What changed in this filing

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Item 1. Financial Statements

2021-11-12 compared with 2021-08-13 · 501 added, 373 removed, 657 unchanged (57% of the section changed)

Financial Statements

Mineola Community Mutual Holding Company and Subsidiaries

Texas Community Bancshares, Inc.

and Subsidiaries

Consolidated Statements of Financial Condition

June 30, 2021 and December 31, 2020

September 30, 2021 and December 31, 2020

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

September 30,

Cash and due from banks

Federal funds sold

Cash held in escrow

Cash and cash equivalents

1 unchanged sentence

Securities available for sale

Securities held to maturity (fair values of $ 38,603,682 at June 30, 2021 and $ 34,969,078 at December 31, 2020)

Loans receivable, net of allowance for loan and lease losses of $ 1,583,690 at June 30, 2021 and $ 1,561,101 at December 31, 2020

Securities held to maturity (fair values of $ 36,520 at September 30, 2021 and $ 34,970 at December 31, 2020)

Loans receivable, net of allowance for loan and lease losses of $ 1,592 at September 30, 2021 and $ 1,561 at December 31, 2020

Net investment in direct financing leases

7 unchanged sentences

Deferred income taxes

Liabilities and Members' Equity

Liabilities and Shareholders' and Members' Equity

Noninterest bearing

Interest bearing

Deposits held in escrow

Total deposits

2 unchanged sentences

Total liabilities

Members' Equity

Shareholders' and Members' Equity

Preferred stock, $ 0.01 par value, 1,000,000 shares authorized,

none issued and outstanding

Common stock, $ 0.01 par value, 19,000,000 shares authorized,

3,257,759 shares issued and 3,003,653 outstanding at September 30, 2021

Additional paid in capital

1 unchanged sentence

Accumulated other comprehensive income

Total members' equity

Unearned Employee Stock Ownership Plan ("ESOP") shares, at cost

Total shareholders' and members' equity

See Notes to Consolidated Financial Statements

Mineola Community Mutual Holding Company and Subsidiaries

Consolidated Statements of Income (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

Texas Community Bancshares, Inc.

and Subsidiaries

Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2021 and 2020

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Interest Income

14 unchanged sentences

Other service charges and fees

Appreciation on bank-owned life insurance

Net appreciation on bank-owned life insurance

Total noninterest income

7 unchanged sentences

Total noninterest expenses

Income Before Income Taxes

Income Tax Expense

Income (Loss) Before Income Taxes

Income Tax Expense (Benefit)

Net Income (Loss)

Earnings per share - basic

Earnings per share - diluted

Weighted-average shares outstanding - basic

Weighted-average shares outstanding - diluted

See Notes to Consolidated Financial Statements

Mineola Community Mutual Holding Company and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

Texas Community Bancshares, Inc.

and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

Three and Nine Months Ended September 30, 2021 and 2020

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

Three Months Ended

Six Months Ended

Other items of comprehensive income (loss) Change in unrealized appreciation (depreciation) on investment securities available for sale, before tax

Nine Months Ended

September 30,

Net Income (Loss)

Other items of comprehensive income (loss)

Change in unrealized appreciation (depreciation) on investment securities available for sale, before tax

Total other items of comprehensive income (loss)

Comprehensive Income Before Tax on Other Items of Comprehensive Income (Loss)

Income tax (expense) benefit related to other items of comprehensive income (loss)

Comprehensive Income

Comprehensive Income (Loss) Before Tax

Income tax (expense) benefit related to other items of comprehensive (loss) income

Comprehensive (Loss) Income

See Notes to Consolidated Financial Statements

Mineola Community Mutual Holding Company and Subsidiaries

Consolidated Statements of Members’ Equity (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

Texas Community Bancshares, Inc.

and Subsidiaries

Consolidated Statements of Shareholders’ and Members’ Equity (Unaudited)

Three and Nine Months Ended September 30, 2021 and 2020

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

Shareholders'

Comprehensive

Three Months Ended June 30, 2021 and 2020

Balance at April 1, 2021

Change in APIC

Net changes in fair value of available for sale securities, less tax benefit of $ 3,007

Balance at June 30, 2021

Balance at April 1, 2020

Net changes in fair value of available for sale securities, less tax expense of $ 26,753

Balance at June 30, 2020

Three Months Ended September 30, 2021 and 2020

Balance at July 1, 2021

Stock Issuance, net of conversion costs of $ 936

Net changes in fair value of available for sale securities, net of tax expense of $ 11

Leveraged ESOP Shares, 2,606,210 shares

ESOP shares earned, 6,515 shares

Balance at September 30, 2021

Balance at July 1, 2020

Net changes in fair value of available for sale securities, net of tax benefit of ($ 16 )

Balance at September 30, 2020

Shareholders'

Comprehensive

Six Months Ended June 30, 2021 and 2020

Nine Months Ended September 30, 2021 and 2020

Income (Loss)

Balance at January 1, 2021

Change in APIC

Net changes in fair value of available for sale securities, less tax benefit of $ 8,666

Balance at June 30, 2021

Stock issuance, net of conversion costs of $ 1,684

Net changes in fair value of available for sale securities, net of tax expense of $ 2

Leveraged ESOP shares, 2,606,210 shares

ESOP shares earned, 6,515 shares

Balance at September 30, 2021

Balance at January 1, 2020

Net changes in fair value of available for sale securities, less tax expense of $ 63,193

Balance at June 30, 2020

Net changes in fair value of available for sale securities, net of tax expense of $ 47

Balance at September 30, 2020

See Notes to Consolidated Financial Statements

Mineola Community Mutual Holding Company and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended June 30, 2021 and 2020

Six Months Ended

Texas Community Bancshares, Inc.

and Subsidiaries

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2021 and 2020

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

Nine Months Ended

September 30,

Operating Activities

3 unchanged sentences

Depreciation and amortization

Loss on sale of fixed assets

Appreciation on bank-owned life insurance

7 unchanged sentences

Net change in interest bearing deposits in banks

( 3,167,472 )

( 1,867,488 )

Activity in available for sale securities

( 3,056,250 )

Maturities, prepayments and calls

Activity in held to maturity securities

( 12,290,653 )

Maturities, prepayments and calls

1 unchanged sentence

Loan originations and principal collections, net

( 5,174,879 )

( 18,564,143 )

Net increase in net investment in direct financing leases

1 unchanged sentence

Net Cash used for Investing Activities

( 13,450,737 )

( 15,185,394 )

Financing Activities

1 unchanged sentence

Advances from FHLB and other borrowings

Payments on FHLB and other borrowings

( 1,124,046 )

( 5,250,029 )

Conversion costs related to the conversion

Payments on long term FHLB and other borrowings

Proceeds from issuance of common stock net of conversion costs

Loan to ESOP for purchase of common stock

Net Cash from Financing Activities

3 unchanged sentences

See Notes to Consolidated Financial Statements

Mineola Community Mutual Holding Company and Subsidiaries

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

Three and Nine Months Ended September 30, 2021 and 2020

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

Note 1 - Summary of Significant Accounting Policies

Nature of Operations

Mineola Community Mutual Holding Company (the Company) is a Texas state-chartered mutual holding company owned by its members.

The Company wholly owns Mineola Community Financial Group, Inc.

(MCFGI), which is a Delaware corporation.

MCFGI wholly owns Mineola Community Bank, S.S.B.

(the Bank), which is a Texas corporation.

The Bank wholly owns Mineola Financial Services Corporation, which is a Texas corporation.

Members of the Company are all holders of deposit accounts and borrowers of the Bank.

Each member is allowed one vote per every $ 100 or fraction thereof on account up to a maximum of 1,000 votes.

Texas Community Bancshares, Inc.

(the “Company”), a Maryland corporation and registered bank holding company, was incorporated on March 5, 2021 to become the holding company for Mineola Community Bank, SSB (the “Bank”) upon the conversion of Mineola Community Mutual Holding Company (“MHC”) from a mutual holding company to a stock holding company (the “Conversion”).

The Conversion was completed on July 14, 2021.

The Company’s shares began trading on the NASDAQ under the symbol TCBS on July 15, 2021.

In connection with the Bank’s Conversion, the Company acquired 100 % ownership of the Bank and the Company offered and sold 3,207,759 shares of its common stock at $ 10.00 per share, for gross offering proceeds of $ 32,078 .

The cost of the conversion and issuance of common stock was approximately $ 1,684 , which was deducted from the gross offering proceeds.

The Company also contributed 50,000 shares of its common stock and $ 75 of cash to Texas Community Bancshares Foundation, Inc.

(the “Foundation”), a charitable foundation formed in connection with the Bank’s Conversion.

The Bank’s employee stock ownership plan (“ESOP”) purchased 260,621 shares of the common stock sold by the Company, which was 8 % of the 3,257,759 shares of common stock issued by the Company, including the shares contributed to the Foundation.

The ESOP purchased the shares using a loan from the Company.

The Company contributed $ 15,276 of the net proceeds from the offering to the Bank, loaned $ 2,606 of the net proceeds to the ESOP, contributed $ 75 to the Foundation and retained approximately $ 12,436 of the net proceeds.

Following conversion, voting rights in the Company are held and exercised exclusively by the shareholders of the Company.

Deposit account holders continue to be insured by the FDIC.

In connection with the Conversion, liquidation accounts were established by the Company and the Bank in an aggregate amount equal to (i) the MHC’s ownership interest in the stockholders’ equity of Mineola Community Financial Group, Inc.

(the former subsidiary holding company of the Bank) as of the date of the latest statement of financial condition included in the Company’s definitive prospectus dated May 14, 2021, plus (ii) the value of the net assets of the MHC as of the date of the MHC’s latest statement of financial condition before the consummation of the Conversion (excluding the MHC’s ownership interest in Mineola Community Financial Group, Inc.).

Each eligible account holder and supplemental eligible account holder is entitled to a proportionate share of the liquidation accounts in the event of a liquidation of (i) the Company and the Bank or (ii) the Bank, and only in such events.

This share will be reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below the amounts on the date of record and will cease to exist if the account is closed.

The liquidation account will never be increased despite any increase after conversion in the related deposit balance.

The Bank may not pay a dividend on its capital stock if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements.

In addition, the Company is subject to certain regulations related to the payment of dividends and the repurchase of its capital stock.

The Conversion was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.

The Bank’s primary source of revenue is providing loans and banking services to consumers and commercial customers in Mineola, Texas and the surrounding area and the Dallas Fort Worth Metroplex.

1 unchanged sentence

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

Plan of Conversion and Offering

The Boards of Directors of Mineola Community Mutual Holding Company, Mineola Community Bank, and Mineola Community Financial Group have adopted a plan of conversion and reorganization pursuant to which Mineola Community Bank will reorganize from the mutual holding company structure to the stock holding company structure.

This conversion to a stock holding company structure includes the offering by Texas Community Bancshares, Inc.

of shares of its common stock to eligible depositors and borrowers of Mineola Community Bank in a subscription offering and, if necessary, to the public in a community offering and/or in a separate offering through a syndicate of broker-dealers.

Following the conversion and offering, Mineola Community Mutual Holding Company and Mineola Community Financial Group, Inc.

will cease to exist, and Texas Community Bancshares will be the parent company of Mineola Community Bank.

As stated in the plan of conversion, Texas Community Bancshares, Inc.

offered shares of common stock for sale in the subscription offering to eligible account holders of the Bank, the Bank’s tax-qualified employee benefit plans, including its employee stock ownership plan, supplemental eligible account holders of the Bank, and other members (qualifying depositors and borrowers) of the Bank.

The subscription offering at a price of $ 10.00 per share ended on June 17, 2021.

The Company sold a total of 3,207,759 shares of common stock in the subscription offering, which included 260,261 shares sold to Mineola Community Bank’s Employee Stock Ownership Plan at a price of $ 10.00 per share.

The Company also contributed 50,000 shares of common stock and $ 75,000 in cash to the TCBS Foundation, Inc., a charitable foundation formed in connection with the conversion.

The stock offering and conversion were completed on July 14, 2021 with 3,257,759 shares issued and outstanding.

Conversion costs will be deferred and reduce the proceeds from the shares sold in the conversion.

There were no conversion costs recorded at December 31, 2020.

At June 30, 2021, the Company has capitalized $ 747,818 in conversion costs.

The conversion will be accounted for as a change in corporate form with the historic basis of the Company’s assets, liabilities and equity unchanged as a result.

Mineola Community Mutual Holding Company and Subsidiaries

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

Three and Nine Months Ended September 30, 2021 and 2020

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

Interim Financial Statements

The interim unaudited consolidated financial statements as of June 30, 2021, and for the three and six months ended June 30, 2021 and 2020, are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented.

The interim unaudited consolidated financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021 and 2020, are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented.

Such adjustments are the only adjustments contained in these unaudited consolidated financial statements.

These unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission, and therefore certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been omitted.

The results of operations for the three and six months ended June 30, 2021, are not necessarily indicative of the results to be achieved for the remainder of the year ending December 31, 2021, or any other period.

The results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of the results to be achieved for the remainder of the year ending December 31, 2021, or any other period.

Certain prior period data presented in the consolidated financial statements have been reclassified to conform with the current period presentation.

The accompanying consolidated financial statements have been derived from and should be read in conjunction with the consolidated financial statements and notes thereto of the Company for the year ended December 31, 2020 included in the Company’s definitive Prospectus dated May 14, 2021.

Reference is made to the accounting policies of the Company described in the Notes to Consolidated Financial Statements contained in Form S-1 for the year ended December 31, 2020.

The accompanying consolidated financial statements have been derived from and should be read in conjunction with the audited consolidated financial statements and notes thereto of the MHC for the year ended December 31, 2020 included in the Company’s definitive Prospectus dated May 14, 2021.

Reference is made to the accounting policies of the Company described in the Notes to Consolidated Financial Statements for the year ended December 31, 2020, contained in the Company’s definitive Prospectus dated May 14, 2021.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, which include Mineola Community Bank, S.S.B.

and its wholly-owned subsidiary Mineola Financial Service Corporation, which is not actively being utilized.

All significant intercompany transactions and balances have been eliminated in consolidation.

Earnings Per Share

During the periods ended June 30, 2021 and December 31, 2020, the Company did not have any outstanding common shares, therefore, an earnings per share calculation is not presented due to lack of required inputs for calculation.

Use of Estimates

2 unchanged sentences

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan and lease losses.

Subsequent Events

Effective July 14, 2021, Texas Community Bancshares, Inc.

became the stock holding company of the Bank in connection with the consummation of the conversion and stock offering described above under “Plan of Conversion and Offering.” The common stock of Texas Community Bancshares, Inc.

began trading on the Nasdaq Capital Market under the symbol “TCBS” on July 15, 2021.

Mineola Community Mutual Holding Company and Subsidiaries

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

Three and Nine Months Ended September 30, 2021 and 2020

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

Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted–average number of common shares outstanding during the period, including allocated and committed-to-be-released ESOP shares, during the applicable period.

Diluted earnings per share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

Three Months Ended

Nine Months Ended

September 30, 2021

Weighted-average shares outstanding for

basic earnings per share:

Average shares outstanding

average unearned ESOP shares

Weighted-average shares outstanding for

basic earnings per share:

Additional dilutive shares

Weighted-average shares outstanding for

diluted earnings per share:

Basic and dilutive earnings per share

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2021 and 2020

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

Note 2 - Debt Securities

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

June 30, 2021

September 30, 2021

Available for Sale

1 unchanged sentence

Residential mortgage-backed

Collateralized mortgage obligations

State and municipal

Total debt securities

government and agency

Total securities available for sale

15 unchanged sentences

Total securities held to maturity

During the six months ended June 30, 2021 and 2020, the Bank had no sales of available for sale securities or held to maturity securities.

At June 30, 2021 and December 31, 2020, securities with a carrying value of $ 2,815,654 and $ 2,680,448 , respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Mineola Community Mutual Holding Company and Subsidiaries

During the nine months ended September 30, 2021 and 2020, the Company had no sales of available for sale securities or held to maturity securities.

At September 30, 2021 and December 31, 2020, securities with a carrying value of $ 2,763 and $ 2,680 , respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

The amortized cost and fair value of debt securities by contractual maturity at June 30, 2021, follows:

Three and Nine Months Ended September 30, 2021 and 2020

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

The amortized cost and fair value of debt securities by contractual maturity at September 30, 2021, follows:

Available for Sale

5 unchanged sentences

Residential mortgage-backed

Collateralized mortgage obligations

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

June 30, 2021

September 30, 2021

Less than 12 months

3 unchanged sentences

State and municipal ( 1 )

government and agency ( 7 )

December 31, 2020

5 unchanged sentences

Mortgage-backed securities

The unrealized losses on the Company’s investments in residential mortgage-backed securities were caused by interest rate increases and increases in prepayment speeds.

The unrealized losses on the Company’s investments in residential mortgage-backed securities were caused by market interest rate increases and increases in prepayment speeds.

The Company purchased those investments at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by agencies of the U.S.

Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments.

Because the decline in market value is attributable to changes in interest rates and increases in prepayment speeds and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2021 or December 31, 2020.

Mineola Community Mutual Holding Company and Subsidiaries

Because the decline in market value is attributable to changes in market interest rates and increases in prepayment speeds and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2021 or December 31, 2020.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

State and Municipal

The unrealized losses on the Company’s investments in state and municipal securities were caused by interest rate increases.

Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments.

Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2021 or December 31, 2020.

Three and Nine Months Ended September 30, 2021 and 2020

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

Other-than-temporary impairment

1 unchanged sentence

Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) evaluation by the Company of (a) its intent to sell a debt security prior to recovery and (b) whether it is more likely than not the Company will have to sell the debt security prior to recovery.

As of June 30, 2021 and December 31, 2020, no investment securities were other-than-temporarily impaired.

As of September 30, 2021 and December 31, 2020, no investment securities were other-than-temporarily impaired.

Note 3 - Loans and Leases

A summary of the balances of loans and leases follows:

September 30,

Consumer and other

Less allowance for loan and lease losses

( 1,583,690 )

( 1,561,101 )

Loans and leases, net

5 unchanged sentences

The CARES Act permits the SBA to guarantee 100 percent of these loans and also provides for forgiveness of up to the full principal amount of these loans.

As of June 30, 2021, the Company originated $ 5,484,223 in PPP loans of which $ 4,912,668 had been forgiven.

Additionally, the Company recognized $ 5,096 and $ 10,094 of PPP loan interest in interest income during the six months ended June 30, 2021 and 2020, respectively.

Mineola Community Mutual Holding Company and Subsidiaries

As of September 30, 2021, the Company originated $ 5,484 in PPP loans of which $ 5,449 had been forgiven.

Additionally, the Company recognized $ 5 and $ 24 of PPP loan interest in interest income during the nine months ended September 30, 2021 and 2020, respectively.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

The following tables set forth information regarding the activity in the allowance for loan and lease losses for the three and six months ended June 30, 2021 and 2020 and year ended December 31, 2020 (in thousands):

June 30, 2021

Three and Nine Months Ended September 30, 2021 and 2020

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

The following tables set forth information regarding the activity in the allowance for loan and lease losses for the three and nine months ended September 30, 2021 and 2020 and balances as of September 30, 2021 and December 31, 2020:

September 30, 2021

Allowance for loan and lease losses:

Three-months ended

Beginning balance, April 1, 2021

Beginning balance, July 1, 2021

Provision (credit)

Ending balance, June 30, 2021

Six-months ended

Ending balance, September 30, 2021

Nine-months ended

Beginning balance, January 1, 2021

Provision (credit)

Ending balance, June 30, 2021

Balance, June 30, 2021 allocated to loans and leases individually evaluated for impairment

Balance, June 30, 2021 allocated to loans and leases collectively evaluated for impairment

Ending balance, September 30, 2021

Balance, September 30, 2021 allocated to loans and leases individually evaluated for impairment

Balance, September 30, 2021 allocated to loans and leases collectively evaluated for impairment

Loans and leases receivable

Balance, June 30, 2021 Loans and leases individually evaluated for impairment

Balance, June 30, 2021 Loans and leases collectively evaluated for impairment

Ending balance, June 30, 2021

Mineola Community Mutual Holding Company and Subsidiaries

Balance, September 30, 2021 loans and leases individually evaluated for impairment

Balance, September 30, 2021 loans and leases collectively evaluated for impairment

Ending balance, September 30, 2021

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

June 30, 2020

Three and Nine Months Ended September 30, 2021 and 2020

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

September 30, 2020

Allowance for loan and lease losses:

Three-months ended

Beginning balance, April 1, 2020

Provision (credit)

Ending balance, June 30, 2020

Six-months ended

Beginning balance, July 1, 2020

Ending balance, September 30, 2020

Nine-months ended

Beginning balance, January 1, 2020

Provision (credit)

Ending balance, June 30, 2020

Ending balance, September 30, 2020

December 31, 2020

5 unchanged sentences

Ending balance

Internal Risk Categories

The Company monitors credit quality within its portfolio segments based on primary credit quality indicators.

6 unchanged sentences

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

Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness;

however, such concerns are not so pronounced that the Company generally expects to experience significant loss

Mineola Community Mutual Holding Company and Subsidiaries

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

within the short-term.

Three and Nine Months Ended September 30, 2021 and 2020

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

Special Mention loans show clear signs of financial weaknesses or deterioration in credit worthiness;

however, such concerns are not so pronounced that the Company generally expects to experience significant loss within the short-term.

Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits rated more harshly.

Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses exist in collateral.

Substandard loans are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses exist in collateral.

A protracted workout on these credits is a distinct possibility.

1 unchanged sentence

Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.

Credits rated doubtful are those in which full collection of principal appears highly questionable, and which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt.

Doubtful loans are those in which full collection of principal appears highly questionable, and which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt.

Based upon available information, positive action by the Company is required to avert or minimize loss.

1 unchanged sentence

Credits rated doubtful are generally also placed on nonaccrual.

Credits rated loss are those that are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.

Loss rated loans are those that are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.

This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

Pass rated refers to loans that are not considered criticized.

Pass rated loans are those not considered criticized.

In addition to this primary credit quality indicator, the Company uses other credit quality indicators for certain types of loans.

The following table sets forth information regarding the internal classification of the loan and lease portfolio (in thousands):

June 30, 2021

The following table sets forth information regarding the internal classification of the loan and lease portfolio:

September 30, 2021

Construction and land

1‑4 Residential & multi

1‑4 Residential & multi-family

Commercial real estate

Consumer and other

Mineola Community Mutual Holding Company and Subsidiaries

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

Three and Nine Months Ended September 30, 2021 and 2020

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

December 31, 2020

Construction and land

1‑4 Residential & multi

1‑4 Residential & multi-family

Commercial real estate

Consumer and other

The following table sets forth information regarding the credit risk profile based on payment activity of the loan and lease portfolio (in thousands):

June 30, 2021

The following table sets forth information regarding the credit risk profile based on payment activity of the loan and lease portfolio:

September 30, 2021

December 31, 2020

Construction and land

1‑4 Residential & multi

1‑4 Residential & multi-family

Commercial real estate

Consumer and other

The following table sets forth information regarding the delinquencies not on nonaccrual within the loan and lease portfolio (in thousands):

June 30, 2021

The following table sets forth information regarding the delinquencies not on nonaccrual within the loan and lease portfolio:

September 30, 2021

> 90 Days and

1 unchanged sentence

Construction and land

1‑4 Residential & multi

1‑4 Residential & multi-family

Commercial real estate

Consumer and other

Mineola Community Mutual Holding Company and Subsidiaries

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

Three and Nine Months Ended September 30, 2021 and 2020

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

December 31, 2020

2 unchanged sentences

Construction and land

1‑4 Residential & multi

1‑4 Residential & multi-family

Commercial real estate

Consumer and other

The following table sets forth information regarding the nonaccrual status within the loan and lease portfolio as

of June 30, 2021 and December 31, 2020 (in thousands):

1‑4 Residential & multi

The following table sets forth information regarding the nonaccrual status within the loan and lease portfolio as of September 30, 2021 and December 31, 2020:

September 30,

1‑4 Residential & multi-family

Commercial real estate

Consumer and other

6 unchanged sentences

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

No interest income was recognized for loans on nonaccrual status for the three and six months ended June 30, 2021 and 2020.

Mineola Community Mutual Holding Company and Subsidiaries

No interest income was recognized for loans on nonaccrual status for the three and nine months ended September 30, 2021 and 2020.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

The following table presents interest income recognized on impaired loans for the three and six month periods (in thousands):

Three and Nine Months Ended September 30, 2021 and 2020

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

The following table presents interest income recognized on impaired loans for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended

Six Months Ended

1‑4 Residential & multi

Nine Months Ended

September 30,

1‑4 Residential & multi-family

Commercial real estate

Consumer and other

The following table sets forth information regarding impaired loans as of June 30, 2021 (in thousands):

The following table sets forth information regarding impaired loans as of September 30, 2021:

With no related allowance

1‑4 Residential & multi

1‑4 Residential & multi-family

Commercial real estate

1 unchanged sentence

Commercial real estate

1-4 Residential & multi

1-4 Residential & multi-family

Commercial real estate

Mineola Community Mutual Holding Company and Subsidiaries

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

The following table sets forth information regarding impaired loans as of December 31, 2020 (in thousands):

Three and Nine Months Ended September 30, 2021 and 2020

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

The following table sets forth information regarding impaired loans as of December 31, 2020:

With no related allowance

1‑4 Residential & multi

1‑4 Residential & multi-family

Commercial real estate

2 unchanged sentences

Commercial real estate

1-4 Residential & multi

1-4 Residential & multi-family

Commercial real estate

Consumer and other

During the six months ended June 30, 2021, there were two modifications resulting in troubled debt restructurings of approximately $ 90,000 .

The first loan is a single-family residence with an outstanding balance of approximately $ 71,000 as of June 30, 2021 and a second loan in commercial and industrial with an outstanding balance of approximately $ 16,000 as of June 30, 2021.

There were no troubled debt restructurings that occurred during the six months ended June 30, 2020.

During the nine months ended September 30, 2021, there were two modifications resulting in troubled debt restructurings totaling approximately $ 90 .

The first loan is a single-family residence with an outstanding balance of approximately $ 69 as of September 30, 2021 and a second loan in commercial and industrial with an outstanding balance of approximately $ 14 as of September 30, 2021.

There were no troubled debt restructurings that occurred during the nine months ended September 30, 2020.

There have been no subsequently defaulted troubled debt restructurings.

The Company has no commitments to loan additional funds to borrowers whose loans have been modified but may on occasion extend financing to these borrowers.

At June 30, 2021 and December 31, 2020, the Company had a recorded investment of $ 510,403 and $ 433,455 , respectively, of troubled debt restructured loans.

At September 30, 2021 and December 31, 2020, the Company had no commitments to loan additional funds to borrowers whose loans have been modified but may on occasion extend financing to these borrowers.

At September 30, 2021 and December 31, 2020, the Company had a recorded investment of $ 502 and $ 433 , respectively, of troubled debt restructured loans.

The Company has no current commitments to loan additional funds to the borrowers whose loans have been modified.

4 unchanged sentences

The Company’s

Mineola Community Mutual Holding Company and Subsidiaries

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

Three and Nine Months Ended September 30, 2021 and 2020

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

exposure to credit loss is represented by the contractual amount of these commitments.

The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments.

At June 30, 2021 and December 31, 2020, the following financial instruments were outstanding whose contract amounts represent credit risk:

At September 30, 2021 and December 31, 2020, the following financial instruments were outstanding whose contract amounts represent credit risk:

Contract Amount

September 30,

Commitments to extend credit

9 unchanged sentences

The lines renew annually.

At June 30, 2021, the Company had no commitments to purchase securities.

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

At September 30, 2021, the Company had no commitments to purchase securities.

Note 5 - Supplemental Cash Flow Information

Supplemental disclosure of cash flow information is as follows:

Six Months Ended

Nine Months Ended

September 30,

Supplemental cash flow information:

Cash paid for

Interest on deposits

Interest on FHLB advances

Other interest

Note 6 - Minimum Regulatory Capital Requirements

1 unchanged sentence

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements.

Mineola Community Mutual Holding Company and Subsidiaries

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

Three and Nine Months Ended September 30, 2021 and 2020

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

calculated under regulatory accounting practices.

The capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.

The Bank has opted into the Community Bank Leverage Ratio (CBLR) framework, beginning with the Call Report filed for the first quarter of 2020.

At June 30, 2021 and December 31, 2020, the Bank’s CBLR ratio was 9.34 % and 10.49 %, respectively, which exceeded all regulatory capital requirements under the CBLR framework and the Bank was considered to be “well-capitalized.”

At September 30, 2021 and December 31, 2020, the Bank’s CBLR ratio was 13.07 % and 10.49 %, respectively, which exceeded all regulatory capital requirements under the CBLR framework and the Bank was considered to be “well-capitalized.”

Under the CLBR framework, banks and their bank holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio (equal to tier 1 capital divided by average total consolidated assets) of greater than 9%, are eligible to opt into the CBLR framework.

19 unchanged sentences

The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities.

The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a

Mineola Community Mutual Holding Company and Subsidiaries

The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis.

The cost approach is based on the amount that currently would be required to replace the service

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

discounted basis.

The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs).

Three and Nine Months Ended September 30, 2021 and 2020

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

capacity of an asset (replacement costs).

Valuation techniques should be consistently applied.

8 unchanged sentences

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

There have been no changes in valuation techniques during the periods ended June 30, 2021 and December 31, 2020, respectively.

There have been no changes in valuation techniques during the periods ended September 30, 2021 and December 31, 2020, respectively.

In general, fair value is based upon quoted market prices, where available.

11 unchanged sentences

The appraisals are

Mineola Community Mutual Holding Company and Subsidiaries

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

Three and Nine Months Ended September 30, 2021 and 2020

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

generally discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s business.

1 unchanged sentence

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

The following table summarizes financial assets measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

June 30, 2021

The following table summarizes financial assets measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

September 30, 2021

Financial assets

1 unchanged sentence

Residential mortgage-backed

Collateralized mortgage obligations

State and municipal

Government and agency

Total financial assets

7 unchanged sentences

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

The following table summarizes financial and non-financial assets measured at fair value on a nonrecurring basis as of June 30, 2021 and December 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

June 30, 2021

The following table summarizes financial and non-financial assets measured at fair value on a nonrecurring basis as of September 30, 2021 and December 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

September 30, 2021

Financial assets

2 unchanged sentences

Foreclosed assets

Mineola Community Mutual Holding Company and Subsidiaries

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

Three and Nine Months Ended September 30, 2021 and 2020

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

December 31, 2020

3 unchanged sentences

Foreclosed assets

During the six months ended June 30, 2021 and 2020, certain impaired loans were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for loan and lease losses based upon the fair value of the underlying collateral.

At June 30, 2021, impaired loans with a carrying value of $ 1,519,917 were reduced by specific valuation allowance allocations totaling $ 308,000 to a reported fair value of $ 1,211,917 .

During the nine months ended September 30, 2021 and 2020, certain impaired loans were remeasured and reported at fair value through a specific valuation allowance allocation of the allowance for loan and lease losses based upon the fair value of the underlying collateral.

At September 30, 2021, impaired loans with a carrying value of $ 1,483 were reduced by specific valuation allowance allocations totaling $ 308 to a reported fair value of $ 1,175 .

At December 31, 2020, impaired loans with a carrying value of $ 1,795 were reduced by specific valuation allowance allocations totaling $ 308 to a reported fair value of $ 1,487 .

The fair value of impaired loans is determined based on collateral valuations utilizing Level 3 valuation inputs.

$ 0 was charged to the provision for loan losses as a result of the valuation allowance for the six months ended June 30, 2021 and 2020.

$ 0 was charged to the provision for loan and lease losses as a result of the valuation allowance for the nine months ended September 30, 2021 and 2020.

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

2 unchanged sentences

Significant Input

June 30, 2021

September 30, 2021

Impaired loans

11 unchanged sentences

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

Mineola Community Mutual Holding Company and Subsidiaries

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

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

June 30, 2021

Three and Nine Months Ended September 30, 2021 and 2020

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

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

September 30, 2021

Level 1 Inputs

14 unchanged sentences

Interest payable

Mineola Community Mutual Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

December 31, 2020

20 unchanged sentences

Interest receivable – The carrying value approximates its fair value.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2021 and 2020

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

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

2 unchanged sentences

The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date.

Fair values for fixed-rate

Mineola Community Mutual Holding Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2021 and 2020

certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits.

Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits.

Federal Home Loan Bank advances – Current market rates for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.

Interest payable – The carrying value approximates the fair value.

Note 8 - Employee Stock Ownership Plan (“ESOP”)

In connection with the Conversion, Mineola Community Bank established an Employee Stock Ownership Plan (“ESOP) for the exclusive benefit of eligible employees.

The ESOP borrowed funds from the Company in an amount sufficient to purchase 260,621 shares (approximately 8.0 % of the common stock issued in connection with the Conversion).

The loan is secured by the shares purchased and will be repaid by the ESOP with funds from contributions made by the Company and dividends received by the ESOP.

Contributions will be applied to repay interest on the loan first, and then the remainder will be applied to principal.

The loan is expected to be repaid over a period of up to 20 years .

Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is repaid.

Contributions to the ESOP and shares released from the suspense account are allocated among participants in proportion to their compensation.

Participants will vest in their accrued benefits determined by the years of service for vesting purposes.

Vesting is accelerated upon retirement, death or disability of the participant, or a change in control of the Company.

Forfeitures will be reallocated to remaining participants.

Benefits may be payable upon retirement, death, disability, separation of service, or termination of the ESOP.

The debt of the ESOP is eliminated in consolidation.

Contributions to the ESOP shall be sufficient to pay principal and interest currently due under the loan agreement.

As shares are committed to be released from collateral, the Company reports the compensation expense equal to the average market price of the shares for the respective period, and the shares become outstanding for earnings per share computations.

Dividends on unallocated ESOP shares, if any, are recorded as a reduction of debt and accrued interest.

ESOP compensation was $ 102 for the three and nine months ended September 30, 2021.

A summary of the ESOP shares are as follows:

September 30, 2021

December 31, 2020

Shares allocated to participants

Shares released to participants

Unreleased Shares

Fair value of unreleased shares

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2021 and 2020

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

Note 9 - Recently Issued But Not Yet Effective Accounting Pronouncements

4 unchanged sentences

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 Mineola Community Mutual Holding Company’s (“Mineola Community MHC”) consolidated financial condition at June 30, 2021 and consolidated results of operations for the three and six months ended June 30, 2021 and 2020.

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, 2021 and consolidated results of operations for the three and nine months ended September 30, 2021 and 2020.

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.

9 unchanged sentences

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:

● conditions relating to the COVID-19 pandemic, including the severity and duration of the associated economic slowdown either nationally or in our market areas, that are worse than expected;

● conditions relating to the COVID-19 pandemic, including the severity, scope and duration of the associated economic slowdown either nationally or in our market areas, that are worse than expected;

● government action in response to the COVID-19 pandemic and its effects on our business and operations;

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

● declines in yields on our assets resulting from the current low interest rate environment;

● fluctuation in the demand for construction loans in our market area due to increased cost of building materials and their availability;

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

● estimated costs and provisions associated with the implementation of the Current Expected Credit Losses (CECL) methodology, the new standard for estimating the allowance for loan and lease losses, being greater than anticipated;

● risks related to a high concentration of loans secured by real estate located in our market area;

● our ability to control costs when hiring employees in a highly competitive environment;

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

● our ability to access cost-effective funding;

3 unchanged sentences

● competition among depository and other financial institutions;

or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;

● inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of 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;

8 unchanged sentences

● 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;

● our ability to retain key employees;

● 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.

2 unchanged sentences

Summary of Critical Accounting Policies

The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with U.S.

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.

4 unchanged sentences

As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

We determined not to take advantage of the benefits of this extended transition period.

However, we have determined not to take advantage of the benefits of this extended transition period.

The following represent our significant accounting policies:

7 unchanged sentences

The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect probable 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 loan losses and therefore the appropriateness of the allowance for loan and lease losses could change significantly.

The allocation methodology applied by Mineola Community Bank is designed to assess the appropriateness of the allowance for loan and lease losses and includes allocations for specifically identified impaired loans and loss factor allocations for all remaining loans, with a component primarily based on historical loss rates and a component primarily based on other qualitative factors.

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 loan and lease losses and therefore the appropriateness of the allowance for loan and lease losses could change significantly.

The allocation methodology applied by the Company is designed to assess the appropriateness of the allowance for loan and lease losses and includes allocations for specifically identified impaired loans and loss factor allocations for all remaining loans, with a component primarily based on historical loss rates and a component primarily based on other qualitative factors.

The methodology includes evaluation and consideration of several factors, such as, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses.

2 unchanged sentences

The total allowance is available to absorb losses from any segment of the loan portfolio.

Management believes the allowance for loan and lease losses was adequate at December 31, 2020.

Management believes the allowance for loan and lease losses was adequate at September 30, 2021 and December 31, 2020.

The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements.

1 unchanged sentence

As a result of such reviews, we may have to adjust our allowance for loan and lease losses.

However, regulatory agencies are not directly involved in the process of establishing the allowance for loan and lease losses as the process is the responsibility of Mineola Community Bank and any increase or decrease in the allowance is the responsibility of management.

However, regulatory agencies are not directly involved in the process of establishing the allowance for loan and lease losses as the process is the responsibility of the Company and any increase or decrease in the allowance is the responsibility of management.

Income Taxes.

1 unchanged sentence

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.

Mineola Community MHC files consolidated federal income tax returns with Mineola Community Bank.

The Company files consolidated federal income tax returns with Mineola Community Bank.

Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws.

4 unchanged sentences

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.

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, 2021 and December 31, 2020

Comparison of Financial Condition at September 30, 2021 and December 31, 2020

Total Assets.

Total assets were $350.0 million at June 30, 2021, an increase of $50.3 million, or 16.8%, when compared to total assets of $299.6 million at December 31, 2020.

The increase was due primarily to increases in cash and cash equivalents, and interest bearing deposits in banks, which increased by a combined $40.7 million, or 184.3%, in the first six months, which was primarily due to a $51.4 million, or 21.8%, increase in deposits from $235.1 million at December 31, 2020 to $286.5 million at June 30, 2021.

The June 30, 2021 deposit balance includes $22.7 million in escrow funds being held for Texas Community Bancshares, Inc.

stock purchases on July 14, 2021.

Total assets were $358.9 million at September 30, 2021, an increase of $59.2 million, or 19.8%, when compared to total assets of $299.6 million at December 31, 2020.

The increase in total assets is reflective of the net proceeds of $27.8 million from our common stock offering as part of the mutual-to-stock conversion on July 14, 2021.

The conversion proceeds and existing cash balances were used to increase our investment portfolio by $24.7 million, or 52.2%, to $72.0 million at September 30, 2021 and our portfolio of net loans by $3.6 million, or 1.7%, to $216.8 million during the nine months ended September 30, 2021.

Additionally, our investments in interest bearing deposits in banks increased by $4.6 million and our cash balances increased by $26.5 million during the nine months ended September 30, 2021.

Cash and Cash Equivalents.

Cash and cash equivalents increased $37.5 million, or 465.0%, to $45.6 million (which includes fed funds sold of $40.7 million) at June 30, 2021 from $8.1 million (which includes fed funds sold of $2.1 million) at December 31, 2020.

This increase is primarily due to an increase in deposits of $51.4 million.

Cash and cash equivalents increased $26.5 million, or 328.1%, to $34.6 million (which includes fed funds sold of $28.9 million) at September 30, 2021 from $8.1 million (which includes fed funds sold of $2.1 million) at December 31, 2020.

This increase is primarily due to an increase in deposits of $29.3 million during the nine months ended September 30, 2021, in addition to the net proceeds from the common stock offering of $27.8 million.

Interest Bearing Deposits in Banks.

Interest bearing deposits in banks were $17.2 million at June 30, 2021 compared to $14.0 million at December 31, 2020, an increase of $3.2 million, or 22.6%.

The increase was due primarily to an increase in deposits of $51.4 million.

Interest bearing deposits in banks were $18.6 million at September 30, 2021 compared to $14.0 million at December 31, 2020, an increase of $4.6 million, or 32.5%.

The increase was due primarily to an increase in deposits of $29.3 million, or 12.5%, during the nine months ended September 30, 2021 combined with conversion proceeds of $27.8 million.

Securities Available for Sale.

Securities available for sale increased by $748,000, or 5.8%, to $13.7 million at June 30, 2021 from $13.0 million at December 31, 2020.

This increase is due primarily to purchases of mortgage-backed securities of $3.1 million offset by principal repayments of $2.2 million.

Securities available for sale increased by $23.0 million, or 177.3%, to $36.0 million at September 30, 2021 from $13.0 million at December 31, 2020.

This increase is due primarily to securities purchased totaling $26.4 million in the nine months ended September 30, 2021 made with conversion proceeds.

These purchases include $13.2 million in US Treasuries ranging in maturity from 3-10 years, $7.2 million in collateralized mortgage obligations (CMO), and $2.9 million in municipal securities.

In addition, $3.1 million in mortgage backed securities (MBS) purchases were made in the nine months ended September 30, 2021.

These purchases were partially offset by $3.2 million in paydowns on MBS, and a $200,000 municipal security that was called.

Securities Held to Maturity.

Securities held to maturity increased by $3.9 million, or 11.4%, to $38.2 million at June 30, 2021 from $34.3 million at December 31, 2020.

This increase is due to purchases of mortgage backed securities totaling $12.3 million, partially offset by principal repayments on mortgage-backed securities of $5.9 million and calls on municipal securities totaling $2.3 million.

Securities held to maturity increased by $1.7 million, or 5.0%, to $36.0 million at September 30, 2021 from $34.3 million at December 31, 2020.

This increase was due primarily to purchases of $13.8 million in MBS made during the nine months ended September 30, 2021, partially offset by MBS principal repayments of $8.4 million and calls on municipal securities totaling $3.5 million.

Loans and Leases Receivable, Net.

Loans and leases receivable, net, increased $5.2 million, or 2.4%, to $218.5 million at June 30, 2021 from $213.3 million at December 31, 2020.

During the six months ended June 30, 2021, loan originations totaled $51.8 million of which $9.9 million were renewals or refinancings of existing loans with Mineola Community Bank, resulting in originations of new loans of $41.9 million.

Originations consisted primarily of $27.2 million of one- to four-family loan originations, $12.6 million of construction loan originations (upon completion), including speculative construction loans of $5.5 million, $3.0 million in commercial real estate loan originations, $1.8 million of consumer loan originations, $3.8 million in commercial and industrial loan originations, $2.5 million in land & development loan originations, and $911,000 in municipal loan originations.

During the six months ended June 30, 2021, there were $5.8 million in loan principal paydowns and $36.6 million in loan payoffs.

PPP loans decreased by $3.5 million, or 86.0%, from $4.1 million at December 31, 2020 to $572,000 at June 30, 2021.

During the six months ended June 30, 2021, construction loans in process decreased by $481,000 to $23 million at June 30, 2021 from $23.5 million at December 31, 2020.

Construction loans continue to be a large segment of our portfolio which is a reflection of the strong housing demand in our primary market area.

Deposits increased $51.4 million, or 21.8%, to $286.5 million at June 30, 2021 from $235.1 million at December 31, 2020.

Core deposits (defined as all deposits other than certificates of deposit) increased $52.6 million, or 33.0%, to $212.0 million at June 30, 2021 from $159.4 million at December 31, 2020.

Certificates of deposit decreased $1.2 million, or 1.6%, to $74.6 million at June 30, 2021 from $75.8 million at December 31, 2020.

At June 30, 2021, there were no brokered deposits.

There was a core deposit escrow account opened in 2021 totaling $22.7 million on June 30, 2021 to hold subscription funds for the purchase of Texas Community Bancshares, Inc.

common stock on July 14, 2021.

This account represents 43.1% of the core deposit growth and 44.2% of the total deposit growth.

The additional growth in deposits in 2021 was primarily due to the high customer cash balances resulting from tax refund deposits and various forms of COVID- 19 relief, primarily government stimulus payments.

The decrease in certificates of deposit is primarily due to the low interest rate environment combined with our strategy to reduce our cost of funds by reducing the balances of higher cost certificates of deposit.

Net loans and leases increased $3.6 million, or 1.7%, to $216.8 million at September 30, 2021 from $213.3 million at December 31, 2020.

During the nine months ended September 30, 2021, loan originations totaled $77.5 million of which $17.6 million were renewals or refinances of existing loans with Mineola Community Bank, resulting in originations of new loans of $59.8 million.

During the nine months ended September 30, 2021, one to four family residential real estate loans increased $14.8 million, or 10.3%, to $158.6 million at September 30, 2021 from $143.8 million at December 31, 2020.

Commercial Real estate loans decreased $5.6 million, or 19.1%, to $23.8 million at September 30, 2021;

farmland loans decreased $284,000, or 5.1%, to $5.3 million at September 30, 2021;

construction and development loans (including raw land) decreased $2.1 million, or 20.6%, to $8.0 million at September 30 2021, funded residential construction loans decreased $1.7 million, or 13.6%, to $11.0 million at September 30, 2021;

commercial and industrial loans decreased $2.8 million, or 32.0%, to $5.9 million (this includes a reduction in PPP loans of $4.0 million, or 99.1%, to $37,000) at September 30, 2021;

municipal loans increased $1.1 million, or 588.4%, to $1.2 million at September 30, 2021;

consumer loans increased $372,000, or 9.6%, to $4.2 million at September 30, 2021;

and agricultural loans and other consumer loans decreased by $125,000, or 26.8%, to $341,000 at September 30, 2021.

During the nine months ended September 30, 2021, there were $57.8 million in loan principal payoffs and $9.1 million in monthly principal payments received for a total reduction in principal of $66.8 million.

During the nine months ended September 30, 2021, construction loans in process (not fully funded) decreased $1.7 million, or 7.5% to $21.3 million at September 30, 2021.

Construction loans continue to be an important segment of our loan portfolio which is a reflection of the strong housing demand in our primary market area.

Deposits increased $29.3 million, or 12.5%, to $264.5 million at September 30, 2021 from $235.1 million at December 31, 2020.

Core deposits (defined as all deposits other than certificates of deposit) increased $30.4 million, or 19.1%, to $189.8 million at September 30, 2021 from $159.4 million at December 31, 2020.

Certificates of deposit decreased $1.1 million, or 1.5%, to $74.7 million at September 30, 2021 from $75.8 million at December 31, 2020.

At September 30, 2021, there were no brokered deposits.

The additional growth in deposits in 2021 was significantly impacted by higher customer balances resulting from tax refund deposits and various forms of COVID-19 relief, primarily government stimulus payments.

The decrease in certificates of deposit is primarily due to the low interest rate environment combined with our strategy to reduce these higher cost time deposits.

Advances from the Federal Home Loan Bank.

Advances from the Federal Home Loan Bank decreased by $1.1 million or 3.7%, to $29.6 million at June 30, 2021 from $30.8 million at December 31, 2020 due to scheduled monthly payments of principal on amortizing advances.

Total Members’ Equity.

Total members’ equity decreased $350,000, or 1.1%, to $31.6 million at June 30, 2021 from $31.9 million at December 31, 2020.

This decrease was due to $748,000 in costs related to the pending stock conversion and a $33,000 reduction in other comprehensive income from $128,000 at December 31, 2020 to $96,000 at June 30, 2021, offset by net income of $430,000 for the six months ended June 30, 2021.

At June 30, 2021, Mineola Community Bank opted to use the community bank leverage ratio framework (Tier 1 capital to average assets) for regulatory capital purposes, as permitted by the CARES Act.

At June 30, 2021, a community bank leverage ratio of at least 8.5% is required to be considered “well capitalized” under regulatory requirements.

At June 30, 2021, Mineola Community Bank was well capitalized and had a ratio of 9.34%.

Advances from the Federal Home Loan Bank of Dallas decreased by $2.7 million or 8.7%, to $28.1 million at September 30, 2021 from $30.8 million at December 31, 2020 due to scheduled monthly payments of principal on amortizing advances and the payoff of an advance that matured.

Shareholders’ Equity.

Total shareholders’ equity increased by $28.6 million, or 89.6%, to $60.6 million at September 30, 2021 from $31.9 million at December 31, 2020.

The increase was primarily the result of the mutual to stock conversion on July 14, 2021.

Gross proceeds from the sale of common stock of $30.4 million was reduced by $2.6 million with the establishment of the Mineola Community Bank leveraged ESOP, for a net addition to equity of $27.8 million.

Retained earnings was increased by consolidated income for the nine months ended September 30, 2021 of $232,000.

At September 30, 2021, Mineola Community Bank opted to use the community bank leverage ratio framework (Tier 1 capital to average assets) for regulatory capital purposes, as permitted by the CARES Act.

At September 30, 2021, a community bank leverage ratio of at least 8.5% is required to be considered “well capitalized” under regulatory requirements.

At September 30, 2021, Mineola Community Bank was well capitalized and had a ratio of 13.07%.

The following table sets forth average balance sheets, average yields and costs, and certain other information at and for the periods indicated.

2 unchanged sentences

Non-accrual loans are included in the computation of average balances.

Average yields for loans (excluding PPP loans) include loan fees of $162,000 and $146,000 for the three months ended June 30, 2021 and 2020, respectively.

No PPP loans were originated during the three months ended June 30, 2021 and $5.5 million in PPP loans were originated in the three months ending June 30, 2020.

Average yields for loans (excluding PPP loans) include loan fees of $134,000 and $189,000 for the three months ended September 30, 2021 and 2020, respectively.

No PPP loans were originated during the three months ended September 30, 2021 or the three months ended September 30, 2020.

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

For the Three Months Ended June 30,

For the Three Months Ended September 30,

(Dollars in thousands)

29 unchanged sentences

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

Comparison of the Operating Results for the Three Months Ended June 30, 2021 and June 30, 2020

Net income was $188,000 for the three months ended June 30, 2021, compared to net income of $308,000 for the three months ended June 30, 2020, a decrease of $120,000, or 39.0%.

The decrease was primarily due to a $128,000 decrease in non-interest income and a $225,000 increase in non-interest expense, partially offset by a $202,000 increase in net interest income after provision for loan losses.

Comparison of the Operating Results for the Three Months Ended September 30, 2021 and September 30, 2020

Net Income (Loss).

We had a net loss of $198,000 for the three months ended September 30, 2021, compared to net income of $208,000 for the three months ended September 30, 2020, a decrease of $406,000, or 195.2%.

The decrease in net income was primarily due to a $575,000 charitable contribution to initially fund TCBS Foundation, Inc.

as part of the conversion transaction.

This was partially offset by a $13,000 increase in net interest income, a $40,000 increase in noninterest income and a $52,000 decrease in provision for loan and lease losses when comparing the three months ended September 30, 2021 to the three months ended September 30, 2020.

Interest Income.

Interest income remained flat at $2.6 million for the three months ended June 30, 2021.

This was the result of decreased interest income on securities, cash and cash equivalents and deposits in banks, but was offset by an increase in loan interest income due to increased loan volume.

Interest income on loans was $2.4 million for the three months ended June 30, 2021, compared to $2.3 million for the three months ended June 30, 2020, an increase of $107,000 or 4.7%, net of interest income on PPP loans of $1,000 and $10,000, respectively.

This increase was primarily due to an increase of $26.4 million, or 14.1%, in the average balance of the loan portfolio to $214.3 million for the three months ended June 30, 2021 from $187.9 million for the three months ended June 30, 2020.

This was partially offset by a decrease of 40 basis points, or 8.2%, in the average yield on loans from 4.88% for the three months ended June 30, 2020 to 4.48% for the three months ended June 30, 2021.

Interest income on securities declined $36,000, or 15.9%, from $227,000 for the three months ended June 30, 2020 to $191,000 for the three months ended June 30, 2021.

This decline resulted from a decrease of 45 basis points, or 22.6%, in yield from 1.99% for the three months ended June 30, 2020 to 1.54% for the three months ended June 30, 2020 partially offset by an increase in average securities of $4.0 million, or 8.7%, from $45.6 million for the three months ended June 30, 2020 to $49.6 million for the three months ended June 30, 2021.

The rate decrease is reflective of the overall rate decline in average yields on mortgage backed securities.

Despite lower yields in the current interest rate environment, we intend to continue to purchase mortgage backed securities as a part of our overall investment and liquidity management strategies.

Interest income from interest bearing deposits in banks declined $58,000, or 79.5%, from $73,000 for the three months ended June 30, 2020 to $15,000 for the three months ended June 30, 2021.

This decline resulted from a decrease of 111 basis points, or 78.5%, in average yield from 1.41% for the three months ended June 30, 2020 to 0.30% for the three months ended June 30, 2021, combined with a $934,000, or 4.5%, decrease in average deposits in banks from $20.7 million for the three months ended June 30, 2020 to $19.7 million for the three months ended June 30, 2021.

There was also a decrease of 12 basis points, or 62.6%, in average yield on fed funds from 0.19% for the three months ended June 30, 2020 to 0.07% for the three months ended June 30, 2021, which was partially offset by a $20.6 million, or 969.9%, increase in average fed funds from $2.1 million for the three months ended June 30, 2020 to $22.8 million for the three months ended June 30, 2021.

All of these declines in average yields are primarily due to the decrease in market interest rates.

Total interest earning assets increased by $47.0 million, or 18.1%, from $260.5 million at June 30, 2020 to $307.5 million at June 30, 2021, which was offset by a decrease in the yield on interest earning assets of 62 basis points, or 15.3%, from 4.02% on June 30, 2020 to 3.40% on June 30, 2021.

Interest income decreased $80,000, or 3.0%, to $2.6 million for the three months ended September 30, 2021 from $2.7 million for the three months ended September 30, 2020.

This was primarily the result of a decreased yield on interest earning assets of 83 basis points, or 21%, from 3.97% for the three months ended September 30, 2020 to 3.14% for the three months ended September 30, 2021.

The increase in average interest earnings assets of $61.7 million, or 22.7%, from $271.3 million at September 30, 2020 to $333.0 million at September 30, 2021 could not offset the decrease in overall average yield with the current investment mix.

Interest income on loans remained flat at $2.4 million for the three months ended September 30, 2021and 2020, although the average loan volume increased $21.7 million, or 11%, to $219.8 million at September 30, 2021 from $198.1 million at September 30, 2020.

The average yield on loans decreased 54 basis points, or 11%, from 4.89% for the three months ended September 30, 2020 to 4.35% for the three months ended September 30, 2021.

Interest income on securities declined $24,000, or 11.1%, from $217,000 for the three months ended September 30, 2020 to $193,000 for the three months ended September 30, 2021.

This decline resulted from a decrease of 30 basis points, or 17.6%, in yield from 1.70% for the three months ended September 30, 2020 to 1.40% for the three months ended September 30, 2021, partially offset by an increase in average securities of $4.1 million, or 8.0%, from $51.1 million for the three months ended September 30, 2020 to $55.2 million for the three months ended September 30, 2021.

The rate decrease is reflective of the overall decline in average yields on securities.

Despite lower yields in the current interest rate environment, we plan to continue to purchase securities with funds currently being held in cash and investments in banks as a part of our overall investment strategy.

Interest income from interest bearing deposits in banks declined $23,000, or 69.7%, from $33,000 for the three months ended September 30, 2020 to $11,000 for the three months ended September 30, 2021.

This decline resulted from a decrease of 74 basis points, or 75.8%, in yield from .97% for the three months ended September 30, 2020 to 0.24% for the three months ended September 30, 2021, partially offset with a $3.4 million, or 25.1%, increase in deposits in banks from $13.6 million for the three months ended September 30, 2020 to $17.0 million for the three months ended September 30, 2021.

There was an increase of 7 basis points, or 122.7%, in yield on fed funds from 0.05% for the three months ended September 30, 2020 to 0.12% for the three months ended September 30, 2021, combined with a $38.1 million, or 1,696.0%, increase in fed funds from $2.2 million for the three months ended September 30, 2020 to $40.4 million for the three months ended September 30, 2021.

The large increase in fed funds is primarily a result of the mutual to stock conversion.

The decline in average yields is primarily due to the overall decrease in market interest rates.

Interest Expense.

Total interest expense decreased $89,000, or 14.0%, to $548,000 for the three months ended June 30, 2021 from $637,000 for the three months ended June 30, 2020 due to a decrease in the average cost of interest-bearing liabilities of 33 basis points, or 27.9%, from 1.18% for the three months ended June 30, 2020 to 0.85% for the three months ended June 30, 2021, primarily due to a decrease in deposit costs.

Interest expense on deposit accounts decreased $65,000, or 14.3%, to $389,000 for three months ended June 30, 2021 from $454,000 for the three months ended June 30, 2020, due to a decrease in the average deposit cost of 31 basis points, or 31.3%, from .99% for the three months ended June 30, 2020 to 0.68% for the three months ended June 30, 2021, primarily the result of an overall decrease in market interest rates.

This was partially offset by an increase of $45.1 million, or 24.6%, in the average deposit account balances from $183.2 million for the three months ended June 30, 2020 to $228.4 million for the three months ended June 30, 2021, with the increase being in lower cost interest bearing transaction accounts.

In addition to normal deposit growth, during the three months ended June 30, 2021, deposit growth was significantly influenced by the subscription funds held in escrow for the purchase of Texas Community Bancshares, Inc.

common stock.

The 22.7 million in funds being held in escrow to purchase the stock were in a checking account paying 10 basis points and accumulated in May and June.

The stock purchases were made on July 14, 2021.

Interest expense on Federal Home Loan Bank advances decreased $23,000, or 12.8%, to $157,000 for the three months ended June 30, 2021 from $180,000 for the three months ended June 30, 2020.

This decrease was due primarily to the decrease in the average balance of Federal Home Loan Bank advances of $3.3 million, or 9.9%, to $29.8 million for the three months ended June 30, 2021 from $33.1 million for the three months ended June 30, 2020 combined with a decrease in the average rate of seven basis points, or 3.2%, from 2.17% for the three months ended June 30, 2020 to 2.10% for the three months ended June 30, 2021.

Total interest expense decreased $93,000, or 15.3%, to $516,000 for the three months ended September 30, 2021 from $609,000 for the three months ended September 30, 2020 due to a decrease in the average cost of interest-bearing liabilities of 28 basis points, or 25.8%, from 1.09% for the three months ended September 30, 2020 to 0.81% for the three months ended September 30, 2021, primarily due to a decrease in deposit costs.

Interest expense on deposit accounts decreased $78,000, or 17.7%, to $362,000 for three months ended September 30, 2021 from $440,000 for the three months ended September 30, 2020, due to a decrease in the average deposit cost of 28 basis points, or 30.9%, from .92% for the three months ended September 30, 2020 to 0.64% for the three months ended September 30, 2021, primarily the result of an overall decrease in market interest rates.

This was partially offset by an increase of $36.5 million, or 19.1%, in the deposit account balances from $191.2 million for the three months ended September 30, 2020 to $227.7 million for the three months ended September 30, 2021, with the increase being in lower-cost interest bearing transaction accounts.

Interest expense on Federal Home Loan Bank advances decreased $15,000, or 9.0%, to $151,000 for the three months ended September 30, 2021 from $166,000 for the three months ended September 30, 2020.

This decrease was due primarily to a decrease in advances of $4.6 million, or 14.1%, to $28.3 million for the three months ended September 30, 2021 from $32.9 million for the three months ended September 30, 2020 combined with an increase in the average rate of 12 basis points, or 5.9%, from 2.02% for the three months ended September 30, 2020 to 2.14% for the three months ended September 30, 2021.

Net Interest Income.

Net interest income increased $89,000, or 4.5%, to $2.1 million for the three months ended June 30, 2021 from $2.0 million for the three months ended June 30, 2020 primarily due to a decrease in the average cost of 33 basis points, or 27.9%, from 1.18% for the three months ended June 30, 2020 to 0.85% for the three months ended June 30, 2021.

The average balance of net interest-earning assets increased from $43.8 million for the three months ended June 30, 2020 to $48.9 million for the three months ended June 30, 2021, which offset a 28 basis point decrease in the net interest rate spread from 2.84% for the three months ended June 30, 2020 to 2.56% for the three months ended June 30, 2021.

Net interest margin decreased 35 basis points, or 11.5%, to 2.69% for the three months ended June 30, 2021 from 3.04% for the three months ended June 30, 2020.

Net interest income remained basically flat at $2.1 million for the three months ended September 30, 2021 and 2020.

This is primarily due to a decrease in interest income of $80,000, or 3.0%, on interest

earning assets for the three months ended September 30, 2021 resulting primarily from a 83 basis point, or 21.0%, decrease in addition to a decrease in interest expense on interest bearing liabilities of $93,000, or 15.3%, primarily due to a 28 basis point, or 25.8%, decrease in yield.

Net interest margin decreased 55 basis points, or 18.0%, to 2.52% for the three months ended September 30, 2021 from 3.07% for the three months ended September 30, 2020.

The net interest rate spread decreased 55 basis points, or 19.1%, from 2.89% for the three months ended September 30, 2020 to 2.33% for the three months ended September 30, 2021.

The net interest rate spread and net interest margin were impacted by falling market interest rates over the comparison periods.

Provision for Loan and Lease Losses.

Based on management’s analysis of the adequacy of allowance for loan and lease losses, the provision for loan losses was $28,000 for the three months ended June 30, 2021, compared to $141,000 for the three months ended June 30, 2020, a decrease of $113,000, or 80.1% due to a higher provision in the three months ended June 30, 2020 related to increased risk and uncertainty due to the Covid-19 pandemic.

Based on management’s analysis of the adequacy of allowance for loan and lease losses, the provision for loan and lease losses was $14,000 for the three months ended September 30, 2021, compared to $66,000 for the three months ended September 30, 2020, a decrease of $52,000, or 78.8%, due in part to a higher provision in the three months ended September 30, 2020 related to increased risk and uncertainty associated with the Covid-19 pandemic.

Noninterest Income.

Noninterest income decreased $128,000, or 23.1%, to $425,000 for the three months ended June 30, 2021 from $553,000 for the three months ended June 30, 2020, due primarily to a 100% decrease in PPP SBA fee income of $207,000, partially offset by an increase in ATM fees of $64,000, or 37.4%, and an increase in service charges on deposit accounts of $21,000, or 20%, for the three months ended June 30, 2021.

There was no PPP fee income in 2021.

Noninterest income increased $40,000, or 9.7%, to $452,000 for the three months ended September 30, 2021 from $412,000 for the three months ended September 30, 2020, due partially to an increase in ATM fees of $28,000, or 14.3%, to $224,000 for the three months ended September 30, 2021 and an increase in service charges on deposit accounts of $16,000, or 11.2%, to $159,000 for the three months ended September 30, 2021.

ATM fees increased primarily due to customer usage that grew in general during the pandemic and increased numbers of preloaded cards being used to distribute funds, and from checking account growth.

That growth also contributed to the increase in service charges on deposit accounts.

Service charge income was historically low in 2020 due to fees being waived and above average balances in customer accounts.

Noninterest Expense.

Noninterest expense increased $225,000, or 11.1%, to $2.2 million for the three months ended June 30, 2021 from $2.0 million for the three months ended June 30, 2020 primarily due to increases in salaries and employee benefits, data processing, director fees and contract services.

Salary and employee benefit expenses increased by $53,000, or 4.4%, to $1.3 million for the three months ended June 30, 2021 from $1.2 million for the three months ended June 30, 2020, due to normal salary increases and an increase in insurance cost, as well as the hire of an executive officer which increased salary expense in the second quarter.

Directors’ fees also increased $20,000, or 32.8%, to $81,000 for the three months ended June 30, 2021 from $61,000 for the three months ended June 30, 2020 due to an increase in monthly director fees.

Data processing expense increased by $17,000 primarily due to additional products, an increase in the number of loan and deposit accounts, and increased usage of online services.

Contract services increased $51,000, or 42.1% to $172,000 for the three months ended June 30, 2021 from $121,000 for the three months ended June 30, 2020 due to an extraordinary executive recruiting expense of $50,000.

Other expenses increased $76,000, or 31.1%, to $320,000 for the three months ended June 30, 2021 from $244,000 for the three months ended June 30, 2020, due primarily to increased audit and accounting fees.

Noninterest expense increased $585,000, or 26.8%, to $2.8 million for the three months ended September 30, 2021 from $2.2 million for the three months ended September 30, 2020 primarily due to a contribution expense of $575,000 in the three months ended September 30, 2021 to fund the TCBS Foundation that was created as part of the mutual to stock conversion.

Salary and employee benefit expenses remained unchanged at $1.3 million for the three months ended September 30, 2021 from $1.3 million for the three months ended September 30, 2020.

However, we had an initial ESOP expense of $102,000 for the first half of 2021 expensed in the three months ended September 30, 2021, which was offset by a discretionary bonus that was paid in the three months ended September 30, 2020 of $125,000.

Directors’ compensation also increased $12,000, or 19.0%, to $75,000 for the three months ended September 30, 2021 from $63,000 for the three months ended September 30, 2020 due to an increase in monthly director fees.

Core processing expenses decreased by $38,000, or 16.2%, to $196,000 for the three months ended September 30, 2021 from $234,000 for the three months ended September 30, 2020 primarily due to a renegotiated contract with our core processor..

Other expenses increased $608,000, or 221.9%, to $882,000 for the three months ended September 30, 2021 from $274,000 for the three months ended September 30, 2020, due primarily to the $575,000 foundation contribution expense, in addition to increased fees associated with being a public company and increased fees associated with a larger asset size.

Income Tax Expense.

Income tax expense decreased by $29,000, or 45.3%, to $35,000 for the three months ended June30, 2021 from $64,000 for the three months ended June 30, 2020.

The effective tax rate was 15.8% and 17.2% for the three months ended June 30, 2021 and 2020, respectively.

Income tax expense decreased by $74,000, or 194.7%, to a benefit of $36,000 for the three months ended September 30, 2021 from a $38,000 expense for the three months ended September 30, 2020.

The effective tax rate was 15.38% and 15.45% for the three months ended September 30, 2021 and 2020, respectively.

The following table sets forth average balance sheets, average yields and costs, and certain other information at and for the periods indicated.

2 unchanged sentences

Non-accrual loans are included in the computation of average balances.

Average yields for loans (excluding PPP loans) include loan fees of $295,000 and $223,000 for the six months ended June 30, 2021 and 2020, respectively.

No PPP loans were originated during the six months ended June 30, 2021 and $5.5 million in PPP loans were originated in the six months ending June 30, 2020.

Average yields for loans (excluding PPP loans) include loan fees of $429,000 and $412,000 for the nine months ended September 30, 2021 and 2020, respectively.

No PPP loans were originated during the nine months ended September 30, 2021 and $5.5 million in PPP loans were originated in the nine months ended September 30, 2020.

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

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(Dollars in thousands)

29 unchanged sentences

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

Comparison of the Operating Results for the Six Months Ended June 30, 2021 and June 30, 2020

Net income was $430,000 for the six months ended June 30, 2021, compared to net income of $573,000 for the six months ended June 30, 2020, a decrease of $143,000, or 25.0%.

The decrease was primarily due to a $141,000 decrease in non-interest income and a $338,000 increase in non-interest expense, partially offset by a $303,000 increase in net interest income after provision for loan losses.

Comparison of the Operating Results for the Nine Months Ended September 30, 2021 and September 30, 2020

Net income was $232,000 for the nine months ended September 30, 2021, compared to net income of $781,000 for the nine months ended September 30, 2020, a decrease of $549,000, or 70.3%.

The decrease in net income was primarily due to a $575,000 charitable contribution to the TCBS Foundation, Inc.

related to our mutual to stock conversion.

Interest Income.

Interest income decreased $3,000, or 0.1%, to remain at $5.2 million for the six months ended June 30, 2021.

Interest income decreased $83,000, or 1.0%, to $7.8 million for the nine months ended September 30, 2021 from $7.9 million for the nine months ended September 30, 2020.

This decrease was the result of decreased interest income on securities, cash and cash equivalents and deposits in banks, but was offset by an increase in loan interest income due to increased loan volume.

Interest income on loans was $4.8 million for the six months ended June 30, 2021, compared to $4.6 million for the six months ended June 30, 2020, an increase of $276,000 or 6.1%, net of interest income on PPP loans of $5,000 and $10,000, respectively.

This increase was primarily due to an increase of $28.7 million, or 15.6%, in the average balance of the loan portfolio to $213.2 million for the six months ended June 30, 2021 from $184.5 million for the six months ended June 30, 2020.

This was partially offset by a decrease of 40 basis points, or 8.2%, in the average yield on loans from 4.90% for the six months ended June 30, 2020 to 4.50% for the six months ended June 30, 2021.

Interest income on securities declined $117,000, or 24.1%, from $485,000 for the six months ended June 30, 2020 to $368,000 for the six months ended June 30, 2021.

This decline resulted from a decrease of 55 basis points, or 26.7%, in yield from 2.06% for the six months ended June 30, 2020 to 1.51% for the six months ended June 30 2020 partially offset by an increase in average securities of $1.7 million, or 3.6%, from $47.0 million for the six months ended June 30, 2020 to $48.7 million for the six months ended June 30, 2021.

The rate decrease is reflective of the overall rate decline in average yields on mortgage backed securities.

Despite lower yields in the current interest rate environment, we intend to continue to purchase mortgage backed securities as a part of our overall investment and liquidity management strategies.

Interest income from interest bearing deposits in banks declined $143,000, or 80.3%, from $178,000 for the six months ended June 30, 2020 to $35,000 for the six months ended June 30, 2021.

This decline resulted from a decrease of 153 basis points, or 81.9%, in average yield from 1.87% for the six months ended June 30, 2020 to 0.34% for the six months ended June 30, 2021, which was partially offset by a $1.6 million, or 8.4%, increase in average deposits in banks from $19.1 million for the six months ended June 30, 2020 to $20.7 million for the six months ended June 30, 2021.

There was also a decrease of 49 basis points, or 86.5%, in average yield on fed funds from 0.57% for the six months ended June 30, 2020 to 0.08% for the six months ended June 30, 2021, which was partially offset by a $11.3 million, or 643.0%, increase in average fed funds from $1.8 million for the six months ended June 30, 2020 to $13.1 million for the six months ended June 30, 2021.

All of these declines in average yields are due to the decrease in market interest rates.

Total interest earning assets increased by $42.2 million, or 16.6%, from $254.9 million at June 30, 2020 to $297.1 million at June 30, 2021, which was offset by a decrease in the yield on interest earning assets of 59 basis points, or 14.5%, from 4.10% on June 30, 2020 to 3.51% on June 30, 2021.

Interest income on loans was $7.2 million for the nine months ended September 30, 2021, compared to $6.9 million for the nine months ended September 30, 2020, an increase of $246,000 or 3.5%, net of interest income on PPP loans of $6,000 and $24,000, respectively.

This increase was primarily due to an increase of $26.4 million, or 13.9%, in the loan portfolio to $214.5 million for the nine months ended September 30, 2021 from $189.1 million for the nine months ended September 30, 2020.

This was partially offset by a decrease of 45 basis points, or 9.1%, in the yield on loans from 4.90% for the nine months ended September 30, 2020 to 4.45% for the nine months ended September 30, 2021.

Interest income on securities declined $142,000, or 20.2%, from $702,000 for the nine months ended September 30, 2020 to $560,000 for the nine months ended September 30, 2021.

This decline resulted from a decrease of 47 basis points, or 24.1%, in yield from 1.93% for the nine months ended September 30, 2020 to 1.47% for the nine months ended September 30 2021, partially offset by an increase in average securities of $2.5 million, or 5.2%, from $48.4 million for the nine months ended September 30, 2020 to $50.9 million for the nine months ended September 30, 2021.

The rate decrease is reflective of the overall rate decline on securities.

Despite lower yields in the current interest rate environment, we intend to continue to purchase securities with funds currently being held in cash and investments in banks as a part of our overall investment strategy.

Interest income from interest bearing deposits in banks declined $166,000, or 78.7%, from $211,000 for the nine months ended September 30, 2020 to $45,000 for the nine months ended September 30, 2021.

This decline resulted from a decrease of 133 basis points, or 81.1%, in yield from 1.63% for the nine months ended September 30, 2020 to 0.31% for the nine months ended September 30, 2021, which was partially offset by a $2.2 million, or 12.8%, increase in deposits in banks from $17.2 million for the nine months ended September 30, 2020 to $19.4 million for the nine months ended September 30, 2021.

There was also a decrease of 25 basis points, or 70.7%, in average yield on fed funds from 0.35% for the nine months ended September 30, 2020 to 0.10% for the nine months ended September 30, 2021, which was partially offset by a $20.4 million, or 1,061.3%, increase in average fed funds from $1.9 million for the nine months ended September 30, 2020 to $22.3 million for the nine months ended September 30, 2021.

Total interest earning assets increased by $48.9 million, or 18.8%, from $260.4 million at September 30, 2020 to $309.3 million at September 30, 2021, which was offset by a decrease in the yield on interest earning assets of 67 basis points, or 16.4%, from 4.05% for the nine months ended September 30, 2020 to 3.38% for the nine months ended September 30, 2021.

Interest Expense.

Total interest expense decreased $191,000, or 14.6%, to $1.1 million for the six months ended June 30, 2021 from $1.3 million for the six months ended June 30, 2020 due to a decrease in the average cost of interest-bearing liabilities of 33 basis points, or 27.2%, from 1.22% for the six months ended June 30, 2020 to 0.89% for the six months ended June 30, 2021, primarily due to a decrease in market interest rates.

Interest expense on deposit accounts decreased $146,000, or 15.6%, to $791,000 for six months ended June 30, 2021 from $937,000 for the six months ended June 30, 2020, due to a decrease in the average deposit cost of 32 basis points, or 30.8%, from 1.04% for the six months ended June 30, 2020 to 0.72% for the six months ended June 30, 2021, primarily the result of an overall decrease in market interest rates.

This was partially offset by an increase of $39.7 million, or 22.0%, in the average deposit account balances from $180.2 million for the six months ended June 30, 2020 to $219.9 million for the six months ended June 30, 2021.

Interest expense on Federal Home Loan Bank advances decreased $44,000, or 12.2%, to $317,000 for the six months ended June 30, 2021 from $361,000 for the six months ended June 30, 2020.

This decrease was due primarily to the decrease in the average balance of Federal Home Loan Bank advances of $2.9 million, or 8.9%, to $30.1 million for the six months ended June 30, 2021 from $33.0 million for the six months ended June 30, 2020 combined with a decrease in the average rate of eight basis points, or 3.6%, from 2.18% for the six months ended June 30, 2020 to 2.10% for the six months ended June 30, 2021.

Total interest expense decreased $285,000, or 14.9%, to $1.6 million for the nine months ended September 30, 2021 from $1.9 million for the nine months ended September 30, 2020 due to a decrease in the average cost of interest-bearing liabilities of 31 basis points, or 26.8%, from 1.17% for the nine months ended September 30, 2020 to 0.86% for the nine months ended September 30, 2021, primarily due to a decrease in market interest rates.

Interest expense on deposit accounts decreased $225,000, or 16.3%, to $1.2 million for nine months ended September 30, 2021 from $1.4 million for the nine months ended September 30, 2020, due to a decrease in the average deposit cost of 31 basis points, or 30.9%, from 1.00% for the nine months ended September 30, 2020 to 0.69% for the nine months ended September 30, 2021, primarily the result of an overall decrease in market interest rates.

This was partially offset by an increase of $38.7 million, or 21.0%, in the average deposit account balances from $183.8 million for the nine months ended September 30, 2020 to $222.6 million for the nine months ended September 30, 2021.

Interest expense on Federal Home Loan Bank advances decreased $59,000, or 11.2%, to $468,000 for the nine months ended September 30, 2021 from $527,000 for the nine months ended September 30, 2020.

This decrease was due primarily to the decrease in the average balance of Federal Home Loan Bank advances of $3.5 million, or 10.6%, to $29.5 million for the nine months ended September 30, 2021 from $33.0 million for the nine months ended September 30, 2020.

Net Interest Income.

Net interest income increased $188,000, or 4.8%, to $4.1 million for the six months ended June 30, 2021 from $3.9 million for the six months ended June 30, 2020 primarily due to a decrease in the average cost of 33 basis points, or 27.2%, from 1.22% for the six months ended June 30, 2020 to 0.89% for the six months ended June

The average balance of net interest-earning assets increased from $41.4 million for the six months ended June 30, 2020 to $46.7 million for the six months ended June 30, 2021, which offset a 26 basis point decrease in the net interest rate spread from 2.88% for the six months ended June 30, 2020 to 2.62% for the six months ended June 30, 2021.

Net interest margin decreased 31 basis points, or 10.1%, to 2.76% for the six months ended June 30, 2021 from 3.07% for the six months ended June 30, 2020.

Net interest income increased $202,000, or 3.4%, to $6.2 million for the nine months ended September 30, 2021 from $6.0 million for the nine months ended September 30, 2020 due primarily to the increase in net interest-earning assets of $13.6 million, or 31.5%, from $43.2 million for the nine months ended September 30, 2020 to $56.9 million for the nine months ended September 30, 2021, which offset a 36 basis point, or 12.6%, decrease in the net interest rate spread from 2.88% for the nine months ended September 30, 2020 to 2.52% for the nine months ended September 30, 2021.

Net interest margin decreased 39 basis points, or 12.6%, to 2.68% for the nine months ended September 30, 2021 from 3.07% for the nine months ended September 30, 2020.

Provision for Loan and Lease Losses.

Based on management’s analysis of the adequacy of allowance for loan and lease losses, the provision for loan losses was $30,000 for the six months ended June 30, 2021, compared to $145,000 for the six months ended June 30, 2020, a decrease of $115,000, or 79.3% resulting from an improvement in impaired loan risk.

Based on management’s analysis of the adequacy of the allowance for loan and lease losses, the provision for loan and lease losses was $44,000 for the nine months ended September 30, 2021, compared to $211,000 for the nine months ended September 30, 2020, a decrease of $167,000, or 79.1% resulting from increased provisions in the nine months ended September 30, 2020 due to heightened uncertainty and risk associated with the COVID-19 pandemic and increased reserves for impaired loans.

Our total allowance was $1.6 million, or 0.73% of our loan balance of $218.4 million at September 30, 2021 compared to an allowance of $1.3 million, or 0.63% of our total loan balance of $207.4 million at September 30, 2020.

Noninterest Income.

Noninterest income decreased $141,000, or 14.8%, to $809,000 for the six months ended June 30, 2021 from $950,000 for the six months ended June 30, 2020, due primarily to a decrease in service charges on deposit accounts of $21,000, a decrease in other income of $6,000, and a decrease in PPP SBA fee income of $207,000 and a decrease in other service charges and fees of $12,000, partially offset by an increase in ATM fees of $111,000.

The decrease in service charges on deposit accounts is primarily related to decreased overdraft fees.

Noninterest income decreased $102,000, or 7.5%, to $1.3 million for the nine months ended September 30, 2021 from $1.4 million for the nine months ended September 30, 2020, due primarily to a 100% decrease in PPP SBA fee income of $212,000, partially offset by an increase in ATM fees of $141,000, or 27.1%.

There was also a $4,000, or 1.0% decrease in service charges on checking accounts, primarily related to decreased overdraft fees.

The decrease in fees was a direct result of above average balances in customer accounts throughout 2021.

Noninterest Expense.

Noninterest expense increased $338,000, or 8.4%, to $4.4 million for the six months ended June 30, 2021 from $4.0 million for the six months ended June 30, 2020 primarily due to increases in salaries and employee benefits, data processing, director fees and contract services.

Salary and employee benefit expenses increased by $109,000, or 4.6%, to $2.5 million for the six months ended June 30, 2021 due to normal salary increases and an increase in insurance cost.

Directors’ fees also increased $35,000, or 28.9%, to $156,000 for the six months ended June 30, 2021 from $121,000 for the six months ended June 30, 2020 due to an increase in monthly director fees.

Data processing expense increased by $47,000, or 11.7%, to $448,000 for the six months ended June 30, 2021 primarily due to additional products, an increase in the number of loan and deposit accounts, and increased usage of online services.

Contract services increased $57,000, or 24.3% to $291,000 for the six months ended June 30, 2021 due to an extraordinary professional expense of $50,000.

Noninterest expense increased $923,000, or 14.8%, to $7.1 million for the nine months ended September 30, 2021 from $6.2 million for the nine months ended September 30, 2020 primarily due to increases in contribution expenses of $575,000 in the nine months ended September 30, 2021 to fund the TCBS Foundation as part of the mutual to stock conversion on July 14, 2021.

Additionally, employee benefit expenses increased by $115,000, or 3.1%, to $3.8 million for the nine months ended September 30, 2021 due primarily to a $102,000 ESOP benefit expense representing one half of the ESOP funding expense for 2021.

The Mineola Community Bank ESOP plan is an employee benefit added as part of the conversion as well.

Director compensation also increased $184,000, or 25.5%, to $231,000 for the nine months ended September 30, 2021 from $121,000 for the nine months ended September 30, 2020 due to an increase in monthly director fees.

Data processing expense increased by $9,000, or 1.4%, to $644,000 for the nine months ended September 30, 2021 primarily due to additional products, an increase in the number of loan and deposit accounts, and increased usage of online services, partially offset by a reduction in monthly expenses after our contract with FPS Gold was renegotiated and extended in the nine months ended September 30, 2021.

Contract services increased $55,000, or 15.2% to $416,000 for the nine months ended September 30, 2021 partially due to a professional expense of $50,000 associated with hiring.

Income Tax Expense.

Income tax expense decreased by $33,000, or 28.4%, to $83,000 for the six months ended June 30, 2021 from $116,000 for the six months ended June 30, 2020.

The effective tax rate was 16.2% and 16.8% for the six months ended June 30, 2021 and 2020, respectively.

Income tax expense decreased by $107,000, or 69.5%, to $47,000 for the nine months ended September 30, 2021 from $154,000 for the nine months ended September 30, 2020.

This decrease was due primarily to the loss and related tax benefit related to the TCBS Foundation contribution expense in the nine months ended September 30, 2021.

The effective tax rate was 16.85% and 16.47% for the nine months ended September 30, 2021 and 2020, respectively.

Liquidity and Capital Resources

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We are also able to borrow from the Federal Home Loan Bank of Dallas.

At June 30, 2021, we had outstanding advances of $29.6 million from the Federal Home Loan Bank of Dallas.

At June 30, 2021, we had unused borrowing capacity of $89.2 million with the Federal Home Loan Bank of Dallas.

In addition, at June 30, 2021, we had a $10.0 million line of credit with Texas Independent Bankers Bank and a $5.0 million line of credit with First Horizon Bank.

At June 30, 2021, there was no outstanding balance under either of these facilities.

At September 30, 2021, we had outstanding advances of $28.1 million from the Federal Home Loan Bank of Dallas.

At September 30, 2021, we had unused borrowing capacity of $101.7 million with the Federal Home Loan Bank of Dallas.

In addition, at September 30, 2021, we had a $10.0 million line of credit with Texas Independent Bankers Bank and a $5.0 million line of credit with First Horizon Bank.

At September 30, 2021, there was no outstanding balance under either of these facilities.

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 flows for the

six months ended June 30, 2021 and 2020 included as part of the consolidated financial statements included in this report.

For additional information, see the consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 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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Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

At June 30, 2021, Mineola Community Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date.

Texas Community Bancshares, Inc.

is a separate legal entity from Mineola Community 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 Mineola Community Bank.

The amount of dividends that Mineola Community Bank may declare and pay to Texas Community Bancshares, Inc.

is governed by applicable banking laws and regulations.

At September 30, 2021, Texas Community Bancshares, Inc.

(on a stand-alone, unconsolidated basis) had liquid assets of $13.4 million.

At September 30, 2021, Mineola Community 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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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.

estimate what our net interest income would be for a 12-month period.

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 200 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

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The tables below set forth the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.

At June 30, 2021

At September 30, 2021

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 June 30, 2021, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 4.73% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 0.27% decrease in net interest income.

The table above indicates that at September 30, 2021, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 6.08% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 0.27% decrease in net interest income.

Net Economic Value .

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

At June 30, 2021

At September 30, 2021

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 June 30, 2021, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 0.55% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 2.65% decrease in EVE.

The table above indicates that at September 30, 2021, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 3.30% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 1.43% increase in EVE.

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

7 unchanged sentences

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 1. Financial Statements