Texas Community Bancshares, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are with December 31, 2020 unless stated otherwise. Texas Community Bancshares was the proposed holding company for Mineola Community Bank. The conversion had not been completed as of quarter-end, and the registrant had no assets, liabilities, or business activity beyond organization. The reported financial results are for Mineola Community Mutual Holding Company and its subsidiaries, including the Bank.
Financial results and position
- Profit: Net income was $242,539, down 8.3% from $264,372 in Q1 2020. The filing’s MD&A describes the decline as 8.0%. Income before taxes was $291,108.
- Revenue and margins: Net interest income rose 5.2% to $2.039 million; the provision for loan and lease losses was $1,931. Net interest margin declined to 2.85% from 3.11%, and net interest rate spread fell to 2.70% from 2.91%. Total noninterest income was $382,977, down 3.6%; noninterest expense was $2.129 million, up 5.6%.
- Drivers: Lower funding costs helped net interest income, while lower yields on securities and bank deposits weighed on interest income. Loan interest income increased 7.6%, supported by a higher average loan balance, despite a lower average loan yield. Higher salaries, data processing, and director fees contributed to expense growth.
- Assets and loans: Total assets increased 5.6% to $316.5 million. Net loans and leases were $212.3 million, down about $0.9 million from year-end; the portfolio was heavily concentrated in real estate. Cash and cash equivalents were $19.2 million, and interest-bearing bank deposits were $21.0 million.
- Funding, debt, and equity: Deposits increased 7.4% to $252.6 million, mainly from growth in core deposits; there were no brokered deposits. FHLB advances decreased to $30.2 million. Members’ equity was $31.8 million, down 0.6%, including $402,887 of conversion costs.
- Cash flow: Operating activities provided $894,658; investing activities used $6.214 million; financing activities provided $16.456 million. Cash and cash equivalents increased $11.137 million to $19.210 million, primarily reflecting deposit growth.
- Capital and liquidity: The Bank’s community bank leverage ratio was 10.10% at March 31, compared with 10.49% at year-end, and the Bank was categorized as well-capitalized. It reported $83.9 million of unused FHLB borrowing capacity and unused credit lines of $10 million and $5 million. Management said it expected sufficient funds to meet current funding commitments.
Material changes and credit quality
- Deposits rose $17.4 million during the quarter; management attributed growth primarily to customer cash balances, including tax refunds and COVID-19 relief payments. Certificates of deposit declined $454,000.
- Available-for-sale securities fell to $11.8 million, while held-to-maturity securities rose to $35.5 million. The Bank purchased $6.2 million of held-to-maturity securities. Management attributed unrealized securities losses mainly to interest-rate and prepayment changes, not credit quality, and reported no securities as other-than-temporarily impaired.
- Allowance for loan and lease losses was $1.562 million, essentially unchanged from year-end. Nonperforming loans were $962,000, up from $873,000; loans 90 days or more past due but still accruing were nil. The filing reported two Q1 troubled debt restructurings totaling approximately $90,000 and no subsequent defaults among modified loans.
- PPP loans originated totaled $5.484 million; $4.590 million had been forgiven by March 31, leaving approximately $895,000 outstanding. The filing says $3,568 of PPP loan fees were recognized in Q1 interest income.
Outlook, risks, and unusual items
- The filing gives no quantified earnings or revenue guidance. Management said it anticipated sufficient funding and expected a significant portion of maturing time deposits to be retained.
- Management highlighted interest-rate, credit, liquidity, economic, real-estate, competitive, regulatory, technology, cybersecurity, and third-party risks, as well as uncertainty related to COVID-19. Forward-looking statements are subject to these and other uncertainties.
- Interest-rate modeling estimated that an instantaneous 200-basis-point increase would reduce projected one-year net interest income by 0.21% and economic value of equity by 3.26%; a 200-basis-point decrease was estimated to reduce them by 0.05% and 1.7%, respectively. The filing cautions that actual results may differ from model assumptions.
- The planned mutual-to-stock conversion and offering were pending at quarter-end. If not completed, capitalized conversion costs would be expensed. The filing also states that no shares of Texas Community Bancshares common stock were issued and outstanding as of June 25, 2021.
- No material legal proceedings were reported. Management stated that risk factors had not changed materially from those in the prospectus. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the conversion and offering status, use of proceeds, and treatment of the $402,887 in conversion costs.
- Track whether deposit growth driven partly by temporary stimulus-related cash balances persists, and how funding costs respond as balances change.
- Assess the real-estate concentration, changes in criticized or nonperforming loans, troubled debt restructurings, and adequacy of the allowance.
- Monitor net interest margin and sensitivity to changing rates, including the assumptions and limitations of the Bank’s models.
- Reconcile the subsequent public-company share count and capital structure with the filing’s statement that no common shares were outstanding as of June 25, 2021.