Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding Texas Community Bancshares, Inc.’s (the “Company”) consolidated financial condition at June 30, 2026 and consolidated results of operations for the three and six months ended June 30, 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.
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “would,” “should,” “could” or “may,” and words of similar meaning. These forward-looking statements include, but are not limited to:
● statements of our goals, intentions and expectations;
● statements regarding our business plans, prospects, growth and operating strategies;
● statements regarding the quality of our loan and investment portfolios; and
● estimates of our risks and future costs and benefits.
These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
● our ability to control costs and manage liquidity;
● our ability to maintain our deposit base cost-effectively and access cost-effective funding;
● general economic conditions, either nationally or in our market areas, which are worse than expected;
● changes in yields on our assets resulting from changes in market interest rates;
● fluctuation in the demand for construction loans in our market area;
● changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses;
● risks related to a high concentration of loans secured by 1-4 family real estate located in our market area;
● risks related to higher levels of commercial real estate and development loans;
● our ability to control costs when hiring employees in a competitive labor market and rural area;
● our ability to control cost and expenses, particularly those associated with operating a publicly traded company;
● fluctuations in real estate values and market conditions in both residential and commercial real estate;
● demand for loans and deposits in our market area;
● our ability to implement and change our business strategies;
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● competition among depository and other financial institutions and brokers;
● inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of our investment securities and other financial instruments, including our mortgage servicing rights asset, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;
● adverse changes in the securities or secondary mortgage markets;
● changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;
● changes in tax laws;
● changes in the quality or composition of our loan or investment portfolios;
● technological changes that may be more difficult or expensive than expected;
● the inability of third-party providers to perform as expected;
● a failure or breach of our operational or security systems or infrastructure, including cyberattacks;
● our ability to manage market risk, credit risk and operational risk;
● our ability to enter new markets successfully and capitalize on growth opportunities;
● changes in consumer spending, borrowing and savings habits;
● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
● changes in our compensation and benefit plans, and our ability to retain key members of our senior management team and to address staffing needs in response to product demand or strategic plan implementation;
● changes in the financial condition, results of operations or future prospects of issuers of securities that we own.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.
Summary of Critical Accounting Policies; Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.
The Jumpstart Our Business Startups Act of 2012 (JOBS Act) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we had the option to delay adoption of new or revised accounting pronouncements applicable to public companies until such
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pronouncements are made applicable to private companies. However, we have determined not to take advantage of the benefits of this extended transition period.
The following represent our critical accounting policies:
Allowance for Credit Losses. The allowance for credit losses applies to any financial asset carried at amortized cost, including off-balance sheet commitments (unfunded commitments). The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. The Company uses the weighted average remaining maturity (WARM) method to estimate future expected losses for all of the Company’s loan pools. The allowance for credit losses on loans is a reserve for estimated current expected credit losses on individually evaluated loans determined to be impaired as well as estimated current expected credit losses inherent in the loan portfolio. Actual credit losses, net of recoveries, are deducted from the allowance for credit losses. Loans are charged off when management believes that the collectability of the principal is confirmed. Subsequent recoveries, if any, are credited to the allowance for credit losses. A provision for credit losses, which is a charge against earnings, is recorded to bring the allowance for credit losses to a level that, in management’s judgment, is adequate to absorb current expected losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the allowance for credit losses is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect current expected credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated credit losses and therefore the appropriateness of the allowance for credit losses could change significantly.
For additional information regarding the allowance for credit losses, see notes 1 and 4 of the notes to the accompanying consolidated financial statements.
Income Taxes. The assessment of income tax assets and liabilities involves the use of estimates, assumptions, interpretation, and judgment concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be significant to the results of operations and reported earnings.
The Company files consolidated federal income tax returns with its subsidiaries. Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax law rates applicable to the periods in which the differences are expected to affect taxable income. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income tax expense. Valuation allowances are established when it is more likely than not that a portion of the full amount of the deferred tax asset will not be realized. In assessing the ability to realize deferred tax assets, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. We may also recognize a liability for unrecognized tax benefits from uncertain tax positions. Unrecognized tax benefits represent the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured in the consolidated financial statements. Penalties related to unrecognized tax benefits are classified as income tax expense.
Comparison of Financial Condition at June 30, 2026 and December 31, 2025
Total Assets. Total assets were $444.3 million at June 30, 2026, an increase of $14.5 million, or 3.4%, from $429.8 million at December 31, 2025. The increase was due primarily to increases in net loans and leases of $10.9 million and interest-bearing deposits in banks of $2.8 million.
Cash and Cash Equivalents. Cash and cash equivalents increased $777,000, or 12.0%, to $7.2 million at June 30, 2026, compared to $6.5 million at December 31, 2025. This included fed funds sold balances of $3.7 million at June 30, 2026 and $2.6 million at December 31, 2025.
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Interest Bearing Deposits in Banks. Interest bearing deposits in banks increased $2.8 million, or 50.9%, to $8.3 million at June 30, 2026, compared to $5.5 million at December 31, 2025. This increase was primarily the result of an increase in deposits of $11.7 million and a decrease in securities of $2.4 million, partially offset by a $10.9 million increase in net loans and leases.
Securities Available for Sale. Securities available for sale decreased by $756,000, or 1.3%, to $59.1 million at June 30, 2026 from $59.9 million at December 31, 2025. During the six months ended June 30, 2026, there were purchases of securities of $1.5 million offset by net paydowns of $2.1 million. Accumulated other comprehensive loss increased by $89,000, or 2.9%, to $3.2 million, net of tax, from $3.1 million, net of tax, due primarily to increases 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 $4.0 million, or 6.3%, of the amortized cost of $63.1 million at June 30, 2026. These unrealized losses are primarily due to increases in market interest rates. At June 30, 2026, the AFS portfolio was comprised of 59.1% collateralized mortgage obligations, 16.4% corporate bonds, 14.7% State and municipal securities, and 9.8% residential mortgage backed securities.
Securities Held to Maturity. Securities held to maturity decreased by $1.6 million, or 8.7%, to $16.7 million at June 30, 2026 from $18.3 million at December 31, 2025. This decrease is due to paydowns of $1.5 million. The HTM portfolio had 59 securities with gross unrealized losses of $1.6 million, or 9.6%, of the amortized cost of $16.7 million at June 30, 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 June 30, 2026, the HTM portfolio was comprised of 88.4% residential mortgage-backed securities, 7.2% state and municipal securities and 4.4% U.S government and agency bonds.
Loans and Leases Receivable, Net. Net loans and leases receivable increased $10.9 million, or 3.6%, to $314.1 million at June 30, 2026 from $303.2 million at December 31, 2025. The increase in loans was primarily due to new loan originations of $40.5 million partially offset by payoffs, other principal reductions, and contractual repayments.
The loan and lease portfolio totaled $317.7 million and was comprised of $288.6 million, or 90.9%, real estate loans, $9.8 million, or 3.1%, commercial and industrial loans, $15.2 million, or 4.8%, municipal loans and $4.1 million, or 1.2%, consumer loans and other loans. Real estate loans include $150.0 million, or 47.2%, 1-4 family residential loans, $3.2 million, or 1.0%, multi-family loans, $65.4 million, or 20.6%, commercial real estate (CRE) loans, $25.8 million, or 8.2%, farmland loans, $12.4 million, or 3.9%, 1-4 family construction loans, and $31.8 million, or 10.0%, other construction and development loans. Total loans include interim construction loans of $19.1 million, or 63.4%, of the completed project balance of $30.2 million which includes $19.5 million in single-family residence loans, including $11.6 million in speculative construction loans to builders, $2.4 million in subdivision construction, $1.1 million in multi-family construction loans and $7.2 million in CRE and CRE development loans. The total construction loan portfolio consisted of 50 loans with completed project balances of $30.2 million at June 30, 2026 compared to 54 loans totaling $36.0 million at December 31, 2025.
At June 30, 2026, commercial real estate loans consisted of $26.5 million owner occupied and $38.9 million non-owner occupied real estate. At June 30, 2026, commercial real estate loans primarily included loans collateralized by gas stations with convenience stores ($17.7 million), self-storage facilities ($15.4 million), commercial rental properties ($14.3 million), churches ($3.9 million) and restaurants ($3.1 million). The maximum loan-to-value ratio of our commercial real estate loans is generally 80%. Generally, we require the debt service coverage ratio to be at least 1.2x. The significant majority of our commercial real estate loans are appraised by outside independent appraisers approved by the board of directors. Personal guarantees are generally obtained from the principals of commercial real estate borrowers. We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications and financial conditions of the borrower, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property, debt service capabilities, global cash flows of the borrower and other guarantors, and the borrower’s payment history with us and other financial institutions.
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Other Real Estate Owned. Other real estate owned decreased $167,000, or 1.8%, to $9.1 million at June 30, 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 June 30, 2026, there were three remaining properties consisting of 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 for sale.
Deposits. Deposits increased $11.7 million, or 3.6%, to $339.6 million at June 30, 2026 from $327.9 million at December 31, 2025. Core deposits (defined as all deposits other than certificates of deposit) increased $6.6 million, or 3.4%, to $200.7 million at June 30, 2026 from $194.1 million at December 31, 2025. Certificates of deposit increased $1.4 million, or 1.3%, to $114.5 million at June 30, 2026 from $113.1 million at December 31, 2025. At June 30, 2026, there were $18.0 million in brokered deposits and $6.5 million in listed deposits. The year-to-date average cost of interest-bearing deposits decreased 12 basis points, or 5.1%, to 2.34% for the six months ended June 30, 2026 compared to 2.46% for the six months ended June 30, 2025. At June 30, 2026, there were 193 accounts with balances in excess of the $250,000 FDIC insurance limit with an aggregate balance of $97.2 million, or 28.6% of deposits. The amount that was over the FDIC insurance limit was $48.9 million, or 14.4%, that was potentially uninsured, including certificates of deposit of $13.5 million, money market and savings accounts of $16.0 million and $19.4 million in checking accounts.
Advances from Federal Home Loan Bank. Advances from Federal Home Loan Bank increased $795,000, or 1.7%, to $46.5 million at June 30, 2026 from $45.7 million at December 31, 2025, due to $13.0 million in new advances booked in 2026, and partially offset by $12.2 million in maturities and repayments. There are four short-term advances remaining totaling $18.0 million that will mature in 2026.
Total Shareholders’ Equity. Total shareholders’ equity increased $1.4 million, or 2.6%, to $55.2 million at June 30, 2026 from $53.8 million at December 31, 2025. This increase was primarily due to net income of $1.8 million for the six months ended June 30, 2026, an increase of $196,000 from stock-based compensation expense, and an increase of $114,000 from the accrual of ESOP commitments. This was partially offset by a $89,000 increase in accumulated other comprehensive loss, net of tax, treasury stock purchases of $257,000, and quarterly dividends paid totaling $316,000.
At June 30, 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 June 30, 2026, Broadstreet Bank was well capitalized and had a leverage ratio of 12.13%.
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Average Balance Sheets
The following table sets forth average balances, average yields and costs, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Nonaccrual loans are only included in the computation of average balances. Average yields for loans include loan fees of $271,000 and $120,000 for the three months ended June 30, 2026 and 2025, respectively. We have not recorded deferred loan fees, as we have determined them to be immaterial.
For the Three Months Ended June 30,
2026
2025
Average
Average
Outstanding
Average
Outstanding
Average
Balance
Interest
Yield/Rate
Balance
Interest
Yield/Rate
(Dollars in thousands)
Interest-earning assets:
Loans
$
310,310
$
4,924
6.35
%
$
300,237
$
4,271
5.69
%
Allowance for credit losses
(3,463)
(3,280)
Securities
76,923
756
3.93
%
95,502
992
4.15
%
Restricted investments
2,807
31
4.42
%
2,667
44
6.60
%
Interest bearing deposits in banks
7,716
71
3.68
%
10,080
112
4.44
%
Federal funds sold
4,636
42
3.62
%
5,037
55
4.37
%
Total interest earning assets
398,929
5,824
5.84
%
410,243
5,474
5.34
%
Noninterest earning assets
37,646
28,970
Total assets
$
436,575
$
439,213
Interest-bearing liabilities:
Interest bearing demand deposits
$
59,641
81
0.54
%
$
65,087
96
0.59
%
Regular savings and other deposits
41,597
30
0.29
%
43,389
41
0.38
%
Money market deposits
48,512
296
2.44
%
45,363
305
2.69
%
Certificates of deposit
136,213
1,270
3.73
%
136,960
1,355
3.96
%
Total interest bearing deposits
285,963
1,677
2.35
%
290,799
1,797
2.47
%
Advances from FHLB
44,423
465
4.19
%
49,348
501
4.06
%
Other liabilities
152
2
5.26
%
162
2
4.94
%
Total interest bearing liabilities
330,538
2,144
2.59
%
340,309
2,300
2.70
%
Noninterest bearing demand deposits
52,578
49,817
Other noninterest bearing liabilities
4,269
4,022
Total liabilities
387,385
394,148
Total shareholders’ equity
49,190
45,065
Total liabilities and shareholders' equity
$
436,575
$
439,213
Net interest income
$
3,680
$
3,174
Net interest rate spread (1)
3.25
%
2.63
%
Net interest earning assets (2)
$
68,391
$
69,934
Net interest margin (3)
3.69
%
3.09
%
Average interest earning assets to interest bearing liabilities
120.69
%
120.55
%
(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.
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Comparison of the Operating Results for the Three Months Ended June 30, 2026 and June 30, 2025
Net Income. Net income was $970,000 for the three months ended June 30, 2026, compared to net income of $678,000 for the three months ended June 30, 2025, an increase of $292,000, or 43.1%. The increase was primarily due to a $506,000, or 15.9% increase in net interest income to $3.7 million for the three months ended June 30, 2026, from $3.2 million for the three months ended June 30, 2025. Noninterest income increased $152,000, or 26.3%, from $579,000 for the three months ended June 30, 2025, to $731,000 for the three months ended June 30, 2026. This was partially offset by increases of $146,000 in the provision for loan losses, $187,000 in noninterest expense, and $33,000 in income tax expense.
Interest Income. Interest income increased $350,000 or 6.4%, to $5.8 million for the three months ended June 30, 2026 from $5.5 million for the three months ended June 30, 2025. This was primarily the result of increased interest income on loans due to an increase in average loan balances and increased yields. This was partially offset by decreases in interest income on securities and interest bearing deposits in banks due to a decrease in the average balances and decreased yields. Average interest earning assets decreased by $11.3 million, or 2.8%, from $410.2 million for the three months ended June 30, 2025 to $398.9 million for the three months ended June 30, 2026 primarily from a decrease in average securities of $18.6 million, a decrease in average interest bearing deposits in banks of $2.4 million, and partially offset by an increase in average loans of $10.1 million. The yield on average interest earning assets increased 50 basis points, or 9.4%, from 5.34% for the three months ended June 30, 2025 to 5.84% for the three months ended June 30, 2026.
Interest income on loans increased $653,000, or 15.3%, to $4.9 million for the three months ended June 30, 2026 from $4.3 million for the three months ended June 30, 2025. This increase resulted primarily from an increase in average loan balances of $10.1 million, or 3.4%, from $300.2 million for the three months ended June 30, 2025 to $310.3 million for the three months ended June 30, 2026, with an increase in loan yield of 66 basis points, or 11.5%, to 6.35% for the three months ended June 30, 2026 from 5.69% for the three months ended June 30, 2025. The increase in loan volume and yield was due to continued efforts to increase the commercial loan portfolio.
Interest income on securities decreased $236,000, or 23.8%. This decrease was due primarily to a decrease of $18.6 million, or 19.5%, in average balances from $95.5 million for the three months ended June 30, 2025 to $76.9 million for the three months ended June 30, 2026 following the sale of securities in the 4 th quarter of 2025. The yield on securities decreased 22 basis points, or 5.4%, to 3.93% for the three months ended June 30, 2026 from 4.15% 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 $13,000, or 29.5%, from $44,000 for the three months ended June 30, 2025 to $31,000 for the three months ended June 30, 2026. This decrease resulted primarily from a decrease of 218 basis points, or 33.1%, in the average yield from 6.60% for the three months ended June 30, 2025 to 4.42% for the three months ended June 30, 2026 due primarily to a reduction in the dividend rate paid by FHLB.
Interest income on interest bearing deposits in banks decreased $41,000, or 36.6%, from $112,000 for the three months ended June 30, 2025 to $71,000 for the three months ended June 30, 2026. This decrease is due primarily to a decrease in average interest-bearing deposits of $2.4 million, or 23.8%, from $10.1 million for the three months ended June 30, 2025 to $7.7 million for the three months ended June 30, 2026 and a decrease in average yield of 76 basis points, or 17.2%, from 4.44% for the three months ended June 30, 2025 to 3.68% for the three months ended June 30, 2026. Interest income on Federal funds sold decreased $13,000, or 23.6%, from $55,000 for the three months ended June 30, 2025 to $42,000 for the three months ended June 30, 2026. This decrease is due to a decrease in average Federal funds sold balances of $401,000, or 8.0%, from $5.0 million for the three months ended June 30, 2025 to $4.6 million for the three months ended June 30, 2026 and a decrease in average yield of 75 basis points, or 17.2%, from 4.37% for the three months ended June 30, 2025 to 3.62% for the three months ended June 30, 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.
Interest Expense. Total interest expense decreased $156,000, or 6.8%, to $2.1 million for the three months ended June 30, 2026 from $2.3 million for the three months ended June 30, 2025 primarily due to a decrease in average
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interest-bearing liabilities of $9.8 million, or 2.9%, to $330.5 million for the three months ended June 30, 2026 from $340.3 million for the three months ended June 30, 2025 and a decrease in the average cost of interest-bearing liabilities of 11 basis points, or 4.0%, from 2.70% for the three months ended June 30, 2025 to 2.59% for the three months ended June 30, 2026, primarily due to the reduction in rates on interest bearing deposits.
Interest expense on deposit accounts decreased $120,000, or 6.7%, from $1.8 million for the three months ended June 30, 2025 to $1.7 million for the three months ended June 30, 2026. This was due to a decrease in average interest-bearing deposits of $4.8 million, or 1.7%, from $290.8 million for the three months ended June 30, 2025, to $286.0 million for the three months ended June 30, 2026. The average deposit cost decreased 12 basis points, or 4.9%, from 2.47% for the three months ended June 30, 2025 to 2.35% for the three months ended June 30, 2026.
Interest expense on Federal Home Loan Bank advances decreased $36,000, or 7.2%, to $465,000 for the three months ended June 30, 2026 from $501,000 for the three months ended June 30, 2025. This decrease was due primarily to a decrease in the average balance of FHLB advances of $4.9 million, or 9.9%, to $44.4 million for the three months ended June 30, 2026 from $49.3 million for the three months ended June 30, 2025. This was partially offset by an increase in average cost of 13 basis points, or 3.1%, 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 $506,000, or 15.9%, to $3.7 million for the three months ended June 30, 2026 from $3.2 million for the three months ended June 30, 2025 due primarily to an increase in net interest margin of 60 basis points, or 19.2%, to 3.69% for the three months ended June 30, 2026 from 3.09% for the three months ended June 30, 2025. The increase in net interest margin is due primarily to higher loan volume and yield, a decrease in average interest bearing deposit balances and rates paid on these 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 $1.5 million, or 2.1%, to $68.4 million for the three months ended June 30, 2026 from $69.9 million for the three months ended June 30, 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 $146,000 to $104,000 for the three months ended June 30, 2026 from a reversal of $42,000 for the three months ended June 30, 2025, as a result of increased loan production and corresponding increase in loan balances in the 2nd quarter of 2026. The allowance for credit losses was 1.13% of total loans at June 30, 2026.
Noninterest Income. Noninterest income increased $152,000, or 26.3%, to $731,000 for the three months ended June 30, 2026 from $579,000 for the three months ended June 30, 2025. This was due primarily to $172,000 in rental income on a multifamily property foreclosed on in the 3 rd quarter of 2025. 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 $187,000, or 6.3%, to $3.2 million for the three months ended June 30, 2026 from $3.0 million for the same period in 2025. This was due to an increase in salaries and employee benefits of $71,000, or 4.5% to $1.6 million for the three months ended June 30, 2026 as a result of annual salary increases and related payroll taxes, as well as the accelerated vesting of stock option expense recorded in the 2 nd quarter 2026. Data Processing expense increased $49,000, or 20.1%, from $244,000 for the three months ended June 30, 2025, to $293,000 for the three months ended June 30, 2026, due primarily to an increase in fees paid to our bank core processor. Occupancy and equipment expenses increased $41,000, or 15.4%, from $266,000 for the three months ended June 30, 2025 to $307,000 for the three months ended June 30, 2026 due primarily to higher property taxes due to normal increases and higher values, higher depreciation expense, and expenses related to the lease of new administrative offices.
Income Tax Expense. Income tax expense increased $33,000, or 22.9%, to $177,000 for the three months ended June 30, 2026, from $144,000 for the three months ended June 30, 2025. Net income before taxes increased $325,000, or 39.5%, from $822,000 for the three months ended June 30, 2025, to $1.1 million for the three months ended June 30, 2026 and the effective tax rate was 15.43% and 17.52% for the three months ended June 30, 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.
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Average Balance Sheets
The following table sets forth average balances, average yields and costs, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Nonaccrual loans are only included in the computation of average balances. Average yields for loans include loan fees of $438,000 and $240,000 for the six months ended June 30, 2026 and 2025, respectively. We have not recorded deferred loan fees, as we have determined them to be immaterial.
For the Six Months Ended June 30,
2026
2025
Average
Average
Outstanding
Average
Outstanding
Average
Balance
Interest
Yield/Rate
Balance
Interest
Yield/Rate
(Dollars in thousands)
Interest-earning assets:
Loans
$
306,695
$
9,578
6.25
%
$
299,848
$
8,671
5.78
%
Allowance for credit losses
(3,451)
(3,262)
Securities
77,473
1,518
3.92
%
95,799
2,020
4.22
%
Restricted stock
2,792
65
4.66
%
3,146
94
5.98
%
Interest-bearing deposits in banks
7,132
130
3.65
%
9,753
216
4.43
%
Federal funds sold
5,719
103
3.60
%
5,339
117
4.38
%
Financial derivative
—
—
37
(10)
Total interest-earning assets
396,360
11,394
5.75
%
410,660
11,108
5.41
%
Noninterest-earning assets
37,969
29,015
Total assets
$
434,329
$
439,675
Interest-bearing liabilities:
Interest-bearing demand deposits
$
60,283
164
0.54
%
$
68,385
210
0.61
%
Regular savings and other deposits
41,550
58
0.28
%
43,312
84
0.39
%
Money market deposits
47,640
574
2.41
%
46,508
631
2.71
%
Certificates of deposit
135,114
2,529
3.74
%
133,983
2,671
3.99
%
Total interest-bearing deposits
284,587
3,325
2.34
%
292,188
3,596
2.46
%
Advances from the Federal Home Loan Bank
44,900
954
4.25
%
49,511
1,004
4.06
%
Other liabilities
153
4
5.23
%
278
6
4.32
%
Total interest-bearing liabilities
329,640
4,283
2.60
%
341,977
4,606
2.69
%
Noninterest-bearing demand deposits
51,420
49,364
Other noninterest-bearing liabilities
4,175
3,771
Total liabilities
385,235
395,112
Total shareholders' equity
49,094
44,563
Total liabilities and shareholders' equity
$
434,329
$
439,675
Net interest income
$
7,111
$
6,502
Net interest rate spread (1)
3.15
%
2.72
%
Net interest-earning assets (2)
$
66,720
$
68,683
Net interest margin (3)
3.59
%
3.17
%
Average interest-earning assets to interest-bearing liabilities
120.24
%
120.08
%
(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.
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Comparison of the Operating Results for the Six Months ended June 30, 2026 and June 30, 2025
Net Income. Net income was $1.8 million for the six months ended June 30, 2026, compared to $1.3 million for the six months ended June 30, 2025, an increase of $485,000, or 36.7%. This increase was due primarily to an increase of $609,000, or 9.4%, in net interest income to $7.1 million for the six months ended June 30, 2026, from $6.5 million for the six months ended June 30, 2025. Noninterest income increased $388,000, or 37.3%, to $1.4 million for the six months ended June 30, 2026 from $1.0 million for the six months ended June 30, 2025. This was partially offset by increases of $427,000 in noninterest expense, $39,000 in the provision for loan and lease losses, and $46,000 in income tax expense.
Interest Income. Interest income increased $286,000, or 2.6%, to $11.4 million for the six months ended June 30, 2026, from $11.1 million for the six months ended June 30, 2025. This was primarily the result of increased interest income on loans due to an increase in average loan balances and increased yields. This was partially offset by decreases in interest income on securities and interest bearing deposits in banks due to a decrease in the average balances and decreased yields. Average interest earning assets decreased $14.3 million, or 3.5%, from $410.7 million for the six months ended June 30, 2025, to $396.4 million for the six months ended June 30, 2026 primarily due to a decrease in average securities of $18.3 million, a decrease in average interest-bearing deposits in banks of $2.7 million, and partially offset by an increase in average loans of $6.9 million. The yield on average interest earning assets increased 34 basis points, or 6.3%, from 5.41% for the six months ended June 30, 2025 to 5.75% for the six months ended June 30, 2026.
Interest income on loans increased $907,000, or 10.5%, to $9.6 million for the six months ended June 30, 2026 from $8.7 million for the six months ended June 30, 2025. This increase resulted primarily from an increase in average loans of $6.9 million, or 2.3%, from $299.8 million for the six months ended June 30, 2025 to $306.7 million for the six months ended June 30, 2026 and an increase in average loan yield of 47 basis points, or 8.1%, to 6.25% for the six months ended June 30, 2026 from 5.78% for the six months ended June 30, 2025. Additionally, in the second quarter of 2025, a reversal of $217,000 in loan interest income was recorded due to two loan relationships totaling $9 million that were placed on nonaccrual status. The increase in loan volume and yield was due to continued efforts to increase the commercial loan portfolio.
Interest income on securities decreased $502,000, or 24.9%, from $2.0 million for the six months ended June 30, 2025 to $1.5 million for the six months ended June 30, 2026. This decrease resulted from a decrease in the average balance of securities of $18.3 million, or 19.1%, from $95.8 million for the six months ended June 30, 2025 to $77.5 million for the six months ended June 30, 2026, and a decrease of 30 basis points, or 7.1%, in average yield from 4.22% for the six months ended June 30, 2025 to 3.92% for the six months ended June 30, 2026. The yield decrease is due to principal paydowns of higher yielding securities with shorter average lives.
Interest income on restricted investments, which includes primarily Federal Home Loan Bank (FHLB) and TIB Bank stock dividends, decreased $29,000, or 30.9%, from $94,000 for the six months ended June 30, 2025 to $65,000 for the six months ended June 30, 2026. This decrease resulted from a decrease in the average balance of restricted investments of $354,000, or 11.3%, from $3.1 million for the six months ended June 30, 2025 to $2.8 million for the six months ended June 30, 2026, and also from a decrease in the average yield of these investments of 132 basis points, or 22.1%, from 5.98% for the six months ended June 30, 2025 to 4.66% for the six months ended June 30, 2026 due primarily to a reduction in the dividend rate paid by FHLB.
Interest income on interest bearing deposits in banks decreased $86,000, or 39.8%, from $216,000 for the six months ended June 30, 2025 to $130,000 for the six months ended June 30, 2026. This decrease resulted primarily from a decrease in average interest-bearing deposits of $2.7 million, or 27.6%, from $9.8 million for the six months ended June 30, 2025 to $7.1 million for the six months ended June 30, 2026 and a decrease in average yield of 78 basis points, or 17.7%, from 4.43% for the six months ended June 30, 2025 to 3.65% for the six months ended June 30, 2026. Interest income on Federal funds sold decreased $14,000, or 12.0%, from $117,000 for the six months ended June 30, 2025 to $103,000 for the six months ended June 30, 2026. This decrease is due to a decrease in the average yield of 78 basis points, or 17.8%, from 4.38% for the six months ended June 30, 2025 to 3.60% for the six months ended June 30, 2026. This was partially offset by an increase in average Federal funds sold balances of $380,000, or 7.1%, from $5.3 million
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for the six months ended June 30, 2025 to $5.7 million for the six months ended June 30, 2026. The decrease in yields on deposits in banks and fed funds is reflective of the decrease in fed funds rates.
Interest Expense. Total interest expense decreased $323,000, or 7.0%, to $4.3 million for the six months ended June 30, 2026 from $4.6 million for the six months ended June 30, 2025 primarily due to a decrease in average interest-bearing liabilities of $12.4 million, or 3.6%, to $329.6 million for the six months ended June 30, 2026 from $342.0 million for the six months ended June 30, 2025 and a decrease in the average cost of interest-bearing liabilities of nine basis points, or 3.3%, from 2.69% for the six months ended June 30, 2025 to 2.60% for the six months ended June 30, 2026, primarily due to decreases average balances of interest-bearing deposits and FHLB advances and a decrease in the average cost of interest bearing deposits.
Interest expense on interest-bearing deposit accounts decreased $271,000, or 7.5%, to $3.3 million for the six months ended June 30, 2026 from $3.6 million for the six months ended June 20, 2025, due to a decrease in average interest-bearing deposits of $7.6 million, or 2.6%, from $292.2 million for the six months ended June 30, 2025 to $284.6 million for the six months ended June 30, 2026, and a decrease in the average interest-bearing deposit cost of 12 basis points, or 5.1%, from 2.46% for the six months ended June 30, 2025 to 2.34% for the six months ended June 30, 2026.
Interest expense on Federal Home Loan Bank advances decreased $50,000, or 5.0%, to $954,000 for the six months ended June 30, 2026 from $1.0 million for the six months ended June 30, 2025. This decrease was due primarily to the decrease in the average balance of Federal Home Loan Bank advances of $4.6 million, or 9.3%, to $44.9 million for the six months ended June 30, 2026 from $49.5 million for the six months ended June 30, 2025. This was partially offset by an increase in the average cost on advances of 19 basis points, or 4.8%, from 4.06% for the six months ended June 30, 2025 to 4.25% for the six months ended June 30, 2026 due to the maturity of advances with rates significantly lower than the weighted average cost of all FHLB borrowings.
Net Interest Income. Net interest income increased $609,000, or 9.4%, to $7.1 million for the six months ended June 30, 2026 from $6.5 million for the six months ended June 30, 2025 due primarily to an increase in net interest margin of 42 basis points, or 13.3%, to 3.59% for the six months ended June 30, 2026 from 3.17% for the six months ended June 30, 2025 and partially offset by a decrease in average net interest-earning assets of $2.0 million, or 2.9%, to $66.7 million at June 30, 2026 from $68.7 million at June 30, 2025. The increase in net interest margin was primarily due to changes in balance sheet composition, with a reallocation of funds from lower yielding securities to higher yielding loans, and a more disciplined approach to loan and deposit pricing. The average yield on interest-earning assets increased by 34 basis points, or 6.3%, and the average cost on interest bearing liabilities decreased by nine basis points, or 3.3%.
Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, the provision for credit losses increased $39,000, or 54.9%, to $110,000 for the six months ended June 30, 2026 from $71,000 for the six months ended June 30, 2025, primarily due to increased loan production and an overall increase in loan balances, as well as an increase in classified loans. Average loans and leases increased $6.9 million, or 2.3%, from $299.8 million for the six months ended June 30, 2025 to $306.7 million for the six months ended June 30, 2026, which increased the required provision. The allowance for credit losses was 1.13% of total loans at June 30, 2026.
Noninterest Income. Noninterest income increased $388,000, or 37.3%, to $1.4 million for the six months ended June 30, 2026 from $1.0 million for the six months ended June 30, 2025. This was due primarily to $340,000 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 $427,000, or 7.2%, to $6.3 million for the six months ended June 30, 2026 from $5.9 million for the six months ended June 30, 2025 primarily due to increases in technology expense, data processing, occupancy and equipment expenses, salaries and employee benefits, and other expenses.
Technology expense increased $98,000, or 73.7%, to $231,000 for the six months ended June 30, 2026 from $133,000 for the six months ended June 30, 2025 due primarily to expense related to the implementation of an online
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loan origination and account opening platform, as well as implementation of deposit taking ATMs. Data processing expense increased $92,000, or 19.2%, from $478,000 for the six months ended June 30, 2025 to $570,000 for the six months ended June 30, 2026 due to an increase in fees paid to our bank core processor, which included costs associated with upgrades to operations software. Occupancy and equipment expense increased $82,000, or 16.0%, from $513,000 for the six months ended June 30, 2025 to $595,000 for the six months ended June 30, 2026 due primarily to higher property taxes due to higher property valuation, higher depreciation expense, and expenses related to the lease of new administrative offices. Salaries and employee benefits increased $60,000, or 1.9%, to $3.3 million for the six months ended June 30, 2026 from $3.2 million for the six months ended June 30, 2025 due primarily to annual salary increases and related payroll taxes, and partially offset by a decrease in stock compensation due to the forfeiture of stock options and awards. Other expenses increased $120,000, or 9.4%, from $1.3 million for the six months ended June 30, 2025 to $1.4 million for the six months ended June 30, 2026 which was the result of $207,000 in expense related to the foreclosed multifamily property noted previously, including utilities, maintenance, insurance, legal fees and real estate taxes, and partially offset by decreases in training and marketing expense.
Income Tax Expense. Income tax expense increased $46,000, or 18.4%, to $296,000 for the six months ended June 30, 2026 from $250,000 for the six months ended June 30, 2025, due to the increase in income before taxes of $531,000 from $1.6 million for the six months ended June 30, 2025 to $2.1 million for the six months ended June 30, 2026. The effective tax rate was 14.08% and 15.91% for the six months ended June 30, 2026 and 2025, respectively. The decrease in the effective tax rate was primarily due to nontaxable income increasing at a faster rate than taxable income.
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Liquidity and Capital Resources
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. 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. 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 June 30, 2026, we had outstanding advances of $46.5 million from the Federal Home Loan Bank of Dallas. At June 30, 2026, we had unused borrowing capacity of $103.8 million with the Federal Home Loan Bank of Dallas. In addition, at June 30, 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. Our most liquid assets are cash and cash equivalents and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. For additional information, see the consolidated statements of cash flow for the six months ended June 30, 2026 and 2025 included as part of the consolidated financial statements included in this report.
We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.
Texas Community Bancshares, Inc. is a separate legal entity from Broadstreet Bank, and must provide for its own liquidity to pay its operating expenses and other financial obligations. Its primary source of income is dividends received from Broadstreet Bank. The amount of dividends that Broadstreet Bank may declare and pay to Texas Community Bancshares, Inc. is governed by applicable banking laws and regulations. Broadstreet Bank paid $1.0 million in dividends to Texas Community Bancshares, Inc. in the first quarter of 2026. At June 30, 2026, Texas Community Bancshares, Inc. (on a stand-alone, unconsolidated basis) had liquid assets of $3.8 million.
Liquidity management and asset quality continue to be high priorities. With continued volatility in the market and market interest rate fluctuations, liquidity management and analysis is a key factor in daily asset and liability management and strategic planning. We are monitoring deposit balances daily. We run stress tests quarterly in multiple scenarios, which include deposit runoff combined with the inability to access our available lines of credit and a reduction in the availability of FHLB advances. The scenarios indicate that we are able to maintain our operational liquidity with a designated buffer with our liquidity resources available. We are closely monitoring our assets, liabilities, capital and investment portfolio unrealized losses for possible issues and opportunities related to the current economic and market conditions.
We monitor our large depositors and have discussions with them on how to maximize FDIC coverage to the fullest legal extent, which is limited to coverage of $250,000 per insured depositor. At June 30, 2026, there were 193 accounts with balances in excess of the $250,000 FDIC insurance limit totaling $97.2 million, or 28.6% of deposits. The amount that was over $250,000 was $48.9 million, or 14.4%, that was potentially uninsured, including certificates of deposit of $13.5 million and $35.4 million in checking, MMDA and savings accounts.
At June 30, 2026, the weighted average life (WAL) of our securities portfolio is 4.5 years. The gross unrealized losses on the AFS securities was $4.0 million, or 6.3% of the $63.1 million AFS portfolio and 6.8% of capital. Unrealized losses on the HTM securities were $1.6 million, or 9.5% of the $16.7 million HTM portfolio and 2.7% of capital. The total gross unrealized losses are $5.6 million, or 7.0% of the $79.8 million securities portfolio and 9.6% of capital, which includes $29.9 million, or 37.4%, 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.
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The net unrealized loss on AFS securities, and the corresponding other comprehensive loss, was $3.2 million, or 5.5% of capital. Over the next 24 months from June 30, 2026, we expect to receive $37.0 million in cash flow from the securities portfolio with $14.8 million in 2026, $17.6 million in 2027 and $4.6 million in 2028. We should receive $25.3 million of that over the next 12 months. See the Securities section of the management discussion and analysis for more information.
At June 30, 2026, our allowance for credit losses to loans and leases held for investment was 1.13%. At June 30, 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. Our overall asset quality remains strong. The Company continues to monitor rates and loan demand weekly and aligns pricing accordingly. Housing supply and demand are monitored for indicators of a significant change in the local housing markets. We are increasing our lending in CRE, other commercial lending and loans to municipalities to more strategically balance our loan portfolio. At June 30, 2026, there was $6.0 million in past due commercial real estate loans related to two relationships. The past due status on one loan was related to maturity status and has since been renewed and the underlying property for the second loan is under contract for sale and we expect full repayment.
The following are the various liquidity sources we had available at June 30, 2026 that we could use as needed:
● FHLB borrowing capacity of $103.8 million
● $8 million in unused credit lines with 2 correspondent banks
● Federal Reserve discount window
● Qwickrate CD Program – listed deposits
● 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 BOLI assets
At June 30, 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.
Management of Market Risk
Our most significant form of market risk is interest rate risk. As a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Risk Management and Interest Rate Risk Management Officer is responsible for evaluating the interest rate risk inherent in our assets and liabilities, determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates.
We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk:
● maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations;
● maintaining a high level of liquidity;
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● growing our volume of core deposit accounts;
● managing our investment securities portfolio so as to reduce the average maturity and effective life of the portfolio;
● managing our borrowings from the Federal Home Loan Bank of Dallas;
● continuing to diversify our loan portfolio by adding more commercial loans, which typically have shorter maturities, adjustable rates, and fee income;
● expanding our wholesale lending program to be able to meet customer loan needs while managing the weighted average life and interest rate risk in the loan portfolio; and
● utilizing callable brokered deposits 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 up to 400 basis points in 100 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.
The tables below set forth the calculation of the estimated changes in our monthly net interest income that would result from the designated immediate changes in the United States Treasury yield curve. The estimated changes presented are within policy guidelines established by the Company’s Board of Directors.
At June 30, 2026
Change in Interest Rates
Net Interest Income Year
Year 1 Change from
(basis points) (1)
1 Forecast
Level
(Dollars in thousands)
400
$
16,459
11.78
%
300
16,125
9.51
%
200
15,735
6.86
%
100
15,253
3.59
%
Level
14,724
—
(100)
14,262
(3.14)
%
(200)
14,195
(3.60)
%
(300)
14,070
(4.45)
%
(400)
14,213
(3.47)
%
(1) Assumes an immediate uniform change in interest rates at all maturities.
The table above indicates that at June 30, 2026, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 6.86% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 3.60% decrease in net interest income.
Net Economic Value . We also compute amounts by which the net present value of our assets and liabilities (net economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate
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sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability, and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by up to 400 basis points in 100 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.
The table below sets forth the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve. The estimated changes presented are within policy guidelines established by the Company’s Board of Directors.
At June 30, 2026
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
$
61,759
$
(4,501)
(6.79)
%
15.23
%
39
300
63,516
(2,744)
(4.14)
%
15.31
%
47
200
65,009
(1,251)
(1.89)
%
15.30
%
46
100
66,025
(235)
(0.35)
%
15.16
%
32
Level
66,260
—
—
%
14.84
%
—
(100)
65,444
(815)
(1.23)
%
14.30
%
(54)
(200)
62,875
(3,385)
(5.11)
%
13.40
%
(144)
(300)
57,885
(8,375)
(12.64)
%
12.03
%
(281)
(400)
49,352
(16,907)
(25.52)
%
10.02
%
(482)
(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 June 30, 2026, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 1.89% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 5.11% 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See “Management of Market Risk” in Item 2 above.
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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.