The CARES Act permits the SBA to guarantee 100 percent of these loans and also provides for forgiveness of up to the full principal amount of these loans. As of March 31, 2022, the Company originated $5,484 in PPP loans of which $5,475 had been forgiven. Additionally, the Company recognized $0 and $4 of PPP loan interest in interest income during the three months ended March 31, 2022 and 2021, respectively.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

The following tables set forth information regarding the activity in the allowance for loan and lease losses for the three months ended March 31, 2022 and 2021 and the year ended December 31, 2021:


	March 31, 2022
							Consumer
	Real Estate		Agriculture		Commercial		and Other		Total
Allowance for loan and lease losses:
Balance, January 1, 2022	$	1,178	$	1	$	357	$	56	$	1,592
Charge-offs		—		—		—		(26)		(26)
Recoveries		—		—		—		4		4
Provision		4		—		6		30		40
Balance, March 31, 2022	$	1,182	$	1	$	363	$	64	$	1,610
Balance, March 31, 2022 allocated to loans and leases individually evaluated for impairment	$	—	$	—	$	300	$	—	$	300
Balance, March 31, 2022 allocated to loans and leases collectively evaluated for impairment	$	1,182	$	1	$	63	$	64	$	1,310
Loans and leases receivable:
Balance, March 31, 2022 loans and leases individually evaluated for impairment	$	1,194	$	—	$	459	$	—	$	1,653
Balance, March 31, 2022 loans and leases collectively evaluated for impairment		212,741		211		6,286		5,282		224,520
Balance, March 31, 2022	$	213,935	$	211	$	6,745	$	5,282	$	226,173

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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


	March 31, 2021
							Consumer
	Real Estate		Agriculture		Commercial		and Other		Total
Allowance for loan and lease losses:
Balance, January 1, 2021	$	1,171	$	2	$	355	$	33	$	1,561
Charge-offs		—		—		—		(13)		(13)
Recoveries		—		—		—		12		12
Provision (Credit)		4		(2)		(14)		14		2
Balance, March 31, 2021	$	1,175	$	—	$	341	$	46	$	1,562

	December 31, 2021
							Consumer
Allowance for loan and lease losses:	Real Estate		Agriculture		Commercial		and Other		Total
Balance, December 31, 2021 allocated to loans and leases individually evaluated for impairment	$	8	$	—	$	300	$	—	$	308
Balance, December 31, 2021 allocated to loans and leases collectively evaluated for impairment	$	1,170	$	1	$	57	$	56	$	1,284
Loans and leases receivable:
Balance, December 31, 2021 loans and leases individually evaluated for impairment	$	2,437	$	—	$	474	$	33	$	2,944
Balance, December 31, 2021 loans and leases collectively evaluated for impairment		207,509		234		5,667		5,505		218,915
Balance, December 31, 2021	$	209,946	$	234	$	6,141	$	5,538	$	221,859

Internal Risk Categories

The Company monitors credit quality within its portfolio segments based on primary credit quality indicators. All of the Company’s loans and leases are evaluated using pass rated or reservable criticized as the primary credit quality indicator. The term reservable criticized refers to those loans and leases that are internally classified or listed by the Company as special mention, substandard, doubtful or loss. These assets pose an elevated risk and may have a high probability of default or total loss.

The classifications of loans and leases reflect a judgment about the risks of default and loss associated with the loan. The Company reviews the ratings on credits quarterly. Ratings are adjusted to reflect the degree of risk and loss that is felt to be inherent in each credit as of each quarterly reporting period.

The methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).

Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness; however, such concerns are not so pronounced that the Company generally expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits rated more harshly.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.

Credits rated doubtful are those in which full collection of principal appears highly questionable, and which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt. Based upon available information, positive action by the Company is required to avert or minimize loss. Credits with this classification have often become collateral dependent and any shortage in collateral or other likely loss amount is recorded as a specific valuation allowance. Credits rated doubtful are generally also placed on nonaccrual.

Credits rated loss are those that are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

Pass rated refer to loans that are not considered criticized. In addition to this primary credit quality indicator, the Company uses other credit quality indicators for certain types of loans.

The Company evaluates the loan risk grading system definitions and allowance for loan and lease loss methodology on an ongoing basis. No significant changes were made during the three months ended March 31, 2022 or during the year ended December 31, 2021.

The following tables set forth information regarding the internal classification of the loan and lease portfolio:


	March 31, 2022
			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
Real estate
Construction and land	$	18,789	$	144	$	93	$	—	$	—	$	19,026
Farmland		5,843		—		345		—		—		6,188
1‑4 residential & multi-family		153,440		281		1,773		—		—		155,494
Commercial real estate		33,107		—		120		—		—		33,227
Agriculture		211		—		—		—		—		211
Commercial		6,275		—		43		427		—		6,745
Consumer and other		5,257		11		14		—		—		5,282
Total	$	222,922	$	436	$	2,388	$	427	$	—	$	226,173

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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


	December 31, 2021
			Special
	Pass		Mention		Substandard		Doubtful		Loss		Total
Real estate
Construction and land	$	17,560	$	—	$	90	$	—	$	—	$	17,650
Farmland		6,083		—		359		—		—		6,442
1‑4 residential & multi-family		151,708		556		1,904		—		—		154,168
Commercial real estate		30,418		—		1,268		—		—		31,686
Agriculture		234		—		—		—		—		234
Commercial		5,652		—		52		437		—		6,141
Consumer and other		5,478		12		48		—		—		5,538
Total	$	217,133	$	568	$	3,721	$	437	$	—	$	221,859

The following table sets forth information regarding the credit risk profile based on payment activity of the loan and lease portfolio:


	March 31, 2022						December 31, 2021
			Non-						Non-
	Performing		performing		Total		Performing		performing		Total
Real estate
Construction and land	$	19,026	$	—	$	19,026	$	17,650	$	—	$	17,650
Farmland		6,009		179		6,188		6,250		192		6,442
1‑4 residential & multi-family		154,803		691		155,494		153,400		768		154,168
Commercial real estate		33,108		119		33,227		31,563		123		31,686
Agriculture		211		—		211		234		—		234
Commercial		6,286		459		6,745		5,667		474		6,141
Consumer and other		5,282		—		5,282		5,505		33		5,538
Total	$	224,725	$	1,448	$	226,173	$	220,269	$	1,590	$	221,859

The following table sets forth information regarding the delinquencies not on nonaccrual within the loan and lease portfolio:


	March 31, 2022
											Recorded
			90 Days								Investment
	30‑89 Days		and		Total				Total		> 90 Days and
	Past Due		Greater		Past Due		Current		Loans		Still Accruing
Real estate
Construction and land	$	556	$	—	$	556	$	18,470	$	19,026	$	—
Farmland		166		—		166		6,022		6,188		—
1‑4 residential & multi-family		429		—		429		155,065		155,494		—
Commercial real estate		—		—		—		33,227		33,227		—
Agriculture		—		—		—		211		211		—
Commercial		63		—		63		6,682		6,745		—
Consumer and other		108		—		108		5,174		5,282		—
Total	$	1,322	$	—	$	1,322	$	224,851	$	226,173	$	—

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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


	December 31, 2021
											Recorded
			90 Days								Investment
	30‑89 Days		and		Total				Total		> 90 Days and
	Past Due		Greater		Past Due		Current		Loans		Still Accruing
Real estate
Construction and land	$	1,620	$	—	$	1,620	$	16,030	$	17,650	$	—
Farmland		—		—		—		6,442		6,442		—
1‑4 residential & multi-family		305		—		305		153,863		154,168		—
Commercial real estate		—		—		—		31,686		31,686		—
Agriculture		—		—		—		234		234		—
Commercial		30		—		30		6,111		6,141		—
Consumer and other		19		—		19		5,519		5,538		—
Total	$	1,974	$	—	$	1,974	$	219,885	$	221,859	$	—

The following table sets forth information regarding the nonaccrual status within the loan and lease portfolio as of March 31, 2022 and December 31, 2021:


	March 31,		December 31,
	2022		2021
Real estate
Construction and land	$	—	$	—
Farmland		179		192
1‑4 residential & multi-family		691		768
Commercial real estate		119		123
Agriculture		—		—
Commercial		459		474
Consumer and other		—		33
Total	$	1,448	$	1,590

A loan is considered impaired when based on current information and events; it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans (nonaccrual loans), loans performing but with deterioration that leads to doubt regarding collectability and also includes loans modified in troubled debt restructurings when concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

All interest accrued but not collected for loans that are placed on nonaccrual or charged‐off is reversed against interest income. The interest on these loans is accounted for on the cash‐basis or cost‐recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. No interest income was recognized for loans on nonaccrual status for the three months ended March 31, 2022 and 2021.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

The following table presents interest income recognized on impaired loans for the three months ended March 31, 2022 and 2021:


	March 31,
	2022		2021
Real estate
1-4 residential & multi-family	$	2	$	2
Commercial real estate		13		15
Commercial		—		7
	$	15	$	24

The following table sets forth information regarding impaired loans as of March 31, 2022:


			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment		Balance		Allowance		Investment
With no related allowance
Real estate
Farmland	$	179	$	232	$	—	$	186
1‑4 residential & multi-family		896		943		—		937
Commercial real estate		120		123		—		122
Commercial		158		166		—		98

With a related allowance
Commercial		301		308		300		369

Total
Real estate
Farmland		179		232		—		186
1-4 residential & multi-family		896		943		—		937
Commercial real estate		120		123		—		122
Commercial		459		474		300		467
	$	1,654	$	1,772	$	300	$	1,712

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

The following table sets forth information regarding impaired loans as of December 31, 2021:


			Unpaid				Average
	Recorded		Principal		Related		Recorded
	Investment		Balance		Allowance		Investment
With no related allowance
Real estate
Farmland	$	192	$	240	$	—	$	96
1‑4 residential & multi-family		977		1,027		—		488
Commercial real estate		123		125		—		62
Commercial		37		42		—		19
Consumer and other		33		33		—		17

With a related allowance
Real estate
Commercial real estate		1,145		1,145		8		573
Commercial		437		442		300		219

Total
Real estate
Farmland		192		240		—		96
1-4 residential & multi-family		977		1,027		—		488
Commercial real estate		1,268		1,270		8		635
Commercial		474		484		300		238
Consumer and other		33		33		—		17
	$	2,944	$	3,054	$	308	$	1,474

During the three months ended March 31, 2022, there were no modifications resulting in troubled debt restructurings.

During the three months ended March 31, 2021, there were two modifications resulting in troubled debt restructurings totaling approximately $90. The first loan is a single-family mortgage loan with an outstanding balance of approximately $72 as of March 31, 2022 and a second loan is a commercial and industrial loan with an outstanding balance of approximately $18 as of March 31, 2022.

There have been no subsequently defaulted troubled debt restructurings. At March 31, 2022 and December 31, 2021, the Company had no commitments to loan additional funds to borrowers whose loans have been modified but may on occasion extend financing to these borrowers.

At March 31, 2022 and December 31, 2021, the Company had a recorded investment of $482 and $493, respectively, of troubled debt restructured loans. The Company has no current commitments to loan additional funds to the borrowers whose loans have been modified.

Note 4 - Off-Balance-Sheet Activities

The Company is a party to credit related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The Company’s

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments.

At March 31, 2022 and December 31, 2021, the following financial instruments were outstanding whose contract amounts represent credit risk:

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

The Company is party to an agreement with the Federal Reserve Bank of Boston that provides the Company with a federal funds line of credit in an amount tied to securities on deposit with that bank. The Company pays no fees for this line of credit and has not drawn upon it. The Company is party to agreements with its correspondent banks that provide the Company with lines for up to $15,000 federal funds line of credit to support overnight funding needs. The Company pays no fees for this line of credit and has not drawn upon it. The lines renew annually. At March 31, 2022, the Company had unused borrowing capacity of $106.3 million with the Federal Home Loan Bank of Dallas.

At March 31, 2022, the Company had no commitments to purchase securities.

The Company has no other off-balance-sheet arrangements or transactions with unconsolidated, special purpose entities that would expose the Company to liability that is not reflected on the face of the consolidated statements of financial condition.

Note 5 - Supplemental Cash Flow Information

Supplemental disclosure of cash flow information is as follows:


	March 31,
	2022		2021
Supplemental cash flow information:
Cash paid for
Interest on deposits	$	326	$	421
Interest on FHLB advances		145		161
Other interest		3		3
Income taxes		—		21

Note 6 - Minimum Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.

The Bank has opted into the Community Bank Leverage Ratio (CBLR) framework, beginning with the Call Report filed for the first quarter of 2020. At March 31, 2022 and December 31, 2021, the Bank’s CBLR ratio was 12.84% and 12.89%, respectively, which exceeded all regulatory capital requirements under the CBLR framework and the Bank was considered to be “well-capitalized.”

Under the CLBR framework, banks and their bank holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio (equal to tier 1 capital divided by average total consolidated assets) of greater than 9%, are eligible to opt into the CBLR framework. Qualifying community banking organizations that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules (generally applicable capital rules) and, if applicable, will be considered to have met the well-capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act. Accordingly, beginning January 1, 2022, qualifying community banking organizations that exceed the 9% CBLR will be considered to have met: (i) the generally applicable risk-based and leverage capital requirements of the generally applicable capital rules; (ii) the capital ratio requirements in order to be considered well-capitalized under the prompt corrective action framework; (iii) any other applicable capital or leverage requirements. A qualifying community banking organization that elects to be under the CBLR framework generally would be exempt from the current capital framework, including risk-based capital requirements and capital conservation buffer requirements.

On April 6, 2020, the federal banking regulators, implementing the applicable provisions of the CARES Act, issued interim rules which modified the CBLR framework so that: (i) beginning second quarter 2020 and until the end of the year, a banking organization that has a leverage ratio of 8% or greater and meets certain other criteria may elect to use the CBLR framework; and (ii) community banking organizations had until January 1, 2022 before the CBLR requirement is reestablished at greater than 9%. Under the interim rules, the minimum CBLR was 8% beginning in the second quarter of 2020 and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The interim rules also maintain a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 1% below the applicable community bank leverage ratio.

Note 7 - Fair Value Measurements

Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

Authoritative guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, authoritative guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

●

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

●

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

●

Level 3 Inputs – Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. There have been no changes in valuation techniques during either the three months ended March 31, 2022 or the year ended December 31, 2021.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market- based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Available for Sale Securities – Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U. S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the bond’s terms and conditions, among other things.

Impaired Loans – Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on internally customized discounting criteria.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

Foreclosed Assets – Fair values are valued at the time the loan is foreclosed upon and the asset is transferred from loans. The value is based upon primarily third-party appraisals, less estimated costs to sell. The appraisals are generally discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s business. Such discounts are typically significant and result in Level 3 classification of the inputs for determining fair value. Foreclosed assets are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same or similar factors above.

The following table summarizes financial assets measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	March 31, 2022
	Level 1		Level 2		Level 3		Total
	Inputs		Inputs		Inputs		Fair Value
Financial assets
Available for sale securities
Residential mortgage-backed	$	—	$	17,274	$	—	$	17,274
Collateralized mortgage obligations		—		10,287		—		10,287
State and municipal		—		13,892		—		13,892
Corporate bonds		—		4,363		—		4,363
U.S. Government and agency		—		18,162		—		18,162
Total financial assets	$	—	$	63,978	$	—	$	63,978


	December 31, 2021
	Level 1		Level 2		Level 3		Total
	Inputs		Inputs		Inputs		Fair Value
Financial assets
Available for sale securities
Residential mortgage-backed	$	—	$	18,785	$	—	$	18,785
Collateralized mortgage obligations		—		11,076		—		11,076
State and municipal		—		11,539		—		11,539
Corporate bonds		—		2,406		—		2,406
U.S. Government and agency		—		12,994		—		12,994
Total financial assets	$	—	$	56,800	$	—	$	56,800

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

The following table summarizes financial and non-financial assets measured at fair value on a nonrecurring basis as of March 31, 2022 and December 31, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	March 31, 2022
	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
Financial assets
Impaired loans	$	—	$	—	$	1	$	1
Nonfinancial assets
Foreclosed assets		—		—		209		209
	$	—	$	—	$	210	$	210


	December 31, 2021
	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
Financial assets
Impaired loans	$	—	$	—	$	1,274	$	1,274
Nonfinancial assets
Foreclosed assets		—		—		209		209
	$	—	$	—	$	1,483	$	1,483

During the three months ended March 31, 2022 and 2021, certain impaired loans were remeasured and reported at fair value through a specific allocation of the allowance for loan and lease losses based upon the fair value of the underlying collateral. At March 31, 2022, impaired loans with a carrying value of $301 were reduced by specific valuation allowance allocations totaling $300 to a reported fair value of $1. At December 31, 2021, impaired loans with a carrying value of $1,582 were reduced by specific valuation allowance allocations totaling $308 to a reported fair value of $1,274. The fair value of impaired loans is determined based on collateral valuations utilizing Level 3 valuation inputs. There was no charge to the provision for loan and lease losses as a result of the valuation allowances for the three months ended March 31, 2022 and 2021.

Quantitative Information About Significant Unobservable Inputs Used in Level 3 Fair Value Measurements – The following table represents the Company’s Level 3 financial assets, the valuation techniques used to measure the fair value of those financial assets, the significant unobservable inputs and the ranges of values for those inputs:


				Significant	Range of
	Fair Value at		Principal Valuation	Unobservable	Significant Input
Instrument	March 31, 2022		Technique	Inputs	Values

Impaired loans	$	1	Appraisal of collateral (1)	Appraisal adjustment	10-25	%

Foreclosed assets	$	209	Appraisal of collateral (1)	Appraisal adjustment	10-25	%

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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


				Significant	Range of
	Fair Value at		Principal Valuation	Unobservable	Significant Input
Instrument	December 31, 2021		Technique	Inputs	Values

Impaired loans	$	1,274	Appraisal of collateral (1)	Appraisal adjustment	10-25	%

Foreclosed assets	$	209	Appraisal of collateral (1)	Appraisal adjustment	10-25	%

(1)	Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows:


	March 31, 2022
	Level 1		Level 2		Level 3		Total		Total
	Inputs		Inputs		Inputs		Fair Value		Carrying Value
Financial assets
Cash and cash equivalents	$	25,570	$	—	$	—	$	25,570	$	25,570
Interest bearing deposits in banks		5,335		—		—		5,335		5,335
Securities held to maturity		—		30,084		—		30,084		31,530
Loans, net		—		—		225,029		225,029		224,469
Net investment in direct financing leases		—		—		94		94		94
Interest receivable		904		—		—		904		904
Restricted investments carried at cost		—		2,040		—		2,040		2,040
Mortgage servicing rights		—		—		8		8		8
Financial liabilities
Deposits		—		—		281,327		281,327		281,676
FHLB advances		—		—		26,687		26,687		27,053
Interest payable		112		—		—		112		112


	December 31, 2021
	Level 1		Level 2		Level 3		Total		Total
	Inputs		Inputs		Inputs		Fair Value		Carrying Value
Financial assets
Cash and cash equivalents	$	21,915	$	—	$	—	$	21,915	$	21,915
Interest bearing deposits in banks		14,955		—		—		14,955		14,955
Securities held to maturity		—		33,673		—		33,673		33,682
Loans, net		—		—		224,354		224,354		220,162
Net investment in direct financing leases		—		—		105		105		105
Interest receivable		931		—		—		931		931
Restricted investments carried at cost		—		2,037		—		2,037		2,037
Mortgage servicing rights		—		—		8		8		8
Financial liabilities
Deposits		—		—		274,995		274,995		274,933
FHLB advances		—		—		28,259		28,259		27,571
Interest payable		128		—		—		128		128

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash and cash equivalents and interest-bearing deposits in banks – The carrying value approximates their fair values.

Securities held to maturity – Fair values for investment securities are based on quoted market prices or whose value is determined using discounted cash flow methodologies.

Loans and net investment in direct financing leases – The fair values for loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms and credit quality.

Interest receivable – The carrying value approximates its fair value.

Restricted investments carried at cost – The carrying value of these investments approximates fair value based on the redemption provisions contained in each.

Mortgage servicing rights – Fair values are estimated using discounted cash flows based on current market rates of interest.

Deposits – The fair values disclosed for demand deposits (for example, interest and noninterest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits.

FHLB advances – Current market rates for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.

Interest payable – The carrying value approximates the fair value.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

Note 8 - Employee Stock Ownership Plan

In connection with the conversion to an entity owned by shareholders, the Company established an Employee Stock Ownership Plan for the exclusive benefit of eligible employees. The ESOP borrowed funds from the Company in an amount sufficient to purchase 260,621shares (approximately 8.0% of the common stock issued in connection with the Conversion). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Company and dividends received by the ESOP. Contributions will be applied to repay interest on the loan first, and then the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 20 years.

Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid. Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation. Participants will vest in their accrued benefits determined by the years of service for vesting purposes. Vesting is accelerated upon retirement, death or disability of the participant, or a change in control of the Company or the Bank. Forfeitures will be reallocated to remaining participants. Benefits may be payable upon retirement, death, disability, separation of service, or termination of the ESOP.

The debt of the ESOP is eliminated in consolidation. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from collateral, the Company reports the compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends on unallocated ESOP shares, if any, are recorded as a reduction of debt and accrued interest. ESOP compensation was $51 for the three months ended March 31, 2022.

A summary of the ESOP shares are as follows:


	March 31,		December 31,
	2022		2021
Shares allocated to participants		13,031		—
Shares committed to be released to participants		3,258		13,031
Unreleased shares		244,332		247,590
Total		260,621		260,621
Fair value of unreleased shares	$	4,637	$	3,838

Note 9 - Recently Issued But Not Yet Effective Accounting Pronouncements

Accounting Standards Update (ASU) 2016‐13, “Financial Instruments ‐ Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016‐13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. ASU 2016‐13 is effective for the Company on January 1, 2023. The Company has approved a third-party vendor recommended by the Current Expected Credit Losses (“CECL”) team. Management will begin working with them to provide, review and update loan data for use in the model during the quarter ending June 30, 2022, as well as re-evaluating the Company’s internal and external factors, including economic and peer data, with the goal of beginning parallel runs using the new CECL model and the current allowance for loan and lease losses model

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2022 and 2021

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

simultaneously as soon as all systems are in place. Once parallel runs are in place management can evaluate how this methodology change will impact the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) which provides temporary optional expedients to ease the financial reporting burdens of the expected market transition from London Interbank Offered Rate (“LIBOR”) to an alternative reference rate such as Secured Overnight Financing Rate (“SOFR”). The guidance was effective upon issuance and generally can be applied through December 31, 2022. ASU No. 2020-04 has not had and is not expected to have a significant impact on the Company’s consolidated financial statements. In January 2021, the FASB issued ASU No. 2021-01 Reference Rate Reform (Topic 848), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU No. 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. ASU 2021-01 has not had and is not expected to have a significant impact on the Company’s consolidated financial statements.

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

General

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding Texas Community Bancshares, Inc.’s (“the Company”) consolidated financial condition at March 31, 2022 and consolidated results of operations for the three months ended March 31, 2022 and 2021. It should be read in conjunction with the unaudited consolidated financial statements and the related notes appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “would,” “should,” “could” or “may,” and words of similar meaning. These forward-looking statements include, but are not limited to:

●

statements of our goals, intentions and expectations;

●

statements regarding our business plans, prospects, growth and operating strategies;

●

statements regarding the quality of our loan and investment portfolios; and

●

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

●

conditions relating to the COVID-19 pandemic, including the severity, scope and duration of the associated economic slowdown either nationally or in our market areas, that are worse than expected;

●

government action in response to the COVID-19 pandemic and its effects on our business and operations;

●

general economic conditions, either nationally or in our market areas, that are worse than expected;

●

changes in yields on our assets resulting from changes in market interest rates;

●

fluctuation in the demand for construction loans in our market area due to increased cost of building materials and their availability;

●

changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan and lease losses;

●

estimated costs and provisions associated with the implementation of the Current Expected Credit Losses (CECL) methodology, the new standard for estimating the allowance for loan and lease losses, being greater than anticipated;

●

risks related to a high concentration of loans secured by real estate located in our market area;

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●

our ability to control costs when hiring employees in a highly competitive environment;

●

our ability to control cost and expenses, particularly those associated with operating a publicly traded company;

●

our ability to access cost-effective funding;

●

fluctuations in real estate values and both residential and commercial real estate market conditions;

●

demand for loans and deposits in our market area;

●

our ability to implement and change our business strategies;

●

competition among depository and other financial institutions;

●

inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, including our mortgage servicing rights asset, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;

●

adverse changes in the securities or secondary mortgage markets;

●

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;

●

changes in the quality or composition of our loan or investment portfolios;

●

technological changes that may be more difficult or expensive than expected;

●

the inability of third-party providers to perform as expected;

●

a failure or breach of our operational or security systems or infrastructure, including cyberattacks;

●

our ability to manage market risk, credit risk and operational risk;

●

our ability to enter new markets successfully and capitalize on growth opportunities;

●

changes in consumer spending, borrowing and savings habits;

●

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

●

changes in our compensation and benefit plans, and our ability to retain key members of our senior management team and to address staffing needs in response to product demand or strategic plan implementation

●

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

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Summary of Critical Accounting Policies; Critical Accounting Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The Jumpstart Our Business Startups Act of 2012 (JOBS Act) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. However, we have determined not to take advantage of the benefits of this extended transition period.

The following represent our critical accounting policies:

Allowance for Loan and Lease Losses. The allowance for loan and lease losses is a reserve for estimated probable credit losses on individually evaluated loans determined to be impaired as well as estimated probable credit losses inherent in the loan portfolio. Actual credit losses, net of recoveries, are deducted from the allowance for loan and lease losses. Loans are charged off when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance for loan and lease losses. A provision for loan and lease losses, which is a charge against earnings, is recorded to bring the allowance for loan and lease losses to a level that, in management’s judgment, is adequate to absorb probable losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the allowance for loan and lease losses is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect probable credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated loan and lease losses and therefore the appropriateness of the allowance for loan and lease losses could change significantly.

The allocation methodology applied by the Company is designed to assess the appropriateness of the allowance for loan and lease losses and includes allocations for specifically identified impaired loans and loss factor allocations for all remaining loans, with a component primarily based on historical loss rates and a component primarily based on other qualitative factors. The methodology includes evaluation and consideration of several factors, such as, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or circumstances underlying the collectability of loans. Because each of the criteria used is subject to change, the allocation of the allowance for loan and lease losses is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular loan category. The total allowance is available to absorb losses from any segment of the loan portfolio. Management believes the allowance for loan and lease losses was adequate at March 31, 2022 and December 31, 2021. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements. In addition, various regulatory agencies periodically review the allowance for loan and lease losses. As a result of such reviews, we may have to adjust our allowance for loan and lease losses. However, regulatory agencies are not directly involved in the process of establishing the allowance for loan and lease losses as the process is the responsibility of the Company and any increase or decrease in the allowance is the responsibility of management.

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Income Taxes. The assessment of income tax assets and liabilities involves the use of estimates, assumptions, interpretation, and judgment concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be significant to the results of operations and reported earnings.

The Company files consolidated federal income tax returns with its subsidiaries. Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax law rates applicable to the periods in which the differences are expected to affect taxable income. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income tax expense. Valuation allowances are established when it is more likely than not that a portion of the full amount of the deferred tax asset will not be realized. In assessing the ability to realize deferred tax assets, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. We may also recognize a liability for unrecognized tax benefits from uncertain tax positions. Unrecognized tax benefits represent the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured in the consolidated financial statements. Penalties related to unrecognized tax benefits are classified as income tax expense.

Comparison of Financial Condition at March 31, 2022 and December 31, 2021

Total Assets. Total assets were $369.0 million at March 31, 2022, an increase of $4.2 million, or 1.2%, from $364.8 million at December 31, 2021. The increase was due primarily to increases in net loans of $4.3 million, or 2.0%, from $220.3 million at December 31, 2021 to $224.6 million at March 31, 2022.

Cash and Cash Equivalents. Cash and cash equivalents increased $3.7 million, or 16.9%, to $25.6 million (which includes fed funds sold of $19.7 million) at March 31, 2022 from $21.9 million (which includes fed funds sold of $16.3 million) at December 31, 2021. This increase is primarily due to an increase in deposits of $6.8 million, partially offset by loan funding.

Interest Bearing Deposits in Banks. Interest bearing deposits in banks were $5.3 million at March 31, 2022 compared to $15.0 million at December 31, 2021, a decrease of $9.7 million, or 64.7%. The decrease was due primarily to an increase in securities of $5.1 million and loans of $4.3 million.

Securities Available for Sale. Securities available for sale increased by $7.2 million, or 12.7%, to $64.0 million at March 31, 2022 from $56.8 million at December 31, 2021. The increase in securities for the quarter included the investment of $11.5 million in available for sale securities, including purchases of $6.0 million in U.S. Government debt securities, $3.3 million in municipals, and $2.2 million in corporate bonds, partially reduced by paydowns of $1.1 million, and unrealized losses on the available for sale portfolio of $3.2 million due primarily to the increase in market interest rates during the period.

Securities Held to Maturity. Securities held to maturity decreased by $2.1 million, or 6.2%, to $31.6 million at March 31, 2022 from $33.7 million at December 31, 2021. This decrease is due primarily to principal repayments of $1.7 million and one municipal security totaling $365,000 being called.

Loans and Leases Receivable, Net. Loans and leases receivable, net, increased $4.3 million, or 2.0%, to $224.6 million at March 31, 2022 from $220.3 million at December 31, 2021. Loans secured by residential real estate and farmland comprise $161.7, or 71.5% of the net loans at March 31, 2022. During the three months ended March 31, 2022, loan originations totaled $31.0 million of which $3.9 million were renewals or refinancings of existing loans with Mineola Community Bank, resulting in originations of new loans of $27.1 million. Originations consisted primarily of $11.4 million in one- to-four family residential mortgage loans, $11.8 million of residential construction loans (upon completion), including speculative construction loans of $4.9 million, $4.2 million in commercial real estate loans, $964,000 in consumer loans, $1.6 million in commercial and industrial loans, $676,000 in land & development loans,

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and $406,000 in farmland loans. During the three months ended March 31, 2022, there were $3.4 million in loan principal paydowns and $16.4 million in loan payoffs. PPP loans have paid down to 3 loans totaling $9,000 at March 31, 2022. During the three months ended March 31, 2022, construction loans in process increased by $6.1 million to $29.4 million at March 31, 2022 from $23.3 million at December 31, 2021. Construction loans continue to be a large segment of our portfolio which is a reflection of the strong housing demand in our primary market area.

Deposits. Deposits increased $6.8 million, or 2.5%, to $281.7 million at March 31, 2022 from $274.9 million at December 31, 2021. Core deposits (defined as all deposits other than certificates of deposit) increased $8.5 million, or 4.2%, to $210.9 million at March 31, 2022 from $202.4 million at December 31, 2021. Certificates of deposit decreased $1.9 million, or 2.6%, to $70.7 million at March 31, 2022 from $72.6 million at December 31, 2021. At March 31, 2022, there were no brokered deposits.

Advances from Federal Home Loan Bank. Advances from Federal Home Loan Bank decreased by $518,000 or 1.9%, to $27.1 million at March 31, 2022 from $27.6 million at December 31, 2021 due to scheduled monthly payments of principal on amortizing advances.

Total Shareholders’ Equity. Total shareholders’ equity decreased $2.0 million, or 3.3%, to $58.1 million at March 31, 2022 from $60.1 million at December 31, 2021. This decrease was primarily due to a $2.5 million, or 364.1%, change in accumulated other comprehensive loss representing decreases in the fair value of available for sale securities resulting primarily from rising market interest rates. At March 31, 2022, this unrealized loss was $3.2 million, compared to $686,000 at December 31, 2021, partially offset by net income of $391,000 for the three months ended March 31, 2022. An additional $51,000 was added to shareholders’ equity with the commitment to release 3,258 additional ESOP shares to participants.

At March 31, 2022, Mineola Community Bank opted to use the community bank leverage ratio framework (Tier 1 capital to average assets) for regulatory capital purposes, as permitted by the CARES Act. At March 31, 2022, a community bank leverage ratio of at least 9.0% is required to be considered “well capitalized” under regulatory requirements. At March 31, 2022, Mineola Community Bank was well capitalized and had a ratio of 12.84%

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Average Balance Sheets

The following table sets forth average consolidated statements of financial condition, average yields and costs, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans are included in the computation of average balances. Average yields for loans (excluding PPP loans) include loan fees of $112,000 and $134,000 for the three months ended March 31, 2022 and 2021, respectively. No PPP loans were originated during the three months ended March 31, 2022 or 2021. We have not recorded deferred loan fees, as we have determined them to be immaterial.


	For the Three Months Ended March 31,
	2022						2021
	Average						Average
	Outstanding				Average		Outstanding				Average
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate

	(Dollars in thousands)
	(Unaudited)
Interest-earning assets:
Loans (excluding PPP loans)	$	223,898	$	2,374	4.24	%	$	212,114	$	2,397	4.52	%
Allowance for loan and lease losses		(1,593)						(1,562)
PPP loans		11		—	—	%		1,367		4	1.17	%
Securities		94,207		373	1.58	%		47,761		178	1.48	%
Restricted stock		2,037		5	0.98	%		2,023		4	0.79	%
Interest-bearing deposits in banks		8,630		6	0.28	%		21,601		20	0.37	%
Federal funds sold		18,617		9	0.19	%		3,258		—	0.12	%
Total interest-earning assets		345,807		2,767	3.20	%		286,562		2,603	3.63	%
Noninterest-earning assets		20,965						20,976
Total assets	$	366,772					$	307,538

Interest-bearing liabilities:
Interest-bearing demand deposits	$	74,143		61	0.33	%	$	62,055		54	0.35	%
Regular savings and other deposits		79,151		71	0.36	%		63,376		60	0.38	%
Money market deposits		11,403		8	0.28	%		9,850		11	0.45	%
Certificates of deposit		71,665		171	0.95	%		75,771		276	1.46	%
Total interest-bearing deposits		236,362		311	0.53	%		211,052		401	0.76	%
Advances from FHLB		27,236		144	2.11	%		30,407		160	2.10	%
Other liabilities		459		3	2.35	%		412		3	2.91	%
Total interest-bearing liabilities		264,057		458	0.69	%		241,871		564	0.93	%
Noninterest-bearing demand deposits		53,276						30,939
Other noninterest-bearing liabilities		3,205						2,620
Total liabilities		320,538						275,430
Total shareholders’ and members' equity		46,234						32,108
Total liabilities and shareholders' and members’ equity	$	366,772					$	307,538
Net interest income			$	2,309					$	2,039
Net interest rate spread ⁽¹⁾					2.51	%					2.70	%
Net interest-earning assets ⁽²⁾	$	81,750					$	44,691
Net interest margin ⁽³⁾					2.67	%					2.85	%
Average interest-earning assets to interest-bearing liabilities					130.96	%					118.48	%

(1)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(2)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3)	Net interest margin represents net interest income divided by average total interest-earning assets.

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Comparison of the Operating Results for the Three Months Ended March 31, 2022 and March 31, 2021

Net Income. Net income was $391,000 for the three months ended March 31, 2022, compared to net income of $242,000 for the three months ended March 31, 2021, an increase of $149,000, or 61.6%. The increase was primarily due to a $270,000 increase in net interest income and a $70,000 increase in noninterest income, partially offset by a $115,000 increase in noninterest expense, a $38,000 increase in the provision for loan and lease losses and an increase in income tax expense of $38,000.

Interest Income. Interest income increased at $164,000, or 6.3%, for the three months ended March 31, 2022. This was primarily the result of increased interest income on securities and fed funds due primarily to the investment of proceeds from the Conversion, but was offset by a decrease in loan interest income of $23,000 due to decreased loan yield.

Interest income on loans was $2.4 million for the three months ended March 31, 2022 and 2021. Loan interest income remained flat with an $11.8 million, or 5.6%, increase in average loans from $212.1 million at March 31, 2021 to $223.9 million at March 31, 2022 being offset by a 28 basis point, or 6.2%, decrease in loan yield to 4.24% for the three months ended March 31, 2022 from 4.52% for the three months ended March 31, 2021.

Interest income on securities increased $195,000, or 109.6%, from $178,000 for the three months ended March 31, 2021 to $373,000 for the three months ended March 31, 2022. This increase resulted from an increase of 10 basis points, or 6.8%, in yield from 1.48% for the three months ended March 31, 2021 to 1.58% for the three months ended March 31, 2022 and an increase in average securities of $46.4 million, or 97.1 %, from $47.8 million for the three months ended March 31, 2021 to $94.2 million for the three months ended March 31, 2022. The rate increase is reflective of the beginning of market rate increases and the diversification of our securities portfolio as we continue to invest Conversion proceeds into higher yielding investments.

Interest income from interest bearing deposits in banks declined $14,000, or 70.0%, from $20,000 for the three months ended March 31, 2021 to $6,000 for the three months ended March 31, 2022. This decline resulted from a decrease of nine basis points, or 24.9%, in average yield from 0.37% for the three months ended March 31, 2021 to 0.28% for the three months ended March 31, 2022, combined with a $13.0 million, or 60%, decrease in average deposits in banks from $21.6 million for the three months ended March 31, 2021 to $8.6 million for the three months ended March 31, 2022. There was also an increase of $9,000 in fed funds interest for the three months ended March 31, 2022 primarily from an increase of seven basis points, or 57.5%, in average yield on fed funds from 0.12% for the three months ended March 31, 2021 to 0.19% for the three months ended March 31, 2022, and a $15.3 million, or 463.6%, increase in average fed funds from $3.3 million for the three months ended March 31, 2021 to $18.6 million for the three months ended March 31, 2022. This increase is reflective of the increase in the fed funds market rate. Average interest earning assets increased by $59.2 million, or 20.7%, from $286.6 million at March 31, 2021 to $345.8 million at March 31, 2022, which was offset by a decrease in the yield on interest earning assets of 43 basis points, or 11.9%, from 3.63% on March 31, 2021 to 3.20% on March 31, 2022.

Interest Expense. Total interest expense decreased $106,000, or 18.8%, to $458,000 for the three months ended March 31, 2022 from $564,000 for the three months ended March 31, 2021 due to a decrease in the average cost of interest-bearing liabilities of 24 basis points, or 25.6 %, from 0.93% for the three months ended March 31, 2021 to 0.69% for the three months ended March 31, 2022, primarily due to a decrease in deposit costs. Interest expense on deposit accounts decreased $90,000, or 22.4%, to $311,000 for three months ended March 31, 2022 from $401,000 for the three months ended March 31, 2021, due to a decrease in the average deposit cost of 23 basis points, or 30.7%, from 0.76% for the three months ended March 31, 2021 to 0.53% for the three months ended March 31, 2022, primarily the result of an overall decrease in market interest rates. This was partially offset by an increase of $25.3 million, or 12.0%, in the average deposit account balances from $211.1 million for the three months ended March 31, 2021 to $236.4 million for the three months ended March 31, 2022, with the increase being in lower cost interest-bearing transaction accounts.

Interest expense on Federal Home Loan Bank advances decreased $16,000, or 10.0%, to $144,000 for the three months ended March 31, 2022 from $160,000 for the three months ended March 31, 2021. This decrease was due

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primarily to the decrease in the average balance of Federal Home Loan Bank advances of $3.2 million, or 10.4%, to $27.2 million for the three months ended March 31, 2022 from $30.4 million for the three months ended March 31, 2021. The average rate was flat at 2.11% for the three months ended March 31, 2022 and 2.10% for the three months ended March 31, 2021.

Net Interest Income. Net interest income increased $270,000, or 13.2%, to $2.3 million for the three months ended March 31, 2022 from $2.0 million for the three months ended March 31, 2021 primarily due to a decrease in the average cost of funds of 24 basis points, or 25.6%, from 0.93% for the three months ended March 31, 2021 to 0.69% for the three months ended March 31, 2022 combined with an increase in the average balance of net interest-earning assets from $44.7 million for the three months ended March 31, 2021 to $81.7 million for the three months ended March 31, 2022, which offset a 19 basis point, or 7.2%, decrease in the net interest rate spread from 2.70% for the three months ended March 31, 2021 to 2.51% for the three months ended March 31, 2022. Net interest margin decreased 18 basis points, or 6.2%, to 2.67% for the three months ended March 31, 2022 from 2.85% for the three months ended March 31, 2021.

Provision for Loan and Lease Losses. Based on management’s analysis of the adequacy of the allowance for loan and lease losses, the provision for loan and lease losses was $40,000 for the three months ended March 31, 2022, compared to $2,000 for the three months ended March 31, 2021, an increase of $38,000, primarily due to an increase in loan volume.

Noninterest Income. Noninterest income decreased $70,000, or 18.3%, to $453,000 for the three months ended March 31, 2022 from $383,000 for the three months ended March 31, 2021, due primarily to an increase of $68,000, or 19.3%, in service charges and fees from $353,000 for the three months ended March 31, 2021 to $421,000 for the three months ended March 31, 2022. The increase is partially due to an increase in the number of deposit accounts combined with increased ATM use.

Noninterest Expense. Noninterest expense increased $115,000, or 5.4%, to $2.2 million for the three months ended March 31, 2022 from $2.1 million for the three months ended March 31, 2021 primarily due to increases in salaries and employee benefits, director fees and other expenses partially offset by decreases in contract services and data processing.

Salary and employee benefit expenses increased by $132,000, or 10.7%, to $1.4 million for the three months ended March 31, 2022 from $1.2 million for the three months ended March 31, 2021, due to normal salary increases and an increase in health insurance cost, as well as the additional $51,000 expense for the quarter for the ESOP plan that was not in existence in 2021. Directors’ fees also increased $21,000, or 28.0%, to $96,000 for the three months ended March 31, 2022 from $75,000 for the three months ended March 31, 2021 due to the addition of four new directors and two new advisory directors. These increases were partially offset by decreases in data processing, contract services and other expenses. These expenses were higher in the three months ended March 31, 2021 due partially to additional expenses related to the Conversion.

Income Tax Expense. Income tax expense increased by $38,000, or 76.0%, to $88,000 for the three months ended March 31, 2022 from $50,000 for the three months ended March 31, 2021, primarily due to higher income before taxes. The effective tax rate was 18.4% and 17.1% for the three months ended March 31, 2022 and 2021, respectively.

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Federal Reserve Bank of Boston provides the Company with a federal funds line of credit. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the Federal Home Loan Bank of Dallas. At March 31, 2022, we had outstanding advances of $27.1 million from the Federal Home Loan Bank of Dallas. At March 31, 2022, we had unused borrowing capacity of $106.3 million with the Federal Home Loan Bank of Dallas. In addition,

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at March 31, 2022, we had a $10.0 million line of credit with Texas Independent Bankers Bank and a $5.0 million line of credit with First Horizon Bank. At March 31, 2022, there was no outstanding balance under either of these facilities.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. For additional information, see the consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 included as part of the consolidated financial statements included in this report.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

Texas Community Bancshares, Inc. is a separate legal entity from Mineola Community Bank, and must provide for its own liquidity to pay its operating expenses and other financial obligations. Its primary source of income is dividends received from Mineola Community Bank. The amount of dividends that Mineola Community Bank may declare and pay to Texas Community Bancshares, Inc. is governed by applicable banking laws and regulations. At March 31, 2022, Texas Community Bancshares, Inc. (on a stand-alone, unconsolidated basis) had liquid assets of $13.4 million.

At March 31, 2022, Mineola Community Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category.

Management of Market Risk

General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Risk Management and Interest Rate Risk Management Officer is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors. We currently utilize a third-party modeling program, prepared on a monthly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk:

●

maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations;

●

maintaining a high level of liquidity;

●

growing our volume of core deposit accounts;

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●

managing our investment securities portfolio so as to reduce the average maturity and effective life of the portfolio;

●

managing our borrowings from the Federal Home Loan Bank of Dallas by using amortizing advances to as to reduce the average maturities of the borrowings; and

●

continuing to diversify our loan portfolio by adding more commercial-related loans, which typically have shorter maturities and/or balloon payments.

By following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates.

We have not engaged in hedging activities, such as engaging in futures or options. We do not anticipate entering into similar transactions in the future.

Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by 200 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.

The tables below set forth the calculation of the estimated changes in our monthly net interest income that would result from the designated immediate changes in the United States Treasury yield curve.


At March 31, 2022
Change in Interest Rates	Net Interest Income Year		Year 1 Change from
(basis points) ⁽¹⁾	1 Forecast		Level
(Dollars in thousands)
400	$	7,800	(11.96)	%
300		8,120	(8.34)	%
200		8,441	(4.72)	%
100		8,690	(1.91)	%
Level		8,859	—
(100)		9,031	1.94	%
(200)		8,983	1.39	%

(1)	Assumes an immediate uniform change in interest rates at all maturities.

The table above indicates that at March 31, 2022, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 4.72% decrease in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 1.39% increase in net interest income.

Net Economic Value. We also compute amounts by which the net present value of our assets and liabilities (net economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by 200 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

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The table below sets forth the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.


At March 31, 2022
							EVE as a Percentage of
							Present Value of Assets ⁽³⁾
			Estimated Increase						Increase
Change in Interest	Estimated		(Decrease) in EVE						(Decrease)
Rates (basis points) ⁽¹⁾	EVE ⁽²⁾		Amount		Percent		EVE Ratio ⁽⁴⁾		(basis points)
(Dollars in thousands)
400	$	56,665	$	(11,313)	(16.64)	%	17.58	%	(88)
300		60,249		(7,729)	(11.37)	%	18.04	%	(42)
200		63,870		(4,108)	(6.04)	%	18.45	%	(1)
100		66,756		(1,222)	(1.80)	%	18.65	%	19
Level		67,978		—	—	%	18.46	%	—
(100)		69,311		1,333	1.96	%	18.21	%	(25)
(200)		68,036		58	0.09	%	17.43	%	(103)

(1)	Assumes an immediate uniform change in interest rates at all maturities.

(2)	EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3)	Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)	EVE Ratio represents EVE divided by the present value of assets.

The table above indicates that at March 31, 2022, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 6.04% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 0.09% increase in EVE.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The net interest income and net economic value tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ.

Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, mortgage servicing rights, deposits and borrowings.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

See “Management of Market Risk” in Item 2 above.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2022. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2022.

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During the quarter ended March 31, 2022, there were no changes in the Company’s internal controls over financial reporting that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not involved in any pending legal proceedings as a plaintiff or a defendant other than routine legal proceedings occurring in the ordinary course of business. At March 31, 2022, we were not involved in any legal proceedings the outcome of which we believe would be material to our consolidated financial condition or results of operations.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed under the heading “Risk Factors” contained in the Prospectus. The Company believes that the risk factors applicable to it have not changed materially from those disclosed in the Prospectus.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits


Exhibit
Number		Description

3.1		Articles of Incorporation of Texas Community Bancshares, Inc. ⁽¹⁾

3.2		Amended and Restated Bylaws of Texas Community Bancshares, Inc. ⁽²⁾

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials for the quarter ended March 31, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Shareholders’ and Members’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

(1)	Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-254053), as filed on March 9, 2021.

(2)	Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (Commission File No. 001-40610), as filed on January 26, 2022.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		TEXAS COMMUNITY BANCSHARES, INC.


Date: May 13, 2022		/s/ James H Herlocker, III
		James H. Herlocker, III
		Chairman, President and Chief Executive Officer


Date: May 13, 2022		/s/ Julie Sharff
		Julie Sharff
		Chief Financial Officer