10-Q 1 main20240122_10q.htm FORM 10-Q main20240122_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 March 31, 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


 

mlogo.jpg

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

(Registrants 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 May 8, 2024, there were 7,617,213 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  March 31, 2024 and December 31, 2023 (Dollars in thousands, except share data)

 

  At March 31, 2024 (unaudited)  At December 31, 2023 (*) 

Assets

        

Cash and due from banks

 $49,208  $53,581 

Federal funds sold

  75,533   60,932 

Cash and cash equivalents

  124,741   114,513 

Investment securities available-for-sale, at fair value

  58,699   59,928 

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

  17,251   17,275 

Restricted securities, at amortized cost

  23,924   24,356 

Loans, net of allowance for credit losses of $16,531 and $16,506, respectively

  1,727,110   1,705,137 

Premises and equipment, net

  14,081   13,944 

Accrued interest and other receivables

  10,727   12,390 

Bank owned life insurance

  38,609   38,318 

Computer software, net of amortization

  15,691   14,657 

Other assets

  39,182   34,914 

Total Assets

 $2,070,015  $2,035,432 

Liabilities and Stockholders’ Equity

        

Liabilities

        

Non-interest bearing demand deposits

 $348,945  $364,606 

Interest bearing demand deposits

  165,331   137,128 

Savings and NOW deposits

  46,036   45,878 

Money market deposits

  446,903   442,179 

Time deposits

  725,520   696,336 

Total deposits

  1,732,735   1,686,127 

Federal funds purchased

     15,000 

Subordinated debt, net

  72,741   72,642 

Allowance for credit losses on off-balance sheet credit exposure

  650   1,009 

Other liabilities

  40,768   39,137 

Total Liabilities

  1,846,894   1,813,915 

Stockholders’ Equity

        

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

  27,263   27,263 

Common stock, $4.00 par value, 10,000,000 shares authorized; issued and outstanding 7,614,090 shares (including 235,855 nonvested shares) at March 31, 2024 and 7,527,415 shares (including 228,300 nonvested shares) at December 31, 2023

  29,514   29,198 

Capital surplus

  65,940   65,985 

Retained earnings

  108,334   106,549 

Accumulated other comprehensive loss

  (7,930)  (7,478)

Total Stockholders’ Equity

  223,121   221,517 

Total Liabilities and Stockholders’ Equity

 $2,070,015  $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 months ended March 31, 2024 and 2023 (Dollars in thousands, except per share data)

 

  

For the Three Months Ended March 31,

 
  

2024

  

2023

 

Interest Income

        

Interest and fees on loans

 $30,487  $26,731 

Interest and dividends on investments securities

        

Mortgage-backed securities

  102   118 

Tax-exempt obligations of states and political subdivisions

  270   264 

Taxable obligations of states and political subdivisions

  64   64 

Other

  269   336 

Interest on federal funds sold and interest-bearing deposits

  1,182   1,132 

Total Interest Income

  32,374   28,645 

Interest Expense

        

Interest on interest bearing DDA deposits

  1,860   343 

Interest on savings and NOW deposits

  157   108 

Interest on money market deposits

  5,178   1,203 

Interest on time deposits

  8,833   4,144 

Interest on federal funds purchased

  107   38 

Interest on Federal Home Loan Bank advances

  46   906 

Interest on subordinated debt

  820   812 

Total Interest Expense

  17,001   7,554 

Net Interest Income

  15,373   21,091 

Provision For Credit Losses - Loans

  164   415 

Recovery of Credit Losses - Off-Balance Sheet Credit Exposure

  (359)  (132)

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

  15,568   20,808 

Non-Interest Income

        

Deposit account service charges

  469   590 

Bank owned life insurance income

  292   255 

Other fee income

  130   158 

Total Non-Interest Income

  891   1,003 

Non-Interest Expense

        

Salaries and employee benefits

  7,488   7,621 

Furniture and equipment expenses

  935   498 

Advertising and marketing

  454   797 

Occupancy expenses

  435   486 

Outside services

  774   490 

Administrative expenses

  242   215 

Other operating expenses

  1,996   1,596 

Total Non-Interest Expense

  12,324   11,703 

Income Before Income Taxes

  4,135   10,108 

Income Tax Expense

  830   1,957 

Net Income

 $3,305  $8,151 

Preferred Stock Dividends

  539   539 

Net Income Available to Common Shareholders

 $2,766  $7,612 

Earnings Per Common Share:

        

Basic

 $0.36  $1.01 

Diluted

 $0.36  $1.01 

 

See Notes to the Unaudited Consolidated Financial Statements

 

4

 

 

MAINSTREET BANCSHARES, INC. AND SUBSIDIARY

 

Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023 (Dollars in thousands)

 

  

For the Three Months Ended March 31,

 
  

2024

  

2023

 

Comprehensive Income, net of taxes

        

Net Income

 $3,305  $8,151 

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), ($109) and $254, respectively, for the three months ended March 31).

  (452)  880 

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 March 31).

     2 

Other comprehensive (loss) income

  (452)  882 

Comprehensive Income

 $2,853  $9,033 

 

See Notes to the Unaudited Consolidated Financial Statements

 

5

 

 

MAINSTREET BANCSHARES, INC. AND SUBSIDIARY

 

Unaudited Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023 (Dollars in thousands)

 

                  

Accumulated Other

     
  

Preferred

  

Common

  

Capital

  

Retained

  

Comprehensive

     
  

Stock

  

Stock

  

Surplus

  

Earnings

  

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

     408   (408)         

Stock based compensation expense

        690         690 

Common stock repurchased

     (92)  (327)        (419)

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

           (539)     (539)

Dividends on common stock - ($0.10 per share)

           (764)     (764)

Net income

           3,305      3,305 

Other comprehensive loss

              (452)  (452)

Balance, March 31, 2024

 $27,263  $29,514  $65,940  $108,334  $(7,930) $223,121 

 

                  

Accumulated Other

     
  

Preferred

  

Common

  

Capital

  

Retained

  

Comprehensive

     
  

Stock

  

Stock

  

Surplus

  

Earnings

  

Income (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

     449   (449)         

Stock based compensation expense

        663         663 

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

           (539)     (539)

Dividends on common stock - ($0.10 per share)

           (752)     (752)

Net income

           8,151      8,151 

Other comprehensive income

              882   882 

Balance, March 31, 2023

 $27,263  $29,185  $64,213  $91,991  $(7,664) $204,988 

 

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 three months ended March 31,

 

2024

  

2023

 

Cash Flows from Operating Activities

        

Net income

 $3,305  $8,151 

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

        

Depreciation, amortization, and accretion, net

  750   560 

Amortization of right-of-use assets

  123   79 

Deferred income tax expense

  490   589 

Loss (gain) on disposal of premises and equipment

  13   (39)

Provision for (recovery of) credit losses, net

  (195)  283 

Stock based compensation expense

  690   663 

Income from bank owned life insurance

  (292)  (255)

Subordinated debt amortization expense

  99   99 

Change in:

        

Accrued interest receivable and other receivables

  1,663   (163)

Other assets

  (4,634)  2,688 

Other liabilities

  1,631   (3,821)

Net cash provided by operating activities

  3,643   8,834 

Cash Flows from Investing Activities

        

Activity in available-for-sale securities:

        

Payments

  579   476 

Purchases of equity securities

  (110)  (82)

Purchases of restricted investment in bank stock

  (1,500)  (4,536)

Redemption of restricted investment in bank stock

  1,425   6,375 

Net increase in loan portfolio

  (22,137)  (38,635)

Proceeds from sale of premises and equipment

  83   39 

Purchase of premises and equipment

  (607)  (131)

Computer software developed

  (1,034)  (1,410)

Net cash used in investing activities

  (23,301)  (37,904)

Cash Flows from Financing Activities

        

Net decrease in non-interest deposits

  (15,661)  (62,815)

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

  62,269   182,214 

Net decrease in Federal Home Loan Bank advances

     (55,000)

Net increase (decrease) in federal funds purchased

  (15,000)  60,696 

Cash dividends paid on preferred stock

  (539)  (539)

Cash dividends paid on common stock

  (764)  (752)

Repurchases of common stock

  (419)   

Net cash provided by financing activities

  29,886   123,804 

Increase in Cash and Cash Equivalents

  10,228   94,734 

Cash and Cash Equivalents, beginning of period

  114,513   130,600 

Cash and Cash Equivalents, end of period

 $124,741  $225,334 

Supplementary Disclosure of Cash Flow Information

        

Cash paid during the period for interest

 $16,279  $5,243 

Cash paid during the period for income taxes

 $  $3,430 

Net unrealized loss on securities available-for-sale

 $(561) $1,134 

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 bank 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 10,000,000 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 will be deployed in the second quarter of 2024. 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 months ended March 31, 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.

 

Impact of Recently Issued Accounting Pronouncements

 

 

In March 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 reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU is effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period. The Company does not expect the adoption of ASU 2023-02 to have a material impact on its consolidated financial statements.

 

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. 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 2024-02, “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.

 

 

9

 

 

 

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 March 31, 2024  and December 31, 2023 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income. The Company did not record an allowance for credit losses on its securities held-to-maturity portfolio as of March 31, 2024 and  December 31, 2023.

 

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

 

  

March 31, 2024

 

(Dollars in thousands)

 

Amortized Cost

  

Gross Unrealized Gains

  

Gross Unrealized Losses

  

Fair Value

 

Collateralized Mortgage Backed

 $23,026  $  $(4,254) $18,772 

Subordinated Debt

  9,970      (1,469)  8,501 

Municipal Securities:

                

Taxable

  10,643      (2,352)  8,291 

Tax-exempt

  22,630   13   (2,206)  20,437 

U.S. Governmental Agencies

  2,728   2   (32)  2,698 

Total

 $68,997  $15  $(10,313) $58,699 

 

10

 

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

 

  

March 31, 2024

 

(Dollars in thousands)

 

Amortized Cost

  

Gross Unrealized Gains

  

Gross Unrealized Losses

  

Fair Value

 

Municipal Securities:

                

Tax-exempt

 $14,751  $5  $(198) $14,558 

Subordinated Debt

  2,500      (15)  2,485 

Total

 $17,251  $5  $(213) $17,043 

 

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      (10)  2,490 

Total

 $17,275  $19  $(131) $17,163 

 

Credit Quality Indicators and Allowance for Credit Losses - HTM

 

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  March 31, 2024 and December 31, 2023. 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  March 31, 2024 and  December 31, 2023 by security type and credit rating:

 

(Dollars in thousands)

 

Municipal Securities

  

Subordinated Debt

  

Total HTM securities

 

March 31, 2024

            

Credit Rating:

            

AAA/AA/A

 $14,751  $  $14,751 

Not Rated - Non Agency

     2,500   2,500 

Total

 $14,751  $2,500  $17,251 

December 31, 2023

            

Credit Rating:

            

AAA/AA/A

 $14,775  $  $14,775 

Not Rated - Non Agency

     2,500   2,500 

Total

 $14,775  $2,500  $17,275 

 

As of  March 31, 2024 and  December 31, 2023, 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 no securities held-to-maturity classified as nonaccrual as of  March 31, 2024 and  December 31, 2023.

 

The scheduled maturities of securities available-for-sale and held-to-maturity at  March 31, 2024 were as follows:

 

  

March 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

 $  $  $687  $679 

Due from one to five years

  1,000   976   2,957   2,927 

Due from after five to ten years

  13,948   12,160   7,209   7,143 

Due after ten years

  54,049   45,563   6,398   6,294 

Total

 $68,997  $58,699  $17,251  $17,043 

 

11

 

The scheduled maturities of securities available-for-sale and held-to-maturity at  December 31, 2023 were as follows:

 

  

December 31, 2023

 
  

Available-for-Sale

  

Held-to-Maturity

 

(Dollars in thousands)

 

Amortized Cost

  

Fair Value

  

Amortized Cost

  

Fair Value

 

Due in one year or less

 $  $  $318  $315 

Due from one to five years

  1,000   976   3,325   3,314 

Due from after five to ten years

  14,054   12,222   7,218   7,188 

Due after ten years

  54,611   46,730   6,414   6,346 

Total

 $69,665  $59,928  $17,275  $17,163 

 

Securities with a fair value of $15.5 million and $16.1 million were pledged at March 31, 2024 and December 31, 2023, respectively. 

 

The following tables summarize the unrealized loss positions of securities available-for-sale as of March 31, 2024 and December 31, 2023:

 

  

March 31, 2024

 
  

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

 $72  $(1) $18,677  $(4,253) $18,749  $(4,254)

Subordinated Debt

        7,751   (1,469)  7,751   (1,469)

Municipal securities:

                        

Taxable

        8,290   (2,352)  8,290   (2,352)

Tax-exempt

  643   (4)  17,222   (2,202)  17,865   (2,206)

U.S Governmental Agencies

  1,430      683   (32)  2,113   (32)

Total

 $2,145  $(5) $52,623  $(10,308) $54,768  $(10,313)

 

  

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

 $  $  $19,440  $(3,931) $19,440  $(3,931)

Subordinated Debt

        7,717   (1,503)  7,717   (1,503)

Municipal Securities:

                        

Taxable

        8,307   (2,342)  8,307   (2,342)

Tax-exempt

  1,986   (34)  16,510   (1,915)  18,496   (1,949)

U.S Government Agencies

  1,515   (1)  845   (37)  2,360   (38)

Total

 $3,501  $(35) $52,819  $(9,728) $56,320  $(9,763)

 

Unrealized losses on each of the major categories of securities have not been recognized into income because all the securities are of high credit quality (rated A or higher, if rated). Management does not intend to sell and it is unlikely management will be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the securities. The fair value is expected to recover as the securities approach maturity. The following description provides the number of investment positions in an unrealized loss position and approximate duration of that loss position.

 

At  March 31, 2024, there was one collateralized mortgage backed security with a fair value totaling approximately $72,000 in an unrealized loss position of less than 12 months and twenty-three collateralized mortgage backed securities totaling $19.0 million in an unrealized loss position of more than 12 months. At  March 31, 2024, there were twenty-one subordinated debt securities totaling $7.8 million in an unrealized loss position of more than 12 months. At  March 31, 2024 two tax-exempt municipal securities with fair values totaling approximately $643,000 were in an unrealized loss position of less than 12 months and twenty-eight securities totaling $16.5 million in an unrealized loss position of more than 12 months. At  March 31, 2024, there were eleven taxable municipal securities totaling $8.3 million in an unrealized loss position of more than 12 months. At  March 31, 2024, there was one government agency security with a fair value of $1.4 million in an unrealized loss position of less than 12 months and six government agency securities with a fair value of approximately $683,000  were in an unrealized loss position of more than 12 months. 

 

Certain 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 was amortized over the life of the securities, which ended on December 31, 2023. 

 

The Company periodically invests in New Market Tax Credit 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.

 

 

12

 
 

Note 3. Loans Receivable

 

Loans receivable were comprised of the following:

 

(Dollars in thousands)

 

March 31, 2024

  

December 31, 2023

 

Residential Real Estate:

        

Single family

 $209,272  $203,417 

Multifamily

  242,577   271,040 

Farmland

  142   145 

Commercial Real Estate:

        

Owner-occupied

  318,470   282,052 

Non-owner occupied

  494,917   461,775 

Construction and Land Development

  408,903   429,637 

Commercial – Non Real-Estate:

        

Commercial & Industrial

  71,822   75,415 

Consumer – Non Real-Estate:

        

Unsecured

  339   271 

Secured

  2,563   3,339 

Total Gross Loans

  1,749,005   1,727,091 

Less: unearned fees, net

  (5,364)  (5,448)

Less: allowance for credit losses - loans

  (16,531)  (16,506)

Net Loans

 $1,727,110  $1,705,137 

 

The unsecured consumer loans above include $339,000 and $271,000 of overdrafts reclassified as loans at March 31, 2024 and December 31, 2023, respectively.

 

13

 

The following tables present the amortized cost basis by segments of the loan portfolio summarized by aging categories as of March 31, 2024 and December 31, 2023:

 

  

March 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

  

Total Loans Receivable

 

Residential Real Estate:

                        

Single Family

 $  $1,273  $  $149  $207,850  $209,272 

Multifamily

              242,577   242,577 

Farmland

              142   142 

Commercial Real Estate:

                        

Owner occupied

              318,470   318,470 

Non-owner occupied

              494,917   494,917 

Construction & Land Development

  2,228   350      8,272   398,053   408,903 

Commercial – Non Real Estate:

                        

Commercial & Industrial

           842   70,980   71,822 

Consumer – Non Real Estate:

                        

Unsecured

              339   339 

Secured

              2,563   2,563 

Total

 $2,228  $1,623  $  $9,263  $