# Texas Community Bancshares, Inc.: Form 10-K for the period ended Dec 31, 2022

- Company: [Texas Community Bancshares, Inc.](/companies/tcbs.md) (CIK 1849466)
- Form: 10-K
- Filed: 2023-03-30
- Accepted by EDGAR: Mar 30, 2023, 17:07 ET
- Period: 2022-12-31
- Accession: 0001558370-23-005134
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1849466/000155837023005134/tcbs-20221231x10k.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1849466/000155837023005134/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 12 months, 2022-01-01 to 2022-12-31 | $2.3m | us-gaap:InterestExpense |
| Income tax | 12 months, 2022-01-01 to 2022-12-31 | $423.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 12 months, 2022-01-01 to 2022-12-31 | $1.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 12 months, 2022-01-01 to 2022-12-31 | $0.58 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 12 months, 2022-01-01 to 2022-12-31 | $0.58 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 12 months, 2022-01-01 to 2022-12-31 | 3,028,214 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 12 months, 2022-01-01 to 2022-12-31 | $3.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 12 months, 2022-01-01 to 2022-12-31 | $393.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Total assets | at 2022-12-31 | $417.3m | us-gaap:Assets |
| Total liabilities | at 2022-12-31 | $361.5m | us-gaap:Liabilities |

## Business

As filed, 102,439 characters.

### Forward Looking Statements

This annual report contains forward-looking statements, which can be identified by the use of words such as such “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “would,” “should,” “could” or “may,” and words of similar meaning. These forward-looking statements include, but are not limited to:

- statements of our goals, intentions and expectations;
- statements regarding our business plans, prospects, growth and operating strategies;
- statements regarding the quality of our loan and investment portfolios; and
- estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Accordingly, you should not place undue reliance on such statements. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this annual report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

- general economic conditions, either nationally or in our market areas, that are worse than expected;
- changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan and lease losses;
- our ability to access cost-effective funding;
- fluctuations in real estate values and both residential and commercial real estate market conditions;
- demand for loans and deposits in our market area;
- our ability to implement and change our business strategies;
- competition among depository and other financial institutions;
- inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, including our mortgage servicing rights asset, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;
- adverse changes in the securities or secondary mortgage markets;
- changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;
- changes in the quality or composition of our loan or investment portfolios;
- technological changes that may be more difficult or expensive than expected;
- the inability of third-party providers to perform as expected;
- a failure or breach of our operational or security systems or infrastructure, including cyberattacks;
- our ability to manage market risk, credit risk and operational risk;
- our ability to enter new markets successfully and capitalize on growth opportunities;
- changes in consumer spending, borrowing and savings habits;
- changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
- our ability to retain key employees; and
- changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

### Texas Community Bancshares, Inc.

Texas Community Bancshares, Inc. (“Texas Community Bancshares,” the “Company” or “we”) was incorporated in March 2021 to become the holding company for Mineola Community Bank, S.S.B. (“Mineola Community Bank” or the “Bank”) upon the conversion of Mineola Community Mutual Holding Company from a mutual holding company to a stock holding company (the “Conversion”). The Conversion was completed on July 14, 2021. In connection with the Conversion, the Company sold 3,207,759 shares of common stock at a price of $10.00 per share to depositors of the Bank for net proceeds of $30,394,000, and contributed 50,000 shares of common stock and $75,000 in cash to the Texas Community Bancshares Foundation, Inc. (the “Foundation”).

The Company conducts its operations primarily through its wholly owned subsidiary, Mineola Community Bank, a Texas-chartered savings bank. At December 31, 2022, the Company had total consolidated assets of $417,346,000, loans and leases of $253,093,000, deposits of $296,077,000 and stockholders’ equity of $55,870,000.

Our executive offices are located at 215 West Broad Street, Mineola, Texas 75773 and our telephone number is (903) 569-2602. Our website address is *www.mineolacb.com*. Information on our website is not and should not be considered a part of this annual report. The Company is a registered bank holding company subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and by the Texas Department of Savings and Mortgage Lending.

### Mineola Community Bank, S.S.B.

Mineola Community Bank is a Texas-chartered savings bank headquartered in Mineola, Texas. Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations and borrowings from the Federal Home Loan Bank of Dallas, in residential real estate loans and commercial real estate loans and, to a lesser extent, commercial loans, construction and land loans, and consumer and other loans. Substantially all of Mineola Community Bank’s loans are fixed-rate loans. We also invest in securities, which have historically consisted primarily of mortgage-backed securities and obligations issued by U.S. government sponsored enterprises and others, state and municipal securities, collateralized mortgage obligations, and Federal Home Loan Bank stock. We offer a variety of deposit accounts, including checking accounts, money market accounts, savings accounts and certificate of deposit accounts.

Mineola Community Bank is subject to comprehensive regulation and examination by the Texas Department of Savings and Mortgage Lending and the Federal Deposit Insurance Corporation and is a member of the Federal Home Loan Bank system.

### Market Area

We consider Franklin County, Hopkins County, Smith County, Van Zandt County and Wood County, and contiguous areas, as our primary market area for originating loans and gathering deposits. Our main office and five branch offices are located in these counties. Our branch office in Winnsboro, Texas, is in Wood County, but the Winnsboro city limits also lie within Franklin County and Hopkins County.

Mineola, Texas, located in Wood County, is approximately 80 miles east of Dallas, Texas, and approximately 35 miles north of Tyler, Texas, two notable population centers. Our Edgewood branch office, located in Van Zandt County, is approximately 50 miles east of Dallas and our Lindale branch office, located in Smith County, is approximately 20 miles north of Tyler. The Tyler metropolitan area is a growing regional economic center with a large, diversified employment base spread across varied economic sectors. Tyler Junior College and The University of Texas at Tyler are located in Tyler.

Mineola has become an attractive, lower-cost of living, retirement area for residents of the Dallas area. There are major hospital facilities located in Tyler and numerous recreational facilities located in the vicinity of Mineola including well-known bass fishing lakes, golf courses, and other recreational facilities, all of which have contributed to the influx of population. The work-from-home trend that arose due to the COVID-19 pandemic has also contributed to area’s population growth.

Major employers in our primary market area include Morton Salt Company (which operates a salt mine in Grand Saline, TX), Sanderson Farms, Inc. (which operates a poultry feed mill in Mineola and an additional facility in Lindale), Target (which has a distribution center in Lindale), local school districts, local governments, Walmart, Inc., Exxon Mobil Corporation, hospitals and other healthcare facilities, and numerous small manufacturing firms. Although there is some oil exploration business in Wood County, the economy of the primary market area is not heavily dependent on it.

### Competition

We face intense competition within our local market area both in making loans and attracting deposits. Our market area has a high concentration of financial institutions that include money center banks, regional banks, community banks, and credit unions. We compete for loans with banks, savings institutions, mortgage brokers, consumer finance companies and credit unions. We compete for deposits with banks, savings institutions, credit unions, money market funds, brokerage firms, mutual funds and insurance companies. As of June 30, 2022 (the most recent date for which data is available), our deposit market share in Smith County was 0.15% (22nd among 25 Federal Deposit Insurance Corporation-insured institutions with offices in the county), 8.12% in Van Zandt County (6th among 8 Federal Deposit Insurance Corporation-insured institutions with offices in the county) and 17.80% in Wood County (3rd among 7 Federal Deposit Insurance Corporation-insured institutions with offices in the county). These are the counties in which our offices are located.

### Lending Activities

***General.*** Our historical lending activity consists primarily of originating one-to four-family residential mortgage loans, commercial real estate loans, and construction and land loans. To a substantially lesser extent, we originate agricultural loans, commercial loans, and consumer and other loans. Substantially all of the loans we originate are fixed rate loans.

***Loan Portfolio Composition.*** The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated. In addition to the loans disclosed in the table below, we had loans in process of $23.3 million and $11.8 million at December 31, 2022 and December 31, 2021, respectively. We had no loans held for sale at December 31, 2022 and December 31, 2021, respectively.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Real estate loans: | ​ ​ ​ | ​ ​ At December 31, 2022 Amount ​ | ​ ​ ​ ​ Percent | ​ ​ 2021 Amount ​ | ​ ​ ​ Percent ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| One- to four-family residential | ​ | $162,462 | 64.2% | $153,814 | 69.3% |
| Multi-family | ​ | 323 | 0.1 ​ | 354 | 0.2 ​ |
| Construction & land | ​ | 36,257 | 14.3 ​ | 17,650 | 8.0 ​ |
| Commercial | ​ | 33,678 | 13.3 ​ | 31,686 | 14.3 ​ |
| Farmland | ​ | 7,558 | 3.0 ​ | 6,442 | 2.9 ​ |
| Agriculture loans | ​ | 189 | 0.1 ​ | 234 | 0.1 ​ |
| Commercial loans | ​ | 7,029 | 2.8 ​ | 6,128 | 2.8 ​ |
| Consumer and other | ​ | 5,595 | 2.2 ​ | 5,538 | 2.5 ​ |
| PPP loans | ​ | 2 | — ​ | 13 | — ​ |
| Total loans | ​ | 253,093 | 100.0% | 221,859 | 100.00% |
| Less: | ​ |  | ​ |  | ​ |
| Net deferred loan fees | ​ | — | — ​ | — | — ​ |
| Allowance for losses | ​ | 1,755 | — ​ | 1,592 | — ​ |
| Total loans, net | ​ | $251,338 | — ​ | $220,267 | — ​ |

***Contractual Maturities.*** The following tables set forth the contractual maturities of our total loan portfolio at December 31, 2022. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Because the tables present contractual maturities and do not reflect repricing or the effect of prepayments, actual maturities may differ.

*(In thousands)*

| ​ ​ ​ ​ ​ ​ Amounts due in: | ​ ​ ​ ​ ​ | ​ ​ One- to Four-Family Residential Real Estate ​ | ​ ​ ​ ​ ​ ​ ​ Multi-Family ​ Real Estate ​ | ​ ​ ​ ​ ​ ​ ​ Construction ​ and Land ​ | ​ ​ ​ ​ ​ ​ ​ Commercial ​ Real Estate ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ Farmland ​ |
| --- | --- | ---: | --- | --- | --- | --- |
| One year or less | ​ | $807 | $— | $31,060 | $10,179 | $494 |
| After one year through five years | ​ | 5,499 | ​ 64 | ​ 3,063 | ​ 9,834 | ​ 3,665 |
| After five years through 15 years | ​ | 30,120 | ​ 259 | ​ 1,736 | ​ 12,062 | ​ 2,978 |
| After 15 years | ​ | 126,036 | ​ — | ​ 398 | ​ 1,603 | ​ 421 |
| Total | ​ | $162,462 | $323 | $36,257 | $33,678 | $7,558 |

*(in thousands)*

| ​ ​ ​ ​ Amounts due in: | ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ Agriculture ​ | ​ ​ ​ ​ Commercial ​ | ​ ​ ​ Consumer and Other ​ | ​ ​ ​ ​ PPP ​ | ​ ​ ​ ​ Total ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| One year or less | ​ | ​ | ​ | $84 | $3,116 | $1,165 | $2 | $46,907 |
| After one year through five years | ​ |  | ​ | ​ 105 | ​ 2,159 | ​ 3,921 | ​ — | ​ 28,310 |
| After five years through 15 years | ​ |  | ​ | ​ — | ​ 1,324 | ​ 509 | ​ — | ​ 48,988 |
| After 15 years | ​ |  | ​ | ​ — | ​ 430 | ​ — | ​ — | ​ 128,888 |
| Total | ​ | ​ | ​ | $189 | $7,029 | $5,595 | $2 | $253,093 |

The following table sets forth our fixed and adjustable-rate loans at December 31, 2022 that are contractually due after December 31, 2023.

*(In thousands)*

| ​ ​ ​ ​ Real estate loans: | ​ ​ | ​ ​ Due After December 31, 2023 Fixed ​ | ​ | ​ ​ Adjustable ​ | ​ | ​ ​ Total ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| One- to four-family residential | ​ | $161,654 | ​ | $— | ​ | $161,654 |
| Multi-family | ​ | 323 | ​ | — | ​ | 323 |
| Construction and land | ​ | 5,197 | ​ | — | ​ | 5,197 |
| Commercial | ​ | 22,409 | ​ | 1,091 | ​ | 23,500 |
| Farmland | ​ | 7,064 | ​ | — | ​ | 7,064 |
| Agriculture loans | ​ | 105 | ​ | — | ​ | 105 |
| Commercial loans | ​ | 3,913 | ​ | — | ​ | 3,913 |
| Consumer loans | ​ | 3,430 | ​ | — | ​ | 3,430 |
| Other | ​ | 1,000 | ​ | — | ​ | 1,000 |
| PPP loans | ​ | — | ​ | — | ​ | — |
| Total loans | ​ | $205,095 | ​ | $1,091 | ​ | $206,186 |

***One- to Four-Family Residential Real Estate Lending.*** At December 31, 2022, we had $162.5 million of loans secured by one- to four-family real estate, or 64.2% of total loans. The significant majority of our one- to four-family residential real estate loans are secured by properties located in our primary market area.

We have also originated residential mortgage loans secured by owner-occupied properties located in the northern and eastern sections of the Dallas Metroplex. We began originating these loans in 2014, and continue to do so primarily through word-of-mouth referrals. These are generally jumbo loans with low loan-to-value ratios, generally in the range of 60% to 75%. At December 31, 2022, these loans amounted to $61.8 million, of which $41.4 million were jumbo loans and $20.4 million were conventional loans.

Our one- to four-family residential real estate loans are generally underwritten to Fannie Mae guidelines. Substantially all of our residential mortgage loans are fixed-rate loans. Residential mortgage loans are generally originated at a fixed rate of 15, 20, or 30 years or with the optional 10-year balloon terms based on a 20- or 30-year amortization schedule. We generally limit the loan-to-value ratios of our one- to four-family residential mortgage loans to 80% (or 95% with private mortgage insurance) of the purchase price or appraised value, whichever is lower.

We do not offer “interest only” mortgage loans on permanent one- to four-family residential real estate loans (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. In general, we do not currently offer “subprime loans” on one- to four-family residential real estate loans (i.e., generally loans to borrowers with credit scores less than 620).

***Commercial Real Estate Loans.*** At December 31, 2022, we had $33.7 million in commercial real estate loans, or 13.3% of total loans. Substantially all of our commercial real estate loans are fixed-rate balloon loans with a six- to ten-year initial term and with a 10- to 20-year amortization period. The maximum loan-to-value ratio of our commercial real estate loans is generally 80%.

At December 31, 2022, we had eleven loans secured by self-storage facilities totaling $12.1 million, nine loans secured by churches totaling $5.2 million, three loans secured by a rural water district totaling $3.3 million, seven loans secured by restaurant/fast food restaurant properties totaling $2.4 million, and seven loans secured by commercial rental properties totaling $1.8 million. At December 31, 2022, all of these loans were performing according to their terms.

We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property, and the debt service coverage ratio (the ratio of net operating income to debt service). Generally, we require that the debt service coverage ratio be at least 1.15x. The significant majority of our commercial real estate loans are appraised by outside independent appraisers approved by the board of directors. Personal guarantees are generally obtained from the principals of commercial real estate borrowers.

At December 31, 2022, our largest commercial real estate loan relationship consisted of four loans totaling $10.6 million (after the sale of two participation interests totaling $6.5 million), which are secured by self-storage facilities. At December 31, 2022, all of these loans were performing according to their original terms.

***Construction and Land Loans.*** At December 31, 2022, we had $36.3 million in construction and land loans, or 14.3% of total loans. We make construction loans, primarily to individuals for the construction of their primary residences and to contractors and builders of single-family homes. We also make a limited amount of land loans to complement our construction lending activities, as such loans are generally secured by lots that will be used for residential development. Land loans also include loans secured by land purchased for investment purposes. At December 31, 2022, our construction and development loans totaled $30.7 million, or 12.1% of our total loan portfolio, in addition to $5.6 million of land loans. At December 31, 2022, $11.6 million of our single-family construction loans were to individuals and $9.2 million were to builders.

Our construction loans are primarily secured by properties in our primary market area. We have also developed long-term relationships with a few builders in the northern and eastern sections of the Dallas Metroplex and continue to provide them with financing for some of their residential construction. At December 31, 2022, $713,000 of our single family construction loans in the Metroplex were originated to these builders. An additional $1.2 million of construction loans in the Metroplex were to individual borrowers at December 31, 2022.

While we may originate loans to builders whether or not the collateral property underlying the loan is under contract for sale, we consider each project carefully in light of current residential real estate market conditions. Construction loans originated to builders where there is no contract for sale for the underlying completed home at the time of origination are referred to as speculative construction loans. We actively monitor the number of unsold homes in our construction loan portfolio and local housing markets to attempt to maintain an appropriate balance between home sales and new loan originations. We generally will limit the maximum number of speculative units (units that are not pre-sold) approved for each builder, typically starting with one speculative loan per builder until we develop a relationship with the builder. At December 31, 2022, speculative construction loans totaled $9.2 million.

Our construction loans are fixed rate interest-only loans that provide for the payment of interest during the construction phase, which is usually up to 12 months. At the end of the construction phase, the loan may convert to a permanent mortgage loan or may be paid in full.

Construction loans generally can be made with a maximum loan-to-value ratio of 95% of the estimated appraised market value upon completion of the project. Mortgage insurance pre-approval is required for loans exceeding 80% loan-to-value. Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We also generally require inspections of the property before disbursements of funds during the term of the construction loan.

At December 31, 2022, our largest single family residence construction loan was for $1.4 million, with 48.2%, or $675,000, funded and our largest development loan was $8.0 million, with 78.9%, or $6.3 million funded. Both loans were performing according to the original terms at December 31, 2022 and both loans were in our local communities.

***Commercial Loans.*** At December 31, 2022, commercial loans were $7.0 million, or 2.8% of total loans. This amount excludes loans originated under the PPP, which are described below.

We make commercial loans primarily to small businesses in our market area. These loans are generally secured by business assets, such as equipment and accounts receivable. Commercial loans are made with fixed-interest rates and for terms generally up to 60 months. Depending on the collateral used to secure the loans, commercial loans are made in amounts of up to 80% of the value of the collateral securing the loan.

When making commercial loans, we consider the financial statements of the borrower, our lending history with the borrower, the debt service capabilities and global cash flows of the borrower and other guarantors, the projected cash flows of the business and the value of the collateral, accounts receivable, inventory and equipment.

The CARES Act established the PPP through the SBA, which allowed us to lend money to small businesses to maintain employee payrolls through the COVID-19 crisis with guarantees from the SBA. PPP loans may be forgiven if the borrower maintains employee payrolls and meet certain other requirements. PPP loans have a fixed interest rate of 1.00% per annum and a maturity date of either two or five years. At December 31, 2022, we have two PPP loans totaling $2,000.

At December 31, 2022, our largest commercial loan totaled $1.1 million and is secured by manufacturing equipment. Our largest commercial relationship consists of seven loans totaling $1.3 million and is secured by machinery and equipment. At December 31, 2022, these loans were performing according to the original terms.

***Consumer and Other Loans.*** At December 31, 2022, consumer and other loans were $5.6 million, or 2.2% of total loans. Our consumer loan portfolio generally consists of loans secured predominately by used automobiles, recreational vehicles, all-terrain vehicles and boats, as well as share loans secured by a deposit account at Mineola Community Bank.

### Loan Underwriting Risks

***Commercial Real Estate Loans.*** Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential real estate loans. The primary concern in commercial real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we generally require borrowers and loan guarantors to provide quarterly, semi-annual or annual financial statements, depending on the size of the loan, on commercial real estate loans. In reaching a decision on whether to make a commercial real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have an aggregate debt service ratio, including the guarantor’s cash flows and the borrower’s other projects, of at least 1.15x. An environmental phase one report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials.

If we foreclose on a commercial real estate loan, the marketing and liquidation period to convert the real estate asset to cash can be lengthy with substantial holding costs. In addition, vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability. Depending on the individual circumstances, initial charge-offs and subsequent losses on commercial real estate loans can be unpredictable and substantial.

***Commercial Loans.*** Unlike residential real estate loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial loans and agricultural loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business, and the collateral securing these loans may fluctuate in value. Our commercial loans are originated primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Collateral for commercial loans typically consists of accounts receivable, inventory or equipment. Credit support provided by the borrower for most of these loans is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value. As a result, the availability of funds for the repayment of commercial loans and agricultural loans may depend substantially on the success of the business or farm itself, respectively.

***Construction and Land Loans.*** Our construction loans are based upon estimates of costs and values associated with the completed project. Underwriting is focused on the borrowers’ financial strength, credit history and demonstrated ability to produce a quality product and effectively market and manage their operations.

Construction lending involves additional risks when compared with permanent lending because funds are advanced upon the security of the project, which is of uncertain value before its completion. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. In addition, generally during the term of a construction loan, interest may be funded by the borrower or disbursed from an interest reserve set aside from the construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraised value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss. In addition, speculative construction loans, which are loans made to home builders who, at the time of loan origination, have not yet secured an end buyer for the home under construction, typically carry higher risks than those associated with traditional construction loans. These increased risks arise because of the risk that there will be inadequate demand to ensure the sale of the property within an acceptable time. As a result, in addition to the risks associated with traditional construction loans, speculative construction loans carry the added risk that the builder will have to pay the property taxes and other carrying costs of the property until an end buyer is found. Land loans have substantially similar risks to speculative construction loans.

***Balloon Loans.*** Although balloon mortgage loans may reduce to an extent our vulnerability to changes in market interest rates because they reprice at the end of the term, the ability of the borrower to renew or repay the loan and the marketability of the underlying collateral may be adversely affected if real estate values decline before the expiration of the term of the loan or in a rising interest rate environment.

***Consumer and Other Loans.*** Consumer loans may entail greater risk than residential real estate loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

### Originations, Purchases and Sales of Loans

Lending activities are conducted by our salaried loan personnel operating at our main and branch office locations. All loans originated by us are underwritten pursuant to our policies and procedures. We primarily originate fixed-rate loans. We originate real estate and other loans through our loan officers, marketing efforts, our customer base, walk-in customers and referrals from real estate brokers, builders and attorneys.

In addition, from time to time, we may purchase or sell participation interests in loans. We underwrite our participation interest in the loan that we are purchasing according to our own underwriting criteria and procedures. At December 31, 2022, we had one purchased construction loan participation interest in commercial real estate of $403,000. At December 31, 2022, we had one purchased construction participation of $1.0 million secured by a hotel and two purchased participations of residential real estate of $207,000. At December 31, 2022, we had one loan, secured by self-storage facilities, for which we had sold two participation interests totaling $6.5 million.

We generally do not originate loans for sale. At December 31, 2022, we had no loans held for sale.

### Loan Approval Procedures and Authority

Pursuant to Texas law, Mineola Community Bank is permitted to make loans to any one borrower or a group of related borrowers equal to 15% of unimpaired capital and unimpaired surplus plus an additional 10% of unimpaired capital and unimpaired surplus if the loan is fully secured by readily marketable collateral for a total of 25% of unimpaired capital and unimpaired surplus. The 25% limit applies to the majority of the loans made. At December 31, 2022, based on this limitation, Mineola Community Bank’s loans-to-one-borrower limit was approximately $12.2 million. Notwithstanding this legal limit, Mineola Community Bank had an in-house limit of $3.0 million at December 31, 2022. At December 31, 2022, our largest loan relationship with one borrower had a net outstanding balance of $10.6 million, after the sale of a $6.5 million participation interest. This loan relationship is secured by self-storage facilities, and was performing according to its original terms at December 31, 2022.

Our lending is subject to written underwriting standards and origination procedures. Decisions on loan applications are made on the basis of detailed applications submitted by the prospective borrower, credit histories that we obtain, and property valuations (consistent with our appraisal policy) prepared by our internal licensed appraiser and outside independent licensed appraisers approved by our board of directors as well as internal evaluations, where permitted by regulations. The loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, bank statements and tax returns.

All loan approval amounts are based on the aggregate loans (total credit exposure), including total balances of outstanding loans and the proposed loan to the individual borrower and any related entity. Individual loan officer approval authorities range up to $200,000. Our Loan Committee has approval authority up to $500,000 on commercial and $750,000 on residential properties. Our Executive Committee has approval authority up to $2.0 million. Our Board of Directors must approve all loans greater than or equal to $2.0 million. These loan approval authorities are established by our loan policy.

Generally, we require title insurance or abstracts on our mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan.

### Delinquencies and Asset Quality

***Delinquency Procedures.*** When a loan payment becomes 15 days past due, we contact the customer by mailing a late notice, and loan officers may contact their customers. If a loan payment becomes 30 days past due, we mail an additional late notice and a loan-specific letter written by a collection representative, and we also place telephone calls to the borrower. These loan collection efforts continue until a loan becomes 90 days past due, at which point we would refer the loan for foreclosure proceedings unless management determines that it is in the best interest of Mineola Community Bank to work further with the borrower to arrange a workout plan. The foreclosure process would begin when a loan becomes 120 days delinquent.

***Loans Past Due and Non-Performing Assets.*** Loans are reviewed on a regular basis. Management determines that a loan is impaired or non-performing when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent. When a loan is determined to be impaired, the measurement of the loan in the allowance for loan and lease losses is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis. All loans that become 90 days or more delinquent are placed on non-accrual status unless the loan is well secured and in the process of collection. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received on a cash basis or cost recovery method.

When we acquire real estate as a result of foreclosure, the real estate is classified as real estate owned. The real estate owned is recorded at the lower of carrying amount or fair value, less estimated costs to sell. Soon after acquisition, we order a new appraisal to determine the current market value of the property. Any excess of the recorded value of the loan satisfied over the market value of the property is charged against the allowance for loan and lease losses, or, if the existing allowance is inadequate, charged to expense of the current period. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell.

A loan is classified as a troubled debt restructuring if, for economic or legal reasons related to the borrower’s financial difficulties, we grant a concession to the borrower that we would not otherwise consider. This usually includes a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of the principal amount due. Interest income on restructured loans is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six consecutive months.

Under the CARES Act, COVID-19 related modifications to loans that were current as of December 31, 2019 are exempt from troubled debt restructuring classification under accounting principles generally accepted in the United States (“U.S. GAAP”). In addition, the bank regulatory agencies have issued interagency guidance stating that COVID-19 related short-term modifications (*i.e.*, six months or less) for loans that were current as of the loan modification program implementation date are not troubled debt restructurings. In 2020, we granted short-term deferrals on 44 mortgage loans and consumer loans that were otherwise performing, totaling approximately $7.2 million and one commercial real estate loan of $1.2 million. As of December 31, 2022, thirteen of these mortgage and consumer loans remained open totaling $3.3 million, with one loan of $196,000 being on nonaccrual status and the remaining loans performing according to their original terms. In addition, the commercial real estate loan was also performing with a remaining balance of $943,000.

***Delinquent Loans.*** The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated.

*(In thousands)*

| ​ ​ ​ ​ ​ ​ ​ Real estate loans: | ​ ​ ​ ​ ​ | ​ ​ At December 31, 2022 30-59 Days Past Due ​ | ​ ​ ​ | ​ ​ 60-89 Days Past Due ​ | ​ ​ ​ | ​ ​ 90 Days or More Past Due ​ | ​ ​ ​ ​ 2021 ​ 30-59 ​ Days Past Due ​ | ​ ​ ​ ​ 60-89 ​ Days Past Due ​ | ​ ​ ​ ​ 90 Days ​ or More Past Due ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | --- | --- |
| One- to four-family residential | ​ | $1,172 | ​ | $43 | ​ | $348 | $274 | $106 | $446 |
| Multi-family | ​ | — | ​ | — | ​ | — | ​ — | ​ — | ​ — |
| Commercial | ​ | 126 | ​ | — | ​ | — | ​ — | ​ 36 | ​ — |
| Construction and land | ​ | 836 | ​ | 94 | ​ | — | ​ 847 | ​ 773 | ​ — |
| Farmland | ​ | 162 | ​ | — | ​ | 165 | ​ — | ​ — | ​ 192 |
| Agriculture loans | ​ | — | ​ | — | ​ | — | ​ — | ​ — | ​ — |
| Commercial loans | ​ | — | ​ | — | ​ | — | ​ — | ​ — | ​ — |
| Consumer loans | ​ | 3 | ​ | 7 | ​ | — | ​ 8 | ​ 44 | ​ — |
| PPP loans | ​ | — | ​ | — | ​ | 2 | ​ — | ​ — | ​ 2 |
| Total | ​ | $2,299 | ​ | $144 | ​ | $515 | $1,129 | $959 | $640 |

***Non-Performing Assets.*** The following table sets forth information regarding our non-performing assets. There were four non-accruing troubled debt restructurings included in non-accrual loans as of December 31, 2022 totaling $364,000 and $410,000 as of December 31, 2021. One PPP loan of $1,000 was considered non-performing at December 31, 2022 and $13,000 at December 31, 2021.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Non-accrual loans: Real estate loans: | ​ ​ ​ ​ ​ | ​ ​ ​ At December 31, 2022 ​ ​ ​ ​ ​ | ​ ​ ​ 2021 ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | ---: | ---: |
| One- to four-family residential | ​ | $548 ​ | $768 ​ |
| Multi-family | ​ | — ​ | — ​ |
| Commercial | ​ | 70 ​ | 123 ​ |
| Construction and land | ​ | — ​ | — ​ |
| Farmland | ​ | 165 ​ | 192 ​ |
| Agriculture loans | ​ | — ​ | — ​ |
| Commercial loans | ​ | 398 ​ | 474 ​ |
| Consumer loans | ​ | — ​ | 33 ​ |
| Total non-accrual loans | ​ | $1,181 ​ | $1,590 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Accruing loans past due 90 days or more | ​ | 1 ​ | — ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Real estate owned: | ​ | ​ ​ | ​ |
| One- to four-family residential | ​ | — ​ | — ​ |
| Multi-family | ​ | — ​ | — ​ |
| Commercial | ​ | — ​ | — ​ |
| Construction and land | ​ | — ​ | — ​ |
| Bank owned property held for sale | ​ | — ​ | 209 ​ |
| Total real estate owned | ​ | — ​ | 209 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Total non-performing assets | ​ | $1,182 ​ | $1,799 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Total accruing troubled debt restructured loans | ​ | $— ​ | $83 ​ |
| Total non-performing loans to total loans | ​ | 0.47% | 0.72% |
| Total non-accruing loans to total loans | ​ | 0.47% | 0.72% |
| Total non-performing assets to total assets | ​ | 0.28% | 0.49% |

***Classified Assets.*** Federal regulations provide for the classification of loans and other assets as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management.

When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable accrued losses. General allowances represent loss allowances which have been established to cover probable accrued losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, such that additional general or specific loss allowances may be required.

In connection with the filing of our periodic reports with the Federal Deposit Insurance Corporation and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations.

On the basis of this review of our assets, our classified and special mention assets at the dates indicated were as follows:

*(In thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ | ​ ​ At December 31, 2022 ​ ​ | ​ ​ | ​ ​ 2021 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Substandard assets | ​ | $3,006 | ​ | $3,721 |
| Doubtful assets | ​ | ​ 389 | ​ | 437 |
| Loss assets | ​ | ​ — | ​ | — |
| Total classified assets | ​ | $3,395 | ​ | $4,158 |
| Special mention assets | ​ | $658 | ​ | $568 |
| Foreclosed assets | ​ | $— | ​ | $209 |

### Allowance for Loan and Lease Losses

The allowance for loan and lease losses is maintained at a level which, in management’s judgment, is adequate to absorb probable credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of probable credit losses inherent in the loan portfolio and the related allowance may change materially in the near-term. The allowance is increased by a provision for loan and lease losses, which is charged to expense and reduced by full and partial charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan and lease losses. Management’s periodic evaluation of the adequacy of the allowance is based on various factors, including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses.

As an integral part of their examination process, the Texas Department of Savings and Mortgage Lending and the Federal Deposit Insurance Corporation will periodically review our allowance for loan and lease losses, and as a result of such reviews, we may have to adjust our allowance for loan and lease losses. However, regulatory agencies are not directly involved in the process for establishing the allowance for loan and lease losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management.

The following table sets forth activity in our allowance for loan and lease losses for the periods indicated.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ At or For the Years Ended December 31, 2022 ​ ​ ​ | ​ ​ ​ ​ 2021 ​ ​ ​ |
| --- | --- | --- | --- |
| Allowance for loan and lease losses at beginning of year | ​ | $1,592 ​ | $1,561 ​ |
| Provision for loan and lease losses | ​ | ​ 208 ​ | ​ 50 ​ |
| Charge-offs: | ​ | ​ ​ ​ | ​ ​ ​ |
| Real estate loans: | ​ | ​ ​ ​ | ​ ​ ​ |
| One- to four-family residential | ​ | ​ — ​ | ​ — ​ |
| Multi-family | ​ | ​ — ​ | ​ — ​ |
| Commercial | ​ | ​ — ​ | ​ — ​ |
| Construction and land | ​ | ​ — ​ | ​ — ​ |
| Agriculture loans | ​ | ​ — ​ | ​ — ​ |
| Commercial loans | ​ | ​ — ​ | ​ — ​ |
| Consumer loans | ​ | ​ 26 ​ | ​ 7 ​ |
| Consumer Other – Overdrafts | ​ | ​ 32 ​ | ​ 29 ​ |
| PPP loans | ​ | ​ — ​ | ​ — ​ |
| Total charge-offs | ​ | ​ 58 ​ | ​ 36 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Recoveries: | ​ | ​ ​ ​ | ​ ​ |
| Real estate loans: | ​ | ​ ​ ​ | ​ ​ |
| One- to four-family residential | ​ | ​ — ​ | ​ — ​ |
| Multi-family | ​ | ​ — ​ | ​ — ​ |
| Commercial | ​ | ​ — ​ | ​ — ​ |
| Construction and loan | ​ | ​ — ​ | ​ — ​ |
| Agriculture loans | ​ | ​ — ​ | ​ — ​ |
| Commercial loans | ​ | ​ — ​ | ​ — ​ |
| Consumer loans | ​ | ​ 13 ​ | ​ 17 ​ |
| PPP loans | ​ | ​ — ​ | ​ — ​ |
| Total recoveries | ​ | ​ 13 ​ | ​ 17 ​ |
| Net (charge-offs) recoveries | ​ | ​ (45) ​ | ​ (19) ​ |
| Allowance for loan and lease losses at end of year | ​ | $1,755 ​ | $1,592 ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |
| Allowance for loan and lease losses to non-performing loans | ​ | ​ 148.60% | 100.13% |
| Allowance for loan and lease losses to total loans outstanding at the end of the year | ​ | ​ 0.69% | 0.72% |
| Net (charge-offs) recoveries to average loans outstanding during the year | ​ | ​ (0.02)% | (0.01)% |

***Allocation of Allowance for Loan and Lease Losses.*** The following tables set forth the allowance for loan and lease losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated. The allowance for loan and lease losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate loans: | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ At December 31, 2022 ​ ​ ​ ​ ​ ​ Allowance for Loan and Lease Losses ​ | ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ Percent of ​ Allowance ​ in Each ​ Category ​ to Total ​ Allocated ​ Allowance ​ | ​ ​ ​ ​ ​ Percent of ​ Loans in ​ Each ​ Category ​ to Total ​ Loans ​ | ​ ​ 2021 ​ ​ ​ ​ ​ ​ Allowance for Loan and Lease Losses ​ | ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ Percent of ​ Allowance ​ in Each ​ Category ​ to Total ​ Allocated ​ Allowance ​ ​ | ​ ​ ​ ​ ​ ​ Percent of ​ Loans in ​ Each ​ Category ​ to Total ​ Loans ​ ​ ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | --- | ---: | ---: |
| One- to four-family residential & multi-family | ​ | $810 | ​ | 46% | 64% | $805 | ​ | 51% | 69% |
| Commercial | ​ | ​ 228 | ​ | 13 ​ | 13 ​ | ​ 214 | ​ | 13% | 14% |
| Construction and land |  | 263 | ​ | 15 | 14 | ​ 132 | ​ | 8% | 8% |
| Farmland |  | 31 | ​ | 2 | 3 | ​ 27 | ​ | 2% | 3% |
| Agriculture loans |  | 1 | ​ | — | — | ​ 1 | ​ | — | —% |
| Commercial loans |  | 359 | ​ | 20 | 3 | ​ 357 | ​ | 22% | 3% |
| Consumer loans |  | 50 | ​ | 3 | 2 | ​ 44 | ​ | 3% | 2% |
| Other |  | 13 | ​ | 1 | 1 | ​ 12 | ​ | 1 | 1 ​ |
| PPP loans |  | — | ​ | —% | —% | ​ — | ​ | —% | —% |
| Total allocated allowance |  | $1,755 | ​ | 100% | 100% | $1,592 | ​ | 100% | 100% |

### Investment Activities

***General.*** The goals of our investment policy is to maximize portfolio yield over the long term in a manner that is consistent with minimizing risk, meeting liquidity needs, meeting pledging requirements, and meeting asset/liability management and interest rate risk strategies. Subject to loan demand and our interest rate risk analysis, we will increase the balance of our investment securities portfolio when we have excess liquidity.

Our investment policy was adopted by the board of directors and is reviewed annually by the board of directors. All investment decisions are made by our Asset/Liability Committee according to board-approved policies. An investment schedule detailing the investment portfolio is reviewed at least monthly by the board of directors.

Our current investment policy permits, with certain limitations, investments in: U.S. Treasury securities; securities issued by the U.S. government and its agencies or government sponsored enterprises including mortgage-backed securities and collateralized mortgage obligations; corporate and municipal bonds; certificates of deposit in other financial institutions; federal funds and money market funds.

At December 31, 2022, our investment portfolio consisted of U.S. Treasury securities, securities and obligations issued by U.S. Government-sponsored enterprises and others including mortgage-backed securities and collateralized mortgage obligations, corporate bonds including bank subordinated debt as well as state and municipal securities. At December 31, 2022, we also owned $2.5 million of Federal Home Loan Bank of Dallas stock. As a member of Federal Home Loan Bank of Dallas, we are required to purchase stock in the Federal Home Loan Bank of Dallas, which is carried at cost and classified as a restricted investment.

As of December 31, 2022 and 2021, all of our available for sale investment securities are carried at fair value through accumulated other comprehensive loss and our held to maturity securities are carried at cost.

For additional information regarding our investment securities portfolio, see Note 3 to the notes to consolidated financial statements.

### Sources of Funds

***General.*** Customer deposits have traditionally been our primary source of funds for use in lending and investment activities. We also use borrowings, and occasionally brokered deposits, to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost of funds. In addition, we receive funds from scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.

***Deposits.*** Our deposits are generated primarily from our primary market area. We occasionally attain brokered deposits. We offer a selection of deposit accounts, including savings accounts, checking accounts, money market accounts, certificates of deposit and individual retirement accounts. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate.

Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. We rely upon personalized customer service, long-standing relationships with customers, and the favorable image of Mineola Community Bank in the community to attract and retain local deposits. We also seek to obtain deposits from our commercial loan customers.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates and competition. The variety of deposit accounts offered allows us to be competitive in obtaining funds and responding to changes in consumer demand. Based on experience, we believe that our deposits are relatively stable. However, the ability to attract and maintain deposits and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions.

The following table sets forth the distribution of total deposits by account type at the dates indicated.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ At December 31, 2022 ​ ​ Amount ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Percent ​ ​ | ​ Average Rate ​ | ​ ​ ​ ​ ​ ​ | ​ ​ 2021 ​ ​ Amount ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Percent ​ ​ | ​ ​ ​ Average Rate ​ ​ |
| --- | --- | --- | --- | ---: | --- | ---: | --- | --- | ---: | ---: |
| Noninterest-bearing demand deposits | ​ | $45,823 | ​ | 15.5% |  | —% | $40,576 | ​ | 14.7% | —% |
| Interest-bearing demand deposits |  | ​ 68,912 | ​ | 23.3% | ​ | 0.35% | ​ 71,247 | ​ | 25.9% | 0.34% |
| Regular savings deposits and other deposits |  | ​ 66,586 | ​ | 22.5% | ​ | 0.35% | ​ 79,616 | ​ | 29.0% | 0.37% |
| Money market deposits |  | ​ 25,338 | ​ | 8.5% | ​ | 0.78% | ​ 10,950 | ​ | 4.0% | 0.37% |
| Certificates of deposit |  | ​ 89,418 | ​ | 30.2% | ​ | 1.18% | ​ 72,544 | ​ | 26.4% | 1.27% |
| Total | ​ | $296,077 | ​ | 100.0% | ​ | ​ ​ | $274,933 |  | 100.0% | ​ ​ |

At December 31, 2022 and 2021, the aggregate amount of uninsured deposits (which are deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $17.4 million and $28.3 million, respectively. At December 31, 2022 and 2021, the aggregate amount of all our uninsured certificates of deposit was $5.9 million and $4.9 million, respectively. At December 31, 2022 and December 31, 2021, we had no deposits that were uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance. At

December 31, 2022, we had $12.0 million in callable brokered certificates of deposit that were fully insured and issued as part of an investment strategy.

The following table sets forth the maturity of our uninsured certificates of deposit at December 31, 2022.

*(In thousands)*

| ​ ​ ​ ​ Maturity Period: | ​ ​ ​ | ​ ​ At December 31, 2022 ​ |
| --- | --- | --- |
| Three months or less | ​ | $2,130 |
| Over three through six months | ​ | ​ 253 |
| Over six through twelve months | ​ | ​ 1,838 |
| Over twelve months |  | ​ 1,673 |
| Total | ​ | $5,894 |

***Borrowings.*** At December 31, 2022, we had outstanding advances of $62.5 million from the Federal Home Loan Bank of Dallas. At December 31, 2022, we had unused borrowing capacity of $73.4 million with the Federal Home Loan Bank of Dallas. For further information regarding our borrowings from the Federal Home Loan Bank of Dallas, see note 10 of the notes to consolidated financial statements.

### Personnel

As of December 31, 2022, we had 61 full-time employees and five part-time employees. Our employees are not represented by any collective bargaining group. Management believes that we have good working relations with our employees.

### Subsidiary Activities

Mineola Community Bank is the sole and wholly owned subsidiary of Texas Community Bancshares, Inc. Mineola Community Bank has one subsidiary, Mineola Financial Service Corporation, which is currently inactive.

### Supervision and Regulation

### General

As a Texas-chartered savings bank, Mineola Community Bank is subject to examination and regulation by the Texas Department of Savings and Mortgage Lending, and is also subject to examination by the Federal Deposit Insurance Corporation as deposit insurer. The state and federal system of regulation and supervision establishes a comprehensive framework of activities in which Mineola Community Bank may engage and is intended primarily for the protection of depositors and the Federal Deposit Insurance Corporation’s Deposit Insurance Fund, and not for the protection of security holders. Mineola Community Bank also is a member of and owns stock in the Federal Home Loan Bank of Dallas, which is one of the 11 regional banks in the Federal Home Loan Bank System.

Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; provide oversight for the adequacy of loan loss reserves for regulatory purposes; and establish the timing and amounts of assessments and fees. Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors. These ratings are inherently subjective and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as Mineola Community Bank or its holding company, from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches.

In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations. Mineola Community Bank must comply with consumer protection regulations issued by the Consumer Financial Protection Bureau, as enforced by the Federal Deposit Insurance Corporation. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network.

Texas Community Bancshares is a bank holding company and is required to comply with the Bank Holding Company Act of 1956, as amended, and the rules and regulations of the Federal Reserve Board. It is required to file certain reports with the Federal Reserve Board and is subject to examination by and the enforcement authority of the Federal Reserve Board. Additionally, the Federal Reserve Board may directly examine the subsidiaries of a bank holding company, including Mineola Community Bank. Texas Community Bancshares is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Any change in applicable laws or regulations, whether by the Texas Department of Savings and Mortgage Lending, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Securities and Exchange Commission or Congress, could have a material adverse impact on the operations and financial performance of Texas Community Bancshares and Mineola Community Bank.

Set forth below is a brief description of material regulatory requirements that are or will be applicable to Mineola Community Bank and Texas Community Bancshares. The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on Mineola Community Bank and Texas Community Bancshares.

### Savings Bank Regulation

***Business Activities.*** As a Texas-chartered savings bank, Mineola Community Bank is subject to supervision and regulation by the Texas Department of Savings and Mortgage Lending and the Federal Deposit Insurance Corporation. The Texas Department of Savings and Mortgage Lending supervises and regulates all areas of Mineola Community Bank’s operations including, without limitation, the making of loans, the issuance of securities, the conduct of corporate affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and the establishment or closing of banking offices. The Texas Department of Savings and Mortgage Lending also conducts examinations of state savings banks and generally conducts joint examinations with the Federal Deposit Insurance Corporation. The Texas Department of Savings and Mortgage Lending charges assessments and fees which recover the costs of examining state savings banks, processing applications and other filings and covering direct and indirect expenses in regulating state savings banks. The Texas Department of Savings and Mortgage Lending also has certain enforcement powers over Mineola Community Bank.

The Federal Deposit Insurance Corporation is Mineola Community Bank’s primary federal regulator, which periodically examines Mineola Community Bank’s operations and financial condition and compliance with federal consumer protection laws. In addition, Mineola Community Bank’s deposit accounts are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law, and it has certain enforcement powers over the Bank.

Mineola Community Bank is empowered by statute, subject to the limitations contained in those statutes, to take and pay interest on savings and time deposits, to accept demand deposits, to make loans on residential and other real estate, to make consumer and commercial loans, to invest, with certain limitations, in equity securities and in debt obligations of banks and corporations and to provide various other banking services for the benefit of Mineola Community Bank’s customers. Various state consumer laws and regulations also affect the operations of Mineola Community Bank, including state usury laws and consumer credit laws.

Texas law further provides that, subject to the limitations established by rule of the Texas Finance Commission, a Texas savings bank may make any loan or investment or engage in any activity permitted under state law for a bank or savings and loan association or under federal law for a federal savings and loan association, savings bank or national bank if such institution’s principal office is located in Texas. This provision is commonly referred to as the “Expansion of Powers” provision of the Texas Finance Code applicable to state savings banks.

Under federal law, a Texas state savings bank is a state bank. The Federal Deposit Insurance Corporation Improvement Act of 1991 provides that no state bank or any subsidiary of a state bank may engage as a principal in any activity not permitted for national banks, unless the institution complies with applicable capital requirements and the Federal Deposit Insurance Corporation determines that the activity poses no significant risk to the Deposit Insurance Fund.

Texas state-chartered savings banks are required to maintain at least 50% of their portfolio assets in qualified thrift investments as defined by in federal law and other assets determined by the Commissioner of the Texas Department of Savings and Mortgage Lending under rules adopted by the Texas Finance Commission, to be substantially equivalent to qualified thrift investments or which further residential lending or community development.

***Capital Requirements.*** Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.

In determining the amount of risk-weighted assets for calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (*e.g.*, recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk-weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common stockholders’ equity and related surplus and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the Federal Deposit Insurance Corporation takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

Federal law required the federal banking agencies, including the Federal Deposit Insurance Corporation, to establish a “community bank leverage ratio” of between 8% and 10% for institutions with assets of less than $10 billion. Institutions with capital complying with the ratio and otherwise meeting the specified requirements and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. The community bank leverage ratio was established at 9% Tier 1 capital to total average assets, effective January 1, 2020. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. An institution that temporarily ceases to meet any qualifying criteria is provided with a two-quarter grace period to regain compliance. Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable regulatory capital requirements.

The CARES Act lowered the community bank leverage ratio to 8%, with federal regulation making the reduced ratio effective April 23, 2020. Another rule was issued to transition back to the 9% community bank leverage ratio by increasing the ratio to 8.5% for calendar year 2021 and to 9% thereafter.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

At December 31, 2022, Mineola Community Bank had opted into the community bank leverage ratio framework and its capital exceeded all applicable requirements.

***Loans-to-One Borrower.*** Because of the availability of the savings bank expansion of powers language in the Texas Finance Code, savings banks have flexibility in the calculation of their applicable lending limit. The lending limit applicable to state banks in Texas is broader than the limit applicable to national banks. The Texas Finance Code adopts the lending limit applicable to federal savings associations under federal law for state savings banks, however, Texas savings bank are permitted under the expansion of power authority to adopt the legal lending limit applicable to national banks or state banks. Generally (subject to certain exceptions) the lending limit for loans to one person for national banks and state banks is 15% of unimpaired capital and unimpaired surplus plus an additional 10% of unimpaired capital and unimpaired surplus if the loan is fully secured by readily marketable collateral. The lending limit for state banks in Texas is generally 15% of unimpaired capital and unimpaired surplus plus an additional 10% of unimpaired capital and unimpaired surplus if the loan is fully secured by readily marketable collateral. The adoption of the lending limit for national banks or state banks must incorporate the limitations applicable to the standard adopted. Mineola Community Bank has adopted the lending limit applicable to state banks or 15% of unimpaired capital and unimpaired surplus plus an additional 10% of unimpaired capital and unimpaired surplus for a total of 25% if the loan is fully secured by readily marketable collateral. At December 31, 2022, Mineola Community Bank was in compliance with the loans-to-one borrower limitations.

***Capital Distributions.*** The Federal Deposit Insurance Act generally provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. Unless the approval of the Federal Deposit Insurance Corporation is obtained, Mineola Community Bank may not declare or pay a dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of its net income during the current calendar year and the retained net income of the prior two calendar years. Under Texas law, Mineola Community Bank is permitted to declare and pay a dividend on capital stock only out of current or retained income.

***Community Reinvestment Act and Fair Lending Laws.*** All insured depository institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. The Federal Deposit Insurance Corporation is required to assess Mineola Community Bank’s record of compliance with the Community Reinvestment Act. An institution’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Federal Deposit Insurance Corporation, as well as other federal regulatory agencies and the Department of Justice.

The Community Reinvestment Act requires all institutions insured by the Federal Deposit Insurance Corporation to publicly disclose their rating. Mineola Community Bank received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.

***Transactions with Related Parties.*** An insured depository institution’s authority to engage in transactions with its affiliates is generally limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as Mineola Community Bank. Texas Community Bancshares will be an affiliate of Mineola Community Bank because of its control of Mineola Community Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a savings bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.

Mineola Community Bank’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders:

- be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and
- not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Mineola Community Bank’s capital.

In addition, extensions of credit in excess of certain limits must be approved by Mineola Community Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.

***Enforcement.*** The Federal Deposit Insurance Corporation has primary enforcement responsibility over state savings banks and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a state savings bank. Formal enforcement action by the Federal Deposit Insurance Corporation may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The Federal Deposit Insurance Corporation also has the authority to terminate deposit insurance.

***Standards for Safety and Soundness.*** Federal law requires each federal banking agency to prescribe certain standards for the insured depository institutions they supervise. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation and benefits, and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.

***Branching.*** Federal law permits insured state banks to engage in interstate branching if the laws of the state where the new banking office is to be established would permit the establishment of the banking office if it were chartered by a bank in such state. Under current Texas law, Mineola Community Bank can establish a branch in Texas or in any other state. All branch applications require prior approval of the Texas Department of Savings and Mortgage Lending and the Federal Deposit Insurance Corporation. Finally, Mineola Community Bank may also establish banking offices in other states by merging with banks or by purchasing banking offices of other banks in other states, subject to certain restrictions.

***Prompt Corrective Action.*** Federal law requires, among other things, that federal banking agencies take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For this purpose, the Federal Deposit Insurance Corporation’s regulations stablish five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under applicable regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

The previously referenced final rule establishing an elective “community bank leverage ratio” regulatory capital framework provides that a qualifying institution whose capital exceeds the community bank leverage ratio and opts to use that framework will be considered “well-capitalized” for purposes of prompt corrective action.

At December 31, 2022, Mineola Community Bank met the criteria for being considered “well capitalized.”

***Insurance of Deposit Accounts.*** The Deposit Insurance Fund of the Federal Deposit Insurance Corporation insures deposits at Federal Deposit Insurance Corporation-insured financial institutions such as Mineola Community Bank, generally up to a maximum of $250,000 per separately insured depositor. The Federal Deposit Insurance Corporation charges insured depository institutions premiums to maintain the Deposit Insurance Fund.

Under the Federal Deposit Insurance Corporation’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments. Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years.

The Federal Deposit Insurance Corporation has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of Mineola Community Bank. We cannot predict what assessment rates will be in the future.

Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation. Mineola Community Bank does not know of any practice, condition or violation that may lead to termination of its deposit insurance.

***Privacy Regulations.*** Federal regulations generally require that Mineola Community Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, Mineola Community Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. Mineola Community Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.

***USA PATRIOT Act.*** Mineola Community Bank is subject to the USA PATRIOT Act, which gives federal agencies additional powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. The USA PATRIOT Act contains provisions intended to encourage information sharing among bank regulatory agencies and law enforcement bodies and imposes affirmative obligations on financial institutions, such as enhanced recordkeeping and customer identification requirements.

***Prohibitions Against Tying Arrangements.*** State savings banks are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

### Other Regulations

Interest and other charges collected or contracted for by Mineola Community Bank are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to state and federal laws applicable to credit transactions, such as the:

- Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;
- Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;
- Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; and
- Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The deposit operations of Mineola Community Bank also are subject to, among others, the:

- Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;
- Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and
- Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

### Federal Home Loan Bank System

Mineola Community Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. Members of the Federal Home Loan Bank are required to acquire and hold shares of capital stock in their Federal Home Loan Bank. Mineola Community Bank complied with this requirement at December 31, 2022. Based on redemption provisions of the Federal Home Loan Bank of Dallas, the stock has no quoted market value and is carried at cost. Mineola Community Bank reviews for impairment, based on the ultimate recoverability, the cost basis of the Federal Home Loan Bank of Dallas stock. At December 31, 2022, no impairment had been recognized.

### Holding Company Regulation

Texas Community Bancshares is a bank holding company within the meaning of Bank Holding Company of 1956, as amended. As such, Texas Community Bancshares is registered with the Federal Reserve Board and subject to regulations, examinations, supervision and reporting requirements applicable to bank holding companies. In addition, the Federal Reserve Board has enforcement authority over Texas Community Bancshares and its non-savings bank subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to Mineola Community Bank.

A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings association whose direct and indirect activities are limited to those permitted for bank holding companies.

The Gramm-Leach-Bliley Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking.

Bank holding companies with less than $3 billion in consolidated assets are exempt from consolidated regulatory capital requirements unless the Federal Reserve Board determines otherwise in particular cases.

By law, holding companies, including bank holding companies, must act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

The Federal Reserve Board has issued supervisory policies regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of capital distributions previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also states that a holding company should inform the Federal Reserve Board supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of Texas Community Bancshares to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.

### Change in Control Regulations

Under the Change in Bank Control Act, no person or group of persons may acquire “control” of a bank holding company, such as Texas Community Bancshares, unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. There is a presumption of control upon the acquisition of 10% or more of a class of voting stock if the holding company involved has its shares registered under the Securities Exchange Act of 1934, or, of the holding company involved does now have its shares registered under the Securities Exchange Act of 1934, if no other persons will own, control or hold the power to vote a greater percentage of that class of voting security after the acquisition.

### Federal Securities Laws

The common stock of Texas Community Bancshares is registered with the Securities and Exchange Commission. Texas Community Bancshares is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

### Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. We have policies, procedures and systems designed to comply with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with these regulations.

### Emerging Growth Company Status

Texas Community Bancshares is an emerging growth company. For as long as it continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to public companies. These exemptions include, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As an emerging growth company, Texas Community Bancshares also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors audit our internal control over financial reporting. We have also elected not to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Such an election is irrevocable during the period a company is an emerging growth company.

Texas Community Bancshares will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the completion of the Conversion; (ii) the first fiscal year after our annual gross revenues are $1.07 billion (adjusted for inflation) or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of the second quarter of that fiscal year. We expect to lose our status as an emerging growth company effective December 31, 2026, which is the end of the fiscal year following the fifth anniversary of the completion date of the Conversion.

### Taxation

Mineola Community Bank and Texas Community Bancshares are subject to federal and state income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal and state taxation is intended only to summarize certain pertinent tax matters and is not a comprehensive description of the tax rules applicable to Texas Community Bancshares or Mineola Community Bank.

Our federal and state tax returns have not been audited for the past five years.

### Federal Taxation

***Method of Accounting.*** Mineola Community Bank currently reports income and expenses on the accrual method of accounting and use a tax year ending December 31 for filing their federal income tax returns. The Small Business Protection Act of 1996 eliminated the use of the reserve method of accounting for income taxes on bad debt reserves by savings institutions. For taxable years beginning after 1995, Mineola Community Bank has been subject to the same bad debt reserve rules as commercial banks. It currently utilizes the specific charge-off method under Section 582(a) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). Texas Community Bancshares and Mineola Community Bank will file a consolidated federal income tax return.

***Alternative Minimum Tax.*** The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, less an exemption amount, referred to as “alternative minimum taxable income.” The alternative minimum tax is payable to the extent tax computed this way exceeds tax computed by applying the regular tax rates to regular taxable income. Net operating losses can, in general, offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Tax Cuts and Jobs Act repealed the alternative minimum tax for income generated after January 1, 2018. At December 31, 2022, Mineola Community Bank had no minimum tax credit carryovers.

***Net Operating Loss Carryovers.*** As a result of the Tax Cuts and Jobs Act generally, a financial institution may carry net operating losses forward indefinitely. At December 31, 2022, Mineola Community Bank had no federal net operating loss carryforwards.

***Capital Loss Carryovers.*** A corporation cannot recognize capital losses in excess of capital gains generated. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which it is carried and is used to offset any capital gains. Any undeducted loss remaining after the five-year carryover period is no longer deductible. At December 31, 2022, Mineola Community Bank had no capital loss carryovers.

***Corporate Dividends.*** Texas Community Bancshares, Inc. may generally exclude from its income 100% of dividends received from Mineola Community Bank, as a member of the same affiliated group of corporations.

### State Taxation

***Texas State Taxation.*** Texas Community Bancshares and Mineola Community Bank file a combined annual report and pay franchise tax to the State of Texas.

***Maryland State Taxation.*** As a Maryland business corporation, Texas Community Bancshares is required to file a personal property and income tax return and pay taxes to the State of Maryland.

## Properties

As filed, 1,367 characters.

As of December 31, 2022, the net book value of our land, building and equipment was $6.2 million. The following table sets forth information regarding our offices as of December 31, 2022:

*(In thousands)*

| ​ ​ Location ​ Main Office: | ​ ​ ​ ​ | ​ Leased or Owned ​ | ​ ​ ​ ​ | ​ Year Acquired or Leased ​ | ​ ​ ​ ​ | ​ ​ Net Book Value of Real Property ​ |
| --- | --- | --- | --- | --- | --- | --- |
| 215 West Broad Street Mineola, TX 75773 | ​ | Own | ​ | 1964 | ​ | $1,828 |
| ​ | ​ | ​ | ​ | ​ | ​ | ​ ​ |
| **Branch Offices:** | ​ | ​ | ​ | ​ | ​ | ​ |
| ​ | ​ | ​ | ​ | ​ | ​ | ​ ​ |
| 1224 North Pacific Street Mineola, TX 75773 |  | Lease |  | 1999 | ​ | $83 |
| ​ | ​ | ​ | ​ | ​ | ​ | ​ ​ |
| 415 West Frank Street Grand Saline, TX 75140 |  | Own |  | 2006 | ​ | $929 |
| ​ | ​ | ​ | ​ | ​ | ​ | ​ ​ |
| 500 South Main Street Winnsboro, TX 75494 |  | Own |  | 2005 | ​ | $1,228 |
| ​ | ​ | ​ | ​ | ​ | ​ | ​ ​ |
| 304 South Main Street Lindale, TX 75771 |  | Own |  | 2017 | ​ | $1,297 |
| ​ | ​ | ​ | ​ | ​ | ​ | ​ ​ |
| 500 West Pine Street Edgewood, TX 75117 |  | Own |  | 2018 | ​ | $840 |

We are currently in the process of building a new branch office in the same location as the current office in Lindale. We believe that all other current facilities are adequate to meet our present and foreseeable needs, subject to possible future expansion.

## Legal proceedings

As filed, 463 characters.

Periodically, we are involved in claims and lawsuits, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. At December 31, 2022, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

## Management's discussion and analysis

As filed, 63,496 characters.

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the consolidated financial statements, which appear elsewhere in this annual report. You should read the information in this section in conjunction with the other business and financial information provided in this annual report.

### Overview

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations and borrowings from the Federal Home Loan Bank of Dallas, in residential real estate loans and commercial real estate loans and, to a lesser extent, commercial loans, construction and land loans, and consumer and other loans. Substantially all of our loans are fixed-rate loans. We also invest in securities, which have historically consisted primarily of mortgage-backed securities and obligations issued by U.S. government sponsored enterprises, state and municipal securities, and Federal Home Loan Bank stock. We offer a variety of deposit accounts, including checking accounts, savings accounts and certificate of deposit accounts. Mineola Community Bank is subject to comprehensive regulation and examination by the Texas Department of Savings and Mortgage Lending and the Federal Deposit Insurance Corporation and is a member of the Federal Home Loan Bank system.

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan and lease losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of service charges on deposit accounts, other service charges and fees, and income from bank owned life insurance. Non-interest expense currently consists primarily of expenses related to salaries and employee benefits, occupancy and equipment, data processing, contract services, director fees, and other expenses.

We invest in bank owned life insurance to provide us with a funding source to offset some costs of our benefit plan obligations. Bank owned life insurance provides us with non-interest income that is nontaxable. Federal regulations generally limit our investment in bank owned life insurance to 25% of our Tier 1 capital plus our allowance for loan and lease losses. At December 31, 2022, our investment in bank owned life insurance was $6.1 million, which was within this investment limit.

Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

### Business Strategy

Our current business strategy consists of the following:

- ***Continue to serve our community as a community bank.*** Since our founding in 1934, we have operated as a community bank. Historically, our primary lending activity has been the origination of fixed-rate residential mortgage loans to individuals in our market area funded primarily by deposits gathered from

individuals and businesses in our market area. We expect that this will continue to be the focus of our business for the foreseeable future. As part of our customer focus, we generally do not sell the loans we originate but retain them in our portfolio. When customers have questions regarding their loans, they are able to deal directly with us rather than another institution. At December 31, 2022, one- to four-family residential mortgage loans totaled $162.8 million, or 64.3% of total loans. This amount includes one- to four-family residential mortgage loans originated in the Dallas Metroplex. We have originated one- to four-family residential mortgage loans secured primarily by owner-occupied properties primarily located in the northern and eastern sections of the Dallas Metroplex. We began originating these loans in 2014, and continue to do so primarily through word-of-mouth referrals. At December 31, 2022, these loans amounted to $61.8 million including $41.4 million of jumbo loans.

- ***Grow and diversify our loan portfolio prudently.*** There has been an influx of retirees and others from the Dallas metropolitan area into our market area. Our more rural market area offers a lower-cost of living and many recreational amenities, while being within easy reach of the cities of Dallas and Tyler and the urban amenities they offer. We believe this movement away from major cities like Dallas has been accelerated by the work-from-home trend that accelerated due to the COVID-19 pandemic. In 2018, we opened our branch office in Lindale, Texas, and acquired our branch office in Edgewood, Texas, from another bank. These offices are located in growth areas of our market area because of their closer proximity to Tyler and Dallas, respectively. The influx of population into our market area has provided opportunities for residential mortgage lending, construction and land lending, and commercial real estate lending. Although we intend to continue our historical focus on the origination of residential mortgage loans, we intend to prudently increase our commercial real estate lending and construction and land lending so as to continue to diversify our loan portfolio. At December 31, 2022, commercial real estate loans amounted to $33.7 million, or 13.3% of total loans, and construction and land loans amounted to $36.3 million, or 14.3% of total loans.

Our commercial real estate loans and construction and land loans have higher credit risk than our residential mortgage loans.

- ***Continue to grow core deposits.*** We consider our core deposits to include statement savings accounts, money market accounts, negotiable orders of withdrawal (NOW) accounts, other savings deposits and checking accounts. We will continue our efforts to increase our core deposits to provide a stable source of funds to support loan growth at costs consistent with improving our interest rate spread and net interest margin. Core deposits totaled $206.7 million, or 69.8% of total deposits, as of December 31, 2022, compared to $159.4 million, or 58.0% of total deposits, as of December 31, 2021.
- ***Continue to manage credit risk to maintain a low level of non-performing assets.*** Historically, we have been able to maintain a high level of asset quality. We believe strong asset quality remains a key to our long-term financial success. Our total non-performing assets to total assets ratio was 0.28% and 0.49% at December 31, 2022 and 2021, respectively. Our strategy for credit risk management continues to focus on having an experienced team of credit professionals, well-defined policies and procedures, appropriate loan underwriting criteria and active credit monitoring. Furthermore, given the uncertainty surrounding the length and severity of the COVID-19 pandemic, management has established and will continue to use enhanced underwriting criteria for all loan types, with a particular focus on portfolio segments identified as having elevated risk.
- ***Continue to support our customers and our local community***. The COVID-19 pandemic has restricted the level of economic activity in our markets, resulting in dramatically increased unemployment and significant negative impacts on many businesses, thereby threatening the repayment ability of some of our borrowers. As we have done during prior economic downturns, we are taking actions to support our customers and our local community. For example, during the year ended December 31, 2020, we originated $5.4 million of small business loans under the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), created by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) that was signed into law in March 2020. Under the PPP, loan amounts were forgiven if the

borrower maintains employee payrolls and meets certain other requirements. As of December 31, 2022, only two small PPP loans totaling $2,000 were outstanding. The remaining PPP loans have been forgiven or paid. During the year ended December 31, 2020, we also granted short-term payment deferrals on loans to assist customers during the COVID-19 pandemic. There were no COVID-19 related deferrals granted in the years ended December 31, 2021 or 2022.

- ***Grow organically and through opportunistic acquisitions or branching.*** We intend to grow our assets organically on a managed basis, and the capital we raised in the offering will enable us to increase our lending and investment capacity. In addition to organic growth, we may also consider expansion opportunities in our market area or in contiguous markets that we believe would enhance both our franchise value and stockholder returns. These opportunities may include acquiring other financial institutions and/or establishing loan production offices, establishing new, or de novo, branch offices and/or acquiring branch offices, and the capital we raised in the offering will help us fund any such opportunities that may arise. We have no current plans or intentions regarding any such expansion activities.

### Summary of Critical Accounting Policies and Critical Accounting Estimates

The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We determined not to take advantage of the benefits of this extended transition period.

The following represent our critical accounting policies:

***Allowance for Loan and Lease Losses.*** The allowance for loan and lease losses is a reserve for estimated probable credit losses on individually evaluated loans determined to be impaired as well as estimated probable credit losses inherent in the loan portfolio. Actual credit losses, net of recoveries, are deducted from the allowance for loan and lease losses. Loans are charged off when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance for loan and lease losses. A provision for loan and lease losses, which is a charge against earnings, is recorded to bring the allowance for loan and lease losses to a level that, in management’s judgment, is adequate to absorb probable losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the allowance for loan and lease losses is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect probable credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated loan and lease losses and therefore the appropriateness of the allowance for loan and lease losses could change significantly.

The allocation methodology applied by Mineola Community Bank is designed to assess the appropriateness of the allowance for loan and lease losses and includes allocations for specifically identified impaired loans and loss factor allocations for all remaining loans, with a component primarily based on historical loss rates and a component primarily based on other qualitative factors. The methodology includes evaluation and consideration of several factors, such as, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or circumstances underlying the collectability of loans. Because each of the criteria used is subject to change, the allocation of the allowance for loan and lease losses is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular loan category. The total allowance is available to absorb losses from any segment of the loan portfolio. Management believes the allowance for loan and lease losses was adequate at December 31, 2022. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements. In addition, various regulatory agencies periodically review the allowance for loan and lease losses. As a result of such reviews, we may have to adjust our allowance for loan and lease losses. However, regulatory agencies are not directly involved in the process of establishing the allowance for loan and lease losses as the process is the responsibility of Mineola Community Bank and any increase or decrease in the allowance is the responsibility of management.

***Income Taxes.*** The assessment of income tax assets and liabilities involves the use of estimates, assumptions, interpretation, and judgment concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be significant to the results of operations and reported earnings.

Texas Community Bancshares files consolidated federal income tax returns with Mineola Community Bank. Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax law rates applicable to the periods in which the differences are expected to affect taxable income. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income tax expense. Valuation allowances are established when it is more likely than not that a portion of the full amount of the deferred tax asset will not be realized. In assessing the ability to realize deferred tax assets, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. We may also recognize a liability for unrecognized tax benefits from uncertain tax positions. Unrecognized tax benefits represent the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured in the consolidated financial statements. Penalties related to unrecognized tax benefits are classified as income tax expense.

### Selected Financial Data

The following selected consolidated financial data sets forth certain financial highlights of the Company and should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

*(In thousands)*

| ​ ​ ​ ​ Selected Financial Condition Data: | ​ ​ ​ | ​ ​ At December 31, 2022 ​ | ​ ​ | ​ ​ 2021 ​ |
| --- | --- | --- | --- | --- |
| Total assets | ​ | $417,346 | ​ | $364,826 |
| Cash and cash equivalents | ​ | ​ 8,927 | ​ | ​ 21,915 |
| Interest bearing deposits in banks |  | ​ 2,055 |  | ​ 14,955 |
| Securities available for sale |  | ​ 107,153 |  | ​ 56,800 |
| Securities held to maturity |  | ​ 27,827 |  | ​ 33,682 |
| Loans receivable, net |  | ​ 251,338 |  | ​ 220,267 |
| Premises and equipment, net |  | ​ 6,299 |  | ​ 6,215 |
| Foreclosed assets |  | ​ — |  | ​ 209 |
| Restricted investments carried at cost |  | ​ 2,805 |  | ​ 2,037 |
| Bank owned life insurance |  | ​ 6,125 |  | ​ 6,020 |
| Core deposit intangible |  | ​ 397 |  | ​ 529 |
| Total deposits |  | ​ 296,077 |  | ​ 274,933 |
| Advances from the Federal Home Loan Bank |  | ​ 62,494 |  | ​ 27,571 |
| Total shareholders' equity |  | ​ 55,870 |  | ​ 60,132 |

*(In thousands)*

| ​ ​ ​ ​ Selected Operating Data: | ​ ​ ​ | ​ ​ For the Years Ended December 31, 2022 ​ | ​ ​ | ​ ​ 2021 ​ |
| --- | --- | --- | --- | --- |
| Interest income | ​ | $12,566 | ​ | ​ 10,534 |
| Interest expense | ​ | ​ 2,283 | ​ | ​ 2,116 |
| Net interest income | ​ | ​ 10,283 |  | ​ 8,418 |
| Provision for loan and lease losses | ​ | ​ 208 |  | ​ 50 |
| Net interest income after provision for loan and lease losses | ​ | ​ 10,075 |  | ​ 8,368 |
| Noninterest income | ​ | ​ 1,868 |  | ​ 1,717 |
| Noninterest expense | ​ | ​ 9,766 |  | ​ 9,474 |
| Income before income taxes | ​ | ​ 2,177 |  | ​ 611 |
| Income tax expense | ​ | ​ 423 |  | ​ 93 |
| Net income |  | $1,754 | ​ | $518 |

| ​ ​ ​ ​ ​ Performance Ratios: | ​ ​ ​ ​ | ​ ​ At or For the Years Ended December 31, 2022 ​ ​ ​ | ​ ​ ​ 2021 ​ |
| --- | --- | ---: | ---: |
| Return on average assets | ​ | 0.47% | 0.15% |
| Return on average equity | ​ | 4.01% | 1.39% |
| Interest rate spread (1) | ​ | 2.70% | 2.49% |
| Net interest margin (2) | ​ | 2.89% | 2.66% |
| Noninterest expense to average assets |  | 2.59% | 2.80% |
| Efficiency ratio (3) |  | 80.37% | 93.48% |
| Average interest-earning assets to average interest-bearing liabilities |  | 130.59% | 124.96% |
| **​** | ​ | ​ ​ | ​ ​ |
| **Capital Ratios:** |  |  | ​ |
| Average equity to average assets |  | 11.61% | 11.05% |
| Total capital to risk-weighted assets |  | 28.93% | 27.59% |
| Tier 1 capital to risk-weighted assets |  | 27.92% | 26.68% |
| Common equity tier 1 capital to risk-weighted assets |  | 27.92% | 26.68% |
| Tier 1 capital to average assets |  | 12.31% | 12.89% |
| ​ | ​ | ​ ​ | ​ ​ |
| **Asset Quality Ratios:** |  |  | ​ |
| Allowance for loan and lease losses as a percentage of total loans |  | 0.69% | 0.72% |
| Allowance for loan and lease losses as a percentage of non-performing loans |  | 148.60% | 100.13% |
| Allowance for loan and lease losses as a percentage of non-accrual loans |  | 148.60% | 100.13% |
| Non-accrual loans as a percentage of total loans |  | 0.47% | 0.72% |
| Net (charge-offs) recoveries to average outstanding loans during the year |  | 0.01% | (0.01)% |
| Non-performing loans as a percentage of total loans |  | 0.47% | 0.72% |
| Non-performing loans as a percentage of total assets |  | 0.28% | 0.44% |
| Total non-performing assets as a percentage of total assets |  | 0.28% | 0.49% |
| ​ | ​ | ​ ​ | ​ ​ |
| **Other Data:** |  |  | ​ |
| Number of offices | ​ | 6 | 6 ​ |
| Number of full-time employees | ​ | 61 | 60 ​ |
| Number of part-time employees | ​ | 5 | 2 ​ |

(1) Represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2) Represents net interest income as a percentage of average interest-earning assets.

(3) Represents noninterest expenses divided by the sum of net interest income and noninterest income.

The following table summarizes securities available for sale:

| ​ ​ ​ ​ ​ Securities available for sale: | ​ ​ ​ ​ ​ | ​ ​ December 31, 2022 Fair Value ​ | ​ ​ | ​ ​ ​ Percentage of ​ Total ​ | ​ ​ 2021 Fair Value ​ | ​ ​ | ​ ​ ​ ​ Percentage of ​ Total ​ ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: |
| Residential mortgage-backed | ​ | $23,758 | ​ | 22.2% | $18,785 | ​ | 33.1% |
| Collateralized mortgage obligations | ​ | ​ 50,244 | ​ | 46.9% | ​ 11,076 | ​ | 19.5% |
| State and municipal | ​ | 13,781 | ​ | 12.9% | 11,539 | ​ | 20.3% |
| Corporate bonds | ​ | 4,815 | ​ | 4.4% | 2,406 | ​ | 4.2% |
| U.S. Government and agency | ​ | 14,555 | ​ | 13.6% | 12,994 | ​ | 22.9% |
| Total securities available for sale | ​ | $107,153 | ​ | 100.0% | $56,800 | ​ | 100.0% |

The following table sets forth information regarding fair values, weighted average yields and maturities of available for sale investments. The yields have been computed on a tax equivalent basis. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or early redemptions that may occur.

| ​ ​ ​ ​ ​ ​ Securities available for sale: | ​ ​ ​ ​ ​ | ​ ​ December 31, 2022 Due in One Year ​ ​ Fair Value ​ | ​ ​ ​ | ​ ​ ​ Weighted ​ Average ​ Yield ​ | ​ ​ One to Five Years ​ ​ Fair Value ​ | ​ ​ ​ | ​ ​ ​ Weighted ​ Average ​ Yield ​ | ​ ​ Five to Ten Years ​ ​ Fair Value ​ | ​ ​ ​ | ​ ​ ​ Weighted ​ Average ​ Yield ​ | ​ ​ After Ten Years ​ ​ Fair Value ​ | ​ ​ ​ | ​ ​ ​ Weighted ​ Average ​ Yield ​ | ​ ​ Total Investment Securities ​ ​ Fair Value ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Weighted ​ Average ​ Yield ​ ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: |
| Residential mortgage-backed | ​ | $3 | ​ | 2.17% | $73 | ​ | 2.09% | $5,472 | ​ | 1.57% | $18,210 | ​ | 3.89% | $23,758 | ​ | 3.35% |
| Collateralized mortgage obligations | ​ | ​ — | ​ | —% | ​ 6,002 | ​ | 6.21% | ​ 5,860 | ​ | 6.15% | ​ 38,382 | ​ | 4.66% | ​ 50,244 | ​ | 5.02% |
| State and municipal | ​ | — | ​ | —% | 1,027 | ​ | 1.76% | 8,596 | ​ | 2.38% | 4,158 | ​ | 3.31% | 13,781 | ​ | 2.62% |
| Corporate bonds | ​ | — | ​ | —% | — | ​ | —% | 3,679 | ​ | 3.51% | 1,136 | ​ | 3.56% | 4,815 | ​ | 3.52% |
| U.S. Government and agency | ​ | — | ​ | —% | 12,748 | ​ | 0.83% | 1,807 | ​ | 1.04% | — | ​ | —% | 14,555 | ​ | 0.86% |
| Total securities available for sale | ​ | $3 | ​ | ​ ​ | $19,850 | ​ | ​ ​ | $25,414 | ​ | ​ ​ | $61,886 | ​ | ​ ​ | $107,153 | ​ | ​ ​ |

The following table summarizes securities held to maturity:

| ​ ​ ​ ​ ​ Securities held to maturity: | ​ ​ ​ ​ ​ | ​ ​ December 31, 2022 Amortized Cost ​ | ​ ​ ​ | ​ ​ ​ Percentage of ​ Total ​ ​ | ​ ​ 2021 Amortized Cost ​ | ​ ​ | ​ ​ ​ ​ Percentage of ​ Total ​ ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: |
| Residential mortgage-backed | ​ | $25,817 | ​ | 92.8% | $31,277 | ​ | 92.9% |
| State and municipal | ​ | 2,010 | ​ | 7.2% | 2,405 | ​ | 7.1% |
| Total securities held to maturity | ​ | $27,827 | ​ | 100.0% | $33,682 | ​ | 100.0% |

The following table sets forth information regarding amortized costs, weighted average yields and maturities of all held to maturity investments. The yields have been computed on a tax equivalent basis. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or early redemptions that may occur.

| ​ ​ ​ ​ ​ ​ Securities held to maturity: | ​ ​ ​ ​ ​ | ​ ​ December 31, 2022 Due in One Year ​ ​ Amortized Cost ​ | ​ ​ ​ | ​ ​ ​ Weighted ​ Average ​ Yield ​ | ​ ​ One to Five Years ​ ​ Amortized Cost ​ | ​ ​ ​ | ​ ​ ​ Weighted ​ Average ​ Yield ​ | ​ ​ Five to Ten Years ​ ​ Amortized Cost ​ | ​ ​ ​ | ​ ​ ​ Weighted ​ Average ​ Yield ​ | ​ ​ After Ten Years ​ ​ Amortized Cost ​ | ​ ​ ​ | ​ ​ ​ Weighted ​ Average ​ Yield ​ | ​ ​ Total Investment Securities ​ ​ Amortized Cost ​ | ​ ​ ​ | ​ ​ ​ ​ Weighted ​ Average ​ Yield ​ ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: |
| Residential mortgage-backed | ​ | $— | ​ | —% | $659 | ​ | 2.87% | $8,743 | ​ | 1.88% | $16,415 | ​ | 1.44% | $25,817 | ​ | 1.62% |
| State and municipal | ​ | — | ​ | —% | 764 | ​ | 2.62% | 134 | ​ | 2.74% | 1,112 | ​ | 4.03% | 2,010 | ​ | 3.41% |
| Total securities held to maturity | ​ | $— | ​ | ​ ​ | $1,423 | ​ | ​ ​ | $8,877 | ​ | ​ ​ | $17,527 | ​ | ​ ​ | $27,827 | ​ | ​ ​ |

### Comparison of Financial Condition at December 31, 2022 and December 31, 2021

***Total Assets.*** Total assets were $417.3 million as of December 31, 2022, an increase of $52.5 million, or 14.4%, when compared to total assets of $364.8 million as of December 31, 2021. The increase was due primarily to an increase in securities of $44.5 million, or 49.2%, to $135.0 million at December 31, 2022 from $90.5 million at December 31, 2021 and an increase in net loans and leases of $31.0 million, or 14.1%, to $251.3 million at December 31, 2022 from $220.3 million at December 31, 2021, partially offset by decreases in cash, cash equivalents and interest bearing deposits in banks by a combined $25.9 million, or 70.2%, to $11.0 million at December 31, 2022 from $36.9 million at December 31, 2021. Asset growth was primarily due to increases in deposits, including $12.0 million in callable brokered deposits, and FHLB advances being invested in securities as part of a strategic purchase plan and loan growth.

***Cash, Cash Equivalents and Due From Banks.*** Total cash, cash equivalents and due from banks (which includes fed funds sold) decreased $13.0 million, or 59.4%, to $8.9 million (including $2.0 million in Fed Funds sold) at December 31, 2022 from $21.9 million (including $16.3 million in Fed Funds sold) at December 31, 2021. This decrease is primarily due to an increase in securities of $44.5 million, or 49.2%, and an increase in net loans and leases of $31.0 million, or 14.1%, partially offset by increase in deposits of $21.2 million, or 7.7%, and an increase in Federal Home Loan Bank (FHLB) borrowings of $34.9 million, or 126.4%.

***Interest Bearing Deposits in Banks.*** Interest bearing deposits in banks were $2.1 million at December 31, 2022 compared to $15.0 million as of December 31, 2021, a decrease of $12.9 million, or 86.0%. The decrease was due primarily to the net increases in securities and net loans and leases, partially offset by increased deposits and FHLB borrowings.

***Securities Available for Sale.*** Securities available for sale (AFS) increased by $50.4 million, or 88.7%, to $107.2 million at December 31, 2022 from $56.8 million at December 31, 2021. The increase in securities included the investment of $75.3 million in AFS securities, including purchases of $13.8 million in US Treasuries, $9.8 million in mortgage-backed securities (MBS), $43.6 million in collateralized mortgage obligations (CMO), $4.8 million in municipals, and $3.3 million in bank subordinated debt, partially reduced by sales of $10.8 million, paydowns of $5.9 million, and increases in unrealized losses on the AFS portfolio of $8.0 million. Securities purchases were part of a strategic plan funded by excess cash, brokered deposits and FHLB advances.

***Securities Held to Maturity.*** Securities held to maturity decreased by $5.9 million, or 17.5%, to $27.8 million at December 31, 2022 from $33.7 million at December 31, 2021. This decrease is primarily due to principal repayments of $5.3 million and a call on a municipal security totaling $365,000.

***Loans and Leases Receivable, Net.*** Net loans and leases receivable increased $31.0 million, or 14.1%, to $251.3 million at December 31, 2022 from $220.3 million at December 31, 2021, including a reduction in PPP loans of $11,000, or 84.6%, from $13,000 at December 31, 2021 to $2,000 at December 31, 2022. During the year ended December 31, 2022, loans were originated totaling $109.7 million of which $13.6 million were renewals or refinancings of existing Mineola Community Bank loans, resulting in net originations of $96.1 million. Loan originations consisted primarily of $32.8 million of 1-4 family home loans, $54.7 million of construction loans (upon completion), including residential speculative construction loans of $11.9 million, $10.1 million in multi-family construction, $7.5 million in commercial real estate, $2.1 million in land and development, $4.2 million of consumer and other loan originations, $4.8 million in commercial and industrial, $3.4 million in farmland and $112,000 in other agricultural loan originations. During the year ended December 31, 2022, there were $13.0 million in loan principal paydowns and $48.3 million in loan payoffs. During the year ended December 31, 2022, total construction loans (including the 43.1% remaining in process) increased by $30.7 million from $23.3 million at December 31, 2021 to $54.0 million at December 31, 2022. Construction loans continue to be a growing segment of our portfolio with the majority of the loans being originated in our primary market. Demand for construction, development and 1-4 family home loan purchases continued to grow in 2022.

***Deposits.*** Deposits increased $21.1 million, or 7.7%, to $296.1 million at December 31, 2022 from $274.9 million at December 31, 2021. Core deposits (defined as all deposits other than certificates of deposit) increased $4.3 million, or 2.1%, to $206.7 million at December 31, 2022 from $202.4 million at December 31, 2021. The large growth in deposits includes $12.0 million in brokered deposits issued to partially fund an investment strategy. Retail certificates of deposit increased $4.7 million, or 6.5%, to $77.3 million at December 31, 2022 from $72.5 million at December 31, 2021. The increase in retail deposits is primarily due to the large increase in market interest rates and a strategic effort to retain deposits in a competitive environment during 2022.

***Advances from the Federal Home Loan Bank.*** Advances from the Federal Home Loan Bank increased by $34.9 million, or 126.7%, to $62.5 million at December 31, 2022 from $27.6 million at December 31, 2021 primarily due to funding a strategic securities purchase plan while providing funds to mitigate deposit fluctuations and deposit pricing volatility.

***Shareholders’ Equity.*** Total shareholders’ equity decreased $4.2 million, or 7.0%, to $55.9 million at December 31, 2022 from $60.1 million at December 31, 2021. The decrease was primarily the result of the unrealized loss on available for sale securities and the corresponding accumulated other comprehensive loss increasing by $6.3 million, or 920.3%, to $7.0 million at December 31, 2022 from $686,000 at December 31, 2021 primarily due to the rising interest rate environment and $297,000 in benefits cost related to the 2022 funding of the Mineola Community Bank leveraged ESOP plan and the 2022 equity incentive plan. At December 31, 2022, the ESOP contra equity account was $2.3 million.

At December 31, 2022, Mineola Community Bank opted to use the community bank leverage ratio framework (Tier 1 capital to average assets) for regulatory capital purposes. At December 31, 2022 a community bank leverage ratio of at least 9.0% is required to be considered “well capitalized” under regulatory requirements. At December 31, 2022, Mineola Community Bank’s community bank leverage ratio was 12.31%.

### Average Balance Sheets

The following tables set forth average balance sheets, 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. Non-accrual loans are included in the computation of average balances. Average yields for loans (excluding PPP loans) include loan fees of $399,000 and $579,000 for the years ended December 31, 2022 and 2021, respectively. There were no loan fees for PPP loans included in the average yield for the years ended December 31, 2022 or 2021. We have not recorded deferred loan fees, as we have determined them to be immaterial.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ ​ Interest-earning assets: | ​ ​ ​ ​ ​ ​ ​ ​ | ​ ​ For the Years Ended December 31, 2022 Average Outstanding Balance ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Interest ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ Average ​ Yield/Rate ​ ​ | ​ ​ 2021 Average Outstanding Balance ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Interest ​ ​ | ​ ​ ​ ​ | ​ ​ ​ Average ​ Yield/Rate ​ ​ ​ |
| --- | --- | ---: | --- | --- | --- | ---: | ---: | --- | --- | --- | ---: |
| Loans (excluding PPP loans) | ​ | $234,815 | ​ | $10,074 | ​ | 4.29% | $216,207 | ​ | $9,569 | ​ | 4.43% |
| Allowance for loan and lease losses | ​ | ​ (1,641) |  | ​ — |  | — | ​ (1,576) |  | ​ — |  | — ​ |
| PPP loans | ​ | ​ 7 |  | ​ — |  | —% | ​ 545 |  | ​ 6 |  | 1.10% |
| Securities | ​ | ​ 104,650 |  | ​ 2,316 |  | 2.21% | ​ 59,083 |  | ​ 857 |  | 1.45% |
| Restricted stock | ​ | ​ 2,104 |  | ​ 38 |  | 1.81% | ​ 2,029 |  | ​ 22 |  | 1.08% |
| Interest-bearing deposits in banks | ​ | ​ 4,475 |  | ​ 39 |  | 0.87% | ​ 18,677 |  | ​ 56 |  | 0.30% |
| Federal funds sold | ​ | ​ 10,792 |  | ​ 99 |  | 0.92% | ​ 22,080 |  | ​ 24 |  | 0.11% |
| Total interest-earning assets | ​ | ​ 355,202 |  | ​ 12,566 |  | 3.54% | ​ 317,045 |  | ​ 10,534 |  | 3.32% |
| Noninterest-earning assets | ​ | ​ 21,628 |  | ​ ​ |  | ​ | ​ 21,357 |  | ​ |  | ​ |
| Total assets | ​ | $376,830 |  | ​ ​ |  | ​ ​ | $338,402 |  | ​ |  | ​ |
| **​** | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Interest-bearing liabilities:** | ​ |  | ​ | ​ ​ | ​ | ​ ​ |  |  | ​ |  | ​ |
| Interest-bearing demand deposits | ​ | $74,519 |  | ​ 264 |  | 0.35% | $69,116 |  | ​ 234 |  | 0.34% |
| Regular savings and other deposits | ​ | 78,866 |  | ​ 277 |  | 0.35% | 70,338 |  | ​ 263 |  | 0.37% |
| Money market deposits | ​ | 13,715 |  | ​ 107 |  | 0.78% | 9,758 |  | ​ 36 |  | 0.37% |
| Certificates of deposit | ​ | 71,598 |  | ​ 848 |  | 1.18% | 75,080 |  | ​ 957 |  | 1.27% |
| Total interest-bearing deposits | ​ | 238,698 |  | ​ 1,496 |  | 0.63% | 224,292 |  | ​ 1,490 |  | 0.66% |
| Advances from the Federal Home Loan Bank | ​ | 32,822 |  | ​ 777 |  | 2.37% | 29,061 |  | ​ 615 |  | 2.12% |
| Other liabilities | ​ | 488 |  | ​ 10 |  | 2.05% | 371 |  | ​ 11 |  | 2.96% |
| Total interest-bearing liabilities | ​ | 272,008 |  | ​ 2,283 |  | 0.84% | 253,724 |  | ​ 2,116 |  | 0.83% |
| Noninterest-bearing demand deposits | ​ | 57,280 |  | ​ ​ |  | ​ ​ | 43,454 |  | ​ ​ |  | ​ ​ |
| Other noninterest-bearing liabilities | ​ | 3,805 |  | ​ ​ |  | ​ ​ | 3,840 |  | ​ ​ |  | ​ ​ |
| Total liabilities | ​ | 333,093 |  | ​ ​ |  | ​ ​ | 301,018 |  | ​ ​ |  | ​ ​ |
| Total shareholders' equity | ​ | 43,737 |  | ​ ​ |  | ​ ​ | 37,384 |  | ​ ​ |  | ​ ​ |
| Total liabilities and shareholders' equity | ​ | $376,830 |  | ​ ​ |  | ​ ​ | $338,402 |  | ​ ​ |  | ​ ​ |
| Net interest income | ​ | ​ ​ |  | $10,283 |  | ​ ​ | ​ | ​ | $8,418 |  | ​ |
| Net interest rate spread (1) | ​ | ​ | ​ | ​ ​ |  | 2.70% | ​ | ​ | ​ |  | 2.49% |
| Net interest-earning assets (2) | ​ | $83,194 | ​ | ​ ​ |  | ​ ​ | $63,321 | ​ | ​ |  | ​ ​ |
| Net interest margin (3) | ​ | ​ | ​ | ​ ​ |  | 2.89% | ​ | ​ | ​ |  | 2.66% |
| Average interest-earning assets to interest-bearing liabilities | ​ | ​ | ​ | ​ ​ |  | 130.59% | ​ | ​ | ​ |  | 124.96% |

(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.

### Rate/Volume Analysis

The following tables present the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by current year volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.

*(In thousands)*

| ​ ​ ​ ​ ​ Interest-earning assets: | ​ ​ ​ ​ | ​ ​ Years Ended December 31, 2022 vs. 2021 Increase (Decrease) Due to Volume ​ ​ ​ | ​ ​ | ​ ​ Rate ​ | ​ ​ ​ | ​ ​ Total Increase (Decrease) ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Loans (excluding PPP loans) | ​ | $824 | ​ | $(319) | ​ | $505 |
| PPP loans | ​ | (6) | ​ | — | ​ | (6) |
| Securities | ​ | 661 | ​ | 798 | ​ | 1,459 |
| Restricted stock | ​ | 1 | ​ | 15 | ​ | 16 |
| Interest-bearing deposits in banks | ​ | (43) | ​ | 26 | ​ | (17) |
| Federal funds sold and other | ​ | (12) | ​ | 87 | ​ | 75 |
| Total interest-earning assets | ​ | 1,425 | ​ | 607 | ​ | 2,032 |
| ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Interest-bearing liabilities:** | ​ | ​ | ​ | ​ | ​ | ​ |
| Interest-bearing demand deposits | ​ | 18 | ​ | 12 | ​ | 30 |
| Regular savings and other deposits | ​ | 32 | ​ | (18) | ​ | 14 |
| Money market deposits | ​ | 15 | ​ | 56 | ​ | 71 |
| Certificates of deposit | ​ | (44) | ​ | (65) | ​ | (109) |
| Total deposits | ​ | 21 | ​ | (15) | ​ | 6 |
| Advances from the Federal Home Loan Bank | ​ | 80 | ​ | 82 | ​ | 162 |
| Other interest-bearing liabilities | ​ | 3 | ​ | (4) | ​ | (1) |
| Total interest-bearing liabilities | ​ | 104 | ​ | 63 | ​ | 167 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Change in net interest income | ​ | $1,321 | ​ | $544 | ​ | $1,865 |

### Comparison of Operating Results for the Years Ended December 31, 2022 and December 31, 2021

***Net Income.*** Net income was $1.8 million for the year ended December 31, 2022, compared to net income of $518,000 for the year ended December 31, 2021, an increase of $1.2 million, or 238.6%. The increase was primarily due to a $1.9 million, or 22.2%, increase in net interest income and a $151,000, or 8.8%, increase in noninterest income. This increase was partially offset by a $292,000, or 3.1%, increase in noninterest expense, a $158,000, or 316.0%, increase in the provision for loan and lease losses and a $330,000, or 354.8%, increase in income tax expense.

***Interest Income.*** Interest income increased $2.1 million, or 20.0%, to $12.6 million for the year ended December 31, 2022 from $10.5 million at December 31, 2021. This increase resulted primarily from an increase in average interest earning assets of $38.2 million, or 12.1%, from $317.0 million at December 31, 2021 to $355.2 million at December 31, 2022 and an increase of 22 basis points, or 6.5%, in average yield on interest–earning assets from 3.32% at December 31, 2021 to 3.54% at December 31, 2022.

The interest income increase is primarily due to an increase in the average balance of securities of $45.5 million, or 77.0%, from $59.1 million, for the year ended December 31, 2021 to $104.6 million for the year ended December 31, 2022 and an increase in the average yield on securities of 76 basis points, or 52.6%, from 1.45% for the year ended December 31, 2021 to 2.21% for the year ended December 31, 2022. The yield increase is reflective of an increase in 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 that are not tied to conventional residential mortgages. Securities interest income increased $1.5 million, or 170.2%, from $857,000 for the year ended December 31, 2021 to $2.3 million for the year ended December 31, 2022.

Interest income on net loans and leases, excluding PPP loan interest, increased $505,000, or 5.3%, to $10.1 million for the year ended December 31, 2022 from $9.6 million for the year ended December 31, 2021 primarily due to an increase of $18.6 million, or 8.6%, increase in the average balance of the loan portfolio from $216.2 million for the year ended December 31, 2021 to $234.8 million for the year ended December 31, 2022, partially offset by a decrease of 14 basis points, or 3.1%, in the average yield on loans from 4.43% for the year ended December 31, 2021 to 4.29% for the year ended December 31, 2022. The decreased yield on loans is primarily due to decreased loan fees and a full 12 months of interest on lower rate mortgage loans for the year ended December 31, 2022 that were originated in 2021.

Interest on Federal Home Loan Bank and Texas Independent Bank (TIB) stock increased $16,000, or 72.7%, from $22,000 for the year ended December 31, 2021 to $38,000 for the year ended December 31, 2022. This increase resulted primarily from an increase in yield of 72 basis points, or 66.6%, from 1.08% for the year ended December 31, 2021 to 1.81% for the year ended December 31, 2022 and an increase in average balance of $75,000, or 3.7%, from $2.0 million for the year ended December 31, 2021 to $2.1 million for the year ended December 31, 2022.

Interest bearing deposits in banks and cash and cash equivalents experienced an interest rate increase from December 31, 2021 to December 31, 2022 due to overall market interest rate increases. Interest income from interest bearing deposits in banks decreased $17,000 or 30.4%, from $56,000 for the year ended December 31, 2021 to $39,000 for the year ended December 31, 2022. This decline resulted from a decrease in average balance of $14.2 million, or 76.0%, from $18.7 million for the year ended December 31, 2021 to $4.5 million for the year ended December 31, 2022, partially offset by a 57 basis point, or 190.7%, increase in average yield from 0.30% for the year ended December 31, 2021 to 0.87% for the year ended December 31, 2022.

Fed funds interest increased $75,000, or 312.5%, to $99,000 at December 31, 2022 from $24,000 at December 31, 2021. There was an increase of 81 basis points, or 744.0%, in average yield on fed funds from 0.11% for the year ended December 31, 2021 to 0.92% for the year ended December 31, 2022, which was offset by a $11.3 million, or 51.1%, decrease in average balance from $22.1 million for the year ended December 31, 2021 to $10.8 million for the year ended December 31, 2022.

***Interest Expense.*** Interest expense increased $167,000, or 7.9%, to $2.3 million for the year ended December 31, 2022 from $2.1 million for the year ended December 31, 2021 due primarily to an increase in the average balance of interest-bearing liabilities of $18.3 million, or 7.2%, from $253.7 million for the year ended December 31, 2021 to $272.0 million for the year ended December 31, 2022.

Interest expense on deposit accounts increased $6,000, or 0.4%, for the year ended December 31, 2022, due primarily to an increase in average deposit account balances of $14.4 million, or 6.4%, from $224.3 million for the year ended December 31, 2021 to $238.7 million for the year ended December 31, 2022. This was partially offset by a decrease in average yield of four basis points, or 5.7%, from 0.66% for the year ended December 31, 2021 to 0.63% for the year ended December 31, 2022. The decrease in yield is primarily due to lower deposit costs during the first three quarters of the year.

Interest expense on Federal Home Loan Bank (FHLB) advances increased $162,000, or 26.3%, to $777,000 for the year ended December 31, 2022 from $615,000 for the year ended December 31, 2021, primarily due to the increase in average balances of FHLB advances of $3.7 million, or 12.7%, to $32.8 million for the year ended December 31, 2022 from $29.1 million for the year ended December 31, 2021 and an increase in average yield of 25 basis points, or 11.9%, from 2.12% for the year ended December 31, 2021 to 2.37% for the year ended December 31, 2022.

***Net Interest Income***. Net interest income increased $1.9 million, or 22.6%, to $10.3 million for the year ended December 31, 2022 from $8.4 million for the year ended December 31, 2021, primarily due to an increase of $19.9 million, or 31.4%, in average balance of net interest earning assets from $63.3 million for the year ended December 31, 2021 to $83.2 million for the year ended December 31, 2022. The net interest rate spread increased 21 basis points, or 8.4%, from 2.49% for the year ended December 31, 2021 to 2.70% for the year ended December 31, 2022. Net interest margin increased 24 basis points, or 9.0%, to 2.89% for the year ended December 31, 2022 from 2.66% for the year ended December 31, 2021.

***Provision for Loan and Lease Losses.*** Based on management’s analysis of the adequacy of the allowance for loan and lease losses, the provision for loan and lease losses increased $158,000, or 316.0%, from $50,000 for the year ended December 31, 2021 to $208,000 for the year ended December 31, 2022. The allowance for loan and lease losses was $1.8 million at December 31, 2022 compared to $1.6 million at December 31, 2021. The increase in the provision was primarily due to an increase in net loans and leases of $31.0 million, or 14.1%, and an increase in net loan chargeoffs of $9,000 to a total of $16,000 for the year ended December 31, 2022 and an increase in losses related to overdrawn deposit accounts of $15,000 to a total of $30,000 for the year ended December 31, 2022. The loan portfolio was also diversified during the year ended December 31, 2022 with increases in loan types requiring a slightly higher allowance.

***Noninterest Income.*** Noninterest income increased $151,000, or 8.8%, to $1.9 million for the year ended December 31, 2022 from $1.7 million for the year ended December 31, 2021, primarily the result of increased service charges on deposits of $88,000, or 15.2%, from $578,000 for the year ended December 31, 2021 to $666,000 for the year ended December 31, 2022 primarily resulting from increases in nonsufficient funds and overdraft fees resulting primarily from increases in the number of checking accounts. Other service charges and fees increased by $44,000 primarily from an increase of $12,000 in ATM fees and $15,000 in loan fees generated through secondary market wholesale lending. There were a three items exclusive to the year ended December 31, 2022 including a gain of $42,000 on the sale of bank property classified as foreclosed assets and a $6,000 gain on the sale of a fixed asset, partially offset by a $29,000 loss on securities sold in 2022.

***Noninterest Expense.*** Noninterest expense increased $292,000, or 3.1%, to $9.8 million for the year ended December 31, 2022 from $9.5 million for the year ended December 31, 2021 primarily due to the increase in salary and employee benefits, data processing, and director fees, partially offset by decreases in contract services and other expenses.

Salary and employee benefit expenses increased by $652,000, or 12.7%, totaling $5.8 million for the year ended December 31, 2022 and $5.1 million for the year ended December 31, 2021, due primarily to an increase in wages of $487,000 for the year ended December 31, 2022 from $4.0 million to $4.5 million and additional compensation expense of $84,000 for the year ended December 31, 2022 related to equity compensation awards. Directors’ fees increased $77,000, or 25.2%, from $306,000 for the year ended December 31, 2021 to $383,000 for the year ended December 31, 2022 due to the addition of four new directors and two new advisory directors. Data (core) processing expense increased by $404,000, or 48.5%, to $1.2 million for the year ended December 31, 2022 from $833,000 for the year ended December 31, 2021 primarily due to increases in the number of accounts and a price increase levied by our core processor. Contract services and other expenses combined decreased $885,000, or 35.9%, from $2.5 million for the year ended December 31, 2021 to $1.6 million for the year ended December 31, 2022. This decrease in expenses was primarily due to increased expenses for the year ended December 31, 2021 related to our initial public offering.

***Income Tax Expense.*** Income tax expense increased by $330,000, or 354.8%, to $423,000 for the year ended December 31, 2022 from $93,000 for the year ended December 31, 2021 due primarily to the increase in taxable income. The effective tax rate was 19.43% and 15.22% for the years ended December 31, 2022 and 2021, respectively. The increase in the effective tax rate was primarily due to taxable income increasing at a faster rate than nontaxable income.

### Management of Market Risk

***General.*** Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Risk Management and Interest Rate Risk Management Officer is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for 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 monthly 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 have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk:

- maintaining capital levels that exceed the thresholds for well-capitalized status under federal regulations;
- maintaining a high level of liquidity;
- growing our volume of core deposit accounts;
- managing our investment securities portfolio so as to reduce the average maturity and effective life of the portfolio;
- continuing to diversify our investment securities portfolio by continuing to add collateralized mortgage obligations (CMOs) and subordinated debt;
- managing our borrowings from the Federal Home Loan Bank of Dallas by using amortizing advances to reduce the average maturities of the borrowings;
- managing our loan services by adding wholesale lending products to continue to offer these services while reducing interest rate risk in the loan portfolio; and
- continuing to diversify our loan portfolio by adding more commercial-related loans, which typically have shorter maturities and/or balloon payments.

By following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates.

We have not engaged in hedging activities, such as engaging in futures or options. We do not anticipate entering into similar transactions in the future.

***Net Interest Income.*** We analyze our sensitivity to changes in interest rates through a net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by 200 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.

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

*At December 31, 2022*

*(Dollars in thousands)*

| ​ Change in Interest Rates (basis points) (1) | ​ ​ | ​ ​ Net Interest Income Year 1 Forecast | ​ ​ ​ Year 1 Change from ​ Level |
| ---: | --- | ---: | ---: |
| 400 | ​ | $13,609 | 2.83% |
| 300 | ​ | 13,570 | 2.53% |
| 200 | ​ | 13,563 | 2.48% |
| 100 | ​ | 13,431 | 1.49% |
| Level | ​ | 13,234 | — ​ |
| (100) | ​ | 12,804 | (3.25)% |
| (200) | ​ | 12,196 | (7.85)% |
| (300) | ​ | 11,453 | (13.46)% |
| (400) | ​ | 10,646 | (19.56)% |

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

The table above indicates that at December 31, 2022, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 2.48% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 7.85% decrease in net interest income.

***Net Economic Value.*** We also compute amounts by which the net present value of our assets and liabilities (net economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by 200 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

The tables below set 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 December 31, 2022*

*(Dollars in thousands)*

| ​ ​ ​ ​ Change in Interest Rates (basis points) (1) | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ Estimated EVE (2) | ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ Estimated Increase (Decrease) in EVE Amount | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percent | ​ ​ EVE as a Percentage of Present Value of Assets (3) ​ ​ ​ ​ EVE Ratio (4) | ​ Increase (Decrease) (basis points) |
| ---: | --- | ---: | --- | ---: | ---: | ---: | ---: |
| 400 | ​ | $66,634 | ​ | $(13,066) | (16.39)% | 18.14% | (96) |
| 300 | ​ | 70,203 | ​ | (9,497) | (11.92)% | 18.50% | (60) |
| 200 | ​ | 73,756 | ​ | (5,944) | (7.46)% | 18.81% | (29) |
| 100 | ​ | 76,953 | ​ | (2,747) | (3.45)% | 19.01% | (9) |
| Level | ​ | 79,700 | ​ | — | —% | 19.10% | — |
| (100) | ​ | 80,015 | ​ | 315 | 0.40% | 18.64% | (46) |
| (200) | ​ | 79,538 | ​ | (162) | (0.20)% | 18.04% | (106) |
| (300) | ​ | 78,570 | ​ | (1,130) | (1.42)% | 17.38% | (172) |
| (400) | ​ | 74,637 | ​ | (5,063) | (6.35)% | 16.22% | (288) |

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

(2) EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3) Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

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

The table above indicates that at December 31, 2022, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 7.46% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 0.20% decrease in EVE.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The net interest income and net economic value tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ.

Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, increases in market interest rates can decrease the fair values of our loans, mortgage servicing rights, deposits and borrowings.

### Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the Federal Home Loan Bank of Dallas. At December 31, 2022, we had outstanding advances of $62.5 million from the Federal Home Loan Bank of Dallas. At December 31, 2022, we had unused borrowing capacity of $73.4 million with the Federal Home Loan Bank of Dallas. In addition, at December 31, 2022, we had a $10.0 million line of credit with Texas Independent Bankers Bank, a $5.0 million line of credit with First Horizon Bank, and an $8.5 million unsecured line of credit with Zions/Amegy Bank. At December 31, 2022, there was no outstanding balance with any of these facilities.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets depend on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. For additional information, see the consolidated statements of cash flows for the years ended December 31, 2022 and 2021 included as part of the consolidated financial statements appearing elsewhere in this annual report.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

Texas Community Bancshares, Inc. is a separate legal entity from Mineola Community Bank and it must provide for its own liquidity to pay any dividends to stockholders and for other corporate purposes. At December 31, 2022, Texas Community Bancshares, Inc. (on an unconsolidated basis) had cash and cash equivalents totaling $13.3 million.

At December 31, 2022, Mineola Community Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category. See Note 19 of the notes to consolidated financial statements.

### Off-Balance Sheet Arrangements

***Commitments.*** As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit, unused lines of credit and swap transactions. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At December 31, 2022, we had outstanding commitments to originate loans of $43.3 million. We anticipate that we will have sufficient funds available to meet our current lending commitments. Time deposits that are scheduled to mature in less than one year from December 31, 2022 totaled $49.1 million. Management expects that a substantial portion of these time deposits will be retained. However, if a substantial portion of these time deposits is not retained, we may utilize advances from the Federal Home Loan Bank of Dallas or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

***Contractual Obligations.*** In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

### Recent Accounting Pronouncements

For a discussion of the impact of recent accounting pronouncements, see Note 23 of the notes to our consolidated financial statements beginning on page F-1 of this annual report.

### Impact of Inflation and Changing Prices

The consolidated financial statements and related data presented in this prospectus have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

## Controls and procedures

As filed, 3,565 characters.

(a) Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chairman of the Board, President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2022. Based on that evaluation, the Company’s management, including the Chairman of the Board, President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

(b) Management’s Annual Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

The Company’s management, including the principal executive officer and principal financial officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, based on the criteria set forth in the “*Internal Control-Integrated Framework (2013)”* issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such assessment, management concluded that, as of December 31, 2022, the Company’s internal control over financial reporting is effective, based on those criteria.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to provisions of the Dodd-Frank Act that permits the Company to provide only management’s report in this annual report.

(c) Changes to Internal Control Over Financial Reporting

During the year ended December 31, 2022, there have been no changes to the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Filed Mar 30, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-005134. Last ingested by Listed: Oct 30, 2026, 13:46 ET. No prices; not investment advice.