What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-30 compared with 2022-03-23 · 320 added, 193 removed, 1041 unchanged (33% of the section changed)

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 686 )

Shareholders, Board of Directors and Audit Committee

20 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

/s/ BKD , LLP

/s/ FORVIS , LLP

We have served as the Company's auditor since 2020.

15 unchanged sentences

Accrued interest receivable

Premises and equipment

Premises and equipment, net

Bank-owned life insurance

4 unchanged sentences

Deferred income taxes

Liabilities and Shareholders' and Members' Equity

Liabilities and Shareholders' Equity

Noninterest bearing

1 unchanged sentence

Total deposits

Advances from Federal Home Loan Bank

Advances from Federal Home Loan Bank (FHLB)

Accrued expenses and other liabilities

Total liabilities

Shareholders' and Members' Equity

Preferred stock, $ 0.01 par value, 1,000,000 shares authorized, no ne issued and outstanding at December 31, 2021

Common stock, $ 0.01 par value, 19,000,000 shares authorized, 3,257,759 shares issued and outstanding at December 31, 2021

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, 3,296,843 and 3,257,759 shares issued and outstanding at December 31, 2022 and 2021, respectively

Additional paid in capital

Retained earnings

Accumulated other comprehensive (loss) income

Unearned Employee Stock Ownership Program ("ESOP") shares, at cost

Total shareholders' and members' equity

Accumulated other comprehensive loss

Unearned Employee Stock Ownership Program (ESOP) shares, at cost

Total shareholders' equity

See Notes to Consolidated Financial Statements

12 unchanged sentences

Interest Expense

Advances from Federal Home Loan Bank

Advances from FHLB

Total interest expense

5 unchanged sentences

Other service charges and fees

Net gain (loss) on securities transactions

Net gain on sale of foreclosed assets

Net gain on sale of fixed assets

Net appreciation on bank-owned life insurance

17 unchanged sentences

and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statements of Comprehensive Loss

Years Ended December 31, 2022 and 2021

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

Other items of comprehensive (loss) income

Unrealized (depreciation) appreciation on investment securities available for sale, before tax

Total other items of comprehensive (loss) income

Comprehensive (Loss) Income Before Tax

Income tax benefit (expense) related to other items of comprehensive (loss) income

Comprehensive (Loss) Income

Other items of comprehensive loss

Net changes in fair value of available for sale securities, before tax

Reclassification adjustment for realized loss on sale of investment securities included in net income

Total other items of comprehensive loss, before tax

Income tax benefit related to other items of comprehensive loss

Total other items of comprehensive loss, after tax

Comprehensive Loss

See Notes to Consolidated Financial Statements

1 unchanged sentence

and Subsidiaries

Consolidated Statements of Shareholders’ and Members’ Equity

Consolidated Statements of Shareholders’ Equity

Years Ended December 31, 2022 and 2021

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

Shareholders'

Comprehensive

Shareholders'

Balance at January 1, 2022

Stock issuance, net of conversion costs of $ 1,684

Stock based compensation expense

Net changes in fair value of available for sale securities, net of tax benefit of $ 1,678

Leveraged ESOP shares, 2,606,210 shares

ESOP shares earned, 13,031 shares

1 unchanged sentence

Balance at January 1, 2021

Net changes in fair value of available for sale securities, net of tax expense of $ 36

Stock issuance, net of conversion costs of $ 1,684

Net changes in fair value of available for sale securities, net of tax benefit of $ 217

Leveraged ESOP shares, 2,606,210 shares

ESOP shares earned, 13,031 shares

Balance at December 31, 2021

10 unchanged sentences

Depreciation and amortization

Net realized loss on sales of securities available for sale

Stock dividends on restricted securities

Loss on sale of fixed assets

Gain on sale of foreclosed assets

Appreciation on bank-owned life insurance

ESOP compensation expense for allocated shares

Deferred income tax

Stock-based compensation

Deferred income tax expense (benefit)

Net change in

11 unchanged sentences

Loan originations and principal collections, net

Net (increase) decrease in net investment in direct financing leases

Additions to premises and equipment

Net decrease (increase) in net investment in direct financing leases

Proceeds from sales of foreclosed assets

Proceeds from sales of fixed assets

Purchases of premises and equipment

Net Cash used for Investing Activities

23 unchanged sentences

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 Bank’s 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 “Foundation”), a charitable foundation formed in connection with the Conversion.

The Bank’s ESOP 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 Conversion, voting rights in the Company are held and exercised exclusively by the shareholders of the Company.

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.

3 unchanged sentences

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 liquidation account will never be increased despite any increase after the 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.

2 unchanged sentences

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 and to general practices of the banking industry.

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:

10 unchanged sentences

Use of Estimates

In preparing consolidated financial statements in conformity with U.S.

generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of financial condition and reported amounts of revenues and expenses during the reporting period.

In preparing consolidated financial statements in conformity with generally accepted accounting principles in the United States of America, 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.

4 unchanged sentences

Note 4 discusses the types of lending in which the Company engages.

Approximately 95 % and 94 % of the loan balance at December 31, 2021 and 2020, respectively, is secured by real estate.

Approximately 95 % of the loan balance at December 31, 2022 and 2021, is secured by real estate.

The Company does not have any other significant concentrations to any one industry or customer.

7 unchanged sentences

Interest Bearing Deposits in Banks

Interest bearing deposits in banks mature within one and a half years and are carried at cost.

Interest bearing deposits in banks are carried at cost.

Debt Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost.

Debt securities not classified as held to maturity are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive (loss) income.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.

13 unchanged sentences

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 December 31, 2021 and 2020, no impairment charges were recorded for any impairment.

As of December 31, 2022 and 2021, no impairment charges were recorded for any debt security.

Federal Home Loan Bank Stock

The Company’s investment in Federal Home Loan Bank (FHLB) stock is a restricted investment carried at cost ($ 100 per share par value), which approximates its fair value.

The Company’s investment in Federal Home Loan Bank stock is a restricted investment carried at cost ($ 100 per share par value), which approximates its fair value.

As a member of the FHLB system, the Company is required to maintain a minimum level of investment in FHLB stock based on specific percentages of its outstanding FHLB advances.

1 unchanged sentence

Stock redemptions are made at the discretion of FHLB.

For the years ended December 31, 2021 and 2020, there were purchases of $ 13 and $ 30 , respectively.

There were no sales during 2021 and 2020.

Due to requirements for additional advances for the year ended December 31, 2022 there were purchases and dividend reinvestments of $ 583 and $ 28 , respectively.

For the year ended December 31, 2021, there were purchases of $ 13 due to requirements for additional advances.

There were no sales during 2022 or 2021.

Additionally, the Company periodically evaluates FHLB stock for impairment.

As of December 31, 2022 or 2021, no impairment charges were recorded.

Loans and Leases

9 unchanged sentences

The accounting guidance defines a portfolio segment as the level at which an entity develops and documents a systematic methodology to determine the allowance for credit losses, and a class of financing receivables as the level of disaggregation of portfolio segments based on the initial measurement attributes, risk characteristics and methods for assessing risk.

The Company’s portfolio segments are real estate, agriculture, commercial, and consumer.

The classes of financing receivables within the real estate segment are Construction and Land, Farmland, 1-4 Residential and Multifamily, and Commercial Real Estate.

The remaining portfolio segments contain a single class of financing receivables.

Under this accounting guidance, the allowance is presented by portfolio segment.

The Company’s portfolio segments are real estate, agriculture, commercial, and consumer and other.

The classes of financing receivables within the real estate segment are Construction and Land, Farmland, 1-4 Residential and

Texas Community Bancshares, Inc.

3 unchanged sentences

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

Multifamily, and Commercial Real Estate.

The remaining portfolio segments contain a single class of financing receivables.

Under this accounting guidance, the allowance is presented by portfolio segment.

Allowance for Loan and Lease Losses

23 unchanged sentences

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all the circumstances surrounding the loan and the borrower, including the length of delay, the reason for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all the

Texas Community Bancshares, Inc.

3 unchanged sentences

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

circumstances surrounding the loan and the borrower, including the length of delay, the reason for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

14 unchanged sentences

Interest and fees continue to accrue on past due loans until the date the loan goes into nonaccrual status, if applicable.

The outstanding balance of real estate secured loans, including all classes of financing receivables within the real estate portfolio segment, that is in excess of the estimated property value, less estimated costs to sell, is charged off no later than the end of the month in which the account becomes 180 days past due.

The outstanding balance of real estate secured loans, including all classes of financing receivables within the real estate portfolio segment, that is in excess of the estimated property value, less estimated costs to sell, is generally charged off no later than the end of the month in which the account becomes 180 days past due.

The estimated property value, less estimated costs to sell, is determined utilizing appraisals or broker price opinions of the fair value of the collateral.

The outstanding balance of loans within the remaining loan segments (agriculture, commercial, and consumer) are charged off no later than the end of the month in which the account becomes 120 days past due.

The outstanding balance of loans within the remaining loan segments (agriculture, commercial, and consumer) are generally charged off no later than the end of the month in which the account becomes 120 days past due.

For secured loans, accounts are written down to the collateral value.

The fair value of the collateral is estimated by management based on current financial information, inspections, and appraisals.

For unsecured loans, the outstanding balance is written off.

Texas Community Bancshares, Inc.

3 unchanged sentences

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

The fair value of the collateral is estimated by management based on current financial information, inspections, and appraisals.

For unsecured loans, the outstanding balance is written off.

Loans within all portfolio segments are generally placed on nonaccrual status and classified as nonperforming at 90 days past due.

20 unchanged sentences

A TDR loan would generally be considered impaired.

Wholesale Lending

The Company has entered into a wholesale lending agreement with a wholesale lender and correspondent bank, TIB.

The Company originates the loan and interacts with the customer while the wholesale lender underwrites, funds, closes and services the loan.

The Company receives a fee from the wholesale lender at closing for the services provided which is included in noninterest income.

Financial Instruments

1 unchanged sentence

Such financial instruments are recorded when they are funded.

Derivative Loan Commitments

Mortgage loan commitments that relate to the origination of a mortgage that will be held for sale upon funding are considered derivative instruments under the derivatives and hedging accounting guidance (FASB ASC 815, Derivatives and Hedging).

Loan commitments that are derivatives are recognized at fair value on the consolidated statements of condition in other assets and other liabilities with changes in their fair values recorded in noninterest income.

Texas Community Bancshares, Inc.

3 unchanged sentences

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

Derivative Loan Commitments

Forward Loan Sale Commitments

18 unchanged sentences

Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of the property to the lower of its cost or fair value less costs to sell.

Premises and Equipment

Land is carried at cost.

Buildings and equipment are carried at cost, less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets or the expected terms of the leases, if shorter.

Buildings and related components are depreciated using the straight-line method with useful lives ranging from 7 to 40 years .

Furniture, fixtures and equipment are depreciated using the straight-line or accelerated method with useful lives ranging from 3 to 20 years .

Texas Community Bancshares, Inc.

3 unchanged sentences

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

Premises and Equipment

Land is carried at cost.

Buildings and related components are depreciated using the straight-line method with useful lives ranging from 7 to 40 years .

Furniture, fixtures and equipment are depreciated using the straight-line or accelerated method with useful lives ranging from 3 to 20 years .

Leases are classified as operating or finance leases at the lease commencement date.

The Company leases certain locations and equipment.

The Company records leases on the statements of financial condition in the form of a lease liability for the present value of future minimum payments under the lease terms and a right-of-use asset equal to the lease liability adjusted for items such as deferred or prepaid rent, lease incentives, and any impairment of the right-of-use asset.

The discount rate used in determining the lease liability is based upon incremental borrowing rates the Company could obtain for similar loans as of the date of commencement or renewal.

The Company does not record leases on the consolidated statements of financial condition that are classified as short term (less than one year).

At lease inception, the Company determines the lease term by considering the minimum lease term and all optional renewal periods that the Company is reasonably certain to renew.

The lease term is also used to calculate straight-line rent expense.

The depreciable life of leasehold improvements is limited by the estimated lease term, including renewals if they are reasonably certain to be renewed.

The Company’s leases do not contain residual value guarantees or material variable lease payments that will impact the Company's ability to pay dividends or cause the Company to incur additional expenses.

Operating lease expense consists of a single lease cost allocated over the remaining lease term on a straight-line basis, variable lease payments not included in the lease liability, and any impairment of the right-of-use asset.

Rent expense and variable lease expense are included in occupancy and equipment expense on the Company's consolidated statements of income.

The Company has elected to treat property leases that include both lease and non-lease components as a single component and account for it as a lease.

Mortgage Servicing Rights

5 unchanged sentences

Impairment is recognized through a valuation allowance for an individual stratum, to the extent that fair value is less than the capitalized amount for the stratum.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

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

Intangible Assets

20 unchanged sentences

Advertising expenses for the years ended December 31, 2022 and 2021 amounted to $ 50 and $ 46 , respectively.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

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

Revenue Policies

3 unchanged sentences

Services within the scope of Topic 606 include service charges on deposits, interchange income, and the sale of foreclosed assets.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

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

A description of the Company’s revenue streams accounted for under Topic 606 follows:

13 unchanged sentences

In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income and other comprehensive income (loss).

Other comprehensive income (loss) includes unrealized gains and losses on securities available-for-sale.

Certain immaterial revisions of amounts previously reported have been made to the 2020 consolidated financial statements for FHLB purchases due to dividend reinvestment.

These revisions did not have a significant impact on the financial statement line items impacted.

Comprehensive Loss

Comprehensive loss consists of net income and other comprehensive loss.

Other comprehensive loss includes unrealized gains and losses on securities available-for-sale.

Stock Incentive Plan

Compensation cost is recognized for stock options and restricted stock awards issued to directors, based on the fair value of these awards at the date of the grant.

A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of the grant is used for restricted stock awards.

Compensation cost is recognized over the required service period, generally defined as the vesting period.

For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Subsequent Events

Management has evaluated subsequent events through March 30, 2023, which was the date the accompanying consolidated financial statements were issued.

On January 2, 2023, the Company purchased two buildings adjacent to the bank for $ 550 .

On February 22, 2023, the Board of Directors of the Company approved the issuance of a first quarter dividend of $ 0.02 per share on outstanding common stock to stockholders of record as of the close of business on March 10, 2023 and payable on March 24, 2023.

Texas Community Bancshares, Inc.

3 unchanged sentences

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

Reclassifications

Certain reclassification s of amounts previously reported have been made to the accompanying financial statements to maintain consistency between periods presented.

The reclassifications had no impact on net income or shareholders' and members’ equity.

Subsequent Events

Management has evaluated subsequent events through March 23, 2022, which was the date the accompanying consolidated financial statements were available to be issued.

On February 28, 2023, the Company issued stock-based compensation to certain members of management for a total of 76,880 stock award shares and 192,204 stock options.

Note 2 - Earnings Per Share

Basic earnings per common 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.

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 and restricted stock awards granted on August 31, 2022, during the applicable period.

Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

There were no dilutive shares as of December 31, 2021.

There were no shares authorized or outstanding as of December 31, 2020.

The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share:

December 31, 2021

Weighted average shares outstanding for basic earnings per share:

1 unchanged sentence

average unearned ESOP shares

Weighted average shares outstanding for basic earnings per share

Additional dilutive shares

1 unchanged sentence

Basic and dilutive earnings per share

Restricted stock awards for 39,084 shares of common stock were not considered in computing diluted earnings per share for 2022, because they were antidilutive.

Stock options for 97,728 shares of common stock were not considered in computing diluted earnings per share for 2022, because they were nonvested.

Texas Community Bancshares, Inc.

12 unchanged sentences

Corporate bonds

Total debt securities

Government and agency

9 unchanged sentences

Residential mortgage-backed

Collateralized mortgage obligations

State and municipal

Corporate bonds

Government and agency

Total securities available for sale

4 unchanged sentences

Total securities held to maturity

During the years ended December 31, 2021 and 2020, the Bank had no sales of available for sale securities or held to maturity securities.

During the year ended December 31, 2022, the Company had sales of available for sale securities of $ 10,821 with a loss of $ 29 .

During the year ended December 31, 2021, the Bank had no sales of available for sale securities or held to maturity securities.

At December 31, 2022 and 2021, securities with a carrying value of $ 3,162 and $ 2,745 , respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

28 unchanged sentences

Residential mortgage-backed (20,5)

Mortgage-backed securities

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

The Company purchased those investments at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by agencies of the U.S.

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 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 December 31, 2021 or December 31, 2020.

Collateralized mortgage obligations (5)

State and municipal (9)

Corporate bonds (2)

Government and agency (13)

Texas Community Bancshares, Inc.

3 unchanged sentences

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

Mortgage-backed Securities and Collateralized Mortgage Obligations

The unrealized losses on the Company’s investments in residential mortgage-backed securities and collateralized mortgage obligations were caused by interest rate increases and decreases in prepayment speeds.

Interest rates have risen sharply throughout 2022 causing increased unrealized losses on securities.

The Company has no plans to sell these securities and will continue to monitor the effect of the unrealized losses on the financial statements.

The contractual cash flows of many of these investments are guaranteed by agencies of the U.S.

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 decreases 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 December 31, 2022 or December 31, 2021.

Government and Agency

The unrealized losses on the Company’s investments in U.S.

government and agency securities were caused by interest rate increases.

government and agency securities were caused by market interest rate increases.

Interest rates have risen sharply throughout 2022 and caused increases in unrealized losses on securities.

The Company has no plans to sell these securities and will continue to monitor the effect of the unrealized losses on the financial statements.

The contractual cash flows of those investments are guaranteed by an agency of the U.S.

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 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 December 31, 2021 or December 31, 2020.

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.

Corporate bonds

The unrealized losses on the Company’s investments in state and municipal securities were caused by interest rate increases.

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 December 31, 2022 or December 31, 2021.

Municipal Securities and Corporate Bonds

The unrealized losses on the Company’s investments in state and municipal securities and corporate bonds were caused by market interest rate increases.

Interest rates have risen sharply throughout 2022 and caused increases in unrealized losses on securities.

The Company has no plans to sell these securities and will continue to monitor the effect of the unrealized losses on the financial statements.

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.

Other-than-temporary Impairment

12 unchanged sentences

Loans and leases, net

Paycheck Protection Program (PPP) 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 December 31, 2021, the Company has originated $ 5,484 in PPP loans of which $ 5,471 had been forgiven at December 31, 2021.

Additionally, the Company recognized $ 6 and $ 212 of PPP loan interest in interest income during the years ended December 31, 2021 and 2020, respectively.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

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

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

2 unchanged sentences

Balance, January 1, 2022

Provision (Credit)

Balance, December 31, 2022

5 unchanged sentences

Balance, December 31, 2022

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

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

December 31, 2021

3 unchanged sentences

Balance, December 31, 2021

Ending balance allocated to loans and leases individually evaluated for impairment

Ending balance allocated to loans and leases collectively evaluated for impairment

December 31, 2021

Allowance for loan and lease losses:

Balance, December 31, 2021 allocated to loans and leases individually evaluated for impairment

Balance, December 31, 2021 allocated to loans and leases collectively evaluated for impairment

Loans and leases receivable:

Loans and leases individually evaluated for impairment

Loans and leases collectively evaluated for impairment

Ending balance

Balance, December 31, 2021 loans and leases individually evaluated for impairment

Balance, December 31, 2021 loans and leases collectively evaluated for impairment

Balance, December 31, 2021

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

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

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

special mention, substandard, doubtful or loss.

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.

8 unchanged sentences

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.

Prompt corrective

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

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

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.

8 unchanged sentences

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 2021 or 2020.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

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

No significant changes were made during the years ended December 31, 2022 or 2021.

The following table sets forth information regarding the internal classification of the loan and lease portfolio:

8 unchanged sentences

Commercial real estate

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

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

Consumer and other

47 unchanged sentences

Commercial real estate

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2021 and 2020

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

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

4 unchanged sentences

With a related allowance

Commercial real estate

1-4 Residential & multi-family

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Consumer and other

There were no troubled debt restructurings that occurred during the year ended December 31, 2022.

During the year ended December 31, 2021, there were two modifications resulting in troubled debt restructurings of approximately $ 83 .

The first loan is a single-family residence with an outstanding balance of approximately $ 69 as of December 31, 2021, and a second loan in commercial and industrial with an outstanding balance of approximately $ 14 as of December 31, 2021.

There were no troubled debt restructurings that occurred during the year ended December 31, 2020.

There have been no subsequently defaulted troubled debt restructurings.

2 unchanged sentences

The Company has no current commitments to loan additional funds to the borrowers whose loans have been modified.

COVID Deferrals

During the year ended December 31, 2020, under Section 4013 of the CARES Act or under the interagency guidance of the federal banking regulators, the Company modified certain loans allowing for a deferral of payments.

The Company modified a total of 45 loans with a balance of $ 8,392 as of December 31, 2020.

As of December 31, 2021, all loans have returned to normal payments and the Company has no loans of deferral.

Texas Community Bancshares, Inc.

45 unchanged sentences

The future minimum lease payments under noncancelable operating leases with terms greater than one year at December 31, 2022 are as follows:

Operating Leases

Total undiscounted lease payments

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Operating leases

Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases

Right-of-use assets obtained in exchange for new lease liabilities Operating leases

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases

Note 9 - Deposits

The aggregate amount of time deposits meeting or exceeding FDIC limits of $ 250,000 or more at December 31, 2022 and 2021, was $ 5,394 and $ 13,388 , respectively.

Deposits include $ 12,000 of callable brokered deposits issued as part of an investment strategy that are fully insured with $ 6,000 maturing in 2025 and $ 6,000 maturing in 2027.

At December 31, 2022, the scheduled maturities of time deposits are as follows:

4 unchanged sentences

Under these agreements, the Company had unused lines of credit amounting to $ 73,437 at December 31, 2022.

Pursuant to a blanket collateral agreement with the FHLB, advances were secured by all stock and deposit accounts with

Pursuant to a blanket collateral agreement with the FHLB, advances were secured by all stock and deposit accounts with the

Texas Community Bancshares, Inc.

3 unchanged sentences

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

the FHLB, mortgage collateral, securities collateral, and other collateral.

No securities were specifically pledged as of December 31, 2021 and 2020.

FHLB, mortgage collateral, securities collateral, and other collateral.

At December 31, 2022, $ 4,528 of securities were specifically pledged.

No securities were specifically pledged as of December 31, 2021.

Note 11 - Income Taxes

2 unchanged sentences

Current federal income tax expense

Deferred federal income tax benefit

Deferred federal income tax expense (benefit)

Deferred state income tax expense

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State income tax credit

Stock options and awards

Charitable contribution credit

4 unchanged sentences

Mortgage servicing rights

Unrealized gain on securities available for sale

Net deferred tax asset

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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 up to $ 15,000 federal funds line of credit to support overnight funding needs.

The Company is party to agreements with its correspondent banks that provide the Company with up to $ 23,500 federal funds lines of credit to support overnight funding needs.

The Company pays no fees for the lines of credit and has not drawn upon them.

The lines renew annually.

One line renews annually and the other lines are in effect until either party changes the terms of the agreement.

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

12 unchanged sentences

The portion of the director’s compensation that is deferred has been accrued and the only other expense related to this plan is the interest on the deferred amounts.

Interest expense during the years ended December 31, 2021 and 2020, included $ 11 and $ 11 related to this plan.

The Company has included $ 192 and $ 199 of deferred compensation payable at December 31, 2021 and 2020, which is included in accrued expenses and other liabilities.

Interest expense during the years ended December 31, 2022 and 2021, included $ 10 and $ 11 , respectively, related to this plan.

The Company has included $ 184 and $ 192 of deferred compensation payable at December 31, 2022 and 2021, respectively, which is included in accrued expenses and other liabilities.

Texas Community Bancshares, Inc.

4 unchanged sentences

To fund this plan, the Company has purchased a corporate-owned whole-life insurance contract on the director.

The Company has included $ 116 and $ 112 in bank-owned life insurance at December 31, 2021 and 2020, which represents the cash surrender value of this policy.

The Company has included $ 121 and $ 116 in bank-owned life insurance at December 31, 2022 and 2021, respectively, which represents the cash surrender value of this policy.

Effective January 1, 2013, the Company adopted a deferred compensation incentive plan for five key employees.

In 2020, two employees were added to the plan, for a total of eight employees.

During 2022 and 2021, the plan included eight employees.

The plan provides for an individually agreed upon percentage of net income for the plan year to be deferred and vested over five years .

3 unchanged sentences

The Company recorded compensation expense related to this program in the amount of $ 275 and $ 211 for the years ended December 31, 2022 and 2021, respectively.

The remaining amount of bonus to be paid out before interest is $ 423 and is expected to be fully expensed by the year ended December 31, 2024.

The remaining amount of bonus to be paid out before interest is $ 624 and is expected to be fully expensed by the year ending December 31, 2024.

An accrual of $ 596 and $ 426 for December 31, 2022 and 2021, respectively, is included in accrued expenses and other liabilities.

Note 15 - Employee Stock Ownership Program (“ESOP”)

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.

To partially fund benefit plans, Mineola Community Bank maintains the Mineola Community Bank Split Dollar Life Insurance Plan, which consists of thirteen life insurance policies on ten current, two retired officers and one former officer.

The executive has the right to designate a beneficiary who will receive his or her share of the net death benefit payable upon his or her death if the employment conditions of the plan have been met.

The policies are owned by Mineola Community Bank, which paid the premium due on the policies.

Under the plan, the insured beneficiary will receive an agreed upon amount and Mineola Community Bank is entitled to the remaining death benefit or the entire death benefit in cases where plan employment conditions were not met.

The Company has included $ 6,004 and $ 5,904 in bank-owned life insurance on bank officers at December 31, 2022 and 2021, which represents the cash surrender value of the policies.

Note 15 - Employee Stock Ownership Plan

In connection with the Conversion to an entity owned by shareholders, the Company established an ESOP for the exclusive benefit of eligible employees.

The ESOP borrowed funds from the Company in an amount sufficient to purchase 260,621 shares (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 Bank and dividends received by the ESOP.

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.

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Dividends on unallocated ESOP shares, if any, are recorded as a reduction of debt and accrued interest.

ESOP compensation expense was $ 202 for the year ended December 31, 2021.

A summary of the ESOP shares as of December 31, 2021 are as follows:

ESOP compensation expense was $ 213 and $ 202 for the years ended December 31, 2022 and 2021, respectively.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

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

A summary of the ESOP shares as of December 31, 2022 and 2021 are as follows:

Shares allocated to participants

Shares released to participants

Shares distributed to retiring participant

Unreleased shares

Fair value of unreleased shares

Note 16 - Stock-Based Compensation

The Company has one equity incentive plan with two share-based compensation awards as described below.

Total compensation cost that has been charged against income for those plans was $ 84 for the year ended December 31, 2022.

Stock Option Awards

The Company’s 2022 Equity Incentive Plan (the Equity Plan), which is shareholder approved, permits the grant of stock options to its directors for up to 325,775 shares of common stock.

Stock option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant;

those option awards have vesting periods of five years and have 10-year contractual terms.

The Company has a policy of using shares held as treasury stock to satisfy share option exercises.

Currently, the Company does not have treasury shares and will issue new shares to satisfy expected stock option exercises.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions determined by management.

Expected volatility is based on historical volatility of the Company’s common stock.

The Company uses historical data when available to estimate option exercise and post-vesting termination behavior.

Due to lack of historical data, the Company estimated the expected term of options granted is 7.5 years.

This represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable.

The Company’s accounting policy is to recognize forfeitures as they occur.

The risk-free interest rate for the expected term of the options is based on the 7-year U.S.

Treasury yield curve in effect at the time of the grants.

On August 31, 2022, the non-employee directors of the Company were granted 97,728 stock options with a cost of $ 6.50 per option and an exercise price of $ 16.00 .

These options will vest annually over a five year period ending August 31, 2027 and will expire on August 31, 2032.

Compensation expense for the stock options for the year ended was $ 42 .

The fair value of options granted was determined using the following weighted-average assumptions as of grant date.

Expected volatility

Expected dividends

Expected term (in years)

Risk-free rate

Texas Community Bancshares, Inc.

3 unchanged sentences

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

A summary of the activity in the stock option awards for 2022 follows:

Weighted-Average

Exercise Price

Contractual Term

Outstanding at December 31, 2021

Forfeited or expired

Outstanding at December 31, 2022

Exercisable at December 31, 2022

Weighted-Average

Non-Vested Options

Non-vested at December 31, 2021

Non-vested at December 31, 2022

As of December 31, 2022, there was $ 593 of total unrecognized compensation cost related to nonvested stock options granted under the plan.

The cost is expected to be recognized over a weighted-average period of five years .

Restricted Stock Awards

The Equity Plan also permits the grant of restricted stock to its directors.

Compensation expense for restricted stock awards is recognized over the vesting period of the awards based on the fair value of the stock at issue date.

The fair value of the stock was determined using the closing stock price of the Company on grant date.

Restricted shares fully vest on the fifth anniversary of the grant date.

On August 31, 2022, the non-employee directors of the Company were granted 39,084 shares of Company stock at a fair market value of $ 16.00 per share.

These stock awards will vest in five equal annual installments through August 31, 2027.

Compensation expense for the stock awards for the year ended December 31, 2022 was $ 42 .

A summary of changes in the Company’s nonvested shares for the year follows:

Weighted-Average

Non-Vested Shares

Non-vested at December 31, 2021

Non-vested at December 31, 2022

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

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

As of December 31, 2022, there was $ 584 of total unrecognized compensation cost related to nonvested restricted stock granted under the plan.

The cost is expected to be recognized over a weighted-average period of five years .

Note 17 - Related Party Transactions

7 unchanged sentences

Supplemental cash flow information:

Loan originations to facilitate the sale of foreclosed assets

Cash paid for

7 unchanged sentences

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 December 31, 2021 and 2021, the Bank’s CBLR ratio was 12.89 % and 10.49 %, 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.

Texas Community Bancshares, Inc.

3 unchanged sentences

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

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, a qualifying community banking organization that exceeds the 9% CBLR will be considered to have met:

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 December 31, 2022 and 2021, the Bank’s CBLR ratio was 12.31 % and 12.89 %, respectively, which exceeded all regulatory capital requirements under the CBLR framework and the Bank was considered to be “well-capitalized.”

Qualifying community banking organizations that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% are 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, are considered to have met the well-capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act.

Accordingly, a qualifying community banking organization that exceeds the 9% CBLR is considered to have met:

(i) the generally applicable risk-based and leverage capital requirements of the generally applicable capital rules;

20 unchanged sentences

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.

Texas Community Bancshares, Inc.

3 unchanged sentences

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

assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The fair value hierarchy is as follows:

4 unchanged sentences

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 the years ended December 31, 2021 and 2020, respectively.

There have been no changes in valuation techniques during the years ended December 31, 2022 and 2021.

In general, fair value is based upon quoted market prices, where available.

12 unchanged sentences

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.

Foreclosed assets are reviewed

Texas Community Bancshares, Inc.

3 unchanged sentences

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

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 December 31, 2022 and 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

12 unchanged sentences

Residential mortgage-backed

Collateralized mortgage obligations

State and municipal

Corporate bonds

Government and agency

Total financial assets

5 unchanged sentences

Impaired loans

Nonfinancial assets

Foreclosed assets

Texas Community Bancshares, Inc.

8 unchanged sentences

Foreclosed assets

During the years ended December 31, 2021 and 2020, certain impaired loans were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for loan and lease losses based upon the fair value of the underlying collateral.

During the years ended December 31, 2022 and 2021, certain impaired loans were remeasured and reported at fair value through a specific valuation allowance allocation based upon the fair value of the underlying collateral.

At December 31, 2022, impaired loans with a carrying value of $ 389 were reduced by specific valuation allowance allocations totaling $ 300 to a reported fair value of $ 89 .

1 unchanged sentence

The fair value of impaired loans is determined based on collateral valuations utilizing Level 3 valuation inputs.

$ 0 and $ 208 were charged to the provision for loan and lease losses as a result of the valuation allowance for the years ended December 31, 2021 and 2020, respectively.

There was no change to the provision for loan and lease losses as a result of the valuation allowance for the years ended December 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:

6 unchanged sentences

Appraisal adjustment

Foreclosed assets

Appraisal of collateral (1)

Appraisal adjustment

Fair Value at

26 unchanged sentences

Financial liabilities

Federal Home Loan Bank advances

FHLB advances

Interest payable

10 unchanged sentences

Financial liabilities

Federal Home Loan Bank advances

FHLB advances

Interest payable

14 unchanged sentences

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.

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

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.

20 unchanged sentences

Deferred income taxes

Restricted investment carried at cost

Accrued expenses and other liabilities

Shareholders' and Members' Equity

Shareholders' Equity

Preferred stock, $ 0.01 par value, 1,000,000 shares authorized,

none issued and outstanding at December 31, 2021

none issued and outstanding

Common stock, $ 0.01 par value, 19,000,000 shares authorized,

3,257,759 shares issued and outstanding at December 31, 2021

3,296,843 and 3,257,759 shares issued and outstanding at December 31, 2022 and 2021, respectively

Additional paid in capital

Retained earnings

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

Unearned Employee Stock Ownership Program shares

15 unchanged sentences

Total equity in earnings of subsidiary

Other items of comprehensive income

Unrealized (depreciation) appreciation on investment securities available for sale, before tax

Income tax benefit (expense) related to other items of comprehensive (loss) income

Total other items of comprehensive (loss) income, net of tax benefit (expense)

Comprehensive (Loss) Income

Other items of comprehensive loss

Unrealized loss on investment securities available for sale, before tax

Reclassification adjustment for realized loss on sale of investment securities included in net income

Income tax benefit related to other items of comprehensive loss

Total other items of comprehensive loss, net of tax benefit

Comprehensive Loss

Texas Community Bancshares, Inc.

4 unchanged sentences

Operating Activities

Net (loss) income

Adjustments to reconcile net income to

net cash provided by operating activities

net cash (used for) from operating activities

Equity in undistributed earnings of subsidiary

3 unchanged sentences

Increase in accrued expenses

Net Cash from Operating Activities

Net Cash (used for) from Operating Activities

Investing Activities

Purchase of restricted investments

Dividends received

Net Cash from Investing Activities

Net Cash (used for) from Investing Activities

Financing Activities

7 unchanged sentences

Note 23 - Recently Issued But Not Yet Effective Accounting Pronouncements

Accounting Standards Update “ASU” 2016-13, “Financial Instruments - Credit Losses (Topic 326):

Accounting Standards Updated (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.

Management has established a timeline and a Current Expected Credit Losses (“CECL”) team that is currently working on selecting a third-party vendor whose model we will use to run the CECL calculation.

We will begin inputting any needed loan data not readily available and re-evaluating our internal and external factors, including economic and peer data, over the next quarter with the goal of beginning parallel runs of the new CECL model and the current allowance for loan and lease losses model simultaneously as soon as systems are in place.

At this time, we are still uncertain of the impact the implementation of CECL will have on the Company’s consolidated financial statements.

The Company has approved a third-party vendor recommended by the Current Expected Credit Losses team.

Management has been working with their third party and reviewing loan data and other inputs into the model during the quarter ended December 31, 2022, as well as re-evaluating the Company’s internal and external factors, including economic and peer data.

The Company adopted ASU 2016-13 on January 1, 2023 and will disclose the financial impacts in the Company’s Form 10-Q for the quarter ending

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

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

March 31, 2023.

Management has made an election to move the impact through capital as of the date of adoption.

The Company does not expect it to have a material impact on the Company’s consolidated financial statements.

ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 eliminates the recognition and measurement guidance for troubled debt restructurings (“TDRs”) by creditors in ASC 310-40.

This Update also enhances disclosure requirements for certain loan restructurings by creditors when a borrower is experiencing financial difficulty.

Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity will apply the loan refinancing and restructuring guidance to determine whether a modification or other form of restructuring results in a new loan or a continuation of an existing loan.

Additionally, the amendments in this ASU require a public business entity to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases in the existing vintage disclosures.

The amendments in this Update are effective for the Company’s annual and interim periods beginning on January 1, 2023.

This Update requires prospective transition for the disclosures related to loan restructurings for borrowers experiencing financial difficulty and the presentation of gross write-offs in the vintage disclosures.

The guidance related to the recognition and measurement of TDRs may be adopted on a prospective or modified retrospective transition method.

The effect of adopting this standard is not anticipated to have a material impact on the Company’s consolidated financial statements.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data