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 March 31, 2022 and
consolidated results of operations for the three months ended March 31, 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.

Caution 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 objectives, intentions and expectations;

? statements regarding our business plans, prospects, growth and

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 related to the COVID-19 pandemic, including the severity, scope and

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

areas, which are worse than expected;

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

business and operations;

? general economic conditions, whether nationally or in our market areas, which are

worse than expected;

? variations in the returns on our assets resulting from changes in market interest

rates;

? fluctuations in demand for construction loans in our market area due to

increased cost of construction materials and their availability;

changes in the level and direction of defaults and write-offs and

? changes in loan and lease allowance adequacy estimates

losses;

estimated costs and provisions related to the implementation of the

? The Current Expected Credit Loss (CECL) methodology, the new standard

estimate the provision for losses on loans and leases, 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

environment;

? our ability to control costs and expenses, in particular those related to

operation of a listed company;

? our ability to access cost-effective financing;

? fluctuations in real estate values ​​and residential and commercial real estate

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 institutions and other financial institutions;

inflation and changes in the interest rate environment that reduce our margins

and yields, our mortgage banking income, the fair value of

? 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 are granting;

? adverse changes in the securities or sub-mortgage markets;

changes in laws or government regulations or policies affecting

? 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 costly than expected;

? the inability of third-party vendors to operate as intended;

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

including cyber attacks;

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

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

Opportunities;

? changes in consumer spending, borrowing and saving habits;

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

? regulatory bodies, Financial Accounting Standards Boardthe titles

and Exchange fee or the Public Company Accounting Oversight Council;

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

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

at the request of the product or the implementation of the strategic plan

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

issuers of securities held by us.

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

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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 may 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 significant 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 March 31, 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 process is the responsibility of the Company
and any increase or decrease in the allowance is the responsibility of
management.

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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 the financial situation at March 31, 2022 and December 31, 2021

Total Assets. Total assets were $369.0 million at March 31, 2022, an increase of
$4.2 million, or 1.2%, from $364.8 million at December 31, 2021. The increase
was due primarily to increases in net loans of $4.3 million, or 2.0%, from
$220.3 million at December 31, 2021 to $224.6 million at March 31, 2022.

Cash and Cash Equivalents. Cash and cash equivalents increased $3.7 million, or
16.9%, to $25.6 million (which includes fed funds sold of $19.7 million) at
March 31, 2022 from $21.9 million (which includes fed funds sold of $16.3
million) at December 31, 2021. This increase is primarily due to an increase in
deposits of $6.8 million, partially offset by loan funding.

Interest-bearing deposits in banks. Interest-bearing deposits in banks were $5.3 million to March 31, 2022 compared to $15.0 million to December 31, 2021a decrease of $9.7 million, or 64.7%. The decrease is mainly attributable to an increase in securities of $5.1 million and loans from $4.3 million.

Securities Available for Sale. Securities available for sale increased by $7.2
million, or 12.7%, to $64.0 million at March 31, 2022 from $56.8 million at
December 31, 2021. The increase in securities for the quarter included the
investment of $11.5 million in available for sale securities, including
purchases of $6.0 million in U.S. Government debt securities, $3.3 million in
municipals, and $2.2 million in corporate bonds, partially reduced by paydowns
of $1.1 million, and unrealized losses on the available for sale portfolio of
$3.2 million due primarily to the increase in market interest rates during the
period.

Securities held to maturity. Held-to-maturity securities decreased by $2.1 millioni.e. 6.2%, to $31.6 million to March 31, 2022 from $33.7 million to
December 31, 2021. This decrease is mainly due to capital repayments of
$1.7 million and municipal security totaling $365,000 to be called.

Loans and Leases Receivable, Net. Loans and leases receivable, net, increased
$4.3 million, or 2.0%, to $224.6 million at March 31, 2022 from $220.3 million
at December 31, 2021. Loans secured by residential real estate and farmland
comprise $161.7, or 71.5% of the net loans at March 31, 2022. During the three
months ended March 31, 2022, loan originations totaled $31.0 million of which
$3.9 million were renewals or refinancings of existing loans with Mineola
Community Bank, resulting in originations of new loans of $27.1 million.
Originations consisted primarily of $11.4 million in one- to-four family
residential mortgage loans, $11.8 million of residential construction loans
(upon completion), including speculative construction loans of $4.9 million,
$4.2 million in commercial real estate loans, $964,000 in consumer loans, $1.6
million in commercial and industrial loans, $676,000 in land & development
loans,

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and $406,000 in farmland loans. During the three months ended March 31, 2022,
there were $3.4 million in loan principal paydowns and $16.4 million in loan
payoffs. PPP loans have paid down to 3 loans totaling $9,000 at March 31, 2022.
During the three months ended March 31, 2022, construction loans in process
increased by $6.1 million to $29.4 million at March 31, 2022 from $23.3 million
at December 31, 2021. Construction loans continue to be a large segment of our
portfolio which is a reflection of the strong housing demand in our primary
market area.

Deposits. Deposits increased $6.8 million, or 2.5%, to $281.7 million at March
31, 2022 from $274.9 million at December 31, 2021. Core deposits (defined as all
deposits other than certificates of deposit) increased $8.5 million, or 4.2%, to
$210.9 million at March 31, 2022 from $202.4 million at December 31, 2021.
Certificates of deposit decreased $1.9 million, or 2.6%, to $70.7 million at
March 31, 2022 from $72.6 million at December 31, 2021. At March 31, 2022, there
were no brokered deposits.

Advances from Federal Home Loan Bank. Advances from Federal Home Loan Bank
decreased by $518,000 or 1.9%, to $27.1 million at March 31, 2022 from $27.6
million at December 31, 2021 due to scheduled monthly payments of principal on
amortizing advances.

Total Shareholders' Equity. Total shareholders' equity decreased $2.0 million,
or 3.3%, to $58.1 million at March 31, 2022 from $60.1 million at December 31,
2021. This decrease was primarily due to a $2.5 million, or 364.1%, 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 March 31, 2022, this unrealized loss was $3.2 million, compared to
$686,000 at December 31, 2021, partially offset by net income of $391,000 for
the three months ended March 31, 2022. An additional $51,000 was added to
shareholders' equity with the commitment to release 3,258 additional ESOP shares
to participants.

At March 31, 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 March 31, 2022, a community
bank leverage ratio of at least 9.0% is required to be considered "well
capitalized" under regulatory requirements. At March 31, 2022, Mineola Community
Bank was well capitalized and had a ratio of 12.84%

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Average Balance Sheets
The following table sets forth average consolidated statements of financial
condition, 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 $112,000 and
$134,000 for the three months ended March 31, 2022 and 2021, respectively. No
PPP loans were originated during the three months ended March 31, 2022 or 2021.
We have not recorded deferred loan fees, as we have determined them to be
immaterial.

                                                                  For the 

Three months completed March, 31st,

                                                            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)               $     223,898    $    2,374      

4.24% $212,114 $2,397 4.52% Allowance for losses on loans and leases

             (1,593)                                      (1,562)
PPP loans                                            11             -             - %          1,367             4          1.17 %
Securities                                       94,207           373          1.58 %         47,761           178          1.48 %
Restricted stock                                  2,037             5          0.98 %          2,023             4          0.79 %
Interest-bearing deposits in banks                8,630             6      
   0.28 %         21,601            20          0.37 %
Federal funds sold                               18,617             9          0.19 %          3,258             -          0.12 %
Total interest-earning assets                   345,807         2,767          3.20 %        286,562         2,603          3.63 %
Noninterest-earning assets                       20,965                                       20,976
Total assets                              $     366,772                                $     307,538

Interest-bearing liabilities:
Interest-bearing demand deposits          $      74,143            61          0.33 %  $      62,055            54          0.35 %
Regular savings and other deposits               79,151            71      
   0.36 %         63,376            60          0.38 %
Money market deposits                            11,403             8          0.28 %          9,850            11          0.45 %
Certificates of deposit                          71,665           171          0.95 %         75,771           276          1.46 %
Total interest-bearing deposits                 236,362           311      
   0.53 %        211,052           401          0.76 %
Advances from FHLB                               27,236           144          2.11 %         30,407           160          2.10 %
Other liabilities                                   459             3          2.35 %            412             3          2.91 %
Total interest-bearing liabilities              264,057           458          0.69 %        241,871           564          0.93 %
Noninterest-bearing demand deposits              53,276                                       30,939
Other noninterest-bearing liabilities             3,205                                        2,620
Total liabilities                               320,538                                      275,430
Total shareholders' and members'
equity                                           46,234                                       32,108
Total liabilities and shareholders'
and members' equity                       $     366,772                                $     307,538
Net interest income                                        $    2,309                                   $    2,039
Net interest rate spread (1)                                                   2.51 %                                       2.70 %
Net interest-earning assets (2)           $      81,750                                $      44,691
Net interest margin (3)                                                        2.67 %                                       2.85 %
Average interest-earning assets to
interest-bearing liabilities                                                 130.96 %                                     118.48 %


The net interest rate spread represents the difference between the weighted average yield (1) of interest-bearing 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 operating results for the three months ended March 31, 2022
and March 31, 2021

Net Income. Net income was $391,000 for the three months ended March 31, 2022,
compared to net income of $242,000 for the three months ended March 31, 2021, an
increase of $149,000, or 61.6%. The increase was primarily due to a $270,000
increase in net interest income and a $70,000 increase in noninterest income,
partially offset by a $115,000 increase in noninterest expense, a $38,000
increase in the provision for loan and lease losses and an increase in income
tax expense of $38,000.

Interest Income. Interest income increased at $164,000, or 6.3%, for the
three months ended March 31, 2022. This was primarily the result of increased
interest income on securities and fed funds due primarily to the investment of
proceeds from the Conversion, but was offset by a decrease in loan interest
income of $23,000 due to decreased loan yield.

Interest income on loans was $2.4 million for the three months ended March 31,
2022 and 2021. Loan interest income remained flat with an $11.8 million, or
5.6%, increase in average loans from $212.1 million at March 31, 2021 to $223.9
million at March 31, 2022 being offset by a 28 basis point, or 6.2%, decrease in
loan yield to 4.24% for the three months ended March 31, 2022 from 4.52% for the
three months ended March 31, 2021.

Interest income on securities increased $195,000, or 109.6%, from $178,000 for
the three months ended March 31, 2021 to $373,000 for the three months ended
March 31, 2022. This increase resulted from an increase of 10 basis points, or
6.8%, in yield from 1.48% for the three months ended March 31, 2021 to 1.58% for
the three months ended March 31, 2022 and an increase in average securities of
$46.4 million, or 97.1 %, from $47.8 million for the three months ended March
31, 2021 to $94.2 million for the three months ended March 31, 2022. The rate
increase is reflective of the beginning of market rate increases and the
diversification of our securities portfolio as we continue to invest Conversion
proceeds into higher yielding investments.

Interest income from interest bearing deposits in banks declined $14,000, or
70.0%, from $20,000 for the three months ended March 31, 2021 to $6,000 for the
three months ended March 31, 2022. This decline resulted from a decrease of nine
basis points, or 24.9%, in average yield from 0.37% for the three months ended
March 31, 2021 to 0.28% for the three months ended March 31, 2022, combined with
a $13.0 million, or 60%, decrease in average deposits in banks from $21.6
million for the three months ended March 31, 2021 to $8.6 million for the
three months ended March 31, 2022. There was also an increase of $9,000 in fed
funds interest for the three months ended March 31, 2022 primarily from an
increase of seven basis points, or 57.5%, in average yield on fed funds from
0.12% for the three months ended March 31, 2021 to 0.19% for the three months
ended March 31, 2022, and a $15.3 million, or 463.6%, increase in average fed
funds from $3.3 million for the three months ended March 31, 2021 to $18.6
million for the three months ended March 31, 2022. This increase is reflective
of the increase in the fed funds market rate. Average interest earning assets
increased by $59.2 million, or 20.7%, from $286.6 million at March 31, 2021 to
$345.8 million at March 31, 2022, which was offset by a decrease in the yield on
interest earning assets of 43 basis points, or 11.9%, from 3.63% on March 31,
2021 to 3.20% on March 31, 2022.

Interest Expense. Total interest expense decreased $106,000, or 18.8%, to
$458,000 for the three months ended March 31, 2022 from $564,000 for the
three months ended March 31, 2021 due to a decrease in the average cost of
interest-bearing liabilities of 24 basis points, or 25.6 %, from 0.93% for the
three months ended March 31, 2021 to 0.69% for the three months ended March 31,
2022, primarily due to a decrease in deposit costs. Interest expense on deposit
accounts decreased $90,000, or 22.4%, to $311,000 for three months ended March
31, 2022 from $401,000 for the three months ended March 31, 2021, due to a
decrease in the average deposit cost of 23 basis points, or 30.7%, from 0.76%
for the three months ended March 31, 2021 to 0.53% for the three months ended
March 31, 2022, primarily the result of an overall decrease in market interest
rates. This was partially offset by an increase of $25.3 million, or 12.0%, in
the average deposit account balances from $211.1 million for the three months
ended March 31, 2021 to $236.4 million for the three months ended March 31,
2022, with the increase being in lower cost interest-bearing transaction
accounts.

Interest expense on Federal mortgage bank advances have decreased $16,000i.e. 10.0%, at $144,000 for the three months ended March 31, 2022 from $160,000 for the three months ended March 31, 2021. This decrease was due

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primarily to the decrease in the average balance of Federal Home Loan Bank
advances of $3.2 million, or 10.4%, to $27.2 million for the three months ended
March 31, 2022 from $30.4 million for the three months ended March 31, 2021. The
average rate was flat at 2.11% for the three months ended March 31, 2022 and
2.10% for the three months ended March 31, 2021.

Net Interest Income. Net interest income increased $270,000, or 13.2%, to $2.3
million for the three months ended March 31, 2022 from $2.0 million for the
three months ended March 31, 2021 primarily due to a decrease in the average
cost of funds of 24 basis points, or 25.6%, from 0.93% for the three months
ended March 31, 2021 to 0.69% for the three months ended March 31, 2022 combined
with an increase in the average balance of net interest-earning assets from
$44.7 million for the three months ended March 31, 2021 to $81.7 million for the
three months ended March 31, 2022, which offset a 19 basis point, or 7.2%,
decrease in the net interest rate spread from 2.70% for the three months ended
March 31, 2021 to 2.51% for the three months ended March 31, 2022. Net interest
margin decreased 18 basis points, or 6.2%, to 2.67% for the three months ended
March 31, 2022 from 2.85% for the three months ended March 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 was $40,000 for the three months ended March 31, 2022, compared to
$2,000 for the three months ended March 31, 2021, an increase of $38,000,
primarily due to an increase in loan volume.

Noninterest Income. Noninterest income decreased $70,000, or 18.3%, to $453,000
for the three months ended March 31, 2022 from $383,000 for the three months
ended March 31, 2021, due primarily to an increase of $68,000, or 19.3%, in
service charges and fees from $353,000 for the three months ended March 31, 2021
to $421,000 for the three months ended March 31, 2022. The increase is partially
due to an increase in the number of deposit accounts combined with increased ATM
use.

Noninterest Expense. Noninterest expense increased $115,000, or 5.4%, to $2.2
million for the three months ended March 31, 2022 from $2.1 million for
the three months ended March 31, 2021 primarily due to increases in salaries and
employee benefits, director fees and other expenses partially offset by
decreases in contract services and data processing.

Salary and employee benefit expenses increased by $132,000, or 10.7%, to $1.4
million for the three months ended March 31, 2022 from $1.2 million for the
three months ended March 31, 2021, due to normal salary increases and an
increase in health insurance cost, as well as the additional $51,000 expense for
the quarter for the ESOP plan that was not in existence in 2021. Directors' fees
also increased $21,000, or 28.0%, to $96,000 for the three months ended March
31, 2022 from $75,000 for the three months ended March 31, 2021 due to the
addition of four new directors and two new advisory directors. These increases
were partially offset by decreases in data processing, contract services and
other expenses. These expenses were higher in the three months ended March 31,
2021 due partially to additional expenses related to the Conversion.

Income Tax Expense. Income tax expense increased by $38,000, or 76.0%, to
$88,000 for the three months ended March 31, 2022 from $50,000 for the
three months ended March 31, 2021, primarily due to higher income before taxes.
The effective tax rate was 18.4% and 17.1% for the three months ended March 31,
2022 and 2021, respectively.

Cash 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 March 31, 2022, we had outstanding advances of $27.1
million from the Federal Home Loan Bank of Dallas. At March 31, 2022, we had
unused borrowing capacity of $106.3 million with the Federal Home Loan Bank
of
Dallas. In addition,

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at March 31, 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 March
31, 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
three months ended March 31, 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 March 31, 2022, Texas
Community Bancshares, Inc. (on a stand-alone, unconsolidated basis) had liquid
assets of $13.4 million.

At March 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.

Market risk management

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 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:

? maintain capital levels above the thresholds of well-capitalized companies

status under federal regulations;

? maintain a high level of liquidity;

? increase our base deposit account volume;

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? manage our portfolio of marketable securities so as to reduce the

maturity and effective life of the portfolio;

the management of our borrowings from the Federal Home Loan Bank of Dallas using

? amortize advances so as to reduce average loan maturities;

and

? continue to diversify our loan portfolio by adding more

loans, which generally have shorter maturities and/or lump sum payments.

By following these strategies, we believe we are in a better position to react to rising and falling market interest rates.

We did not engage in hedging activities, such as futures or options. We do not expect to enter 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 show the calculation of the estimated changes in our monthly net interest income that would result from designated immediate changes in United States Treasury yield curve.

                             At March 31, 2022
Change in Interest Rates    Net Interest Income Year     Year 1 Change from
   (basis points) (1)              1 Forecast                  Level
                          (Dollars in thousands)
          400               $                   7,800               (11.96) %
          300                                   8,120                (8.34) %
          200                                   8,441                (4.72) %
          100                                   8,690                (1.91) %
         Level                                  8,859                     -
         (100)                                  9,031                  1.94 %
         (200)                                  8,983                  1.39 %

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

The table above indicates that at March 31, 2022in the event of an instantaneous 200 basis point parallel rise in interest rates, we would experience a 4.72% decline in net interest income, and in the event of an instantaneous 200 basis point decline in interest rates, we would experience a 1.39% increase 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.

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

                                         At March 31, 2022
                                                                        EVE as a Percentage of
                                                                      Present Value of Assets (3)
                                            Estimated Increase                          Increase
   Change in Interest        Estimated       (Decrease) in EVE                         (Decrease)

Rate (basis points) (1) EVE (2) Amount Percentage EVE Ratio (4) (basis points)

                                      (Dollars in thousands)
          400               $    56,665    $ (11,313)    (16.64) %          17.58 %            (88)
          300                    60,249       (7,729)    (11.37) %          18.04 %            (42)
          200                    63,870       (4,108)     (6.04) %          18.45 %             (1)
          100                    66,756       (1,222)     (1.80) %          18.65 %              19
         Level                   67,978             -          - %          18.46 %               -
         (100)                   69,311         1,333       1.96 %          18.21 %            (25)
         (200)                   68,036            58       0.09 %          17.43 %           (103)

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

(2) EVE is the discounted present value of the expected cash flows of the assets,

off-balance sheet liabilities and contracts.

(3) The present value of assets represents the present value of inflows

cash flow on interest-earning assets.

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


The table above indicates that at March 31, 2022, in the event of an
instantaneous parallel 200 basis point increase in interest rates, we would
experience a 6.04% decrease in EVE, and in the event of an instantaneous 200
basis point decrease in interest rates, we would experience a 0.09% 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 may also not reflect the fair values ​​of financial instruments. For example, a decline in market interest rates may increase the fair value of our loans, mortgage servicing rights, deposits and borrowings.

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