What changed in this filing

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Item 1. Financial Statements

2024-08-13 compared with 2024-05-14 · 441 added, 283 removed, 976 unchanged (43% of the section changed)

3 unchanged sentences

Consolidated Statements of Financial Condition

March 31, 2024 and December 31, 2023

June 30, 2024 and December 31, 2023

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

4 unchanged sentences

Securities available for sale

Securities held to maturity (fair values of $ 22,031 at March 31, 2024 and $ 23,400 at December 31, 2023)

Loans held for sale, at fair value (amortized cost $ 17,000 at March 31, 2024)

Loans receivable, net of allowance for credit losses of $ 2,823 at March 31, 2024 and $ 3,096 at December 31, 2023

Securities held to maturity (fair values of $ 21,253 at June 30, 2024 and $ 23,400 at December 31, 2023)

Loans receivable, net of allowance for credit losses of $ 2,975 at June 30, 2024 and $ 3,096 at December 31, 2023

Net investment in direct financing leases

16 unchanged sentences

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, 3,373,723 issued and 3,187,881 outstanding at March 31, 2024 and 3,350,268 issued and 3,175,426 outstanding at December 31, 2023

Common stock, $ 0.01 par value, 19,000,000 shares authorized, 3,371,117 issued and 3,155,675 outstanding at June 30, 2024 and 3,350,268 issued and 3,175,426 outstanding at December 31, 2023

Additional paid in capital

2 unchanged sentences

Unearned Employee Stock Ownership Program (ESOP) shares, at cost

Treasury stock, at cost ( 185,842 shares at March 31, 2024 and 174,842 shares at December 31, 2023)

Treasury stock, at cost ( 215,442 shares at June 30, 2024 and 174,842 shares at December 31, 2023)

Total shareholders' equity

3 unchanged sentences

Consolidated Statements of Operations (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

Three Months Ended

Six Months Ended

Interest Income

10 unchanged sentences

Net Interest Income

Provision for Credit Losses - loans

Provision for Credit Losses - off-balance sheet credit exposures

Provision for Credit Losses

Provision (Credit) for Credit Losses - loans

Provision (Credit) for Credit Losses - off-balance sheet credit exposures

Provision (Credit) for Credit Losses

Net Interest Income After Provision for Credit Losses

4 unchanged sentences

Net loss on sale of loans

Net change in fair value on loans held for sale

Net gain on sale of other real estate owned

Net loss on sale of other real estate owned

Net loss on sale of premises and equipment

Net appreciation on bank-owned life insurance

Total noninterest loss

Total noninterest income (loss)

Noninterest Expenses

7 unchanged sentences

Total noninterest expense

Loss Before Income Taxes

Income Tax Benefit

Loss per share - basic

Loss per share - diluted

Income (Loss) Before Income Taxes

Income Tax Expense (Benefit)

Net Income (Loss)

Income (loss) per share - basic

Income (loss) per share - diluted

Weighted-average shares outstanding - basic

3 unchanged sentences

and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

Three Months Ended March 31, 2024 and 2023

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

Three and Six Months Ended June 30, 2024 and 2023

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

Three Months Ended

Other items of comprehensive (loss) income

Six Months Ended

Net Income (Loss)

Other items of comprehensive income (loss)

Debt Securities

2 unchanged sentences

Net changes in fair value of available for sale securities hedged, before tax

Total other items of comprehensive income, before tax

Income tax expense related to other items of comprehensive income

Total other items of comprehensive income (loss), before tax

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

Total other items of comprehensive income (loss), after tax

Comprehensive (Loss) Income

Comprehensive Income (Loss)

See Notes to Consolidated Financial Statements

2 unchanged sentences

Consolidated Statements of Shareholders’ Equity (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

1 unchanged sentence

Shareholders'

Three Months Ended June 30, 2024 and 2023

Balance at April 1, 2024

Stock based compensation expense

Other comprehensive income, net of tax

Cash dividend declared ($ 0.04 per share)

ESOP shares committed to be released, 3,277 shares

Treasury stock purchased, 29,600 shares

Balance at June 30, 2024

Balance at April 1, 2023

Stock based compensation expense

Other comprehensive loss, net of tax

Cash dividend declared ($ 0.03 per share)

ESOP shares committed to be released, 3,258 shares

Treasury stock purchased, 50,267 shares

Balance at June 30, 2023

Comprehensive

Shareholders'

Six Months Ended June 30, 2024 and 2023

Balance at January 1, 2024

4 unchanged sentences

Treasury stock purchased, 40,600 shares

Balance at March 31, 2024

Balance at June 30, 2024

Balance at January 1, 2023

4 unchanged sentences

Other comprehensive income, net of tax

Cash dividend declared ($ 0.02 per share)

Cash dividend declared ($ 0.02 per share in Q1 and $ 0.03 per share in Q2)

ESOP shares committed to be released, 6,516 shares

Balance at March 31, 2023

Treasury stock purchased, 50,267 shares

Balance at June 30, 2023

See Notes to Consolidated Financial Statements

2 unchanged sentences

Consolidated Statements of Cash Flows (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

Three Months Ended

Six Months Ended

Operating Activities

Adjustments to reconcile net loss to net cash from operating activities

Provision for credit losses - loans

Provision for credit losses - off-balance sheet credit exposures

Provision (credit) for credit losses - loans

Provision (credit) for credit losses - off-balance sheet credit exposures

Net amortization (accretion) of securities

3 unchanged sentences

Loss on disposal of fixed assets

Gain on sale of other real estate owned

Loss on sale of other real estate owned

Appreciation on bank-owned life insurance

3 unchanged sentences

Loss on fair value adjustment of fair value hedges

Change in fair value of loans held for sale

Net change in

8 unchanged sentences

Maturities, prepayments and calls

Redemptions of restricted investments

Purchases of restricted investments

4 unchanged sentences

Additions of premises and equipment

Net Cash used for Investing Activities

Net Cash from (used for) Investing Activities

Financing Activities

12 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

1 unchanged sentence

Texas Community Bancshares, Inc.

(the “Company”), a Maryland corporation and registered bank holding company, was incorporated on March 5, 2021 and became the holding company for Broadstreet Bank, SSB (the “Bank”), formerly known as Mineola Community Bank, SSB prior to December 4, 2023, as part of a mutual to stock conversion completed on July 14, 2021.

(the “Company”), a Maryland corporation and registered bank holding company, was incorporated on March 5, 2021.

The Company became the holding company for Broadstreet Bank, SSB (the “Bank”), formerly known as Mineola Community Bank, SSB prior to December 4, 2023, as part of a mutual to stock conversion completed on July 14, 2021.

The Company’s shares trade on the NASDAQ under the symbol TCBS.

4 unchanged sentences

Interim Financial Statements

The interim unaudited consolidated financial statements as of March 31, 2024, and for the three months ended March 31, 2024 and 2023, 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 June 30, 2024, and for the three and six months ended June 30, 2024 and 2023, are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented.

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

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

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be achieved for the remainder of the year ending December 31, 2024, or any other period.

The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be achieved for the remainder of the year ending December 31, 2024, or any other period.

Certain prior period data presented in the consolidated financial statements has 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 audited consolidated financial statements and notes thereto of the Company for the year ended December 31, 2023.

The accompanying consolidated financial statements have been derived from and should be read in conjunction with the audited consolidated financial statements and notes, contained in the Company’s Form 10-K for the year ended December 31, 2023.

Reference is made to the accounting policies of the Company described in the Notes to Consolidated Financial Statements contained in Form 10-K for the year ended December 31, 2023.

4 unchanged sentences

In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

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

Actual results could differ

Texas Community Bancshares, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

from those estimates.

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

Loans Held for Sale

4 unchanged sentences

Loans held for sale, for which the fair value option has been elected, are recorded at fair value as of each balance sheet date.

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying financial statements to maintain consistency between periods presented.

The reclassifications had not impact on net income or shareholder’s equity.

Subsequent Events

On July 31, 2024, the Company permanently closed the Loan Production office in Canton, Texas, resulting in premises and equipment dispositions of approximately $4.

Note 2 – Earnings Per Share

4 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

1 unchanged sentence

Three Months Ended

Six Months Ended

Net Income (Loss)

Weighted average shares outstanding for basic earnings per share:

4 unchanged sentences

Weighted average shares outstanding for dilutive earnings per share

Basic loss per share

Dilutive loss per share

Basic earnings (loss) per share

Dilutive earnings (loss) per share

Nonvested restricted stock awards for 71,401 and 115,964 shares of common stock were not considered in computing diluted earnings per share for 2024 and 2023, respectively, because they were antidilutive.

4 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

1 unchanged sentence

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

March 31, 2024

June 30, 2024

Available for Sale

25 unchanged sentences

Total securities held to maturity

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

During the three months ended March 31, 2023, the Company had sales of available for sale securities of $ 17,027 with a loss of $ 1,687 .

At March 31, 2024 and December 31, 2023, securities with a fair value of $ 16,102 and $ 14,152 , respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

During the three and six months ended June 30, 2024, the Company had no sales of available for sale securities or held to maturity securities.

During the three months ended June 30, 2023, the Company had no sales of available for sale or held to maturity securities.

During the six months ended June 30, 2023, the Company had sales of available for sale securities of $ 17,027 with a loss of $ 1,687 .

At June 30, 2024 and December 31, 2023, securities with a fair value of $ 16,168 and $ 14,152 , respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

Texas Community Bancshares, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2024, follows:

The amortized cost and fair value of debt securities by contractual maturity at June 30, 2024, follows:

Available for Sale

7 unchanged sentences

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

March 31, 2024

June 30, 2024

Less than 12 months

15 unchanged sentences

Government and agency (1,0)

At March 31, 2024 and December 31, 2023, the Company had investment securities with approximately $ 9,858 and $ 9,593 , respectively, in unrealized losses, which have been in continuous loss positions for more than twelve months.

At June 30, 2024 and December 31, 2023, the Company had investment securities with approximately $ 9,453 and $ 9,593 , respectively, in unrealized losses, which have been in continuous loss positions for more than twelve months.

The Company’s assessments indicated that the cause of the market depreciation was primarily the change in market interest rates and not the issuers’ financial condition or downgrades by rating agencies.

4 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

until maturity.

The Company monitors credit quality of debt securities held-to-maturity through the use of credit rating.

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

The Company monitors credit rating on a continual basis.

The following table summarizes bond ratings for the Company’s held-to-maturity portfolio, based upon amortized cost, issued by state and political subdivisions and other securities as of March 31, 2024 and December 31, 2023:

March 31, 2024

June 30, 2024

mortgage-backed

3 unchanged sentences

U.S Government

As of March 31, 2024 and December 31, 2023, there were no securities held to maturity on nonaccrual status or past due.

As of June 30, 2024 and December 31, 2023, there were no securities held to maturity on nonaccrual status or past due.

Mortgage-backed securities and Collateralized Mortgage Obligations

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

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

The Company has no plans to sell these securities and will continue to monitor the unrealized losses’ effect on the financial statements.

1 unchanged sentence

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

Because the decline in fair value is attributable to changes in interest rates and prepayment speeds and not credit quality, and because the Company does not intend to sell the investments before recovery of their amortized cost bases, which may be maturity.

The unrealized losses on the Company’s investment in mortgage-backed securities have not been recognized into income and no allowance for credit losses was established at March 31, 2024 or December 31, 2023.

Because the decline in fair value is attributable to changes in market interest rates and prepayment speeds and not credit quality, and because the Company does not intend to sell the investments before recovery of their amortized cost bases, which may be maturity.

The unrealized losses on the Company’s investment in mortgage-backed securities have not been recognized into income and no allowance for credit losses was established at June 30, 2024 or December 31, 2023.

Government and agency

The unrealized losses on the Company’s investments in U.S.

government and agency securities have not been recognized into income and no allowance for credit losses was established because the bonds are of high credit quality, management does not intend to sell, and it is likely that management will not be required to sell the securities prior to their anticipated recovery.

The decline in fair value is largely due to increases in market interest rates and not credit quality deterioration and the fair value is expected to recover as the bonds approach maturity.

The decline in fair value is largely due to increases in market interest rates and not credit quality deterioration and the fair value is expected to recover as the

Texas Community Bancshares, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

bonds approach maturity.

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.

Therefore, an allowance for credit losses is deemed unnecessary at March 31, 2024 and December 31, 2023.

Therefore, an allowance for credit losses is deemed unnecessary at June 30, 2024 and December 31, 2023.

Municipal Securities and Corporate Bonds

The unrealized losses on the Company’s investments in state and municipal securities and corporate bonds have not been recognized into income and no allowance for credit losses was established because the bonds are of high credit quality, management does not intend to sell, and it is likely that management will not be required to sell the securities prior to their anticipated recovery.

The decline in fair value is largely due to increases in market interest rates and not credit quality deterioration and the fair value is expected to recover as the bonds approach maturity.

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

Therefore, an allowance for credit losses is deemed unnecessary at March 31, 2024 and December 31, 2023.

Therefore, an allowance for credit losses is deemed unnecessary at June 30, 2024 and December 31, 2023.

Note 4 - Loans and Allowance for Credit Losses

4 unchanged sentences

Total real estate

Municipalities

Consumer and other

1 unchanged sentence

Loans and leases, net

Direct financing leases of $ 840 and $ 36 are included in consumer and other loans at March 31, 2024 and December 31, 2023, respectively.

Direct financing leases of $ 1,340 and $ 36 are included in consumer and other loans at June 30, 2024 and December 31, 2023, respectively.

Texas Community Bancshares, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

The following tables set forth information regarding the activity in the allowance for credit losses for the three months ended March 31, 2024 and March 31, 2023:

March 31, 2024

The following tables set forth information regarding the activity in the allowance for credit losses for the three and six months ended June 30, 2024 and June 30, 2023:

June 30, 2024

Allowance for credit losses:

1 unchanged sentence

& multi-family

Municipalities

Three months ended

Beginning balance, April 1, 2024

Provision (credit) for credit losses

Loans charged-off

Balance, June 30, 2024

Six months ended

Balance, January 1, 2024

Provision for credit losses

Provision (credit) for credit losses

Loans charged-off

Balance, March 31, 2024

Balance, March 31, 2024 allocated to loans and leases individually evaluated

Balance, March 31, 2024 allocated to loans and leases collectively evaluated

Balance, June 30, 2024

Balance, June 30, 2024 allocated to loans and leases individually evaluated

Balance, June 30, 2024 allocated to loans and leases collectively evaluated

Loans and leases receivable:

Balance, March 31, 2024 loans and leases individually evaluated

Balance, March 31, 2024 loans and leases collectively evaluated

Balance, March 31, 2024

Balance, June 30, 2024 loans and leases individually evaluated

Balance, June 30, 2024 loans and leases collectively evaluated

Balance, June 30, 2024

Texas Community Bancshares, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

March 31, 2023

June 30, 2023

Allowance for credit losses:

1 unchanged sentence

& multi-family

Municipalities

Three months ended

Beginning balance, April 1, 2023

Provision for credit losses

Loans charged-off

Balance, June 30, 2023

Six months ended

Beginning balance prior to adoption of ASC 326

2 unchanged sentences

Loans charged-off

Balance, March 31, 2023

Balance, June 30, 2023

December 31, 2023

1 unchanged sentence

& multi-family

Municipalities

Allowance for credit losses:

5 unchanged sentences

Balance, December 31, 2023

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

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

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days and still accruing as of March 31, 2024 and December 31, 2023:

March 31, 2024

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 90 days and still accruing as of June 30, 2024 and December 31, 2023:

June 30, 2024

with Allowance

3 unchanged sentences

Commercial real estate

Municipalities

Consumer and other

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2024 and 2023

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

December 31, 2023

5 unchanged sentences

Consumer and other

The Company did not recognize any interest income on nonaccrual loans during the periods ended March 31, 2024 or March 31, 2023.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

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

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2024 and December 31, 2023:

March 31, 2024

The Company did not recognize any interest income on nonaccrual loans during the periods ended June 30, 2024 or June 30, 2023.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of June 30, 2024 and December 31, 2023:

June 30, 2024

Construction and land

4 unchanged sentences

Commercial real estate

The Company had $ 1,504 and $ 1,157 in collateral-dependent loans at March 31, 2024 and December 31, 2023, respectively.

The Company had $ 1,445 and $ 1,157 in collateral-dependent loans at June 30, 2024 and December 31, 2023, respectively.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2024 and 2023

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

Internal Risk Categories

7 unchanged sentences

The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

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

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

14 unchanged sentences

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

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

Based upon available information, positive action by the Company is

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended June 30, 2024 and 2023

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

required to avert or minimize loss.

Credits with this classification have often become collateral dependent and any shortage in collateral or other likely loss amount is recorded as a specific valuation allowance.

5 unchanged sentences

The Company evaluates the loan risk grading system definitions and allowance for credit loss methodology on an ongoing basis.

No significant changes were made during the period ended March 31, 202 4.

No significant changes in methodology were made during the period ended June 30, 2024.

Certain loan segments were reclassified during the period ended June 30, 2024.

Each loan segment is made up of loan categories with similar risk characteristics.

The Company’s realignment of the segments primarily consisted of separately presenting municipality loans from the consumer and other category.

Management believes this accurately represents the risk profile of each loan segment.

The prior period balances have been revised to conform to the current period presentation.

These reclassifications did not have a significant impact on the allowance for credit losses.

Texas Community Bancshares, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

Based on the most recent analysis performed, the risk category of loans by class of loans and gross chargeoffs as of March 31, 2024 and December 31, 2023 are as follows:

March 31, 2024

Based on the most recent analysis performed, the risk category of loans by class of loans and gross chargeoffs as of June 30, 2024 and December 31, 2023 are as follows:

June 30, 2024

Term Loans Amortized Cost Basis by Origination Year

8 unchanged sentences

Special mention

Municipalities

Special mention

Consumer and other

4 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

10 unchanged sentences

Special mention

Municipalities

Special mention

Consumer and other

1 unchanged sentence

Current period gross charge-offs

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses.

The Company also evaluates credit quality based on the aging status of the loan, which is subsequently presented.

Texas Community Bancshares, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

following table presents the amortized cost of performing and non-performing loans as of March 31, 2024 and December 31, 2023:

March 31, 2024

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses.

The Company also evaluates credit quality based on the aging status of the loan, which is subsequently presented.

The following table presents the amortized cost of performing and non-performing loans as of June 30, 2024 and December 31, 2023:

June 30, 2024

Term Loans Amortized Cost Basis by Origination Year

8 unchanged sentences

Nonperforming

Municipalities

Nonperforming

Consumer and other

3 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

10 unchanged sentences

Nonperforming

Municipalities

Nonperforming

Consumer and other

3 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

The following is an aging analysis for loans as of March 31, 2024 and December 31, 2023:

March 31, 2024

The following is an aging analysis for loans as of June 30, 2024 and December 31, 2023:

June 30, 2024

Construction and land

1 unchanged sentence

Commercial real estate

Municipalities

Consumer and other

3 unchanged sentences

Commercial real estate

Municipalities

Consumer and other

2 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 months ended March 31, 2024 and 2023.

The following table presents interest income recognized on loans that are collateral-dependent and individually reviewed for the three months ended March 31, 2024 and 2023:

No interest income was recognized for loans on nonaccrual status for the three and six months ended June 30, 2024 and 2023.

The following table presents interest income recognized on loans that are collateral-dependent and individually reviewed for the three and six months ended June 30, 2024 and 2023:

Three Months Ended

Six Months Ended

1-4 Residential & multi-family

During the three months ended March 31, 2024 and 2023, there were no modifications of loans to borrowers in financial difficulty.

During the three and six months ended June 30, 2024 and 2023, there were no modifications of loans to borrowers in financial difficulty.

Texas Community Bancshares, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

There have been no modifications to borrowers with financial difficulty in the three months ended March 31, 2024 and 2023 that subsequently defaulted The Company has no commitments to loan additional funds to borrowers whose loans have been modified but may on occasion extend financing to these borrowers.

There have been no modifications to borrowers with financial difficulty in the three and six months ended June 30, 2024 and 2023 that subsequently defaulted.

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

Note 5 - Off-Balance-Sheet Activities

4 unchanged sentences

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

At March 31, 2024 and December 31, 2023, the following financial instruments were outstanding whose contract amounts represent credit risk:

At June 30, 2024 and December 31, 2023, the following financial instruments were outstanding whose contract amounts represent credit risk:

Contract Amount

March 31, 2024

June 30, 2024

December 31, 2023

10 unchanged sentences

One line renews annually and the other line is in effect until either party changes the terms of the agreement.

At March 31, 2024, the Company had no commitments to purchase securities.

At June 30, 2024, 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.

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Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

1 unchanged sentence

Supplemental disclosure of cash flow information is as follows:

Three Months Ended

Six Months Ended

Supplemental cash flow information:

7 unchanged sentences

Premises and equipment transferred to other real estate owned

During the three months ended June 30, 2024, the Company reclassified $2,276 from loans held for sale to loans held for investment due to no longer having plans to sell these loans and instead holding the loans until maturity or payoff.

The allowance for credit losses attributable to the loans reclassified was an estimated $21.

Note 7 - Minimum Regulatory Capital Requirements

4 unchanged sentences

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

At March 31, 2024 and December 31, 2023, the Bank’s CBLR ratio was 10.09 % and 10.76 %, respectively, which exceeded all regulatory capital requirements under the CBLR framework, and the Bank was considered to be “well-capitalized.”

At June 30, 2024 and December 31, 2023, the Bank’s CBLR ratio was 10.14 % and 10.76 %, respectively, which exceeded all regulatory capital requirements under the CBLR framework, and the Bank was considered to be “well-capitalized.”

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

2 unchanged sentences

(i) the generally applicable risk-based and leverage capital requirements of the generally applicable capital rules;

(ii) the capital ratio requirements in order to be considered well-capitalized under the prompt corrective action framework;

(iii) any other applicable capital or leverage requirements.

Qualifying community banking organizations that elect to be under the CBLR framework generally would be exempt from the current capital framework, including risk-based capital requirements and capital conservation buffer requirements.

(ii) the capital ratio requirements in order to be considered well-capitalized under the prompt corrective action

Texas Community Bancshares, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

(iii) any other applicable capital or leverage requirements.

Note 8 - Fair Value Measurements

18 unchanged sentences

● Level 3 Inputs – Significant unobservable inputs that reflect an entity ’ s own assumptions that market participants would use in pricing the assets or liabilities.

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

There were no changes in valuation techniques during either the three months ended March 31, 2024 or the year ended December 31, 2023.

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

If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-

Texas Community Bancshares, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

based parameters.

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

There were no changes in valuation techniques during either the six months ended June 30, 2024 or the year ended December 31, 2023.

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

If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market- based parameters.

Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.

8 unchanged sentences

Third-party valuations are validated by the Company using the Bloomberg Valuation Service’s derivative pricing functions.

No significant differences were identified during the validation as of March 31, 2024.

No significant differences were identified during the validation as of June 30, 2024.

Collateral-dependent Loans – Collateral dependent loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral.

8 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

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

Loans Held for Sale, at Fair Value – The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan (Level 2).

The following table summarizes financial assets measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

March 31, 2024

Loans Held for Sale, at Fair Value – The fair value of a loan held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan (Level 2).

The following table summarizes financial assets measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

June 30, 2024

Financial assets

5 unchanged sentences

Derivative instruments

Loans held for sale, at fair value

Total financial assets

13 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

The following table summarizes financial and non-financial assets measured at fair value on a nonrecurring basis as of March 31, 2024 and December 31, 2023, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

March 31, 2024

The following table summarizes financial and non-financial assets measured at fair value on a nonrecurring basis as of June 30, 2024 and December 31, 2023, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

June 30, 2024

Financial assets

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Other real estate owned

During the three months ended March 31, 2024 and 2023, certain collateral-dependent loans were remeasured and reported at fair value through a specific valuation allowance allocation for credit losses based upon the fair value of the underlying collateral.

At March 31, 2024, collateral-dependent loans with a carrying value of $ 375 were reduced by specific valuation allowance allocations totaling $ 316 to a reported fair value of $ 59 .

During the six months ended June 30, 2024 and 2023, certain collateral-dependent loans were remeasured and reported at fair value through a specific valuation allowance allocation for credit losses based upon the fair value of the underlying collateral.

At June 30, 2024, collateral-dependent loans with a carrying value of $ 362 were reduced by specific valuation allowance allocations totaling $ 316 to a reported fair value of $ 46 .

At December 31, 2023, collateral dependent loans with a carrying value of $ 345 were reduced by specific valuation allowance allocations totaling $ 300 to a reported fair value of $ 45 .

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

There was a charge to provision for credit losses of $ 16 as a result of valuation allowances moving from the general reserve to specific reserve for the three months ended March 31, 2024.

There was no charge to the provision for credit losses as a result of the valuation allowances for the three months ended March 31, 2023.

At March 31, 2024, the Company had other real estate owned consisting of two bank properties that were purchased for future expansion, but have now been listed for sale.

At December 31, 2023, the Company had one commercial building held as other real estate owned with a carrying value of $ 162 , which was sold at a gain during the three months ended March 31, 2024.

There was a charge to provision for credit losses of $ 16 as a result of valuation allowances moving from the general reserve to specific reserve for the six months ended June 30, 2024.

There was no charge to the provision for credit losses as a result of the valuation allowances for the six months ended June 30, 2023.

At June 30, 2024, the Company had other real estate owned consisting of two bank properties that were purchased for future expansion, but have now been listed for sale.

At December 31, 2023, the Company had one commercial building held as other real estate owned with a carrying value of $ 162 , which was sold at a gain during the six months ended June 30, 2024.

Texas Community Bancshares, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

3 unchanged sentences

Significant Input

March 31, 2024

June 30, 2024

Collateral-dependent loans

18 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

(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:

March 31, 2024

June 30, 2024

Carrying Value

30 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

4 unchanged sentences

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

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

FHLB advances – Current market rates for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

Accrued interest payable – The carrying value approximates the fair value.

Note 9 - Employee Stock Ownership Plan

In connection with the conversion to an entity owned by shareholders, the Company established an Employee Stock Ownership Plan for the exclusive benefit of eligible employees.

In connection with the mutual to stock conversion completed on July 14, 2021, the Company established an Employee Stock Ownership Plan for the exclusive benefit of eligible employees.

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

12 unchanged sentences

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

ESOP compensation was $ 46 and $ 49 for the three months ended March 31, 2024 and 2023.

ESOP compensation was $ 47 and $ 93 for the three and six months ended June 30, 2024 and $ 38 and $ 87 for the three and six months ended June 30, 2023.

Texas Community Bancshares, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

A summary of the ESOP shares as of March 31, 2023 and December 31, 2023 are as follows:

March 31, 2024

A summary of the ESOP shares as of June 30, 2024 and December 31, 2023 are as follows:

June 30, 2024

December 31, 2023

9 unchanged sentences

Securities available for sale – The Company has a swap agreement to hedge the interest rate risk on a portion of its fixed rate securities available for sale.

At March 31, 2024 and December 31, 2023, the aggregate notional amount of the related hedged items of the securities available for sale totaled $ 25 million and the fair value of the swaps associated with the derivative related to hedged items was an unrealized gain of $ 560 and $ 119 , respectively.

At June 30, 2024 and December 31, 2023, the aggregate notional amount of the related hedged items of the securities available for sale totaled $ 25 million and the fair value of the swaps associated with the derivative related to hedged items was an unrealized gain of $ 637 and $ 119 , respectively.

The Company applies hedge accounting in accordance with ASC 815, Derivatives and Hedging , and the fair value hedge and the underlying hedged item, attributable to the risk being hedged, are recorded at fair value with unrealized gains and losses being recorded within other interest income on the Company’s Consolidated Statements of Operations.

7 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2024 and 2023

Three and Six Months Ended June 30, 2024 and 2023

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

The following table summarizes key elements of the Company’s derivative instruments as of March 31, 2024 and December 31, 2023, segregated by derivatives that are considered accounting hedges and those that are not:

March 31, 2024

The following table summarizes key elements of the Company’s derivative instruments as of June 30, 2024 and December 31, 2023, segregated by derivatives that are considered accounting hedges and those that are not:

June 30, 2024

December 31, 2023

3 unchanged sentences

Fair Value Hedges

The following table summarizes the carrying value of the Company’s hedged assets in fair value hedges and the associated cumulative basis adjustments included in those carrying values as of March 31, 2024 and December 31, 2023:

March 31, 2024

June 30, 2024

December 31, 2023

6 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 Texas Community Bancshares, Inc.’s (“the Company”) consolidated financial condition at March 31, 2024 and consolidated results of operations for the three months ended March 31, 2024 and 2023.

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding Texas Community Bancshares, Inc.’s (the “Company”) consolidated financial condition at June 30, 2024 and consolidated results of operations for the three and six months ended June 30, 2024 and 2023.

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.

11 unchanged sentences

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

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

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

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

56 unchanged sentences

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

Management believes the allowance for credit losses on loans was adequate at March 31, 2024 and December 31, 2023.

Management believes the allowance for credit losses on loans was adequate at June 30, 2024 and December 31, 2023.

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

3 unchanged sentences

The allowance for credit losses on unfunded commitments is calculated using the same methodology as loans and considers the funding probability and the amount to be expected to be funded over the life of the commitment.

The Company assesses held to maturity (HTM) securities for credit losses and due to the HTM securities primarily being issued by government-sponsored entities or being highly rated municipals, management concluded that no credit loss should be recognized for these securities for the three months ended March 31, 2024.

The CECL standard also requires for credit losses on available for sale (AFS) securities to be recorded through an allowance for credit losses rather a write-down of the individual security.

As of March 31, 2024, the Company did not have an allowance for credit losses on AFS securities based upon the decline in fair value being attributable to changes in market interest rates and not credit quality.

As of June 30, 2024, the Company did not have an allowance for credit losses on AFS securities based upon the decline in fair value being attributable to changes in market interest rates and not credit quality.

Income Taxes.

10 unchanged sentences

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

Comparison of Financial Condition at March 31, 2024 and December 31, 2023

Comparison of Financial Condition at June 30, 2024 and December 31, 2023

Total Assets.

Total assets were $463.8 million at March 31, 2024, an increase of $11.8 million, or 2.6%, from $452.0 million at December 31, 2023.

The increase was due primarily to increases in cash, fed funds sold and interest bearing deposits in banks of $24.1 million, or 94.9%, to $49.5 million at March 31, 2024 from $25.4 million at December 31, 2023 offset by a decrease in securities of $1.5 million, or 1.2%, and a decrease in net loans and leases of $12.4 million, or 4.4%, from $279.9 million at December 31, 2023 to $267.5 million at March 31, 2024.

The decrease in loans was primarily due to the block sale of 54 performing loans totaling $12.4 million at a loss of $1.5 million, net of mortgage servicing rights, as part of a portfolio repositioning strategy to take advantage of repricing opportunities with the goal of increasing yield, shortening weighted average life and diversifying the loan portfolio while reducing the concentration in residential mortgages.

Total assets were $451.6 million at June 30, 2024, a decrease of $449,000, or 0.1%, from $452.0 million at December 31, 2023.

The decrease was due primarily to a decrease in net loans and leases of $11.2 million, or 4.0%, to $268.7 million at June 30, 2024 from $279.9 million at December 31, 2023 and a decrease in securities of $5.9 million, or 4.9%, to $113.4 million at June 30, 2024 from $119.3 million at December 31, 2023 partially offset by increases in cash, fed funds sold and interest bearing deposits in banks of $14.6 million, or 57.5%, to $40.0 million at June 30, 2024 from $25.4 million at December 31, 2023.

The decrease in loans was primarily due to the sale of 122 performing residential mortgage loans totaling $27.1 million at a loss of $3.8 million, net of mortgage servicing rights retained, as part of a portfolio repositioning strategy to take advantage of repricing opportunities with the goal of increasing yield, shortening weighted average life and diversifying the loan portfolio by reducing the concentration in residential mortgage loans.

Cash and Cash Equivalents.

Cash and cash equivalents increased $7.9 million, or 60.3%, to $21.0 million (which includes fed funds sold of $15.1 million) at March 31, 2024 from $13.1 million (which includes fed funds sold of $7.6 million) at December 31, 2023.

This increase was primarily the result of the loan sale of $12.4 million resulting primarily from the strategic sale of a block of loans in March 2024, an increase in deposits of $14.6 million, or, 4.6%, and a decrease in securities on $1.5 million, partially offset primarily by a write down of $2.3 million to mark loans held for sale to fair value, dividends paid of $128,000, stock repurchases of $154,000, and an increase of $16.2 million in interest bearing deposits in banks to maximize return.

Cash and cash equivalents increased $19.2 million, or 146.6%, to $32.3 million (which includes fed funds sold of $25.5 million) at June 30, 2024 from $13.1 million (which includes fed funds sold of $7.6 million) at December 31, 2023.

This increase was primarily the result of a decrease in net loans and leases of $11.2, million, or 4.0%, resulting primarily from the strategic sale of loans totaling $27.1 million, an increase in deposits of $7.4 million, or, 2.3%, a decrease in securities of $5.9 million, and a decrease in interest bearing deposits in banks of $4.5 million partially offset primarily by dividends paid of $255,000, stock repurchases of $584,000, and a decrease in FHLB advances of $5.7 million.

Interest Bearing Deposits in Banks.

Interest bearing deposits in banks increased $16.2 million, or 131.7%, to $28.5 million at March 31, 2024, compared to $12.3 million at December 31, 2023.

The increase was primarily the result of net purchases of $5.0 million in Qwickrate Certificates of Deposit (CDs) and an increase of $11.0 million in excess cash being moved to a higher yielding interest bearing account.

Interest bearing deposits in banks decreased $4.5 million, or 36.6%, to $7.8 million at June 30, 2024, compared to $12.3 million at December 31, 2023.

The decrease was primarily the result of net purchases of $4.2 million in Qwickrate Certificates of Deposit (CDs) offset by $9.0 million being moved to cash primarily to be used for the payoff of $5.0 million in FHLB advances.

The Bank utilizes the Qwickrate listing service, which is a resource where banks can purchase and sell Certificates of Deposit (CDs) with other banks to invest excess funds in CDs at a competitive rate.

At March 31, 2024, there was $8.2 million in short-term (3-6 months) Qwickrate CDs with other banks.

At June 30, 2024, there was $7.5 million in short-term (3-6 months) Qwickrate CDs with other banks.

Securities Available for Sale.

Securities available for sale decreased by $243,000, or 0.3%, to $93.1 at March 31, 2024 from $93.3 million at December 31, 2023.

During the three months ended March, 31 2024, we had purchases of securities of $994,000 and received paydowns of $1.5 million.

Net unrealized losses on the available for sale portfolio, including derivatives, decreased by $417,000, or 7.5%, to $5.2 million, net of tax, from $5.6 million, net of tax, due primarily to decreases in unrealized losses from rising market interest rates.

Gross unrealized losses on the AFS portfolio consisting of 83 securities decreased from $7.2 million, or 7.2% of the portfolio’s amortized cost of $100.5 million at December 31, 2023, to $7.1 million, or 7.1% of the amortized cost of $100.2 million at March 31, 2024.

Securities available for sale decreased by $3.7 million, or 4.0%, to $89.6 million at June 30, 2024 from $93.3 million at December 31, 2023.

During the six months ended June 30, 2024, we had purchases of securities of $3.5 million, received paydowns of $5.7 million and had one security of $2.0 million called.

Net unrealized losses on the available for sale portfolio, including derivatives, decreased by $723,000, or 12.9%, to $4.9 million, net of tax, from $5.6 million, net of tax, due primarily to decreases in market interest rates.

Gross unrealized losses on the AFS portfolio consisting of 84 securities decreased from $7.2 million, or 7.2% of the portfolio’s amortized cost of $100.5 million at December 31, 2023, to $6.8 million, or 7.1% of the amortized cost of $96.4 million at June 30, 2024.

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

Securities Held to Maturity.

Securities held to maturity decreased by $1.2 million, or 4.6%, to $24.8 million at March 31, 2024 from $26.0 million at December 31, 2023.

This decrease is due primarily to one security of $395,000 being called and paydowns of $818,000.

The HTM portfolio had 69 securities with gross unrealized losses of $2.7 million, or 10.8%, of the amortized cost of $24.8 million at March 31, 2024 compared to $2.6 million, or 10.0%, of the amortized cost of $26.0 million at December 31, 2023.

Securities held to maturity decreased by $2.2 million, or 8.5%, to $23.8 million at June 30, 2024 from $26.0 million at December 31, 2023.

This decrease is due primarily to one security of $395,000 being called and paydowns of $1.7 million.

The HTM portfolio had 69 securities with gross unrealized losses of $2.6 million, or 10.9%, of the amortized cost of $23.8 million at June 30, 2024 compared to $2.6 million, or 10.0%, of the amortized cost of $26.0 million at December 31, 2023.

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

Loans and Leases Receivable, Net.

Net loans and leases receivable decreased $12.4 million, or 4.4%, to $267.5 million at March 31, 2024 from $279.9 million at December 31, 2023.

The decrease in loans was primarily due to the sale of a block of 54 performing loans totaling $12.4 million being sold at a loss of $1.5 million, net of mortgage servicing rights, and a write down of $2.3 million on 81 additional performing loans from a book value of $17.0 million to a fair value of $14.7 million while these loans are being held for sale.

The sales are part of a portfolio repositioning strategy to take advantage of repricing opportunities with the goal of increasing yield, shortening weighted average life and diversifying the loan portfolio while reducing the concentration in residential loans and the risk related to that concentration.

There were additional loan principal paydowns of $3.7 million and payoffs of $13.3 million partially offset by $16.8 million in originations.

The loan and lease portfolio, including loans held for sale of $14.7 million 1-4 family residential loans, totaled $270.3 million and is comprised of $255.1 million, or 94.4%, real estate loans, $6.8 million, or 2.51%, commercial and industrial loans, $4.5 million, or 1.7%, consumer loans and $3.9 million, or 1.4%, municipal and other loans.

Net loans and leases receivable decreased $11.2 million, or 4.0%, to $268.7 million at June 30, 2024 from $279.9 million at December 31, 2023.

The decrease in loans was primarily due to the sale of 122 performing residential mortgage loans totaling $27.1 million being sold at a loss of $3.8 million, net of mortgage servicing rights retained of $239,000.

The sales are part of a portfolio repositioning strategy to take advantage of repricing opportunities with the goal of increasing yield, shortening weighted average life and diversifying the loan portfolio by reducing concentration risk in residential mortgage loans.

In addition to the loan sale, there was $42.1 million in loan originations partially offset by $24.3 million in payoffs and $6.7 million in normal monthly loan paydowns.

The loan and lease portfolio totaled $271.7 million and is comprised of $249.2 million, or 91.7%, real estate loans, $7.0 million, or 2.6%, commercial and industrial loans, $6.7 million, or 2.5%, consumer loans and $8.7 million, or 3.2%, municipal and other loans.

Real estate loans include $145.3 million, or 53.5%, 1-4 family residential loans, $10.5 million, or 3.9%, multi-family loans, $42.7 million, or 15.7%, commercial real estate (CRE), $20.5 million, or 7.5%, in 1-4 family construction loans, $22.8 million, or 8.4%, in other construction and development loans and $7.5 million, or 2.7%, in farmland loans.

Total loans include interim construction loans of $34.4 million, or 69.7%, of the completed project balance of $49.3 million which includes $20.3 million in single-family residence loans, including $5.2 million in speculative loans to builders, $2.0 million in subdivision construction, $16.8 million in muti-family construction and $10.2 million in CRE.

The total construction loan portfolio consisted of 78 loans with outstanding balances of $50.6 million at March 31, 2024 compared to 82 loans at December 31, 2023 with outstanding balances of $54.3 million.

Deposits increased $14.6 million, or 4.6%, to $331.8 million at March 31, 2024 from $317.2 million at December 31, 2023.

Core deposits (defined as all deposits other than certificates of deposit) increased $11.3 million, or 5.7%, to $209.8 million at March 31, 2024 from $198.5 million at December 31, 2023.

Retail certificates of deposit increased $3.3 million, or 3.1%, to $109.8 million at March 31, 2024 from $106.5 million at December 31, 2023.

At March 31, 2024, there were $12.0 million in brokered deposits.

The average cost of deposits increased 48 basis points, or 23.1%, to 2.56% at March 31, 2024 compared to 2.08% at December 31, 2023.

At March 31, 2024, there were 179 accounts with balances in excess of the $250,000 FDIC insurance limit with an aggregate balance of $93.9 million, or 28.3% of deposits.

The amount that was over $250,000 was $49.2 million, or 14.8%, that was potentially uninsured, including certificates of deposit of $9.7 million and $39.5 million in checking, MMDA and savings accounts.

The total construction loan portfolio consisted of 69 loans with outstanding balances of $49.3 million at June 30, 2024 compared to 82 loans at December 31, 2023 with outstanding balances of $54.3 million.

Deposits increased $7.4 million, or 2.3%, to $324.6 million at June 30, 2024 from $317.2 million at December 31, 2023.

Core deposits (defined as all deposits other than certificates of deposit) increased $6.4 million, or 3.2%, to $204.9 million at June 30, 2024 from $198.5 million at December 31, 2023.

Retail certificates of deposit increased $1.3 million, or 1.2%, to $107.8 million at June 30, 2024 from $106.5 million at December 31, 2023.

At June 30, 2024, there was $12.0 million in brokered deposits.

The average cost of deposits increased 48 basis points, or 23.1%, to 2.56% at June 30, 2024 compared to 2.08% at December 31, 2023.

At June 30, 2024, there were 187 accounts with balances in excess of the $250,000 FDIC insurance limit with an aggregate balance of $93.7 million, or 28.9% of deposits.

The amount that was over the FDIC insurance limit was $47.0 million, or 14.5%, that was potentially uninsured, including certificates of deposit of $9.4 million, money market accounts of $10.8 million and $26.8 million in checking and savings accounts.

Advances from Federal Home Loan Bank.

Advances from Federal Home Loan Bank decreased by $369,000, or 0.5%, to $76.5 million at March 31, 2024 from $76.9 million at December 31, 2023 due to normal payments on amortizing advances.

There are six advances totaling $15.7 million maturing in 2024.

Advances from Federal Home Loan Bank decreased by $5.7 million, or 7.4%, to $71.2 million at June 30, 2024 from $76.9 million at December 31, 2023 due to the payoff of an advance of $5.0 million and to normal payments on amortizing advances of $684,000.

There are five advances totaling $10.7 million that will mature in 2024.

There are no current plans to renew these advances.

Total Shareholders’ Equity.

Total shareholders’ equity decreased $2.2 million, or 4.1%, to $51.5 million at March 31, 2024 from $53.7 million at December 31, 2023.

This decrease was primarily due to a net loss for the three months ended March 31, 2024 of $2.7 million resulting primarily from the loss on the sale of loans of $1.5 million, net of mortgage servicing rights, and a $2.3 million provision to mark loans held for sale to fair value.

The Company also repurchased 11,000 shares of its common stock for a decrease of $154,000 and paid quarterly dividends totaling $128,000, partially offset by an increase in equity of $286,000 from vesting of the 2022 Equity Plan and an increase of $46,000 with the quarterly accrual of ESOP commitments for the three months ended March 31, 2024.

At March 31, 2024, Broadstreet Bank opted to use the community bank leverage ratio framework (Tier 1 capital to average assets) for regulatory capital purposes.

Total shareholders’ equity decreased $1.9 million, or 3.5%, to $51.8 million at June 30, 2024 from $53.7 million at December 31, 2023.

This decrease was primarily due to a net loss for the six months

ended June 30, 2024 of $2.3 million resulting primarily from the pre-tax loss of $3.8 million, net of mortgage servicing rights retained, on the sale of residential mortgage loans.

The Company also repurchased 40,600 shares of its common stock for a decrease of $584,000 and paid quarterly dividends totaling $255,000, partially offset by an increase in equity of $446,000 from vesting of the 2022 Equity Plan and an increase of $93,000 with the accrual of ESOP commitments for the six months ended June 30, 2024.

There was a decrease in the accumulated other comprehensive loss, net of tax, due to decreases in market interest rates that added $723,000 to shareholder’s equity at June 30, 2024.

At June 30, 2024, Broadstreet Bank opted to use the community bank leverage ratio framework (Tier 1 capital to average assets) for regulatory capital purposes.

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

At March 31, 2024, Broadstreet Bank was well capitalized and had a ratio of 10.09%.

At June 30, 2024, Broadstreet Bank was well capitalized and had a ratio of 10.14%.

Average Balance Sheets

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

Average yields for loans include loan fees of $85,000 and $70,000 for the three months ended March 31, 2024 and 2023, respectively.

Average yields for loans include loan fees of $115,000 and $143,000 for the three months ended June 30, 2024 and 2023, respectively.

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

For the Three Months Ended March 31,

For the Three Months Ended June 30,

(Dollars in thousands)

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(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 March 31, 2024 and March 31, 2023

The Company had a net loss of $2.7 million for the three months ended March 31, 2024, compared to a net loss of $1.0 million for the three months ended March 31, 2023, a decrease of $1.7 million, or 170.0%.

The net loss was primarily due to a $2.4 million, or 200.0%, decrease in noninterest income resulting primarily from the sale of a group of 54 performing loans as part of a balance sheet repositioning strategy at a loss of $1.5 million, net of mortgage servicing rights, and funding a valuation allowance of $2.3 million to bring $17.0 million in residential mortgage loans held for sale to fair value.

Additionally, there was a $433,000, or $16.4%, increase in noninterest expenses, partially offset by a $367,000, or 407.8%, decrease in the provision for credit losses and a $422,000, or 147.6%, decrease in income tax expense.

Comparison of the Operating Results for the Three months ended June 30, 2024 and June 30, 2023

The Company had net income of $348,000 for the three months ended June 30, 2024, compared to net income of $160,000 for the three months ended June 30, 2023, an increase of $188,000, or 117.5%.

The increase was primarily due to a $531,000, or 20.0%, increase in net interest income partially offset by a $31,000, or 33.3%, increase in the provision for credit losses, a $118,000, or 23.1% decrease in noninterest income, a $175,000, or 6.1% increase in noninterest expense and a $19,000 increase in income tax expense.

Interest Income.

Interest income increased $1.3 million, or 31.7%, to $5.4 million for the three months ended March 31, 2024 from $4.1 million for the three months ended March 31, 2023.

Interest income increased $1.2 million, or 26.7%, to $5.7 million for the three months ended June 30, 2024 from $4.5 million for the three months ended June 30, 2023.

This was primarily the result of increased interest income on loans due to increased yields and an increase in the average balance of loans.

Average interest earning assets increased by $32.4 million, or 8.3%, from $392.5 million for the three months ended March 31, 2023 to $424.9 million at March 31, 2024, and an increase in the yield on interest earning assets of 88 basis points, or 20.7%, from 4.22% for the three months ended March 31, 2023 to 5.10% for the three months ended March 31, 2024.

Interest income on loans increased $929,000, or 33.4%, to $3.7 million for the three months ended March 31, 2024 from $2.8 million for the three months ended March 31, 2023.

This increase resulted primarily from an increase in average loans of $24.5 million, or 9.5%, from $256.8 million for the three months ended March 31, 2023 to $281.3 million for the three months ended March 31, 2024, with an increase in loan yield of 94 basis points, or 21.8%, to 5.27% for the three months ended March 31, 2024 from 4.33% for the three months ended March 31, 2023.

The increase in loan yield was due primarily to increased market interest rates and increased loan fees primarily on loans other than residential mortgage loans.

Additionally, the Company recognized $76,000 in interest income on a loan payoff from a loan had been on nonaccrual status.

Interest income on securities decreased $37,000, or 3.0%, from $1.3 million for the three months ended March 31, 2023 to $1.2 million for the three months ended March 31, 2024.

This decrease resulted from a decrease in the average balance of securities of $7.7 million, or 6.1%, from $126.8 million for the three months ended March 31, 2023 to $119.1 million for the three months ended March 31, 2024, partially offset by and an increase of 13 basis points, or 3.3%, in average yield from 3.95% for the three months ended March 31, 2023 to 4.09% for the three months ended March 31, 2024.

The rate increase is reflective of market rate increases and the diversification of the securities portfolio to include higher yielding commercial mortgage-backed securities, subordinated bank debt and other bonds with interest rates that are not tied to conventional residential mortgage loan rates.

Interest income on interest bearing deposits in banks increased $207,000, or 422.4%, from $49,000 for the three months ended March 31, 2023 to $256,000 for the three months ended March 31, 2024.

This increase resulted primarily from an increase in average interest bearing deposits of $14.1 million, or 300.0% from $4.7 million for the three months ended March 31, 2023 to $18.8 million for the three months ended March 31, 2024 and an increase in average yield of 128 basis points, or 30.8%, from 4.16% for the three months ended March 31, 2023 to 5.44% for the three months ended March 31, 2024.

There was also an increase of $28,000 in fed funds interest income for the three months ended March 31, 2024 primarily from an increase of 76 basis points, or 16.6%, in average yield on fed funds sold from 4.58% for the three months ended March 31, 2023 to 5.34% for the three months ended March 31, 2024 and a $1.6 million, or 47.1%, increase in average fed funds sold from $3.4 million for the three months ended March 31, 2023 to $5.0 million for the three months ended March 31, 2024.

The increase in yields on deposits in banks and fed funds is reflective of the increase in market interest rates and migration to higher rate deposits.

Dividends from restricted investments increased $30,000, or 120.0%, from $25,000 for the three months ended March 31, 2023 to $55,000 for the three months ended March 31, 2024.

This increase primarily resulted from a $27,000, or 108%, increase in dividends from FHLB stock from $25,000 for the three months ended March 31, 2023 to $52,000 for the three months ended March 31, 2024.

Interest income from the fair value hedge was $115,000 for the three months ended March 31, 2024.

Average interest earning assets increased by $24.5 million, or 6.1%, from $403.4 million for the three months ended June 30, 2023 to $427.9 million for the three months ended June 30, 2024, and interest earning assets increased 81 basis points, or 18.0%, from 4.50% for the three months ended June 30, 2023 to 5.31% for the three months ended June 30, 2024.

Interest income on loans increased $702,000, or 22.7%, to $3.8 million for the three months ended June 30, 2024 from $3.1 million for the three months ended June 30, 2023.

This increase resulted primarily from an increase in average loans of $9.6 million, or 3.6%, from $266.5 million for the three months ended June 30, 2023 to $276.1 million for the three months ended June 30, 2024, with an increase in loan yield of 86 basis points, or 18.4%, to 5.51% for the three months ended June 30, 2024 from 4.65% for the three months ended June 30, 2023.

The increase in loan yield was due primarily to increased market interest rates.

Interest income on securities decreased $20,000, or 1.6%, from $1.3 million for the three months ended June 30, 2023 to $1.2 million for the three months ended June 30, 2024.

This decrease resulted from a decrease in the average balance of securities of $10.0 million, or 7.9%, from $126.3 million for the three months ended June 30, 2023 to $116.3 million for the three months ended June 30, 2024, partially offset by an increase of 27 basis points, or 6.8%, in average yield from 3.99% for the three months ended June 30, 2023 to 4.26% for the three months ended June 30, 2024.

The rate increase is reflective of market interest rate increases and the diversification of the securities portfolio to include higher yielding commercial mortgage-backed securities, subordinated bank debt and other bonds with interest rates that are not tied to conventional residential mortgage loan rates.

Interest income on restricted investments, which includes primarily Federal Home Loan Bank (FHLB) and TIB Bank stock dividends, increased $18,000, or 50.0%, from $36,000 for the three months ended June 30, 2023 to $54,000 for the three months ended June 30, 2024.

This increase resulted from an increase in the average balance of these investments of $557,000 or 18.6%, from $3.0 million for the three months ended June 30, 2023 to $3.6 million for the three months ended June 30, 2024 in addition to an increase of 127 basis points, or 26.5%, in average yield from 4.80% for the three months ended June 30, 2023 to 6.07% for the three months ended June 30, 2024.

The increase in yield was due primarily to increases in dividends paid by the banks and the increase in investments is due to additional required purchases of FHLB stock resulting from an increase in FHLB advances.

Interest income on interest bearing deposits in banks increased $143,000, or 181.0%, from $79,000 for the three months ended June 30, 2023 to $222,000 for the three months ended June 30, 2024.

This increase resulted primarily from an increase in average interest-bearing deposits of $8.7 million, or 116.0% from $7.5 million for the three months ended June 30, 2023 to $16.2 million for the three months ended June 30, 2024 and an increase in average yield of 128 basis points, or 30.5%, from 4.21% for the three months ended June 30, 2023 to 5.49% for the three months ended June 30, 2024.

There was also an increase of $208,000 in fed funds interest income for the three months ended June 30, 2024 primarily from an increase of 26 basis points, or 5.2%, in average yield on fed funds sold from 5.07% for the three months ended June 30, 2023 to 5.33% for the three months ended June 30, 2024 and a $15.5 million, or 645.8%, increase in average fed funds sold from $2.4 million for the three months ended June 30, 2023 to $17.9 million for the three months ended June 30, 2024.

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

During the three months ended June 30, 2024, the Company maintained higher account balances in interest bearing deposits in banks and fed funds sold, due to receipt of cash from the loan sale and generally maintaining higher levels of liquidity.

Interest income from the fair value hedge was $125,000 for the three months ended June 30, 2024 compared to $33,000 for the three months ended June 30, 2023.

The Company entered into an interest rate swap agreement in May 2023 to convert a portion of its interest rate exposure from fixed rates to floating rates to help manage the interest rate risk position.

1 unchanged sentence

Interest Expense.

Total interest expense increased $941,000, or 62.2%, to $2.4 million for the three months ended March 31, 2024 from $1.5 million for the three months ended March 31, 2023 primarily due to an increase in average interest earning liabilities of $38.4 million to $351.4 million for the three months ended March 31, 2024 from $313.0 million for the three months ended March 31, 2023 and an increase in the average cost of interest-bearing liabilities of 86 basis points, or 44.5%, from 1.93% for the three months ended March 31, 2023 to 2.79% for the three months ended March 31, 2024, primarily due to an increase in deposit and funding costs.

Interest expense on deposit accounts increased $771,000, or 78.2%, to $1.8 million for the three months ended March 31, 2024 from $986,000 for the three months ended March 31, 2023, due to an increase in the average deposit cost of 100 basis points, or 64.2%, from 1.56% for the three months ended March 31, 2023 to 2.56% for the three months ended March 31, 2024 and an increase in average interest-bearing deposits of $21.4 million, or 8.5% from $252.6 million for the three months ended March 31, 2023 to $274.0 million for the three months ended March 31, 2024, with the increase being in higher yielding certificates of deposit and money market deposits, offset by a decrease in lower cost interest-bearing transaction and savings accounts.

Total interest expense increased $612,000, or 32.3%, to $2.5 million for the three months ended June 30, 2024 from $1.9 million for the three months ended June 30, 2023 primarily due to an increase in average interest-bearing liabilities of $35.6 million, or 11.0%, to $360.1 million for the three months ended June 30, 2024 from $324.5 million for the three months ended June 30, 2023 and an increase in the average cost of interest-bearing liabilities of 45 basis points, or 19.3%, from 2.32% for the three months ended June 30, 2023 to 2.77% for the three months ended June 30, 2024, primarily due to increases in higher cost deposit accounts.

Interest expense on deposit accounts increased $566,000, or 45.4%, to $1.8 million for the three months ended June 30, 2024 from $1.2 million for the three months ended June 30, 2023, due to an increase in the average deposit cost of 58 basis points, or 29.6%, from 1.97% for the three months ended June 30, 2023 to 2.55% for the three months ended June 30, 2024 and an increase in average interest-bearing deposits of $31.0 million, or 12.2% from $253.8 million for the three months ended June 30, 2023 to $284.8 million for the three months ended June 30, 2024, with the largest increases being in higher cost certificates of deposit and money market accounts.

Interest expense on Federal Home Loan Bank advances increased $47,000, or 7.4%, to $683,000 for the three months ended June 30, 2024 from $636,000 for the three months ended June 30, 2023.

This increase was due primarily to the increase in the average balance of Federal Home Loan Bank advances of $4.4 million, or 6.3%, to $74.6 million for the three months ended June 30, 2024 from $70.2 million for the three months ended June 30, 2023 and an increase in average yield of three basis points, or 0.8%, from 3.63% for the three months ended June 30, 2023 to 3.66% for the three months ended June 30, 2024.

The increase in average advances was primarily to fund loan growth while maintaining a higher level of liquidity.

Net Interest Income.

Net interest income increased $531,000, or 20.0%, to $3.2 million for the three months ended June 30, 2024 from $2.7 million for the three months ended June 30, 2023 due primarily to an increase in net interest margin of 35 basis points, or 13.2%, to 2.98% for the three months ended June 30, 2024 from 2.63% for the three months ended June 30, 2023 partially offset by a decrease in average net interest-earning assets of $11.1 million, or 14.1%, to $67.8 million at June 30, 2024 from $78.9 million at June 30, 2023.

The increase in net interest margin was primarily due to balance sheet restructurings, which included the loan sale in 2024, allowing us to place the funds in higher yielding assets and increase the rate of repricing interest-earning assets to better align with the rate of repricing interest-bearing liabilities.

The average yield on interest-earning assets increased by 81 basis points, or 18.0%, compared to the average increase on interest bearing liabilities increasing by 45 basis points, or 19.3%.

Provision for Credit Losses.

Based on management’s analysis of the adequacy of the allowance for credit losses, the provision for credit losses increased $31,000, or 33.3%, to $124,000 for the three months ended June 30, 2024 from a provision for credit losses of $93,000 for the three months ended June 30, 2023, primarily due to an adjustment to the allowance related to the loan sale and an increase in average loans and leases of $9.6 million from $266.5 million for the three months ended June 30, 2023 to $276.1 million for the three months ended June 30, 2024.

The provision increase was primarily due to loan volume.

The allowance for credit losses was 1.10% of total loans at June 30, 2024.

Noninterest Income.

Noninterest income decreased $118,000, or 23.1%, to $393,000 for the three months ended June 30, 2024 from $511,000 for the three months ended June 30, 2023, primarily due to an additional loss of $69,000 on the final piece of the loan sale due to a reduction in price primarily resulting from changing market interest rates.

The loan sale included 122 performing loans totaling $27.1 million at a pre-tax loss of $3.8 million, net of mortgage servicing rights retained.

Servicing was retained on 86, or 70.5%, of the loans sold.

The sale was part of a portfolio repositioning strategy to take advantage of repricing opportunities with the goal of increasing yield, shortening weighted average life and diversifying the loan portfolio by reducing the concentration in residential mortgages.

Decreases including a charge of $78,000 related to the write-down of bank property that was being held for expansion being marked to fair value and moved to other real estate owned when listed for sale, a decrease in other

income of $8,000 primarily due to an off-book loan that paid off in 2023 and a decrease in net appreciation of bank-owned life insurance of $13,000 due to a one-time fee for changing carriers to increase yield and future earnings, were partially offset by an increase in other service charges and fees of $54,000 primarily due to receiving $10,000 in new fee income from the servicing retained in the 2024 loan sale and an increase of $42,000 in fee income on wholesale loans sold from $43,000 for the three months ended June 30, 2023 to $85,000 for the three months ended June 30, 2024.

Noninterest Expense.

Noninterest expense increased $175,000, or 6.1%, to $3.1 million for the three months ended June 30, 2024 from $2.9 million for the three months ended June 30, 2023 primarily due to increases in occupancy and equipment expenses related to new branches, data processing, technology and other expenses.

Occupancy and equipment expenses increased $68,000, or 33.2%, from $205,000 for the three months ended June 30, 2023 to $273,000 for the three months ended June 30, 2024 primarily due to expenses related to putting two new branches into operation.

Data processing increased $12,000, or 5.4%, due primarily to normal cost increases from providers and technology expenses increased $74,000, or 64.3%, primarily due to an increase in card processing fees associated with a “tap” debit card implementation project.

We expect to receive a credit in a future period to cover the cost of implementation.

Other expenses increased $73,000, or 14.9%, primarily due to increased auditing expenses of $46,000, or 70.8%, due primarily to additional internal audits and overall price increases, an increase in FDIC assessment expenses of $11,000 primarily due to an overall increase in the FDIC assessment rate, a $5,000 increase in marketing expenses, a $14,000 increase in training expenses and a nonrecurring fee of $37,000 related to a board member departure were partially offset by a decrease of $53,000 in other operating expenses due to a nonrecurring $56,000 fee in 2023 for executive recruiting.

Salary and employee benefit expenses decreased by $39,000, or 2.3%, to $1.6 million for the three months ended June 30, 2024 from $1.7 million for the three months ended June 30, 2023, due primarily to reduced benefit costs from terminating a deferred compensation plan at December 31, 2023, CEO transition in 2023 and decreased director fees of $21,000 due to a reduction in the number of directors in the quarter ended June 30, 2024.

Income Tax Expense.

Income tax expense increased by $19,000, or 61.3%, to $50,000 for the three months ended June 30, 2024 from $31,000 for the three months ended June 30, 2023, due to an increase in net income before taxes of $207,000 from $191,000 for the three months ended June 30, 2023 to $398,000 for the three months ended June 30, 2024.

The effective tax rate was 12.5% and 16.2% for the three months ended June 30, 2024 and 2023, respectively.

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

Average Balance Sheets

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

No tax-equivalent yield adjustments have been made, as the effects would be immaterial.

All average balances are daily average balances.

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

Average yields for loans include loan fees of $200,000 and $214,000 for the six months ended June 30, 2024 and 2023, respectively.

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

For the Six Months Ended June 30,

(Dollars in thousands)

Interest-earning assets:

Loans (excluding PPP loans)

Allowance for credit losses

Restricted stock

Interest-bearing deposits in banks

Federal funds sold

Financial derivative

Total interest-earning assets

Noninterest-earning assets

Interest-bearing liabilities:

Interest-bearing demand deposits

Regular savings and other deposits

Money market deposits

Certificates of deposit

Total interest-bearing deposits

Advances from the Federal Home Loan Bank

Other liabilities

Total interest-bearing liabilities

Noninterest-bearing demand deposits

Other noninterest-bearing liabilities

Total liabilities

Total shareholders' equity

Total liabilities and shareholders' equity

Net interest income

Net interest rate spread (1)

Net interest-earning assets (2)

Net interest margin (3)

Average interest-earning assets to interest-bearing liabilities

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

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

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

Comparison of the Operating Results for the Six months ended June 30, 2024 and June 30, 2023

The Company had a net loss of $2.3 million for the six months ended June 30, 2024, compared to a net loss of $857,000 for the six months ended June 30, 2023, a decrease of $1.4 million, or 155.6%.

The net loss was primarily due to a $2.5 million, or 357.1%, decrease in noninterest income resulting primarily from the sale of 122 performing residential mortgage loans as part of a balance sheet repositioning strategy at a pre-tax loss of $3.8 million, net of mortgage servicing rights retained.

Additionally, there was a $608,000, or 10.9%, increase in noninterest expenses, partially offset by an increase in net interest income of $862,000, or 16.3%, to $6.1 million for the six months ended June 30, 2024 from $5.3 million for the six months ended June 30, 2023 and a $336,000, or 183.6%, decrease in the provision for credit losses and a $403,000, or 158.0%, decrease in income tax expense.

Interest Income.

Interest income increased $2.4 million, or 27.6%, to $11.1 million for the six months ended June 30, 2024 from $8.7 million for the six months ended June 30, 2023.

This was primarily the result of increased interest income on loans and interest-bearing deposits in banks due to increased yields and an increase in the average balances.

Average interest earning assets increased by $28.1 million, or 7.1%, from $398.3 million for the six months ended June 30, 2023 to $426.4 million at June 30, 2024, and an increase in the yield on interest earning assets of 85 basis points, or 19.5%, from 4.36% for the six months ended June 30, 2023 to 5.21% for the six months ended June 30, 2024.

Interest income on loans increased $1.6 million, or 27.1%, to $7.5 million for the six months ended June 30, 2024 from $5.9 million for the six months ended June 30, 2023.

This increase resulted primarily from an increase in average loans of $17.0 million, or 6.5%, from $261.7 million for the six months ended June 30, 2023 to $278.7 million for the six months ended June 30, 2024, with an increase in loan yield of 90 basis points, or 19.9%, to 5.39% for the six months ended June 30, 2024 from 4.49% for the six months ended June 30, 2023.

The increase in loan yield was due primarily to increased market interest rates.

Additionally, the Company recognized $76,000 during the six months ended June 30, 2024 in interest income on a loan payoff from a loan that had been on nonaccrual status.

Interest income on securities decreased $57,000, or 2.3%, from $2.5 million for the six months ended June 30, 2023 to $2.4 million for the six months ended June 30, 2024.

This decrease resulted from a decrease in the average balance of securities of $8.8 million, or 7.0%, from $126.5 million for the six months ended June 30, 2023 to $117.7 million for the six months ended June 30, 2024, partially offset by and an increase of 20 basis points, or 5.1%, in average yield from 3.97% for the six months ended June 30, 2023 to 4.17% for the six months ended June 30, 2024.

Interest income on interest bearing deposits in banks increased $350,000, or 273.4%, from $128,000 for the six months ended June 30, 2023 to $478,000 for the six months ended June 30, 2024.

This increase resulted primarily from an increase in average interest-bearing deposits of $11.4 million, or 186.9% from $6.1 million for the six months ended June 30, 2023 to $17.5 million for the six months ended June 30, 2024 and an increase in average yield of 127 basis points, or 30.3%, from 4.19% for the six months ended June 30, 2023 to 5.46% for the six months ended June 30, 2024.

There was also an increase of $236,000 in fed funds interest income for the six months ended June 30, 2024 primarily from an increase of 54 basis points, or 11.4%, in average yield on fed funds sold from 4.79% for the six months ended June 30, 2023 to 5.33% for the six months ended June 30, 2024 and a $8.6 million, or 296.6%, increase in average fed funds sold from $2.9 million for the six months ended June 30, 2023 to $11.5 million for the six months ended June 30, 2024.

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

Dividends from restricted investments increased $48,000, or 78.7%, from $61,000 for the six months ended June 30, 2023 to $109,000 for the six months ended June 30, 2024.

This increase primarily resulted from a $46,000, or 78.0%, increase in dividends from FHLB stock from $59,000 for the six months ended June 30, 2023 to $105,000 for the six months ended June 30, 2024.

Interest income on the fair value hedge increased $207,000, or 627.3%, from $33,000 for the six months ended June 30, 2023 to $240,000 for the six months ended June 30, 2024.

The Company entered into an interest rate swap

agreement in May 2023 to convert a portion of its interest rate exposure from fixed rates to floating rates to help manage the interest rate risk position.

Refer to additional detail regarding the fair value hedge in Note 10 – Derivatives of the accompanying unaudited consolidated financial statements.

Interest Expense.

Total interest expense increased $1.6 million, or 47.1%, to $5.0 million for the six months ended June 30, 2024 from $3.4 million for the six months ended June 30, 2023 primarily due to an increase in average interest bearing liabilities of $36.9 million, or 11.6%, to $355.7 million for the six months ended June 30, 2024 from $318.8 million for the six months ended June 30, 2023 and an increase in the average cost of interest-bearing liabilities of 65 basis points, or 30.6%, from 2.13% for the six months ended June 30, 2023 to 2.78% for the six months ended June 30, 2024, primarily due to an increase in deposit and funding costs.

Interest expense on deposit accounts increased $1.4 million, or 63.7%, to $3.6 million for the six months ended June 30, 2024 from $2.2 million for the six months ended June 30, 2023, due to an increase in the average deposit cost of 80 basis points, or 45.5%, from 1.76% for the six months ended June 30, 2023 to 2.56% for the six months ended June 30, 2024 and an increase in average interest-bearing deposits of $26.2 million, or 10.3% from $253.2 million for the six months ended June 30, 2023 to $279.4 million for the six months ended June 30, 2024, with the increase being in higher yielding certificates of deposit, money market deposits and interest-bearing demand deposits, offset by a decrease in lower cost savings accounts.

Part of the migration to higher yielding accounts resulted from a deposit retention strategy of offering a special higher interest rate CD and higher money market rates implemented during 2023.

Interest expense on Federal Home Loan Bank advances increased $170,000, or 32.3%, to $696,000 for the three months ended March 31, 2024 from $526,000 for the three months ended March 31, 2023.

This increase was due primarily to the increase in the average balance of Federal Home Loan Bank advances of $16.7 million, or 27.9%, to $76.6 million for the three months ended March 31, 2024 from $59.9 million for the three months ended March 31, 2023 and an increase in average yield of 12 basis points, or 3.5%, from 3.51% for the three months ended March 31, 2023 to 3.63% for the three months ended March 31, 2024.

The increase in average advances was primarily to fund loan growth and securities purchases related to a repricing strategy in 2023.

Interest expense on Federal Home Loan Bank advances increased $217,000, or 18.7%, to $1.4 million for the six months ended June 30, 2024 from $1.2 million for the six months ended June 30, 2023.

This increase was due primarily to the increase in the average balance of Federal Home Loan Bank advances of $10.5 million, or 16.1%, to $75.6 million for the six months ended June 30, 2024 from $65.1 million for the six months ended June 30, 2023 and an increase in average yield of 8 basis points, or 2.2%, from 3.57% for the six months ended June 30, 2023 to 3.65% for the six months ended June 30, 2024.

The increase in average advances was primarily to fund loan growth.

Net Interest Income.

Net interest income increased $331,000, or 12.6%, to $3.0 million for the three months ended March 31, 2024 from $2.6 million for the three months ended March 31, 2023 due primarily to an increase in interest-earning assets of $32.4 million, or 8.3%, to $424.9 million at March 31, 2024 from $392.5 million at March 31, 2023.

Net interest margin had an 11 basis point, or 4.0%, increase to 2.79% for the three months ended March 31, 2024 from 2.68% for the three months ended March 31, 2023.

The increase in net interest rate spread was primarily due to repricing strategies initiated in 2023 allowing us to increase the speed of repricing interest earning assets to better align with the speed of interest bearing liabilities.

Net interest income increased $862,000, or 16.3%, to $6.1 million for the six months ended June 30, 2024 from $5.3 million for the six months ended June 30, 2023 due primarily to an increase in interest-earning assets of $28.1 million, or 7.1%, to $426.4 million for the six months ended June 30, 2024 from $398.3 million for the six months ended June 30, 2023.

Net interest margin had a 23 basis point, or 8.6%, increase to 2.88% for the six months ended June 30, 2024 from 2.65% for the six months ended June 30, 2023.

The increase in net interest margin was primarily due to balance sheet restructurings, which included the loan sale in 2024, allowing us to place the funds in higher yielding assets and increase the rate of repricing interest earning assets to better align with the rate of repricing interest bearing liabilities.

The average yield on interest earning assets increased by 85 basis points, or 19.5%, compared to the average increase on interest bearing liabilities increasing by 65 basis points, or 30.6%.

Provision for Credit Losses.

Based on management’s analysis of the adequacy of the allowance for credit losses, the reversal of provision for credit losses was $277,000 for the three months ended March 31, 2024, compared to a provision for credit losses of $90,000 for the three months ended March 31, 2023, resulted in a decrease of $367,000, or 407.8%, primarily due to a decrease of $12.4 million in net loans and leases receivable to $267.5 million at March 31, 2024 from $279.9 million at December 31, 2023 and additionally removing $17.0 million in loans held for sale from the allowance calculation due to those loans being carried at fair value.

Removal of the $29.4 million in loans connected with the loan sale resulted in $265,000 of the $277,000 reversal of the provision for credit losses.

Based on management’s analysis of the adequacy of the allowance for credit losses, a reversal of provision for credit losses was $153,000 for the six months ended June 30, 2024, compared to a provision for credit losses of $183,000 for the six months ended June 30, 2023, resulted in a decrease of $336,000, or 183.6%, to the provision expense primarily due to a decrease of $11.2 million in net loans and leases receivable to $268.7 million at June 30, 2024 from $279.9 million at December 31, 2023.

The sale of $27.1 million in loans during the six months ended June 30, 2024 accounted for a $244,000 decrease in the provision for credit losses.

Noninterest Income.

Noninterest income decreased $2.4 million, or 200.0%, to a loss of $3.6 million for the three months ended March 31, 2024 from a loss of $1.2 million for the three months ended March 31, 2023, due primarily to a loss of $1.5 million, net of mortgage servicing rights, from the sale of loans, writing down a group of residential mortgage loans being held for sale to fair value by providing a valuation allowance of $2.3 million, and a loss of $283,000 associated with demolition of the previous Lindale branch building.

This was partially offset by a gain on the sale of other real estate owned of $37,000.

The losses of the loan sales involved the sale of a block of 54 performing loans totaling $12.4 million at a loss of $1.5 million, net of mortgage servicing rights, with another 81 loans totaling $17.0 million being marked down to a fair value of $14.7 million as part of a portfolio repositioning strategy to take

advantage of repricing opportunities with the goal of increasing yield, shortening weighted average life and diversifying the loan portfolio while reducing the concentration in residential mortgages.

Noninterest income decreased $2.5 million, or 357.1%, to a loss of $3.2 million for the six months ended June 30, 2024 from a loss of $696,000 for the six months ended June 30, 2023, due primarily to a pre-tax loss of $3.8 million, net of mortgage servicing rights retained, from the sale of $27.1 million in residential mortgage loans, a loss of $283,000 associated with demolition of the previous Lindale branch building, and a $78,000 loss related to the write down of two bank properties transferred to other real estate owned which are listed for sale.

The loan sale included the sale of 122 performing loans totaling $27.1 million at a pre-tax loss of $3.8 million, net of mortgage servicing rights retained, as part of a portfolio repositioning strategy to take advantage of repricing opportunities with the goal of increasing yield, shortening weighted average life and diversifying the loan portfolio by reducing the concentration in residential mortgage loans.

Noninterest Expense.

Noninterest expense increased $433,000, or 16.4%, to $3.1 million for the three months ended March 31, 2024 from $2.6 million for the three months ended March 31, 2023 primarily due to increases in salaries and employee benefits, occupancy and equipment, data processing, and other expenses.

Salary and employee benefit expenses increased by $98,000, or 6.3%, to $1.7 million for the three months ended March 31, 2024 from $1.6 million for the three months ended March 31, 2023, due to an initial $129,000 vesting expense for equity awards offset by reduced executive salary expense related to the CEO transition in 2023.

Noninterest expense increased $608,000, or 10.9%, to $6.1 million for the six months ended June 30, 2024 from $5.5 million for the six months ended June 30, 2023 primarily due to increases in salaries and employee benefits, occupancy and equipment, technology, and other expenses.

Salary and employee benefit expenses increased by $59,000, or 1.8%, to $3.3 million for the six months ended June 30, 2024 from $3.2 million for the six months ended June 30, 2023, due to an initial $129,000 vesting expense for equity awards in 2024 offset by reduced executive salary expense related to the CEO transition in 2023 and termination of the deferred compensation plan as of December 31, 2023.

Occupancy and equipment expense increased $156,000, 38.8%, primarily due to additional expenses related to a new branch in Tyler and completion of a new branch building in Lindale.

Data processing increased $20,000, or 9.0%, due primarily to normal cost increases from providers.

Other expenses increased $237,000, or 61.7%, primarily due to an increase of $61,000 in audit and accounting expenses related primarily to loan review, an increase in FDIC assessment expenses of $23,000 primarily due to an overall increase in the FDIC assessment rate and an increase in deposits, an increase of $20,000 in office supply expense and $17,000 in marketing expense primarily related to opening new locations, entering new markets and expenses associated with changing the Bank’s name.

The Bank had nonrecurring costs of $28,000 associated with the demolition cost of the existing building in Lindale and legal fees of $38,000.

Technology expenses increased $79,000, or 35.3%, due primarily to nonrecurring fees associated with a “tap” debit card implementation project.

We expect to receive a credit in a future period to cover these implementation costs.

Other expenses increased $310,000, or 35.4%, primarily due to an increase of $107,000 in audit and accounting expenses related primarily to loan review, an increase in FDIC assessment expenses of $34,000 primarily due to an overall increase in the FDIC assessment rate and an increase in deposits, an increase of $31,000 in training expense primarily associated with executive training, and an increase of $22,000 in marketing expense primarily related to opening new locations, entering new markets and expenses associated with changing the Bank’s name.

The Company had nonrecurring director costs of $37,000 and legal fees of $38,000 related to executive and board transitions in the six months ending June 30, 2024.

Income Tax Expense.

Income tax expense decreased by $422,000, or 147.6%, to a tax benefit $708,000 for the three months ended March 31, 2024 from a tax benefit of $286,000 for the three months ended March 31, 2023, due to a decrease in net income before taxes of $2.1 million from a loss of $1.3 million for the three months ended March 31, 2023 to a loss of $3.4 million for the three months ended March 31, 2024.

The effective tax rate was 20.87% and 21.95% for the three months ended March 31, 2024 and 2023, respectively.

Income tax expense decreased by $403,000, or 158.0%, to a tax benefit $658,000 for the six months ended June 30, 2024 from a tax benefit of $255,000 for the six months ended June 30, 2023, due to a decrease in net income before taxes of $1.9 million from a loss of $1.1 million for the six months ended June 30, 2023 to a loss of $3.0 million for the six months ended June 30, 2024.

The effective tax rate was 21.97% and 22.93% for the six months ended June 30, 2024 and 2023, respectively.

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

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

At March 31, 2024, we had outstanding advances of $76.5 million from the Federal Home Loan Bank of Dallas.

At March 31, 2024, we had unused borrowing capacity of $81.2 million with the Federal Home Loan Bank of Dallas.

In addition, at March 31, 2024, we had an unused $10.0 million line of credit with Texas Independent Bankers Bank and an unused $5.0 million line of credit with First Horizon Bank.

At June 30, 2024, we had outstanding advances of $71.2 million from the Federal Home Loan Bank of Dallas.

At June 30, 2024, we had unused borrowing capacity of $75.0 million with the Federal Home Loan Bank of Dallas.

In addition, at June 30, 2024, we had an unused $10.0 million line of credit with Texas Independent Bankers Bank and an unused $5.0 million line of credit with First Horizon Bank.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition.

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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 three months ended March 31, 2024 and 2023 included as part of the consolidated financial statements included in this report.

For additional information, see the consolidated statements of cash flows for the six months ended June 30, 2024 and 2023 included as part of the consolidated financial statements included in this report.

We are committed to maintaining a strong liquidity position.

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is governed by applicable banking laws and regulations.

At March 31, 2024, Texas Community Bancshares, Inc.

At June 30, 2024, Texas Community Bancshares, Inc.

(on a stand-alone, unconsolidated basis) had liquid assets of $9.2 million.

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We are closely monitoring our assets, liabilities, capital and investment portfolio unrealized losses for possible issues and opportunities related to the current economic and market conditions.

We are monitoring our large depositors and continue to have discussions on how to have FDIC coverage to the fullest legal extent, which is over $250,000 for many depositors depending on the type of account ownership.

At March 31, 2024, there were 179 accounts with balances in excess of the $250,000 FDIC insurance limit with a total of $93.9 million, or 28.3% of deposits.

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

At June 30, 2024, there were 187 accounts with balances in excess of the $250,000 FDIC insurance limit with a total of $93.7 million, or 28.9% of deposits.

The amount that was over $250,000 was $47.0 million, or 14.5%, that was potentially uninsured, including certificates of deposit of $9.4 million and $37.6 million in checking, MMDA and savings accounts.

At March 31, 2024, the weighted average life (WAL) of our securities portfolio is 5.1 years.

At June 30, 2024, the weighted average life (WAL) of our securities portfolio is 4.9 years.

The gross unrealized losses on the AFS securities was $6.8 million, or 7.1% of the $96.4 million AFS portfolio and 12.0% of capital.

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The total gross unrealized losses are $9.4 million, or 7.8% of the $120.2 million securities portfolio and 16.6% of capital, which includes $57.4 million, or 47.8%, that are agency issued and guaranteed by the U.S.

These losses are the result of market interest rate increases and we continue to monitor the portfolio for credit and other risks.

The net unrealized loss on AFS securities and derivative combined, and the corresponding other comprehensive loss, was $5.2 million, or 9.2% of capital.

Over the next 24 months from March 31, 2024, we expect to realize $43.8 million in cash flow from the securities portfolio with $18.1 million in 2024, $22.6 million in 2025 and $3.1 million in 2026.

losses are the result of market interest rate increases and we continue to monitor the portfolio for credit and other risks.

The net unrealized loss on AFS securities and derivatives combined, and the corresponding other comprehensive loss, was $4.9 million, or 8.7% of capital.

Over the next 24 months from June 30, 2024, we expect to realize $39.6 million in cash flow from the securities portfolio with $13.0 million in 2024, $20.3 million in 2025 and $6.3 million in 2026.

We should receive $24.9 million of that over the next 12 months.

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During the year ended December 31, 2023, the Bank entered into interest rate swap agreements with a total notional amount of $25 million to hedge the risk of changes in the fair value of fixed rate AFS securities for changes in the SOFR benchmark rate.

At March 31, 2024, the derivatives were highly effective and offset the unrealized loss on AFS securities by $442,000 bringing the net other comprehensive loss from $5.6 million to $5.2 million.

At June 30, 2024, the derivatives were highly effective and offset the unrealized loss on AFS securities by $504,000, bringing the net other comprehensive loss from $5.4 million to $4.9 million.

Our asset quality remains strong.

We are being optimistically cautious with our lending and strategic decisions, staying focused on long-term goals and taking advantage of opportunities while being diligent about recognizing and mitigating risk.

At March 31, 2024, our allowance for credit losses to loans and leases held for investment was 1.10%.

At June 30, 2024, our allowance for credit losses to loans and leases held for investment was 1.10%.

The Bank continues to monitor rates and loan demand weekly and align pricing accordingly.

Housing supply and demand, primarily in our Mineola and Lindale markets where home sales and new home construction have been active, are monitored for indicators of a significant change in the local housing markets.

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

This is a key component of the strategy of selling the $30 million in loans.

At March 31, 2024, we do not have any plans to sell additional loans above the $14.7 million being held for sale.

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

This is a key component of the loan sale strategy resulting in $27.1 million in residential mortgage loans sold.

At June 30, 2024, we do not have any plans to sell additional loans.

We are currently utilizing listed CDs (Qwickrate) with terms of 3-6 months with full FDIC insurance in order to keep funds liquid while also earning a higher return than holding balances in fed funds.

The following are the various liquidity sources we had available at March 31, 2024 that we could use as needed:

The following are the various liquidity sources we had available at June 30, 2024 that we could use as needed:

● FHLB borrowing capacity of $75.0 million

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● The ability to sell some of our BOLI assets

At March 31, 2024, Broadstreet Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date.

At June 30, 2024, Broadstreet Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date.

Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category.

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Our Risk Management and Interest Rate Risk Management Officer is responsible for evaluating the interest rate risk inherent in our assets and liabilities, determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors.

We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating

environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.

We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates.

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

At March 31, 2024

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

At June 30, 2024

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 March 31, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 5.2% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 6.8% decrease in net interest income.

The table above indicates that at June 30, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 6.6% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 9.6% 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 March 31, 2024

At June 30, 2024

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 March 31, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 0.75% increase in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 10.85% decrease in EVE.

The table above indicates that at June 30, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 1.85% increase in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 11.6% decrease in EVE.

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

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

What changed 10-Q

Item 1. Financial Statements