ESBD_493477_1772556565320_Attachment 4.pdf

TEXAS DEPARTMENT OF HOUSING

AND COMMUNITY AFFAIRS

Revenue Bond Program Basic Financial Statements for the Year Ended August 31, 2025

(With Independent Auditor’s Report)

This Page Intentionally Left Blank

TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS

REVENUE BOND PROGRAM

Basic Financial Statements for the Year Ended August 31, 2025

TABLE OF CONTENTS

Page

INDEPENDENT AUDITOR’S REPORT 1

MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) 5

BASIC FINANCIAL STATEMENTS:

Statement of Net Position 11

Statement of Revenues, Expenses, and Changes in Fund Net Position 12

Statement of Cash Flows 13

Notes to the Financial Statements 15

SUPPLEMENTAL SCHEDULES:

Supplemental Schedule 1 - Statement of Net Position Information by Individual Activity (Unaudited) 34

Supplemental Schedule 2 - Statement of Revenues, Expenses, and Changes in Fund Net Position Information by Individual Activity (Unaudited) 35

SUPPLEMENTARY BOND SCHEDULES:

Schedule 3 - Miscellaneous Bond Information 36

Schedule 4 - Changes in Bond Indebtedness 38

Schedule 5 - Debt Service Requirements (Principal & Interest) 39

Schedule 6 - Analysis of Funds Available for Debt Service 43

Schedule 7 - Early Extinguishment and Refunding 44

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 Revenue Bond Program (Bond Program) 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 Bond Program’s 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 Bond Program, 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. 26-312

Cristina Ortega Typewriter

Emphasis of Matters

Bond Program Financial Statements

As discussed in Note 1, the financial statements present only the Revenue Bond Program. They do not purport to, and do not, present fairly the financial position of the State of Texas or the Department 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.

• 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

Cristina Ortega 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.

• 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 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.

Supplementary Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Bond Program’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

Cristina Ortega 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 Information

Management is responsible for the other information included in the annual report. The other information comprises the supplemental schedules but does not include the basic financial statements and our auditor’s report thereon. Our opinions on the basic financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon.

In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have 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.

This report is intended solely for the information and use of the Department’s Board of Directors and is not intended to be, and should not be, used by anyone other than the specified parties.

However, this report is a matter of public record and its distribution is not limited.

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

December 15, 2025

Cristina Ortega

MANAGEMENT’S

DISCUSSION AND ANALYSIS

REVENUE BOND PROGRAM

MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED)

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

FINANCIAL HIGHLIGHTS

The Bond Program’s net position increased by $26.4 million. This was primarily due to a positive difference of $29.1 million between interest income and interest expense, a positive difference of $23.9 million between other operating revenue and other operating expenses for the Bond Program offset by $17.7M in down payment assistance and a net transfer of funds of $5.0 million to fund the Department’s annual operating budget.

The Bond Program’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.

Loan originations for the year totaled $527.2 million in the Bond Program.

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 derivative instruments under GASB 53. GASB 53 requires the fair value of a derivative 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 to be computed considering 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 swap liability.

FINANCIAL STATEMENTS

The financial statements provide information about the Bond Program’s funds. The Bond Program has only one type of fund, the proprietary fund, which is as follows:

Proprietary Fund - The Bond Program’s activities in its proprietary fund are accounted for in a manner like businesses operating in the private sector. Funding has primarily arisen through the issuances of taxable and tax-exempt bonds whose proceeds are used primarily to fund various types of loans to finance low- and moderate-income housing. The net position of this fund represents accumulated earnings since their inception and is generally restricted for program purposes or debt service.

FINANCIAL ANALYSIS OF THE REVENUE BOND PROGRAM

2025 2024 Amount Percentage

ASSETS:

Current Assets:

Cash and investments 304,047,640$ 457,026,106$ (152,978,466)$ (33.47)% Loans and Contracts 863,111 63,644,606 (62,781,495) (98.64)% Interest receivable 16,815,226 12,823,914 3,991,312 31.12 % Other Current Assets 21,533,325 13,886,610 7,646,715 55.07 % Non-Current Assets:

Investments 3,198,357,661 2,672,570,746 525,786,915 19.67 % Loans and Contracts 364,204,666 366,968,031 (2,763,365) (0.75)%

Total assets 3,905,821,629 3,586,920,013 318,901,616 8.89 %

DEFERRED OUTFLOWS OF RESOURCES 408,353 326,689 81,664 25.00 %

LIABILITIES:

Current Liabilities Bonds payable 61,990,063 51,198,135 10,791,928 21.08 % Short-Term Debt 33,695,000 52,298,439 (18,603,439) (35.57)% Interest payable 47,319,498 46,491,343 828,155 1.78 % Other current liabilities 2,243,635 1,472,436 771,199 52.38 % Non-Current Liabilities Notes payable 10,000,000 10,000,000 % Bonds payable 3,359,613,412 3,060,867,159 298,746,253 9.76 % Derivative Hedging Instrument 408,353 326,689 81,664 25.00 %

Total liabilities 3,515,269,961 3,222,654,201 292,615,760 9.08 %

DEFERRED INFLOWS OF RESOURCES

NET POSITION:

Restricted for Bonds 380,260,241 354,097,870 26,162,371 7.39 % Unrestricted 10,699,780 10,494,631 205,149 1.95 %

Total Net Position 390,960,021$ 364,592,501$ 26,367,520$ 7.23 %

Bond Program - Condensed Statement of Net Position

Increase (Decrease)

The Net Position of the Bond Program increased $26.4 million, or 7.23%, to $391.0 million. The restricted net position of the Bond Program increased $26.2 million, or 7.39%. The increase can be primarily attributed to activity within the Single-Family Bond Program generating an increase in net position of $3.4 million and the Residential Mortgage Revenue Bond Program with an increase of $49.0 million. The unrestricted net position increased $205.1 thousand, or 1.95%, to $10.7 million. The unrestricted net position is composed of $7.1 million related to the Operating Fund and $3.6 million related to the Taxable Mortgage Program.

Cash and investments (current and non-current) increased $372.8 million, or 11.91%, to $3.5 billion, primarily due to proceeds from bonds issuances and interest earnings offset by debt retirements.

The Bond Program’s loans and contracts (current and non-current) decreased $65.5 million, or 15.22%, to $365.1 million, due primarily to down payment assistance loans forgiven and the Department is no longer posting daily loans as collateral against the advances line of credit.

Total bonds payable (current and non-current) increased $309.5 million, or 9.95% to $3.4 billion, due to the issuance of $425.0 million for the Residential Mortgage Revenue Bond Program offset by monthly retirement of existing debt primarily due to consumer refinancing and paying off of original loans.

In fiscal year 2025, the Department reported $33.7 million in short-term debt due to a Security and Advances Agreement between the Department and Federal Home Loan Bank of Dallas to be used in the Volume Cap Recycling Program. In accordance with GASB No. 53 and GASB No. 72, the Department reported its derivative instruments at fair value on the statement of net position. The Department’s two interest rate swaps are derivative instruments per GASB No. 53. The negative $408.4 thousand fair value of the swaps reflects a decrease of $81.7 thousand and is reported as deferred outflow of resources and a derivative hedging instrument classified as a liability.

A comparison between 2025 and 2024 for the Statement of Revenues, Expenses, and Changes in Fund Net Position is as follows:

2025 2024 Amount Percentage

OPERATING REVENUES:

Interest and investment income 164,143,589$ 134,553,737$ 29,589,852$ 21.99 % Net change in fair value of investments 7,824 52,725,258 (52,717,434) (99.99)% Other operating revenues 52,173,043 43,007,781 9,165,262 21.31 %

Total operating revenues 216,324,456 230,286,776 (13,962,320) (6.06)%

OPERATING EXPENSES:

Professional fees and services 1,466,426 1,278,308 188,118 14.72 % Interest 135,036,208 109,301,280 25,734,928 23.54 % Bad debt expense 2,516,162 2,494,514 21,648 0.87 % Other operating expenses 45,946,787 48,791,037 (2,844,250) (5.83)%

Total operating expenses 184,965,583 161,865,139 23,100,444 14.27 %

OPERATING INCOME (LOSS) 31,358,873 68,421,637 (37,062,764) (54.17)%

TRANSFERS (4,991,353) (5,973,397) 982,044 (16.44)%

CHANGE IN NET POSITION 26,367,520 62,448,240 (36,080,720) (57.78)%

BEGINNING NET POSITION 364,592,501 302,144,261 62,448,240 20.67 %

RESTATEMENTS

BEGINNING NET ASSETS—As restated 364,592,501 302,144,261 62,448,240 20.67 %

ENDING NET POSITION 390,960,021$ 364,592,501$ 26,367,520$ 7.23 %

Increase (Decrease)

Bond Program - Statement of Revenues, Expenses, and Changes in Fund Net Position

Earnings within the Bond Program’s various bond indentures were $216.3 million, of which $210.3 million is classified as restricted and $6.0 million as unrestricted.

Restricted earnings are primarily composed of $160.2 million in interest and investment income, $7.8 thousand net increase in fair value of investments, and $50.0 million in other operating revenue.

Interest and investment income is restricted per bond covenants for debt service and the net change in fair value is reflective of unrealized gains and losses.

Unrestricted earnings are composed of $3.9 million in interest and investment income and $2.1 million in other operating revenue.

The graph below illustrates the composition of interest and investment income for the various bond indentures that make up the Bond Program:

Single Family, $72,243

RMRB, $88,002

Interest Revenue (Amounts In Thousands)

Single Family RMRB

Investment income increased $29.6 million, or 21.99%, to $164.1 million due to increasing investment balances and rising interest rates. The increase was primarily due to increases of $1.2 million in the Single-Family Revenue Bond Program, $27.3 million in the Residential Mortgage Revenue Bond Program and $1.2 million in the Taxable Mortgage Program.

Expenses of the Bond Program consist primarily of interest expense and other operating expenses of the Bond Program. Interest expense was $135.0 million, which increased $25.7 million, or 23.54%, on the Bond Program’s debt incurred to fund its various lending programs. Other operating expenses decreased $2.8 million primarily due to a decrease in lender and servicer expenses related to single family loans.

The changes in net position by bond indenture for the Bond Program for fiscal years 2025 and 2024 are as follows:

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 $6.6 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.

Fund 2025 2024 Amount Percentage

Si ngl e Fa mi ly 194,697$ 191,278$ 3,419$ 1.79 %

RMRB 180,963 131,921 49,042 37.18 %

Taxable Mortgage Program 6,826 31,347 (24,521) (78.22)% Genera l funds 8,474 10,046 (1,572) (15.65)%

Total 390,960$ 364,592$ 26,368$ 7.23 %

Increase (Decrease)

Changes in Net Position by Bond Program, Year Ended August 31, (Amounts in Thousands)

BOND PROGRAM BONDS OUTSTANDING

The Bond Program had an increase in bonds payable of $309.5 million to $3.4 billion of which $62.0 million is due within one year. The Bond Program issued $425.0 million in bonds during the year and had $118.6 million in bond debt retirements (See Schedule 4) during the year primarily due to consumer refinancing and paying off original loans. For additional information, see Note 5, Bonded Indebtedness, and supplementary bond schedules.

The following graph will illustrate a comparison of bonds outstanding between fiscal year 2025 and 2024 per bond program:

$1,528,971 $1,583,094 $1,455,370

$1,966,234

$0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000

$1,000,000 $1,100,000 $1,200,000 $1,300,000 $1,400,000 $1,500,000 $1,600,000 $1,700,000 $1,800,000 $1,900,000 $2,000,000 $2,100,000

Single Family RMRB

A m ou nt

Bond Program

Bonds Outstanding (Amounts in Thousands)

REQUEST FOR INFORMATION

This financial report is designed to provide a general overview of the Texas Department of Housing and Community Affairs’ Revenue Bond Program 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

STATEMENT OF NET POSITION

As of August 31, 2025

ASSETS

Current Assets:

Cash and Cash Equivalents (Note 2) Cash in Bank 29,172.71$ Cash Equivalents 8,116,617.95 Restricted Assets:

Cash and Cash Equivalents (Note 2) Cash in Bank 35,546,019.38 Cash Equivalents 260,337,613.11 Short-term Investments (Note 2) 18,216.88 Loans and Contracts 863,110.82 Interest Receivable 13,536,087.27 Receivable:

Interest Receivable 3,279,138.30 Accounts Receivable 272,649.00 Other Current Assets 21,260,676.12

Total Current Assets 343,259,301.54

Non-Current Assets :

Restricted Assets:

Investments (Note 2) 3,198,357,660.71 Loans and Contracts 364,204,666.49

Total Non-Current Assets 3,562,562,327.20

Total Assets 3,905,821,628.74$

DEFERRED OUTFLOWS OF RESOURCES

Accumulated decrease in fair value of hedging derivative (Note 6) 408,353.48

Total Deferred Outflows of Resources 408,353.48$

LIABILITIES

Current Liabilities Payables:

Accounts Payable 107,857.29$ Accrued Bond Interest Payable 47,319,497.97 Unearned Revenue 980,375.54 Revenue Bonds Payable (Notes 4 & 5) 61,990,062.99 Restricted Short-Term Debt (Note 3) 33,695,000.00 Other Current Liabilities 1,155,401.73

Total Current Liabilities 145,248,195.52

Non-Current Liabilities Notes and Loans Payable (Note 4) 10,000,000.00 Revenue Bonds Payable (Note 4 & 5) 3,359,613,411.97 Hedging Derivative Instrument (Note 6) 408,353.48

Total Non-Current Liabilities 3,370,021,765.45

Total Liabilities 3,515,269,960.97$

DEFERRED INFLOWS OF RESOURCES

Total Deferred Inflows of Resources -$

NET POSITION

Restricted for Bonds 380,260,240.65 Unrestricted 10,699,780.60

Total Net Position 390,960,021.25$

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

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION

For the fiscal year ended August 31, 2025

OPERATING REVENUES

Interest and Investment Income 164,143,589.01$

Net Increase in Fair Value 7,823.51

Other Operating Revenues 52,173,043.49

Total Operating Revenues 216,324,456.01

OPERATING EXPENSES

Professional Fees and Services 1,466,426.16

Interest 135,036,208.28

Bad Debt Expense 2,516,162.27

Down Payment Assistance 17,655,444.00

Other Operating Expenses 28,291,341.89

Total Operating Expenses 184,965,582.60

Operating Income 31,358,873.41

OTHER REVENUES, EXPENSES, GAINS,

LOSSES AND TRANSFERS

Transfers Out (4,991,352.86)

Total Other Revenues, Expenses, Gains, Losses and Transfers (4,991,352.86)

CHANGE IN NET POSITION 26,367,520.55

Net Position, September 1, 2024 364,592,500.70

NET POSITION, AUGUST 31, 2025 390,960,021.25$

STATEMENT OF CASH FLOWS

For the fiscal year ended August 31, 2025

CASH FLOWS FROM OPERATING ACTIVITIES

Proceeds from Loan Programs 572,812,750.99$ Proceeds from Other Revenues 50,776,200.73 Payments to Suppliers for Goods/Services (32,690,419.30)

Payments for Loans Provided (527,212,095.68)

Net Cash Provided by Operating Activities 63,686,436.74

CASH FLOWS FROM NON‐CAPITAL

FINANCING ACTIVITIES

Proceeds from Debt Issuance 2,415,545,757.76 Payments of Transfers of Other Funds (4,991,352.86) Payments of Principal on Debt Issuance (2,114,379,955.48) Payments of Interest (143,323,146.95)

Payments for Other Cost of Debt (3,982,091.35)

Net Cash Provided By Non‐Capital Financing Activities 148,869,211.12

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from Sales of Investments 134,440,480.59 Proceeds from Interest/Invest. Income 160,232,103.63

Payments to Acquire Investments (660,205,757.56)

Net Cash (Used For) Investing Activities (365,533,173.34)

Net Decrease in Cash and Cash Equivalents (152,977,525.48)

Cash and Cash Equivalents, September 1, 2024 457,006,948.63

Cash and Cash Equivalents, August 31, 2025 304,029,423.15$

STATEMENT OF CASH FLOWS (Continued) For the fiscal year ended August 31, 2025

RECONCILIATION OF OPERATING INCOME TO NET

CASH PROVIDED BY OPERATING ACTIVITIES

Operating Income 31,358,873.41$ Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities:

Provision for Uncollectibles 2,516,162.27 Operating Income and Cash Flow Categories

Classification Differences (25,694,785.40) Changes in Assets and Liabilities:

(Increase) in Receivables (144,710.00) (Increase) in Accrued Interest Receivable (3,991,311.89) Decrease in Loans / Contracts 65,544,860.22 (Increase) in Other Assets (7,502,005.81) (Decrease) in Payables (125,278.83) Increase in Accrued Interest Payable 828,155.26

Increase in Other Liabilities 896,477.51

Total Adjustments 32,327,563.33

Net Cash Provided by Operating Activities 63,686,436.74$

NON CASH TRANSACTIONS

Net Change in Fair Value of Investments for 2025 was $7,823.51

NOTES TO THE

FINANICIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS

For the fiscal year ended August 31, 2025

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General Statement — The Texas Department of Housing and Community Affairs (the Department), was created effective September 1, 1991, by an act of the 72nd Texas Legislature, pursuant to Senate Bill 546 (codified as Article 4413 (501), Texas Revised Civil Statutes) (the Department Act), passed by the Texas Legislature on May 24, 1991, and signed by the Governor of the State of Texas. Effective September 1, 1991, the Department was established to assist local governments in helping residents overcome financial, social, and environmental problems; to address 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 Department was created by merging two former agencies: the Texas Housing Agency and the Texas Department of Community Affairs.

The accompanying financial statements represent the financial status of the Revenue Bond Program (the Bond Program), which is included in the enterprise fund of the Department, and are not intended to present the financial position of the Department or its results of operations or cash flows. The Department is governed by a Board composed of seven members, all of whom are appointed by the Governor with advice and consent of the Senate. The Board then appoints the Executive Director with the approval of the Governor. The Department is authorized to issue tax-exempt or taxable bonds, notes, or other obligations to finance or refinance multifamily housing developments and single-family residential housing. Bonds and notes of the Department do not constitute a debt of the State or any political subdivision thereof. The Department Act specifically provides for the assumption by the Department of the outstanding indebtedness of the former agencies. The Department is required to continue to carry out all covenants with respect to any bonds outstanding, including the payments of any bonds from the sources provided in the proceedings authorizing such bonds. For financial reporting purposes, the Department is an agency of the State and is included in its reporting entity.

The Bond Program operates several bond programs under separate trust indentures, as follows:

Single-Family Bond Program (Single-Family) — These bonds are limited obligations of the Department. Bond proceeds were used to originate below-market rate loans for eligible low- and moderate-income residents who were purchasing a residence. These bonds were issued pursuant to a Single-Family Mortgage Revenue Bond Trust Indenture, dated October 1, 1980, and Amended and Restated as of June 1, 2017, and indentures supplemental thereto, and are secured on an equal and ratable basis by the trust estate established by such trust indentures.

Residential Mortgage Revenue Bond Program (RMRB) — These bonds are limited obligations of the Department. Bond proceeds were used to originate below-market rate loans for eligible low- and moderate-income residents who were purchasing a residence. These bonds were issued pursuant to the Residential Mortgage Revenue Bond Trust Indenture, dated November 1, 1987, and Amended and Restated as of July 1, 2019, and indentures supplemental thereto, and are secured on an equal and ratable basis by the trust estate established by such trust indentures.

Taxable Mortgage Program (TMP) — The TMP program was created to provide loans to low to moderate income homebuyers as a tool to fund the First Time Homebuyer Program. It facilitates the trading of mortgage-backed securities (MBS). The program is funded by available indenture funds, ongoing fees received on the originated mortgage loans, repayment of down payment assistance loans, and MBS premium, if any, received at the sale of the

MBS.

Multifamily Housing Revenue Bond Programs (Multifamily) — The Department has implemented Governmental Accounting Standards Board Statement No. 91, Conduit Debt Obligations to improve accounting and financial reporting for conduit debt. The Department has eliminated debt related to Multifamily bonds payable where the Department is only a conduit issuer.

NOTES TO THE FINANCIAL STATEMENTS

For the fiscal year ended August 31, 2025

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cont’d

Significant Accounting Policies — the significant accounting policies of the Bond Program are as follows:

Fund Accounting — The Bond Program’s financial statements have been prepared on the basis of the proprietary fund concept as set forth by the Governmental Accounting Standards Board (GASB). The proprietary fund concept provides that financial activities operated similarly to private business enterprises and financed through fees and charges assessed primarily to users of the services are presented as a proprietary fund. Proprietary funds are accounted for on the accrual basis of accounting. Revenues are recognized when earned, and expenses are recognized when the liability is incurred. The Bond Program has elected not to apply Financial Accounting Standards Board pronouncements issued after November 30, 1989, as allowed by Governmental Accounting Standards Board Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting.

Investments — The Bond Program follows the provisions of Governmental Accounting Standards Board Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, and Governmental Accounting Standards Board Statement No. 72, Fair Value Measurement and Application, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction.

Fair Value accounting requires characterization of the inputs used to measure fair value into three-level fair value hierarchy as follows:

Level 1 - inputs are based on unadjusted quoted market prices for identical assets or liabilities in an active market which the entity could access.

Level 2 - inputs are observable inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent from the entity.

Level 3 - inputs are unobservable that reflect the entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available.

There are three general valuation techniques that may be used to measure fair value:

Market approach - uses prices generated by market transactions involving identical or comparable assets or liabilities.

Cost approach - uses the amount that currently would be required to replace the service capacity of an asset (replacement cost).

Income approach - uses valuation techniques to convert future amounts to present amounts based on current market expectations.

The Bond Program utilizes established quoted market prices for determining the fair value of its debt securities in reserve funds. The Bond Program’s portfolio of mortgage-backed securities consists of pools of mortgage loans exchanged for mortgage-backed securities or mortgage pass-through certificates. Fair value of the Bond Program’s mortgage-backed securities has been estimated by each bond issue’s trustee using a pricing service which is considered a Level 2 input in accordance with Governmental Accounting Standards Board Statement No. 72, Fair Value Measurement and Application.

The Bond Program has reported all investment securities at fair value as of August 31, 2025, with the exception of certain money market investments, and nonparticipating interest-earning investment contracts, which are reported at amortized cost (historical cost adjusted for amortization of premiums and accretion of discounts), provided that the fair value of those investments is not significantly affected by the impairment of the credit standing of the issuer or by other factors (see Note 2).

NOTES TO THE FINANCIAL STATEMENTS

For the fiscal year ended August 31, 2025

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cont’d

In accordance with Governmental Accounting Standards Board Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, changes in the fair value of investments and any realized gains/losses on the sale of investments are reported in the Statement of Revenues, Expenses, and Changes in Fund Net Position as net increase (decrease) in fair value of investments.

Loans and Contracts — Loans and contracts are carried at the unpaid principal balance outstanding less the allowance for estimated loan losses. Interest on loans is credited to income as earned. Loans are generally placed on nonaccrual status when the Department becomes aware that the borrower has entered bankruptcy proceedings or when the loans are 90 days past due as to either principal or interest or when payment in full of principal and interest is not expected.

Real Estate Owned — Properties acquired through foreclosure are carried at the unpaid principal balance on the related property plus accrued interest and reimbursable expenses through the date of foreclosure, less any sales proceeds, reimbursements received from mortgage insurers, and an allowance for estimated losses on such properties. After foreclosure, foreclosed assets are carried at lower of cost or fair value minus selling costs. Interest on real estate owned is credited to income as earned based on a calculation of interest recoverable in accordance with the Department’s agreements with its mortgage insurers.

Allowance for Estimated Losses on Loans and Foreclosed Properties — The allowance for estimated losses on loans is available for future charge-offs on single-family and multifamily loans.

All losses are charged to the allowance when the loss occurs or when a determination is made that a loss is likely to occur. Periodically, management estimates the likely level of future losses to determine whether the allowances for estimated losses are adequate to absorb anticipated losses in the existing loan and real estate owned portfolios. Based on these estimates, a provision for estimated losses on loans and real estate owned is made to the allowances to adjust the allowances to levels estimated to be adequate to absorb reasonably foreseeable losses.

While management uses available information to recognize losses in the loan and real estate owned portfolios, future adjustments may be necessary based on changes in economic conditions. However, it is the judgment of management that the allowances are currently adequate to absorb reasonably foreseeable losses in the existing loan and real estate owned portfolios.

Deferred Outflows of Resources/Derivative Hedging Instrument—The Department identified its derivative instruments and measured their effectiveness in accordance with Governmental Accounting Standards Board Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. The Department contracted a service provider to measure its derivative instrument effectiveness using the regression analysis method. Since the derivative instruments were deemed to be effective, the Department deferred the changes in fair value for these derivative instruments and reported them as a deferred outflows of resources.

Restricted Short-Term Debt — Short-term debt primarily consists of funds due to Federal Home Loan Bank related to an Advances and Security Agreement.

Notes Payable — The Department has issued one note which is subordinate lien obligation. The 2016 Issuer Note has a loan agreement with Woodforest National Bank to provide funding for down payment assistance in connection with Texas Homeownership Programs. The Department has implemented Governmental Accounting Standards Board Statement No. 91, Conduit Debt Obligations to improve accounting and financial reporting for conduit debt. The Department has eliminated debt related to Multifamily notes payable where the Department is only a conduit issuer.

NOTES TO THE FINANCIAL STATEMENTS

For the fiscal year ended August 31, 2025

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cont’d

Discounts and Premiums on Debt — Discounts and premiums on debt are recognized using the interest method over the life of the bonds or collateralized mortgage obligations to which they relate. Prepayments on the bonds result in the proportionate amortization during the current year of the remaining balance of discounts and premiums on debt.

Restricted Net Position — Certain Net Position of the Bond Program are restricted for various purposes of the bond trust indentures. When both restricted and unrestricted resources are available for use, restricted resources are used first, then unrestricted resources are used as they are needed.

General and Administrative Expenses — Certain General and Administrative expenses are accounted for in the Department’s Administrative Program and are not reflected in the Operating Fund section of the Bond Program.

Operating and Non-operating Revenues and Expenses — The Department distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services in connection with the Bond Program. The principal operating revenues of the Bond Program are related to interest derived from investments, interest on mortgage loans and bond related administrative fees. Operating expenses are primarily related to interest expense on bonds and general administrative expenses. Revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.

Interfund Transactions — The Bond Program has transactions between and with other funds of the Department.

Quasi-external transactions are charges for services rendered by one fund to another, and they are accounted for as revenue or expense. All other interfund transactions are reported as transfers.

Loss on Early Extinguishment of Debt — Any loss on extinguishment of debt prior to its stated maturity is recorded as a component of interest expense in the period the debt is retired.

Cash Flows — For purposes of reporting cash flows, cash and cash equivalents consist of cash and short-term investments with a maturity at the date of purchase of three months or less, which are highly liquid and are readily exchanged for cash at amounts equal to their stated value.

Estimates — In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Statement of Net Position and the reported revenues and expenses for the period. Actual results could differ significantly from those estimates. Management judgments and accounting estimates are made in the evaluation of the allowance for estimated losses on loans and real estate owned.

NOTE 2: DEPOSITS, INVESTMENTS & REPURCHASE AGREEMENTS

The Department is authorized by statute to make investments following the “prudent person rule” and based upon provisions within the master bond indentures and its Investment Policy adopted by the Board in accordance with the Public Funds Investment Act. There were no significant violations of legal provisions during the period.

Deposits of Cash in Bank

In accordance with bond trust indentures and depository agreements, all cash is to be fully collateralized, with the collateral held by a third party in the name of the Department. As of August 31, 2025, the Department’s cash and deposits were fully collateralized by securities with a trustee in the Department’s name.

NOTES TO THE FINANCIAL STATEMENTS

For the fiscal year ended August 31, 2025

NOTE 2: DEPOSITS, INVESTMENTS & REPURCHASE AGREEMENTS Cont’d

As of August 31, 2025, the carrying amount of deposits was $35,546,019.38.

Investments The types of investments in which the Department may invest are restricted by the provisions of the master bond indentures and the Department’s Investment Policy adopted by its Board in accordance with the Public Funds Investment Act. The indentures allow for investments in direct obligations of or guaranteed by the U.S. Government;

obligations, debentures, notes or other evidences of indebtedness issued or guaranteed by agencies or intermediaries of the U.S. Government; obligations issued by public agencies or municipalities; obligations and general obligations of or guaranteed by the state; demand deposits, interest-bearing time deposits or certificates of deposit; repurchase agreements in U.S. Government securities; direct or general obligations of any state within the territorial U.S.;

investment agreements with any bank or financial institution; and guaranteed investment contracts. Certain trust indentures restrict the Department from investing in certain of the aforementioned investments.

The Department holds $268,454,231.06 in overnight repurchase agreements maturing on the following business day, September 2, 2025, at a rate of 4.27%.

At August 31, 2025, the fair value of investments (including both short-term and long-term) and cash equivalents are shown below.

Level 1 Inputs Level 2 Inputs Level 3 Inputs Amortized Cost Business Type Activities

U.S. Government Agency Obl i gati ons -$ 3,141,725,436.74$ -$ -$ 3,141,725,436.74$ Repurchase Agreements (TTSTC) 268,454,231.06 268,454,231.06 Mis cel la neous Investments 56,650,440.85 56,650,440.85 Total Business-Type Activities 3,466,830,108.65$

Total Fair Value Hierarchy

Credit Risk Credit Risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Preservation and safety of principal is the foremost objective of the investment program. According to the Department’s investment policy, investments should be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. Credit risk is mitigated by

Limiting investments to the safest types of securities.

Pre-qualifying the financial institution, broker/dealers, intermediaries, and advisors with which the

Department will do business.

Diversifying the investment portfolio so that potential losses on individual securities will be minimized.

Current Assets Restricted Cash in Bank

Texas Treasury Safekeeping Trust 1,850,076.14

Demand Deposits 33,695,943.24

Cash in Bank per AFR 35,546,019.38$

NOTES TO THE FINANCIAL STATEMENTS

For the fiscal year ended August 31, 2025

NOTE 2: DEPOSITS, INVESTMENTS & REPURCHASE AGREEMENTS Cont’d

As of August 31, 2025, the Department’s credit quality distribution for securities with credit risk exposure was as follows.

Standard & Poor's

Repurchase Agreements, while not rated, are required to be over collateralized such that they meet the requirements set-forth in the various indentures.

A total of $3,125,166,863.18 was not subject to credit risk disclosure due to their explicit guarantee by the U.S.

Government which is composed of U.S. Government Agency obligations issued by the Government National Mortgage Association.

Concentration of credit risk is the risk of loss attributable to the magnitude of investment in a single issuer. As of August 31, 2025, the Department’s concentration of credit risk is as follows.

Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of any investment.

The longer the maturity of an investment will result in greater sensitivity of its fair value to changes in the market interest rates. The Department’s investment policy allows for the mitigation of interest rate risk by:

Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity.

Investing operating funds primarily in shorter-term securities.

Investment Type Not Rated AAA AA+ AA- U.S. Government Agency Obl igations $16,558,573.56 Repurchase Agreements (TTSTC) $268,454,231.06 Miscellaneous Investments $56,650,440.85

Issuer Carrying Value % of Total Portfolio Natwest $268,454,231.06 7.74%

NOTES TO THE FINANCIAL STATEMENTS

For the fiscal year ended August 31, 2025

NOTE 2: DEPOSITS, INVESTMENTS & REPURCHASE AGREEMENTS Cont’d

Information about the sensitivity of the fair values of the Department’s investments to market interest rate fluctuations is provided by the following table that shows the distribution of the Department’s investments by maturity:

Remaining Maturity (in months)

Business Type Activities Fair Value 12 months or less 13 to 24 months 25 to 60 months

More than 60 months

U.S. Government Agency Obl igations 3,141,725,436.74$ 18,216.88$ 154,531.79$ 2,501,180.14$ 3,139,051,507.93$ Repurchase Agreements (TTSTC) 268,454,231.06 268,454,231.06 Miscellaneous Investments 56,650,440.85 56,505,440.85$ 145,000.00 Total Business-Type Activities 3,466,830,108.65$ 268,472,447.94$ 154,531.79$ 59,006,620.99$ 3,139,196,507.93$

Highly Sensitive Investments Mortgage-backed securities. These securities are subject to early payment in a period of declining interest rates.

These prepayments result in a reduction of expected total cash flows affecting the fair value of these securities and make the fair value of these…