Financial Performance - Net income available to common shareholders increased by $805,000, or 19.2%, to $5.0 million for Q3 2025 compared to $4.2 million for Q3 2024[173] - Earnings per diluted common share were $0.73 for Q3 2025, up from $0.58 for Q3 2024[173] - For the nine months ended September 30, 2025, net income available to common shareholders increased by $3.1 million, or 32.3%, to $12.7 million compared to $9.6 million for the same period in 2024[173] - Annual return on average assets for Q3 2025 was 2.10%, compared to 2.29% for the same period in the prior year[174] - Annual return on average equity for Q3 2025 was 18.74%, compared to 16.89% for the same period in the prior year[174] Income and Expenses - The increase in net interest income for Q3 2025 was $2.7 million, contributing significantly to the rise in net income[173] - Non-interest income increased by $810,000 for Q3 2025 compared to Q3 2024[173] - The provision for credit losses increased by $1.4 million for Q3 2025 compared to the same period in 2024[173] - Total non-interest expense for the three months ended September 30, 2025, increased by $731,000, or 5.5%, and for the nine months, it increased by $4.5 million, or 11.6%[209] - Salaries and employee benefits for the three months ended September 30, 2025, increased by $295,000, or 3.3%, and for the nine months, they increased by $2.6 million, or 9.7%[210] Assets and Liabilities - Total assets increased by $200.5 million, or 23.2%, to $1.1 billion as of September 30, 2025, from $863.4 million as of December 31, 2024[176] - Shareholders' equity rose by $5.8 million, or 5.1%, to $119.2 million as of September 30, 2025, from $113.4 million as of December 31, 2024[177] - Total liabilities increased to $923,041,000 in September 2025, up from $712,953,000 in September 2024, representing a growth of 29.4%[193] - Total deposits increased by $200.8 million, or 28.2%, to $911.9 million as of September 30, 2025, compared to $711.1 million as of December 31, 2024[263] Interest Income and Margin - Net interest income for the nine months ended September 30, 2025, increased by $6.9 million, or 29.7%, from $23.3 million for the nine months ended September 30, 2024, to $30.2 million[188] - Net interest margin for the three months ended September 30, 2025, was 4.39%, an increase of 14 basis points from 4.25% for the same period in 2024[182] - The average yield on interest-earning assets decreased by 26 basis points from 8.42% for the nine months ended September 30, 2024, to 8.16% for the same period in 2025[190] - The average cost of interest-bearing liabilities decreased by 70 basis points from 5.27% for the nine months ended September 30, 2024, to 4.57% for the same period in 2025[191] Credit Losses - Provision for credit losses for loans was $1,863,000 for the three months ended September 30, 2025, compared to $467,000 in 2024, reflecting an increase of 298.5%[198] - The provision for credit losses for the nine months ended September 30, 2025 totaled $4.7 million, compared to $3.2 million for the same period in the prior year[230] - The allowance for credit losses increased to $10,764,000 in September 2025 from $8,282,000 in September 2024, indicating a rise of 17.9%[193] Loan Portfolio - Average loans increased by $193.4 million, or 32.8%, for the nine months ended September 30, 2025, compared to the same period in 2024[189] - As of September 30, 2025, total loans increased by $110.5 million to $779.9 million, compared to $669.4 million at December 31, 2024[245] - SBA loans comprised 65.1% of total loans at September 30, 2025, totaling $507.8 million, up from 61.5% at December 31, 2024[245] - Non-performing assets totaled $35.7 million, representing 4.57% of total loans as of September 30, 2025, compared to $15.9 million or 2.38% at December 31, 2024[250] Taxation - Income tax expense for the three and nine months ended September 30, 2025, was approximately $1.6 million and $4.1 million, respectively, with effective income tax rates of 22.2% and 22.4%[223] - The effective tax rate for the three and nine months ended September 30, 2025, was higher than the prior year, which was 16.7% and 19.5%, respectively[223] Capital Adequacy - The Company met all capital adequacy requirements as of September 30, 2025, and was classified as "well-capitalized" under applicable regulations[268] - The Total Capital to Risk Weighted Assets ratio for Tectonic Financial, Inc. was 17.24% as of September 30, 2025, compared to 17.65% on December 31, 2024[270] - The Common Equity Tier 1 ratio to Risk Weighted Assets for Tectonic Financial, Inc. was 13.18% as of September 30, 2025, slightly decreasing from 13.37% on December 31, 2024[270] Liquidity and Risk Management - The Company’s liquidity management is influenced by factors such as expected deposit flows and market interest rates, with a focus on maintaining public confidence[272] - Management believes the Company has adequate liquidity to meet obligations, but potential economic downturns could restrict funding sources[278] - Interest rate risk is a primary market risk for the Company, with strategies in place to manage exposure and minimize potential economic losses[280]

PART I. FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements of Tectonic Financial, Inc. for the periods ended June 30, 2025, and December 31, 2024, including balance sheets, income statements, comprehensive income, changes in shareholders' equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, and specific financial line items [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202025%20and%20December%2031%2C%202024) The consolidated balance sheets show Tectonic Financial, Inc.'s financial position at June 30, 2025, and December 31, 2024, with total assets increasing by $133.6 million (15.5%) to $997.0 million, driven primarily by increases in loans and interest-bearing deposits | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total assets | $997,020 | $863,380 | $133,640 | 15.5% | | Loans, net | $744,090 | $660,184 | $83,906 | 12.7% | | Interest-bearing deposits | $94,894 | $55,864 | $39,030 | 69.9% | | Loans held for sale | $57,531 | $46,980 | $10,551 | 22.5% | | Total cash and cash equivalents | $103,735 | $63,723 | $40,012 | 62.8% | | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total liabilities | $882,435 | $749,951 | $132,484 | 17.7% | | Total deposits | $853,082 | $711,147 | $141,935 | 20.0% | | Borrowed funds | $0 | $10,000 | $(10,000) | -100.0% | | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total shareholders' equity | $114,585 | $113,429 | $1,156 | 1.0% | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) Net income available to common stockholders increased significantly for both the three and six months ended June 30, 2025, driven by higher net interest income and non-interest income, despite increases in non-interest expenses and provision for credit losses | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Net income available to common stockholders | $3,800 | $2,758 | $1,042 | 37.8% | | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Net income available to common stockholders | $7,729 | $5,431 | $2,298 | 42.3% | | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change | % Change | | :----------------------------- | :--------------------------- | :--------------------------- | :----- | :------- | | Diluted EPS | $0.55 | $0.38 | $0.17 | 44.7% | | Weighted average diluted shares outstanding | 6,875,416 | 7,242,663 | (367,247) | -5.1% | | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | % Change | | :----------------------------- | :--------------------------- | :--------------------------- | :----- | :------- | | Diluted EPS | $1.12 | $0.75 | $0.37 | 49.3% | | Weighted average diluted shares outstanding | 6,897,215 | 7,252,424 | (355,209) | -4.9% | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) Comprehensive income increased for both the three and six months ended June 30, 2025, primarily due to higher net income and a significant increase in other comprehensive income from changes in unrealized gains on securities available for sale | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Comprehensive Income | $4,389 | $3,290 | $1,099 | 33.4% | | Net Income | $4,271 | $3,146 | $1,125 | 35.8% | | Other comprehensive income | $118 | $144 | $(26) | -18.1% | | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Comprehensive Income | $9,156 | $6,211 | $2,945 | 47.4% | | Net Income | $8,724 | $6,207 | $2,517 | 40.6% | | Other comprehensive income | $432 | $4 | $428 | 10700.0% | [Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) Shareholders' equity increased by $1.2 million to $114.6 million as of June 30, 2025, primarily due to net income and other comprehensive income, partially offset by significant treasury stock repurchases and dividend payments | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total Shareholders' Equity | $114,585 | $110,417 | $4,168 | 3.8% | - Key changes in shareholders' equity for the six months ended June 30, 2025, include net income of **$8,724 thousand**, stock-based compensation of **$55 thousand**, and other comprehensive income of **$432 thousand**, partially offset by treasury stock purchases of **$(5,705) thousand** and dividends paid on preferred and common stock totaling **$(995) thousand** and **$(1,355) thousand**, respectively[15](index=15&type=chunk)[256](index=256&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) Net cash provided by financing activities significantly increased, leading to a substantial rise in cash and cash equivalents, despite net cash used in operating and investing activities | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Net change in cash and cash equivalents | $40,012 | $9,493 | $30,519 | 321.5% | | Cash and cash equivalents at end of period | $103,735 | $68,260 | $35,475 | 51.9% | | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Net cash used in operating activities | $(68,111) | $(33,864) | $(34,247) | 101.1% | | Net cash used in investing activities | $(15,757) | $(45,141) | $29,384 | -65.1% | | Net cash provided by financing activities | $123,880 | $88,498 | $35,382 | 40.0% | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed information on Tectonic Financial, Inc.'s organization, significant accounting policies, and specific financial statement line items, including securities, loans, leases, goodwill, deposits, borrowings, benefit plans, income taxes, stock compensation, commitments, related parties, regulatory matters, operating segments, fair value measurements, and recent accounting pronouncements [Note 1. Organization and Significant Accounting Policies](index=9&type=section&id=Note%201.%20Organization%20and%20Significant%20Accounting%20Policies) Tectonic Financial, Inc. is a Texas-based financial holding company offering banking, trust, investment advisory, securities brokerage, factoring, TPA, recordkeeping, and insurance services through its subsidiaries: T Bancshares, Inc. (TBI), Sanders Morris LLC, Tectonic Advisors, LLC, and HWG Insurance Agency LLC - Tectonic Financial, Inc. is a Texas corporation and registered financial holding company providing banking and other financial services across the U.S[18](index=18&type=chunk) - T Bancshares, Inc. (TBI) for T Bank, N.A. (banking) - Sanders Morris LLC (broker-dealer, investment advisor) - Tectonic Advisors, LLC (investment advisor) - HWG Insurance Agency LLC (insurance agency) - Banking (commercial & consumer banking, factoring) - Other Financial Services (trust, retirement, financial management, investment advisory, brokerage) - HoldCo and Other (T Bancshares, financial holding company operations) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Diluted earnings per share | $0.55 | $0.38 | $1.12 | $0.75 | [Note 2. Securities](index=10&type=section&id=Note%202.%20Securities) The company's securities portfolio includes available-for-sale (U.S. government agencies, mortgage-backed) and held-to-maturity (PACE, PID/TIRZ) securities, along with restricted securities (FRB, FHLB stock) | Type of Security | Amortized Cost (in thousands) | Fair Value (in thousands) | | :--------------------------- | :---------------------------- | :------------------------ | | Securities available for sale | $24,175 | $22,646 | | Securities held to maturity | $22,504 | $20,576 | | Securities, restricted | $2,593 | $2,593 | - As of June 30, 2025, total unrealized losses on available-for-sale securities were **$1,534 thousand**, primarily from U.S. government agencies (**$1,299 thousand**) and mortgage-backed securities (**$235 thousand**)[31](index=31&type=chunk)[35](index=35&type=chunk) - No allowance for credit losses recognized on available-for-sale and held-to-maturity securities in unrealized loss positions, as management believes losses are due to non-credit related factors (market interest rates) and does not intend to sell[37](index=37&type=chunk) [Note 3. Loans and Allowance for Credit Losses](index=13&type=section&id=Note%203.%20Loans%20and%20Allowance%20for%20Credit%20Losses) The loan portfolio increased significantly, primarily driven by SBA loans, with non-accrual and past due loans also increasing, particularly in real estate construction/land and SBA categories | Loan Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :--------------------------- | :------------------------------- | :-------------------- | :------- | | Gross loans | $754,838 | $669,367 | $85,471 | 12.8% | | SBA 7(a) guaranteed | $273,046 | $231,931 | $41,115 | 17.7% | | SBA 7(a) unguaranteed | $114,610 | $96,466 | $18,144 | 18.8% | | SBA 504 | $94,400 | $83,520 | $10,880 | 13.0% | | Real estate – construction and land | $65,743 | $53,844 | $11,899 | 22.1% | - Loans held for sale totaled **$57.5 million** at June 30, 2025, up from **$47.0 million** at December 31, 2024, primarily consisting of SBA and USDA loans. For the six months ended June 30, 2025, **$71.1 million** of SBA 7(a) loans held for sale were reclassified to loans held for investment[43](index=43&type=chunk) | Loan Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :--------------------------- | :------------------------------- | :-------------------- | :------- | | Total Non-Accrual | $29,501 | $15,908 | $13,593 | 85.5% | | Real estate – construction/land | $12,039 | $0 | $12,039 | N/A | | SBA guaranteed | $9,074 | $11,374 | $(2,300) | -20.2% | | Metric | 6 Months Ended June 30, 2025 (in thousands) | | :-------------------------- | :------------------------------------------ | | Beginning Balance | $9,183 | | Provision for credit losses | $2,939 | | Total charge-offs | $(1,651) | | Total recoveries | $277 | | Ending balance | $10,748 | [Note 4. Leases](index=26&type=section&id=Note%204.%20Leases) The Company leases office facilities and equipment under operating leases, recognizing right-of-use assets and lease liabilities on its balance sheet, with both totaling $1.6 million as of June 30, 2025 - Right-of-use assets totaled **$1.6 million** at June 30, 2025, down from **$1.9 million** at December 31, 2024[83](index=83&type=chunk) - Lease liabilities totaled **$1.6 million** at June 30, 2025, down from **$2.0 million** at December 31, 2024[83](index=83&type=chunk) - Weighted average remaining lease term: **59 months** - Weighted average discount rate: **4.03%** | (In thousands) | Amount | | :------------- | :----- | | Total minimum rental payments (Company as lessee) | $1,826 | | Total minimum rental payments (Company as lessor) | $1,007 | [Note 5. Goodwill and Core Deposit Intangible](index=26&type=section&id=Note%205.%20Goodwill%20and%20Core%20Deposit%20Intangible) Goodwill remained stable at $21.44 million, while the net carrying amount of core deposit intangible decreased to $44 thousand as of June 30, 2025, due to amortization, with the remaining balance to be fully amortized in 2025 | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Goodwill | $21,440 | $21,440 | | Core deposit intangible, net | $44 | $149 | | Metric | 3 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | | Core deposit intangible amortization | $53 | $105 | - The remaining balance of **$44 thousand** for core deposit intangible will be fully amortized in **2025**[86](index=86&type=chunk) [Note 6. Deposits](index=27&type=section&id=Note%206.%20Deposits) Total deposits increased by 20.0% to $853.1 million as of June 30, 2025, primarily driven by a significant increase in time deposits, which now constitute 71% of total deposits | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :------------- | :--------------------------- | :------------------------------- | :-------------------- | :------- | | Total deposits | $853,082 | $711,147 | $141,935 | 20.0% | | Deposit Type | Balance (in thousands) | % of Total | | :------------------------ | :--------------------- | :--------- | | Non-interest-bearing demand | $60,228 | 7% | | Interest-bearing demand | $4,767 | 1% | | Money market accounts | $171,110 | 20% | | Savings accounts | $6,811 | 1% | | Time deposits | $610,166 | 71% | - Time deposits increased by **$127.1 million** (**26.3%**) from December 31, 2024, to June 30, 2025[9](index=9&type=chunk)[87](index=87&type=chunk) [Note 7. Borrowed Funds and Subordinated Notes](index=27&type=section&id=Note%207.%20Borrowed%20Funds%20and%20Subordinated%20Notes) The Company had no FHLB or FRB borrowings as of June 30, 2025, having repaid $10.0 million in FHLB borrowings in January 2025, while subordinated notes totaling $12.0 million remained outstanding with slightly decreased interest rates | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Total Borrowed Funds | $12,000 | $22,000 | | FHLB borrowings | $0 | $10,000 | | FRB borrowings | $0 | $0 | - Subordinated notes totaling **$12.0 million** remained outstanding at both June 30, 2025, and December 31, 2024[90](index=90&type=chunk)[254](index=254&type=chunk) - 2017 Notes interest rate: **9.76%** at June 30, 2025 (vs. **10.03%** at Dec 31, 2024) - 2018 Note interest rate: **8.89%** at June 30, 2025 (vs. **9.26%** at Dec 31, 2024) [Note 8. Benefit Plans](index=27&type=section&id=Note%208.%20Benefit%20Plans) The Company offers two 401(k) plans with employer matching contributions (100% on the first 1% and 50% on the next 5% of employee contributions), and employer contributions charged to expense increased for the six months ended June 30, 2025 - The Company operates **two 401(k) plans** covering substantially all employees of the Bank, Sanders Morris, and Tectonic Advisors[91](index=91&type=chunk) - Employer contributions match **100%** of the first **1%** of employee compensation and **50%** of the next **5%** of employee compensation[92](index=92&type=chunk) | Period | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :----- | :------------------ | :------------------ | :-------------------- | :------- | | 3 Months | $215 | $228 | $(13) | -5.7% | | 6 Months | $504 | $460 | $44 | 9.6% | [Note 9. Income Taxes](index=29&type=section&id=Note%209.%20Income%20Taxes) Income tax expense increased for both the three and six months ended June 30, 2025, resulting in higher effective income tax rates compared to the prior year, influenced by non-deductible expenses, while net deferred tax assets remained stable | Period | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :----- | :------------------ | :------------------ | :-------------------- | :------- | | 3 Months | $1,324 | $853 | $471 | 55.2% | | 6 Months | $2,553 | $1,701 | $852 | 50.1% | | Period | 2025 | 2024 | Change (pp) | | :----- | :---- | :---- | :---------- | | 3 Months | 23.7% | 21.3% | 2.4 | | 6 Months | 22.6% | 21.5% | 1.1 | - Net deferred tax assets totaled **$1.4 million** at both June 30, 2025, and December 31, 2024[97](index=97&type=chunk) [Note 10. Stock Compensation Plans](index=29&type=section&id=Note%2010.%20Stock%20Compensation%20Plans) The Company's 2017 Equity Incentive Plan authorizes various equity grants, with 365,000 shares remaining available for future grants as of June 30, 2025, and compensation expense recorded for restricted stock units - The 2017 Equity Incentive Plan had **365,000** authorized shares of common stock remaining available for future grants as of June 30, 2025[99](index=99&type=chunk) - As of June 30, 2025, all **67,500** outstanding stock options were vested, with a weighted average exercise price of **$5.23** and no remaining unrecognized compensation cost[102](index=102&type=chunk)[103](index=103&type=chunk) - **89,000** awarded units of restricted stock were outstanding as of June 30, 2025, with compensation expense of **$28 thousand** and **$55 thousand** recorded for the three and six months ended June 30, 2025, respectively[105](index=105&type=chunk) [Note 11. Commitments and Contingencies](index=31&type=section&id=Note%2011.%20Commitments%20and%20Contingencies) The Company has off-balance sheet financial instruments, including undisbursed loan commitments and standby letters of credit, which decreased significantly, and is involved in legal proceedings not expected to have a material adverse effect | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :--------------------------- | :------------------------------- | :-------------------- | :------- | | Undisbursed loan commitments | $39,200 | $72,343 | $(33,143) | -45.8% | | Standby letters of credit | $135 | $162 | $(27) | -16.7% | | Total | $39,335 | $72,505 | $(33,170) | -45.8% | | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :----- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Provision (reversal) for off-balance sheet credit losses | $(93) | $38 | $(247) | $182 | | Ending balance (June 30) | $211 | $374 | $211 | $374 | - Management believes the ultimate outcome of legal proceedings will not have a material adverse effect on the Company's financial condition or results of operations[111](index=111&type=chunk)[278](index=278&type=chunk) [Note 12. Related Parties](index=32&type=section&id=Note%2012.%20Related%20Parties) The Company has service agreements with Cain Watters, whose owners hold a significant stake, and maintains depository accounts with the Bank for officers, directors, and affiliates totaling $4.3 million at June 30, 2025 - Owners of Cain Watters & Associates, LLC hold approximately **29.5%** ownership in Tectonic Financial, Inc[113](index=113&type=chunk) | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Expense recognized under Tectonic Advisors-CWA Services Agreement | $117 | $75 | $11 | $121 | - Depository accounts with the Bank held by officers, directors, and affiliated companies totaled approximately **$4.3 million** at June 30, 2025 (down from **$7.0 million** at December 31, 2024), with no loans outstanding to these parties[115](index=115&type=chunk) [Note 13. Regulatory Matters](index=32&type=section&id=Note%2013.%20Regulatory%20Matters) Both the Company and its Bank subsidiary were "well-capitalized" as of June 30, 2025, exceeding all minimum capital ratios and conservation buffers under federal banking agency capital requirements - Both Tectonic Financial, Inc. (consolidated) and T Bank, N.A. (bank-only) met the definition of "**well-capitalized**" as of June 30, 2025, exceeding all Basel III and prompt corrective action capital ratios[119](index=119&type=chunk)[257](index=257&type=chunk) | Ratio | Tectonic Financial, Inc. (Consolidated) | T Bank, N.A. (Bank Only) | Basel III Minimum (with buffer) | Well-Capitalized Threshold | | :---------------------------------- | :-------------------------------------- | :----------------------- | :------------------------------ | :------------------------- | | Total Capital (to Risk Weighted Assets) | 16.54% | 16.95% | 10.50% | 10.00% | | Tier 1 Capital (to Risk Weighted Assets) | 15.29% | 15.69% | 8.50% | 8.00% | | Common Equity Tier 1 (to Risk Weighted Assets) | 12.49% | 15.69% | 7.00% | 6.50% | | Tier 1 Leverage Ratio (to Average Assets) | 10.12% | 10.39% | 4.00% | 5.00% | - Approximately **$19.9 million** was available for the declaration of dividends by the Bank to the Company without prior regulatory approval as of June 30, 2025[120](index=120&type=chunk) [Note 14. Operating Segments](index=34&type=section&id=Note%2014.%20Operating%20Segments) The Company operates through two primary reportable segments: Banking and Other Financial Services, with a third category, "HoldCo and Other," for holding company activities and shared services, used by the chief operating decision maker to evaluate performance - Banking segment: Full-service banking operations, including depository, lending, and factoring services - Other Financial Services segment: Fee-based services in trust, retirement, financial management, investment advisory, and securities brokerage - HoldCo and Other category: Includes T Bancshares and financial holding company operations, with principal revenue from subsidiary dividends and allocated shared service expenses | Segment | Net Income (6 Months Ended June 30, 2025, in thousands) | | :------------------------ | :---------------------------------------------------- | | Banking | $4,269 | | Other Financial Services | $7,527 | | HoldCo and Other | $(3,072) | | **Consolidated Net Income** | **$8,724** | [Note 15. Fair Value of Financial Instruments](index=36&type=section&id=Note%2015.%20Fair%20Value%20of%20Financials%20Instruments) The Company measures financial instruments at fair value using a hierarchy (Level 1, 2, 3 inputs), with securities available for sale classified as Level 2, and securities held to maturity and loans primarily as Level 3 - Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities - Level 2 Inputs: Observable inputs other than Level 1 quoted prices, either directly or indirectly - Level 3 Inputs: Unobservable inputs reflecting an entity's own assumptions about market participant assumptions | Financial Instrument | Fair Value Hierarchy Level (June 30, 2025) | | :-------------------------- | :----------------------------------------- | | Cash and cash equivalents | Level 1 | | Securities available for sale | Level 2 | | Securities, restricted | Level 2 | | Loans held for sale | Level 2 | | Accrued interest receivable | Level 2 | | Securities held to maturity | Level 3 | | Loans, net | Level 3 | | Servicing asset | Level 3 | | Non-interest bearing deposits | Level 1 | | Interest bearing deposits | Level 2 | | Borrowed funds and subordinated debt | Level 2 | | Accrued interest payable | Level 2 | - Financial assets measured at fair value on a non-recurring basis include impaired loans and loans held for sale. Non-financial assets measured at fair value on a non-recurring basis include other real estate owned[132](index=132&type=chunk)[137](index=137&type=chunk) [Note 16. Recent Accounting Pronouncements](index=40&type=section&id=Note%2016.%20Recent%20Accounting%20Pronouncements) The Company is evaluating two new accounting pronouncements: ASU 2023-09 (Improvements to Income Tax Disclosures), effective in 2025, and ASU 2024-03 (Disaggregation of Income Statement Expenses), effective in 2027/2028, with the latter not expected to significantly impact consolidated financial statements - ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," is effective for the Company in **2025** and will require additional categories and details in the rate reconciliation table and disaggregation of income taxes paid[148](index=148&type=chunk) - ASU No. 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses," is effective for the Company in **2027** (annual periods) and **2028** (interim periods) and is not expected to have a significant impact on consolidated financial statements[149](index=149&type=chunk)[150](index=150&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a comprehensive review of Tectonic Financial, Inc.'s financial condition and operating results for the three and six months ended June 30, 2025, compared to the prior year, highlighting significant increases in net income, net interest income, and total assets [Cautionary Notice Regarding Forward-Looking Statements](index=42&type=section&id=Cautionary%20Notice%20Regarding%20Forward-Looking%20Statements) This section warns readers that the report contains forward-looking statements subject to various risks, assumptions, estimates, and uncertainties that could cause actual results to differ materially, advising against undue reliance - Statements in the report that are not purely historical are forward-looking and subject to risks, assumptions, estimates, and uncertainties that are difficult to predict[152](index=152&type=chunk) - Potential recession in the U.S. and market areas, impacting borrowers (especially SBA) - Risks associated with generating most loan growth and portfolio in SBA loans (higher default rates) - Impacts related to uncertainty in the banking industry as a whole - Liquidity risks, including meeting depositor demands - Risks associated with higher cost deposits and their impact on net interest margin and profits - Changes in market interest rates, inflation, and their effects on the economy and credit quality - Competition from other financial institutions and wealth management firms - Readers are cautioned not to place undue reliance on forward-looking statements, and the Company does not undertake any obligation to update them, except as required by applicable law[154](index=154&type=chunk) [Other Available Information](index=44&type=section&id=Other%20Available%20Information) The Company files various reports with the SEC (10-K, 10-Q, 8-K) which are publicly available on the SEC's website and the Company's own website, used for disclosing material non-public information in compliance with Regulation FD - The Company files annual reports on Form **10-K**, quarterly reports on Form **10-Q**, and current reports on Form **8-K** with the SEC[155](index=155&type=chunk) - Electronic copies of SEC filings are available at **www.sec.gov** and the Company's website, **www.t.financial**[155](index=155&type=chunk) - The Company intends to use its website (**www.t.financial**) as a means of disclosing material non-public information and for complying with SEC Regulation FD (Fair Disclosure)[156](index=156&type=chunk) [General](index=44&type=section&id=General) Tectonic Financial, Inc. is a Texas-based financial holding company offering a broad range of financial products and services through its subsidiaries: T Bancshares, Inc. (TBI), Sanders Morris LLC, Tectonic Advisors, LLC, and HWG Insurance Agency LLC - Tectonic Financial, Inc. is a Texas corporation and registered financial holding company headquartered in Dallas, Texas, providing a wide array of financial products and services[160](index=160&type=chunk) - T Bancshares, Inc. (TBI) for T Bank, N.A. (banking) - Sanders Morris LLC (broker-dealer, investment advisor) - Tectonic Advisors, LLC (investment advisor) - HWG Insurance Agency LLC (insurance agency) - Banking (commercial & consumer banking, factoring) - Other Financial Services (trust, retirement, financial management, investment advisory, brokerage) - HoldCo and Other (T Bancshares, financial holding company operations) [Recent Events](index=46&type=section&id=Recent%20Events) The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, introducing tax reform provisions, but the Company does not anticipate a material impact on its consolidated financial statements for the period ended June 30, 2025 - The One Big Beautiful Bill Act (OBBBA), including broad tax reform provisions, was signed into law on **July 4, 2025**[164](index=164&type=chunk) - The Company does not anticipate a material impact on its consolidated financial statements for the three and six months ended June 30, 2025, as the legislation was signed after the close of the second quarter[164](index=164&type=chunk) [Critical Accounting Policies and Estimates](index=46&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The Company's financial statements are prepared under GAAP, requiring management to make estimates and assumptions that affect reported amounts, with critical estimates being those highly uncertain or likely to materially impact financial statements - Consolidated financial statements are prepared based on accounting principles generally accepted in the United States (**GAAP**)[165](index=165&type=chunk) - Management makes estimates and assumptions that affect the amounts reported in the financial statements[165](index=165&type=chunk) - Critical accounting estimates are those requiring highly uncertain assumptions or where different estimates could have a material impact on financial statements[166](index=166&type=chunk) [Performance Summary](index=46&type=section&id=Performance%20Summary) Tectonic Financial, Inc. reported significant increases in net income available to common shareholders and diluted EPS for both the three and six months ended June 30, 2025, driven by higher net interest income and non-interest income | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Net income available to common shareholders | $3,800 | $2,758 | $1,042 | 37.8% | | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Net income available to common shareholders | $7,729 | $5,431 | $2,298 | 42.3% | | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change | % Change | | :----------------------------- | :--------------------------- | :--------------------------- | :----- | :------- | | Diluted EPS | $0.55 | $0.38 | $0.17 | 44.7% | | Weighted average diluted shares outstanding | 6,875,416 | 7,242,663 | (367,247) | -5.1% | | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | % Change | | :----------------------------- | :--------------------------- | :--------------------------- | :----- | :------- | | Diluted EPS | $1.12 | $0.75 | $0.37 | 49.3% | | Weighted average diluted shares outstanding | 6,897,215 | 7,252,424 | (355,209) | -4.9% | | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Annual return on average assets | 1.82% | 1.61% | 1.82% | 1.64% | | Annual return on average equity | 15.40% | 11.59% | 15.40% | 11.57% | [Net Interest Income](index=48&type=section&id=Net%20Interest%20Income) Net interest income significantly increased for both the three and six months ended June 30, 2025, primarily driven by a substantial increase in the average volume of loans and a decrease in the average cost of interest-bearing liabilities, expanding the net interest margin | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :---------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Net interest income | $10,216 | $7,832 | $2,384 | 30.4% | | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :---------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Net interest income | $19,181 | $14,934 | $4,247 | 28.4% | | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net interest margin | 4.50% | 4.22% | 4.36% | 4.18% | - For the three months ended June 30, 2025, the average volume of interest-earning assets increased by **$165.3 million** (**22.2%**) to **$911.4 million**, primarily due to a **$215.1 million** (**36.8%**) increase in average loan volume. The average yield on interest-earning assets decreased by **17 basis points** to **8.25%**[177](index=177&type=chunk)[178](index=178&type=chunk) - For the three months ended June 30, 2025, the average volume of interest-bearing liabilities increased by **$158.0 million** (**26.6%**) to **$752.5 million**, mainly from a **$177.1 million** (**31.6%**) increase in average interest-bearing deposits. The average rate paid on interest-bearing liabilities decreased by **72 basis points** to **4.55%**[179](index=179&type=chunk) [Provision for Credit Losses](index=53&type=section&id=Provision%20for%20Credit%20Losses) The provision for credit losses increased for both the three and six months ended June 30, 2025, primarily due to increased loan volume and required specific reserves, reflecting ongoing monitoring of asset quality and economic uncertainties | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Total Provision for Credit Losses | $1,836 | $1,660 | $176 | 10.6% | | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Total Provision for Credit Losses | $2,691 | $2,577 | $114 | 4.4% | - The increase in provision expense was driven by increased loan volume and required specific reserves[191](index=191&type=chunk) - Management continues to monitor for credit quality changes due to ongoing economic uncertainty, including the prolonged elevated interest rate environment and persistent inflationary pressures, which may necessitate additional provisions[190](index=190&type=chunk) [Non-Interest Income](index=53&type=section&id=Non-Interest%20Income) Total non-interest income increased for both the three and six months ended June 30, 2025, primarily driven by significant growth in brokerage and advisory income, and a modest increase in trust income, reflecting positive market conditions and asset inflows | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Total non-interest income | $11,401 | $10,742 | $659 | 6.1% | | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Total non-interest income | $24,269 | $21,240 | $3,029 | 14.3% | | Income Type | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Advisory income | $4,542 | $4,120 | $422 | 10.2% | | Brokerage income | $2,513 | $2,128 | $385 | 18.1% | | Trust income | $1,955 | $1,843 | $112 | 6.1% | | Income Type | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Advisory income | $8,941 | $8,058 | $883 | 11.0% | | Brokerage income | $5,676 | $3,910 | $1,766 | 45.2% | | Trust income | $3,919 | $3,582 | $337 | 9.4% | - Brokerage and advisory assets increased by approximately **$998 million** (**13.7%**) between June 30, 2024, and June 30, 2025, driven by positive net flows and market appreciation[198](index=198&type=chunk) [Non-Interest Expense](index=56&type=section&id=Non-Interest%20Expense) Total non-interest expense increased for both the three and six months ended June 30, 2025, primarily driven by higher salaries and employee benefits, occupancy and equipment, trust expenses, brokerage and advisory direct costs, and data processing | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Total non-interest expense | $14,186 | $12,915 | $1,271 | 9.8% | | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Total non-interest expense | $29,481 | $25,689 | $3,792 | 14.8% | | Expense Type | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :---------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Salaries and employee benefits | $9,456 | $8,891 | $565 | 6.4% | | Brokerage and advisory direct costs | $647 | $517 | $130 | 25.1% | | Data processing | $381 | $289 | $92 | 31.8% | | Expense Type | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :---------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :------- | | Salaries and employee benefits | $19,805 | $17,533 | $2,272 | 13.0% | | Brokerage and advisory direct costs | $1,285 | $1,037 | $248 | 23.9% | | Data processing | $703 | $571 | $132 | 23.1% | [Income Taxes](index=60&type=section&id=Income%20Taxes) Income tax expense increased significantly for both the three and six months ended June 30, 2025, leading to higher effective tax rates, influenced by non-deductible expenses related to credit losses and stock options | Period | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :----- | :------------------ | :------------------ | :-------------------- | :------- | | 3 Months | $1,324 | $853 | $471 | 55.2% | | 6 Months | $2,553 | $1,701 | $852 | 50.1% | | Period | 2025 | 2024 | Change (pp) | | :----- | :---- | :---- | :---------- | | 3 Months | 23.7% | 21.3% | 2.4 | | 6 Months | 22.6% | 21.5% | 1.1 | - The effective tax rate is affected by income tax effects of nondeductible expenses related to stock options and differences in depreciation and amortization for tax purposes, among other things[212](index=212&type=chunk) [Segment Reporting](index=60&type=section&id=Segment%20Reporting) The Company's segment reporting details the performance of its Banking, Other Financial Services, and HoldCo and Other categories, with both Banking and Other Financial Services segments showing increased income before taxes | Segment | Income Before Taxes (3 Months Ended June 30, 2025, in thousands) | | :------------------------ | :------------------------------------------------------------- | | Banking | $3,237 | | Other Financial Services | $4,073 | | HoldCo and Other | $(1,715) | | Segment | Income Before Taxes (6 Months Ended June 30, 2025, in thousands) | | :------------------------ | :------------------------------------------------------------- | | Banking | $6,048 | | Other Financial Services | $8,795 | | HoldCo and Other | $(3,566) | - Banking segment income before taxes increased by **94.5%** for the three months and **74.5%** for the six months ended June 30, 2025, primarily due to increased net interest income[217](index=217&type=chunk) - Other Financial Services segment income before taxes increased by **5.8%** for the three months and **17.5%** for the six months ended June 30, 2025, driven by increases in non-interest income[222](index=222&type=chunk) - The HoldCo and Other category's loss before taxes increased by **13.1%** for the three months and **17.3%** for the six months ended June 30, 2025, mainly due to higher non-interest expenses, particularly salaries and employee benefits[225](index=225&type=chunk) [Financial Condition](index=64&type=section&id=Financial%20Condition) This section details the Company's investment securities, loan portfolio, non-performing assets, allowance for credit losses, and sources of funds, highlighting growth in the loan portfolio and non-performing assets while meeting regulatory capital requirements [Investment Securities](index=64&type=section&id=Investment%20Securities) The Company's investment portfolio includes available-for-sale (U.S. government agencies, mortgage-backed) and held-to-maturity (PACE, PID/TIRZ) securities, along with restricted FRB and FHLB stock, with unrealized losses not considered credit-related | Type | Amortized Cost (in thousands) | Fair Value (in thousands) | | :------------------------ | :---------------------------- | :------------------------ | | U.S. government agencies | $15,562 | $14,263 | | Mortgage-backed securities | $8,613 | $8,383 | | Total available for sale | $24,175 | $22,646 | | Type | Amortized Cost (in thousands) | Fair Value (in thousands) | | :-------- | :---------------------------- | :------------------------ | | PACE | $895 | $814 | | PID/TIRZ | $21,609 | $19,762 | | Total held to maturity | $22,504 | $20,576 | - Unrealized losses on available-for-sale securities are due to increases in market interest rates, not credit factors, and no allowance for credit losses was recognized[231](index=231&type=chunk) [Loan Portfolio Composition](index=66&type=section&id=Loan%20Portfolio%20Composition) The total loan portfolio, excluding allowance for credit losses, increased by $85.4 million to $754.8 million at June 30, 2025, primarily driven by SBA loans, which constitute 63.9% of the total portfolio | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :------------- | :--------------------------- | :------------------------------- | :-------------------- | :------- | | Total Loans | $754,838 | $669,367 | $85,471 | 12.8% | | Loan Type | June 30, 2025 (in thousands) | % of Total Loans | | :----------------------------- | :--------------------------- | :--------------- | | SBA 7(a) guaranteed | $273,046 | 36.2% | | SBA 7(a) unguaranteed | $114,610 | 15.2% | | SBA 504 | $94,400 | 12.5% | | Commercial and industrial | $87,520 | 11.6% | | Real estate – commercial | $66,892 | 8.8% | | Real estate – construction and land | $65,743 | 8.7% | - SBA loans comprise the largest group, totaling **$482.1 million** or **63.9%** of total loans at June 30, 2025, up from **$411.9 million** or **61.5%** at December 31, 2024[234](index=234&type=chunk) [Non-performing Assets](index=68&type=section&id=Non-performing%20Assets) Non-performing assets significantly increased to $31.0 million at June 30, 2025, from $15.9 million at December 31, 2024, primarily due to a substantial increase in non-accrual loans, particularly in real estate construction/land and SBA categories | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :--------------------------- | :------------------------------- | :-------------------- | :------- | | Total non-performing assets | $30,962 | $15,938 | $15,024 | 94.3% | | Total non-accrual loans | $29,501 | $15,908 | $13,593 | 85.5% | | Non-Accrual Loan Type | June 30, 2025 (in thousands) | % of Total Loans | | :---------------------------- | :--------------------------- | :--------------- | | Real estate – construction/land | $12,039 | 1.59% | | SBA guaranteed | $10,105 | 1.34% | | SBA 504 | $4,958 | 0.66% | - There were no foreclosed assets as of June 30, 2025, and December 31, 2024[138](index=138&type=chunk)[238](index=238&type=chunk) [Allowance for Credit Losses](index=68&type=section&id=Allowance%20for%20Credit%20Losses) The allowance for credit losses (ACL) increased to $10.7 million at June 30, 2025, from $9.2 million at December 31, 2024, reflecting management's estimate of expected credit losses under the CECL methodology, with the ACL to loans ratio remaining stable at 1.42% | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Allowance for credit losses | $10,748 | $9,183 | | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Ratio of allowance for loans to end of period loans | 1.42% | 1.44% | | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :---------------- | :------------------------------------------ | :------------------------------------------ | | Net charge-offs | $1,374 | $427 | - The Company uses the open pool life method to estimate expected losses for all loan pools, with qualitative adjustments (**Q-Factors**) for risk factors such as lending policies, management experience, past due loans, and economic conditions[241](index=241&type=chunk)[246](index=246&type=chunk) [Sources of Funds](index=70&type=section&id=Sources%20of%20Funds) The Company's primary sources of funds are deposits, loan and investment security repayments, and cash flows from operations, with total deposits increasing by 20.0% to $853.1 million at June 30, 2025, and time deposits being the largest component - Primary sources of funds include deposits, loan and investment security repayments, and cash flows generated from operations[249](index=249&type=chunk)[263](index=263&type=chunk) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :------------- | :--------------------------- | :------------------------------- | :-------------------- | :------- | | Total deposits | $853,082 | $711,147 | $141,935 | 20.0% | | Deposit Type | Average Balance (6 Months Ended June 30, 2025, in thousands) | Percent of Total Deposits | | :------------------------ | :----------------------------------------------------------- | :------------------------ | | Time deposits | $532,669 | 63.1% | | Money market accounts | $171,769 | 24.2% | | Non-interest-bearing deposits | $66,639 | 11.0% | - The estimated amount of uninsured deposits was approximately **$57.9 million**, or **6.8%** of total deposits, as of June 30, 2025[251](index=251&type=chunk) [Borrowings](index=71&type=section&id=Borrowings) The Company had no FHLB or FRB borrowings as of June 30, 2025, having repaid $10.0 million in FHLB borrowings in January 2025, while subordinated notes totaling $12.0 million remained outstanding with slightly decreased interest rates | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Total Borrowings | $12,000 | $22,000 | | FHLB borrowings | $0 | $10,000 | | FRB borrowings | $0 | $0 | - Subordinated notes totaling **$12.0 million** remained outstanding at both June 30, 2025, and December 31, 2024[254](index=254&type=chunk) - 2017 Notes interest rate: **9.66640%** at June 30, 2025 (vs. **10.03406%** at Dec 31, 2024) - 2018 Note interest rate: **8.88940%** at June 30, 2025 (vs. **9.25706%** at Dec 31, 2024) [Capital Resources and Regulatory Capital Requirements](index=71&type=section&id=Capital%20Resources%20and%20Regulatory%20Capital%20Requirements) Shareholders' equity increased to $114.6 million at June 30, 2025, driven by net income and other comprehensive income, partially offset by treasury stock repurchases and dividends, with both the Company and its Bank subsidiary maintaining "well-capitalized" status - Shareholders' equity increased by **$1.2 million** (**1.0%**) to **$114.6 million** as of June 30, 2025[256](index=256&type=chunk) - The Company and the Bank met the definition of "**well-capitalized**" under applicable regulations as of June 30, 2025, exceeding all capital adequacy requirements[257](index=257&type=chunk) | Ratio | Actual Ratio (June 30, 2025, Consolidated) | Required – Basel III | Required to be Well Capitalized | | :---------------------------------- | :----------------------------------------- | :------------------- | :------------------------------ | | Total Capital (to Risk Weighted Assets) | 16.54% | 10.50% | 10.00% | | Tier 1 Capital (to Risk Weighted Assets) | 15.29% | 8.50% | 8.00% | | Common Equity Tier 1 (to Risk Weighted Assets) | 12.49% | 7.00% | 6.50% | | Tier 1 Capital (to Average Assets) | 10.12% | 4.00% | 5.00% | [Liquidity](index=73&type=section&id=Liquidity) The Company manages liquidity to meet operational and unexpected demands, relying primarily on deposits, loan repayments, and investment maturities, maintaining significant cash at the FRB and substantial unutilized borrowing capacity with the FHLB and FRB - The Company's primary sourc

Financial Performance - Net income available to common shareholders increased by $1.2 million, or 44.4%, to $3.9 million for the three months ended March 31, 2025, compared to $2.7 million for the same period in 2024[163]. - Earnings per diluted common share were $0.57 for the three months ended March 31, 2025, up from $0.37 for the same period in 2024[163]. - Annual return on average assets was 2.01% for the three months ended March 31, 2025, compared to 1.67% for the same period in the prior year[163]. - Annual return on average tangible common equity increased to 22.39% for the three months ended March 31, 2025, from 15.81% for the same period in 2024[165]. - Net interest income increased by $1.9 million, contributing to the overall increase in net income[163]. - Non-interest income rose by $2.4 million for the three months ended March 31, 2025, compared to the same period in 2024[163]. Assets and Liabilities - Total assets increased by $47.1 million, or 5.5%, to $910.5 million as of March 31, 2025, from $863.4 million as of December 31, 2024[165]. - Average volume of interest-earning assets rose by $169.6 million, or 24.5%, from $691.4 million in Q1 2024 to $861.0 million in Q1 2025, driven by a $190.3 million, or 35.2%, increase in average loans[172]. - Average volume of interest-bearing liabilities increased by $157.9 million, or 28.7%, from $550.8 million in Q1 2024 to $708.7 million in Q1 2025, including a $179.2 million, or 34.7%, increase in interest-bearing deposits[175]. - As of March 31, 2025, total loans increased by $34.4 million to $703.8 million compared to $669.4 million at December 31, 2024[220]. - As of March 31, 2025, total deposits increased by $41.7 million, or 5.9%, to $752.8 million compared to $711.1 million as of December 31, 2024[238]. Credit Quality - The provision for credit losses decreased by $62,000, partially offsetting the increase in non-interest expenses[163]. - Provision for credit losses totaled $855,000 in Q1 2025, reflecting an increase in loan volume and required specific reserves, compared to $917,000 in Q1 2024[181]. - The allowance for credit losses is calculated based on historical credit loss experience and current conditions, with adjustments for portfolio-specific risk characteristics[226]. - The allowance for credit losses at the end of the period was $9,136,000, reflecting a decrease from $9,183,000 at the beginning of the period[235]. - Non-performing assets totaled $20.358 million, representing 2.89% of total loans as of March 31, 2025, compared to $15.938 million or 2.38% at December 31, 2024[225]. Income and Expenses - Total non-interest expense for the three months ended March 31, 2025 increased by $2.5 million, or 19.7%, compared to the same period in the prior year, attributed to various expense categories including salaries and employee benefits[191]. - Salaries and employee benefits for the three months ended March 31, 2025 increased by $1.7 million, or 19.7%, compared to the same period in the prior year, with significant increases in bonuses and commissions[192]. - Professional fees for the three months ended March 31, 2025 increased by $140,000, or 32.3%, driven by increases in legal and consulting fees across segments[196]. - Income tax expense for the three months ended March 31, 2025 was approximately $1.2 million, compared to $848,000 for the same period in the prior year, with an effective tax rate of 21.6%[199]. Market and Economic Conditions - The Company believes it has adequate liquidity to meet obligations, but potential economic downturns could restrict funding sources and increase costs[255]. - Interest rate risk is a primary market risk for the Company, with management employing simulation models to assess the impact of interest rate changes on net interest income[262]. - Inflation generally increases costs and may adversely affect liquidity, earnings, and shareholders' equity, impacting the financial institution's performance more significantly than for industrial companies[265]. Capital Adequacy - The Company met all capital adequacy requirements as of March 31, 2025, and December 31, 2024[245]. - As of March 31, 2025, Tectonic Financial, Inc. reported a Tier 1 Capital to Average Assets ratio of 10.34%, down from 11.32% as of December 31, 2024[248]. - Common Equity Tier 1 Capital to Risk Weighted Assets was 12.63% as of March 31, 2025, compared to 13.37% at the end of 2024[248].

Financial Performance - Net income available to common shareholders decreased by $1.6 million, or 11.6%, to $12.1 million for the year ended December 31, 2024, compared to $13.7 million for 2023[353]. - Annual return on average assets was 1.75% for 2024, compared to 2.38% for 2023[353]. - Annual return on average equity was 12.66% for 2024, compared to 15.04% for 2023[353]. - The Company’s consolidated net income for the year ended December 31, 2024, was $13.9 million, compared to $13.4 million in 2023[393]. - Income before taxes for the year ended December 31, 2024, decreased by $3.2 million, or 26.6%, compared to 2023, primarily due to a $4.1 million increase in non-interest expense and a $3.6 million increase in the provision for credit losses[395]. Assets and Liabilities - Total assets grew by $186.1 million, or 27.5%, to $863.4 million as of December 31, 2024, from $677.3 million as of December 31, 2023[356]. - The average volume of interest-earning assets increased by $159.8 million, or 26.8%, from $597.1 million for the year ended December 31, 2023, to $756.9 million for the year ended December 31, 2024[363]. - The average volume of interest-bearing liabilities increased by $170.4 million, or 39.2%, from $435.0 million in 2023 to $605.4 million in 2024[365]. - Total loans increased by $168.3 million, or 33.6%, to $669.4 million at December 31, 2024, compared to $501.1 million at December 31, 2023[410]. - Total deposits increased by $184.3 million, or 35.0%, to $711.1 million as of December 31, 2024, from $526.9 million as of December 31, 2023[442]. Income and Expenses - Net interest income increased by $4.7 million, or 17.2%, from $27.4 million for the year ended December 31, 2023, to $32.0 million for the year ended December 31, 2024[362]. - Non-interest income for 2024 increased by $5.3 million, or 13.2%, totaling $45.1 million compared to $39.8 million in 2023[373]. - Total non-interest expense for the year ended December 31, 2024, increased by $7.1 million, or 15.2%, compared to 2023, totaling $53.9 million[382]. - Salaries and employee benefits for the year ended December 31, 2024, increased by $5.7 million, or 18.3%, totaling $37.0 million, driven by increases in commissions and bonuses[383]. - Non-interest expense for the year ended December 31, 2024, increased by $4.1 million, or 23.4%, mainly due to increased salaries and employee benefits related to the expansion of SBA lending and Integra factoring[399]. Credit Losses and Provisions - The company adopted the current expected credit loss (CECL) methodology, resulting in an increase of $1.4 million to the allowance for credit losses for loans[352]. - Provision for credit losses increased to $4.8 million in 2024 from $1.3 million in 2023, reflecting changes in loan volume and economic outlook[371]. - The provision for credit losses for the year ended December 31, 2024, was $4,583 thousand, an increase from $1,333 thousand in 2023[439]. - Non-accrual loans totaled $15,908 thousand, or 2.38% of total loans as of December 31, 2024, compared to $2,423 thousand, or 0.48% in 2023[429]. Interest Income and Rates - Total interest income for the year ended December 31, 2024, was $63.6 million, compared to $46.5 million in 2023, reflecting a significant increase[393]. - The average interest rate paid on interest-bearing liabilities rose by 83 basis points from 4.39% in 2023 to 5.22% in 2024[365]. - The average cost of funds for total deposits was 4.58% for the year ended December 31, 2024, compared to 3.46% in 2023[442]. Equity and Capital - Shareholders' equity increased by $6.5 million, or 6.1%, to $113.4 million as of December 31, 2024, from $106.9 million as of December 31, 2023[356]. - The Company met all capital adequacy requirements as of December 31, 2024, with the Bank qualifying as "well capitalized" under Basel III regulations[449]. - Tier 1 Capital to Average Assets ratio was 11.32% as of December 31, 2024, down from 13.97% as of December 31, 2023[451]. Loan Portfolio - SBA loans comprise 61.5% of total loans at $411.9 million as of December 31, 2024, up from 53.7% at $268.9 million in 2023[410]. - The loan portfolio included $76.2 million in loans to the dental industry, approximately 11.4% of total funded loans, down from $78.2 million, or 15.6% in 2023[423]. - The company has established guidelines for underwriting criteria including collateral coverage ratios and global debt service coverage ratios[422]. Interest Rate Sensitivity - The company conducts annual stress tests to measure the impact of market interest rate changes on net interest income[468]. - A simulated change in net interest income over a 12-month horizon shows an 8.99% increase with a +200 basis points change in interest rates[469]. - The Asset Liability Committee regularly reviews the sensitivity of assets and liabilities to interest rate changes[466].

Financial Performance - Net income available to common shareholders increased by $416,000, or 11.0%, to $4.2 million for Q3 2024 compared to Q3 2023[161] - Earnings per diluted common share were $0.58 for Q3 2024, up from $0.52 in Q3 2023[161] - For the nine months ended September 30, 2024, net income available to common shareholders decreased by $1.1 million, or 10.4%, to $9.6 million compared to the same period in 2023[161] - Annual return on average assets for Q3 2024 was 2.29%, down from 2.62% in Q3 2023[162] - Annual return on average equity for Q3 2024 was 16.89%, compared to 16.22% for the same period in the prior year[162] - The increase in net income for Q3 2024 was primarily due to a $1.8 million increase in net interest income and a $1.1 million increase in non-interest income[161] Credit Losses and Provisions - The provision for credit losses increased by $644,000 for Q3 2024 compared to Q3 2023[161] - The company adopted the current expected credit loss (CECL) methodology, resulting in a $1.4 million increase to the allowance for credit losses for loans[160] - The company recognized a cumulative effect reduction to retained earnings totaling $1.3 million upon adopting the CECL methodology[160] - Provision for credit losses for loans was $467,000 in Q3 2024, compared to a reversal of $(38,000) in Q3 2023, indicating a shift in credit quality assessment[187] - The allowance for credit losses increased to $(8,282,000) in Q3 2024 from $(6,150,000) in Q3 2023, reflecting a proactive approach to potential credit risks[180] - The company anticipates future provisions for credit losses may be necessary due to uncertain economic conditions influenced by elevated interest rates and inflationary pressures[185] Assets and Liabilities - Total assets increased by $170.2 million, or 25.1%, to $847.5 million as of September 30, 2024, from $677.3 million as of December 31, 2023[164] - Total loans increased by $119.7 million to $620.8 million as of September 30, 2024, compared to $501.1 million at December 31, 2023[229] - Total deposits increased by $159.2 million, or 30.2%, to $686.1 million as of September 30, 2024, compared to $526.9 million as of December 31, 2023[246] - The allowance for credit losses increased to $8.736 million as of September 30, 2024, from $6.308 million at December 31, 2023[243] - The ratio of allowance for loans to end of period loans was 1.41% as of September 30, 2024, compared to 1.25% at December 31, 2023[243] Income and Revenue - Total consolidated revenue for the nine months ended September 30, 2024 was $55,725,000, compared to $50,692,000 for the same period last year[211] - Revenue for the Banking segment was $9,344,000 for the three months ended September 30, 2024, compared to $7,292,000 for the same period last year[211] - Non-interest income for the three months ended September 30, 2024 increased by $808,000, or 8.3%, compared to the same period last year, driven by advisory income growth of $718,000[219] Interest Income and Expenses - Net interest income increased by $1.8 million, or 27.5%, from $6.6 million for the three months ended September 30, 2023, to $8.4 million for the same period in 2024[170] - Net interest margin for the three months ended September 30, 2024, was 4.25%, a decrease of 18 basis points from 4.43% for the same period in 2023[170] - Interest expense for the nine months ended September 30, 2024 increased by $99,000, attributed solely to rising interest rates on subordinated debt[221] Non-Interest Income and Expenses - Total non-interest income rose to $11,176,000 in Q3 2024, a 10.4% increase compared to $10,125,000 in Q3 2023[189] - Total non-interest expense increased by $1.8 million, or 16.2%, for the three months ended September 30, 2024, and by $4.2 million, or 12.0%, for the nine months ended September 30, 2024, compared to the same periods in the prior year[198] - Salaries and employee benefits increased by $1.3 million, or 16.9%, for the three months ended September 30, 2024, and by $3.3 million, or 14.3%, for the nine months ended September 30, 2024, compared to the same periods in the prior year[199] Market and Economic Conditions - The company manages interest rate risk primarily through its Asset Liability Committee, which formulates strategies based on interest rate risk levels and considers the impact on earnings and capital[269] - Inflation generally increases the costs of funds and operating overhead, significantly affecting the performance of the financial institution compared to industrial companies[274] - The impact of inflation and rising market interest rates may adversely affect liquidity, earnings, and shareholders' equity[274] Capital and Equity - Shareholders' equity rose by $5.9 million, or 5.5%, to $112.8 million as of September 30, 2024, driven by net income of $10.9 million[251] - The Company met all capital adequacy requirements as of September 30, 2024, with Tier 1 Capital to Average Assets ratio at 11.48%[254]

Financial Performance - Net income available to common shareholders increased by $125,000, or 4.7%, to $2.76 million for Q2 2024 compared to Q2 2023[162] - Earnings per diluted common share were $0.38 for Q2 2024, up from $0.36 in Q2 2023[162] - For the six months ended June 30, 2024, net income available to common shareholders decreased by $1.5 million, or 22.0%, to $5.43 million compared to the same period in 2023[162] - The increase in net income for Q2 2024 was primarily due to a $1.0 million increase in net interest income and a $1.3 million increase in non-interest income[162] - Non-interest income for Q2 2024 totaled $10.74 million, a rise of $1.31 million or 13.9% from $9.43 million in Q2 2023[189] Asset and Equity Growth - Total assets increased by $99.8 million, or 14.7%, to $777.1 million as of June 30, 2024, from $677.3 million as of December 31, 2023[165] - Shareholders' equity increased by $3.5 million, or 3.3%, to $110.4 million as of June 30, 2024, from $106.9 million as of December 31, 2023[166] - Total assets increased to $788.15 million in Q2 2024, up from $620.34 million in Q2 2023, representing a growth of 27.0%[181] Interest Income and Margin - Net interest income increased by $1.0 million, or 14.8%, from $6.8 million for the three months ended June 30, 2023, to $7.8 million for the three months ended June 30, 2024[171] - Net interest margin for the three months ended June 30, 2024, was 4.22%, a decrease of 51 basis points from 4.73% for the same period in 2023[171] - The average yield on interest-earning assets increased by 62 basis points from 7.80% for the three months ended June 30, 2023, to 8.42% for the three months ended June 30, 2024[173] Credit Losses and Provisions - The provision for credit losses increased by $969,000 for Q2 2024 compared to the previous year[162] - The provision for credit losses for loans was $1.62 million in Q2 2024, compared to $0.72 million in Q2 2023, indicating a significant increase of 126.5%[187] - The allowance for credit losses increased by $1.4 million following the adoption of the CECL methodology, totaling $8,276,000 as of June 30, 2024, compared to $6,308,000 at the end of 2023[242] Non-Interest Expenses - Non-interest expense increased by $1.2 million for Q2 2024 compared to the same period in 2023[162] - Total non-interest expense for the three and six months ended June 30, 2024, increased by $1.2 million, or 10.3%, and $2.3 million, or 9.9%, respectively, compared to the same periods in the prior year[198] - Salaries and employee benefits for the three and six months ended June 30, 2024, increased by $1.3 million, or 16.4%, and $2.0 million, or 13.1%, respectively, compared to the same periods in the prior year[199] Deposits and Liabilities - Total deposits rose by $92.2 million, or 17.5%, to $619.1 million as of June 30, 2024, up from $526.9 million as of December 31, 2023[246] - The average cost of funds for total deposits increased to 4.59% for the six months ended June 30, 2024, compared to 2.98% for the same period in 2023[246] - The average volume of interest-bearing liabilities increased by $171.8 million, or 40.7%, from $422.7 million for the three months ended June 30, 2023, to $594.5 million for the three months ended June 30, 2024[174] Market and Economic Factors - Inflation increases the costs of funds and operating overhead, impacting financial performance more significantly than general inflation levels[275] - Increases in market interest rates by the Federal Reserve may decrease the market value of investments and loans held[275] - The financial institution's assets and liabilities are primarily monetary, making them more sensitive to interest rate changes[275]

Financial Performance - Net income available to common shareholders decreased by $1.6 million, or 37.2%, to $2.7 million for the three months ended March 31, 2024, compared to $4.3 million for the same period in 2023[159]. - Earnings per diluted common share were $0.37 for the three months ended March 31, 2024, down from $0.59 for the same period in 2023[159]. - For the three months ended March 31, 2024, consolidated revenue was $17,600,000, a decrease of 0.8% from $17,744,000 in the same period of 2023[200]. - Income before taxes for the Banking segment decreased by $2,200,000, or 55.1%, to $1,804,000 compared to the prior year[201]. - Income before taxes for the Other Financial Services segment increased by $736,000, or 25.4%, to $3,636,000, attributed to an increase in non-interest income[206]. Assets and Liabilities - Total assets increased by $100.3 million, or 14.8%, to $777.6 million as of March 31, 2024, from $677.3 million as of December 31, 2023[161]. - Cash and cash equivalents increased by $67.8 million, contributing to the total asset growth[161]. - Total loans increased by $37.3 million to $538.4 million as of March 31, 2024, compared to $501.1 million at December 31, 2023[216]. - Total deposits increased by $94.0 million, or 17.8%, to $620.9 million as of March 31, 2024, compared to $526.9 million as of December 31, 2023[235]. Equity and Capital - Shareholders' equity increased by $1.6 million, or 1.5%, to $108.5 million as of March 31, 2024, from $106.9 million as of December 31, 2023[162]. - The Company met all capital adequacy requirements as of March 31, 2024, and was classified as "well-capitalized" under applicable regulations[241]. - Tier 1 Capital to Average Assets ratio was 12.39% as of March 31, 2024, down from 13.97% as of December 31, 2023[243]. Income and Expenses - The company recorded an increase of $1.1 million in non-interest expense and an $839,000 increase in the provision for credit losses for the three months ended March 31, 2024[159]. - Total non-interest income decreased by $203,000, or 1.9%, to $10.498 million in Q1 2024 compared to Q1 2023[178]. - Total non-interest expense increased by $1.1 million, or 9.5%, for the three months ended March 31, 2024, primarily due to increases in salaries and employee benefits[187]. - Salaries and employee benefits increased by $779,000, or 9.9%, for the three months ended March 31, 2024, mainly due to increases in staff headcount and related payroll expenses[188]. Credit Losses and Provisions - The company adopted the current expected credit loss (CECL) methodology, resulting in a $1.4 million increase to the allowance for credit losses for loans[158]. - Provision for credit losses totaled $917,000 for Q1 2024, compared to $78,000 in Q1 2023, reflecting increased loan volume and economic outlook[176]. - The allowance for credit losses is calculated based on the CECL methodology, reflecting management's best estimate of expected credit losses[222]. - As of March 31, 2024, the total allowance for credit losses was $6,730,000, representing a 6.7% increase from $6,308,000 as of December 31, 2023[230]. Interest Income and Margin - Net interest income increased by $59,000, or 0.8%, from $7.0 million for the three months ended March 31, 2023, to $7.1 million for the same period in 2024[168]. - Net interest margin decreased from 4.58% in Q1 2023 to 4.13% in Q1 2024, a decline of 45 basis points[168]. - The average yield on interest-earning assets increased by 123 basis points from 7.09% in Q1 2023 to 8.32% in Q1 2024, with loans yielding 9.24% in Q1 2024, up 129 basis points[170]. Market and Economic Conditions - A simulated increase of 200 basis points in interest rates would result in a 10.85% increase in net interest income over a 12-month horizon[262]. - Inflation generally increases the costs of funds and operating overhead, affecting the performance of the financial institution more significantly than general levels of inflation[264]. - The Company believes it has adequate liquidity to meet its obligations despite potential economic challenges[250].

Financial Performance - The total assets of Tectonic Financial, Inc. increased to $677,346,000 as of December 31, 2023, compared to $612,536,000 in 2022, reflecting a growth of approximately 10.6%[458] - Loans, net of allowance for credit losses, rose to $494,787,000 in 2023 from $445,819,000 in 2022, indicating an increase of about 10.9%[458] - Total deposits increased to $526,891,000 in 2023, up from $493,025,000 in 2022, representing a growth of approximately 6.9%[458] - The company's retained earnings grew to $58,917,000 in 2023, compared to $48,564,000 in 2022, marking an increase of about 21.3%[458] - Total interest income increased to $46,467,000 in 2023 from $33,385,000 in 2022, representing a 39.2% increase[460] - Net income decreased to $15,220,000 in 2023 from $17,030,000 in 2022, a decline of 10.6%[463] - Total non-interest income was $39,804,000 in 2023, slightly down from $40,040,000 in 2022, a decrease of 0.6%[460] - Net interest income after provision for credit losses was $26,073,000 in 2023, compared to $26,217,000 in 2022, a decrease of 0.5%[460] - Earnings per common share (basic) decreased to $1.94 in 2023 from $2.19 in 2022, a decline of 11.4%[460] - The company reported a comprehensive income of $15,768,000 in 2023, compared to $14,990,000 in 2022, an increase of 5.2%[463] Interest Rate and Risk Management - The asset liability management model indicated an asset-sensitive position in terms of income simulation as of December 31, 2023[448] - A simulated increase of 200 basis points in interest rates is projected to result in a 20.71% increase in net interest income over a 12-month horizon[448] - The company has established a measurement system for monitoring net interest rate sensitivity, which is a primary component of market risk[441] - Interest rate risk is managed by the Bank's Asset Liability Committee, which formulates strategies based on the current outlook on interest rates and other factors[444] Credit Losses and Allowance - The provision for credit losses was $1,288,000 in 2023, slightly up from $1,264,000 in 2022, an increase of 1.9%[460] - The allowance for credit losses rose to $6.31 million in 2023 from $4.51 million in 2022, indicating a more cautious approach to potential loan defaults[537] - The allowance for credit losses consists of a specific valuation allowance based on identified loans and a general valuation allowance based on historical credit loss experience and economic conditions[556] - The Company recorded a one-time cumulative-effect adjustment to the allowance for credit losses of $1.4 million, bringing the beginning balance to $5.9 million as of January 1, 2023[489] - The allowance for credit losses for off-balance-sheet credit exposures was $193,000 as of December 31, 2023, reflecting a provision of $(45,000) during the year[612] Loans and Asset Quality - The total gross loans increased to $501.1 million in 2023 from $450.3 million in 2022, with a notable increase in real estate construction and land loans from $3.87 million to $44.66 million[537] - Total non-accrual loans as of December 31, 2023, amounted to $2.423 million, slightly down from $2.466 million in 2022, with the largest category being SBA guaranteed loans at $1.951 million[554] - The Company maintains guidelines for underwriting criteria, including collateral coverage ratios and global debt service coverage ratios[551] - The total past due loans as of December 31, 2023, were $501,095, with $2,316 classified as past due[562] - Loans rated as 'pass' are considered acceptable, with borrowers showing good financial health and adequate repayment sources[565] Regulatory and Compliance - The company has the potential to take advantage of reduced regulatory and reporting requirements as an emerging growth company until its annual gross revenues exceed $1.07 billion[295] - The bank must maintain a Total risk-based capital ratio of 10% to be categorized as "well-capitalized" under regulatory standards[619] - As of December 31, 2023, Tectonic Financial, Inc. has a Total Capital ratio of 20.90%, significantly above the required minimum of 10.50% under Basel III regulations[622] - As of December 31, 2023, T Bank, N.A. reported a Tier 1 Capital ratio of 20.04%, exceeding the required minimum of 8.50%[622] Operational Highlights - The Company has adopted ASU 2022-02, enhancing disclosure requirements for loan refinancings and restructurings, effective January 1, 2023[491] - The Company recognizes revenue from investment advisory services over time, with fees based on a percentage of assets under management, generally received monthly or quarterly[520] - The Company recorded advertising costs of $558,000 for the year ended December 31, 2023, compared to $475,000 in 2022, reflecting an increase of approximately 17.4%[509] - The Company has not experienced any losses in cash deposit accounts that may exceed federally insured limits, indicating no significant credit risk[476] Employee and Compensation - The company’s employer contributions to 401(k) plans increased to $707,000 in 2023 from $575,000 in 2022[595] - The company recorded compensation expenses of $81,000 and $78,000 for stock options and restricted stock for the years ended December 31, 2023 and 2022, respectively[604] - The company granted 210,000 restricted stock units on September 30, 2020, with a fair value of $4.81 per unit, vesting over three years from 2023 to 2025[605]

Financial Performance - Net income available to common shareholders decreased by $292,000, or 6.6%, to $3.8 million for Q3 2023 compared to Q3 2022[165]. - Earnings per diluted common share were $0.52 for Q3 2023, down from $0.56 in Q3 2022[165]. - For the nine months ended September 30, 2023, net income available to common shareholders decreased by $1.6 million, or 13.0%, to $10.7 million compared to the same period in 2022[165]. - Annual return on average assets was 2.62% for Q3 2023, down from 2.98% in Q3 2022[166]. - Annual return on average equity was 16.22% for Q3 2023, compared to 19.27% for the same period in the prior year[166]. Credit Losses and Allowances - The company recorded an increase of $1.4 million to the allowance for credit losses for loans upon adopting the CECL methodology[164]. - The company recognized a cumulative effect reduction to retained earnings totaling $1.3 million due to the adoption of the CECL methodology[164]. - Increases in non-interest expense and provision for credit losses contributed to the decrease in net income for the nine months ended September 30, 2023[165]. - The provision for credit losses for the nine months ended September 30, 2023, was $732,000, compared to $477,000 for the same period in 2022[190]. - The allowance for credit losses is calculated based on the CECL methodology, reflecting management's best estimate of expected credit losses[240]. Assets and Equity - Total assets increased by $16.8 million, or 2.7%, to $629.3 million as of September 30, 2023, from $612.5 million as of December 31, 2022[168]. - Shareholders' equity rose by $8.4 million, or 8.7%, to $104.9 million as of September 30, 2023, from $96.5 million as of December 31, 2022[169]. Interest Income and Expenses - Net interest income decreased by $426,000, or 6.1%, from $7.0 million for the three months ended September 30, 2022, to $6.6 million for the three months ended September 30, 2023[174]. - The average volume of interest-earning assets increased by $39.8 million, or 7.3%, from $548.4 million for the three months ended September 30, 2022, to $588.4 million for the three months ended September 30, 2023[176]. - The average yield on interest-earning assets increased by 165 basis points from 6.23% for the three months ended September 30, 2022, to 7.88% for the three months ended September 30, 2023[176]. - The average interest rate paid on interest-bearing liabilities increased by 301 basis points from 1.68% for the three months ended September 30, 2022, to 4.69% for the three months ended September 30, 2023[177]. - Net interest margin for the nine months ended September 30, 2023, was 4.58%, a decrease of 45 basis points from 5.03% for the same period in 2022[179]. Non-Interest Income - Total non-interest income for the three months ended September 30, 2023, increased by $491,000, or 5.1%, compared to the same period in the prior year[192]. - Trust income for the three and nine months ended September 30, 2023 increased by $194,000, or 13.2%, and $140,000, or 3.0%, respectively, compared to the same periods in the prior year, driven by net inflows of $658 million in assets[193]. - Advisory income for the three and nine months ended September 30, 2023 increased by $326,000, or 9.8%, and $554,000, or 5.4%, respectively, due to net asset inflows and market appreciation of $595 million[195]. - Brokerage income for the three and nine months ended September 30, 2023 decreased by $444,000, or 18.3%, and $2.8 million, or 33.1%, respectively, primarily due to decreased trading activity and economic uncertainty[196]. Non-Interest Expenses - Total non-interest expense for the three and nine months ended September 30, 2023 increased by $542,000, or 5.0%, and $1.7 million, or 5.1%, respectively, due to fluctuations in salaries and related employee benefits[202]. - Salaries and employee benefits for the three and nine months ended September 30, 2023 decreased by $103,000, or 1.3%, and increased by $64,000, or 0.3%, respectively, compared to the same periods in the prior year[203]. - Occupancy and equipment expenses for the three and nine months ended September 30, 2023 increased by $105,000, or 26.6%, and $180,000, or 14.2%, respectively, due to higher rent and maintenance costs[204]. - Professional fees rose by $69,000, or 23.2%, for the three months and $377,000, or 35.9%, for the nine months ended September 30, 2023, primarily due to increases in consulting fees related to robotic process automation and collections efforts on past due loans[208]. Loans and Deposits - Total loans increased by $28.9 million to $479.2 million as of September 30, 2023, compared to $450.3 million at December 31, 2022[234]. - The total loan portfolio includes various categories, with SBA 7(a) guaranteed loans making up 34.7% of total loans as of September 30, 2023[235]. - Total deposits rose by $7.6 million, or 1.0%, to $500.6 million as of September 30, 2023, from $493.0 million as of December 31, 2022[252]. - Non-interest-bearing deposits accounted for 19.1% of total deposits as of September 30, 2023, down from 22.0% in 2022[252]. Capital and Liquidity - The Company met all capital adequacy requirements as of September 30, 2023, and was classified as "well-capitalized" under applicable regulations[258]. - Tier 1 Capital to Average Assets ratio improved to 13.96% as of September 30, 2023, compared to 13.27% as of December 31, 2022[260]. - The Company believes it has adequate liquidity to meet its obligations despite potential economic challenges[267].

Financial Performance - Net income available to common shareholders decreased by $1.7 million, or 38.6%, to $2.6 million for Q2 2023 compared to Q2 2022[169] - Earnings per diluted common share were $0.36 for Q2 2023, down from $0.59 in Q2 2022[169] - For the six months ended June 30, 2023, net income available to common shareholders decreased by $1.3 million, or 15.6%, to $7.0 million compared to the same period in 2022[169] - The decrease in net income for Q2 2023 was primarily due to decreases in non-interest income and increases in the provision for credit losses and non-interest expense[169] - Income before taxes for the three and six months ended June 30, 2023 decreased by $730,000, or 23.3%, and $707,000, or 11.8%, respectively, compared to the same periods in the prior year[223] Asset and Equity Growth - Total assets increased by $9.5 million, or 1.6%, to $622.0 million as of June 30, 2023, from $612.5 million as of December 31, 2022[172] - Shareholders' equity increased by $5.2 million, or 5.4%, to $101.7 million as of June 30, 2023, from $96.5 million as of December 31, 2022[173] - Total loans excluding allowance for credit losses increased by $15.4 million to $465.7 million at June 30, 2023, compared to $450.3 million at December 31, 2022[234] - Total deposits rose by $5.0 million, or 1.0%, to $498.0 million as of June 30, 2023, compared to $493.0 million at the end of 2022[253] Interest Income and Margin - Net interest income increased by $235,000, or 3.6%, from $6.6 million for the three months ended June 30, 2022, to $6.9 million for the three months ended June 30, 2023[178] - Net interest margin decreased by 30 basis points from 5.03% for the three months ended June 30, 2022, to 4.73% for the three months ended June 30, 2023[178] - The average yield on interest-earning assets increased by 208 basis points from 5.72% for the three months ended June 30, 2022, to 7.80% for the three months ended June 30, 2023[179] - The average interest rate paid on interest-bearing liabilities increased by 322 basis points from 0.98% for the three months ended June 30, 2022, to 4.20% for the three months ended June 30, 2023[180] Credit Losses and Provisions - The company recorded an increase of $1.4 million to the allowance for credit losses for loans upon adopting the CECL methodology[168] - The provision for credit losses totaled $691,000 for the three months ended June 30, 2023, compared to no provision for the same period in the prior year[219] - The allowance for credit losses increased by $1.4 million due to the adoption of the CECL methodology, totaling $6,138,000 as of June 30, 2023[247] - The net charge-offs for the three months ended June 30, 2023, were $452,000, compared to $119,000 in the same period of 2022[249] Non-Interest Income and Expenses - Total non-interest income for the three months ended June 30, 2023, decreased by $1.2 million, or 11.1%, compared to the same period in the prior year[194] - Total non-interest expense increased by $424,000, or 3.8%, for the three months and by $1.1 million, or 5.1%, for the six months ended June 30, 2023, compared to the same periods in the prior year[203] - Non-interest income for the three and six months ended June 30, 2023 decreased by $1.2 million, or 11.7%, and $1.1 million, or 5.4%, respectively, primarily due to a decrease in brokerage income totaling $1.8 million and $2.4 million[224] Loan Composition and Quality - SBA loans comprised 56.6% of total loans at June 30, 2023, totaling $263.4 million, compared to 57.4% at December 31, 2022[234] - Non-performing assets decreased to $2,134,000 (0.34% of total assets) as of June 30, 2023, down from $2,804,000 (0.45%) as of December 31, 2022[239] - The composition of loans includes SBA 7(a) guaranteed loans at $161,340,000 (34.6% of total loans), which increased from $149,374,000 (33.2%)[235] Capital Adequacy and Ratios - The Company met all capital adequacy requirements as of June 30, 2023, and was classified as "well-capitalized" under applicable regulations[259] - Tier 1 Capital to Average Assets ratio improved to 13.62% as of June 30, 2023, compared to 13.27% at the end of 2022[261] - The ratio of allowance for loans to end of period loans improved to 1.32% as of June 30, 2023, compared to 0.99% in the previous year[249] Interest Rate Sensitivity and Projections - A 200 basis point increase in interest rates is projected to result in a 10.78% increase in net interest income over a 12-month horizon[280] - A 100 basis point increase in interest rates is projected to result in a 5.39% increase in net interest income over a 12-month horizon[280] - The Company has established a measurement system for monitoring the net interest rate sensitivity position, which is managed by the Bank's Asset Liability Committee[276]