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Item 2. Management’s Discussion and Analysis

2026-05-07 compared with 2025-11-07 · 114 added, 215 removed, 248 unchanged (57% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding Texas Community Bancshares, Inc.’s (the “Company”) consolidated financial condition at September 30, 2025 and consolidated results of operations for the three and nine months ended September 30, 2025 and 2024.

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, 2026 and consolidated results of operations for the three months ended March 31, 2026 and 2025.

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, 2025.

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Penalties related to unrecognized tax benefits are classified as income tax expense.

Comparison of Financial Condition at September 30, 2025 and December 31, 2024

Comparison of Financial Condition at March 31, 2026 and December 31, 2025

Total Assets.

Total assets were $439.5 million at September 30, 2025, a decrease of $4.0 million, or 0.9%, from $443.5 million at December 31, 2024.

The decrease was due primarily to a decrease of $8.8 million in net loans and leases offset by an increase of $8.8 million in other real estate owned, and a decrease of $8.4 million in interest bearing deposits in banks, a decrease of $1.1 million in cash and cash equivalents and a decrease in restricted investments carried at cost of $789,000 partially offset by an increase in securities of $7.7 million.

Total assets were $430.4 million at March 31, 2026, an increase of $604,000, or 0.1%, from $429.8 million at December 31, 2025.

The increase was due primarily to an increase of $4.6 million in interest bearing deposits in banks, offset by a $4.7 million decrease in net loans and leases.

Cash and Cash Equivalents.

Cash and cash equivalents decreased $1.1 million, or 8.3%, to $12.2 million (which includes fed funds sold of $7.1 million) at September 30, 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 a decrease of $1.1 million in FHLB advances.

Cash and cash equivalents were unchanged at $6.5 million at March 31, 2026 and December 31, 2025.

This included fed funds sold balances of $3.2 million at March 31, 2026 and $2.6 million at December 31, 2025.

Interest Bearing Deposits in Banks.

Interest bearing deposits in banks decreased $8.4 million, or 86.6%, to $1.3 million at September 30, 2025, compared to $9.7 million at December 31, 2024.

The decrease was primarily the result of an increase in securities of $7.7 million and a decrease in deposits of $1.7 million partially offset by a $789,000 decrease in restricted investments carried at cost due to the Federal Home Loan Bank repurchasing a portion of its stock.

Interest bearing deposits in banks increased $4.6 million, or 83.6%, to $10.1 million at March 31, 2026, compared to $5.5 million at December 31, 2025.

This increase was primarily the result of a decrease in net loans and leases receivable of $4.7 million, an increase in deposits of $4.1 million, and partially offset by a $4.1 million decrease in advances from the Federal Home Loan Bank.

Securities Available for Sale.

Securities available for sale increased by $10.7 million, or 14.2%, to $85.9 million at September 30, 2025 from $75.2 million at December 31, 2024.

During the nine months ended September 30, 2025, there were purchases of securities of $21.2 million offset by net paydowns of $12.5 million.

Accumulated other comprehensive loss decreased by $1.5 million, or 31.3%, to $3.3 million, net of tax, from $4.8 million, net of tax, due primarily to changes in market interest rates and the termination of a derivative instrument.

Gross unrealized losses on the AFS portfolio consisting of 87 securities decreased from $6.5 million, or 7.9% of the portfolio’s amortized cost of $81.6 million at December 31, 2024, to $4.1 million, or 4.6%, of the amortized cost of $90.0 million at September 30, 2025.

These unrealized losses are due to increases in market interest rates.

At September 30, 2025, the AFS portfolio was comprised of 16.7% residential mortgage backed securities, 56.4% collateralized mortgage obligations, 15.8% state and municipal securities and 11.1% corporate bonds.

Securities available for sale increased by $177,000, or 0.3%, to $60.1 million at March 31, 2026 from $59.9 million at December 31, 2025.

During the three months ended March 31, 2026, there were purchases of securities of $1.5 million offset by net paydowns of $927,000.

Accumulated other comprehensive loss increased by $309,000, or 9.7%, to $3.4 million, net of tax, from $3.1 million, net of tax, due primarily to changes in market interest rates.

Gross unrealized losses on the AFS portfolio consisting of 67 securities increased from $3.9 million, or 6.1% of the portfolio’s amortized cost of $63.8 million at December 31, 2025, to $4.3 million, or 6.7%, of the amortized cost of $64.3 million at March 31, 2026.

These unrealized losses are primarily due to increases in market interest rates.

At March 31, 2026, the AFS portfolio was comprised of 59.6% collateralized mortgage obligations, 16.1% corporate bonds, 14.3% State and municipal securities, and 10.0% residential mortgage backed securities.

Securities Held to Maturity.

Securities held to maturity decreased by $3.0 million, or 13.6%, to $19.1 million at September 30, 2025 from $22.1 million at December 31, 2024.

This decrease is due to paydowns of $3.0 million.

The HTM portfolio had 67 securities with gross unrealized losses of $1.7 million, or 8.9%, of the amortized cost of $19.1 million at September 30, 2025 compared to $2.6 million, or 11.6%, of the amortized cost of $22.1 million at December 31, 2024.

Securities held to maturity decreased by $762,000, or 4.4%, to $17.5 million at March 31, 2026 from $18.3 million at December 31, 2025.

This decrease is due to paydowns of $729,000.

The HTM portfolio had 60 securities with gross unrealized losses of $1.7 million, or 9.7%, of the amortized cost of $17.5 million at March 31, 2026 compared to $1.5 million, or 8.2%, of the amortized cost of $18.3 million at December 31, 2025.

These unrealized losses are due to increases in market interest rates.

At September 30, 2025, the HTM portfolio was comprised of 88.1% residential mortgage backed securities, 6.3% state and municipal securities and 5.6% U.S government and agency bonds.

At March 31, 2026, the HTM portfolio was comprised of 88.2% residential mortgage backed securities, 6.8% state and municipal securities and 5.0% U.S government and agency bonds.

Loans and Leases Receivable, Net.

Net loans and leases receivable decreased $8.8 million, or 3.0%, to $284.9 million at September 30, 2025 from $293.7 million at December 31, 2024.

The decrease in loans was primarily due to three loans totaling $9.0 million that were on nonaccrual in the prior quarter being moved to real estate owned.

There were new loan originations of $39.9 million and $2.8 million in loans repurchased from the 2024 loan sale partially offset by payoffs and contractual repayments.

Net loans and leases receivable decreased $4.7 million, or 1.6%, to $298.5 million at March 31, 2026 from $303.2 million at December 31, 2025.

The decrease in loans was primarily due to the payoff of a $7.7 million multifamily loan in the first quarter of 2026.

There were new loan originations of $23.5 million partially offset by payoffs, other principal reductions, and contractual repayments.

The loan and lease portfolio totaled $301.9 million and was comprised of $273.3 million, or 90.5%, real estate loans, $9.3 million, or 3.1%, commercial and industrial loans, $15.2 million, or 5.0%, municipal loans and $4.1 million, or 1.4%, consumer loans and other loans.

Real estate loans include $140.2 million, or 48.6%, 1-4 family residential loans, $11.2 million, or 3.9%, multi-family loans, $55.2 million, or 19.2%, commercial real estate (CRE) loans, $16.6 million, or 5.8%, 1-4 family construction loans, $32.3 million, or 11.2%, other construction and development loans and $9.9 million, or 3.4%, farmland loans.

Total loans include interim construction loans of $25.5 million, or 75.7%, of the completed project balance of $33.7 million which includes $9.7 million in single-family residence loans, including $5.6 million in speculative construction loans to builders, $600,000 in subdivision construction, $6.0 million in multi-family construction loans and $9.2 million in CRE loans.

The total construction loan portfolio consisted of 48 loans with completed project balances of $33.7 million at September 30, 2025 compared to 55 loans totaling $42.5 million at December 31, 2024.

At September 30, 2025, commercial real estate loans consisted of $25.2 million owner occupied and $30.0 million non-owner occupied real estate.

At September 30, 2025, commercial real estate loans primarily included loans collateralized by self-storage facilities ($16.1 million), gas stations with convenience stores ($9.5 million), commercial rental properties ($7.4 million), churches ($4.4 million), rural water district assets ($3.8 million), restaurants ($3.2 million), and metal building manufacturer assets ($2.0 million).

Real estate loans include $145.9 million, or 48.3%, 1-4 family residential loans, $3.2 million, or 1.1%, multi-family loans, $64.0 million, or 21.2%, commercial real estate (CRE) loans, $17.5 million, or 5.8%, farmland loans, $11.8 million, or 3.9%, 1-4 family construction loans, and $30.9 million, or 10.2%, other construction and development loans.

Total loans include interim construction loans of $18.5 million, or 58.3%, of the completed project balance of $31.8 million which includes $20.2 million in single-family residence loans, including $10.5 million in speculative construction loans to builders, $1.7 million in subdivision construction, $1.1 million in multi-family construction loans and $8.8 million in CRE loans.

The total construction loan portfolio consisted of 56 loans with completed project balances of $31.8 million at March 31, 2026 compared to 54 loans totaling $36.0 million at December 31, 2025.

At March 31, 2026, commercial real estate loans consisted of $28.2 million owner occupied and $35.8 million non-owner occupied real estate.

At March 31, 2026, commercial real estate loans primarily included loans collateralized by gas stations with convenience stores ($17.0 million), self-storage facilities ($15.5 million), and commercial rental properties ($12.8 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.

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.

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Other Real Estate Owned.

Other real estate owned increased $8.8 million, or 1,837.5%, to $9.3 million at September 30, 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 September 30, 2025.

Four additional properties were added to other real estate owned.

One of these was sold at a gain and three remain at September 30, 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 decreased $1.6 million, or 0.5%, to $334.2 million at September 30, 2025 from $335.8 million at December 31, 2024.

Core deposits (defined as all deposits other than certificates of deposit) decreased $11.7 million, or 5.7%, to $194.2 million at September 30, 2025 from $205.9 million at December 31, 2024.

Certificates of deposit increased $10.0 million, or 7.7%, to $139.9 million at September 30, 2025 from $129.9 million at December 31, 2024.

At September 30, 2025, there were $22.0 million in brokered deposits and $2.7 million in listed deposits.

The year-to-date average cost of interest-bearing deposits decreased 12 basis points, or 4.7%, to 2.47% at September 30, 2025 compared to 2.59% at December 31, 2024.

At September 30, 2025, there were 197 accounts with balances in excess of the $250,000 FDIC insurance limit with an aggregate balance of $92.9 million, or 27.8% of deposits.

The amount that was over the FDIC insurance limit was $43.6 million, or 13.0%, that was potentially uninsured, including certificates of deposit of $14.1 million, money market accounts of $9.5 million and $20.1 million in checking and savings accounts.

Other real estate owned decreased $167,000, or 1.8%, to $9.1 million at March 31, 2026 from $9.3 million at December 31, 2025 due to the sale of a bank owned property in the first quarter of 2026.

At March 31, 2026, there are three remaining properties 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 three other real estate owned properties.

Deposits increased $4.1 million, or 1.3%, to $332.0 million at March 31, 2026 from $327.9 million at December 31, 2025.

Core deposits (defined as all deposits other than certificates of deposit) increased $4.9 million, or 2.5%, to $199.0 million at March 31, 2026 from $194.1 million at December 31, 2025.

Certificates of deposit decreased $1.5 million, or 1.4%, to $111.5 million at March 31, 2026 from $113.1 million at December 31, 2025.

At March 31, 2026, there were $18.0 million in brokered deposits and $3.5 million in listed deposits.

Average cost of interest-bearing deposits decreased 12 basis points, or 5.0%, to 2.33% for the three months ended March 31, 2026 compared to 2.45% for the three months ended March 31, 2025.

At March 31, 2026, there were 201 accounts with balances in excess of the $250,000 FDIC insurance limit with an aggregate balance of $98.7 million, or 29.7% of deposits.

The amount that was over the FDIC insurance limit was $48.5 million, or 14.6%, that was potentially uninsured, including certificates of deposit of $13.0 million, money market and savings accounts of $16.5 million and $19.0 million in checking accounts.

Advances from Federal Home Loan Bank.

Advances from Federal Home Loan Bank decreased by $1.1 million, or 2.2%, to $48.8 million at September 30, 2025 from $49.9 million at December 31, 2024 due to contractual principal payments on amortizing advances.

There is one short-term advance for $3.0 million that will mature in 2025.

Advances from Federal Home Loan Bank decreased $4.1 million, or 9.0%, to $41.6 million at March 31, 2026 from $45.7 million at December 31, 2025, as two advances totaling $4.0 million were repaid prior to maturity.

There are three short-term advances remaining totaling $13.0 million that will mature in 2026.

Total Shareholders’ Equity.

Total shareholders’ equity increased $1.4 million, or 2.7%, to $53.5 million at September 30, 2025 from $52.1 million at December 31, 2024.

This increase was primarily due to net income of $2.0 million for the nine months ended September 30, 2025.

The Company had additional increases in equity of $456,000 from vesting of equity awards granted under the 2022 Equity Plan and an increase of $166,000 from the accrual of ESOP commitments for the nine months ended September 30, 2025 partially offset by a decrease of $2.3 million from the repurchase of 146,500 shares of its common stock and quarterly dividends paid totaling $360,000.

At September 30, 2025, there was a decrease in the accumulated other comprehensive loss of $1.5 million, net of tax, due to changes in market interest rates and the termination of a derivative instrument.

At September 30, 2025, Broadstreet Bank opted to use the community bank leverage ratio framework (Tier 1 capital to average assets) for regulatory capital purposes.

Total shareholders’ equity increased $477,000, or 0.9%, to $54.2 million at March 31, 2026 from $53.8 million at December 31, 2025.

This increase was primarily due to net income of $836,000 for the three months ended March 31, 2026, an increase of $37,000 from stock-based compensation expense, and an increase of $56,000 from the accrual of ESOP commitments.

This was partially offset by a $309,000 increase in accumulated other comprehensive loss, net of tax, and quarterly dividends paid totaling $143,000.

At March 31, 2026, Broadstreet Bank opted to use the community bank leverage ratio framework (Tier 1 capital to average assets) for regulatory capital purposes.

A community bank leverage ratio of at least 9.0% is required to be considered “well capitalized” under regulatory requirements.

At September 30, 2025, Broadstreet Bank was well capitalized and had a ratio of 11.53%.

At March 31, 2026, Broadstreet Bank was well capitalized and had a leverage ratio of 11.97%.

Average Balance Sheets

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Nonaccrual loans are only included in the computation of average balances.

Average yields for loans include loan fees of $80,000 and $175,000 for the three months ended September 30, 2025 and 2024, respectively.

Average yields for loans include loan fees of $166,000 and $121,000 for the three months ended March 31, 2026 and 2025, respectively.

We have not recorded deferred loan fees, as we have determined them to be immaterial.

For the Three Months Ended September 30,

For the Three Months Ended March 31,

(Dollars in thousands)

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

Comparison of the Operating Results for the Three Months Ended September 30, 2025 and September 30, 2024

The Company had net income of $680,000 for the three months ended September 30, 2025, compared to net income of $515,000 for the three months ended September 30, 2024, an increase of $165,000, or 32.0%.

The increase was primarily due to a $64,000, or 2.0%, increase in net interest income, and a $597,000, or 112.6%, increase in noninterest income from $530,000 for the three months ended September 30, 2024 to $1.1 million for the three months ended September 30, 2025.

This was partially offset by an increase of $224,000, or 85.2%, in the provision for credit loss from $263,000 for the three months ended September 30, 2024 to $487,000 for the three months ended September 30, 2025, and an increase of $274,000, or 9.5%, in noninterest expense from $2.9 million for the three months ended September 30, 2024 to $3.2 million for the three months ended September 30, 2025.

Comparison of the Operating Results for the Three Months Ended March 31, 2026 and March 31, 2025

The Company had net income of $836,000 for the three months ended March 31, 2026, compared to net income of $643,000 for the three months ended March 31, 2025, an increase of $193,000, or 30.0%.

The increase was primarily due to a $103,000, or 3.1%, increase in net interest income, and a $107,000, or 94.7% decrease in the provision for loan loss to $6,000 for the three months ended March 31, 2026 from $113,000 for the same period in 2025.

Noninterest income increased $236,000, or 51.1%, from $462,000 for the three months ended March 31, 2025 to $698,000 for the three months ended March 31, 2026.

This was offset by an increase of $240,000, or 8.2%, in noninterest expense from $2.9 million for the three months ended March 31, 2025 to $3.2 million for the three months ended March 31, 2026.

Interest Income.

Interest income decreased $138,000 or 2.4%, to $5.6 million for the three months ended September 30, 2025 from $5.7 million for the three months ended September 30, 2024.

This was primarily the result of decreased interest income on federal funds sold due to a decrease in the average balance and decreased yields and a decrease in interest income on financial derivatives following the termination of derivative contracts in the first quarter of 2025 partially offset by an increase in interest income on loans due to increased yields and an increase in the average loan balance.

Average interest earning assets decreased by $8.3 million, or 2.0%, from $415.9 million for the three months ended September 30, 2024 to $407.6 million for the three months ended September 30, 2025 primarily from a decrease in federal funds sold of $15.0 million, a decrease in securities of $5.1 million, a decrease in interest bearing deposits in banks of $4.2 million partially offset by an increase in loans of $17.3 million.

The yield on average interest earning assets decreased two basis points, or 0.4%, from 5.48% for the three months ended September 30, 2024 to 5.46% for the three months ended September 30, 2025.

Interest income on loans increased $291,000, or 7.2%, to $4.3 million for the three months ended September 30, 2025 from $4.0 million for the three months ended September 30, 2024.

This increase resulted primarily from an increase in average loan balances of $17.3 million, or 6.2%, from $279.0 million for the three months ended September 30, 2024 to $296.3 million for the three months ended September 30, 2025, with an increase in loan yield of five basis points, or 0.9%, to 5.85% for the three months ended September 30, 2025 from 5.80% for the three months ended September 30, 2024.

The increase in loan volume was due primarily to loan growth and average loans being lower in the prior year following the sale of loans in the first quarter of 2024.

Interest income on securities increased $30,000, or 2.8%.

This increase was due primarily to a 31 basis point increase in yield on the securities portfolio from 3.95% for the three months ended September 30, 2024 to 4.26% for the three months ended September 30, 2025 due primarily to purchases of higher yielding securities.

The average securities balance decreased $5.1 million, from $108.4 million for the three months ended September 30, 2024 to $103.3 million for the three months ended September 30, 2025 due primarily to contractual paydowns and maturities.

Interest income on restricted investments, which includes stock dividends from the Federal Home Loan Bank (FHLB) and our primary correspondent bank, decreased $20,000, or 36.4%, from $55,000 for the three months ended September 30, 2024 to $35,000 for the three months ended September 30, 2025.

This decrease resulted primarily from a decrease in the average balance of these investments of $901,000, or 25.0%, from $3.6 million for the three months ended September 30, 2024 to $2.7 million for the three months ended September 30, 2025 primarily due to the FHLB repurchasing $1.1 million in excess stock following a reduction in outstanding advances and a decrease of 92 basis points, or 15.1%, in the average yield from 6.09% for the three months ended September 30, 2024 to 5.17% for the three months ended September 30, 2025 due primarily to a reduction in the dividend rate paid by FHLB.

Interest income on interest bearing deposits in banks decreased $79,000, or 63.2%, from $125,000 for the three months ended September 30, 2024 to $46,000 for the three months ended September 30, 2025.

This decrease is due primarily to a decrease in average interest-bearing deposits of $4.2 million, or 50.6%, from $8.3 million for the three months ended September 30, 2024 to $4.1 million for the three months ended September 30, 2025 and a decrease in average yield of 153 basis points, or 25.3%, from 6.04% for the three months ended September 30, 2024 to 4.51% for the three months ended September 30, 2025.

Fed funds interest decreased $225,000, or 82.1%, from $274,000 for the three months ended September 30, 2024 to $49,000 for the three months ended September 30, 2025.

This decrease resulted primarily from a decrease in average fed funds balances of $15.0 million, or 77.3%, from $19.4 million for the

three months ended September 30, 2024 to $4.4 million for the three months ended September 30, 2025 and a decrease in average yield of 120 basis points, or 21.3%, from 5.65% for the three months ended September 30, 2024 to 4.45% for the three months ended September 30, 2025.

These decreases were primarily due to the Company maintaining higher account balances due to receiving cash from the loan sale in the first half of 2024 in addition to decreases in fed funds rates and other market interest rates.

Interest income from the fair value hedge was $135,000 for the three months ended September 30, 2024.

A financial derivative was terminated on January 15, 2025, so there is no related interest income after the first quarter of 2025.

The gain on the asset at the time of termination is amortized over the remaining life of those securities.

Interest income decreased $64,000 or 1.1%, to $5.6 million for the three months ended March 31.

This was primarily the result of decreased interest income on securities due to a decrease in the average balance and decreased yields and a decrease in interest income on interest bearing deposits in banks due to a decrease in the average balance and decreased yields.

This was partially offset by an increase in interest income on loans due to an increase in the average balance and increased yields.

Average interest earning assets decreased by $17.2 million, or 4.2%, from $411.0 million for the three months ended March 31, 2025 to $393.8 million for the three months ended March 31, 2026 primarily from a decrease in average securities of $18.1 million, a decrease in average interest bearing deposits in banks of $2.9 million, and partially offset by an increase in average loans of $3.6 million.

The yield on average interest earning assets increased 18 basis points, or 3.2%, from 5.48% for the three months ended March 31, 2025 to 5.66% for the three months ended March 31, 2026.

Interest income on loans increased $254,000, or 5.8%, to $4.7 million for the three months ended March 31, 2026 from $4.4 million for the three months ended March 31, 2025.

This increase resulted primarily from an increase in average loan balances of $3.6 million, or 1.2%, from $299.4 million for the three months ended March 31, 2025 to $303.0 million for the three months ended March 31, 2026, with an increase in loan yield of 26 basis points, or 4.4%, to 6.14% for the three months ended March 31, 2026 from 5.88% for the three months ended March 31, 2025.

The increase in loan volume and yield was due to continued efforts to increase the commercial loan portfolio.

Interest income on securities decreased $266,000, or 25.9%.

This decrease was due primarily to a decrease of $18.1 million, or 18.8%, in average balances from $96.1 million for the three months ended March 31, 2025 to $78.0 million for the three months ended March 31, 2026 following the sale of securities in the 4 th quarter of 2025.

The yield on securities decreased 37 basis points, or 8.7%, to 3.91% for the three months ended March 31, 2026 from 4.28% for the same period in 2025, due to shorter average lives and faster principal paydown of the higher yielding securities.

Interest income on restricted investments, which includes stock dividends from the Federal Home Loan Bank (FHLB) and our primary correspondent bank, decreased $16,000, or 32.0%, from $50,000 for the three months ended March 31, 2025 to $34,000 for the three months ended March 31, 2026.

This decrease resulted primarily from a decrease in the average balance of these investments of $854,000, or 22.2%, from $3.6 million for the three months ended March 31, 2025 to $2.8 million for the three months ended March 31, 2026 primarily due to the FHLB repurchasing $1.1 million in excess stock following a reduction in outstanding advances and a decrease of 61 basis points, or 11.1%, in the average yield from 5.51% for the three months ended March 31, 2025 to 4.90% for the three months ended March 31, 2026 due primarily to a reduction in the dividend rate paid by FHLB.

Interest income on interest bearing deposits in banks decreased $45,000, or 43.3%, from $104,000 for the three months ended March 31, 2025 to $59,000 for the three months ended March 31, 2026.

This decrease is due primarily to a decrease in average interest-bearing deposits of $2.9 million, or 30.9%, from $9.4 million for the three months ended March 31, 2025 to $6.5 million for the three months ended March 31, 2026 and a decrease in average yield of 80 basis points, or 18.1%, from 4.41% for the three months ended March 31, 2025 to 3.61% for the three months ended March 31, 2026.

Fed funds interest remained relatively flat, decreasing $1,000, or 1.6%, from $62,000 for the three months ended March 31, 2025 to $61,000 for the three months ended March 31, 2026.

An increase in average fed funds balances of $1.2 million, or 21.4%, from $5.6 million for the three months ended March 31, 2025 to $6.8 million for the three months ended March 31, 2026 was offset by a decrease in average yield of 81 basis points, or 18.5%, from 4.39% for the three months ended March 31, 2025 to 3.58% for the three months ended March 31, 2026.

These changes in volume are

due primarily to fluctuations in overall bank liquidity, while decreases in yield were due to decreases in fed funds rates and other market interest rates.

Interest Expense.

Total interest expense decreased $202,000, or 8.1%, to $2.3 million for the three months ended September 30, 2025 from $2.5 million for the three months ended September 30, 2024 primarily due to a decrease in average interest-bearing liabilities of $13.1 million, or 3.8%, to $335.4 million for the three months ended September 30, 2025 from $348.5 million for the three months ended September 30, 2024 and a decrease in the average cost of interest-bearing liabilities of 13 basis points, or 4.5%, from 2.86% for the three months ended September 30, 2024 to 2.73% for the three months ended September 30, 2025, primarily due the reduction in rates on interest bearing deposits.

Interest expense on deposit accounts decreased $62,000, or 3.4%, to $1.8 million, with a decrease in the average deposit cost of 14 basis points, or 5.3%, from 2.63% for the three months ended September 30, 2024 to 2.49% for the three months ended September 30, 2025 partially offset by an increase in average interest-bearing deposits of $5.7 million, or 2.0% from $280.7 million for the three months ended September 30, 2024 to $286.4 million for the three months ended September 30, 2025, with the increase being in certificates of deposit which included an additional $10.0 million in brokered deposits.

Interest expense on Federal Home Loan Bank advances decreased $139,000, or 21.6%, to $504,000 for the three months ended September 30, 2025 from $643,000 for the three months ended September 30, 2024.

This decrease was due primarily to a decrease in the average balance of FHLB advances of $18.1 million, or 27.0%, to $48.9 million for the three months ended September 30, 2025 from $67.0 million for the three months ended September 30, 2024.

The increase in average cost of 28 basis points, or 7.4%, is primarily due to maturities and paydowns of advances with lower rates than the weighted average cost of all FHLB borrowings.

Total interest expense decreased $167,000, or 7.2%, to $2.1 million for the three months ended March 31, 2026 from $2.3 million for the three months ended March 31, 2025 primarily due to a decrease in average interest-bearing liabilities of $15.1 million, or 4.4%, to $328.7 million for the three months ended March 31, 2026 from $343.8 million for the three months ended March 31, 2025 and a decrease in the average cost of interest-bearing liabilities of eight basis points, or 3.0%, from 2.68% for the three months ended March 31, 2025 to 2.60% for the three months ended March 31, 2026, primarily due to the reduction in rates on interest bearing deposits.

Interest expense on deposit accounts decreased $151,000, or 8.4%, from $1.8 million for the three months ended March 31, 2025 to $1.6 million for the three months ended March 31, 2026.

This was due to a decrease in average interest-bearing deposits of $10.4 million, or 3.5%, from $293.6 million for the three months ended March 31, 2025, to $283.2 million for the three months ended March 31, 2026.

The average deposit cost decreased 12 basis points, or 5.0%, from 2.45% for the three months ended March 31, 2025 to 2.33% for the three months ended March 31, 2026.

Interest expense on Federal Home Loan Bank advances decreased $14,000, or 2.8%, to $489,000 for the three months ended March 31, 2026 from $503,000 for the three months ended March 31, 2025.

This decrease was due primarily to a decrease in the average balance of FHLB advances of $4.3 million, or 8.7%, to $45.4 million for the three months ended March 31, 2026 from $49.7 million for the three months ended March 31, 2025.

This was partially offset by an increase in average cost of 26 basis points, or 6.4%, primarily due to maturities and paydowns of advances with lower rates than the weighted average cost of all FHLB borrowings.

Net Interest Income.

Net interest income increased $64,000, or 2.0%, to $3.3 million for the three months ended September 30, 2025 from $3.2 million for the three months ended September 30, 2024 due primarily to an increase in net interest margin of 13 basis points, or 4.1%, to 3.22% for the three months ended September 30, 2025 from 3.09% for the three months ended September 30, 2024.

The increase in net interest margin is due primarily to the purchase of higher yielding securities, a decrease in rates paid on interest bearing deposit accounts, an increase in loan balances and a decrease in FHLB advances.

Net interest earning assets increased $4.7 million, or 6.9%, to $72.1 million for the three months ended September 30, 2025 from $67.5 million for the three months ended September 30, 2024.

Net interest income increased $103,000, or 3.1%, to $3.4 million for the three months ended March 31, 2026 from $3.3 million for the three months ended March 31, 2025 due primarily to an increase in net interest margin of 25 basis points, or 7.6%, to 3.49% for the three months ended March 31, 2026 from 3.24% for the three months ended March 31, 2025.

The increase in net interest margin is due primarily to higher loan volume and yield, a decrease in rates paid on interest bearing deposit accounts, and a decrease in FHLB advances.

The increase in net interest margin was partially offset by a decrease in net interest earning assets of $2.2 million, or 3.3%, to $65.0 million for the three months ended March 31, 2026 from $67.2 million for the three months ended March 31, 2025.

Provision for Credit Losses.

Based on management’s analysis of the adequacy of the allowance for credit losses, the provision for credit losses increased $224,000, or 85.2%, to $487,000 for the three months ended September 30, 2025 from $263,000 for the three months ended September 30, 2024, primarily due to a $453,000 charge to the allowance related to a foreclosed multi-family property in the third quarter of 2025.

Excluding this charge, the provision for credit losses would have decreased $229,000 due to a lower end of period loan balance due primarily to moving loans to other real estate owned.

The allowance for credit losses was 1.13% of total loans at September 30, 2025.

Based on management’s analysis of the adequacy of the allowance for credit losses, the provision for credit losses decreased $107,000, or 94.7%, to $6,000 for the three months ended March 31, 2026 from $113,000 for the three months ended March 31, 2025, as a result of significant loan payoffs and corresponding decrease in loan balances in the 1 st quarter of 2026.

The allowance for credit losses was 1.14% of total loans at March 31, 2026.

Noninterest Income.

Noninterest income increased $597,000, or 112.6%, to $1.1 million for the three months ended September 30, 2025 from $530,000 for the three months ended September 30, 2024.

This increase was due primarily to a net gain of $530,000 recognized on foreclosed properties moved into other real estate owned being written up to fair value, less estimated cost to sell, and $72,000 in rental income primarily from a foreclosed multi-family property which became other real estate owned in the three months ended September 30, 2025.

Noninterest income increased $236,000, or 51.1%, to $698,000 for the three months ended March 31, 2026 from $462,000 for the three months ended March 31, 2025.

This was due primarily to $168,000 in rental income on a multifamily property foreclosed on in the 3 rd quarter of 2025, as well as a $57,000 referral fee earned in connection with the payoff and transfer of an existing multifamily loan to capital markets.

The foreclosed property is currently held in other real estate owned.

It is over 90% occupied and is currently being marketed for sale.

Noninterest Expense.

Noninterest expense increased $274,000, or 9.5%, to $3.2 million for the three months ended September 30, 2025 from $2.9 million for the three months ended September 30, 2024 primarily due to an

increase in other expenses of $236,000, or 42.8%, from $551,000 for the three months ended September 2024 to $787,000 for the three months ended September 30, 2025.

This includes expenses of $164,000 related to foreclosed properties held in other real estate owned, including utilities, maintenance, insurance, legal fees and real estate taxes.

Other expenses also includes increases in audit and accounting expense of $28,000, and increases in marketing expense of $34,000 due to hiring a marketing firm and significantly increasing our media presence through new outlets including television and streaming services.

Occupancy and equipment expenses increased $43,000, or 16.5%, from $261,000 for the three months ended September 30, 2024 to $304,000 for the three months ended September 30, 2025 due primarily to higher property taxes due to normal increases and higher values due to new buildings and expenses related to the lease of new administrative offices.

These increases were partially offset a decrease in salary and employee benefit expenses of $69,000, or 4.2%, due primarily to reduced benefit costs related to executive officers and directors and a reduction of $18,000 in director fees due to a reduction in board size.

Salary and employee benefit expenses were $1.6 million for the three months ended September 30, 2025.

Noninterest expense increased $240,000, or 8.2%, to $3.2 million for the three months ended March 31, 2026 from $2.9 million for the same period in 2025.

This was due to an increase in other expenses of $106,000, or 17.7%, to $704,000 for the three months ended March 31, 2026 from $598,000 for the same period in 2025, which was the result of $98,000 in expense related to the foreclosed multifamily property noted previously, including utilities, maintenance, insurance, legal fees and real estate taxes.

Technology expense increased $77,000, or 135.1%, from $57,000 for the three months ended March 31, 2025, to $134,000 for the three months ended March 31, 2026, due primarily to expense related to the implementation of an online loan origination and account opening platform.

Occupancy and equipment expenses increased $41,000, or 16.6%, from $247,000 for the three months ended March 31, 2025 to $288,000 for the three months ended March 31, 2026 due primarily to higher property taxes due to normal increases and higher values, and expenses related to the lease of new administrative offices.

Income Tax Expense.

Income tax expense decreased by $2,000, or 2.3%, to $86,000 for the three months ended September 30, 2025 from $88,000 for the three months ended September 30, 2024.

Net income before taxes increased $163,000 from $603,000 for the three months ended September 30, 2024 to $766,000 for the three months ended September 30, 2025 and the effective tax rate was 11.2% and 14.6% for the three months ended September 30, 2025 and 2024, respectively.

Income tax expense increased by $13,000, or 12.3%, to $119,000 for the three months ended March 31, 2026 from $106,000 for the three months ended March 31, 2025.

Net income before taxes increased $206,000, or 27.5%, from $749,000 for the three months ended March 31, 2025 to $955,000 for the three months ended March 31, 2026 and the effective tax rate was 12.46% and 14.15% for the three months ended March 31, 2026 and 2025, respectively.

The decrease in effective tax rate was primarily due to tax-exempt income increasing at a faster rate than taxable income.

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 $321,000 and $375,000 for the nine months ended September 30, 2025 and 2024, respectively.

We have not recorded deferred loan fees, as we have determined them to be immaterial.

For the Nine Months Ended September 30,

(Dollars in thousands)

Interest-earning assets:

Allowance for credit losses

Restricted stock

Interest-bearing deposits in banks

Federal funds sold

Financial derivative

Total interest-earning assets

Noninterest-earning assets

Interest-bearing liabilities:

Interest-bearing demand deposits

Regular savings and other deposits

Money market deposits

Certificates of deposit

Total interest-bearing deposits

Advances from the Federal Home Loan Bank

Other liabilities

Total interest-bearing liabilities

Noninterest-bearing demand deposits

Other noninterest-bearing liabilities

Total liabilities

Total shareholders' equity

Total liabilities and shareholders' equity

Net interest income

Net interest rate spread (1)

Net interest-earning assets (2)

Net interest margin (3)

Average interest-earning assets to interest-bearing liabilities

(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 annualized net interest income divided by average total interest earning assets.

Comparison of the Operating Results for the Nine Months Ended September 30, 2025 and September 30, 2024

The Company had net income of $2.0 million for the nine months ended September 30, 2025, compared to a net loss of $1.8 million for the nine months ended September 30, 2024, an increase of $3.8 million, or 211.1%.

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 office building after constructing a new one resulting in combined nonrecurring deductions from noninterest income of $4.1 million.

Interest Income.

Interest income for the nine months ended September 30, 2025 was $16.7 million, which decreased $129,000, or 0.8%, from $16.8 million for the nine months ended September 30, 2024.

Interest on loans increased by $1.5 million following the loan sale and strategic restructuring into higher yielding loans in the first quarter of 2024, and an increase in the average loan balance of $19.8 million.

However, this was offset by decreases in interest on securities, fed funds and deposits in banks due primarily to lower average balances, and interest income on the financial derivative which was terminated at the beginning of 2025.

Average interest earning assets decreased by $13.3 million, or 3.1%, from $422.9 million for the nine months ended September 30, 2024 to $409.6 million for the nine months ended September 30, 2025 but was partially offset by an increase in the yield on average interest earning assets of 13 basis points, or 2.5%, from 5.30% for the nine months ended September 30, 2024 to 5.43% for the nine months ended September 30, 2025.

Interest income on loans increased $1.5 million, or 12.6%, to $13.0 million for the nine months ended September 30, 2025 from $11.5 million for the nine months ended September 30, 2024.

This increase resulted primarily from an increase in average loans of $19.8 million, or 7.1%, from $278.8 million for the nine months ended September 30, 2024 to $298.6 million for the nine months ended September 30, 2025 and an increase in average loan yield of 29 basis points, or 5.2%, to 5.81% for the nine months ended September 30, 2025 from 5.52% for the nine months ended September 30, 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 loans.

Interest income on loans would have been $217,000 more had there not been a reversal of accrued interest on two loan relationships totaling $9.0 million being placed on nonaccrual in the second quarter then subsequently moved to other real estate owned in the third quarter of 2025.

Interest income on securities decreased $406,000, or 11.5%, from $3.5 million for the nine months ended September 30, 2024 to $3.1 million for the nine months ended September 30, 2025.

This decrease resulted from a decrease in the average balance of securities of $16.3 million, or 14.2%, from $114.6 million for the nine months ended September 30, 2024 to $98.3 million for the nine months ended September 30, 2025, partially offset by an increase of 13 basis points, or 3.1%, in the average yield from 4.10% for the nine months ended September 30, 2024 to 4.23% for the nine months ended September 30, 2025.

The yield increase is reflective of the purchase of higher yielding securities over the last year.

Interest income on restricted investments, which includes primarily Federal Home Loan Bank (FHLB) and TIB Bank stock dividends, decreased $35,000, or 21.3%, from $164,000 for the nine months ended September 30, 2024 to $129,000 for the nine months ended September 30, 2025.

This decrease resulted from a decrease in the average balance of restricted investments of $559,000, or 15.7%, from $3.6 million for the nine months ended September 30, 2024 to $3.0 million for the nine months ended September 30, 2025, and also from a decrease in the average yield of these investments of 41 basis points, or 6.7%, from 6.15% for the nine months ended September 30, 2024 to 5.74% for the nine months ended September 30, 2025.

The decrease in dividends was due primarily to $1.1 million in stock being repurchased in March 2025 by the FHLB due to the decrease in FHLB advances.

Interest income on interest bearing deposits in banks decreased $341,000, or 56.6%, from $603,000 for the nine months ended September 30, 2024 to $262,000 for the nine months ended September 30, 2025.

This decrease resulted primarily from a decrease in average interest-bearing deposits of $6.6 million, or 45.8%, from $14.4 million for the nine months ended September 30, 2024 to $7.8 million for the nine months ended September 30, 2025 and a decrease in average yield of 112 basis points, or 20.1%, from 5.58% for the nine months ended September 30, 2024 to 4.46% for the nine months ended September 30, 2025.

Interest income on federal funds sold decreased $414,000, or 71.4%, from $580,000 for the nine months ended September 30, 2024 to $166,000 for the nine months ended September 30, 2025.

This decrease was due to a decrease in average federal funds balances of $9.1 million, or 64.5%, from $14.1 million for the nine months ended September 30, 2024 to $5.0 million for the nine months ended September 30, 2025 and a decrease in average yield of 106 basis points, or 19.4%, from 5.47% for the nine months ended September 30, 2024 to 4.41% for the nine months ended September 30, 2025.

The decrease in yields on deposits in banks and federal funds is reflective of the decrease in fed funds rates and other market interest rates.

During the nine months ended September 30, 2024, the Company maintained higher account balances due to receiving cash from the loan sale.

Interest income from the fair value hedge decreased $385,000 from $375,000 for the nine months ended September 30, 2024 to interest expense of $10,000 for the nine months ended September 30, 2025 due to the termination of a financial derivative.

The Company terminated the interest rate swap agreements on January 15, 2025, at a gain of $463,000, which will be recognized in income over the remaining life of the underlying hedged securities.

Interest Expense.

Total interest expense decreased $549,000, or 7.4%, to $6.9 million for the nine months ended September 30, 2025 from $7.4 million for the nine months ended September 30, 2024 primarily due to a decrease in average interest-bearing liabilities of $13.5 million, or 3.8%, to $339.8 million for the nine months ended September 30, 2025 from $353.3 million for the nine months ended September 30, 2024 and a decrease in the average cost of interest-bearing liabilities of 11 basis points, or 3.9%, from 2.81% for the nine months ended September 30, 2024 to 2.70% for the nine months ended September 30, 2025, primarily due to a decrease of $23.4 million in average FHLB advances.

Interest expense on deposit accounts decreased $36,000, or 0.7%, to $5.4 million for the nine months ended September 30, 2025, due to a decrease in the average interest-bearing deposit cost of 11 basis points, or 4.2%, from 2.58% for the nine months ended September 30, 2024 to 2.47% for the nine months ended September 30, 2025 with the decrease in average cost being primarily in money market accounts and certificates of deposit.

This was partially offset by an increase in average interest-bearing deposits of $10.3 million, or 3.7%, from $279.9 million for the nine months ended September 30, 2024 to $290.2 million for the nine months ended September 30, 2025.

Interest expense on Federal Home Loan Bank advances decreased $514,000, or 25.4%, to $1.5 million for the nine months ended September 30, 2025 from $2.0 million for the nine months ended September 30, 2024.

This decrease was due primarily to the decrease in the average balance of Federal Home Loan Bank advances of $23.4 million, or 32.2%, to $49.3 million for the nine months ended September 30, 2025 from $72.7 million for the nine months ended September 30, 2024.

The average cost of advances increased 37 basis points, or 10.0%, from 3.71% for the nine months ended September 30, 2024 to 4.08% for the nine months ended September 30, 2025 due to the maturity or paydown of advances with rates significantly lower than the weighted average cost of all FHLB borrowings.

Net Interest Income.

Net interest income increased $420,000, or 4.5%, to $9.8 million for the nine months ended September 30, 2025 from $9.4 million for the nine months ended September 30, 2024 due primarily to an increase in net interest margin of 23 basis points, or 7.9%, to 3.18% for the nine months ended September 30, 2025 from 2.95% for the nine months ended September 30, 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 liabilities in addition to a more disciplined approach to loan and deposit pricing.

The average yield on interest-earning assets increased by 13 basis points, or 2.5%, and the average cost on interest bearing liabilities decreased by 11 basis points, or 3.9%.

Provision for Credit Losses.

Based on management’s analysis of the adequacy of the allowance for credit losses, the provision for credit losses increased $448,000, or 407.3%, to $558,000 for the nine months ended September 30, 2025 from $110,000 for the nine months ended September 30, 2024, due primarily to a $453,000 charge to the allowance related to a foreclosed multi-family property in the third quarter of 2025.

Excluding this charge, the provision for credit loss would have been flat when compared to the prior year.

The allowance for credit losses was 1.13% of total loans at September 30, 2025.

Noninterest Income.

Noninterest income increased $4.8 million, or 184.6%, to $2.2 million for the nine months ended September 30, 2025 from a noninterest loss of $2.6 million for the nine months ended September 30, 2024, primarily due to nonrecurring losses in 2024 of $4.1 million related to the loan sale and branch construction.

these one-time items, noninterest income would have increased by $670,000 over the same period.

This increase is due primarily to a net $476,000 gain recognized on foreclosed properties held in other real estate owned, a $73,000 gain on an equity investment held at the holding company, an increase in net appreciation on bank-owned life insurance of $39,000, and a $68,000 increase in other income.

These were partially offset by decreases in deposit service charges and other fees of $28,000.

Noninterest Expense.

Noninterest expense increased $50,000, or 0.6%, to $9.1 million for the nine months ended September 30, 2025 from $9.0 million for the nine months ended September 30, 2024.

This is due primarily to an increase in other expenses of $333,000, or 19.2%, from $1.7 million for the nine months ended September 30, 2024 to $2.1 million for the nine months ended September 30, 2025.

This includes expenses of $156,000 related to foreclosed properties held in other real estate owned, including utilities, maintenance, insurance, legal fees and real estate taxes.

Other expenses also included increases in marketing expenses of $93,000, and accounting and auditing expenses of $75,000 due primarily to normal increases in audit fees, and the engagement of consultants to provide an enhanced internal audit process as we grow.

Increases in other expenses were partially offset by decreases in salaries and employee benefits, technology expense, and director fees.

Salaries and employee benefits decreased $155,000, or 3.1%, to $4.8 million for the nine months ended September 30, 2025 from $4.9 million for the nine months ended September 30, 2024 primarily related to higher benefits cost in 2024 related to the CEO transition and executive and director equity awards that were forfeited in 2025.

Technology expense decreased $128,000, or 35.1% from $365,000 for the nine months ended September 30, 2024 to $237,000 for the nine months ended September 30, 2025 due primarily to card processing fees incurred in the first half of 2024 associated with a “tap” debit card implementation project.

Income Tax Expense.

Income tax expense increased by $906,000, or 158.9%, to $336,000 for the nine months ended September 30, 2025 from an income tax benefit of $570,000 for the nine months ended September 30, 2024, due to the increase in net income before taxes of $4.7 million from a loss before taxes of $2.4 million for the nine months ended September 30, 2024 to income before taxes of $2.3 million for the nine months ended September 30, 2025.

The effective tax rate was 14.4% and 23.8% for the nine months ended September 30, 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.

Liquidity and Capital Resources

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The Federal Reserve Bank of Boston provides the Bank with a federal funds line of credit and we are able to borrow from the Federal Home Loan Bank of Dallas.

At September 30, 2025, we had outstanding advances of $48.8 million from the Federal Home Loan Bank of Dallas.

At September 30, 2025, we had unused borrowing capacity of $102.5 million with the Federal Home Loan Bank of Dallas.

In addition, at September 30, 2025, we had two unused unsecured lines of credit totaling $8.0 million with correspondent banks.

At March 31, 2026, we had outstanding advances of $41.6 million from the Federal Home Loan Bank of Dallas.

At March 31, 2026, we had unused borrowing capacity of $108.5 million with the Federal Home Loan Bank of Dallas.

In addition, at March 31, 2026, we had two unused unsecured lines of credit totaling $8.0 million with correspondent banks.

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.

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cash flows from operating activities, investing activities, and financing activities.

For additional information, see the consolidated statements of cash flow for the nine months ended September 30, 2025 and 2024 included as part of the consolidated financial statements included in this report.

For additional information, see the consolidated statements of cash flow for the three months ended March 31, 2026 and 2025 included as part of the consolidated financial statements included in this report.

We are committed to maintaining a strong liquidity position.

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is governed by applicable banking laws and regulations.

At September 30, 2025, Texas Community Bancshares, Inc.

Broadstreet Bank paid $1.0 million in dividends to Texas Community Bancshares, Inc.

in the first quarter of 2026.

At March 31, 2026, Texas Community Bancshares, Inc.

(on a stand-alone, unconsolidated basis) had liquid assets of $4.4 million.

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We monitor our large depositors and have discussions with them on how to maximize FDIC coverage to the fullest legal extent, which is limited to coverage of $250,000 per insured depositor.

At September 30, 2025, there were 197 accounts with balances in excess of the $250,000 FDIC insurance limit totaling $92.9 million, or 27.8% of deposits.

At March 31, 2026, there were 201 accounts with balances in excess of the $250,000 FDIC insurance limit totaling $98.7 million, or 29.7% of deposits.

The amount that was over $250,000 was $48.5 million, or 14.6%, that was potentially uninsured, including certificates of deposit of $13.0 million and $35.5 million in checking, MMDA and savings accounts.

At September 30, 2025, the weighted average life (WAL) of our securities portfolio is 5.0 years.

At March 31, 2026, the weighted average life (WAL) of our securities portfolio is 5.0 years.

The gross unrealized losses on the AFS securities was $4.3 million, or 6.6% of the $64.3 million AFS portfolio and 7.9% of capital.

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The net unrealized loss on AFS securities, and the corresponding other comprehensive loss, was $3.4 million, or 5.9% of capital.

Over the next 24 months from September 30, 2025, we expect to receive $46.8 million in cash flow from the securities portfolio with $6.0 million in 2025, $23.0 million in 2026 and $17.8 million in 2027.

Over the next 24 months from March 31, 2026, we expect to receive $38.4 million in cash flow from the securities portfolio with $17.9 million in 2026, $18.7 million in 2027 and $1.8 million in 2028.

We should receive $22.2 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 at a gain of $463,000, which will be recognized in income over the remaining life of the underlying securities.

At September 30, 2025, our allowance for credit losses to loans and leases held for investment was 1.13%.

Concurrent with the foreclosure of one property and the acceptance of deeds in lieu of foreclosure on two properties discussed previously, we have transferred $9.0 million in nonaccrual loans to other real estate owned in the third quarter of 2025.

These foreclosures were limited to two stressed loan relationships requiring resolution.

At March 31, 2026, our allowance for credit losses to loans and leases held for investment was 1.14%.

Following the sale of one property in the 1 st quarter of 2026.

At March 31, 2026, we had $9.1 million remaining in other real estate owned, which includes 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 three properties.

We monitor credit quality in the loan portfolio on an ongoing basis and maintain strong underwriting standards and asset management procedures.

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We are increasing our lending in CRE, other commercial lending and loans to municipalities to more strategically balance our loan portfolio.

The following are the various liquidity sources we had available at September 30, 2025 that we could use as needed:

The following are the various liquidity sources we had available at March 31, 2026 that we could use as needed:

● FHLB borrowing capacity of $108.5 million

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● The ability to sell a portion of BOLI assets

At September 30, 2025, Broadstreet Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date.

At March 31, 2026, 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.

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

At September 30, 2025

At March 31, 2026

Change in Interest Rates

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

The table above indicates that at September 30, 2025, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 2.56% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 1.26% decrease in net interest income.

The table above indicates that at March 31, 2026, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 6.52% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 3.00% 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.

This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate

sensitivity of net portfolio value.

The model estimates the economic value of each type of asset, liability, and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

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

At September 30, 2025

At March 31, 2026

EVE as a Percentage of

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

The table above indicates that at September 30, 2025, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 2.37% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 5.44% decrease in EVE.

The table above indicates that at March 31, 2026, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 1.14% increase in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 9.37% decrease in EVE.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis