ESBD_493477_1772556533268_Attachment 3.pdf

TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS

Basic Financial Statements For the Year Ended August 31, 2025

(With Independent Auditor’s Report Thereon)

TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS

221 E. 11th St., Austin, TX 78701 PO Box 13941, Austin, TX 78711

Main Phone: 512-475-3800 Toll Free: 1-800-525-0657

Email: info@tdhca.texas.gov Web: www.tdhca.texas.gov

Equal Opportunity Employer/Program. Auxiliary aids and services are available upon request to individuals with disabilities. Relay Texas: 800-735-2989 (TTY) and 711 (Voice).

This Page Intentionally Left Blank

221 East 11th Street P.O. Box 13941 Austin, Texas 78711-3941 (800) 525-0657 (512) 475-3800

TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS

www.tdhca.texas.gov

Greg Abbott

GOVERNOR

BOARD MEMBERS

Leo Vasquez, Chair

Kenny Marchant, Vice Chair Cindy Conroy, Member

Anna Maria Farías, Member Holland Harper, Member

Ajay Thomas, Member

December 15, 2025

Writer’s direct dial: (512) 475-3296 Email: bobby.wilkinson@tdhca.texas.gov

The Honorable Greg Abbott, Governor Kelly Hancock, Acting Texas Comptroller Jerry McGinty II, Executive Director, Legislative Budget Board Lisa Collier, State Auditor

RE: ANNUAL FINANCIAL REPORT

Dear Governor Abbott, Acting Comptroller Hancock, Mr. McGinty, and Ms. Collier:

We are pleased to submit the Annual Financial Report of the Texas Department of Housing and Community Affairs for the fiscal year ended August 31, 2025, in compliance with TEX. GOV’T CODE §2101.011 and in accordance with the requirements established by the Texas Comptroller of Public Accounts.

The accompanying annual financial report has been prepared in accordance with GAAP reporting requirements.

The financial report has been audited by an independent auditor as required by statute.

If you have any questions, please contact David Cervantes, Director of Administration, at (512) 475-3875. Cristina Ortega may be contacted at (512) 475-4972 for questions related to the Schedule of Expenditures of Federal Awards.

Sincerely, Robert Wilkinson Executive Director

RW/jg

Texas Department of Housing and Community Affairs

Table of Contents INDEPENDENT AUDITOR’S REPORT ............................................................................................ I

MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) ................................................... V

MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) ....................................................................V

BASIC FINANCIAL STATEMENTS

EXHIBIT I: STATEMENT OF NET POSITION – GOVERNMENT-WIDE

EXHIBIT II: STATEMENT OF ACTIVITIES – GOVERNMENT-WIDE

EXHIBIT III: STATEMENT OF NET POSITION – GOVERNMENTAL FUND

EXHIBIT IV: STATEMENT OF REVENUES, EXPENDITURES, & CHANGES IN FUND BALANCES - GOVERNMENTAL FUND

EXHIBIT V: STATEMENT OF NET POSITION – PROPRIETARY FUND

EXHIBIT VI: STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION – PROPRIETARY FUND

EXHIBIT VII: STATEMENT OF CASH FLOWS – PROPRIETARY FUND

EXHIBIT VIII: STATEMENT OF FIDUCIARY NET POSITION

EXHIBIT IX: STATEMENT OF CHANGES IN FIDUCIARY NET POSITION

NOTES TO THE FINANCIAL STATEMENTS

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)

SCHEDULE OF CHANGES IN DEPARTMENT’S NET PENSION LIABILITY (UNAUDITED)

SCHEDULE OF EMPLOYER CONTRIBUTIONS (UNAUDITED)

SUMMARY OF ACTUARIAL ASSUMPTIONS (UNAUDITED)

SCHEDULE OF CHANGES IN DEPARTMENT’S NET OPEB LIABILITY (UNAUDITED)

SCHEDULE OF EMPLOYER CONTRIBUTIONS (UNAUDITED)

SUMMARY OF ACTUARIAL ASSUMPTIONS (UNAUDITED)

SUPPLEMENTARY BOND SCHEDULES

SCHEDULE 1-A: MISCELLANEOUS BOND INFORMATION

SCHEDULE 1-B: CHANGES IN BOND INDEBTEDNESS

SCHEDULE 1-C: DEBT SERVICE REQUIREMENTS (PRINCIPAL & INTEREST)

SCHEDULE 1-D: ANALYSIS OF FUNDS AVAILABLE FOR DEBT SERVICE

SCHEDULE 1-F: EARLY EXTINGUISHMENT AND REFUNDING

INDEPENDENT AUDITOR’S REPORT

INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE

AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH

GOVERNMENT AUDITING STANDARDS

INDEPENDENT AUDITOR’S

REPORT

Lisa R. Collier, CPA, CFE, CIDA, State Auditor

Robert E. Johnson Building

1501 N. Congress Avenue Austin, Texas 78701

P.O. Box 12067 Austin, Texas 78711-2067

Phone:

(512) 936-9500

Fax:

(512) 936-9400

Internet:

www.sao.texas.gov

Independent Auditor’s Report

Department of Housing and Community Affairs Board of Directors Mr. Leo Vasquez III, Chair Mr. Kenny Marchant, Vice Chair Ms. Cindy Conroy Ms. Anna Maria Farias Mr. Holland Harper Mr. Ajay Thomas

Report on the Audit of the Financial Statements

Opinions

We have audited the financial statements of the governmental activities, the business-type activities, the governmental fund, the proprietary fund, and the aggregate remaining fund information of the Department of Housing and Community Affairs (Department), a component unit of the State of Texas, as of and for the year ended August 31, 2025, and the related notes to the financial statements, which collectively comprise the Department’s basic financial statements as listed in the table of contents.

In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the governmental fund, the proprietary fund, and the aggregate remaining fund information of the Department, as of August 31, 2025, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinions

We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Department, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

SAO Report No. 26-308

Cristina Ortega Typewriter i

Emphasis of Matters

Department Financial Statements

As discussed in Note 1, the financial statements of the Department, are intended to present the financial position, the changes in financial position and, where applicable, cash flows of only that portion of the governmental activities, the business-type activities, the governmental fund, the proprietary fund, and the aggregate remaining fund information of the State that is attributable to the transactions of the Department. They do not purport to, and do not, present fairly the financial position of the State of Texas as of August 31, 2025, the changes in its financial position, or, where applicable, its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Department’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS and Government Auditing Standards, we:

• exercise professional judgment and maintain professional skepticism throughout the audit;

Cristina Ortega ii

• identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements;

• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Department’s internal control.

Accordingly, no such opinion is expressed;

• evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements; and

• conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Department’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, the Schedule of Changes in the Department’s Net Pension Liability, the Schedule of Changes in the Department’s Net OPEB Liability, the Schedules of Employer Contributions, and the Notes to the Required Supplementary Information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with GAAS, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Cristina Ortega iii

Supplementary Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Department’s basic financial statements. The supplementary bond schedules are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with GAAS. In our opinion, the supplementary bond schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated

December 15, 2025, on our consideration of the Department’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Department’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the

Department’s internal control over financial reporting and compliance.

Lisa R. Collier Lisa R. Collier, CPA, CFE, CIDA State Auditor

December 15, 2025

Cristina Ortega iv

MANAGEMENT’S DISCUSSION

AND ANALYSIS (UNAUDITED)

Management’s Discussion and Analysis (Unaudited) v

Management’s Discussion and Analysis (Unaudited)

TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS

MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED)

This section of the Texas Department of Housing and Community Affairs’ (Department) annual financial report presents management’s discussion and analysis of the Department’s financial performance during the fiscal year that ended on August 31, 2025. Please read it in conjunction with the Department’s financial statements, which follow this section.

The Department was created to assist local governments in helping residents overcome financial, social and environmental problems; to address very low to moderate income housing needs; to contribute to the preservation and redevelopment of neighborhoods and communities; to assist the Governor and the Legislature in coordinating federal and state programs affecting local governments; and to continually inform the state and the public about the needs of local government.

The Manufactured Housing Division is administratively attached to the Department and is responsible for establishing standards and requirements for the construction and installation of manufactured housing that are reasonably necessary to protect the health, safety and welfare of the occupants of such housing and the general public. The Manufactured Housing Division has a governing Board of five members appointed by the Governor.

The Department is governed by a Board, composed of seven members, all of whom are appointed by the Governor with the advice and consent of the Texas Senate.

Financial Highlights

The Department’s business-type activities net position increased $41.3 million and governmental activities net position increased $67.1 million.

The Department’s business-type activities increase of $41.3 million in Net Position can be attributed to an increase of $26.2 million in Restricted Net Position primarily as a result of activity within the Single Family and Residential Mortgage Revenue Bond indentures and an increase in Unrestricted Net Position of $14.6 million primarily related to the impact of the Department’s recognition of its proportionate share of the Pension and OPEB liabilities as reported by the Employees Retirement System of Texas (ERS) plan and activity within the Housing Initiatives Programs.

Net Position in the Department’s governmental activities increased $67.1 million to $609.3 million, which can be attributed to an increase of $57.5 million in Restricted Net Position and an increase of $8.1 million in Unrestricted Net Position primarily related to the impact of the Department’s recognition of its change in proportionate share of the OPEB and pension liability reported by the ERS plan.

The Department’s debt outstanding of $3.4 billion as of August 31, 2025, increased $309.5 million due to $425.0 million in new debt issuances offset by debt retirements of $118.6 million.

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The Department’s short-term debt of $33.7 million decreased $18.6 million due to advances due to the Federal Home Loan Bank of Dallas as of the end of the fiscal year. Advances are drawn to purchase mortgage loans prior to pooling the loans into a mortgage-back security (MBS). With each MBS settlement, the advances are repaid related to the loans underlying the MBS. For additional information, see Note 4, Short-term debt.

Loan originations in the Department’s proprietary and governmental funds for the year totaled $529.3 million and $77.7 million, respectively.

In accordance with Governmental Accounting Standards Board Statement (GASB) No. 53, Accounting and Financial Reporting for Derivative Instruments, the Department identified its derivative instruments, measured their effectiveness, and reported the derivative instruments at fair value. The Department’s interest rate swaps, which were primarily used to hedge changes in interest rates, are considered to be derivative instruments under GASB 53. It requires the fair value of a derivative instrument to be reported at the end of the fiscal year in the statement of net position and GASB No. 72, Fair Value Measurement and Application, requires the fair value of a derivative instrument to be computed taking into account nonperformance risk. As of August 31, 2025, the Department’s two interest rate swaps had a total notional amount of $6.1 million and a negative $408.4 thousand fair value which was recorded in the deferred outflow of resources account and as a derivative instrument swap liability.

In accordance with GASB No. 68, Accounting and Financial Reporting for Pensions, the Department has recorded a net pension liability. It has relied on reports issued by ERS who is the administrator of the plan. The Department has reported its proportionate share of the pension liability according to their reports in the amount of $26.1 million of which $13.0 million is reported in business-type activities and $13.0 million in governmental activities.

In accordance with GASB No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, the Department has recorded a net OPEB liability. It has relied on reports issued by ERS who is the administrator of the plan. The Department has reported its proportionate share of the OPEB liability according to their reports in the amount of $47.0 million of which $23.5 million is reported in business-type activities and $23.5 million in governmental activities.

The Department was allocated $4.1 billion in federal grants in response to the COVID-19 pandemic through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Consolidated Appropriation Act of 2021, and the American Rescue Plan Act (ARPA). In comparison to fiscal year 2024, the conclusion of various grants have led to significant decreases in federal revenues and corresponding program expenditures along with general administrative expenditures.

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Overview of the Financial Statements

The financial statements consist of three parts – management’s discussion and analysis (this section), the basic financial statements, and supplementary information. The basic financial statements include two types of statements that present different views of the Department.

The first sets of statements are government-wide financial statements that provide information about the Department’s overall financial position and results. These statements, which are presented on an accrual basis, consist of the Statement of Net Position and the Statement of Activities.

The remaining statements are fund financial statements of the Department’s governmental, fiduciary and proprietary funds. The governmental funds activities are funded primarily from federal funds and General Revenue appropriations for which the Department follows a modified accrual basis of accounting. The Department’s proprietary fund operates similar to business activities and follows an accrual basis of accounting.

The basic financial statements also include a “Notes to Financial Statements” section which explains the information presented in the government-wide and fund financial statements and provides additional detailed data.

The Notes to the Financial Statements are followed by the Required Supplementary Information which includes the Schedule of Changes in Department’s Net Pension Liability, Schedule of Changes in Department’s Net OPEB Liability and the Supplementary Bond Schedules that present detailed bond information.

The remainder of this overview section of the management’s discussion and analysis explains the structure and contents of each of these statements.

Government-Wide Financial Statements

The Statement of Net Position shows governmental activities and business-type activities presented on a full accrual basis. The Statement of Activities presents a government-wide format of expenses, charges for services, operating grants, contributions and net expenses by both governmental activities and business-type activities. Both activities are further broken down by function and programs. The second section of the Statement of Activities shows general revenues not associated with a particular program but provides resources for the Department’s programs and operations. The fiduciary activity is not included in the government-wide statements.

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Statement of Net Position

The following tables show a summary of changes from prior year amounts.

Governmental Activities

Assets 2025 2024 Amount % Current Assets:

Cash and Cash Equivalents 137,548,184$ 170,584,128$ (33,035,944)$ (19.4) Federal Receivables 4,633,559 23,343,739 (18,710,180) (80.2) Legislative Appropriations 9,525,844 7,367,952 2,157,892 29.3 Current Loans and Contracts 21,443,629 18,033,669 3,409,960 18.9 Other Current Assets 392,454 (213,266) 605,720 (284.0) Non-current Assets:

Loans and Contracts 539,618,327 495,571,969 44,046,358 8.9 Capital Assets 1,887,034 371,986 1,515,048 407.3 Total Assets 715,049,031 715,060,177 (11,146) (0.0)

DEFERRED OUTFLOWS OF RESOURCES 12,181,030 12,632,558 (451,528) (3.6)

Liabilities Current Liabilities:

Accounts Payable 7,409,941 25,528,932 (18,118,991) (71.0) Unearned Revenues 61,940,012 106,448,618 (44,508,606) (41.8) Net OPEB Liability 1,106,916 906,515 200,401 22.1 Other Current Liabilities 3,984,803 2,682,095 1,302,708 48.6 Non-Current Liabilities:

Net Pension Liability 13,046,011 15,177,563 (2,131,552) (14.0) Net OPEB Liabilities 22,392,354 20,608,592 1,783,762 8.7 Other Non-current Liabilities 863,577 645,162 218,415 33.9 Total Liabilities 110,743,614 171,997,477 (61,253,863) (35.6)

DEFERRED INFLOWS OF RESOURCES 7,157,330 13,466,570 (6,309,240) (46.9)

Net Position Invested in Capital Assets 1,887,034 371,986 1,515,048 407.3 Restricted 634,772,321 577,316,958 57,455,363 10.0 Unrestricted (27,330,238) (35,460,256) 8,130,018 (22.9) Total Net Position 609,329,117$ 542,228,688$ 67,100,429$ 12.4

Texas Department of Housing and Community Affairs Governmental Activities

Condensed Statement of Net Position

Governmental Activities Increase / (Decrease)

Net position of the Department’s governmental activities increased $67.1 million, or 12.4% to $609.3 million. The change is due to an increase of $57.5 million in Restricted Net Position and an increase of $8.1 million in Unrestricted Net Position. The increase in Unrestricted Net Position is primarily from recording the impact of the net pension liability and OPEB liability as required by GASB 68 and GASB 75.

Cash and Cash Equivalents decreased by $33.0 million. The decrease is primarily due to the increase of intergovernmental payments and public assistance payments for the Emergency Rental Assistance (ERA), Homeowners Assistance Fund (HAF), HOME and CDBG.

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Governmental Activities Cont’d

Loans and contracts increased $47.5 million. The variance primarily represents the receipts of loan repayments, disbursements for funding of loans and an adjustment of $2.5 million for estimated losses of the portfolio for the year. During the fiscal year, National Housing Trust Fund (NHTF) loans increased approximately $37.3 million and the HOME loans increased $18.4 million due to increased funding of loans offset by minimal scheduled repayments received during the year. The Tax Credit Assistance Program (TCAP) decreased $7.4 million and the Neighborhood Stabilization Program (NSP) decreased $3.3 million primarily due to more loan repayments than loans funded for these programs.

Accounts payable decreased by $18.1 million or 71.0% primarily due to the nearing conclusion of grants awarded through the CARES Act, the Consolidated Appropriation Act of 2021 and the American Rescue Plan Act for COVID-19 assistance. Federal receivables had a decrease of $18.7 million in relation to these accruals as funds are due from federal grants.

The balance in unearned revenues decreased by $44.5 million. The change is primarily associated with cash previously recognized as unearned revenues received from the US Treasury for the Emergency Rental Assistance and Homeowners Assistance Fund COVID-19 grants being expended during the fiscal year.

Other current liabilities are primarily payroll payables. Also, included in other non-current liabilities is the employees’ compensable leave, which represents unpaid balances of employees’ accumulated annual leave.

A net pension liability was recognized in accordance to GASB 68 and a net OPEB liability was recognized in accordance to GASB 75 in which the Department was required to recognize its proportionate share of the amount reported by the Employees Retirement System, the administrator of the plan. The $2.1 million decrease in pension liability and $2.0 million increase in OPEB liability had an impact on the increase of $8.1 million in unrestricted net position, $451.5 thousand decrease in the Deferred Outflows of Resources and $6.3 million decrease in the Deferred Inflows of Resources.

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Business-Type Activities

Business-Type Activities Increase / (Decrease)

Assets 2025 2024 Amount % Current Assets:

Cash & Investments 387,673,009$ 530,661,476$ (142,988,467)$ (26.9) Loans and Contracts 3,230,864 66,170,418 (62,939,554) (95.1) Interest Receivable 16,876,002 12,876,992 3,999,010 31.1 Other Current Assets 22,341,082 14,681,231 7,659,851 52.2 Non-current Assets:

Investments 3,198,357,661 2,672,570,746 525,786,915 19.7 Loans and Contracts 398,523,691 402,630,155 (4,106,464) (1.0) Capital Assets 1,042,413 496,763 545,650 109.8 Other Non-current Assets 20,614 20,614 - - Total Assets 4,028,065,336 3,700,108,395 327,956,941 8.9

DEFERRED OUTFLOWS OF RESOURCES 12,589,383 12,959,247 (369,864) (2.9)

Liabilities Current Liabilities:

Interest Payable 47,319,498 46,491,343 828,155 1.8 Bonds Payable 61,990,063 51,198,135 10,791,928 21.1 Short-Term Debt 33,695,000 52,298,439 (18,603,439) (35.6) Net OPEB Liability 1,106,916 906,515 200,401 22.1 Other Current Liabilities 13,524,545 12,411,629 1,112,916 9.0 Non-current Liabilities:

Net Pension Liability 13,046,011 15,177,563 (2,131,552) (14.0) Net OPEB Liability 22,392,354 20,608,592 1,783,762 8.7 Bonds Payable 3,359,613,412 3,060,867,159 298,746,253 9.8 Notes and Loans Payable 10,000,000 10,000,000 - - Derivative Hedging Instrument 408,353 326,689 81,664 25.0 Other Non-current Liabilities 755,357 967,743 (212,386) (21.9) Total Liabilities 3,563,851,509 3,271,253,807 292,597,702 8.9

DEFERRED INFLOWS OF RESOURCES 7,157,330 13,466,570 (6,309,240) (46.9)

Net Position Invested in Capital Assets 1,042,413 496,763 545,650 109.8 Restricted 380,260,241 354,097,870 26,162,371 7.4 Unrestricted 88,343,226 73,752,632 14,590,594 19.8 Total Net Position 469,645,880$ 428,347,265$ 41,298,615$ 9.6

Texas Department of Housing and Community Affairs Business-Type Activities

Condensed Statement of Net Position

Net position of the Department’s business-type activities increased $41.3 million, or 9.6%, to $469.6 million. Restricted net position of the Department’s proprietary fund increased $26.2 million or 7.4%.

These restrictions are related to bond covenants and do not significantly affect the availability of resources for future use. The unrestricted net position increased $14.6 million or 19.8% primarily due the impact of the Department’s proportionate share of OPEB and pension liability as part of the ERS Plan and activity within the Housing Initiative Programs.

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Business Type Activities Cont’d

Cash and investments increased $382.8 million, or 12.0%, to $3.6 billion, which is reflective of proceeds from bond issuances, fee collections, and interest earnings offset by the liquidation of investments to pay down bonds, and the change in fair value of investments.

Program loans receivable (current and non-current) decreased $67.0 million, or 14.3%, to $401.8 million, due primarily to loan activity related to the Housing Trust Fund, down payment assistance loans forgiven, and the Department is no longer posting daily loans as collateral against the advances line of credit.

The Department has $3.4 billion in bonds outstanding related to its revenue bonds. The Department’s Single Family and Residential Mortgage Revenue Bonds have been rated AA+ by Standard & Poor’s. Total bonds payable (current and non-current) increased by $309.5 million, or 9.9%, due to bond issuances and redemptions in the Single Family and Residential Mortgage Revenue Bond programs. For more information on the Department’s debt, refer to Note 6.

Statement of Activities

The Statement of Activities reflects the sources of the Department’s changes in net position as they arise through its various programs and functions. Single Family and Housing Trust Fund are shown as business-type activities, and other state and federal programs are shown as governmental activities. Federal and state assistance activities allocate various subsidy funds to local governments, nonprofit organizations or individuals.

A condensed Statement of Activities for the fiscal years ended August 31, 2025 and 2024 is shown in the table below.

Change

2025 2024 2025 2024 2025 2024

Program Revenues:

Charges for Services 8,075$ 7,838$ 239,089$ 199,597$ 247,164$ 207,435$ 19.2 Operating Grants and Contributions 437,118 699,847 - - 437,118 699,847 (37.5) Total Revenue 445,193 707,685 239,089 199,597 684,282 907,282 (24.6)

Total Expenses: 393,981 654,176 202,981 174,566 596,962 828,742 (28.0) Net Revenue 51,212 53,509 36,108 25,031 87,320 78,540 11.2 General Revenues 21,101 10,893 3,103 55,900 24,204 66,793 (63.8) Transfers (5,213) (6,770) 2,087 2,049 (3,126) (4,721) (33.8) Change in Net Position 67,100 57,632 41,298 82,980 108,398 140,612 (22.9)

Beginning Net Position 542,229 484,597 428,347 345,367 970,576 829,964 16.9 Restatement - - - - - - - Beginning Net Position, Restated 542,229 484,597 428,347 345,367 970,576 829,964 16.9

Ending Net Position 609,329$ 542,229$ 469,645$ 428,347$ 1,078,974$ 970,576$ 11.2

Texas Department of Housing and Community Affairs Condensed Statement of Activities

(In Thousands)

Activities Activities Total Governmental Business-Type xii

Governmental Activities

Revenues of the Department’s governmental activities were received primarily from operating grants and contributions. The majority of the revenues were from the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of Health and Human Services (HHS) and the U.S. Treasury.

General Revenues are revenues appropriated to the Department in accordance with legislative acts and regulations.

Total program revenues decreased $262.5 million. This change consisted primarily of decreases in operating grants and contributions primarily as a result of a decrease of $192.7 million in HAF, $16.2 million in ERA funding, $57.3 million in LIHEAP, and $24.1 million in LIHWAP, offset by an increase of $20.2 million in NHTF funding.

Expenses of the Department’s governmental activities consisted primarily of intergovernmental payments and public assistance payments. The Department distributes program funds to local providers, including local governments, nonprofit and for-profit organizations, community based organizations and real estate developers. Total expense for these categories declined as a result of decreases of $180.7 million for HAF, $16.9 million for ERA, $58.1 million for LIHEAP, $5.9 million for ESG, offset by increases of $16.9 million for HOME, $5.3 million for CDBG, and $2.6 million for DOE.

Transfers include the transfer for the State Housing Trust Fund from General Revenue to the Texas Treasury Safekeeping Trust Company and of earned federal funds to the State Comptroller’s Office.

Net position is primarily composed of restricted net position of non-operational grants. These restrictions, commitments or limitations will not significantly affect the availability of fund resources for future use.

Business-Type Activities

Revenues of the Department’s business-type activities were primarily from charges for services of $239.1 million and an increase in fair value of investments of $7.8 thousand. Charges for services consist primarily of earned interest income on loans for the three housing lending programs. It also includes program investment income which is earned within the Department’s bond programs; the investments and the income which are restricted to those programs by a pledge to the respective bond indentures. Total charges for services increased $39.5 million which is primarily attributed to activity within the single family indentures.

Expenses of the Department’s business-type activities consist primarily of interest expense of $135.0 million which increased $25.7 million and other operating expenses of $62.3 million which increased $1.9 million. The increase in interest expense is a result of new bond issuances offset by the impact of an increase of the frequency in the retirement of the Department’s bonds and lower interest rates related to the Department’s variable rate debt. The increase in other operating expenses is primarily related to an increase in servicer related expenses. Other operating expenses also include general and administrative expenses, allocations involving production or monitoring activities of the Department, as well as internal and external costs.

xiii

Business-Type Activities Cont’d

The Department’s business-type activities charges for services of $239.1 million exceeded expenses of $203.0 million by $36.1 million. Charges for services, primarily interest income on loans and investment income, are intended to cover bond principal and interest expense as required by the bond indenture covenants. The charges for services also cover other direct expenses.

Fund Financial Statements

The fund financial statements provide more detailed information about the Department’s most significant funds and the Department as a whole. The Department has three types of funds:

Governmental fund – The General Revenue Fund is the Department’s only governmental fund. It is the principal operating fund used to account for the Department’s general activities. The financing for this fund is authorized through state legislative appropriations either as committed or collected revenues. Federal and state programs are also reported within this fund. The Condensed Statement of Net Position - Governmental Fund would be substantially the same as the Condensed Statement of Net Position - Governmental-Activities; therefore, it is not included.

Proprietary fund – The Department’s activities in its proprietary fund are accounted for in a manner similar to businesses operating in the private sector. Funding has primarily arisen through the issuance of taxable and tax-exempt bonds whose proceeds are used primarily to fund various types of loans to finance low and moderate-income housing. This fund also receives fee income from the Multifamily Tax Credit Program and compliance fees collected for the purpose of covering the operating costs of the Department. The net position of these funds represents accumulated earnings since their inception and is generally restricted for program purposes or debt service. The Condensed Statement of Net Position - Proprietary Fund would be substantially the same as the Condensed Statement of Net Position – business-type activities; therefore, it is not included.

Fiduciary Fund – The Department has implemented GASB 84, Fiduciary Activities, in order to identify and properly report any activities that are classified as Fiduciary. The fiduciary fund is used to account for the assets held for distribution by the state as an agent for another entity for which the government has custodial responsibility and accounts for the flow of assets which are in an escrow account.

xiv

Governmental Fund

OPERATING REVENUES 2025 2024 Amount % Legislative Appropriations 13,548,464 11,835,219 1,713,245$ 14.5 Federal Revenues 437,039,130 699,769,986 (262,730,856) (37.5) Other Revenue 16,228,519 7,194,413 9,034,106 125.6 Total Operating Revenues 466,816,113 718,799,618 (251,983,505) (35.1)

OPERATING EXPENDITURES

Salaries and Wages 19,349,501 18,289,183 1,060,318 5.8 Professional Fees and Services 6,683,582 15,103,765 (8,420,183) (55.7) Intergovernmental Payments 115,336,658 117,013,312 (1,676,654) (1.4) Public Assistance Payments 243,635,945 503,733,946 (260,098,001) (51.6) Other Operating Expenditures 15,930,909 11,377,900 4,553,009 40.0 Total Operating Expenditures 400,936,595 665,518,106 (264,581,511) (39.8)

Excess of Revenues over Expenditures 65,879,518 53,281,512 12,598,006 23.6

Other Financing Sources (Uses) (5,213,003) (6,769,991) 1,556,988 (23.0)

CHANGE IN FUND BALANCE 60,666,515 46,511,521 14,154,994 30.4

Beginning Fund Balance 580,991,585 534,703,471 46,288,114 8.7 Appropriations (Lapsed) (523,331) (223,407) (299,924) 134.3 Ending Fund Balance 641,134,769 580,991,585$ 60,143,184$ 10.4

Texas Department of Housing and Community Affairs Governmental Fund

Condensed Statements of Revenues, Expenditures and Changes in Fund Balances

Increase / (Decrease)

Revenues of the Department’s governmental fund totaled $466.8 million. These revenues were primarily federal grants related to LIHEAP, HOME, ERA, NHTF and CSBG programs. Expenditures of $400.9 million primarily consisted of intergovernmental and public assistance payments.

Total revenues of the governmental fund decreased by $252.0 million primarily due to the ending of the LIHWAP grant, nearing conclusion of ERA and HAF grants received through COVID-19 legislation and LIHEAP grant.

xv

Governmental Fund Cont’d

The Department experienced a decrease in Intergovernmental Payments of $1.7 million and a decrease in Public Assistance Payments of $260.1 million. These changes were primarily in the ERA, HAF, HOME, LIHEAP, LIHWAP, CSBG, and HHSP programs. Public Assistance payments related to HAF decreased $180.7 million and ERA decreased $16.9 million due to the programs nearing its conclusion.

Other Financing Sources (Uses) consisted primarily of the transfer of Housing Trust Fund (HTF), including interest earnings and loan repayments from General Revenue to the Texas Treasury Safekeeping Trust Company (TTSTC). There were also transfers of earned federal funds and Manufactured Housing revenues.

The following graphs illustrate a comparison between fiscal year 2024 and 2025 for federal revenues, intergovernmental and public assistance payments related to the grants of the Department. The acronyms used in the graphs are defined as follows:

ERA Emergency Rental Assistance Program ESG Emergency Solutions Grants Program HAF Homeowners Assistance Fund Program HOME HOME Investment Partnerships Program CDBG Community Development Block Grant Program LIHEAP Low-Income Home Energy Assistance Program LIHWAP Low-income Household Water Assistance Program HHSP Homeless Housing and Services Program CSBG Community Services Block Grant

Federal Revenues: Receipts from the State’s participation in programs financed with federal funds.

$50,000

$100,000

$150,000

$200,000

$250,000

LIHEAP HAF HOME ERA CSBG NHTF

Federal Revenues (Amounts in Thousands)

2024 2025 xvi

Governmental Fund Cont’d

Intergovernmental and public assistance payments: payment of grants to cities, counties, councils of government, community action groups and organizations for community service programs.

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

LIHEAP CDBG HHSP HOME CSBG DOE

Intergovernmental Payments (Amounts in Thousands)

2024 2025

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

HAF LIHEAP ERA CSBG DOE HOME ESG

Public Assistance Payments

2024 2025 xvii

Proprietary Fund

The following table summarizes the Statement of Revenues, Expenses and Changes in Fund Net Position of the Department’s proprietary fund for the fiscal years ended August 31, 2025 and August 31, 2024.

Net position of the Department’s proprietary fund increased by $41.3 million, or 9.6%, to $469.6 million.

OPERATING REVENUES 2025 2024 Amount % Interest and Inves tment Income $ 167,793,000 $ 138,322,453 $ 29,470,547 21.3 Net Change in Fai r Va lue 7,824 52,725,258 (52,717,434) (100.0) Other Operating Revenues 74,390,611 64,448,162 9,942,449 15.4 Total Operating Revenues 242,191,435 255,495,873 (13,304,438) (5.2)

OPERATING EXPENSES

Profes s ional Fees and Services 2,901,058 2,313,874 587,184 25.4 Depreciation Expens e 64,558 54,280 10,278 18.9 Interest 135,036,208 109,301,280 25,734,928 23.5 Bad Debt Expens e 2,714,086 2,549,800 164,286 6.4 Other Operating Expens es 62,265,598 60,346,852 1,918,746 3.2 Tota l Operating Expenses 202,981,508 174,566,086 28,415,422 16.3

Opera ting Income (Los s ) 39,209,927 80,929,787 (41,719,860) (51.6)

NONOPERATING EXPENSES 1,362 1,223 139 11.4

TRANSFERS 2,087,326 2,048,979 38,347 1.9

CHANGE IN NET POSITION 41,298,615 82,979,989 (41,681,374) (50.2)

Beginning Net Pos i tion 428,347,265 345,367,276 82,979,989 24.0 Res tatement - - 0 - Beginning Net Ass ets Res tated 428,347,265 345,367,276 82,979,989 24.0

Ending Net Position $ 469,645,880 $ 428,347,265 $ 41,298,615 9.6

Increase / (Decrease)

Texas Department of Housing and Community Affairs Proprietary Fund

Condensed Statements of Revenues, Expenses and Changes in Fund Net Position xviii

Proprietary Fund Cont’d

Earnings within the Department’s proprietary fund were $242.2 million of which $210.3 million is classified as restricted and $31.9 million is unrestricted. Restricted earnings are composed of $160.2 million in interest and investment income, $7.8 thousand net change in fair value of investments, and $50.0 million in other operating revenues primarily related to single family activity. Interest and investment income are restricted per bond covenants for debt service. The net change in fair value of investments is considered to be an unrealized gain due to changes in interest rates. Unrestricted earnings are composed of $7.5 million in interest and investment income and $24.4 million in other operating revenue.

Investment income increased $29.5 million or 21.3% due to increasing investment balances and rising interest rates. The change was primarily due to increases of $1.2 million in the Single Family Revenue Bond Program and $27.3 million in the Residential Mortgage Revenue Bond Program.

Other operating revenues increased $9.9 million primarily related to activity within the single family indentures resulting from a decrease of settlement fees due to a decrease in mortgage volume.

Interest expense increased $25.7 million, or 23.5%, primarily related to by the issuance of bonds in the Single Family Mortgage Revenue Bond Program and Residential Mortgage Revenue Bond Program.

Interest and investment income earned from unrestricted investments are used to support various housing initiatives such as those related to the State Housing Trust Fund. Sources for other operating revenues are fees from the Tax Credit Program, compliance fees, bond administrative fees, asset management fees and miscellaneous interest earned from funds held by the Comptroller.

xix

Proprietary Fund Cont’d

Fees earned under the Tax Credit Program are application fees, commitment fees, inspection fees and asset management fees. Yearly compliance fees are generated from the Department’s portfolio of multifamily properties. The Department performs on-site visits and desk reviews to ensure the properties are in compliance with the various housing regulations. Bond administrative fees are generated yearly from the various bond issuances to support the Department’s administrative expenses. The graph below illustrates the primary composition of $24.4 million in other operating revenues, classified as unrestricted earnings, according to the different housing programs.

Tax Credits, $10,903

Compliance Fees, $11,288

Bond Administration Fees, $1,973

Hous ing Trust Fund, $26

Taxa ble Mortgage Progra m, $171

Other Operating Revenues (Amounts in Thousands)

Tax Credits

Compliance Fees

Bond Administrat ion Fees

Housing Trust Fund

Taxable Mortgage Program

The following table illustrates the changes in net position by program of the Department’s proprietary fund for fiscal years 2025 and 2024.

Program 2025 2024 Amount %

Single Family $ 194,697 $ 191,278 $ 3,419 1.8

RMRB 180,963 131,921 49,042 37.2

General Funds 8,474 10,046 (1,572) (15.6)

TMP 6,826 31,347 (24,521) (78.2)

State Housing Trust Fund 57,892 57,099 793 1.4 Administration Fund (27,760) (34,509) 6,749 (19.6) Housing Initiatives & Compliance 48,554 41,165 7,389 17.9 Total $ 469,646 $ 428,347 $ 41,299 9.6

Increase / (Decrease)

Texas Department of Housing and Community Affairs Proprietary Fund

Changes in Net Position by Program xx

Proprietary Fund Cont’d

The Net Position of the Single-Family Bond Program increased by $3.4 million, or 1.79%, primarily due to a positive difference of $13.3 million between interest income and bond interest expense and positive difference of $12.3 million between other operating revenue and expenses primarily related to TMP activity offset by a negative net change in fair value of investments of $7.3 million, and $13.5 million for down payment assistance.

The Net Position of the Residential Mortgage Revenue Bond Program increased by $49.0 million, or 37.18%, primarily due to a positive net change in fair value of investments of $6.6 million, a positive difference of $11.9 million between interest income and bond interest expense, a transfer of $27.3 million transfer from TMP, and a positive difference of $9.5 million between other operating revenue and expenses primarily related to TMP activity offset by $4.1 million for down payment assistance.

The Net Position of the Taxable Mortgage Program decreased by $24.5 million or 78.22%, primarily due to a positive net change in fair value of investments of $640.6 thousand and $3.5 million in interest income offset by a $28.8 million transfer out to RMRB and the operating budget.

The Net Position of the Housing Initiatives & Compliance Programs increased $7.4 million, or 17.9%, which is reflective of fees collected of $22.2 million, and interest income of $2.4 million offset by a $17.2 million of transfers made to fund the operating budget.

The Net Position of the Administration Fund increased by $6.7 million, or 19.6%, primarily due to the change in pension and OPEB expense reflective of the Department’s proportionate share of the pension and OPEB liability reported by ERS Plan.

xxi

Department Bond Debt

The Department had an increase in bonds payable of $309.5 million to $3.4 billion of which $62.0 million is due within one year. It issued $425.0 million in bonds during the year and had $118.6 million in bond debt retirements (See Schedule I-B) during the year primarily due to consumer refinancing and paying off of original loans. For additional information, see Note 6, Bonded Indebtedness, and supplementary bond information schedules.

The following graph illustrates a comparison of bonds outstanding between fiscal year 2024 and 2025 per bond program.

$1,528,971 $1,583,094

$1,455,370

$1,966,234

$1,300,000

$1,400,000

$1,500,000

$1,600,000

$1,700,000

$1,800,000

$1,900,000

$2,000,000

Single Family RMRB

Bonds Outstanding (Amounts in Thousands)

2024 2025

Request for Information

This financial report is designed to provide a general overview of the Texas Department of Housing and Community Affairs’ (TDHCA) operations for all parties interested in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Texas Department of Housing and Community Affairs, Director of Administration, P.O. Box 13941, Austin, Texas, 78711-3941.

BASIC FINANCIAL STATEMENTS

The notes to the financial statements are an integral part of this statement. 1

Exhibit I: Statement of Net Position – Government-Wide

TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS (332)

EXHIBIT I

STATEMENT OF NET POSITION - GOVERNMENT-WIDE

As of August 31, 2025 Primary Government

Governmental Business-Type Activities Activities Total

ASSETS

Current Assets:

Cash and Cash Equivalents (Note 3):

Cash on Hand 200.00$ 200.00$ 400.00$ Cash in Bank 20,000.00 432,230.67 452,230.67 Cash in State Treasury 6,167,128.44 6,167,128.44 Cash Equivalents 85,171,600.94…