Texas Community Bancshares, Inc.

Contract Amount

March 31, 2025

December 31, 2024

Commitments to extend credit

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 March 31, 2025

◻	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 3,042,652 shares, par value $0.01 per share, of the Registrant’s common stock outstanding as of May 8, 2025.

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 March 31, 2025 (unaudited) and December 31, 2024	1

	Consolidated Statements of Operations for the Three Months Ended March 31, 2025 and 2024 (unaudited)	2

	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2025 and 2024 (unaudited)	3

	Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2025 and 2024 (unaudited)	4

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and 2024 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	44

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45

Item 6.	Exhibits	46

	Signatures	47

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Financial Condition

March 31, 2025 and December 31, 2024

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


	March 31,		December 31,
	2025		2024
Assets
Cash and due from banks	$	8,607	$	4,015
Federal funds sold		3,215		9,275
Cash and cash equivalents		11,822		13,290
Interest bearing deposits in banks		9,284		9,720
Securities available for sale		74,796		75,189
Securities held to maturity (fair values of $18,992 at March 31, 2025 and $19,531 at December 31, 2024)		21,179		22,096
Loans receivable, net of allowance for credit losses of $3,273 at March 31, 2025 and $3,222 at December 31, 2024		296,379		292,416
Net investment in direct financing leases		1,143		1,292
Accrued interest receivable		1,851		1,919
Premises and equipment, net		11,441		11,526
Bank-owned life insurance		6,411		6,370
Other real estate owned		450		480
Restricted investments carried at cost		3,239		4,252
Core deposit intangible		99		132
Deferred income taxes		2,504		2,688
Financial derivative		—		419
Other assets		1,611		1,668
	$	442,209	$	443,457
Liabilities and Shareholders' Equity
Liabilities
Noninterest bearing	$	43,712	$	41,466
Interest bearing		293,820		294,362
Total deposits		337,532		335,828
Advances from Federal Home Loan Bank (FHLB)		49,558		49,878
Accrued expenses and other liabilities		2,364		5,643
Total liabilities		389,454		391,349
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, 3,370,425 issued and 3,056,652 outstanding at March 31, 2025 and 3,370,425 issued and 3,088,152 outstanding at December 31, 2024		34		34
Additional paid in capital		32,687		32,493
Retained earnings		30,683		30,163
Accumulated other comprehensive loss		(4,371)		(4,766)
Unearned Employee Stock Ownership Program (ESOP) shares, at cost		(2,006)		(2,039)
Treasury stock, at cost (313,773 shares at March 31, 2025 and 282,273 shares at December 31, 2024)		(4,272)		(3,777)
Total shareholders' equity		52,755		52,108
	$	442,209	$	443,457

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

Three Months Ended March 31, 2025 and 2024

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


	Three Months Ended
	March 31,
	2025		2024

Interest Income
Loans, including fees	$	4,400	$	3,709
Debt securities
Taxable		984		1,170
Non taxable		44		46
Dividends on restricted investments		50		55
Federal funds sold		62		67
Deposits with banks		104		256
Financial derivative		(10)		115
Total interest income		5,634		5,418
Interest Expense
Deposits		1,799		1,757
Advances from FHLB		503		696
Other		4		2
Total interest expense		2,306		2,455
Net Interest Income		3,328		2,963
Provision (Credit) for Credit Losses - loans		63		(251)
Provision (Credit) for Credit Losses - off-balance sheet credit exposures		50		(26)
Provision (Credit) for Credit Losses		113		(277)
Net Interest Income After Provision (Credit) for Credit Losses		3,215		3,240
Noninterest Income
Service charges on deposit accounts		165		168
Other service charges and fees		302		260
Net loss on sale of loans		—		(1,505)
Net change in fair value on loans held for sale		—		(2,276)
Net (loss) gain on sale of other real estate owned		(52)		37
Net loss on sale of premises and equipment		—		(283)
Net appreciation on bank-owned life insurance		41		30
Other income		6		7
Total noninterest income (loss)		462		(3,562)
Noninterest Expenses
Salaries and employee benefits		1,654		1,665
Occupancy and equipment expense		247		285
Data processing		234		241
Technology expense		57		114
Contract services		67		62
Director fees		71		83
Other expense		598		621
Total noninterest expense		2,928		3,071
Income (Loss) Before Income Taxes		749		(3,393)
Income Tax Expense (Benefit)		106		(708)
Net Income (Loss)	$	643	$	(2,685)
Earnings (Loss) per share - basic	$	0.22	$	(0.90)
Earnings (Loss) per share - diluted	$	0.22	$	(0.89)
Weighted-average shares outstanding - basic		2,863,916		2,970,273
Weighted-average shares outstanding - diluted		2,965,742		3,013,341

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

Three Months Ended March 31, 2025 and 2024

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


	Three Months Ended
	March 31,
	2025		2024
Net Income (Loss)	$	643	$	(2,685)

Other items of comprehensive income (loss)
Debt Securities
Net changes in fair value of available for sale securities, before tax		918		88
Net changes in fair value of available for sale securities hedged, before tax		(417)		441
Total other items of comprehensive income (loss), before tax		501		529

Income tax expense related to other items of comprehensive income (loss)		(106)		(112)
Total other items of comprehensive income (loss), after tax		395		417

Comprehensive Income (Loss)	$	1,038	$	(2,268)

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity (Unaudited)

Three Months Ended March 31, 2025 and 2024

(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 March 31, 2025 and 2024	Stock		Stock		Capital		Earnings		Loss		Shares		Stock		Equity
Balance at January 1, 2025	$	—	$	34	$	32,493	$	30,163	$	(4,766)	$	(2,039)	$	(3,777)	$	52,108
Net income		—		—		—		643		—		—		—		643
Stock based compensation expense		—		—		175		—		—		—		—		175
Other comprehensive income, net of tax		—		—		—		—		395		—		—		395
Cash dividend declared ($0.04 per share)		—		—		—		(123)		—		—		—		(123)
ESOP shares committed to be released, 3,277 shares		—		—		19		—		—		33		—		52
Treasury stock purchased, 31,500 shares		—		—		—		—		—		—		(495)		(495)
Balance at March 31, 2025	$	—	$	34	$	32,687	$	30,683	$	(4,371)	$	(2,006)	$	(4,272)	$	52,755

Balance at January 1, 2024	$	—	$	34	$	31,671	$	31,972	$	(5,592)	$	(2,197)	$	(2,199)	$	53,689
Net loss		—		—		—		(2,685)		—		—		—		(2,685)
Stock based compensation expense		—		—		286		—		—		—		—		286
Other comprehensive income, net of tax		—		—		—		—		417		—		—		417
Cash dividend declared ($0.04 per share)		—		—		—		(128)		—		—		—		(128)
ESOP shares committed to be released, 3,277 shares		—		—		13		—		—		33		—		46
Treasury stock purchased, 11,000 shares		—		—		—		—		—		—		(154)		(154)
Balance at March 31, 2024	$	—	$	34	$	31,970	$	29,159	$	(5,175)	$	(2,164)	$	(2,353)	$	51,471

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

Three Months Ended March 31, 2025 and 2024

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


	Three Months Ended
	March 31,
	2025		2024
Operating Activities
Net income (loss)	$	643	$	(2,685)
Adjustments to reconcile net loss to net cash from operating activities
Provision (credit) for credit losses - loans		63		(251)
Provision (credit) for credit losses - off-balance sheet credit exposures		50		(26)
Net (accretion) amortization of securities		(15)		9
Depreciation and amortization		146		142
Net unrealized gain on discontinued financial derivative		463		—
Stock dividends on restricted investments		(47)		(53)
Loss on sale of loans		—		1,505
Loss on disposal of fixed assets		—		283
Appreciation on bank-owned life insurance		(41)		(30)
ESOP compensation expense for allocated shares		52		46
Gain on sale other real estate owned		—		(37)
Write-down of other real estate owned		52		—
Stock-based compensation		175		286
Deferred income tax expense (benefit)		80		(708)
Loss on fair value adjustment of fair value hedges		10		5
Change in fair value of loans held for sale		—		2,276
Net change in
Accrued interest receivable		68		187
Other assets		47		(54)
Accrued expenses and other liabilities		(3,279)		(254)
Net Cash (used for) from Operating Activities		(1,533)		641
Investing Activities
Net change in interest bearing deposits in banks		436		(16,221)
Activity in available for sale securities
Purchases		(2,702)		(994)
Maturities, prepayments and calls		3,591		1,347
Activity in held to maturity securities
Maturities, prepayments and calls		891		1,213
Redemptions of restricted investments		1,096		—
Purchases of restricted investments		(36)		(92)
Loan originations and principal collections, net		(4,098)		(954)
Net decrease (increase) in net investment in direct financing leases		149		(804)
Proceeds from sale of loans, originally classified as loans held for investment		—		10,807
Proceeds from sales of other real estate owned		—		49
Additions of premises and equipment		(28)		(986)
Net Cash used for Investing Activities		(701)		(6,635)
Financing Activities
Net increase in deposits		1,704		14,574
Payments on FHLB and other borrowings		(320)		(369)
Cash dividends declared and paid		(123)		(128)
Purchases of treasury stock		(495)		(154)
Net Cash from Financing Activities		766		13,923
Net Change in Cash and Cash Equivalents		(1,468)		7,929
Cash and Cash Equivalents at Beginning of Period		13,290		13,060
Cash and Cash Equivalents at End of Period	$	11,822	$	20,989

See Notes to Consolidated Financial Statements

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

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 the Bank’s 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 March 31, 2025, and for the three months ended March 31, 2025 and 2024, 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 months ended March 31, 2025 are not necessarily indicative of the results to be achieved for the year ending December 31, 2025, or any other period. Certain prior period data presented in the consolidated financial statements has been revised 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, 2024. 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, 2024.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, which include the Bank 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 Months Ended March 31, 2025 and 2024

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

Operating Segments

While the Company’s chief decision-maker (“CODM”) monitors the revenue streams of the various products and services, operations are managed, and financial performance is evaluated on a Company-wide basis. Discrete operating results are not reviewed by senior management to make resource allocation or performance decisions. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Segment Information

The Company’s CODM is the Chief Executive Officer. Operating segments are defined as components of a business about which separate financial information is available and evaluated regularly by the CODM in deciding how to allocate resources and assess performance. While the CODM monitors the revenue streams of the various products and services offered by the Bank, the Company’s operations are managed and financial performance is evaluated on a Company-wide basis as a single reportable operating segment, which is the Bank.

Discrete financial information, with a full allocation of revenue, costs, and capital from key corporate functions, is not available at a level other than on a Company-wide basis. Although the CODM has some limited financial information about the Company’s various financial products and services, this information is not complete and is insufficient for making resource allocation decisions or performance assessments at a more granular level. Therefore, management considers all financial service operations to be aggregated within one reportable operating segment, the Bank, and evaluates financial performance on a company-wide basis using net income as reported on the Consolidated Statement of Operations. The measure of segment assets is total assets, as reported on the Consolidated Statements of Financial Condition. The CODM uses net income to monitor budget versus actual results and in the determination of allocating resources across the Company.

The Company’s single reportable segment, the Bank, generates revenues primarily from interest income from financial instruments and non-interest income and service charges on deposit accounts. There are no intra-entity sales or transfers within the Company. Management continues to evaluate the Company’s business units for potential separate reporting in the future as facts and circumstances evolve.

Note 2 – Earnings Per Share

Basic earnings per share is computed by dividing the net gain or 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 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 Months Ended March 31, 2025 and 2024

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

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
	March 31,
	2025		2024
Net Income (Loss)	$	643	$	(2,685)

Weighted average shares outstanding for basic earnings per share:
Average shares outstanding		3,067,696		3,192,445
Less: average unearned ESOP shares		(203,780)		(222,172)
Weighted average shares outstanding for basic earnings per share		2,863,916		2,970,273

Additional dilutive shares		101,826		43,068

Weighted average shares outstanding for dilutive earnings per share		2,965,742		3,013,341

Basic earnings (loss) per share	$	0.22	$	(0.90)

Dilutive earnings (loss) per share	$	0.22	$	(0.89)

Nonvested restricted stock awards for 21,493 and 74,007 shares of common stock were not considered in computing diluted earnings per share for 2025 and 2024, respectively, because they were antidilutive. Stock options for 159,755 and 231,946 shares of common stock were not considered in computing diluted earnings per share for 2025 and 2024, because they were nonvested. Stock options for 35,838 and 46,258 shares of common stock have vested, however, were not considered in computing diluted earnings per share for 2025 and 2024, because they were antidilutive.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

Note 3 - Debt Securities

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


	March 31, 2025
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
Available for Sale	Cost		Gains		Losses		Value
Debt Securities:
Residential mortgage-backed	$	9,850	$	—	$	(959)	$	8,891
Collateralized mortgage obligations		47,270		13		(1,896)		45,387
State and municipal		14,853		5		(1,576)		13,282
Corporate bonds		8,356		34		(1,154)		7,236
Total securities available for sale	$	80,329	$	52	$	(5,585)	$	74,796

Held to Maturity
Debt Securities:
Residential mortgage-backed	$	18,351	$	—	$	(2,144)	$	16,207
State and municipal		1,564		—		(43)		1,521
U.S. Government and agency		1,264		—		—		1,264
Total securities held to maturity	$	21,179	$	—	$	(2,187)	$	18,992


	December 31, 2024
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
Available for Sale	Cost		Gains		Losses		Value
Debt Securities:
Residential mortgage-backed	$	10,356	$	—	$	(1,205)	$	9,151
Collateralized mortgage obligations		48,808		21		(2,261)		46,568
State and municipal		15,124		—		(1,847)		13,277
Corporate bonds		7,352		—		(1,159)		6,193
Total securities available for sale	$	81,640	$	21	$	(6,472)	$	75,189

Held to Maturity
Debt Securities:
Residential mortgage-backed	$	19,090	$	—	$	(2,521)	$	16,569
State and municipal		1,567		—		(45)		1,522
U.S. Government and agency		1,439		1		—		1,440
Total securities held to maturity	$	22,096	$	1	$	(2,566)	$	19,531

During the three months ended March 31, 2025 and 2024, the Company had no sales of available for sale securities or held to maturity securities.

At March 31, 2025 and December 31, 2024, securities with a fair value of $17,995 and $17,862, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2025, 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		4,161		3,977		134		125
Due in five to ten years		12,744		11,463		1,264		1,264
After ten years		6,304		5,078		1,065		1,031
Residential mortgage-backed		9,850		8,891		18,351		16,207
Collateralized mortgage obligations		47,270		45,387		—		—
Total	$	80,329	$	74,796	$	21,179	$	18,992

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:


	March 31, 2025
	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 (1,83)	$	429	$	(12)	$	24,669	$	(3,091)
Collateralized mortgage obligations (9,16)		18,798		(152)		22,328		(1,744)
State and municipal (1,16)		621		(3)		13,507		(1,616)
Corporate bonds (0,13)		—		—		5,346		(1,154)
Total	$	19,848	$	(167)	$	65,850	$	(7,605)


	December 31, 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 (1,83)	$	434	$	(20)	$	25,287	$	(3,706)
Collateralized mortgage obligations (8,15)		15,185		(224)		22,316		(2,037)
State and municipal (1,17)		309		(1)		14,126		(1,891)
Corporate bonds (2,12)		1,581		(20)		4,611		(1,139)
Total	$	17,509	$	(265)	$	66,340	$	(8,773)

At March 31, 2025 and December 31, 2024, the Company had investment securities with approximately $7,605 and $8,773, 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. The Company has the ability and intent to hold such securities until maturity.

The Company monitors credit quality of debt securities held-to-maturity through the use of nationally recognized

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

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 March 31, 2025 and December 31, 2024:


	March 31, 2025
	Residential mortgage-backed		State and municipal		U.S Government and agency
AAA	$	18,351	$	1,430	$	1,264
Baa1		—		134		—
	$	18,351	$	1,564	$	1,264


	December 31, 2024
	Residential mortgage-backed		State and municipal		U.S Government and agency
AAA	$	19,090	$	1,433	$	1,439
Baa1		—		134		—
	$	19,090	$	1,567	$	1,439

As of March 31, 2025 and December 31, 2024, there were no securities held to maturity on nonaccrual status or past due status.

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 changes in prepayment speeds. The Company purchased these investments at a premium or discount relative to its face amount, and the contractual cash flows of these investments are guaranteed by an agency 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 basis, 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 March 31, 2025 or December 31, 2024.

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 bonds approach maturity. 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. Therefore, an allowance for credit losses is deemed unnecessary at March 31, 2025 and December 31, 2024.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

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 basis of the Company’s investments. Therefore, an allowance for credit losses is deemed unnecessary at March 31, 2025 and December 31, 2024.

Note 4 - Loans and Allowance for Credit Losses

A summary of the balances of loans and leases follows:


	March 31,		December 31,
	2025		2024
Real estate
Construction and land	$	56,329	$	54,136
Farmland		10,035		9,540
1-4 Residential and multi-family		154,075		156,068
Commercial Real Estate		57,342		56,068
Total real estate		277,781		275,812
Agriculture		87		55
Commercial		5,599		6,315
Municipalities		12,363		9,253
Consumer and other		4,965		5,495
Subtotal		300,795		296,930
Less allowance for credit losses		(3,273)		(3,222)
Loans and leases, net	$	297,522	$	293,708

Direct financing leases of $1,143 and $1,292 are included in consumer and other loans at March 31, 2025 and December 31, 2024, respectively.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

The following tables set forth information regarding the activity in the allowance for credit losses for the three months ended March 31, 2025 and March 31, 2024:


		March 31, 2025
	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
Balance, January 1, 2025	$	632	$	74	$	1,355	$	605	$	1	$	375	$	83	$	97	$	3,222
Provision (credit) for credit losses		29		3		24		14		—		(16)		10		(1)		63
Loans charged-off		—		—		(3)		—		—		—		—		(10)		(13)
Recoveries		—		—		—		—		—		—		—		1		1
Balance, March 31, 2025	$	661	$	77	$	1,376	$	619	$	1	$	359	$	93	$	87	$	3,273

Balance, March 31, 2025 allocated to loans and leases individually evaluated	$	142	$	—	$	38	$	16	$	—	$	280	$	—	$	5	$	481

Balance, March 31, 2025 allocated to loans and leases collectively evaluated	$	519	$	77	$	1,338	$	603	$	1	$	79	$	93	$	82	$	2,792

Loans and leases receivable:
Balance, March 31, 2025 loans and leases individually evaluated	$	10,086	$	—	$	2,264	$	733	$	—	$	1,124	$	—	$	4	$	14,211
Balance, March 31, 2025 loans and leases collectively evaluated		46,243		10,035		151,811		56,609		87		4,475		12,363		4,961		286,584
Balance, March 31, 2025	$	56,329	$	10,035	$	154,075	$	57,342	$	87	$	5,599	$	12,363	$	4,965	$	300,795


		March 31, 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
Balance, January 1, 2024	$	378	$	66	$	1,621	$	482	$	2	$	441	$	18	$	88	$	3,096
Provision for credit losses		(9)		(9)		(236)		(31)		(1)		—		16		19		(251)
Loans charged-off		—		—		—		—		—		—		—		(39)		(39)
Recoveries		—		—		—		—		—		—		—		17		17
Balance, March 31, 2024	$	369	$	57	$	1,385	$	451	$	1	$	441	$	34	$	85	$	2,823

Balance, December 31, 2024 allocated to loans and leases individually evaluated	$	131	$	—	$	20	$	16	$	—	$	279	$	—	$	5	$	451

Balance, December 31, 2024 allocated to loans and leases collectively evaluated	$	501	$	74	$	1,335	$	589	$	1	$	96	$	83	$	92	$	2,771

Loans and leases receivable:
Balance, December 31, 2024 loans and leases individually evaluated	$	7,285	$	—	$	1,630	$	743	$	—	$	1,172	$	—	$	6	$	10,836
Balance, December 31, 2024 loans and leases collectively evaluated		46,851		9,540		154,438		55,325		55		5,143		9,253		5,489		286,094
Balance, December 31, 2024	$	54,136	$	9,540	$	156,068	$	56,068	$	55	$	6,315	$	9,253	$	5,495	$	296,930

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

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 March 31, 2025 and December 31, 2024:


	March 31, 2025
	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		570		—		—
Commercial real estate		50		—		—
Agriculture		—		—		—
Commercial		21		1,080		—
Municipalities		—		—		—
Consumer and other		—		—		—
Total	$	942	$	1,080	$	—


	December 31, 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		610		—		—
Commercial real estate		51		—		—
Agriculture		—		—		—
Commercial		23		1,140		—
Municipalities		—		—		—
Consumer and other		—		—		—
Total	$	985	$	1,140	$	—

The Company did not recognize any interest income on nonaccrual loans during the three months ended March 31, 2025 or March 31, 2024.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2025 and December 31, 2024:


	March 31, 2025
	Real Estate		Accounts Receivable and Inventory		Other
Real estate
Construction and land	$	301	$	—	$	—
1-4 Residential & multi-family		703		—		—
Commercial real estate		50		—		—
Commercial		—		285		816
Total	$	1,054	$	285	$	816


	December 31, 2024
	Real Estate		Accounts Receivable and Inventory		Other
Real estate
Construction and land		301		—		—
1-4 Residential & multi-family	$	745	$	—	$	—
Commercial real estate		51		—		—
Commercial		—		297		866
Total	$	1,097	$	297	$	866

The Company had $2,155 and $2,260 in collateral-dependent loans at March 31, 2025 and December 31, 2024, 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

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

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.

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 months ended March 31, 2025.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

Based on the most recent analysis performed, the risk category of loans by class of loans and gross chargeoffs as of March 31, 2025 and December 31, 2024 are as follows:


	March 31, 2025
	Term Loans Amortized Cost Basis by Origination Year
		2025		2024		2023		2022		2021		Prior		Total
Construction and land
Risk rating
Pass		$	5,647	$	24,316	$	10,258	$	3,775	$	611	$	1,636	$	46,243
Special mention			—		2,799		6,200		—		—		—		8,999
Substandard			—		30		756		—		301		—		1,087
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	5,647	$	27,145	$	17,214	$	3,775	$	912	$	1,636	$	56,329
Farmland
Risk rating
Pass		$	917	$	3,046	$	1,691	$	1,650	$	279	$	2,452	$	10,035
Special mention			—		—		—		—		—		—		—
Substandard			—		—		—		—		—		—		—
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	917	$	3,046	$	1,691	$	1,650	$	279	$	2,452	$	10,035
1-4 Residential & multi-family
Risk rating
Pass		$	3,737	$	12,990	$	29,892	$	18,557	$	28,147	$	58,487	$	151,810
Special mention			—		—		218		—		—		160		378
Substandard			—		—		721		—		—		1,166		1,887
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	3,737	$	12,990	$	30,831	$	18,557	$	28,147	$	59,813	$	154,075
Current period gross charge-offs		$	—	$	—	$	3	$	—	$	—	$	—	$	3
Commercial real estate
Risk rating
Pass		$	2,634	$	14,618	$	13,467	$	5,104	$	7,034	$	13,752	$	56,609
Special mention			—		—		—		—		—		296		296
Substandard			—		—		—		—		—		437		437
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	2,634	$	14,618	$	13,467	$	5,104	$	7,034	$	14,485	$	57,342
Agriculture
Risk rating
Pass		$	37	$	—	$	37	$	1	$	12	$	—	$	87
Special mention			—		—		—		—		—		—		—
Substandard			—		—		—		—		—		—		—
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	37	$	—	$	37	$	1	$	12	$	—	$	87
Commercial
Risk rating
Pass		$	387	$	2,785	$	670	$	312	$	67	$	254	$	4,475
Special mention			—		6		—		—		—		—		6
Substandard			—		36		—		—		797		285		1,118
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	387	$	2,827	$	670	$	312	$	864	$	539	$	5,599
Municipalities
Risk rating
Pass		$	3,200	$	8,318	$	845	$	—	$	—	$	—	$	12,363
Special mention			—		—		—		—		—		—		—
Substandard			—		—		—		—		—		—		—
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	3,200	$	8,318	$	845	$	—	$	—	$	—	$	12,363
Consumer and other
Risk rating
Pass		$	547	$	2,660	$	716	$	299	$	735	$	4	$	4,961
Special mention			—		2		2		—		—		—		4
Substandard			—		—		—		—		—		—		—
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	547	$	2,662	$	718	$	299	$	735	$	4	$	4,965
Current period gross charge-offs		$	10	$	—	$	—	$	—	$	—	$	—	$	10

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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


	December 31, 2024
	Term Loans Amortized Cost Basis by Origination Year
		2024		2023		2022		2021		2020		Prior		Total
Construction and land
Risk rating
Pass		$	26,157	$	14,188	$	4,197	$	619	$	550	$	1,140	$	46,851
Special mention			—		6,200		—		—		—		—		6,200
Substandard			30		754		—		301		—		—		1,085
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	26,187	$	21,142	$	4,197	$	920	$	550	$	1,140	$	54,136
Farmland
Risk rating
Pass		$	3,141	$	1,708	$	1,804	$	284	$	486	$	2,117	$	9,540
Special mention			—		—		—		—		—		—		—
Substandard			—		—		—		—		—		—		—
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	3,141	$	1,708	$	1,804	$	284	$	486	$	2,117	$	9,540
1-4 Residential & multi-family
Risk rating
Pass		$	16,084	$	30,595	$	19,099	$	28,452	$	37,925	$	22,283	$	154,438
Special mention			—		219		—		—		—		198		417
Substandard			—		25		—		—		92		1,096		1,213
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	16,084	$	30,839	$	19,099	$	28,452	$	38,017	$	23,577	$	156,068
Current period gross charge-offs		$	—	$	16	$	—	$	—	$	—	$	—	$	16
Commercial real estate
Risk rating
Pass		$	15,600	$	13,526	$	5,160	$	7,079	$	2,953	$	11,007	$	55,325
Special mention			—		—		—		—		—		301		301
Substandard			—		—		—		—		—		442		442
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	15,600	$	13,526	$	5,160	$	7,079	$	2,953	$	11,750	$	56,068
Agriculture
Risk rating
Pass		$	—	$	40	$	1	$	14	$	—	$	—	$	55
Special mention			—		—		—		—		—		—		—
Substandard			—		—		—		—		—		—		—
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	—	$	40	$	1	$	14	$	—	$	—	$	55
Commercial
Risk rating
Pass		$	3,443	$	910	$	345	$	86	$	94	$	265	$	5,143
Special mention			8		—		—		—		—		—		8
Substandard			23		—		—		844		57		240		1,164
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	3,474	$	910	$	345	$	930	$	151	$	505	$	6,315
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		$	3,373	$	906	$	374	$	823	$	13	$	—	$	5,489
Special mention			2		3		1		—		—		—		6
Substandard			—		—		—		—		—		—		—
Doubtful			—		—		—		—		—		—		—
Loss			—		—		—		—		—		—		—
		$	3,375	$	909	$	375	$	823	$	13	$	—	$	5,495
Current period gross charge-offs		$	66	$	14	$	6	$	—	$	—	$	—	$	86

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

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. The following is an aging analysis for loans as of March 31, 2025 and December 31, 2024:


	March 31, 2025
	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	$	756	$	4,871	$	301	$	5,928	$	50,401	$	56,329
Farmland		—		—		—		—		10,035		10,035
1‑4 Residential & multi-family		817		—		—		817		153,258		154,075
Commercial real estate		—		—		—		—		57,342		57,342
Agriculture		—		—		—		—		87		87
Commercial		65		2		—		67		5,532		5,599
Municipalities		—		—		—		—		12,363		12,363
Consumer and other		8		—		—		8		4,957		4,965
Total	$	1,646	$	4,873	$	301	$	6,820	$	293,975	$	300,795


	December 31, 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	$	53,835	$	54,136
Farmland		—		—		—		—		9,540		9,540
1‑4 Residential & multi-family		260		8		25		293		155,775		156,068
Commercial real estate		301		—		—		301		55,767		56,068
Agriculture		—		—		—		—		55		55
Commercial		2		—		—		2		6,313		6,315
Municipalities		—		—		—		—		9,253		9,253
Consumer and other		2		—		—		2		5,493		5,495
Total	$	565	$	8	$	326	$	899	$	296,031	$	296,930

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 months ended March 31, 2025 and 2024.

The following table presents interest income recognized on loans that are collateral-dependent and individually reviewed for the three months ended March 31, 2025 and 2024:


	Three Months Ended
	March 31,
	2025		2024
Real estate
1-4 Residential & multi-family	$	—	$	2
Commercial		—		—
	$	—	$	2

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

During the three months ended March 31, 2025 and 2024, there were no modifications of loans to borrowers in financial difficulty.

There have been no modifications to borrowers with financial difficulty in the three months ended March 31, 2025 and 2024, 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 March 31, 2025 and December 31, 2024, 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 March 31, 2025, 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 Months Ended March 31, 2025 and 2024

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

Note 6 - Supplemental Cash Flow Information

Supplemental disclosure of cash flow information is as follows:


	Three Months Ended
	March 31,
	2025		2024
Supplemental cash flow information:
Cash paid for
Interest on deposits	$	1,875	$	1,761
Interest on FHLB advances		504		697
Other interest		2		2
Non-cash activities
Transfer on loans receivable to loans held for sale	$	—		29,312
Loan originations to facilitate the sale of other real estate owned		—		150
Loans transferred to other real estate owned		22		—
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 March 31, 2025 and December 31, 2024, the Bank’s CBLR ratio was 11.09% and 10.84%, 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.

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Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

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 three months ended March 31, 2025 or the year ended December 31, 2024.

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 Months Ended March 31, 2025 and 2024

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

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 March 31, 2025.

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

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

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 March 31, 2025 and December 31, 2024, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	March 31, 2025
	Level 1		Level 2		Level 3		Total
	Inputs		Inputs		Inputs		Fair Value
Financial assets
Available for sale securities
Residential mortgage-backed	$	—	$	8,891	$	—	$	8,891
Collateralized mortgage obligations		—		45,387		—		45,387
State and municipal		—		13,282		—		13,282
Corporate bonds		—		7,236		—		7,236
Total financial assets	$	—	$	74,796	$	—	$	74,796


	December 31, 2024
	Level 1		Level 2		Level 3		Total
	Inputs		Inputs		Inputs		Fair Value
Financial assets
Available for sale securities
Residential mortgage-backed	$	—	$	9,151	$	—	$	9,151
Collateralized mortgage obligations		—		46,568		—		46,568
State and municipal		—		13,277		—		13,277
Corporate bonds		—		6,193		—		6,193
Derivative instruments		—		419		—		419
Total financial assets	$	—	$	75,608	$	—	$	75,608

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 Months Ended March 31, 2025 and 2024

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

The following table summarizes financial and non-financial assets measured at fair value on a nonrecurring basis as of March 31, 2025 and December 31, 2024, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	March 31, 2025
	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
Financial assets
Collateral-dependent loans	$	—	$	—	$	801	$	801
Nonfinancial assets
Other real estate owned		—		—		450		450
	$	—	$	—	$	1,251	$	1,251


	December 31, 2024
	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
Financial assets
Collateral-dependent loans	$	—	$	—	$	861	$	861
Nonfinancial assets
Other real estate owned		—		—		480		480
	$	—	$	—	$	1,341	$	1,341

During the three months ended March 31, 2025 and 2024, 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 March 31, 2025, collateral-dependent loans with a carrying value of $1,080 were reduced by specific valuation allowance allocations totaling $279 to a reported fair value of $801. At December 31, 2024, collateral dependent loans with a carrying value of $1,140 were reduced by specific valuation allowance allocations totaling $279 to a reported fair value of $861. The fair value of collateral dependent loans is determined based on collateral valuations utilizing Level 3 valuation inputs. There was a charge of $3 to the provision for credit losses for the three months ended March 31, 2025. There was a charge to the provision for credit losses of $16 as a result of valuation allowances moving from the general reserve to the specific reserve for the three months ended March 31, 2024.

At March 31, 2025, the Company had other real estate owned consisting of two bank properties that were purchased for future expansion that have been listed for sale and one 1-4 residential property that has also been listed for sale. During the three months ended March 31, 2025, the Company had a $52 write-down of other real estate owned. During the three months ended March 31, 2024, there were no write-downs of other real estate owned. At December 31, 2024, the Company had other real estate owned consisting of two bank properties that were purchased for future expansion that have been listed for sale.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

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	March 31, 2025		Technique	Inputs	Values
Collateral-dependent loans	$	801	Appraisal of collateral (1)	Appraisal adjustment	10-25	%

Other real estate owned	$	450	Appraisal of collateral (1)	Appraisal adjustment	10-25	%


				Significant	Range of
	Fair Value at		Principal Valuation	Unobservable	Significant Input
Instrument	December 31, 2024		Technique	Inputs	Values
Collateral-dependent loans	$	861	Appraisal of collateral (1)	Appraisal adjustment	10-25	%

Other real estate owned	$	480	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.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

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


	March 31, 2025
	Level 1		Level 2		Level 3		Total		Total
	Inputs		Inputs		Inputs		Fair Value		Carrying Value
Financial assets
Cash and cash equivalents	$	11,822	$	—	$	—	$	11,822	$	11,822
Interest bearing deposits in banks		9,284		—		—		9,284		9,284
Securities held to maturity		—		18,992		—		18,992		21,179
Loans, net		—		—		283,652		283,652		296,379
Net investment in direct financing leases		—		—		1,143		1,143		1,143
Accrued interest receivable		1,851		—		—		1,851		1,851
Restricted investments carried at cost		—		3,239		—		3,239		3,239
Mortgage servicing rights		—		—		227		227		227
Financial liabilities
Deposits		—		—		307,341		307,341		337,532
FHLB advances		—		—		49,790		49,790		49,558
Accrued interest payable		683		—		—		683		683


	December 31, 2024
	Level 1		Level 2		Level 3		Total		Total
	Inputs		Inputs		Inputs		Fair Value		Carrying Value
Financial assets
Cash and cash equivalents	$	13,290	$	—	$	—	$	13,290	$	13,290
Interest bearing deposits in banks		9,720		—		—		9,720		9,720
Securities held to maturity		—		19,531		—		19,531		22,096
Loans, net		—		—		276,028		276,028		292,416
Net investment in direct financing leases		—		—		1,292		1,292		1,292
Accrued interest receivable		1,919		—		—		1,919		1,919
Restricted investments carried at cost		—		4,252		—		4,252		4,252
Mortgage servicing rights		—		—		230		230		230
Financial liabilities
Deposits		—		—		302,400		302,400		335,828
FHLB advances		—		—		49,911		49,911		49,878
Accrued interest payable		759		—		—		759		759

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.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

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 unallocated ESOP shares 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 $52 and $46 for the three months ended March 31, 2025 and 2024.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

A summary of the ESOP shares as of March 31, 2025 and December 31, 2024 are as follows:


	March 31, 2025		December 31, 2024
Shares allocated to participants		56,768		56,768
Shares committed to be released to participants		3,277		—
Shares distributed to terminated participants		(8,057)		(5,151)
Unreleased shares		200,576		203,853
Total		252,564		255,470
Fair value of unreleased shares	$	3,209	$	3,109

Note 10 – Derivatives

The Company is exposed to economic risks arising from its business operations and has used 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 had a swap agreement to hedge the interest rate risk on a portion of its fixed rated securities available for sale. At December 31, 2024, 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 the hedged items was an unrealized gain of $417. As of March 31, 2025, the Company terminated the swap agreement and transitioned the net unrealized gain on the swaps of $463 through the underlying securities by reducing the book value of the securities.

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.

Table of Contents

Texas Community Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2025 and 2024

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

During the three-months ended March 31, 2025, the Company terminated the financial derivative resulting in an unrealized gain of $463, reducing the cost basis of investments related to the financial derivative. The unrealized gain will be recognized over the contractual life of the underlying securities.

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


	December 31, 2024
	Notional Amount		Fair Value
Derivatives designated as hedges:
Fair Value Hedges	$	25,000	$	419
Total	$	25,000	$	419

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 December 31, 2024:

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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 March 31, 2025 and consolidated results of operations for the three months ended March 31, 2025 and 2024. It should be read in conjunction with the unaudited consolidated financial statements and the related notes appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q and with the audited consolidated financial statements, and notes, contained in the Annual Report on Form 10-K for the year ended December 31, 2024..

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:

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statements of our goals, intentions and expectations;

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

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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:

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our ability to control costs and manage liquidity;

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

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

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

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

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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;

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

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

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

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

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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;

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

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

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

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

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

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

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

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changes in consumer spending, borrowing and savings habits;

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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;

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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;

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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. 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.

For additional information regarding the allowance for credit losses, see notes 1 and 4 of the notes to consolidated financial statements.

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 March 31, 2025 and December 31, 2024

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

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

Interest Bearing Deposits in Banks. Interest bearing deposits in banks decreased $436,000, or 4.5%, to $9.3 million at March 31, 2025, compared to $9.7 million at December 31, 2024. The decrease was primarily the result of a decrease in FHLB advances of $320,000 and cash dividends of $123,000 paid by the Company.

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

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

Loans and Leases Receivable, Net. Net loans and leases receivable increased $3.8 million, or 1.3%, to $297.5 million at March 31, 2025 from $293.7 million at December 31, 2024. The increase in loans was primarily due to $21.2 million in loan originations and $2.8 million in loans repurchased from the 2024 loan sale partially offset by payoffs and contractual repayments.

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

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

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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.

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

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

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

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

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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 $121,000 and $85,000 for the three months ended March 31, 2025 and 2024, respectively. We have not recorded deferred loan fees, as we have determined them to be immaterial.


	For the Three Months Ended March 31,
	2025						2024
	Average						Average
	Outstanding				Average		Outstanding				Average
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate

	(Dollars in thousands)
Interest-earning assets:
Loans	$	299,454	$	4,400	5.88	%	$	281,314	$	3,709	5.27	%
Allowance for credit losses		(3,244)						(3,092)
Securities		96,100		1,028	4.28	%		119,053		1,216	4.09	%
Restricted stock		3,630		50	5.51	%		3,505		55	6.28	%
Interest bearing deposits in banks		9,423		104	4.41	%		18,834		256	5.44	%
Federal funds sold		5,643		62	4.39	%		5,017		67	5.34	%
Financial derivative		—		(10)				283		115
Total interest earning assets		411,006		5,634	5.48	%		424,914		5,418	5.10	%
Noninterest earning assets		29,135						28,028
Total assets	$	440,141					$	452,942

Interest-bearing liabilities:
Interest bearing demand deposits	$	71,719		113	0.63	%	$	63,949		102	0.64	%
Regular savings and other deposits		43,233		35	0.32	%		47,958		39	0.33	%
Money market deposits		47,666		327	2.74	%		41,415		352	3.40	%
Certificates of deposit		130,974		1,324	4.04	%		120,692		1,264	4.19	%
Total interest bearing deposits		293,592		1,799	2.45	%		274,014		1,757	2.56	%
Advances from FHLB		49,674		503	4.05	%		76,639		696	3.63	%
Other liabilities		524		4	3.05	%		704		2	1.14	%
Total interest bearing liabilities		343,790		2,306	2.68	%		351,357		2,455	2.79	%
Noninterest bearing demand deposits		48,905						54,327
Other noninterest bearing liabilities		3,915						4,226
Total liabilities		396,610						409,910
Total shareholders’ equity		43,531						43,032
Total liabilities and shareholders' equity	$	440,141					$	452,942
Net interest income			$	3,328					$	2,963
Net interest rate spread ⁽¹⁾					2.80	%					2.31	%
Net interest earning assets ⁽²⁾	$	67,216					$	73,557
Net interest margin ⁽³⁾					3.24	%					2.79	%
Average interest earning assets to interest bearing liabilities					119.55	%					120.94	%

(1)	Net interest rate spread represents the difference between the weighted average yield on interest earning assets and the weighted average rate of interest bearing liabilities.

(2)	Net interest earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3)	Net interest margin represents net interest income divided by average total interest earning assets.

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Comparison of the Operating Results for the Three Months Ended March 31, 2025 and March 31, 2024

Net Income. The Company had net income of $643,000 for the three months ended March 31, 2025, compared to a net loss of $2.7 million for the three months ended March 31, 2024, an increase of $3.3 million, or 123.9%. In the first quarter of 2024, the Company made a strategic loan sale at a loss of $3.8 million in order to rebalance the portfolio and demolished a branch after constructing a new one resulting in combined nonrecurring deductions from noninterest income of $4.1 million. The increase in net income before tax with the removal of these two nonrecurring items in 2024 was $98,000 primarily due to an increase in net interest income of $365,000, a decrease in noninterest expenses of $143,000 partially offset by a decrease of $40,000 in noninterest income primarily related to a loss on real estate owned and a $390,000 increase in the provision for credit losses primarily from a large decrease in 2024 related to the sale of loans.

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

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

Interest income on securities decreased $188,000, or 15.5%, from $1.2 million for the three months ended March 31, 2024 to $1.0 million for the three months ended March 31, 2025. This decrease resulted from a decrease in the average balance of securities of $23.0 million, or 19.3%, from $119.1 million for the three months ended March 31, 2024 to $96.1 million for the three months ended March 31, 2025, partially offset by an increase of 19 basis points, or 4.6%, in average yield from 4.09% for the three months ended March 31, 2024 to 4.28% for the three months ended March 31, 2025. The rate increase is reflective of the purchase of higher yielding securities in 2024.

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

Interest income on interest bearing deposits in banks decreased $152,000, or 59.4%, from $256,000 for the three months ended March 31, 2024 to $104,000 for the three months ended March 31, 2025. This decrease resulted primarily from a decrease in average interest-bearing deposits of $9.4 million, or 50.0%, from $18.8 million for the three months ended March 31, 2024 to $9.4 million for the three months ended March 31, 2025 and a decrease in average yield of 103 basis points, or 18.8%, from 5.44% for the three months ended March 31, 2024 to 4.41% for the three months ended March 31, 2025. The decrease in yields on deposits in banks and fed funds is reflective of the decrease in fed funds rates and other market interest rates. During the three months ended March 31, 2024, the Company maintained higher account balances due to receiving cash from the loan sale.

Interest expense from the fair value hedge was $10,000 for the three months ended March 31, 2025 compared to interest income of $115,000 for the three months ended March 31, 2024. The Company terminated the interest rate swap

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agreements on January 15, 2025, and the $463,000 unrealized gain in the value of the asset was locked in at the time of sale and will be amortized to interest income over the remaining life of the hedged securities. 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 decreased $149,000, or 6.1%, to $2.3 million for the three months ended March 31, 2025 from $2.4 million for the three months ended March 31, 2024 primarily due to a decrease in average interest-bearing liabilities of $7.6 million, or 2.2%, to $343.8 million for the three months ended March 31, 2025 from $351.4 million for the three months ended March 31, 2024 and a decrease in the average cost of interest-bearing liabilities of 11 basis points, or 3.8%, from 2.79% for the three months ended March 31, 2024 to 2.68% for the three months ended March 31, 2025, primarily due to a decrease in average FHLB advances. Interest expense on deposit accounts increased $42,000, or 2.4%, to $1.8 million for the three months ended March 31, 2025, due to an increase in average interest-bearing deposits of $19.6 million, or 7.2%, from $274.0 million for the three months ended March 31, 2024 to $293.6 million for the three months ended March 31, 2025, partially offset by a decrease in the average interest-bearing deposit cost of 11 basis points, or 4.3%, from 2.56% for the three months ended March 31, 2024 to 2.45% for the three months ended March 31, 2025 with the decrease in average cost being primarily in certificates of deposit and money market accounts.

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

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

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

Noninterest Income. Noninterest income increased $4.1 million, or 113.9%, to $462,000 for the three months ended March 31, 2025 from a noninterest loss of $3.6 million for the three months ended March 31, 2024, primarily due to nonrecurring losses in 2024 of $4.1 million related to the loan sale and branch construction. In the three months ended March 31, 2025, there was an increase of $42,000, or 16.2% in other service charges and fees due primarily to a $51,000 increase in loan fees from $14,000 for the three months ended March 31, 2024 to $65,000 for the three months ended March 31, 2025 primarily due to an increase of $8,000 in servicing fees from the servicing retained in the loan sale in 2024 and a $43,000, or 390.9%, increase from loans closed through the wholesale lending program from $11,000 for the three months ended March 31, 2024 to $54,000 for the three months ended March 31, 2025. There was an increase of

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$11,000, or 36.7%, in net appreciation of bank-owned life insurance due to a change in carriers in 2024 to increase yield, partially offset by an $89,000 decrease in net income on sales of real estate owned primarily due to a $52,000 net loss in the three months ended March 31, 2025 due to an additional write-down to market value on two bank properties that were purchased originally for expansion then listed for sale in 2024 compared to a $37,000 net gain on the sale of a foreclosed property in 2024.

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

Occupancy and equipment expenses decreased $38,000, or 13.3%, from $285,000 for the three months ended March 31, 2024 to $247,000 for the three months ended March 31, 2025 primarily due to higher expenses during 2024 related to opening two new branches. Technology expenses decreased $57,000, or 50.0%, due primarily to a contract negotiation with our debit card provider. Director fees decreased $12,000, or 14.5%, due to a reduction in board size. Other expenses decreased $23,000, or 3.7%, primarily due to a decrease of $26,000 in office supply expense and $18,000 in other operating expenses due to having higher expenses during 2024 associated with branch openings, and a $21,000 decrease in legal fees due to higher fees in 2024 associated with executive changes partially offset by increased marketing expenses of $12,000 due primarily to the use of a third-party marketing firm, an increase in FDIC assessment expenses of $14,000 primarily due to an overall increase in the FDIC assessment rate, and a $21,000 increase in training expenses primarily due to employees taking on new roles and responsibilities.

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

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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 March 31, 2025, we had outstanding advances of $49.6 million from the Federal Home Loan Bank of Dallas. At March 31, 2025, we had unused borrowing capacity of $98.7 million with the Federal Home Loan Bank of Dallas. In addition, at March 31, 2025, we had an unused unsecured $10.0 million line of credit and an unused secured $3.0 million line of credit with Texas Independent Bankers Bank and an unused $5.0 million line of credit with First Horizon Bank.

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 three months ended March 31, 2025 and 2024 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 March 31, 2025, Texas Community Bancshares, Inc. (on a stand-alone, unconsolidated basis) had liquid assets of $7.1 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 March 31, 2025, there were 204 accounts with balances in excess of the $250,000 FDIC insurance limit totaling $98.2 million, or 29.1% of deposits. The amount that was over $250,000 was $47.2 million, or 14.0%, that was potentially uninsured, including certificates of deposit of $11.3 million and $35.9 million in checking, MMDA and savings accounts.

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

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

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

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

The following are the various liquidity sources we had available at March 31, 2025 that we could use as needed:

●

FHLB borrowing capacity of $98.7 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 March 31, 2025, 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. 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;

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●

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.

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 March 31, 2025
Change in Interest Rates	Net Interest Income Year		Year 1 Change from
(basis points) ⁽¹⁾	1 Forecast		Level
(Dollars in thousands)
400	$	13,354	6.13	%
300		13,232	5.16	%
200		13,080	3.95	%
100		12,881	2.37	%
Level		12,583	—
(100)		12,521	(0.49)	%
(200)		12,388	(1.55)	%
(300)		12,268	(2.50)	%
(400)		12,185	(3.16)	%

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

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

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

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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. The estimated changes presented are within policy guidelines established by the Company’s Board of Directors.


At March 31, 2025
							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	$	54,949	$	(1,422)	(2.52)	%	13.82	%	107
300		56,117		(254)	(0.45)	%	13.76	%	101
200		56,916		545	0.97	%	13.60	%	85
100		57,111		740	1.31	%	13.28	%	53
Level		56,371		—	—	%	12.75	%	—
(100)		54,660		(1,711)	(3.04)	%	12.02	%	(73)
(200)		50,919		(5,452)	(9.67)	%	10.88	%	(187)
(300)		44,562		(11,809)	(20.95)	%	9.25	%	(350)
(400)		37,066		(19,305)	(34.25)	%	7.50	%	(525)

(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.

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

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

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.

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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 March 31, 2025. 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 March 31, 2025.

During the quarter ended March 31, 2025, 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 March 31, 2025, 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 February 27, 2025, the Company announced a third program to repurchase 153,083 shares of the Company’s outstanding common stock, or approximately 5% of the shares then outstanding. The program has no stated expiration date. The Company had previously announced a stock repurchase program on May 16, 2023 to repurchase up to 164,842 shares, or approximately 5% of the shares outstanding and a second repurchase program on November 9, 2023 to repurchase 161,316 shares, or approximately 5% of the shares outstanding. As of March 31, 2025, the Company had repurchased 313,773 shares under the plans.

The following table summarizes the Company’s repurchases of its outstanding shares of common stock during the quarter ended March 31, 2025.


	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
January 1, 2025 - January 31, 2025	21,500	$	15.48	21,500	22,385
February 1, 2025 - February 28, 2025	5,000		16.05	5,000	170,468
March 1, 2025 - March 31, 2025	5,000		16.30	5,000	165,468
Total	31,500	$	15.70	31,500

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended March 31, 2025, 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 March 31, 2025, 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: May 13, 2025		/s/ Jason Sobel
		Jason Sobel
		President and Chief Executive Officer


Date: May 13, 2025		/s/ Julie Sharff
		Julie Sharff, CPA
		Chief Financial Officer