10-Q 1 main20240930_10q.htm FORM 10-Q main20240930_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

☒         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2024

 

OR

 

☐         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to                      to                     

 

Commission file number: 001-38817

 

MainStreet Bancshares, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Virginia

 

81-2871064

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

10089 Fairfax Boulevard, Fairfax, VA 22030

(Address of Principal Executive Offices and Zip Code)

 

(703) 481-4567

(Registrant’s Telephone Number, Including Area Code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act.

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock

 

MNSB

 

The Nasdaq Stock Market LLC

     
Depositary Shares (each representing a 1/40th interest in a share of 7.50% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock) 

MNSBP

 

The Nasdaq Stock Market LLC

 

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.    ☒  Yes    ☐  No

 

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).    ☒  Yes    ☐  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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

 

☐

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 4, 2024, there were 7,603,265 outstanding shares, par value $4.00 per share, of the issuer’s common stock.

 
 

 

 
 

PART I – FINANCIAL INFORMATION

 

Item 1 – Consolidated Financial Statements – Unaudited

 

 

MAINSTREET BANCSHARES, INC. AND SUBSIDIARY

 

Consolidated Statements of Financial Condition as of  September 30, 2024 and December 31, 2023 (Dollars in thousands, except share data)

 

  At September 30, 2024 (unaudited)  At December 31, 2023 (*) 

Assets

        

Cash and due from banks

 $40,955  $53,581 

Federal funds sold

  191,159   60,932 

Cash and cash equivalents

  232,114   114,513 

Investment securities available-for-sale, at fair value

  58,489   59,928 

Investment securities held-to-maturity, at amortized cost, net of allowance for credit losses of $0 and $0, respectively.

  16,016   17,275 

Restricted securities, at amortized cost

  26,745   24,356 

Loans, net of allowance for credit losses of $18,327 and $16,506, respectively

  1,775,558   1,705,137 

Premises and equipment, net

  13,571   13,944 

Accrued interest and other receivables

  11,077   12,390 

Bank owned life insurance

  39,203   38,318 

Computer software, net of amortization

  18,881   14,657 

Other assets

  32,945   34,914 

Total Assets

 $2,224,599  $2,035,432 

Liabilities and Stockholders’ Equity

        

Liabilities

        

Non-interest bearing demand deposits

 $347,575  $364,606 

Interest bearing demand deposits

  197,527   137,128 

Savings and NOW deposits

  61,893   45,878 

Money market deposits

  451,936   442,179 

Time deposits

  834,738   696,336 

Total deposits

  1,893,669   1,686,127 

Federal funds purchased

  —   15,000 

Subordinated debt, net

  72,940   72,642 

Allowance for credit losses on off-balance sheet credit exposure

  145   1,009 

Other liabilities

  31,794   39,137 

Total Liabilities

  1,998,548   1,813,915 

Stockholders’ Equity

        

Preferred stock, $1.00 par value, 2,000,000 shares authorized; 28,750 shares issued and outstanding at September 30, 2024 and December 31, 2023

  27,263   27,263 

Common stock, $4.00 par value, 10,000,000 shares authorized; issued and outstanding 7,602,783 shares (including 237,286 nonvested shares) at September 30, 2024 and 7,527,415 shares (including 228,300 nonvested shares) at December 31, 2023

  29,463   29,198 

Capital surplus

  67,083   65,985 

Retained earnings

  108,616   106,549 

Accumulated other comprehensive loss

  (6,374)  (7,478)

Total Stockholders’ Equity

  226,051   221,517 

Total Liabilities and Stockholders’ Equity

 $2,224,599  $2,035,432 

 

*         Derived from audited consolidated financial statements.

 

See Notes to the Unaudited Consolidated Financial Statements

 

3
 

 

 

MAINSTREET BANCSHARES, INC. AND SUBSIDIARY

 

Unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023 (Dollars in thousands, except per share data)

 

   

For the Three Months Ended September 30,

    

For the Nine Months Ended September 30,

  
   

2024

    

2023

    

2024

    

2023

  

Interest Income

                                

Interest and fees on loans

   $ 31,615     $ 29,822     $ 93,852     $ 85,530  

Interest and dividends on investments securities

                                

Mortgage-backed securities

     85       108       281       308  

Tax-exempt obligations of states and political subdivisions

     294       268       832       797  

Taxable obligations of states and political subdivisions

     64       64       192       192  

Other

     248       287       789       884  

Interest on federal funds sold and interest-bearing deposits

     1,285       1,217       3,550       3,528  

Total Interest Income

     33,591       31,766       99,496       91,239  

Interest Expense

                                

Interest on interest bearing DDA deposits

     2,117       216       6,049       761  

Interest on savings and NOW deposits

     206       145       553       400  

Interest on money market deposits

     5,277       4,068       15,911       8,091  

Interest on time deposits

     9,543       7,516       27,361       18,719  

Interest on federal funds purchased

     277       35       575       274  

Interest on Federal Home Loan Bank advances

     —       186       46       1,105  

Interest on subordinated debt

     828       828       2,468       2,460  

Total Interest Expense

     18,248       12,994       52,963       31,810  

Net Interest Income

     15,343       18,772       46,533       59,429  

Provision For (Recovery of) Credit Losses - Loans

     3,125       (98 )     4,220       934  

(Recovery of) provision for Credit Losses - Off-Balance Sheet Credit Exposure

     (212 )     353       (864 )     242  

Net Interest Income After Provision For (Recovery of) Credit Losses

     12,430       18,517       43,177       58,253  

Non-Interest Income

                                

Deposit account service charges

     557       514       1,516       1,639  

Bank owned life insurance income

     302       272       885       786  

Net loss on securities called

     —       —       (48 )     —  

Other fee income

     27       105       93       158  

Total Non-Interest Income

     886       891       2,446       2,583  

Non-Interest Expense

                                

Salaries and employee benefits

     7,250       6,924       22,222       21,139  

Furniture and equipment expenses

     931       713       2,806       1,983  

Advertising and marketing

     579       577       1,599       2,072  

Occupancy expenses

     407       375       1,257       1,287  

Outside services

     845       697       2,458       1,691  

Administrative expenses

     215       277       686       703  

Other operating expenses

     2,992       1,988       7,508       5,404  

Total Non-Interest Expense

     13,219       11,551       38,536       34,279  

Income Before Income Taxes (Benefit)

     97       7,857       7,087       26,557  

Income Tax Expense (Benefit)

     (168 )     1,516       900       5,119  

Net Income

   $ 265     $ 6,341     $ 6,187     $ 21,438  

Preferred Stock Dividends

     539       539       1,617       1,617  

Net Income (Loss) Available to Common Shareholders

   $ (274 )   $ 5,802     $ 4,570     $ 19,821  

Earnings (Loss) Per Common Share:

                                

Basic

   $ (0.04 )   $ 0.77     $ 0.60     $ 2.64  

Diluted

   $ (0.04 )   $ 0.77     $ 0.60     $ 2.64  

 

See Notes to the Unaudited Consolidated Financial Statements

 

4
 

 

 

MAINSTREET BANCSHARES, INC. AND SUBSIDIARY

 

Unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023 (Dollars in thousands)

 

  

For the Three Months Ended September 30,

  

For the Nine Months Ended September 30,

 
  

2024

  

2023

  

2024

  

2023

 

Comprehensive Income, net of taxes

                

Net Income

 $265  $6,341  $6,187  $21,438 

Other comprehensive income (loss), net of tax expense (benefit):

                

Unrealized gain (loss) on available for sale securities arising during the period (net of tax expense (benefit), $498 and ($687), respectively, for the three months ended September 30, and $355 and ($687), respectively for the nine months ended September 30).

  1,669   (2,465)  1,104   (2,268)

Add: reclassification adjustment for amortization of unrealized losses on securities transferred from available for sale to held to maturity (net of tax, $0 and $0, respectively, for the three months ended September 30, and $0 and $1, respectively, for the nine months ended September 30).

  —   2   —   5 

Other comprehensive (loss) income

  1,669   (2,463)  1,104   (2,263)

Comprehensive Income

 $1,934  $3,878  $7,291  $19,175 

 

See Notes to the Unaudited Consolidated Financial Statements

 

5
 

 

 

MAINSTREET BANCSHARES, INC. AND SUBSIDIARY

 

Unaudited Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023 (Dollars in thousands)

 

                  

Accumulated Other

     
  

Preferred

  

Common

  

Capital

  

Retained

  

Comprehensive

     
  

Stock

  

Stock

  

Surplus

  

Earnings

  

Income (Loss)

  

Total

 

Balance, June 30, 2024

 $27,263  $29,452  $66,392  $109,651  $(8,043) $224,715 

Vesting of restricted stock

  —   11   (11)  —   —   — 

Stock based compensation expense

  —   —   702   —   —   702 

Dividends on preferred stock - ($0.47 per depositary share)

  —   —   —   (539)  —   (539)

Dividends on common stock - ($0.10 per share)

  —   —   —   (761)  —   (761)

Net income

  —   —   —   265   —   265 

Other comprehensive income

  —   —   —   —   1,669   1,669 

Balance, September 30, 2024

 $27,263  $29,463  $67,083  $108,616  $(6,374) $226,051 

 

                  

Accumulated Other

     
  

Preferred

  

Common

  

Capital

  

Retained

  

Comprehensive

     
  

Stock

  

Stock

  

Surplus

  

Earnings

  

Income (Loss)

  

Total

 

Balance, December 31, 2023

 $27,263  $29,198  $65,985  $106,549  $(7,478) $221,517 

Cumulative change in accounting principle (Note 1)

  —   —   —   (217)  —   (217)

Vesting of restricted stock

  —   432   (432)  —   —   — 

Stock based compensation expense

  —   —   2,082   —   —   2,082 

Common stock repurchased

  —   (167)  (552)  —   —   (719)

Dividends on preferred stock - ($1.41 per depositary share)

  —   —   —   (1,617)  —   (1,617)

Dividends on common stock - ($0.30 per share)

  —   —   —   (2,286)  —   (2,286)

Net income

  —   —   —   6,187   —   6,187 

Other comprehensive income

  —   —   —   —   1,104   1,104 

Balance, September 30, 2024

 $27,263  $29,463  $67,083  $108,616  $(6,374) $226,051 

 

                  

Accumulated Other

     
  

Preferred

  

Common

  

Capital

  

Retained

  

Comprehensive

     
  

Stock

  

Stock

  

Surplus

  

Earnings

  

Loss

  

Total

 

Balance, June 30, 2023

 $27,263  $29,177  $64,768  $97,646  $(8,346) $210,508 

Vesting of restricted stock

  —   11   (11)  —   —   — 

Stock based compensation expense

  —   —   650   —   —   650 

Dividends on preferred stock - ($0.47 per depositary share)

  —   —   —   (539)  —   (539)

Dividends on common stock - ($0.10 per share)

  —   —   —   (754)  —   (754)

Net income

  —   —   —   6,341   —   6,341 

Other comprehensive loss

  —   —   —   —   (2,463)  (2,463)

Balance, September 30, 2023

 $27,263  $29,188  $65,407  $102,694  $(10,809) $213,743 

 

                  

Accumulated Other

     
  

Preferred

  

Common

  

Capital

  

Retained

  

Comprehensive

     
  

Stock

  

Stock

  

Surplus

  

Earnings

  

Loss

  

Total

 

Balance, December 31, 2022

 $27,263  $28,736  $63,999  $86,830  $(8,546) $198,282 

Cumulative change in accounting principle

  —   —   —   (1,699)  —   (1,699)

Vesting of restricted stock

  —   460   (460)  —   —   — 

Stock based compensation expense

  —   —   1,903   —   —   1,903 

Common stock repurchased

  —   (8)  (35)  —   —   (43)

Dividends on preferred stock - ($1.41 per depositary share)

  —   —   —   (1,617)  —   (1,617)

Dividends on common stock - ($0.30 per share)

  —   —   —   (2,258)  —   (2,258)

Net income

  —   —   —   21,438   —   21,438 

Other comprehensive loss

  —   —   —   —   (2,263)  (2,263)

Balance, September 30, 2023

 $27,263  $29,188  $65,407  $102,694  $(10,809) $213,743 

 

See Notes to the Unaudited Consolidated Financial Statements

 

6
 

 

 

MAINSTREET BANCSHARES, INC. AND SUBSIDIARY

 

Unaudited Consolidated Statements of Cash Flows (Dollars in thousands)

 

For the nine months ended September 30,

  

2024

    

2023

  

Cash Flows from Operating Activities

                

Net income

   $ 6,187     $ 21,438  

Adjustments to reconcile net income to net cash provided by operating activities:

                

Depreciation, amortization, and accretion, net

     2,531       1,684  

Amortization of right-of-use assets

     376       239  

Deferred income tax expense (benefit)

     (38 )     238  

Loss on securities called

     48       —  

Gain on disposal of premises and equipment

     (49 )     (129 )

Provision for credit losses, net

     3,356       1,176  

Stock based compensation expense

     2,082       1,903  

Income from bank owned life insurance

     (885 )     (786 )

Subordinated debt amortization expense

     298       298  

Loss on New Market Tax Credit investment operations

     —       176  

Change in:

                

Accrued interest receivable and other receivables

     1,313       (1,597 )

Other assets

     222       (5,520 )

Other liabilities

     (6,154 )     7,188  

Net cash provided by operating activities

     9,287       26,308  

Cash Flows from Investing Activities

                

Activity in available-for-sale securities:

                

Payments

     2,097       2,666  

Calls

     945       —  

Purchases

     (445 )     —  

Activity in held-to-maturity securities:

                

Calls

     1,200       —  

Purchases of equity securities

     (3,614 )     (231 )

Purchases of restricted investment in bank stock

     (1,624 )     (5,974 )

Redemption of restricted investment in bank stock

     1,425       9,339  

Net increase in loan portfolio

     (96,444 )     (103,323 )

Proceeds from sale of loans

     21,803       —  

Proceeds from sale of premises and equipment

     145       129  

Purchase of premises and equipment

     (870 )     (490 )

Computer software developed

     (4,224 )     (4,224 )

Net cash used in investing activities

     (79,606 )     (102,108 )

Cash Flows from Financing Activities

                

Net decrease in non-interest bearing demand deposits

     (17,031 )     (155,831 )

Net increase in interest bearing demand, savings, and time deposits

     224,573       326,132  

Net decrease in Federal Home Loan Bank advances

     —       (100,000 )

Net decrease in federal funds purchased

     (15,000 )     —  

Cash dividends paid on preferred stock

     (1,617 )     (1,617 )

Cash dividends paid on common stock

     (2,286 )     (2,258 )

Repurchases of common stock

     (719 )     (43 )

Net cash provided by financing activities

     187,920       66,383  

Increase (decrease) in Cash and Cash Equivalents

     117,601       (9,417 )

Cash and Cash Equivalents, beginning of period

     114,513       130,600  

Cash and Cash Equivalents, end of period

   $ 232,114     $ 121,183  

Supplementary Disclosure of Cash Flow Information

                

Cash paid during the period for interest

   $ 52,038     $ 29,581  

Cash paid during the period for income taxes

   $ 1,250     $ 6,180  

Net unrealized gain (loss) on securities available-for-sale

   $ 1,459     $ (2,955 )

Net cumulative change in accounting principle

   $ (217 )   $ (1,699 )

 

See Notes to the Unaudited Consolidated Financial Statements

 

7
 

 

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 primary activity is the ownership and management of MainStreet Bank (the “Bank”). 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 15,000,000 shares of common stock with a par value of $4.00 per share. Additionally, the Company is authorized to issue 2,000,000 shares of preferred stock at a par value $1.00 per share. There are currently 28,750 shares of preferred stock outstanding. The Company is regulated under the Bank Holding Company Act of 1956, as amended (“BHC Act”) and is subject to inspection, examination, and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).

 

On April 18, 2019, the Company completed the registration of its common stock with the Securities Exchange Commission (the “SEC”) 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 is considered 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.” We are also a “smaller reporting company” as defined in Exchange Act Rule 12b-2. As such, we may elect to comply with certain reduced public company reporting requirements in future reports that we file with the SEC.

 

The Company was 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 under the symbol “MNSBP” as of September 16, 2020. Each depositary share represents a 1/40th ownership interest in a share of 7.50% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock.

 

The 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. 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 retail customers, small and medium-sized businesses and professionals in the Washington, D.C. metropolitan area.

 

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. The Avenu division is classified within our Financial Technology reportable segment outlined in Note 10. Additional information can be found in our investor presentations filed quarterly.

 

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”) for interim information and with the instructions to the Quarterly Report on Form 10-Q, as applicable to a smaller reporting company. Accordingly, they do not include all the information and notes required by US GAAP for complete financial statements.

 

The financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof. The balances as of December 31, 2023 have been derived from the audited consolidated financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the Form 10-K filed by the Company with the SEC on March 20, 2024. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any other period.

 

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.

 

8
 
 

The Company’s critical accounting policies relate to (1) the allowance for credit losses on loans, (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.

 

Recently Adopted Accounting Developments

 

FASB Accounting Standards Update No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ("ASU 2023-02")

 

On March 29, 2023, the FASB issued ASU 2023-02 which amends previous guidance to 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 is 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, which did not have a material impact on the Company's financial statements. 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. 

 

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 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 disclosures 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 reported measures. Additionally, this ASU requires that at least one of the reported segment profit and loss measures should be the measure that is most consistent with the measurement principles 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 retrospectively. The Company does not expect the adoption of ASU 2023-07 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. Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements.

 

9
 
 

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 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 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. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. 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. Investment Securities

 

The following tables summarize the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at September 30, 2024 and December 31, 2023 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss. The Company did not record an allowance for credit losses ("ACL") on its securities available-for-sale or held-to-maturity portfolio as of September 30, 2024 and  December 31, 2023.

 

Investment securities available-for-sale was comprised of the following:

 

  

September 30, 2024

 

(Dollars in thousands)

 

Amortized Cost

  

Gross Unrealized Gains

  

Gross Unrealized Losses

  

Fair Value

 

Collateralized Mortgage Backed

 $21,712  $3  $(3,329) $18,386 

Subordinated Debt

  9,470   —   (1,171)  8,299 

Preferred Stock

  449   —   —   449 

Municipal Securities:

                

Taxable

  10,630   —   (1,992)  8,638 

Tax-exempt

  22,059   13   (1,789)  20,283 

U.S. Governmental Agencies

  2,447   10   (23)  2,434 

Total

 $66,767  $26  $(8,304) $58,489 

 

10
 
 

Investment securities held-to-maturity was comprised of the following:

 

  

September 30, 2024

 

(Dollars in thousands)

 

Amortized Cost

  

Gross Unrealized Gains

  

Gross Unrealized Losses

  

Fair Value

 

Municipal Securities:

                

Tax-exempt

 $13,516  $8  $(82) $13,442 

Subordinated Debt

  2,500   —   (15)  2,485 

Total

 $16,016  $8  $(97) $15,927 

 

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

 $23,446  $—  $(3,931) $19,515 

Subordinated Debt

  9,970   —   (1,503)  8,467 

Municipal Securities:

                

Taxable

  10,649   —   (2,342)  8,307 

Tax-exempt

  22,668   23   (1,949)  20,742 

U.S. Governmental Agencies

  2,932   3   (38)  2,897 

Total

 $69,665  $26  $(9,763) $59,928 

 

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

 $14,775  $19  $(121) $14,673 

Subordinated Debt

  2,500   —