TECTONIC FINANCI(TECTP) - 2023 Q4 - Annual Report

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]