Tectonic Financial, Inc. (TECTP) is a diversified financial services company that has undergone a remarkable transformation over the years, adapting to the ever-changing dynamics of the industry. With a strong presence in banking, wealth management, and investment advisory services, Tectonic Financial has carved out a unique niche in the marketplace, catering to the diverse needs of its clientele.
Company Background
Tectonic Financial, Inc. was incorporated under the laws of the State of Texas on December 23, 2002, to serve as the registered bank holding company for T Bank, N.A., a national banking association. The company was founded with the goal of providing a wide array of financial products and services, including banking, trust, investment advisory, securities brokerage, third-party administration, qualified plan recordkeeping, and insurance services to individuals, small businesses, and institutions across the United States.
In January 2006, the company entered into a services agreement with Cain Watters, under which Cain Watters pays the company for due diligence and research services on investment alternatives available to Cain Watters' clients. This agreement has been an important referral source and contributor to the company's business. Additionally, Tectonic Advisors entered into a fee allocation agreement with Cain Watters related to its advisory agreement with the bank in the same year.
Business Structure
Tectonic Financial operates through four main direct and indirect subsidiaries - T Bancshares, Inc. (TBI), Sanders Morris LLC, Tectonic Advisors, LLC, and HWG Insurance Agency LLC. This diversified business model spans commercial and consumer banking, trust and investment advisory services, securities brokerage, and insurance brokerage. Over the years, the company has expanded its product and service offerings and geographic footprint to serve clients across the United States.
Challenges and Adaptations
Throughout its history, Tectonic Financial has faced various challenges, including regulatory inspections, inquiries, investigations, and proceedings, as well as litigation matters that arose from time to time in the ordinary course of business. Despite these obstacles, the company has maintained its focus on providing high-quality financial services to its clients and has worked to strengthen its internal controls and risk management practices to better position itself for the future.
Financials
One of the hallmarks of Tectonic Financial's success has been its ability to navigate the complex regulatory landscape and maintain a strong financial position. The company's balance sheet has consistently demonstrated a solid capital base, with a total capital ratio of 18.59% as of September 30, 2024, well above the regulatory requirements for well-capitalized institutions. This financial strength has provided Tectonic Financial with the flexibility to seize strategic opportunities and invest in growth initiatives.
The company's loan portfolio has been a key driver of its financial performance, with a diverse mix of commercial and consumer loans, as well as specialized lending products such as SBA and USDA loans. As of September 30, 2024, Tectonic Financial's total loans, excluding the allowance for credit losses, stood at $620.75 million, reflecting a year-over-year increase of 23.8%. This robust loan growth has been complemented by the company's disciplined approach to credit risk management, as evidenced by its nonperforming asset ratio of just 1.71% as of the same date.
For the most recent quarter, Tectonic Financial reported revenue of $16.79 million and net income of $4.74 million. The Banking segment demonstrated strong performance, with income before taxes of $3.03 million for the three months ended September 30, 2024. Net interest income for the Banking segment increased $1.80 million, or 26.3%, compared to the same period in the prior year, primarily due to increases in the average volume of and yield on loans, as well as an increase in the average volume of interest-bearing deposits.
The Other Financial Services segment, which includes Tectonic Advisors, Sanders Morris, the Bank's trust division, and HWG Insurance Agency, also showed positive results. Income before taxes for this segment increased $222,000, or 5.7%, for the three months ended September 30, 2024 compared to the same period in the prior year. This growth was primarily driven by increases in non-interest income, which grew $808,000, or 8.3%, due to increases in advisory income and trust income related to market increases in asset values and net asset inflows to the investment platform.
Liquidity
In addition to its lending activities, Tectonic Financial has also leveraged its wealth management and investment advisory capabilities to generate a steadily growing stream of fee-based income. The company's advisory and brokerage assets totaled $7.70 billion as of September 30, 2024, up from $6.10 billion a year earlier, reflecting a 26.2% increase. This growth has been driven by both market appreciation and net asset inflows, underscoring the strong demand for Tectonic Financial's investment management services.
As of September 30, 2024, Tectonic Financial had $102.77 million in total cash and cash equivalents. The company maintains strong liquidity positions with undrawn credit lines, including a $60.2 million credit line with the FHLB and a $40.4 million credit line with the FRB. Additionally, the company had $20 million in borrowings under the Federal Reserve's Bank Term Funding Program as of the same date.
Diversification Strategy
One of the key strengths of Tectonic Financial's business model is its diversification across multiple revenue streams. While the company's banking operations contribute a significant portion of its overall revenue, its wealth management and investment advisory divisions have also become increasingly important contributors, providing a more balanced and resilient financial profile.
The Banking segment offers commercial and consumer banking services, as well as factoring services through the Bank's Integra division. As of September 30, 2024, the Bank's loan portfolio included $74.70 million of loans, or approximately 11.9%, to the dental industry. The Bank believes these loans are to creditworthy borrowers and are diversified geographically. The Bank also serves the small business community by offering loans under the SBA's 7(a) and 504 loan programs, as well as loans guaranteed by the USDA.
The Other Financial Services segment provides investment advisory and brokerage services to individuals and businesses, private trust services, and financial management services, including personal wealth management, retirement plan design and administrative services, and insurance brokerage services. This diversification strategy has allowed Tectonic Financial to capture growth opportunities across various sectors of the financial services industry.
Future Outlook
Looking ahead, Tectonic Financial remains focused on leveraging its expertise and expanding its footprint to capitalize on the evolving trends in the financial services industry. The company's management team has articulated a clear strategic vision, which includes organic growth initiatives, strategic acquisitions, and the continuous enhancement of its technology and digital capabilities to better serve its clients.
Despite the challenges posed by the ongoing pandemic, Tectonic Financial has demonstrated its ability to adapt and thrive. The company's proactive measures to support its customers and employees, coupled with its strong financial position, have positioned it well to navigate the current economic environment and seize new opportunities as they arise.
Conclusion
In conclusion, Tectonic Financial, Inc. (TECTP) has established itself as a formidable player in the financial services industry, with a diversified business model, a solid balance sheet, and a proven track record of growth and innovation. As the company continues to evolve and adapt to the ever-changing market conditions, investors may find its story and future prospects worthy of further examination. With its strong performance across its core business segments and its focus on serving target markets with diverse product offerings, Tectonic Financial is well-positioned to meet the evolving needs of its customers and drive long-term value for its stakeholders.