SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

⌧	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

◻	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File No. 001-40610

Texas Community Bancshares, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Maryland		86-2760335
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

215 West Broad Street, Mineola, Texas		75773
(Address of Principal Executive Offices)		(Zip Code)

(903) 569-2602

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:



Common stock, $0.01 par value per share	TCBS	The Nasdaq Stock Market LLC
(Title of Each Class)	(Trading Symbol(s))	(Name of Each Exchange on Which Registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. YES ⌧ NO ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ⌧ NO ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ◻		Accelerated filer ◻
Non-accelerated filer ⌧		Smaller reporting company ☒
		Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

There were 3,115,652 shares, par value $0.01 per share, of the Registrant’s common stock outstanding as of November 12, 2024.

Table of Contents

Texas Community Bancshares, Inc.

Form 10-Q

Table of Contents


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Consolidated Statements of Financial Condition at September 30, 2024 (unaudited) and December 31, 2023	1

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	2

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	3

	Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52

Item 4.	Controls and Procedures	52

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	53

Item 1A.	Risk Factors	53

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	53

Item 3.	Defaults Upon Senior Securities	53

Item 4.	Mine Safety Disclosures	53

Item 5.	Other Information	53

Item 6.	Exhibits	54

	Signatures	55

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Financial Condition

September 30, 2024 and December 31, 2023

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


	September 30,		December 31,
	2024		2023
	(unaudited)
Assets
Cash and due from banks	$	5,200	$	5,412
Federal funds sold		12,555		7,648
Cash and cash equivalents		17,755		13,060
Interest bearing deposits in banks		3,188		12,298
Securities available for sale		80,675		93,327
Securities held to maturity (fair values of $20,974 at September 30, 2024 and $23,400 at December 31, 2023)		22,932		26,020
Loans receivable, net of allowance for credit losses of $3,174 at September 30, 2024 and $3,096 at December 31, 2023		291,629		279,896
Net investment in direct financing leases		1,330		36
Accrued interest receivable		1,723		1,728
Premises and equipment, net		11,627		11,609
Bank-owned life insurance		6,323		6,238
Other real estate owned		480		162
Restricted investments carried at cost		4,165		3,909
Core deposit intangible		165		265
Deferred income taxes		2,565		2,432
Financial derivative		—		115
Other assets		1,466		949
	$	446,023	$	452,044
Liabilities and Shareholders' Equity
Liabilities
Noninterest bearing	$	44,213	$	45,538
Interest bearing		282,094		271,703
Total deposits		326,307		317,241
Advances from Federal Home Loan Bank (FHLB)		63,196		76,896
Financial derivative		139		—
Accrued expenses and other liabilities		3,669		4,218
Total liabilities		393,311		398,355
Shareholders' Equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding		—		—
Common stock, $0.01 par value, 19,000,000 shares authorized, 3,380,329 issued and 3,135,556 outstanding at September 30, 2024 and 3,350,268 issued and 3,175,426 outstanding at December 31, 2023		34		34
Additional paid in capital		32,335		31,671
Retained earnings		29,770		31,972
Accumulated other comprehensive loss		(4,127)		(5,592)
Unearned Employee Stock Ownership Program (ESOP) shares, at cost		(2,099)		(2,197)
Treasury stock, at cost (244,773 shares at September 30, 2024 and 174,842 shares at December 31, 2023)		(3,201)		(2,199)
Total shareholders' equity		52,712		53,689
	$	446,023	$	452,044

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023

Interest Income
Loans, including fees	$	4,043	$	3,410	$	11,553	$	9,289
Debt securities
Taxable		1,033		1,232		3,407		3,652
Non taxable		37		44		119		137
Dividends on restricted investments		55		44		164		105
Federal funds sold		274		60		580		130
Deposits with banks		125		74		603		202
Financial derivative		135		112		375		145
Total interest income		5,702		4,976		16,801		13,660
Interest Expense
Deposits		1,843		1,443		5,413		3,676
Advances from FHLB		643		687		2,022		1,849
Other		3		2		7		7
Total interest expense		2,489		2,132		7,442		5,532
Net Interest Income		3,213		2,844		9,359		8,128
Provision (Credit) for Credit Losses - loans		299		(10)		211		185
Provision (Credit) for Credit Losses - off-balance sheet credit exposures		(36)		39		(101)		27
Provision (Credit) for Credit Losses		263		29		110		212
Net Interest Income After Provision for Credit Losses		2,950		2,815		9,249		7,916
Noninterest Income
Service charges on deposit accounts		172		182		507		513
Other service charges and fees		315		338		931		918
Net loss on securities transactions		(1)		—		(1)		(1,687)
Net loss on sale of loans		—		—		(3,850)		—
Net gain (loss) on sale of other real estate owned		—		36		(41)		36
Net loss on sale of premises and equipment		(4)		—		(287)		—
Net appreciation on bank-owned life insurance		43		28		86		79
Other income		5		8		16		37
Total noninterest income (loss)		530		592		(2,639)		(104)
Noninterest Expenses
Salaries and employee benefits		1,635		1,685		4,944		4,935
Occupancy and equipment expense		261		193		819		595
Data processing		233		244		707		686
Technology expense		62		123		365		347
Contract services		64		64		198		191
Director fees		71		102		233		299
Other expense		551		423		1,736		1,298
Total noninterest expense		2,877		2,834		9,002		8,351
Income (Loss) Before Income Taxes		603		573		(2,392)		(539)
Income Tax Expense (Benefit)		88		117		(570)		(138)
Net Income (Loss)	$	515	$	456	$	(1,822)	$	(401)
Income (loss) per share - basic	$	0.18	$	0.15	$	(0.62)	$	(0.13)
Income (loss) per share - diluted	$	0.17	$	0.15	$	(0.60)	$	(0.13)
Weighted-average shares outstanding - basic		2,936,526		3,055,489		2,959,766		3,083,629
Weighted-average shares outstanding - diluted		3,007,265		3,055,489		3,030,381		3,083,629

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Net Income (Loss)	$	515	$	456	$	(1,822)	$	(401)

Other items of comprehensive income (loss)
Debt Securities
Net changes in fair value of available for sale securities, before tax		1,722		(1,418)		2,120		(2,576)
Reclassification adjustment for realized loss on sale of investment securities included in net income (loss), before tax		1		—		1		1,687
Net changes in fair value of available for sale securities hedged, before tax		(785)		390		(268)		940
Total other items of comprehensive income (loss), before tax		938		(1,028)		1,853		51

Income tax (expense) benefit related to other items of comprehensive income (loss)		(196)		216		(388)		(11)
Total other items of comprehensive income (loss), after tax		742		(812)		1,465		40

Comprehensive Income (Loss)	$	1,257	$	(356)	$	(357)	$	(361)

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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


									Accumulated
					Additional				Other		Unearned				Total
	Preferred		Common		Paid In		Retained		Comprehensive		ESOP		Treasury		Shareholders'
Three Months Ended September 30, 2024 and 2023	Stock		Stock		Capital		Earnings		Loss		Shares		Stock		Equity
Balance at July 1, 2024	$	—	$	34	$	32,145	$	29,380	$	(4,869)	$	(2,132)	$	(2,783)	$	51,775
Net income		—		—		—		515		—		—		—		515
Stock based compensation expense		—		—		177		—		—		—		—		177
Other comprehensive income, net of tax		—		—		—		—		742		—		—		742
Cash dividend declared ($0.04 per share)		—		—		—		(125)		—		—		—		(125)
ESOP shares committed to be released, 3,277 shares		—		—		13		—		—		33		—		46
Treasury stock purchased, 29,331 shares		—		—		—		—		—		—		(418)		(418)
Balance at September 30, 2024	$	—	$	34	$	32,335	$	29,770	$	(4,127)	$	(2,099)	$	(3,201)	$	52,712

Balance at July 1, 2023	$	—	$	34	$	31,405	$	32,048	$	(6,147)	$	(2,280)	$	(610)	$	54,450
Net income		—		—		—		456		—		—		—		456
Stock based compensation expense		—		—		182		—		—		—		—		182
Other comprehensive loss, net of tax		—		—		—		—		(812)		—		—		(812)
Cash dividend declared ($0.03 per share)		—		—		—		(97)		—		—		—		(97)
ESOP shares committed to be released, 3,258 shares		—		—		8		—		—		32		—		40
Treasury stock purchased, 77,150 shares		—		—		—		—		—		—		(966)		(966)
Balance at September 30, 2023	$	—	$	34	$	31,595	$	32,407	$	(6,959)	$	(2,248)	$	(1,576)	$	53,253


									Accumulated
					Additional				Other		Unearned				Total
	Preferred		Common		Paid In		Retained		Comprehensive		ESOP		Treasury		Shareholders'
Nine Months Ended September 30, 2024 and 2023	Stock		Stock		Capital		Earnings		Loss		Shares		Stock		Equity
Balance at January 1, 2024	$	—	$	34	$	31,671	$	31,972	$	(5,592)	$	(2,197)	$	(2,199)	$	53,689
Net loss		—		—		—		(1,822)		—		—		—		(1,822)
Stock based compensation expense		—		—		623		—		—		—		—		623
Other comprehensive income, net of tax		—		—		—		—		1,465		—		—		1,465
Cash dividend declared ($0.04 per share)		—		—		—		(380)		—		—		—		(380)
ESOP shares committed to be released, 9,831 shares		—		—		41		—		—		98		—		139
Treasury stock purchased, 69,931 shares		—		—		—		—		—		—		(1,002)		(1,002)
Balance at September 30, 2024	$	—	$	34	$	32,335	$	29,770	$	(4,127)	$	(2,099)	$	(3,201)	$	52,712

Balance at January 1, 2023	$	—	$	33	$	31,099	$	34,083	$	(6,999)	$	(2,346)	$	—	$	55,870
Cumulative change in accounting principle (adoption of ASC 326)		—		—		—		(1,010)		—		—		—		(1,010)
Balance at January 1, 2023 (as adjusted for change in accounting principle)		—		33		31,099		33,073		(6,999)		(2,346)		—		54,860
Net loss		—		—		—		(401)		—		—		—		(401)
Stock based compensation expense		—		—		467		—		—		—		—		467
Issuance of restricted stock awards		—		1		—		—		—		—		—		1
Other comprehensive income, net of tax		—		—		—		—		40		—		—		40
Cash dividend declared ($0.02 per share in Q1 and $0.03 per share in Q2)		—		—		—		(265)		—		—		—		(265)
ESOP shares committed to be released, 9,774 shares		—		—		29		—		—		98		—		127
Treasury stock purchased, 127,417 shares		—		—		—		—		—		—		(1,576)		(1,576)
Balance at September 30, 2023	$	—	$	34	$	31,595	$	32,407	$	(6,959)	$	(2,248)	$	(1,576)	$	53,253

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended September 30, 2024 and 2023

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


	Nine Months Ended
	September 30,
	2024		2023
Operating Activities
Net loss	$	(1,822)	$	(401)
Adjustments to reconcile net loss to net cash from operating activities
Provision (credit) for credit losses - loans		211		185
Provision (credit) for credit losses - off-balance sheet credit exposures		(101)		27
Net amortization (accretion) of securities		42		(32)
Depreciation and amortization		429		316
Net realized loss on sales of securities available for sale		1		1,687
Loss on sale of loans		3,850		—
Loss on disposal of fixed assets		287		—
Appreciation on bank-owned life insurance		(86)		(79)
ESOP compensation expense for allocated shares		139		127
Loss (gain) on other real estate owned		41		(36)
Stock-based compensation		623		467
Deferred income tax benefit		(521)		(466)
(Gain) loss on fair value adjustment of fair value hedges		(12)		14
Net change in
Accrued interest receivable		5		(113)
Other assets		(518)		(46)
Accrued expenses and other liabilities		(549)		1,320
Net Cash from Operating Activities		2,019		2,970
Investing Activities
Net change in interest bearing deposits in banks		9,110		(7,016)
Activity in available for sale securities
Purchases		(3,474)		(9,511)
Sales		5,499		17,027
Maturities, prepayments and calls		12,799		4,730
Activity in held to maturity securities
Purchases		—		(2,139)
Maturities, prepayments and calls		2,994		2,960
Purchases of restricted investments		(256)		(1,066)
Loan originations and principal collections, net		(38,514)		(18,988)
Net (increase) decrease in net investment in direct financing leases		(1,294)		28
Proceeds from sale of loans, originally classified as loans held for investment		22,971		—
Proceeds from sales of other real estate owned		49		—
Additions of premises and equipment		(1,192)		(4,360)
Net Cash from (used for) Investing Activities		8,692		(18,335)
Financing Activities
Net increase in deposits		9,066		3,818
Advances from FHLB and other borrowings		52		33,201
Payments on FHLB and other borrowings		(13,752)		(16,317)
Cash dividends declared and paid		(380)		(265)
Purchases of treasury stock		(1,002)		(1,576)
Net Cash from Financing Activities		(6,016)		18,861
Net Change in Cash and Cash Equivalents		4,695		3,496
Cash and Cash Equivalents at Beginning of Period		13,060		8,927
Cash and Cash Equivalents at End of Period	$	17,755	$	12,423

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

Note 1 - Summary of Significant Accounting Policies

General

Texas Community Bancshares, Inc. (the “Company”), a Maryland corporation and registered bank holding company, was incorporated on March 5, 2021. The Company became the holding company for Broadstreet Bank, SSB (the “Bank”), formerly known as Mineola Community Bank, SSB prior to December 4, 2023, as part of a mutual to stock conversion completed on July 14, 2021. The Company’s shares trade on the NASDAQ under the symbol TCBS. Voting rights in the Company are held and exercised exclusively by the shareholders of the Company.

The Company’s primary source of revenue is providing loans and banking services to consumers and commercial customers in Mineola, Texas, and the surrounding area and the Dallas-Fort Worth Metroplex. The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America (GAAP) and to general practices of the banking industry.

Policies and practices which materially affect the determination of financial position, results of operations and cash flows are summarized as follows:

Interim Financial Statements

The interim unaudited consolidated financial statements as of September 30, 2024, and for the three and nine months ended September 30, 2024 and 2023, are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Such adjustments are the only adjustments contained in these unaudited consolidated financial statements. These unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission, and therefore certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been omitted. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be achieved for the year ending December 31, 2024, or any other period. Certain prior period data presented in the consolidated financial statements has been reclassified to conform with the current period presentation. The accompanying consolidated financial statements have been derived from and should be read in conjunction with the audited consolidated financial statements and notes, contained in the Company’s Form 10-K for the year ended December 31, 2023. Reference is made to the accounting policies of the Company described in the Notes to Consolidated Financial Statements contained in Form 10-K for the year ended December 31, 2023.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, which include Broadstreet Bank, SSB and its wholly-owned subsidiary Mineola Financial Service Corporation, which is inactive. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

Loans Held for Sale

Mortgage loans held for investment that are transferred to loans held for sale are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loans sold, including any servicing right value, if servicing is to be retained.

Loans held for sale, for which the fair value option has been elected, are recorded at fair value as of each balance sheet date.

Subsequent Events

After the period ended September 30, 2024, the Company sold $5,500 in securities for a gain of $40. The Company also prepaid $10,000 in FHLB advances incurring a prepayment penalty of $17 as well as a payoff of a $3,000 FHLB advance that had matured.

Note 2 – Earnings Per Share

Basic earnings per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period, including allocated and committed to be released ESOP shares and restricted stock awards granted on August 31, 2022, February 28, 2023, February 28, 2024, and August 30, 2024, during the applicable period. Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Net Income (Loss)	$	515	$	456	$	(1,822)	$	(401)

Weighted average shares outstanding for basic earnings per share:
Average shares outstanding		3,149,616		3,283,496		3,178,212		3,316,518
Less: average unearned ESOP shares		(213,090)		(228,007)		(218,446)		(232,889)
Weighted average shares outstanding for basic earnings per share		2,936,526		3,055,489		2,959,766		3,083,629

Additional dilutive shares		70,739		—		70,615		—

Weighted average shares outstanding for dilutive earnings per share		3,007,265		3,055,489		3,030,381		3,083,629

Basic earnings (loss) per share	$	0.18	$	0.15	$	(0.62)	$	(0.13)

Dilutive earnings (loss) per share	$	0.17	$	0.15	$	(0.60)	$	(0.13)

Nonvested restricted stock awards for 64,888 and 115,964 shares of common stock were not considered in computing diluted earnings per share for 2024 and 2023, respectively, because they were antidilutive. Nonvested stock options for 158,974 and 270,386 shares of common stock and vested stock options for 64,176 and 19,546 shares of common stock were not considered in computing diluted earnings per share for 2024 and 2023, respectively, because they were antidilutive.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

Note 3 - Debt Securities

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


	September 30, 2024
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
Available for Sale	Cost		Gains		Losses		Value
Debt Securities:
Residential mortgage-backed	$	25,237	$	105	$	(961)	$	24,381
Collateralized mortgage obligations		38,019		46		(1,672)		36,393
State and municipal		15,148		—		(1,453)		13,695
Corporate bonds		7,348		—		(1,142)		6,206
Total securities available for sale	$	85,752	$	151	$	(5,228)	$	80,675

Held to Maturity
Debt Securities:
Residential mortgage-backed	$	19,872	$	—	$	(1,946)	$	17,926
State and municipal		1,573		—		(15)		1,558
U.S. Government and agency		1,487		3		—		1,490
Total securities held to maturity	$	22,932	$	3	$	(1,961)	$	20,974


	December 31, 2023
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
Available for Sale	Cost		Gains		Losses		Value
Debt Securities:
Residential mortgage-backed	$	26,379	$	—	$	(1,454)	$	24,925
Collateralized mortgage obligations		52,426		31		(2,578)		49,879
State and municipal		15,220		—		(1,870)		13,350
Corporate bonds		6,500		—		(1,327)		5,173
Total securities available for sale	$	100,525	$	31	$	(7,229)	$	93,327

Held to Maturity
Debt Securities:
Residential mortgage-backed	$	22,301	$	—	$	(2,584)	$	19,717
State and municipal		1,985		—		(35)		1,950
U.S. Government and agency		1,734		—		(1)		1,733
Total securities held to maturity	$	26,020	$	—	$	(2,620)	$	23,400

During the three and nine months ended September 30, 2024, the Company had sales of available for sale securities of $5,499 with a loss of $1 and no sales of held to maturity securities. During the three months ended September 30, 2023, the Company had no sales of available for sale or held to maturity securities. During the nine months ended September 30, 2023, the Company had sales of available for sale securities of $17,027 with a loss of $1,687.

At September 30, 2024 and December 31, 2023, securities with a fair value of $16,583 and $14,152, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

The amortized cost and fair value of debt securities by contractual maturity at September 30, 2024, follows:


	Available for Sale				Held to Maturity
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year	$	—	$	—	$	365	$	365
Due from one to five years		3,553		3,391		134		128
Due in five to ten years		12,522		11,179		1,487		1,490
After ten years		6,421		5,331		1,074		1,065
Residential mortgage-backed		25,237		24,381		19,872		17,926
Collateralized mortgage obligations		38,019		36,393		—		—
Total	$	85,752	$	80,675	$	22,932	$	20,974

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


	September 30, 2024
	Less than 12 months				12 months or longer
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized
Category (number of securities)	Value		Losses		Value		Losses
Residential mortgage-backed (0,84)	$	—	$	—	$	29,813	$	(2,907)
Collateralized mortgage obligations (1,17)		1,598		(7)		25,953		(1,665)
State and municipal (0,17)		—		—		14,578		(1,468)
Corporate bonds (2,12)		1,560		(38)		4,646		(1,104)
U.S. Government and agency (0,0)		—		—		—		—
Total	$	3,158	$	(45)	$	74,990	$	(7,144)


	December 31, 2023
	Less than 12 months				12 months or longer
			Gross				Gross
	Fair		Unrealized		Fair		Unrealized
Category (number of securities)	Value		Losses		Value		Losses
Residential mortgage-backed (4,85)	$	9,486	$	(46)	$	35,156	$	(3,992)
Collateralized mortgage obligations (5,20)		12,909		(207)		31,793		(2,371)
State and municipal (4,16)		1,718		(2)		13,582		(1,903)
Corporate bonds (0,12)		—		—		4,423		(1,327)
U.S. Government and agency (1,0)		1,733		(1)		—		—
Total	$	25,846	$	(256)	$	84,954	$	(9,593)

At September 30, 2024 and December 31, 2023, the Company had investment securities with approximately $7,144 and $9,593, respectively, in unrealized losses, which have been in continuous loss positions for more than twelve months. The Company’s assessments indicated that the cause of the unrealized losses was primarily the change in market interest rates and not the issuers’ financial condition or downgrades by rating agencies. In addition, approximately 11.8% of the principal balance from the Company’s investment portfolio will mature and be repaid to the Company within five years or less. As a result, the Company has the ability and intent to hold such securities

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

until maturity.

The Company monitors credit quality of debt securities held-to-maturity through the use of nationally recognized credit ratings. The Company monitors credit ratings on a continual basis. The following table summarizes bond ratings for the Company’s held-to-maturity portfolio, based upon amortized cost, issued by state and political subdivisions and other securities as of September 30, 2024 and December 31, 2023:


	September 30, 2024
	Residential mortgage-backed		State and municipal		U.S Government and agency
AAA	$	19,872	$	1,438	$	1,487
Baa1		—		135		—
	$	19,872	$	1,573	$	1,487


	December 31, 2023
	Residential mortgage-backed		State and municipal		U.S Government and agency
AAA	$	22,301	$	1,851	$	1,734
Baa2		—		134		—
	$	22,301	$	1,985	$	1,734

As of September 30, 2024 and December 31, 2023, there were no securities held to maturity on nonaccrual status or past due.

Mortgage-backed Securities and Collateralized Mortgage Obligations

The unrealized losses on the Company’s investments in mortgage-backed securities and collateralized mortgage obligations were caused by market interest rate increases and decreases in prepayment speeds. The Company has no plans to sell these securities and will continue to monitor the unrealized losses’ effect on the financial statements. The contractual cash flows of many of these investments are guaranteed by agencies of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in fair value is attributable to changes in market interest rates and prepayment speeds and not credit quality, and because the Company does not intend to sell the investments before recovery of their amortized cost bases, which may be maturity. The unrealized losses on the Company’s investment in mortgage-backed securities have not been recognized into income and no allowance for credit losses was established at September 30, 2024 or December 31, 2023.

U.S. Government and Agency Securities

The unrealized losses on the Company’s investments in U.S. government and agency securities have not been recognized into income and no allowance for credit losses was established because the bonds are of high credit quality, management does not intend to sell, and it is likely that management will not be required to sell the securities prior to their anticipated recovery, which may be at maturity. The decline in fair value is largely due to increases in market interest rates and not credit quality deterioration and the fair value is expected to recover as the

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

bonds approach maturity. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Therefore, an allowance for credit losses is deemed unnecessary at September 30, 2024 and December 31, 2023.

Municipal Securities and Corporate Bonds

The unrealized losses on the Company’s investments in state and municipal securities and corporate bonds have not been recognized into income and no allowance for credit losses was established because the bonds are of high credit quality, management does not intend to sell, and it is likely that management will not be required to sell the securities prior to their anticipated recovery, which may be at maturity. The decline in fair value is largely due to increases in market interest rates and not credit quality deterioration and the fair value is expected to recover as the bonds approach maturity. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Therefore, an allowance for credit losses is deemed unnecessary at September 30, 2024 and December 31, 2023.

Note 4 - Loans and Allowance for Credit Losses

A summary of the balances of loans and leases follows:


	September 30,		December 31,
	2024		2023
Real estate
Construction and land	$	55,187	$	37,526
Farmland		9,349		8,317
1-4 Residential and multi-family		153,565		181,464
Commercial Real Estate		55,545		41,788
Total real estate		273,646		269,095
Agriculture		86		150
Commercial		7,106		6,900
Municipalities		9,253		2,173
Consumer and other		6,042		4,710
Subtotal		296,133		283,028
Less allowance for credit losses		(3,174)		(3,096)
Loans and leases, net	$	292,959	$	279,932

Direct financing leases of $1,330 and $36 are included in consumer and other loans at September 30, 2024 and December 31, 2023, respectively.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

The following tables set forth information regarding the activity in the allowance for credit losses for the three and nine months ended September 30, 2024 and September 30, 2023:


		September 30, 2024
	Real Estate
Allowance for credit losses:	Construction and Land		Farmland		1-4 Residential & multi-family		Commercial real estate		Agriculture		Commercial		Municipalities		Consumer and other		Total
Three months ended
Beginning balance, July 1, 2024	$	431	$	55	$	1,398	$	452	$	1	$	448	$	69	$	121	$	2,975
Provision (credit) for credit losses		151		17		(15)		124		—		19		10		(7)		299
Loans charged-off		—		—		(16)		—		—		(84)		—		(5)		(105)
Recoveries		—		—		—		—		—		—		—		5		5
Balance, September 30, 2024	$	582	$	72	$	1,367	$	576	$	1	$	383	$	79	$	114	$	3,174
Nine months ended
Balance, January 1, 2024	$	378	$	66	$	1,621	$	482	$	2	$	441	$	18	$	88	$	3,096
Provision (credit) for credit losses		204		6		(238)		94		(1)		26		61		59		211
Loans charged-off		—		—		(16)		—		—		(84)		—		(75)		(175)
Recoveries		—		—		—		—		—		—		—		42		42
Balance, September 30, 2024	$	582	$	72	$	1,367	$	576	$	1	$	383	$	79	$	114	$	3,174

Balance, September 30, 2024 allocated to loans and leases individually evaluated	$	—	$	—	$	30	$	16	$	—	$	279	$	—	$	5	$	330

Balance, September 30, 2024 allocated to loans and leases collectively evaluated	$	582	$	72	$	1,337	$	560	$	1	$	104	$	79	$	109	$	2,844

Loans and leases receivable:
Balance, September 30, 2024 loans and leases individually evaluated	$	301	$	—	$	1,879	$	747	$	—	$	1,236	$	—	$	9	$	4,172
Balance, September 30, 2024 loans and leases collectively evaluated		54,886		9,349		151,686		54,798		86		5,870		9,253		6,033		291,961
Balance, September 30, 2024	$	55,187	$	9,349	$	153,565	$	55,545	$	86	$	7,106	$	9,253	$	6,042	$	296,133

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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


		September 30, 2023
	Real Estate
Allowance for credit losses:	Construction and Land		Farmland		1-4 Residential & multi-family		Commercial real estate		Agriculture		Commercial		Municipalities		Consumer and other		Total
Three months ended
Beginning balance, July 1, 2023	$	442	$	69	$	1,517	$	372	$	1	$	466	$	14	$	88	$	2,969
Provision for credit losses		(82)		1		50		(2)		—		(14)		7		30		(10)
Loans charged-off		—		—		—		—		—		—		—		(29)		(29)
Recoveries		—		—		—		—		—		—		—		4		4
Balance, September 30, 2023	$	360	$	70	$	1,567	$	370	$	1	$	452	$	21	$	93	$	2,934
Nine months ended
Beginning balance prior to adoption of ASC 326	$	262	$	31	$	812	$	227	$	1	$	359	$	4	$	59	$	1,755
Impact of adopting ASC 326 on January 1, 2023		92		28		677		133		2		61	$	4	$	28		1,025
Provision for credit losses		6		11		78		10		(2)		32		13		37		185
Loans charged-off		—		—		—		—		—		—		—		(38)		(38)
Recoveries		—		—		—		—		—		—		—		7		7
Balance, September 30, 2023	$	360	$	70	$	1,567	$	370	$	1	$	452	$	21	$	93	$	2,934

	December 31, 2023
	Real Estate
	Construction and Land		Farmland		1-4 Residential & multi-family		Commercial real estate		Agriculture		Commercial		Municipalities		Consumer and other		Total
Allowance for credit losses:
Balance, December 31, 2023 allocated to loans and leases individually evaluated	$	17	$	4	$	23	$	12	$	—	$	348	$	—	$	4	$	408

Balance, December 31, 2023 allocated to loans and leases collectively evaluated	$	361	$	62	$	1,598	$	470	$	2	$	93	$	18	$	84	$	2,688

Loans and leases receivable:
Balance, December 31, 2023 loans and leases individually evaluated	$	962	$	155	$	1,432	$	492	$	—	$	1,401	$	—	$	14	$	4,456
Balance, December 31, 2023 loans and leases collectively evaluated		36,564		8,162		180,032		41,296		150		5,499		2,173		4,696		278,572
Balance, December 31, 2023	$	37,526	$	8,317	$	181,464	$	41,788	$	150	$	6,900	$	2,173	$	4,710	$	283,028

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days and still accruing as of June 30, 2024 and December 31, 2023:


	September 30, 2024
	Nonaccrual without Allowance		Nonaccrual with Allowance		Loans Past Due Over 90 Days Still Accruing
Real estate
Construction and land	$	301	$	—	$	—
Farmland		—		—		—
1‑4 Residential & multi-family		480		—		—
Commercial real estate		54		—		—
Agriculture		—		—		—
Commercial		25		1,200		—
Municipalities		—		—		—
Consumer and other		—		—		—
Total	$	860	$	1,200	$	—

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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


	December 31, 2023
	Nonaccrual without Allowance		Nonaccrual with Allowance		Loans Past Due Over 90 Days Still Accruing
Real estate
Construction and land	$	—	$	—	$	—
Farmland		—		—		—
1‑4 Residential & multi-family		497		—		—
Commercial real estate		61		—		22
Agriculture		—		—		—
Commercial		6		345		8
Municipalities		—		—		—
Consumer and other		—		—		—
Total	$	564	$	345	$	30

The Company did not recognize any interest income on nonaccrual loans during the periods ended June 30, 2024 or September 30, 2023.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2024 and December 31, 2023:


	September 30, 2024
	Real Estate		Accounts Receivable and Inventory		Other
Real estate
Construction and land	$	301	$	—	$
1-4 Residential & multi-family		618		—		—
Commercial real estate		54		—		—
Commercial		—		309		917
Consumer and other		—		—		1
Total	$	973	$	309	$	918


	December 31, 2023
	Real Estate		Accounts Receivable and Inventory		Other
Real estate
1-4 Residential & multi-family	$	645	$	—	$	—
Commercial real estate		61		—		—
Commercial		—		445		6
Total	$	706	$	445	$	6

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

The Company had $2,200 and $1,157 in collateral-dependent loans at September 30, 2024 and December 31, 2023, respectively.

Internal Risk Categories

A loan is considered collateral-dependent when based on current information and events; it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Collateral dependent loans include nonperforming loans (nonaccrual loans), loans performing but with deterioration that leads to doubt regarding collectability.

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral-dependent loans, where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the fair value of the underlying collateral, less estimated costs to sell. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan.

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

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

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

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

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

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

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

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

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

The Company evaluates the loan risk grading system definitions and allowance for credit loss methodology on an ongoing basis. No significant changes in methodology were made during the three and nine months ended September 30, 2024.

Certain loan segments were reclassified during the period ended September 30, 2024. Each loan segment is made up of loan categories with similar risk characteristics. The Company’s realignment of the segments primarily consisted of separately presenting municipality loans from the consumer and other category. Management believes this accurately represents the risk profile of each loan segment. The prior period balances have been revised to conform to the current period presentation. These reclassifications did not have a significant impact on the allowance for credit losses.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

Based on the most recent analysis performed, the risk category of loans by class of loans and gross chargeoffs as of September 30, 2024 and December 31, 2023 are as follows:


	September 30, 2024
	Term Loans Amortized Cost Basis by Origination Year
		2024		2023		2022		2021		2020		Prior		Total
Construction and land
Risk rating
Pass		$	21,753	$	25,775	$	4,948	$	627	$	564	$	1,219	$	54,886
Special mention			—		—		—		—		—		—		—
Substandard			—		—		—		301		—		—		301
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	21,753	$	25,775	$	4,948	$	928	$	564	$	1,219	$	55,187
Farmland
Risk rating
Pass		$	2,660	$	1,719	$	1,893	$	289	$	490	$	2,298	$	9,349
Special mention			—		—		—		—		—		—		—
Substandard			—		—		—		—		—		—		—
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	2,660	$	1,719	$	1,893	$	289	$	490	$	2,298	$	9,349
1-4 Residential & multi-family
Risk rating
Pass		$	11,774	$	28,937	$	18,865	$	29,717	$	38,766	$	23,626	$	151,685
Special mention			—		220		—		—		—		206		426
Substandard			—		25		—		217		93		1,119		1,454
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	11,774	$	29,182	$	18,865	$	29,934	$	38,859	$	24,951	$	153,565
Current period gross charge-offs		$	—	$	16	$	—	$	—	$	—	$	—	$	16
Commercial real estate
Risk rating
Pass		$	14,651	$	13,583	$	5,320	$	7,098	$	3,013	$	11,132	$	54,797
Special mention			—		—		—		—		—		302		302
Substandard			—		—		—		—		—		446		446
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	14,651	$	13,583	$	5,320	$	7,098	$	3,013	$	11,880	$	55,545
Agriculture
Risk rating
Pass		$	23	$	43	$	4	$	16	$	—	$	—	$	86
Special mention			—		—		—		—		—		—		—
Substandard			—		—		—		—		—		—		—
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	23	$	43	$	4	$	16	$	—	$	—	$	86
Commercial
Risk rating
Pass		$	3,067	$	1,677	$	547	$	104	$	141	$	334	$	5,870
Special mention			10		—		—		—		—		—		10
Substandard			23		—		—		894		62		247		1,226
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	3,100	$	1,677	$	547	$	998	$	203	$	581	$	7,106
Current period gross charge-offs		$	84	$	—	$	—	$	—	$	—	$	—	$	84
Municipalities
Risk rating
Pass		$	8,408	$	845	$	—	$	—	$	—	$	—	$	9,253
Special mention			—		—		—		—		—		—		—
Substandard			—		—		—		—		—		—		—
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	8,408	$	845	$	—	$	—	$	—	$	—	$	9,253
Consumer and other
Risk rating
Pass		$	3,378	$	1,257	$	492	$	883	$	23	$	—	$	6,033
Special mention			—		5		2		1		—		—		8
Substandard			—		—		—		—		—		—		—
Doubtful			—		—		1		—		—		—		1
Loss			—		—		—		—		—		—		—
		$	3,378	$	1,262	$	495	$	884	$	23	$	—	$	6,042
Current period gross charge-offs		$	58	$	13	$	4	$	—	$	—	$	—	$	75

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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


	December 31, 2023
	Term Loans Amortized Cost Basis by Origination Year
		2023		2022		2021		2020		2019		Prior		Total
Construction and land
Risk rating
Pass		$	20,695	$	12,821	$	652	$	867	$	263	$	1,266	$	36,564
Special mention			—		647		—		—		—		—		647
Substandard			—		—		315		—		—		—		315
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	20,695	$	13,468	$	967	$	867	$	263	$	1,266	$	37,526
Farmland
Risk rating
Pass		$	1,937	$	2,275	$	1,124	$	502	$	794	$	1,530	$	8,162
Special mention			—		—		—		—		—		—		—
Substandard			—		—		—		—		155		—		155
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	1,937	$	2,275	$	1,124	$	502	$	949	$	1,530	$	8,317
1-4 Residential & multi-family
Risk rating
Pass		$	37,344	$	28,374	$	34,680	$	44,761	$	9,917	$	24,956	$	180,032
Special mention			—		—		—		—		—		108		108
Substandard			44		—		—		—		364		916		1,324
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	37,388	$	28,374	$	34,680	$	44,761	$	10,281	$	25,980	$	181,464
Commercial real estate
Risk rating
Pass		$	13,226	$	5,686	$	7,253	$	3,178	$	6,926	$	5,027	$	41,296
Special mention			—		—		—		—		22		—		22
Substandard			—		—		—		—		—		470		470
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	13,226	$	5,686	$	7,253	$	3,178	$	6,948	$	5,497	$	41,788
Agriculture
Risk rating
Pass		$	74	$	10	$	66	$	—	$	—	$	—	$	150
Special mention			—		—		—		—		—		—		—
Substandard			—		—		—		—		—		—		—
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	74	$	10	$	66	$	—	$	—	$	—	$	150
Commercial
Risk rating
Pass		$	3,387	$	844	$	357	$	341	$	274	$	297	$	5,500
Special mention			—		—		—		—		—		—		—
Substandard			100		1		954		75		270		—		1,400
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	3,487	$	845	$	1,311	$	416	$	544	$	297	$	6,900
Municipalities
Risk rating
Pass		$	1,405	$	—	$	768	$	—	$	—	$	—	$	2,173
Special mention			—		—		—		—		—		—		—
Substandard			—		—		—		—		—		—		—
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	1,405	$	—	$	768	$	—	$	—	$	—	$	2,173
Consumer and other
Risk rating
Pass		$	3,113	$	1,128	$	359	$	88	$	—	$	8	$	4,696
Special mention			7		—		1		3		—		—		11
Substandard			3		—		—		—		—		—		3
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	3,123	$	1,128	$	360	$	91	$	—	$	8	$	4,710
Current period gross charge-offs		$	37	$	25	$	6	$	7	$	—	$	—	$	75

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. The Company also evaluates credit quality based on the aging status of the loan, which is subsequently presented. The following table presents the amortized cost of performing and non-performing loans as of September 30, 2024 and December 31, 2023:


	September 30, 2024
	Term Loans Amortized Cost Basis by Origination Year
		2024		2023		2022		2021		2020		Prior		Total
Construction and land
Performing		$	21,753	$	25,775	$	4,948	$	627	$	564	$	1,219	$	54,886
Nonperforming			—		—		—		301		—		—		301
		$	21,753	$	25,775	$	4,948	$	928	$	564	$	1,219	$	55,187

Farmland
Performing		$	2,660	$	1,719	$	1,893	$	289	$	490	$	2,298	$	9,349
Nonperforming			—		—		—		—		—		—		—
		$	2,660	$	1,719	$	1,893	$	289	$	490	$	2,298	$	9,349

1-4 Residential & multi-family
Performing		$	11,774	$	29,157	$	18,865	$	29,934	$	38,859	$	24,357	$	152,946
Nonperforming			—		25		—		—		—		594		619
		$	11,774	$	29,182	$	18,865	$	29,934	$	38,859	$	24,951	$	153,565

Commercial real estate
Performing		$	14,651	$	13,583	$	5,320	$	7,098	$	3,013	$	11,826	$	55,491
Nonperforming			—		—		—		—		—		54		54
		$	14,651	$	13,583	$	5,320	$	7,098	$	3,013	$	11,880	$	55,545

Agriculture
Performing		$	23	$	43	$	4	$	16	$	—	$	—	$	86
Nonperforming			—		—		—		—		—		—		—
		$	23	$	43	$	4	$	16	$	—	$	—	$	86

Commercial
Performing		$	3,077	$	1,677	$	547	$	104	$	141	$	334	$	5,880
Nonperforming			23		—		—		894		62		247		1,226
		$	3,100	$	1,677	$	547	$	998	$	203	$	581	$	7,106

Municipalities
Performing		$	8,408	$	845	$	—	$	—	$	—	$	—	$	9,253
Nonperforming			—		—		—		—		—		—		—
		$	8,408	$	845	$	—	$	—	$	—	$	—	$	9,253

Consumer and other
Performing		$	3,378	$	1,262	$	494	$	884	$	23	$	—	$	6,041
Nonperforming			—		—		1		—		—		—		1
		$	3,378	$	1,262	$	495	$	884	$	23	$	—	$	6,042

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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


		December 31, 2023
	Term Loans Amortized Cost Basis by Origination Year
		2023		2022		2021		2020		2019		Prior		Total
Construction and land
Performing		$	20,695	$	13,468	$	967	$	867	$	263	$	1,266	$	37,526
Nonperforming			—		—		—		—		—		—		—
		$	20,695	$	13,468	$	967	$	867	$	263	$	1,266	$	37,526

Farmland
Performing		$	1,937	$	2,275	$	1,124	$	502	$	949	$	1,530	$	8,317
Nonperforming			—		—		—		—		—		—		—
		$	1,937	$	2,275	$	1,124	$	502	$	949	$	1,530	$	8,317

1-4 Residential & multi-family
Performing		$	37,388	$	28,374	$	34,680	$	44,761	$	10,101	$	25,515	$	180,819
Nonperforming			—		—		—		—		180		465		645
		$	37,388	$	28,374	$	34,680	$	44,761	$	10,281	$	25,980	$	181,464

Commercial real estate
Performing		$	13,226	$	5,686	$	7,253	$	3,178	$	6,948	$	5,436	$	41,727
Nonperforming			—		—		—		—		—		61		61
		$	13,226	$	5,686	$	7,253	$	3,178	$	6,948	$	5,497	$	41,788

Agriculture
Performing		$	74	$	10	$	66	$	—	$	—	$	—	$	150
Nonperforming			—		—		—		—		—		—		—
		$	74	$	10	$	66	$	—	$	—	$	—	$	150

Commercial
Performing		$	3,387	$	845	$	1,305	$	341	$	274	$	297	$	6,449
Nonperforming			100		—		6		75		270		—		451
		$	3,487	$	845	$	1,311	$	416	$	544	$	297	$	6,900

Municipalities
Performing		$	1,405	$	—	$	768	$	—	$	—	$	—	$	2,173
Nonperforming			—		—		—		—		—		—		—
		$	1,405	$	—	$	768	$	—	$	—	$	—	$	2,173

Consumer and other
Performing		$	3,123	$	1,128	$	360	$	91	$	—	$	8	$	4,710
Nonperforming			—		—		—		—		—		—		—
		$	3,123	$	1,128	$	360	$	91	$	—	$	8	$	4,710

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

The following is an aging analysis for loans as of September 30, 2024 and December 31, 2023:


	September 30, 2024
	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater		Total Past Due		Current		Total Loans
Real estate
Construction and land	$	—	$	—	$	301	$	301	$	54,886	$	55,187
Farmland		—		—		—		—		9,349		9,349
1‑4 Residential & multi-family		377		92		150		619		152,946		153,565
Commercial real estate		—		—		—		—		55,545		55,545
Agriculture		—		—		—		—		86		86
Commercial		891		10		3		904		6,202		7,106
Municipalities		—		—		—		—		9,253		9,253
Consumer and other		4		—		—		4		6,038		6,042
Total	$	1,272	$	102	$	454	$	1,828	$	294,305	$	296,133


	December 31, 2023
	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater		Total Past Due		Current		Total Loans
Real estate
Construction and land	$	808	$	1,153	$	—	$	1,961	$	35,565	$	37,526
Farmland		—		—		—		—		8,317		8,317
1‑4 Residential & multi-family		344		271		137		752		180,712		181,464
Commercial real estate		—		410		22		432		41,356		41,788
Agriculture		—		—		—		—		150		150
Commercial		—		—		8		8		6,892		6,900
Municipalities		—		—		—		—		2,173		2,173
Consumer and other		—		—		—		—		4,710		4,710
Total	$	1,152	$	1,834	$	167	$	3,153	$	279,875	$	283,028

All interest accrued but not collected for loans that are placed on nonaccrual status or are charged‐off is reversed against interest income. The interest on these loans is accounted for on the cash‐basis or cost‐recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. No interest income was recognized for loans on nonaccrual status for the three and nine months ended September 30, 2024 and 2023.

The following table presents interest income recognized on loans that are collateral-dependent and individually reviewed for the three and nine months ended September 30, 2024 and 2023:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Real estate
1-4 Residential & multi-family	$	1	$	2	$	4	$	5
Commercial		1		3		6		6
	$	2	$	5	$	10	$	11

During the three and nine months ended September 30, 2024 and 2023, there were no modifications of loans to borrowers in financial difficulty.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

There have been no modifications to borrowers with financial difficulty in the three and nine months ended September 30, 2024 and 2023 that subsequently defaulted. The Company has no commitments to loan additional funds to borrowers whose loans have been modified but may on occasion extend financing to these borrowers.

Note 5 - Off-Balance-Sheet Activities

The Company is a party to credit related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

At September 30, 2024 and December 31, 2023, the following financial instruments were outstanding whose contract amounts represent credit risk:

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

The Bank is party to an agreement with the Federal Reserve Bank of Boston that provides the Bank with a federal funds line of credit in an amount tied to securities on deposit with that bank. The Bank pays no fees for this line of credit and has not drawn upon it. The Bank is party to agreements with its correspondent banks that provide the Bank with unsecured lines for up to $15,000 federal funds lines of credit to support overnight funding needs. The Bank pays no fees for these lines of credit and has not drawn upon them. One line renews annually and the other line is in effect until either party changes the terms of the agreement. The Bank is party to an additional agreement on a secured federal funds line of credit of $3,000 that is in effect until either party changes or fails to meet the terms of the agreement.

At September 30, 2024, the Company had no commitments to purchase securities.

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

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

Note 6 - Supplemental Cash Flow Information

Supplemental disclosure of cash flow information is as follows:


	Nine Months Ended
	September 30,
	2024		2023
Supplemental cash flow information:
Cash paid for
Interest on deposits	$	5,396	$	3,526
Interest on FHLB advances		2,046		1,776
Other interest		7		7
Income taxes		—		120
Non-cash activities
Transfer on loans receivable to loans held for sale	$	26,821		—
Loan originations to facilitate the sale of other real estate owned		150		—
Premises and equipment transferred to other real estate owned		558		—

Note 7 - Minimum Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.

The Bank has opted into the Community Bank Leverage Ratio (CBLR) framework, beginning with the Call Report filed for the first quarter of 2020. At September 30, 2024 and December 31, 2023, the Bank’s CBLR ratio was 10.59% and 10.76%, respectively, which exceeded all regulatory capital requirements under the CBLR framework, and the Bank was considered to be “well-capitalized.”

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

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

Note 8 - Fair Value Measurements

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

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

The fair value hierarchy is as follows:

●

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

●

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

●

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

A description of the valuation methodologies used for assets measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. There were no changes in valuation techniques during either the nine months ended September 30, 2024 or the year ended December 31, 2023.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed or third-party models that primarily use, as inputs,

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

observable market- based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

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

Derivative Instruments – The Company records derivative instruments at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third-party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. Third-party valuations are validated by the Company using the Bloomberg Valuation Service’s derivative pricing functions. No significant differences were identified during the validation as of September 30, 2024.

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

Other real estate owned – Fair values are valued at the time the loan is foreclosed upon and the asset is transferred from loans or when the asset is transferred into other real estate owned from premises and equipment. The value is based upon primarily third-party appraisals, less estimated costs to sell. The appraisals are generally discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s business. Such discounts are typically significant and result in Level 3 classification of inputs for determining fair value. Other real estate owned is

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same or similar factors above.

The following table summarizes financial assets measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	September 30, 2024
	Level 1		Level 2		Level 3		Total
	Inputs		Inputs		Inputs		Fair Value
Financial assets
Available for sale securities
Residential mortgage-backed	$	—	$	24,381	$	—	$	24,381
Collateralized mortgage obligations		—		36,393		—		36,393
State and municipal		—		13,695		—		13,695
Corporate bonds		—		6,206		—		6,206
Total financial assets	$	—	$	80,675	$	—	$	80,675

Financial liabilities
Derivative instruments	$	—	$	(139)	$	—	$	(139)
Total financial liabilities	$	—	$	(139)	$	—	$	(139)


	December 31, 2023
	Level 1		Level 2		Level 3		Total
	Inputs		Inputs		Inputs		Fair Value
Financial assets
Available for sale securities
Residential mortgage-backed	$	—	$	24,925	$	—	$	24,925
Collateralized mortgage obligations		—		49,879		—		49,879
State and municipal		—		13,350		—		13,350
Corporate bonds		—		5,173		—		5,173
Derivative instruments		—		115		—		115
Total financial assets	$	—	$	93,442	$	—	$	93,442

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

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

The following table summarizes financial and non-financial assets measured at fair value on a nonrecurring basis as of September 30, 2024 and December 31, 2023, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	September 30, 2024
	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
Financial assets
Collateral-dependent loans	$	—	$	—	$	921	$	921
Nonfinancial assets
Other real estate owned		—		—		480		480
	$	—	$	—	$	1,401	$	1,401


	December 31, 2023
	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
Financial assets
Collateral-dependent loans	$	—	$	—	$	45	$	45
Nonfinancial assets
Other real estate owned		—		—		162		162
	$	—	$	—	$	207	$	207

During the nine months ended September 30, 2024 and 2023, certain collateral-dependent loans were remeasured and reported at fair value through a specific allocation of the allowance for credit losses based upon the fair value of the underlying collateral. At September 30, 2024, collateral-dependent loans with a carrying value of $1,200 were reduced by specific valuation allowance allocations totaling $279 to a reported fair value of $921. At December 31, 2023, collateral dependent loans with a carrying value of $345 were reduced by specific valuation allowance allocations totaling $300 to a reported fair value of $45. The fair value of collateral dependent loans is determined based on collateral valuations utilizing Level 3 valuation inputs. There was a charge of $15 to the provision for credit losses and a transfer of $48 from the general reserve to the specific reserve as a result of additional reserve requirements according to the quarterly evaluation conducted on collateral dependent loans for the nine months ended September 30, 2024. There was no charge to the provision for credit losses as a result of the valuation allowances for the nine months ended September 30, 2023.

At September 30, 2024, the Company had other real estate owned consisting of two bank properties that were purchased for future expansion, but have now been listed for sale. At December 31, 2023, the Company had one commercial building held as other real estate owned with a carrying value of $162, which was sold at a gain during the nine months ended September 30, 2024.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

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


				Significant	Range of
	Fair Value at		Principal Valuation	Unobservable	Significant Input
Instrument	September 30, 2024		Technique	Inputs	Values
Collateral-dependent loans	$	921	Appraisal of collateral (1)	Appraisal adjustment	10-25	%

Other real estate owned	$	480	Appraisal of collateral (1)	Appraisal adjustment	10-25	%


				Significant	Range of
	Fair Value at		Principal Valuation	Unobservable	Significant Input
Instrument	December 31, 2023		Technique	Inputs	Values
Collateral-dependent loans	$	45	Appraisal of collateral (1)	Appraisal adjustment	10-25	%

Other real estate owned	$	162	Appraisal of collateral (1)	Appraisal adjustment	10-25	%

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

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

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


	September 30, 2024
	Level 1		Level 2		Level 3		Total		Total
	Inputs		Inputs		Inputs		Fair Value		Carrying Value
Financial assets
Cash and cash equivalents	$	17,755	$	—	$	—	$	17,755	$	17,755
Interest bearing deposits in banks		3,188		—		—		3,188		3,188
Securities held to maturity		—		20,974		—		20,974		22,932
Loans, net		—		—		280,376		280,376		291,629
Net investment in direct financing leases		—		—		1,330		1,330		1,330
Accrued interest receivable		1,723		—		—		1,723		1,723
Restricted investments carried at cost		—		4,165		—		4,165		4,165
Financial liabilities
Deposits		—		—		302,805		302,805		326,307
FHLB advances		—		—		63,721		63,721		63,196
Accrued interest payable		776		—		—		776		776


	December 31, 2023
	Level 1		Level 2		Level 3		Total		Total
	Inputs		Inputs		Inputs		Fair Value		Carrying Value
Financial assets
Cash and cash equivalents	$	13,060	$	—	$	—	$	13,060	$	13,060
Interest bearing deposits in banks		12,298		—		—		12,298		12,298
Securities held to maturity		—		23,400		—		23,400		26,020
Loans, net		—		—		262,356		262,356		279,896
Net investment in direct financing leases		—		—		36		36		36
Accrued interest receivable		1,728		—		—		1,728		1,728
Restricted investments carried at cost		—		3,909		—		3,909		3,909
Mortgage servicing rights		—		—		6		6		6
Financial liabilities
Deposits		—		—		292,885		292,885		317,241
FHLB advances		—		—		76,856		76,856		76,896
Accrued interest payable		783		—		—		783		783

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

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

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

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

Accrued interest receivable – The carrying value approximates its fair value.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

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

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

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

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

Accrued interest payable – The carrying value approximates the fair value.

Note 9 - Employee Stock Ownership Plan

In connection with the mutual to stock conversion completed on July 14, 2021, the Company established an Employee Stock Ownership Plan for the exclusive benefit of eligible employees. The ESOP borrowed funds from the Company in an amount sufficient to purchase 260,621 shares (approximately 8.0% of the common stock issued in connection with the conversion). The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Company and dividends received by the ESOP. Contributions will be applied to repay interest on the loan first, and then the remainder will be applied to principal. The loan is expected to be repaid over a period of up to 20 years.

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

The debt of the ESOP is eliminated in consolidation. Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement. As shares are committed to be released from collateral, the Company reports the compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations. Dividends on unallocated ESOP shares, if any, are recorded as a reduction of debt and accrued interest. ESOP compensation was $46 and $139 for the three and nine months ended September 30, 2024 and $40 and $127 for the three and nine months ended September 30, 2023.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

A summary of the ESOP shares as of September 30, 2024 and December 31, 2023 are as follows:


	September 30, 2024		December 31, 2023
Shares allocated to participants		40,906		40,906
Shares committed to be released to participants		9,831		—
Shares distributed to terminated participants		(4,524)		(336)
Unreleased shares		209,884		219,715
Total		256,097		260,285
Fair value of unreleased shares	$	3,096	$	3,101

Note 10 – Derivatives

The Company is exposed to economic risks arising from its business operations and uses derivatives primarily to manage risk associated with changing interest rates. The Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship (cash flow or fair value hedge).

Fair Value Hedges – Derivatives are designated as fair value hedges when they are used to manage exposure to changes in the fair value of certain financial assets and liabilities, referred to as the hedged items, which fluctuate in value as a result of movements in interest rates.

Securities available for sale – The Company has a swap agreement to hedge the interest rate risk on a portion of its fixed rate securities available for sale. At September 30, 2024 and December 31, 2023, the aggregate notional amount of the related hedged items of the securities available for sale totaled $25 million and the fair value of the swaps associated with the derivative related to hedged items was an unrealized loss of $148 and an unrealized gain of $119, respectively.

During the nine months ended September 30, 2024, the carrying amount of the hedged assets decreased due to the sale of two securities with an amortized cost of $5,500. At September 30, 2024, the hedging relationship still qualified for hedge accounting due to the amortized cost of the remaining securities exceeding the notional amount.

The Company applies hedge accounting in accordance with ASC 815, Derivatives and Hedging, and the fair value hedge and the underlying hedged item, attributable to the risk being hedged, are recorded at fair value with unrealized gains and losses being recorded within financial derivative interest income on the Company’s Consolidated Statements of Operations. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows on the derivative hedging instrument with the changes in fair value or cash flows on the designated hedged item or transactions for the risk being hedged.

If a hedging relationship ceases to qualify for hedge accounting, the relationship is discontinued and future changes in the fair value of the derivative instrument are recognized in current period earnings. For a discontinued or terminated fair value hedging relationship, all remaining basis adjustments to the carrying amount of the hedged item are amortized to interest income or expense over the remaining life of the hedged item consistent with the amortization of other discounts or premiums. Previous balances deferred in AOCI from discontinued or terminated cash flow hedges are reclassified to interest income or expense as the hedged transactions affect earnings or over the originally specified term of the hedging relationship. The Company’s hedges continue to be highly effective and had no material impact on the Consolidated Statements of Operations.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2024 and 2023

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

The following table summarizes key elements of the Company’s derivative instruments as of September 30, 2024 and December 31, 2023, segregated by derivatives that are considered accounting hedges and those that are not:


	September 30, 2024				December 31, 2023
	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives designated as hedges:
Fair Value Hedges	$	25,000	$	(139)	$	25,000	$	115
Total	$	25,000	$	(139)	$	25,000	$	115

The following table summarizes the carrying value of the Company’s hedged assets in fair value hedges and the associated cumulative basis adjustments included in those carrying values as of September 30, 2024 and December 31, 2023:


	September 30, 2024				December 31, 2023
	Carrying Amount of Hedged Assets Amount		Cumulative Amount of Basis Adjustments Included in the Carrying Amount of the Hedged Assets		Carrying Amount of Hedged Assets Amount		Cumulative Amount of Basis Adjustments Included in the Carrying Amount of the Hedged Assets
Line items on the Consolidated Statements of Financial Condition in which the hedged items is included:
Securities available for sale	$	34,420	$	148	$	41,912	$	(119)

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

General

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding Texas Community Bancshares, Inc.’s (the “Company”) consolidated financial condition at 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.

Cautionary Note Regarding Forward-Looking Statements

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

●

statements of our goals, intentions and expectations;

●

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

●

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

●

estimates of our risks and future costs and benefits.

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

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

●

our ability to control costs and manage liquidity;

●

our ability to maintain our deposit base cost-effectively and access cost-effective funding;

●

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

●

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

●

fluctuation in the demand for construction loans in our market area;

●

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

●

risks related to a high concentration of loans secured by 1-4 family real estate located in our market area;

●

risks related to higher levels of commercial real estate and development loans;

●

our ability to control costs when hiring employees in a competitive labor market and rural area;

●

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

●

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

●

demand for loans and deposits in our market area;

●

our ability to implement and change our business strategies;

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●

competition among depository and other financial institutions and brokers;

●

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

●

adverse changes in the securities or secondary mortgage markets;

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

changes in consumer spending, borrowing and savings habits;

●

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

●

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

●

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

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

Summary of Critical Accounting Policies; Critical Accounting Estimates

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

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

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The following represent our critical accounting policies:

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.

The allocation methodology applied by the Company is designed to assess the appropriateness of the allowance for credit losses on loans and includes allocations for specifically identified collateral dependent loans and loss factor allocations for all remaining loans, with a component primarily based on historical peer and Company loss rates, reasonable and supportable forecasts, and a component primarily based on other qualitative factors. The methodology includes evaluation and consideration of several factors, such as, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions, reasonable and supportable forecasts, and other qualitative and quantitative factors which could affect potential credit losses. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or circumstances underlying the collectability of loans. Because each of the criteria used is subject to change, the allowance for credit losses on loans is not necessarily indicative of the trend of future loan losses in any particular loan category. The total allowance is available to absorb losses from any segment of the loan portfolio. Management believes the allowance for credit losses on loans was adequate at September 30, 2024 and December 31, 2023. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements. In addition, various regulatory agencies periodically review the allowance for credit losses. As a result of such reviews, we may have to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in the process of establishing the allowance for credit losses as the process is the responsibility of the Company and any increase or decrease in the allowance is the responsibility of management.

The allowance for credit losses on unfunded commitments is calculated using the same methodology as loans and considers the funding probability and the amount to be expected to be funded over the life of the commitment.

The Company assesses held to maturity (HTM) securities for credit losses and due to the HTM securities primarily being issued by government-sponsored entities or being highly rated municipals, management concluded that no credit loss should be recognized for these securities for the nine months ended September 30, 2024.

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The CECL standard also requires for credit losses on available for sale (AFS) securities to be recorded through an allowance for credit losses rather a write-down of the individual security. As of September 30, 2024, the Company did not have an allowance for credit losses on AFS securities based upon the decline in fair value being attributable to changes in market interest rates and not credit quality.

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

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

Comparison of Financial Condition at September 30, 2024 and December 31, 2023

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.

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.

Interest Bearing Deposits in Banks. Interest bearing deposits in banks decreased $9.1 million, or 74.0%, to $3.2 million at September 30, 2024, compared to $12.3 million at December 31, 2023. The decrease was primarily the result of a reduction of $3.2 million in Qwickrate Certificates of Deposit (CDs) and $6.0 million in money market funds with correspondent banks being moved to cash primarily to be used for the payoff of $12.7 million in FHLB advances. The Bank utilizes the Qwickrate listing service, which is a resource where banks can purchase and sell Certificates of Deposit (CDs) with other banks to invest excess funds in CDs at a competitive rate. At September 30, 2024, there were no Qwickrate CDs with other banks.

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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.

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.

Loans and Leases Receivable, Net. Net loans and leases receivable increased $13.0 million, or 4.7%, to $293.0 million at September 30, 2024 from $279.9 million at December 31, 2023. The increase in loans was primarily due to an increase in commercial real estate loans after reinvesting the funds from the sale of 122 performing residential mortgage loans totaling $27.1 million being sold at a loss of $3.8 million, net of mortgage servicing rights retained of $239,000. The sales were 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 concentration risk in residential mortgage loans. In addition to the loan sale, there was $77.8 million in loan originations partially offset by $37.2 million in payoffs and $9.9 million in contractual repayments.

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.

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.

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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.

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.

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.

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%.

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Average Balance Sheets

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.


	For the Three Months Ended September 30,
	2024						2023
	Average						Average
	Outstanding				Average		Outstanding				Average
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate

	(Dollars in thousands)
Interest-earning assets:
Loans (excluding PPP loans)	$	279,049	$	4,043	5.80	%	$	272,172	$	3,410	5.01	%
Allowance for credit losses		(3,024)						(2,953)
Securities		108,362		1,070	3.95	%		122,259		1,276	4.17	%
Restricted stock		3,610		55	6.09	%		3,266		44	5.39	%
Interest bearing deposits in banks		8,279		125	6.04	%		5,602		74	5.28	%
Federal funds sold		19,383		274	5.65	%		4,599		60	5.22	%
Financial derivative		284		135				707		112
Total interest earning assets		415,943		5,702	5.48	%		405,652		4,976	4.91	%
Noninterest earning assets		29,000						25,728
Total assets	$	444,943					$	431,380

Interest-bearing liabilities:
Interest bearing demand deposits	$	70,172		122	0.70	%	$	56,176		52	0.37	%
Regular savings and other deposits		44,677		42	0.38	%		52,878		40	0.30	%
Money market deposits		44,859		370	3.30	%		33,489		296	3.54	%
Certificates of deposit		121,039		1,309	4.33	%		111,071		1,055	3.80	%
Total interest bearing deposits		280,747		1,843	2.63	%		253,614		1,443	2.28	%
Advances from FHLB		67,001		643	3.84	%		76,435		687	3.60	%
Other liabilities		731		3	1.64	%		619		2	1.29	%
Total interest bearing liabilities		348,479		2,489	2.86	%		330,668		2,132	2.58	%
Noninterest bearing demand deposits		49,461						53,789
Other noninterest bearing liabilities		4,695						5,070
Total liabilities		402,635						389,527
Total shareholders’ equity		42,308						41,853
Total liabilities and shareholders' equity	$	444,943					$	431,380
Net interest income			$	3,213					$	2,844
Net interest rate spread ⁽¹⁾					2.62	%					2.33	%
Net interest earning assets ⁽²⁾	$	67,464					$	74,984
Net interest margin ⁽³⁾					3.09	%					2.80	%
Average interest earning assets to interest bearing liabilities					119.36	%					122.68	%

(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 September 30, 2024 and September 30, 2023

Net Income. The Company had net income of $515,000 for the three months ended September 30, 2024, compared to net income of $456,000 for the three months ended September 30, 2023, an increase of $59,000, or 12.9%. The increase was primarily due to a $369,000, or 13.0%, increase in net interest income and a $29,000 decrease in income tax expense partially offset by a $234,000 increase in the provision for credit losses, a $62,000, or 10.5%, decrease in noninterest income, and a $43,000, or 1.5%, increase in noninterest expense.

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.

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.

Interest income on securities decreased $206,000, or 16.1%, from $1.3 million for the three months ended September 30, 2023 to $1.1 million for the three months ended September 30, 2024. This decrease resulted from a decrease in the average balance of securities of $13.9 million, or 11.4%, from $122.3 million for the three months ended September 30, 2023 to $108.4 million for the three months ended September 30, 2024 and a decrease of 22 basis points, or 5.3%, in average yield from 4.17% for the three months ended September 30, 2023 to 3.95% for the three months ended September 30, 2024. The rate decrease is reflective of market interest rate decreases and the sale of some higher yielding securities with a floating rate in order to reprice at a fixed rate.

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.

Interest income on interest bearing deposits in banks increased $51,000, or 68.9%, from $74,000 for the three months ended September 30, 2023 to $125,000 for the three months ended September 30, 2024. This increase resulted primarily from an increase in average interest-bearing deposits of $2.7 million, or 48.2%, from $5.6 million for the three months ended September 30, 2023 to $8.3 million for the three months ended September 30, 2024 and an increase in average yield of 76 basis points, or 14.3%, from 5.28% for the three months ended September 30, 2023 to 6.04% for the three months ended September 30, 2024. There was also an increase of $214,000, or 356.7%, in fed funds interest income for the three months ended September 30, 2024 from $60,000 for the three months ended September 30, 2023 to $274,000 for the three months ended September 30, 2024, primarily from an increase of 43 basis points, or 8.2%, in average yield on fed funds sold from 5.22% for the three months ended September 30, 2023 to 5.65% for the three months ended September 30, 2024 and a $14.8 million, or 321.7%, increase in average fed funds sold from $4.6 million for the three months ended September 30, 2023 to $19.4 million for the three months ended September 30, 2024. The increase in yields on deposits in banks and fed funds is reflective of the increase in market interest rates. During the

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three months ended September 30, 2024, the Company maintained higher account balances in interest bearing deposits in banks and fed funds sold, due to receipt of cash from the loan sale and generally maintaining higher levels of liquidity.

Interest income from the fair value hedge was $135,000 for the three months ended September 30, 2024 compared to $112,000 for the three months ended September 30, 2023. The Company entered into an interest rate swap agreement in May 2023 to convert a portion of its interest rate exposure from fixed rates to floating rates to help manage the interest rate risk position. Refer to additional detail regarding the fair value hedge in Note 10 – Derivatives of the accompanying unaudited consolidated financial statements.

Interest Expense. Total interest expense increased $357,000, or 16.7%, to $2.5 million for the three months ended September 30, 2024 from $2.1 million for the three months ended September 30, 2023 primarily due to an increase in average interest-bearing liabilities of $17.8 million, or 5.4%, to $348.5 million for the three months ended September 30, 2024 from $330.7 million for the three months ended September 30, 2023 and an increase in the average cost of interest-bearing liabilities of 28 basis points, or 10.8%, from 2.58% for the three months ended September 30, 2023 to 2.86% for the three months ended September 30, 2024, primarily due to increases in higher cost deposit accounts. Interest expense on deposit accounts increased $400,000, or 27.7%, to $1.8 million for the three months ended September 30, 2024 from $1.4 million for the three months ended September 30, 2023, due to an increase in the average deposit cost of 35 basis points, or 15.4%, from 2.28% for the three months ended September 30, 2023 to 2.63% for the three months ended September 30, 2024 and an increase in average interest-bearing deposits of $27.1 million, or 10.7% from $253.6 million for the three months ended September 30, 2023 to $280.7 million for the three months ended September 30, 2024, with increases being in certificates of deposit, money market accounts and demand deposits.

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.

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%.

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.

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Noninterest Income. Noninterest income decreased $62,000, or 10.5%, to $530,000 for the three months ended September 30, 2024 from $592,000 for the three months ended September 30, 2023, primarily due to a decrease of $42,000 in loan fee income from the wholesale lending program, a decrease of $10,000 in deposit service charges, and nonrecurring income of $36,000 related to write up of foreclosed property in 2023 partially offset by a $15,000 increase in net appreciation of bank-owned life insurance due to a change in carriers to increase yield.

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.

Occupancy and equipment expenses increased $68,000, or 35.2%, from $193,000 for the three months ended September 30, 2023 to $261,000 for the three months ended September 30, 2024 primarily due to expenses related to opening two new branches. Data processing decreased $11,000, or 4.5%, due primarily to a contract negotiation and technology expenses decreased $61,000, or 49.6%, due to receipt of a credit associated with the provider reimbursing the cost of tap debit card implementation. Other expenses increased $128,000, or 30.3%, primarily due to increased auditing expenses of $28,000 due primarily to additional internal audits and overall price increases, an increase in FDIC assessment expenses of $15,000 primarily due to an overall increase in the FDIC assessment rate, a $19,000 increase in marketing expenses, a $13,000 increase in insurance expenses, and a $23,000 increase in training expenses. Salary and employee benefit expenses decreased by $50,000, or 3.0%, to $1.6 million for the three months ended September 30, 2024 from $1.7 million for the three months ended September 30, 2023, due primarily to reduced benefit costs from terminating a deferred compensation plan at December 31, 2023, CEO transition in 2023 and decreased director fees of $31,000 due to a reduction in the number of directors in 2024.

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.

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Average Balance Sheets

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 $375,000 and $456,000 for the nine months ended September 30, 2024 and 2023, respectively. We have not recorded deferred loan fees, as we have determined them to be immaterial.


	For the Nine Months Ended September 30,
	2024						2023
	Average						Average
	Outstanding				Average		Outstanding				Average
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate

	(Dollars in thousands)
Interest-earning assets:
Loans (excluding PPP loans)	$	278,808	$	11,553	5.52	%	$	265,212	$	9,289	4.67	%
Allowance for credit losses		(2,997)						(2,531)
PPP loans		—		—	—	%		—		—	—	%
Securities		114,557		3,526	4.10	%		125,088		3,789	4.04	%
Restricted stock		3,558		164	6.15	%		2,974		105	4.71	%
Interest-bearing deposits in banks		14,404		603	5.58	%		5,942		202	4.53	%
Federal funds sold		14,129		580	5.47	%		3,488		130	4.97	%
Financial derivative		442		375				622		145
Total interest-earning assets		422,901		16,801	5.30	%		400,795		13,660	4.54	%
Noninterest-earning assets		28,675						23,504
Total assets	$	451,576					$	424,299

Interest-bearing liabilities:
Interest-bearing demand deposits	$	68,852		345	0.67	%	$	60,309		166	0.37	%
Regular savings and other deposits		46,422		117	0.34	%		57,153		133	0.31	%
Money market deposits		43,535		1,089	3.34	%		30,931		695	3.00	%
Certificates of deposit		121,060		3,862	4.25	%		104,935		2,682	3.41	%
Total interest-bearing deposits		279,869		5,413	2.58	%		253,328		3,676	1.93	%
Advances from the Federal Home Loan Bank		72,714		2,022	3.71	%		68,905		1,849	3.58	%
Other liabilities		723		7	1.29	%		599		7	1.56	%
Total interest-bearing liabilities		353,306		7,442	2.81	%		322,832		5,532	2.28	%
Noninterest-bearing demand deposits		51,789						55,039
Other noninterest-bearing liabilities		4,415						4,321
Total liabilities		409,510						382,192
Total shareholders' equity		42,066						42,107
Total liabilities and shareholders' equity	$	451,576					$	424,299
Net interest income			$	9,359					$	8,128
Net interest rate spread ⁽¹⁾					2.49	%					2.26	%
Net interest-earning assets ⁽²⁾	$	69,595					$	77,963
Net interest margin ⁽³⁾					2.95	%					2.70	%
Average interest-earning assets to interest-bearing liabilities					119.70	%					124.15	%

(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 Nine Months Ended September 30, 2024 and September 30, 2023

Net Income. The Company had a net loss of $1.8 million for the nine months ended September 30, 2024, compared to a net loss of $401,000 for the nine months ended September 30, 2023, a decrease of $1.4 million, or 350.0%. The net loss was primarily due to a $2.5 million, or 2,500%, decrease in noninterest income resulting primarily from the sale of 122 performing residential mortgage loans as part of a balance sheet repositioning strategy at a pre-tax loss of $3.8 million, net of mortgage servicing rights retained. Additionally, there was a $651,000, or 7.8%, increase in noninterest expenses, partially offset by an increase in net interest income of $1.3 million, or 16.0%, to $9.4 million for the nine months ended September 30, 2024 from $8.1 million for the nine months ended September 30, 2023 and a $102,000, or 48.1%, decrease in the provision for credit losses and a $432,000, or 313.0%, decrease in income tax expense.

Interest Income. Interest income increased $3.1 million, or 22.6%, to $16.8 million for the nine months ended September 30, 2024 from $13.7 million for the nine months ended September 30, 2023. This was primarily the result of increased interest income on loans, interest-bearing deposits in banks, and federal funds sold due to increased yields and an increase in the average balances. Average interest earning assets increased by $22.1 million, or 5.5%, from $400.8 million for the nine months ended September 30, 2023 to $422.9 million at September 30, 2024, and an increase in the yield on interest earning assets of 76 basis points, or 16.8%, from 4.54% for the nine months ended September 30, 2023 to 5.30% for the nine months ended September 30, 2024.

Interest income on loans increased $2.3 million, or 24.7%, to $11.6 million for the nine months ended September 30, 2024 from $9.3 million for the nine months ended September 30, 2023. This increase resulted primarily from an increase in average loans of $13.6 million, or 5.1%, from $265.2 million for the nine months ended September 30, 2023 to $278.8 million for the nine months ended September 30, 2024, with an increase in loan yield of 85 basis points, or 18.3%, to 5.52% for the nine months ended September 30, 2024 from 4.67% for the nine months ended September 30, 2023. The increase in loan yield was due primarily to increased market interest rates and originating more commercial based loans at higher rates to replace the $27.1 million residential loans that were sold. Additionally, the Company recognized $76,000 during the nine months ended September 30, 2024 in interest income on a loan payoff from a loan that had been on nonaccrual status.

Interest income on securities decreased $263,000, or 6.9%, from $3.8 million for the nine months ended September 30, 2023 to $3.5 million for the nine months ended September 30, 2024. This decrease resulted from a decrease in the average balance of securities of $10.5 million, or 8.4%, from $125.1 million for the nine months ended September 30, 2023 to $114.6 million for the nine months ended September 30, 2024, partially offset by an increase of six basis points, or 1.5%, in average yield from 4.04% for the nine months ended September 30, 2023 to 4.10% for the nine months ended September 30, 2024.

Interest income on interest bearing deposits in banks increased $401,000, or 198.5%, from $202,000 for the nine months ended September 30, 2023 to $603,000 for the nine months ended September 30, 2024. This increase resulted primarily from an increase in average interest-bearing deposits of $8.5 million, or 144.1% from $5.9 million for the nine months ended September 30, 2023 to $14.4 million for the nine months ended September 30, 2024 and an increase in average yield of 105 basis points, or 23.1%, from 4.53% for the nine months ended September 30, 2023 to 5.58% for the nine months ended September 30, 2024. There was also an increase of $450,000 in fed funds interest income for the nine months ended September 30, 2024 primarily from an increase of 50 basis points, or 10.1%, in average yield on fed funds sold from 4.97% for the nine months ended September 30, 2023 to 5.47% for the nine months ended September 30, 2024 and a $10.6 million, or 302.9%, increase in average fed funds sold from $3.5 million for the nine months ended September 30, 2023 to $14.1 million for the nine months ended September 30, 2024. The increase in yields on deposits in banks and fed funds is reflective of the increase in market interest rates. The increase in balances resulted from increases in deposits and holding funds in interest bearing accounts with a competitive rate while originating loans to replace the loans sold.

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Dividends from restricted investments increased $59,000, or 56.2%, from $105,000 for the nine months ended September 30, 2023 to $164,000 for the nine months ended September 30, 2024. This increase primarily resulted from a $56,000, or 54.9%, increase in dividends from FHLB stock from $102,000 for the nine months ended September 30, 2023 to $158,000 for the nine months ended September 30, 2024 due primarily to an increase in the amount of FHLB stock owned.

Interest income on the fair value hedge increased $230,000, or 158.6%, from $145,000 for the nine months ended September 30, 2023 to $375,000 for the nine months ended September 30, 2024. The Company entered into an interest rate swap agreement in May 2023 to convert a portion of its interest rate exposure from fixed rates to floating rates to help manage the interest rate risk position. Refer to additional detail regarding the fair value hedge in Note 10 – Derivatives of the accompanying unaudited consolidated financial statements.

Interest Expense. Total interest expense increased $1.9 million, or 34.5%, to $7.4 million for the nine months ended September 30, 2024 from $5.5 million for the nine months ended September 30, 2023 primarily due to an increase in average interest bearing liabilities of $30.5 million, or 9.4%, to $353.3 million for the nine months ended September 30, 2024 from $322.8 million for the nine months ended September 30, 2023 and an increase in the average cost of interest-bearing liabilities of 53 basis points, or 23.3%, from 2.28% for the nine months ended September 30, 2023 to 2.81% for the nine months ended September 30, 2024, primarily due to an increase in deposit and funding costs. Interest expense on deposit accounts increased $1.7 million, or 47.3%, to $5.4 million for the nine months ended September 30, 2024 from $3.7 million for the nine months ended September 30, 2023, due to an increase in the average interest-bearing deposit cost of 65 basis points, or 33.7%, from 1.93% for the nine months ended September 30, 2023 to 2.58% for the nine months ended September 30, 2024 and an increase in average interest-bearing deposits of $26.6 million, or 10.5% from $253.3 million for the nine months ended September 30, 2023 to $279.9 million for the nine months ended September 30, 2024, with the increase being in higher yielding certificates of deposit, money market deposits and interest-bearing demand deposits, offset by a decrease in lower cost savings accounts. Part of the migration to higher yielding accounts resulted from a deposit retention strategy initiated in 2023 offering a special higher interest rate CD and higher money market rates during a competitive rate environment.

Interest expense on Federal Home Loan Bank advances increased $173,000, or 9.4%, to $2.0 million for the nine months ended September 30, 2024 from $1.8 million for the nine months ended September 30, 2023. This increase was due primarily to the increase in the average balance of Federal Home Loan Bank advances of $3.8 million, or 5.5%, to $72.7 million for the nine months ended September 30, 2024 from $68.9 million for the nine months ended September 30, 2023 and an increase in average cost of 13 basis points, or 3.6%, from 3.58% for the nine months ended September 30, 2023 to 3.71% for the nine months ended September 30, 2024. The increase in average advances was primarily to fund loan growth and maintain higher levels of liquidity.

Net Interest Income. Net interest income increased $1.3 million, or 16.0%, to $9.4 million for the nine months ended September 30, 2024 from $8.1 million for the nine months ended September 30, 2023 due primarily to an increase in interest-earning assets of $22.1 million, or 5.5%, to $422.9 million for the nine months ended September 30, 2024 from $400.8 million for the nine months ended September 30, 2023. Net interest margin had a 25 basis point, or 9.1%, increase to 2.95% for the nine months ended September 30, 2024 from 2.70% for the nine months ended 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. The average yield on interest earning assets increased by 76 basis points, or 16.8%, compared to the average increase on interest bearing liabilities increasing by 53 basis points, or 23.3%.

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, a provision for credit losses of $110,000 for the nine months ended September 30, 2024, compared to a provision for credit losses of $212,000 for the nine months ended September 30, 2023, resulted in a decrease of $102,000, or 48.1%, to the provision expense primarily due to the sale of $27.1 million in loans during the nine months ended September 30, 2024 which accounted for a $244,000 decrease in the provision for credit losses when the loans were sold or transferred to held for sale.

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Noninterest Income. Noninterest income decreased $2.5 million, or 2500%, to a loss of $2.6 million for the nine months ended September 30, 2024 from a loss of $104,000 for the nine months ended September 30, 2023, due primarily to a pre-tax loss of $3.8 million, net of mortgage servicing rights retained, from the sale of $27.1 million in residential mortgage loans, a loss of $283,000 associated with demolition of the previous Lindale branch building, and a $78,000 loss related to the write down of two bank properties transferred to other real estate owned which are listed for sale. The loan sale included the sale of 122 performing loans totaling $27.1 million at a pre-tax 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. In the nine months ending September 30, 2023 there was a $1.7 million loss on the sale of securities that were part of an investment repricing strategy.

Noninterest Expense. Noninterest expense increased $651,000, or 7.9%, to $9.0 million for the nine months ended September 30, 2024 from $8.3 million for the nine months ended September 30, 2023 primarily due to increases in occupancy and equipment, data processing, technology, and other expenses.

Salary and employee benefit expenses increased by $9,000, or 0.2%, to $4.9 million for the nine months ended September 30, 2024 from $4.9 million for the nine months ended September 30, 2023, due to an initial $129,000 vesting expense for equity awards in 2024 offset by reduced executive salary expense related to the CEO transition in 2023 and termination of the deferred compensation plan as of December 31, 2023. Occupancy and equipment expense increased $224,000, 37.6%, primarily due to additional expenses related to a new branch in Tyler, completion of a new branch building in Lindale and general increases in costs. Technology expenses increased $18,000, or 5.2%, due primarily to nonrecurring fees associated with a “tap” debit card implementation project which was partially offset by a credit from the provider. We expect to receive additional credits related to the project as expenses are incurred. Other expenses increased $438,000, or 33.7%, primarily due to an increase of $135,000 in audit and accounting expenses related primarily to loan review, an increase in FDIC assessment expenses of $49,000 primarily due to an overall increase in the FDIC assessment rate and an increase in deposits, an increase of $19,000 in insurance expenses, an increase of $54,000 in training expense primarily associated with executive training and increased emphasis on training, and an increase of $41,000 in marketing expense primarily related to opening new locations, entering new markets and changing the Bank’s name. The Company had nonrecurring director costs of $37,000 and legal fees of $38,000 related to executive and board transitions in the nine months ending September 30, 2024.

Income Tax Expense. Income tax expense decreased by $432,000, or 313.0%, to a tax benefit $570,000 for the nine months ended September 30, 2024 from a tax benefit of $138,000 for the nine months ended September 30, 2023, due to a decrease in net income before taxes of $1.9 million from a loss of $539,000 for the nine months ended September 30, 2023 to a loss of $2.4 million for the nine months ended September 30, 2024. The effective tax rate was 23.83% and 25.6% for the nine months ended September 30, 2024 and 2023, respectively. The decrease in effective tax rate was primarily due to nontaxable income increasing at a faster rate than taxable income.

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Liquidity and Capital Resources

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.

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

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

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

Texas Community Bancshares, Inc. is a separate legal entity from 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.

Liquidity management and asset quality continue to be high priorities. With continued volatility in the market, recent banking sector events and market interest rate fluctuations, liquidity management and analysis is a key factor in daily asset and liability management and strategic planning. We are monitoring deposit balances daily. We run stress tests quarterly in multiple scenarios, which include deposit runoff combined with the inability to access our available lines of credit and a reduction in the availability of FHLB advances. The scenarios indicate that we are able to maintain our operational liquidity with a designated buffer with our liquidity resources available. We are closely monitoring our assets, liabilities, capital and investment portfolio unrealized losses for possible issues and opportunities related to the current economic and market conditions.

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.

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

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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.

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.

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.

We are currently utilizing listed CDs (Qwickrate) with terms of 3-6 months with full FDIC insurance in order to keep funds liquid while also earning a higher return than holding balances in fed funds.

The following are the various liquidity sources we had available at September 30, 2024 that we could use as needed:

●

FHLB borrowing capacity of $74.2 million

●

$18 million in unused credit lines with 2 correspondent banks

●

Federal Reserve discount window

●

Qwickrate CD Program

●

Brokered deposits

●

The ability to sell securities

●

The ability to sell a group of loans in the secondary market on an as needed basis

●

The ability to sell a portion of our BOLI assets

At September 30, 2024, Broadstreet Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category.

Management of Market Risk

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.

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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.

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

●

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

●

maintaining a high level of liquidity;

●

growing our volume of core deposit accounts;

●

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

●

managing our borrowings from the Federal Home Loan Bank of Dallas;

●

continuing to diversify our loan portfolio by adding more commercial loans, which typically have shorter maturities, adjustable rates, and fee income;

●

expanding our wholesale lending program to be able to meet customer loan needs while managing the weighted average life and interest rate risk in the loan portfolio; and

●

Derivatives.

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

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

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The tables below set forth the calculation of the estimated changes in our monthly net interest income that would result from the designated immediate changes in the United States Treasury yield curve. The estimated changes presented are within policy guidelines established by the Company’s Board of Directors.


At September 30, 2024
Change in Interest Rates	Net Interest Income Year		Year 1 Change from
(basis points) ⁽¹⁾	1 Forecast		Level
(Dollars in thousands)
400	$	13,349	12.81	%
300		12,999	9.85	%
200		12,617	6.63	%
100		12,211	3.19	%
Level		11,833	—
(100)		11,384	(3.80)	%
(200)		11,178	(5.54)	%
(300)		11,053	(6.60)	%
(400)		10,926	(7.66)	%

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

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.

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.

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


At September 30, 2024
							EVE as a Percentage of
							Present Value of Assets ⁽³⁾
			Estimated Increase						Increase
Change in Interest	Estimated		(Decrease) in EVE						(Decrease)
Rates (basis points) ⁽¹⁾	EVE ⁽²⁾		Amount		Percent		EVE Ratio ⁽⁴⁾		(basis points)
(Dollars in thousands)
400	$	52,008	$	2,217	4.45	%	12.83	%	173
300		52,493		2,702	5.43	%	12.65	%	154
200		52,489		2,698	5.42	%	12.33	%	123
100		51,726		1,935	3.89	%	11.84	%	74
Level		49,791		—	—	%	11.10	%	—
(100)		46,576		(3,215)	(6.46)	%	10.10	%	(100)
(200)		41,201		(8,590)	(17.25)	%	8.69	%	(241)
(300)		32,830		(16,961)	(34.06)	%	6.73	%	(438)
(400)		32,197		(17,594)	(35.34)	%	6.47	%	(463)

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

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

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

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

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.

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended, as of September 30, 2024. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2024.

During the quarter ended September 30, 2024, there were no changes in the Company’s internal controls over financial reporting that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not involved in any pending legal proceedings as a plaintiff or a defendant other than routine legal proceedings occurring in the ordinary course of business. At September 30, 2024, we were not involved in any legal proceedings the outcome of which we believe would be material to our consolidated financial condition or results of operations.

Item 1A. Risk Factors

Not applicable, as the Company is a “smaller reporting company.”

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

On May 16, 2023, the Company announced a program to repurchase up to 164,842 shares of the Company’s outstanding common stock, or approximately 5% of the shares then outstanding. On November 9, 2023, the Company announced a second repurchase plan to repurchase 161,316 shares or approximately 5% of the shares outstanding. The program has no stated expiration date. As of September 30, 2024, the Company had repurchased 244,773 shares under the plans.

The following table summarizes the Company’s repurchases of its outstanding shares of common stock during the quarter ended September 30, 2024.


	Total Number of Shares Purchased		Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares That May Yet be Purchased Under the Plans
July 1, 2024 - July 31, 2024	-	$	-	-	110,716
August 1, 2024 - August 31, 2024	19,331		13.92	19,331	91,385
September 1, 2024 - September 30, 2024	10,000		14.85	10,000	81,385
Total	29,331	$	14.23	29,331

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended September 30, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement “ (as such term is defined in Item 408 of SEC Regulation S-K).

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Item 6. Exhibits


Exhibit
Number		Description

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

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

10.1		Employment Agreement between Broadstreet Bank, SSB and Jason Sobel ⁽³⁾

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

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

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

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

101		The following materials for the quarter ended September 30, 2024, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

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

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

(3)	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Commission File No. 001-40610), as filed on October 4, 2024.

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SIGNATURES

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


		TEXAS COMMUNITY BANCSHARES, INC.


Date: November 13, 2024		/s/ Jason Sobel
		Jason Sobel
		President and Chief Executive Officer


Date: November 13, 2024		/s/ Julie Sharff
		Julie Sharff, CPA
		Chief Financial Officer

Contract Amount

September 30, 2024

December 31, 2023

Commitments to extend credit