What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-27 compared with 2024-03-27 · 345 added, 357 removed, 1142 unchanged (38% of the section changed)

7 unchanged sentences

We have audited the accompanying consolidated statements of financial condition of Texas Community Bancshares, Inc.

and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

and Subsidiaries (Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

1 unchanged sentence

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

1 unchanged sentence

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ FORVIS , LLP

/s/ Forvis Mazars , LLP

We have served as the Company's auditor since 2020.

17 unchanged sentences

Bank-owned life insurance

Foreclosed assets

Other real estate owned

Restricted investments carried at cost

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

Treasury stock, at cost ( 174,842 shares at December 31, 2023)

Treasury stock, at cost ( 282,273 shares at December 31, 2024 and 174,842 shares at December 31, 2023)

Total shareholders' equity

18 unchanged sentences

Provision for Credit Losses - loans

Provision for Credit Losses - off-balance sheet credit exposures

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

Provision for Credit Losses

3 unchanged sentences

Other service charges and fees

Net loss on securities transactions

Net gain on sale of foreclosed assets

Net (loss) gain on sale of fixed assets

Net gain (loss) on securities transactions

Net loss on sale of loans

Net (loss) gain on sale of other real estate owned

Net loss on sale of premises and equipment

Net appreciation on bank-owned life insurance

Total noninterest income

Total noninterest income (loss)

Noninterest Expenses

7 unchanged sentences

Total noninterest expense

(Loss) Income Before Income Taxes

Income Tax (Benefit) Expense

Net (Loss) Income

(Loss) earnings per share - basic

(Loss) earnings per share - diluted

Loss Before Income Taxes

Income Tax Benefit

Loss per share - basic

Loss per share - diluted

Weighted-average shares outstanding - basic

6 unchanged sentences

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

Net (Loss) Income

Other items of comprehensive income (loss)

1 unchanged sentence

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

Reclassification adjustment for realized loss on sale of investment securities included in net (loss) income, before tax

Reclassification adjustment for realized (gain) loss on sale of investment securities included in net loss, before tax

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

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

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

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

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

Comprehensive Income (Loss)

Comprehensive (Loss) Income

See Notes to Consolidated Financial Statements

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Shareholders'

Year Ended December 31, 2024 and 2023

Balance at January 1, 2024

Cumulative change in accounting principle (adoption of ASC 326)

Balance at January 1, 2023 (as adjusted for change in accounting principle)

Stock based compensation expense

Issuance of restricted stock awards

Other comprehensive income, net of tax

Cash dividends declared (at an average of $ 0.03 per share)

ESOP shares earned, 14,844 shares

Cash dividend declared ($ 0.04 per share)

ESOP shares committed to be released, 15,862 shares

Treasury stock purchased, 107,431 shares

1 unchanged sentence

Balance at January 1, 2023

Cumulative change in accounting principle (adoption of ASC 326)

Balance at January 1, 2023 (as adjusted for change in accounting principle)

Stock based compensation expense

Other comprehensive loss, net of tax

ESOP shares earned, 13,031 shares

Issuance of restricted stock awards

Other comprehensive income, net of tax

Cash dividend declared (at an average of $ 0.03 per share)

ESOP shares committed to be released, 14,844 shares

Treasury stock purchased, 174,842 shares

Balance at December 31, 2023

6 unchanged sentences

Operating Activities

Net (loss) income

Adjustments to reconcile net (loss) income to net cash from operating activities

Provision for credit losses - loans

Provision for credit losses - off-balance sheet credit exposures

Net (accretion) amortization of securities

Adjustments to reconcile net loss to net cash from operating activities

Provision (credit) for credit losses - loans

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

Net amortization (accretion) of securities

Depreciation and amortization

Net realized loss on sales of securities available for sale

Stock dividends on restricted securities

Loss (gain) on sale of fixed assets

Gain on foreclosed assets

Net realized (gain) loss on sales of securities available for sale

Stock dividends on restricted investments

Loss on sale of loans

Loss on disposal of fixed assets

Appreciation on bank-owned life insurance

ESOP compensation expense for allocated shares

Loss (gain) on other real estate owned

Stock-based compensation

Deferred income tax

Loss on fair value adjustment of fair value hedges

Deferred income tax benefit

(Gain) loss on fair value adjustment of fair value hedges

Net change in

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Loan originations and principal collections, net

Net decrease in net investment in direct financing leases

Proceeds from sales of OREO and foreclosed assets

Proceeds from sales of fixed assets

Purchases of premises and equipment

Net Cash used for Investing Activities

Net (increase) decrease in net investment in direct financing leases

Proceeds from sale of loans, originally classified as loans held for investment

Proceeds from sales of other real estate owned

Additions of premises and equipment

Net Cash from (used for) Investing Activities

Financing Activities

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Note 4 discusses the types of lending in which the Company engages.

Approximately 95 % of the loan balance at December 31, 2023 and 2022, is secured by real estate.

Approximately 93 % and 95 % of the loan balance at December 31, 2024 and 2023, is secured by real estate.

The Company does not have any other significant concentrations to any one industry or customer.

Recently Adopted Accounting Pronouncements

The Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASC 326”), effective January 1, 2023.

The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which expands reportable segment disclosure requirements through enhanced disclosures about significant segment expenses.

The amendments in this update introduce a new requirement to disclose significant segment expenses regulatory provided to the chief operating decision maker, extend certain annual disclosures to interim periods, clarify that single reportable segment entities must apply Topic 280 in its entirety, permit more than one measure of segment profit or loss to be reported under certain conditions and require disclosure of the title

Texas Community Bancshares, Inc.

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

and position of the chief operating decision maker.

ASU 2023-07 is effective for public business entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company has evaluated the impact of adopting ASU 2023-07 and concluded the impact to be immaterial on its Consolidated Statement of Financial Condition, Consolidated Statement of Operations, or disclosures.

See Note 1 for the corresponding segments disclosure.

Previously Adopted Accounting Pronouncements

The Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASC 326”), effective January 1, 2023.

The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credits, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases.

14 unchanged sentences

The following table illustrates the impact of the adoption of ASC 326:

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

Allowance for credit losses on loans

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Consumer loan borrowers that are delinquent and commercial loan borrowers that are rated substandard or worse are the primary criteria used to identify borrowers who are experiencing financial difficulty.

If a borrower is current at the time of modification, the loan generally remains a performing loan as long as there is

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

demonstrated performance prior to the modification, and payment in full under the modified terms is expected.

If a borrower is current at the time of modification, the loan generally remains a performing loan as long as there is demonstrated performance prior to the modification, and payment in full under the modified terms is expected.

Otherwise, the loan is placed on nonaccrual status and reported as nonperforming until there is sustained repayment performance for a reasonable period, which is generally at least six consecutive months.

Prior to the adoption of ASC 326, when the Company restructured a loan to a borrower that was experiencing financial difficulty and granted a concession that it would not otherwise consider, a “troubled debt restructuring” (“TDR”) results and the Bank classified the loan as a TDR.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash, balances due from banks and federal funds sold, all of which mature within ninety days.

The Company is required to maintain average balances on hand or with the Federal Reserve Bank.

As of December 31, 2023 and 2022, the Company was not required to maintain any amounts in excess of required reserves.

Balances in transaction accounts at other financial institutions may exceed amounts covered by federal deposit insurance.

6 unchanged sentences

Debt securities not classified as held to maturity are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss).

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.

Held to Maturity Securities

Beginning January 1, 2023, the Company evaluates all securities quarterly to determine if any securities in a loss

position require a provision for credit losses in accordance with ASC 326.

The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326.

The Company first assesses whether it intends to sell or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis.

3 unchanged sentences

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

credit loss, limited by the amount that the fair value is less than the amortized cost basis.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss).

1 unchanged sentence

Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

For the year ended December 31, 2023, the Company determined no provision for credit losses on securities was necessary.

For the year ended December 31, 2024 and 2023, the Company determined no provision for credit losses on securities was necessary.

Restricted Investments Carried at Cost

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Stock redemptions are made at the discretion of FHLB.

Due to requirements for additional advances, there were purchases of $ 706 and dividend reinvestments of $ 150 for the year ended December 31, 2023, and there were purchases and dividend reinvestments of $ 583 and $ 28 , respectively, for the year ended December 31, 2022.

Due to requirements for additional advances, there were no purchases and dividend reinvestments of $ 211 for the year ended December 31, 2024, and there were purchases of $ 706 and dividend reinvestments of $ 150 for the year ended December 31, 2023.

Both cash and stock dividends are reported as income.

6 unchanged sentences

The Company grants mortgage, commercial and consumer loans to customers.

A substantial portion of the loan portfolio is represented by loans secured by real estate throughout the Wood, Smith, and Van Zandt Counties and the Dallas Fort Worth Metroplex area.

A substantial portion of the loan portfolio is represented by loans secured by real estate throughout Wood, Smith, and Van Zandt Counties and the Dallas Fort

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

Worth Metroplex area.

The ability of the Company’s debtors to honor their contracts is dependent upon the general economic conditions in this area.

4 unchanged sentences

Unearned income is amortized to interest income using a level yield methodology.

Accrued interest receivable on loans totaled $ 1,127 as of December 31, 2023, and was reported in accrued interest receivable on the consolidated statement of financial condition and is excluded from the estimate of credit losses.

Interest income is accrued on the unpaid principal balance.

Accrued interest receivable on loans totaled $ 1,416 and $ 1,127 as of December 31, 2024 and 2023, respectively, and was reported in accrued interest receivable on the consolidated statement of financial condition and is excluded from the estimate of credit losses.

The Company makes disclosures of loans and other financing receivables and the related allowance in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 310, Receivables.

The accounting guidance defines a portfolio segment as the level at which an entity develops and documents a systematic methodology to determine the allowance for credit losses, and a class of financing receivables as the level of disaggregation of portfolio segments based on the initial measurement attributes, risk characteristics and methods for assessing risk.

The Company’s portfolio segments are real estate, agriculture, commercial, and consumer and other.

The classes of financing receivables within the real estate segment are Construction and Land, Farmland, 1-4 Residential and

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

Multifamily, and Commercial Real Estate.

The Company’s portfolio segments are real estate, agriculture, commercial, municipalities, and consumer and other.

The classes of financing receivables within the real estate segment are Construction and Land, Farmland, 1-4 Residential and Multifamily, and Commercial Real Estate.

The remaining portfolio segments contain a single class of financing receivables.

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commercial real estate;

municipalities;

and consumer and other.

1 unchanged sentence

For each of these loan pools, the Company calculates an average annual loss rate and estimates future outstanding balances based on contractual maturities and estimated prepayments.

The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data.

The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data and peer group data.

Relevant data to support the Company’s estimates of lifetime expected credit losses is maintained through internal and external information.

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Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

Prior to the adoption of ASU 2016-13, the allowance for credit losses on loans was established through a provision for loan losses charged to expense, which represented management’s best estimate of inherent losses that had been incurred within the existing portfolio of loans.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company.

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

risk via a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company.

The allowance for credit losses on off-balance sheet credit exposures is adjusted through credit loss expense .

5 unchanged sentences

Interest and fees continue to accrue on past due loans until the date the loan goes into nonaccrual status, if applicable.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

The outstanding balance of real estate secured loans, including all classes of financing receivables within the real estate portfolio segment, that is in excess of the estimated property value, less estimated costs to sell, is generally charged off no later than the end of the month in which the account becomes 180 days past due.

16 unchanged sentences

Such financial instruments are recorded when they are funded.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

Derivative Loan Commitments

5 unchanged sentences

Accordingly, forward loan sale commitments are recognized at fair value on the consolidated statements of financial condition in other assets and liabilities with changes in their fair values recorded in other noninterest income.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

The Company estimates the fair value of its forward loan sales commitments using a methodology similar to that used for derivative loan commitments.

6 unchanged sentences

The adjustment to cash surrender value increases or decreases the carrying value of the policies and is recorded as income or expense on the consolidated statements of operations.

Foreclosed Assets

Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are initially recorded at fair value less estimated costs to sell at the date of foreclosure.

4 unchanged sentences

Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to earnings, if necessary, to reduce the carrying value of the property to the lower of its cost or fair value less costs to sell.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

Premises and Equipment

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The Company leases certain locations and equipment.

The Company records leases on the statements of financial condition in the form of a lease liability for the present value of future minimum payments under the lease terms and a right-of-use asset equal to the lease liability adjusted for items such as deferred or prepaid rent, lease incentives, and any impairment of the right-of-use asset.

The Company records leases on the consolidated statements of financial condition in the form of a lease liability for the present value of future minimum payments under the lease terms and a right-of-use asset equal to the lease liability adjusted for items such as deferred or prepaid rent, lease incentives, and any impairment of the right-of-use asset.

The discount rate used in determining the lease liability is based upon incremental borrowing rates the Company could obtain for similar loans as of the date of commencement or renewal.

The Company does not record leases on the consolidated statements of financial condition that are classified as short term (less than one year).

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

At lease inception, the Company determines the lease term by considering the minimum lease term and all optional renewal periods that the Company is reasonably certain to renew.

13 unchanged sentences

Intangible Assets

Intangible assets with a finite life consist of a core deposit intangible and is are carried at cost less accumulated amortization.

Intangible assets with a finite life consist of a core deposit intangible and is carried at cost less accumulated amortization.

The Company amortizes the cost of the identifiable intangible asset on a straight-line basis over the expected period of benefit, which is seven years .

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

The Company’s income tax expense consists of the following components:

8 unchanged sentences

A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.

The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

reporting date and is subject to management’s judgment.

The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not some portion or all of a deferred tax asset will not be realized.

5 unchanged sentences

Treasury Stock

Treasury stock is accounted for using the cost method and consists of 174,842 shares at December 31, 2023.

The Company had no treasury shares at December 31, 2022.

Treasury stock is accounted for using the cost method and consists of 282,273 and 174,842 shares at December 31, 2024 and 2023, respectively.

Advertising costs are expensed as incurred.

Advertising expenses for the years ended December 31, 2024 and 2023 amounted to $ 113 and $ 75 , respectively.

Operating Segments

While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed, and financial performance is evaluated on a Company-wide basis.

Discrete operating results are not reviewed by senior management to make resource allocation or performance decisions.

Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Segment Information

The Company’s chief operating decision-maker (“CODM”) is the Chief Executive Officer.

Operating segments are defined as components of a business about which separate financial information is available and evaluated regularly by the CODM in deciding how to allocate resources and assess performance.

While the CODM monitors the revenue

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

streams of the various products and services offered by the Bank, the Company’s operations are managed and financial performance is evaluated on a Company-wide basis as a single reportable operating segment, which is the Bank.

Discrete financial information, with a full allocation of revenue, costs, and capital from key corporate functions, is not available at a level other than on a Company-wide basis.

Although the CODM has some limited financial information about the Company’s various financial products and services, this information is not complete and is insufficient for making resource allocation decisions or performance assessments at a more granular level.

Therefore, management considers all financial service operations to be aggregated within one reportable operating segment, the Bank, and evaluates financial performance on a company-wide basis using net income as reported on the Consolidated Statement of Operations.

The measure of segment assets is total assets, as reported on the Consolidated Statements of Financial Condition.

The CODM uses net income to monitor budget versus actual results and in the determination of allocating resources across the Company.

The Company’s single reportable segment, the Bank, generates revenues primarily from interest income from financial instruments and non-interest income and service charges on deposit accounts.

There are no intra-entity sales or transfers within the Company.

Management continues to evaluate the Company’s business units for potential separate reporting in the future as facts and circumstances evolve.

Revenue Policies

2 unchanged sentences

The Company’s services that fall within the scope of Topic 606 are presented within Non-Interest Income and are recognized as revenue as the Company satisfies its obligation to the customer.

Services within the scope of Topic 606 include service charges on deposits, interchange income, and the sale of foreclosed assets.

Services within the scope of Topic 606 include service charges on deposits, interchange income, and the gain (loss) on the sale of foreclosed assets.

A description of the Company’s revenue streams accounted for under Topic 606 follows:

2 unchanged sentences

Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request.

Account maintenance fees, which related primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation.

Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation.

Overdraft fees are recognized at the point in time that the overdraft occurs.

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The Company adopted ASU 2022-01, Derivatives and Hedging (Topic 815) – Fair Value Hedging – Portfolio Layer Method, as of January 1, 2023.

The adoption of this standard did not have a material effect on the Company’s operating results or financial condition as of December 31, 2022.

At the inception of a derivative contract, the Company designates the derivatives as one of the three types based on the Company’s intentions and belief as to likely effectiveness as a hedge.

16 unchanged sentences

All the contracts to which the Company is a party settle monthly or semi-annually.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net (loss) income and other comprehensive income (loss).

Other comprehensive income (loss) includes unrealized gains (losses) on securities available-for-sale.

Texas Community Bancshares, Inc.

3 unchanged sentences

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

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net (loss) income and other comprehensive income (loss).

Other comprehensive income (loss) includes unrealized gains (losses) on securities available-for-sale.

Stock Incentive Plan

Compensation cost is recognized for stock options and restricted stock awards issued to directors and executive management, based on the fair value of these awards at the date of the grant.

Compensation cost is recognized for stock options and restricted stock awards issued to directors, executive management, and other officers based on the fair value of these awards at the date of the grant.

A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of the grant is used for restricted stock awards.

6 unchanged sentences

Management has evaluated subsequent events through March 27, 2025, which was the date the accompanying consolidated financial statements were issued.

On January 16, 2024, the Bank opened the Lindale branch in a new building and on February 5, 2024, the Bank opened a new branch in Tyler.

On February 28, 2024, the Company declared a quarterly cash dividend of $ 0.04 per share of common stock.

The dividend will be payable on or about March 28, 2024 to stockholders of record as of the close of business on March 14, 2024.

On February 28, 2024, the Company issued stock-based compensation to a member of management for a total of 23,455 shares of restricted stock and 58,639 restricted stock options.

The same number of awards had been forfeited in 2023.

On March 15, 2024, the Company sold 36 real estate loans with an amortized cost basis of $ 7,530 at a loss of $ 1,008 as part of a balance sheet restructuring strategy to replace these loans with higher yielding assets with a shorter weighted average life.

On January 15, 2025, the Company terminated the two interest rate swap agreements with a notional amount of $ 25 million.

On February 27, 2025, the Company announced that the Company’s Board of Directors had approved a new stock repurchase program that authorized the Company to repurchase up to 153,083 shares of common stock.

As of December 31, 2024, the Company had agreed to repurchase residential mortgage loans totaling $ 2.3 million at the original sales price.

These loans were previously sold during 2024 due to specific documentation issues that did not impact the credit quality of the loans.

At December 31, 2024, the Company accrued for the repurchase consideration in Accrued expenses and Other liabilities and included the assets in Loans receivable net of allowance for credit losses on the Company’s Consolidated Statement of Financial Condition.

Cash proceeds were transferred on January 9, 2025.

Subsequent to December 31, 2024 and through March 27, 2025, we purchased 31,500 shares of common stock at an average price of $ 15.70 pursuant to the Stock Repurchase Plan.

Note 2 - Earnings Per Share

Basic earnings per share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding during the period, including allocated and committed-to-be-released ESOP shares and restricted stock awards granted on August 31, 2022 and February 28, 2023, during the applicable period.

Diluted earnings per share is

Basic earnings per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period, including allocated and committed-to-be-released ESOP shares and restricted stock awards granted on August 31, 2022, February 28, 2023, February 28, 2024, and August 30, 2024, during the applicable period.

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

Texas Community Bancshares, Inc.

3 unchanged sentences

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

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

The following table presents a reconciliation of the number of shares used in the calculation of basic and diluted earnings per common share:

Net (Loss) Income

Weighted average shares outstanding for basic earnings per share:

4 unchanged sentences

Weighted average shares outstanding for dilutive earnings per share

Basic and dilutive earnings (loss) per share

Basic earnings (loss) per share

Dilutive earnings (loss) per share

Nonvested restricted stock awards for 64,886 and 84,697 shares of common stock were not considered in computing diluted earnings per share for 2024 and 2023, respectively, because they were antidilutive.

Stock options for 211,747 and 97,728 shares of common stock were not considered in computing diluted earnings per share for 2023 and 2022, because they were nonvested.

Stock options for 19,546 shares of common stock have vested, however, were not considered in computing diluted earnings per share for 2023, because they were antidilutive.

Nonvested stock options for 160,596 and 211,747 shares of common stock and vested stock options for 44,630 and 19,546 shares of common stock were not considered in computing diluted earnings per share for 2024 and 2023, respectively, because they were antidilutive.

Texas Community Bancshares, Inc.

26 unchanged sentences

Corporate bonds

Government and agency

Total securities available for sale

3 unchanged sentences

State and municipal

Government and agency

Total securities held to maturity

During the years ended December 31, 2023 and 2022, the Company had sales of available for sale securities with an amortized cost basis of $ 19,767 with a loss of $ 1,734 and $ 10,821 with a loss of $ 29 , respectively.

During the years ended December 31, 2024, the Company had sales of available for sale securities with an amortized cost basis of $ 19,944 with a gain of $ 190 and no sales of held to maturity securities.

During the year ended December 31, 2023, the Company had sales of available for sale securities with an amortized cost of $ 19,767 with a loss of $ 1,734 and no sales of held to maturity securities.

At December 31, 2024 and 2023, securities with a fair value of $ 17,862 and $ 14,152 , respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

32 unchanged sentences

Government and agency (1,0)

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

At December 31, 2024 and 2023, the Company had investment securities with approximately $ 8,773 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 issuer’s financial condition or downgrades by rating agencies.

In addition, approximately 12.4 % of the principal balance from the Company’s investment portfolio will mature and be repaid to the Company within five years or less.

As a result, the Company has the ability and intent to hold such securities until maturity.

The Company has the ability and intent to hold such securities until maturity.

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

Texas Community Bancshares, Inc.

3 unchanged sentences

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

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

The Company monitors the credit rating on a continual basis.

monitors the 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 December 31, 2024:

December 31, 2024

mortgage-backed

U.S Government

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

December 31, 2023

mortgage-backed

U.S Government

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

Mortgage-backed Securities and Collateralized Mortgage Obligations

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

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

The Company purchased these investments at a discount relative to its face amount, and the contractual cash flows of these investments are guaranteed by an agency of the U.S.

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.

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

Because the decline in market 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 basis, 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 December 31, 2024 or 2023.

Government and Agency

3 unchanged sentences

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 December 31, 2023.

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

Municipal Securities and Corporate Bonds

The unrealized losses on the Company's investment in municipal securities and corporate bonds have not been recognized into income and no allowance for credit losses 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 interest rates and not credit quality 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 December 31, 2023.

Texas Community Bancshares, Inc.

3 unchanged sentences

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

Other-than-temporary Impairment

Prior to the adoption of ASC 326, management evaluated securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.

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

As of December 31, 2022, no investment securities were other-than-temporarily impaired.

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 interest rates and not credit quality 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 December 31, 2024 and 2023.

Note 4 - Loans and Leases

4 unchanged sentences

Total real estate

Municipalities

Consumer and other

2 unchanged sentences

Direct financing leases of $ 1,292 and $ 36 are included in consumer and other loans at December 31, 2024 and 2023, respectively.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

The following table set forth information regarding the activity in the allowance for credit losses for the year ended December 31, 2023:

The following table set forth information regarding the activity in the allowance for credit losses for the year ended December 31, 2024 and 2023:

December 31, 2024

2 unchanged sentences

& multi-family

Beginning balance prior to adoption of ASC 326

Impact of adopting ASC 326 on January 1, 2023

Provision for credit losses

Overage from off-balance sheet credit exposures

Municipalities

Balance, January 1, 2024

Provision (credit) for credit losses

Loans charged-off

11 unchanged sentences

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

The following tables present the balances and activity in the allowance for credit losses as of and for the year ended December 31, 2022, and the allowance for credit losses and recorded investment in loans receivable based on portfolio segment by impairment method as of December 31, 2022.

Allocation of a portion of the allowance to one type of loans does not preclude its availability to absorb losses in other categories.

December 31, 2023

Allowance for credit losses:

Balance, January 1, 2022

1-4 Residential

& multi-family

Municipalities

Beginning balance prior to adoption of ASC 326

Impact of adopting ASC 326 on January 1, 2023

Provision for credit losses

Loans charged-off

Balance, December 31, 2023

December 31, 2022

Allowance for credit losses:

Balance, December 31, 2022 allocated to loans and leases individually evaluated for impairment

Balance, December 31, 2022 allocated to loans and leases collectively evaluated for impairment

Balance, December 31, 2023 allocated to loans and leases individually evaluated

Balance, December 31, 2023 allocated to loans and leases collectively evaluated

Loans and leases receivable:

Balance, December 31, 2022 loans and leases individually evaluated for impairment

Balance, December 31, 2022 loans and leases collectively evaluated for impairment

Balance, December 31, 2023 loans and leases individually evaluated

Balance, December 31, 2023 loans and leases collectively evaluated

Balance, December 31, 2023

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

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

December 31, 2024

with Allowance

3 unchanged sentences

Commercial real estate

Municipalities

Consumer and other

4 unchanged sentences

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

The following table sets forth information regarding the nonaccrual status within the loan portfolio as of December 31, 2022.

December 31, 2023

with Allowance

Due Over 90 Days Still Accruing

Construction and land

1 unchanged sentence

Commercial real estate

Municipalities

Consumer and other

The Company did not recognize any interest income on nonaccrual loans during the years ended December 31, 2023 or 2022.

The Company did no t recognize any interest income on nonaccrual loans during the years ended December 31, 2024 or 2023.

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

December 31, 2024

Construction and land

1-4 Residential & multi-family

Commercial real estate

The Company had $ 1,157 in collateral-dependent loans as of December 31, 2023.

Prior to adoption of ASC 326, a loan was considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.

Impaired loans include nonperforming commercial loans but also include loans modified in accordance with ASC 310-20-5.

December 31, 2023

1-4 Residential & multi-family

Commercial real estate

The Company had $ 2,260 and $ 1,157 in collateral-dependent loans as of December 31, 2024 and 2023, respectively.

Texas Community Bancshares, Inc.

3 unchanged sentences

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

The following table sets forth information regarding impaired loans as of December 31, 2022:

With no related allowance

1‑4 Residential & multi-family

Commercial real estate

Consumer and other

With a related allowance

1-4 Residential & multi-family

Commercial real estate

Consumer and other

Internal Risk Categories

2 unchanged sentences

Impaired loans include nonperforming loans (nonaccrual loans), loans performing but with deterioration that leads to doubt regarding collectability.

These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

Loans that do not share risk characteristics are evaluated on an individual basis.

5 unchanged sentences

All of the Company’s loans and leases are evaluated using pass rated or reservable criticized as the primary credit quality indicator.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

The term reservable criticized refers to those loans and leases that are internally classified or listed by the Company as special mention, substandard, doubtful or loss.

13 unchanged sentences

Based upon available information, positive action by the Company is 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.

Credits with this classification have often become collateral dependent and any shortage in collateral or

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

other likely loss amount is recorded as a specific valuation allowance.

Credits rated doubtful are generally also placed on nonaccrual.

5 unchanged sentences

No significant changes were made during the year ended December 31, 2024.

Certain loan segments were reclassified during the year ended December 31, 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.

3 unchanged sentences

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

Based on the most recent analysis performed, the risk category of loans by class of loans as of December 31, 2023 and gross charge-offs for the year ended are as follows:

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

December 31, 2024

Term Loans Amortized Cost Basis by Origination Year

4 unchanged sentences

Special mention

Current period gross charge-offs

Commercial real estate

2 unchanged sentences

Special mention

Current period gross charge-offs

Municipalities

Special mention

Consumer and other

6 unchanged sentences

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

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

December 31, 2023

Term Loans Amortized Cost Basis by Origination Year

Construction and land

Special mention

1-4 Residential & multi-family

Special mention

Commercial real estate

Special mention

Municipalities

Special mention

Consumer and other

Special mention

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.

The following table presents the amortized cost of performing and nonperforming loans as of December 31, 2023:

Term Loans Amortized Cost Basis by Origination Year

Construction and land

Nonperforming

1-4 Residential & multi-family

Nonperforming

Commercial real estate

Nonperforming

Consumer and other

Nonperforming

Texas Community Bancshares, Inc.

3 unchanged sentences

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

The following table sets forth information regarding the credit risk profile based on payment activity of the loan and lease portfolio at December 31, 2022:

December 31, 2022

Construction and land

1‑4 Residential & multi-family

Commercial real estate

Consumer and other

The following is an aging analysis for loans as of December 31, 2023 and December 31, 2022:

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

December 31, 2024

2 unchanged sentences

Commercial real estate

Municipalities

Consumer and other

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

December 31, 2023

> 90 Days and

Still Accruing

Construction and land

1 unchanged sentence

Commercial real estate

Municipalities

Consumer and other

5 unchanged sentences

1-4 Residential & multi-family

Commercial real estate

During the year ended December 31, 2023, there were no modifications of loans to borrowers in financial difficulty.

During the year ended December 31, 2022, there were no modifications resulting in troubled debt restructurings.

There have been no modification to borrowers with financial difficulty in the past 12 months 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.

At December 31, 2022, the Company had a recorded investment of $ 364 , of modifications of loans to borrowers in financial difficulty and $ 323 at December 31, 2023.

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

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

Texas Community Bancshares, Inc.

3 unchanged sentences

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

There have been no modification to borrowers with financial difficulty in the past 12 months 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 - Net Investment in Direct Financing Leases

The Company has entered into an equipment lease with a local municipal entity.

The lease is classified as a direct financing lease.

The Company has entered into equipment and vehicle leases with various municipalities.

These leases are classified as direct financing leases.

The terms of the lease provide for automatic annual renewal periods unless the lessee gives written notice, not less than ninety days prior to the end of the original term or any renewal term, of their intention to terminate.

4 unchanged sentences

At December 31, 2024, the scheduled financing lease payments are as follows:

Note 6 - Loan Servicing

Mortgage loans serviced for others are not included in the accompanying statements of financial condition.

The unpaid principal balances of these loans are summarized as follows:

Mortgage loan portfolio serviced for FHLMC

Total lease payments

unearned interest income

Net lease receivables

Note 6 - Premises and Equipment

10 unchanged sentences

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

Note 8 - Leases

The Company leases certain office facilities and equipment for various terms under long-term, non-cancelable operating lease agreements.

The leases expire at various dates through 2029 and provide for renewal options ranging from 1 year to 10 years .

The Company included in the determination of the right-of-use assets and lease liabilities any renewal options when the options are reasonably certain to be exercised.

The leases provide for increases in future minimum annual rental payments based on defined increases in the Consumer Price Index, subject to certain minimum increases.

Also, the agreements generally require the Company to pay real estate taxes, insurance, and repairs.

The weighted-average discount rate is based on the discount rate implicit in the lease, or if the implicit rate is not readily determinable from the lease, then the Company estimates an applicable incremental borrowing rate.

The incremental borrowing rate is estimated using the Company’s applicable borrowing rates and the contractual lease term.

Total right-of-use assets and lease liabilities at December 31, 2023 and 2022 were as follows:

Statement of Financial Condition Classification

Right-of-use assets:

Operating leases

Lease Liabilities:

Operating lease liabilities

Accrued expenses and other liabilities

Total lease costs for the years ended December 31, 2023 and 2022 were as follows:

Operating lease cost

The future minimum lease payments under noncancelable operating leases with terms greater than one year at December 31, 2023 are as follows:

Operating Leases

Total undiscounted lease payments

imputed interest

Net lease liabilities

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

Supplement Lease Information

Weighted-average remaining lease term

Operating leases

Weighted-average discount rate

Operating leases

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases

Note 7 - Deposits

The aggregate amount of time deposits meeting or exceeding FDIC limits of $250 or more at December 31, 2024 and 2023, was $ 29,697 and $ 26,375 , respectively.

Deposits include $ 12,000 of callable brokered deposits issued as part of an investment strategy that are fully insured with $ 6,000 maturing in 2025 and $ 6,000 maturing in 2027.

At December 31, 2024 and 2023, deposits include $ 22,000 and $ 12,000 , respectively, of callable brokered deposits issued as part of an investment strategy that are fully insured with $ 4,000 maturing in 2025 and $ 18,000 maturing in 2029.

At December 31, 2024, the scheduled maturities of time deposits are as follows:

6 unchanged sentences

$ 2,802 and $ 3,558 of securities were specifically pledged as of December 31, 2024 and 2023, respectively.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

Note 9 - Income Taxes

6 unchanged sentences

Total provision

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

Income tax expense, as a percentage of pretax earnings, differs from the statutory federal income tax rate during the years ended December 31, 2024 and 2023, is as follows:

4 unchanged sentences

Total provision

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

The components of the net deferred tax asset are as follows:

7 unchanged sentences

Unrealized loss on securities available for sale

Net operating losses

Deferred tax liabilities

2 unchanged sentences

Mortgage servicing rights

Restricted stock dividends

Net deferred tax asset

2 unchanged sentences

This amount represents an allocation of income to bad debt deductions for tax purposes only.

Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the current corporate income tax rate.

Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

net operating losses would create income for tax purposes only, which would be subject to the current corporate income tax rate.

The unrecorded deferred income tax liability on the above amount was $ 559 at December 31, 2024 and 2023.

5 unchanged sentences

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

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

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

10 unchanged sentences

The Company pays no fees for this line of credit and has not drawn upon it.

The Company is party to agreements with its correspondent banks that provide the Company with up to $ 15,000 federal funds lines of credit to support overnight funding needs.

The Company is party to agreements with its correspondent banks that provide the Company with unsecured lines for up to $ 15,000 federal funds lines of credit to support overnight funding needs.

The Company pays no fees for the lines of credit and has not drawn upon them.

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

The Company is a party to an additional agreement on a secured federal funds line of credit of $ 3,000 that is in effect until either party changes or fails to meet the terms of the agreement.

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

2 unchanged sentences

Various legal claims also arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Company’s consolidated financial statements.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

Note 12 - Employee Benefit Plan

8 unchanged sentences

The portion of the director’s compensation that is deferred has been accrued and the only other expense related to this plan is the interest on the deferred amounts.

Interest expense during the years ended December 31, 2023 and 2022, included $ 10 related to this plan.

Interest expense during the years ended December 31, 2024 and 2023, included $ 9 and $ 10 , respectively, related to this plan.

The Company has included $ 166 and $ 175 of deferred compensation payable at December 31, 2024 and 2023, respectively, which is included in accrued expenses and other liabilities.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

To fund this plan, the Company has purchased a corporate-owned whole-life insurance contract on the director.

6 unchanged sentences

The vested benefit is to be paid within 90 days of the end of each plan year.

The plan will continue each year unless terminated by the Company prior to the beginning of each plan year.

The plan was terminated on December 31, 2023, and was accelerated to fully vest all participants on December 31, 2023.

The benefits totaling $ 435 that had not been previously deferred and deferrals from prior years totaling $ 561 were paid out on February 10, 2025.

The only expense related to the plan after termination was interest expense on the balance being held in the plan until the designated pay date.

The Company recorded compensation expense related to this program in the amount of $ 46 and $ 939 for the years ended December 31, 2024 and 2023, respectively.

The plan has been accelerated to fully vest all participants on December 31, 2023.

The benefits, totaling $ 435 , that had not been previously deferred will be paid out to the participants in 2025.

Deferrals from prior years totaling $ 561 will be paid out in years 2026-2029.

Going forward, the only expense related to the plan will be interest expense on the balance being held in the plan until the designated pay date.

An accrual of $ 1,042 and $ 1,189 for December 31, 2024 and 2023, respectively, is included in accrued expenses and other liabilities.

To partially fund benefit plans, Broadstreet Bank maintains the Broadstreet Bank Split Dollar Life Insurance Plan, which consists of thirteen life insurance policies on ten current, two retired officers and one former officer.

To partially fund benefit plans, Broadstreet Bank maintains the Broadstreet Bank Split Dollar Life Insurance Plan, which consists of thirteen life insurance policies on seven current, three retired officers and three former officers.

The executive has the right to designate a beneficiary who will receive his or her share of the net death benefit payable upon his or her death if the employment conditions of the plan have been met.

5 unchanged sentences

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

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

The loan is secured by unallocated shares and will be repaid by the ESOP with funds from contributions made by the Company

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

and dividends received by the ESOP.

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

11 unchanged sentences

ESOP compensation expense was $ 223 and $ 193 for the years ended December 31, 2024 and 2023, respectively.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

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

2 unchanged sentences

Shares allocated to participants

Shares distributed to retiring participant

Shares distributed to terminated participants

Unreleased shares

4 unchanged sentences

Stock Option Awards

The Company’s 2022 Equity Incentive Plan (the Equity Plan), which is shareholder approved, permits the grant of stock options to its directors for up to 325,775 shares of common stock.

The Company’s 2022 Equity Incentive Plan (the Equity Plan), which is shareholder approved, permits the grant of stock options to its directors, executive officers and other officers for up to 325,775 shares of common stock.

Stock option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant;

9 unchanged sentences

Treasury yield curve in effect at the time of the grants.

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

On August 31, 2022, the non-employee directors of the Company were granted 97,728 stock options with a cost of $ 6.50 per option and an exercise price of $ 16.00 .

These options will vest annually over a five year period ending August 31, 2027 and will expire on August 31, 2032.

During the year ended December 31, 2024, 8,144 of these options were forfeited or expired.

On February 28, 2023, the executive officers of the Company were granted 192,204 stock options with a cost of $ 6.14 per option and an exercise price of $ 15.67 .

These options will vest annually over a five year period ending February 28, 2028 and will expire on February 28, 2033.

58,639 of these options were forfeited during the year ended December 31, 2023.

During the years ending December 31, 2024 and 2023, 24,758 and 58,639 , respectively, of these options were forfeited.

On February 28, 2024, an executive officer of the Company was granted 58,639 stock options with a cost of $ 6.41 per option and an exercise price of $ 13.75 .

The Company accelerated the first vesting period to vest 20 % of the awards at grant date and the remaining awards will vest in four equal annual installments through February 28, 2028, and will expire on February 28, 2033.

On August 30, 2034, certain officers of the Company were granted 19,030 stock options with a cost of $ 6.27 per option and an exercise price of $ 14.31 .

These options will vest annually over a five year period ending August 31, 2029, and will expire on August 31, 2034.

Compensation expense for the stock options for the years ended December 31, 2024 and 2023, was $ 377 and $ 264 , respectively.

4 unchanged sentences

Risk-free rate

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2023 and 2022

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

A summary of the activity in the stock option awards for 2024 and 2023 follows:

9 unchanged sentences

Exercisable at December 31, 2024

Texas Community Bancshares, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2024 and 2023

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

Weighted-Average

6 unchanged sentences

Restricted Stock Awards

The Equity Plan also permits the grant of restricted stock to its directors and executive officers.

The Equity Plan also permits the grant of restricted stock to its directors, executive officers, and other officers.

Compensation expense for restricted stock awards is recognized over the vesting period of the awards based on the fair value of the stock at issue date.

3 unchanged sentences

These stock awards will vest in five equal annual installments through August 31, 2027.

During the year ended December 31, 2024, 2,606 of these awards were forfeited.

On February 28, 2023, executive officers of the Company were granted 76,880 shares of Company stock at a fair market value of $ 15.67 per share.

These stock awards will vest in five equal annual installments through February 28, 2028.

23,455 of these awards were forfeited during the year ended December 31, 2023.

During the years ended December 31, 2024 and 2023, 9,903 and 23,455 , respectively, of these awards were forfeited.

On February 28, 2024, an executive officer of the Company was granted 23,455 shares of Company stock when the stock price was $ 13.75 per share.

The Company accelerated the first vesting period to vest 20 % of the awards at grant date and the remaining awards will vest in four equal annual installments through February 28, 2028.

On August 30, 2024 certain officers of the Company were granted 9,212 shares of Company stock when the stock price was $ 14.31 per share.

These stock awards will vest in five equal annual installments through August 31, 2029.

Compensation expense for the restricted stock awards for the years ended December 31, 2024 and 2023 was $ 380 and $ 264 , respectively.

26 unchanged sentences

Supplemental cash flow information:

Loan originations to facilitate the sale of foreclosed assets

Real estate acquired in settlement of loans

Cash paid for

2 unchanged sentences

Other interest

Non-cash activities

Transfer on loans receivable to loans held for sale

Loan originations to facilitate the sale of other real estate owned

Premises and equipment transferred to other real estate owned

Note 17 - Minimum Regulatory Capital Requirements

60 unchanged sentences

Collateral values are estimated using Level 3 inputs based on internally customized discounting criteria.

Foreclosed Assets – Fair values are valued at the time the loan is foreclosed upon and the asset is transferred from loans.

Other real estate owned – Fair values are valued at the time the loan is foreclosed upon and the asset is transferred from loans or when the asset is transferred into other real estate owned from premises and equipment.

The value is based upon primarily third-party appraisals, less estimated costs to sell.

1 unchanged sentence

Such discounts are typically significant and result in Level 3 classification of the inputs for determining fair value.

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

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

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

20 unchanged sentences

Corporate bonds

Government and agency

Derivative instruments

Total financial assets

6 unchanged sentences

Nonfinancial assets

Foreclosed assets

Other real estate owned

December 31, 2023

Financial assets

Impaired loans

During the years ended December 31, 2023 and 2022, certain collateral-dependent and impaired loans were remeasured and reported at fair value through a specific valuation allowance allocation based upon the fair value of the underlying collateral.

Collateral-dependent loans

Nonfinancial assets

Other real estate owned

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

At December 31, 2024, collateral-dependent loans with a carrying value of $ 1,140 were reduced by specific valuation allowance allocations totaling $ 279 to a reported fair value of $ 861 .

At December 31, 2023, the Company had one commercial building held as a foreclosed asset with a carrying value of $ 162 including a gain of $ 32 which was recorded upon foreclosure in 2023.

The property was sold in 2024 with an additional gain of approximately $ 30 .

At December 31, 2022, impaired loans with a carrying value of $ 389 were reduced by specific valuation allowance allocations totaling $ 300 to a reported fair value of $ 89 .

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

There was no change to the provision for credit losses as a result of the valuation allowance for the years ended December 31, 2023 and 2022.

At December 31, 2023, collateral-dependent loans with a carrying value of $ 345 were reduced by a 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 of $ 15 to the provision for credit losses and a transfer of $ 48 from the general reserve to the specific reserve as a result of additional reserve requirements according to the quarterly evaluation conducted on collateral dependent loans for year ended December 31, 2024.

There was no charge to the provision for credit losses as a result of the valuation allowance for the year ended December 31, 2023.

Texas Community Bancshares, Inc.

3 unchanged sentences

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

At December 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, 2024, 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 year ended December 31, 2024.

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

6 unchanged sentences

Appraisal adjustment

Foreclosed assets

Other real estate owned

Appraisal of collateral (1)

4 unchanged sentences

December 31, 2023

Impaired loans

Collateral-dependent loans

Appraisal of collateral (1)

Appraisal adjustment

Other real estate owned

Appraisal of collateral (1)

Appraisal adjustment

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

9 unchanged sentences

Restricted investments carried at cost

Mortgage servicing rights

Financial liabilities

15 unchanged sentences

Restricted investments carried at cost

Mortgage servicing rights

Financial liabilities

23 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 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 $ 119 .

At December 31, 2024 and 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 $ 417 and $ 119 , respectively.

During the year ended December 31, 2024, the carrying amount of the hedged assets decreased due to the sale of two securities with an amortized cost of $ 5,500 .

At December 31, 2024, the hedging relationship still qualified for hedge accounting due to the amortized cost of the remaining securities exceeding the notional amount.

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.

6 unchanged sentences

December 31, 2024

December 31, 2023

Notional Amount

Derivatives designated as hedges:

6 unchanged sentences

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 December 31, 2024:

December 31, 2024

December 31, 2023

Carrying Amount of Hedged Assets Amount

Cumulative Amount of Basis Adjustments Included in the Carrying Amount of the Hedged Assets

Carrying Amount of Hedged Assets Amount

Cumulative Amount of Basis Adjustments Included in the Carrying Amount of the Hedged Assets

Line items on the Consolidated Statements of Financial Condition in which the hedged items is included:

Securities available for sale

Note 22 - Core Deposit Intangible

Core deposit intangible assets were recorded as part of the MapleMark Edgewood Branch Acquisition.

The components of core deposit intangible assets were as follows:

Core deposit intangible

Less accumulated amortization

Net core deposit intangible

Core deposit intangible assets are amortized on a straight-line basis over their estimated life of 7 years .

There was $ 132 of amortization expense related to intangible assets for each of the years ended December 31, 2023 and 2022.

The estimated aggregate future amortization expense for core deposit intangible assets remaining as of December 31, 2023, was as follows:

Years ended December 31:

Texas Community Bancshares, Inc.

15 unchanged sentences

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

3,350,268 and 3,175,426 shares issued and outstanding at December 31, 2023 and 3,296,843 issued and outstanding at December 31, 2022

3,370,425 issued and 3,088,152 outstanding at December 31, 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 shares

Treasury stock, at cost ( 174,842 shares at December 31, 2023)

Treasury stock, at cost ( 282,273 shares at December 31, 2024 and 174,842 shares at December 31, 2023)

Total shareholders' equity

12 unchanged sentences

Total equity in earnings of subsidiary

Net (Loss) Income

Other items of comprehensive income (loss)

2 unchanged sentences

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

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

Total other items of comprehensive income (loss), net of tax expense (benefit)

Comprehensive Income (Loss)

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

Total other items of comprehensive income (loss), net of tax benefit

Comprehensive (Loss) Income

Texas Community Bancshares, Inc.

23 unchanged sentences

Cash and Cash Equivalents at End of Year

Note 24 - Recently Issued But Not Yet Effective Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

The updated accounting guidance requires enhanced income tax disclosures, including the disaggregation of existing disclosures related to the tax rate reconciliation and income taxes paid.

This ASU is effective for annual periods beginning after December 15, 2024 with early adoption permitted.

The Company is currently evaluating the effect the updated guidance will have on its consolidated financial statements and related disclosures.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data