Item 7. Management’s Discussion and Analysis
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the consolidated financial statements, which appear elsewhere in this annual report. You should read the information in this section in conjunction with the other business and financial information provided in this annual report.
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Overview
Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations and borrowings from the Federal Home Loan Bank of Dallas, in residential real estate loans, commercial real estate loans, construction and land loans and, to a lesser extent, commercial loans and consumer and other loans. Although the majority of our loans were fixed-rate loans, with the growth in the commercial lending portfolio in 2025, many of our originations were loans with adjustable rates. We also invest in securities, which have historically consisted primarily of mortgage-backed securities and obligations issued by U.S. government sponsored enterprises and others, state and municipal securities, collateralized mortgage obligations, corporate bonds, and Federal Home Loan Bank stock. We offer a variety of deposit accounts, including checking accounts, savings accounts and certificate of deposit accounts. Broadstreet Bank is subject to comprehensive regulation and examination by the Texas Department of Savings and Mortgage Lending and the Federal Deposit Insurance Corporation and is a member of the Federal Home Loan Bank system.
Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provision for credit losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of service charges on deposit accounts, other service charges and fees, income from bank owned life insurance, gains and losses on the sale or disposal of assets and other income. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, technology expenses, contract services, director fees, and other expenses.
We invest in bank owned life insurance to provide us with a funding source to offset some costs of our benefit plan obligations. Bank owned life insurance provides us with non-interest income that is nontaxable. Federal regulations generally limit our investment in bank owned life insurance to 25% of our Tier 1 capital plus our allowance for credit losses. At December 31, 2025, our investment in bank owned life insurance was $6.5 million, which was within this investment limit.
Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.
Business Strategy
Our current business strategy consists of the following:
● Continue to serve our community as a community bank. Since our founding in 1934, we have operated as a community bank. Historically, our primary lending activity has been the origination of fixed-rate residential mortgage loans to individuals in our market area funded primarily by deposits gathered from individuals and businesses in our market area. We expect that real estate lending will continue to be a primary focus of our business for the foreseeable future, however, this focus has expanded to include more commercial real estate as an integral part of the Company’s strategic plan. As part of our customer focus, we generally do not sell the loans we originate but retain them in our portfolio. In 2024, we sold a block of residential loans in order to restructure the loan portfolio more quickly, but it is not part of our normal procedures to sell the loans we originate. When customers have questions regarding their loans, they are able to deal directly with us rather than another institution. At December 31, 2025, one-to-four family residential mortgage loans totaled $140.4 million, or 45.8% of total loans. This amount includes one- to four-family residential mortgage loans originated in the Dallas Fort Worth Metroplex. We have originated one-to-four family residential mortgage loans secured primarily by owner-occupied properties located in the Dallas Fort Worth Metroplex for over ten years and continue to do so primarily through existing relationships and word-of-mouth referrals. At December 31, 2025, these loans amounted to $42.4 million and included $14.8 million of jumbo loans with current balances exceeding the 2025 conforming loan limits.
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● Grow and diversify our loan portfolio prudently . There has been an influx of retirees and others from the Dallas metropolitan area and an influx of new residents in general into the state of Texas and our market area. Our more rural market area offers a lower-cost of living and many recreational amenities, while being within easy reach of the cities of Dallas and Tyler and the urban amenities they offer. We believe this movement away from major cities like Dallas was accelerated by the work-from-home trend. In 2024, we opened a branch office in Tyler, Texas and a new branch office in Lindale, Texas in order to better serve that rapidly growing Smith county market. In 2018 we acquired our branch office in Edgewood, Texas. Edgewood is located in a growth area of our market because of its closer proximity to Dallas. The increase in population in our market area as well as the expansion in Smith county has provided opportunities for residential mortgage lending, construction and land lending, and commercial real estate lending. We closed a loan production office in Canton, Texas in 2024 after determining that we can adequately meet the loan demand of that area through the use of technology and other resources. As we continue our historical focus on the origination of residential mortgage loans, we have increased our focus on commercial real estate lending and construction and land lending to continue to diversify our loan portfolio and income sources. At December 31, 2025, commercial real estate loans amounted to $61.5 million, or 20.1% of total loans compared to $56.1 million, or 18.9% at December 31, 2024, and construction and land loans amounted to $48.4 million, or 15.8% of total loans compared to $54.1 million, or 18.2% at December 31, 2024. In 2024, we sold a block of 111 residential loans totaling $24.3 million to reallocate into commercial real estate and other categories to accelerate diversification of the portfolio with a goal of increasing our interest income and mitigating interest rate risk.
Our commercial real estate loans and construction and land loans have higher credit risk than our residential mortgage loans.
● Continue to grow core deposits . We consider our core deposits to include statement savings accounts, money market accounts, negotiable orders of withdrawal (NOW) accounts, other savings deposits and checking accounts . We will continue our efforts to increase our core deposits to provide a stable source of funds to support loan growth at costs consistent with improving our interest rate spread and net interest margin. Core deposits totaled $194.1 million, or 59.2% of total deposits, as of December 31, 2025, compared to $205.9 million, or 61.3% of total deposits, as of December 31, 2024.
● Continue to manage credit risk to maintain a low level of nonperforming assets. Historically, we have been able to maintain a high level of asset quality. We believe strong asset quality remains a key factor to our long-term financial success . Our total nonperforming assets to total assets ratio was 2.65% and 0.62% at December 31, 2025 and 2024, respectively. This increase is due primarily to the foreclosure of one multi-family property, now held in other real estate owned and currently for sale. Our strategy for credit risk management continues to focus on having an experienced team of credit professionals, well-defined policies and procedures, appropriate loan underwriting criteria and active credit monitoring.
● Grow organically and through opportunistic acquisitions or branching. We intend to grow our assets organically on a managed basis, and the capital raised in the offering has enabled us to increase our lending and investment capacity. In addition to organic growth, we may also consider expansion opportunities in our market area or in contiguous markets that we believe would enhance both our franchise value and stockholder returns. These opportunities may include acquiring other financial institutions and/or establishing loan production offices, establishing new, or de novo, branch offices and/or acquiring branch offices, and the capital we raised in the offering will help us fund any such opportunities that may arise.
Summary of Critical Accounting Policies and Critical Accounting Estimates
The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with U.S. GAAP. 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
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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 JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We determined not to take advantage of the benefits of this extended transition period.
The following represent our critical accounting policies:
Allowance for Credit Losses . Effective January 1, 2023, the Company adopted Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”), referred to as CECL. The allowance for credit losses applies to any financial asset carried at amortized cost, including 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 uncollectability 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.
Texas Community Bancshares files consolidated federal income tax returns with Broadstreet Bank. 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.
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Selected Financial Data
The following selected consolidated financial data sets forth certain financial highlights of the Company and should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
At December 31,
At December 31,
2025
2024
Selected Financial Condition Data (Amounts in thousands):
Total assets
$
429,842
$
443,457
Cash and cash equivalents
6,450
13,290
Interest bearing deposits in banks
5,509
9,720
Securities available for sale
59,893
75,189
Securities held to maturity
18,283
22,096
Loans and leases receivable, net
303,205
293,708
Premises and equipment, net
11,459
11,526
Bank owned life insurance
6,544
6,370
Other real estate owned
9,271
480
Restricted investments carried at cost
2,773
3,715
Core deposit intangible
—
132
Total deposits
327,904
335,828
Advances from the Federal Home Loan Bank
45,669
49,878
Total shareholders' equity
53,757
52,108
For the Twelve Months Ended December 31,
2025
2024
Selected Operating Data (Amounts in thousands):
Interest income
$
22,491
22,452
Interest expense
9,177
9,902
Net interest income
13,314
12,550
Provision for credit losses
831
158
Net interest income after provision for credit losses
12,483
12,392
Noninterest income (loss)
3,079
(1,903)
Noninterest expense
12,198
12,270
Income (Loss) before income taxes
3,364
(1,781)
Income tax expense (benefit)
522
(476)
Net income (loss)
$
2,842
$
(1,305)
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At or For the Years Ended
December 31,
2025
2024
Performance Ratios:
Return on average assets
0.65
%
(0.29)
%
Return on average equity
6.18
%
(3.08)
%
Interest rate spread (1)
2.80
%
2.51
%
Net interest margin (2)
3.26
%
2.98
%
Noninterest expense to average assets
2.77
%
2.73
%
Efficiency ratio (3)
74.41
%
115.24
%
Average interest-earning assets to average interest-bearing liabilities
120.45
%
120.01
%
Capital Ratios:
Average equity to average assets
10.45
%
9.44
%
Total capital to risk-weighted assets
16.67
%
15.60
%
Tier 1 capital to risk-weighted assets
15.57
%
14.59
%
Common equity tier 1 capital to risk-weighted assets
15.57
%
14.59
%
Tier 1 capital to average assets
11.74
%
10.84
%
Asset Quality Ratios:
Allowance for credit losses as a percentage of total loans
1.12
%
1.09
%
Allowance for credit losses as a percentage of nonperforming loans
161.05
%
142.57
%
Allowance for credit losses as a percentage of nonaccrual loans
170.80
%
151.62
%
Nonaccrual loans as a percentage of total loans
0.66
%
0.72
%
Net (charge-offs) recoveries to average outstanding loans during the year
(0.17)
%
(0.05)
%
Nonperforming loans as a percentage of total loans
0.70
%
0.76
%
Nonperforming loans as a percentage of total assets
0.50
%
0.51
%
Total nonperforming assets as a percentage of total assets
2.65
%
0.62
%
Other Data:
Number of offices
7
7
Number of full-time employees
61
60
Number of part-time employees
10
8
(1) Represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(2) Represents net interest income as a percentage of average interest-earning assets.
(3) Represents noninterest expenses divided by the sum of net interest income and noninterest income.
Comparison of Financial Condition at December 31, 2025 and December 31, 2024
Total Assets. Total assets were $429.8 million as of December 31, 2025, a decrease of $13.7 million, or 3.1%, when compared to total assets of $443.5 million as of December 31, 2024. The decrease was due primarily to a decrease in securities of $19.1 million, or 19.6%, to $78.2 million at December 31, 2025 from $97.3 million at December 31, 2024, a decrease in cash and equivalents of $6.8 million, or 51.1%, to $6.5 million at December 31, 2025 from $13.3 million at December 31, 2024, and a decrease in interest bearing deposits in banks of $4.2 million, or 43.3%, to $5.5 million at December 31, 2025 from $9.7 million at December 31, 2024 partially offset by an increase in net loans and leases of $9.5 million, or 3.2%, to $303.2 million at December 31, 2025 from $293.7 million at December 31, 2024, and an increase in other real estate owned of $8.8 million, or 1837.5% to $9.3 million at December 31, 2025 which consisted of a foreclosed multifamily property, two parcels of land received in lieu of foreclosure, and a building the Bank had purchased for expansion and had listed for sale. The decrease in securities included sales of securities for general liquidity purposes.
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Cash and Cash Equivalents. Total cash and cash equivalents (which includes fed funds sold) decreased $6.8 million, or 51.1%, to $6.5 million (including $2.6 million in Fed Funds sold) at December 31, 2025 from $13.3 million (including $9.3 million in Fed Funds sold) at December 31, 2024. These balances provided a favorable yield while maintaining adequate liquidity for strategic funding needs.
Interest Bearing Deposits in Banks. Interest bearing deposits in banks decreased $4.2 million, or 43.3%, to $5.5 million at December 31, 2025, from $9.7 million at December 31, 2024. The decrease was the result of general funding needs for loan growth, and the paydown of maturing FHLB Advances and brokered deposits, and a decrease in core deposits.
Securities Available for Sale. Securities available for sale decreased by $15.3 million, or 20.3%, to $59.9 million at December 31, 2025 from $75.2 million at December 31, 2024. The decrease in securities resulted primarily from sales of securities in 2025 for general liquidity purposes. During the year ended December 31, 2025, we had sales of securities of $23.8 million partially offset by strategic purchases of $23.7 million in securities with more attractive yields or overall terms and received paydowns and payoffs of $17.7 million. Additionally, we purchased $30.0 million in short-term US treasury securities as part of a tax management strategy. Unrealized losses on the available for sale portfolio decreased by $2.6 million, or 40.0%, to $3.9 million, from $6.5 million, due primarily to decreases in market interest rates. Gross unrealized losses on the available for sale portfolio consisting of 66 securities decreased from $6.5 million, or 8.0% of the portfolio’s amortized cost of $81.6 million at December 31, 2024, to $3.9 million, or 6.1% of the amortized cost of $63.8 million at December 31, 2025. These unrealized losses are due to increases in market interest rates since the time of purchase.
At December 31, 2025, the AFS portfolio was comprised of 59.7% collateralized mortgage obligations, 16.0% corporate bonds, 14.6% state and municipal securities, and 9.7% residential mortgage backed securities.
Securities Held to Maturity. Securities held to maturity decreased by $3.8 million, or 17.2%, to $18.3 million at December 31, 2025 from $22.1 million at December 31, 2024. This decrease is primarily due to principal repayments of $3.4 million and maturities of $365,000. At December 31, 2025, the portfolio was comprised of 88.1% residential mortgage backed securities, 6.6% state and municipal securities and 5.3% U.S. government and agency bonds.
Loans and Leases Receivable, Net. Net loans and leases receivable increased $9.5 million, or 3.2%, to $303.2 million at December 31, 2025 from $293.7 million at December 31, 2024. The increase in loans was primarily due to an increase in loans secured by farmland and commercial real estate, as well as municipal loans and commercial loans. Farmland loans increased $7.6 million, or 80.0%, from $9.5 million for the year ended December 31, 2024 to $17.1 million for the year ended December 31, 2025. Commercial real estate loans increased $5.4 million, or 9.6%, from $56.1 million for the year ended December 31, 2024 to $61.5 million for the year ended December 31, 2025. Municipal loans increased $5.6 million, or 60.2%, from $9.3 million for the year ended December 31, 2024 to $14.9 million for the year ended December 31, 2025. Commercial loans increased $2.5 million, or 39.7%, from $6.3 million for the year ended December 31, 2024 to $8.8 million for the year ended December 31, 2025. These increases were partially offset by a decrease in construction and land loans of $5.7 million, or 10.5% from $54.1 million for the year ended December 31, 2024 to $48.4 million for the year ended December 31, 2025 due to the foreclosure of a multifamily property in our primary market. 1-4 family residential and multifamily real estate loans decreased $4.8 million, or 3.1%, from $156.1 million for the year ended December 31, 2024 to $151.3 million for the year ended December 31, 2025. There was $86.8 million in loan originations partially offset by $44.3 million in payoffs and other principal reductions and $11.9 million in contractual repayments.
Loan portfolio diversification efforts continue in line with the Bank’s strategic plan to increase loans in the commercial real estate portfolio. Loans secured by residential and multifamily real estate decreased $4.8 million, or 3.1%, to $151.3 million, or 49.4% of the loan portfolio, at December 31, 2025, from $156.1 million, or 52.5% of total loans at December 31, 2024. Construction and land loans decreased $5.7 million, or 10.5%, to $48.4 million, or 15.8% of total loans at December 31, 2025, from $54.1 million, or 18.2% of total loans at December 31, 2024. Farmland loans increased $7.6 million, or 80.0%, to $17.1 million, or 5.6% of total loans at December 31, 2025, from $9.5 million, or 3.2% of total loans at December 31, 2024. Municipal loans increased $5.6 million, or 60.2%, to $14.9 million, or 4.8% of the loan portfolio at December 31, 2025, from $9.3 million, or 3.1% of total loans at December 31. 2024. Commercial
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loans increased $2.5 million, or 39.7%, to $8.8 million, or 2.8% of total loans at December 31, 2025, from $6.3 million, or 2.1% of total loans at December 31, 2024. Commercial real estate loans increased $5.4 million, or 9.6%, to $61.5 million, or 20.1% of total loans at December 31, 2025, from $56.1 million, or 18.9% of total loans at December 31, 2024.
At December 31, 2025, commercial real estate loans consisted of $26.9 million owner occupied and $34.6 million non-owner occupied real estate. At December 31, 2025, commercial real estate loans primarily include loans collateralized by gas stations with convenience stores ($16.7 million), self-storage facilities ($15.6 million), and commercial rental properties ($11.4 million). At December 31, 2025, $18.5 million in commercial real estate loans are outside of our primary market area.
During the year ended December 31, 2025, loan originations totaled $86.7 million of which $10.3 million were renewals or refinancings of existing loans with Broadstreet Bank (including interim construction loans converting to a permanent loan), resulting in net originations of $76.4 million. Originations consisted primarily of $11.4 million in one-to-four family residential mortgage loans, $2.1 million in multifamily loans, interim construction loans of $27.0 million (when fully funded upon completion), $18.9 million in commercial real estate loans, $2.2 million in consumer and other loans, $2.6 million in commercial and industrial loans, $6.9 million in land and development loans, $9.7 million in farmland loans and $5.9 million in municipal loans. Originated interim construction loans included $2.7 million in commercial construction, $19.1 million in residential construction loans, including 22 speculative residential loans of $10.4 million, and four infrastructure development loans totaling $5.2 million. During the year ended December 31, 2025, interim construction loans (when fully funded upon completion) decreased by $6.5 million, or 15.2%, to $36.0 million at December 31, 2025 from $42.5 million at December 31, 2024. The total interim construction loan portfolio consisted of 54 loans with funded balances of $23.9 million at December 31, 2025 compared to 55 loans at December 31, 2024 with funded balances of $33.1 million. Construction loans continue to be a large segment of our loan portfolio with the majority of the loans being originated in our primary market.
Other real estate owned. Other real estate owned increased $8.8 million, or 1,837.5%, to $9.3 million at December 31, 2025 from $480,000 at December 31, 2024. At December 31, 2024, there were two properties in other real estate owned that were properties the Bank had purchased for expansion and in 2024 decided to sell. One of these properties was sold in 2025 and one remains at a value of $167,000 at December 31, 2025. Four additional properties were added to other real estate owned. One of these was sold at a gain and three remain at December 31, 2025 including a residential development property in Dallas, Texas, with a carrying value of $1.3 million, a commercial development property in North Richland Hills, Texas, with a carrying value of $2.1 million, and a multi-family property in our primary service area with a carrying value of $5.7 million. We are actively marketing all four other real estate owned properties.
Deposits. Deposits decreased $7.9 million, or 2.4%, to $327.9 million at December 31, 2025 from $335.8 million at December 31, 2024. Core deposits (defined as all deposits other than certificates of deposit) decreased $11.8 million, or 5.7%, to $194.1 million at December 31, 2025 from $205.9 million at December 31, 2024. Retail certificates of deposit increased $5.1 million, or 4.8%, to $113.1 million at December 31, 2025 from $107.9 million at December 31, 2024. Brokered deposits decreased $4.0 million, or 18.2%, to $18.0 million at December 31, 2025, from $22.0 million at December 31, 2024. We have lowered rates on most interest-bearing deposit accounts but continue to match short-term CD rates as part of a retention effort due to a competitive deposit market. With the decline in deposit rates, we have seen a migration of deposits from non-maturity deposits into higher yielding CDs. The average cost of interest-bearing deposits has declined 13 basis points, or 4.9%, to 2.46% at December 31, 2025, compared to 2.59% at December 31, 2024. At December 31, 2025, there were 195 accounts with balances in excess of the $250,000 FDIC insurance limit with a total balance of $94.6 million, or 28.9% of deposits. The amount that was over $250,000 was $45.8 million, or 14.0%, that was potentially uninsured, including certificates of deposit of $13.6 million and $32.2 million in checking, MMDA and savings accounts.
Advances from the Federal Home Loan Bank. Advances from the Federal Home Loan Bank decreased by $4.2 million, or 8.4%, to $45.7 million at December 31, 2025 from $49.9 million at December 31, 2024 due to maturities and principal payments on amortizing advances.
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Shareholders’ Equity. Total shareholders’ equity increased $1.7 million, or 3.3%, to $53.8 million at December 31, 2025 from $52.1 million at December 31, 2024. This increase was primarily due to $2.8 million net income for the year ended December 31, 2025, a decrease in the other comprehensive loss of $1.7 million, $607,000 in expense related to the equity incentive plan for the year ended December 31, 2025, and an increase in equity of $253,000 for the 2025 funding of the Broadstreet Bank leveraged ESOP with the release of 15,472 ESOP shares to participants. At December 31, 2025, the unallocated ESOP contra equity account was $1.9 million. The Company also repurchased 196,968 shares of its common stock for a decrease of $3.2 million and paid quarterly dividends totaling $593,000.
At December 31, 2025, Broadstreet Bank opted to use the community bank leverage ratio framework (Tier 1 capital to average assets) for regulatory capital purposes. At December 31, 2025, a community bank leverage ratio of at least 9.0% is required to be considered “well capitalized” under regulatory requirements. At December 31, 2025, Broadstreet Bank’s community bank leverage ratio was 11.74%.
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Average Balance Sheets
The following tables set forth average balance sheets, average yields and costs, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Nonaccrual loans are included in the computation of average balances. Average yields for loans include loan fees of $557,000 and $511,000 for the years ended December 31, 2025 and 2024, respectively. We have not recorded deferred loan fees, as we have determined them to be immaterial.
For the Year Ended December 31,
2025
2024
Average
Average
Outstanding
Average
Outstanding
Average
Balance
Interest
Yield/Rate
Balance
Interest
Yield/Rate
(Dollars in thousands)
Interest-earning assets:
Loans
$
298,300
$
17,681
5.93
%
$
282,894
$
15,923
5.63
%
Allowance for credit losses
(3,260)
(3,044)
Securities
97,846
4,123
4.21
%
110,893
4,464
4.03
%
Restricted stock
2,934
167
5.69
%
3,584
221
6.17
%
Interest-bearing deposits in banks
7,442
323
4.34
%
13,271
723
5.45
%
Federal funds sold
4,781
207
4.33
%
12,465
671
5.38
%
Financial derivative
18
(10)
380
450
Total interest-earning assets
408,061
22,491
5.51
%
420,443
22,452
5.34
%
Noninterest-earning assets
31,765
28,720
Total assets
$
439,826
$
449,163
Interest-bearing liabilities:
Interest-bearing demand deposits
$
64,213
363
0.57
%
$
69,237
454
0.66
%
Regular savings and other deposits
42,731
162
0.38
%
45,652
134
0.29
%
Money market deposits
45,236
1,201
2.65
%
44,526
1,453
3.26
%
Certificates of deposit
136,209
5,379
3.95
%
121,986
5,252
4.31
%
Total interest-bearing deposits
288,389
7,105
2.46
%
281,401
7,293
2.59
%
Advances from the Federal Home Loan Bank
50,186
2,063
4.11
%
68,224
2,599
3.81
%
Other liabilities
218
9
4.13
%
724
10
1.38
%
Total interest-bearing liabilities
338,793
9,177
2.71
%
350,349
9,902
2.83
%
Noninterest-bearing demand deposits
50,640
51,760
Other noninterest-bearing liabilities
4,430
4,641
Total liabilities
393,863
406,750
Total shareholders' equity
45,963
42,413
Total liabilities and shareholders' equity
$
439,826
$
449,163
Net interest income
$
13,314
$
12,550
Net interest rate spread (1)
2.80
%
2.51
%
Net interest-earning assets (2)
$
69,268
$
70,094
Net interest margin (3)
3.26
%
2.98
%
Average interest-earning assets to interest-bearing liabilities
120.45
%
120.01
%
(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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Rate/Volume Analysis
The following tables present the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by current year volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.
Years Ended December 31, 2025 vs. 2024
Increase (Decrease) Due to
Total Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans
$
867
$
891
$
1,758
Securities
(525)
184
(341)
Restricted stock
(40)
(14)
(54)
Interest-bearing deposits in banks
(318)
(82)
(400)
Federal funds sold and other
(414)
(50)
(464)
Derivative
(460)
—
(460)
Total change in interest-earning assets
(890)
929
39
Interest-bearing liabilities:
Interest-bearing demand deposits
(33)
(58)
(91)
Regular savings and other deposits
(9)
37
28
Money market deposits
23
(275)
(252)
Certificates of deposit
612
(485)
127
Total deposits
593
(781)
(188)
Advances from the Federal Home Loan Bank
(687)
151
(536)
Other interest-bearing liabilities
(7)
6
(1)
Total change in interest-bearing liabilities
(101)
(624)
(725)
Change in net interest income
$
(789)
$
1,553
$
764
Comparison of Operating Results for the Years Ended December 31, 2025 and December 31, 2024
Net Income. Net income was $2.8 million for the year ended December 31, 2025, compared to a net loss of $1.3 million for the year ended December 31, 2024, an increase of $4.1 million. This increase was primarily due to a $3.8 million loss on the sale of loans recorded in the year ended December 31, 2024 as part of a strategic repositioning of the balance sheet. Additionally, interest expense decreased $725,000, or 7.1%, to $9.2 million for the year ended December 31, 2025 from $9.9 million for the year ended December 31, 2024. This was partially offset by an increase in the provision for credit losses of $673,000, or 425.9%, to $831,000 for the year ended December 2025 from $158,000 for the year ended December 31, 2024, which was primarily related to a foreclosed multi-family property within our primary service area.
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Interest Income. Interest income was unchanged at $22.5 million for the years ended December 31, 2024 and 2025. This was primarily the result of increased interest income on loans resulting from an increase in the average balance and average yield for the year ended December 31, 2025. This was offset by decreased interest on securities resulting from a decrease in the average balance for the year ended December 31, 2025, as well as decreases in interest on deposits in banks and federal funds sold resulting from a decrease in average balances and average yield for the year ended December 31, 2025. Interest income on financial derivatives decreased following the termination of the remaining swap contracts in the first quarter of 2025. There was a decrease in average interest earning assets of $12.3 million, or 2.9%, to $408.1 million at December 31, 2025 from $420.4 million at December 31, 2024 which was offset by an increase of 17 basis points, or 3.2%, in average yield on interest–earning assets from 5.34% at December 31, 2024 to 5.51% at December 31, 2025.
Interest income on the securities portfolio decreased $341,000, or 7.6% to $4.1 million for the year ended December 31, 2025, from $4.5 million for the year ended December 31, 2024. This decrease is primarily due to a decrease in the average balance of securities of $13.1 million, or 11.8%, from $110.9 million, for the year ended December 31, 2024 to $97.8 million for the year ended December 31, 2025. The average yield on securities increased by 18 basis points, or 4.5%, from 4.03% for the year ended December 31, 2024 to 4.21% for the year ended December 31, 2025. The yield increase is reflective of changes in the securities portfolio due to maturities, principal payments, and strategic purchases and sales. In 2025, the Company sold 20 securities totaling $23.8 million at a gain of $117,000 and purchased 16 securities totaling $23.7 million as part of a balance sheet restructuring strategy to increase interest income and diversify the portfolio. The Company also purchased $30.0 million in short-term securities as part of a tax management strategy.
Interest income on net loans and leases increased $1.8 million, or 11.0%, to $17.7 million for the year ended December 31, 2025 from $15.9 million for the year ended December 31, 2024 primarily due to an increase of $15.4 million, or 5.4%, in the average balance of the loan portfolio from $282.9 million for the year ended December 31, 2024 to $298.3 million for the year ended December 31, 2025, and an increase of 30 basis points, or 5.3%, in the average yield on loans from 5.63% for the year ended December 31, 2024 to 5.93% for the year ended December 31, 2025. The increased yield on loans is primarily due to changes in market interest rates, higher loan rates and fees primarily from an increase in commercial real estate, and a decrease in residential real estate as part of the execution of a strategic restructuring of the loan portfolio in which $24.3 million in residential loans were sold and replaced with other higher-yielding loans in 2024.
Dividends on restricted investments including stock in the Federal Home Loan Bank and Texas Independent Bank (TIB) decreased $54,000, or 24.4%, from $221,000 for the year ended December 31, 2024 to $167,000 for the year ended December 31, 2025. This decrease resulted primarily from an decrease in average balance of $650,000, or 18.1%, from $3.6 million for the year ended December 31, 2024 to $2.9 million for the year ended December 31, 2025, and a decrease in yield of 48 basis points, or 7.8%, from 6.17% for the year ended December 31, 2024 to 5.69% for the year ended December 31, 2025.
Interest income from interest bearing deposits in banks decreased $400,000, or 55.3%, from $723,000 for the year ended December 31, 2024 to $323,000 for the year ended December 31, 2025, resulting primarily from a decrease in average yield of 111 basis points, or 20.3%, from 5.45% for the year ended December 31, 2024 to 4.34% for the year ended December 31, 2025 and a decrease in average interest bearing deposits of $5.9 million, or 44.4% from $13.3 million for the year ended December 31, 2024 to $7.4 million for the year ended December 31, 2025. There was also a decrease of $464,000 in fed funds interest income for the year ended December 31, 2025 primarily from a decrease of 105 basis points, or 19.6%, in average yield on fed funds sold from 5.38% for the year ended December 31, 2024 to 4.33% for the year ended December 31, 2025 and a $7.7 million, or 61.6%, decrease in average fed funds sold from $12.5 million for the year ended December 31, 2024 to $4.8 million for the year ended December 31, 2025. The decreases in interest bearing deposits in banks and fed funds are primarily the result of loan growth, paydown of FHLB advances and brokered deposits, and a decrease in core deposits. The decrease in yields on deposits in banks and fed funds is reflective of a decrease in market interest rates.
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The Company recorded a net interest expense from the fair value hedge of $10,000 for the year ended December 31, 2025 following termination of the remaining swap contracts in the first quarter. This is a decrease of $460,000, or 102.2% from interest income of $450,000 for the year ended December 31, 2024. The Company had entered into the interest rate swap agreement in 2023 to convert a portion of its interest rate exposure from fixed rates to floating rates to help manage the interest rate risk position. Refer to additional detail regarding the fair value hedge in Note 20 – Derivatives of the accompanying consolidated financial statements.
Interest Expense. Interest expense decreased $725,000, or 7.3%, to $9.2 million for the year ended December 31, 2025 from $9.9 million for the year ended December 31, 2024 due primarily to a decrease in the average balance of interest-bearing liabilities of $11.5 million, or 3.3%, from $350.3 million for the year ended December 31, 2024 to $338.8 million for the year ended December 31, 2025 and a decrease in the average cost of interest bearing liabilities of 12 basis points, or 4.2%, from 2.83% for the year ended December 31, 2024 to 2.71% for the year ended December 31, 2025 primarily due to an decrease in deposit costs. Interest expense on deposit accounts decreased $188,000, or 2.6%, to $7.1 million for the year ended December 31, 2025 from $7.3 million for the year ended December 31, 2024, due to a decrease in the average deposit cost of 13 basis points, or 4.9%, from 2.59% for the year ended December 31, 2024 to 2.46% for the year ended December 31, 2025 and partially offset by an increase in average interest-bearing deposits of $7.0 million, or 2.5%, from $281.4 million for the year ended December 31, 2024 to $288.4 million for the year ended December 31, 2025. The increase in average interest-bearing deposit balances were primarily in higher cost certificates of deposit accounts and partially offset by a decrease in lower cost interest-bearing demand and savings accounts. This shift to higher yielding accounts is due primarily to an increase in the average balance of brokered deposits. At December 31, 2025, market rates had leveled off some and the Bank’s deposit rates had decreased.
Interest expense on Federal Home Loan Bank advances decreased $536,000, or 20.6%, to $2.1 million for the year ended December 31, 2025 from $2.6 million for the year ended December 31, 2024. The average balance of Federal Home Loan Bank advances decreased by $18.0 million, or 26.4%, to $50.2 million for the year ended December 31, 2025 from $68.2 million for the year ended December 31, 2024. This was offset by an increase in average cost of 30 basis points, or 7.9%, from 3.81% for the year ended December 31, 2024 to 4.11% for the year ended December 31, 2025. The Company has paid down FHLB advances to $45.7 million at December 31, 2025.
Net Interest Income . Net interest income increased $764,000, or 6.1%, to $13.3 million for the year ended December 31, 2025 from $12.6 million for the year ended December 31, 2024, primarily due to an increase in net interest rate spread of 29 basis points, or 11.5%, from 2.51% for the year ended December 31, 2024 to 2.80% for the year ended December 31, 2025. Net interest margin increased 28 basis points to 3.26% for the year ended December 31, 2025 from 2.98% for the year ended December 31, 2024.
Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses , the provision for credit losses was $831,000 for the year ended December 31, 2025, compared to $158,000 for the year ended December 31, 2024, an increase of $673,000, or 425.9%, primarily due to loan growth as well as provision expense recorded following the charge-off of a loan and subsequent foreclosure of a multi-family property.
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Noninterest Income. Noninterest income increased $5.0 million, or 263.2%, to $3.1 million for the year ended December 31, 2025 from a net loss of $1.9 million for the year ended December 31, 2024. This decrease is primarily due to a $3.8 million loss on the sale of residential loans as part of a strategic balance sheet repositioning executed during the year ended December 31, 2024, a $287,000 expense on the disposal of a fixed asset recorded in the year ended December 31, 2024, a $495,000 fair value adjustment on a commercial development property received in lieu of foreclosure, a $198,000 gain on other investment, and $230,000 in rental income on foreclosed properties recorded in the year ended December 31, 2025.
Noninterest Expense. Noninterest expense decreased $72,000, or 0.6%, to $12.2 million for the year ended December 31, 2025 from $12.3 million for the year ended December 31, 2024 primarily due to compensation and benefits paid to terminated employees in the year ended December 31, 2024, and partially offset by an increase in expense related to foreclosed properties in the year ended December 31, 2025.
Salary and employee benefit expenses decreased by $308,000, or 4.5%, to $6.5 million for the year ended December 31, 2025 from $6.8 million for the year ended December 31, 2024. This is due primarily to an extraordinary $129,000 initial vesting expense and nonrecurring expenses of $230,000 related to executive changes in 2024, and is partially offset by normal increases in wages, insurance costs and payroll taxes. Technology expense decreased $137,000, or 31.5%, to $298,000 for the year ended December 31, 2025 from $435,000 for the year ended December 31, 2024 due primarily to card processing fees incurred in the first half of 2024 associated with a “tap” debit card implementation project. Other expenses combined increased $361,000, or 15.1%, from $2.4 million for the year ended December 31, 2024 to $2.7 million for the year ended December 31, 2025 which included a $256,000 increase in expense related to foreclosed properties held in other real estate owned and a $119,000 increase in marketing expense due to contracting with an outside marketing firm and expanding our reach through additional advertising channels.
Income Tax Expense. Income tax expense increased by $998,000 to $522,000 for the year ended December 31, 2025 from a tax benefit of $476,000 for the year ended December 31, 2024 due primarily to the increase in the taxable income. The effective tax rate was 15.5% and 26.7% for the years ended December 31, 2025 and 2024, respectively. The decrease in the effective tax rate was due to the non-recurring loan sale and related loss for the year ended December 31, 2024, which was taxed at the marginal rate.
Management of Market Risk
General . Our most significant form of market risk is interest rate risk because, 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 Asset/Liability Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for 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, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.
We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk:
● maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations;
● maintaining a high level of liquidity;
● growing our volume of core deposit accounts;
● managing our investment securities portfolio so as to reduce the average maturity and effective life of the portfolio;
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● diversifying our securities portfolio by continuing to add collateralized mortgage obligations (CMOs) and subordinated debt;
● managing our borrowings from the Federal Home Loan Bank of Dallas;
● managing our loan services by adding wholesale lending products to continue to offer these services while reducing interest rate risk in the loan portfolio;
● continuing to diversify our loan portfolio by adding more commercial loans, which typically have shorter maturities, adjustable rates, and fee income; 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 various rate change scenarios ranging from 100 to 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 net interest income that would result from the designated immediate changes in the United States Treasury yield curve. The changes indicated in the following table are within policy guidelines approved by our Board of Directors.
At December 31, 2025
Change in Interest Rates
Net Interest Income Year
Year 1 Change from
(basis points) (1)
1 Forecast
Level
(Dollars in thousands)
400
$
14,368
5.78
%
300
14,234
4.79
%
200
14,056
3.49
%
100
13,711
0.95
%
Level
13,583
—
(100)
13,429
(1.13)
%
(200)
13,456
(0.93)
%
(300)
13,286
(2.19)
%
(400)
13,230
(2.60)
%
(1) Assumes an immediate uniform change in interest rates at all maturities.
The table above indicates that at December 31, 2025, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 3.49% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 0.93% decrease in net interest income.
Net Economic Value . We also compute amounts by which the net present value of our assets and liabilities (net economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance
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sheet contract under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by rate change scenarios ranging from 100 to 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.
The tables below set forth the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.
At December 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
$
61,642
$
(3,591)
(5.51)
%
15.78
%
75
300
63,291
(1,942)
(2.98)
%
15.80
%
77
200
64,591
(642)
(0.98)
%
15.71
%
68
100
65,304
71
0.11
%
15.46
%
43
Level
65,233
—
—
%
15.03
%
—
(100)
63,909
(1,324)
(2.03)
%
14.33
%
(70)
(200)
60,644
(4,589)
(7.03)
%
13.23
%
(180)
(300)
54,695
(10,538)
(16.15)
%
11.61
%
(342)
(400)
45,221
(20,012)
(30.68)
%
9.39
%
(564)
(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 December 31, 2025, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 0.98% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 7.03% 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.
Liquidity and Capital Resources
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. 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 and loans. We are also able to borrow from the Federal Home Loan Bank of Dallas. At December 31, 2025, we had outstanding advances of $45.7 million from the Federal Home Loan Bank of Dallas. At December 31, 2025, we had unused borrowing capacity of $100.3 million with the Federal Home Loan Bank of Dallas. In addition, at December 31, 2025, we had two unused lines of credit for a total of $8.0 million, which included an unsecured $3.0 million line of credit with Texas Independent Bankers Bank and an unsecured $5.0 million line of credit with First Horizon Bank. At December 31, 2025, there was no outstanding balance with any of these facilities.
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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 depend 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 flows for the years ended December 31, 2025 and 2024 included as part of the consolidated financial statements appearing elsewhere in this annual 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 it must provide for its own liquidity to pay any dividends to stockholders and for other financial purposes. 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 December 31, 2025, Texas Community Bancshares, Inc. (on a stand-alone unconsolidated basis) had liquid assets totaling $3.7 million.
Liquidity management and asset quality continue to be high priorities. With continued volatility in the market and market interest rate uncertainty, 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.
The Bank educates and assists large depositors on having FDIC coverage to the fullest legal extent, which is over $250,000 for many depositors depending on the type of account ownership. At December 31, 2025, there were 195 accounts with balances in excess of $250,000 with a total of $94.6 million, or 28.8% of deposits. The amount that was over $250,000 was $45.8 million, or 14.0%, that was potentially uninsured, including certificates of deposit of $13.6 million and $32.2 million in checking, MMDA and savings accounts.
At December 31, 2025, the weighted average life (WAL) of our securities portfolio is 4.9 years. The gross unrealized losses on the AFS securities is $3.9 million, or 6.1% of the $63.8 million AFS portfolio and 6.9% of capital. Unrealized losses on the HTM securities were $1.5 million, or 8.2% of the $18.3 million HTM portfolio and 2.6% of capital. The total gross unrealized losses are $5.4 million, or 6.6% of the $82.1 million securities portfolio and 9.5% of capital. The securities portfolio includes $31.8 million, or 38.8%, that are agency issued and guaranteed by the U.S. government. These losses are the result of market interest rate increases and we continue to monitor the portfolio for credit and other risks. The net unrealized loss on AFS securities, and the corresponding other comprehensive loss, net of tax, was $3.1 million, or 5.8% of capital. Over the next 24 months from December 31, 2025, we anticipate $38.9 million in incoming cash flow from the securities portfolio with $20.7 million in 2026 and 18.2 million in 2027. 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 at a gain of $463,000, which will be recognized in income over the remaining life of the underlying securities.
Our asset quality remains strong. We are being cautiously optimistic with our lending and strategic decisions, staying focused on long-term goals and taking advantage of opportunities while being diligent about recognizing and mitigating risk. At December 31, 2025, our allowance for credit losses to total loans and leases was 1.12%. The Company continues to monitor rates and loan demand weekly and align pricing accordingly. Housing supply and
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demand are monitored for indicators of a significant change in the local housing markets. The Bank adjusts in-house mortgage rates based on market pricing while continuing to offer secondary market options to moderate loan funding and we have seen a moderate increase in mortgage demand due to relatively lower market interest rates. We are monitoring housing supply and demand, primarily in our Mineola, Lindale and Tyler markets where home sales and new home construction have been active, for indicators of a significant changes in the local housing markets. Construction and residential real estate loan balances have declined, but the overall loan growth has been driven by increases in commercial real estate, farmland, commercial and municipal loans.
At December 31, 2025 we have $2.7 million in internet deposit listing service CDs, and $18.0 million in callable brokered CDs, and have paid down $4.2 million in FHLB borrowings.
The following are the various liquidity sources we had available at December 31, 2025 that we could use as needed:
● FHLB borrowing capacity of $100.3 million
● $8 million in credit lines with 2 correspondent banks
● Federal Reserve discount window
● Qwickrate (listed) 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 December 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. See Note 18 of the notes to consolidated financial statements.
Off-Balance Sheet Arrangements
Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit, unused lines of credit and swap transactions. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At December 31, 2025, we had outstanding commitments to originate loans of $35.7 million. We anticipate that we will have sufficient funds available to meet our current lending commitments. Time deposits that are scheduled to mature in less than one year from December 31, 2025 totaled $102.6 million. Management expects that a substantial portion of these time deposits will be retained. However, if a substantial portion of these time deposits is not retained, we may utilize advances from the Federal Home Loan Bank of Dallas or other wholesale funding sources, or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.
Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 1 of the notes to our consolidated financial statements beginning on page F-1 of this annual report.
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Impact of Inflation and Changing Prices
The consolidated financial statements and related data have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The information regarding this Item is contained in Item 7 under the heading “Management of Market Risk.”
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.