TEXAS COMMUNITY BANCSHARES, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

General

Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding Texas Community Bancshares,
Inc.'s ("the Company") consolidated financial condition at September 30, 2022
and consolidated results of operations for the three and nine months ended
September 30, 2022 and 2021. It should be read in conjunction with the unaudited
consolidated financial statements and the related notes appearing in Part I,
Item 1, of this Quarterly Report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

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

? statements of our goals, intentions and expectations;

? statements regarding our business plans, prospects, growth and operating

strategies;

? statements regarding the quality of our loan and investment portfolios; and

? estimates of our risks and future costs and benefits.



These forward-looking statements are based on current beliefs and expectations
of our management and are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond our
control. In addition, these forward-looking statements are subject to
assumptions with respect to future business strategies and decisions that are
subject to change.

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

conditions relating to the COVID-19 pandemic, including the severity, scope and

? duration of the associated economic slowdown either nationally or in our market

areas, that are worse than expected;

? government action in response to the COVID-19 pandemic and its effects on our

business and operations;

? general economic conditions, either nationally or in our market areas, that are

worse than expected;

? changes in yields on our assets resulting from changes in market interest

rates;

? fluctuation in the demand for construction loans in our market area due to

increased cost of building materials and their availability;

changes in the level and direction of loan delinquencies and write-offs and

? changes in estimates of the adequacy of the allowance for loan and lease

losses;

estimated costs and provisions associated with the implementation of the

? Current Expected Credit Losses (CECL) methodology, the new standard for

estimating the allowance for loan and lease losses, being greater than

anticipated;



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


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? our ability to control costs when hiring employees in a highly competitive

environment;

? our ability to control cost and expenses, particularly those associated with

operating a publicly traded company;

? our ability to control costs and manage liquidity through a period of high

inflation and rapidly rising interest rates

? 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 our investment

? securities and other financial instruments, including our mortgage servicing

rights asset, or our level of loan originations, or increase the level of

defaults, losses and prepayments on loans we have made and make;

? adverse changes in the securities or secondary mortgage markets;

changes in laws or government regulations or policies affecting financial

? institutions, including changes in regulatory fees, capital requirements and

insurance premiums;

? changes in the quality or composition of our loan or investment portfolios;

? technological changes that may be more difficult or expensive than expected;

? the inability of third-party providers to perform as expected;

? a failure or breach of our operational or security systems or infrastructure,

including cyberattacks;

? our ability to manage market risk, credit risk and operational risk;

? our ability to enter new markets successfully and capitalize on growth

opportunities;

? changes in consumer spending, borrowing and savings habits;

changes in accounting policies and practices, as may be adopted by the bank

? regulatory agencies, the Financial Accounting Standards Board, the Securities

and Exchange Commission or the Public Company Accounting Oversight Board;

changes in our compensation and benefit plans, and our ability to retain key

? members of our senior management team and to address staffing needs in response

to product demand or strategic plan implementation

? changes in the financial condition, results of operations or future prospects

of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be
materially different from the results indicated by these forward-looking
statements. Except as required by applicable law or regulation, we do not
undertake, and we specifically disclaim any obligation, to release publicly the
results of any revisions that may be made to any


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forward-looking statements to reflect events or circumstances after the date of
the statements or to reflect the occurrence of anticipated or unanticipated
events.

Summary of Critical Accounting Policies; Critical Accounting Estimates


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

The Jumpstart Our Business Startups Act of 2012 (JOBS Act) contains provisions
that, among other things, reduce certain reporting requirements for qualifying
public companies. As an "emerging growth company" we had the option to delay
adoption of new or revised accounting pronouncements applicable to public
companies until such pronouncements are made applicable to private companies.
However, we have determined not to take advantage of the benefits of this
extended transition period.

The following represent our critical accounting policies:


Allowance for 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 the Company is designed to assess the
appropriateness of the allowance for loan and lease losses and includes
allocations for specifically identified impaired loans and loss factor
allocations for all remaining loans, with a component primarily based on
historical loss rates and a component primarily based on other qualitative
factors. The methodology includes evaluation and consideration of several
factors, such as, but not limited to, management's ongoing review and grading of
loans, facts and issues related to specific loans, historical loan loss and
delinquency experience, trends in past due and non-accrual loans, existing risk
characteristics of specific loans or loan pools, the fair value of underlying
collateral, current economic conditions and other qualitative and quantitative
factors which could affect potential credit losses. 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 September 30, 2022 and December 31, 2021. 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

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process is the responsibility of the Company 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.

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

Comparison of Financial Condition at September 30, 2022 and December 31, 2021


Total Assets. Total assets were $375.7 million at September 30, 2022, an
increase of $10.9 million, or 3.0%, from $364.8 million at December 31, 2021.
The increase was due primarily to increases in net loans and leases of $19.8
million, or 9.0%, from $220.2 million at December 31, 2021 to $240.1 million at
September 30, 2022 and an increase in securities of $16.7 million, or 18.5%,
from $90.5 million at December 31, 2021 to $107.2 million at September 30, 2022,
partially offset by decreases in cash, fed funds sold and deposits in banks.

Cash and Cash Equivalents. Cash and cash equivalents decreased $13.0 million, or
59.4%, to $8.9 million (which includes fed funds sold of $4.5 million) at
September 30, 2022 from $21.9 million (which includes fed funds sold of $16.3
million) at December 31, 2021. This decrease was primarily the result of
increases in net loans and leases of $19.8 million and increases in securities
of $16.7 million, partially offset by an increase in deposits of $7.3 million
and a decrease in interest bearing deposits in banks of $14.6 million.

Interest Bearing Deposits in Banks. Interest bearing deposits in banks were
$359,000 at September 30, 2022 compared to $15.0 million at December 31, 2021, a
decrease of $14.6 million, or 97.3%. The decrease was primarily the result of
funding increases in net loans and leases of $19.8 million and increases in
securities of $16.7 million, partially offset by an increase in deposits of $7.3
million and the use of cash and cash equivalents of $13.0 million.

Securities Available for Sale. Securities available for sale increased by $21.5
million, or 37.9%, to $78.3 million at September 30, 2022 from $56.8 million at
December 31, 2021. The increase in securities resulted primarily from purchases
of $44.5 million, sales of $10.8 million, paydowns of $4.2 million, and
unrealized losses on the available for sale portfolio of $7.6 million due
primarily to the increase in market interest rates during the period.

Securities Held to Maturity. Securities held to maturity decreased by $4.9
million, or 14.5%, to $28.8 million at September 30, 2022 from $33.7 million at
December 31, 2021. This decrease is due primarily to principal repayments of
$4.4 million and one municipal security with a principal amount of $365,000
being called.

Loans and Leases Receivable, Net. Net loans and leases receivable increased
$19.8 million, or 9.0%, to $240.1 million at September 30, 2022 from $220.3
million
at December 31, 2021. Loans secured by residential real estate and
farmland comprise $169.4, or 70.0% of total loans at September 30, 2022. During
the nine months ended September 30,


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2022, loan originations totaled $84.3 million of which $11.7 million were
renewals or refinancings of existing loans with Mineola Community Bank,
resulting in originations of new loans of $72.6 million. Originations consisted
primarily of $29.3 million in one- to-four family residential mortgage loans,
$31.5 million of residential construction loans (upon completion), including
speculative construction loans of $10.5 million, $6.4 million in commercial real
estate loans, $3.5 million in consumer loans, $4.1 million in commercial and
industrial loans, $6.8 million in land & development loans, and $2.7 million in
farmland loans. During the nine months ended September 30, 2022, there were $9.5
million in loan principal paydowns and $39.8 million in loan payoffs. PPP loans
have paid down to two loans totaling $5,000 at September 30, 2022. During the
nine months ended September 30, 2022, construction loans (when fully funded upon
completion) increased by $18.6 million, or 79.8%, to $41.9 million at September
30, 2022 from $23.3 million at December 31, 2021 and the construction loan
balance increased $10.0 million to $21.4 million at September 30, 2022.
Construction loans continue to be a large segment of our loan portfolio.

Deposits. Deposits increased $7.3 million, or 2.7%, to $282.2 million at
September 30, 2022 from $274.9 million at December 31, 2021. Core deposits
(defined as all deposits other than certificates of deposit) increased $14.0
million, or 6.9%, to $216.4 million at September 30, 2022 from $202.4 million at
December 31, 2021. Certificates of deposit decreased $6.8 million, or 9.4%, to
$65.8 million at September 30, 2022 from $72.6 million at December 31, 2021. At
September 30, 2022, there were no brokered deposits.

Advances from Federal Home Loan Bank. Advances from Federal Home Loan Bank
increased by $7.4 million, or 26.8%, to $35.0 million at September 30, 2022 from
$27.6 million at December 31, 2021 due to new advances of $12.0 million less
maturities of $3 million and scheduled monthly payments of principal on
amortizing advances of $1.6 million.

Total Shareholders' Equity. Total shareholders' equity decreased $4.5 million,
or 7.5%, to $55.6 million at September 30, 2022 from $60.1 million at December
31, 2021. This decrease was primarily due to a $6.0 million, or 879.9%, change
in accumulated other comprehensive loss representing decreases in the fair value
of available for sale securities resulting primarily from rising market interest
rates. At September 30, 2022, the accumulated other comprehensive loss was $6.7
million, compared to $686,000 at December 31, 2021, partially offset by net
income of $1.3 million and an additional $164,000 added to shareholders' equity
with the commitment to release 9,774 additional ESOP shares to participants
during the nine months ended September 30, 2022. In addition, there was a
$21,000 charge to capital for one month of the newly adopted equity incentive
plan.

At September 30, 2022, Mineola Community Bank opted to use the community bank
leverage ratio framework (Tier 1 capital to average assets) for regulatory
capital purposes, as permitted by the CARES Act. At September 30, 2022, a
community bank leverage ratio of at least 9.0% is required to be considered
"well capitalized" under regulatory requirements. At September 30, 2022, Mineola
Community Bank was well capitalized and had a ratio of 13.00%.

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Average Balance Sheets
The following table sets forth average balances, average yields and costs, and
certain other information at and for the periods indicated. No tax-equivalent
yield adjustments have been made, as the effects would be immaterial. All
average balances are daily average balances. Non-accrual loans are included in
the computation of average balances. Average yields for loans (excluding PPP
loans) include loan fees of $90,000 and $134,000 for the three months ended
September 30, 2022 and 2021, respectively. No PPP loans were originated during
the three months ended September 30, 2022 or 2021. We have not recorded deferred
loan fees, as we have determined them to be immaterial.

                                                                For the 

Three Months Ended September 30,

                                                            2022                                         2021
                                             Average                                      Average
                                           Outstanding                    Average       Outstanding                    Average
                                             Balance        Interest     Yield/Rate       Balance        Interest     Yield/Rate

                                                                          (Dollars in thousands)
                                                                               (Unaudited)
Interest-earning assets:
Loans (excluding PPP loans)               $     235,403    $    2,531      

4.30 % $ 219,838 $ 2,391 4.35 %
Allowance for loan and lease losses

             (1,640)                                      (1,590)
PPP loans                                             6             -             - %            189             1          2.12 %
Securities                                      102,671           601          2.34 %         55,168           193          1.40 %
Restricted stock                                  2,044             9          1.76 %          2,031             6          1.18 %
Interest-bearing deposits in banks                3,158            15      
   1.90 %         16,963            10          0.24 %
Federal funds sold                                7,856            41          2.09 %         40,393            12          0.12 %
Total interest-earning assets                   349,498         3,197          3.66 %        332,992         2,613          3.14 %
Noninterest-earning assets                       21,626                                       21,180
Total assets                              $     371,124                                $     354,172

Interest-bearing liabilities:
Interest-bearing demand deposits          $      75,856            70          0.37 %  $      71,668            60          0.33 %
Regular savings and other deposits               81,271            71      
   0.35 %         71,311            66          0.37 %
Money market deposits                            12,165            11          0.36 %          9,281             7          0.30 %
Certificates of deposit                          67,060           148          0.88 %         75,418           229          1.21 %
Total interest-bearing deposits                 236,352           300      
   0.51 %        227,678           362          0.64 %
Advances from FHLB                               27,342           144          2.11 %         28,279           151          2.12 %
Other liabilities                                   508             3          2.36 %            410             3          2.93 %
Total interest-bearing liabilities              264,202           447          0.68 %        256,367           516          0.80 %
Noninterest-bearing demand deposits              59,315                                       48,569
Other noninterest-bearing liabilities             4,318                    
                   4,421
Total liabilities                               327,835                                      309,357
Total shareholders' equity                       43,289                                       44,815
Total liabilities and shareholders'
equity                                    $     371,124                                $     354,172
Net interest income                                        $    2,750                                   $    2,097
Net interest rate spread (1)                                                   2.98 %                                       2.33 %
Net interest-earning assets (2)           $      85,296                                $      76,625
Net interest margin (3)                                                        3.15 %                                       2.52 %
Average interest-earning assets to
interest-bearing liabilities                                                 132.28 %                                     129.89 %


Net interest rate spread represents the difference between the weighted
(1) 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.


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Comparison of the Operating Results for the Three Months Ended September 30,
2022
and September 30, 2021


Net Income. Net income was $539,000 for the three months ended September 30,
2022, compared to a net loss of $198,000 for the three months ended September
30, 2021, an increase of $737,000, or 372.2%. The increase was primarily due to
a $653,000, or 31.1%, increase in net interest income and a $280,000, or 12.2%,
increase in net noninterest income, partially offset by a $34,000 increase in
the provision for loan and lease losses and a $162,000 increase in income tax
expense.

Interest Income. Interest income increased by $584,000, or 22.5%, to $3.2
million for the three months ended September 30, 2022 from $2.6 million for the
three months ended September 30, 2021. This was primarily the result of
increased interest income on securities due to an increased average balance
increase of 86.1% and an increase in yield of 67.1% and increased loan interest
from an increased average balance of 7.1%. Average interest earning assets
overall increased by $16.5 million, or 5.0%, from $333.0 million at September
30, 2021 to $349.5 million at September 30, 2022, and the yield on those assets
increased by 52 basis points, or 16.6%, from 3.14% for the three months ended
September 30, 2021 to 3.66% for the three months ended September 30, 2022.

Interest income on loans (excluding PPP loans) increased $140,000, or 5.8%, from
$2.4 million for the three months ended September 30, 2021 to $2.5 million for
the three months ended September 30, 2022. This was primarily due to an increase
of $15.6 million, or 7.1%, in the average balance of the loan portfolio to
$235.4 million for the three months ended September 30, 2022 from $219.8 million
for the three months ended September 30, 2021 being offset by a decrease of five
basis points, or 1.1%, in the average yield on loans from 4.35% for the
three months ended September 30, 2021 to 4.30% for the three months ended
September 30, 2022. In the three months ending September 30, 2021, we originated
more loans with fees that were included in interest income than in the three
months ending September 30, 2022 and although loan rates have increased, we had
not originated enough loans at the higher rates at September 30, 2022 to
increase the weighted average cost of the entire loan portfolio.

Interest income on securities increased $408,000, or 211.4%, from $193,000 for
the three months ended September 30, 2021 to $601,000 for the three months ended
September 30, 2022. This increase resulted from an increase of 94 basis points,
or 67.1%, in yield from 1.40% for the three months ended September 30, 2021 to
2.34% for the three months ended September 30, 2022 and an increase in average
securities of $47.5 million, or 86.1%, from $55.2 million for the three months
ended September 30, 2021 to $102.7 million for the three months ended September
30, 2022. The rate increase is reflective of the rise in market interest rates
in the overall market and diversification of the securities portfolio as the
Company continued to invest the net proceeds of the conversion stock offering
over the periods compared.

Interest income from interest bearing deposits in banks increased $5,000, or
50.0%, from $10,000 for the three months ended September 30, 2021 to $15,000 for
the three months ended September 30, 2022. This increase resulted primarily from
an increase in average yield of 166 basis points, or 691.7%, from 0.24% for the
three months ended September 30, 2021 to 1.90% for the three months ended
September 30, 2022, partially offset by a decrease in the average interest
bearing deposits in banks of $13.8 million, or 81.2%, from $17.0 million for the
three months ended September 30, 2021 to $3.2 million for the three months ended
September 30, 2022. There was also an increase in fed funds interest income of
$29,000, or 241.7%, resulting from a 197 basis points, or 1,641.7%, increase in
average yield on fed funds sold from 0.12% for the three months ended September
30, 2021 to 2.09% for the three months ended September 30, 2022, partially
offset by a $32.5 million, or 80.4%, decrease in average fed funds balances from
$40.4 million for the three months ended September 30, 2021 to $7.9 million for
the three months ended September 30, 2022.

Interest Expense. Total interest expense decreased $69,000, or 13.4%, to
$447,000 for the three months ended September 30, 2022 from $516,000 for the
three months ended September 30, 2021 due primarily to a decrease in the average
cost of interest-bearing liabilities of 12 basis points, or 15.0%, from 0.80%
for the three months ended September 30, 2021 to 0.68% for the three months
ended September 30, 2022, primarily due to decreased deposit costs for the
period as a result of lower deposit rates in the last quarter of 2021 and the
first half of 2022. Interest expense on deposit accounts decreased $62,000, or
17.1%, to $300,000 for three months ended September 30, 2022 from $362,000 for
the three months ended September 30, 2021, due to a decrease in the average
deposit cost of 13 basis points, or 20.3%, from 0.64% for the three months ended
September 30, 2021 to 0.51% for the three months ended September 30,

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2022, primarily the result of lower average deposit rates in the three months
ended September 30, 2022 combined with a movement of funds to more liquid and
lower-cost types of accounts. This was partially offset by an increase of $8.7
million, or 3.8%, in the average deposit account balances from $227.7 million
for the three months ended September 30, 2021 to $236.4 million for the
three months ended September 30, 2022, with the increase being in lower cost
interest bearing transaction accounts.

Interest expense on Federal Home Loan Bank advances decreased $7,000, or 4.6%,
to $144,000 for the three months ended September 30, 2022 from $151,000 for the
three months ended September 30, 2021. This decrease was due primarily to the
decrease in the average balance of Federal Home Loan Bank advances of $1.0
million, or 3.5%, to $27.3 million for the three months ended September 30, 2022
from $28.3 million for the three months ended September 30, 2021.

Net Interest Income. Net interest income increased $653,000, or 31.1%, to $2.8
million for the three months ended September 30, 2022 from $2.1 million for the
three months ended September 30, 2021 primarily due to an increase in the
average balance of net interest-earning assets of $8.7 million, or 11.3%, from
$76.6 million for the three months ended September 30, 2021 to $85.3 million for
the three months ended September 30, 2022, with a 65 basis point, or 27.9%,
increase in the net interest rate spread from 2.33% for the three months ended
September 30, 2021 to 2.98% for the three months ended September 30, 2022 and an
increase in net interest margin of 63 basis points, or 25.0%, to 3.15% for the
three months ended September 30, 2022 from 2.52% for the three months ended
September 30, 2021.

Provision for Loan and Lease Losses. Based on management’s analysis of the
adequacy of allowance for loan and lease losses, the provision for loan and
lease losses was $48,000 for the three months ended September 30, 2022, compared
to $14,000 for the three months ended September 30, 2021, an increase of
$34,000, or 242.9%, due primarily to increased loan volume and the
diversification of the loan portfolio.


Noninterest Income. Noninterest income increased $47,000, or 10.4%, to $499,000
for the three months ended September 30, 2022 from $452,000 for the three months
ended September 30, 2021, due primarily to an increase in service charges on
deposit accounts of $7,000, or 4.4%, and an increase in other service charges
and fees of $1,000, or 0.4%, for the three months ended September 30, 2022 and a
gain of $42,000 for the three months ended September 30, 2022 on the sale of
other real estate owned.

Noninterest Expense. Noninterest expense decreased $233,000, or 8.4%, to $2.5
million for the three months ended September 30, 2022 from $2.8 million for the
three months ended September 30, 2021, primarily due to decreases in other
expenses and contract services that were higher in 2021 due to the stock
conversion transaction, partially offset by increases in salaries, employee
benefits and director fees.

Salary and employee benefit expenses increased by $178,000, or 13.5%, to $1.5
million for the three months ended September 30, 2022 from $1.3 million for the
three months ended September 30, 2021, due to normal salary increases and a
$21,000 contribution to the Equity Plan for the three months ended September 30,
2022 which did not exist in the three months ended September 30, 2021, partially
offset by decreased ESOP expense in the three months ending September 30, 2022
due to initial funding costs being higher in the three months ended September
30, 2021. Directors' fees also increased $21,000, or 28.0%, to $96,000 for the
three months ended September 30, 2022 from $75,000 for the three months ended
September 30, 2021 due to the addition of four new directors and two new
advisory directors. This was partially offset by a decrease of $446,000, or
37.0%, in data processing, contract services and other fees combined, primarily
due to higher expenses related to the stock conversion transaction during the
three months ended September 30, 2021.

Income Tax Expense. Income tax expense increased by $162,000, or 450.0%, to
$126,000 for the three months ended September 30, 2022 from a tax benefit of
$36,000 primarily due to higher income before taxes. The effective tax rate was
19.0% and 15.4% for the three months ended September 30, 2022 and 2021,
respectively. The effective tax rate was higher for the three months ended
September 30, 2022 due to taxable income increasing at a faster rate than tax
exempt income.

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Average Balance Sheets
The following table sets forth average balances, average yields and costs, and
certain other information at and for the periods indicated. No tax-equivalent
yield adjustments have been made, as the effects would be immaterial. All
average balances are daily average balances. Non-accrual loans are included in
the computation of average balances. Average yields for loans (excluding PPP
loans) include loan fees of $304,000 and $429,000 for the nine months ended
September 30, 2022 and 2021, respectively. No PPP loans were originated during
the nine months ended September 30, 2022 or 2021. We have not recorded deferred
loan fees, as we have determined them to be immaterial.

                                                              For the Nine 

Months Ended September 30,

                                                         2022                                         2021
                                          Average                                      Average
                                        Outstanding                    Average       Outstanding                    Average
                                          Balance        Interest     Yield/Rate       Balance        Interest     Yield/Rate

                                                                       

(Dollars in thousands)

(Unaudited)

Interest-earning assets:
Loans (excluding PPP loans)            $     229,773    $    7,336         

4.26 % $ 215,452 $ 7,190 4.45 %
Allowance for loan and lease losses (1,619)

             -             -          (1,571)             -             -
PPP loans                                          8             -             - %            722             6          1.11 %
Securities                                    99,074         1,421          1.91 %         50,887           560          1.47 %
Restricted stock                               2,041            20          1.31 %          2,027            15          0.99 %
Interest-bearing deposits in banks             5,758            34          0.79 %         19,414            45          0.31 %
Federal funds sold                            13,744            80          0.78 %         22,344            17          0.10 %
Total interest-earning assets                348,779         8,891         
3.40 %        309,275         7,833          3.38 %
Noninterest-earning assets                    21,501                                       21,233
Total assets                           $     370,280                                $     330,508

Interest-bearing liabilities:
Interest-bearing demand deposits       $      75,694           195          0.34 %  $      69,030           175          0.34 %
Regular savings and other deposits            80,556           214         
0.35 %         68,354           193          0.38 %
Money market deposits                         11,858            28          0.31 %          9,497            28          0.39 %
Certificates of deposit                       69,498           471          0.90 %         75,646           756          1.33 %
Total interest-bearing deposits              237,606           908         

0.51 % 222,527 1,152 0.69 %
Advances from the Federal Home Loan
Bank

                                          27,099           429          2.11 %         29,502           468          2.12 %
Other liabilities                                457             8          2.33 %            391             8          2.73 %
Total interest-bearing liabilities           265,162         1,345         

0.68 % 252,420 1,628 0.86 %
Noninterest-bearing demand deposits

           56,920                                       38,404
Other noninterest-bearing
liabilities                                    3,770                                        3,509
Total liabilities                            325,852                                      294,333
Total shareholders' equity                    44,428                                       36,175
Total liabilities and shareholders'
equity                                 $     370,280                                $     330,508
Net interest income                                     $    7,546                                   $    6,205
Net interest rate spread (1)                                                2.72 %                                       2.52 %
Net interest-earning assets (2)        $      83,617                                $      56,855
Net interest margin (3)                                                     2.88 %                                       2.68 %
Average interest-earning assets to
interest-bearing liabilities                                              131.53 %                                     122.50 %


Net interest rate spread represents the difference between the weighted
(1) 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.


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Comparison of the Operating Results for the Nine Months Ended September 30, 2022
and September 30, 2021

Net Income. Net income was $1.3 million for the nine months ended September 30,
2022, compared to net income of $232,000 for the nine months ended September 30,
2021, an increase of $1.1 million, or 550.0%. The increase was primarily due to
a $1.3 million, or 21.0%, increase in net interest income and a $141,000
increase in noninterest income, offset by a $81,000 increase in the provision
for loan and lease losses and an increase in income tax expense of $281,000.

Interest Income. Interest income increased $1.1 million, or 14.1%, for the
nine months ended September 30, 2022 from $7.8 million at September 30, 2021 to
$8.9 million at September 30, 2022. This was primarily the result of increased
interest income on securities and fed funds sold due primarily to the continued
investment of the net proceeds from the conversion stock offering and increased
yields on those investments resulting primarily from rising market interest
rates. Average interest earning assets increased by $39.5 million, or 12.8%,
from $309.3 million at September 30, 2021 to $348.8 million at September 30,
2022, and a small increase in the yield on interest earning assets of 2 basis
points, or 0.6%, from 3.38% on September 30, 2021 to 3.40% on September 30,
2022.

Interest income on loans increased $146,000, or 2.0%, to $7.3 million for the
nine months ended September 30, 2022 from $7.2 million for the nine months
ending September 30, 2021. Average loans increased $14.3 million, or 6.6%, from
$215.5 million at September 30, 2021 to $229.8 million at September 30, 2022,
being offset by a 19 basis point, or 4.3%, decrease in loan yield to 4.26% for
the nine months ended September 30, 2022 from 4.45% for the nine months ended
September 30, 2021. In the nine months ending September 30, 2021, we originated
more loans with fees that were included in interest income than in the three
months ending September 30 2022 and although loan rates have increased, we had
not originated enough loans at the higher rates at September 30, 2022 to
increase the weighted average cost of the entire loan portfolio.

Interest income on securities increased $861,000, or 153.8%, from $560,000 for
the nine months ended September 30, 2021 to $1.4 million for the nine months
ended September 30, 2022. This increase resulted from an increase in average
securities of $48.2 million, or 94.7%, from $50.9 million for the nine months
ended September 30, 2021 to $99.1 million for the nine months ended September
30, 2022 and an increase of 44 basis points, or 29.9%, in average yield from
1.47% for the nine months ended September 30, 2021 to 1.91% for the nine months
ended September 30, 2022. The rate increase is reflective of market rate
increases and the diversification of the securities portfolio as the net
proceeds of the conversion stock offering continued to be invested into higher
yielding investments.

Interest income from interest bearing deposits in banks declined $11,000, or
24.4%, from $45,000 for the nine months ended September 30, 2021 to $34,000 for
the nine months ended September 30, 2022. This decline resulted from a decrease
in average deposits in banks of $13.6 million, or 70.1%, from $19.4 million for
the nine months ended September 30, 2021 to $5.8 million for the nine months
ended September 30, 2022, partially offset by 48 basis points, or 154.8%,
increase in average yield from 0.31% for the nine months ended September 30,
2021 to 0.79% for the nine months ended September 30, 2022. There was also an
increase of $63,000 in fed funds interest income for the nine months ended
September 30, 2022 primarily from an increase of 68 basis points, or 680.0%, in
average yield on fed funds sold from 0.10% for the nine months ended September
30, 2021 to 0.78% for the nine months ended September 30, 2022, partially offset
by a $8.6 million, or 38.6%, decrease in average fed funds sold from $22.3
million for the nine months ended September 30, 2021 to $13.7 million for the
nine months ended September 30, 2022. The increases in yields on deposits in
banks and fed funds is reflective of the sharp increase in market rates.

Interest Expense. Total interest expense decreased $283,000, or 17.4%, to $1.3
million for the nine months ended September 30, 2022 from $1.6 million for the
nine months ended September 30, 2021 due to a decrease in the average cost of
interest-bearing liabilities of 18 basis points, or 20.9%, from 0.86% for the
nine months ended September 30, 2021 to 0.68% for the nine months ended
September 30, 2022, primarily due to a decrease in deposit costs. Interest
expense on deposit accounts decreased $244,000, or 21.2%, to $908,000 for the
nine months ended September 30, 2022 from $1.2 million for the nine months ended
September 30, 2021, due to a decrease in the average deposit cost of 18 basis
points, or 26.1%, from 0.69% for the nine months ended September 30, 2021 to
0.51% for the nine months ended September 30, 2022. This was partially offset by
an increase of $15.1 million, or 6.8%, in the average interest bearing

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deposit account balances from $222.6 million for the nine months ended September
30, 2021 to $237.6 million for the nine months ended September 30, 2022, with
the increase being in lower cost interest-bearing transaction accounts.

Interest expense on Federal Home Loan Bank advances decreased $39,000, or 8.3%,
to $429,000 for the nine months ended September 30, 2022 from $468,000 for the
nine months ended September 30, 2021. This decrease was due primarily to the
decrease in the average balance of Federal Home Loan Bank advances of $2.4
million, or 8.1%, to $27.1 million for the nine months ended September 30, 2022
from $29.5 million for the nine months ended September 30, 2021. The average
yield was 2.11% for the nine months ended September 30, 2022 and 2.12% for the
nine months ended September 30, 2021.

Net Interest Income. Net interest income increased $1.3 million, or 21.6%, to
$7.5 million for the nine months ended September 30, 2022 from $6.2 million for
the nine months ended September 30, 2021 primarily due to an increase of $26.7
million, or 46.9%, in the average balance of net interest-earning assets from
$56.9 million for the nine months ended September 30, 2021 to $83.6 million for
the nine months ended September 30, 2022, and a 20 basis points, or 7.9%,
increase in the net interest rate spread from 2.52% for the nine months ended
September 30, 2021 to 2.72% for the nine months ended September 30, 2022. Net
interest margin increased 20 basis points, or 7.5%, to 2.88% for the nine months
ended September 30, 2022 from 2.68% for the nine months ended September 30,
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 was $125,000 for the nine months ended September 30, 2022, compared
to $44,000 for the nine months ended September 30, 2021, an increase of $81,000,
or 184.1%, primarily due to an increase in loans and leases, an $18,000 increase
in net consumer credit losses to $31,000 for the nine months ended September 30,
2022 and diversification of the loan portfolio.

Noninterest Income. Noninterest income increased $141,000, or 7.7%, to $1.4
million for the nine months ended September 30, 2022 from $1.3 million for the
nine months ended September 30, 2021, due primarily to an increase of $127,000,
or 10.9%, in service charges and fees from $1.2 million for the nine months
ended September 30, 2021 to $1.3 million for the nine months ended September 30,
2022. The increase is primarily due to an $84,000 increase in service charges
primarily due to waiving fees during part of 2021 on deposit accounts and
increases in the number of deposit accounts. There was also a $42,000 gain on
the sale of real estate owned in the nine months ended September 30, 2022,
partially offset by a $29,000 loss on the sale of securities during the nine
months ended September 30, 2022.

Noninterest Expense. Noninterest expense remained flat at $7.1 million for the
nine months ended September 30, 2022 primarily due to increases in salaries,
employee benefits and director fees being offset by decreases in contract
services, data processing and other expenses.

Salary and employee benefit expenses increased by $455,000, or 11.9%, to $4.3
million for the nine months ended September 30, 2022 from $3.8 million for the
nine months ended September 30, 2021, due to normal salary and benefits
increases and an increase in the ESOP contribution expense of $61,000 and a new
$21,000 contribution expense for the Equity Plan in the nine months ending
September 30, 2022. The Equity Plan was not in existence and the ESOP was not
fully funded for the nine months ending September 30, 2021. Directors' fees
increased $56,000, or 24.2%, to $287,000 for the nine months ended September 30,
2022 from $231,000 for the nine months ended September 30, 2021 due to the
addition of four new directors and two new advisory directors in 2022. These
increases were offset primarily by a combined decrease in data processing,
contract services and other expenses of $527,000. These expenses were higher in
the nine months ended September 30, 2021 due partially to additional expenses
related to the stock conversion.

Income Tax Expense. Income tax expense increased by $281,000, or 597.9%, to
$328,000 for the nine months ended September 30, 2022 from $47,000 for the
nine months ended September 30, 2021, primarily due to higher income before
taxes. The effective tax rate was 19.59% and 16.85% for the nine months ended
September 30, 2022 and 2021, respectively. The effective tax rate was higher for
the nine months ended September 30, 2022 due to taxable income increasing at a
faster rate than tax exempt income.

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Liquidity and Capital Resources


Liquidity describes our ability to meet the financial obligations that arise in
the ordinary course of business. Federal Reserve Bank of Boston provides the
Company with a federal funds line of credit. 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 September 30, 2022, we had outstanding advances of $35.0
million from the Federal Home Loan Bank of Dallas. At September 30, 2022, we had
unused borrowing capacity of $100.5 million with the Federal Home Loan Bank of
Dallas. In addition, at September 30, 2022, we had a $10.0 million line of
credit with Texas Independent Bankers Bank and a $5.0 million line of credit
with First Horizon Bank. At September 30, 2022, there was no outstanding balance
under either of these facilities.

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

Our cash flows are comprised of three primary classifications: cash flows from
operating activities, investing activities, and financing activities. For
additional information, see the consolidated statements of cash flows for the
nine months ended September 30, 2022 and 2021 included as part of the
consolidated financial statements included in this report.

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

Texas Community Bancshares, Inc. is a separate legal entity from Mineola
Community Bank, and must provide for its own liquidity to pay its operating
expenses and other financial obligations. Its primary source of income is
dividends received from Mineola Community Bank. The amount of dividends that
Mineola Community Bank may declare and pay to Texas Community Bancshares, Inc.
is governed by applicable banking laws and regulations. At September 30, 2022,
Texas Community Bancshares, Inc. (on a stand-alone, unconsolidated basis) had
liquid assets of $13.4 million.

At September 30, 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.

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.

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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;

managing our borrowings from the Federal Home Loan Bank of Dallas by using

? amortizing advances to as to reduce the average maturities of the borrowings;

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
monthly net interest income that would result from the designated immediate
changes in the United States Treasury yield curve.

                           At September 30, 2022
Change in Interest Rates     Net Interest Income Year     Year 1 Change from
   (basis points) (1)               1 Forecast                  Level
                           (Dollars in thousands)
          400               $                   11,395                (6.82) %
          300                                   11,667                (4.60) %
          200                                   11,971                (2.11) %
          100                                   12,157                (0.59) %
         Level                                  12,229                     -
         (100)                                  12,193                (0.29) %
         (200)                                  12,001                (1.86) %
         (300)                                  11,579                (5.31) %


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


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The table above indicates that at September 30, 2022, in the event of an
instantaneous parallel 200 basis point increase in interest rates, we would
experience a 2.11% decrease in net interest income, and in the event of an
instantaneous 200 basis point decrease in interest rates, we would experience a
1.86% decrease in net interest income. The net interest income decreases in both
interest rate scenarios due to the assets and liabilities repricing at different
speeds in a rates up and rates down environment.

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

                                       At September 30, 2022
                                                                        EVE as a Percentage of
                                                                      Present Value of Assets (3)
                                            Estimated Increase                          Increase
   Change in Interest        Estimated       (Decrease) in EVE                         (Decrease)

Rates (basis points) (1) EVE (2) Amount Percent EVE Ratio (4) (basis points)

                                      (Dollars in thousands)
          400               $    66,485    $ (12,783)    (16.13) %          19.79 %           (114)
          300                    70,214       (9,054)    (11.42) %          20.26 %            (67)
          200                    73,840       (5,428)     (6.85) %          20.65 %            (28)
          100                    76,960       (2,308)     (2.91) %          20.90 %             (3)
         Level                   79,268             -          - %          20.93 %               -
         (100)                   79,875           607       0.77 %          20.55 %            (38)
         (200)                   79,292            24       0.03 %          19.92 %           (101)
         (300)                   76,933       (2,335)     (2.95) %          18.91 %           (202)

(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 September 30, 2022, in the event of an
instantaneous parallel 200 basis point increase in interest rates, we would
experience a 6.85% decrease in EVE, and in the event of an instantaneous 200
basis point decrease in interest rates, we would experience a 0.03% increase 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, decreases in market interest rates can
increase the fair values of our loans, mortgage servicing rights, deposits and
borrowings.


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