424B3 1 tm218465d8_424b3.htm 424B3

 

Filed Pursuant to Rule 424(b)(3)

Registration No. 333-254053

 

Prospectus Supplement

 

Interests in

 

MINEOLA COMMUNITY BANK 

401(k) PROFIT SHARING PLAN

 

Offering of Participation Interests of up to 601,090 Shares of

 

TEXAS COMMUNITY BANCSHARES, INC.

Common Stock

 

Texas Community Bancshares, Inc., a Maryland corporation, is offering shares of common stock for sale at $10.00 per share in connection with the conversion of Mineola Community Mutual Holding Company from the mutual holding company to the stock holding company form of organization (the “Conversion”). Upon completion of the Conversion, Texas Community Bancshares, Inc. will be the holding company of Mineola Community Bank, S.S.B. (“Mineola Community Bank”). Texas Community Bancshares, Inc. has received conditional approval to list its shares of common stock (“common stock”) on the Nasdaq Capital Market under the symbol “TCBS” following the completion of the Conversion.

 

In connection with the stock offering, Texas Community Bancshares, Inc. is allowing participants in the Mineola Community Bank 401(k) Profit Sharing Plan (the “401(k) Plan”) to make an election to purchase participation interests in shares of Texas Community Bancshares, Inc. common stock through the 401(k) Plan. Based on the value of the 401(k) Plan assets at December 31, 2020, the trustee of the 401(k) Plan could purchase up to 601,090 shares of Texas Community Bancshares, Inc. common stock, based on the purchase price of $10.00 per share. As a participant in the 401(k) Plan, you may direct the trustee of the 401(k) Plan to invest up to 100% of your 401(k) Plan account balance in Texas Community Bancshares, Inc. common stock at the time of the stock offering. This prospectus supplement relates to the election of 401(k) Plan participants to direct the trustee of the 401(k) Plan to invest their 401(k) Plan account balance in Texas Community Bancshares, Inc. common stock at the time of the stock offering.

 

Before you consider investing, you should read the prospectus of Texas Community Bancshares, Inc. dated May 14, 2021, which is provided with this prospectus supplement. It contains detailed information regarding the Conversion and related stock offering of Texas Community Bancshares, Inc. and the financial condition, results of operations and business of Mineola Community Bank. This prospectus supplement provides information regarding the 401(k) Plan. You should read this prospectus supplement together with the prospectus and keep both for future reference.

 

 

 

For a discussion of risks that you should consider, see “Risk Factors” beginning on page 1 of this prospectus supplement and page 17 of the accompanying prospectus.

 

 

The interests in the 401(k) Plan and the offering of the shares of Texas Community Bancshares, Inc. common stock have not been approved or disapproved by the Board of Governors of the Federal Reserve System, the Texas Department of Savings and Mortgage Lending, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission or any other federal or state agency. Any representation to the contrary is a criminal offense.

 

The securities offered by this prospectus supplement are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

 

This prospectus supplement may be used only in connection with offers and sales by Texas Community Bancshares, Inc. in the stock offering of Texas Community Bancshares, Inc. common stock acquired by the 401(k) Plan. No one may use this prospectus supplement to reoffer or resell interests in shares of Texas Community Bancshares, Inc. common stock acquired through the 401(k) Plan.

 

You should rely only on the information contained in this prospectus supplement and the prospectus. Texas Community Bancshares, Inc., Mineola Community Bank and the 401(k) Plan have not authorized anyone to provide you with different information.

 

This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make an offer or solicitation in that jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any sale of Texas Community Bancshares, Inc. common stock shall under any circumstances imply that there has been no change in the affairs of Texas Community Bancshares, Inc., Mineola Community Bank, or the 401(k) Plan since the date of this prospectus supplement, or that the information contained in this prospectus supplement or incorporated by reference is correct as of any time after the date of this prospectus supplement.

 

The date of this prospectus supplement is May 14, 2021.

 

 

TABLE OF CONTENTS

 

RISK FACTORS 1
   
THE OFFERING 2
   
Securities Offered 2
Election to Purchase Common Stock 2
Purchase Priorities 3
Purchase in the Stock Offering and Oversubscriptions 4
Composition of the Texas Community Bancshares, Inc. Stock Fund 5
Minimum and Maximum Investment 6
Value of Plan Assets 7
How to Order Common Stock in the Offering 7
Special Investment Election Form Delivery Deadline 9
Irrevocability of Transfer Direction 9
Future Direction to Purchase and Sell Common Stock 9
Voting Rights of Common Stock 10
   
DESCRIPTION OF THE PLAN 11
   
Introduction 11
Eligibility and Participation 11
Contributions Under the Plan 11
Limitations on Contributions 12
Benefits Under the Plan 12
Withdrawals and Distributions from the 401(k) Plan 13
Investment of Contributions and Account Balances 14
Performance History and Description of Funds 15
Administration of the Plan 20
Amendment and Termination 20
Merger, Consolidation or Transfer 20
Federal Income Tax Consequences 21
Notice of Your Rights Concerning Employer Securities 22
Additional ERISA Considerations 23
Securities and Exchange Commission Reporting and Short-Swing Profit Liability 23
Financial Information Regarding Plan Assets 24
   
LEGAL OPINION 24

 

 

RISK FACTORS

 

In addition to considering the material risks disclosed under “Risk Factors” beginning on page 17 of the attached prospectus, you should also consider the following:

 

If you elect to purchase Texas Community Bancshares, Inc. common stock using your 401(k) Plan account balance and the stock offering is oversubscribed, you will bear the risk of price changes in the investment funds of the 401(k) Plan.

 

If you elect to purchase Texas Community Bancshares, Inc. common stock using your 401(k) Plan account balance, the 401(k) Plan trustee will liquidate the designated amount of your 401(k) Plan account balance invested in the certificates of deposit held at Mineola Community Bank. If the stock offering is oversubscribed (i.e., there are more orders for Texas Community Bancshares, Inc. common stock than shares available for sale in the stock offering) and the 401(k) Plan trustee cannot use any or all of the funds you allocate to purchase Texas Community Bancshares, Inc. common stock, the funds that cannot be invested in Texas Community Bancshares, Inc. common stock, and any interest earned on those funds, will be reinvested for your benefit in the certificates of deposit held at Mineola Community Bank within your 401(k) account. You may then leave the funds in the certificates of deposit or direct the funds among the other existing investment within the 401(k) Plan. During the period from when the 401(k) Plan trustee liquidates a portion of your 401(k) Plan account balance invested in the certificates of deposit held at Mineola Community Bank until reinvestment of some or all of those funds back into the certificates of deposit as a result of an oversubscription, you will bear the risk of price changes in the investments available under the 401(k) Plan in which you could have allocated your 401(k) account balance. It is possible that during this period some or all of the investments available under the 401(k) Plan may have increased in value more than the amount of any interest you may have earned on the funds reinvested in the certificates of deposit. See “The Offering – Purchase in the Stock Offering and Oversubscriptions” in this prospectus supplement.

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THE OFFERING
 
Securities Offered

Texas Community Bancshares, Inc. is offering participants of the 401(k) Plan the opportunity to purchase participation interests in shares of Texas Community Bancshares, Inc. common stock through the 401(k) Plan at the stock offering purchase price of $10.00 per share. A “participation interest” represents your indirect ownership of a share of Texas Community Bancshares, Inc. common stock that is acquired by the 401(k) Plan and is equivalent to one share of Texas Community Bancshares, Inc. common stock. In this prospectus supplement, “participation interests” are referred to as shares of Texas Community Bancshares, Inc. common stock. At the stock offering purchase price of $10.00 per share, the 401(k) Plan may acquire up to 601,090 shares of Texas Community Bancshares, Inc. common stock in the stock offering, based on the approximate fair market value of the 401(k) Plan’s assets as of December 31, 2020.

 

Only employees of Mineola Community Bank may become participants in the 401(k) Plan and only participants may purchase Texas Community Bancshares, Inc. common stock through the 401(k) Plan. Your investment in shares of Texas Community Bancshares, Inc. common stock in connection with the stock offering is subject to the purchase priorities listed below.

 

Information regarding the 401(k) Plan is contained in this prospectus supplement and information regarding the financial condition, results of operations and business of Texas Community Bancshares, Inc. and Mineola Community Bank is contained in the accompanying prospectus. The address of the principal executive office of Texas Community Bancshares, Inc. and Mineola Community Bank is 215 West Broad Street, Mineola, Texas 75773.

 

Address all questions about this prospectus supplement to Kraig Yarbrough, Senior Vice President, at Mineola Community Bank; email: kraig@mineolacb.com; telephone number: (903) 569-2602, ext. 151.

 

Direct all questions about the stock offering, the prospectus, or obtaining a stock order form to purchase Texas Community Bancshares, Inc. common stock in the stock offering outside the 401(k) Plan to the Stock Information Center, at (903) 369-1000 Monday through Friday, 10:00 a.m. through 4:00 p.m., Central Time. The Stock Information Center will be closed on bank holidays.

 

Election to Purchase Common Stock

In connection with the stock offering, you may elect to transfer a part of your 401(k) Plan account balance to be used to purchase shares of Texas Community Bancshares, Inc. common stock in the stock offering. The trustee of the 401(k) Plan will purchase Texas Community Bancshares, Inc. common stock at $10.00 per share in accordance with your directions. However, your directions are subject to the purchase priorities and purchase limitations described below.

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Purchase Priorities

All 401(k) Plan participants are eligible to subscribe for Texas Community Bancshares, Inc. common stock in the stock offering. However, your directions are subject to the purchase priorities in the Plan of Conversion and Reorganization, which provides for a subscription offering and a community offering. In the stock offering, purchase priorities are as follows and apply in case more shares of Texas Community Bancshares, Inc. common stock are ordered than are available for sale (i.e., an “oversubscription”):

 

Subscription Offering:

 

(1)   Depositors with accounts at Mineola Community Bank with aggregate balances of at least $50 at the close of business on December 31, 2019, get first priority.

 

(2)   The tax-qualified employee benefit plans of Mineola Community Bank, including the employee stock ownership plan and the 401(k) Plan, get second priority.

 

(3)   Depositors with accounts at Mineola Community Bank with aggregate balances of at least $50 at the close of business on March 31, 2021, get third priority.

 

(4)   Depositors with a deposit account, and borrowers with a loan, at Mineola Community Bank at the close of business on April 30, 2021, get fourth priority.

 

Community Offering:

 

Shares of Texas Community Bancshares, Inc. common stock not purchased in the subscription offering may be offered for sale to the general public in a “community offering,” with a preference given to natural persons and trusts of natural persons residing in Franklin, Hopkins, Smith, Van Zandt and Wood Counties in Texas.

 

If you fall into subscription offering categories (1), (3) or (4), you have subscription rights to purchase Texas Community Bancshares, Inc. common stock in the subscription offering. You may use up to 100% of your 401(k) Plan account balance to pay for the shares of Texas Community Bancshares, Inc. common stock. 

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You may also be able to purchase shares of Texas Community Bancshares, Inc. common stock in the subscription offering even though you are ineligible to purchase through subscription offering categories (1), (3) or (4) through subscription offering category (2), reserved for the tax-qualified employee plans, if permitted by Mineola Community Bank.

 

If you fall into purchase priority (1), (3) or (4), you will also separately receive offering materials in the mail, including a stock order form. You may use the stock order form to order shares of Texas Community Bancshares, Inc. common stock outside the 401(k) Plan. Please refer to the prospectus for information on how to submit these orders.

 

In addition to, or instead of, placing an order outside the 401(k) Plan using a stock order form, you may place an order for the purchase of Texas Community Bancshares, Inc. common stock through the 401(k) Plan, using the enclosed Special Investment Election Form, to be completed and submitted in the manner described below under “How to Order Common Stock in the Offering.” 

   
Purchase in the Stock Offering and Oversubscriptions

The trustee of the 401(k) Plan will order shares of Texas Community Bancshares, Inc. common stock in accordance with your directions set forth in your Special Investment Election Form. All transfers will be made from your investments in the certificates of deposit held at Mineola Community Bank under the 401(k) Plan. Accordingly, by the end of the 401(k) Plan Offering Period (see below), you must have enough funds invested in the certificates of deposit investment to pay for the shares of common stock you wish to purchase. Once you make your election, the amount you elect to transfer from the certificates of deposit for the purchase of shares of Texas Community Bancshares, Inc. common stock in connection with the stock offering will be transferred to an account held separately from your other 401(k) Plan assets pending the formal completion of the stock offering several weeks later. Mineola Community Bank will determine whether all, or any portion of, your order will be filled (if the offering is oversubscribed, you may not receive any, or all, of your order, depending on your purchase priority, as described above). The amount that can be used toward your order will be applied to the purchase of shares of Texas Community Bancshares, Inc. common stock. Following the formal closing of the stock offering, your purchased shares of Texas Community Bancshares, Inc. common stock will be reflected in Texas Community Bancshares, Inc. Stock Fund. Following the stock offering, it is anticipated that the shares will be transferred to your self-directed brokerage account under the 401(k) Plan at TD Ameritrade.

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If the stock offering is oversubscribed (i.e., there are more orders for Texas Community Bancshares, Inc. common stock than shares available for sale in the stock offering), and the trustee is unable to use the full amount designated by you to purchase Texas Community Bancshares, Inc. common stock in the stock offering, the amount that cannot be invested in Texas Community Bancshares, Inc. common stock, and any interest earned on that amount, will be reinvested for your benefit in the certificates of deposit held at Mineola Community Bank within your 401(k) account. You may then leave the funds in the certificates of deposit or direct the funds among the other existing investments available under the 401(k) Plan. The prospectus describes the allocation procedures if there is an oversubscription.

 

If you choose not to direct the investment of your 401(k) Plan account balances towards the purchase of Texas Community Bancshares, Inc. common stock in the stock offering, your account balances will remain in the investment funds of the 401(k) Plan as you previously directed. 

   
Composition of the Texas Community Bancshares, Inc. Stock Fund

Shares of Texas Community Bancshares, Inc. purchased by the 401(k) Plan in the stock offering will be transferred to the 401(k) Plan and held by the Texas Community Bancshares, Inc. Stock Fund. The Texas Community Bancshares, Inc. Stock Fund is neither a mutual fund nor a diversified or managed investment option. Rather, it is merely a recordkeeping mechanism established by the 401(k) Plan to track the shares purchased by participants in the stock offering through the 401(k) Plan. The Texas Community Bancshares, Inc. Stock Fund will consist of shares of Texas Community Bancshares, Inc. common stock purchased by participants in the 401(k) Plan, which will be initially valued at $10.00 per share (i.e., the purchase price). It is expected that at some time following the stock offering, the shares will be transferred to your self-directed brokerage account under the 401(k) Plan at TD Ameritrade. Also, after the stock offering, it is expected that you will be able to purchase additional shares of Texas Community Bancshares, Inc. directly through your self-directed brokerage account at TD Ameritrade.

 

After the stock offering, until the shares are transferred to your self-directed brokerage account at TD Ameritrade, each day the aggregate value of the Texas Community Bancshares, Inc. Stock Fund will be determined by dividing the total market value of the fund at the end of the day by the total number of shares held in the fund by all participants as of the previous day’s end. The change in share value reflects the day’s change in stock price of Texas Community Bancshares, Inc. common stock, and the value of each participation interest should be the same as one share of Texas Community Bancshares, Inc. common stock. Investment in Texas Community Bancshares, Inc. common stock involves risks common to investments in shares of common stock. For a discussion of material risks you should consider, see the “Risk Factors” section of this prospectus supplement, the “Risk Factors” section of the accompanying prospectus and the section of this prospectus supplement called “Notice of Your Rights Concerning Employer Securities” (see below).

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  The portion of your 401(k) Plan account balance invested in the Texas Community Bancshares, Inc. Stock Fund will be reported to you on your regular 401(k) Plan participant statements.
   
Minimum and Maximum Investment

In connection with the stock offering, the 401(k) Plan will permit you to use up to 100% of your 401(k) Plan account balance for the purchase of Texas Community Bancshares, Inc. common stock in the stock offering.

 

The trustee of the 401(k) Plan will subscribe for shares of Texas Community Bancshares, Inc. common stock offered for sale in the stock offering, in accordance with each participant’s direction. The trustee will pay $10.00 per share, which will be the same price paid by all other persons who purchase shares in the stock offering. In order to purchase Texas Community Bancshares, Inc. common stock through the 401(k) Plan, the minimum investment is $250, which will purchase 25 shares. Generally, no individual, or individuals acting through a single qualifying account held jointly, may purchase more than 25,000 shares ($250,000) of common stock. If any of the following persons purchase shares of common stock, their purchases, in all categories of the offering, when combined with your purchases, cannot exceed 50,000 shares ($500,000) of common stock:

 

•      your spouse or relatives of you or your spouse living in your house;

 

•      most companies, trusts or other entities in which you are a senior officer, partner, trustee or have a substantial beneficial interest; or

 

•      other persons who may be your associates or persons acting in concert with you.

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Unless we determine otherwise, persons having the same address and persons exercising subscription rights through qualifying accounts registered to the same address will be subject to the overall purchase limitation of 50,000 shares ($500,000).

 

See the prospectus for further details regarding additional information regarding the maximum purchase limits for investors in the stock offering.

   
Value of Plan Assets

As of December 31, 2020, the market value of the assets of the 401(k) Plan was approximately $6,010,900.

   
How to Order Common Stock in the Offering

Enclosed is a Special Investment Election Form on which you can elect to make a special election to purchase Texas Community Bancshares, Inc. common stock in the stock offering through the 401(k) Plan. This is done by the procedures described below. Note the following stipulations concerning this election:

 

•      Using your Special Investment Election Form, you can designate a dollar amount of your total 401(k) Plan account balance to be used to purchase Texas Community Bancshares, Inc. common stock. All transfers will be made from the portion of your 401(k) Plan account balance invested in the certificates of deposit held at Mineola Community Bank under the 401(k) Plan. You cannot choose the particular investment fund that the 401(k) Plan will liquidate to fund the stock purchases. Accordingly, you must have enough funds invested in the certificates of deposit to pay for the shares of common stock you wish to purchase. If you do not have a sufficient amount invested in certificates of deposit to satisfy you purchase order, you should transfer the amount necessary from your other investments to the certificate of deposit investment before submitting your Special Investment Election Form. These transfers could take several days and you must have a sufficient amount in the certificates of deposit before the closing of the 401(k) Plan Offering Period, which is 12:00 p.m. on June 10, 2021.

 

•      Your election is subject to a minimum purchase of 25 shares of Texas Community Bancshares, Inc. common stock at the purchase price of $10.00 per share.

 

•      Your election, plus any order you placed outside the 401(k) Plan, are together subject to a maximum purchase limit of no more than 25,000 shares of Texas Community Bancshares, Inc. common stock, which equals $250,000, or 50,000 ($500,000) if you purchase in concert with an associate or groups of persons acting in concert (as more fully described in the prospectus).

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•      The election period for the 401(k) Plan opens May 24, 2021, and closes at 12:00 p.m., Central Time, on June 10, 2021 (the “401(k) Plan Offering Period”).

 

•      During the 401(k) Offering Period, you will continue to have the ability to transfer amounts that are not directed to purchase Texas Community Bancshares, Inc. common stock among all other investments available under the 401(k) Plan. However, you will not be permitted to change the investment of amounts that you designated to be used to purchase Texas Community Bancshares, Inc. common stock on your Special Investment Election Form.

 

•      As soon as practicable following the closing of the 401(k) Plan Offering Period, the 401(k) Plan trustee will transfer a portion of your funds in the certificates of deposit held at Mineola Community Bank within your 401(k) Plan account (rounded down to the nearest $10.00) based on the election designated in your Special Investment Election Form. Thereafter, the proceeds will be transferred to an interest bearing account held by the 401(k) Plan pending the formal closing of the stock offering several weeks after the end of the 401(k) Plan Offering Period. The amount you elect to direct towards the purchase of Texas Community Bancshares, Inc. common stock in the stock offering will not be available for distributions, loans or withdrawals until it is used to purchase Texas Community Bancshares, Inc. common stock or, if it cannot be used to purchase shares of Texas Community Bancshares, Inc. common stock, reinvested again in the certificates of deposit held at Mineola Community Bank following the closing of the stock offering.

 

•      Following the completion of the stock offering, your purchased shares of Texas Community Bancshares, Inc. common stock will be reflected in your 401(k) Plan account through the Texas Community Bancshares, Inc. Stock Fund.

 

•      It is expected that at some time following the formal closing of the stock offering, your purchased shares of Texas Community Bancshares, Inc. common stock may be transferred to your self-directed brokerage account under the 401(k) Plan at TD Ameritrade. If you have not already established a TD Ameritrade brokerage account in the 401(k) Plan, you must do so before any shares can be transferred to the account. The Plan Administrator can provide you with instructions for how to set up your self-directed brokerage account.

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Special Investment Election Form Delivery Deadline

If you wish to purchase Texas Community Bancshares, Inc. common stock with a portion of your 401(k) Plan account balance, you must return your completed Special Investment Election Form to Kraig Yarbrough, Senior Vice President (email: kraig@mineolacb.com; telephone number: (903) 569-2602, ext. 151). He must receive your Special Investment Election Form no later than 12:00 p.m., Central Time, on June 10, 2021. You may return your Special Investment Election Form by hand delivery to Kraig Yarbrough, by email to kraig@mineolacb.com, or by facsimile at (903) 569-9332.

 

If you do not wish to make an election to purchase shares of Texas Community Bancshares, Inc. common stock with a portion of your 401(k) Plan account balance, you should check the appropriate box on the Special Investment Election Form and return the form to Kraig Yarbrough at Mineola Community Bank by hand delivery, by email to kraig@mineolacb.com, or by facsimile at (903) 569-9332, no later than 12:00 p.m., Central Time, on June 10, 2021.

   
Irrevocability of Transfer Direction

Once you make an election to transfer amounts in your 401(k) Plan account to be used to purchase shares of Texas Community Bancshares, Inc. common stock in the stock offering, you may not change your election. Your election is irrevocable. You will, however, continue to be able to transfer amounts not directed towards the purchase of shares of Texas Community Bancshares, Inc. common stock among all of the other investments available under the 401(k) Plan on a daily basis.

   
Future Direction to Purchase and Sell Common Stock

It is expected that you will be able to purchase Texas Community Bancshares, Inc. common stock after the stock offering through your self-directed brokerage account under the 401(k) Plan at TD Ameritrade. Until the shares are transferred to your individual brokerage account under the 401(k) Plan at TD Ameritrade, you will also be able to sell your interest in the Texas Community Bancshares, Inc. Stock Fund (subject to the restrictions below).

 

However, your ability to buy or sell Texas Community Bancshares, Inc. common stock within the 401(k) Plan largely depends upon the existence of an active market for the stock. If Texas Community Bancshares, Inc. common stock is illiquid (meaning there are a low number of buyers and sellers of the stock) on the date you elect to buy or sell Texas Community Bancshares, Inc. common stock within the 401(k) Plan, your election may not be immediately processed. As a result, the prevailing price for Texas Community Bancshares, Inc. common stock may be less than or more than its fair market value on the date of your election.

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Special restrictions may apply to purchasing shares of Texas Community Bancshares, Inc. common stock by the participants who are subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, relating to the purchase and sale of securities by officers, directors and principal stockholders of Texas Community Bancshares, Inc.

 

If you are an executive officer of Mineola Community Bank that is restricted by Mineola Community Bank’s banking regulators from selling shares of Texas Community Bancshares, Inc. common stock acquired in the stock offering for one year, the Texas Community Bancshares, Inc. common stock that you purchased in the stock offering will not be tradable until the one-year trading restriction has lapsed, except upon death.

 

Voting Rights of Common Stock The 401(k) Plan provides that you may direct the trustee as to how to vote your shares of Texas Community Bancshares, Inc. common stock held in the Texas Community Bancshares, Inc. Stock Fund.  If the trustee does not receive your voting instructions, the administrator of the 401(k) Plan will direct the trustee to vote your shares in the same proportion as the voting instructions received from other participants related to their shares of Texas Community Bancshares, Inc. common stock held in the Texas Community Bancshares, Inc. Stock Fund, provided the vote is made in accordance with certain requirements under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).  All voting instructions will be kept confidential.

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DESCRIPTION OF THE PLAN

 

Introduction

 

Mineola Community Bank originally adopted the Mineola Community Bank 401(k) Profit Sharing Plan (the “401(k) Plan”) effective as of January 1, 1990. The 401(k) Plan is a tax-qualified plan with a cash or deferred compensation feature established in accordance with the requirements under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

Mineola Community Bank intends that the 401(k) Plan, in operation, will comply with the requirements under Sections 401(a) and 401(k) of the Code. Mineola Community Bank will adopt any amendments to the 401(k) Plan that may be necessary to ensure the continuing qualified status of the 401(k) Plan under the Code and applicable Treasury Regulations.

 

Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The 401(k) Plan is an “individual account plan” other than a “money purchase pension plan” within the meaning of ERISA. As such, the 401(k) Plan is subject to all of the provisions of Title I (Protection of Employee Benefit Rights) and Title II (Amendments to the Code Relating to Retirement Plans) of ERISA, except for the funding requirements contained in Part 3 of Title I of ERISA which by their terms do not apply to an individual account plan (other than a money purchase plan). The 401(k) Plan is not subject to Title IV (Plan Termination Insurance) of ERISA. The funding requirements contained in Title IV of ERISA are not applicable to participants or beneficiaries under the 401(k) Plan.

 

Reference to Full Text of 401(k) Plan. The following portions of this prospectus supplement summarize certain provisions of the 401(k) Plan. They are not complete and are qualified in their entirety by the full text of the 401(k) Plan. Copies of the 401(k) Plan are available to all employees by submitting a request to the 401(k) Plan administrator, 215 West Broad Street, Mineola, Texas 75773; 903-569-2602. You are urged to read carefully the full text of the 401(k) Plan.

 

Eligibility and Participation

 

Employees who are at least age 19 years of age and have worked for 60 consecutive days are eligible to enter the 401(k) Plan on the first day of the next month in order to make employee deferrals and receive employer contributions. All employees except for union employees and leased employees are eligible to participate in the 401(k) Plan upon meeting the eligibility requirements. The “Plan Year” is January 1 to December 31.

 

As of December 31, 2020, there were approximately 70 employees and former employees eligible to participate in the 401(k) Plan.

 

Contributions Under the Plan

 

Salary Deferrals. Eligible employees are permitted to defer, on a pre-tax basis, up to 90% of their compensation, subject to certain restrictions imposed by the Code, and to have that amount contributed to the 401(k) Plan on their behalf. For purposes of the 401(k) Plan, “compensation” means your total wages received from Mineola Community Bank, with all pre-tax contributions added, that are reported on a Form W-2. “Compensation” includes your total taxable wages or salary, including any salary deferrals under the 401(k) Plan or any other pre-tax salary reduction contributions you may make to any other plans maintained by Mineola Community Bank. In 2021, the annual compensation of each participant taken into account under the 401(k) Plan is limited to $290,000. (This limit is established by the Internal Revenue Service and is subject to increase pursuant to an annual cost-of-living adjustment, as permitted by the Code). You may elect to modify the amount contributed to the 401(k) Plan by filing a new elective deferral agreement with the 401(k) Plan administrator at the beginning of the next payroll period.

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Employer Matching Contributions. Mineola Community Bank may make discretionary matching contributions to the 401(k) Plan.

 

Discretionary Employer Contributions. Mineola Community Bank may make discretionary employer contributions to the 401(k) Plan.

 

Rollover Contributions. You are permitted to make rollover contributions to the 401(k) Plan. You may not rollover Roth contribution from another qualified plan to the 401(k) Plan because Roth contributions are not permitted under the 401(k) Plan.

 

Limitations on Contributions

 

Limitations on Employee Salary Deferrals. For the Plan Year beginning January 1, 2021, the amount of your before-tax contributions may not exceed $19,500 per calendar year. In addition, if you are at least 50 years old in 2021, you will be able to make a “catch-up” contribution of up to $6,500 in addition to the $19,500 limit. The “catch-up” contribution limit may be adjusted periodically by law, based on changes in the cost of living. Contributions in excess of these limits, as applicable to you, are known as excess deferrals. If you defer amounts in excess of these limitations, as applicable to you, your gross income for federal income tax purposes will include the excess in the year of the deferral. In addition, unless the excess deferral is distributed before April 15 of the following year, it will be taxed again in the year distributed. Income on the excess deferral distributed by April 15 of the immediately succeeding year will be treated, for federal income tax purposes, as earned and received by you in the tax year in which the contribution is made.

 

Contribution Limit. Generally, federal law imposes a maximum limit on the amount of contributions you may receive under the 401(k) Plan. This limit applies to all contributions to the 401(k) Plan, including your salary deferrals and all other employer contributions made on your behalf during the year, excluding earnings and any transfers/rollovers. For the Plan Year beginning January 1, 2021, this total cannot exceed the lesser of $58,000 ($64,500 with catch-up contributions) or 100% of your annual base compensation.

 

Benefits Under the Plan

 

Vesting. At all times, you have a fully vested, nonforfeitable interest in the salary deferrals you have made to the 401(k) Plan and in any employer safe harbor contributions made to your 401(k) Plan account by Mineola Community Bank. Employer contributions are subject to a six-year vesting schedule such that you will become 20% vested after two years of service, 40% vested after three years, 60% after four years of service, 80% after five years of service and 100% after six years of service. In the event of your death, disability or attainment of the normal retirement age, all of your employer contributions would immediately become 100% vested.

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Withdrawals and Distributions from the 401(k) Plan

 

Applicable federal law requires the 401(k) Plan to impose substantial restrictions on the right of a 401(k) Plan participant to withdraw amounts held for his or her benefit under the 401(k) Plan before the participant’s termination of employment with Mineola Community Bank.

 

Withdrawals upon Termination. You may request a distribution from your account following your termination of employment. Following your termination, you may elect to leave your account balance in the 401(k) Plan and defer commencement of receipt of your vested balance until no later than April 1 of the calendar year following the calendar year in which you attain age 72. Notwithstanding the foregoing, if the value of your vested account balance does not exceed $1,000, your vested account balance will be distributed from the 401(k) Plan, whether or not you consent.

 

Withdrawal Upon Disability. If you are disabled in accordance with the definition of disability under the 401(k) Plan, you will be entitled to the same withdrawal rights as if you had terminated your employment.

 

Withdrawal upon Death. If you die while you are a participant in the 401(k) Plan, the value of your entire account will be payable to your beneficiary in accordance with the 401(k) Plan.

 

In-Service Distribution. While employed, you are eligible to receive an in-service distribution from your account after your attainment of age 65 or, other than for an in-service distribution of salary deferrals, have been a participant in the 401(k) Plan for at least 60 months. However, you will be eligible to request a distribution of your rollover contributions at any time.

 

Financial Hardship. In the event you incur a financial hardship, you may request an in-service withdrawal of a portion of your Plan account attributable to your salary deferrals.

 

Participant Loans. Participant loans are allowed in accordance with the 401(k) Plan’s participant loan procedures.

 

Form of Distribution. Your benefits under the 401(k) Plan will be distributed to you or your beneficiary in a single lump-sum payment.

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Investment of Contributions and Account Balances

 

All amounts credited to your account under the 401(k) Plan are held in the 401(k) Plan trust, which is administered by the trustee of the 401(k) Plan. Before the effective date of the stock offering, in addition to any amount invested in your self-directed brokerage account at TD Ameritrade, you are currently provided the opportunity to direct the investment of your account into the following investment options:

 

American Funds Target Date Retirement Series 2025 

American Funds Target Date Retirement Series 2030 

American Funds Target Date Retirement Series 2035 

American Funds Target Date Retirement Series 2040 

American Funds Target Date Retirement Series 2045 

American Funds Target Date Retirement Series 2050 

American Funds Target Date Retirement Series 2055 

American Funds Target Date Retirement Series 2060 

American Funds American Balanced 

American Funds SMALLCAP World 

AB Discovery Growth I 

AB Large Cap Growth I 

BlackRock High Yield Bond Institutional 

Calamos International Growth I 

Federated Hermes Kaufmann Small Cap 

Franklin Dyna Tech Advance 

Invesco International Small-Mid Company 

T. Rowe Price Blue Chip Growth 

T. Rowe Price Health Sciences 

Vanguard Total Bond Market Index 

Vanguard Developed Markets Index Admiral 

Vanguard 500 Index Admiral 

Vanguard Mid Cap Index Admiral 

Vanguard Small Cap Index Admiral 

Mineola Community Bank Certificates of Deposit

 

In connection with the stock offering, the 401(k) Plan now provides that in addition to the investment options specified above, you may direct the trustee, or its representative, to invest all or a portion of your account balance in shares of Texas Community Bancshares, Inc. common stock.

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Performance History and Description of Funds

 

The following provides performance data with respect to the investment options available under the 401(k) Plan:

 

   Total Returns as of December 31, 2020 
Fund Name  1 Year   3 Year   5 Year   10 Year 
American Funds 2025 Target Date Retirement R6   12.69    8.00    8.92    8.30 
American Funds 2030 Target Date Retirement R6   14.16    8.88    10.10    9.12 
American Funds 2035 Target Date Retirement R6   16.53    10.23    11.46    9.81 
American Funds 2040 Target Date Retirement R6   17.74    10.79    12.01    10.13 
American Funds 2045 Target Date Retirement R6   18.18    10.99    12.24    10.25 
American Funds 2050 Target Date Retirement R6   18.39    11.15    12.38    10.32 
American Funds 2055 Target Date Retirement R6   18.36    11.14    12.37    10.31 
American Funds 2060 Target Date Retirement R6   18.41    11.13    12.37    n/a 
American Funds American Balanced   10.26    8.12    9.40    9.31 
American Funds SMALLCAP World   36.75    16.93    16.25    11.32 
AB Discovery Growth I   51.73    23.22    20.83    15.49 
AB Large Cap Growth I   33.39    21.68    19.25    16.89 
BlackRock High Yield Bond Institutional   5.07    5.08    7.12    5.96 
Calamos International Growth I   43.86    13.27    13.44    7.94 
Federated Hermes Kaufmann Small Cap   42.83    26.61    23.84    16.28 
Franklin DynaTech Advance   56.95    29.66    24.96    18.46 
Invesco International Small-Mid Company   24.32    11.71    13.69    11.73 
T. Rowe Price Blue Chip Growth   33.76    20.46    18.90    16.83 
T. Rowe Price Health Sciences   29.19    18.50    13.48    19.62 
Vanguard Total Bond Market Index   6.78    4.48    3.55    2.90 
Vanguard Developed Markets Index Admiral   9.31    3.90    7.38    5.00 
Vanguard 500 Index Admiral   17.34    13.15    14.18    12.86 
Vanguard Mid Cap Index Admiral   17.22    11.06    12.30    11.43 
Vanguard Small Cap Index Admiral   18.07    10.25    12.62    11.04 
Mineola Community Bank Certificates of Deposit   4.04    3.58    3.37    3.19 

 

The following is a description of each of the 401(k) Plan’s investment funds and other investments:

 

American Funds Target Date Retirement Series 2025-2060. The investment seeks growth, income and conservation of capital. The fund normally invests a greater portion of its assets in fixed income, equity-income and balanced funds as it continues past its target date. The advisor attempts to achieve its investment objectives by investing in a mix of American Funds in different combinations and weightings. The underlying American Funds represent a variety of fund categories, including growth-and-income funds, equity-income funds, balanced funds and fixed income funds. The fund categories represent differing investment objectives.

 

American Funds American Balanced. The investment seeks conservation of capital, current income and long-term growth of capital and income. The fund uses a balanced approach to invest in a broad range of securities, including common stocks and investment-grade bonds. It also invests in securities issued and guaranteed by the U.S. government and by federal agencies and instrumentalities. In addition, the fund may invest a portion of its assets in common stocks, most of which have a history of paying dividends, bonds and other securities of issuers domiciled outside the United States.

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American Funds SMALLCAP World. The investment seeks long-term growth of capital. Normally the fund invests at least 80% of its net assets in growth-oriented common stocks and other equity-type securities (such as preferred stocks, convertible preferred stocks and convertible bonds) of companies with small market capitalizations. Under normal circumstances, the fund will invest a significant portion of its assets outside the United States, including in emerging markets.

 

AB Discovery Growth I. The investment seeks long-term growth of capital. The fund invests primarily in a diversified portfolio of equity securities with relatively smaller capitalizations as compared to the overall U.S. market. Under normal circumstances, the fund invests at least 80% of its net assets in the equity securities of small- and mid-capitalization companies. For these purposes, “small- and mid-capitalization companies” are generally those companies that, at the time of investment, fall within the lowest 25% of the total U.S. equity market capitalization (excluding, for purposes of this calculation, companies with market capitalizations of less than $10 million). Past name: AllianceBern Discovery Growth I.

 

AB Large Cap Growth I. The investment seeks long-term growth of capital. The fund invests primarily in equity securities of a limited number of large, carefully selected, high-quality U.S. companies. It invests primarily in the domestic equity securities of companies selected by the fund’s Adviser for their growth potential within various market sectors. The fund emphasizes investments in large, seasoned companies. Under normal circumstances, the fund will invest at least 80% of its net assets in common stocks of large-capitalization companies. It may, at times, invest in shares of exchange-traded funds in lieu of making direct investments in securities. Past name: AllianceBern Large Cap Growth I.

 

BlackRock High Yield Bond Institutional. The investment seeks to maximize total return, consistent with income generation and prudent investment management. The fund invests primarily in non-investment grade bonds with maturities of ten years or less. It normally invests at least 80% of its assets in high yield bonds. The fund may invest up to 30% of its assets in non-dollar denominated bonds of issuers located outside of the United States. Its investment in non-dollar denominated bonds may be on a currency hedged or unhedged basis. The fund may also invest in convertible and preferred securities.

 

Calamos International Growth I. The investment seeks long-term capital growth. The fund normally invests at least 40% of its assets in securities of foreign issuers. It may invest in foreign securities that are represented in the United States securities markets by American Depositary Receipts (“ADRs”) or similar depository arrangements. The fund may invest in securities of issuers in emerging markets to a significant extent. The investment adviser takes environmental, social and governance (“ESG”) factors into account in making investment decisions.

 

Federated Hermes Kaufmann Small Cap. The investment seeks to provide capital appreciation. The fund invests primarily in the common stocks of small companies that are traded on national security exchanges, the NASDAQ stock market and on the over-the-counter market. It will normally invest at least 80% of its net assets (which include the amount of any borrowing for investment purposes) in small companies and will notify shareholders at least 60 days in advance of any change in its investment policies that would permit the fund to normally invest less than 80% of its net assets in investments in small companies. Past name: Federated Kaufmann Small Cap R6.

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Franklin DynaTech Advance. The investment seeks capital appreciation. The fund invests primarily in equity securities of companies that the investment manager believes are leaders in innovation, take advantage of new technologies, have superior management, and benefit from new industry conditions in the dynamically changing global economy. It invests predominantly in common stock. The investment manager may invest in companies in any economic sector or of any market capitalization and may invest in companies both inside and outside of the United States.

 

Invesco International Small-Mid Company. The investment seeks capital appreciation. Under normal market conditions, the fund will invest at least 80% of its net assets, plus borrowings for investment purposes, in equity securities of small- and mid-cap companies, and in derivatives and other instruments that have economic characteristics similar to such securities. The fund’s manager considers small- and mid-cap companies to be those having a market capitalization in the range of the MSCI All Country World (ACWI) ex USA SMID Cap Index. The capitalization range of the index is subject to change at any time due to market activity or changes in its composition. Past name: Invesco Oppenheimer Intl Small-Mid Company A.

 

T. Rowe Price Blue Chip Growth. The investment seeks long-term capital growth; income is a secondary objective. The fund will normally invest at least 80% of its net assets (including any borrowings for investment purposes) in the common stocks of large and medium-sized blue chip growth companies. It focuses on companies with leading market positions, seasoned management, and strong financial fundamentals. The fund may sell securities for a variety of reasons, such as to secure gains, limit losses, or redeploy assets into more promising opportunities.

 

T. Rowe Price Health Sciences. The investment seeks long-term capital appreciation. The fund will normally invest at least 80% of its net assets (including any borrowings for investment purposes) in the common stocks of companies engaged in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences (collectively termed “health sciences”). While the fund can invest in companies of any size, the majority of fund assets are expected to be invested in large- and mid-capitalization companies. It is non-diversified.

 

Vanguard Total Bond Market Index. The investment seeks the performance of Bloomberg Barclays U.S. Aggregate Float Adjusted Index. Bloomberg Barclays U.S. Aggregate Float Adjusted Index measures the performance of a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States-including government, corporate, and international dollar denominated bonds, as well as mortgage-backed and asset-backed securities-all with maturities of more than 1 year. All of its investments will be selected through the sampling process, and at least 80% of its assets will be invested in bonds held in the index.

17 

 

Vanguard Developed Markets Index Admiral. The investment seeks to track the performance of the FTSE Developed All Cap ex US Index. The fund employs an indexing investment approach designed to track the performance of the FTSE Developed All Cap ex US Index, a market-capitalization-weighted index that is made up of approximately 3,873 common stocks of large-, mid-, and small-cap companies located in Canada and the major markets of Europe and the Pacific region. The adviser attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index. Past name: Vanguard Developed Markets Index Admiral.

 

Vanguard 500 Index Admiral. The investment seeks to track the performance of a benchmark index that measures the investment return of large-capitalization stocks. The fund employs an indexing investment approach designed to track the performance of the Standard & Poor’s 500 Index, a widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

 

Vanguard Mid Cap Index Admiral. The investment seeks to track the performance of a benchmark index that measures the investment return of mid-capitalization stocks. The fund employs an indexing investment approach designed to track the performance of the CRSP US Mid Cap Index, a broadly diversified index of stocks of mid-size U.S. companies. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index. Past name: Vanguard Mid Cap Index Adm.

 

Vanguard Small Cap Index Admiral. The investment seeks to track the performance of a benchmark index that measures the investment return of small-capitalization stocks. The fund employs an indexing investment approach designed to track the performance of the CRSP US Small Cap Index, a broadly diversified index of stocks of small U.S. companies. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

 

Mineola Community Bank Certificates of Deposit. The investment seeks preservation of capital and income generation. The Certificates of Deposit are held by the plan sponsor, Mineola Community Bank, S.S.B. The interest rate is above the market rate for a 1 year CD and is set once each year in March based on the bank’s previous year’s Return on Equity (“ROE”). This ROE is calculated before the expense of incentive plan and is verified by the accounting firm for Mineola Community Bank. The Certificates of Deposit are FDIC insured up to the maximum of $250,000 per account. They earn interest daily and are compounded quarterly.

 

Investors should carefully consider a mutual fund’s investment objectives, risks, charges, and expenses before investing. A prospectus, or summary prospectus if available, containing this and other information can be obtained by contacting the 401(k) Plan administrator. Read the mutual fund’s prospectus carefully before investing.

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Before directing retirement funds to a separate account, investors should carefully consider the investment objectives, risks, charges, and expenses of the separate account as well as their individual risk tolerance, time horizon and goals. For additional information, contact the 401(k) Plan administrator.

 

Texas Community Bancshares, Inc. Stock Fund. In connection with the stock offering, you may, in the manner described earlier, direct the trustee to invest all or a portion of your 401(k) Plan account balance in Texas Community Bancshares, Inc. common stock. The trustee will use all amounts elected by participants to subscribe for shares of Texas Community Bancshares, Inc. common stock in the stock offering. Your purchased shares will be held within the 401(k) Plan by the Texas Community Bancshares, Inc. Stock Fund. The Texas Community Bancshares, Inc. Stock Fund is neither a mutual fund nor a diversified or managed investment option. Rather, it is merely a recordkeeping mechanism established by the 401(k) Plan to track the shares purchased by the participants in the stock offering through the 401(k) Plan. The Texas Community Bancshares, Inc. Stock Fund will consist solely of shares of Texas Community Bancshares, Inc. common stock purchased by participants in the 401(k) Plan, which will be initially valued at $10.00 per share (i.e., the purchase price). Your interest in the Texas Community Bancshares, Inc. Stock Fund will be denominated in shares of Texas Community Bancshares, Inc. common stock. After the shares are purchased, it is expected that the shares will be transferred to each participant’s self-directed brokerage account under the 401(k) Plan at TD Ameritrade.

 

As of the date of this prospectus supplement, there is no established market for Texas Community Bancshares, Inc. common stock. Accordingly, there is no record of the historical performance of the Texas Community Bancshares, Inc. Stock Fund. Performance of the Texas Community Bancshares, Inc. Stock Fund depends on a number of factors, including the financial condition and profitability of Texas Community Bancshares, Inc. and Mineola Community Bank and market conditions for shares of Texas Community Bancshares, Inc. common stock generally.

 

Investment in Texas Community Bancshares, Inc. common stock involves risks common to investments in the shares of common stock. For a discussion of material risks you should consider, see “Risk Factors” of this prospectus supplement, “Risk Factors” beginning on page 17 of the attached prospectus, and the section of this prospectus supplement called “Notice of Your Rights Concerning Employer Securities” below.

 

You may elect to have both past contributions and earnings, as well as future contributions to your account, invested among the options listed above, including the Texas Community Bancshares, Inc. Stock Fund through your self-directed brokerage account under the 401(k) Plan at TD Ameritrade. Transfers of past contributions and the earnings thereon do not affect the investment mix of future contributions. You may change your investment directions at any time.

 

An investment in any of the funds listed above is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. As with any mutual fund investment, there is always a risk that you may lose money on your investment in any of the funds listed above.

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Administration of the Plan

 

The Trustee and Custodian. James H. Herlocker, III, Chairman, President and Chief Executive Officer of Mineola Community Bank, serves as trustee of the 401(k) Plan. The custodian of the 401(k) Plan is Nationwide. However, Texas Community Bancshares, Inc. common stock purchased through the 401(k) Plan will initially be held in an account maintained by the 401(k) Plan through Community Bank of Pleasant Hill, d/b/a First Trust of MidAmerica. It is anticipated that at some time following the stock offering the shares will be transferred to your self-directed brokerage account maintained by the 401(k) Plan through TD Ameritrade.

 

Plan Administrator. Pursuant to the terms of the 401(k) Plan, the 401(k) Plan is administered by the Plan Administrator, Mineola Community Bank. The address of the 401(k) Plan administrator is 215 West Broad Street, Mineola, Texas 75773, the telephone number is (903) 569-2602. The 401(k) Plan administrator is responsible for the administration of the 401(k) Plan, interpretation of the provisions of the 401(k) Plan, prescribing procedures for filing applications for benefits, preparation and distribution of information explaining the 401(k) Plan, maintenance of Plan records, books of account and all other data necessary for the proper administration of the 401(k) Plan, preparation and filing of all returns and reports relating to the 401(k) Plan which are required to be filed with the U.S. Department of Labor and the Internal Revenue Service, and for all disclosures required to be made to participants, beneficiaries and others under Sections 104 and 105 of ERISA.

 

Reports to Plan Participants. The 401(k) Plan administrator will furnish you a statement at least quarterly showing the balance in your account as of the end of that period, the amount of contributions allocated to your account for that period, and any adjustments to your account to reflect earnings or losses (if any).

 

Amendment and Termination

 

Mineola Community Bank intends to continue the 401(k) Plan indefinitely. Nevertheless, Mineola Community Bank may terminate the 401(k) Plan at any time. If the 401(k) Plan is terminated in whole or in part, then regardless of other provisions in the 401(k) Plan, you will have a fully vested interest in your account. Mineola Community Bank reserves the right to make any amendment or amendments to the 401(k) Plan which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries; provided, however, that Mineola Community Bank may make any amendment it determines necessary or desirable, with or without retroactive effect, to comply with ERISA.

 

Merger, Consolidation or Transfer

 

In the event of the merger or consolidation of the 401(k) Plan with another plan, or the transfer of the plan assets to another plan, the 401(k) Plan requires that you would, if either the 401(k) Plan or the other plan terminates, receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer, if the 401(k) Plan had then terminated.

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Federal Income Tax Consequences

 

The following is a brief summary of the material federal income tax aspects of the 401(k) Plan. You should not rely on this summary as a complete or definitive description of the material federal income tax consequences relating to the 401(k) Plan. Statutory provisions change, as do their interpretations, and their application may vary in individual circumstances. Finally, the consequences under applicable state and local income tax laws may not be the same as under the federal income tax laws. Please consult your tax advisor with respect to any distribution from the 401(k) Plan and transactions involving the 401(k) Plan.

 

As a “tax-qualified retirement plan,” the Code affords the 401(k) Plan special tax treatment, including:

 

(1)the sponsoring employer is allowed an immediate tax deduction for the amount contributed to the 401(k) Plan each year;

 

(2)participants pay no current income tax on amounts contributed by the employer on their behalf; and

 

(3)earnings of the 401(k) Plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments.

 

Mineola Community Bank will administer the 401(k) Plan to comply with the requirements of the Code as of the applicable effective date of any change in the law.

 

Lump-Sum Distribution. A distribution from the 401(k) Plan to a participant or the beneficiary of a participant will qualify as a lump-sum distribution if it is made within one taxable year, on account of the participant’s death, disability or separation from service, or after the participant attains age 59½, and consists of the balance credited to participants under the 401(k) Plan and all other profit sharing plans, if any, maintained by Mineola Community Bank The portion of any lump-sum distribution required to be included in your taxable income for federal income tax purposes consists of the entire amount of the lump-sum distribution, less the amount of after-tax contributions, if any, you have made to the 401(k) Plan and any other profit sharing plans maintained by Mineola Community Bank, which is included in the distribution.

 

Texas Community Bancshares, Inc. Common Stock Included in Lump-Sum Distribution. If a lump-sum distribution includes Texas Community Bancshares, Inc. common stock, the distribution generally will be taxed in the manner described above, except that the total taxable amount may be reduced by the amount of any net unrealized appreciation with respect to Texas Community Bancshares, Inc. common stock; that is, the excess of the value of Texas Community Bancshares, Inc. common stock at the time of the distribution over its cost or other basis of the common stock to the trust. The tax basis of Texas Community Bancshares, Inc. common stock, for purposes of computing gain or loss on its subsequent sale, equals the value of Texas Community Bancshares, Inc. common stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of Texas Community Bancshares, Inc. common stock, to the extent of the amount of net unrealized appreciation at the time of distribution, will constitute long-term capital gain, regardless of the holding period of Texas Community Bancshares, Inc. common stock. Any gain on a subsequent sale or other taxable disposition of Texas Community Bancshares, Inc. common stock, in excess of the amount of net unrealized appreciation at the time of distribution, will be considered long-term capital gain. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution, to the extent allowed by regulations to be issued by the Internal Revenue Service.

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Distributions: Rollovers and Direct Transfers to Another Qualified Plan or to an IRA. You may roll over distributions from the 401(k) Plan to another qualified plan or to an individual retirement account in accordance with the terms of the other plan or account.

 

Notice of Your Rights Concerning Employer Securities

 

Federal law provides specific rights concerning investments in employer securities. Because you may in the future have investments in Texas Community Bancshares, Inc. common stock under the 401(k) Plan, you should read the following information carefully.

 

Your Rights Concerning Employer Securities. The 401(k) Plan must allow you to elect to move any portion of your account that is invested in Texas Community Bancshares, Inc. common stock from that investment into other investment alternatives under the 401(k) Plan. You may contact the 401(k) Plan administrator shown above for specific information regarding this right, including how to make this election. In deciding whether to make this election, you will want to carefully consider the information below that describes the importance of diversification. All of the investment options under the 401(k) Plan are available to you if you decide to diversify out of your investment in Texas Community Bancshares, Inc. common stock.

 

The Importance of Diversifying Your Retirement Savings. To help achieve long-term retirement security, you should carefully consider the benefits of a well-balanced and diversified investment portfolio. Spreading your assets among different types of investments can help you achieve a favorable rate of return, while minimizing your overall risk of losing money. This is because market or other economic conditions that cause one category of assets, or one particular security, to perform very well often cause another asset category, or another particular security, to perform poorly. If you invest more than 20% of your retirement savings in any one company or industry, your savings may not be properly diversified. Although diversification is not a guarantee against loss, it is an effective strategy to help you manage investment risk.

 

In deciding how to invest your retirement savings, you should take into account all of your assets, including any retirement savings outside of the 401(k) Plan. No single approach is right for everyone because, among other factors, individuals have different financial goals, different time horizons for meeting their goals, and different tolerance for risk. Therefore, you should carefully consider the rights described here and how these rights affect the amount of money that you invest in employer common stock through the 401(k) Plan.

 

It is also important to periodically review your investment portfolio, your investment objectives, and the investment options under the 401(k) Plan to help ensure that your retirement savings will meet your retirement goals.

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Additional ERISA Considerations

 

As noted above, the 401(k) Plan is subject to certain provisions of ERISA, including special provisions relating to control over the 401(k) Plan’s assets by participants and beneficiaries. The 401(k) Plan’s feature that allows you to direct the investment of your account balances is intended to satisfy the requirements of Section 404(c) of ERISA relating to control over plan assets by a participant or beneficiary. The effect of this is two-fold. First, you will not be deemed a “fiduciary” because of your exercise of investment discretion. Second, no person who otherwise is a fiduciary, such as Mineola Community Bank, the 401(k) Plan administrator, or the 401(k) Plan’s trustee is liable under the fiduciary responsibility provision of ERISA for any loss which results from your exercise of control over the assets in your 401(k) Plan account.

 

Because you will be entitled to invest all or a portion of your account balance in the 401(k) Plan in Texas Community Bancshares, Inc. common stock, the regulations under Section 404(c) of the ERISA require that the 401(k) Plan establish procedures that ensure the confidentiality of your decision to purchase, hold, or sell employer securities, except to the extent that disclosure of such information is necessary to comply with federal or state laws not preempted by ERISA. These regulations also require that your exercise of voting and similar rights with respect to Texas Community Bancshares, Inc. common stock be conducted in a way that ensures the confidentiality of your exercise of these rights.

 

Securities and Exchange Commission Reporting and Short-Swing Profit Liability

 

Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), imposes reporting and liability requirements on officers, directors, and persons beneficially owning more than 10% of public companies, such as Texas Community Bancshares, Inc. Section 16(a) of the Exchange Act requires the filing of reports of beneficial ownership. Within 10 days of becoming an officer, director or person beneficially owning more than 10% of the shares of Texas Community Bancshares, Inc., a Form 3 reporting initial beneficial ownership must be filed with the Securities and Exchange Commission. Changes in beneficial ownership, such as purchases, sales and gifts generally must be reported periodically, either on a Form 4 within two business days after the change occurs, or annually on a Form 5 within 45 days after the close of Texas Community Bancshares, Inc.’s fiscal year. Discretionary transactions in and beneficial ownership of Texas Community Bancshares, Inc. common stock by officers, directors and persons beneficially owning more than 10% of Texas Community Bancshares, Inc. common stock generally must be reported to the Securities and Exchange Commission by such individuals.

 

In addition to the reporting requirements described above, Section 16(b) of the Exchange Act provides for the recovery by Texas Community Bancshares, Inc. of profits realized by an officer, director or any person beneficially owning more than 10% of Texas Community Bancshares, Inc. common stock resulting from non-exempt purchases and sales of Texas Community Bancshares, Inc. common stock within any six-month period.

 

The Securities and Exchange Commission has adopted rules that provide exemptions from the profit recovery provisions of Section 16(b) for all transactions in employer securities within an employee benefit plan, provided certain requirements are met. These requirements generally involve restrictions upon the timing of elections to acquire or dispose of employer securities for the accounts of Section 16(b) persons.

23 

 

Except for distributions of Texas Community Bancshares, Inc. common stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons affected by Section 16(b) are required to hold shares of Texas Community Bancshares, Inc. common stock distributed from the 401(k) Plan for six months following such distribution and are prohibited from directing additional purchases of Texas Community Bancshares, Inc. common stock for six months after receiving such a distribution.

 

Financial Information Regarding Plan Assets

 

Financial information representing the net assets available for 401(k) Plan benefits and the change in net assets available for 401(k) Plan benefits at December 31, 2020, is available upon written request to the 401(k) Plan administrator at 215 West Broad Street, Mineola, Texas 75773.

 

LEGAL OPINION

 

The validity of the issuance of Texas Community Bancshares, Inc. common stock has been passed upon by Luse Gorman, PC, Washington, D.C., which firm acted as special counsel to Texas Community Bancshares, Inc. and Mineola Community Bank in connection with Texas Community Bancshares, Inc.’s stock offering.

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PROSPECTUS

 

 

(Proposed Holding Company for Mineola Community Bank, S.S.B.) 

Up to 4,140,000 Shares of Common Stock 

(Subject to Increase to up to 4,761,000 Shares) 

 

Texas Community Bancshares, Inc., which we refer to as “Texas Community Bancshares” throughout this prospectus, is offering for sale, on a best efforts basis, shares of its common stock in connection with the conversion of Mineola Community Mutual Holding Company, which we refer to as “Mineola Community MHC” throughout this prospectus, from the mutual holding company to the stock holding company form of organization. The shares we are offering represent the 100% ownership interest in Mineola Community Financial Group, Inc., which we refer to as “Mineola Community Financial Group” throughout this prospectus, owned by Mineola Community MHC. Mineola Community Financial Group is the sole stockholder of Mineola Community Bank, S.S.B., which we refer to as “Mineola Community Bank” throughout this prospectus. We have received conditional approval to list the shares of Texas Community Bancshares common stock on the Nasdaq Capital Market under the symbol “TCBS.” We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.

 

The shares of common stock are first being offered for sale in a subscription offering to eligible depositors and borrowers of Mineola Community Bank and to tax-qualified employee benefit plans of Mineola Community Bank. Shares not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given to natural persons residing in Franklin, Hopkins, Smith, Van Zandt, and Wood counties in Texas. Any shares of common stock not purchased in the subscription or community offerings may be offered for sale to the public through a syndicate of broker-dealers, referred to in this prospectus as the syndicated community offering. The syndicated community offering, if held, may commence before the subscription and community offerings (including any extensions) have expired. However, no shares purchased in the subscription offering or the community offering will be issued until the completion of any syndicated community offering. We may sell up to 4,761,000 shares of common stock because of demand for the shares of common stock or changes in market conditions, without resoliciting subscribers. We must sell a minimum of 3,060,000 shares to complete the offering.

 

The minimum purchase order is 25 shares. Generally, no individual, or individuals acting through a single qualifying account held jointly, may purchase more than 25,000 shares ($250,000) of common stock, and no person or entity, together with associates or persons acting in concert with such person or entity, may purchase more than 50,000 shares ($500,000) of common stock in all categories of the offering combined.

 

The subscription offering will expire at 4:00 p.m., Central time, on June 17, 2021. We expect that the community offering, if held, will expire at the same time. We may extend the expiration date of the subscription and/or community offerings without notice to you until August 2, 2021, or longer if the Federal Reserve Board approves a later date. No single extension may exceed 90 days and the offering must be completed by June 29, 2023. Once submitted, orders are irrevocable unless the subscription and/or community offerings are terminated or extended, with regulatory approval, beyond August 2, 2021, or the number of shares of common stock to be sold is increased to more than 4,761,000 shares or decreased to less than 3,060,000 shares. If the subscription and community offerings are extended past August 2, 2021, all subscribers will be notified and given the opportunity to confirm, change or cancel their orders. If you do not respond to the notice of extension, we will promptly return your funds with interest or cancel your deposit account withdrawal authorization. If the number of shares to be sold in the offering is increased to more than 4,761,000 shares or decreased to less than 3,060,000 shares, we will resolicit subscribers, and all funds delivered to us to purchase shares of common stock in the subscription and community offerings will be returned promptly with interest. Funds received in the subscription and the community offerings will be held in a segregated account at Mineola Community Bank and will earn interest at 0.10% per annum until completion or termination of the offering.

 

Performance Trust Capital Partners, LLC, which we refer to as “Performance Trust” throughout this prospectus, will assist us in selling the shares on a best efforts basis in the subscription offering and in any community offering, and will serve as sole manager for any syndicated community offering. Performance Trust is not required to purchase any shares of common stock that we are offering for sale.

 

OFFERING SUMMARY 

Price: $10.00 per Share

 

   Minimum   Midpoint   Maximum   Adjusted Maximum 
Number of shares    3,060,000    3,600,000    4,140,000    4,761,000 
Gross offering proceeds   $30,600,000   $36,000,000   $41,400,000   $47,610,000 
Estimated offering expenses, excluding selling agent fees and expenses (1) (2)   $1,122,000   $1,122,000   $1,122,000   $1,122,000 
Selling agent fees and expenses (1)   $247,370   $297,050   $346,730   $403,860 
Estimated net proceeds   $29,230,630   $34,580,950   $39,931,270   $46,084,140 
Estimated net proceeds per share (1)   $9.55   $9.61   $9.65   $9.68 

 

 

(1)See “The Conversion and Offering—Plan of Distribution; Selling Agent and Underwriter Compensation” for a discussion of Performance Trust’s compensation for this offering and the compensation to be received by Performance Trust and the other broker-dealers that may participate in any syndicated community offering.

(2)Excludes records agent fees and expenses payable to Performance Trust, which are included in estimated offering expenses. See “The Conversion and Offering—Stock Information Center Management.”

 

This investment involves a degree of risk, including the possible loss of principal. 

See “Risk Factors” beginning on page 17.

 

These securities are not deposits or savings accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Neither the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the Texas Department of Savings and Mortgage Lending, the Federal Deposit Insurance Corporation, nor any state securities regulator has approved or disapproved these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 

PERFORMANCE TRUST 

CAPITAL PARTNERS

For assistance, contact the Stock Information Center at (903) 369-1000.

The date of this prospectus is May 14, 2021.

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

Page

 

SUMMARY 2
RISK FACTORS 17
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA 31
RECENT DEVELOPMENTS 33
FORWARD-LOOKING STATEMENTS 39
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING 41
OUR DIVIDEND POLICY 42
MARKET FOR THE COMMON STOCK 43
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE 44
CAPITALIZATION 45
PRO FORMA DATA 47
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH AND WITHOUT THE CHARITABLE FOUNDATION 51
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 53
BUSINESS OF TEXAS COMMUNITY BANCSHARES 65
BUSINESS OF MINEOLA COMMUNITY BANK, S.S.B. 66
SUPERVISION AND REGULATION 80
TAXATION 90
MANAGEMENT 91
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS 102
THE CONVERSION AND OFFERING 103
TCBS FOUNDATION, INC. 124
RESTRICTIONS ON ACQUISITION OF TEXAS COMMUNITY BANCSHARES 127
DESCRIPTION OF CAPITAL STOCK OF TEXAS COMMUNITY BANCSHARES 133
TRANSFER AGENT 135
EXPERTS 135
CHANGE IN AUDITOR 135
LEGAL MATTERS 135
WHERE YOU CAN FIND ADDITIONAL INFORMATION 136
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF MINEOLA COMMUNITY MUTUAL HOLDING COMPANY 137

 i

 

SUMMARY

 

The following summary explains the significant aspects of the conversion of Mineola Community MHC to the stock holding company form of organization and the offering of shares of common stock of Texas Community Bancshares, which we refer to as the “conversion and offering” throughout this prospectus. It may not contain all of the information that is important to you. Before making an investment decision, you should read this entire document carefully, including the section entitled “Risk Factors” and the consolidated financial statements and the related notes appearing elsewhere in the prospectus.

 

Our Organizational Structure and the Proposed Conversion

 

Since 2008 we have operated in a two-tier mutual holding company structure, without any public stockholders. Mineola Community MHC, a Texas-chartered mutual holding company, is the sole stockholder of Mineola Community Financial Group, a Delaware corporation, and Mineola Community Financial Group is the sole stockholder of Mineola Community Bank, a Texas-chartered stock savings bank. At December 31, 2020, Mineola Community MHC had consolidated assets of $299.6 million, deposits of $235.1 million and members’ equity of $31.9 million.

 

Pursuant to the terms of the plan of conversion and reorganization, which we refer to as the “plan of conversion” throughout this prospectus, we are converting from the mutual holding company corporate structure to the public stock holding company corporate structure. Upon completion of the conversion and offering, Mineola Community MHC and Mineola Community Financial Group will cease to exist, Texas Community Bancshares will become the successor corporation to Mineola Community MHC and Mineola Community Financial Group, and Mineola Community Bank will become a wholly-owned subsidiary of Texas Community Bancshares. The conversion will be accomplished by the merger of Mineola Community MHC with and into Mineola Community Financial Group, followed by the merger of Mineola Community Financial Group with and into Texas Community Bancshares. The shares of Texas Community Bancshares common stock being offered for sale represent the 100% ownership interest in Mineola Community Financial Group currently owned by Mineola Community MHC. Upon completion of the conversion and offering, the shares of Mineola Community Financial Group common stock owned by Mineola Community MHC will be canceled.

 

The following diagram shows our current organizational structure:

 

 

2 

 

After the conversion and offering are completed, we will be organized as a fully public stock holding company, as follows:

 

 

 

Our Business

 

Following the conversion and offering, Texas Community Bancshares’ business activities will be conducted primarily through Mineola Community Bank. Mineola Community Bank’s business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations and borrowings from the Federal Home Loan Bank of Dallas, in residential real estate loans and commercial real estate loans and, to a lesser extent, commercial loans, construction and land loans, and consumer and other loans. Substantially all of Mineola Community Bank’s loans are fixed-rate loans. We also invest in securities, which have historically consisted primarily of mortgage-backed securities and obligations issued by U.S. government sponsored enterprises, state and municipal securities, and Federal Home Loan Bank stock. We offer a variety of deposit accounts, including checking accounts, savings accounts and certificate of deposit accounts. Mineola Community Bank is subject to comprehensive regulation and examination by the Texas Department of Savings and Mortgage Lending and the Federal Deposit Insurance Corporation and is a member of the Federal Home Loan Bank system.

 

Texas Community Bancshares is a newly formed Maryland corporation. Following the completion of the conversion and offering, Texas Community Bancshares will be the holding company for Mineola Community Bank and will be subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System, which we refer to as the “Federal Reserve Board” throughout this prospectus, and by the Texas Department of Savings and Mortgage Lending.

 

Our executive offices are located at 215 West Broad Street, Mineola, Texas 75773 and our telephone number is (903) 569-2602. Our website address is www.mineolacb.com. Information on our website is not considered a part of this prospectus.

 

Business Strategy

 

Our current business strategy consists of the following:

 

Continue to serve our community as a community bank. Since our founding in 1934 we have operated as a community bank. Historically, our primary lending activity has been the origination of fixed-rate residential mortgage loans to individuals in our market area funded primarily by deposits gathered from individuals and businesses in our market area. We expect that this will continue to be the focus of our business for the foreseeable future. As part of our customer focus, we generally do not sell the loans we originate but retain them in our portfolio. When customers have questions regarding their loans, they are able to deal directly with us rather than another institution. At December 31, 2020, one- to four-family residential mortgage loans totaled $143.5 million, or 66.8% of total loans. This amount includes one- to four-family residential mortgage loans originated in the Dallas Metroplex. We have originated one- to four-family residential mortgage loans secured primarily by owner-occupied properties primarily located in the northern and eastern sections of the Dallas Metroplex. We began originating these loans in 2014, and continue to do so primarily through word-of-mouth referrals. At December 31, 2020, these loans amounted to $54.3 million.

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Grow and diversify our loan portfolio prudently. There has been influx of retirees and others from the Dallas metropolitan area into our market area. Our more rural market area offers a lower-cost of living and many recreational amenities, while being within easy reach of the cities of Dallas and Tyler and the urban amenities they offer. We believe this movement away from major cities like Dallas has been accelerated by the work-from-home trend that has arisen due to the COVID-19 pandemic. In 2018, we opened our branch office in Lindale, Texas, and acquired our branch office in Edgewood, Texas, from another bank. These offices are located in growth areas of our market area because of their closer proximity to Tyler and Dallas, respectively. The influx of population into our market area has provided opportunities for residential mortgage lending, construction and land lending, and commercial real estate lending. Although we intend to continue our historical focus on the origination of residential mortgage loans, we intend to prudently increase our commercial real estate lending and construction and land lending so as to continue to diversify our loan portfolio. In April 2021 we hired a new executive officer with commercial lending experience to augment our commercial lending expertise and activities. At December 31, 2020, commercial real estate loans amounted to $29.4 million, or 13.7% of total loans, and construction and land loans amounted to $22.8 million, or 10.6% of total loans.

 

Our commercial real estate loans and construction and land loans have higher credit risk than our residential mortgage loans. See “Risk Factors—Risks Related to our Lending Activities—Our commercial real estate loans involve credit risks that could adversely affect our financial condition and results of operations” and “Risk Factors—Risks Related to our Lending Activities—Our construction and land loans involve credit risks that could adversely affect our financial condition and results of operations”

 

Continue to grow core deposits. We consider our core deposits to include statement savings accounts, money market accounts, negotiable orders of withdrawal (NOW) accounts, other savings deposits and checking accounts. We will continue our efforts to increase our core deposits to provide a stable source of funds to support loan growth at costs consistent with improving our interest rate spread and net interest margin. Core deposits totaled $159.4 million, or 67.8% of total deposits, as of December 31, 2020, compared to $129.9 million, or 63.6% of total deposits, as of December 31, 2019.

 

Continue to manage credit risk to maintain a low level of non-performing assets. Historically, we have been able to maintain a high level of asset quality. We believe strong asset quality remains a key to our long-term financial success. Our total non-performing assets to total assets ratio was 0.36% and 0.32% at December 31, 2020 and 2019, respectively. Our strategy for credit risk management continues to focus on having an experienced team of credit professionals, well-defined policies and procedures, appropriate loan underwriting criteria and active credit monitoring. Furthermore, given the uncertainty surrounding the length and severity of the COVID-19 pandemic, management has established and will continue to use enhanced underwriting criteria for all loan types, with a particular focus on portfolio segments identified as having elevated risk.

 

Continue to support our customers and our local community. The COVID-19 pandemic has restricted the level of economic activity in our markets, resulting in dramatically increased unemployment and significant negative impacts on many businesses, thereby threatening the repayment ability of some of our borrowers. As we have done during prior economic downturns, we are taking actions to support our customers and our local community. For example, during the year ended December 31, 2020, we originated $5.5 million of small business loans under the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), created by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) that was signed into law in March 2020. Under the PPP, loan amounts may be forgiven if the borrower maintains employee payrolls and meets certain other requirements. During the year ended December 31, 2020, we also granted short-term payment deferrals on loans to assist customers during the COVID-19 pandemic, as described below.

4 

 

Grow organically and through opportunistic acquisitions or branching. We intend to grow our balance sheet organically on a managed basis, and the capital we are raising in the offering will enable us to increase our lending and investment capacity. In addition to organic growth, we may also consider expansion opportunities in our market area or in contiguous markets that we believe would enhance both our franchise value and stockholder returns. These opportunities may include acquiring other financial institutions and/or establishing loan production offices, establishing new, or de novo, branch offices and/or acquiring branch offices, and the capital we are raising in the offering would help us fund any such opportunities that may arise. We have no current plans or intentions regarding any such expansion activities.

 

Impact of COVID-19 Pandemic

 

The COVID-19 pandemic has restricted the level of economic activity in our markets. In response to the pandemic, state governments, including Texas, have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential. These measures have dramatically increased unemployment in the United States and have negatively impacted many businesses, and thereby threatening the repayment ability of some of our borrowers.

 

The CARES Act included a number of provisions that affected us, including accounting relief for troubled debt restructurings (“TDRs”). The CARES Act also established the PPP through the SBA, which allowed us to lend money to small businesses to maintain employee payrolls through the crisis with guarantees from the SBA. Under this program, loan amounts may be forgiven if the borrower maintains employee payrolls and meets certain other requirements. In addition, the Federal Reserve Board took steps to bolster the economy by, among other things, reducing the federal funds rate and the discount-window borrowing rate to near zero.

 

We have implemented various consumer and commercial loan modification programs to provide our borrowers relief from the economic impacts of COVID-19. Based on guidance in the CARES Act, COVID-19 related modifications to loans that were current as of December 31, 2019 are exempt from TDR classification under accounting principles generally accepted in the United States (“U.S. GAAP”). In addition, the bank regulatory agencies issued interagency guidance stating that COVID-19 related short-term modifications (i.e., six months or less) granted to loans that were current as of the loan modification program implementation date are not TDRs.

 

During the year ended December 31, 2020, we granted short-term payment deferrals on 44 mortgage loans and consumer loans, totaling approximately $7.2 million in aggregate principal amount, that were otherwise performing. As of December 31, 2020, all of these loans had returned to normal payment status. Additionally, during the year ended December 31, 2020, we granted short-term payment and interest deferrals on one commercial real estate loan totaling $1.2 million. This loan returned to normal payment status on April 1, 2021.

 

Given the unprecedented uncertainty and rapidly evolving economic effects and social impacts of the COVID-19 pandemic, the future direct and indirect impact on our business, results of operations and financial condition are highly uncertain. Should current economic conditions persist or continue to deteriorate, we expect that this macroeconomic environment will continue to have an adverse effect on our business and results of operations, which could include, but not be limited to: decreased demand for our products and services, protracted periods of lower interest rates, increased non-interest expenses, including operational losses, and increased credit losses due to deterioration in the financial condition of our consumer and commercial borrowers, including declining asset and collateral values, which may continue to increase our provision for credit losses and net charge-offs.

5 

 

For additional information, see “Risk Factors—Risks Related to the COVID-19 Pandemic—The economic impact of the COVID-19 pandemic could adversely affect our financial condition and results of operations.”

 

Reasons for the Conversion and Offering

 

Our primary reasons for converting to the fully public stock form of ownership and undertaking the stock offering are to:

 

Enhance our regulatory capital position to support growth and help mitigate interest rate risk. A strong capital position is essential to achieving our long-term growth objectives. Although Mineola Community Bank exceeds all regulatory capital requirements in order to be categorized as well-capitalized under regulatory guidelines, the proceeds from the offering will materially enhance and strengthen our capital position, will enable us to support our planned growth, and help to mitigate interest rate risk.

 

Transition our organization to a stock holding company structure, which gives us greater flexibility to access the capital markets compared to our existing mutual holding company structure. The stock holding company structure gives us greater flexibility to access the capital markets to support our growth through possible future equity and debt offerings. We have no current plans, agreements or understandings regarding any additional equity or debt offerings.

 

Facilitate future mergers and acquisitions. Although we do not currently have any understandings or agreements regarding any specific acquisition transaction, the stock holding company structure will give us greater flexibility to structure mergers and acquisitions of other financial institutions or business lines as opportunities arise.

 

Terms of the Offering

 

We are offering for sale between 3,060,000 shares and 4,140,000 shares of common stock to eligible depositors of Mineola Community Bank, to our tax-qualified employee benefit plans and, to the extent shares remain available, in a community offering to the general public, with a preference given first to natural persons (including trusts of natural persons) residing in the Texas Counties of Franklin, Hopkins, Smith, Van Zandt, and Wood. If necessary, we will also offer for sale shares to the general public in a syndicated community offering. The number of shares of common stock to be sold may be increased to up to 4,761,000 shares as a result of demand for the shares of common stock in the offering or changes in market conditions. Unless the number of shares of common stock to be offered is increased to more than 4,761,000 shares or decreased to fewer than 3,060,000 shares, or the subscription and community offerings are extended beyond August 2, 2021, subscribers will not have the opportunity to change or cancel their stock orders once submitted. If the subscription and community offerings are extended past August 2, 2021, all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. All subscribers will be notified by mail sent to the address the subscriber provides on the stock order form they have submitted. If you do not respond to the notice of extension, your order will be cancelled and we will promptly return your funds with interest at 0.10% per annum or cancel your deposit account withdrawal authorization. If the number of shares to be sold is increased to more than 4,761,000 shares or decreased to less than 3,060,000 shares, all subscribers’ stock orders will be canceled, their withdrawal authorizations will be canceled and funds delivered to us to purchase shares of common stock in the subscription and community offerings will be returned promptly with interest at 0.10% per annum. We will then resolicit subscribers, giving them an opportunity to place new orders for a period of time. No shares purchased in the subscription offering and community offering will be issued until the completion of any syndicated community offering, if utilized.

 

The purchase price of each share of common stock offered for sale in the offering is $10.00. All investors will pay the same purchase price per share, regardless of whether the shares are purchased in the subscription offering, a community offering or a syndicated community offering. Investors will not be charged a commission to purchase shares of common stock in the offering. Performance Trust, our marketing agent in the offering, will use its best efforts to assist us in selling shares of our common stock in the offering but is not obligated to purchase any shares of common stock in the offering.

6 

 

How We Determined the Offering Range and the $10.00 Per Share Purchase Price

 

The amount of common stock we are offering for sale are based on an independent appraisal of the estimated market value of Texas Community Bancshares, assuming the offering has been completed. Feldman Financial Advisors, Inc., which we refer to as “Feldman Financial” throughout this prospectus, our independent appraiser, has estimated that, as of February 26, 2021, this market value of Texas Community Bancshares was $36.5 million (inclusive of the shares to be contributed to the charitable foundation valued at $500,000 based on the offering price of $10.00 per share). Based on federal regulations, this market value forms the midpoint of a valuation range with a minimum of $31.1 million and a maximum of $41.9 million. Based on this valuation range, the 100.0% ownership interest of Mineola Community MHC in Mineola Community Financial Group as of December 31, 2020 being sold in the offering and the $10.00 per share price, the number of shares of common stock being offered for sale by Texas Community Bancshares ranges from 3,060,000 shares to 4,140,000 shares. The purchase price of $10.00 per share was selected primarily because it is the price most commonly used in mutual-to-stock conversions of financial institutions. Feldman Financial will update its appraisal before we complete the conversion and offering. If, as a result of demand for the shares or changes in market conditions, Feldman Financial determines that our estimated pro forma market value has increased, we may sell up to 4,761,000 shares without further notice to you. If our pro forma market value (inclusive of the shares to be contributed to the charitable foundation valued at $500,000 based on the offering price of $10.00 per share) at that time is either below $31.1 million or above $48.1 million, then, after consulting with the Federal Reserve Board, we may: terminate the offering and promptly return all funds with interest; set a new offering range and provide all subscribers the opportunity to place a new order; or take such other actions as may be permitted by the Federal Reserve Board and the Securities and Exchange Commission.

 

The appraisal is based in part on Mineola Community MHC’s financial condition and results of operations, the pro forma effect of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of 10 publicly traded savings banks and bank and savings and loan and bank holding companies that Feldman Financial considers comparable to Texas Community Bancshares. The appraisal peer group consists of the following companies, all of which are traded on the Nasdaq Stock Market. Assets are as of December 31, 2020 unless noted otherwise.

 

Company Name  Ticker Symbol  Headquarters  Total Assets 
          (In millions) 
CBM Bancorp, Inc.  CBMB  Baltimore, MD  $ 232(1)
Cincinnati Bancorp, Inc.  CNNB  Cincinnati, OH  $237 
Elmira Savings Bank  ESBK  Elmira, NY  $645 
FFBW, Inc.  FFBW  Brookfield, WI  $339 
HMN Financial, Inc.  HMNF  Rochester, MN  $910 
Home Federal Bancorp, Inc. of Louisiana  HFBL  Shreveport, LA  $535 
HV Bancorp, Inc.  HVBC  Doylestown, PA  $862 
IF Bancorp, Inc.  IROQ  Watseka, IL  $713 
Mid-Southern Bancorp, Inc.  MSVB  Salem, IN  $235 
WVS Financial Corp.  WVFC  Pittsburgh, PA  $317 

 

 

(1)As of September 30, 2020.

 

In comparing Texas Community Bancshares with the peer group, Feldman Financial made downward adjustments for earnings prospects and marketing of the common stock. Feldman Financial made no adjustments for financial condition, market area, management, dividend payments, liquidity of the common stock, subscription interest, and effect of banking regulations and regulatory reform.

7 

 

The downward adjustment for earnings prospects took into consideration our less favorable efficiency ratio and lower profitability ratios relative to the peer group measures. The downward adjustment for marketing of the common stock took into consideration the volatile stock market conditions in both the overall market and the market for bank and thrift stocks and the heightened uncertainty associated with the initial public offering market in the prevailing stock market environment, including the initial public offering market for the common stock of Texas Community Bancshares.

 

The following table presents a summary of selected pricing ratios for Texas Community Bancshares (on a pro forma basis) as of and for the twelve months ended December 31, 2020, and for the peer group companies based on earnings and other information as of and for the twelve months ended December 31, 2020, with stock prices as of February 26, 2021, as reflected in the appraisal report. Compared to the average pricing of the peer group, and based upon the information in the following table, our pro forma pricing ratios at the midpoint of the offering range indicated a discount of 35.8% on a price-to-book value basis, a discount of 36.7% on a price-to-tangible book value basis, and a premium of 367.6% on a price-to-earnings basis.

 

  

Price-to-earnings multiple (1)

   Price-to-book value ratio   Price-to-tangible book
value ratio
 
Texas Community Bancshares (pro forma basis, assuming completion of the conversion and offering)               
Adjusted Maximum    250.00x   66.53%   67.16%
Maximum    166.67x   62.66%   63.25%
Midpoint    111.11x   58.69%   59.31%
Minimum    76.92x   54.11%   54.73%
                
Valuation of peer group companies, all of which are fully converted (historical basis)               
Averages    23.76x   91.45%   93.75%
Medians    12.66x   90.20%   97.18%

 

 

(1)Price-to-earnings multiples calculated by Feldman Financial in the independent appraisal are based on an estimate of “core” or recurring earnings. These ratios are different than those presented in “Pro Forma Data.”

 

The independent appraisal does not indicate trading market value. Do not assume or expect that our valuation as indicated in the appraisal means that after the conversion and offering the shares of our common stock will trade at or above the $10.00 per share purchase price. Furthermore, Feldman Financial used the pricing ratios presented in the appraisal to estimate our pro forma appraised value for regulatory purposes and not to compare the relative value of shares of our common stock with the value of the capital stock of the peer group. The value of the capital stock of a particular company may be affected by a number of factors such as financial performance, asset size and market location.

 

For a more complete discussion of the amount of common stock we are offering for sale and the independent appraisal, see “The Conversion and Offering—Stock Pricing and Number of Shares to be Issued.”

 

Intended Use of the Proceeds From the Offering

 

We intend to contribute at least 50% of the net proceeds from the offering to Mineola Community Bank. In addition, we intend to fund a loan to our employee stock ownership plan to finance its purchase of shares of common stock in the stock offering and to contribute $75,000 to the charitable foundation. The remainder of the net proceeds from the offering will be retained at Texas Community Bancshares. Therefore, assuming we sell 3,600,000 shares of common stock in the stock offering at the midpoint of the offering range, and we have net proceeds of $34.6 million, we intend to contribute $17.3 million to Mineola Community Bank, loan $2.9 million to our employee stock ownership plan to fund its purchase of shares of common stock, contribute $75,000 in cash to the charitable foundation, and retain the remaining $14.3 million of the net proceeds at Texas Community Bancshares.

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Texas Community Bancshares may use the funds it retains for investments in securities, to repurchase shares of common stock, to acquire other financial institutions or financial services companies, to pay cash dividends and for other general corporate purposes. Mineola Community Bank may use the proceeds it receives to support increased lending, enhance existing, or support growth and the development of new, products and services, or expand its branch network by establishing or acquiring new branches or by acquiring other financial institutions or financial services companies. We do not currently have any agreements or understandings regarding any acquisitions or branch transactions.

 

See “How We Intend to Use the Proceeds from the Offering” for additional information.

 

Our Contribution of Cash and Shares of Common Stock to TCBS Foundation, Inc.

 

To further our commitment to our local community, we intend to establish and fund a new charitable foundation, TCBS Foundation, Inc., which we refer to as the “charitable foundation” throughout this prospectus, as part of the conversion and offering. Assuming we receive both regulatory approval and the approval of the members of Mineola Community MHC, we intend to contribute to the new charitable foundation $75,000 in cash and 50,000 shares of our common stock, for an aggregate contribution of $575,000 based on the $10.00 per share offering price. As a result of the contribution, we expect to record an after-tax expense of approximately $454,000 during the quarter in which the conversion and offering is completed.

 

The charitable foundation will be dedicated exclusively to supporting charitable causes and community development activities in the communities in which we operate. The contribution of common stock and cash to the charitable foundation will:

 

with respect to the contribution of shares of common stock, dilute the voting interests of purchasers of shares of our common stock in the offering; and

 

result in an expense, and a reduction in capital, during the quarter in which the contribution is made, equal to the full amount of the contribution to the charitable foundation, which we expect to be offset in part by a corresponding tax benefit.

 

The amount of common stock that we would offer for sale would be greater if the offering were to be completed without the establishment and funding of the charitable foundation. For a further discussion of the financial impact of the charitable foundation, including its effect on those who purchase shares in the offering, see “Risk Factors—Risks Related to the Charitable Foundation—The contribution to the charitable foundation will dilute your ownership interest and adversely affect net income in 2021” and “Risk Factors—Risks Related to the Charitable Foundation—Our contribution to the charitable foundation may not be tax deductible, which could reduce our profits.”

 

Persons Who May Order Shares of Common Stock in the Offering

 

We are offering the shares of common stock for sale in a subscription offering in the following descending order of priority:

 

(i)To depositors with accounts at Mineola Community Bank with aggregate balances of at least $50.00 at the close of business on December 31, 2019.

 

(ii)To our tax-qualified employee benefit plans (including Mineola Community Bank’s employee stock ownership plan), which may subscribe for, in the aggregate, up to 10% of the sum of shares of common stock sold in the offering and contributed to the charitable foundation. We expect our employee stock ownership plan to purchase 8% of the sum of shares of common stock sold in the offering and contributed to the charitable foundation.

 

(iii)To depositors with accounts at Mineola Community Bank with aggregate balances of at least $50.00 at the close of business on March 31, 2021.

 

(iv)To depositors and borrowers of Mineola Community Bank as of the close of business on April 30, 2021.

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Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given first to natural persons (including trusts of natural persons) residing in the Texas counties of Franklin, Hopkins, Smith, Van Zandt, and Wood. The community offering may begin concurrently with, during or promptly after the subscription offering. We may also offer for sale shares of common stock not purchased in the subscription offering and the community offering in a syndicated community offering. Performance Trust will act as sole manager for the syndicated community offering. We have the right to accept or reject, in our sole discretion, orders received in the community offering or syndicated community offering, and our interpretation of the terms and conditions of the plan of conversion will be final. Any determination to accept or reject stock orders in the community offering or syndicated community offering will be based on the facts and circumstances available to management at the time of the determination.

 

If we receive orders for more shares than we are offering for sale, we may not be able to fill your order, either fully or partially. A detailed description of the subscription offering, the community offering, if any, and the syndicated community offering, if any, as well as a discussion regarding allocation procedures, can be found in the section of this prospectus entitled “The Conversion and Offering.”

 

Limits on How Much Common Stock You May Purchase

 

The minimum number of shares of common stock that may be purchased is 25 shares.

 

Generally, no individual, or individuals acting through a single qualifying account held jointly, may purchase more than 25,000 shares ($250,000) of common stock. If any of the following persons purchase shares of common stock, their purchases, in all categories of the offering, when combined with your purchases, cannot exceed 50,000 shares ($500,000) of common stock:

 

your spouse or relatives of you or your spouse living in your house;

 

most companies, trusts or other entities in which you are a senior officer, partner, trustee or have a substantial beneficial interest; or

 

other persons who may be your associates or persons acting in concert with you.

 

Unless we determine otherwise, persons having the same address and persons exercising subscription rights through qualifying accounts registered to the same address will be subject to the overall purchase limitation of 50,000 shares ($500,000).

 

Subject to regulatory approval, we may increase or decrease the purchase and ownership limitations at any time. See the detailed description of the purchase limitations in “The Conversion and Offering—Additional Limitations on Common Stock Purchases.”

 

How You May Purchase Shares of Common Stock in the Subscription Offering and the Community Offering

 

In the subscription offering and community offering, you may pay for your shares only by:

 

(i)personal check, bank check or money order made payable directly to Texas Community Bancshares, Inc.; or

 

(ii)authorizing us to withdraw available funds (without any early withdrawal penalty) from your Mineola Community Bank deposit account(s), other than checking accounts or individual retirement accounts (IRAs).

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You may not use any type of third-party check to pay for shares of common stock. Do not submit cash. Wire transfers will not be accepted. Applicable regulations prohibit Mineola Community Bank from lending funds or extending credit to any person to purchase shares of common stock in the offering. You may not submit a Mineola Community Bank line of credit check. You may not designate withdrawal from Mineola Community Bank’s accounts with check-writing privileges; rather, submit a check. If you request a direct withdrawal, we reserve the right to interpret that as your authorization to treat those funds as if we had received a check for the designated amount, and will immediately withdraw the amount from your checking account(s). You may not authorize direct withdrawal from a Mineola Community Bank IRA. See “—Using Individual Retirement Account Funds to Purchase Shares of Common Stock.”

 

You may subscribe for shares of common stock in the subscription and community offerings by delivering a signed and completed original stock order form, together with full payment payable to Texas Community Bancshares, Inc. or authorization to withdraw funds from one or more of your Mineola Community Bank deposit accounts, provided that the stock order form is received (not postmarked) before 4:00 p.m., Central Time, on June 17, 2021, which is the expiration of the subscription offering period. You may submit your stock order form and payment by mail using the stock order reply envelope provided or by overnight delivery to the address listed on the stock order form. You may hand-deliver stock order forms to our Stock Information Center, which is located at Mineola Community Bank’s main office located at 215 West Broad Street, Mineola, Texas. The Stock Information Center will be open Monday through Friday, between 10:00 a.m. and 4:00 p.m., Central Time. The Stock Information Center will not be open on bank holidays. Hand-delivered stock order forms will be accepted only at this location. We will not accept hand-delivered stock order forms at our other offices.

 

See “The Conversion and Offering—Procedure for Purchasing Shares in the Subscription and Community Offerings—Payment for Shares” for a complete description of how to purchase shares in the subscription and community offerings.

 

Using Individual Retirement Account Funds to Purchase Shares of Common Stock

 

You may be able to subscribe for shares of common stock using funds in your IRA or other retirement account. If you wish to use some or all of the funds in your Mineola Community Bank IRA or other retirement account, the applicable funds must be first transferred to a self-directed account maintained by an independent custodian or trustee, such as a brokerage firm, and the purchase must be made through that account. If you do not have such an account, you will need to establish one before placing your stock order. An annual administrative fee may be payable to the independent custodian or trustee. Because individual circumstances differ and the processing of retirement fund orders takes additional time, we recommend that you contact our Stock Information Center as soon as possible, but in no event less than two weeks before the June 17, 2021 offering deadline, for assistance with purchases using funds in your IRA or other retirement account you may have at Mineola Community Bank or elsewhere. Whether you may use such funds to purchase shares in the offering may depend on timing constraints and, possibly, limitations imposed by the institution where the funds are held.

 

See “The Conversion and Offering—Procedure for Purchasing Shares in the Subscription and Community Offerings—Payment for Shares” and “—Using Individual Retirement Account Funds” for a complete description of how to use IRA funds to purchase shares of common stock in the offering.

 

Market for Common Stock

 

We have never issued capital stock, and there is no established market for our common stock. We have received conditional approval to list the shares of Texas Community Bancshares common stock on the Nasdaq Capital Market under the symbol “TCBS” upon completion of the conversion and offering. For information regarding the proposed market for our common stock, see “Market for the Common Stock.”

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Our Dividend Policy

 

Following completion of the stock offering, our board of directors will have the authority to declare dividends on our shares of common stock. The board’s determination of whether to declare a dividend and the amount of any such dividend is subject to our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No decision has been made with respect to the amount, if any, and timing of any dividend payments. We cannot assure you that we will pay dividends in the future, or that any such dividends will not be reduced or eliminated in the future. For information regarding our proposed dividend policy, see “Our Dividend Policy.”

 

Purchases by Directors and Executive Officers

 

We expect our directors and executive officers, together with their associates, to subscribe for 357,500 shares of common stock in the offering, representing 11.5% of the shares to be sold at the minimum of the offering range. They will pay the same $10.00 per share purchase price that all other persons who purchase shares of common stock in the offering will pay. See “Subscriptions by Directors and Executive Officers” for more information on the proposed purchases of shares of common stock by our directors and executive officers.

 

Deadline for Orders of Shares of Common Stock in the Subscription and Community Offerings

 

The deadline for submitting orders to purchase shares of common stock in the subscription and community offerings is 4:00 p.m., Central time, on June 17, 2021, unless we extend this deadline. If you wish to purchase shares of common stock, a properly completed and signed original stock order form, together with full payment, must be received (not postmarked) by 4:00 p.m., Central time. Although we will make reasonable attempts to provide this prospectus and offering materials to holders of subscription rights, the subscription offering and all subscription rights will expire at 4:00 p.m., Central time, on June 17, 2021, whether or not we have been able to locate each person entitled to subscription rights. See “The Conversion and Offering—Procedure for Purchasing Shares in the Subscription and Community Offerings—Expiration Date” for a complete description of the deadline for purchasing shares in the stock offering.

 

You May Not Sell or Transfer Your Subscription Rights

 

Applicable regulations prohibit you from transferring your subscription rights. If you order shares of common stock in the subscription offering, you will be required to certify that you are purchasing the common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights or the shares that you are purchasing. We intend to take legal action, including reporting persons to federal or state agencies, against anyone who we believe has sold or transferred his or her subscription rights. We will not accept your order if we have reason to believe you have sold or transferred your subscription rights. On the stock order form, you cannot add the names of others for joint stock registration unless they are also named on the qualifying deposit or loan account, and you cannot delete names of others except in the case of certain orders placed through an IRA, Keogh, 401(k) or similar plan, and except if a named eligible depositor dies. Taking either of these actions may jeopardize your subscription rights. In addition, the stock order form requires that you list all deposit accounts, giving all names on each account and the account number at the applicable eligibility date. Failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation.

 

Delivery of Shares of Common Stock

 

All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued in the subscription and community offerings will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order forms as soon as practicable following consummation of the conversion and offering. We expect trading in the stock to begin on the day of completion of the conversion and offering or the next business day. The conversion and offering are expected to be completed as soon as practicable following satisfaction of the conditions described below in “—Conditions to Completion of the Conversion.” Until a statement reflecting your ownership of shares of common stock is available and delivered to you, you may not be able to sell the shares of common stock that you purchased in the offering, even though the common stock will have begun trading. Your ability to sell your shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.

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Conditions to Completion of the Conversion

 

We cannot complete the conversion and offering unless:

 

The plan of conversion is approved by at least a majority of votes eligible to be cast by members of Mineola Community MHC (i.e., eligible depositors and borrowers of Mineola Community Bank as of the close of business on April 30, 2021);

 

The plan of conversion is approved by Mineola Community MHC, the sole stockholder of Mineola Community Financial Group;

 

We sell at least the minimum number of shares of common stock offered in the offering;

 

We receive approval from the Federal Reserve Board and the Texas Department of Savings and Mortgage Lending; and

 

The Texas Department of Savings and Mortgage Lending approves an amendment to Mineola Community Bank’s articles of incorporation to provide for a liquidation account.

 

Steps We May Take if We Do Not Receive Orders for the Minimum Number of Shares

 

If we do not receive orders for at least 3,060,000 shares of common stock, we may take one or more steps to sell the minimum number of shares of common stock in the offering range. Specifically, we may:

 

(i)increase the purchase and ownership limitations; and/or

 

(ii)seek regulatory approval to extend the offering beyond August 2, 2021, as long as we resolicit subscribers who previously submitted subscriptions in the offering.

 

If we extend the offering past August 2, 2021, all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to the notice of extension, we will cancel your stock order and promptly return your funds with interest for funds received in the subscription and community offering or cancel your deposit account withdrawal authorization. If one or more purchase limitations are increased, subscribers in the subscription offering who ordered the maximum amount will be given the opportunity to increase their subscriptions up to the then-applicable limit.

 

Possible Change in the Offering Range

 

Feldman Financial will update its appraisal before we complete the conversion and offering. If, as a result of demand for the shares or changes in market conditions, Feldman Financial determines that our pro forma market value has increased, we may sell up to 4,761,000 shares in the offering without further notice to you. If our pro forma market value at that time is either below $30.6 million or above $47.6 million, then, after consulting with the Federal Reserve Board and the Texas Department of Savings and Mortgage Lending, we may:

 

terminate the stock offering and promptly return all funds (with interest paid on funds received in the subscription and community offerings);

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set a new offering range; or

 

take such other actions as may be permitted by the Federal Reserve Board, the Texas Department of Savings and Mortgage Lending and the Securities and Exchange Commission.

 

If we set a new offering range, we will promptly return funds, with interest at 0.10% per annum, for funds received for purchases in the subscription and community offerings, and cancel any authorization to withdraw funds from deposit accounts for the purchase of shares of common stock. We will then resolicit subscribers, allowing them to place a new stock order for a period of time.

 

Possible Termination of the Offering

 

We may terminate the offering at any time before the special meeting of members of Mineola Community MHC that has been called to vote on the conversion, and at any time after member approval with regulatory approval. Mineola Community Financial Group must also approve the conversion in its capacity as the sole stockholder of Mineola Community Bank. If we terminate the offering, we will promptly return your funds with interest at 0.10% per annum, and we will cancel deposit account withdrawal authorizations.

 

Benefits to Management and Potential Dilution to Stockholders Resulting from the Conversion

 

We expect our employee stock ownership plan, which is a tax-qualified retirement plan operated for the benefit of Mineola Community Bank’s employees, to purchase up to 8% of the shares of common stock we sell in the offering and contribute to the charitable foundation. If market conditions warrant, in the judgment of the employee stock ownership plan’s trustee, the employee stock ownership plan’s subscription order will not be filled and the employee stock ownership plan may elect to purchase shares in the open market following the completion of the conversion, subject to the approval of the Federal Reserve Board.

 

We intend to implement one or more new stock-based benefit plans no earlier than six months after completion of the conversion. Stockholder approval of these plans would be required. We have not determined whether we would adopt the plans within or after 12 months following the completion of the conversion. If we implement stock-based benefit plans within 12 months following the completion of the conversion, the stock-based benefit plans would be limited to reserving a number of shares (i) up to 4% of the shares of common stock sold in the offering for awards of restricted stock to key employees and directors, at no cost to the recipients, and (ii) up to 10% of the shares of common stock sold in the offering for issuance pursuant to the exercise of stock options by key employees and directors. If the stock-based benefit plan is adopted more than 12 months after the completion of the conversion, it would not be subject to the percentage limitations set forth above. We have not yet determined the definitive number of shares that would be reserved for issuance under these plans. For a description of our current stock-based benefit plan, see “Management—Benefits to be Considered Following Completion of the Conversion—Stock-Based Benefit Plans.”

 

The following table summarizes the number of shares of common stock and the aggregate dollar value of grants that are available under one or more stock-based benefit plans if such plans reserve a number of shares of common stock equal to 4% and 10% of the shares sold in the stock offering for restricted stock awards and stock options, respectively. The table shows the dilution to stockholders if all such shares are issued from authorized but unissued shares, instead of shares purchased in the open market. A portion of the stock grants shown in the table below may be made to non-management employees. The table also sets forth the number of shares of common stock to be acquired by the employee stock ownership plan for allocation to all qualifying employees.

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   Number of Shares to be Granted or Purchased             
           As a
Percentage of
   Dilution
Resulting
From
   Value of Grants (In
Thousands) (1)
 
   At Minimum
of Offering
Range
   At Adjusted
Maximum of
Offering
Range
   Common
Stock to be
Sold in the
Offering
   Issuance of
Shares for
Stock-Based
Benefit Plans
   At Minimum
of Offering
Range
   At Adjusted
Maximum of
Offering
Range
 
Employee stock ownership plan    248,800    384,880    8.0%    N/A (2)  $2,488   $3,849 
Restricted stock awards    124,400    192,440    4.0    3.83%   1,244    1,924 
Stock options    311,000    481,100    10.0    9.09%   837    1,294 
Total    684,200    1,058,420    22.0%   12.28%  $4,569   $7,067 

 

 

(1)The actual value of restricted stock awards will be determined based on their fair value as of the date grants are made. For purposes of this table, fair value for restricted stock awards is assumed to be the same as the offering price of $10.00 per share. The fair value of stock options has been estimated at $2.69 per option using the Black-Scholes option pricing model with the following assumptions: a grant-date share price and option exercise price of $10.00; an expected option term of ten years; no dividend yield; a risk-free rate of return of 0.93%; and expected volatility of 18.68%. The actual value of stock options granted will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted.

(2)No dilution is reflected for the employee stock ownership plan because such shares are assumed to be purchased in the offering.

 

We may fund our stock-based benefit plans through open market purchases rather than with new issuances of common stock. Federal regulations do not permit us to repurchase our shares during the first year following the completion of the offering except to fund the grants of restricted stock and stock options under a stock-based benefit plan or under extraordinary circumstances.

 

Income Tax Consequences

 

Mineola Community MHC, Mineola Community Financial Group, Mineola Community Bank and Texas Community Bancshares have received an opinion of counsel, Luse Gorman, PC, regarding the material federal income tax consequences of the conversion, and have received an opinion of BKD, LLP regarding the material Texas tax consequences of the conversion. As a general matter, the conversion will not be a taxable transaction for purposes of federal or state income taxes to Mineola Community MHC, Mineola Community Financial Group, Mineola Community Bank and Texas Community Bancshares or persons eligible to subscribe in the subscription offering.

 

Emerging Growth Company Status

 

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Assuming the conversion and offering is completed during the fiscal year ending December 31, 2021, we will qualify as an emerging growth company until December 31, 2026, which is the end of the fiscal year following the fifth anniversary of the completion of the stock offering and conversion. For as long as we are an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to public companies. See “Risk Factors—Risks Related to Laws and Regulations—We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors” and “Supervision and Regulation—Emerging Growth Company Status.”

 

An emerging growth company may elect to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, but must make such election when the company is first required to file a registration statement. Such an election is irrevocable during the period a company is an emerging growth company. We have elected not to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

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Risk Factors

 

An investment in Texas Community Bancshares common stock is subject to risk, including risks related to our business and this offering.

 

Specific areas of risk related to our business include those related to the COVID-19 pandemic; our lending activities; market interest rates; laws and regulations; economic conditions; competitive matters; operational matters; accounting matters; and other business risks.

 

Specific risks related to this offering include those related to the future trading price of the common stock of Texas Community Bancshares; use of the net offering proceeds; our return on equity after the completion of the offering; intended new stock-based benefit plans; anti-takeover factors; forum selection provision for certain litigation; the trading market for the common stock of Texas Community Bancshares; the irrevocability of your investment decision; and potential adverse tax consequences related to subscription rights.

 

Before making an investment decision, you should read this entire document carefully, including the section entitled “Risk Factors” that immediately follows and that discusses the above risks in further detail.

 

How You Can Obtain Additional Information – Stock Information Center

 

Our banking personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the conversion or offering, call our Stock Information Center at (903) 369-1000. The Stock Information Center is open Monday through Friday between 10:00 a.m. and 4:00 p.m., Central time, and will be closed on bank holidays.

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RISK FACTORS

 

You should carefully consider the following risk factors in evaluating an investment in the shares of common stock. In addition to these risks and the other risks and uncertainties described elsewhere in this prospectus, there may be additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial that could materially and adversely affect our business, financial condition or results of operations.

 

Risks Related to our Lending Activities

 

Our commercial real estate loans involve credit risks that could adversely affect our financial condition and results of operations.

 

At December 31, 2020, commercial real estate loans totaled $29.4 million, or 13.7% of our loan portfolio. Given their larger balances and the complexity of the underlying collateral, commercial real estate loans generally have more risk than the one- to four-family residential real estate loans we originate. Because the repayment of commercial real estate loans depends on the successful management and operation of the borrower’s properties or related businesses, their repayment can be affected by adverse conditions in the local real estate market or economy. A downturn in the real estate market or the local economy could adversely impact the value of properties securing the loan or the revenues from the borrower’s business, thereby increasing the risk of non-performing loans. In addition, the physical condition of non-owner occupied properties may be below that of owner occupied properties due to lax property maintenance standards, which have a negative impact on the value of the collateral properties. As our commercial real estate commercial loan portfolios increase, the corresponding risks and potential for losses from these loans may also increase.

 

Our construction and land loans involve credit risks that could adversely affect our financial condition and results of operations.

 

At December 31, 2020, construction and land loans totaled $22.8 million, or 10.6% of our loan portfolio. Construction lending involves additional risks when compared with permanent finance lending because funds are advanced upon the security of the project, which is of uncertain value before its completion. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to accurately evaluate the total funds required to complete a project and the related loan-to-value ratio. In addition, generally during the term of a construction loan, interest may be funded by the borrower or disbursed from an interest reserve set aside from the construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraised value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. In addition, speculative construction loans, which are loans made to home builders who, at the time of loan origination, have not yet secured an end buyer for the home under construction, typically carry higher risks than those associated with traditional construction loans. These increased risks arise because of the risk that there will be inadequate demand to ensure the sale of the property within an acceptable time. As a result, in addition to the risks associated with traditional construction loans, speculative construction loans carry the added risk that the builder will have to pay the property taxes and other carrying costs of the property until an end buyer is found. Land loans have substantially similar risks to speculative construction loans. As our construction and land loan portfolio increases, the corresponding risks and potential for losses from these loans may also increase.

 

If our allowance for loan and lease losses is not sufficient to cover actual loan losses, our earnings could decrease.

 

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan and lease losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions or the results of our analyses are incorrect, our allowance for loan and lease losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to our allowance. In addition, our emphasis on loan growth and on increasing our portfolios of commercial real estate and commercial business loans, as well as any future credit deterioration, including as a result of the COVID-19 pandemic, could require us to increase our allowance for loan and lease losses in the future. Material additions to our allowance would materially decrease our net income.

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The Financial Accounting Standards Board has delayed the effective date of the implementation of Current Expected Credit Loss, or CECL, standard. CECL will be effective for Texas Community Bancshares and Mineola Community Bank on January 1, 2023. CECL will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for credit losses. This will change the current method of providing allowances for loan and lease losses that are incurred or probable, which would likely require us to increase our allowance for credit losses, and to greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for credit losses.

 

In addition, bank regulators periodically review our allowance for loan and lease losses and, as a result of such reviews, we may be required to increase our provision for loan and lease losses or recognize further loan charge-offs. Any increase in our allowance for loan and lease losses or loan charge-offs as a result of such review or otherwise may have a material adverse effect on our financial condition and results of operations.

 

We are subject to environmental liability risk associated with lending activities or properties we own.

 

A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties, or with respect to properties that we own in operating our business. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans and, in doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous conditions or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected any particular property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Our policies, which require us to perform an environmental review before initiating any foreclosure action on non-residential real property, may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.

 

We are subject to the risk that the SBA may not fund some or all PPP loan guarantees.

 

We are subject to credit risk on PPP loans if the SBA determines that there is a deficiency in the manner in which we originated, funded or serviced our PPP loans, including any issue with the eligibility of a borrower to receive a PPP loan. If a loss results from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which we originated, funded or serviced a PPP loan, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if the SBA has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

 

Risks Related to the COVID-19 Pandemic

 

The economic impact of the COVID-19 pandemic could adversely affect our financial condition and results of operations.

 

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 pandemic, millions of individuals have filed claims for unemployment, and stock markets have declined in value and in particular bank stocks have significantly declined in value. In response to the COVID-19 pandemic, the Federal Reserve Board has reduced the benchmark federal funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers, and federal legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 pandemic. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

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Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the  COVID-19 pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated. Further, while jurisdictions in which we operate have gradually allowed the re-opening of businesses and other organizations and removed the sheltering restrictions, it is premature to assess whether doing so will result in a meaningful increase in economic activity and the impact of such actions on further COVID-19 cases. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

 

demand for our products and services may decline, making it difficult to grow assets and income;

 

if the economy is unable to reopen substantially and successfully, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

 

collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

 

limitations may be placed on our ability to foreclose on properties during the pandemic;

 

our allowance for loan and lease losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

 

the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

 

as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

 

our cyber security risks are increased as the result of an increase in the number of employees working remotely;

 

a worsening of business and economic conditions or in the financial markets could result in an impairment of certain intangible assets, such as goodwill;

 

litigation, regulatory enforcement risk and reputation risk regarding our participation in the PPP and the risk that the SBA may not fund some or all PPP loan guarantees;

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we rely on third-party vendors for certain services and the unavailability of a critical service due to the COVID-19 pandemic could have an adverse effect on us; and

 

Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

 

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the pandemic could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

 

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

 

Risks Related to Market Interest Rates

 

A continuation of the historically low interest rate environment and the possibility that we may access higher-cost funds to support our loan growth and operations may adversely affect our net interest income and profitability.

 

In recent years, the Federal Reserve Board’s policy has been to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities. Our ability to reduce our interest expense may be limited at current interest rate levels while the average yield on our interest-earning assets may continue to decrease, and our interest expense may increase as we access non-core funding sources or increase deposit rates to fund our operations. A continuation of a low interest rate environment or an increase in our cost of funds may adversely affect our net interest income, which would have an adverse effect on our profitability.

 

Future changes in interest rates could reduce our profits and asset values.

 

Net income is the amount by which net interest income and non-interest income exceed non-interest expense and the provision for loan and lease losses. Net interest income makes up a majority of our income and is based on the difference between:

 

the interest income we earn on interest-earning assets, such as loans and securities; and

 

the interest expense we pay on interest-bearing liabilities, such as deposits and borrowings.

 

Substantially all of our loans are fixed-rate loans, and we generally do not sell the loans we originate. Furthermore, the rates we earn on our other interest-earning assets and the rates we pay on our interest-bearing liabilities are generally fixed for a contractual period of time. Like many savings institutions, our interest-bearing liabilities generally have shorter contractual maturities than our interest-earning assets. This imbalance can create significant earnings volatility because market interest rates change over time. In a period of rising interest rates, the interest income we earn on our assets may not increase as rapidly as the interest we pay on our liabilities. In a period of declining interest rates, the interest income we earn on our assets may decrease more rapidly than the interest we pay on our liabilities, as borrowers prepay mortgage loans, and mortgage-backed securities and callable investment securities are called, requiring us to reinvest those cash flows at lower, current interest rates.

 

Furthermore, the historically low interest rate environment in recent periods has contributed significantly to our loan growth, particularly in one- to four-family residential mortgage loans where refinance volume has been relatively high. During the year ended December 31, 2020, we originated $67.0 million of one- to four-family residential mortgage loans, of which $28.1 million were refinances of existing loans with us. An increase in market interest rates may reduce our loan origination volume, particularly refinance volume, and/or reduce our interest rate spread, which would have a material adverse effect on our profitability and results of operations.

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In addition, changes in interest rates can affect the average life of loans and mortgage-backed and related securities. A decline in interest rates results in increased prepayments of loans and mortgage-backed and related securities as borrowers refinance their debt to reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities. Furthermore, an inverted interest rate yield curve, where short-term interest rates (which are usually the rates at which financial institutions borrow funds) are higher than long-term interest rates (which are usually the rates at which financial institutions lend funds for fixed-rate loans) can reduce a financial institution’s net interest margin and create financial risk for financial institutions that originate longer-term, fixed rate mortgage loans.

 

Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Changes in the level of interest rates also may negatively affect the value of our assets and ultimately affect our earnings.

 

We monitor interest rate risk through the use of simulation models, including estimates of the amounts by which the fair value of our assets and liabilities (our economic value of equity or “EVE”) and our net interest income would change in the event of a range of assumed changes in market interest rates. As of December 31, 2020, in the event of an instantaneous 200 basis point increase in interest rates, we estimate that we would experience an 1.25% decrease in EVE and a 1.71% decrease in net interest income. For further discussion of how changes in interest rates could impact us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk.”

 

Risks Related to Laws and Regulations

 

Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.

 

Mineola Community Bank is subject to extensive regulation, supervision and examination by the Texas Department of Savings and Mortgage Lending and the Federal Deposit Insurance Corporation. Mineola Community MHC and Mineola Community Financial Group are, and Texas Community Bancshares will be, subject to extensive regulation, supervision and examination by the Federal Reserve Board. Such regulation and supervision govern the activities in which an institution and its holding company may engage and are intended primarily for the protection of the federal deposit insurance fund and the depositors of Mineola Community Bank, rather than for our stockholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the adequacy of the level of our allowance for loan and lease losses. These regulations, along with existing tax, accounting, securities, insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firm. These changes could materially impact, potentially even retroactively, how we report our financial condition and results of operations.

 

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.

 

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are suspected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on pursuing acquisitions or establishing new branches. The policies and procedures we have adopted that are designed to assist in compliance with these laws and regulations may not be effective in preventing violations of these laws and regulations. Furthermore, these rules and regulations continue to evolve and expand. We have not been subject to fines or other penalties, or have suffered business or reputational harm, as a result of money laundering activities in the past.

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We are subject to stringent capital requirements, which may adversely impact our return on equity, require us to raise additional capital, or limit our ability to pay dividends or repurchase shares.

 

Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and defines “capital” for calculating these ratios. The minimum capital requirements are: (i) a common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. The regulations also establish a “capital conservation buffer” of 2.5%, and the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the capital conservation buffer amount.

 

The application of these capital requirements could, among other things, result in lower returns on equity, and result in regulatory actions if we are unable to comply with such requirements. Specifically, following the completion of the offering, Mineola Community Bank’s ability to pay dividends to Texas Community Bancshares will be limited if it does not have the capital conservation buffer required by the capital rules, which may further limit the ability of Texas Community Bancshares to pay dividends to its stockholders. See “Supervision and Regulation—Savings Bank Regulation—Capital Requirements.”

 

Monetary policies and regulations of the Federal Reserve Board could adversely affect our business, financial condition and results of operations.

 

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve Board. An important function of the Federal Reserve Board is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve Board to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

 

The monetary policies and regulations of the Federal Reserve Board have had a significant effect on the operating results of financial institutions in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

 

We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

 

Texas Community Bancshares will be an emerging growth company. For as long as it continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to public companies that are not to emerging growth companies, including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As an emerging growth company, Texas Community Bancshares also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors audit our internal control over financial reporting. Investors may find our common stock less attractive since we have chosen to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.

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Risks Related to Economic Conditions

 

A worsening of economic conditions in our market area could reduce demand for our products and services and/or result in increases in our level of non-performing loans, which could adversely affect our operations, financial condition and earnings.

 

Local economic conditions have a significant impact on the ability of our borrowers to repay loans and the value of the collateral securing loans. A deterioration in economic conditions, especially local conditions, as a result of the COVID-19 pandemic or otherwise, could have the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations, and could more negatively affect us compared to a financial institution that operates with more geographic diversity:

 

demand for our products and services may decline;

 

loan delinquencies, problem assets and foreclosures may increase;

 

collateral for loans, especially real estate, may decline in value, thereby reducing customers’ future borrowing power, and reducing the value of assets and collateral associated with existing loans; and

 

the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.

 

Moreover, a significant decline in general economic conditions caused by inflation, recession, acts of terrorism, civil unrest, an outbreak of hostilities or other international or domestic calamities, an epidemic or pandemic, unemployment or other factors beyond our control could further impact these local economic conditions and could further negatively affect the financial results of our banking operations. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of underlying collateral securing loans, which could negatively affect our financial performance.

 

Risks Related to Competitive Matters

 

Strong competition within our market area may limit our growth and profitability.

 

Competition in the banking and financial services industry is intense. We compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking firms and unregulated or less regulated non-banking entities. Many of these competitors are substantially larger than us and have substantially greater resources and higher lending limits than we have and offer certain services that we do not or cannot provide. In addition, some of our competitors offer loans with lower interest rates and/or more attractive terms than loans we offer. Competition also makes it increasingly difficult and costly to attract and retain qualified employees. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to successfully compete for business and qualified employees in our market areas. The greater resources and deposit and loan products offered by some of our competitors may limit our ability to increase our interest-earning assets. For additional information see “Business of Mineola Community Bank, S.S.B.—Competition.”

 

Our small size makes it more difficult for us to compete.

 

Our small asset size makes it more difficult to compete with other financial institutions that are larger and can more easily afford to invest in the marketing and technologies needed to attract and retain customers. Because our principal source of income is the net interest income we earn on our loans and investments after deducting interest paid on deposits and other sources of funds, our ability to generate the revenues needed to cover our expenses and finance such investments is limited by the size of our loan and investment portfolios. Accordingly, we are not always able to offer new products and services as quickly as our competitors. Our lower earnings may also make it more difficult to offer competitive salaries and benefits. In addition, our smaller customer base may make it difficult to generate meaningful non-interest income from such activities as securities and insurance brokerage. Finally, as a smaller institution, we are disproportionately affected by the continually increasing costs of compliance with new banking and other regulations.

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Risks Related to Operational Matters

 

We face significant operational risks because of our reliance on technology. Our information technology systems may be subject to failure, interruption or security breaches.

 

Information technology systems are critical to our business. Our business requires us to collect, process, transmit and store significant amounts of confidential information regarding our customers, employees and our own business, operations, plans and business strategies. We use various technology systems to manage our customer relationships, general ledger, securities investments, deposits, and loans. Our computer systems, data management and internal processes, as well as those of third parties, are integral to our performance. Our operational risks include the risk of malfeasance by employees or persons outside our company, errors relating to transaction processing and technology, systems failures or interruptions, breaches of our internal control systems and compliance requirements, and business continuation and disaster recovery. There have been increasing efforts by third parties to breach data security at financial institutions. Such attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information, damages to systems, or other material disruptions to network access or business operations. Although we take protective measures and believe that we have not experienced any of the data breaches described above, the security of our computer systems, software, and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious code and cyber-attacks that could have an impact on information security. Because the techniques used to cause security breaches change frequently, we may be unable to proactively address these techniques or to implement adequate preventative measures.

 

If there is a breakdown in our internal control systems, improper operation of systems or improper employee actions, or a breach of our security systems, including if confidential or proprietary information were to be mishandled, misused or lost, we could suffer financial loss, loss of customers and damage to our reputation, and face regulatory action or civil litigation. Any of these events could have a material adverse effect on our financial condition and results of operations. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits.

 

In addition, we outsource a majority of our data processing requirements to third-party providers. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with our contractual agreements with them, or we also could be adversely affected if such an agreement is not renewed by the third-party vendor or is renewed on terms less favorable to us. If our third-party providers encounter difficulties, or if we have difficulty communicating with those service providers, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected, which could have a material adverse effect on our financial condition and results of operations. Threats to information security also exist in the processing of customer information through various other vendors and their personnel. To our knowledge, the services and programs provided to us by third parties have not experienced any material security breaches. However, the existence of cyber-attacks or security breaches at third parties with access to our data, such as vendors, may not be disclosed to us in a timely manner.

 

We depend on our management team to implement our business strategy and execute successful operations and we could be harmed by the loss of their services.

 

We depend on the services of the members of our senior management team who direct our strategy and operations. Our executive officers and lending personnel possess substantial expertise, extensive knowledge of our markets and key business relationships, and have been integral in the restructuring of our operations, including the implementation of a more aggressive sales culture within our institution. Any one of them could be difficult to replace. Our loss of these persons, or our inability to hire additional qualified personnel, could impact our ability to implement our business strategy and could have a material adverse effect on our results of operations and our ability to compete in our markets. See “Management.”

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Our funding sources may prove insufficient to replace deposits at maturity and support our future growth.

 

We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments. As we continue to grow, we are likely to become more dependent on these sources, which may include Federal Home Loan Bank advances, proceeds from the sale of loans, federal funds purchased and brokered certificates of deposit. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources. Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our operating margins and profitability would be adversely affected.

 

Risks Related to Accounting Matters

 

Changes in management’s estimates and assumptions may have a material impact on our consolidated financial statements and our financial condition or operating results.

 

In preparing this prospectus, as well as periodic reports we will be required to file under the Securities Exchange Act of 1934 upon the completion of the offering, including our consolidated financial statements, our management is and will be required under applicable rules and regulations to make estimates and assumptions as of a specified date. These estimates and assumptions are based on management’s best estimates and experience as of that date and are subject to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimates and assumptions by management include our evaluation of the adequacy of our allowance for loan and lease losses, the valuation of acquired loans, the valuation of other real estate acquired in connection with foreclosure or in satisfaction of loans, valuation allowances associated with the realization of deferred tax assets and our determinations with respect to amounts owed for income taxes.

 

Changes in accounting standards could affect reported earnings.

 

The bodies responsible for establishing accounting standards, including the Financial Accounting Standards Board, the Securities and Exchange Commission and other regulatory bodies, periodically change the financial accounting and reporting guidance that governs the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our consolidated financial condition and results of operations. In some cases, we could be required to apply new or revised guidance retroactively.

 

Other Risks Related to Our Business

 

We are a community bank and our ability to maintain our reputation is critical to the success of our business. The failure to do so may materially adversely affect our performance.

 

We are a community bank, and our reputation is one of the most valuable components of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and contiguous areas. Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, cybersecurity incidents and questionable or fraudulent activities of our customers. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers and employees, costly litigation and increased governmental regulation, all of which could adversely affect our business and operating results.

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Legal and regulatory proceedings and related matters could adversely affect us.

 

We have been and may in the future become involved in legal and regulatory proceedings. We consider most of the proceedings to be in the normal course of our business or typical for the industry; however, it is inherently difficult to assess the outcome of these matters, and we may not prevail in any proceedings or litigation. There could be substantial costs and management diversion in such litigation and proceedings, and any adverse determination could have a materially adverse effect on our business, reputation, or our financial condition and results of our operations.

 

Risks Related to the Offering

 

The future price of our shares of common stock may be less than the $10.00 purchase price per share in the offering.

 

If you purchase shares of common stock in the offering, you may not be able to sell them later at or above the $10.00 purchase price. In many cases, shares of common stock issued by newly converted savings institutions or mutual holding companies have traded below the initial offering price. The aggregate purchase price of the shares of common stock sold in the offering will be based on an independent appraisal. The independent appraisal is not intended, and should not be construed, as a recommendation of any kind as to the advisability of purchasing shares of common stock. The independent appraisal is based on certain estimates, assumptions and projections, all of which are subject to change from time to time. After the shares begin trading, the trading price of our common stock will be determined by the marketplace, and may be influenced by many factors, including prevailing interest rates, the overall performance of the economy, changes in federal tax laws, new regulations, investor perceptions of Texas Community Bancshares and the outlook for the financial services industry in general. Price fluctuations in our common stock may be unrelated to our operating performance.

 

Our failure to effectively deploy the net proceeds may have an adverse effect on our financial performance.

 

We intend to contribute between $14.6 million and $20.0 million of the net proceeds of the offering (or $23.0 million at the adjusted maximum of the offering range) to Mineola Community Bank. We may use the remaining net proceeds to invest in short-term investments and for general corporate purposes, including repurchasing shares of our common stock and paying dividends. We also expect to use a portion of the net proceeds we retain to fund a loan to our employee stock ownership plan to purchase shares of common stock in the offering. Mineola Community Bank may use the net proceeds it receives to fund new loans, expand its retail banking franchise by establishing or acquiring new branches or by acquiring other financial institutions or other financial services companies, or for other general corporate purposes. However, except for the funding the loan to the employee stock ownership plan, we have not allocated specific amounts of the net proceeds for any of these purposes, and we will have broad discretion in determining the amount of the net proceeds we apply to different uses and when we apply or reinvest such proceeds. Also, certain of these uses, such as opening new branches or acquiring other financial institutions, may require the approval of our bank regulators. We have not established a timetable for investing the net proceeds, and we cannot predict how long we will require to invest the net proceeds. Our failure to reinvest these funds effectively would reduce our profitability and may adversely affect the value of our common stock.

 

The cost of additional finance and accounting systems, procedures, compliance and controls in order to satisfy our new public company reporting requirements will increase our expenses.

 

As a result of the completion of the conversion and offering, we will become a public reporting company. We expect that the obligations of being a public company, including the substantial public reporting obligations, will require significant expenditures and place additional demands on our management team. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a stand-alone public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. The Sarbanes-Oxley Act of 2002 requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we would expect to file with the Securities and Exchange Commission. Any failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business and stock price. In addition, we may need to hire additional compliance, accounting and financial staff with appropriate public company experience and technical knowledge, and we may not be able to do so in a timely fashion. As a result, we may need to rely on outside consultants to provide these services for us until qualified personnel are hired. These obligations will increase our operating expenses and could divert our management’s attention from our operations.

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Our return on equity may be low following the stock offering. This could negatively affect the trading price of our shares of common stock.

 

Net income divided by average stockholders’ equity, known as “return on equity,” is a ratio many investors use to compare the performance of financial institutions. Our return on equity may be lower than our peers until we are able to leverage the additional capital we receive from the stock offering. Our return on equity also will be negatively affected by added expenses associated with our employee stock ownership plan and the stock-based benefit plans we currently sponsor and intend to adopt. Our return on average equity was 2.35% for the year ended December 31, 2020, with consolidated members’ equity of $31.9 million at December 31, 2020. Our pro forma consolidated stockholders’ equity as of December 31, 2020, assuming completion of the offering, is estimated to be between $57.5 million at the minimum of the offering range and $66.9 million at the adjusted maximum of the offering range. Until we can increase our net interest income and non-interest income and leverage the capital raised in the stock offering, our return on equity may be low, which may reduce the market price of our shares of common stock.

 

Our stock-based benefit plans will increase our expenses and reduce our income.

 

We intend to adopt one or more new stock-based benefit plans after the conversion, subject to stockholder approval, which will increase our annual compensation and benefit expenses related to the stock options and stock awards granted to participants under the new stock-based benefit plans. The actual amount of these new stock-related compensation and benefit expenses will depend on the number of options and stock awards granted under the plans, the fair market value of our stock or options on the date of grant, the vesting period, and other factors which we cannot predict at this time. If we adopt stock-based benefit plans within 12 months following the conversion, the shares of common stock reserved for issuance pursuant to awards of restricted stock and grants of options under such plans would be limited to 4% and 10%, respectively, of the sum of shares of our common stock sold in the offering and contributed to the charitable foundation. If we adopt stock-based benefit plans more than 12 months after the completion of the conversion, we may adopt plans that allow for greater amounts of awards and options and, therefore, we could award restricted shares of common stock or grant options in excess of these amounts, which would further increase costs.

 

In addition, we will recognize expense for our employee stock ownership plan when shares are committed to be released to participants’ accounts, and we will recognize expense for restricted stock awards and stock options over the vesting period of awards made to recipients. The expense in the first year following the offering for our employee stock ownership plan and for our new stock-based benefit plans, assuming such plans had been implemented at the beginning of the year, is estimated to be approximately $836,000 ($701,000 after tax) at the adjusted maximum of the offering range as set forth in the pro forma financial information under “Pro Forma Data,” assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock. For further discussion of our proposed stock-based plans, see “Management—Benefits to be Considered Following Completion of the Conversion.”

 

The implementation of stock-based benefit plans may dilute your ownership interest. Historically, stockholders have approved these stock-based benefit plans.

 

We intend to adopt one or more new stock-based benefit plans following the stock offering. These plans may be funded either through open market purchases of our common stock or from the issuance of authorized but unissued shares of common stock. Our ability to repurchase shares of our common stock to fund these plans will be subject to many factors, including applicable regulatory restrictions on stock repurchases, the availability of stock in the market, the trading price of our stock, our capital levels, alternative uses for our capital and our financial performance. While our intention is to fund the new stock-based benefit plans through open market purchases, stockholders would experience a 9.09% dilution in ownership interest if newly issued shares of our common stock are used to fund stock options in an amount equal to 10% of the sum of shares sold in the offering and contributed to the charitable foundation, and all such stock options are exercised, and a 3.85% dilution in ownership interest if newly issued shares of our common stock are used to fund shares of restricted common stock in an amount equal to 4% of the sum of shares sold in the offering and contributed to the charitable foundation. Such dilution would also reduce earnings per share. If we adopt the plans more than 12 months following the conversion, new stock-based benefit plans would not be subject to these size limitations and stockholders could experience even greater dilution.

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Although the implementation of new stock-based benefit plans would be subject to stockholder approval, historically, the overwhelming majority of stock-based benefit plans adopted by savings institutions and their holding companies following mutual-to-stock conversions have been approved by stockholders.

 

We have not determined when we will adopt one or more new stock-based benefit plans. Stock-based benefit plans adopted more than 12 months following the completion of the conversion may exceed regulatory restrictions on the size of stock-based benefit plans adopted within 12 months, which would further increase our costs.

 

If we adopt stock-based benefit plans more than 12 months following the completion of the conversion, then grants of shares of common stock or stock options under our proposed stock-based benefit plans may exceed 4% and 10%, respectively, of the sum of shares of common stock sold in the offering and contributed to the charitable foundation. Stock-based benefit plans that provide for awards in excess of these amounts would increase our costs beyond the amounts estimated in “—Our stock-based benefit plans will increase our expenses and reduce our income.” Stock-based benefit plans that provide for awards in excess of these amounts could also result in dilution to stockholders in excess of that described in “—The implementation of stock-based benefit plans may dilute your ownership interest. Historically, stockholders have approved these stock-based benefit plans.” Although the implementation of stock-based benefit plans would be subject to stockholder approval, the timing of the implementation of such plans will be at the discretion of our board of directors.

 

Our stock value may be negatively affected by applicable regulations that restrict stock repurchases.

 

Applicable regulations generally restrict us from repurchasing our shares of common stock during the first year following the offering. Stock repurchases are a capital management tool that can enhance the value of a company’s stock, and our inability to repurchase our shares of common stock during the first year following the stock offering may negatively affect our stock price.

 

Various factors may make takeover attempts more difficult to achieve.

 

Certain provisions of our articles of incorporation and bylaws and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire control of Texas Community Bancshares without our board of directors’ approval. Under regulations applicable to the conversion, for a period of three years following completion of the conversion, no person may offer to acquire or acquire beneficial ownership of more than 10% of our common stock without prior approval of the Federal Reserve Board. Under federal law, subject to certain exemptions, a person, entity or group must notify the Federal Reserve Board and receive the Federal Reserve Board’s non-objection before acquiring control of a bank holding company. There also are provisions in our articles of incorporation and bylaws that we may use to delay or block a takeover attempt, including a provision that prohibits any person from voting more than 10% of our outstanding shares of common stock. Furthermore, shares of restricted stock and stock options that we may grant to employees and directors, stock ownership by our management and directors and other factors may make it more difficult for companies or persons to acquire control of Texas Community Bancshares without the consent of our board of directors, and may increase the cost of an acquisition. Taken as a whole, these statutory or regulatory provisions and provisions in our articles of incorporation and bylaws could result in our being less attractive to a potential acquirer and therefore could adversely affect the market price of our common stock. For additional information, see “Restrictions on Acquisition of Texas Community Bancshares” and “Management—Benefits to be Considered Following Completion of the Conversion.”

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Our articles of incorporation provide that, subject to limited exception, state and federal courts in the State of Maryland are the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, and other employees.

 

The articles of incorporation of Texas Community Bancshares provide that, unless Texas Community Bancshares consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of Texas Community Bancshares, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Texas Community Bancshares to Texas Community Bancshares or its stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Maryland General Corporation Law, or (iv) any action asserting a claim governed by the internal affairs doctrine will be conducted in a state or federal court located within the State of Maryland, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. This exclusive forum provision does not apply to claims arising under the federal securities laws. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum it finds favorable for disputes with Texas Community Bancshares and its directors, officers, and other employees or may cause a stockholder to incur additional expense by having to bring a claim in a judicial forum that is distant from where the stockholder resides, or both. In addition, if a court were to find this exclusive forum provision to be inapplicable or unenforceable in a particular action, we may incur additional costs associated with resolving the action in another jurisdiction, which could have a material adverse effect on our financial condition and results of operations.

 

There may be a limited trading market in our shares of common stock, which would hinder your ability to sell our common stock and may lower the market price of our common stock.

 

We have received conditional approval to list our common stock on the Nasdaq Capital Market under the symbol “TCBS” upon conclusion of the conversion and offering, subject to completion of the offering and compliance with certain conditions, including having 300 unrestricted “round lot” stockholders (stockholders owning at least 100 shares that are not subject to resale restrictions) and at least three companies making a market for our common stock. The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of the shares of common stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares of common stock on short notice, and, therefore, you should not view the shares of common stock as a short-term investment. If you purchase shares of common stock, you may not be able to sell them at or above $10.00 per share. Purchasers of common stock in this offering should have long-term investment intent and should recognize that there will be a limited trading market in the common stock. This may make it difficult to sell the common stock after the offering and may have an adverse impact on the price at which the common stock can be sold.

 

You may not revoke your decision to purchase Texas Community Bancshares common stock in the subscription or community offerings after you send us your order.

 

Funds submitted or automatic withdrawals authorized in connection with the purchase of shares of common stock in the subscription and community offerings will be held by us until the completion or termination of the conversion and offering, including any extension of the expiration date and consummation of a syndicated community offering. Because completion of the conversion and offering will be subject to regulatory approvals and an update of the independent appraisal prepared by Feldman Financial, among other factors, there may be one or more delays in completing the conversion and offering. Orders submitted in the subscription and community offerings are irrevocable, and purchasers will have no access to their funds unless the offering is terminated, or extended beyond August 2, 2021, or the number of shares to be sold in the offering is increased to more than 4,761,000 shares or decreased to fewer than 3,060,000 shares.

29 

 

The distribution of subscription rights could have adverse income tax consequences.

 

If the subscription rights granted in connection with the stock offering are deemed to have an ascertainable value, receipt of such rights may be taxable in an amount equal to such value. Whether subscription rights are considered to have ascertainable value is an inherently factual determination. We have received an opinion of counsel, Luse Gorman, PC, that it is more likely than not that such rights have no value; however, such opinion is not binding on the Internal Revenue Service.

 

Risks Related to the Charitable Foundation

 

The contribution to the charitable foundation will dilute your ownership interest and adversely affect net income in 2021.

 

We intend to establish and fund a new charitable foundation in connection with the conversion and offering. We intend to contribute $75,000 in cash and 50,000 shares, for an aggregate contribution of $575,000 based on the $10.00 per share offering price, to the charitable foundation. The contribution will have an adverse effect on our net income for the quarter and year in which we make the issuance and contribution to the charitable foundation. The after-tax expense of the contribution is expected to reduce net income in the year of the contribution by approximately $454,000.

 

Our contribution to the charitable foundation may not be tax deductible, which could reduce our profits.

 

We may not have sufficient profits to be able to fully use the tax deduction from our contribution to the charitable foundation. Under the Internal Revenue Code, an entity is permitted to deduct up to 10% of its taxable income (generally income before federal income taxes and charitable contributions expense) in any one year for charitable contributions. Any contribution in excess of the 10% limit may be deducted for federal income tax purposes over each of the five years following the year in which the charitable contribution is made. Accordingly, a charitable contribution could, if necessary, be deducted over a six-year period and expires thereafter.

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

 

The summary information presented below at each date or for each of the periods presented is derived in part from the consolidated financial statements of Mineola Community MHC. The financial condition data at December 31, 2020 and 2019 and the operating data for the years ended December 31, 2020 and 2019 are derived from the audited consolidated financial statements of Mineola Community MHC included elsewhere in this prospectus. The information at and for the years ended December 31, 2018 was derived in part from the audited consolidated financial statements of Mineola Community MHC that are not included in this prospectus. The following information is only a summary, and should be read in conjunction with the consolidated financial statements and related notes of Mineola Community MHC beginning on page F-1 of this prospectus.

 

   At December 31, 
   2020   2019   2018 
             
   (In thousands) 
Selected Financial Condition Data:               
Total assets   $299,638   $267,559   $251,822 
Cash and cash equivalents    8,073    5,530    10,665 
Interest bearing deposits in banks    14,015    19,060    13,839 
Securities available for sale    12,966    10,715    14,120 
Securities held to maturity    34,328    39,179    39,313 
Loans receivable, net    213,239    177,202    158,563 
Premises and equipment, net    6,383    6,084    6,303 
Foreclosed real estate    209        24 
Restricted investments carried at cost    2,024    1,994    1,944 
Bank owned life insurance    5,908    5,787    4,685 
Core deposit intangible    661    794    926 
Total deposits    235,140    204,224    197,661 
Advances from the Federal Home Loan Bank    30,768    31,142    23,539 
Total members’ equity    31,939    31,054    29,763 

 

   For the Years Ended December 31, 
   2020   2019   2018 
             
   (In thousands) 
Selected Operating Data:               
Interest income   $10,802   $10,025   $8,314 
Interest expense    2,509    2,642    1,982 
Net interest income    8,294    7,383    6,332 
Provision for loan and lease losses    484    160    16 
Net interest income after provision for loan and lease losses    7,809    7,223    6,316 
Noninterest income    1,557    1,625    1,476 
Noninterest expense    8,424    7,561    6,805 
Income before income taxes    942    1,287    987 
Income tax expense    193    230    157 
Net income   $749   $1,057   $831 

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   At or For the Years Ended December 31, 
   2020   2019   2018 
Performance Ratios:               
Return on average assets    0.26%   0.41%   0.38%
Return on average equity    2.35%   3.45%   2.83%
Interest rate spread (1)    2.95%   2.84%   2.85%
Net interest margin (2)    3.14%   3.06%   3.03%
Noninterest expense to average assets    2.96%   2.92%   3.01%
Efficiency ratio (3)    85.51%   83.94%   87.15%
Average interest-earning assets to average interest-bearing liabilities    119.96%   119.71%   118.40%
                
Capital Ratios:               
Average equity to average assets    11.21%   11.82%   13.41%
Total capital to risk-weighted assets    19.16%   21.10%   22.30%
Tier 1 capital to risk-weighted assets    18.68%   20.30%   21.60%
Common equity tier 1 capital to risk-weighted assets    18.68%   20.30%   21.60%
Tier 1 capital to average assets    10.50%   11.40%   12.80%
                
Asset Quality Ratios:               
Allowance for loan and lease losses as a percentage of total loans    0.73%   0.62%   0.61%
Allowance for loan and lease losses as a percentage of non-performing loans    178.81%   128.67%   155.93%
Allowance for loan and lease losses as a percentage of non-accrual loans    178.81%   128.67%   155.93%
Non-accrual loans as a percentage of total loans    0.41%   0.48%   0.39%
Net (charge-offs) recoveries to average outstanding loans during the year    (0.01)%   (0.02)%   (0.01)%
Non-performing loans as a percentage of total loans    0.41%   0.48%   0.39%
Non-performing loans as a percentage of total assets    0.29%   0.32%   0.25%
Total non-performing assets as a percentage of total assets    0.36%   0.32%   0.26%
                
Other Data:               
Number of offices    6    6    5 
Number of full-time employees    61    58    52 
Number of part-time employees    2    5    3 

 

 

(1)Represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2)Represents net interest income as a percentage of average interest-earning assets.

(3)Represents noninterest expenses divided by the sum of net interest income and noninterest income.

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RECENT DEVELOPMENTS

 

The financial data presented below is derived in part from the consolidated financial statements of Mineola Community MHC. The financial condition data at December 31, 2020 are derived from the audited consolidated financial statements of Mineola Community MHC included elsewhere in this prospectus. The financial condition data at March 31, 2021 and the operating data for the three months ended March 31, 2021 and 2020 are not audited but, in the opinion of management, reflects all adjustments necessary for a fair presentation. All such adjustments are normal and recurring and are the only adjustments reflected in the financial data presented below. The following information is only a summary and should be read in conjunction with the audited consolidated financial statements of Mineola Community MHC beginning on page F-1 of this prospectus.

 

   At March 31, 2021   At December 31, 2020 
   (Unaudited)     
   (In thousands) 
Selected Financial Condition Data:          
Total assets   $316,501   $299,638 
Cash and cash equivalents    19,210    8,073 
Interest bearing deposits in banks    20,995    14,015 
Securities available for sale    11,767    12,966 
Securities held to maturity    35,497    34,328 
Loans receivable, net    212,239    213,239 
Premises and equipment, net    6,365    6,383 
Foreclosed real estate    209    209 
Restricted investments carried at cost    2,027    2,024 
Bank owned life insurance    5,935    5,908 
Core deposit intangible    628    661 
Total deposits    252,559    235,140 
Advances from the Federal Home Loan Bank    30,208    30,768 
Total members’ equity    31,757    31,939 

 

   For the Three Months Ended March 31, 
   2021   2020 
         
   (Unaudited) 
   (In thousands) 
Selected Operating Data:          
Interest income   $2,603   $2,605 
Interest expense    564    666 
Net interest income    2,039    1,939 
Provision for loan and lease losses    2    5 
Net interest income after provision for loan and lease losses    2,037    1,934 
Noninterest income    383    397 
Noninterest expenses    2,129    2,015 
Income before income taxes    291    316 
Income tax expense    48    52 
Net income   $243   $264 

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   At or For the Three Months Ended
March 31,
 
   2021   2020 
         
   (Unaudited) 
Performance Ratios (1):          
Return on average assets    0.32%   0.39%
Return on average equity    3.03%   3.35%
Interest rate spread (2)    2.70%   2.91%
Net interest margin (3)    2.85%   3.11%
Noninterest expense to average assets    0.69%   0.75%
Efficiency ratio (4)    87.90%   86.26%
Average interest-earning assets to average interest-bearing liabilities    118.48%   118.64%
           
Capital Ratios:          
Average equity to average assets    10.44%   11.79%
Tier 1 capital to average assets    10.21%   11.50%
           
Asset Quality Ratios:          
Allowance for loan and lease losses as a percentage of total loans    0.73%   0.60%
Allowance for loan and lease losses as a percentage of non-performing loans    162.37%   165.71%
Allowance for loan and lease losses as a percentage of non-accrual loans    162.37%   165.71%
Non-accrual loans as a percentage of total loans    0.45%   0.36%
Net (charge-offs) recoveries to average outstanding loans during the period    0.00%   0.00%
Non-performing loans as a percentage of total loans    0.45%   0.36%
Non-performing loans as a percentage of total assets    0.30%   0.25%
Non-performing assets as a percentage of total assets    0.37%   0.32%
           
Other Data:          
Number of offices    6    6 
Number of full-time employees    59    57 
Number of part-time employees    3    4 

 

 

(1)Performance ratios are annualized.

(2)Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities.

(3)Represents net interest income as a percentage of average interest-earning assets.

(4)Represents noninterest expense divided by the sum of net interest income and noninterest income.

 

Comparison of Financial Condition at March 31, 2021 and December 31, 2020

 

Total Assets. Total assets were $316.5 million at March 31, 2021, an increase of $16.9 million, or 5.6%, when compared to total assets of $299.6 million at December 31, 2020. The increase was due primarily to increases in cash and cash equivalents and in interest bearing deposits in banks, which increased by a combined $18.1 million, or 82.0%, in the first quarter, which was primarily due to a $17.4 million, or 7.4%, increase in deposits from $235.1 million at December 31, 2020 to $252.6 million at March 31, 2021.

 

Cash and Cash Equivalents. Cash and cash equivalents (which includes fed funds sold) increased $11.1 million, or 138.0%, to $19.2 million (which includes fed funds sold of $13.4 million) at March 31, 2021 from $8.1 million (which includes fed funds sold of $2.1 million) at December 31, 2020. This increase is primarily due to an increase in deposits of $17.4 million.

 

Interest Bearing Deposits in Banks. Interest bearing deposits in banks were $21.0 million at March 31, 2021 compared to $14.0 million at December 31, 2020, an increase of $7.0 million, or 49.8%. The increase was due primarily to an increase in deposits of $17.4 million.

 

Securities Available for Sale. Securities available for sale decreased by $1.2 million, or 9.3%, to $11.8 million at March 31, 2021 from $13.0 million at December 31, 2020. This decrease is due to principal repayments of $1.1 million and a $27,000 decrease in unrealized holding gains within the portfolio.

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Securities Held to Maturity. Securities held to maturity increased by $1.2 million, or 3.4%, to $35.5 million at March 31, 2021 from $34.3 million at December 31, 2020. This increase is due to purchases of mortgage-backed securities totaling $6.2 million, partially offset by principal repayments on mortgage-backed securities of $3.1 million and calls on municipal securities totaling $1.9 million.

 

Loans and Leases Receivable, Net. Loans and leases receivable, net, decreased $1.0 million, or 0.5%, to $212.2 million at March 31, 2021 from $213.2 million at December 31, 2020. During the quarter ended March 31, 2021, loan originations totaled $22.7 million of which $5.9 million were renewals or refinancings of existing loans with Mineola Community Bank, resulting in originations of new loans of $16.8 million. Of these new loan originations, there were $8.2 million of one- to four-family loan originations, $6.3 million of construction loan originations, including speculative construction loans of $2.8 million ($1.3 million of all construction loans originated during the current quarter were funded at March 31, 2021), $654,000 of consumer loan originations, $385,000 in commercial and industrial loan originations, $553,000 in land & development loan originations, and $294,000 in farmland loan originations. During the three months ended March 31, 2021, there were $3.1 million in loan principal payments and $10.8 million in loan payoffs. PPP loans decreased by $3.1 million, or 78.0%, from $4.1 million at December 31, 2020 to $895,000 at March 31, 2021. During the three months ended March 31, 2021, construction loans in process increased by $1.0 million to $24.5 million at March 31, 2021, which reflects the strong housing demand in our primary market area.

 

Deposits. Deposits increased $17.4 million, or 7.4%, to $252.6 million at March 31, 2021 from $235.1 million at December 31, 2020. Core deposits (defined as all deposits other than certificates of deposit) increased $17.9 million, or 11.2%, to $177.3 million at March 31, 2021 from $159.4 million at December 31, 2020. Certificates of deposit decreased $454,000, or 0.6%, to $75.3 million at March 31, 2021 from $75.8 million at December 31, 2020. At March 31, 2021, there were no brokered deposits. The growth in deposits in the first quarter of 2021 was primarily due to the high customer cash balances resulting from tax refund deposits and various forms of COVID- 19 relief, primarily government stimulus payments. The decrease in certificates of deposit is primarily due to the low interest rate environment combined with our strategy to reduce our cost of funds by reducing the balances of higher cost certificates of deposit.

 

Advances from the Federal Home Loan Bank. Advances from the Federal Home Loan Bank decreased by $560,000, or 1.8%, to $30.2 million at March 31, 2021 from $30.8 million at December 31, 2020 due to scheduled monthly amortization of principal.

 

Total Members’ Equity. Total members’ equity decreased $182,000, or 0.6%, to $31.8 million at March 31, 2021 from $31.9 million at December 31, 2020. This decrease was due to $403,000 in costs related to the pending stock conversion and a $21,000 reduction in other comprehensive income from $128,000 at December 31, 2020 to $107,000 at March 31, 2021, offset by net income of $243,000 for the three months ended March 31, 2021.

 

At March 31, 2021, 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, 2021, a community bank leverage ratio of at least 8.5% is required to be considered “well capitalized” under regulatory requirements. At March 31, 2021, Mineola Community Bank’s community bank leverage ratio was 10.21%.

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The following table sets forth average balance sheets, 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 $134,000 and $77,000 for the three months ended March 31, 2021 and 2020, respectively. No PPP loans were originated during the three months ended March 31, 2021 or 2020. We have not recorded deferred loan fees, as we have determined them to be immaterial.

 

   For the Three Months Ended March 31, 
   2021   2020 
   Average
Outstanding
Balance
   Interest   Average
Yield/Rate
   Average
Outstanding
Balance
   Interest   Average
Yield/Rate
 
                         
   (Dollars in thousands) 
   (Unaudited) 
Interest-earning assets:                              
Loans (excluding PPP loans)   $212,114   $2,397    4.52%  $181,149   $2,227    4.92%
Allowance for loan and lease losses    (1,562)             (1,102)          
PPP loans    1,367    4    1.17%           %
Securities    47,761    177    1.48%   48,415    258    2.13%
Restricted stock    2,023    4    0.79%   1,994    11    2.21%
Interest bearing deposits in banks    21,601    20    0.37%   17,442    105    2.41%
Federal funds sold    3,258    1    0.12%   1,389    4    1.15%
Total interest-earning assets    286,562    2,603    3.63%   249,287    2,605    4.18%
Noninterest-earning assets    20,976              18,121           
Total assets   $307,538             $267,408           
                               
Interest-bearing liabilities:                              
Interest-bearing demand deposits   $62,055    54    0.35%  $43,598    43    0.39%
Regular savings and other deposits    63,376    60    0.38%   48,788    66    0.54%
Money market deposits    9,850    11    0.45%   11,422    34    1.19%
Certificates of deposit    75,771    276    1.46.%   73,012    339    1.86%
Total interest-bearing deposits    211,052    401    0.76%   176,820    482    1.09%
Advances from the Federal Home Loan Bank    30,407    160    2.10%   32,983    181    2.20%
Other liabilities    412    3    2.91%   325    3    3.69%
Total interest-bearing liabilities    241,871    564    0.93%   210,128    666    1.27%
Noninterest-bearing demand deposits    30,939              23,787           
Other noninterest-bearing liabilities    2,620              1,963           
Total liabilities    275,430              235,878           
Total members’ equity    32,108              31,530           
Total liabilities and members’ equity   $307,538             $267,408           
Net interest income        $2,039             $1,939      
Net interest rate spread (1)              2.70%             2.91%
Net interest-earning assets (2)   $44,691             $39,159           
Net interest margin (3)              2.85%             3.11%
Average interest-earning assets to interest-bearing liabilities              118.48%             118.64%

 

 

(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, 2021 and March 31, 2020

 

Net Income. Net income was $243,000 for the three months ended March 31, 2021, compared to net income of $264,000 for the three months ended March 31, 2020, a decrease of $21,000, or 8.0%. The decrease was primarily due to a $14,000 decrease in non-interest income and a $114,000 increase in non-interest expense, partially offset by a $103,000 increase in net interest income after provision for loan losses.

 

Interest Income. Interest income decreased $2,000, or 0.1%, to remain at $2.6 million for the three months ended March 31, 2021. This decrease was the result of decreased interest income on securities, cash and cash equivalents and deposits in banks, but was offset with an increase in loan interest income.

 

Interest income on loans was $2.4 million for the three months ended March 31, 2021, compared to $2.2 million for the three months ended March 31, 2020, an increase of $170,000 or 7.6%, net of interest income on PPP loans of $4,000. This increase was primarily due to an increase of $31.0 million, or 17.8%, in the average balance of the loan portfolio to $213.5 million for the three months ended March 31, 2021 from $181.1 million for the three months ended March 31, 2020. This was partially offset by a decrease of 40 basis points, or 8.1%, in the average yield on loans from 4.92% for the three months ended March 31, 2020 to 4.52% for the three months ended March 31, 2021.

 

Interest income on securities interest declined $81,000 from $258,000 for the three months ended March 31, 2020 to $177,000 for the three months ended March 31, 2021. This decline resulted from a decrease of $654,000, or 1.4%, in average securities from $48.4 million for the three months ended March 31, 2020 to $47.8 million for the three months ended March 31, 2021, combined with a 65 basis point, or 30.5%, decrease in average rate from 2.13% for the three months ended March 31, 2020 to 1.48% for the three months ended March 31, 2021. The rate decrease is reflective of the overall rate decline in average yields on mortgage backed securities. Despite lower yields in the current interest rate environment, we intend to continue to purchase mortgage backed securities as a part of our investment and liquidity management strategies.

 

Interest income from interest bearing deposits in banks declined $85,000, or 81.0%, from $105,000 for the three months ended March 31, 2020 to $20,000 for the three months ended March 31, 2021. This decline resulted from a decrease of 204 basis points, or 84.6%, in average yield from 2.41% for the three months ended March 31, 2020 to 0.37% for the three months ended March 31, 2021, which was partially offset by a $4.2 million, or 23.8%, increase in average deposits in banks from $17.4 million for the three months ended March 31, 2020 to $21.6 million for the three months ended March 31, 2021. There was also a decrease of 103 basis points, or 89.3%, in average yield on fed funds from 1.15% for the three months ended March 31, 2020 to 0.12% for the three months ended March 31, 2021, which was partially offset by a $1.9 million, or 134.6%, increase in average fed funds from $1.4 million for the three months ended March 31, 2020 to $3.3 million for the three months ended March 31, 2021. All of these declines in average yields are due to the decrease in market interest rates. Total interest earning assets increased by $37.3 million, or 15.0%, from $249.3 million at March 31, 2020 to $286.6 million at March 31, 2021, which was offset by a decrease in the yield on interest earning assets of 55 basis points, or 13.1%, from 4.18% on March 31, 2020 to 3.63% on March 31, 2021.

 

Interest Expense. Total interest expense decreased $102,000, or 15.3%, to $564,000 for the three months ended March 31, 2021 from $666,000 for the three months ended March 31, 2020 due to a decrease in the average cost of interest-bearing liabilities of 34 basis points, or 26.4%, from 1.27% for the three months ended March 31, 2020 to 0.93% for the three months ended March 31, 2021, primarily due a decrease in market interest rates. Interest expense on deposit accounts decreased $81,000, or 16.8%, to $401,000 for three months ended March 31, 2021 from $482,000 for the three months ended March 31, 2020, due to a decrease in the average deposit cost of 33 basis points from 1.09% for the three months ended March 31, 2020 to 0.76% for the three months ended March 31, 2021, due to a decrease in market interest rates. This was partially offset by an increase of $34,000, or 19.4%, in the average deposit account balances from $176.8 million for the three months ended March 31, 2020 to $211.1 million for the three months ended March 31, 2021.

 

Interest expense on Federal Home Loan Bank advances decreased $21,000, or 11.6%, to $160,000 for the three months ended March 31, 2021 from $181,000 for the three months ended March 31, 2020. This decrease was due primarily to the decrease in the average balance of Federal Home Loan Bank advances of $2.6 million, or 7.8%, to $30.4 million for the three months ended March 31, 2021 from $33.0 million for the three months ended March 31, 2020 combined with a decrease in the average rate of 10 basis points, or 4.1%, from 2.20% for the three months ended March 31, 2020 to 2.10% for the three months ended March 31, 2021.

37 

 

Net Interest Income. Net interest income increased $100,000, or 5.2%, to $2.0 million for the three months ended March 31, 2021 from $1.9 million for the three months ended March 31, 2020 primarily due to a decrease in the average cost of 34 basis points, or 26.4%, from 1.27% for the three months ended March 31, 2020 to 0.93% for the three months ended March 31, 2021. The average balance of net interest-earning assets increased from $39.2 million for the three months ended March 31, 2020 to $44.7 million for the three months ended March 31, 2021, which offset a 21 basis point decrease in the net interest rate spread from 2.91% for the three months ended March 31, 2020 to 2.70% for the three months ended March 31, 2021. Net interest margin decreased 26 basis points, or 8.4%, to 2.85% for the three months ended March 31, 2021 from 3.11% for the three months ended March 31, 2020.

 

Provision for Loan and Lease Losses. Based on management’s analysis of the adequacy of allowance for loan and lease losses, the provision for loan losses was $2,000 for the three months ended March 31, 2021, compared to $5,000 for the three months ended March 31, 2020.

 

Noninterest Income. Noninterest income decreased $14,000, or 3.5%, to $383,000 for the three months ended March 31, 2021 from $397,000 for the three months ended March 31, 2020, due to a decrease in service charges on deposit accounts of $41,000 and a decrease in other income of $10,000, which were offset by an increase of $37,000 in other service charges and fees. The decrease in service charges on deposit accounts is primarily related to stimulus funds being received in deposit accounts resulting in decreased overdraft fees. The increase in other service charges and fees is primarily related to increased ATM fees due to increased usage.

 

Noninterest Expense. Noninterest expense increased $114,000, or 5.7%, to $2.1 million for the three months ended March 31, 2021 from $2.0 million for the year ended March 31, 2020 primarily due to increases in salaries and employee benefits, data processing, and director fees.

 

Salary and employee benefit expenses increased by $56,000, or 4.7%, to $1.2 million for the three months ended March 31, 2021 due to normal salary increases and an increase in insurance cost. Directors’ fees also increased $15,000, or 25.0%, to $75,000 for the three months ended March 31, 2021 from $60,000 for the three months ended March 31, 2020 due to an increase in monthly director fees. Data processing expense increased by $30,000, or 15.6%, to $224,000 for the three months ended March 31, 2021 primarily due to additional products, an increase in the number of loan and deposit accounts, and increased usage of online services.

 

Income Tax Expense. Income tax expense decreased by $4,000, or 7.7%, to $48,000 for the three months ended March 31, 2021 from $52,000 for the three months ended March 31, 2020. The effective tax rate was 16.5% for both the three months ended March 31, 2021 and 2020.

38 

 

FORWARD-LOOKING STATEMENTS

 

This prospectus 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 and duration of the associated economic slowdown either nationally or in our market areas, that are worse than expected;

 

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

 

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;

 

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;

39 

 

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;

 

our ability to retain key employees; and

 

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. See “Risk Factors” beginning on page 17. 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.

40 

 

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

 

Although we cannot determine what the actual net proceeds from the sale of the shares of common stock in the offering will be until the offering is completed, we anticipate that the net proceeds will be between $29.2 million and $39.9 million, or $46.1 million if the offering range is increased by 15%.

 

We intend to use the net proceeds as follows:

 

   Based Upon the Sale at $10.00 Per Share of: 
   3,060,000 Shares   3,600,000 Shares   4,140,000 Shares  

4,761,000 Shares (1)

 
   Amount   Percent of
Net
Proceeds
   Amount   Percent of
Net
Proceeds
   Amount   Percent of
Net
Proceeds
   Amount   Percent of
Net
Proceeds
 
                                 
   (Dollars in thousands) 
Gross offering proceeds   $30,600        $36,000        $41,400        $47,610      
Less: offering expenses    1,369         1,419         1,469         1,526      
Net offering proceeds   $29,231    100.0%  $34,581    100.0%  $39,931    100.0%  $46,084    100.0%
                                         
Distribution of net proceeds:                                        
To Mineola Community Bank   $14,616    50.0%  $17,291    50.0%  $19,966    50.0%  $23,042    50.0%
To fund cash contribution to charitable foundation   $75    0.3%  $75    0.2%  $75    0.2%  $75    0.2%
To fund loan to employee stock ownership plan   $2,488    8.5%  $2,920    8.5%  $3,352    8.4%  $3,849    8.3%
Retained by Texas Community Bancshares   $12,052    41.2%  $14,295    41.3%  $16,538    41.4%  $19,119    41.5%

 

 

(1)As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.

 

Payments for shares of common stock made through withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will reduce Mineola Community Bank’s deposits. The net proceeds may vary because total expenses relating to the offering may be more or less than our estimates. For example, our expenses would increase if all the shares offered were not sold in the subscription and community offerings and instead a portion of the shares were sold in a syndicated community offering.

 

Texas Community Bancshares may use the proceeds it retains from the offering:

 

to invest in securities;

 

to repurchase shares of its common stock;

 

to finance the potential acquisition of financial institutions or financial services companies, although we do not currently have any agreements or understandings regarding any specific acquisition transaction;

 

to pay cash dividends to stockholders; and

 

for other general corporate purposes.

 

See “Our Dividend Policy” for a discussion of our expected dividend policy following the completion of the conversion. Under current federal regulations, we may not repurchase shares of our common stock during the first year following the completion of the conversion, except when extraordinary circumstances exist and with prior regulatory approval, or except to fund the granting of restricted stock awards (which would require notification to the Federal Reserve Board) or tax-qualified employee stock benefit plans.

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Mineola Community Bank may use the net proceeds it receives from the offering:

 

to fund new loans;

 

to invest in securities;

 

to enhance existing products and services, hire additional employees and support growth and the development of new products and services;

 

to expand its banking franchise by establishing or acquiring new branches or by acquiring other financial institutions or other financial services companies as opportunities arise, although we do not currently have any understandings or agreements to acquire a financial institution or other entity; and

 

for other general corporate purposes.

 

Initially, a substantial portion of the net proceeds will be invested in short-term investments, investment-grade debt obligations and mortgage-backed securities. We have not determined specific amounts of the net proceeds that would be used for the purposes described above. The use of the proceeds outlined above may change based on many factors, including, but not limited to, changes in interest rates, equity markets, laws and regulations affecting the financial services industry, the attractiveness of potential acquisitions to expand our operations, and overall market conditions. The use of the proceeds may also change depending on our ability to receive regulatory approval to establish new branches or acquire other financial institutions.

 

We expect our return on equity may be low until we are able to reinvest effectively the additional capital raised in the offering. Until we can increase our net interest income and non-interest income, our return on equity may be below the industry average, which may negatively affect the value of our common stock. See “Risk Factors—Risks Related to the Offering—Our failure to effectively deploy the net proceeds may have an adverse effect on our financial performance.”

 

OUR DIVIDEND POLICY

 

Following completion of the stock offering, our board of directors will have the authority to declare dividends on our shares of common stock. The board’s determination of whether to declare a dividend and the amount of any such dividend is subject to our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. No decision has been made with respect to the amount, if any, and timing of any dividend payments. We cannot assure you that we will pay dividends in the future, or, if dividends are paid, that any such dividends will not be reduced or eliminated in the future.

 

Texas Community Bancshares will not be permitted to pay dividends on its common stock if its stockholders’ equity would be reduced below the amount of the liquidation account established by it in connection with the conversion. The source of dividends will depend on the net proceeds retained by Texas Community Bancshares and earnings thereon, and dividends from Mineola Community Bank. In addition, Texas Community Bancshares will be subject to state law limitations and federal bank regulatory policy on the payment of dividends. Maryland law generally limits dividends if the corporation would not be able to pay its debts in the usual course of business after giving effect to the dividend or if the corporation’s total assets would be less than the corporation’s total liabilities plus the amount needed to satisfy the preferential rights upon dissolution of stockholders whose preferential rights on dissolution are superior to those receiving the distribution.

 

After the completion of the conversion, Mineola Community Bank will not be permitted to pay dividends on its capital stock owned by Texas Community Bancshares, its sole stockholder, if Mineola Community Bank’s stockholder’s equity would be reduced below the amount of the liquidation account established in connection with the conversion. In addition, Mineola Community Bank will not be permitted to make a capital distribution if, after making such distribution, it would be undercapitalized. Mineola Community Bank must provide notice to the Federal Reserve Board and file an application with the Texas Department of Savings and Mortgage Lending for approval of a capital distribution if the total capital distributions for the applicable calendar year exceed the sum of its net income for that year to date plus its retained net income for the preceding two years, or it would not be at least adequately capitalized following the distribution.

42 

 

Any payment of dividends by Mineola Community Bank to Texas Community Bancshares that would be deemed to be drawn from its bad debt reserves established before 1988, if any, would require a payment of taxes at the then-current tax rate by Mineola Community Bank on the amount of earnings deemed to be removed from the pre-1988 bad debt reserves for such distribution. Mineola Community Bank does not intend to make any distribution that would create such a federal tax liability.

 

We intend to file a consolidated federal tax return with Mineola Community Bank. Accordingly, it is anticipated that any cash distributions made by us to our stockholders would be treated as cash dividends and not as a non-taxable return of capital for federal tax purposes. Additionally, during the three-year period following the conversion, we will not be permitted to make any capital distribution to stockholders that would be treated by recipients as a tax-free return of capital for federal income tax purposes.

 

MARKET FOR THE COMMON STOCK

 

Texas Community Bancshares has never issued capital stock. We have received conditional approval to list the shares of common stock of Texas Community Bancshares on the Nasdaq Capital Market under the symbol “TCBS” upon completion of the conversion and offering. In order to list our stock on the Nasdaq Capital Market, we are required to have at least three broker-dealers who will make a market in our common stock.

43 

 

HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

 

At December 31, 2020, Mineola Community Bank exceeded all of the applicable regulatory capital requirements and was considered “well capitalized.” The table below sets forth the historical equity capital and regulatory capital of Mineola Community Bank at December 31, 2020, and the pro forma equity capital and regulatory capital of Mineola Community Bank after giving effect to the sale of shares of common stock at $10.00 per share. The table also compares historical and pro forma capital levels to those required to be considered “well capitalized.” The table assumes that Mineola Community Bank receives 50% of the net offering proceeds. See “How We Intend to Use the Proceeds from the Offering.”

 

    Mineola Community
Bank Historical at
    Mineola Community Bank Pro Forma at December 31, 2020 Based Upon the Sale in the Offering of:  
    December 31, 2020   3,060,000 Shares     3,600,000 Shares    

4,140,000 Shares

    4,761,000 Shares (1)  
    Amount     Percent of Assets     Amount     Percent of Assets     Amount     Percent of Assets     Amount     Percent of Assets     Amount     Percent of Assets  
                                                             
    (Dollars in thousands)  
Equity   $ 31,435       10.49 %   $ 42,319       13.52 %   $ 44,346       14.06 %   $ 46,373       14.59 %   $ 48,704       15.18 %
                                                                                 
Tier 1 leverage capital (2)(3)   $ 30,645       10.50 %   $ 41,529       13.61 %   $ 43,556       14.16 %   $ 45,583       14.70 %   $ 47,914       15.31 %
Tier 1 leverage requirement     14,593       5.00       15,261       5.00       15,384       5.00       15,507       5.00       15,649       5.00  
Excess   $ 16,052       5.50 %   $ 26,268       8.61 %   $ 28,172       9.16 %   $ 30,076       9.70 %   $ 32,265       10.31 %
                                                                                 
Tier 1 risk-based capital (2)(3)   $ 30,645       18.68 %   $ 41,529       24.91 %   $ 43,556       26.05 %   $ 45,583       27.18 %   $ 47,914       28.47 %
Tier 1 risk-based requirement     13,124       8.00       13,338       8.00       13,377       8.00       13,417       8.00       13,462       8.00  
Excess   $ 17,521       10.68 %   $ 28,191       16.91 %   $ 30,179       18.05 %   $ 32,166       19.18 %   $ 34,452       20.47 %
                                                                                 
Total risk-based capital (2)(3)   $ 32,206       19.63 %   $ 43,090       25.84 %   $ 45,117       26.98 %   $ 47,144       28.11 %   $ 49,475       29.40 %
Total risk-based requirement     16,405       10.00       16,673       10.00       16,722       10.00       16,771       10.00       16,828       10.00  
Excess   $ 15,801       9.63 %   $ 26,417       15.84 %   $ 28,395       16.98 %   $ 30,373       18.11 %   $ 32,647       19.40 %
                                                                                 
Common equity tier 1 risk-based capital (2)(3)   $ 30,645       18.68 %   $ 41,529       24.91 %   $ 43,556       26.05 %   $ 45,583       27.18 %   $ 47,914       28.47 %
Common equity tier 1 risk-based requirement     10,663       6.50       10,837       6.50       10,869       6.50       10,901       6.50       10,938       6.50  
Excess   $ 19,982       12.18 %   $ 30,692       18.41 %   $ 32,687       19.55 %   $ 34,682       20.68 %   $ 36,976       21.97 %
                                                                                 
Reconciliation of capital infused into Mineola Community Bank:                                                                                
Net proceeds                   $ 14,616             $ 17,291             $ 19,966             $ 23,042          
Less:  Common stock acquired by employee stock ownership plan                     (2,488 )             (2,920 )             (3,352 )             (3,849 )        
Less:  Common stock acquired by stock-based incentive plans                     (1,244 )             (1,460 )             (1,676 )             (1,924 )        
Pro forma increase                   $ 10,884             $ 12,911             $ 14,938             $ 17,269          

  

 

(1)As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.

(2)Tier 1 leverage capital levels are shown as a percentage of total average assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.

(3)Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.

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CAPITALIZATION

 

The following table presents the historical consolidated capitalization of Mineola Community MHC at December 31, 2020 and the pro forma consolidated capitalization of Texas Community Bancshares after giving effect to the conversion and offering based upon the assumptions set forth in the “Pro Forma Data” section.

 

    Mineola
Community
MHC at
December 31,
    Texas Community Bancshares Pro Forma at December 31, 2020 Based Upon
the Sale in the Offering at $10.00 per share of:
 
    2020     3,060,000 Shares     3,600,000 Shares    

4,140,000 Shares

    4,761,000 Shares (1)  
                               
    (Dollars in thousands)  
Deposits (2)   $ 235,140     $ 235,140     $ 235,140     $ 235,140     $ 235,140  
Borrowed funds     30,768       30,768       30,768       30,768       30,768  
Total deposits and borrowed funds   $ 265,908     $ 265,908     $ 265,908     $ 265,908     $ 265,908  
                                         
Stockholders’ equity:                                        
Preferred stock, $0.01 par value, 1,000,000 shares authorized (post-conversion) (3)                              
Common stock, $0.01 par value, 19,000,000 shares authorized (post-conversion); shares to be issued as reflected (3)(4)           31       37       42       48  
Additional paid-in capital (3)           29,200       34,544       39,889       46,036  
Retained earnings (4)     31,811       31,811       31,811       31,811       31,811  
Accumulated other comprehensive income     128       128       128       128       128  
Stock contribution to charitable foundation           500       500       500       500  
Less: After-tax expense of contribution to charitable foundation (5)           (454 )     (454 )     (454 )     (454 )
Less: Common stock held by employee stock ownership plan (6)           (2,488 )     (2,920 )     (3,352 )     (3,849 )
Less: Common stock to be acquired by stock-based benefit plans (7)           (1,244 )     (1,460 )     (1,676 )     (1,924 )
Total stockholders’ equity   $ 31,939     $ 57,484     $ 62,186     $ 66,888     $ 72,296  
Total tangible stockholders’ equity (8)   $ 31,278     $ 56,823     $ 61,525     $ 66,227     $ 71,635  
                                         
Pro Forma Shares Outstanding                                        
Shares offered for sale           3,060,000       3,600,000       4,140,000       4,761,000  
Shares issued to charitable foundation           50,000       50,000       50,000       50,000  
Total shares outstanding           3,110,000       3,650,000       4,190,000       4,811,000  
                                         
Total stockholders’ equity as a percentage of total assets     10.66 %     17.68 %     18.85 %     19.99 %     21.26 %
Tangible stockholders’ equity as a percentage of tangible assets     10.46 %     17.51 %     18.69 %     19.83 %     21.11 %

 

 

(1)As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.

(2)Does not reflect withdrawals from deposit accounts to purchase shares of common stock in the conversion and offering. These withdrawals would reduce pro forma deposits and assets by the amount of the withdrawals.

(3)No effect has been given to the issuance of additional shares of Texas Community Bancshares common stock pursuant to the exercise of options under one or more stock-based benefit plans. If the plans are implemented within the first year after the closing of the offering, an amount up to 10% of the sum of shares of common stock sold in the offering and contributed to the charitable foundation will be reserved for issuance upon the exercise of options under the plans.

(4)The retained earnings of Mineola Community Bank will be substantially restricted after the conversion. See “The Conversion and Offering—Liquidation Rights” and “Supervision and Regulation—Savings Bank Regulation—Capital Distributions.”

 

(footnotes continue on following page)

45 

 

(5)Represents the expense of the contribution to the charitable foundation based on a 21% tax rate. The realization of the deferred tax benefit is limited annually to a maximum deduction for charitable donations equal to 10% of our annual taxable income, subject to our ability to carry forward any unused portion of the deduction for five years following the year in which the contribution is made.

(6)Assumes that 8% of the sum of shares sold in the offering and contributed to the charitable foundation will be acquired by the employee stock ownership plan financed by a loan from Texas Community Bancshares. The loan will be repaid principally from Mineola Community Bank’s contributions to the employee stock ownership plan. Since Texas Community Bancshares will finance the employee stock ownership plan debt, this debt will be eliminated through consolidation and no liability will be reflected on the consolidated financial statements of Texas Community Bancshares. Accordingly, the amount of shares of common stock acquired by the employee stock ownership plan is shown in this table as a reduction of total stockholders’ equity.

(7)Assumes a number of shares of common stock equal to 4% of the sum of shares of common stock to be sold in the offering and contributed to the charitable foundation will be purchased for grant by one or more stock-based benefit plans. The funds to be used by such plans to purchase the shares will be provided by Texas Community Bancshares. The dollar amount of common stock to be purchased is based on the $10.00 per share purchase price in the offering and represents unearned compensation. This amount does not reflect possible increases or decreases in the value of common stock relative to the purchase price in the offering. Texas Community Bancshares will accrue compensation expense to reflect the vesting of shares pursuant to such stock-based benefit plans and will credit capital in an amount equal to the charge to operations. Implementation of such plans will require stockholder approval.

(8)Total tangible stockholders’ equity, a non-GAAP financial measure, equals total stockholders’ equity minus core deposit intangible of $661,000 at December 31, 2020.

46 

 

PRO FORMA DATA

 

The following tables summarize historical data of Mineola Community MHC and pro forma data of Texas Community Bancshares at and for the year ended December 31, 2020. This information is based on assumptions set forth below and in the tables and related footnotes, and should not be used as a basis for projections of market value of the shares of common stock following the conversion.

 

The net proceeds disclosed in the tables are based upon the following assumptions:

 

(i)all of the shares of common stock will be sold in the subscription and community offerings;

 

(ii)our employee stock ownership plan will purchase 8% of the sum of shares of common stock sold in the offering and contributed to the charitable foundation with a loan from Texas Community Bancshares. The loan will be repaid in substantially equal payments of principal and interest (at the prime rate of interest, as may be adjusted annually) over 20 years. Interest income that we earn on the loan will offset the interest paid by Mineola Community Bank. The effect on earnings for the employee stock ownership plan is the cost of amortizing the loan over 20 years, net of historical expense for the period;

 

(iii)our directors, executive officers, and their associates will purchase 357,500 shares of common stock;

 

(iv)we will contribute $75,000 in cash and 50,000 shares of common stock to the charitable foundation;

 

(v)we will pay Performance Trust a fee equal to 1.0% of the aggregate dollar amount of common stock sold in the subscription and community offerings, excluding common stock sold to our employee stock ownership and to our directors, executive officers and employees and their associates and excluding shares of common stock contributed to the charitable foundation; and

 

(vi)total expenses of the offering, other than the fees and commissions to be paid to Performance Trust and other broker-dealers, will be $1.1 million.

 

We calculated pro forma consolidated net income for the period as if the estimated net proceeds we received had been invested at the beginning of the period at an assumed interest rate of 0.36% (0.28% on an after-tax basis). This represents the yield on the five-year U.S. Treasury Note at December 31, 2020, which, in light of current market interest rates, we consider to reflect more accurately the pro forma reinvestment rate than the arithmetic average of the weighted average yield earned on our interest earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate federal regulations require that we assume in presenting pro forma data.

 

We further believe that the reinvestment rate is factually supportable because:

 

the yield on the U.S. Treasury Note can be determined and/or estimated from third-party sources; and

 

we believe that U.S. Treasury securities are not subject to credit losses due to a U.S. Government guarantee of payment of principal and interest.

 

We calculated historical and pro forma per share amounts by dividing historical and pro forma amounts of consolidated net income and stockholders’ equity by the indicated number of shares of common stock. For pro forma earnings per share calculations, we adjusted these figures to give effect to the shares of common stock purchased by the employee stock ownership plan. We computed per share amounts as if the shares of common stock were outstanding at the beginning of the period, but we did not adjust per share historical or pro forma stockholders’ equity to reflect the earnings on the estimated net proceeds.

47 

 

The pro forma data gives effect to the implementation of one or more stock-based benefit plans. We have assumed that stock-based benefit plans will acquire for restricted stock awards a number of shares of common stock equal to 4% of the sum of shares of common stock sold in the stock offering and contributed to the charitable foundation at the same price for which they were sold in the stock offering. We have assumed that awards of common stock granted under such plans vest over a five-year period.

 

We also have assumed that options will be granted under stock-based benefit plans to acquire shares of common stock equal to 10% of the sum of shares of common stock sold in the stock offering and contributed to the charitable foundation. In preparing the tables below, we assumed that stockholder approval was obtained, that the exercise price of the stock options and the market price of the stock at the date of grant were $10.00 per share and that the stock options had a term of ten years and vested over five years. We applied the Black-Scholes option pricing model to estimate a grant-date fair value of $2.69 for each option.

 

We may grant options and award shares of common stock under one or more stock-based benefit plans in excess of 10% and 4%, respectively, of the shares of common stock sold in the stock offering and that vest sooner than over a five-year period if the stock-based benefit plans are adopted more than one year following the completion of the stock offering.

 

As discussed under “How We Intend to Use the Proceeds from the Offering,” we intend to contribute 50% of the net proceeds from the stock offering to Mineola Community Bank, to fund a loan to the employee stock ownership plan, and to make the cash contribution to the charitable foundation. We will retain the remainder of the net proceeds from the stock offering for future use.

 

The pro forma data does not give effect to:

 

withdrawals from deposit accounts to purchase shares of common stock in the stock offering;

 

our results of operations after the stock offering; or

 

changes in the market price of the shares of common stock after the stock offering.

 

The following pro forma data may not be representative of the financial effects of the offering at the date on which the offering actually occurs, and should not be taken as indicative of future results of operations. Pro forma consolidated stockholders’ equity represents the difference between the stated amounts of our assets and liabilities. The pro forma stockholders’ equity is not intended to represent the fair market value of the shares of common stock and may be different than the amounts that would be available for distribution to stockholders if we liquidated. Moreover, pro forma stockholders’ equity per share does not give effect to the liquidation accounts to be established in the conversion or, in the unlikely event of a liquidation of Mineola Community Bank, to the tax effect of the recapture of the bad debt reserve. See “The Conversion and Offering – Liquidation Rights.”

48 

 

   At or for Year Ended December 31, 2020 Based on Sale at $10.00 Per Share of: 
   3,060,000 Shares   3,600,000 Shares   4,140,000 Shares  

4,761,000 Shares (1)

 
       (Dollars in thousands, except per share amounts) 
Gross proceeds of offering   $30,600   $36,000   $41,400   $47,610 
Market value of shares issued to charitable foundation    500    500    500    500 
Pro forma market capitalization   $31,100   $36,500   $41,900   $48,110 
                     
Gross proceeds of offering   $30,600   $36,000   $41,400   $47,610 
Expenses    (1,369)   (1,419)   (1,469)   (1,526)
Estimated net proceeds    29,231    34,581    39,931    46,084 
Cash contribution to charitable foundation    (75)   (75)   (75)   (75)
Common stock purchased by employee stock ownership plan    (2,488)   (2,920)   (3,352)   (3,849)
Common stock purchased by stock-based benefit plans    (1,244)   (1,460)   (1,676)   (1,924)
Estimated net proceeds, as adjusted   $25,424   $30,126   $34,828   $40,236 
                     
For the Year Ended December 31, 2020                    
Consolidated net earnings:                    
Historical   $749   $749   $749   $749 
Income on adjusted net proceeds    72    86    99    114 
Employee stock ownership plan (2)    (98)   (115)   (132)   (152)
Stock awards (3)    (197)   (231)   (265)   (304)
Stock options (4)    (159)   (186)   (214)   (245)
Pro forma net income   $367   $303   $237   $162 
                     
Earnings per share (5):                    
Historical   $0.26   $0.22   $0.19   $0.17 
Income on adjusted net proceeds    0.03    0.03    0.03    0.03 
Employee stock ownership plan (2)    (0.03)   (0.03)   (0.03)   (0.03)
Stock awards (3)    (0.07)   (0.07)   (0.07)   (0.07)
Stock options (4)    (0.06)   (0.06)   (0.06)   (0.06)
Pro forma earnings per share (5)   $0.13   $0.09   $0.06   $0.04 
                     
Offering price to pro forma net earnings per share    76.92x   111.11x   166.67x   250.00x
Number of shares used in earnings per share calculations    2,873,640    3,372,600    3,871,560    4,445,364 
                     
At December 31, 2020                    
Stockholders’ equity:                    
Historical   $31,939   $31,939   $31,939   $31,939 
Estimated net proceeds    29,231    34,581    39,931    46,084 
Shares issued to charitable foundation    500    500    500    500 
After-tax cost of charitable foundation    (454)   (454)   (454)   (454)
Common stock purchased by employee stock ownership plan (2)    (2,488)   (2,920)   (3,352)   (3,849)
Common stock acquired by stock-based benefit plans (3)    (1,244)   (1,460)   (1,676)   (1,924)
Pro forma stockholders’ equity (6)   $57,484   $62,186   $66,888   $72,296 
Intangible assets   $661   $661   $661   $661 
Pro forma tangible stockholders’ equity (6)   $56,823   $61,525   $66,227   $71,635 
                     
Stockholders’ equity per share (7):                    
Historical   $10.27   $8.75   $7.62   $6.64 
Estimated net proceeds    9.40    9.47    9.53    9.58 
Shares issued to charitable foundation    0.16    0.14    0.12    0.10 
After-tax cost of charitable foundation    (0.15)   (0.12)   (0.11)   (0.09)
Common stock purchased by employee stock ownership plan (2)    (0.80)   (0.80)   (0.80)   (0.80)
Common stock acquired by stock-based benefit plans (3)    (0.40)   (0.40)   (0.40)   (0.40)
Pro forma stockholders’ equity per share (6) (7)   $18.48   $17.04   $15.96   $15.03 
Intangible assets   $0.21   $0.18   $0.15   $0.14 
Pro forma tangible stockholders’ equity per share (6) (7)   $18.27   $16.86   $15.81   $14.89 
                     
Offering price as percentage of pro forma stockholders’ equity per share    54.11%   58.69%   62.66%   66.53%
Offering price as percentage of pro forma tangible stockholders’ equity per share    54.73%   59.31%   63.25%   67.16%
Number of shares outstanding for pro forma book value per share calculations    3,110,000    3,650,000    4,190,000    4,811,000 
                     

(footnotes on following page)

 

49 

 

(1)As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.

(2)Assumes that 8% of the sum of shares of common stock sold in the offering and contributed to the charitable foundation will be purchased by the employee stock ownership plan. For purposes of these tables, the funds used to acquire these shares are assumed to have been borrowed by the employee stock ownership plan from Texas Community Bancshares. Mineola Community Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the required principal and interest payments on the debt. Mineola Community Bank’s total annual payments on the employee stock ownership plan debt are based upon 20 equal annual installments of principal and interest. Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 718-40, “Compensation – Stock Compensation -- Employee Stock Ownership Plans” (“ASC 718-40”) requires that an employer record compensation expense in an amount equal to the fair value of the shares committed to be released to employees. The pro forma adjustments assume that the employee stock ownership plan shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by Mineola Community bank, the fair value of the common stock remains equal to the subscription price and the employee stock ownership plan expense reflects an effective federal income tax rate of 21%. The unallocated employee stock ownership plan shares are reflected as a reduction of stockholders’ equity. No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan. The pro forma net income further assumes that 12,440, 14,600, 16,760 and 19,244 shares were committed to be released during the year ended December 31, 2020 at the minimum, midpoint, maximum, and adjusted maximum of the offering range, respectively, and in accordance with ASC 718-40, only the employee stock ownership plan shares committed to be released during the period were considered outstanding for net income per share calculations.

(3)Assumes that one or more stock-based benefit plans purchase an aggregate number of shares of common stock equal to 4% of the shares to be sold in the offering and contributed to the charitable foundation. Stockholder approval of the plans and purchases by the plans may not occur earlier than six months after the completion of the conversion. The shares may be acquired directly from Texas Community Bancshares or through open market purchases. Shares in the stock-based benefit plan are assumed to vest over a period of five years. The funds to be used to purchase the shares will be provided by Texas Community Bancshares. The tables assume that (i) the stock-based benefit plan acquires the shares through open market purchases at $10.00 per share, (ii) 20% of the amount contributed to the plan is amortized as an expense during the year ended December 31, 2020, and (iii) the plan expense reflects an effective federal income tax rate of 21%. Assuming stockholder approval of the stock-based benefit plans and that shares of common stock (equal to 4% of the sum of shares sold in the offering and contributed to the charitable foundation) are awarded through the use of authorized but unissued shares of common stock, stockholders would have their ownership and voting interests diluted by approximately 3.85%.

(4)Assumes that options are granted under one or more stock-based benefit plans to acquire an aggregate number of shares of common stock equal to 10% of the sum of shares to be sold in the offering and contributed to the charitable foundation. Stockholder approval of the plans may not occur earlier than six months after the completion of the conversion. In calculating the pro forma effect of the stock-based benefit plans, it is assumed that the exercise price of the stock options and the trading price of the common stock at the date of grant were $10.00 per share, the estimated grant-date fair value determined using the Black-Scholes option pricing model was $2.69 for each option and that the aggregate grant-date fair value of the stock options was amortized to expense on a straight-line basis over a five-year vesting period of the options using an effective federal income tax rate of 21%. The actual expense will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted. Under the above assumptions, the adoption of the stock-based benefit plans will result in no additional shares under the treasury stock method for calculating earnings per share. There can be no assurance that the actual exercise price of the stock options will be equal to the $10.00 price per share. If a portion of the shares used to satisfy the exercise of options comes from authorized but unissued shares, our net income per share and stockholders’ equity per share would decrease. The issuance of authorized but unissued shares of common stock pursuant to the exercise of options under such plan would dilute stockholders’ ownership and voting interests by approximately 9.09%.

(5)Net income per share computations are determined by taking the number of shares assumed to be sold in the offering and the number of new shares assumed to be issued in exchange for publicly held shares and, in accordance with ASC 718-40, subtracting the employee stock ownership plan shares that have not been committed for release during the period. See footnote 2, above. The number of shares of common stock actually sold may be more or less than the assumed amounts.

(6)The retained earnings of Mineola Community Bank will be substantially restricted after the conversion. See “Our Dividend Policy,” “The Conversion and Offering – Liquidation Rights” and “Supervision and Regulation – Savings Bank Regulation – Capital Distributions.”

(7)Stockholders’ equity per share calculations are based upon the sum of (i) the number of shares assumed to be sold in the offering and (ii) the number of shares to be contributed to the charitable foundation. The number of shares actually sold may be more or less than the assumed amounts.

50 

 

COMPARISON OF VALUATION AND PRO FORMA INFORMATION
WITH AND WITHOUT THE CHARITABLE FOUNDATION

 

As reflected in the table below, if the charitable foundation is not established and funded in connection with the conversion, a greater number of shares of common stock would be sold in the offering. At the minimum, midpoint, maximum, and adjusted maximum of the valuation range, the amount of the stock sold in the offering is $30.6 million, $36.0 million, $41.4 million and $47.6 million, respectively, with the charitable foundation, as compared to $31.1 million, $36.5 million, $41.9 million and $48.1 million, respectively, without the charitable foundation. However, due to the size of the contribution to the charitable foundation, Feldman Financial determined that the additional capital that would be received, assuming the offering occurs without the charitable foundation, was immaterial to the pro forma valuation; and accordingly, the valuation is unchanged with or without the charitable foundation.

 

For comparative purposes only, set forth below are certain pricing ratios, financial data and ratios at and for the year ended December 31, 2020, at the minimum, midpoint, maximum, and adjusted maximum of the offering range, assuming the offering was completed at the beginning of the period, with and without the charitable foundation.

 

  

Minimum of Offering Range

  

Midpoint of Offering Range

  

Maximum of Offering Range 

  

Adjusted Maximum of Offering
Range

 
  

With
Foundation 

  

Without
Foundation

  

With
Foundation 

  

Without
Foundation 

  

With
Foundation

  

Without
Foundation 

  

With
Foundation

  

Without
Foundation 

 
   (Dollars in thousands, except per share amounts) 
Estimated offering amount   $30,600   $31,100   $36,000   $36,500   $41,400   $41,900   $47,610   $48,110 
Pro forma market capitalization    31,100    31,100    36,500    36,500    41,900    41,900    48,110    48,110 
Pro forma total assets    325,183    325,632    329,885    330,334    334,587    335,036    339,995    340,444 
Pro forma total liabilities    267,699    267,699    267,699    267,699    267,699    267,699    267,699    267,699 
Pro forma stockholders’ equity    57,484    57,933    62,186    62,635    66,888    67,337    72,296    72,745 
Pro forma net income (1)    367    369    303    305    237    239    162    164 
Pro forma stockholders’ equity per share   $18.48   $18.63   $17.04   $17.16   $15.96   $16.07   $15.03   $15.12 
Pro forma net income per share   $0.13   $0.13   $0.09   $0.09   $0.06   $0.06   $0.04   $0.04 
                                         
Pro forma pricing ratios:                                        
Offering price as a percentage of pro forma stockholders’ equity per share    54.11%   53.68%   58.69%   58.28%   62.66%   62.23%   66.53%   66.14%
Offering price to pro forma net income per share     76.92 x     76.92 x     111.11 x     111.11 x     166.67 x     166.67 x     250.00 x    250.00x
Offering price to pro forma assets per share    9.56%   9.55%   11.06%   11.05%   12.52%   12.51%   14.15%   14.13%
                                         
Pro forma financial ratios:                                        
Return on assets    0.11%   0.11%   0.09%   0.09%   0.07%   0.07%   0.05%   0.05%
Return on equity    0.64%   0.64%   0.49%   0.49%   0.35%   0.35%   0.22%   0.22%
Equity to assets    17.68%   17.79%   18.85%   18.96%   19.99%   20.10%   21.26%   21.37%

 

(footnote on following page)

 

51 

 

(1)The following table shows the estimated after-tax expense associated with the contribution to the charitable foundation, as well as pro forma net income, pro forma net income per share, pro forma income on assets and pro forma income on stockholders’ equity assuming the contribution to the charitable foundation was expensed during the year ended December 31, 2020 (dollars in thousands).

 

  

Minimum of
Offering Range

  

Midpoint of
Offering Range
 

  

Maximum of
Offering Range
 

  

Adjusted
Maximum of
Offering Range

 
After-tax expense of stock and cash contribution to charitable foundation   $454   $454   $454   $454 
Pro forma net loss   $(87)  $(151)  $(217)  $(292)
Pro forma net loss per share   $(0.03)  $(0.04)  $(0.06)  $(0.07)
Offering price to pro forma net loss per share
   (333.33x)   (250.00x)   (166.67x)   (142.86x)
Pro forma loss as a percentage of assets    (0.03)%   (0.05)%   (0.06)%   (0.09)%
Pro forma loss as a percentage of stockholders’ equity    (0.15)%   (0.24)%   (0.32)%   (0.40)%

52 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

 

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information at December 31, 2020 and 2019 and for the years ended December 31, 2020 and 2019 is derived in part from the audited consolidated financial statements that appear elsewhere in this prospectus. You should read the information in this section in conjunction with the other business and financial information contained in this prospectus, including the consolidated financial statements and related notes of Mineola Community MHC appearing elsewhere in this prospectus.

 

Overview

 

Texas Community Bancshares will succeed to both Mineola Community MHC and Mineola Community Financial Group as the holding company for Mineola Community Bank upon the completion of the conversion and offering. Like Mineola Community MHC and Mineola Community Financial Group, Texas Community Bancshares will conduct its operations primarily through Mineola Community Bank.

 

Mineola Community Bank’s business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations and borrowings from the Federal Home Loan Bank of Dallas, in residential real estate loans and commercial real estate loans and, to a lesser extent, commercial loans, construction and land loans, and consumer and other loans. Substantially all of Mineola Community Bank’s loans are fixed-rate loans. We also invest in securities, which have historically consisted primarily of mortgage-backed securities and obligations issued by U.S. government sponsored enterprises, state and municipal securities, and Federal Home Loan Bank stock. We offer a variety of deposit accounts, including checking accounts, savings accounts and certificate of deposit accounts. Mineola Community Bank is subject to comprehensive regulation and examination by the Texas Department of Savings and Mortgage Lending and the Federal Deposit Insurance Corporation and is a member of the Federal Home Loan Bank system.

 

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan and lease losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of service charges on deposit accounts, other service charges and fees, and income from bank owned life insurance. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contract services, director fees, and other expenses.

 

We invest in bank owned life insurance to provide us with a funding source to offset some costs of our benefit plan obligations. Bank owned life insurance provides us with non-interest income that is nontaxable. Federal regulations generally limit our investment in bank owned life insurance to 25% of our Tier 1 capital plus our allowance for loan and lease losses. At December 31, 2020, our investment in bank owned life insurance was $5.9 million, which was within this investment limit.

 

Our results of operations also may be affected significantly by general and local economic and competitive conditions, change