UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number 001-38910 TECTONIC FINANCIAL, INC. (Exact name of registrant as specified in its charter) | Texas | 82-0764846 | | --- | --- | ...

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]

Financial Performance - Net income available to common shareholders increased by $429,000, or 11.0%, to $4.3 million for the three months ended March 31, 2023, compared to $3.9 million for the same period in 2022[166]. - Earnings per diluted common share were $0.59 for the three months ended March 31, 2023, compared to $0.53 for the same period in 2022[166]. - The increase in net interest income was a primary driver for the increase in net income available to common shareholders[166]. - The Company experienced a decrease in the provision for credit losses, which contributed to the overall increase in net income[166]. - Total non-interest income for the three months ended March 31, 2023 increased by $742,000, or 7.5%, to $10,701,000 compared to $9,959,000 in the prior year[186]. Assets and Equity - Total assets increased by $19.0 million, or 3.1%, to $631.5 million as of March 31, 2023, from $612.5 million as of December 31, 2022[169]. - Shareholders' equity increased by $3.1 million, or 3.2%, to $99.6 million as of March 31, 2023, from $96.5 million as of December 31, 2022[170]. - Average tangible common equity increased to $57.8 million for the three months ended March 31, 2023, compared to $46.1 million for the same period in 2022[169]. Credit Losses and Allowances - The Company recorded an increase of $1.4 million to the allowance for credit losses for loans upon adopting the current expected credit loss (CECL) methodology[165]. - Provision for credit losses for the three months ended March 31, 2023 was $78,000, a decrease of 76.1% compared to $327,000 for the same period in the prior year[184]. - The total allowance for credit losses on loans increased by $1.4 million to $5.873 million as of March 31, 2023, compared to $4.153 million as of December 31, 2022, following the adoption of the CECL methodology[240]. Interest Income and Expenses - Net interest income increased by $376,000, or 5.8%, from $6.6 million for the three months ended March 31, 2022, to $7.0 million for the same period in 2023[176]. - The average yield on interest-earning assets increased by 141 basis points from 5.68% in Q1 2022 to 7.09% in Q1 2023[177]. - The average interest rate paid on interest-bearing liabilities increased by 269 basis points from 0.92% in Q1 2022 to 3.61% in Q1 2023[178]. - The average cost of funds for total deposits was 3.43% for the three months ended March 31, 2023, compared to 0.74% for the same period in 2022[244]. Deposits and Loans - Total deposits rose by $15.4 million, or 3.12%, to $508.4 million as of March 31, 2023, from $493.0 million as of December 31, 2022[244]. - The average volume of interest-bearing deposits increased by $59.3 million, or 16.7%, from $355.9 million in Q1 2022 to $415.2 million in Q1 2023[178]. - As of March 31, 2023, total loans increased by $4.9 million to $455.2 million compared to $450.3 million at December 31, 2022[224]. Non-Interest Income and Expenses - Total non-interest expense for the three months ended March 31, 2023 increased by $709,000, or 6.5%, to $11,668,000 compared to $10,959,000 in the prior year[193]. - Salaries and employee benefits increased by $407,000, or 5.5%, to $7,863,000 for the three months ended March 31, 2023, driven by increases in salaries and related payroll expenses[194]. - Service fees and other income increased by $1,000,000, or 45.1%, to $3,216,000 for the three months ended March 31, 2023, due to increases in pension administration fees and other income[191]. Capital Ratios - As of March 31, 2023, the company's CET1 and Total Capital ratios were 15.6% and 21.2%, respectively, indicating a robust capital position[171]. - Common Equity Tier 1 Capital to Risk Weighted Assets ratio increased to 15.63% as of March 31, 2023, compared to 14.80% as of December 31, 2022[253]. - Total Capital to Risk Weighted Assets ratio improved to 21.21% as of March 31, 2023, from 20.21% as of December 31, 2022[253]. Market Conditions and Risks - A simulated increase of 200 basis points in interest rates is projected to increase net interest income by 12.20% over a 12-month horizon[272]. - Inflation generally increases the costs of funds and operating overhead, affecting the performance of financial institutions more significantly than general inflation levels[273]. - The Company believes it has adequate liquidity to meet obligations, but potential economic downturns could restrict funding sources[260].