MainStreet Bancshares, Inc. 10-K

Item 8. Financial Statements and Supplementary Data     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     To the Stockholders and the Board of Directors MainStreet Bancshares, Inc. Fairfax, Virginia   Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition of MainStreet Bancshares, Inc. and Subsidiary (the Company) as of December 31, 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   54       Item   8 – Financial Statements and Supplementary Data   Consolidated Financial Statements   Consolidated Statements of Financial Condition as of December 31, 2022 and December 31, 2021 (Dollars in thousands, except per share data)       At December 31, 2022     At December 31, 2021   Assets                 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     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     —       775   Accrued interest and other receivables     9,581       7,701   Computer software, net of amortization     9,149       2,493   Bank owned life insurance     37,249       36,241   Other assets     39,915       14,499   Total Assets   $ 1,925,751     $ 1,647,402   Liabilities and Stockholders’ Equity                 Liabilities                 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                 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       27,263   Common stock, $ 4.00 par value, 10,000,000 shares authorized; 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     86,830       64,194   Accumulated other comprehensive income (loss)     ( 8,546 )     197   Total Stockholders’ Equity     198,282       188,788   Total Liabilities and Stockholders’ Equity   $ 1,925,751     $ 1,647,402     See Notes to the Consolidated Financial Statements   55       Consolidated Statements of Income for the Years Ended December 31, 2022 and 2021 (Dollars in thousands, except per share data).       For the Year Ended December 31,       2022     2021   Interest Income                 Interest and fees on loans   $ 78,872     $ 61,743   Interest and dividends on investments securities                 U.S. government agencies and corporations     37       62   Mortgage-backed securities     438       350   Tax-exempt obligations of states and political subdivisions     1,058       1,060   Taxable obligations of states and political subdivisions     254       207   Other     874       643   Interest on federal funds sold     2,312       134   Total Interest Income     83,845       64,199   Interest Expense                 Interest on interest bearing DDA deposits     601       229   Interest on savings and NOW deposits     203       165   Interest on money market deposits     1,547       772   Interest on time deposits     8,202       7,613   Interest on Federal Home Loan Bank advances     347       —   Interest on subordinated debt     2,936       1,884   Total Interest Expense     13,836       10,663   Net Interest Income     70,009       53,536   Provision for (recovery of) loan losses     2,398       ( 1,175 ) Net interest income after provision for (recovery of) loan losses     67,611       54,711   Non-Interest Income                 Deposit account service charges     2,420       2,426   Bank owned life insurance income     1,008       900   Loan swap fee income     619       83   Net gain on held-to-maturity securities     4       6   Net gain (loss) on sale of loans     ( 168 )     847   Other fee income     951       1,848   Total Non-Interest Income     4,834       6,110   Non-Interest Expense                 Salaries and employee benefits     23,801       19,305   Furniture and equipment expenses     2,786       2,468   Advertising and marketing     2,304       1,565   Occupancy expenses     1,471       1,541   Outside services     2,075       1,394   Franchise tax     1,430       1,544   FDIC insurance     637       1,051   Data processing     1,303       1,189   Administrative expenses     872       685   Other real estate expenses, net     38       84   Other operating expenses     2,340       2,039   Total Non-Interest Expense     39,057       32,865   Income before income taxes     33,388       27,956   Income Tax Expense     6,714       5,785   Net Income   $ 26,674     $ 22,171   Preferred Stock Dividends     2,156       2,156   Net Income available to common shareholders   $ 24,518     $ 20,015   Net Income per common share:                 Basic   $ 3.26     $ 2.65   Diluted   $ 3.26     $ 2.65     See Notes to the Consolidated Financial Statements   56       Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022 and 2021 (Dollars in thousands)       For the Year Ended December 31,       2022     2021   Comprehensive Income, net of taxes                 Net Income   $ 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 )     ( 800 ) Add: 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)     16       20   Other comprehensive loss     ( 8,743 )     ( 780 ) Comprehensive Income   $ 17,931     $ 21,391     See Notes to the Consolidated Financial Statements     Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021 (Dollars in thousands).                                       Accumulated Other               Preferred     Common     Capital     Retained     Comprehensive               Stock     Stock     Surplus     Earnings     Income (Loss)     Total   Balance, December 31, 2021   $ 27,263     $ 29,466     $ 67,668     $ 64,194     $ 197     $ 188,788   Vesting of restricted stock     —       407       ( 407 )     —       —       —   Stock based compensation expense     —       —       2,519       —       —       2,519   Common stock repurchased     —       ( 1,137 )     ( 5,781 )     —       —       ( 6,918 ) Dividends on preferred stock - ($ 0.47 per depositary share)     —       —       —       ( 2,156 )     —       ( 2,156 ) Dividends on common stock - ($ 0.25 per share)     —       —       —       ( 1,882 )     —       ( 1,882 ) Net income     —       —       —       26,674       —       26,674   Other comprehensive loss     —       —       —       —       ( 8,743 )     ( 8,743 ) Balance, December 31, 2022   $ 27,263     $ 28,736     $ 63,999     $ 86,830     $ ( 8,546 )   $ 198,282                                         Accumulated Other               Preferred     Common     Capital     Retained     Comprehensive               Stock     Stock     Surplus     Earnings     Income     Total   Balance, December 31, 2020   $ 27,263     $ 29,130     $ 66,116     $ 44,179     $ 977     $ 167,665   Vesting of restricted stock     —       336       ( 336 )     —       —       —   Stock based compensation expense     —       —       1,888       —       —       1,888   Dividends on preferred stock - ($ 0.47 per depositary share)     —       —       —       ( 2,156 )     —       ( 2,156 ) Net income     —       —       —       22,171       —       22,171   Other comprehensive loss     —       —       —       —       ( 780 )     ( 780 ) Balance, December 31, 2021   $ 27,263     $ 29,466     $ 67,668     $ 64,194     $ 197     $ 188,788     See Notes to the Consolidated Financial Statements   57       Consolidated Statements of Cash Flows (Dollars in thousands)   Year Ended December 31,   2022     2021   Cash Flows from Operating Activities                 Net income   $ 26,674     $ 22,171   Adjustments to reconcile net income to net cash provided by operating activities:                 Depreciation, amortization, and accretion, net     2,083       1,893   Amortization of right-of-use assets     496       472   Deferred income tax (benefit)     ( 894 )     336   Loss on sale of other real estate owned     4       40   Loss on valuation of other real estate owned     70       22   Provision for (recovery of) loan losses     2,398       ( 1,175 ) Stock based compensation expense     2,519       1,888   Income from bank owned life insurance     ( 1,008 )     ( 900 ) Subordinated debt amortization expense     328       223   Gain on disposal of premises and equipment     —       ( 57 ) Loss (gain) on loans held for sale     168       ( 847 ) Gain on called held-to-maturity securities     ( 4 )     ( 6 ) Change in:                 Accrued interest receivable and other receivables     ( 1,861 )     1,903   Other assets     ( 22,407 )     8,224   Other liabilities     24,978       ( 5,063 ) Net cash provided by operating activities     33,544       29,124   Cash Flows from Investing Activities                 Activity in available-for-sale securities:                 Payments     6,634       7,635   Maturities, sales, called, refunded     245,000       417,000   Purchases     ( 226,215 )     ( 378,619 ) Activity in held-to-maturity securities:                 Maturities, called, refunded     2,595       2,040   Purchases of equity securities     ( 3,916 )     ( 10,651 ) Purchases of restricted investment in bank stock     ( 9,123 )     ( 758 ) Redemption of restricted investment in bank stock     4,125       332   Net increase in loan portfolio     ( 240,756 )     ( 83,617 ) Proceeds from sale of other real estate owned     701       343   Proceeds from sale of loans     —       31,264   Purchases of bank owned life insurance     —       ( 10,000 ) Proceeds from sale of premises and equipment     —       79   Purchases of premises and equipment     ( 1,125 )     ( 1,806 ) Computer software developed     ( 6,656 )     ( 2,493 ) Net cash used in investing activities     ( 228,736 )     ( 60,515 ) Cash Flows from Financing Activities                 Net increase in non-interest deposits     20,012       160,181   Net increase (decrease) in interest bearing demand, savings, and time deposits     80,914       ( 186,464 ) Net increase in Federal Home Loan Bank advances and other borrowings     100,000       —   Net increase in subordinated debt     42,623       14,237   Repurchase of common stock     ( 6,918 )     —   Cash dividends paid on preferred stock     ( 2,156 )     ( 2,156 ) Cash dividends paid on common stock     ( 1,882 )     —   Net cash provided by (used in) financing activities     232,593       ( 14,202 ) Increase (decrease) in Cash and Cash Equivalents     37,401       ( 45,593 ) Cash and Cash Equivalents, beginning of period     93,199       107,528   Cash and Cash Equivalents, end of period   $ 130,600     $ 93,199   Supplementary Disclosure of Cash Flow Information                 Cash paid during the period for interest   $ 12,639     $ 10,165   Cash paid during the period for income taxes   $ 6,381     $ 6,838   Right of use assets obtained in exchange for new operating lease liabilities   $ —     $ 1,922   Transfers from loans receivable to loans held for sale, at carrying value   $ 715     $ 26,046   Net unrealized loss on securities available-for-sale   $ ( 11,373 )   $ ( 1,023 )   See Notes to the Consolidated Financial Statements   58     MAINSTREET BANCSHARES,   INC. AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements     Note 1. Organization, Basis of Presentation and Impact of Recently Issued Accounting Pronouncements   Organization   MainStreet Bancshares Inc. (the “Company”) is a bank holding company incorporated under the laws of the Commonwealth of Virginia whose principal activity is the ownership and management of MainStreet Bank. On May  18, 2016, the stockholders of MainStreet Bank (the “Bank”) approved a Reorganization Agreement and Plan of Share Exchange (“Reorganization”) whereby the Bank would reorganize into a holding company structure. The Plan of Share Exchange called for each outstanding share of Bank common stock to be automatically converted into and exchanged for one share of the Company’s common stock, and the common stockholders of the Bank would become the common stockholders of the Company on the effective date of the Reorganization. On October 12, 2021, the Company filed an election with the Federal Reserve Board to be a financial holding company in order to engage in a broader range of financial activities than are permitted for bank holding companies generally. The Company is authorized to issue 10,000,000 shares of common stock with a par value of $ 4.00 per share. Additionally, the Company is authorized to issue 2,000,000 shares of preferred stock at a par value $ 1.00 per share. There are currently 28,750 shares of preferred stock outstanding.   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. 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.   MainStreet Bank is headquartered in Fairfax, Virginia where it also operates a branch. The Bank was incorporated on March  28, 2003, and received its charter from the Bureau of Financial Institutions of the Commonwealth of Virginia (the “Bureau”) on March  16, 2004. The Bank commenced regular operations on May  26, 2004, and is supervised by the Bureau and the Federal Reserve Bank of Richmond. The Bank is a member of the Federal Reserve System and the Federal Deposit Insurance Corporation. The Bank places special emphasis on serving the needs of individuals, and small and medium-sized businesses and professionals in the Washington, D.C. metropolitan area.   Basis of Presentation   The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) 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 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.   Debt securities which are not classified as held to maturity or trading are classified as securities available for sale. Debt securities available for sale are reported at fair value. Any unrealized gain or loss, net of applicable income taxes, is reported as a separate addition to or reduction from stockholders’ equity. Gains and losses arising from the sale of debt securities available for sale are recognized based on the specific identification method on a trade-date basis and included in results of operations.   59     Debt securities held to maturity includes securities purchased with the ability and positive intent to hold to maturity. Debt securities are stated at historical cost adjusted for amortization of premiums and accretion of discount. Any investment security, for which there has been a value impairment deemed by management to be other than temporary, is written down to its estimated fair value with a charge to current operations.   Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. 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. 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 $ 4.8  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 . This restricted stock is recorded at cost because its ownership is restricted and it lacks a market for resale. The Bank is required to maintain Federal Reserve Bank stock at a level of 6 % of capital and surplus. The FHLB requires the Bank to maintain stock, at a minimum, in an amount equal to 4.5 % of outstanding borrowings and 0.20 % of total assets. When evaluating restricted stock for impairment, its value is based on ultimate recoverability of the par value rather than by recognizing temporary declines in value. 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 $ 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. 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.   Loans - The Bank makes commercial and consumer loans to customers. Our recorded investment in loans that management has the intent and ability to hold for the foreseeable future, or until maturity or pay-off, generally are reported at their unpaid principal balances adjusted for charge-offs, unearned discounts, any deferred fees or costs on originated loans, and the allowance for loan losses. Interest on loans is credited to operations based on the principal amount outstanding. Loan fees and origination costs are deferred and the net amount is amortized as an adjustment of the related loan’s yield using the effective interest method. The Bank is amortizing these amounts over the contractual life of the related loans.   A loan’s past due status is based on the contractual due date of the most delinquent payment due. All loans which are 30 or more days past due at the end of the month are reported to the Board of Directors. Commercial loans are generally placed on nonaccrual status when the collection of principal or interest is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Consumer loans are generally placed on nonaccrual status when the collection of principal or interest is 120 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Loans greater than 90 days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and interest. For those loans that are carried on nonaccrual status, payments are first applied to principal outstanding. A loan may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the borrower will continue to make payments as agreed. It is Bank policy to charge-off loans whose collectability is sufficiently questionable and can no longer be justified as an asset on the statement of financial condition. To determine if a loan should be charged-off, all possible sources of repayment are 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. All principal and previously accrued interest is charged to the allowance for loan losses. All future payments received on the loan are credited to the allowance for loan losses as a recovery. These policies are applied consistently across our loan portfolio.   Impairment of a loan - The Bank considers a loan impaired when it is probable that the Bank will be unable to collect all interest and principal payments as scheduled in the loan agreement when due. 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.   60     Troubled Debt Restructuring (TDR) occurs when the Bank agrees to modify the original terms of a loan due to the deterioration in the financial condition of the borrower. 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. If a loan was on nonaccrual status at the time of the TDR, the loan will remain on nonaccrual status following the modification and may be returned to accrual status based on the policy for returning loans to accrual status as noted above. Restructured loans for which there was no rate concession, and therefore made at a market rate of interest, may be eligible to be removed from TDR status in periods subsequent to the restructuring depending on the performance of the loan. As of December 31, 2022 , and December 31, 2021 , the Bank had zero loans classified as TDR.      Allowance for Loan Losses - The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. Loan losses are charged against the allowance for loan losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when:     ● Management believes that the collectability of the principal is unlikely regardless of delinquency status.     ● The loan is a consumer loan and is 120 days past due.     ● The loan is a non-consumer loan, unless the loan is well secured and recovery is probable.     ● The borrower is in bankruptcy, unless the debt has been reaffirmed, is well secured and recovery is probable.   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. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The evaluation also considers the following risk characteristics of each loan portfolio segment:     ● Real estate residential mortgage loans, including equity lines of credit, carry risks associated with the continued credit-worthiness of the borrower and the changes in the value of the collateral.     ● Real estate construction loans and land improvement carry risks that the project will not be finished according to schedule, the project will not be finished according to budget and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure unrelated to the project.     ● 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.     ● Commercial and industrial loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because the repayment of these loans may be dependent upon the profitability and cash flows of the business or project. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much precision.     ● Consumer secured loans (indirect lending) carry risks associated with the continued credit-worthiness of the borrower and the value of the collateral (e.g., rapidly-depreciating assets such as automobiles). These risks are attempted to be mitigated by following appropriate loan-to-value standards and an experienced management team for this type of portfolio.   The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired and is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. For collateral dependent loans, an updated appraisal will be ordered if a current one is not on file. Appraisals are performed by independent third -party appraisers with the relevant industry experience. Adjustments to the appraised value may be made based on recent sales of like properties or general market conditions when appropriate. The general component covers non-classified or performing loans and those loans classified as substandard or special mention that are not impaired. The general component is based on historical loss experience adjusted for qualitative factors, such as current economic conditions, including current home sales and foreclosures, unemployment rates and retail sales. Non-impaired classified loans are assigned a higher allowance factor based on an internal migration analysis, which increases with the severity of classification, than non-classified loans. The characteristics of the loan ratings are as follows:     ● 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. When necessary, acceptable personal guarantors support the loan.     ● Watch rated loans have all the characteristics of pass rated loans but show signs of emerging financial weaknesses which the Bank will continue monitoring more closely. Watch rated loans are still performing as agreed.   61       ● 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. The estimated net liquidation value of the collateral pledged and/or ability of the personal guarantor(s) to pay the loan may not adequately protect the Bank. 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. The possibility of loss is extremely high.     ● Loss rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan. 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. 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. The Bank may incur additional write-downs of foreclosed assets to fair value less costs to sell if valuations indicate a further deterioration in market values. 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. The accrual of interest on loans is discontinued when, in the opinion of management, there is an indication that the borrower may be unable to meet payments as they become due. Upon such discontinuance, all unpaid accrued interest is reversed.   Generally, the Bank will return a loan to accrual status when all delinquent interest and principal becomes current and remains current for six consecutive months under the terms of the loan agreement or the loan is well-secured or in process of collection. Upon returning to accrual status, interest payments applied to the principal balance of a loan while in nonaccrual status are recognized as a yield adjustment over the remaining life.   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. The Bank amortizes these net amounts over the life of the related loans or, in the case of demand loans, over the estimated life. 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 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. Leasehold improvements are amortized over the shorter of the related lease term or the estimated useful lives of the improvements. Construction in progress includes assets which will be reclassified and depreciated once placed into service.   Computer software development - The Company capitalizes new product development costs incurred for software to be sold from the point at which technological feasibility has been established through the point at which the product is ready for general availability. Software development costs that are capitalized are evaluated annually for impairment and are assigned an estimated economic life based on the type of product, market characteristics, and maturity of the market for that particular product. These costs are amortized on a straight-line basis. All of this amortization expense is included within components of operating income.   62     Income taxes – The Bank uses an asset and liability approach in financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. The principal items relate primarily to differences between the allowance for loan losses, deferred loan fees, and accumulated depreciation and amortization. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense (benefit) is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.   When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than- not recognition threshold are measured as the largest amount of tax benefit that is more than 50 % likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. As of December 31, 2022 , and December 31, 2021 , there were no such liabilities recorded.   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. 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. That cost will be measured based on the grant date fair value of the equity or liability instruments issued.   The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Sholes model is used to estimate the fair value of stock options, while the market price of the 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, ( 7,529,382 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.   The only potential dilutive stock of the Bank as defined in FASB ASC 260 would be stock options granted to various directors, officers, and employees of the Bank. There were 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 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. 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, 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.   63     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 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.   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. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the company satisfies the performance obligation.   Other Service Charges and Fees.  The Company earns fees from its customers for transaction-based services. Such services include safe deposit box, ATM, stop payment, wire transfer, mortgage origination and interest rate swap fees. In each case, these service charges and fees are recognized in income at the time or within the same period that the Company’s performance obligation is satisfied.   Interchange Income.  The Company earns interchange fees from debit and credit cardholder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services.   64     Impact of Recently Issued Accounting Pronouncements   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. 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. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. 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. 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. An entity may elect to apply ASU No. 2021 - 01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021 - 01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. The Company has inventoried its exposure to instruments that include a reference to LIBOR and have included amendments to transition to an appropriate comparable rate. 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 ): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 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. This ASU incorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases No. 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”. The ASU is effective upon addition to the FASB Codification. The Company does not expect the adoption of ASU 2021 - 06 to have a material impact on its consolidated financial statements.   Recently Adopted Accounting Developments   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.   65       Note 2. Restrictions on Cash   To comply with Federal Reserve regulations, the Bank is required to maintain certain average cash reserve balances. The daily average cash reserve requirements were $ 0 as of December 31, 2022 and December 31, 2021 .   On March 15, 2020, the Federal Reserve reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions. Prior to the change, reserve requirement ratios on net transactions accounts differed based on the amount of net transactions accounts at the depository institution.   A certain amount of net transaction accounts, known as the "reserve requirement exemption amount," was subject to a reserve requirement ratio of zero percent. Net transaction account balances above the reserve requirement exemption amount and up to a specified amount, known as the "low reserve tranche," were subject to a reserve requirement ratio of 3 percent. Net transaction account balances above the low reserve tranche were subject to a reserve requirement ratio of 10 percent. The reserve requirement exemption amount and the low reserve tranche are indexed each year pursuant to formulas specified in the Federal Reserve Act     Note 3. Investment Securities   Investment securities available-for-sale was comprised of the following:       December 31, 2022   (Dollars in thousands)   Amortized Cost     Gross Unrealized Gains     Gross Unrealized Losses     Fair Value   Collateralized Mortgage Backed   $ 26,801     $ —     $ ( 4,574 )   $ 22,227   Subordinated Debt     9,970       —       ( 1,143 )     8,827   Municipal Securities                                 Taxable     10,675       —       ( 2,709 )     7,966   Tax-exempt     22,823       10       ( 2,658 )     20,175   U.S. Governmental Agencies     3,470       2       ( 36 )     3,436   Total   $ 73,739     $ 12     $ ( 11,120 )   $ 62,631     Investment securities held-to-maturity was comprised of the following:       December 31, 2022   (Dollars in thousands)   Amortized Cost     Gross Unrealized Gains     Gross Unrealized Losses     Fair Value   Municipal Securities                                 Tax-exempt   $ 15,142     $ 35     $ ( 237 )   $ 14,940   Subordinated Debt     2,500       —       —       2,500   Total   $ 17,642     $ 35     $ ( 237 )   $ 17,440     66     Investment securities available-for-sale was comprised of the following:       December 31, 2021   (Dollars in thousands)   Amortized Cost     Gross Unrealized Gains     Gross Unrealized Losses     Fair Value   U.S. Treasury Securities   $ 20,000     $ —     $ —     $ 20,000   Collateralized Mortgage Backed     31,521       151       ( 790 )     30,882   Subordinated Debt     8,720       31       ( 47 )     8,704   Municipal Securities                                 Taxable     10,704       13       ( 160 )     10,557   Tax-exempt     22,978       1,182       ( 17 )     24,143   U.S. Governmental Agencies     5,725       —       ( 98 )     5,627   Total   $ 99,648     $ 1,377     $ ( 1,112 )   $ 99,913     Investment securities held-to-maturity was comprised of the following:       December 31, 2021   (Dollars in thousands)   Amortized Cost     Gross Unrealized Gains     Gross Unrealized Losses     Fair Value   Municipal Securities                                 Tax-exempt   $ 17,849     $ 795     $ —     $ 18,644   Subordinated Debt     2,500       —       —       2,500   Total   $ 20,349     $ 795     $ —     $ 21,144     The scheduled maturities of securities available-for-sale and held-to-maturity at December  31, 2021 were as follows:       December 31, 2022       Available-for-Sale     Held-to-Maturity   (Dollars in thousands)   Amortized Cost     Fair Value     Amortized Cost     Fair Value   Due in one year or less   $ —     $ —     $ 264     $ 262   Due from one to five years     1,000       963       1,073       1,073   Due from after five to ten years     13,056       11,583       9,828       9,819   Due after ten years     59,683       50,085       6,477       6,286   Total   $ 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 .   67     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:       December 31, 2022       Less than 12 Months     12 Months or Longer     Total   (Dollars in thousands)   Fair Value     Unrealized Loss     Fair Value     Unrealized Loss     Fair Value     Unrealized Loss   Available-for-sale:                                                 Collateralized Mortgage Backed   $ 2,021     $ ( 151 )   $ 20,206     $ ( 4,423 )   $ 22,227     $ ( 4,574 ) Subordinated Debt     3,357       ( 393 )     4,720       ( 750 )     8,077       ( 1,143 ) Municipal Securities                                                 Taxable     1,377       ( 198 )     6,589       ( 2,511 )     7,966       ( 2,709 ) Tax-exempt     11,028       ( 838 )     7,663       ( 1,820 )     18,691       ( 2,658 ) U.S Governmental Agencies     1,768       ( 2 )     1,018       ( 34 )     2,786       ( 36 ) Total   $ 19,551     $ ( 1,582 )   $ 40,196     $ ( 9,538 )   $ 59,747     $ ( 11,120 ) Held-to-maturity:                                                 Municipal securities                                                 Tax-exempt   $ 10,599     $ ( 237 )   $ —     $ —     $ 10,599     $ ( 237 ) Total   $ 10,599     $ ( 237 )   $ —     $ —     $ 10,599     $ ( 237 )       December 31, 2021       Less than 12 Months     12 Months or Longer     Total   (Dollars in thousands)   Fair Value     Unrealized Loss     Fair Value     Unrealized Loss     Fair Value     Unrealized Loss   Available-for-sale:                                                 Collateralized Mortgage Backed   $ 11,922     $ ( 215 )   $ 12,043     $ ( 575 )   $ 23,965     $ ( 790 ) Subordinated Debt     4,673       ( 47 )     —       —       4,673       ( 47 ) Municipal Securities                                                 Taxable     5,484       ( 63 )     3,482       ( 97 )     8,966       ( 160 ) Tax-exempt     2,594       ( 17 )     —       —       2,594       ( 17 ) U.S Government Agencies     —       —       5,445       ( 98 )     5,445       ( 98 ) Total   $ 24,673     $ ( 342 )   $ 20,970     $ ( 770 )   $ 45,643     $ ( 1,112 )   The factors considered in evaluating securities for impairment include whether the Bank intends to sell the security, whether it is more likely than not that the Bank will be required to sell the security before recovery of its amortized cost basis, and whether the Bank expects to recover the security’s entire amortized cost basis. These unrealized losses are primarily attributable to current financial market conditions for these types of investments, particularly changes in interest rates, causing bond prices to decline, and are not attributable to credit deterioration.   At December 31, 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 . There were no securities sold during 2022 or 2021 .   All municipal securities originally purchased as available for sale were transferred to held to maturity during 2013. The unrealized loss on the securities transferred to held to maturity is being amortized over the expected life of the securities. The unamortized, unrealized loss, before tax, at December 31, 2022 and December 31, 2021 was $ 8,228  and $ 29,016 , respectively.   68       Note 4. Loans Receivable   Loans receivable were comprised of the following:   (Dollars in thousands)   December 31, 2022     December 31, 2021   Residential Real Estate:                 Single family   $ 178,615     $ 161,362   Multifamily     215,624       137,705   Farmland     155       1,323   Commercial Real Estate:                 Owner-occupied     228,374       173,086   Non-owner occupied     472,354       361,101   Construction and Land Development     393,783       337,173   Commercial – Non Real-Estate:                 Commercial & industrial     97,351       164,014   Consumer – Non Real Estate:                 Unsecured     1,984       185   Secured     11,352       22,986   Total Gross Loans     1,599,592       1,358,935   Less: unearned fees     ( 5,528 )     ( 5,478 ) Less: allowance for loan losses     ( 14,114 )     ( 11,697 ) Net Loans   $ 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 .   69     The following tables present the segments of the loan portfolio summarized by aging categories as of December 31, 2022 and December 31, 2021 :       December 31, 2022   (Dollars in thousands)   30-59 Days Past Due     60-89 Days Past Due     Greater than 90 Days     Total Past Due     Current     Total Loans Receivable     Nonaccrual   Residential Real Estate:                                                         Single Family   $ —     $ —     $ —     $ —     $ 178,615     $ 178,615     $ —   Multifamily     —       —       —       —       215,624       215,624       —   Farmland     —       —       —       —       155       155       —   Commercial Real Estate:                                                         Owner occupied     —       —       —       —       228,374       228,374       —   Non-owner occupied     —       —       —       —       472,354       472,354       —   Construction & Land Development     —       —       —       —       393,783       393,783       —   Commercial – Non Real Estate:                                                         Commercial & industrial     —       —       15       15       97,336       97,351       —   Consumer – Non Real Estate:                                                         Unsecured     —       —       —       —       1,984       1,984       —   Secured     11       12       6       29       11,323       11,352       —   Total   $ 11     $ 12     $ 21     $ 44     $ 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     Current     Total Loans Receivable     Nonaccrual   Residential Real Estate:                                                         Single Family   $ —     $ —     $ —     $ —     $ 161,362     $ 161,362     $ —   Multifamily     —       —       —       —       137,705       137,705       —   Farmland     —       —       —       —       1,323       1,323       —   Commercial Real Estate:                                                         Owner occupied     —       —       —       —       173,086       173,086       —   Non-owner occupied     —       —       —       —       361,101       361,101       —   Construction & Land Development     —       —       —       —       337,173       337,173       —   Commercial – Non Real Estate:                                                         Commercial & industrial     —       —       —       —       164,014       164,014       —   Consumer – Non Real Estate:                                                         Unsecured     —       —       —       —       185       185       —   Secured     46       25       —       71       22,915       22,986       —   Total   $ 46     $ 25     $ —     $ 71     $ 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.   70       Note 5. 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, 2022       Real Estate                               Residential     Commercial     Construction     Consumer     Commercial     Total   Beginning Balance   $ 1,672     $ 5,689     $ 2,697     $ 99     $ 1,540     $ 11,697   Recoveries     —       —       —       19       —       19   Provision (recovery)     474       1,470       650       ( 74 )     ( 122 )     2,398   Ending Balance   $ 2,146     $ 7,159     $ 3,347     $ 44     $ 1,418     $ 14,114   Ending Balance:                                                 Individually evaluated for Impairment   $ —     $ —     $ —     $ —     $ —     $ —   Collectively evaluated for Impairment   $ 2,146     $ 7,159     $ 3,347     $ 44     $ 1,418     $ 14,114     Allowance for Credit Losses By Portfolio Segment For the twelve months ended December 31, 2021       Real Estate                               Residential     Commercial     Construction     Consumer     Commercial     Total   Beginning Balance   $ 1,223     $ 6,552     $ 3,326     $ 371     $ 1,405     $ 12,877   Charge-offs     —       —       —       ( 32 )     —       ( 32 ) Recoveries     —       —       —       16     $ 11       27   Provision (recovery)     449       ( 863 )     ( 629 )     ( 256 )     124       ( 1,175 ) Ending Balance   $ 1,672     $ 5,689     $ 2,697     $ 99     $ 1,540     $ 11,697   Ending Balance:                                                 Individually evaluated for Impairment   $ —     $ —     $ —     $ —     $ —     $ —   Collectively evaluated for Impairment   $ 1,672     $ 5,689     $ 2,697     $ 99     $ 1,540     $ 11,697     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. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions. The reserve is an estimate based upon factors and trends identified by management at the time the financial statements are prepared.   The following tables summarize information in regards to the recorded investment in loans receivable by loan class as of December 31, 2022 and December 31, 2021 :   December 31, 2022   Loans Receivable   (Dollars in thousands)   Ending Balance     Ending Balance: Individually Evaluated for Impairment     Ending Balance: Collectively Evaluated for Impairment   Residential Real Estate   $ 394,394     $ 149     $ 394,245   Commercial Real Estate     700,728       —       700,728   Construction and Land Development     393,783       —       393,783   Commercial & Industrial     97,351       —       97,351   Consumer     13,336       —       13,336   Total   $ 1,599,592     $ 149     $ 1,599,443       71     December 31, 2021   Loans Receivable   (Dollars in thousands)   Ending Balance     Ending Balance: Individually Evaluated for Impairment     Ending Balance: Collectively Evaluated for Impairment   Residential Real Estate   $ 300,390     $ 147     $ 300,243   Commercial Real Estate     534,187       1,076       533,111   Construction and Land Development     337,173       —       337,173   Commercial & Industrial     164,014       8       164,006   Consumer     23,171       —       23,171   Total   $ 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 :       December 31, 2022     December 31, 2021   (Dollars in thousands)   Recorded Investment     Unpaid Principal Balance     Related Allowance     Recorded Investment     Unpaid Principal Balance     Related Allowance   With no related allowance recorded                                                 Residential Real Estate:                                                 Single family   $ 149     $ 149     $ —     $ 147     $ 147     $ —   Commercial Real Estate:                                                 Non-Owner Occupied     —       —       —       1,076       1,076       —   Commercial & Industrial     —       —       —       8       8       —   Total   $ 149     $ 149     $ —     $ 1,231     $ 1,231     $ —     The following table presents additional information regarding the impaired loans for the years ended December 31, 2022 and 2021 .       Years Ended       December 31, 2022     December 31, 2021   (Dollars in thousands)   Average Record Investment     Interest Income Recognized     Average Record Investment     Interest Income Recognized   With no related allowance recorded                                 Residential Real Estate:                                 Single family   $ 149     $ 15     $ 209     $ 9   Commercial Real Estate:                                 Non-Owner Occupied     —       —       1,080       65   Commercial & Industrial     —       —       32       2   Total   $ 149     $ 15     $ 1,321     $ 76     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. 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. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.   72     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, 2022 and December 31, 2021 :       December 31, 2022   (Dollars in thousands)   Pass     Watch     Special Mention     Substandard     Doubtful     Total   Residential Real Estate:                                                 Single Family   $ 178,172     $ —     $ —     $ 443     $ —     $ 178,615   Multifamily     215,624       —       —       —       —       215,624   Farmland     155       —       —       —       —       155   Commercial Real Estate:                                                 Owner occupied     227,231       —       —       1,143       —       228,374   Non-owner occupied     439,537       24,897       —       7,920       —       472,354   Construction & Land Development     393,783       —       —       —       —       393,783   Commercial – Non Real Estate:                                                 Commercial & industrial     97,246       97       —       8       —       97,351   Consumer – Non Real Estate:                                                 Unsecured     1,984       —       —       —       —       1,984   Secured     11,352       —       —       —       —       11,352   Total   $ 1,565,084     $ 24,994     $ —     $ 9,514     $ —     $ 1,599,592         December 31, 2021   (Dollars in thousands)   Pass     Watch     Special Mention     Substandard     Doubtful     Total   Residential Real Estate:                                                 Single Family   $ 160,234     $ —     $ 734     $ 394     $ —     $ 161,362   Multifamily     137,705       —       —       —       —       137,705   Farmland     1,323       —       —       —       —       1,323   Commercial Real Estate:                                             —   Owner occupied     168,352       4,734       —       —       —       173,086   Non-owner occupied     297,873       46,379       15,275       1,574       —       361,101   Construction & Land Development     317,846       19,327       —       —       —       337,173   Commercial – Non Real Estate:                                             —   Commercial & industrial     159,634       145       857       3,378       —       164,014   Consumer – Non Real Estate:                                             —   Unsecured     185       —       —       —       —       185   Secured     22,986       —       —       —       —       22,986   Total   $ 1,266,138     $ 70,585     $ 16,866     $ 5,346     $ —     $ 1,358,935       Note 6. Related Party Transactions   The Bank grants loans and letters of credit to its executive officers, directors and their affiliated entities. Such loans are made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated persons, and, in the opinion of management, do not involve more than normal risk or present other unfavorable features.   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  2021 . 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, 2022 and December 31, 2021 amounted to approximatel y $ 2.1  million and $ 2.3  million, resp ectively.   73       Note 7. Premises and Equipment   Premises and equipment are summarized as follows at December 31:   (Dollars in thousands)   2022     2021   Cost                 Building   $ 13,005     $ 12,765   Land     2,856       2,856   Leasehold improvements     1,091       1,083   Furniture, fixtures and equipment     4,300       3,680   Computer software and equipment     1,856       1,458         23,108       21,842   Less accumulated depreciation     ( 8,399 )     ( 7,121 ) Construction in progress     —       142   Premises and equipment, net   $ 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.     Note 8. Intangible Assets   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  2021 .       Years Ended       December 31, 2022     December 31, 2021   (Dollars in thousands)   Gross Carrying Amount     Accumulated Amortization     Gross Carrying Amount     Accumulated Amortization   Amortizable intangible assets:                                 Computer software   $ 9,149     $ —     $ 2,493     $ —   Total   $ 9,149     $ —     $ 2,493     $ —     The Company is still in the development stage of the computer software where costs are capitalized. Capitalization ceases when the software is substantially complete and ready for its intended use. 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, 2022 , the Company has not recorded any amortization on its intangible computer software.     Note 9. Deposits   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)   Year ended December 31,   2023   $ 516,884   2024     82,839   2025     7,244   2026     927   Thereafter     247   Total   $ 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.   74       Note 10. Borrowed Funds   The Bank also has a credit availability agreement with the FHLB based on a percentage of total assets. As of December 31, 2022 , the credit availability with FHLB is approximately $ 365.0 million. This credit availability agreement provides the Bank with access to a myriad of advance products offered by the FHLB. The rate of interest charged is based on market conditions. At December 31, 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)         2023   $ 100,000   Total   $ 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.     Note 11. Income Taxes   The Company files tax returns in the U.S. federal jurisdiction and required states. With few exceptions, the Bank is no longer subject to tax examination by tax authorities for years prior to 2018.   The Commonwealth of Virginia assesses a Bank Franchise Tax on banks instead of a state income tax. The Bank Franchise Tax expense is reported in non-interest expense and the tax’s calculation is unrelated to taxable income.   The provision for income taxes consists of the following components:   (Dollars in thousands)   2022     2021   Current expense   $ 7,608     $ 5,449   Deferred (benefit)     (894 )     336   Total   $ 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:       Year ended December 31,   (Dollars in thousands)   2022     2021   Computed “expected” income tax expense   $ 7,012     $ 5,871   Increase (decrease)in income taxes resulting from:                 Tax exempt Interest     ( 200 )     ( 215 ) BOLI Income     ( 211 )     ( 189 ) Low Income Housing Investment     130       49   State Income Taxes     637       326   Restricted Stock Adjustment     ( 119 )     4   Federal tax credits     ( 472 )     ( 64 ) Other Adjustments     ( 63 )     3   Total   $ 6,714     $ 5,785     75     The tax effects of temporary differences result in deferred tax assets and liabilities as presented below:       December 31,   (Dollars in thousands)   2022     2021   Deferred tax assets:                 Allowance for loan losses   $ 3,238     $ 2,591   Restricted stock     511       373   OREO adjustment     —       96   Net loan fees     1,268       1,214   Right-of-use liability     1,705       1,718   Accrued compenation     403       116   Unrealized losses on securities available-for-sale     2,555       —   Other     42       5   Gross deferred tax assets     9,722       6,113   Deferred tax liabilities:                 Depreciation     378       393   Unrealized gain on securities available-for-sale     —       56   Prepaid expense     11       22   Right-of-use Asset     1,534       1,585   Internally developed software costs     153       —   Other     95       11   Gross deferred tax liabilities     2,171       2,067   Net deferred tax asset   $ 7,551     $ 4,046       N ote 12. Earnings Per Common Share   Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock which then shared in the earnings of the Bank. There were 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.       For the Year Ended December 31,   (Dollars in thousands)   2022     2021   Net income   $ 26,674     $ 22,171   Preferred stock dividends     ( 2,156 )     ( 2,156 ) Net income available to common shareholders   $ 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 per common share   $ 3.26     $ 2.65     76       Note 13. Commitments and Contingencies   The Bank’s financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest risk and liquidity risk. These commitments and contingent liabilities are commitments to extend credit and standby letters of credit.   The amounts of loan commitments and standby letters of credit are set forth in the following table as of December 31, 2022 and 2021 :       December 31,   (Dollars in thousands)   2022     2021   Loan commitments   $ 435,751     $ 304,335   Standby letters of credit   $ —     $ 230     Commitments to extend credit and standby letters of credit all include exposure to some credit loss in the event of nonperformance of the customer. The Bank’s credit policies and procedures for credit commitments and financial guarantees are the same as those for extensions of credit that are recorded on the statements of financial condition. Because these instruments have fixed maturity dates, and because many of them expire without being drawn upon, they do not generally present any significant liquidity risk to the Bank. The Bank has not incurred any losses on commitments in 2022 or 2021 .   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 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.     Note 14. Leases   The right-of-use assets and lease liabilities are included in other assets and other liabilities, respectively, in the Consolidated Statements of Financial Condition.   Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. The incremental borrowing rate was equal to the rate of borrowing from the FHLB that aligned with the term of the lease contract. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.   The Company’s long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably assured of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.   77     Cash paid for amounts included in the measurement of lease liabilities during the twelve months ended December 31, 2022 was $ 623,000 and $ 590,000 for the same period in 2021 . During twelve months ended December 31, 2022 and 2021 , the Company recognized lease expense of $ 677,000 and $ 693,000 , respectively.       As of December 31,   (Dollars in thousands)   2022     2021   Lease liabilities   $ 7,342     $ 7,753   Right-of-use assets   $ 6,688     $ 7,154   Weighted-average remaining lease term – operating leases (in months).     162.9       173.2   Weighted-average discount rate – operating leases     2.80 %     2.81 %       For the year ended December 31,   (Dollars in thousands)   2022     2021   Lease Cost                 Operating lease cost   $ 677     $ 693   Total lease costs   $ 677     $ 693   Cash paid for amounts included in measurement of lease liabilities   $ 623     $ 590     The Company is the lessor for three operating leases. One lease is extended on a month-to-month basis while two of these leases have arrangements for over twelve months with an option to extend the lease terms. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations. Total rent income on these operating leases is approximately $ 6,000 per month.   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.   A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities as of December 31, 2022 is as follows:   (Dollars in thousands)         2023   $ 638   2024     654   2025     671   2026     689   2027     587   Thereafter     5,561   Total undiscounted cash flows     8,800   Discount     ( 1,458 ) Lease liabilities   $ 7,342     78       Note 15. Significant Concentrations of Credit Risk   Substantially all the Bank’s loans, commitments and standby letters of credit have been granted to customers located in the greater Washington, D.C. Metropolitan Area. The concentrations of credit by type of loan are set forth in Note 4.   The Bank maintains its cash and federal funds sold in correspondent bank deposit accounts. The amount on deposit at December 31, 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.     Note 16. Regulatory Matters   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. Under these capital requirements and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk- weightings and other factors.   The Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, became effective for the 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 for 2021 and 2022 is 2.50 %. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of Total capital, Common Equity Tier 1 capital, and Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). 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):       Actual     Capital Adequacy Purposes     To Be Well Capitalized Under the Prompt Corrective Action Provision   (Dollars in thousands)   Amount     Ratio     Amount     Ratio     Amount     Ratio   As of December 31, 2022                                                 Total capital (to risk-weighted assets)     $ 286,572       16.27%       $ 140,929       ≥ 8.0%       $ 176,161       ≥ 10.0%   Common equity tier 1 capital (to risk-weighted assets)     $ 272,458       15.47%       $ 79,272       ≥ 4.5%       $ 114,504       ≥ 6.5%   Tier 1 capital (to risk-weighted assets)     $ 272,458       15.47%       $ 105,696       ≥ 6.0%       $ 140,929       ≥ 8.0%   Tier 1 capital (to average assets)     $ 272,538       15.05%       $ 72,435       ≥ 4.0%       $ 90,544       ≥ 5.0%   As of December 31, 2021                                                 Total capital (to risk-weighted assets)     $ 227,359       16.06%       $ 113,249       ≥ 8.0%       $ 141,562       ≥ 10.0%   Common equity tier 1 capital (to risk-weighted assets)     $ 215,662       15.23%       $ 63,703       ≥ 4.5%       $ 92,015       ≥ 6.5%   Tier 1 capital (to risk-weighted assets)     $ 215,662       15.23%       $ 84,937       ≥ 6.0%       $ 113,249       ≥ 8.0%   Tier 1 capital (to average assets)     $ 215,662       12.90%       $ 66,898       ≥ 4.0%       $ 83,622       ≥ 5.0%       Note  17. Defined Contribution Benefit Plan   The Bank adopted a 401 (k) defined contribution plan on October 1, 2004, which is administered by Principal Investments. Participants have the right to contribute up to a maximum of 15 % of pretax annual compensation or the maximum allowed by the Internal Revenue Code, whichever is less. 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 2022 and 2021 was $ 616,721  and $ 492,578 , respectively.   79       Note 18. Stock Based Compensation Plan   ASC Topic 718, Compensation – Stock Compensation, requires the Company to recognize expense related to the fair value of share-based compensation awards in net income. Total compensation expense for restricted stock recorded for the years ended December 31, 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 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   Shares     Weighted Average Grant Date Fair Value   Nonvested at January 1, 2022     229,257     $ 19.33   Granted     138,644       24.50   Vested     ( 101,876 )     19.31   Forfeited     ( 6,989 )     21.54   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, 2022 and 2021 w as $ 2.0  million and $ 1.5  million, respectively.     Note 19. Derivatives and Risk Management Activities   The Bank uses derivative financial instruments (or “derivatives”) primarily to assist customers with their risk management objectives. The Bank classifies these items as free standing derivatives consisting of customer accommodation interest rate loan swaps (or “interest rate loan swaps”). The Bank enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Bank simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Bank receives a floating rate. These back-to-back interest rate loan swaps qualify as financial derivatives with fair values reported in “Other assets” and “Other liabilities” in the consolidated financial statements. Changes in fair value are recorded in other noninterest expense and net to zero because of the identical amounts and terms of the interest rate loan swaps.   The following tables summarize key elements of the Banks’s derivative instruments as of December 31, 2022 and December 31, 2021 .   December 31, 2022                                         Customer-related interest rate contracts                                         (Dollars in thousands)   Notional Amount     Positions     Assets     Liabilities     Collateral Pledges   Matched interest rate swap with borrower   $ 245,717       44       —     $ 23,896     $ 3,034   Matched interest rate swap with counterparty   $ 245,717       44     $ 23,896       —     $ 3,034     December 31, 2021                                         Customer-related interest rate contracts                                         (Dollars in thousands)   Notional Amount     Positions     Assets     Liabilities     Collateral Pledges   Matched interest rate swap with borrower   $ 210,793       40     $ 2,097       —     $ 15,120   Matched interest rate swap with counterparty   $ 210,793       40       —     $ 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, 2022 and 2021 was $ 619,000 and $ 83,000 , respectively.   80       Note 20. Fair Value Presentation   In accordance with FASB ASC 820, “Fair Value Measurements and Disclosure”, the Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Bank’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.   The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market for the asset or liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is the most representative of fair value under current market conditions.   In accordance with the guidance, a hierarchy of valuation techniques is based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Bank’s market assumptions. The three levels of the fair value hierarchy under FASB ASC 820 based on these two types of inputs are as follows:   Level  1  –Valuation is based on quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.   Level  2  –Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.   Level  3  –Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.   The following describes the valuation techniques used by the Bank to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:   Securities available for sale   Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1 ). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2 ). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level  3 of the valuation hierarchy. As of December 31, 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  2.   81     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 :       December 31, 2022   (Dollars in thousands)   Level 1     Level 2     Level 3     Total   Assets:                                 Investment securities available-for-sale:                                 Collateralized Mortgage Backed   $ —     $ 22,227     $ —     $ 22,227   Subordinated Debt     —       8,577       250       8,827   Municipal Securities                                 Taxable     —       7,966       —       7,966   Tax-exempt     —       20,175       —       20,175   U.S. Government Agencies     —       3,436       —       3,436   Derivative asset – interest rate swap on loans     —       23,896       —       23,896   Total   $ —     $ 86,277     $ 250     $ 86,527   Liabilities:                                 Derivative liability – interest rate swap on loans     —       23,896       —       23,896   Total   $ —     $ 23,896     $ —     $ 23,896         December 31, 2021   (Dollars in thousands)   Level 1     Level 2     Level 3     Total   Assets:                                 Investment securities available-for-sale:                                 U.S. Treasury Securities   $ —     $ 20,000     $ —     $ 20,000   Collateralized Mortgage Backed     —       30,882       —       30,882   Subordinated Debt     —       8,704       —       8,704   Municipal Securities                                 Taxable     —       10,557       —       10,557   Tax-exempt     —       24,143       —       24,143   U.S. Government Agencies     —       5,627       —       5,627   Derivative asset – interest rate swap on loans     —       2,097       —       2,097   Total   $ —     $ 102,010     $ —     $ 102,010   Liabilities:                                 Derivative liability – interest rate swap on loans     —       2,097       —       2,097   Total   $ —     $ 2,097     $ —     $ 2,097         Reconciliation of Level 3 Inputs   Dollars in thousands   Subordinated Debt   December 31, 2021 fair value   $ —   Additions     250   December 31, 2022 fair value   $ 250     Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.   The following describes the valuation techniques used by the Bank to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:   Impaired loans   Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Bank using observable market data (Level 2 ). However, if the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Bank because of marketability, then the fair value is considered Level  3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’ financial statements if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3 ). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Statements of Income.   82     Other real estate owned   Other real estate owned (“OREO”) is measured at fair value less cost to sell, based on an appraisal conducted by an independent, licensed appraiser outside of the Bank. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Bank because of marketability, then the fair value is considered Level  3. OREO is measured at fair value on a nonrecurring basis. Any initial fair value adjustment is charged against the Allowance for Loan Losses. 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 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                 (Dollars in thousands) Level 1 Level 2 Level 3 Total Assets:                 Other Real Estate Owned $ — $ — $ 775 $ 775 Total $ — $ — $ 775 $ 775     The following table presents quantitative information about Level 3 fair value measurements for financial assets measured at fair value on a nonreoccuring basis as of December 31, 2021.         Fair Value Measurements at December 31, 2021   (Dollars in thousands)   Fair Value   Valuation Technique(s) Unobservable Inputs   Range of Inputs   Other Real Estate Owned, net   $ 775   Appraisals Discount to reflect current market conditions and estimated selling costs     6 % - 10 %   Total   $ 775                 Fair Value of Financial Instruments   FASB ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. Additionally, in accordance with ASU 2016 - 01, 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.   83     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   Carrying     Estimated     Quoted Prices in Active Markets for Identical Assets     Significant Other Observable Inputs     Significant Unobservable Inputs   (Dollars in thousands)   Amount     Fair Value     Level 1     Level 2     Level 3   Assets:                                         Cash and cash equivalents   $ 130,600     $ 130,600     $ 130,600     $ —     $ —   Restricted equity securities     24,325       24,325       —       24,325       —   Securities:                                         Available for sale     62,631       62,631       —       62,631       —   Held to maturity     17,642       17,440       —       17,440       —   Loans, net     1,579,950       1,584,533       —       —       1,584,533   Derivative asset – interest rate swap on loans     23,896       23,896       —       23,896       —   Bank owned life insurance     37,249       37,249       —       37,249       —   Accrued interest receivable     8,779       8,779       —       8,779       —   Liabilities:                                         Deposits   $ 1,512,889     $ 1,503,869     $ —     $ 904,748     $ 599,121   Subordinated debt, net     72,245       —       —       64,235       —   Advances from the FHLB     100,000       99,983       —       —       99,983   Derivative liability – interest rate swaps on loans     23,896       23,896       —       23,896       —   Accrued interest payable     896       896       —       896       —     December 31, 2021   Carrying     Estimated     Quoted Prices in Active Markets for Identical Assets     Significant Other Observable Inputs     Significant Unobservable Inputs   (Dollars in thousands)   Amount     Fair Value     Level 1     Level 2     Level 3   Assets:                                         Cash and cash equivalents   $ 93,199     $ 93,199     $ 93,199     $ —     $ —   Restricted equity securities     15,609       15,609       —       15,609       —   Securities:                                         Available for sale     99,913       99,913       —       99,913       —   Held to maturity     20,349       21,144       —       21,144       —   Loans, net     1,341,760       1,346,048       —       —       1,346,048   Derivative asset – interest rate swap on loans     2,097       2,097       —       2,097       —   Bank owned life insurance     36,241       36,241       —       36,241       —   Accrued interest receivable     6,735       6,735       —       6,735       —   Liabilities:                                         Deposits   $ 1,411,963     $ 1,415,551     $ —     $ 952,815     $ 462,736   Subordinated debt, net     29,294       29,570       —       29,570       —   Derivative liability – interest rate swaps on loans     2,097       2,097       —       2,097       —   Accrued interest payable     462       462       —       462       —     Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.   Fair value estimates are based on existing on-balance sheet and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets that are not considered financial assets include deferred income taxes and bank premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.   84     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 .     Note 21. Other Real Estate Owned   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. Changes in the balance for OREO are as follows:   (Dollars in thousands)   2022     2021   Balance, beginning of year   $ 775     $ 1,180   Loss on sale of other real estate owned     ( 4 )     —   Loss on valuation, net     ( 70 )     ( 22 ) Sale of other real estate owned     ( 701 )     ( 383 ) Balance, end of year   $ —     $ 775     Expenses applicable to other real estate owned include the following:   (Dollars in thousands)   2022     2021   Net loss on sales of real estate   $ 4     $ 40   Loss on valuation, net     70       22   Operating expenses (income), net of rental income     ( 36 )     22   Balance, end of year   $ 38     $ 84     As of December 31, 2022 , there were no real estate loans in the process of foreclosure.     Note 22. Accumulated Other Comprehensive Income   The following table presents the cumulative balances of the components of accumulated other comprehensive income net of deferred taxes, as of December 31, 2022 and December 31, 2021 :   (Dollars in thousands)   2022     2021   Unrealized gain on securities   $ ( 11,108 )   $ 265   Unrealized loss on securities transferred to HTM     ( 8 )     ( 29 ) Tax effect     2,570       ( 39 ) Total accumulated other comprehensive income   $ ( 8,546 )   $ 197       Note 23. Capital   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.   85     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. 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.   Note 24. Subordinated Notes   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. 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.   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. 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.   86       Note 25. Condensed Parent Company Financial Statements   Condensed financial statements pertaining only to the Company are presented below. The investment in subsidiary is accounted for using the equity method of accounting.   The payment of dividends by the subsidiary is restricted by various regulatory limitations. Banking regulations also prohibit extensions of credit to the parent company unless appropriately secured by assets.   Condensed Parent Company Only Condensed Balance Sheet (Dollars in thousands)   December 31,   2022     2021   ASSETS                 Cash on deposit with subsidiary   $ 5,077     $ 376   Restricted securities, at cost     1,430       —   Investment in subsidiary     263,912       215,858   Other assets     124       2,138   Total Assets   $ 270,543     $ 218,372   Liabilities:                 Other liabilities   $ 16     $ 290   Subordinated debt, net of debt issuance costs     72,245       29,294   Stockholders’ equity     198,282       188,788   Total Liabilities and Stockholders’ Equity   $ 270,543     $ 218,372     87     Condensed Statement of Income (Dollars in thousands)   For the Year Ended December 31,   2022     2021   Income                 Dividends from subsidiary   $ 4,038     $ 2,156                     Expenses                 Subordinated debt interest expense     2,936       1,884   Non-interest expense     26       —   Total expenses     2,962       1,884                     Undistributed earnings of subsidiary     24,797       21,504   Net income before income taxes   $ 25,873     $ 21,776   Income tax benefit     ( 801 )     ( 395 ) Net income   $ 26,674     $ 22,171   Less: preferred stock dividends     ( 2,156 )     ( 2,156 ) Net income available to common shareholders   $ 24,518     $ 20,015     88     Condensed Statement of Cash Flows (Dollars in thousands)   Year Ended December 31,   2022     2021   CASH FLOWS FROM OPERATING ACTIVITIES:                 Net income   $ 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 )     ( 21,504 ) Stock based compensation     2,519       1,888   Subordinated debt amortization expense     328       223   Decrease (increase) in other assets     2,014       ( 578 ) Increase (decrease) in other liabilities     ( 274 )     ( 159 ) Net cash provided by operating activities     6,464       2,041   CASH FLOWS FROM INVESTING ACTIVITIES:                 Purchase of restricted equities     ( 1,430 )     —   Investment in bank subsidiary     ( 32,000 )     ( 17,500 ) Net cash used in investing activities     ( 33,430 )     ( 17,500 ) CASH FLOWS FROM FINANCING ACTIVITIES:                 Repurchase of common stock     ( 6,918 )     —   Cash dividends paid on preferred stock     ( 2,156 )     ( 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     31,667       12,081   NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     4,701       ( 3,378 ) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR     376       3,754   CASH AND CASH EQUIVALENTS, END OF YEAR   $ 5,077     $ 376     89       Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   None.