Texas Community Bancshares Inc

Previous wording

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding Texas Community Bancshares, Inc.’s (the “Company”) consolidated financial condition at September 30, 2024 and consolidated results of operations for the three and nine months ended September 30, 2024 and 2023. It should be read in conjunction with the unaudited consolidated financial statements and the related notes appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Current wording

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding Texas Community Bancshares, Inc.’s (the “Company”) consolidated financial condition at March 31, 2025 and consolidated results of operations for the three months ended March 31, 2025 and 2024. It should be read in conjunction with the unaudited consolidated financial statements and the related notes appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q and with the audited consolidated financial statements, and notes, contained in the Annual Report on Form 10-K for the year ended December 31, 2024..

Previous wording

Allowance for Credit Losses**.Effective January 1, 2023, the Company adopted Accounting Standards Update 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments(“ASC 326”), referred to as CECL. Upon adoption of CECL, the Company made a one-time cumulative-effect adjustment that decreased retained earnings by $1.0 million. This adjustment was the result of a $1.0 million increase in the allowance for credit losses from $1.8 million at December 31, 2022 to $2.8 million upon adoption of the new CECL methodology on January 1, 2023 and an increase of $254,000 in the allowance for unfunded commitments. The adjustment was primarily a result of incorporating forward-looking estimated loss estimates and an allowance for off-balance sheet commitments (unfunded commitments). **The allowance for credit losses applies to any financial asset carried at amortized cost, including off-balance sheet commitments (unfunded commitments). The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. The Company uses the weighted average remaining maturity (WARM) method to estimate future expected losses for all of the Company’s loan pools. The allowance for credit losses on loans is a reserve for estimated current expected credit losses on individually evaluated loans determined to be impaired as well as estimated current expected credit losses inherent in the loan portfolio. Actual credit losses, net of recoveries, are deducted from the allowance for credit losses. Loans are charged off when management believes that the collectability of the principal is confirmed. Subsequent recoveries, if any, are credited to the allowance for credit losses. A provision for credit losses, which is a charge against earnings, is recorded to bring the allowance for credit losses to a level that, in management’s judgment, is adequate to absorb current expected losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the allowance for credit losses is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect current expected credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated credit losses and therefore the appropriateness of the allowance for credit losses could change significantly.

Current wording

Allowance for Credit Losses. The allowance for credit losses applies to any financial asset carried at amortized cost, including off-balance sheet commitments (unfunded commitments). The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. The Company uses the weighted average remaining maturity (WARM) method to estimate future expected losses for all of the Company’s loan pools. The allowance for credit losses on loans is a reserve for estimated current expected credit losses on individually evaluated loans determined to be impaired as well as estimated current expected credit losses inherent in the loan portfolio. Actual credit losses, net of recoveries, are deducted from the allowance for credit losses. Loans are charged off when management believes that the collectability of the principal is confirmed. Subsequent recoveries, if any, are credited to the allowance for credit losses. A provision for credit losses, which is a charge against earnings, is recorded to bring the allowance for credit losses to a level that, in management’s judgment, is adequate to absorb current expected losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the allowance for credit losses is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect current expected credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated credit losses and therefore the appropriateness of the allowance for credit losses could change significantly.

Previous wording

Total Assets. Total assets were $446.0 million at September 30, 2024, a decrease of $6.0 million, or 1.3%, from $452.0 million at December 31, 2023. The decrease was due primarily to a decrease in securities of $15.7 million, or 13.2%, to $103.6 million at September 30, 2024 from $119.3 million at December 31, 2023 and a decrease in interest bearing deposits in banks of $9.1 million, or 74.0%, to $3.2 million at September 30, 2024 from $12.3 million at December 31, 2023 partially offset by an increase in net loans and leases of $13.1 million, or 4.7%, to $293.0 million at September 30, 2024 from $279.9 million at December 31, 2023 and an increase in cash and cash equivalents of $4.7 million, or 35.9%, to $17.8 million at September 30, 2024 from $13.1 million at December 31, 2023. The increase in loans was net of the sale of 122 performing residential mortgage loans totaling $27.1 million at a loss of $3.8 million, net of mortgage servicing rights retained, as part of a portfolio repositioning strategy to take advantage of repricing opportunities with the goal of increasing yield, shortening weighted average life and diversifying the loan portfolio by reducing the concentration in residential mortgage loans.

Current wording

Total Assets. Total assets were $442.2 million at March 31, 2025, a decrease of $1.3 million, or 0.3%, from $443.5 million at December 31, 2024. The decrease was due primarily to a decrease in securities of $1.3 million, or 1.3%, to $96.0 million at March 31, 2025 from $97.3 million at December 31, 2024, a decrease in cash and interest bearing deposits in banks of $1.9 million, or 8.3%, to $21.1 million at March 31, 2025 from $23.0 million at December 31, 2024 and a decrease in restricted investments carried at cost of $1.0 million, or 23.8%, to $3.2 million at March 31, 2025 partially offset by an increase in net loans and leases of $3.8 million, or 1.3%, to $297.5 million at March 31, 2025 from $293.7 million at December 31, 2024.

Previous wording

Cash and Cash Equivalents. Cash and cash equivalents increased $4.7 million, or 35.9%, to $17.8 million (which includes fed funds sold of $12.6 million) at September 30, 2024 from $13.1 million (which includes fed funds sold of $7.6 million) at December 31, 2023. This increase was primarily the result of an increase in deposits of $9.1 million, or 2.9%, a decrease in securities of $15.7 million and a decrease in interest bearing deposits in banks of $9.1 million partially offset primarily by an increase in loans of $13.1 million, dividends paid of $380,000, stock repurchases of $1.0 million, and a decrease in FHLB advances of $13.7 million.

Current wording

Cash and Cash Equivalents. Cash and cash equivalents decreased $1.5 million, or 11.3%, to $11.8 million (which includes fed funds sold of $3.2 million) at March 31, 2025 from $13.3 million (which includes fed funds sold of $9.3 million) at December 31, 2024. This decrease was primarily the result of an increase in loans of $3.8 million, or 1.3%, and stock repurchases of $495,000 partially offset by a decrease in securities of $1.3 million and an increase in deposits of $1.7 million.

Previous wording

Securities Available for Sale. Securities available for sale decreased by $12.6 million, or 13.5%, to $80.7 million at September 30, 2024 from $93.3 million at December 31, 2023. During the nine months ended September 30, 2024, we had purchases of securities of $3.5 million, received paydowns of $9.4 million and securities of $3.4 million being called. During the nine months ended September 30, 2024, we sold two floating rate securities totaling $5.5 million to be reinvested at a fixed rate. Net unrealized losses on the available for sale portfolio, including derivatives, decreased by $1.5 million, or 26.8%, to $4.1 million, net of tax, from $5.6 million, net of tax, due primarily to decreases in market interest rates. Gross unrealized losses on the AFS portfolio consisting of 81 securities decreased from $7.2 million, or 7.2% of the portfolio’s amortized cost of $100.5 million at December 31, 2023, to $5.1 million, or 6.0% of the amortized cost of $85.8 million at September 30, 2024. These unrealized losses are due to increases in market interest rates.

Current wording

Securities Available for Sale. Securities available for sale decreased by $400,000, or 0.5%, to $74.8 million at March 31, 2025 from $75.2 million at December 31, 2024. During the three months ended March 31, 2025, there were purchases of securities of $2.7 million offset by net paydowns of $3.6 million. Accumulated other comprehensive income decreased by $400,000, or 8.5%, to $4.4 million, net of tax, from $4.8 million, net of tax, due primarily to changes in market interest rates and the termination of the derivative. Gross unrealized losses on the AFS portfolio consisting of 78 securities decreased from $6.5 million, or 8.0% of the portfolio’s amortized cost of $81.6 million at December 31, 2024, to $5.5 million, or 6.9% of the amortized cost of $80.3 million at March 31, 2025. These unrealized losses are due to increases in market interest rates. At March 31, 2025, the AFS portfolio was comprised of 11.9% residential mortgage backed securities, 60.7% collateralized mortgage obligations, 17.8% state and municipal securities and 9.7% corporate bonds.

Previous wording

Securities Held to Maturity. Securities held to maturity decreased by $3.1 million, or 11.9%, to $22.9 million at September 30, 2024 from $26.0 million at December 31, 2023. This decrease is due primarily to one security of $395,000 being called and paydowns of $2.6 million. The HTM portfolio had 69 securities with gross unrealized losses of $2.0 million, or 8.8%, of the amortized cost of $22.9 million at September 30, 2024 compared to $2.6 million, or 10.0%, of the amortized cost of $26.0 million at December 31, 2023. These unrealized losses are due to increases in market interest rates.

Current wording

Securities Held to Maturity. Securities held to maturity decreased by $900,000, or 4.1%, to $21.2 million at March 31, 2025 from $22.1 million at December 31, 2024. This decrease is due primarily to paydowns of $891,000. The HTM portfolio had 69 securities with gross unrealized losses of $2.2 million, or 10.4%, of the amortized cost of $21.2 million at March 31, 2025 compared to $2.6 million, or 10.0%, of the amortized cost of $26.0 million at December 31, 2024. These unrealized losses are due to increases in market interest rates. At March 31, 2025, the HTM portfolio was comprised of 86.6% residential mortgage backed securities, 7.4% state and municipal securities and 6.0% U.S government and agency bonds.

Previous wording

The loan and lease portfolio totaled $296.1 million and is comprised of $273.6 million, or 92.4%, real estate loans, $7.1 million, or 2.4%, commercial and industrial loans, $6.1 million, or 2.1%, consumer loans and other loans, and $9.3 million, or 3.1%, municipal loans. Real estate loans include $143.1 million, or 48.3%, 1-4 family residential loans, $10.5 million, or 3.6%, multi-family loans, $55.5 million, or 18.8%, commercial real estate (CRE) loans, $22.1 million, or 7.4%, in 1-4 family construction loans, $33.1 million, or 11.2%, in other construction and development loans and $9.3 million, or 3.2%, in farmland loans. Total loans include interim construction loans of $37.9 million, or 76.9%, of the completed project balance of $49.3 million which includes $21.3 million in single-family residence loans, including $7.9 million in speculative construction loans to builders, $2.4 million in subdivision construction, $16.8 million in muti-family construction loans and $8.8 million in CRE loans. The total construction loan portfolio consisted of 65 loans with outstanding balances of $49.3 million at September 30, 2024 compared to 82 loans with outstanding balances of $54.3 million at December 31, 2023.

Current wording

The loan and lease portfolio totaled $300.8 million and is comprised of $277.8 million, or 92.3%, real estate loans, $5.6 million, or 1.9%, commercial and industrial loans, $5.0 million, or 1.7%, consumer loans and other loans, and $12.4 million, or 4.1%, municipal loans. Real estate loans include $143.6 million, or 51.7%, 1-4 family residential loans, $10.5 million, or 3.8%, multi-family loans, $57.3 million, or 20.6%, commercial real estate (CRE) loans, $18.5 million, or 6.7%, 1-4 family construction loans, $37.8 million, or 13.6%, other construction and development loans and $10.0 million, or 3.6%, farmland loans. Total loans include interim construction loans of $34.6 million, or 75.9%, of the completed project balance of $45.5 million which includes $18.3 million in single-family residence loans, including $4.6 million in speculative construction loans to builders, $2.6 million in subdivision construction, $15.5 million in muti-family construction loans and $9.1 million in CRE loans. The total construction loan portfolio consisted of 57 loans with completed project balances of $45.5 million at March 31, 2025 compared to 55 loans totaling $42.5 million at December 31, 2024.

Previous wording

At September 30, 2024, commercial real estate loans consisted of $23.5 million owner occupied and $32.0 million non-owner occupied real estate. At September 30, 2024, commercial real estate loans primarily include loans collateralized by self-storage facilities ($16.4 million), commercial rental properties ($9.4 million), gas stations with convenience stores ($8.4 million), churches ($4.6 million), rural water district assets ($3.8 million), and restaurants ($2.4 million). The maximum loan-to-value ratio of our commercial real estate loans is generally 80%. Generally, we require the debt service coverage ratio to be at least 1.2x. The significant majority of our commercial real estate loans are appraised by outside independent appraisers approved by the board of directors. Personal guarantees are generally obtained from the principals of commercial real estate borrowers. We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications and financial conditions of the borrower, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property, debt service capabilities, global cash flows of the borrower and other guarantors, and the borrower’s payment history with us and other financial institutions.

Current wording

At March 31, 2025, commercial real estate loans consisted of $23.5 million owner occupied and $33.8 million non-owner occupied real estate. At March 31, 2025, commercial real estate loans primarily include loans collateralized by self-storage facilities ($16.3 million), commercial rental properties ($7.5 million), gas stations with convenience stores ($10.8 million), churches ($4.4 million), rural water district assets ($3.8 million), and restaurants ($3.6 million). The maximum loan-to-value ratio of our commercial real estate loans is generally 80%. Generally, we require the debt service coverage ratio to be at least 1.2x. The significant majority of our commercial real estate loans are appraised by outside independent appraisers approved by the board of directors. Personal guarantees are generally obtained from the principals of commercial real estate borrowers. We consider a number of factors in originating commercial real estate

Previous wording

Deposits. Deposits increased $9.1 million, or 2.9%, to $326.3 million at September 30, 2024 from $317.2 million at December 31, 2023. Core deposits (defined as all deposits other than certificates of deposit) increased $6.4 million, or 3.2%, to $204.9 million at September 30, 2024 from $198.5 million at December 31, 2023. Retail certificates of deposit increased $3.0 million, or 2.8%, to $109.5 million at September 30, 2024 from $106.5 million at December 31, 2023. At September 30, 2024, there were $12.0 million in brokered deposits. The year-to-date average cost of interest-bearing deposits increased 50 basis points, or 24.1%, to 2.58% at September 30, 2024 compared to 2.08% at December 31, 2023. Due to a strategic effort to increase noninterest bearing deposits, cost of total deposits increased 11 basis points, or 5.3%, from 2.09% at December 31, 2023 to 2.20% at September 30, 2024. At September 30, 2024, there were 198 accounts with balances in excess of the $250,000 FDIC insurance limit with an aggregate balance of $99.5 million, or 30.5% of deposits. The amount that was over the FDIC insurance limit was $50.0 million, or 15.3%, that was potentially uninsured, including certificates of deposit of $9.7 million, money market accounts of $12.3 million and $28.0 million in checking and savings accounts.

Current wording

Deposits. Deposits increased $1.7 million, or 0.5%, to $337.5 million at March 31, 2025 from $335.8 million at December 31, 2024. Core deposits (defined as all deposits other than certificates of deposit) decreased $1.9 million, or 0.9%, to $204.0 million at March 31, 2025 from $205.9 million at December 31, 2024. Certificates of deposit increased $3.6 million, or 2.8%, to $133.5 million at March 31, 2025 from $129.9 million at December 31, 2024. At March 31, 2025, there were $22.0 million in brokered and $499,000 in listed deposits. The year-to-date average cost of interest-bearing deposits decreased 14 basis points, or 5.4%, to 2.45% at March 31, 2025 compared to 2.59% at December 31, 2024. At March 31, 2025, there were 204 accounts with balances in excess of the $250,000 FDIC insurance limit with an aggregate balance of $98.2 million, or 30.5% of deposits. The amount that was over the FDIC insurance limit was $47.2 million, or 14.0%, that was potentially uninsured, including certificates of deposit of $11.3 million, money market accounts of $10.8 million and $25.1 million in checking and savings accounts.

Previous wording

Advances from Federal Home Loan Bank. Advances from Federal Home Loan Bank decreased by $13.7 million, or 17.8%, to $63.2 million at September 30, 2024 from $76.9 million at December 31, 2023 due to the payoff of five advances totaling $12.7 million and to normal principal payments on amortizing advances of $1.0 million. There is one additional $3.0 million advance that will mature in 2024. There are no current plans to renew the advance.

Current wording

Advances from Federal Home Loan Bank. Advances from Federal Home Loan Bank decreased by $300,000, or 0.6%, to $49.6 million at March 31, 2025 from $49.9 million at December 31, 2024 due to normal principal payments on amortizing advances of $320,000. There is $3.5 million in advances that will mature in 2025. There are no current plans to renew the advances.

Previous wording

Total Shareholders’ Equity. Total shareholders’ equity decreased $1.0 million, or 1.9%, to $52.7 million at September 30, 2024 from $53.7 million at December 31, 2023. This decrease was primarily due to a net loss for the nine months ended September 30, 2024 of $1.8 million resulting primarily from the pre-tax loss of $3.8 million, net of mortgage servicing rights retained, on the sale of residential mortgage loans. The Company also repurchased 69,931 shares of its common stock for a decrease of $1.0 million and paid quarterly dividends totaling $380,000, partially offset by an increase in equity of $623,000 from vesting of the 2022 Equity Plan and an increase of $139,000 with the accrual of ESOP commitments for the nine months ended September 30, 2024. There was a decrease in the accumulated other comprehensive loss, net of tax, due to decreases in market interest rates that added $1.5 million to shareholder’s equity at September 30, 2024.

Current wording

Total Shareholders’ Equity. Total shareholders’ equity increased $647,000, or 1.2%, to $52.8 million at March 31, 2025 from $52.1 million at December 31, 2024. This increase was primarily due to net income of $643,000 for the three months ended March 31, 2025. The Company had additional increases in equity of $175,000 from vesting of the 2022 Equity Plan and an increase of $52,000 with the accrual of ESOP commitments for the three months ended March 31, 2025 partially offset by a decrease of $495,000 from the repurchase of 31,500 shares of its common stock and quarterly dividends paid totaling $123,000. There was a decrease in the accumulated other comprehensive loss of $395,000, net of tax, due to changes in market interest rates and the termination of the derivative at March 31, 2025.

Previous wording

At September 30, 2024, Broadstreet Bank opted to use the community bank leverage ratio framework (Tier 1 capital to average assets) for regulatory capital purposes. A community bank leverage ratio of at least 9.0% is required to be considered “well capitalized” under regulatory requirements. At September 30, 2024, Broadstreet Bank was well capitalized and had a ratio of 10.59%.

Current wording

At March 31, 2025, Broadstreet Bank opted to use the community bank leverage ratio framework (Tier 1 capital to average assets) for regulatory capital purposes. A community bank leverage ratio of at least 9.0% is required to be considered “well capitalized” under regulatory requirements. At March 31, 2025, Broadstreet Bank was well capitalized and had a ratio of 11.09%.

Previous wording

The following table sets forth average balances, 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. Nonaccrual loans are only included in the computation of average balances. Average yields for loans include loan fees of $175,000 and $242,000 for the three months ended September 30, 2024 and 2023, respectively. We have not recorded deferred loan fees, as we have determined them to be immaterial.

Current wording

The following table sets forth average balances, 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. Nonaccrual loans are only included in the computation of average balances. Average yields for loans include loan fees of $121,000 and $85,000 for the three months ended March 31, 2025 and 2024, respectively. We have not recorded deferred loan fees, as we have determined them to be immaterial.

Previous wording

Interest Income. Interest income increased $726,000, or 14.6%, to $5.7 million for the three months ended September 30, 2024 from $5.0 million for the three months ended September 30, 2023. This was primarily the result of increased interest income on loans due to increased yields and an increase in the average balance of loans. Average interest earning assets increased by $10.2 million, or 2.5%, from $405.7 million for the three months ended September 30, 2023 to $415.9 million for the three months ended September 30, 2024 and the yield on average interest earning assets increased 57 basis points, or 11.6%, from 4.91% for the three months ended September 30, 2023 to 5.48% for the three months ended September 30, 2024.

Current wording

Interest Income. Interest income increased $216,000, or 4.0%, to $5.6 million for the three months ended March 31, 2025 from $5.4 million for the three months ended March 31, 2024. This was primarily the result of increased interest income on loans due to increased yields and an increase in the average balance of loans. Average interest earning assets decreased by $13.9 million, or 3.3%, from $424.9 million for the three months ended March 31, 2024 to $411.0 million for the three months ended March 31, 2025 but was offset primarily by an increase in the yield on average interest earning assets of 38 basis points, or 7.5%, from 5.10% for the three months ended March 31, 2024 to 5.48% for the three months ended March 31, 2025.

Previous wording

Interest income on loans increased $633,000, or 18.6%, to $4.0 million for the three months ended September 30, 2024 from $3.4 million for the three months ended September 30, 2023. This increase resulted primarily from an increase in average loans of $6.8 million, or 2.5%, from $272.2 million for the three months ended September 30, 2023 to $279.0 million for the three months ended September 30, 2024 and an increase in loan yield of 79 basis points, or 15.7%, to 5.80% for the three months ended September 30, 2024 from 5.01% for the three months ended September 30, 2023. The increase in loan yield was due primarily to increased market interest rates and diversification of the loan portfolio to include higher yielding commercial real estate loans.

Current wording

Interest income on loans increased $691,000, or 18.6%, to $4.4 million for the three months ended March 31, 2025 from $3.7 million for the three months ended March 31, 2024. This increase resulted primarily from an increase in average loans of $18.1 million, or 6.4%, from $281.3 million for the three months ended March 31, 2024 to $299.4 million for the three months ended March 31, 2025 and an increase in loan yield of 61 basis points, or 11.5%, to 5.88% for the three months ended March 31, 2025 from 5.27% for the three months ended March 31, 2024. The increase in loan yield was due primarily to the diversification of the loan portfolio resulting in a reduction of lower yielding residential loans and an increase in higher yielding commercial real estate loans.

Previous wording

Interest income on restricted investments, which includes primarily Federal Home Loan Bank (FHLB) and TIB Bank stock dividends, increased $11,000, or 25.0%, from $44,000 for the three months ended September 30, 2023 to $55,000 for the three months ended September 30, 2024. This increase resulted from an increase in the average balance of these investments of $344,000 or 10.5%, from $3.3 million for the three months ended September 30, 2023 to $3.6 million for the three months ended September 30, 2024 in addition to an increase of 70 basis points, or 13.0%, in average yield from 5.39% for the three months ended September 30, 2023 to 6.09% for the three months ended September 30, 2024. The increase in yield was due primarily to increases in dividends paid by the banks and the increase in investments is due to additional required purchases of FHLB stock resulting from an increase in FHLB advances.

Current wording

Interest income on restricted investments, which includes primarily Federal Home Loan Bank (FHLB) and TIB Bank stock dividends, decreased $5,000, or 9.1%, from $55,000 for the three months ended March 31, 2024 to $50,000 for the three months ended March 31, 2025. This decrease resulted from a decrease in the average yield of these investments of 77 basis points, or 12.3%, from 6.28% for the three months ended March 31, 2024 to 5.51% for the three months ended March 31, 2025, partially offset by an increase in the average balance of restricted investments of $125,000, or 3.6%, from $3.5 million for the three months ended March 31, 2024 to $3.6 million for the three months ended March 31, 2025. The decrease in yield was due primarily to decreases in dividends paid by the FHLB.

Previous wording

Interest expense on Federal Home Loan Bank advances decreased $44,000, or 6.4%, to $643,000 for the three months ended September 30, 2024 from $687,000 for the three months ended September 30, 2023. This decrease was due primarily to the decrease in the average balance of Federal Home Loan Bank advances of $9.4 million, or 12.3%, to $67.0 million for the three months ended September 30, 2024 from $76.4 million for the three months ended September 30, 2023. The average yield on advances increased 24 basis points, or 6.8%, from 3.60% for the three months ended September 30, 2023 to 3.84% for the three months ended September 30, 2024 due to paying off $7.7 million in advances from 2019 with significantly lower rates than the weighted average cost of all FHLB borrowings. The decrease in average advances was primarily due to paying off $7.7 million in maturing advances in the three months ended September 30, 2024 compared to purchasing $8.0 million in the three months ended September 30, 2023 to maintain a higher level of liquidity in 2023 due to market uncertainty.

Current wording

Interest expense on Federal Home Loan Bank advances decreased $193,000, or 27.7%, to $503,000 for the three months ended March 31, 2025 from $696,000 for the three months ended March 31, 2024. This decrease was due primarily to the decrease in the average balance of Federal Home Loan Bank advances of $26.9 million, or 35.1%, to $49.7 million for the three months ended March 31, 2025 from $76.6 million for the three months ended March 31, 2024. The average yield on advances increased 42 basis points, or 11.6%, from 3.63% for the three months ended March 31, 2024 to 4.05% for the three months ended March 31, 2025 due to paying off advances with significantly lower rates than the weighted average cost of all FHLB borrowings.

Previous wording

Net Interest Income. Net interest income increased $369,000, or 13.0%, to $3.2 million for the three months ended September 30, 2024 from $2.8 million for the three months ended September 30, 2023 due primarily to an increase in net interest margin of 29 basis points, or 10.2%, to 3.09% for the three months ended September 30, 2024 from 2.80% for the three months ended September 30, 2023 partially offset by a decrease in average net interest-earning assets of $7.5 million, or 10.0%, to $67.5 million at September 30, 2024 from $75.0 million at September 30, 2023. The increase in net interest margin was primarily due to balance sheet restructurings, which included the loan sale in 2024, allowing us to place the funds in higher yielding assets and increase the rate of repricing interest-earning assets to better align with the rate of repricing interest-bearing liabilities in addition to a more disciplined approach to deposit pricing. The average yield on interest-earning assets increased by 57 basis points, or 11.6%, compared to the average increase on interest bearing liabilities increasing by 28 basis points, or 10.8%.

Current wording

Net Interest Income. Net interest income increased $365,000, or 12.3%, to $3.3 million for the three months ended March 31, 2025 from $3.0 million for the three months ended March 31, 2024 due primarily to an increase in net interest margin of 45 basis points, or 16.0%, to 3.24% for the three months ended March 31, 2025 from 2.79% for the three months ended March 31, 2024 partially offset by a decrease in average net interest-earning assets of $6.3 million, or 8.6%, to $67.2 million at March 31, 2025 from $73.6 million at March 31, 2024. The increase in net interest margin was primarily due to balance sheet restructurings, which included the loan sale in 2024, allowing us to place the funds in higher yielding assets and increase the rate of repricing interest-earning assets to better align with the rate of repricing deposits in addition to a more disciplined approach to deposit pricing. The average yield on interest-earning assets increased by 38 basis points, or 7.5% and the average yield on interest bearing liabilities decreased by 11 basis points, or 3.8%.

Previous wording

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, the provision for credit losses increased $234,000, or 806.9%, to $263,000 for the three months ended September 30, 2024 from a provision for credit losses of $29,000 for the three months ended September 30, 2023, primarily due to a previous decrease in the allowance related to the sale of residential loans being reversed as new loans are originated and added to the portfolio. Many of the loans added are in the commercial portfolio that carry a higher allowance requirement as well. An increase in average loans and leases of $6.8 million from $272.2 million for the three months ended September 30, 2023 to $279.0 million for the three months ended September 30, 2024 and charge-offs of $9,000 that weren’t already specifically reserved for also added to the provision required. The allowance for credit losses was 1.07% of total loans at September 30, 2024.

Current wording

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, the provision for credit losses increased $390,000, or 140.8%, to $113,000 for the three months ended March 31, 2025 from a reversal of provision for credit losses of $277,000 for the three months ended March 31, 2024, primarily due to a previous decrease in the allowance related to the sale of residential loans being reversed as new loans are originated and added to the portfolio. Many of the loans added are in the commercial portfolio that carry a higher allowance requirement as well. An increase in average loans and leases of $18.1 million from $281.3 million for the three months ended March 31, 2024 to $299.4 million for the three months ended March 31, 2025 also added to the provision required. The allowance for credit losses was 1.09% of total loans at March 31, 2025.

Previous wording

Noninterest Expense. Noninterest expense increased $43,000, or 1.5%, to $2.9 million for the three months ended September 30, 2024 from $2.8 million for the three months ended September 30, 2023 primarily due to increases in occupancy and equipment expenses related to new branches and other expenses partially offset by decreases in salary and employee benefit expenses, data processing, technology expenses and director fees.

Current wording

Noninterest Expense. Noninterest expense decreased $143,000, or 4.7%, to $2.9 million for the three months ended March 31, 2025 from $3.1 million for the three months ended March 31, 2024 primarily due to decreases in occupancy and equipment expenses, salary and employee benefit expenses, technology expenses and director fees.

Previous wording

Income Tax Expense. Income tax expense decreased by $29,000, or 24.8%, to $88,000 for the three months ended September 30, 2024 from $117,000 for the three months ended September 30, 2023, although there was an increase in net income before taxes of $30,000 from $573,000 for the three months ended September 30, 2023 to $603,000 for the three months ended September 30, 2024. The effective tax rate was 14.6% and 20.4% for the three months ended September 30, 2024 and 2023, respectively. The decrease in taxes and effective tax rate was primarily due to nontaxable income increasing at a faster rate than taxable income.

Current wording

Income Tax Expense. Income tax expense increased by $814,000, or 115.0%, to $106,000 for the three months ended March 31, 2025 from an income tax benefit of $708,000 for the three months ended March 31, 2024, due to the increase in net income before taxes of $4.1 million from a loss of $3.4 million for the three months ended March 31, 2024 to income of $749,000 for the three months ended March 31, 2025. The effective tax rate was 14.15% and 20.87% for the three months ended March 31, 2025 and 2024, respectively. The decrease in the effective tax rate was primarily due to nontaxable income increasing at a faster rate than taxable income.

Previous wording

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. The Federal Reserve Bank of Boston provides the Bank with a federal funds line of credit. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the Federal Home Loan Bank of Dallas. At September 30, 2024, we had outstanding advances of $63.2 million from the Federal Home Loan Bank of Dallas. At September 30, 2024, we had unused borrowing capacity of $74.2 million with the Federal Home Loan Bank of Dallas. In addition, at September 30, 2024, we had an unused unsecured $10.0 million line of credit and an unused secured $3.0 million line of credit with Texas Independent Bankers Bank and an unused $5.0 million line of credit with First Horizon Bank.

Current wording

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. The Federal Reserve Bank of Boston provides the Bank with a federal funds line of credit. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the Federal Home Loan Bank of Dallas. At March 31, 2025, we had outstanding advances of $49.6 million from the Federal Home Loan Bank of Dallas. At March 31, 2025, we had unused borrowing capacity of $98.7 million with the Federal Home Loan Bank of Dallas. In addition, at March 31, 2025, we had an unused unsecured $10.0 million line of credit and an unused secured $3.0 million line of credit with Texas Independent Bankers Bank and an unused $5.0 million line of credit with First Horizon Bank.

Previous wording

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. For additional information, see the consolidated statements of cash flow for the nine months ended September 30, 2024 and 2023 included as part of the consolidated financial statements included in this report.

Current wording

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. For additional information, see the consolidated statements of cash flow for the three months ended March 31, 2025 and 2024 included as part of the consolidated financial statements included in this report.

Previous wording

Texas Community Bancshares, Inc. is a separate legal entity from Broadstreet Bank, and must provide for its own liquidity to pay its operating expenses and other financial obligations. Its primary source of income is dividends received from Broadstreet Bank. The amount of dividends that Broadstreet Bank may declare and pay to Texas Community Bancshares, Inc. is governed by applicable banking laws and regulations. At September 30, 2024, Texas Community Bancshares, Inc. (on a stand-alone, unconsolidated basis) had liquid assets of $8.5 million.

Current wording

Texas Community Bancshares, Inc. is a separate legal entity from Broadstreet Bank, and must provide for its own liquidity to pay its operating expenses and other financial obligations. Its primary source of income is dividends received from Broadstreet Bank. The amount of dividends that Broadstreet Bank may declare and pay to Texas Community Bancshares, Inc. is governed by applicable banking laws and regulations. At March 31, 2025, Texas Community Bancshares, Inc. (on a stand-alone, unconsolidated basis) had liquid assets of $7.1 million.

Previous wording

We monitor our large depositors and have discussions with them on how to maximize FDIC coverage to the fullest legal extent, which is limited to coverage of $250,000 per insured depositor. At September 30, 2024, there were 198 accounts with balances in excess of the $250,000 FDIC insurance limit totaling $99.5 million, or 30.5% of deposits. The amount that was over $250,000 was $50.0 million, or 15.3%, that was potentially uninsured, including certificates of deposit of $9.7 million and $40.3 million in checking, MMDA and savings accounts.

Current wording

We monitor our large depositors and have discussions with them on how to maximize FDIC coverage to the fullest legal extent, which is limited to coverage of $250,000 per insured depositor. At March 31, 2025, there were 204 accounts with balances in excess of the $250,000 FDIC insurance limit totaling $98.2 million, or 29.1% of deposits. The amount that was over $250,000 was $47.2 million, or 14.0%, that was potentially uninsured, including certificates of deposit of $11.3 million and $35.9 million in checking, MMDA and savings accounts.

Previous wording

At September 30, 2024, the weighted average life (WAL) of our securities portfolio is 4.9 years. The gross unrealized losses on the AFS securities was $5.1 million, or 5.9% of the $85.8 million AFS portfolio and 9.0% of capital. Unrealized losses on the HTM securities were $2.0 million, or 8.7 % of the $22.9 million HTM portfolio and

Current wording

At March 31, 2025, the weighted average life (WAL) of our securities portfolio is 5.1 years. The gross unrealized losses on the AFS securities was $5.5 million, or 6.9% of the $80.3 million AFS portfolio and 9.7% of capital. Unrealized losses on the HTM securities were $2.2 million, or 10.3 % of the $21.2 million HTM portfolio and 3.8% of capital. The total gross unrealized losses are $7.7 million, or 7.6% of the $101.5 million securities portfolio and 13.5% of capital, which includes $40.5 million, or 39.9%, that are agency issued and guaranteed by the U.S. government. These losses are the result of market interest rate increases and we continue to monitor the portfolio for

Previous wording

3.5% of capital. The total gross unrealized losses are $7.1 million, or 6.5% of the $108.7 million securities portfolio and 12.5% of capital, which includes $55.8 million, or 51.3%, that are agency issued and guaranteed by the U.S. government. These losses are the result of market interest rate increases and we continue to monitor the portfolio for credit and other risks. The net unrealized loss on AFS securities and derivatives combined, and the corresponding other comprehensive loss, was $4.1 million, or 7.2% of capital. Over the next 24 months from September 30, 2024, we expect to realize $34.7 million in cash flow from the securities portfolio with $8.3 million in 2024, $16.9 million in 2025 and $9.5 million in 2026. We should receive $24.9 million of that over the next 12 months. See the Securities section of the management discussion and analysis for more information.

Current wording

credit and other risks. The net unrealized loss on AFS securities, and the corresponding other comprehensive loss, was $4.4 million, or 7.7% of capital. Over the next 24 months from March 31, 2025, we expect to realize $43.7 million in cash flow from the securities portfolio with $17.8 million in 2025, $21.5 million in 2026 and $4.4 million in 2027. We should receive $21.3 million of that over the next 12 months. See the Securities section of the management discussion and analysis for more information.

Previous wording

During the year ended December 31, 2023, the Bank entered into interest rate swap agreements with a total notional amount of $25 million to hedge the risk of changes in the fair value of fixed rate AFS securities for changes in the SOFR benchmark rate. At September 30, 2024, the derivatives remained highly effective, however the fair value went negative temporarily due to a strong reaction to the 50 basis point decrease by the Federal Reserve in the fed funds target rate. This caused an unrealized loss on the derivative of $117,000 that increased the net unrealized loss on the AFS securities of $4.0 to an accumulated other comprehensive loss (AOCI) of $4.1 million at September 30, 2024. This is an increase in AFS fair value and decrease in AOCI of $1.5 million from a net unrealized loss position of $5.6 million at December 31, 2023.

Current wording

During 2023, the Bank entered into interest rate swap agreements with a total notional amount of $25 million to hedge the risk of changes in the fair value of fixed rate AFS securities for changes in the SOFR benchmark rate. In the first quarter of 2025, the Bank terminated these swap agreements and recognized a gain of $463,000. This gain reduced the unrealized loss on the underlying securities and will be included in income over their remaining life.

Previous wording

Our asset quality remains strong. We are cautiously optimistic with our lending and strategic decisions, staying focused on long-term goals and taking advantage of opportunities while being diligent about recognizing and mitigating risk. At September 30, 2024, our allowance for credit losses to loans and leases held for investment was 1.07%. The Company continues to monitor rates and loan demand weekly and align pricing accordingly. Housing supply and demand are monitored for indicators of a significant change in the local housing markets. We are increasing our lending in CRE, other commercial lending and loans to municipalities to more strategically balance our loan portfolio. This is a key component of the loan sale strategy resulting in $27.1 million in residential mortgage loans sold. At September 30, 2024, we do not have any plans to sell additional loans.

Current wording

Our asset quality remains strong. At March 31, 2025, our allowance for credit losses to loans and leases held for investment was 1.09%. The Company continues to monitor rates and loan demand weekly and align pricing accordingly. Housing supply and demand are monitored for indicators of a significant change in the local housing markets. We are increasing our lending in CRE, other commercial lending and loans to municipalities to more strategically balance our loan portfolio. This was a key component of the loan sale strategy resulting in $27.1 million in residential mortgage loans sold in 2024. At March 31, 2025, we do not have any plans to sell additional loans.

Previous wording

Our Risk Management and Interest Rate Risk Management Officer is responsible for evaluating the interest rate risk inherent in our assets and liabilities, determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates.

Current wording

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

Previous wording

The table above indicates that at September 30, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 6.63% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 5.54% decrease in net interest income.

Current wording

The table above indicates that at March 31, 2025, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 3.95% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 1.55% decrease in net interest income.

Previous wording

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

Current wording

Net Economic Value**.**We also compute amounts by which the net present value of our assets and liabilities (net economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate

Previous wording

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

Current wording

The table below sets forth the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve. The estimated changes presented are within policy guidelines established by the Company’s Board of Directors.

Previous wording

The table above indicates that at September 30, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 5.42% increase in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 17.25% decrease in EVE.

Current wording

The table above indicates that at March 31, 2025, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 0.97% increase in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 9.67% decrease in EVE.