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Item 8. Financial Statements and Supplementary Data

2023-03-23 compared with 2022-03-23 · 1026 added, 347 removed, 794 unchanged (63% of the section changed)

Item 8 – Financial Statements and Supplementary Data

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, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for the years then ended, 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, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

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 Public Company Accounting Oversight Board (United States) (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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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.

/s/ YOUNT, HYDE & BARBOUR, P.C. 

We have served as the Company's auditor since 2008.

Winchester, Virginia

March 23, 2023

Financial Statements and Supplementary Data

Consolidated Financial Statements

3 unchanged sentences

Cash and due from banks

$ 48,931  

$ 61,827  

Federal funds sold

81,669  

31,372  

Cash and cash equivalents

130,600  

93,199  

Investment securities available-for-sale, at fair value

62,631  

99,913  

Investment securities held-to-maturity, at amortized cost

Restricted securities, at cost

Loans held for sale

17,642  

20,349  

Restricted securities, at amortized cost

24,325  

15,609  

Loans, net of allowance for loan losses of $ 14,114 and $ 11,697 , respectively

1,579,950  

1,341,760  

Premises and equipment, net

14,709  

14,863  

Other real estate owned, net

2 unchanged sentences

Bank owned life insurance

Liabilities and Stockholders’ Equity

37,249  

36,241  

39,915  

14,499  

$ 1,925,751  

$ 1,647,402  

Liabilities and Stockholders’

Non-interest bearing deposits

$ 550,690  

$ 530,678  

Interest bearing demand deposits

80,099  

69,232  

Savings and NOW deposits

51,419  

85,175  

Money market deposits

222,540  

267,730  

Time deposits

608,141  

459,148  

Total deposits

1,512,889  

1,411,963  

Federal Home Loan Bank advances

100,000  

Subordinated debt, net

72,245  

29,294  

Other liabilities

42,335  

17,357  

Total Liabilities

1,727,469  

1,458,614  

Commitments and contingencies (Note 13)

Stockholders’ Equity

Stockholders’

Preferred stock, $ 1.00 par value, 2,000,000 shares authorized non-cumulative perpetual;

28,750 issued and outstanding as of December 31, 2022 and December 31, 2021

27,263  

Common stock, $ 4.00 par value, 10,000,000 shares authorized;

issued and outstanding

7,595,781 shares (including 229,257 nonvested shares) for December 31, 2021 and

7,443,842 shares (including 161,435 nonvested shares) for December 31, 2020

issued and outstanding 7,442,743 shares (including 259,036 nonvested shares) for December 31, 2022 and 7,595,781 shares (including 229,257 nonvested shares) for December 31, 2021

28,736  

29,466  

Capital surplus

63,999  

67,668  

Retained earnings

Accumulated other comprehensive income

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

86,830  

64,194  

Accumulated other comprehensive income (loss)

( 8,546 )  

Total Stockholders’

198,282  

188,788  

Total Liabilities and Stockholders’

$ 1,925,751  

$ 1,647,402  

See Notes to the Consolidated Financial Statements

Consolidated Statements of Income for the Years Ended December 31, 2022 and 2021 (Dollars in thousands, except per share data).

Ended December 31,

For the Year Ended December 31,

Interest Income

Interest and fees on loans

Interest and dividends on investment securities

Taxable securities

Tax-exempt securities

Interest and dividends on investments securities

government agencies and corporations

Mortgage-backed securities

Tax-exempt obligations of states and political subdivisions

Taxable obligations of states and political subdivisions

Interest on federal funds sold

16 unchanged sentences

Net gain on held-to-maturity securities

Net gain on sale of loans

Net gain (loss) on sale of loans

Other fee income

20 unchanged sentences

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022 and 2021 (Dollars in thousands)

Ended December 31,

For the Year Ended December 31,

Comprehensive Income, net of taxes

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), ($ 223 ) and $ 145 , respectively)

reclassification adjustment for amortization of unrealized

losses on securities transferred from available for sale to held

to maturity (net of tax, $ 5 and $ 5 , respectively)

Other comprehensive income (loss)

$ 26,674  

$ 22,171  

Other comprehensive loss, net of tax benefit:

Unrealized losses on available for sale securities arising during the period (net of tax benefit, $ 2.6 million and $ 223 , respectively)

( 8,759 )  

reclassification adjustment for amortization of unrealized losses on securities transferred from available for sale to held to maturity (net of tax, $ 4 and $ 5 , respectively)

Other comprehensive loss

( 8,743 )  

Comprehensive Income

$ 17,931  

$ 21,391  

See Notes to the Consolidated Financial Statements

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021 and 2020 (Dollars in thousands).

Consolidated Statements of Stockholders’

Equity for the Years Ended December 31, 2022 and 2021 (Dollars in thousands).

Accumulated Other

Comprehensive

Income (Loss)

Balance, December 31, 2021

Preferred stock issued, net

$ 27,263  

$ 29,466  

$ 67,668  

$ 64,194  

$ 188,788  

Vesting of restricted stock

( 407 )  

Stock based compensation expense

Common stock repurchased

Dividends on preferred stock

Other comprehensive income

( 1,137 )  

( 5,781 )  

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

( 2,156 )  

Dividends on common stock - ($ 0.25 per share)

( 1,882 )  

26,674  

Other comprehensive loss

( 8,743 )  

Balance, December 31, 2022

$ 27,263  

$ 28,736  

$ 63,999  

$ 86,830  

$ ( 8,546 )  

$ 198,282  

Accumulated Other

Comprehensive

Income (Loss)

Balance, December 31, 2020

$ 27,263  

$ 29,130  

$ 66,116  

$ 44,179  

$ 167,665  

Vesting of restricted stock

( 336 )  

Stock based compensation expense

Dividends on preferred stock

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

( 2,156 )  

22,171  

Other comprehensive loss

( 780 )  

Balance, December 31, 2021

$ 27,263  

$ 29,466  

$ 67,668  

$ 64,194  

$ 188,788  

See Notes to the Consolidated Financial Statements

6 unchanged sentences

Deferred income tax (benefit)

Writedown of other real estate owned

Loss (gain) on transfer or sale of other real estate owned

Loss on sale of other real estate owned

Loss on valuation of other real estate owned

Provision for (recovery of) loan losses

3 unchanged sentences

Gain on disposal of premises and equipment

Gain on loans held for sale

Loss (gain) on loans held for sale

Gain on called held-to-maturity securities

Proceeds from sale of loans

Accrued interest receivable and other receivables

11 unchanged sentences

Proceeds from sale of other real estate owned

Proceeds from sale of loans

Purchases of bank owned life insurance

6 unchanged sentences

Net increase (decrease) in interest bearing demand, savings, and time deposits

Net decrease in Federal Home Loan Bank advances and other borrowings

Net increase in Federal Home Loan Bank advances and other borrowings

Net increase in subordinated debt

Issuance of preferred stock, net

Cash dividends paid on preferred stock

Repurchase of common stock

Cash dividends paid on preferred stock

Cash dividends paid on common stock

Net cash provided by (used in) financing activities

6 unchanged sentences

Right of use assets obtained in exchange for new operating lease liabilities

Transfers from loans to other real estate owned

Transfers from loans receivable to loans held for sale, at carrying value

Transfers from loans held for sale to loans receivable

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

Net unrealized loss on securities available-for-sale

See Notes to the Consolidated Financial Statements

MAINSTREET BANCSHARES, INC.

MAINSTREET BANCSHARES,  

AND SUBSIDIARY

2 unchanged sentences

MainStreet Bancshares Inc.

(the “Company”) is a bank 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.

(the “Company”) is a bank holding company incorporated under the laws of the Commonwealth of Virginia whose principal activity is the ownership and management of MainStreet Bank.

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.

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.

2 unchanged sentences

There are currently 28,750 shares of preferred stock outstanding.

On July 15, 2016, the Reorganization became effective, and the Bank became a wholly-owned subsidiary of the Company.

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 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 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 Securities and Exchange Commission, or the “SEC.”

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.

), 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 Securities and Exchange Commission, or the “SEC.”

We were approved to list shares of our common stock on the Nasdaq Capital Market under our current symbol “MNSB”

as of April 

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 140 th interest in a share of 7.50 % Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock.

In August 2021, the Company created a community development entity (“CDE”) subsidiary, MainStreet Community Capital, LLC, a Virginia limited liability company to promote development in economically distressed areas.

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.

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 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 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 

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 business and professional concerns in the Washington, D.C.

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”) as applicable to a smaller reporting company.

Principles of Consolidation – The consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries, the Bank and MainStreet Community Capital, LLC.

All significant intercompany transactions and balances have been eliminated in consolidation.

Cash and cash equivalents – For the purpose of presentation in the Statements of Cash Flows, the Bank has defined cash and cash equivalents as those amounts included in the balance sheet captions “Cash and due from banks” and “Federal funds sold.”

Investment securities – The Bank’s investment debt securities are classified as either held to maturity, available for sale or trading.

At December 31, 2021 and December 31, 2020, the Bank held approximately $ 20.3 million and $ 22.5 million, respectively, in securities classified as held to maturity.

Principles of Consolidation –

The consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries, the Bank and MainStreet Community Capital, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.

Cash and cash equivalents –

For the purpose of presentation in the Statements of Cash Flows, the Bank has defined cash and cash equivalents as those amounts included in the statement of financial condition captions “Cash and due from banks”

and “Federal funds sold.”

Investment securities –

The Bank’s investment debt securities are classified as either held to maturity, available for sale or trading.

At December 31, 2022 and December 31, 2021 , the Bank held approximately $ 17.6  million and $ 20.3  million, respectively, in securities classified as held to maturity.

The Bank held no securities classified as trading.

1 unchanged sentence

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.

Any unrealized gain or loss, net of applicable income taxes, is reported as a separate addition to or reduction from stockholders’

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.

4 unchanged sentences

Declines in the fair value of held to maturity and available for sale debt securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses.

In determining whether other-than-temporary impairment exists, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) 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.

In determining whether other-than-temporary impairment exists, management considers many factors, including ( 1 ) the length of time and the extent to which the fair value has been less than cost, ( 2 ) the financial condition and near-term prospects of the issuer, and ( 3 ) 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.

Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Restricted equity securities consist of the Federal Reserve Bank and Federal Home Loan Bank of Atlanta (“FHLB”) stock in the amount of $ 4.1 million and $ 826,000 respectively, as of December 31, 2021, compared to $ 3.3 million and $ 1.1 million, respectively, as of December 31, 2020.

Restricted equity securities consist of the Federal Reserve Bank and Federal Home Loan Bank of Atlanta (“FHLB”) stock in the amount of $ 4.8  million and $ 5.1 million respectively, as of December 31, 2022 , compared to $ 4.1  million and $ 826,000 , respectively, as of December 31, 2021 .

Restricted equity securities also consisted of $ 126,800 in Community Bankers Bank stock at December 31, 2022 and December 31, 2021 .

4 unchanged sentences

The Bank does not consider these investments to be impaired at December 31, 2022 or December 31, 2021 and no previous impairment has been recognized.

Restricted equities include $ 4.9 million in Low-Income Housing Tax Credits (“LIHTC”) that are carried at amortized cost through the proportional amortization method.

Restricted equities include $ 6.7 million in Low-Income Housing Tax Credits (“LIHTC”) that are carried at amortized cost through the proportional amortization method.

Restricted equities also include $ 6.1 million of nonmarketable securities as of December 31, 2022 that do not qualify for equity method accounting.

These investments are recorded at cost because the ownership is restricted and lacks a market for resale.

There were no nonmarketable equities as of December 31, 2020.

Loans held for sale - Loans intended for sale are recorded at the lower aggregate cost or fair value as of the balance sheet date.

As of December 31, 2021  restricted equities include $ 4.9 million in LIHTC and $ 5.7 million of nonmarketable securities that do not qualify for equity method accounting.

These investments are recorded at cost because the ownership is restricted and lacks a market for resale. 

Loans held for sale - Loans intended for sale are recorded at the lower aggregate cost or fair value as of the statement of financial condition date.

Gains and losses on loan sales are determined by the specific-identification method.

2 unchanged sentences

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.

4 unchanged sentences

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 balance sheet.

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 analysed, 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.

( 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 loan losses.

3 unchanged sentences

A loan is not considered impaired during a period of an insignificant delay in payment if the ultimate collectability of all amounts due is expected.

Impairment is measured on a loan by loan basis for all commercial, construction and residential loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Consistent with the Bank’s method for nonaccrual loans, payments on impaired loans are first applied to principal outstanding.

Smaller balance consumer loans are not individually evaluated for impairment.

1 unchanged sentence

TDRs are considered impaired loans.

Upon designation as a TDR, the Bank evaluates the borrower’s payment history, past due status and ability to make payments based on the revised terms of the loan.

If a loan was accruing prior to being modified as a TDR and if the Bank concludes that the borrower is able to continue making such payments, and there are no other factors or circumstances that would cause it to conclude otherwise, the loan will remain on an accruing status.

9 unchanged sentences

Subsequent recoveries, if any, are credited to the allowance.

The allowance represents an amount that, in management’s judgment, will be adequate to absorb probable and estimable losses inherent in the loan portfolio.

Management’s judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs, changes in the nature and volume of the loan portfolio, current economic conditions that may affect a borrower’s ability to repay and the value of collateral, overall portfolio quality and review of specific potential losses.

The allowance represents an amount that, in management’s judgment, will be adequate to absorb probable and estimable losses inherent in the loan portfolio.

This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

3 unchanged sentences

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.

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.

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.

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.

12 unchanged sentences

Pass rated loans are to persons or business entities with an acceptable financial condition, appropriate collateral margins, appropriate cash flow to service the existing loan, and an appropriate leverage ratio.

The borrower has paid all obligations as

agreed and it is expected that this type of payment history will continue.

The borrower has paid all obligations as agreed and it is expected that this type of payment history will continue.

When necessary, acceptable personal guarantors support the loan.

1 unchanged sentence

Watch rated loans are still performing as agreed.

Special mention loans have a specific defined weakness in the borrower’s operations and the borrower’s ability to generate positive cash flow on a sustained basis.

The borrower’s recent payment history is characterized by late payments.

The Bank’s risk exposure is mitigated by collateral supporting the loan.

Special mention loans have a specific defined weakness in the borrower’s operations and the borrower’s ability to generate positive cash flow on a sustained basis.

The borrower’s recent payment history is characterized by late payments.

The Bank’s risk exposure is mitigated by collateral supporting the loan.

The collateral is considered to be well-margined, well maintained, accessible and readily marketable.

Substandard loans are considered to have specific and well-defined weaknesses that jeopardize the viability of the Bank’s credit extension.

The payment history for the loan has been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan.

1 unchanged sentence

There is a distinct possibility that the Bank will sustain some loss if the deficiencies associated with the loan are not corrected in the near term.

A substandard loan would not automatically meet our definition of impaired unless the loan is significantly past due and the borrower’s performance and financial condition provide evidence that it is probable that the Bank will be unable to collect all amounts when due.

Doubtful rated loans have all the weaknesses inherent in a loan that is classified substandard but with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

2 unchanged sentences

Loss rated loans are fully charged off.

Other Real Estate Owned (“OREO”) - Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure, establishing a new cost basis.

Other Real Estate Owned ( “

OREO ”

) - Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure, establishing a new cost basis.

Subsequent to foreclosure, management periodically performs valuations of the foreclosed assets based on updated appraisals, general market conditions, and recent sales of like properties, length of time the properties have been held and our ability and intention with regard to continued ownership of the properties.

1 unchanged sentence

Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets and improvements are capitalized.

Interest income on loans – Interest on loans is accrued and credited to income on daily balances of the principal amount outstanding.

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.

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.

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.

Loan origination and commitment fees and certain related direct costs - Loan origination and commitment fees charged by the Bank and certain direct loan origination costs are deferred and the net amount is amortized as a yield adjustment.

1 unchanged sentence

Net fees related to standby letters of credit are recognized over the commitment period.

Premises and equipment – Land is carried at cost.

Premises and equipment –

Land is carried at cost.

Premises and equipment are stated at cost, less accumulated depreciation and amortization computed principally on the straight-line basis over the estimated useful life of each asset, which ranges from 3 to 39 years.

5 unchanged sentences

All of this amortization expense is included within components of operating income.

Income taxes – The Bank uses an asset and liability approach in financial accounting and reporting for income taxes.

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.

9 unchanged sentences

Interest and penalties associated with unrecognized tax benefits, if any, would be classified as additional income taxes in the statement of income.

Comprehensive income – Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.

Comprehensive income –

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.

Although, certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive 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.

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.

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 Bank’s common stock at the date of grant is used for restricted stock awards.

No stock options were granted during 2022 and 2021 .

Earnings per common share – Net income 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, ( 7,559,310 for 2021 and 8,131,334 for 2020).

Earnings per common share –

Net income 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, ( 7,529,382 for 2022 and 7,559,310 for 2021 ).

Diluted earnings per share reflect additional potential common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

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There were no such options outstanding at December 31, 2022 or December 31, 2021 .

Restricted stock is included in the computation of basic earnings per share as the holder is entitled to full benefits of a stockholder during the vesting period.

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.

Restricted stock is included in the computation of basic earnings per share as the holder is entitled to full benefits of a stockholder during the vesting period and is thus considered a participating security.

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.

Advertising and marketing expense – Advertising and marketing costs are expensed as incurred.

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.

Advertising and marketing expense –

Advertising and marketing costs are expensed as incurred.

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 loan losses, (2) fair value of financial instruments, (3) derivative financial instruments, and (4) income taxes.

The Company’s critical accounting policies relate to ( 1 ) the allowance for loan 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 losses on loans, management obtains independent appraisals for significant properties.

Fair value of financial instruments – Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 20.

Fair value of financial instruments –

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 20.

Fair value estimates involve uncertainties and matters of significant judgment.

Changes in assumptions or in market conditions could significantly affect the estimates.

Derivative Financial Instruments – The Bank recognizes derivative financial instruments at fair value as either an other asset or other liability in the consolidated balance sheet.

The Bank’s derivative financial instruments include interest rate swaps with certain qualifying commercial loan customers and dealer counterparties.

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.

Transfers of financial assets – Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered.

Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank – put presumptively beyond reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Risks and uncertainties - The outbreak of COVID- 19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfil their financial obligations to the Company.

The World Health Organization has declared COVID- 19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections.

The spread of the outbreak has caused disruptions in the U.S.

economy and has disrupted banking and other financial activity in the areas in which the Company operates.

While there has been no material impact to the Company’s employees to date, COVID- 19 could also potentially create widespread business continuity issues for the Company.

The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions.

If the global response to contain COVID- 19 escalates further or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows.

While it is not possible to know the full universe or extent that the impact of COVID- 19, and resulting measures to curtail its spread, will have on the Company’s operations, the Company is disclosing potentially material items of which it is aware.

The Bank’s interest rate swaps with loan customers and dealer counterparties are described more fully in Note 19.

Transfers of financial assets –

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered.

Control over transferred assets is deemed to be surrendered when ( 1 ) the assets have been isolated from the Bank –

put presumptively beyond reach of the transferor and its creditors, even in bankruptcy or other receivership, ( 2 ) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and ( 3 ) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

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:

Service Charges on Deposit Accounts.

The Company earns fees from its deposit customers for overdraft and account maintenance services.

Overdraft fees are recognized when the overdraft occurs.

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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.

Impact of Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.

In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03.

These ASU’s have provided for various minor technical corrections and improvements to the codification as well as other transition matters.

Smaller reporting companies who file with the U.S.

Securities and Exchange Commission (SEC) and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022.

The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements.

The Company has formed a Committee to oversee the accounting impact of this ASU.

In anticipation of the ASU, the Company is running parallel calculations simultaneously and preliminary analysis indicates there will not be a significant adjustment upon implementation.

Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB) 119.

SAB 119 updated portions of SEC interpretative guidance to align with FASB ASC 326, “Financial Instruments – Credit Losses.” It covers topics including (1) measuring current expected credit losses;

(2) development, governance, and documentation of a systematic methodology;

(3) documenting the results of a systematic methodology;

and (4) validating a systematic methodology.

During June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016 - 13, “Financial Instruments –

Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments.” 

The ASU, as amended, requires an entity to measure 

expected credit losses for financial assets carried at amortized cost 

based on historical experience, current conditions, and reasonable and supportable forecasts.

Among other things, the ASU also amended the impairment model for available for sale securities and addressed purchased financial assets with deterioration.   The Company adopted ASU 2016 - 13 as of January 1, 2023 in accordance with the required implementation date and recorded the impact of adoption to retained earnings, net of deferred income taxes, as required by the standard.

The adjustment recorded at adoption was 

not significant to the overall allowance for credit losses or shareholders’

equity as compared to December 31, 2022 and consisted of adjustments to the allowance for credit losses on loans as well as an adjustment to the Company’s reserve for unfunded loan commitments.

Subsequent to adoption, the Company will record adjustments to its allowances for credit losses and reserves for unfunded commitments through the provision for credit losses in the consolidated statements of income.

The Company is utilizing a third -party model to tabulate its estimate of current expected credit losses, using a weighted average remaining life methodology.

In accordance with ASC 326, the Company has segmented its loan portfolio based on similar risk characteristics which included call report codes and other attributes that significant to the Company. The Company primarily utilizes average remaining portfolio life and Federal Reserve Economic Data for its reasonable and supportable forecasting of current expected credit losses.

To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company may consider the following qualitative adjustment factors: lending practices, national/local economics, portfolio composition, employee experience, credit quality indicators, underlying collateral, concentrations and other external factors. The Company’s CECL implementation process was overseen by the Allowance for Credit Losses Committee and included an assessment of data availability and gap analysis, data collection, consideration and analysis of multiple loss estimation methodologies, an assessment of relevant qualitative factors and correlation analysis of multiple potential loss drivers and their impact on the Company’s historical loss experience.

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2020-04 “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform.

2020 - 04 “Reference Rate Reform (Topic 848 ):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”

These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform.

The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

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Subsequently, in January 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2021-01 “Reference Rate Reform (Topic 848):

Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

2021 - 01 “Reference Rate Reform (Topic 848 ):

Scope.”

This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

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The Company has also discontinued using LIBOR as a primary rate reference.

The Company is assessing ASU 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

In August 2021, the FASB issued ASU 2021-06, “'Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946):

The Company is assessing ASU 2020 - 04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

In August 2021, the FASB issued ASU 2021 - 06, “'Presentation of Financial Statements (Topic 205 ), Financial Services—Depository and Lending (Topic 942 ), and Financial Services—Investment Companies (Topic 946 ):

Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No.

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33 - 10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.

33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants”.

33 - 10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants”.

The ASU is effective upon addition to the FASB Codification.

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Recently Adopted Accounting Developments

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.” The ASU is expected to reduce cost and complexity related to the accounting for income taxes by removing specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers’ application of certain income tax-related guidance.

This ASU is part of the FASB’s simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects.

ASU 2019-12 was effective for the Company on January 1, 2021 .

There was no material impact on the Company’s consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.”

The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions.

ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting.

ASU 2020-01 was effective for the Company on January 1, 2021 .

There was no material impact on the Company’s consolidated financial statements.

In October 2020, the FASB issued ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable fees and Other Costs.” This ASU clarifies that an entity should re-evaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period.

ASU 2020-08 was effective for the Company on January 1, 2021 .

There was no material impact on the Company’s consolidated financial statements.

In December 2020, the Consolidated Appropriations Act of 2021 (the “CAA”) was passed.

Under Section 541 of the CAA, Congress extended or modified many of the relief programs first created by the CARES Act, including the PPP loan program and treatment of certain loan modifications related to the COVID-19 pandemic.

There was no material impact on the Company’s consolidated financial statements.

ASU 2016 - 13 - Financial Instruments - Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments:

In June 2016, FASB issued ASU 2016 - 13 - Financial Instruments - Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments.

The new accounting guidance in this ASU replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss ("CECL") model.

The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, and held-to-debt securities.

It also applies to off-balance sheet credit exposures not accounted for as loan recievables (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor.

The CECL model requires an entity to estimate credit losses over the life of an asset or off-balance sheet exposure.

The new accounting guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2022. 

Adoption will be applied through a one -time cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.

Management adopted the guidance on January 1, 2023 

and implemented changes to relevant systems as necessary. The Company currently intends to use a blend of multiple economic forecasts to estimate expected credit losses over a six month reasonable forecast period and then revert, over a one year period, to longer term historical loss experience to arrive at lifetime expected credit losses.

The estimated increase in the allowance is primarily due to required increases for commercial real estate, residential, and installment loans to include the requirement to estimate lifetime expected credit losses and the remaining length of time to maturity for these loans.

Additionally, management expects an increase in the allowance for credit losses for unfunded commitments.

While adoption of this ASU is expected to increase the allowance for credit losses, it does not change the overall credit risk in the Company's loan, lease and securities portfolios or the ultimate losses therein.

The transition adjustment to increase the allowance will result in a decrease to shareholders' equity on January 1, 2023, but will not have an impact on the Bank's regulatory capital.

The ultimate impact of the adoption of this ASU on January 1, 2023 was an increase of $ 2.2 million, comprised of increases of $ 895,000 in the allowance for credit losses and $ 1.3 million for the reserve for unfunded commitments.

This represents an increase of 2 and 8 basis points, respectively.

Calculated credit losses on held-to-maturity debt securities were not material and there was no impact to the available for sale portfolio or other financial instruments.

Restrictions on Cash

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(Dollars in thousands)

Treasury Securities

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Collateralized Mortgage Backed

$ 26,801  

$ ( 4,574 )  

$ 22,227  

Subordinated Debt

( 1,143 )  

Municipal Securities

10,675  

( 2,709 )  

22,823  

( 2,658 )  

20,175  

Governmental Agencies

( 36 )  

$ 73,739  

$ ( 11,120 )  

$ 62,631  

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

1 unchanged sentence

(Dollars in thousands)

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Municipal Securities

$ 15,142  

$ ( 237 )  

$ 14,940  

Subordinated Debt

$ 17,642  

$ ( 237 )  

$ 17,440  

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

1 unchanged sentence

(Dollars in thousands)

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Treasury Securities

$ 20,000  

Collateralized Mortgage Backed

31,521  

( 790 )  

30,882  

Subordinated Debt

( 47 )  

Municipal Securities

10,704  

( 160 )  

10,557  

22,978  

( 17 )  

24,143  

Governmental Agencies

( 98 )  

$ 99,648  

$ 1,377  

$ ( 1,112 )  

$ 99,913  

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

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(Dollars in thousands)

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Municipal Securities

$ 17,849  

$ 18,644  

Subordinated Debt

The scheduled maturities of securities available-for-sale and held-to-maturity at December 31, 2021 were as follows:

$ 20,349  

$ 21,144  

The scheduled maturities of securities available-for-sale and held-to-maturity at December 

31, 2021 were as follows:

December 31, 2022

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(Dollars in thousands)

Amortized Cost

Due in one year or less

1 unchanged sentence

Due from after five to ten years

13,056  

11,583  

Due after ten years

Securities with a fair value of $ 410,492 and $ 269,075 at December 31, 2021 and December 31, 2020, respectively, were pledged to secure FHLB advances.

There were no securities sold from the available-for-sale portfolio during the year ended December 31, 2021 and 2020.

59,683  

50,085  

$ 73,739  

$ 62,631  

$ 17,642  

$ 17,440  

Securities with a fair value of $ 3.6 million and $ 410,492  at December 31, 2022 and December 31, 2021 , respectively, were pledged as collateral to secure public funds and loans swaps.

There were no securities sold from the available-for-sale portfolio during the years ended December 31, 2022 and 2021 .

The following tables summarize the fair value and unrealized losses at December 31, 2022 and December 31, 2021 , aggregated by investment category and length of time that individual securities have been in a continuous loss position:

3 unchanged sentences

(Dollars in thousands)

Unrealized Loss

Available-for-sale:

Collateralized Mortgage Backed

$ 2,021  

$ ( 151 )  

$ 20,206  

$ ( 4,423 )  

$ 22,227  

Subordinated Debt

( 393 )  

( 750 )  

Municipal Securities

( 198 )  

( 2,511 )  

11,028  

( 838 )  

( 1,820 )  

18,691  

U.S Governmental Agencies

( 34 )  

$ 19,551  

$ ( 1,582 )  

$ 40,196  

$ ( 9,538 )  

$ 59,747  

Held-to-maturity:

Municipal securities

$ 10,599  

$ ( 237 )  

$ 10,599  

$ ( 237 )  

$ 10,599  

December 31, 2021

2 unchanged sentences

(Dollars in thousands)

Unrealized Loss

Available-for-sale:

Collateralized Mortgage Backed

$ 11,922  

$ ( 215 )  

$ 12,043  

$ ( 575 )  

$ 23,965  

Subordinated Debt

( 47 )  

Municipal Securities

( 63 )  

( 97 )  

( 17 )  

U.S Government Agencies

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.

( 98 )  

$ 24,673  

$ ( 342 )  

$ 20,970  

$ ( 770 )  

$ 45,643  

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, 2021, there were seven collateralized mortgage backed securities with fair values totaling $ 11.9 million, ten municipal securities with a fair value of $ 8.1 million and eleven subordinated debt securities with fair values of $ 4.7 million considered temporarily impaired and in an unrealized loss position of less than 12 months.

At December 31, 2021, there were nine U.S.

government agencies with fair values totaling approximately $ 5.4 million, one collateralized mortgage backed security with a fair value totaling $ 12.0 million and two municipal securities with a fair value of $ 3.5 million that were in an unrealized loss position of more than 12 months.

At December 31, 2022 , there were twelve collateralized mortgage backed securities with fair values totaling $ 2.0 million, twenty-two  municipal securities with a fair value of $ 12.4 million, eight  subordinated debt securities with fair values of $ 3.4 million, and one U.S.

government agency securitiy with a fair value of $ 1.8 million considered temporarily impaired and in an unrealized loss position of less than 12 months.

At December 31, 2022 , there were seven U.S.

government agencies with fair values totaling approximately $ 1.0  million, thirteen  collateralized mortgage backed securities with a fair value totaling $ 20.2 million, thirteen subordinated debt securities with fair values of $ 4.7 million and twenty municipal securities with a fair value of $ 14.3 million that were in an unrealized loss position of more than 12 months.

The Bank does not consider any of the securities in the available for sale portfolio to be other-than-temporarily impaired at December 31, 2022 and December 31, 2021 .

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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, 2021 and December 31, 2020 was $ 29,016 and $ 54,836 , respectively.

The unamortized, unrealized loss, before tax, at December 31, 2022 and December 31, 2021 was $ 8,228  and $ 29,016 , respectively.

Loans Receivable

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(Dollars in thousands)

December 31, 2022

December 31, 2021

Residential Real Estate:

Single family

$ 178,615  

$ 161,362  

215,624  

137,705  

Commercial Real Estate:

Owner-occupied

228,374  

173,086  

Non-owner occupied

472,354  

361,101  

Construction and Land Development

Commercial – Non Real-Estate:

393,783  

337,173  

Commercial –

Non Real-Estate:

Commercial & industrial

Consumer – Non Real Estate:

97,351  

164,014  

Consumer –

Non Real Estate:

11,352  

22,986  

Total Gross Loans

1,599,592  

1,358,935  

unearned fees

unamortized discount on consumer secured loans

( 5,528 )  

allowance for loan losses

The unsecured consumer loans above include $ 185,135 and $ 241,064 of overdrafts reclassified as loans for the years ended December 31, 2021 and December 31, 2020, respectively.

There were no loans held for sale at December 31, 2021.

The Bank held $ 57.0 in commercial real estate loans for sale at December 31, 2020.

The following table presents nonaccrual loans by classes of the loan portfolio as of December 31, 2021 and December 31, 2020:

(Dollars in thousands)

Residential Real Estate:

Single Family

( 14,114 )  

$ 1,579,950  

$ 1,341,760  

The unsecured consumer loans above include $ 2.0 million and $ 185,135 of overdrafts reclassified as loans for the years ended December 31, 2022 and December 31, 2021 , respectively.

There were no nonaccrual loans as of December 31, 2022 and December 31, 2021 .

The following tables present the segments of the loan portfolio summarized by aging categories as of December 31, 2022 and December 31, 2021 :

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(Dollars in thousands)

30-59 Days Past Due  

60-89 Days Past Due  

Greater than 90 Days  

Total Past Due  

Total Loans Receivable  

Residential Real Estate:

Single Family

$ 178,615  

215,624  

Commercial Real Estate:

Owner occupied

228,374  

Non-owner occupied

472,354  

Construction & Land Development

Commercial – Non Real Estate:

393,783  

Commercial –

Non Real Estate:

Commercial & industrial

Consumer – Non Real Estate:

97,336  

97,351  

Consumer –

Non Real Estate:

11,323  

11,352  

$ 1,599,548  

$ 1,599,592  

December 31, 2021

(Dollars in thousands)

30-59 Days Past Due  

60-89 Days Past Due  

Greater than 90 Days  

Total Past Due  

Total Loans Receivable  

Residential Real Estate:

Single Family

$ 161,362  

137,705  

Commercial Real Estate:

Owner occupied

173,086  

Non-owner occupied

361,101  

Construction & Land Development

Commercial – Non Real Estate:

337,173  

Commercial –

Non Real Estate:

Commercial & industrial

Consumer – Non Real Estate:

No loans were modified under the terms of a TDR during the years ended December 31, 2021 and 2020, and there were no loans modified as TDR’s that subsequently defaulted during the years ended December 31, 2021 and 2020 that were modified as TDR’s within the twelve months prior to default.

164,014  

Consumer –

Non Real Estate:

22,915  

22,986  

$ 1,358,864  

$ 1,358,935  

No loans were modified under the terms of a TDR during the years ended December 31, 2022 and 2021 , and there were no loans modified as TDR’s that subsequently defaulted during the years ended December 31, 2022 and 2021 that were modified as TDR’s within the twelve months prior to default.

Allowance for Loan Losses

The following tables summarize the activity in the allowance for loan losses by loan class for the twelve months ended December 31, 2022 and 2021 :

Allowance for Credit Losses By Portfolio Segment

For the twelve months ended December 31, 2021

Allowance  

Credit  

Losses  

Portfolio  

For the 

twelve months ended December 31, 2022

Beginning Balance

$ 1,672  

$ 5,689  

$ 2,697  

$ 1,540  

$ 11,697  

Provision (recovery)

( 74 )  

( 122 )  

Ending Balance

$ 2,146  

$ 7,159  

$ 3,347  

$ 1,418  

$ 14,114  

Ending Balance:

1 unchanged sentence

Collectively evaluated for Impairment

$ 2,146  

$ 7,159  

$ 3,347  

$ 1,418  

$ 14,114  

Allowance for Credit Losses By Portfolio Segment

1 unchanged sentence

Beginning Balance

$ 1,223  

$ 6,552  

$ 3,326  

$ 1,405  

$ 12,877  

( 32 )  

Provision (recovery)

( 863 )  

( 629 )  

( 256 )  

Ending Balance

$ 1,672  

$ 5,689  

$ 2,697  

$ 1,540  

$ 11,697  

Ending Balance:

1 unchanged sentence

Collectively evaluated for Impairment

The Company maintains a general allowance for loan 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.

$ 1,672  

$ 5,689  

$ 2,697  

$ 1,540  

$ 11,697  

These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions.

4 unchanged sentences

(Dollars in thousands)

Ending Balance

Ending Balance:

Individually Evaluated for Impairment

Ending Balance:

Collectively Evaluated for Impairment

Residential Real Estate

$ 394,394  

$ 394,245  

Commercial Real Estate

700,728  

Construction and Land Development

393,783  

Commercial & Industrial

No allowance assigned to the $ 58.3 in PPP loans due to SBA guarantee

97,351  

13,336  

$ 1,599,592  

$ 1,599,443  

December 31, 2021

1 unchanged sentence

(Dollars in thousands)

Ending Balance

Ending Balance:

Individually Evaluated for Impairment

Ending Balance:

Collectively Evaluated for Impairment

Residential Real Estate

$ 300,390  

$ 300,243  

Commercial Real Estate

534,187  

533,111  

Construction and Land Development

337,173  

Commercial & Industrial

No allowance assigned to the $ 135.2 in PPP loans due to SBA guarantee

164,014  

164,006  

23,171  

$ 1,358,935  

$ 1,231  

$ 1,357,704  

The following table summarizes information in regard to impaired loans by loan portfolio class as of December 31, 2022 and December 31, 2021 :

2 unchanged sentences

(Dollars in thousands)

Recorded Investment

Unpaid Principal Balance

Related Allowance

Recorded Investment

Unpaid Principal Balance

Related Allowance

With no related allowance recorded

4 unchanged sentences

Commercial & Industrial

$ 1,231  

The following table presents additional information regarding the impaired loans for the years ended December 31, 2022 and 2021 .

2 unchanged sentences

(Dollars in thousands)

Average Record Investment

Interest Income Recognized

Average Record Investment

Interest Income Recognized

With no related allowance recorded

4 unchanged sentences

Commercial & Industrial

$ 1,321  

No additional funds are committed to be advanced in connection with impaired loans.

There were no nonaccrual loans at December 31, 2022 and December 31, 2021 excluded from the impaired loan disclosure.

Credit quality risk ratings include regulatory classifications of Pass, Watch, Special Mention, Substandard, Doubtful and Loss.

Loans classified as Pass have quality metrics to support that the loan will be repaid according to the terms established.

Credit quality risk ratings include regulatory classifications of Pass, Watch, Special Mention, 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 Special Mention have potential weaknesses that deserve management’s close attention.

If uncorrected, the potential weaknesses may result in deterioration of prospects for repayment.

4 unchanged sentences

Loans not classified are rated pass.

The following tables summarize the aggregate Pass and criticized categories of Watch, Special Mention, Substandard and Doubtful within the Company’s internal risk rating system as of December 31, 2021 and December 31, 2020:

December 31, 2022

(Dollars in thousands)

Special Mention

Residential Real Estate:

Single Family

$ 178,172  

$ 178,615  

215,624  

Commercial Real Estate:

Owner occupied

227,231  

228,374  

Non-owner occupied

439,537  

24,897  

472,354  

Construction & Land Development

Commercial – Non Real Estate:

393,783  

Commercial –

Non Real Estate:

Commercial & industrial

Consumer – Non Real Estate:

97,246  

97,351  

Consumer –

Non Real Estate:

11,352  

$ 1,565,084  

$ 24,994  

$ 9,514  

$ 1,599,592  

December 31, 2021

(Dollars in thousands)

Special Mention

Residential Real Estate:

Single Family

$ 160,234  

$ 161,362  

137,705  

Commercial Real Estate:

Owner occupied

168,352  

173,086  

Non-owner occupied

297,873  

46,379  

15,275  

361,101  

Construction & Land Development

Commercial – Non Real Estate:

317,846  

19,327  

337,173  

Commercial –

Non Real Estate:

Commercial & industrial

Consumer – Non Real Estate:

159,634  

164,014  

Consumer –

Non Real Estate:

22,986  

$ 1,266,138  

$ 70,585  

$ 16,866  

$ 5,346  

$ 1,358,935  

Related Party Transactions

1 unchanged sentence

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.

The aggregate amount of such loans outstanding at December 31, 2021 was approximately $ 642,640 compared to $ 648,806 at December 31, 2020.

During 2021, new loans and line of credit advances to such related parties was approximately $ 50,971 compared to $ 146,025 during 2020.

Repayments on loans to directors and officers were $ 57,137 and $ 357,065 during 2021 and 2020, respectively.

The aggregate amount of such loans outstanding at December 31, 2022 was approximately $ 556,240 compared to $ 642,640  at December 31, 2021 .

During 2022 , new loans and line of credit advances to such related parties was approximately $ 4,900 compared to $ 50,971 during 

Repayments on loans to directors and officers were $ 91,300  and $ 57,137 during 2022 and 2021 , respectively.

The Bank maintains deposit accounts with some of its executive officers, directors and their affiliated entities.

Such deposit accounts at December 31, 2021 and December 31, 2020 amounted to approximately $ 2.3 million and $ 1.4 million, respectively.

Such deposit accounts at December 31, 2022 and December 31, 2021 amounted to approximatel y $ 2.1  million and $ 2.3  million, resp ectively.

Premises and Equipment

1 unchanged sentence

(Dollars in thousands)

$ 13,005  

$ 12,765  

Leasehold improvements

1 unchanged sentence

Computer software and equipment

23,108  

21,842  

Less accumulated depreciation

( 8,399 )  

Construction in progress

Premises and equipment, net

Depreciation and amortization charged to operations were $ 1.2 million and $ 1.1 million during the years ended December 31, 2021 and December 31, 2020, respectively.

$ 14,709  

$ 14,863  

Depreciation and amortization charged to operations were $ 1.3  million and $ 1.2  million during the years ended December 31, 2022 and December 31, 2021 , respectively.

Intangible Assets

The carrying amount of computer software developed was $ 2.5 million and $ 0 at December 31, 2021 and December 31, 2020, respectively.

The following table presents the changes in the carrying amount of computer software developed during the twelve months ended December 31, 2021 .

The carrying amount of computer software developed was $ 9.1 million and $ 2.5  at December 31, 2022 and December 31, 2021 , respectively.

The following table presents the changes in the carrying amount of computer software developed during the years ended December 31, 2022  and 

December 31, 2022

2 unchanged sentences

Gross Carrying Amount

Accumulated Amortization

Gross Carrying Amount

Accumulated Amortization

Amortizable intangible assets:

Computer software

$ 9,149  

$ 2,493  

$ 9,149  

$ 2,493  

The Company is still in the development stage of the computer software where costs are capitalized.

1 unchanged sentence

At that time the intangible asset will be amortized on a straight-line bases over the estimated useful life of the asset.

As of December 31, 2021, the Company has no t recorded any amortization on its intangible computer software.

Time deposits in denominations of $250,000 or more totaled approximately $ 289.7 million and $ 219.0 million at December 31, 2021 and 2020, respectively.

As of December 31, 2022 , the Company has not recorded any amortization on its intangible computer software.

Time deposits in denominations of $250,000 or more totaled approximately $ 374.8  million a nd $ 289.7 million at December 31, 2022 and 2021 , respectively.

At December 31, 2022 , maturities of time deposits are as follows:

(Dollars in thousands)

Brokered deposits, as defined by the FDIC, totaled approximately $ 245.1 million and $ 279.5 million at December 31, 2021 and December 31, 2020, respectively.

Year ended December 31,

$ 516,884  

82,839  

$ 608,141  

Brokered deposits, as defined by the FDIC, totaled approximately $ 317.3 million and $ 245.1  million at December 31, 2022 and December 31, 2021 , respectively.

Borrowed Funds

3 unchanged sentences

The rate of interest charged is based on market conditions.

At December 31, 2021, there were commercial real estate, residential 1-4 and multi-family loans totaling $ 762.3 million were used to collateralize FHLB advances.

There was one security pledged as collateral to secure FHLB advances for the amount of $ 410,492 at December 31, 2021.

The Bank did no t have any FHLB advances at December 31, 2021 or December 31, 2020.

The average balance on FHLB advances for the years ended December 31, 2021 and December 31, 2020 was approximately $ 0 and $ 6.2 million, respectively.

At December 31, 2022 , there were commercial real estate, residential 1 - 4 and multi-family loans totaling $ 1.3 billion were used to collateralize FHLB advances. 

The following summarizes the contractual maturities of long-term FHLB advances at December 31, 2022 . 

(Dollars in thousands)

$ 100,000  

The average balance on FHLB advances for the years ended December 31, 2022 and December 31, 2021 was approximately $ 24.0 million and $ 0 , respectively. The weighted average interest rate paid during the year ended 

December 31, 2022 and 2021 was 1.45 % and 0 %, respectively.

The weighted average interest rate paid at December 31, 2022 and 2021 was 4.31 % and 0 %, respectively.

3 unchanged sentences

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:

1 unchanged sentence

Current expense

Deferred expense (benefit)

$ 7,608  

$ 5,449  

Deferred (benefit)

(894 )  

$ 6,714  

$ 5,785  

Income tax expense for the years ended December 31, 2022 and 2021 differed from the federal statutory rate applied to income before income taxes for the following reasons:

1 unchanged sentence

(Dollars in thousands)

Computed “expected” income tax expense

Computed “expected”

income tax expense

$ 7,012  

$ 5,871  

Increase (decrease)in income taxes resulting from:

Non-deductible expense

Tax exempt Interest

( 200 )  

( 211 )  

Low Income Housing Investment

1 unchanged sentence

Restricted Stock Adjustment

( 119 )  

Federal tax credits

( 472 )  

Other Adjustments

( 63 )  

$ 6,714  

$ 5,785  

The tax effects of temporary differences result in deferred tax assets and liabilities as presented below:

2 unchanged sentences

Allowance for loan losses

$ 3,238  

$ 2,591  

Restricted stock

1 unchanged sentence

Net loan fees

Organizational costs

Right-of-use liability

Accrued compensation

Unrealized losses on securities transferred to held to maturity

Accrued compenation

Unrealized losses on securities available-for-sale

Gross deferred tax assets

3 unchanged sentences

Right-of-use Asset

Internally developed software costs

Gross deferred tax liabilities

Net deferred tax asset

$ 7,551  

$ 4,046  

Earnings Per Common Share

2 unchanged sentences

There were no such potentially dilutive securities outstanding in 2022 or 2021 .

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.

1 unchanged sentence

(Dollars in thousands)

$ 26,674  

$ 22,171  

Preferred stock dividends

( 2,156 )  

Net income available to common shareholders

Weighted average number of shares issued,

basic and diluted

$ 24,518  

$ 20,015  

Weighted average number of shares issued, basic and diluted

7,529,382  

7,559,310  

Net income per common share:

Basic and diluted income available to common shareholders

Basic and diluted income per common share

$ 3.26  

$ 2.65  

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.

2 unchanged sentences

Loan commitments

$ 435,751  

$ 304,335  

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.

1 unchanged sentence

During 2020, the Bank made a commitment of $ 5.0 million to the Housing Equity Fund of Virginia XXIV, L.L.C.

This commitment will be funding through capital calls from the fund and we expect our investment to be fully funded by December 31, 2023.

During 2020, the Bank made a commitment of $ 2.0 million to the Washington Housing Initiative Impact Pool, L.L.C.

This commitment will be funding through capital calls from the fund.

As of December 31, 2021, approximately $ 656,000 have been deployed, with a remaining unfunded balance of approximately $ 1.3 million.

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.

The right-of-use assets and lease liabilities are included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets.

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.

This commitment will be funded through capital calls from the fund and we expect our investment to be fully funded by December 31, 2023.

During 2020,  the Bank made a commitment of $ 2.0 million to the Washington Housing Initiative Impact Pool, LLC.

This commitment will be funded through capital calls from the fund.

As of December 31, 2022 , approximately $ 1.4 million has been deployed, with a remaining unfunded balance of approximately $ 600,000 .

During 2022, the Bank made a commitment of $ 2.0 million to the VCDC Equity Fund 26, LLC. This commitment will be funded through capital calls from the fund and we expect our investment to be fully funded by December 31, 2028.

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.

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.

5 unchanged sentences

Lease liabilities

$ 7,342  

$ 7,753  

Right-of-use assets

Weighted-average remaining lease term – operating leases

Weighted-average discount rate – operating leases

$ 6,688  

$ 7,154  

Weighted-average remaining lease term –

operating leases (in months).

Weighted-average discount rate –

operating leases

2.80 %  

For the year ended December 31,

2 unchanged sentences

Total lease costs

Cash paid for amounts included in measurement of lease

Cash paid for amounts included in measurement of lease liabilities

The Company is the lessor for three operating leases.

2 unchanged sentences

Total rent income on these operating leases is approximately $ 6,000 per month.

As of December 31, 2021, all of the Company’s lease obligations are classified as operating leases.

As of December 31, 2022 , all of the Company’s lease obligations are classified as operating leases.

The Company does not have any finance lease obligations.

3 unchanged sentences

Lease liabilities

$ 7,342  

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.

1 unchanged sentence

The Bank maintains its cash and federal funds sold in correspondent bank deposit accounts.

The amount on deposit at December 31, 2021 exceeded the insurance limits of the Federal Deposit Insurance Corporation by $ 51.2 million.

The amount on deposit at December 31, 2022 exceeded the insurance limits of the Federal Deposit Insurance Corporation by $ 89.1  million.

The Bank has not experienced any losses in such accounts and believes it is not exposed to any significant credit risks.

Regulatory Matters

Information presented for December 31, 2021 and December 31, 2020, 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.

Information presented for December 31, 2022 and December 31, 2021 , reflects the Basel III capital requirements that became effective January 

1, 2015 for the Bank.

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 Company and the Bank on January 1, 2015 (subject to a phase-in period for certain provisions).

banking organizations, became effective for the Company and the Bank on January 

1, 2015 (subject to a phase-in period for certain provisions).

Under the Basel III rules, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios.

The capital conservation buffer was phased in from 0.0 % for 2015 to 2.50 % by 2019.

The capital conservation buffer for 2021 and 2022 is 2.50 %.

1 unchanged sentence

Management believes, as of December 31, 2022 , the Company and the Bank meets all capital adequacy requirements to which it is subject.

The Bank’s actual capital amounts and ratios are presented in the table (dollars in thousands):

Capital Adequacy

To Be Well Capitalized

Under the Prompt

Corrective Action

The Bank’s actual capital amounts and ratios are presented in the table (dollars in thousands):

Capital Adequacy Purposes

To Be Well Capitalized Under the Prompt Corrective Action Provision

(Dollars in thousands)

13 unchanged sentences

The Bank began making a matching contribution to the plan on January 1, 2010.

The Bank matches dollar for dollar up to 3 % of the employee’s contribution and then fifty cents on the dollar on the next two percentage points up to the employee contribution of 5 %.

The total amount the Bank matched during 2021 and 2020 was $ 492,578 and $ 478,960 , respectively.

The Bank matches dollar for dollar up to 3 % of the employee’s contribution and then fifty cents on the dollar on the next two percentage points up to the employee contribution of 5 %.

The total amount the Bank matched during 2022 and 2021 was $ 616,721  and $ 492,578 , respectively.

Stock Based Compensation Plan

ASC Topic 718, Compensation – Stock Compensation, requires the Bank 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, 2021 and December 31, 2020 were $ 1.9 million and $ 1.5 million, respectively.

On July 17, 2019, the Board of Directors of the Bank adopted, and the Bank’s shareholders subsequently approved, the MainStreet Bank 2019 Equity Incentive Plan (the “2019 Plan”), to provide officers, other selected employees and directors of the Bank with additional incentives to promote the growth and performance of the Bank.

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, 2022 and December 31, 2021 were $ 2.5  million and $ 1.9  million, respectively. 

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, 2022 , there were 138,644 restricted shares awarded, 6,989 restricted shares were forfeited, and no stock options were awarded under the 2019 Plan.

The restricted shares awarded during 2022 vest equally on an annual basis over a three, five, or ten year period.

As a result of the stockholders’ approval of the 2019 Plan, no additional awards have been or will be made under the Bank’s 2016 Plan, although all awards that were outstanding under the 2016 Plan as of July 17, 2019 remained outstanding in accordance with their terms.

A summary of the status of the Bank’s nonvested restricted stock shares as of December 31, 2021 and changes during the year ended December 31, 2021 is presented below:

As a result of the stockholders’

approval of the 2019 Plan, no additional awards have been or will be made under the Company’s 2016 Plan, although all awards that were outstanding under the 2016 Plan as of July 17, 2019 remained outstanding in accordance with their terms. 

A summary of the status of the Bank’s nonvested restricted stock shares as of December 31, 2022 and changes during the year ended December 31, 2022 is presented below:

Nonvested Restricted Stock Shares

Average Grant

Date Fair Value

Weighted Average Grant Date Fair Value

Nonvested at January 1, 2022

229,257  

$ 19.33  

138,644  

( 101,876 )  

( 6,989 )  

Nonvested at December 31, 2022

259,036  

$ 22.05  

As of December 31, 2022 , there was $ 3.5 million of total unrecognized compensation cost related to nonvested restricted stock awards.

The cost is expected to be recognized over approximately ten years.

The total fair value of shares vested during the years ended December 31, 2021 and 2020 was $ 1.5 million and $ 1.2 million, respectively.

The total fair value of shares vested during the years ended December 31, 2022 and 2021 w as $ 2.0  million and $ 1.5  million, respectively.

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 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.

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, 2021 and December 31, 2020.

The following tables summarize key elements of the Banks’s derivative instruments as of December 31, 2022 and December 31, 2021 .

December 31, 2022

Customer-related interest rate

Customer-related interest rate contracts

(Dollars in thousands)

Notional Amount

Collateral Pledges  

Matched interest rate swap with borrower

$ 245,717  

$ 23,896  

$ 3,034  

Matched interest rate swap with counterparty

$ 245,717  

$ 23,896  

$ 3,034  

December 31, 2021

Customer-related interest rate

Customer-related interest rate contracts

(Dollars in thousands)

Notional Amount

Collateral Pledges  

Matched interest rate swap with borrower

$ 210,793  

$ 2,097  

$ 15,120  

Matched interest rate swap with counterparty

$ 210,793  

$ 2,097  

$ 15,120  

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, 2021 and 2020 was $ 83,000 and $ 3.5 million, respectively.

Interest rate swap fee income for the twelve months ended December 31, 2022 and 2021 was $ 619,000 and $ 83,000 , respectively.

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.

6 unchanged sentences

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.

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.

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.

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:

4 unchanged sentences

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, 2021, and December 31, 2020, the Bank’s entire portfolio of available for sale securities are considered to be Level 2 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.

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, 2022  and December 31, 2021 , the Bank’s entire portfolio of available for sale securities are considered to be Level 

2 securities, with the exception of one subordintated debt security.

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 

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, 2022 and December 31, 2021 :

2 unchanged sentences

Investment securities available-for-sale:

Treasury Securities

Collateralized Mortgage Backed

$ 22,227  

Subordinated Debt

Municipal Securities

20,175  

Government Agencies

Derivative asset – interest rate swap on loans

Derivative liability – interest rate swap on loans

Derivative asset –

interest rate swap on loans

23,896  

$ 86,277  

$ 86,527  

Derivative liability –

interest rate swap on loans

23,896  

$ 23,896  

December 31, 2021

2 unchanged sentences

Treasury Securities

$ 20,000  

Collateralized Mortgage Backed

30,882  

Subordinated Debt

Municipal Securities

10,557  

24,143  

Government Agencies

Derivative asset – interest rate swap on loans

Derivative liability – interest rate swap on loans

Derivative asset –

interest rate swap on loans

$ 102,010  

Derivative liability –

interest rate swap on loans

$ 2,097  

Reconciliation of Level 3 Inputs

Dollars in thousands

Subordinated Debt

December 31, 2021 fair value

December 31, 2022 fair value

Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP.

7 unchanged sentences

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.

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 ).

2 unchanged sentences

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.

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 

OREO is measured at fair value on a nonrecurring basis.

1 unchanged sentence

Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense on the Statements of Income.

The following table summarizes the value of the Bank’s assets as of December 31, 2021 and December 31, 2020 that were measured at fair value on a nonrecurring basis during the period:

December 31, 2021

(Dollars in thousands)

Other Real Estate Owned

The following table summarizes the value of the Bank’s assets as of 

December 31, 2021 that were measured at fair value on a nonrecurring basis during the period.

The Bank did not have any other real estate owned assets as of December 31, 2022 or impaired loans measured at fair value as of December 31, 2022 or 2021.

December 31, 2021

7 unchanged sentences

Other Real Estate Owned, net

Discount to reflect current market

conditions and estimated selling costs

Discount to reflect current market conditions and estimated selling costs

6 % - 10 %  

Fair Value of Financial Instruments

2 unchanged sentences

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, which the Company adopted on January 1, 2018 on a prospective basis, the Company uses the exit price notion, rather than the entry price notion, in calculation 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 Balance Sheets at fair value.

Additionally, in accordance with ASU 2016 - 01, which the Company adopted on January 

1, 2018 on a prospective basis, the Company uses the exit price notion, rather than the entry price notion, in calculation 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, 2022

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

(Dollars in thousands)

Cash and cash equivalents

$ 130,600  

Restricted equity securities

24,325  

Available for sale

62,631  

Held to maturity

Derivative asset – interest rate swap on loans

17,642  

17,440  

1,579,950  

1,584,533  

Derivative asset –

interest rate swap on loans

23,896  

Bank owned life insurance

37,249  

Accrued interest receivable

$ 1,512,889  

$ 1,503,869  

$ 904,748  

$ 599,121  

Subordinated debt, net

Derivative liability – interest rate swaps on loans

72,245  

64,235  

Advances from the FHLB

100,000  

99,983  

Derivative liability –

interest rate swaps on loans

23,896  

Accrued interest payable

December 31, 2021

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

(Dollars in thousands)

Cash and cash equivalents

$ 93,199  

Restricted equity securities

15,609  

Available for sale

99,913  

Held to maturity

Loans held for sale

Derivative asset – interest rate swap on loans

20,349  

21,144  

1,341,760  

1,346,048  

Derivative asset –

interest rate swap on loans

Bank owned life insurance

36,241  

Accrued interest receivable

$ 1,411,963  

$ 1,415,551  

$ 952,815  

$ 462,736  

Subordinated debt, net

Derivative liability – interest rate swaps on loans

29,294  

29,570  

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 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.

These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision.

3 unchanged sentences

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, 2022 from December 31, 2021 .

Other Real Estate Owned

At December 31, 2021 and 2020, Other Real Estate Owned was $ 775,000 and $ 1.2 million, respectively.

At December 31, 2022 and 2021 , Other Real Estate Owned was $ 0 and $ 775,000 , respectively.

OREO is comprised of non-residential property associated with a commercial relationship and located in Virginia.

2 unchanged sentences

Balance, beginning of year

$ 1,180  

Loss on sale of other real estate owned

Loss on valuation, net

( 70 )  

Sale of other real estate owned

Transfers between loans and other real estate owned

Gain on transfer of real estate

( 701 )  

Balance, end of year

1 unchanged sentence

(Dollars in thousands)

Net loss (gain) on transfer or sale of real estate

Net loss on sales of real estate

Loss on valuation, net

Operating expenses, net of rental income

Operating expenses (income), net of rental income

( 36 )  

Balance, end of year

4 unchanged sentences

Unrealized gain on securities

$ ( 11,108 )  

Unrealized loss on securities transferred to HTM

Securities gains included in net income

Total accumulated other comprehensive income

On September 18, 2019, the Board of Directors of the Company authorized a common stock repurchase program to repurchase up to $ 10.0 million of the Company’s common stock at the discretion of management.

The Company did no t repurchase any of its shares during the year ended December 31, 2019.

On September 15, 2020, the Company issued 1,000,000 depositary shares, each representing a 1/40th interest in a share of the Company’s Fixed Rate Series A Noncumulative Perpetual Preferred Stock , par value $ 1.00 per share, with a liquidation preference of $ 1,000 per share (equivalent to $ 25 per depositary share).

$ ( 8,546 )  

On September 15, 2020, the Company issued 1,000,000 depositary shares, each representing a 1/40th interest in a share of the Company’s Fixed Rate Series A Noncumulative Perpetual Preferred Stock, par value $ 1.00 per share, with a liquidation preference of $ 1,000 per share (equivalent to $ 25 per depositary share).

Dividends will accrue on the depositary shares at a fixed rate equal to 7.50 % per annum.

On September 25, 2020, the Company completed the sale of an additional 150,000 depositary shares, pursuant to the underwriters’ full exercise of their over-allotment option to purchase additional depositary shares.

On October 22, 2020, the Board of Directors of the Company authorized a common stock repurchase program to repurchase up to $ 17.0 million of the Company’s common stock at the discretion of management.

The new common stock repurchase program replaced the Company’s previous repurchase plan which was authorized on September 18, 2019.

On September 25, 2020, the Company completed the sale of an additional 150,000 depositary shares, pursuant to the underwriters’

full exercise of their over-allotment option to purchase additional depositary shares.

The new common stock repurchase program replaced the Company’s previous repurchase plan which was authorized on September 18, 2019.

The Company repurchased approximately $ 12.8 million of common stock during the year ended December 31, 2020 and $ 4.0  million of common stock during the year ended December 31, 2022, under this plan.

The Company did not repurchase any common stock during the year ended December 31, 2021.

On May 18, 2022, the Board of Directors of the Company authorized a common stock repurchase program to repurchase up to $ 7.5 million of the Company’s common stock at the discretion of management.

The new common stock repurchase program replaced the Company’s previous repurchase plan which was authorized on October 22, 2020.

The Company repurchased approximately $ 3.0 million of common stock during the year ended December 31, 2022.

The Company did no t repurchase any common stock during the year ended December 31, 2021.

Subordinated Notes

On December 30, 2016, the Company completed the issuance of $ 14.3 million in aggregate principal amount of fixed-to-floating rate subordinated notes in a private placement transaction to various accredited investors.

During the first quarter 2017, an additional $ 700,000 of subordinated notes was issued for a total issuance of $ 15.0 million.

The net proceeds of the offering supported growth and were used for other general business purposes.

The notes had a maturity date of December 31, 2026 and an annual fixed interest rate of 6.25 % until December 31, 2021.

Thereafter, the notes were to have a floating interest rate based on three-month LIBOR rate plus 425 basis points ( 4.25 %) (computed on the basis of a 360-day year of twelve 30-day months) from and including January 1, 2022 to the maturity date or any early redemption date.

Interest was paid semi-annually, in arrears, on July 1 and January 1 of each year during the time that the notes remain outstanding.

On April 6, 2021, the Company completed the issuance of $ 30.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes in a private placement transaction to various accredited investors.

The net proceeds of the offering are intended to retire the subordinated debt issued in 2016, to support growth and be used for other general business purposes.

The notes have a maturity date of April 15, 2031 and have an annual fixed interest rate of 3.75 % until April 15, 2026.

The notes have a maturity date of 

April 15, 2031 

and have an annual fixed interest rate of 3.75 % until 

April 15, 2026.

Thereafter, the notes will have a floating interest rate based on three -month SOFR rate plus 302 basis points ( 3.02 %) (computed on the basis of a 360 -day year of twelve 30 -day months) from and including April 15, 2026 to the maturity date or any early redemption date.

Interest will be paid semi-annually, in arrears, on April 15 and October 15 of each year during the time that the notes remain outstanding through the fixed interest rate period or earlier redemption date.

Interest will be paid quarterly, in arrears, on April 15, July 15, October 15 and January 15 throughout the floating interest rate period or earlier redemption date .

Interest will be paid quarterly, in arrears, on 

April 15, 

July 15, October 15 and January 15 throughout the floating interest rate period or earlier redemption date.

On March 1, 2022, the Company completed the issuance of $ 43.8 million in aggregate principal amount of fixed-to-floating rate subordinated notes in a private placement transaction to various accredited investors.

The net proceeds of the offering will be used to support growth and for other general business purposes.

The notes have a maturity date of March 15, 2032 and have an annual fixed interest rate of 4.00 % until March 15, 2027.

The notes have a maturity date of 

March 15, 2032 

and have an annual fixed interest rate of 4.00 % until 

March 15, 2027.

Thereafter, the notes will have a floating interest rate based on three -month SOFR rate plus 233 basis points ( 2.33 %) (computed on the basis of a 360 -day year of twelve 30 -day months) from and including March 15, 2027 to the maturity date or any early redemption date.

Interest will be paid semi-annually, in arrears, on March 15 and September 15 of each year during the time that the notes remain outstanding through the fixed interest rate period or earlier redemption date.

Interest will be paid quarterly, in arrears, on March 15, June 15, September 15 and December 15 throughout the floating interest rate period or earlier redemption date.

Interest will be paid quarterly, in arrears, on 

March 15, June 15, September 15 and December 15 throughout the floating interest rate period or earlier redemption date.

Condensed Parent Company Financial Statements

7 unchanged sentences

Cash on deposit with subsidiary

$ 5,077  

Restricted securities, at cost

Investment in subsidiary

263,912  

215,858  

$ 270,543  

$ 218,372  

Other liabilities

Subordinated debt, net of debt issuance costs

Stockholders’ equity

Total Liabilities and Stockholders’ Equity

72,245  

29,294  

Stockholders’

198,282  

188,788  

Total Liabilities and Stockholders’

$ 270,543  

$ 218,372  

Condensed Statement of Income

2 unchanged sentences

Dividends from subsidiary

$ 4,038  

$ 2,156  

Subordinated debt interest expense

2 unchanged sentences

Undistributed earnings of subsidiary

24,797  

21,504  

Net income before income taxes

$ 25,873  

$ 21,776  

Income tax benefit

( 801 )  

$ 26,674  

$ 22,171  

preferred stock dividends

( 2,156 )  

Net income available to common shareholders

$ 24,518  

$ 20,015  

Condensed Statement of Cash Flows

2 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash provided by

operating activities:

$ 26,674  

$ 22,171  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Equity in undistributed earnings of subsidiary

( 24,797 )  

Stock based compensation

2 unchanged sentences

Increase (decrease) in other liabilities

( 274 )  

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of restricted equities

( 1,430 )  

Investment in bank subsidiary

( 32,000 )  

Net cash used in investing activities

( 33,430 )  

CASH FLOWS FROM FINANCING ACTIVITIES:

Repurchase of common stock

Issuance of preferred stock, net

( 6,918 )  

Cash dividends paid on preferred stock

( 2,156 )  

Cash dividend paid on common stock

( 1,882 )  

Net increase in subordinated debt

42,623  

14,237  

Net cash provided by financing activities

NET INCREASE (DECREASE) IN CASH AND CASH

31,667  

12,081  

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS, END OF YEAR

$ 5,077  

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data