TECTONIC FINANCIAL, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto appearing in Item 1 of Part I of this Quarterly Report on Form 10-Q for the three and nine months endedSeptember 30, 2022 (this "Form 10-Q"), as well as with our consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSecurities and Exchange Commission (the "SEC") onMarch 31, 2022 (the "2021 Form 10-K").
Cautionary Notice Regarding Forward-Looking Statements
Statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including our expectations, intentions, beliefs, or strategies regarding the future. These statements are often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential," "believe," "will likely result," "expect," "anticipate," "seek," "estimate," "intend," "plan," "projection," "would" and "outlook," and similar expressions. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may differ materially from those in or implied by such forward-looking statements due to the factors discussed under the section entitled "Risk Factors," in our 2021 Form 10-K, including, but not limited to, the following:
? changes in market interest rates, including the recent significant increases
in market interest rates experienced in the first nine months of 2022, which
could negatively impact our cost of funds, and could also negatively impact
bond market values and result in a lower net book value;
? our ability to successfully manage the current rising market interest rate
environment, our credit risk and the level of future non-performing assets and
charge-offs;
? risks associated with the uncertain inflationary outlook in
and our market areas and its impact on market interest rates, the economy and
credit quality;
? the potential for a recession in
the negative and adverse impact a recession would have on our earnings,
capital and financial position resulting from higher losses on the Bank's loan
and factored receivables portfolios; a decline in the equity and fixed income
markets that would reduce assets under management and capital markets
activity, thereby reducing the earnings at Sanders Morris and Tectonic
Advisors , as well as earnings on trust assets at the Bank;
? changes in
thereto;
? changes in the economy of the State of Texas , our primary market;
? risks associated with the ongoing COVID-19 global pandemic ("COVID-19"), or
any current or future variants of COVID-19, including, among others, business
disruption for our customers, customers' ability to fulfill their financial
obligations to the Company, our employees' ability to conduct banking and
other transactions, the response of governmental authorities to the COVID-19
pandemic, or any current or future variants thereof, and our participation in
COVID-19-related government programs such as the Paycheck Protection Program
(the "PPP") administered by the
created under the Coronavirus Aid, Relief, and Economic Security Act (the
"CARES Act");
? risks associated with implementing aspects of our expansion strategy, whether
through additional services and products or acquisitions;
? liquidity risks, including those related to having enough liquid assets to
meet depositor demands;
? the need to hold more capital in order to comply with consolidated capital
ratios;
? competition from other banks, financial institutions and wealth and investment
management firms and our ability to retain our clients;
? the adequacy of our allowance for loan losses;
? risks associated with generating deposits from retail sources without a branch
network so that we can fund our loan portfolio and growth;
? risks associated with higher cost deposits relative to our peer group, which
has an impact on our net interest margin and profits;
? risks associated with having one referral source,
LLC ("Cain Watters"), comprise a substantial part of our business;
? our reliance on key personnel and the ability to attract and retain the
personnel necessary to implement our business plan;
? risks specific to commercial loans and borrowers (particularly dental and SBA
loans);
31--------------------------------------------------------------------------------
Table of Contents ? our ability to continue to originate loans (including SBA loans); ? impairment of our goodwill or other intangible assets; ? claims and litigation pertaining to our fiduciary responsibilities;
? generating investment returns for our wealth management, brokerage and other
customers that are satisfactory to them;
? our ability to maintain a strong core deposit base or other low-cost funding
sources;
? our ability to manage our credit risk;
? regulatory scrutiny related to our loan portfolio, including commercial real
estate;
? the earning capacity of our borrowers;
? fluctuation in the value of our investment securities;
? our inability to identify and address potential conflicts of interest;
? our ability to maintain effective internal control over financial reporting;
? the accuracy of estimates and assumptions;
? the development of an active, liquid market for the Series B preferred stock;
? fluctuations in the market price of the Series B preferred stock;
? our ability to raise additional capital, particularly during times of stress;
? the soundness of other counterparty financial institutions and certain
securities brokerage firms;
? technological change in the banking, investment, brokerage and insurance
industry;
? our ability to protect against and manage fraudulent activity, breaches of our
information security, and cybersecurity attacks;
? our reliance on communications, information, operating and financial control
systems technology and related services from third-party service providers;
? natural disasters and epidemics and pandemics, such as COVID-19, or any
current or future variants thereof;
? the effects of terrorism and acts of war or threat thereof, including the
current conflict in Ukraine , and efforts by the U.S. to combat it;
? environmental liabilities;
? regulation of the financial services industry;
? legislative changes or the adoption of tax reform policies;
? political instability and changes in tariffs and trade barriers;
? compliance with laws and regulations, supervisory actions, the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), the Economic
Growth, Regulatory Relief and Consumer Protection Act ("EGRRCPA"), capital
requirements, the Bank Secrecy Act, anti-money laundering laws, consumer laws,
and other statutes and regulations;
? regulation of broker-dealers and investment advisors;
? the enactment of regulations relating to privacy, information security and
data protection;
? legal and regulatory examinations, proceedings, investigations and inquiries,
fines and sanctions;
? future issuances of preferred stock or debt securities and its impact on the
Series B preferred stock;
? our ability to manage our existing and future preferred stock and
indebtedness;
? our ability to pay dividends;
? the continuation of securities analysts coverage of the company;
? our management and board of directors have significant control over our
business;
? risks related to being a "controlled company" under NASDAQ rules;
? the costs and expenses of being a public company; and
? changes in the laws, rules, regulations, interpretations or policies relating
to financial institutions, accounting, tax, trade, monetary and fiscal
matters, including our ability to navigate the uncertain impacts of
quantitative tightening and current and future governmental monetary and
fiscal policies, including the policies of the
the Biden administration.
In addition, financial markets and global supply chains may be adversely
affected by the current or anticipated impact of military conflict, including
the current Russian invasion of
You should not place undue reliance on any such forward-looking statements. Any
forward-looking statement reflects only information known to us as of the date
on which it is made and we do not undertake any obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events, except as required by law. New factors emerge from time to
time, and it is not possible for us to predict which will arise. In addition, we
cannot assess the impact of each factor on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statement.
32--------------------------------------------------------------------------------
Table of Contents Other Available Information We file or furnish with theSEC annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other reports required by Section 13(a) or 15(d) of the Exchange Act. Electronic copies of ourSEC filings are available to the public at theSEC's website at https://www.sec.gov. In addition, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other reports required by Section 13(a) or 15(d) of the Exchange Act are available through our website, www.t.financial, as soon as reasonably practicable after we electronically file such material with, or furnish it to, theSEC . The Company routinely posts important information for investors on its website, www.t.financial. The Company intends to use its website as a means of disclosing material non-public information and for complying with its disclosure obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Company's website, in addition to following the Company's press releases,SEC filings, public conference calls, presentations and webcasts.
Our website and the information contained on or accessible through our website is not incorporated by reference into, and is not a part of, this Form 10-Q.
General We are a financial holding company headquartered inDallas, Texas . We provide 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 acrossthe United States . The following discussion and analysis presents our consolidated financial condition as ofSeptember 30, 2022 andDecember 31, 2021 , and our consolidated results of operations for the three and nine months endedSeptember 30, 2022 and 2021. The discussion should be read in conjunction with our financial statements and the notes related thereto in this Form 10-Q and in the audited financial statements in our 2021 Form 10-K. We operate through four main direct and indirect subsidiaries: (i)T Bancshares, Inc. ("TBI"), which was incorporated under the laws of theState of Texas onDecember 23, 2002 to serve as the registered bank holding company forT Bank, N.A. a national banking association (the "Bank"), (ii)Sanders Morris Harris LLC ("Sanders Morris"), a registered broker-dealer with theFinancial Industry Regulatory Authority ("FINRA"), and registered investment advisor with theSEC , (iii)Tectonic Advisors, LLC ("Tectonic Advisors "), a registered investment advisor registered with theSEC focused generally on managing money for relatively large, affiliated institutions, and (iv)HWG Insurance Agency LLC ("HWG"), an insurance agency registered with theTexas Department of Insurance ("TDI").
Critical Accounting Policies and Estimates
We prepare consolidated financial statements based on accounting principles generally accepted inthe United States ("GAAP") and to customary practices within the financial services industry. These policies, in certain areas, require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While we base estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates. We consider accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain at the time we make the accounting estimate and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the financial statements. Accounting policies related to the allowance for loan losses are considered to be critical as these policies involve considerable subjective judgment and estimation by management. Management has adopted a methodology to properly analyze and determine an adequate loan loss allowance, which includes allowance allocations calculated in accordance withFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 310, Receivables, and allowance allocations calculated in accordance with FASB ASC Topic 450, Contingencies. The analysis is based on sound, reliable and well documented information and is designed to support an allowance that is adequate to absorb all estimated incurred losses in our loan portfolio. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. Refer to the 2021 Form 10-K for additional information regarding critical accounting policies. 33
--------------------------------------------------------------------------------
Table of Contents Performance Summary Net income available to common shareholders decreased$688,000 , or 14.5%, to$4.1 million for the three months endedSeptember 30, 2022 , compared to$4.8 million for the three months endedSeptember 30, 2021 . Earnings per diluted common share were$0.58 and$0.68 for the three months endedSeptember 30, 2022 and 2021, respectively. Net income available to common shareholders increased$323,000 , or 2.7%, to$12.3 million for the nine months endedSeptember 30, 2022 , compared to$12.0 million for the nine months endedSeptember 30, 2021 . Earnings per diluted common share were$1.68 and$1.74 for the nine months endedSeptember 30, 2022 and 2021, respectively. The decrease in net income available to common shareholders for the three months endedSeptember 30, 2022 resulted primarily from increases in non-interest expense and a decrease in net interest income, partly offset by decrease in provision for loan losses and an increase in non-interest income. The increase in net income available to common shareholders for the nine months endedSeptember 30, 2022 resulted primarily from increases in net interest income and non-interest income, and a decrease in provision for loan losses, partly offset by an increase in non-interest expense. For the three months endedSeptember 30, 2022 , annual return on average assets was 2.98%, compared to 3.61% for the same period in the prior year, and annual return on average equity was 19.27%, compared to 28.96% for the same period in the prior year. For the nine months endedSeptember 30, 2022 , annual return on average assets was 3.09%, compared to 3.23% for the same period in the prior year, and annual return on average equity was 20.32%, compared to 27.14% for the same period in the prior year. The lower annual return on average assets and annual return on average equity ratios for the three and nine months endedSeptember 30, 2022 were primarily due to a decrease in net income for the three months endedSeptember 30, 2022 , compared to the same period in the prior year. In addition, the annual return on average equity was impacted by an increase in average equity between the two periods, primarily related to shares of Company common stock issued for the Company's acquisition ofIntegra Funding Solutions, LLC , aTexas limited liability company ("Integra"), onJuly 1, 2021 . Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. However, this Form 10-Q contains financial information determined by methods other than in accordance with GAAP, which includes return on average tangible common equity. We calculate return on average tangible common equity as net income available to common shareholders (net income less dividends paid on preferred stock) divided by average tangible common equity. We calculate average tangible common equity as average shareholders' equity less average goodwill, average core deposit intangible and average preferred stock. The most directly comparable GAAP financial measure for tangible common equity is average total shareholders' equity. We believe these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding our performance. We believe investors benefit from referring to these non-GAAP measures and ratios in assessing our operating results and related trends, and when planning and forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, measures and ratios prepared in accordance with GAAP.
The following table presents non-GAAP reconciliations of annual return on average tangible common equity:
As of and for As of and for As of and for As of and
the the the for the
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
(Dollars in thousands) 2022 2021 2022 2021
Income available to common
shareholders (a) $ 4,073 $ 4,761 $
12,323
Average shareholders' equity
88,727$ 64,856 Less: average goodwill 21,440 21,440 21,440 14,339 Less: average core deposit intangible 656 861 708 910 Less: average preferred stock 17,250 17,250 17,250 17,250 Average tangible common equity (b)$ 52,495 $ 30,995 $ 49,329 $ 32,357 Annual return on average tangible common equity (a)/(b) 30.78 % 60.94 % 33.40 % 49.58 % Total assets increased$3.0 million , or 0.5%, to$588.0 million as ofSeptember 30, 2022 , from$585.0 million as ofDecember 31, 2021 . This increase was primarily due to increases of$10.7 million in loans held for investment,$3.4 million in securities available for sale and$6.6 million in securities held to maturity, partly offset by decreases of$4.4 million in cash and cash equivalents and$13.8 million in loans held for sale. Substantially all loans outside of those made under the PPP are secured by specific collateral, including business assets, consumer assets, and commercial real estate. Shareholders' equity increased$8.8 million , or 10.4%, to$93.6 million as ofSeptember 30, 2022 , from$84.8 million as ofDecember 31, 2021 . See analysis of shareholders' equity in the section captioned "Capital Resources and Regulatory Capital Requirements" included elsewhere in this discussion. 34
--------------------------------------------------------------------------------
Table of Contents
Results of Operations for the Three and Nine Months Ended
Details of the changes in the various components of net income are discussed below.
Net Interest Income Net interest income is the difference between interest income on interest-earning assets, such as loans, investment securities, and interest-bearing cash, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Changes in net interest income result from changes in volume and spread, and are reflected in the net interest margin, as well as changes in average interest rates. Volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities. Spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. Margin refers to net interest income divided by average interest-earning assets, and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities. The following tables present the changes in net interest income and identifies the changes due to differences in the average volume of interest-earning assets and interest-bearing liabilities and the changes due to changes in the average interest rate on those assets and liabilities. The changes in net interest income due to changes in both average volume and average interest rate have been allocated to the average volume change or the average interest rate change in proportion to the absolute amounts of the change in each.
Three Months Ended
Three Months Ended
September 30, 2022 vs September 30, 2021
Increase(Decrease) Due to Change in
Average
(In thousands) Rate Volume Total Interest-bearing deposits and federal funds sold $ 167 $ 18$ 185 Securities 115 159 274 Loans, net of unearned discount (1) (768 ) 137 (631 ) Total earning assets (486 ) 314 (172 ) Savings and interest-bearing demand 3 2 5 Money market deposit accounts 375 17 392 Time deposits 214 148 362 FHLB and other borrowings 443 (498 ) (55 ) Total interest-bearing liabilities 1,035 (331 ) 704 Changes in net interest income$ (1,521 ) $ 645 $ (876 ) (1) Average loans include non-accrual. Net interest income decreased$876,000 , or 11.1%, from$7.9 million for the three months endedSeptember 30, 2021 to$7.0 million for the three months endedSeptember 30, 2022 . The decrease in net interest income was primarily due to the increase in the average interest rate paid on interest-bearing liabilities and to the decrease in the average yield on loans, partly offset by a decrease in the average volume of borrowings and to an increase in the average volume of securities and loans. Net interest margin for the three months endedSeptember 30, 2022 and 2021 was 5.06% and 5.98%, respectively, a decrease of 92 basis points. 35
--------------------------------------------------------------------------------
Table of Contents
The average volume of interest-earning assets increased$26.4 million , or 5.1%, from$522.2 million for the three months endedSeptember 30, 2021 to$548.6 million for the three months endedSeptember 30, 2022 . The average volume of securities increased$15.4 million , or 42.3%, from$36.4 million for the three months endedSeptember 30, 2021 , to$51.8 million for the three months endedSeptember 30, 2022 . The average volume of loans increased$8.1 million , or 1.8%, from$454.4 million for the three months endedSeptember 30, 2021 to$462.5 million for the three monthsSeptember 30, 2022 , and the average volume of interest-bearing deposits increased$3.1 million , or 9.9%, from$31.3 million for the three months endedSeptember 30, 2021 to$34.4 million for the three months endedSeptember 30, 2022 . The increase in the average volume of loans included an increase of$74.3 million for organic loan growth, partly offset by a$66.2 million decrease of PPP loans. The average yield on interest-earning assets decreased 44 basis points from 6.67% for the three months endedSeptember 30, 2021 to 6.23% for the three months endedSeptember 30, 2022 . The average yield on interest earning assets was impacted by changes in market interest rates, which was attributed to theFederal Open Market Committee ("FOMC") of theFederal Reserve repeatedly raising their target benchmark interest rate in the first nine months of 2022, resulting in subsequent prime rate increases of 300 basis points between March and September of 2022, and changes in the mix of interest-earning assets. The average yield for loans decreased 67 basis points from 7.43% for the three months endedSeptember 30, 2021 to 6.76% for the three months endedSeptember 30, 2022 . During the three months endedSeptember 30, 2021 , we recognized$1.3 million in PPP loan related deferred fees (net of amortization of related deferred origination costs) as a yield adjustment and this amount is included in interest income on loans for the three months endedSeptember 30, 2021 . All outstanding PPP loan balances were paid off during the second quarter of 2022 and therefore there were no PPP loan related interest or deferred fees recognized for the three months endedSeptember 30, 2022 . The average yield on securities increased 124 basis points from 2.88% for the three months endedSeptember 30, 2021 , to 4.12% for the three months endedSeptember 30, 2022 , and the average yield on interest-bearing deposits increased 212 basis points from 0.15% for the three months endedSeptember 30, 2021 , to 2.27% for the three months endedSeptember 30, 2022 . The average volume of interest-bearing liabilities decreased$24.4 million , or 6.0%, from$407.7 million for the three months endedSeptember 30, 2021 , to$383.3 million for the three months endedSeptember 30, 2022 . The average volume of interest-bearing deposits increased$45.6 million , or 14.1%, from$324.5 million for the three months endedSeptember 30, 2021 , to$370.1 million for the three months endedSeptember 30, 2022 . The average interest rate paid on interest-bearing liabilities increased 79 basis points from 0.89% for the three months endedSeptember 30, 2021 , to 1.68% for the three months ended September, 2022. The average interest rate paid on interest-bearing deposits increased 72 basis points from 0.76% for the three months endedSeptember 30, 2021 , to 1.48% for the three months ended September, 2022. The average volume of non-interest bearing deposits increased$28.3 million , or 35.6%, from$79.5 million for the three months endedSeptember 30, 2021 to$107.8 million for the three months endedSeptember 30, 2022 . The average volume of FHLB and other borrowings decreased$70.1 million , or 98.5%, from$71.2 million for the three months endedSeptember 30, 2021 to$1.1 million for the three months endedSeptember 30, 2022 , due to the decline in the PPPLF borrowings related to the decrease in PPP loan balances. The average cost of FHLB and other borrowings increased 239 basis points from 0.43% for the three months endedSeptember 30, 2021 , to 2.82% for the three months endedSeptember 30, 2022 , due to the aforementioned changes in the market interest rates during the first nine months of 2022 and the decrease in PPPLF borrowings during the period. 36
--------------------------------------------------------------------------------
Table of Contents
The following table sets forth our average balances of assets, liabilities and shareholders' equity, in addition to the major components of net interest income and our net interest margin, for the three months endedSeptember 30, 2022 and 2021. Three Months Ended September 30, 2022 2021 (In thousands, except Average Average Average Average percentages) Balance Interest Yield Balance Interest Yield Assets Interest-bearing deposits and federal funds sold$ 34,426 $ 197 2.27 %$ 31,343 $ 12 0.15 % Securities 51,760 538 4.12 36,428 264 2.88 Loans, net of unearned discount (1) 462,452 7,877 6.76 454,407 8,508 7.43 Total earning assets 548,638 8,612 6.23 522,178 8,784 6.67 Cash and other assets 50,141 47,760 Allowance for loan losses (4,223 ) (3,331 ) Total assets$ 594,556 $ 566,607 Liabilities and Shareholders' Equity Savings and interest-bearing demand$ 16,853 15 0.35 %$ 14,443 10 0.27 % Money market deposit accounts 128,710 506 1.56 124,259 114 0.36 Time deposits 224,572 857 1.51 185,761 495 1.06
Total interest-bearing deposits 370,135 1,378 1.48
324,463 619 0.76
FHLB and other borrowings 1,125 8 2.82 71,216 78 0.43
Subordinated notes 12,000 234 7.74 12,000 219 7.24
Total interest-bearing
liabilities 383,260 1,620 1.68 407,679 916 0.89
Non-interest-bearing deposits 107,755 79,533
Other liabilities 11,700 8,849
Total liabilities 502,715 496,061
Shareholders' equity 91,841 70,546
Total liabilities and
shareholders' equity $ 594,556 $ 566,607
Net interest income $ 6,992 $ 7,868
Net interest spread 4.55 % 5.78 %
Net interest margin 5.06 % 5.98 %
(1) Includes non-accrual loans.
Nine Months Ended
Nine Months Ended
September 30, 2022 vs September 30, 2021
Increase(Decrease) Due to Change in
Average
(In thousands) Rate Volume Total
Interest-bearing deposits and federal funds sold $ 252 $
5 $ 257
Securities 217 456 673
Loans, net of unearned discount (1) 858 562 1,420
Total earning assets 1,327 1,023 2,350
Savings and interest-bearing demand 5 5 10
Money market deposit accounts 415 106 521
Time deposits 18 298 316
FHLB and other borrowings 85 (259 ) (174 )
Total interest-bearing liabilities 523 150 673
Changes in net interest income $ 804 $ 873 $ 1,677
(1) Average loans include non-accrual.
37--------------------------------------------------------------------------------
Table of Contents
Net interest income increased$1.6 million , or 8.6%, from$18.6 million for the nine months endedSeptember 30, 2021 to$20.2 million for the nine months endedSeptember 30, 2022 . The increase in net interest income was primarily due to an increase in the average yield and average volume on total earning assets, partly offset by an increase in the average rate paid on money market deposit accounts. Net interest margin for the nine months endedSeptember 30, 2022 and 2021 was 5.03% and 4.87%, respectively, an increase of 16 basis points. The average volume of interest-earning assets increased$28.2 million , or 5.5%, from$509.8 million for the nine months endedSeptember 30, 2021 to$538.0 million for the nine months endedSeptember 30, 2022 . The average volume of securities increased$16.0 million , or 54.8%, from$29.2 million for the nine months endedSeptember 30, 2021 , to$45.2 million for the nine months endedSeptember 30, 2022 , and the average volume of loans increased$11.6 million , or 2.6%, from$443.1 million for the nine months endedSeptember 30, 2021 to$454.7 million for the nine months endedSeptember 30, 2022 . The increase in the average volume of loans included increases of$67.4 million for organic loan growth and$23.2 million for factored receivables related to the Integra acquisition during the third quarter of 2021, partly offset by a$79.0 million decrease of PPP loans. The average yield on interest-earning assets increased 29 basis points from 5.59% for the nine months endedSeptember 30, 2021 to 5.88% for the nine months endedSeptember 30, 2022 . The average yield on interest earning assets was impacted by changes in market interest rates, which was attributed to theFOMC repeatedly raising their target benchmark interest rate in the first nine months of 2022, resulting in subsequent prime rate increases of 300 basis points between March and September of 2022, and changes in the mix of interest-earning assets. The average yield for loans increased 26 basis points from 6.23% for the nine months endedSeptember 30, 2021 , to 6.49% for the nine months endedSeptember 30, 2022 . During the nine months endedSeptember 30, 2022 , we recognized$175,000 in PPP related deferred fees (net of amortization of related deferred origination costs) as a yield adjustment and this amount is included in interest income on loans. This was a decrease of$3.9 million from the same period in the prior year. The decrease in PPP fees was partly offset by an increase in factored receivables interest income of$3.2 million from the same period in the prior year. The average yield on securities increased 100 basis points from 2.82% for the nine months endedSeptember 30, 2021 , to 3.82% for the nine months endedSeptember 30, 2022 , and the average yield on interest-bearing deposits increased 90 basis points from 0.12% for the nine months endedSeptember 30, 2021 , to 1.02% for the nine months endedSeptember 30, 2022 . The average volume of interest-bearing liabilities decreased$17.6 million , or 4.4%, from$401.3 million for the nine months endedSeptember 30, 2021 to$383.7 million for the nine months endedSeptember 30, 2022 . The average volume of interest-bearing deposits increased$53.6 million , or 17.5%, from$306.8 million for the nine months endedSeptember 30, 2021 , to$360.4 million for the nine months endedSeptember 30, 2022 . The average interest rate paid on interest-bearing liabilities increased 27 basis points from 0.92% for the nine months endedSeptember 30, 2021 , to 1.19% for the nine months ended September, 2022. The average interest rate paid on interest-bearing deposits increased 20 basis points from 0.81% for the nine months endedSeptember 30, 2021 , to 1.01% for the nine months endedSeptember 30, 2022 . Non-interest bearing deposits increased$32.1 million , or 46.3%, from$69.3 million for the nine months endedSeptember 30, 2021 , to$101.4 million for the nine months endedSeptember 30, 2022 . The average volume of FHLB and other borrowings decreased$71.3 million , or 86.3%, from$82.6 million for the nine months endedSeptember 30, 2021 , to$11.3 million for the nine months endedSeptember 30, 2022 , due to the decline in the PPPLF borrowings related to the decrease in PPP loan balances. The average cost of FHLB and other borrowings increased 12 basis points from 0.37% for the nine months endedSeptember 30, 2021 , to 0.49% for the nine months endedSeptember 30, 2022 , due to the aforementioned significant increases in the market interest rates during the first nine months of 2022 and the decrease in PPPLF borrowings during the period. 38
--------------------------------------------------------------------------------
Table of Contents
The following table sets forth our average balances of assets, liabilities and shareholders' equity, in addition to the major components of net interest income and our net interest margin, for the nine months endedSeptember 30, 2022 and 2021. Nine Months Ended September 30, 2022 2021 (In thousands, except Average Average Average Average percentages) Balance Interest Yield Balance Interest Yield Assets Interest-bearing deposits and federal funds sold$ 38,103 $ 291 1.02 %$ 37,451 $ 34 0.12 % Securities 45,198 1,290 3.82 29,227 617 2.82 Loans, net of unearned discount (1) 454,697 22,083 6.49 443,128 20,663 6.23 Total earning assets 537,998 23,664 5.88 509,806 21,314 5.59 Cash and other assets 50,500 37,866 Allowance for loan losses (4,225 ) (3,158 ) Total assets$ 584,273 $ 544,514 Liabilities and Shareholders' Equity Savings and interest-bearing demand$ 16,470 $ 36 0.29 %$ 13,977 $ 26 0.25 % Money market deposit accounts 131,251 833 0.85 114,542 312 0.36 Time deposits 212,668 1,845 1.16 178,275 1,529 1.15 Total interest-bearing deposits 360,389 2,714 1.01 306,794 1,867 0.81 FHLB and other borrowings 11,292 41 0.49 82,555 231 0.37 Subordinated notes 12,000 672 7.49 12,000 656 7.31 Total interest-bearing liabilities 383,681 3,427 1.19 401,349 2,754 0.92 Non-interest-bearing deposits 101,363 69,340 Other liabilities 10,502 8,969 Total liabilities 495,546 479,658 Shareholders' equity 88,727 64,856 Total liabilities and shareholders' equity$ 584,273 $ 544,514 Net interest income$ 20,237 $ 18,560 Net interest spread 4.69 % 4.67 % Net interest margin 5.03 % 4.87 % Provision for Loan Losses The provision for loan losses totaled$150,000 for the three months endedSeptember 30, 2022 , compared to$641,000 for the three months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , the provision for loan losses totaled$477,000 , compared to$1.2 million for the nine months endedSeptember 30, 2021 . We determined a provision for loan losses that we consider sufficient to maintain an allowance to absorb probable losses inherent in our portfolio as of the balance sheet date. Nevertheless, there is continued uncertainty in the forecasted economic conditions due to the rising interest rate environment and persistent high inflation levels, and additional or reversal provisions for loan losses may be necessary in future periods. Non-Interest Income
The components of non-interest income were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2022 2021 2022 2021
Trust income $ 1,470 $ 1,612 $ 4,624 $ 4,584
Gain on sale of loans - - - 101
Advisory income 3,317 3,532 10,249 9,825
Brokerage income 2,430 2,603 8,614 7,196Service fees and other income 2,338 1,632 6,442
5,345 Rental income 79 88 268 264 Total$ 9,634 $ 9,467 $ 30,197 $ 27,315 39
--------------------------------------------------------------------------------
Table of Contents
Total non-interest income for the three months ended
Trust Income. Trust income is earned for trust services on the value of managed and non-managed assets held in custody. Volatility in the bond and equity markets impacts the market value of trust assets and the related fees. Trust income for the three and nine months endedSeptember 30, 2022 decreased$142,000 , or 8.8%, and increased$40,000 , or 0.9%, respectively, compared to the same periods in the prior year. The decrease in trust income between the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 is due to a decrease in the average market value of the trust assets between the two periods. The increase in trust income between the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 is due to an increase in the average market value of the trust assets between the two periods, which was due to an increase in net flows of assets, which offsets a decrease in average market values of trust assets from market declines during 2022. Such decrease continued through the three months endedSeptember 30, 2022 , and is attributed primarily to theFOMC repeatedly raising their target benchmark interest rate during the first nine months of 2022, resulting in subsequent prime rate increases of 300 basis points between March and September of 2022, further resulting in significant increase in market interest rates during the period. Volatility related to impacts of geo-political instability related to the war inUkraine , regulatory action, including further increases in market interest rates by theFederal Reserve in response to the persistence of the inflationary environment inthe United States , or continuing effects of the COVID-19 pandemic, including supply-chain disruptions, all of which are likely to impact the bond and equity markets, could result in future net decreases in the average values of our assets held in custody, and/or in a decrease in net flows to our assets held in custody, decreasing our trust income. Gain on sale of loans. Gain on sale of loans is generally gain on sales of the guaranteed portion of loans within our SBA loan portfolio. There was no gain on sale of loans for the three months endedSeptember 30, 2022 and 2021. Gain on sale of loans decreased$101,000 during the nine months endedSeptember 30, 2022 compared to the same period in the prior year, when there was gain on sale of loans of$101,000 resulting from the sale of$1.1 million of SBA loans. Advisory income. Advisory fees are typically based on a percentage of the underlying average asset values for a given period, where each percentage point represents 100 basis points. These revenues are of a recurring nature, but are directly affected by increases and decreases in the values of the underlying assets. Similar to our trust income, changes in the value of our assets under management will result in comparable changes in our advisory income. For the three and nine months endedSeptember 30, 2022 , advisory income decreased$215,000 , or 6.1%, and increased$424,000 , or 4.3%, respectively, compared to the same periods in the prior year. The decrease in advisory income between the three months endedSeptember 30, 2022 and 2021 is due to a decrease in the average market value of the advisory assets between the two periods. This decrease is attributed primarily to the continuation of increases in the target benchmark interest rate by theFOMC in response to persistent inflation inthe United States . The increase in advisory income between the nine months endedSeptember 30, 2022 and 2021 was attributable to net inflows to our assets under management throughout 2022 which offsets a decrease in average market values from market declines during the nine months endedSeptember 30, 2022 , resulting in a net increase in the average market value of our advisory assets between the two periods. As with trust income, volatility related to regulatory action, including further increases in market interest rates by theFederal Reserve in response to the persistent inflationary environment inthe United States , as well as supply chain disruptions related to geo-political instability, including the war inUkraine , and/or disruptions in the supply chain related to continuing world-wide effects of the COVID-19 pandemic, are likely to impact the financial markets and the value of and/or net inflows to our assets under management, potentially decreasing our advisory income. Brokerage income. Brokerage revenues are generally based on a per share fee or commission to trade a share of a particular stock, bond or other security. In addition, brokerage revenues, in this context, include private placements, participation in syndication of public offerings, and certain other brokerage revenues, including interest earned on margin lending. Brokerage revenue is dependent on the volume of trading, and on private placement and syndication activity during the period, and in the case of margin lending, on interest rates. Brokerage income for the three and nine months endedSeptember 30, 2022 decreased$173,000 , or 6.6%, and increased$1.4 million , or 19.7%, compared to the same periods in the prior year. The decrease in Brokerage revenue for the three months endedSeptember 30, 2022 is due to a decrease of$932,000 in syndicated offering activity, partially offset by an increase in federated rebates and margin lending of$397,000 and$250,000 , respectively, along with an increase in miscellaneous commission revenue of$112,000 . The increase in Brokerage revenue for the nine months endedSeptember 30, 2022 is related to an increase in commission income from private placement activity of$2.1 million from a recovery in private placement activity from the economic uncertainty that persisted during the three and nine months endedSeptember 30, 2021 from the COVID-19 pandemic and dampened private offering activity. In addition, income from money market rebates and margin lending increased$553,000 and$530,000 , respectively, during the nine months endedSeptember 30, 2022 , related to increases in interest rates and rising cash balances, increasing the availability of funds and related margin lending and corresponding revenue. Commissions from options trading also increased by$312,000 during the nine months endedSeptember 30, 2022 , over the same period in the prior year. These increases were offset by a decrease in brokerage commissions from general over-the-counter trading of$1.1 million and a decrease in syndicate deals of$841,000 for the nine months endedSeptember 30, 2022 , as well as other immaterial fluctuations in brokerage income netting to a decrease of$109,000 during the nine months endedSeptember 30, 2022 compared to the same period in the prior year. Private offering activity in particular did recover somewhat during the three and nine months endedSeptember 30, 2022 , but we expect private and syndicated offering activity to be negatively impacted in the future by retirements at Sanders Morris. In addition, expectations of economic disruption related to geo-political factors and further increases in market interest rates by theFederal Reserve in response to continued persistence in the inflationary environment inthe United States , among other factors, have led to economic uncertainty, which has the potential to decrease offering activity and general brokerage activity in future periods given price uncertainty in the face of volatile markets. 40
--------------------------------------------------------------------------------
Table of Contents
The table below reflects a rollforward of our client assets fromSeptember 30, 2021 throughSeptember 30, 2022 , which includes both advisory and brokerage assets, and the inflows and outflows and net market appreciation fromDecember 31, 2020 throughSeptember 30, 2022 . Our brokerage and advisory assets experienced a decrease of approximately$477.7 million , or 9.0%, betweenSeptember 30, 2021 andSeptember 30, 2022 , related to market depreciation which was partially offset by positive net flows. (In thousands) Client Assets As of December 31, 2020$ 4,524,376 Client inflows 2,053,488 Client outflows (1,759,327 ) Net flows 294,161 Market appreciation 493,490 As of September 30, 2021$ 5,312,027 Client inflows 589,139 Client outflows (444,428 ) Net flows 144,711 Market appreciation 152,574 As of December 31, 2021$ 5,609,312 Client inflows 2,415,046 Client outflows (1,692,726 ) Net flows 722,320 Market depreciation (1,497,299 ) As of September 30, 2022$ 4,834,333 Service fees and other income. Service fees includes fees for deposit-related services, loan and factored receivables servicing, third-party administration fees, and other income. Service fees and other income for the three and nine months endedSeptember 30, 2022 increased$706,000 , or 43.3%, and$1.1 million , or 20.5%, respectively, compared to the same periods in the prior year. The increases were the result of increases in third party pension administration fees from the Bank's Nolan division of$702,000 and$1.0 million , respectively, increases in interest income of$19,000 and$34,000 , respectively, increases in miscellaneous income of$13,000 and$13,000 , respectively, and increases in the servicing fees from the Bank's Integra factoring division of$28,000 and$341,000 , respectively, which was acquired effectiveJuly 1, 2021 and therefore had no revenue during the first six months of 2021, over the same periods in the prior year, and an increase in bank servicing fees of$17,000 for the three months endedSeptember 30, 2022 compared to the same period in the prior year. These increases were partially offset for the three and nine months endedSeptember 30, 2022 by foreign currency losses of$32,000 and$26,000 , respectively, and from losses on errors of$33,000 and$76,000 , respectively, over the same periods in the prior year, as well as a decrease in income distributions from an interest in securities not readily marketable of$71,000 and in consulting fees of$50,000 for the nine months endedSeptember 30, 2022 over the same period in the prior year. Immaterial fluctuations accounted for the remaining differences. The increase in third-party administration fees for the periods was primarily due to timing differences in completion of plan administration work compared to the same periods in the earlier year, during which the COVID-19 pandemic and related shutdowns led to a slowdown in submission of records from plan sponsors, delaying completion of work, as well as from an increase in third party administration clients. Rental income. The Company receives monthly rental income from tenants leasing space in the Bank building. Rental income for the three months endedSeptember 30, 2022 decreased$9,000 , or 10.2%, and rental income for the nine months endedSeptember 30, 2022 increased$4,000 , or 1.5%. The decrease for the three months endedSeptember 30, 2022 was due to rent concessions, and the increase for the nine months endedSeptember 30, 2022 was primarily due to a new tenant moving into vacant space during the second quarter 2021, which was partially offset by the decrease related to the aforementioned rent concessions. Non-Interest Expense
The components of non-interest expense were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2022 2021 2022 2021
Salaries and employee benefits
$ 18,239 Occupancy and equipment 394 503 1,265 1,322 Trust expenses 537 623 1,695 1,782
Brokerage and advisory direct costs 488 509 1,514
1,506
Professional fees 298 429 1,051 1,211
Data processing 203 282 593 753
Other 1,224 1,333 3,927 2,941
Total $ 10,861 $ 10,128 $ 33,098 $ 27,754
41--------------------------------------------------------------------------------
Table of Contents
Total non-interest expense for the three and nine months endedSeptember 30, 2022 increased$733,000 or 7.2%, and$5.3 million , or 19.3%, respectively, compared to the same periods in the prior year, primarily due to increases in salaries and employee benefits and other expenses, which were partially offset by decreases in occupancy and equipment expense, trust expenses, data processing expenses, and professional fees. Material changes in the various components of non-interest income are discussed below. Salaries and employee benefits. Salaries and employee benefits for the three and nine months endedSeptember 30, 2022 increased$1.3 million , or 19.7%, and$4.8 million , or 26.4%, compared to the same periods in the prior year. The increases were primarily due to increases in bonuses, salaries, and related payroll expenses in our Banking segment, the majority of which are related to a severance accrual and the increase of staff from the acquisition of the Integra factoring division, and in ourOther Financial Services segment, primarily from increases in incentive bonuses and earnouts atSanders Morris Harris , and increases in staff and merit increases in the Bank's Nolan division,Tectonic Advisors and the Bank's Trust department. In addition, health insurance and other employee benefits costs increased for the three and nine months endedSeptember 30, 2022 across the Company by$83,000 and$287,000 , respectively, compared to the same periods in the prior year due primarily to an increase in staff and rate increases. The increases in salary, bonus, and other related payroll costs during the three and nine months endedSeptember 30, 2022 in our Banking segment of$915,000 and$2.4 million , respectively, related to increases of$76,000 and$1.1 million , in salaries for Integra and the acquisition of the Bank's Integra division inJuly 2021 , respectively, and increases of$839,000 and$1.3 million elsewhere in our Banking segment related to merit increases in salaries and an increase in staff, primarily within the Bank's SBA division (including a$532,000 severance accrual). Salaries and bonuses in ourOther Financial Services segment increased$250,000 and$1.9 million for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods in the prior year, of which$1.0 million and$1.1 million , respectively, is related to increases in salaries and incentive bonuses, net of decreases in commissions and earnouts of related to decreases in brokerage and private placement activity of$642,000 and$309,000 , respectively, at Sanders Morris. In addition,$121,000 and$311,000 , respectively, is related toTectonic Advisors for increases in headcount in our investment operations team resulting from increases in net flows of assets under management and merit raises,$217,000 and$564,000 , respectively, is related to the Bank's Nolan division for increases in headcount, promotions and merit increases, and production related bonuses, and$16,000 and$57,000 , respectively, is related to the Bank's Trust department for increases in headcount and merit increases and promotions. These increases in salaries and benefits were offset slightly by a decrease in stock compensation expense across the Company of$60,000 and$47,000 for the three and nine months endedSeptember 30, 2022 , respectively, over the same periods in the prior year. Occupancy and equipment expense. Occupancy and equipment expense for the three and nine months endedSeptember 30, 2022 decreased$109,000 , or 21.7%, and$57,000 , or 4.3%, respectively, compared to the same periods in the prior year. The decreases were related to decreases totaling$87,000 and$160,000 , respectively, in ourOther Financial Services segment, offset by decreases of$23,000 and an increase of$102,000 , respectively, in our Banking segment. The decreases of in ourOther Financial Services segment for the three and nine months endedSeptember 30, 2022 included decreases in depreciation expense of$22,000 and$68,000 , respectively, as assets became fully depreciated and in facilities expense of$65,000 and$92,000 , respectively, related to the expiration of a lease on space that was subleased and no longer needed, compared to the same periods in the prior year. The decreases for the three months endedSeptember 30, 2022 in our Banking segment included decreases of$19,000 in facilities expense and$4,000 in depreciation expense, compared to the same period in the prior year. The increase for the nine months endedSeptember 30, 2022 in our Banking segment included increases of$101,000 in facilities expense compared to the same period in the prior year, primarily related to the acquisition of Integra. Trust expenses. Trust expenses are advisory fees paid to a fund advisor to advise the Company on the common trust funds managed by the Company, and are based on the value of the assets held in custody. Volatility in the bond and equity markets impacts the market value of trust assets and the related expenses. The monthly advisory fees are assessed based on the market value of assets at month-end. Trust expenses for the three and nine months endedSeptember 30, 2022 decreased$86,000 , or 13.8%, and$87,000 , or 4.9%, respectively, compared to the same periods in the prior year due to a decrease in the value of trust assets for the three and nine months endedSeptember 30, 2022 over the value during the same period in the prior year. This was due to a decrease in the valuation of trust assets, primarily during the three months endedSeptember 30, 2022 , which was partially offset by the increase in asset values and the strength of net inflows earlier in 2022, compared to the same periods in the prior year. Brokerage and advisory direct costs. Brokerage and advisory direct costs for the three and nine months endedSeptember 30, 2022 decreased$21,000 , or 4.1%, and increased$8,000 , or less than 1.0%, compared to the same periods in the prior year. The decrease for the three months endedSeptember 30, 2022 related primarily to decreases in referral fees and advisory clearing fees at Sanders Morris of$20,000 and$12,000 , respectively, and decreases in information services and referral fees atTectonic Advisors of$12,000 and$2,000 , respectively, which were offset by an increase in other clearing service fees atSanders Morris and Tectonic Advisors of$25,000 compared to the same period in the prior year. The increase for the nine months endedSeptember 30, 2022 related primarily to an increases in information services atTectonic Advisors andSanders Morris Harris of$43,000 and$10,000 , respectively, and increases in other clearing fees and service fees of$18,000 , offset by decreases in referral fees at Sanders Morris,HWG and Tectonic Advisors totaling$63,000 . 42
--------------------------------------------------------------------------------
Table of Contents
Professional fees. Professional fees, which include legal, consulting, audit and tax fees, for the three and nine months endedSeptember 30, 2022 decreased$131,000 , or 30.5%, and$160,000 , or 13.2%, respectively, compared the same periods in the prior year. The decrease for the three months endedSeptember 30, 2022 , was the result of decreases in legal fees totaling$82,000 , the majority of which was in our Banking segment related to acquisition of Integra during the same period in the prior year. Additionally, professional fees decreased$47,000 , the majority of which was in our Parent segment related to a stock option transaction during the same period in the prior year. The decrease for the nine months endedSeptember 30, 2022 related primarily to a decrease in professional fees of$159,000 at the Bank's trust department due to a decrease in consulting fees related to our participant directed plan services team, where staff increases have allowed us to reduce our reliance on consultants. In addition, legal fees decreased$103,000 , primarily in our Banking segment related to the acquisition of Integra in the same period in the prior year. The decrease in legal fees was offset by an increase in audit and tax consulting fees of$107,000 , primarily in our Banking and Parent segments related to the increase in complexity of our annual audit and tax preparation services. Data processing. Data processing includes costs related to the Company's operating systems. Data processing expense for the three and nine months endedSeptember 30, 2022 decreased$79,000 , or 28.0%, and$160,000 , or 21.2%, compared to the same periods in the prior year. The decreases were the result of decreases of$92,000 and$189,000 , respectively, in our Banking segment, offset by increases of$13,000 and$29,000 , respectively, in ourOther Financial Services segment. The decreases in our Banking segment were primarily related to the conversion of the Bank's core accounting system during the same periods in the prior year, which increased expense during the earlier periods, and the offsetting increases were primarily related to increases at the Bank's trust division related to increasing activity and improvements in the participant directed services group. Other. Other expenses include costs for insurance,Federal Deposit Insurance Corporation ("FDIC") andOffice of the Comptroller of the Currency ("OCC") assessments, director fees, regulatory filing fees related to our brokerage business, business travel, management fees, and other operational expenses. Other expenses for the three and nine months endedSeptember 30, 2022 decreased$109,000 , or 6.2%, and increased$986,000 , or 33.5%, compared to the same periods in the prior year. The decrease for the three months endedSeptember 30, 2022 included decreases of$41,000 in our Banking segment and$80,000 in ourHoldCo segment, offset by an increase of$12,000 in ourOther Financial Services segment. The increase for the nine months endedSeptember 30, 2022 included increases of$589,000 ,$284,000 and$113,000 in our Banking,Other Financial Services , andHoldCo segments, respectively. For the three months endedSeptember 30, 2022 , the decreases included a decrease of$16,000 in the Bank's Integra factoring division, led by a decrease of$24,000 in bank charges from the elimination of accounts at other banks following the acquisition, offset by increases in office expense and marketing, netting to a decrease of$16,000 . In addition, loan expense decreased$41,000 , payroll processing fees decreased$24,000 , offset by an increase in software costs, netting to a decrease of$41,000 in our banking segment. Decreases at ourHoldCo division included a decrease of$42,000 in marketing expense as we moved toward more targeted efforts, and a decrease in computer services of$26,000 and in franchise tax expense of$25,000 , which were offset by immaterial increases elsewhere, netting to a decrease of$79,000 in ourHoldCo segment. Other expense in ourOther Financial Services segment increased for the three months endedSeptember 30, 2022 by$12,000 , including increases in our computer supplies, services and software expenses of$48,000 , in our travel and meals expense of$23,000 , which were offset by decreases in employee recruitment costs of$33,000 , and in internet expense of$20,000 , combined with less material fluctuations, compared to the same period in the prior year. For the nine months endedSeptember 30, 2022 , the increase in our Banking segment includes an increase of$214,000 in the Bank's Integra factoring division which was acquired inJuly 2021 , primarily attributable to their being no expenses for the first six months of 2022, and increases in software licenses of$175,000 ,FDIC premiums of$50,000 , other facilities expense of$55,000 , employee recruitment expense of$43,000 , donations of$22,000 , and travel of$20,000 , combined with other immaterial fluctuations for a net increase of$589,000 . The increase in ourOther Financial Services segment includes an increase in computer software and services of$112,000 , travel and meals of$70,000 , professional liability insurance of$23,000 related to growth in our assets under management, and an increase in marketing and public relations of$107,000 , which includes marketing initiatives atTectonic Advisors related to assets under management attributable toCain Watters clients. These increases were offset by individually immaterial decreases, resulting in a net increase in other expense of$284,000 in ourOther Financial Services segment for the period. The increase in ourHoldCo segment includes an increase of$94,000 in marketing expenses for marketing initiatives across our Company, and other individually immaterial fluctuations resulting in an increase of$113,000 in ourHoldCo segment for the nine months endedSeptember 30, 2022 compared to the same period in the prior year. Income Taxes Income tax expense for the three and nine months endedSeptember 30, 2022 was approximately$1.2 million and$3.4 million , respectively, compared to$1.4 million and$3.7 million , respectively, for the same periods in the prior year. The effective income tax rate was 20.6% and 21.6% for the three and nine months endedSeptember 30, 2022 , respectively, compared to 21.6% and 22.2%, respectively, for the same periods in the prior year. 43
--------------------------------------------------------------------------------
Table of Contents Segment Reporting
We have three operating segments: Banking,
Our banking operating segment includes both commercial and consumer banking services, and factoring services through the Bank's Integra division. Commercial banking services are provided primarily to small to medium-sized businesses and their employees, which includes a wide array of lending and cash management products. Consumer banking services include lending and depository services. Factoring services are provided primarily to small over-the-road trucking businesses. Our other financial services segment includesTectonic Advisors , Sanders Morris, the Bank's Trust Division, which includes the Nolan division and a participant directed recordkeeping team, and HWG. Through these business divisions, we offer 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.
A third operating segment,
The following table presents key metrics related to our segments as of the periods indicated:
© Edgar Online, source
