MainStreet Bancshares (MNSB) swings to 2024 loss after $19.7M software impairment
MainStreet Bancshares, Inc. filed Amendment No. 3 to its 2024 Annual Report to include the full opinion of its independent auditor on internal control over financial reporting and to update Item 9A and related consents and officer certifications.
For 2024, the company reported a net loss of $9.98 million, compared with net income of $26.59 million in 2023, driven largely by a $19.72 million computer software intangible impairment and higher funding costs that cut net interest income to $62.57 million from $76.74 million. Total assets grew to $2.23 billion, loans reached $1.83 billion, deposits rose to $1.91 billion, and year-end stockholders’ equity was $207.99 million. The auditor issued unqualified opinions on both the 2024 financial statements and the effectiveness of internal control over financial reporting.
Positive
- None.
Negative
- 2024 net loss and large impairment: The company reported a net loss of $9.98 million versus $26.59 million net income in 2023, driven primarily by a $19.72 million impairment of its computer software intangible tied to its SaaS/BaaS platform and higher funding costs that reduced net interest income.
Insights
Large 2024 loss from software impairment and margin pressure
MainStreet Bancshares swung to a $9.98M net loss in 2024 after earning $26.59M in 2023. The key driver was a one-time computer software intangible impairment of $19.72M, tied to its fintech/BaaS platform deployment.
Core banking performance weakened as well. Net interest income fell to $62.57M from $76.74M as deposit and funding costs surged, with total interest expense climbing to $72.04M from $47.68M. Credit costs also rose, with a loan credit loss provision of $7.49M.
Balance sheet growth continued: loans increased to $1.83B, deposits to $1.91B, and assets to $2.23B at year-end 2024. An unqualified internal control opinion from the auditor is reassuring, but future filings will need to show whether earnings recover once the impairment is behind them and funding costs stabilize.
--12-31FY2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 3)
(Mark One)
| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
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
MainStreet Bancshares, Inc.
(Exact name of Registrant as specified in its Charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | The | ||
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| | The |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. yes ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. yes ☐
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | | ☒ | |||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the Registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the Registrant's executive officers during the relevant recovery period pursuant to section 240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). yes
As of June 30, 2024, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the shares of common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The NASDAQ Stock Market, was $
DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Part III of this Annual Report on Form 10-K will be found in portions of the Registrant’s definitive proxy statement for its 2025 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, and such information is incorporated herein by this reference.
| Auditor Firm ID: | Auditor Name: | Auditor Location: |
EXPLANATORY NOTE
MainStreet Bancshares, Inc. ("we" or the "Company") is filing this Amendment No. 3 on Form 10-K/A (the “Amendment”) to its Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the United States Securities and Exchange Commission on March 14, 2025 (the “Original Report"). Although referenced in the opinion of the Company’s independent auditors with respect to the financial statements, the full text of the opinion of the Company’s independent auditor with respect to its internal control over financial reporting was inadvertently omitted from the Original Report. Additionally, Item 9A of the Original Report is amended to disclose the opinion of the Company’s independent auditor with respect to its internal control over financial reporting.
Pursuant to Rule 12b-15 promulgated under the Securities and Exchange Act of 1934, as amended, we have included the entire text of Part II, Item 8 and Item 9A in this Form 10-K/A. Part IV, Item 15 includes the consent of Yount, Hyde & Barbour, P.C. and updated certifications of the Company’s Chief Executive Officer and Chief Financial Officer.
Except as expressly set forth herein, this Amendment does not reflect events occurring after the date of the Original Report or modify or update any of the other disclosures contained therein in any way other than as required to reflect the amendments referred to above. Accordingly, this Amendment should be read in conjunction with the Original Report and the Company's other filings with the SEC.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors
MainStreet Bancshares, Inc.
Fairfax, Virginia
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of MainStreet Bancshares, Inc. and Subsidiary (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income (loss), comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 14, 2025 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses – Loans Collectively Evaluated for Losses
As described in Note 1 – Organization, Basis of Presentation and Impact of Recently Issued Accounting Pronouncements and Note 5 – Allowance for Credit Losses in the consolidated financial statements, the Company accounts for its allowance for credit losses on loans (ACLL) in accordance with ASC 326. The ACLL is a valuation allowance that represents management’s best estimate of expected credit losses on loans measured at amortized cost considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms. Loans which share common risk characteristics are pooled and collectively evaluated by the Company using historical data, as well as assessments of current conditions and reasonable and supportable forecasts of future conditions. The Company’s ACLL related to collectively evaluated loans made up the total recorded ACLL of $19.5 million as of December 31, 2024. The collectively evaluated ACLL consists of quantitative and qualitative components.
The quantitative component consists of loss estimates derived from a weighted average remaining maturity (“WARM”) model using external observations of historical loan losses adjusted for estimated attrition and forecasts of future conditions over a reasonable and supportable period. These estimates consider large amounts of data in tabulating loss and attrition rates and require complex calculations as well as management judgment in the selection of appropriate inputs.
In addition to the quantitative component, the collectively evaluated ACLL also includes a qualitative component which aggregates management’s assessment of available information relevant to assessing collectability that is not captured in the quantitative loss estimation process. Factors considered by management in developing its qualitative estimates include: changes in lending policies and procedures; changes in international, national, regional and local economic conditions; changes in the nature and volume of the portfolio and terms of loans; changes in the experience, depth, and ability of lending management; changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans; changes in the quality of the Company’s loan review system; changes in the value of underlying collateral for collateral-dependent loans; the existence and effect of any concentrations of credit and changes in the level of such concentrations; and the effect of other external factors (i.e. competition, legal and regulatory requirements, etc.) on the level of credit losses.
Management exercised significant judgment when estimating the ACLL on collectively evaluated loans. We identified the estimation of the collectively evaluated ACLL as a critical audit matter as auditing the collectively evaluated ACLL involved especially complex and subjective auditor judgment in evaluating management’s assessment of the inherently subjective estimates.
The primary audit procedures we performed to address this critical audit matter included:
| ● | Substantively testing management’s process for measuring the collectively evaluated ACLL, including: |
| o | Evaluating conceptual soundness, assumptions, and key data inputs of the Company’s WARM methodology, including the identification of loan pools, the calculation of loss rate inputs, and the calculation of attrition rate inputs for each pool. |
| o | Evaluating the methodology and testing the accuracy of incorporating reasonable and supportable forecasts in the collectively evaluated ACLL estimate. |
| o | Evaluating the completeness and accuracy of data inputs used as a basis for the qualitative factors. |
| o | Evaluating the qualitative factors for directional consistency in comparison to prior periods and for reasonableness in comparison to underlying supporting data. |
| o | Testing the mathematical accuracy of the ACLL for collectively evaluated loans including both the quantitative and qualitative components of the calculation. |
/s/ YOUNT, HYDE & BARBOUR, P.C.
We have served as the Company's auditor since 2008.
Owings Mills, Maryland
March 14, 2025
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors
MainStreet Bancshares, Inc.
Fairfax, Virginia
Opinion on the Internal Control Over Financial Reporting
We have audited MainStreet Bancshares, Inc. and Subsidiary’s (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition as of December 31, 2024 and 2023, the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity, and cash flows for the three years ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements) of the Company and our report dated March 14, 2025 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying financial statements. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ YOUNT, HYDE & BARBOUR, P.C.
Owings Mills, Maryland
March 14, 2025
Item 8 – Financial Statements and Supplementary Data
Consolidated Financial Statements
Consolidated Statements of Financial Condition as of December 31, 2024 and December 31, 2023 (Dollars in thousands, except per share data)
| At December 31, 2024 | At December 31, 2023 | |||||||
| Assets | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Federal funds sold | ||||||||
| Cash and cash equivalents | ||||||||
| Investment securities available-for-sale (AFS), at fair value | ||||||||
| Investment securities held-to-maturity (HTM), at amortized cost, net of allowance for credit losses of $0 and $0, respectively. | ||||||||
| Restricted securities, at amortized cost | ||||||||
| Loans, net of allowance for credit losses of $19,450 and $16,506, respectively | ||||||||
| Premises and equipment, net | ||||||||
| Accrued interest and other receivables | ||||||||
| Computer software, net of amortization | ||||||||
| Bank owned life insurance | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities | ||||||||
| Non-interest bearing deposits | $ | $ | ||||||
| Interest bearing demand deposits | ||||||||
| Savings and NOW deposits | ||||||||
| Money market deposits | ||||||||
| Time deposits | ||||||||
| Total deposits | ||||||||
| Federal funds purchased | ||||||||
| Subordinated debt, net | ||||||||
| Allowance for credit losses on off-balance sheet credit exposure | ||||||||
| Other liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $1.00 par value, 2,000,000 shares authorized non-cumulative perpetual; 28,750 issued and outstanding as of December 31, 2024 and December 31, 2023 | ||||||||
| Common stock, $4.00 par value, 15,000,000 shares authorized; issued and outstanding 7,603,765 shares (including 237,717 nonvested shares) for December 31, 2024 and 7,527,415 shares (including 228,300 nonvested shares) for December 31, 2023 | ||||||||
| Capital surplus | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive (loss) | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See Notes to the Consolidated Financial Statements
Consolidated Statements of Income (Loss) for the Years Ended December 31, 2024, 2023, and 2022 (Dollars in thousands, except per share data).
| For the Year Ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Interest Income | ||||||||||||
| Interest and fees on loans | $ | $ | $ | |||||||||
| Interest and dividends on investments securities | ||||||||||||
| U.S. government agencies and corporations | ||||||||||||
| Mortgage-backed securities | ||||||||||||
| Tax-exempt obligations of states and political subdivisions | ||||||||||||
| Taxable obligations of states and political subdivisions | ||||||||||||
| Other | ||||||||||||
| Interest on federal funds sold | ||||||||||||
| Total Interest Income | ||||||||||||
| Interest Expense | ||||||||||||
| Interest on interest bearing demand deposits | ||||||||||||
| Interest on savings and NOW deposits | ||||||||||||
| Interest on money market deposits | ||||||||||||
| Interest on time deposits | ||||||||||||
| Interest on federal funds purchased | ||||||||||||
| Interest on Federal Home Loan Bank advances | ||||||||||||
| Interest on subordinated debt | ||||||||||||
| Total Interest Expense | ||||||||||||
| Net Interest Income | ||||||||||||
| Provision For Credit Losses - Loans | ||||||||||||
| Recovery of Credit Losses - Off-Balance Sheet Credit Exposure | ( | ) | ( | ) | ||||||||
| Net interest income after provision for (recovery of) credit losses | ||||||||||||
| Non-Interest Income | ||||||||||||
| Deposit account service charges | ||||||||||||
| Bank owned life insurance income | ||||||||||||
| Loan swap fee income | ||||||||||||
| Net gain (loss) on securities called or matured | ( | ) | ||||||||||
| Net loss on sale of loans | ( | ) | ||||||||||
| Other fee income | ||||||||||||
| Total Non-Interest Income | ||||||||||||
| Non-Interest Expense | ||||||||||||
| Salaries and employee benefits | ||||||||||||
| Furniture and equipment expenses | ||||||||||||
| Advertising and marketing | ||||||||||||
| Occupancy expenses | ||||||||||||
| Outside services | ||||||||||||
| Franchise tax | ||||||||||||
| FDIC insurance | ||||||||||||
| Data processing | ||||||||||||
| Administrative expenses | ||||||||||||
| Other real estate expenses, net | ||||||||||||
| Computer software intangible impairment | ||||||||||||
| Other operating expenses | ||||||||||||
| Total Non-Interest Expense | ||||||||||||
| Income (Loss) before income taxes | ( | ) | ||||||||||
| Income Tax Expense (Benefit) | ( | ) | ||||||||||
| Net Income (Loss) | $ | ( | ) | $ | $ | |||||||
| Preferred Stock Dividends | ||||||||||||
| Net Income (Loss) available to common shareholders | $ | ( | ) | $ | $ | |||||||
| Earnings (loss) per common share: | ||||||||||||
| Basic | $ | ( | ) | $ | $ | |||||||
| Diluted | $ | ( | ) | $ | $ | |||||||
See Notes to the Consolidated Financial Statements
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2024, 2023, and 2022 (Dollars in thousands).
| For the Year Ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Comprehensive Income (Loss), net of taxes | ||||||||||||
| Net Income (Loss) | $ | ( | ) | $ | $ | |||||||
| Other comprehensive income (loss), net of tax expense (benefit): | ||||||||||||
| Unrealized gains (losses) on available for sale securities arising during the period (net of tax expense (benefit), ($44), $309 and ($2.6 million), respectively) | ( | ) | ( | ) | ||||||||
| Add: reclassification adjustment for amortization of unrealized losses on securities transferred from available for sale to held to maturity (net of tax, $0, $2, and $4 respectively) | ||||||||||||
| Other comprehensive income (loss) | ( | ) | ( | ) | ||||||||
| Comprehensive Income (Loss) | $ | ( | ) | $ | $ | |||||||
See Notes to the Consolidated Financial Statements
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2024, 2023, and 2022 (Dollars in thousands).
| Accumulated Other | ||||||||||||||||||||||||
| Preferred | Common | Capital | Retained | Comprehensive | ||||||||||||||||||||
| Stock | Stock | Surplus | Earnings | Income (Loss) | Total | |||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Vesting of restricted stock | ( | ) | ||||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||
| Common stock repurchased | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Dividends on preferred stock - ($0.47 per depositary share) | ( | ) | ( | ) | ||||||||||||||||||||
| Dividends on common stock - ($0.25 per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Cumulative change in accounting principle (Note 3) | ( | ) | ( | ) | ||||||||||||||||||||
| Vesting of restricted stock | ( | ) | ||||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||
| Common stock repurchased | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Dividends on preferred stock - ($0.47 per depositary share) | ( | ) | ( | ) | ||||||||||||||||||||
| Dividends on common stock - ($0.40 per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Other comprehensive gain | ||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Cumulative change in accounting principle (Note 1) | ( | ) | ( | ) | ||||||||||||||||||||
| Vesting of restricted stock | ( | ) | ||||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||
| Common stock repurchased | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Dividends on preferred stock - ($0.47 per depositary share) | ( | ) | ( | ) | ||||||||||||||||||||
| Dividends on common stock - ($0.40 per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Other comprehensive gain (loss) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
See Notes to the Consolidated Financial Statements
Consolidated Statements of Cash Flows (Dollars in thousands)
| Year Ended December 31, | 2024 | 2023 | 2022 | |||||||||
| Cash Flows from Operating Activities | ||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation, amortization, and accretion, net | ||||||||||||
| Amortization of right-of-use assets | ||||||||||||
| Amortization of intangible assets | ||||||||||||
| Deferred income tax benefit | ( | ) | ( | ) | ( | ) | ||||||
| Loss on sale of other real estate owned | ||||||||||||
| Loss on valuation of other real estate owned | ||||||||||||
| Loss on loans held for sale | ||||||||||||
| Loss on New Market Tax Credit investment operations | ||||||||||||
| Gain on disposal of premises and equipment | ( | ) | ( | ) | ||||||||
| Realized (Gain) loss on securities (AFS/HTM) | ( | ) | ||||||||||
| Provision for credit losses, net | ||||||||||||
| Stock based compensation expense | ||||||||||||
| Income from bank owned life insurance | ( | ) | ( | ) | ( | ) | ||||||
| Subordinated debt amortization expense | ||||||||||||
| Computer software intangible impairment | ||||||||||||
| Change in: | ||||||||||||
| Accrued interest receivable and other receivables | ( | ) | ( | ) | ||||||||
| Other assets | ( | ) | ( | ) | ||||||||
| Other liabilities | ( | ) | ( | ) | ||||||||
| Net cash provided by operating activities | ||||||||||||
| Cash Flows from Investing Activities | ||||||||||||
| Activity in available-for-sale securities: | ||||||||||||
| Payments | ||||||||||||
| Maturities, sales, called, refunded | ||||||||||||
| Purchases | ( | ) | ( | ) | ||||||||
| Activity in held-to-maturity securities: | ||||||||||||
| Purchases | ( | ) | ||||||||||
| Maturities, called, refunded | ||||||||||||
| Purchases of equity securities | ( | ) | ( | ) | ( | ) | ||||||
| Purchases of restricted investment in bank stock | ( | ) | ( | ) | ( | ) | ||||||
| Redemption of restricted investment in bank stock | ||||||||||||
| Net increase in loan portfolio | ( | ) | ( | ) | ( | ) | ||||||
| Proceeds from sale of other real estate owned | ||||||||||||
| Proceeds from sale of loans | ||||||||||||
| Proceeds from sale of premises and equipment | ||||||||||||
| Purchases of premises and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Computer software developed | ( | ) | ( | ) | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash Flows from Financing Activities | ||||||||||||
| Net increase (decrease) in non-interest deposits | ( | ) | ( | ) | ||||||||
| Net increase in interest bearing demand, savings, and time deposits | ||||||||||||
| Net increase (decrease) in Federal Home Loan Bank advances | ( | ) | ||||||||||
| Net increase (decrease) in federal funds purchased | ( | ) | ||||||||||
| Net increase in subordinated debt | ||||||||||||
| Repurchase of common stock | ( | ) | ( | ) | ( | ) | ||||||
| Cash dividends paid on preferred stock | ( | ) | ( | ) | ( | ) | ||||||
| Cash dividends paid on common stock | ( | ) | ( | ) | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||||||
| Increase (decrease) in Cash and Cash Equivalents, net | ( | ) | ||||||||||
| Cash and Cash Equivalents, beginning of period | ||||||||||||
| Cash and Cash Equivalents, end of period | $ | $ | $ | |||||||||
| Supplementary Disclosure of Cash Flow Information | ||||||||||||
| Cash paid during the period for interest | $ | $ | $ | |||||||||
| Cash paid during the period for income taxes | $ | $ | $ | |||||||||
| Transfers from loans receivable to loans held for sale, at carrying value | $ | $ | $ | |||||||||
| Net unrealized gain (loss) on securities available-for-sale | $ | ( | ) | $ | $ | ( | ) | |||||
See Notes to the Consolidated Financial Statements
MAINSTREET BANCSHARES, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Note 1. Organization, Basis of Presentation and Impact of Recently Issued Accounting Pronouncements
Organization
MainStreet Bancshares Inc. (the “Company”) is a financial holding company incorporated under the laws of the Commonwealth of Virginia whose principal activity is the ownership and management of MainStreet Bank. On May 18, 2016, the stockholders of MainStreet Bank (the “Bank”) approved a Reorganization Agreement and Plan of Share Exchange (“Reorganization”) whereby the Bank would reorganize into a holding company structure. The Plan of Share Exchange called for each outstanding share of Bank common stock to be automatically converted into and exchanged for one share of the Company’s common stock, and the common stockholders of the Bank would become the common stockholders of the Company on the effective date of the Reorganization. On July 15, 2016, the Reorganization became effective, and the Bank became a wholly-owned subsidiary of the Company. The holding company is regulated under the Bank Holding Company Act of 1956, as amended, and is subject to inspection, examination, and supervision by the Federal Reserve Board. On October 12, 2021, the Company filed an election with the Federal Reserve Board to be a financial holding company in order to engage in a broader range of financial activities than are permitted for bank holding companies generally. The Company is authorized to issue
On April 18, 2019, the Company completed the registration of its common stock with the Securities Exchange Commission through its filing of a General Form for Registration of Securities on Form 10 (“Form 10”), pursuant to Section 12(b) of the Securities Exchange Act of 1934. The Company was considered to be an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act,” and as defined in Section 2(a) of the Securities Act of 1933, as amended, or the “Securities Act,” through the quarter ended September 30, 2024. The Company is no longer considered an emerging growth company and will be an accelerated filer effective with this filing.
We were approved to list shares of our common stock on the Nasdaq Capital Market under our current symbol “MNSB” as of April 22, 2019. We were approved to list depositary shares of preferred stock on the Nasdaq Capital Market on the symbol “MNSBP” as of September 16, 2020. Each depositary share represents a 1/40th interest in a share of
In September 2021, MainStreet Bancshares, Inc. established MainStreet Community Capital, LLC, a wholly owned subsidiary, to be a community development entity (“CDE”). This CDE will be an intermediary vehicle for the provision of loans and investments in Low-Income Communities (“LICs”). In January 2022, the Community Development Financial Institutions Fund (“CDFI”) of the United States Department of the Treasury certified MainStreet Community Capital, LLC as a registered CDE. MainStreet Community Capital's primary business objective will be to apply for and receive New Market Tax Credit ("NMTC") allocations that are awarded and distributed annually.
On October 25, 2021, MainStreet Bancshares, Inc. formally introduced Avenu, a division of MainStreet Bank. Avenu provides an embedded Banking as a Service (BaaS) solution that connects our partners (fintechs, application developers, money movers, and entrepreneurs) directly and seamlessly to our Software as a Service (SaaS) solution. Our SaaS software program was deployed in October 2024. Refer to Note 8 for additional information around the computer software intangible asset. The Avenu division is classified within our Financial Technology reportable segment outlined in Note 26. Additional information can be found in our investor presentations filed quarterly.
MainStreet Bank is headquartered in Fairfax, Virginia where it also operates a branch. The Bank was incorporated on March 28, 2003, and received its charter from the Bureau of Financial Institutions of the Commonwealth of Virginia (the “Bureau”) on March 16, 2004. The Bank commenced regular operations on May 26, 2004, and is supervised by the Bureau and the Federal Reserve Bank of Richmond. The Bank is a member of the Federal Reserve System and the Federal Deposit Insurance Corporation. The Bank places special emphasis on serving the needs of individuals, and small and medium-sized businesses and professionals in the Washington, D.C. metropolitan area.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).
Investment securities – The Bank’s investment debt securities are classified as either held-to-maturity, available-for-sale, or trading. At December 31, 2024 and December 31, 2023, the Bank held approximately $
Debt securities which are not classified as held-to-maturity or trading are classified as securities available-for-sale (AFS). Debt securities available-for-sale are reported at fair value. Any unrealized gain or loss, net of applicable income taxes, is reported as a separate addition to or reduction from stockholders’ equity. Gains and losses arising from the sale of debt securities available-for-sale are recognized based on the specific identification method on a trade-date basis and included in results of operations. Debt securities held-to-maturity includes securities purchased with the ability and positive intent to hold to maturity. Debt securities are stated at historical cost adjusted for amortization of premiums and accretion of discount, and net of any allowance for credit losses.
Purchase premiums and discounts are amortized using the interest method over the term or first call date of each security.
Allowance for Credit Losses - Held-to-Maturity Securities - The Company measures expected credit losses on held-to-maturity (HTM) securities on an individual basis. Accrued interest receivable on these securities are excluded from the estimate of credit losses. For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The Company's HTM securities ACL was immaterial at December 31, 2024.
Loans - The Bank makes commercial and consumer loans to customers. Our recorded investment in loans that management has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, generally are reported at their unpaid principal balances adjusted for charge-offs, unearned discounts, any deferred fees or costs on originated loans, and the allowance for credit losses on loans. Interest on loans is credited to operations based on the principal amount outstanding. Loan fees and origination costs are deferred and the net amount is amortized as an adjustment of the related loan’s yield using the effective interest method. The Bank is amortizing these amounts over the contractual life of the related loans.
A loan’s past due status is based on the contractual due date of the most delinquent payment due. All loans which are 30 or more days past due at the end of the month are reported to the Board of Directors. Commercial loans are generally placed on nonaccrual status when the collection of principal or interest is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Consumer loans are generally placed on nonaccrual status when the collection of principal or interest is 120 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Loans greater than 90 days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and interest. For those loans that are carried on nonaccrual status, payments are first applied to principal outstanding. A loan may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the borrower will continue to make payments as agreed. It is Bank policy to charge-off loans whose collectability is sufficiently questionable and can no longer be justified as an asset on the statement of financial condition. To determine if a loan should be charged-off, all possible sources of repayment are analyzed, including: (1) the potential for future cash flow, (2) the value of the Bank’s collateral, and (3) the strength of co-makers or guarantors. All principal and previously accrued interest is charged to the allowance for credit losses. All future payments received on the loan are credited to the allowance for credit losses as a recovery. These policies are applied consistently across our loan portfolio.
The Company designates individually evaluated loans on nonaccrual status as collateral-dependent loans, as well as other loans that management of the Company designates as having differing risk. Collateral-dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under CECL, for collateral-dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.
Allowance for Credit Losses
On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by the lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such changes is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that is more likely than not they will be required to sell.
The Company adopted ASC 326 and all the subsequent amendments thereto effective January 1, 2023 using the modified retrospective method for all financial assets measured at amortized cost, and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior periods amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $
The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available-for-sale securities was not deemed material.
The following table illustrates the impact of ASC 326.
| January 1, 2023 | ||||||||||||
| (Dollars in thousands) | As Reported Under ASC 326 | Pre-ASC 326 Adoption | Impact of ASC 326 Adoption | |||||||||
| Assets: | ||||||||||||
| Allowance for Credit Losses | ||||||||||||
| Residential Real Estate | $ | $ | $ | |||||||||
| Commercial Real Estate | ||||||||||||
| Construction and Land Development | ||||||||||||
| Commercial & Industrial | ||||||||||||
| Consumer | ||||||||||||
| Total Allowance for Credit Losses on Loans | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Allowance for Credit Losses Off-Balance Sheet Credit Exposure | ||||||||||||
| Total Allowance for Credit Losses | $ | $ | $ | |||||||||
The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectible interest.
Allowance for Credit Losses - Loans - The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off. Accrued interest receivable is excluded from the estimate of credit losses.
The allowance for credit losses represents management's estimate of lifetime credit losses inherent in the loans as of the balance sheet date. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency levels, concentrations or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values or vacancy rates, consumer price index and projected federal funds target rate and future unemployment rates.
The allowance for credit losses on loans is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following portfolio segments and measures the allowance for credit losses on loans using the following methods: Portfolio segments are grouped in homogenous pools that mirror the loan pools described in Federal Financial Institutions Examination Council Call Report however we are able to group these pools into the following segments:
| • | Commercial real estate loans carry risks of the client’s ability to repay the loan from the cash flow derived from the underlying real estate. Risks inherent in managing a commercial real estate portfolio relate to sudden or gradual drops in property values as well as changes in the economic climate. Real estate security diminishes risks only to the extent that a market exists for the subject collateral. These risks are attempted to be mitigated by carefully underwriting loans of this type and by following appropriate loan-to-value standards |
| • | Construction and land development loans carry risks that the project will not be finished according to schedule, the project will not be finished according to budget and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure unrelated to the project. |
| • | Residential real estate mortgage loans, including equity lines of credit, carry risks associated with the continued creditworthiness of the borrower and the changes in the value of the collateral. |
| • | Commercial and industrial loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because the repayment of these loans may be dependent upon the profitability and cash flows of the business or project. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much precision. |
| • | Consumer secured loans (indirect lending) carry risks associated with the continued creditworthiness of the borrower and the value of the collateral (e.g., rapidly depreciating assets such as automobiles). These risks are attempted to be mitigated by following appropriate loan-to-value standards and an experienced management team for this type of portfolio. |
| • | Consumer unsecured loans carry risks associated with the continued credit-worthiness of the borrower. Consumer unsecured loans are more likely to be immediately adversely affected by job loss, divorce, illness or personal bankruptcy. |
For each homogenous loan pool, the Company elected to use the Weighted Average Remaining Life (“WARM”) methodology for calculating historical and future loss reserves. The WARM methodology calculates the average annual historical charge-off rate of a homogenous loan pool and multiplies that rate by the pool's remaining life to estimate the allowance for credit losses. Quantitative assumptions included are below:
Remaining life - For amortizing assets, the remaining life is calculated by taking the contractual life and adjusting it by any expected scheduled payments as well as prepayments. An important assumption in the calculation of remaining life is an “exit event” which would be deemed as the end of life of a loan. Examples of exit events included in our model are: 1). A change in maturity date of 90 days or more and 2). A loan changing its loan pool classification.
Loss Rate - Loss rates are calculated quarterly and aggregated to determine an annual loss rate. Our methodology uses actual Company data utilizing a straight average over the time periods included. Recoveries are netted against charge-offs and loss rates are floored at 0% with no ability to have “negative” loss rates.
Loss Rate Lookback - By utilizing the WARM method, management is also evaluating future economic conditions. Using historical loan portfolio performance data in certain economic conditions, gives us an idea of how to adjust for potential credit exposure in similar future environments. While subject to change at each quarterly meeting, we have elected to make our base case scenario for future economic environments. This evaluation will be subject to change given the circumstances evaluated at each quarter.
Historical Losses - Quantitative loss estimation models have been developed based largely on call report data from 2004 through the current period and the economic conditions during the same time period. Within our historical losses calculation, the Company projects out the loss environment for the subsequent two quarters, based largely on the preceding twelve quarters. After that period, the historical loss percentage reverts back to the lifetime historical mean over a four quarter progression.
Additionally, the allowance for credit losses on loans calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.
Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date unadjusted for selling costs as appropriate.
Interest income on loans – Interest on loans is accrued and credited to income on daily balances of the principal amount outstanding. The accrual of interest on loans is discontinued when, in the opinion of management, there is an indication that the borrower may be unable to meet payments as they become due. Upon such discontinuance, all unpaid accrued interest is reversed.
Generally, the Bank will return a loan to accrual status when all delinquent interest and principal becomes current and remains current for six consecutive months under the terms of the loan agreement or the loan is well-secured or in process of collection. Upon returning to accrual status, interest payments applied to the principal balance of a loan while in nonaccrual status are recognized as a yield adjustment over the remaining life.
Computer software development - The Company capitalizes new product development costs incurred for software to be sold from the point at which technological feasibility has been established through the point at which the product is ready for general availability. Software development costs that are capitalized are evaluated annually for impairment and are assigned an estimated economic life based on the type of product, market characteristics, and maturity of the market for that particular product. These costs are amortized on a straight-line basis. All of this amortization expense is included within components of operating income.
During the three months ended December 31, 2024, Management performed the annual impairment assessment and determined that a triggering event had occurred. The resulting calculations indicated that the fair value did not exceed the carrying amount of the Company's computer software intangible which resulted in a determination that the intangible had become fully impaired. The impairment charge of $
Income taxes – The Bank uses an asset and liability approach in financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. The principal items relate primarily to differences between the allowance for credit losses, deferred loan fees, and accumulated depreciation and amortization. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense (benefit) is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. As of December 31, 2024, and December 31, 2023, there were
Interest and penalties associated with unrecognized tax benefits, if any, would be classified as additional income taxes in the statement of income.
Stock compensation plans – Stock compensation accounting guidance (FASB ASC 718, “Compensation – Stock Compensation”) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued.
The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Sholes model is used to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.
Earnings per common share – Earnings per common share has been determined under the provisions of FASB ASC 260, “Earnings Per Share” and has been computed based on the weighted average common shares outstanding during the year ended December 31, (
The only potential dilutive stock of the Bank as defined in FASB ASC 260 would be stock options granted to various directors, officers, and employees of the Bank. There were
Off-balance sheet instruments – In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded, or related fees are incurred or received.
Allowance for Credit Losses - Off-Balance Sheet Credit Exposures - The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted through credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The Company classified off-balance sheet exposure in similar pools as the funded loan portfolio and determined that qualitative and quantitative risk factors assessed to the funded loan pool are also evident for the unfunded loan pool of similar type, adjusted for likelihood of funding and any other relevant metrics. The allowance for unfunded commitments is identified separately on the Company’s consolidated statement of financial condition.
Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from the estimates.
The Company’s critical accounting policies relate to (1) the allowance for credit losses, (2) fair value of financial instruments, and (3) derivative financial instruments. These critical accounting policies require the use of estimates, assumptions and judgments which are based on information available as of the date of the financial statements. Accordingly, as this information changes, future financial statements could reflect the use of different estimates, assumptions and judgments. Certain determinations inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. In connection with the determination of the allowances for credit losses on loans, management obtains independent appraisals for significant properties.
Derivative Financial Instruments – The Bank recognizes derivative financial instruments at fair value as either an other asset or other liability in the consolidated statement of financial condition. The Bank’s derivative financial instruments include interest rate swaps with certain qualifying commercial loan customers and dealer counterparties. Because the interest rate swaps with loan customers and dealer counterparties are not designated as hedging instruments, adjustments to reflect unrealized gains and losses resulting from changes in fair value of these instruments are reported as noninterest income or noninterest expense, as applicable. The Bank’s interest rate swaps with loan customers and dealer counterparties are described more fully in Note 19.
Revenue Recognition - Most revenue associated with the Company’s financial instruments, including interest income and gains/losses on investment securities, derivatives and sales of financial instruments are outside the scope of ASC Topic 606. The Company’s services that fall within the scope of ASC Topic 606 are presented within noninterest income and are recognized as revenue. A description of the primary revenue streams accounted for under ASC Topic 606 follows:
Deposit Account Service Charges. The Company earns fees from its deposit customers for overdraft and account maintenance services. Overdraft fees are recognized when the overdraft occurs. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the company satisfies the performance obligation.
Other Service Charges and Fees. The Company earns fees from its customers for transaction-based services. Such services include safe deposit box, ATM, stop payment, wire transfer, mortgage origination and interest rate swap fees. In each case, these service charges and fees are recognized in income at the time or within the same period that the Company’s performance obligation is satisfied.
Interchange Income. The Company earns interchange fees from debit and credit cardholder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services.
Recently Adopted Accounting Developments
On March 29, 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” These amendments allow entities to account for qualifying tax equity investments using the proportional amortization method regardless of the program giving rise to the related income tax credits, as opposed to only being allowed to apply this method to qualifying tax equity investments in low-income housing tax credit structures as was the case under previous guidance. ASU 2023-02 was effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. On January 1, 2024, the Company adopted ASU 2023-02 using the modified retrospective approach. The Company transitioned from the equity method of accounting and began applying the proportional amortization method of accounting to its qualifying new markets tax credit investments in addition to its low income housing tax credit partnerships already subject to the proportional amortization method. The cumulative change in accounting principle was approximately $217,000.
In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosure about significant segment expenses. This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (CODM), an amount for other segment items by reportable segment and a description of its composition, all annual disclosures about a reportable segment profit or loss and assets currently required by FASB ASU Topic 280 in interim periods, and the title and position of the CODM and how the CODM uses the reportable measures. Additionally, this ASU requires that at least one of the reportable segment profit and loss measures should be the measure that is most consistent with the measurement principals used in an entity's consolidated financial statements. Lastly, this ASU requires public business entities with a single reportable segment to provide all disclosures required by these amendments in this ASU and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retroactively. On December 31, 2024, the Company adopted ASU 2023-07. Refer to Note 26 for updated disclosures due to the adoption of ASU 2023-07.
Impact of Recently Issued Accounting Pronouncements
In July 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)”. This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ASU 2023-03 is effective upon addition to the FASB Codification. The Company does not expect the adoption of ASU 2023-03 to have a material impact on its consolidated financial statements.
In October 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company does not expect the adoption of ASU 2023-06 to have a material impact on its consolidated financial statements.
In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements.
In March 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-01, “Compensation – Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards”. This ASU provides an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award should be accounted for in accordance with Topic 718. This ASU is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the annual period that includes that interim period. Transition can be done either retrospectively or prospectively. The Company does not expect the adoption of ASU 2024-01 to have a material impact on its consolidated financial statements.
In March 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-02, “Codification Improvements – Amendments to Remove References to the Concepts Statements”. This ASU contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas. This ASU is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively to all new transactions recognized on or after the date that the entity first applies the amendments or retrospectively to the beginning of the earliest comparative period presented in which the amendments were first applied. If an entity adopts the amendments retrospectively, it should adjust the opening balance of retained earnings as of the beginning of the earliest comparative period presented. The Company does not expect the adoption of ASU 2024-02 to have a material impact on its consolidated financial statements.
In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. The FASB subsequently issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date”, which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in ASU 2024-03 in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of ASU 2024-03 is permitted. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.
Note 2. Restrictions on Cash
On March 15, 2020, the Federal Reserve reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions. Prior to the change, reserve requirement ratios on net transactions accounts differed based on the amount of net transactions accounts at the depository institution.
A certain amount of net transaction accounts, known as the "reserve requirement exemption amount," was subject to a reserve requirement ratio of zero percent. Net transaction account balances above the reserve requirement exemption amount and up to a specified amount, known as the "low reserve tranche," were subject to a reserve requirement ratio of 3 percent. Net transaction account balances above the low reserve tranche were subject to a reserve requirement ratio of
Note 3. Investment Securities
Investment securities available-for-sale was comprised of the following:
| December 31, 2024 | ||||||||||||||||
| (Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Collateralized Mortgage Backed | $ | $ | $ | ( | ) | $ | ||||||||||
| Subordinated Debt | ( | ) | ||||||||||||||
| Preferred Stock | ||||||||||||||||
| Municipal Securities | ||||||||||||||||
| Taxable | ( | ) | ||||||||||||||
| Tax-exempt | ( | ) | ||||||||||||||
| U.S. Governmental Agencies | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
Investment securities held-to-maturity was comprised of the following:
| December 31, 2024 | ||||||||||||||||
| (Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Municipal Securities | ||||||||||||||||
| Tax-exempt | $ | $ | $ | ( | ) | $ | ||||||||||
| Subordinated Debt | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
Investment securities available-for-sale was comprised of the following:
| December 31, 2023 | ||||||||||||||||
| (Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Collateralized Mortgage Backed | $ | $ | $ | ( | ) | $ | ||||||||||
| Subordinated Debt | ( | ) | ||||||||||||||
| Municipal Securities | ||||||||||||||||
| Taxable | ( | ) | ||||||||||||||
| Tax-exempt | ( | ) | ||||||||||||||
| U.S. Governmental Agencies | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
Investment securities held-to-maturity was comprised of the following:
| December 31, 2023 | ||||||||||||||||
| (Dollars in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Municipal Securities | ||||||||||||||||
| Tax-exempt | $ | $ | $ | ( | ) | $ | ||||||||||
| Subordinated Debt | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis using security-level credit ratings. The Company’s HTM securities ACL was immaterial at December 31, 2024. The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The majority of the Company’s HTM securities with credit risk are obligations of states and political subdivisions.
The following table presents the amortized cost of HTM securities as of December 31, 2024 and December 31, 2023 by security type and credit rating according to Moody's and Standard and Poor's:
| (Dollars in thousands) | Municipal Securities | Subordinated Debt | Total HTM securities | |||||||||
| December 31, 2024 | ||||||||||||
| Credit Rating: | ||||||||||||
| AAA/AA/A | $ | $ | $ | |||||||||
| Not Rated - Non Agency | $ | |||||||||||
| Total | $ | $ | $ | |||||||||
| December 31, 2023 | ||||||||||||
| Credit Rating: | ||||||||||||
| AAA/AA/A | $ | $ | $ | |||||||||
| Not Rated - Non Agency | ||||||||||||
| Total | $ | $ | $ | |||||||||
At December 31, 2024, the Company had no securities held-to-maturity that were past due 30 days or more as to principal or interest payments. The Company had
The scheduled maturities of securities available-for-sale and held-to-maturity at December 31, 2024 were as follows:
| December 31, 2024 | ||||||||||||||||
| Available-for-Sale | Held-to-Maturity | |||||||||||||||
| (Dollars in thousands) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||
| Due in one year or less | $ | $ | $ | $ | ||||||||||||
| Due from one to five years | ||||||||||||||||
| Due from after five to ten years | ||||||||||||||||
| Due after ten years | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Securities with a fair value of $
As of December 31, 2024 and December 31, 2023, there were no holdings of securities of any one issuer in an amount greater than 10% of stockholders' equity.
There were no securities sold from the available-for-sale portfolio during the years ended December 31, 2024, 2023, and 2022.
The following tables summarize the fair value and unrealized losses at December 31, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous loss position:
| December 31, 2024 | ||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
| (Dollars in thousands) | Estimated Fair Value | Unrealized Loss | Estimated Fair Value | Unrealized Loss | Estimated Fair Value | Unrealized Loss | ||||||||||||||||||
| Available-for-sale: | ||||||||||||||||||||||||
| Collateralized Mortgage Backed | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Subordinated Debt | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Municipal Securities | ||||||||||||||||||||||||
| Taxable | ( | ) | ( | ) | ||||||||||||||||||||
| Tax-exempt | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| U.S Governmental Agencies | ( | ) | ( | ) | ||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
| (Dollars in thousands) | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
| Available-for-sale: | ||||||||||||||||||||||||
| Collateralized Mortgage Backed | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Subordinated Debt | ( | ) | ( | ) | ||||||||||||||||||||
| Municipal Securities | ||||||||||||||||||||||||
| Taxable | ( | ) | ( | ) | ||||||||||||||||||||
| Tax-exempt | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| U.S Government Agencies | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
The factors considered in evaluating securities for impairment include whether the Bank intends to sell the security, whether it is more likely than not that the Bank will be required to sell the security before recovery of its amortized cost basis, and whether the Bank expects to recover the security’s entire amortized cost basis. These unrealized losses are primarily attributable to current financial market conditions for these types of investments, particularly changes in interest rates, causing bond prices to decline, and are not attributable to credit deterioration.
At December 31, 2024, there were five tax-exempt municipal securities with a fair value of $
All municipal securities originally purchased as available-for-sale were transferred to held-to-maturity during 2013. The unrealized loss on the securities transferred to held-to-maturity is being amortized over the expected life of the securities. The unamortized, unrealized loss, before tax, at December 31, 2024 and December 31, 2023 was $0, respectively.
For held-to-maturity securities, an allowance for credit losses is required to absorb estimated lifetime credit losses. The Company has assessed the risk of credit loss and has determined that
The Company periodically invests in New Market Tax Credit (NMTC) opportunities, related primarily to certain community development projects. The Company receives tax credits related to these investments, for which the Company typically acts as a limited partner and therefore does not exert control over the operating or financial policies of the partnerships. These tax credits are subject to recapture by taxing authorities based on compliance features required to be met at the project level. On January 1, 2024, the Company transitioned from the equity method of accounting and began applying the proportional amortization method of accounting to its qualifying new markets tax credit investments in addition to its low income housing tax credit partnerships already subject to the proportional amortization method. At December 31, 2024 and 2023, the balance of the investments in new market tax credits was $
Note 4. Loans Receivable
Loans receivable were comprised of the following:
| (Dollars in thousands) | December 31, 2024 | December 31, 2023 | ||||||
| Residential Real Estate: | ||||||||
| Single family | $ | $ | ||||||
| Multifamily | ||||||||
| Farmland | ||||||||
| Commercial Real Estate: | ||||||||
| Owner-occupied | ||||||||
| Non-owner occupied | ||||||||
| Construction and Land Development | ||||||||
| Commercial – Non Real-Estate: | ||||||||
| Commercial & industrial | ||||||||
| Consumer – Non Real Estate: | ||||||||
| Unsecured | ||||||||
| Secured | ||||||||
| Total Gross Loans | ||||||||
| Less: unearned fees | ( | ) | ( | ) | ||||
| Less: allowance for credit losses on loans | ( | ) | ( | ) | ||||
| Net Loans | $ | $ | ||||||
The unsecured consumer loans above include $
There were nonaccrual loans of $
The following tables present the segments of the loan portfolio summarized by aging categories as of December 31, 2024 and December 31, 2023:
| December 31, 2024 | ||||||||||||||||||||||||
| (Dollars in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days Past Due and Still Accruing | Nonaccrual | Current Loans | Total Loans Receivable | ||||||||||||||||||
| Residential Real Estate: | ||||||||||||||||||||||||
| Single Family | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||
| Farmland | ||||||||||||||||||||||||
| Commercial Real Estate: | ||||||||||||||||||||||||
| Owner occupied | ||||||||||||||||||||||||
| Non-owner occupied | ||||||||||||||||||||||||
| Construction & Land Development | ||||||||||||||||||||||||
| Commercial – Non Real Estate: | ||||||||||||||||||||||||
| Commercial & industrial | ||||||||||||||||||||||||
| Consumer – Non Real Estate: | ||||||||||||||||||||||||
| Unsecured | ||||||||||||||||||||||||
| Secured | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||
| (Dollars in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days Past Due and Still Accruing | Nonaccrual | Current Loans | Total Loans Receivable | ||||||||||||||||||
| Residential Real Estate: | ||||||||||||||||||||||||
| Single Family | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||
| Farmland | ||||||||||||||||||||||||
| Commercial Real Estate: | ||||||||||||||||||||||||
| Owner occupied | ||||||||||||||||||||||||
| Non-owner occupied | ||||||||||||||||||||||||
| Construction & Land Development | ||||||||||||||||||||||||
| Commercial – Non Real Estate: | ||||||||||||||||||||||||
| Commercial & industrial | ||||||||||||||||||||||||
| Consumer – Non Real Estate: | ||||||||||||||||||||||||
| Unsecured | ||||||||||||||||||||||||
| Secured | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Note 5. Allowance for Credit Losses
The following tables summarize the activity in the allowance for credit losses by loan class for the twelve months ended December 31, 2024, 2023, and 2022:
Allowance for Credit Losses By Portfolio Segment
For the twelve months ended December 31, 2024
| Real Estate | ||||||||||||||||||||||||
| Residential | Commercial | Construction | Commercial | Consumer | Total | |||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Provision (recovery) | ( | ) | ( | ) | ||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Allowance for Credit Losses By Portfolio Segment
For the twelve months ended December 31, 2023
| Real Estate | ||||||||||||||||||||||||
| Residential | Commercial | Construction | Commercial | Consumer | Total | |||||||||||||||||||
| Beginning Balance, prior to adoption of ASC 326 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Impact of adopting ASC 326 | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Provision (recovery) | ( | ) | ||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Allowance for Loan Losses By Portfolio Segment
For the twelve months ended December 31, 2022
| Real Estate | ||||||||||||||||||||||||
| Residential | Commercial | Construction | Commercial | Consumer | Total | |||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||
| Provision (recovery) | ( | ) | ( | ) | ||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Individually evaluated for Impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Collectively evaluated for Impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The Company maintains a general allowance for credit losses based on evaluating known and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions. The reserve is an estimate based upon factors and trends identified by management at the time the financial statements are prepared.
The following table is a summary of the Company’s nonaccrual loans by major categories for the periods indicated.
| CECL | ||||||||||||
| December 31, 2024 | ||||||||||||
| (Dollars in thousands) | Nonaccrual Loans with No Allowance | Nonaccrual Loans with an Allowance | Total Nonaccrual Loans | |||||||||
| Residential Real Estate: | ||||||||||||
| Single Family | $ | $ | $ | |||||||||
| Commercial Real Estate: | ||||||||||||
| Non-owner occupied | ||||||||||||
| Construction and Land Development | ||||||||||||
| Commercial & industrial | ||||||||||||
| Total | $ | $ | $ | |||||||||
| CECL | ||||||||||||
| December 31, 2023 | ||||||||||||
| (Dollars in thousands) | Nonaccrual Loans with No Allowance | Nonaccrual Loans with an Allowance | Total Nonaccrual Loans | |||||||||
| Residential Real Estate: | ||||||||||||
| Single Family | $ | $ | $ | |||||||||
| Commercial & industrial | ||||||||||||
| Total | $ | $ | $ | |||||||||
The Company recognized $
The following table represents the accrued interest receivables written off by reversing interest income during the year ended December 31, 2024 and 2023:
| For the Years Ended December 31, | ||||||||
| (Dollars in thousands) | 2024 | 2023 | ||||||
| Residential Real Estate: | ||||||||
| Single Family | $ | $ | ||||||
| Multifamily | ||||||||
| Commercial Real Estate: | ||||||||
| Non-owner occupied | ||||||||
| Construction & Land Development | ||||||||
| Commercial – Non Real Estate: | ||||||||
| Commercial & industrial | ||||||||
| Total | $ | $ | ||||||
The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral-dependent loans:
| • | Commercial real estate loans can be secured by either owner-occupied commercial real estate or non-owner-occupied investment commercial real estate. Typically, owner-occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner-occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate where our borrower is the lessor. |
| • | Residential real estate mortgage loans, including equity lines of credit, are typically secured by first mortgages, and in some cases could be secured by a second mortgage. |
| • | Home equity lines of credit are generally secured by second mortgages on residential real estate property. |
| • | Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral. |
| • | Construction and land development loans are secured by real property where loan funds will be used to acquire land and to construct or improve appropriately zoned real property for the creation of income producing or owner-user commercial properties. |
The following table details the amortized cost of collateral dependent loans:
| (Dollars in thousands) | As of December 31, 2024 | As of December 31, 2023 | ||||||
| Residential Real Estate: | ||||||||
| Single Family | $ | $ | ||||||
| Multifamily | ||||||||
| Commercial Real Estate: | ||||||||
| Owner occupied | ||||||||
| Non-owner occupied | ||||||||
| Construction & Land Development | ||||||||
| Commercial & industrial | ||||||||
| Total | $ | $ | ||||||
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a weighted average remaining life model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain loans. When principal forgiveness is provided, the amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.
The following table shows the amortized cost basis as of December 31, 2024 of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of loans and type of concession granted and describes the financial effect of the modifications made to borrowers experiencing financial difficulty during the twelve-month period ended December 31, 2024:
| December 31, 2024 | |||||||||
| (Dollars in thousands) | Amortized Cost Basis | % of Total Loan Type | Financial Effect | ||||||
| Residential Real Estate: | |||||||||
| Single Family | % | Extended term on interest only payments for six months. Deferred loan payment for three months. | |||||||
| Multifamily | % | Interest rate reduction. | |||||||
| Construction and Land Development | % | Interest rate reduction and extended term on interest only payments for two years. Extended amortization term for five years. Extended term on interest only payments for six months. | |||||||
| Commercial – Non Real-Estate: | |||||||||
| Commercial & industrial | % | Extended term on interest only payments for seven months | |||||||
| Total | $ | ||||||||
| December 31, 2023 | |||||||||
| (Dollars in thousands) | Amortized Cost Basis | % of Total Loan Type | Financial Effect | ||||||
| Commercial Real Estate: | |||||||||
| Non-owner occupied | $ | % | Extended term on interest only payments for six months. | ||||||
| Commercial & industrial | % | Extended term for three months. | |||||||
| Total | $ | ||||||||
The Company monitors loan payments on performing and non-performing loans on an ongoing basis to determine if a loan is considered to have a payment default. The loans that were modified in the twelve-month periods ended December 31, 2024 and December 31, 2023 are current on contractual payments, except for one loan for $
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Credit quality risk ratings include regulatory classifications of Pass, Watch, Criticized (Special Mention), Classified (Substandard), Doubtful, and Loss. Loans classified as Pass have quality metrics to support that the loan will be repaid according to the terms established. Loans classified as Watch have similar characteristics as Pass loans with some emerging signs of financial weaknesses that should be monitored closer. Loans classified as Watch are included in the Pass totals in the following tables. Loans classified as Criticized (Special Mention) have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of prospects for repayment. Loans classified as Classified (Substandard) have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a Loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated Pass.
The following table presents the risk category of loans by credit quality indicators by year of origination as of December 31, 2024:
| Term Loans Amortized Cost Basis by Origination Year | ||||||||||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | Revolving Loans converted to Term | Total | |||||||||||||||||||||||||||
| Residential Real Estate - Single Family | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Criticized | ||||||||||||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total Residential Real Estate - Single Family | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Residential Real Estate - Multifamily | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Criticized | ||||||||||||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total Residential Real Estate - Multifamily | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Residential Real Estate - Farmland | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total Residential Real Estate - Farmland | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial Real Estate - Owner Occupied | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Criticized | ||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate - Owner Occupied | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial Real Estate - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Criticized | ||||||||||||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate - Non-Owner Occupied | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Construction & Land Development | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Criticized | ||||||||||||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total Construction & Land Development | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Commercial & Industrial | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total Commercial & Industrial | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| — | ||||||||||||||||||||||||||||||||||||
| Consumer - Unsecured | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total Consumer - Unsecured | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Consumer - Secured | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Total Consumer - Secured | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Criticized | ||||||||||||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
The following table presents the risk category of loans by credit quality indicators as of December 31, 2023:
| Term Loans Amortized Cost Basis by Origination Year | ||||||||||||||||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | Revolving Loans converted to Term | Total | |||||||||||||||||||||||||||
| Residential Real Estate - Single Family | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total Residential Real Estate - Single Family | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Residential Real Estate - Multifamily | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total Residential Real Estate - Multifamily | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Residential Real Estate - Farmland | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total Residential Real Estate - Farmland | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial Real Estate - Owner Occupied | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate - Owner Occupied | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial Real Estate - Non-Owner Occupied | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Criticized | ||||||||||||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total Commercial Real Estate - Non-Owner Occupied | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Construction & Land Development | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total Construction & Land Development | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commercial & Industrial | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Criticized | ||||||||||||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total Commercial & Industrial | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Consumer - Unsecured | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total Consumer - Unsecured | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Consumer - Secured | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total Consumer - Secured | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Criticized | ||||||||||||||||||||||||||||||||||||
| Classified | ||||||||||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross write-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e., the commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans, and are discussed in Note 1. The allowance for credit losses for unfunded loan commitments of $
The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the year ended December 31, 2024 and 2023. The decline in the balance of the allowance for credit losses for unfunded loan commitments during the year ended December 31, 2024, was due to the decline in the balance of unfunded commitments.
| Total Allowance for Credit Losses on Off-Balance Sheet Credit Exposure | ||||||||
| (Dollars in thousands) | 2024 | 2023 | ||||||
| Beginning Balance | $ | $ | ||||||
| Adjustment to allowance for off-balance sheet credit losses upon adoption of ASU 2016-13 | ||||||||
| Recovery of off-balance sheet credit losses, net | ( | ) | ( | ) | ||||
| Ending Balance | $ | $ | ||||||
Note 6. Related Party Transactions
The Bank grants loans and letters of credit to its executive officers, directors and their affiliated entities. Such loans are made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated persons, and, in the opinion of management, do not involve more than normal risk or present other unfavorable features.
| (Dollars in thousands) | December 31, 2024 | December 31, 2023 | ||||||
| Beginning Balance | $ | $ | ||||||
| New Loans | ||||||||
| Repayments | ( | ) | ( | ) | ||||
| Ending Balance | $ | $ | ||||||
The Bank maintains deposit accounts with some of its executive officers, directors, and their affiliated entities. Such deposit accounts at December 31, 2024 and December 31, 2023 amounted to approximately $
Note 7. Premises and Equipment
Premises and equipment are summarized as follows at December 31:
| (Dollars in thousands) | 2024 | 2023 | ||||||
| Cost | ||||||||
| Building | $ | $ | ||||||
| Land | ||||||||
| Leasehold improvements | ||||||||
| Furniture, fixtures and equipment | ||||||||
| Computer software and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Premises and equipment, net | $ | $ | ||||||
Depreciation and amortization charged to operations were $
Note 8. Intangible Assets
The carrying amount of computer software developed was $
| (Dollars in thousands) | Gross Intangible Asset | Accumulated Amortization | Impairment | Net Intangible Asset | ||||||||||||
| December 31, 2024: | ||||||||||||||||
| Computer software | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| Total | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| December 31, 2023: | ||||||||||||||||
| Computer software | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The Company was still in the development stage of computer software where costs were capitalized as of September 30, 2024. Capitalization ceases when the software is substantially complete and ready for its intended use. The asset was deemed ready for its intended use and deployed to customers in October 2024. The intangible asset should be amortized on a straight-line basis over the estimated useful life of the asset, which was expected to be ten years. As of December 31, 2024, the Company had recorded $
During the three months ended December 31, 2024, management performed the annual impairment assessment and determined that a triggering event had occurred. The resulting calculations indicated that the fair value did not exceed the carrying amount of the Company's computer software intangible which resulted in a determination that the intangible had become fully impaired. The impairment charge of $
Note 9. Deposits
Time deposits in denominations of $250,000 or more totaled approximately $
At December 31, 2024, maturities of time deposits are as follows:
| (Dollars in thousands) | Year ended December 31, | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
Wholesale deposits, as defined by the FDIC and pursuant to rule 12 CFR 337.6(e), totaled approximately $
Note 10. Borrowed Funds
The Bank has unsecured borrowing lines with various institutions. The Bank also has a credit availability agreement with the FHLB based on a percentage of total assets. This credit availability agreement provides the Bank with access to a myriad of advance products offered by the FHLB. The rate of interest charged is based on market conditions. At December 31, 2024, there were commercial real estate, residential 1-4 and multi-family loans totaling $
| (Dollars in thousands) | Outstanding Borrowings | Average balance | Weighted average interest rate paid during the year | Weighted average interest rate paid at December 31 | Credit Availability | |||||||||||||||
| December 31, 2024 | ||||||||||||||||||||
| Federal funds purchased | $ | $ | % | % | $ | |||||||||||||||
| Federal Home Loan Bank advances | % | % | ||||||||||||||||||
| Total | $ | $ | % | % | $ | |||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Federal funds purchased | $ | $ | % | % | $ | |||||||||||||||
| Federal Home Loan Bank advances | % | % | ||||||||||||||||||
| Total | $ | $ | % | % | $ | |||||||||||||||
Note 11. Income Taxes
The Company files tax returns in the U.S. federal jurisdiction and required states. With few exceptions, the Bank is no longer subject to tax examination by tax authorities for years prior to 2020.
The Commonwealth of Virginia assesses a Bank Franchise Tax on banks instead of a state income tax. The Bank Franchise Tax expense is reported in non-interest expense and the tax’s calculation is unrelated to taxable income.
The provision for income taxes consists of the following components:
| (Dollars in thousands) | 2024 | 2023 | 2022 | |||||||||
| Current expense | $ | $ | $ | |||||||||
| Deferred (benefit) | ( | ) | ( | ) | ( | ) | ||||||
| Total | $ | ( | ) | $ | $ | |||||||
Income tax expense for the years ended December 31, 2024, 2023, and 2022 differed from the federal statutory rate applied to income before income taxes for the following reasons:
| Year ended December 31, | ||||||||||||
| (Dollars in thousands) | 2024 | 2023 | 2022 | |||||||||
| Computed “expected” income tax expense | $ | ( | ) | $ | $ | |||||||
| Increase (decrease)in income taxes resulting from: | ||||||||||||
| Tax exempt Interest | ( | ) | ( | ) | ( | ) | ||||||
| BOLI Income | ( | ) | ( | ) | ( | ) | ||||||
| Low Income Housing Investment amortization | ||||||||||||
| State Income Taxes | ( | ) | ||||||||||
| Restricted Stock Adjustment | ( | ) | ( | ) | ( | ) | ||||||
| Federal tax credits | ( | ) | ( | ) | ( | ) | ||||||
| Other Adjustments | ( | ) | ||||||||||
| Total | $ | ( | ) | $ | $ | |||||||
The tax effects of temporary differences result in deferred tax assets and liabilities as presented below:
| December 31, | ||||||||
| (Dollars in thousands) | 2024 | 2023 | ||||||
| Deferred tax assets: | ||||||||
| Allowance for credit losses | $ | $ | ||||||
| Restricted stock | ||||||||
| Net loan fees | ||||||||
| Right-of-use liability | ||||||||
| Accrued compensation | ||||||||
| Unrealized losses on securities available-for-sale | ||||||||
| Internally developed software costs | ||||||||
| Other | ||||||||
| Gross deferred tax assets | ||||||||
| Deferred tax liabilities: | ||||||||
| Depreciation | ||||||||
| Prepaid expense | ||||||||
| Right-of-use asset | ||||||||
| Internally developed software costs | ||||||||
| Other | ||||||||
| Gross deferred tax liabilities | ||||||||
| Net deferred tax asset | $ | $ | ||||||
Note 12. Earnings Per Common Share
Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock which then shared in the earnings of the Bank. There were
The weighted average number of shares used in the calculation of basic and diluted earnings per share includes unvested restricted shares of the Company’s common stock outstanding. Applicable guidance requires that outstanding unvested share-based payment awards that contain voting rights and rights to non-forfeitable dividends participate in undistributed earnings with common stockholders.
| For the Year Ended December 31, | ||||||||||||
| (Dollars in thousands) | 2024 | 2023 | 2022 | |||||||||
| Net income (loss) | $ | ( | ) | $ | $ | |||||||
| Preferred stock dividends | ( | ) | ( | ) | $ | ( | ) | |||||
| Net income (loss) available to common shareholders | $ | ( | ) | $ | $ | |||||||
| Weighted average number of shares issued, basic and diluted | ||||||||||||
| Earnings (loss) per common share: | ||||||||||||
| Basic and diluted earnings (loss) per common share | $ | ( | ) | $ | $ | |||||||
Note 13. Commitments and Contingencies
The Bank’s financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest risk and liquidity risk. These commitments and contingent liabilities are commitments to extend credit and standby letters of credit.
The amounts of loan commitments and standby letters of credit are set forth in the following table as of December 31, 2024 and 2023:
| December 31, | ||||||||
| (Dollars in thousands) | 2024 | 2023 | ||||||
| Loan commitments | $ | $ | ||||||
| Standby letters of credit | $ | $ | ||||||
Commitments to extend credit and standby letters of credit all include exposure to some credit loss in the event of nonperformance of the customer. The Bank’s credit policies and procedures for credit commitments and financial guarantees are the same as those for extensions of credit that are recorded on the statements of financial condition. Because these instruments have fixed maturity dates, and because many of them expire without being drawn upon, they do not generally present any significant liquidity risk to the Bank. The Bank has not incurred any losses on commitments in 2024, 2023, or 2022.
During 2020, the Bank made a commitment of $
During 2020, the Bank made a commitment of $
During 2022, the Bank made a commitment of $
During 2023, the Bank made a commitment of $
From time to time, we are a party to various litigation matters incidental to our ordinary conduct of our business. Management believes that none of these legal proceedings, individually or in the aggregate, will have a material adverse impact on the results of operations or financial condition of the Company.
Note 14. Leases
Lessee Arrangements - The right-of-use assets and lease liabilities are included in other assets and other liabilities, respectively, in the Consolidated Statements of Financial Condition.
Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. The incremental borrowing rate was equal to the rate of borrowing from the FHLB that aligned with the term of the lease contract. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.
The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.
Information regarding the Company's leases as of and for the years ended December 31, 2024 and 2023 were as follows:
| As of December 31, | ||||||||
| (Dollars in thousands) | 2024 | 2023 | ||||||
| Lease liabilities | $ | $ | ||||||
| Right-of-use assets | $ | $ | ||||||
| Weighted-average remaining lease term – operating leases (in months). | ||||||||
| Weighted-average discount rate – operating leases | % | % | ||||||
| For the year ended December 31, | ||||||||||||
| (Dollars in thousands) | 2024 | 2023 | 2022 | |||||||||
| Lease Cost | ||||||||||||
| Operating lease cost | $ | $ | $ | |||||||||
| Total lease costs | $ | $ | $ | |||||||||
| Cash paid for amounts included in measurement of lease liabilities | $ | $ | $ | |||||||||
As of December 31, 2024, all of the Company’s lease obligations are classified as operating leases. The Company does not have any finance lease obligations.
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities as of December 31, 2024 is as follows:
| (Dollars in thousands) | ||||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total undiscounted cash flows | ||||
| Discount | ( | ) | ||
| Lease liabilities | $ |
Lessor Arrangements - The Company is the lessor for five operating leases. One lease is extended on a month-to-month basis while four of these leases have arrangements for over twelve months with an option to extend the lease terms. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations. The Company's leases generally do not contain non-lease components. Total rent income on these operating leases is approximately $
Note 15. Significant Concentrations of Credit Risk
Substantially all the Bank’s loans, commitments and standby letters of credit have been granted to customers located in the greater Washington, D.C. Metropolitan area. The concentrations of credit by type of loan are set forth in Note 4.
The Bank maintains its cash and federal funds sold in correspondent bank deposit accounts. The amount on deposit at December 31, 2024 exceeded the insurance limits of the Federal Deposit Insurance Corporation by $
Note 16. Regulatory Matters
Information presented for December 31, 2024 and December 31, 2023, reflects the Basel III capital requirements that became effective January 1, 2015 for the Bank. Under these capital requirements and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk- weightings and other factors.
The Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). Under the Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer for 2023 and 2024 is
The Bank’s actual capital amounts and ratios are presented in the table (dollars in thousands):
| Actual | Capital Adequacy Purposes | To Be Well Capitalized Under the Prompt Corrective Action Provision | ||||||||||||||||
| (Dollars in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||
| As of December 31, 2024 | ||||||||||||||||||
| Total capital (to risk-weighted assets) | $ | % | $ | ≥ 8.0% | $ | ≥ 10.0% | ||||||||||||
| Common equity tier 1 capital (to risk-weighted assets) | $ | % | $ | ≥ 4.5% | $ | ≥ 6.5% | ||||||||||||
| Tier 1 capital (to risk-weighted assets) | $ | % | $ | ≥ 6.0% | $ | ≥ 8.0% | ||||||||||||
| Tier 1 capital (to average assets) | $ | % | $ | ≥ 4.0% | $ | ≥ 5.0% | ||||||||||||
| As of December 31, 2023 | ||||||||||||||||||
| Total capital (to risk-weighted assets) | $ | % | $ | ≥ 8.0% | $ | ≥ 10.0% | ||||||||||||
| Common equity tier 1 capital (to risk-weighted assets) | $ | % | $ | ≥ 4.5% | $ | ≥ 6.5% | ||||||||||||
| Tier 1 capital (to risk-weighted assets) | $ | % | $ | ≥ 6.0% | $ | ≥ 8.0% | ||||||||||||
| Tier 1 capital (to average assets) | $ | % | $ | ≥ 4.0% | $ | ≥ 5.0% | ||||||||||||
Note 17. Defined Contribution Benefit Plan
The Bank adopted a 401(k) defined contribution plan on October 1, 2004, which is administered by Principal Investments. Participants have the right to contribute up to a maximum of
Note 18. Stock Based Compensation Plan
ASC Topic 718, Compensation – Stock Compensation, requires the Company to recognize expense related to the fair value of share-based compensation awards in net income. Total compensation expense for restricted stock recorded for the years ended December 31, 2024, December 31, 2023, and December 31, 2022 were $
On July 17, 2019, the Board of Directors of the Company adopted, and the Company’s shareholders subsequently approved, the MainStreet Bank 2019 Equity Incentive Plan (the “2019 Plan”), to provide officers, other selected employees and directors of the Company with additional incentives to promote the growth and performance of the Company. During the year ended December 31, 2024, there were
A summary of the status of the Bank’s nonvested restricted stock shares as of December 31, 2024 and changes during the year ended December 31, 2024 is presented below:
| Nonvested Restricted Stock Shares | Shares | Weighted Average Grant Date Fair Value | ||||||
| Nonvested at January 1, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Nonvested at December 31, 2024 | $ | |||||||
As of December 31, 2024, there was $
Note 19. Derivatives and Risk Management Activities
The Bank uses derivative financial instruments (or “derivatives”) primarily to assist customers with their risk management objectives. The Bank classifies these items as free standing derivatives consisting of customer accommodation interest rate loan swaps (or “interest rate loan swaps”). The Bank enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Bank simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Bank receives a floating rate. These back-to-back interest rate loan swaps qualify as financial derivatives with fair values reported in “Other assets” and “Other liabilities” in the consolidated financial statements. Changes in fair value are recorded in other noninterest expense and net to zero because of the identical amounts and terms of the interest rate loan swaps.
The following tables summarize key elements of the Banks’s derivative instruments as of December 31, 2024 and December 31, 2023.
| December 31, 2024 | ||||||||||||||||||||
| Customer-related interest rate contracts | ||||||||||||||||||||
| (Dollars in thousands) | Notional Amount | Positions | Assets | Liabilities | Collateral Pledges | |||||||||||||||
| Matched interest rate swap with borrower | $ | $ | $ | $ | ||||||||||||||||
| Matched interest rate swap with counterparty | $ | $ | $ | $ | ||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Customer-related interest rate contracts | ||||||||||||||||||||
| (Dollars in thousands) | Notional Amount | Positions | Assets | Liabilities | Collateral Pledges | |||||||||||||||
| Matched interest rate swap with borrower | $ | $ | $ | $ | ||||||||||||||||
| Matched interest rate swap with counterparty | $ | $ | $ | $ | ||||||||||||||||
The Company is able to recognize fee income upon execution of the interest rate swap contract. Interest rate swap fee income for the twelve months ended December 31, 2024, 2023, and 2022 was $
Note 20. Fair Value Presentation
In accordance with FASB ASC 820, “Fair Value Measurements and Disclosure”, the Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Bank’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market for the asset or liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is the most representative of fair value under current market conditions.
In accordance with the guidance, a hierarchy of valuation techniques is based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Bank’s market assumptions. The three levels of the fair value hierarchy under FASB ASC 820 based on these two types of inputs are as follows:
Level 1 –Valuation is based on quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 –Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.
The following describes the valuation techniques used by the Bank to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:
Securities available for sale
Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. As of December 31, 2024 and December 31, 2023, the Bank’s entire portfolio of available for sale securities are considered to be Level 2 securities, with the exception of one subordinated debt security and one preferred stock security, which are considered to be level 3 securities.
Derivative asset (liability) – interest rate swaps on loans
As discussed in “Note 19: Derivatives and Risk Management Activities”, the Bank recognizes interest rate swaps at fair value on a recurring basis. The Bank has contracted with a third party vendor to provide valuations for these interest rate swaps using standard valuation techniques and therefore classifies such interest rate swaps as Level 2.
The following tables provide the fair value for assets required to be measured and reported at fair value on a recurring basis as of December 31, 2024 and December 31, 2023:
| December 31, 2024 | ||||||||||||||||
| (Dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | ||||||||||||||||
| Investment securities available-for-sale: | ||||||||||||||||
| Collateralized Mortgage Backed | $ | $ | $ | $ | ||||||||||||
| Subordinated Debt | ||||||||||||||||
| Preferred Stock | ||||||||||||||||
| Municipal Securities | ||||||||||||||||
| Taxable | ||||||||||||||||
| Tax-exempt | ||||||||||||||||
| U.S. Government Agencies | ||||||||||||||||
| Derivative asset – interest rate swap on loans | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liability – interest rate swap on loans | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| December 31, 2023 | ||||||||||||||||
| (Dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | ||||||||||||||||
| Investment securities available-for-sale: | ||||||||||||||||
| Collateralized Mortgage Backed | $ | $ | $ | $ | ||||||||||||
| Subordinated Debt | ||||||||||||||||
| Municipal Securities | ||||||||||||||||
| Taxable | ||||||||||||||||
| Tax-exempt | ||||||||||||||||
| U.S. Government Agencies | ||||||||||||||||
| Derivative asset – interest rate swap on loans | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liability – interest rate swap on loans | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Reconciliation of Level 3 Inputs | ||||
| Dollars in thousands | Subordinated Debt | |||
| December 31, 2023 fair value | $ | |||
| Additions | ||||
| December 31, 2024 fair value | $ | |||
Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.
The following describes the valuation techniques used by the Bank to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:
Individually evaluated
Loans are individually evaluated when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due. The measurement of loss associated with individually evaluated loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Bank using observable market data (Level 2). However, if the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Bank because of marketability, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Individually evaluated loans allocated to the Allowance for Credit Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income.
Other real estate owned
Other real estate owned (“OREO”) is measured at fair value less cost to sell, based on an appraisal conducted by an independent, licensed appraiser outside of the Bank. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Bank because of marketability, then the fair value is considered Level 3. OREO is measured at fair value on a nonrecurring basis. Any initial fair value adjustment is charged against the Allowance for Credit Losses. Subsequent fair value adjustments are recorded in the period incurred and included in other non-interest expense on the Consolidated Statements of Income.
The Bank did not have any other real estate owned assets or individually evaluated loans measured at fair value as of December 31, 2024 and December 31, 2023.
Fair Value of Financial Instruments
FASB ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. Additionally, in accordance with ASU 2016-01, the Company uses the exit price notion, rather than the entry price notion, in calculating the fair values of financial instruments not measured at fair value on a recurring basis.
The following tables reflect the carrying amounts and estimated fair values of the Company’s financial instruments whether or not recognized on the Consolidated Statements of Financial Condition at fair value.
| December 31, 2024 | Carrying | Estimated | Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||||
| (Dollars in thousands) | Amount | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Restricted equity securities | ||||||||||||||||||||
| Securities: | ||||||||||||||||||||
| Available-for-sale | ||||||||||||||||||||
| Held-to-maturity | ||||||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Derivative asset – interest rate swap on loans | ||||||||||||||||||||
| Bank owned life insurance | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Subordinated debt, net | ||||||||||||||||||||
| Derivative liability – interest rate swaps on loans | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
| December 31, 2023 | Carrying | Estimated | Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||||
| (Dollars in thousands) | Amount | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Restricted equity securities | ||||||||||||||||||||
| Securities: | ||||||||||||||||||||
| Available-for-sale | ||||||||||||||||||||
| Held-to-maturity | ||||||||||||||||||||
| Loans, net | ||||||||||||||||||||
| Derivative asset – interest rate swap on loans | ||||||||||||||||||||
| Bank owned life insurance | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||
| Subordinated debt, net | ||||||||||||||||||||
| Federal funds purchased | ||||||||||||||||||||
| Derivative liability – interest rate swaps on loans | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-balance sheet and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets that are not considered financial assets include deferred income taxes and bank premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
The above information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. There were no changes in methodologies or transfers between levels at December 31, 2024 from December 31, 2023.
Note 21. Other Real Estate Owned
At December 31, 2024 and 2023, the Company did not have other real estate owned. Expenses applicable to other real estate owned during the years ended December 31, 2024, 2023, and 2022 include the following:
| (Dollars in thousands) | 2024 | 2023 | 2022 | |||||||||
| Net loss on sales of real estate | $ | $ | $ | |||||||||
| Loss on valuation, net | ||||||||||||
| Operating expenses (income), net of rental income | ( | ) | ||||||||||
| Balance, end of year | $ | $ | $ | |||||||||
As of December 31, 2024, there were
Note 22. Accumulated Other Comprehensive Loss
The following table presents the cumulative balances of the components of accumulated other comprehensive loss net of deferred taxes, as of December 31, 2024 and December 31, 2023:
| (Dollars in thousands) | 2024 | 2023 | ||||||
| Unrealized loss on available-for-sale securities | $ | ( | ) | $ | ( | ) | ||
| Unrealized loss on securities transferred to HTM | ( | ) | ||||||
| Tax effect | ||||||||
| Total accumulated other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
Note 23. Capital
On September 15, 2020, the Company issued
On October 22, 2020, the Board of Directors of the Company authorized a common stock repurchase program to repurchase up to $
On May 18, 2022, the Board of Directors of the Company authorized a common stock repurchase program to repurchase up to $
At the Annual Meeting of shareholders held on May 15, 2024, the Company's common shareholders approved a proposal to increase the number of shares of authorized common stock from
Note 24. Subordinated Notes
On April 6, 2021, the Company completed the issuance of $
On March 1, 2022, the Company completed the issuance of $
Note 25. Condensed Parent Company Financial Statements
Condensed financial statements pertaining only to the Company are presented below. The investment in subsidiary is accounted for using the equity method of accounting.
The payment of dividends by the subsidiary is restricted by various regulatory limitations. Banking regulations also prohibit extensions of credit to the parent company unless appropriately secured by assets.
Condensed Parent Company Only
Condensed Statements of Financial Condition
(Dollars in thousands)
| December 31, | 2024 | 2023 | ||||||
| ASSETS | ||||||||
| Cash on deposit with subsidiary | $ | $ | ||||||
| Restricted securities, at cost | ||||||||
| Investment in subsidiary | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities: | ||||||||
| Other liabilities | $ | $ | ||||||
| Subordinated debt, net of debt issuance costs | ||||||||
| Stockholders’ equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
Condensed Statements of Income (Loss)
(Dollars in thousands)
| For the Year Ended December 31, | 2024 | 2023 | 2022 | |||||||||
| Income | ||||||||||||
| Dividends from subsidiary | $ | $ | $ | |||||||||
| Expenses | ||||||||||||
| Subordinated debt interest expense | ||||||||||||
| Non-interest expense | ||||||||||||
| Total expenses | ||||||||||||
| Undistributed earnings of subsidiary | ( | ) | ||||||||||
| Net income (loss) before income taxes | $ | ( | ) | $ | $ | |||||||
| Income tax (benefit) expense | ( | ) | ||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | |||||||
| Less: preferred stock dividends | ( | ) | ( | ) | ( | ) | ||||||
| Net income (loss) available to common shareholders | $ | ( | ) | $ | $ | |||||||
Condensed Statements of Cash Flows
(Dollars in thousands)
| Year Ended December 31, | 2024 | 2023 | 2022 | |||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
| Equity in undistributed earnings (losses) of subsidiary | ( | ) | ( | ) | ||||||||
| Stock based compensation | ||||||||||||
| Depreciation, amortization, and accretion, net | ||||||||||||
| Decrease (increase) in other assets | ( | ) | ||||||||||
| Increase (decrease) in other liabilities | ( | ) | ( | ) | ||||||||
| Net cash provided by operating activities | ||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Purchase of restricted equities | ( | ) | ( | ) | ( | ) | ||||||
| Investment in bank subsidiary | ( | ) | ||||||||||
| Net cash (used in) provided by investing activities | ( | ) | ( | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Repurchase of common stock | ( | ) | ( | ) | ( | ) | ||||||
| Cash dividends paid on preferred stock | ( | ) | ( | ) | ( | ) | ||||||
| Cash dividend paid on common stock | ( | ) | ( | ) | ( | ) | ||||||
| Net increase in subordinated debt | ||||||||||||
| Net cash provided by (used in) financing activities | ( | ) | ( | ) | ||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | ||||||||||||
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | $ | $ | |||||||||
Note 26. Segment Information
Accounting policies for segments are the same as those described in Note 1. Segment performance is evaluated using income before income taxes. Indirect expenses are allocated on revenue. Transactions among segments are made at fair value. Information reported internally for performance assessment by the chief operating decision makers follows, inclusive of reconciliations of significant segment totals to the financial statements:
| For the Year ended December 31, 2024 | ||||||||||||
| 2024 | Core Banking | Financial Technology | Consolidated | |||||||||
| Interest income - loans, including fees - (1) | $ | $ | $ | |||||||||
| Interest income - investments, other | ||||||||||||
| Service charge income | ||||||||||||
| Other fee income | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Less: | ||||||||||||
| Interest expense - deposits | ||||||||||||
| Interest expense - subordinated debt, other | ||||||||||||
| Total consolidated interest expense | ||||||||||||
| Segment gross profit | $ | $ | $ | |||||||||
| Less: | ||||||||||||
| Provision for credit losses | ||||||||||||
| Salaries and employee benefits | ||||||||||||
| Furniture and equipment expenses | ||||||||||||
| Advertising and marketing | ||||||||||||
| Outside services | ||||||||||||
| Computer software intangible impairment | ||||||||||||
| Other operating expenses | ||||||||||||
| Total non-interest expense | ||||||||||||
| Segment profit (loss) | $ | $ | ( | ) | $ | ( | ) | |||||
| Other segment disclosures | ||||||||||||
| Interest income | ||||||||||||
| Interest expense | ||||||||||||
| Depreciation | ||||||||||||
| Amortization | ||||||||||||
| Other significant noncash items: | ||||||||||||
| Provision for credit losses | ||||||||||||
| Computer software intangible impairment | ||||||||||||
| Segment assets | ||||||||||||
| Expenditures for segment assets | ||||||||||||
(1) - Includes transfer pricing on average deposits outstanding for the period
Other operating expenses for the core banking segment are occupancy expenses, franchise taxes, FDIC insurance, data processing expenses, administrative expenses and other operating expenses, which can all be seen on the Consolidated Statements of Income. Additionally, board expenses, shareholder expenses, settlement costs, workout expenses, and fees for brokered deposits, makeup the other operating expense line item on the Consolidated Statements of Income. Other operating expenses for the financial technology segment are administrative expenses, armored car services, and computer software amortization.
The core banking segment reported segment profit before income taxes of $
| • | higher interest expense due primarily to higher rates on deposits and higher balances of interest bearing deposits, specifically money market and time deposits; |
| • | higher provision for credit losses due primarily to loan growth, charge offs taken in 2024, as well as increasing qualitative factors within our model assumptions for increased levels of past dues and potential weaknesses in underlying collateral for certain asset classes; |
| • | higher other operating expenses due primarily to increases in meals and entertainment, board and shareholder expenses, settlement and workout costs, DDA losses, and brokered deposits fees. |
The financial technology segment reported segment loss before income taxes of $
| • | impairment of the computer software intangible asset. The impairment charge of $ |
| • | higher salaries and employee benefits as well as outside services, primarily due to the development of the Avenu SaaS software program; |
| • | lower transfer pricing income for 2024 due primarily to lower deposit balances in the financial technology segment in 2024 compared to 2023. |
| For the Year ended December 31, 2023 | ||||||||||||
| 2023 | Core Banking | Financial Technology | Consolidated | |||||||||
| Interest income - loans, including fees - (1) | $ | $ | $ | |||||||||
| Interest income - investments, other | ||||||||||||
| Service charge income | ||||||||||||
| Other fee income | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Less: | ||||||||||||
| Interest expense - deposits | ||||||||||||
| Interest expense - subordinated debt, other | ||||||||||||
| Total consolidated interest expense | ||||||||||||
| Segment gross profit | $ | $ | $ | |||||||||
| Less: | ||||||||||||
| Provision for credit losses | ||||||||||||
| Salaries and employee benefits | ||||||||||||
| Furniture and equipment expenses | ||||||||||||
| Advertising and marketing | ||||||||||||
| Outside Services | ||||||||||||
| Other Operating expenses | ||||||||||||
| Total Non-Interest Expense | ||||||||||||
| Segment profit (loss) | $ | $ | ( | ) | $ | |||||||
| Other segment disclosures | ||||||||||||
| Interest income | ||||||||||||
| Interest expense | ||||||||||||
| Depreciation | ||||||||||||
| Amortization | ||||||||||||
| Other significant noncash items: | ||||||||||||
| Provision for credit losses | ||||||||||||
| Segment assets | ||||||||||||
| Expenditures for segment assets | ||||||||||||
(1) Includes transfer pricing on average deposits outstanding for the period
Other operating expenses for the core banking segment are occupancy expenses, franchise taxes, FDIC insurance, data processing expenses, administrative expenses and other operating expenses, which can all be seen on the Consolidated Statements of Income. Additionally, board expenses, shareholder expenses, and settlement costs, makeup the other operating expense line item on the Consolidated Statements of Income. Other operating expenses for the financial technology segment are administrative expenses and armored car services.
The core banking segment reported segment profit before income taxes of $
| • | lower provision for credit losses in 2023 due primarily to less loan growth in 2023 compared to 2022. Loan originations for the years ended December 31, 2023 and December 31, 2022 were $ |
The financial technology segment reported segment loss before income taxes of $
| • | higher transfer pricing income for 2023 due primarily to the increasing federal funds rate in 2023; |
| • | higher salaries and employee benefits as well as outside services, primarily due to the development of the Avenu SaaS software program. |
| For the Year ended December 31, 2022 | ||||||||||||
| 2022 | Core Banking | Financial Technology | Consolidated | |||||||||
| Interest income - loans, including fees - (1) | $ | $ | $ | |||||||||
| Interest income - investments, other | ||||||||||||
| Service charge income | ||||||||||||
| Other fee income | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Less: | ||||||||||||
| Interest expense - deposits | ||||||||||||
| Interest expense - subordinated debt, other | ||||||||||||
| Total consolidated interest expense | ||||||||||||
| Segment gross profit | $ | $ | $ | |||||||||
| Less: | ||||||||||||
| Provision for loan losses | ||||||||||||
| Salaries and employee benefits | ||||||||||||
| Furniture and equipment expenses | ||||||||||||
| Advertising and marketing | ||||||||||||
| Outside services | ||||||||||||
| Other operating expenses | ||||||||||||
| Total non-interest expense | ||||||||||||
| Segment profit (loss) | $ | $ | ( | ) | $ | |||||||
| Other segment disclosures | ||||||||||||
| Interest income | ||||||||||||
| Interest expense | ||||||||||||
| Depreciation | ||||||||||||
| Amortization | ||||||||||||
| Other significant noncash items: | ||||||||||||
| Provision for loan losses | ||||||||||||
| Segment assets | ||||||||||||
| Expenditures for segment assets | ||||||||||||
(1) Includes transfer pricing on average deposits outstanding for the period
Other operating expenses for the core banking segment are occupancy expenses, franchise taxes, FDIC insurance, data processing expenses, administrative expenses and other operating expenses, which can all be seen on the Consolidated Statements of Income. Additionally, board expenses, shareholder expenses, armored car services, and ATM expenses, makeup the other operating expense line item on the Consolidated Statements of Income. Other operating expenses for the financial technology segment are administrative expenses and armored car services.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of December 31, 2024. Based on their evaluation of the Company’s disclosure controls and procedures, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are designed and operating in an effective manner.
Management’s Report on Internal Control over Financial Reporting. Management of the Company is also responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a‑15(f) under the Exchange Act). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management, including the Company’s principal executive and principal financial officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on our assessment, we believe that, as of December 31, 2024, the Company’s internal control over financial reporting was effective based on those criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2024 has been audited by Yount, Hyde & Barbour, P.C. (YHB), the independent registered public accounting firm that also audited the Company’s consolidated financial statements included in this 10-K/A. YHB's attestation report on the Company’s internal control over financial reporting is included in this amendment to Form 10-K/A.
The 2024 consolidated financial statements have been audited by the independent registered public accounting firm of Yount, Hyde, & Barbour. P.C. Personnel from YHB were given unrestricted access to all financial records and related data, including minutes of all meetings of the Board of Directors and Committees thereof. Management believes that all representation made to the independent auditors were valid and appropriate. The resulting report from YHB accompanies the consolidated financial statements.
Changes in Internal Controls. There were no changes in the Company’s internal control over financial reporting during the Company’s fourth quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 15. Exhibits and Financial Statement Schedules
| Exhibit Number |
Description |
|
| 2.1 |
Agreement and Plan of Reorganization (incorporated by reference to Exhibit 2.1 to the Company’s Form 10-12B filed on February 15, 2019) |
|
| 3.1 |
Restated Articles of Incorporation |
|
| 3.2 |
Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on November 16, 2023) |
|
| 4.1 |
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-12B filed on February 15, 2019) |
|
| 4.2 |
Description of the Registrant’s Securities Registered pursuant to section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.3 to the Company’s Form 10-K filed on March 23, 2021) |
|
| 4.3 |
Deposit Agreement, dated as of September 15, 2020, by and among the Company, American Stock Transfer and Trust Company, LLC, and the holder from time to time of the Depositary Receipts decided therein (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on September 15, 2020) |
|
| 4.4 |
Form of Depositary Receipt representing the Depositary Shares (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on September 15, 2020) |
|
| 4.5 |
Form of Fixed-to-Floating Rate Subordinated Notes Due 2031 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on April 7, 2021) |
|
| 4.6 |
Form of 4.00% Fixed-to-Floating Rate Subordinated Notes Due 2032 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on March 2, 2022) |
|
| 10.1 |
2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-12B filed on February 15, 2019) |
|
| 10.2 |
Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-12B filed on February 15, 2019) |
|
| 10.3 |
Employment Agreement with Jeff W. Dick (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-12B filed on February 15, 2019) |
|
| 10.4 |
Employment Agreement with Abdulhamid Hersiburane (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on November 21, 2022) |
|
| 10.5 |
Employment Agreement with Thomas J. Chmelik (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-12B filed on February 15, 2019) |
|
| 10.6 |
2019 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 16, 2024) |
|
| 10.7 |
Subordinated Note Purchase Agreement Dated as of April 6, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 7, 2021) |
|
| 10.8 |
Form of Subordinated Note Purchase Agreement, dated March 1, 2022, between the Company and certain accredited investors and qualified institutional buyers (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on March 2, 2022) |
|
| 10.9 | Form of Indemnification Agreement with each of Jeff W. Dick, Thomas J. Chmelik and Abdul Hersiburane (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on November 21, 2022) | |
| 10.10 | Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K filed on March 23, 2023). | |
| 19.0 | Insider Trading Policies and Procedures | |
| 21.1 |
Subsidiaries of the Registrant |
|
| 23.1 |
Consent of Yount, Hyde & Barbour, P.C. |
|
| 31.1 |
Rule 13a-14(a) Certification of the Chief Executive Officer |
|
| 31.2 |
Rule 13a-14(a) Certification of the Chief Financial Officer |
|
| 32.0 |
Section 1350 Certification |
|
| 97.1 | Policy Relating to the Recovery of Erroneously Awarded Compensation (incorporated by reference to Exhibit 97.1 to the Company's Form 10-K filed on March 20, 2024 | |
| 101.INS |
Inline XBRL Instance Document: The XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
| 101.SCH |
Inline XBRL Taxonomy Extension Schema |
|
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase |
|
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase |
|
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase |
|
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase |
|
| 101 |
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 formatted in Inline XBRL, filed herewith: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss), (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements |
|
| 104 |
Cover Page Interactive Data File: The cover page XBRL tags are embedded within the Inline XBRL document and are contained within the Exhibit 101. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized.
MAINSTREET BANCSHARES, INC.
| Date: March 12, 2026 | /s/ Richard A. Vari |
|||
| Richard A. Vari | ||||
| Executive Vice President and |
||||
| Chief Financial Officer |
||||
| (Principal Financial Officer and Principal Accounting Officer) |
FAQ
What is MainStreet Bancshares (MNSB) disclosing in this 2024 10-K/A amendment?
The amendment mainly adds the full opinion on internal control over financial reporting. It also republishes Part II, Items 8 and 9A, and updates auditor consent and CEO/CFO certifications, without changing other previously reported 2024 financial information.
Did MainStreet Bancshares (MNSB) report a profit or loss for 2024?
MainStreet Bancshares reported a net loss of $9.98 million for 2024. This compares with net income of $26.59 million in 2023, reflecting a large software impairment charge and higher interest expense that more than offset loan growth and higher interest income.
What caused MainStreet Bancshares’ 2024 earnings to decline so sharply?
The decline was driven primarily by a $19.72 million impairment of computer software intangibles recognized in the fourth quarter of 2024. Rising deposit and funding costs also squeezed net interest income, reducing profitability despite higher total interest income year over year.
How did MainStreet Bancshares’ balance sheet change in 2024?
Total assets grew to $2.23 billion at December 31, 2024 from $2.04 billion a year earlier. Loans increased to $1.83 billion, and deposits rose to $1.91 billion, while total stockholders’ equity declined to $207.99 million due to the year’s net loss and dividends.
What did the auditor conclude about MainStreet Bancshares’ 2024 financial statements?
The independent auditor issued unqualified opinions on the 2024 consolidated financial statements and on internal control over financial reporting. They concluded the statements present fairly, in all material respects, the company’s financial position and results in conformity with U.S. GAAP.
How did credit quality and loan loss allowances look for MainStreet Bancshares in 2024?
The allowance for credit losses on loans was $19.45 million at December 31, 2024, up from $16.51 million in 2023. The bank recorded $7.49 million of loan credit loss provision in 2024, and nonaccrual loans rose to $21.7 million from $1.0 million.
What were MainStreet Bancshares’ key per-share results for 2024?
Earnings per common share were a basic and diluted loss of $1.60 for 2024. This compares with basic and diluted earnings per share of $3.25 in 2023, reflecting the swing from strong profitability to a net loss driven by the software impairment and margin compression.
