MainStreet Bancshares, Inc. 10-Q

main20240930_10q.htm UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to to Commission file number: 001-38817 MainStreet Bancshares, Inc. (Exact Name of Registrant as Specified in Its Charter) Virginia 81-2871064 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 10089 Fairfax Boulevard , Fairfax , VA 22030 (Address of Principal Executive Offices and Zip Code) ( 703 ) 481-4567 (Registrant ’ s Telephone Number, Including Area Code) Not applicable (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act. Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock MNSB The Nasdaq Stock Market LLC Depositary Shares (each representing a 1/40 th interest in a share of 7.50% Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock) MNSBP The Nasdaq Stock Market LLC Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 4, 2024, there were 7,603,265 outstanding shares, par value $4.00 per share, of the issuer’s common stock. INDEX PART I – FINANCIAL INFORMATION 3 Item 1 – Consolidated Financial Statements 3 Notes to Consolidated Financial Statements 8 Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Item 3 – Quantitative and Qualitative Disclosures about Market Risk 48 Item 4 – Controls and Procedures 48 PART II – OTHER INFORMATION 49 Item 1 – Legal Proceedings 49 Item 1A – Risk Factors 49 Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds 49 Item 6 – Exhibits 50 SIGNATURES 51 2 PART I – FINANCIAL INFORMATION Item 1 – Consolidated Financial Statements – Unaudited MAINSTREET BANCSHARES, INC. AND SUBSIDIARY Consolidated Statements of Financial Condition as of September 30, 2024 and December 31, 2023 (Dollars in thousands, except share data) At September 30, 2024 (unaudited) At December 31, 2023 (*) Assets Cash and due from banks $ 40,955 $ 53,581 Federal funds sold 191,159 60,932 Cash and cash equivalents 232,114 114,513 Investment securities available-for-sale, at fair value 58,489 59,928 Investment securities held-to-maturity, at amortized cost, net of allowance for credit losses of $ 0 and $ 0 , respectively. 16,016 17,275 Restricted securities, at amortized cost 26,745 24,356 Loans, net of allowance for credit losses of $ 18,327 and $ 16,506 , respectively 1,775,558 1,705,137 Premises and equipment, net 13,571 13,944 Accrued interest and other receivables 11,077 12,390 Bank owned life insurance 39,203 38,318 Computer software, net of amortization 18,881 14,657 Other assets 32,945 34,914 Total Assets $ 2,224,599 $ 2,035,432 Liabilities and Stockholders’ Equity Liabilities Non-interest bearing demand deposits $ 347,575 $ 364,606 Interest bearing demand deposits 197,527 137,128 Savings and NOW deposits 61,893 45,878 Money market deposits 451,936 442,179 Time deposits 834,738 696,336 Total deposits 1,893,669 1,686,127 Federal funds purchased — 15,000 Subordinated debt, net 72,940 72,642 Allowance for credit losses on off-balance sheet credit exposure 145 1,009 Other liabilities 31,794 39,137 Total Liabilities 1,998,548 1,813,915 Stockholders’ Equity Preferred stock, $ 1.00 par value, 2,000,000 shares authorized; 28,750 shares issued and outstanding at September 30, 2024 and December 31, 2023 27,263 27,263 Common stock, $ 4.00 par value, 10,000,000 shares authorized; issued and outstanding 7,602,783 shares (including 237,286 nonvested shares) at September 30, 2024 and 7,527,415 shares (including 228,300 nonvested shares) at December 31, 2023 29,463 29,198 Capital surplus 67,083 65,985 Retained earnings 108,616 106,549 Accumulated other comprehensive loss ( 6,374 ) ( 7,478 ) Total Stockholders’ Equity 226,051 221,517 Total Liabilities and Stockholders’ Equity $ 2,224,599 $ 2,035,432 * Derived from audited consolidated financial statements. See Notes to the Unaudited Consolidated Financial Statements 3 MAINSTREET BANCSHARES, INC. AND SUBSIDIARY Unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023 (Dollars in thousands, except per share data) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 Interest Income Interest and fees on loans $ 31,615 $ 29,822 $ 93,852 $ 85,530 Interest and dividends on investments securities Mortgage-backed securities 85 108 281 308 Tax-exempt obligations of states and political subdivisions 294 268 832 797 Taxable obligations of states and political subdivisions 64 64 192 192 Other 248 287 789 884 Interest on federal funds sold and interest-bearing deposits 1,285 1,217 3,550 3,528 Total Interest Income 33,591 31,766 99,496 91,239 Interest Expense Interest on interest bearing DDA deposits 2,117 216 6,049 761 Interest on savings and NOW deposits 206 145 553 400 Interest on money market deposits 5,277 4,068 15,911 8,091 Interest on time deposits 9,543 7,516 27,361 18,719 Interest on federal funds purchased 277 35 575 274 Interest on Federal Home Loan Bank advances — 186 46 1,105 Interest on subordinated debt 828 828 2,468 2,460 Total Interest Expense 18,248 12,994 52,963 31,810 Net Interest Income 15,343 18,772 46,533 59,429 Provision For (Recovery of) Credit Losses - Loans 3,125 ( 98 ) 4,220 934 (Recovery of) provision for Credit Losses - Off-Balance Sheet Credit Exposure ( 212 ) 353 ( 864 ) 242 Net Interest Income After Provision For (Recovery of) Credit Losses 12,430 18,517 43,177 58,253 Non-Interest Income Deposit account service charges 557 514 1,516 1,639 Bank owned life insurance income 302 272 885 786 Net loss on securities called — — ( 48 ) — Other fee income 27 105 93 158 Total Non-Interest Income 886 891 2,446 2,583 Non-Interest Expense Salaries and employee benefits 7,250 6,924 22,222 21,139 Furniture and equipment expenses 931 713 2,806 1,983 Advertising and marketing 579 577 1,599 2,072 Occupancy expenses 407 375 1,257 1,287 Outside services 845 697 2,458 1,691 Administrative expenses 215 277 686 703 Other operating expenses 2,992 1,988 7,508 5,404 Total Non-Interest Expense 13,219 11,551 38,536 34,279 Income Before Income Taxes (Benefit) 97 7,857 7,087 26,557 Income Tax Expense (Benefit) ( 168 ) 1,516 900 5,119 Net Income $ 265 $ 6,341 $ 6,187 $ 21,438 Preferred Stock Dividends 539 539 1,617 1,617 Net Income (Loss) Available to Common Shareholders $ ( 274 ) $ 5,802 $ 4,570 $ 19,821 Earnings (Loss) Per Common Share: Basic $ ( 0.04 ) $ 0.77 $ 0.60 $ 2.64 Diluted $ ( 0.04 ) $ 0.77 $ 0.60 $ 2.64 See Notes to the Unaudited Consolidated Financial Statements 4 MAINSTREET BANCSHARES, INC. AND SUBSIDIARY Unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023 (Dollars in thousands) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 Comprehensive Income, net of taxes Net Income $ 265 $ 6,341 $ 6,187 $ 21,438 Other comprehensive income (loss), net of tax expense (benefit): Unrealized gain (loss) on available for sale securities arising during the period (net of tax expense (benefit), $ 498 and ($ 687 ), respectively, for the three months ended September 30, and $ 355 and ($ 687 ), respectively for the nine months ended September 30). 1,669 ( 2,465 ) 1,104 ( 2,268 ) Add: reclassification adjustment for amortization of unrealized losses on securities transferred from available for sale to held to maturity (net of tax, $ 0 and $ 0 , respectively, for the three months ended September 30, and $ 0 and $ 1 , respectively, for the nine months ended September 30). — 2 — 5 Other comprehensive (loss) income 1,669 ( 2,463 ) 1,104 ( 2,263 ) Comprehensive Income $ 1,934 $ 3,878 $ 7,291 $ 19,175 See Notes to the Unaudited Consolidated Financial Statements 5 MAINSTREET BANCSHARES, INC. AND SUBSIDIARY Unaudited Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023 (Dollars in thousands) Accumulated Other Preferred Common Capital Retained Comprehensive Stock Stock Surplus Earnings Income (Loss) Total Balance, June 30, 2024 $ 27,263 $ 29,452 $ 66,392 $ 109,651 $ ( 8,043 ) $ 224,715 Vesting of restricted stock — 11 ( 11 ) — — — Stock based compensation expense — — 702 — — 702 Dividends on preferred stock - ($ 0.47 per depositary share) — — — ( 539 ) — ( 539 ) Dividends on common stock - ($ 0.10 per share) — — — ( 761 ) — ( 761 ) Net income — — — 265 — 265 Other comprehensive income — — — — 1,669 1,669 Balance, September 30, 2024 $ 27,263 $ 29,463 $ 67,083 $ 108,616 $ ( 6,374 ) $ 226,051 Accumulated Other Preferred Common Capital Retained Comprehensive Stock Stock Surplus Earnings Income (Loss) Total Balance, December 31, 2023 $ 27,263 $ 29,198 $ 65,985 $ 106,549 $ ( 7,478 ) $ 221,517 Cumulative change in accounting principle (Note 1) — — — ( 217 ) — ( 217 ) Vesting of restricted stock — 432 ( 432 ) — — — Stock based compensation expense — — 2,082 — — 2,082 Common stock repurchased — ( 167 ) ( 552 ) — — ( 719 ) Dividends on preferred stock - ($ 1.41 per depositary share) — — — ( 1,617 ) — ( 1,617 ) Dividends on common stock - ($ 0.30 per share) — — — ( 2,286 ) — ( 2,286 ) Net income — — — 6,187 — 6,187 Other comprehensive income — — — — 1,104 1,104 Balance, September 30, 2024 $ 27,263 $ 29,463 $ 67,083 $ 108,616 $ ( 6,374 ) $ 226,051 Accumulated Other Preferred Common Capital Retained Comprehensive Stock Stock Surplus Earnings Loss Total Balance, June 30, 2023 $ 27,263 $ 29,177 $ 64,768 $ 97,646 $ ( 8,346 ) $ 210,508 Vesting of restricted stock — 11 ( 11 ) — — — Stock based compensation expense — — 650 — — 650 Dividends on preferred stock - ($ 0.47 per depositary share) — — — ( 539 ) — ( 539 ) Dividends on common stock - ($ 0.10 per share) — — — ( 754 ) — ( 754 ) Net income — — — 6,341 — 6,341 Other comprehensive loss — — — — ( 2,463 ) ( 2,463 ) Balance, September 30, 2023 $ 27,263 $ 29,188 $ 65,407 $ 102,694 $ ( 10,809 ) $ 213,743 Accumulated Other Preferred Common Capital Retained Comprehensive Stock Stock Surplus Earnings Loss Total Balance, December 31, 2022 $ 27,263 $ 28,736 $ 63,999 $ 86,830 $ ( 8,546 ) $ 198,282 Cumulative change in accounting principle — — — ( 1,699 ) — ( 1,699 ) Vesting of restricted stock — 460 ( 460 ) — — — Stock based compensation expense — — 1,903 — — 1,903 Common stock repurchased — ( 8 ) ( 35 ) — — ( 43 ) Dividends on preferred stock - ($ 1.41 per depositary share) — — — ( 1,617 ) — ( 1,617 ) Dividends on common stock - ($ 0.30 per share) — — — ( 2,258 ) — ( 2,258 ) Net income — — — 21,438 — 21,438 Other comprehensive loss — — — — ( 2,263 ) ( 2,263 ) Balance, September 30, 2023 $ 27,263 $ 29,188 $ 65,407 $ 102,694 $ ( 10,809 ) $ 213,743 See Notes to the Unaudited Consolidated Financial Statements 6 MAINSTREET BANCSHARES, INC. AND SUBSIDIARY Unaudited Consolidated Statements of Cash Flows (Dollars in thousands) For the nine months ended September 30, 2024 2023 Cash Flows from Operating Activities Net income $ 6,187 $ 21,438 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization, and accretion, net 2,531 1,684 Amortization of right-of-use assets 376 239 Deferred income tax expense (benefit) ( 38 ) 238 Loss on securities called 48 — Gain on disposal of premises and equipment ( 49 ) ( 129 ) Provision for credit losses, net 3,356 1,176 Stock based compensation expense 2,082 1,903 Income from bank owned life insurance ( 885 ) ( 786 ) Subordinated debt amortization expense 298 298 Loss on New Market Tax Credit investment operations — 176 Change in: Accrued interest receivable and other receivables 1,313 ( 1,597 ) Other assets 222 ( 5,520 ) Other liabilities ( 6,154 ) 7,188 Net cash provided by operating activities 9,287 26,308 Cash Flows from Investing Activities Activity in available-for-sale securities: Payments 2,097 2,666 Calls 945 — Purchases ( 445 ) — Activity in held-to-maturity securities: Calls 1,200 — Purchases of equity securities ( 3,614 ) ( 231 ) Purchases of restricted investment in bank stock ( 1,624 ) ( 5,974 ) Redemption of restricted investment in bank stock 1,425 9,339 Net increase in loan portfolio ( 96,444 ) ( 103,323 ) Proceeds from sale of loans 21,803 — Proceeds from sale of premises and equipment 145 129 Purchase of premises and equipment ( 870 ) ( 490 ) Computer software developed ( 4,224 ) ( 4,224 ) Net cash used in investing activities ( 79,606 ) ( 102,108 ) Cash Flows from Financing Activities Net decrease in non-interest bearing demand deposits ( 17,031 ) ( 155,831 ) Net increase in interest bearing demand, savings, and time deposits 224,573 326,132 Net decrease in Federal Home Loan Bank advances — ( 100,000 ) Net decrease in federal funds purchased ( 15,000 ) — Cash dividends paid on preferred stock ( 1,617 ) ( 1,617 ) Cash dividends paid on common stock ( 2,286 ) ( 2,258 ) Repurchases of common stock ( 719 ) ( 43 ) Net cash provided by financing activities 187,920 66,383 Increase (decrease) in Cash and Cash Equivalents 117,601 ( 9,417 ) Cash and Cash Equivalents, beginning of period 114,513 130,600 Cash and Cash Equivalents, end of period $ 232,114 $ 121,183 Supplementary Disclosure of Cash Flow Information Cash paid during the period for interest $ 52,038 $ 29,581 Cash paid during the period for income taxes $ 1,250 $ 6,180 Net unrealized gain (loss) on securities available-for-sale $ 1,459 $ ( 2,955 ) Net cumulative change in accounting principle $ ( 217 ) $ ( 1,699 ) See Notes to the Unaudited Consolidated Financial Statements 7 MAINSTREET BANCSHARES, INC. AND SUBSIDIARY Notes to Unaudited Consolidated Financial Statements Note 1. Organization, Basis of Presentation and Impact of Recently Issued Accounting Pronouncements Organization MainStreet Bancshares, Inc. (the “Company”) is a financial holding company incorporated under the laws of the Commonwealth of Virginia whose primary activity is the ownership and management of MainStreet Bank (the “Bank”). On October 12, 2021, the Company filed an election with the Federal Reserve Board to be a financial holding company in order to engage in a broader range of financial activities than are permitted for bank holding companies generally. The Company is authorized to issue 15,000,000 shares of common stock with a par value of $ 4.00 per share. Additionally, the Company is authorized to issue 2,000,000 shares of preferred stock at a par value $ 1.00 per share. There are currently 28,750 shares of preferred stock outstanding. The Company is regulated under the Bank Holding Company Act of 1956, as amended (“BHC Act”) and is subject to inspection, examination, and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). On April 18, 2019, the Company completed the registration of its common stock with the Securities Exchange Commission (the “SEC”) through its filing of a General Form for Registration of Securities on Form 10 (“Form 10” ), pursuant to Section 12 (b) of the Securities Exchange Act of 1934. The Company is considered an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act,” and as defined in Section 2 (a) of the Securities Act of 1933, as amended, or the “Securities Act.” We are also a “smaller reporting company” as defined in Exchange Act Rule 12b - 2. As such, we may elect to comply with certain reduced public company reporting requirements in future reports that we file with the SEC. The Company was approved to list shares of our common stock on the Nasdaq Capital Market under our current symbol “MNSB” as of April 22, 2019. We were approved to list depositary shares of preferred stock on the Nasdaq Capital Market under the symbol “MNSBP” as of September 16, 2020. Each depositary share represents a 1/40 th ownership interest in a share of 7.50 % Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock. The Bank is headquartered in Fairfax, Virginia where it also operates a branch. The Bank was incorporated on March 28, 2003, and received its charter from the Bureau of Financial Institutions of the Commonwealth of Virginia (the “Bureau”) on March 16, 2004. The Bank commenced regular operations on May 26, 2004, and is supervised by the Bureau and the Federal Reserve. The Bank is a member of the Federal Reserve System and the Federal Deposit Insurance Corporation. The Bank places special emphasis on serving the needs of retail customers, small and medium-sized businesses and professionals in the Washington, D.C. metropolitan area. In September 2021, MainStreet Bancshares, Inc. established MainStreet Community Capital, LLC, a wholly owned subsidiary, to be a community development entity (“CDE”). This CDE will be an intermediary vehicle for the provision of loans and investments in Low-Income Communities (“LICs”). In January 2022, the Community Development Financial Institutions Fund (“CDFI”) of the United States Department of the Treasury certified MainStreet Community Capital, LLC as a registered CDE. MainStreet Community Capital's primary business objective will be to apply for and receive New Market Tax Credit ("NMTC") allocations that are awarded and distributed annually. On October 25, 2021, MainStreet Bancshares, Inc. formally introduced Avenu, a division of MainStreet Bank. Avenu provides an embedded Banking as a Service (BaaS) solution that connects our partners (fintechs, application developers, money movers, and entrepreneurs) directly and seamlessly to our Software as a Service (SaaS) solution. Our SaaS software program was deployed in October 2024. The Avenu division is classified within our Financial Technology reportable segment outlined in Note 10. Additional information can be found in our investor presentations filed quarterly. Basis of Presentation The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) for interim information and with the instructions to the Quarterly Report on Form 10 -Q, as applicable to a smaller reporting company. Accordingly, they do not include all the information and notes required by US GAAP for complete financial statements. The financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof. The balances as of December 31, 2023 have been derived from the audited consolidated financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto contained in the Form 10 -K filed by the Company with the SEC on March 20, 2024. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 , or any other period. Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from the estimates. 8 The Company’s critical accounting policies relate to ( 1 ) the allowance for credit losses on loans, ( 2 ) fair value of financial instruments, and ( 3 ) derivative financial instruments. These critical accounting policies require the use of estimates, assumptions and judgments which are based on information available as of the date of the financial statements. Accordingly, as this information changes, future financial statements could reflect the use of different estimates, assumptions, and judgments. Certain determinations inherently have a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. In connection with the determination of the allowances for credit losses on loans management obtains independent appraisals for significant properties. Recently Adopted Accounting Developments FASB Accounting Standards Update No. 2023 - 02, Investments - Equity Method and Joint Ventures (Topic 323 ): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ("ASU 2023 - 02" ) On March 29, 2023, the FASB issued ASU 2023 - 02 which amends previous guidance to allow entities to account for qualifying tax equity investments using the proportional amortization method regardless of the program giving rise to the related income tax credits, as opposed to only being allowed to apply this method to qualifying tax equity investments in low-income housing tax credit structures as was the case under previous guidance. ASU 2023 - 02 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. On January 1, 2024, the Company adopted ASU 2023 - 02 using the modified retrospective approach, which did not have a material impact on the Company's financial statements. The Company transitioned from the equity method of accounting and began applying the proportional amortization method of accounting to its qualifying new markets tax credit investments in addition to its low income housing tax credit partnerships already subject to the proportional amortization method. The cumulative change in accounting principle was approximately $ 217,000 . Impact of Recently Issued Accounting Pronouncements In July 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023 - 03, “Presentation of Financial Statements (Topic 205 ), Income Statement—Reporting Comprehensive Income (Topic 220 ), Distinguishing Liabilities from Equity (Topic 480 ), Equity (Topic 505 ), and Compensation—Stock Compensation (Topic 718 )”. This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S- X: Income or Loss Applicable to Common Stock. ASU 2023 - 03 is effective upon addition to the FASB Codification. The Company does not expect the adoption of ASU 2023 - 03 to have a material impact on its consolidated financial statements. In October 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023 - 06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative”. This ASU incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company does not expect the adoption of ASU 2023 - 06 to have a material impact on its consolidated financial statements. In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023 - 07, “Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures.” The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (CODM), an amount for other segment items by reportable segment and a description of its composition, all annual disclosures about a reportable segment profit or loss and assets currently required by FASB ASU Topic 280 in interim periods, and the title and position of the CODM and how the CODM uses the reported measures. Additionally, this ASU requires that at least one of the reported segment profit and loss measures should be the measure that is most consistent with the measurement principles used in an entity’s consolidated financial statements. Lastly, this ASU requires public business entities with a single reportable segment to provide all disclosures required by these amendments in this ASU and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively. The Company does not expect the adoption of ASU 2023 - 07 to have a material impact on its consolidated financial statements. In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023 - 09, “Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. Company does not expect the adoption of ASU 2023 - 09 to have a material impact on its consolidated financial statements. 9 In March 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024 - 02, “Codification Improvements – Amendments to Remove References to the Concepts Statements”. This ASU contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas. This ASU is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively to all new transactions recognized on or after the date that the entity first applies the amendments or retrospectively to the beginning of the earliest comparative period presented in which the amendments were first applied. If an entity adopts the amendments retrospectively, it should adjust the opening balance of retained earnings as of the beginning of the earliest comparative period presented. The Company does not expect the adoption of ASU 2024 - 02 to have a material impact on its consolidated financial statements. In March 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024 - 01, “Compensation – Stock Compensation (Topic 718 ): Scope Application of Profits Interest and Similar Awards”. This ASU provides an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award should be accounted for in accordance with Topic 718. This ASU is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the annual period that includes that interim period. Transition can be done either retrospectively or prospectively. The Company does not expect the adoption of ASU 2024 - 01 to have a material impact on its consolidated financial statements. In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024 - 03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220 - 40 ): Disaggregation of Income Statement Expenses.” ASU 2024 - 03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024 - 03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Implementation of ASU 2024 - 03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024 - 03 to have a material impact on its consolidated financial statements. Note 2. Investment Securities The following tables summarize the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at September 30, 2024 and December 31, 2023 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss. The Company did not record an allowance for credit losses ("ACL") on its securities available-for-sale or held-to-maturity portfolio as of September 30, 2024 and December 31, 2023 . Investment securities available-for-sale was comprised of the following: September 30, 2024 (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Collateralized Mortgage Backed $ 21,712 $ 3 $ ( 3,329 ) $ 18,386 Subordinated Debt 9,470 — ( 1,171 ) 8,299 Preferred Stock 449 — — 449 Municipal Securities: Taxable 10,630 — ( 1,992 ) 8,638 Tax-exempt 22,059 13 ( 1,789 ) 20,283 U.S. Governmental Agencies 2,447 10 ( 23 ) 2,434 Total $ 66,767 $ 26 $ ( 8,304 ) $ 58,489 10 Investment securities held-to-maturity was comprised of the following: September 30, 2024 (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Municipal Securities: Tax-exempt $ 13,516 $ 8 $ ( 82 ) $ 13,442 Subordinated Debt 2,500 — ( 15 ) 2,485 Total $ 16,016 $ 8 $ ( 97 ) $ 15,927 Investment securities available-for-sale was comprised of the following: December 31, 2023 (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Collateralized Mortgage Backed $ 23,446 $ — $ ( 3,931 ) $ 19,515 Subordinated Debt 9,970 — ( 1,503 ) 8,467 Municipal Securities: Taxable 10,649 — ( 2,342 ) 8,307 Tax-exempt 22,668 23 ( 1,949 ) 20,742 U.S. Governmental Agencies 2,932 3 ( 38 ) 2,897 Total $ 69,665 $ 26 $ ( 9,763 ) $ 59,928 Investment securities held-to-maturity was comprised of the following: December 31, 2023 (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Municipal Securities: Tax-exempt $ 14,775 $ 19 $ ( 121 ) $ 14,673 Subordinated Debt 2,500 — ( 10 ) 2,490 Total $ 17,275 $ 19 $ ( 131 ) $ 17,163 11 Credit Quality Indicators and Allowance for Credit Losses - HTM For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis. The Company estimates expected credit losses on HTM debt securities on an individual basis using security-level credit ratings. The Company’s HTM securities ACL was immaterial at September 30, 2024 and December 31, 2023 . The primary indicators of credit quality for the Company’s HTM portfolio are security type and credit rating, which is influenced by a number of factors including obligor cash flow, geography, seniority, and others. The majority of the Company’s HTM securities with credit risk are obligations of states and political subdivisions. The following table presents the amortized cost of HTM securities as of September 30, 2024 and December 31, 2023 by security type and credit rating: (Dollars in thousands) Municipal Securities Subordinated Debt Total HTM securities September 30, 2024 Credit Rating: AAA/AA/A $ 13,516 $ — $ 13,516 Not Rated - Non Agency — 2,500 2,500 Total $ 13,516 $ 2,500 $ 16,016 December 31, 2023 Credit Rating: AAA/AA/A $ 14,775 $ — $ 14,775 Not Rated - Non Agency — 2,500 2,500 Total $ 14,775 $ 2,500 $ 17,275 As of September 30, 2024 and December 31, 2023 , the Company had no securities held-to-maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held-to-maturity classified as nonaccrual as of September 30, 2024 and December 31, 2023 . The scheduled maturities of securities available-for-sale and held-to-maturity at September 30, 2024 were as follows: September 30, 2024 Available-for-Sale Held-to-Maturity (Dollars in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ — $ — $ 689 $ 688 Due from one to five years 1,000 993 3,517 3,502 Due from after five to ten years 13,811 12,390 5,942 5,922 Due after ten years 51,956 45,106 5,868 5,815 Total $ 66,767 $ 58,489 $ 16,016 $ 15,927 12 The scheduled maturities of securities available-for-sale and held-to-maturity at December 31, 2023 were as follows: December 31, 2023 Available-for-Sale Held-to-Maturity (Dollars in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ — $ — $ 318 $ 315 Due from one to five years 1,000 976 3,325 3,314 Due from after five to ten years 14,054 12,222 7,218 7,188 Due after ten years 54,611 46,730 6,414 6,346 Total $ 69,665 $ 59,928 $ 17,275 $ 17,163 Securities with a fair value of $ 399,000 and $ 16.1 million were pledged at September 30, 2024 and December 31, 2023 , respectively. As the Federal Reserve Bank ended its Bank Term Funding Program, the Company no longer continued to pledge eligible securities. The Company did not need to utilize this program as its liquidity position remains strong. The following tables summarize the unrealized loss positions of securities available-for-sale as of September 30, 2024 and December 31, 2023 : September 30, 2024 Less than 12 Months 12 Months or Longer Total (Dollars in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Available-for-sale: Collateralized Mortgage Backed $ — $ — $ 18,292 $ ( 3,329 ) $ 18,292 $ ( 3,329 ) Subordinated Debt 216 ( 34 ) 7,583 ( 1,137 ) 7,799 ( 1,171 ) Municipal securities: Taxable — — 8,638 ( 1,992 ) 8,638 ( 1,992 ) Tax-exempt 241 — 16,965 ( 1,789 ) 17,206 ( 1,789 ) U.S. Governmental Agencies — — 636 ( 23 ) 636 ( 23 ) Total $ 457 $ ( 34 ) $ 52,114 $ ( 8,270 ) $ 52,571 $ ( 8,304 ) December 31, 2023 Less than 12 Months 12 Months or Longer Total (Dollars in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Available-for-sale: Collateralized Mortgage Backed $ — $ — $ 19,440 $ ( 3,931 ) $ 19,440 $ ( 3,931 ) Subordinated Debt — — 7,717 ( 1,503 ) 7,717 ( 1,503 ) Municipal Securities: Taxable — — 8,307 ( 2,342 ) 8,307 ( 2,342 ) Tax-exempt 1,986 ( 34 ) 16,510 ( 1,915 ) 18,496 ( 1,949 ) U.S. Government Agencies 1,515 ( 1 ) 845 ( 37 ) 2,360 ( 38 ) Total $ 3,501 $ ( 35 ) $ 52,819 $ ( 9,728 ) $ 56,320 $ ( 9,763 ) Unrealized losses on each of the major categories of securities have not been recognized into income because all the securities are of high credit quality (rated A or higher, if rated). Management does not intend to sell and it is unlikely management will be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the securities. The fair value is expected to recover as the securities approach maturity. The following description provides the number of investment positions in an unrealized loss position and approximate duration of that loss position. At September 30, 2024 , there were twenty-two collateralized mortgage backed securities with fair values totaling $ 18.3 million in an unrealized loss position of more than 12 months. At September 30, 2024 , there was one subordinated debt security totaling $ 216,000 in an unrealized loss position of less than 12 months and twenty-one securities with a fair value totaling $ 7.6 million in an unrealized loss position of more than 12 months. At September 30, 2024 , there was one tax-exempt municipal securities with a fair value totaling approximately $ 241,000 in an unrealized loss position of less than 12 months and twenty-seven securities with fair values totaling $ 17.0 million in an unrealized loss position of more than 12 months. At September 30, 2024 , there were eleven taxable municipal securities with fair values totaling $ 8.6 million in an unrealized loss position of more than 12 months. At September 30, 2024 , there were six government agency securities with a fair value of approximately $ 636,000 in an unrealized loss position of more than 12 months. The Company periodically invests in New Market Tax Credit opportunities, related primarily to certain community development projects. The Company receives tax credits related to these investments, for which the Company typically acts as a limited partner and therefore does not exert control over the operating or financial policies of the partnerships. These tax credits are subject to recapture by taxing authorities based on compliance features required to be met at the project level. On January 1, 2024, the Company transitioned from the equity method of accounting and began applying the proportional amortization method of accounting to its qualifying new markets tax credit investments in addition to its low income housing tax credit partnerships already subject to the proportional amortization method. 13 Note 3. Loans Receivable Loans receivable were comprised of the following: (Dollars in thousands) September 30, 2024 December 31, 2023 Residential Real Estate: Single family $ 200,870 $ 203,417 Multifamily 244,988 271,040 Farmland 251 145 Commercial Real Estate: Owner-occupied 350,924 282,052 Non-owner occupied 520,356 461,775 Construction and Land Development 373,486 429,637 Commercial – Non Real Estate: Commercial & Industrial 106,249 75,415 Consumer – Non Real Estate: Unsecured 413 271 Secured 1,564 3,339 Total Gross Loans 1,799,101 1,727,091 Less: unearned fees, net ( 5,216 ) ( 5,448 ) Less: allowance for credit losses - loans ( 18,327 ) ( 16,506 ) Net Loans $ 1,775,558 $ 1,705,137 The unsecured consumer loans above include $ 413,000 and $ 271,000 of overdrafts reclassified as loans at September 30, 2024 and December 31, 2023 , respectively. 14 The following tables present the amortized cost basis by segments of the loan portfolio summarized by aging categories as of September 30, 2024 and December 31, 2023 : September 30, 2024 (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Past Due and Still Accruing Nonaccrual Current Total Loans Receivable Residential Real Estate: Single family $ — $ — $ — $ 1,910 $ 198,960 $ 200,870 Multifamily — — — — 244,988 244,988 Farmland — — — — 251 251 Commercial Real Estate: Owner-occupied — — — — 350,924 350,924 Non-owner occupied — — — 11,900 508,456 520,356 Construction and Land Development 10,891 — — 13,331 349,264 373,486 Commercial – Non Real Estate: Commercial & Industrial — — — 1,123 105,126 106,249 Consumer – Non Real Estate: Unsecured — — — — 413 413 Secured 23 — — — 1,541 1,564 Total $ 10,914 $ — $ — $ 28,264 $ 1,759,923 $ 1,799,101 December 31, 2023 (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Past Due and Still Accruing Nonaccrual Current Total Loans Receivable Residential Real Estate: Single family $ — $ — $ — $ 149 $ 203,268 $ 203,417 Multifamily — — — — 271,040 271,040 Farmland — — — — 145 145 Commercial Real Estate: Owner-occupied — — — — 282,052 282,052 Non-owner occupied — — — — 461,775 461,775 Construction and Land Development — — — — 429,637 429,637 Commercial – Non Real Estate: Commercial & Industrial — — — 851 74,564 75,415 Consumer – Non Real Estate: Unsecured — — — — 271 271 Secured 25 — 4 — 3,310 3,339 Total $ 25 $ — $ 4 $ 1,000 $ 1,726,062 $ 1,727,091 The following tables summarize the activity in the allowance for credit losses on loans by loan class for the three and nine months ended September 30, 2024 and 2023 . 15 Allowance for Credit Losses By Portfolio Segment Real Estate For the three months ended September 30, 2024 Residential Commercial Construction Commercial Consumer Total (Dollars in thousands) Beginning Balance $ 2,453 $ 9,944 $ 3,564 $ 1,123 $ 14 $ 17,098 Charge-offs — — ( 1,903 ) ( 4 ) — ( 1,907 ) Recoveries — — — 10 1 11 Provision for (recovery of) credit losses 62 666 2,354 46 ( 3 ) 3,125 Ending Balance $ 2,515 $ 10,610 $ 4,015 $ 1,175 $ 12 $ 18,327 For the nine months ended September 30, 2024 Beginning Balance $ 2,594 $ 8,888 $ 3,575 $ 1,435 $ 14 $ 16,506 Charge-offs ( 132 ) — ( 2,273 ) ( 4 ) ( 9 ) ( 2,418 ) Recoveries — — — 10 9 19 Provision for (recovery of) credit losses 53 1,722 2,713 ( 266 ) ( 2 ) 4,220 Ending Balance $ 2,515 $ 10,610 $ 4,015 $ 1,175 $ 12 $ 18,327 Real Estate For the three months ended September 30, 2023 Residential Commercial Construction Commercial Consumer Total (Dollars in thousands) Beginning Balance $ 2,325 $ 8,184 $ 3,600 $ 1,919 $ 19 $ 16,047 Charge-offs — — — ( 324 ) — ( 324 ) Recoveries — — — — 1 1 Provision for (recovery of) credit losses 200 74 ( 14 ) ( 360 ) 2 ( 98 ) Ending Balance $ 2,525 $ 8,258 $ 3,586 $ 1,235 $ 22 $ 15,626 For the nine months ended September 30, 2023 Beginning Balance $ 2,146 $ 7,159 $ 3,347 $ 1,418 $ 44 $ 14,114 Impact of adopting ASC 326 59 614 19 172 31 895 Charge-offs — — — ( 325 ) ( 6 ) ( 331 ) Recoveries 8 — — — 6 14 Provision for (recovery of) credit losses 312 485 220 ( 30 ) ( 53 ) 934 Ending Balance $ 2,525 $ 8,258 $ 3,586 $ 1,235 $ 22 $ 15,626 16 The following table is a summary of the Company's nonaccrual loans by major categories for the periods indicated. September 30, 2024 (Dollars in thousands) Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Residential Real Estate: Single family $ 1,902 $ 8 $ 1,910 Construction and Land Development 13,292 39 13,331 Commercial Real Estate: Non owner-occupied 11,900 — 11,900 Commercial and Industrial 1,123 — 1,123 Total $ 28,217 $ 47 $ 28,264 December 31, 2023 (Dollars in thousands) Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Residential Real Estate: Single family $ 149 $ — $ 149 Commercial and Industrial 851 — 851 Total $ 1,000 $ — $ 1,000 The following table represents the accrued interest receivables written off by reversing interest income during the three and nine months ended September 30, 2024 . The Company did not write off accrued interest receivables during the three and nine months ended September 30, 2023 . For the three months ended September 30, 2024 (Dollars in thousands) Residential Real Estate: Single family $ 33 Multifamily 165 Construction and Land Development 249 Commercial Real Estate: Non owner-occupied 480 Commercial and Industrial 57 Total $ 984 For the nine months ended September 30, 2024 (Dollars in thousands) Residential Real Estate: Single family $ 103 Multifamily 176 Construction and Land Development 965 Commercial Real Estate: Non owner-occupied 480 Commercial and Industrial 124 Total $ 1,848 The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans: ● Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage. Home equity lines of credit are generally secured by second mortgages on residential real estate property. ● Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate. ● Construction loans are typically secured by owner-occupied commercial real estate or non-owner occupied investment real estate. Typically, owner-occupied construction loans are secured by office buildings, warehouses, manufacturing facilities, and other commercial and industrial properties that are in process of construction. Non-owner occupied commercial construction loans are generally secured by office buildings and complexes, multi-family complexes, land under development, and other commercial and industrial real estate in process of construction. ● Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral ● Commercial and industrial loans are generally secured by equipment, inventory, accounts receivable, and other commercial property. The following table details the amortized cost of collateral dependent loans for the periods indicated: (Dollars in thousands) September 30, 2024 Residential Real Estate: Single family $ 1,910 Commercial Real Estate: Non owner-occupied 11,900 Construction and Land Development 13,331 Commercial and Industrial 1,123 Total $ 28,264 (Dollars in thousands) December 31, 2023 Residential Real Estate: Single family $ 346 Commercial Real Estate: Owner occupied 1,120 Commercial and industrial 851 Total $ 2,317 As of September 30, 2024 , there were no loans in the process of foreclosure. 17 The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a weighted average remaining life model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. The following table shows the amortized cost basis of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of loans and type of concession granted and describes the financial effect of the modifications made to borrowers experiencing financial difficulty during the nine months ended September 30, 2024 . The Company did not modify any loans to borrowers experiencing financial difficulty during the three months ended September 30, 2024 . The Company did not modify any loans to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023 . Term Extension (Dollars in thousands) Amortized Cost Basis % of Total Loan Type Financial Effect Residential Real Estate: Single family $ 364 0.2 % Deferred loan payment for three months Construction and Land Development 24,684 6.6 % Extended term on interest only payments for six months; Extended amortization for five years Commercial & Industrial 743 0.7 % Extended term on interest only payments for three months Total $ 25,791 The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Credit quality risk ratings include regulatory classifications of Pass, 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 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, based on current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for credit losses. Loans not classified are rated pass. 18 The following tables summarize the amortized cost basis by aggregate Pass and categories of Special Mention (Criticized) and Substandard (Classified) within the Company’s internal risk rating system by year of origination as of September 30, 2024 and December 31, 2023 . The following tables also summarize gross charge-offs, by year of origination as of and for the nine months ended September 30, 2024 and as of and for the year ended December 31, 2023 . Term Loans Amortized Cost Basis by Origination Year September 30, 2024 (Dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Loans converted to term Total Residential Real Estate - Single family Pass $ 10,536 $ 45,758 $ 17,896 $ 22,006 $ 34,750 $ 32,467 $ 28,052 $ — $ 191,465 Criticized — — 395 2,746 — — — — 3,141 Classified 200 — — 3,530 2,094 — 440 — 6,264 Total Residential Real Estate - Single family $ 10,736 $ 45,758 $ 18,291 $ 28,282 $ 36,844 $ 32,467 $ 28,492 $ — $ 200,870 Current period gross charge-offs $ — $ — $ — $ — $ — $ 132 $ — $ — $ 132 Residential Real Estate - Multifamily Pass $ 5,689 $ 5,328 $ 48,854 $ 51,289 $ 38,508 $ 43,980 $ 21,259 $ — $ 214,907 Criticized — 26,250 — — 606 — — — 26,856 Classified — — — 3,225 — — — — 3,225 Total Residential Real Estate - Multifamily $ 5,689 $ 31,578 $ 48,854 $ 54,514 $ 39,114 $ 43,980 $ 21,259 $ — $ 244,988 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Residential Real Estate - Farmland Pass $ 114 $ — $ — $ — $ — $ 137 $ — $ — $ 251 Criticized — — — — — — — — — Classified — — — — — — — — — Total Residential Real Estate - Farmland $ 114 $ — $ — $ — $ — $ 137 $ — $ — $ 251 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial Real Estate - Owner-occupied Pass $ 16,340 $ 69,921 $ 80,536 $ 41,482 $ 38,741 $ 80,251 $ 23,653 $ — $ 350,924 Criticized — — — — — — — — — Classified — — — — — — — — — Total Commercial Real Estate - Owner occupied $ 16,340 $ 69,921 $ 80,536 $ 41,482 $ 38,741 $ 80,251 $ 23,653 $ — $ 350,924 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial Real Estate - Non-owner occupied Pass $ 32,761 $ 9,758 $ 156,715 $ 51,315 $ 46,376 $ 156,405 $ 39,020 $ — $ 492,350 Criticized — — — — 15,766 — — — 15,766 Classified — 11,900 — — 340 — — — 12,240 Total Commercial Real Estate - Non-owner occupied $ 32,761 $ 21,658 $ 156,715 $ 51,315 $ 62,482 $ 156,405 $ 39,020 $ — $ 520,356 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Construction and Land Development Pass $ 1,957 $ 5,616 $ 20,859 $ 8,400 $ 721 $ 7,647 $ 278,021 $ — $ 323,221 Criticized — — — — — — — — — Classified — — — 1,985 1,213 — 47,067 — 50,265 Total Construction and Land Development $ 1,957 $ 5,616 $ 20,859 $ 10,385 $ 1,934 $ 7,647 $ 325,088 $ — $ 373,486 Current period gross charge-offs $ — $ 289 $ — $ 259 $ 1,725 $ — $ — $ — $ 2,273 Commercial and Industrial Pass $ 28,712 $ 7,879 $ 8,304 $ 5,411 $ 2,387 $ 8,282 $ 39,657 $ — $ 100,632 Criticized — — — — — — — — — Classified 330 — — 371 — 1,669 3,247 — 5,617 Total Commercial and Industrial $ 29,042 $ 7,879 $ 8,304 $ 5,782 $ 2,387 $ 9,951 $ 42,904 $ — $ 106,249 Current period gross charge-offs $ — $ — $ — $ — $ — $ 4 $ — $ — $ 4 Consumer - Unsecured Pass $ — $ — $ — $ — $ — $ — $ 413 $ — $ 413 Criticized — — — — — — — — — Classified — — — — — — — — — Total Consumer - Unsecured $ — $ — $ — $ — $ — $ — $ 413 $ — $ 413 Current period gross charge-offs $ — $ — $ — $ — $ — $ 6 $ — $ — $ 6 Consumer - Secured Pass $ 189 $ 45 $ 206 $ — $ 19 $ 1,020 $ 85 $ — $ 1,564 Criticized — — — — — — — — — Classified — — — — — — — — — Total Consumer - Secured $ 189 $ 45 $ 206 $ — $ 19 $ 1,020 $ 85 $ — $ 1,564 Current period gross charge-offs $ — $ — $ — $ — $ — $ 3 $ — $ — $ 3 Total Pass $ 96,298 $ 144,305 $ 333,370 $ 179,903 $ 161,502 $ 330,189 $ 430,160 $ — $ 1,675,727 Criticized — 26,250 395 2,746 16,372 — — — 45,763 Classified 530 11,900 — 9,111 3,647 1,669 50,754 — 77,611 Total $ 96,828 $ 182,455 $ 333,765 $ 191,760 $ 181,521 $ 331,858 $ 480,914 $ — $ 1,799,101 Current period gross charge-offs $ — $ 289 $ — $ 259 $ 1,725 $ 145 $ — $ — $ 2,418 19 Term Loans Amortized Cost Basis by Origination Year December 31, 2023 (Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans converted to term Total Residential Real Estate - Single family Pass $ 50,101 $ 17,502 $ 26,434 $ 34,453 $ 20,610 $ 20,542 $ 33,217 $ — $ 202,859 Criticized — — — — — — — — — Classified — — — — 409 — 149 — 558 Total Residential Real Estate - Single family $ 50,101 $ 17,502 $ 26,434 $ 34,453 $ 21,019 $ 20,542 $ 33,366 $ — $ 203,417 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Residential Real Estate - Multifamily Pass $ 28,346 $ 81,180 $ 60,156 $ 39,286 $ 27,270 $ 10,797 $ 24,005 $ — $ 271,040 Criticized — — — — — — — — — Classified — — — — — — — — — Total Residential Real Estate - Multifamily $ 28,346 $ 81,180 $ 60,156 $ 39,286 $ 27,270 $ 10,797 $ 24,005 $ — $ 271,040 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Residential Real Estate - Farmland Pass $ — $ — $ — $ — $ — $ 145 $ — $ — $ 145 Criticized — — — — — — — — — Classified — — — — — — — — — Total Residential Real Estate - Farmland $ — $ — $ — $ — $ — $ 145 $ — $ — $ 145 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial Real Estate - Owner-occupied Pass $ 70,476 $ 55,222 $ 43,576 $ 39,621 $ 32,044 $ 37,360 $ 2,633 $ — $ 280,932 Criticized — — — — — — — — — Classified — — — — 1,120 — — — 1,120 Total Commercial Real Estate - Owner occupied $ 70,476 $ 55,222 $ 43,576 $ 39,621 $ 33,164 $ 37,360 $ 2,633 $ — $ 282,052 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial Real Estate - Non-owner occupied Pass $ 23,091 $ 101,617 $ 51,291 $ 48,692 $ 30,595 $ 150,629 $ 32,122 $ — $ 438,037 Criticized — — — 16,000 — — — — 16,000 Classified — — — — 7,738 — — — 7,738 Total Commercial Real Estate - Non-owner occupied $ 23,091 $ 101,617 $ 51,291 $ 64,692 $ 38,333 $ 150,629 $ 32,122 $ — $ 461,775 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Construction and Land Development Pass $ 6,416 $ 32,544 $ 13,612 $ 2,455 $ — $ 8,118 $ 355,689 $ — $ 418,834 Criticized — — — — — — — — — Classified — 1,454 — — — — 9,349 — 10,803 Total Construction and Land Development $ 6,416 $ 33,998 $ 13,612 $ 2,455 $ — $ 8,118 $ 365,038 $ — $ 429,637 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial and Industrial Pass $ 10,150 $ 5,271 $ 13,530 $ 3,495 $ 1,230 $ 10,466 $ 27,299 $ — $ 71,441 Criticized — — — — — — 2,997 — 2,997 Classified — — — — 536 353 88 — 977 Total Commercial and Industrial $ 10,150 $ 5,271 $ 13,530 $ 3,495 $ 1,766 $ 10,819 $ 30,384 $ — $ 75,415 Current period gross charge-offs $ — $ — $ — $ — $ 261 $ 201 $ — $ — $ 462 Consumer - Unsecured Pass $ — $ — $ — $ — $ — $ — $ 271 $ — $ 271 Criticized — — — — — — — — — Classified — — — — — — — — — Total Consumer - Unsecured $ — $ — $ — $ — $ — $ — $ 271 $ — $ 271 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer - Secured Pass $ 55 $ 252 $ 3 $ 51 $ 1,400 $ 1,497 $ 81 $ — $ 3,339 Criticized — — — — — — — — — Classified — — — — — — — — — Total Consumer - Secured $ 55 $ 252 $ 3 $ 51 $ 1,400 $ 1,497 $ 81 $ — $ 3,339 Current period gross charge-offs $ — $ — $ — $ — $ — $ 6 $ — $ — $ 6 Total Pass $ 188,635 $ 293,588 $ 208,602 $ 168,053 $ 113,149 $ 239,554 $ 475,317 $ — $ 1,686,898 Criticized — — — 16,000 — — 2,997 — 18,997 Classified — 1,454 — — 9,803 353 9,586 — 21,196 Total $ 188,635 $ 295,042 $ 208,602 $ 184,053 $ 122,952 $ 239,907 $ 487,900 $ — $ 1,727,091 Current period gross charge-offs $ — $ — $ — $ — $ 261 $ 207 $ — $ — $ 468 20 Unfunded Commitments The Company maintains an allowance for credit losses on off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on funded loans. The allowance for credit losses for off-balance sheet credit exposure is classified on the balance sheet within other liabilities. The following table presents the balance and activity in the allowance for credit losses for off-balance sheet credit exposure for the three and nine months ended September 30, 2024 and 2023 , respectively. Three months ended September 30, 2024 Total Allowance for Credit Losses on Off-Balance Sheet Credit Exposure (Dollars in thousands) Balance, June 30, 2024 $ 357 Recovery of off-balance sheet credit losses, net ( 212 ) Balance, September 30, 2024 $ 145 Nine months ended September 30, 2024 Total Allowance for Credit Losses on Off-Balance Sheet Credit Exposure (Dollars in thousands) Balance, December 31, 2023 $ 1,009 Recovery of off-balance sheet credit losses, net ( 864 ) Balance, September 30, 2024 $ 145 Three months ended September 30, 2023 Total Allowance for Credit Losses on Off-Balance Sheet Credit Exposure (Dollars in thousands) Balance, June 30, 2023 $ 1,199 Provision for off-balance sheet credit losses, net 353 Balance, September 30, 2023 $ 1,552 Nine months ended September 30, 2023 Total Allowance for Credit Losses on Off-Balance Sheet Credit Exposure (Dollars in thousands) Balance, December 31, 2022 $ — Adjustment to allowance for off-balance sheet credit losses upon adoption of ASU 2016-13 1,310 Provision for off-balance sheet credit losses, net 242 Balance, September 30, 2023 $ 1,552 Note 4. Intangible Assets The carrying amount of computer software developed was $ 18.9 million and $ 14.7 million at September 30, 2024 and December 31, 2023 . The following table presents the carrying amount of computer software developed as of September 30, 2024 and December 31, 2023 . As of September 30, 2024 As of December 31, 2023 (Dollars in thousands) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Amortizable intangible assets: Computer software $ 18,881 $ — $ 14,657 $ — Total $ 18,881 $ — $ 14,657 $ — The Company was still in the development stage of computer software where costs are capitalized as of September 30, 2024. Capitalization ceases when the software is substantially complete and ready for its intended use. The asset was deemed ready for its intended use and deployed to customers in October 2024. The intangible asset will be amortized on a straight-line basis over the estimated useful life of the asset, which is expected to be ten years. As of September 30, 2024 , the Company has not recorded any amortization on its intangible computer software. Note 5. Derivatives and Risk Management Activities The Company uses derivative financial instruments (“derivatives”) primarily to assist customers with their risk management objectives. The Company classifies these items as free standing derivatives consisting of customer accommodation interest rate loan swaps (“interest rate loan swaps”). The Company enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Company 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 Company 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 Company’s derivative instruments as of September 30, 2024 and December 31, 2023 . September 30, 2024 Customer-related interest rate contracts Dollars in thousands) Notional Amount Number of Positions Assets Liabilities Collateral Pledges Matched interest rate swap with borrower $ 217,708 40 $ — $ 14,686 $ — Matched interest rate swap with counterparty $ 217,708 40 $ 14,686 $ — $ — 21 December 31, 2023 Customer-related interest rate contracts Dollars in thousands) Notional Amount Number of Positions Assets Liabilities Collateral Pledges Matched interest rate swap with borrower $ 224,008 42 $ — $ 18,569 $ — Matched interest rate swap with counterparty $ 224,008 42 $ 18,569 $ — $ — The Company is able to recognize fee income upon execution of the interest rate swap contract. The Company did not record any interest rate swap fee income for the three and nine months ended September 30, 2024 or 2023 . Note 6. 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 September 30, 2024 , and December 31, 2023 , the Bank’s entire portfolio of available for sale securities are considered to be Level 2 securities, with the exception of one subordinated debt security and one preferred stock security which are considered Level 3. Derivative asset (liability) – interest rate swaps on loans As discussed in “Note 5: “Derivative 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. 22 The following tables provide the fair value for assets required to be measured and reported at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 : September 30, 2024 (Dollars in thousands) Level 1 Level 2 Level 3 Total Assets: Investment securities available-for-sale: Collateralized Mortgage Backed $ — $ 18,386 $ — $ 18,386 Subordinated Debt — 8,049 250 8,299 Preferred Stock — — 449 449 Municipal Securities: Taxable — 8,638 — 8,638 Tax-exempt — 20,283 — 20,283 U.S. Government Agencies — 2,434 — 2,434 Derivative asset – interest rate swap on loans — 14,686 — 14,686 Total $ — $ 72,476 $ 699 $ 73,175 Liabilities: Derivative liability – interest rate swap on loans $ — $ 14,686 $ — $ 14,686 Total $ — $ 14,686 $ — $ 14,686 December 31, 2023 (Dollars in thousands) Level 1 Level 2 Level 3 Total Assets: Investment securities available-for-sale: Collateralized Mortgage Backed $ — $ 19,515 $ — $ 19,515 Subordinated Debt — 8,217 250 8,467 Municipal Securities: Taxable — 8,307 — 8,307 Tax-exempt — 20,742 — 20,742 U.S. Government Agencies — 2,897 — 2,897 Derivative asset – interest rate swap on loans — 18,569 — 18,569 Total $ — $ 78,247 $ 250 $ 78,497 Liabilities: Derivative liability – interest rate swap on loans $ — $ 18,569 $ — $ 18,569 Total $ — $ 18,569 $ — $ 18,569 The table below shows the activity to the fair value of level three instruments during the nine months ended September 30, 2024 . Reconciliation of Level 3 Inputs (Dollars in thousands) December 31, 2023 fair value $ 250 Additions $ 449 September 30, 2024 fair value $ 699 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 Company did not have any assets that were measured at fair value on a nonrecurring basis as of September 30, 2024 and December 31, 2023 . Fair Value of Financial Instruments FASB ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. In accordance with ASU 2016 - 01, the Company uses the exit price notion, rather than the entry price notion, in calculating the fair values of financial instruments not measured at fair value on a recurring basis. The following tables reflect the carrying amounts and estimated fair values of the Company’s financial instruments whether or not recognized on the Consolidated Statement of Financial Condition at fair value. September 30, 2024 Carrying Estimated Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (Dollars in thousands) Amount Fair Value Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 232,114 $ 232,114 $ 232,114 $ — $ — Securities: Available-for-sale 58,489 58,489 — 57,790 699 Held-to-maturity 16,016 15,927 — 15,927 — Restricted securities 26,745 26,745 — 26,745 — Loans, net 1,775,558 1,779,602 — — 1,779,602 Derivative asset – interest rate swap on loans 14,686 14,686 — 14,686 — Bank owned life insurance 39,203 39,203 — 39,203 — Accrued interest receivable 9,287 9,287 — 9,287 — Liabilities: Deposits $ 1,893,669 $ 1,903,850 $ — $ 1,058,931 $ 844,919 Subordinated debt, net 72,940 71,835 — 71,835 — Derivative liability – interest rate swaps on loans 14,686 14,686 — 14,686 — Accrued interest payable 3,651 3,651 — 3,651 — 23 December 31, 2023 Carrying Estimated Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (Dollars in thousands) Amount Fair Value Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 114,513 $ 114,513 $ 114,513 $ — $ — Securities: Available-for-sale 59,928 59,928 — 59,678 250 Held-to-maturity 17,275 17,163 — 17,163 — Restricted equity securities 24,356 24,356 — 24,356 — Loans, net 1,705,137 1,701,418 — — 1,701,418 Derivative asset – interest rate swap on loans 18,569 18,569 — 18,569 — Bank owned life insurance 38,318 38,318 — 38,318 — Accrued interest receivable 10,725 10,725 — 10,725 — Liabilities: Deposits $ 1,686,127 $ 1,685,487 $ — $ 989,791 $ 695,696 Subordinated debt, net 72,642 56,513 — 56,513 — Federal funds purchased 15,000 14,968 — — 14,968 Derivative liability – interest rate swaps on loans 18,569 18,569 — 18,569 — Accrued interest payable 2,845 2,845 — 2,845 — 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. Assumptions utilized in the aggregation of fair value of our loan portfolio include prepayment rates, probability of default and loss given default, and discount rates on cash flows. Our third party valuation utilizes average data by homogenous loan segments nationwide and may not properly reflect the characteristics of our specific portfolio. There were no changes in methodologies or transfers between levels at September 30, 2024 and December 31, 2023 . Note 7. Earnings (Loss) Per Common Share Basic earnings per common share excludes dilution and is computed by dividing net income available to common shareholders 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 Company. There were no such potentially dilutive securities outstanding in 2024 or 2023 . The weighted average number of shares used in the calculation of basic and diluted earnings per common share includes unvested restricted shares of the Company’s common stock outstanding. Applicable guidance requires that outstanding un-vested share-based payment awards that contain voting rights and rights to non-forfeitable dividends participate in undistributed earnings with common shareholders. For the Three Months Ended September 30, For the Nine Months Ended September 30, (Dollars in thousands, except for share and per share data) 2024 2023 2024 2023 Net income $ 265 $ 6,341 $ 6,187 $ 21,438 Preferred stock dividends ( 539 ) ( 539 ) ( 1,617 ) ( 1,617 ) Net income (loss) available to common shareholders $ ( 274 ) $ 5,802 $ 4,570 $ 19,821 Weighted average number of common shares issued, basic and diluted 7,601,925 7,524,332 7,607,431 7,521,426 Earnings (loss) per common share: Basic and diluted earnings (loss) per common share $ ( 0.04 ) $ 0.77 $ 0.60 $ 2.64 24 Note 8. Accumulated Other Comprehensive Loss The following table presents the cumulative balances of the components of accumulated other comprehensive loss, net of deferred taxes, as of September 30, 2024 and December 31, 2023 : September 30, 2024 December 31, 2023 Unrealized loss on investment securities available-for-sale $ ( 8,278 ) $ ( 9,737 ) Unrealized loss on securities transferred to HTM — ( 6 ) Tax benefit 1,904 2,265 Total accumulated other comprehensive loss $ ( 6,374 ) $ ( 7,478 ) Note 9. Leases 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. 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. The following table presents the balance and activity in leases for the three and nine months ended September 30, 2024 and 2023 , respectively As of September 30, As of December 31, (Dollars in thousands) 2024 2023 Lease liabilities $ 6,598 $ 6,902 Right-of-use assets 5,890 6,211 Weighted-average remaining lease term – operating leases (in months). 147.7 155.9 Weighted-average discount rate – operating leases 2.81 % 2.80 % For the three months ended September 30, (Dollars in thousands) 2024 2023 Lease Cost Operating lease cost $ 174 $ 121 Total lease costs $ 174 $ 121 Cash paid for amounts included in measurement of lease liabilities $ 169 $ 105 For the nine months ended September 30, 2024 2023 Lease Cost Operating lease cost $ 519 $ 363 Total lease costs $ 519 $ 363 Cash paid for amounts included in measurement of lease liabilities $ 501 $ 336 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 $ 8,000 per month. As of September 30, 2024 and December 31, 2023 , all of the Company’s lease obligations are classified as operating leases. The Company does not have any finance lease obligations. 25 A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities as of September 30, 2024 is as follows: (Dollars in thousands) 2024 $ 169 2025 691 2026 709 2027 589 2028 594 Thereafter 4,363 Total undiscounted cash flows $ 7,115 Discount ( 517 ) Lease liabilities $ 6,598 Note 10: Segment Reporting As of September 30, 2024, we have identified two reportable segments: Core Banking and Financial Technology. Revenues from Core Banking operations consist primarily of net interest income from loans and securities investments and outstanding deposits and borrowings and fees earned on deposit accounts, debit card interchange activity, and bank owned life insurance income. Revenues from our Financial Technology division, which include Avenu, is comprised of net interest income allocation on deposit accounts generated within this division, as well as service charges on these deposit accounts. The following tables present information about the reportable segments and reconciliation to the consolidated financial statements for the periods shown: Three months ended September 30, 2024 Core Banking Financial Technology Consolidated Interest Income (1) $ 33,284 $ 307 $ 33,591 Interest Expense 18,225 23 18,248 Net Interest Income 15,059 284 15,343 Provision For (Recovery of) Credit Losses 2,913 — 2,913 Net Interest Income After Provision For (Recovery of) Credit Losses 12,146 284 12,430 Non-Interest Income 667 219 886 Non-Interest Expense Salaries and employee benefits 6,926 324 7,250 Furniture and equipment expenses 748 183 931 Advertising and marketing 544 35 579 Outside services 409 436 845 Other operating expenses 3,526 88 3,614 Total Non-Interest Expense 12,153 1,066 13,219 Income (Loss) Before Income Taxes 660 ( 563 ) 97 Income Tax Expense (Benefit) (2) ( 50 ) ( 118 ) ( 168 ) Net Income (Loss) $ 710 $ ( 445 ) $ 265 Other Data: Capital expenditures $ 161 $ 1,676 $ 1,837 Total assets as of September 30, 2024 $ 2,205,649 $ 18,950 $ 2,224,599 Total assets as of December 31, 2023 $ 2,020,693 $ 14,739 $ 2,035,432 ( 1 ) Includes transfer pricing on average deposits outstanding for the period ( 2 ) Taxes allocated based on the federal statutory rate of 21 % Three months ended September 30, 2023 Core Banking Financial Technology Consolidated Interest Income (1) $ 31,545 $ 221 $ 31,766 Interest Expense 12,989 5 12,994 Net Interest Income 18,556 216 18,772 Provision For (Recovery of) Credit Losses 255 — 255 Net Interest Income After Provision For (Recovery of) Credit Losses 18,301 216 18,517 Non-Interest Income 700 191 891 Non-Interest Expense Salaries and employee benefits 6,557 367 6,924 Furniture and equipment expenses 604 109 713 Advertising and marketing 546 31 577 Outside services 392 305 697 Other operating expenses 2,539 101 2,640 Total Non-Interest Expense 10,638 913 11,551 Income (Loss) Before Income Taxes 8,363 ( 506 ) 7,857 Income Tax Expense (Benefit) (2) 1,622 ( 106 ) 1,516 Net Income (Loss) $ 6,741 $ ( 400 ) $ 6,341 Other Data: Capital expenditures $ 155 $ 1,107 $ 1,262 Total assets as of September 30, 2023 $ 2,008,032 $ 13,459 $ 2,021,491 ( 1 ) Includes transfer pricing on average deposits outstanding for the period ( 2 ) Taxes allocated based on the federal statutory rate of 21 % 26 Nine months ended September 30, 2024 Core Banking Financial Technology Consolidated Interest Income (1) $ 98,318 $ 1,178 $ 99,496 Interest Expense 52,928 35 52,963 Net Interest Income 45,390 1,143 46,533 Provision For (Recovery of) Credit Losses 3,356 — 3,356 Net Interest Income After Provision For (Recovery of) Credit Losses 42,034 1,143 43,177 Non-Interest Income 1,918 528 2,446 Non-Interest Expense Salaries and employee benefits 21,121 1,101 22,222 Furniture and equipment expenses 2,260 546 2,806 Advertising and marketing 1,499 100 1,599 Outside services 1,128 1,330 2,458 Other operating expenses 9,158 293 9,451 Total Non-Interest Expense 35,166 3,370 38,536 Income (Loss) Before Income Taxes 8,786 ( 1,699 ) 7,087 Income Tax Expense (Benefit) (2) 1,257 ( 357 ) 900 Net Income (Loss) $ 7,529 $ ( 1,342 ) $ 6,187 Other Data: Capital expenditures $ 870 $ 4,224 $ 5,094 ( 1 ) Includes transfer pricing on average deposits outstanding for the period ( 2 ) Taxes allocated based on the federal statutory rate of 21 % Nine months ended September 30, 2023 Core Banking Financial Technology Consolidated Interest Income (1) $ 89,990 $ 1,249 $ 91,239 Interest Expense 31,798 12 31,810 Net Interest Income 58,192 1,237 59,429 Provision For (Recovery of) Credit Losses 1,176 — 1,176 Net Interest Income After Provision For (Recovery of) Credit Losses 57,016 1,237 58,253 Non-Interest Income 1,934 649 2,583 Non-Interest Expense Salaries and employee benefits 20,005 1,134 21,139 Furniture and equipment expenses 1,740 243 1,983 Advertising and marketing 1,880 192 2,072 Outside services 926 765 1,691 Other operating expenses 7,132 262 7,394 Total Non-Interest Expense 31,683 2,596 34,279 Income (Loss) Before Income Taxes 27,267 ( 710 ) 26,557 Income Tax Expense (Benefit) (2) 5,268 ( 149 ) 5,119 Net Income (Loss) $ 21,999 $ ( 561 ) $ 21,438 Other Data: Capital expenditures $ 490 $ 4,224 $ 4,714 ( 1 ) Includes transfer pricing on average deposits outstanding for the period ( 2 ) Taxes allocated based on the federal statutory rate of 21 % Item 2 – Management ’ s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis is intended as a review of significant factors affecting the Company’s consolidated financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the related notes and the Company’s Annual Report on Form 10-K, which contains audited consolidated financial statements of the Company as of and for the year ended December 31, 2023, previously filed with the SEC on March 20, 2024. Results for the three and nine months ended September 30, 2024 are not necessarily indicative of results for the year ending December 31, 2024 or any future period. Forward-Looking Statements This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to the Company within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on the beliefs of management as well as assumptions made by and information currently available to management. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe,” “expect,” “anticipate,” “estimate,” and “intend” or future or conditional verbs such as “will,” “should,” “could,” or “may” and similar expressions or the negative thereof. Important factors that could cause actual results to differ materially from those in the forward–looking statements included herein include, but are not limited to: ● general economic conditions, either nationally or in our market area, that are worse than expected; ● competition among depository and other financial institutions, particularly intensified competition for deposits; ● inflation and an interest rate environment that may reduce our margins or reduce the fair value of certain of our financial instruments; ● adverse changes in the securities markets; ● changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory structure and in regulatory fees and capital requirements; ● the impact of significant changes in accounting procedures or requirements on our financial condition or results of operations; ● our ability to enter new markets successfully and capitalize on growth opportunities; ● our ability to successfully integrate acquired and newly organized entities; ● changes in consumer spending, borrowing and savings habits; ● changes in accounting policies and practices; ● changes in our organization, compensation and benefit plans; ● our ability to attract and retain key employees; ● changes in our financial condition or results of operations that reduce capital; ● changes in the financial condition or future prospects of issuers of securities that we own; ● the concentration of our business in the Northern Virginia as well as the greater Washington, DC metropolitan area and the effect of changes in the economic, political and environmental conditions on those markets; ● adequacy of or increases in the allowance for credit losses; 27 ● cyber threats, attacks or other data security events; ● fraud or misconduct by internal or external parties; ● reliance on third parties for key services; ● deterioration of our asset quality, including an increase in loan delinquencies, problem assets and foreclosures; ● future performance of our loan portfolio with respect to recently originated loans; ● additional risks related to new lines of business, products, product enhancements or services; ● results of examination of us by our regulators, including the possibility that our regulators may require us to increase our allowance for credit losses or to write-down assets or take other supervisory action; ● the effectiveness of our internal controls over financial reporting and our ability to remediate any future material weakness in our internal controls over financial reporting; ● liquidity, interest rate and operational risks associated with our business; ● implications of our status as a smaller reporting company and as an emerging growth company; ● a work stoppage, forced quarantine, or other interruption or the unavailability of key employees; and ● other risk factors and information included in our Annual Report on Form 10-K for the year ended December 31, 2023 and this Quarterly Report on Form 10-Q. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. We caution readers not to place undue reliance on forward-looking statements. The Company disclaims any obligation to revise or update any forward-looking statements contained in this Form 10-Q to reflect future events or developments. Overview As used herein, the “Company,” “we,” “our,” and “us” refer to MainStreet Bancshares, Inc. and its subsidiaries, and the “Bank” refers to MainStreet Bank. MainStreet Bancshares, Inc. MainStreet Bancshares, Inc. is a financial holding company that owns 100% of MainStreet Bank and MainStreet Community Capital, LLC. The Company and its subsidiaries are incorporated in and chartered by the Commonwealth of Virginia. The Company’s executive offices are located at 10089 Fairfax Boulevard, Fairfax, Virginia. Our telephone number is (703) 481-4567, and our internet address is www.mstreetbank.com. The information contained on our website shall not be considered part of this Quarterly Report on Form 10-Q, and the reference to our website does not constitute incorporation by reference of the information contained on the website. MainStreet Bank MainStreet Bank is a community commercial bank incorporated in and chartered by the Commonwealth of Virginia. The Bank is a member of the Federal Reserve Bank of Richmond, and its deposits are insured by the FDIC. The Bank opened for business on May 26, 2004, and is headquartered in Fairfax, Virginia. We currently operate six Bank branches; located in Herndon, Fairfax, McLean, Clarendon, Leesburg in Virginia, and one in Washington D.C. We emphasize providing responsive and personalized services to our clients. Due to the consolidation of financial institutions in our primary market area, we believe there is a significant opportunity for a local bank to provide a full range of financial services. By offering highly professional, personalized banking products and service delivery methods and employing advanced banking technologies, we seek to distinguish ourselves from larger, regional banks operating in our market area and believe we are able to compete effectively with other community banks. We believe we have a solid franchise that meets the financial needs of our clients and communities by providing an array of personalized products and services delivered by seasoned banking professionals with decisions made at the local level. We believe a significant customer base in our market prefers to do business with a local institution that has a local management team, a local Board of Directors and local founders and that this customer base may not be satisfied with the responsiveness of larger regional banks. By providing quality services, coupled with the opportunities provided by the economies in our market area, we have generated and expect to continue to generate organic growth. We service Northern Virginia as well as the greater Washington, D.C. metropolitan area. Our goal is to deliver a customized and targeted mix of products and services that meets or exceeds customer expectations. To accomplish this goal, we have deployed a premium operating system that gives customers access to up-to-date banking technology. These systems and our highly skilled staff have allowed us to compete with larger financial institutions. The combination of sophisticated technology and personal service sets us apart from our competition. We strive to be the leading community bank in our market. 28 The Company's business is conducted through two reportable segments; Core Banking and Financial Technology. Core Banking encompasses the community bank where we offer a full range of banking services to individuals, small to medium-sized businesses and professionals through both traditional and electronic delivery. The Financial Technology segment provides services to money service business, payment processors, and Banking as a Service ("BaaS") for fintechs, social media solutions, application developers, money movers and entrepreneurs who want to embed financials services into their solutions. We were the first community bank in the Washington, D.C. metropolitan area to offer a full online business banking solution, including remote check scanners on a business customer’s desktop. We offer mobile banking apps for iPhones, iPads and Android devices that provide for remote deposit of checks. In addition, we were the first bank headquartered in the Commonwealth of Virginia to offer CDARS, the Certificate of Deposit Account Registry Service. We offer our customers a suite of reciprocal deposit options through IntraFI, an innovative reciprocal deposit placement service that offers FDIC insurance on deposits up to $265 million. We believe that enhanced electronic delivery systems and technology increase profitability through greater productivity and cost control and allow us to offer new and better products and services. Our products and services include: business and consumer checking, premium interest-bearing checking, business account analysis, savings, certificates of deposit and other depository services, as well as a broad array of commercial, real estate and consumer loans. Internet account access is available for all personal and business accounts, internet bill payment services are available on most accounts, and a robust online cash management system is available for business customers. Avenu On October 25, 2021, MainStreet Bancshares, Inc. formally introduced Avenu, a division of MainStreet Bank. Avenu represents the Company’s suite of BaaS solutions designed to meet the banking needs of Fintech customers. We believe our approach to providing a proprietary BaaS solution is unique. Our transformational subledger combined with our high-touch compliance training goes beyond the industry standards. This division of MainStreet Bank currently serves money service businesses, payment processors, and BaaS customers and provides the Bank with valuable low-cost deposits and additional streams of fee income. A major component of the BaaS solution includes a fintech core, which is Software as a Service (SaaS). As of September 30, 2024, we have capitalized $18.9 million in developing our SaaS solution, which is shown separately on our statement of financial condition. Our SaaS software program was deployed in October of 2024. Additional information can be found in Note 4 and Note 10 of our consolidated financial statements, our investor presentations filed quarterly, and in the investor relations portion of our website. MainStreet Community Capital, LLC In August 2021, the Company created a community development entity (“CDE”) subsidiary, MainStreet Community Capital, LLC, a Virginia limited liability company, to apply for NMTC allocations from the U.S. Department of Treasury’s Community Development Financial Institutions Fund. To promote development in economically distressed areas, the NMTC program was established under the Community Renewal Tax Relief Act of 2000 to provide tax incentives for capital investment in disadvantaged market areas that have not experienced economic expansion. The program establishes a tax credit for investment in a CDE and ongoing compliance with the program is accomplished through a governing board and an advisory board which maintains accountability to residents and businesses in the aforementioned disadvantaged areas. This CDE will be an intermediary vehicle for the provision of loans and investments in Low-Income Communities (“LICs”). Effects of Inflation The effects of inflation and the actions of the Federal Reserve, as well as the economy at large may impact the Bank’s customers, including their willingness and ability to repay their obligations, to invest, to save or to spend. This impact could affect the Bank’s customer's general appetite for banking products and the credit health of the Bank’s customer base. The timing and impact of inflation and rising interest rates on our business and related financial results will depend on future developments, which are highly uncertain and difficult to predict. Critical Accounting Policies The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions 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 periods presented. Critical accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the current period or in future periods. 29 Our critical accounting policies involving significant judgments and assumptions used in the preparation of the consolidated financial statements as of September 30, 2024, have remained unchanged since our Annual Report on Form 10-K for the year ended December 31, 2023 was filed, unless noted herein. Any changes are discussed in our Recently Issued Accounting Pronouncements. Comparison of Statements of Income for the Three Months Ended September 30, 2024 and 2023 General Total revenue increased $1.8 million to $34.5 million for the three months ended September 30, 2024 from $32.7 million for the three months ended September 30, 2023. This increase in total revenue was offset primarily by an increase in interest expense. Total expenses increased $6.9 million to $31.5 million for the three months ended September 30, 2024 from $24.5 million for the three months ended September 30, 2023, of which interest expense accounted for $5.3 million of the increase.. The increase in revenue for the three months ended September 30, 2024 was primarily due to increases in loan interest income of $1.8 million over the same period in 2023. Operating costs grew by 14.4%, or $1.7 million for the three months ended September 30, 2024 from $11.6 million for the three months ended September 30, 2023, as the Company ramps up staffing and infrastructure as Avenu is placed in service. Net income decreased $6.1 million to $0.3 million for the three months ended September 30, 2024 from $6.3 million for the three months ended September 30, 2023. The decrease in net income was primarily impacted by additions to the provision for credit losses of $2.9 million as well the rise in funding costs that occurred and carried through the first three quarters of 2024. Interest Income Total interest income increased $1.8 million, or 5.7%, to $33.7 million for the three months ended September 30, 2024 from $31.8 million for the three months ended September 30, 2023, on a tax equivalent basis. The increase was primarily the result of an increase in interest and fees on loans of $1.8 million. Total average interest-earning assets increased $146.7 million, to $2.0 billion for the three months ended September 30, 2024 from $1.86 billion for the same period in 2023 primarily because of an increase of $142.4 million in the average balance of loans and by an increase of $9.7 million in the average balance of federal funds sold. These increases were offset by a $5.4 million decrease in the average balance of investment securities. The average yield on our interest-earning assets decreased 14 basis points to 6.67% for the three months ended September 30, 2024 as compared to 6.81% for the three months ended September 30, 2023 primarily due to market conditions. For the three months ended September 30, 2024, the Company reversed $984,000 in accrued interest income in relation to loans placed on nonaccrual. In terest and fees on loans i ncreased $1.8 million, to $31.6 million for the three months ended September 30, 2024 from $29.8 million for the same period in 2023. This was primarily due to an increase in the average loans outstanding increasing $142.4 million, which increased to $1.81 billion for the three months ended September 30, 2024 from $1.67 billion for the three months ended September 30, 2023. The average yield on loans decreased 16 basis points, or 2.3%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. Interest income on federal funds sold and interest-earning deposits increased by $68,000 to $1.3 million for the three months ended September 30, 2024, from $1.2 million for the three months ended September 30, 2023. The increase was primarily due to the average balances increasing over the period despite having a slight reduction in yield of 21 basis points. The average balance of interest-earning deposits and federal funds sold increased $9.7 million to $104.5 million for the three months ended September 30, 2024 from $94.8 million for the same period in 2023. The average yield decreased to 4.88% for the three months ended September 30, 2024 from 5.09% for the same period in 2023. 30 Interest on investment securities decreased by $29,000 to $769,000 for the three months ended September 30, 2024 from $798,000 for the three months ended September 30, 2023 on a fully tax-equivalent basis. Interest on investments in U.S. Treasury, U.S. Government Agencies, and U.S. Municipals increased in total $24,000, or 6.3%, to $401,000 for the three months ended September 30, 2024, from $377,000 for the three months ended September 30, 2023. Interest on mortgage-backed securities decreased by $23,000, or 21.3%, to $85,000 for the three months ended September 30, 2024, from $108,000 for the three months ended September 30, 2023. Subordinated debt interest income decreased by $34,000, or 25.1%, to $101,000 for the three months ended September 30, 2024, from $135,000 for the three months ended September 30, 2023. The average yield on taxable securities decreased 25 basis points, to 2.89% and the average yield on tax-exempt securities increased 55 basis points, to 4.11% on a tax equivalent basis for the three months ended September 30, 2024, from 3.14% and 3.56%, respectively, for the same period in 2023. Fluctuation in market rates resulted in investment income decreasing, as well as the average balance of investment securities decreasing by $5.4 million, to $90.4 million for the three months ended September 30, 2024, from $95.8 million for the three months ended September 30, 2023. I nterest Expense Total interest expense increased $5.3 million, to $18.2 million for the three months ended September 30, 2024 from $13.0 million for the three months ended September 30, 2023, primarily due to a $2.0 million increase in interest expense on time deposits and a $1.2 million increase in interest expense on money market deposits. The Company also saw an increase of interest expense on interest bearing demand deposits of $1.9 million in the three months ended September 30, 2024 over the three months ended September 30, 2023. These increases were offset by a decrease of interest expense of $186,000 on advances from the Federal Home Loan Bank in the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Interest expense on deposits increased $5.2 million to $17.1 million for the three months ended September 30, 2024 from $11.9 million for the three months ended September 30, 2023 primarily as a result of an increase in average interest-bearing deposit yields and balances. The increase in average deposit balances was $200.5 million to $1.40 billion during the three months ended September 30, 2024 as compared to $1.24 billion for the three months ended September 30, 2023. The increase in the average balance of interest-bearing deposits was primarily a result of a $32.0 million increase in the average balance of money market deposit accounts and by a $96.9 million increase in the average balance of interest-bearing demand deposits. The average cost of interest-bearing deposits was 472 basis points for the three months ended September 30, 2024, compared to 382 basis points for the three months ended September 30, 2023. The average rate paid on money market deposits increased 80 basis points to 4.70% for the three months ended September 30, 2024 from 3.90% for the three months ended September 30, 2023. The average rate paid on interest-bearing demand deposits increased 372 basis points to 4.83% for the three months ended September 30, 2024 from 1.11% for the three months ended September 30, 2023 primarily due to market competition and the interest rate environment. The average cost of certificates of deposit increased by 73 basis points to 4.99% for the three months ended September 30, 2024 as compared to 4.26% for the three months ended September 30, 2023. The decrease in the average balance of non-interest bearing demand deposits for the three months ended September 30, 2024, primarily was the result of depositors looking for higher yielding products and market competition. Net Interest Income Net interest income decreased approximately $3.4 million, or 18.3%, to $15.4 million for the three months ended September 30, 2024 from $18.8 million for the three months ended September 30, 2023, on a tax equivalent basis, in connection with our net interest-earning assets decreasing $57.2 million to $470.6 million for the three months ended September 30, 2024 from $527.8 million for the three months ended September 30, 2023. The interest rate spread tightened by 99 basis points to 1.94% for the three months ended September 30, 2024 from 2.93% for the three months ended September 30, 2023, on a tax equivalent basis. The net interest margin compressed by 98 basis points from 4.03% for the three months ended September 30, 2023 to 3.05% for the three months ended September 30, 2024 on a tax equivalent basis. Refer to “Use of Certain Non-GAAP Financial Measures,” below, for a reconciliation of adjusted net interest margin. 31 Average Balances, Net Interest Income, Yields Earned and Rates Paid The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances. For the Three Months Ended September 30, 2024 2023 Average Balance Interest Income/ Expense(6) Yield/ Cost(5)(6) Average Balance Interest Income/ Expense(6) Yield/ Cost(5)(6) (Dollars in thousands) Interest-earning assets: Loans(1) $ 1,807,882 $ 31,615 6.94 % $ 1,665,474 $ 29,822 7.10 % Investment securities: Taxable 54,523 397 2.89 % 57,981 459 3.14 % Tax-exempt 35,881 372 4.11 % 37,812 339 3.56 % Federal funds and interest-bearing deposits 104,459 1,285 4.88 % 94,808 1,217 5.09 % Total interest-earning assets 2,002,745 $ 33,669 6.67 % 1,856,075 $ 31,837 6.81 % Non-interest-earning assets 123,383 73,415 Total assets $ 2,126,128 $ 1,929,490 Interest-bearing liabilities: Interest-bearing demand deposits $ 173,996 $ 2,117 4.83 % $ 77,047 $ 216 1.11 % Savings and NOW deposits 61,259 206 1.33 % 48,594 145 1.18 % Money market deposits 445,730 5,277 4.70 % 413,710 4,068 3.90 % Time deposits 759,247 9,543 4.99 % 700,405 7,516 4.26 % Total interest bearing deposits 1,440,232 17,143 4.72 % 1,239,756 11,945 3.82 % Federal funds purchased 19,001 277 5.78 % 2,501 35 5.55 % Federal Home Loan Bank advances — — — 13,478 186 5.48 % Subordinated debt 72,901 828 4.51 % 72,504 828 4.53 % Total interest-bearing liabilities 1,532,134 $ 18,248 4.73 % 1,328,239 $ 12,994 3.88 % Non-interest-bearing liabilities: Demand deposits and other liabilities 368,349 388,004 Total liabilities 1,900,483 1,716,243 Stockholders’ equity 225,645 213,247 Total liabilities and stockholders’ equity $ 2,126,128 $ 1,929,490 Net interest income $ 15,421 $ 18,843 Interest rate spread(2) 1.94 % 2.93 % Net interest-earning assets(3) $ 470,611 $ 527,836 Net interest margin(4) 3.05 % 4.03 % Average interest-earning assets to average interest-bearing liabilities 130.7 % 139.7 % (1) Includes loans classified as non-accrual (2) Interest rate spread represents the difference between the average yield on average interest–earning assets and the average cost of average interest-bearing liabilities. (3) Net interest earning assets represent total average interest–earning assets less average interest–bearing liabilities. (4) Net interest margin represents net interest income divided by total average interest-earning assets. (5) Annualized. (6) Income and yields for all periods presented are reported on a fully tax-equivalent basis using the federal statutory tax rate of 21%. Refer to “Use of Certain Non-GAAP Financial Measures.” 32 Rate/ Volume Analysis The following table presents the effects of changing rates and volumes on net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior average volume). The volume column shows the effects attributable to changes in volume (changes in average volume multiplied by prior rate). Changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, . The Total Increase (Decrease) column represents the sum of the prior columns. For the Three Months Ended September 30, 2024 and 2023 Increase (Decrease) Due to Total Increase Volume Rate (Decrease) (Dollars in thousands) Interest-earning assets: Loans $ 5,637 $ (3,844 ) $ 1,793 Investment securities: Taxable (27 ) (35 ) (62 ) Tax-exempt (95 ) 128 33 Federal funds and interest-bearing deposits 332 (264 ) 68 Total interest-earning assets 5,847 (4,015 ) 1,832 Interest-bearing liabilities: Interest bearing demand deposits 519 1,382 1,901 Savings and NOW accounts 41 20 61 Money market deposits 331 878 1,209 Time deposits 667 1,360 2,027 Total interest bearing deposits 1,558 3,640 5,198 Federal funds purchased 240 2 242 Federal Home Loan Bank advances (186 ) — (186 ) Subordinated debt 16 (16 ) — Total interest-bearing liabilities 1,628 3,626 5,254 Change in net interest income $ 4,219 $ (7,641 ) $ (3,422 ) Provision for Credit Losses Management believes that the provision recorded for the period ended September 30, 2024 reflects a balance sufficient to provide for each allowance segment, using objective data and information available to us at this time in evaluating our standard analysis of local/national economic data, changes in underwriting quality, portfolio concentrations, experience of lending team, credit quality and supportable forecasts. We will continuously review the credit portfolio to determine the depth and breadth of potential credit losses. As we obtain additional information and to more accurately assess the full nature and extent of elevated risk to the credit portfolio that may arise, additional provision expenses may be required. The provision for credit losses, which is an operating expense, is maintained to ensure that the allowance for credit losses is maintained at levels we consider necessary and appropriate to absorb expected credit losses at a balance sheet date. In determining the level of the allowance for credit losses on loans and off-balance sheet credit exposure, we consider past and current loss experience, evaluations of real estate collateral, current and future economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of non-performing loans. The amount of the allowance is based on estimates, and actual losses may vary from such estimates as more information becomes available over time or economic conditions change. This evaluation is inherently subjective, as it requires estimates and assumptions that are susceptible to significant revision as circumstances change or as more information becomes available. The allowance for credit losses is assessed monthly and provisions are made for credit losses as required in order to maintain the overall allowance. The provision for credit losses on loans was $3.1 million for the three months ended September 30, 2024 compared to a recovery of credit losses on loans of $98,000 for the three months ended September 30, 2023. The Company charged off $1.9 million in loans during the quarter which had to be replaced through provision expense. The Company also added $1 million to the allowance for credit loss reserves for loan growth and in conjunction with heightened risk factors. Loan originations, which totaled approximately $92.0 million for the three months ended September 30, 2023 decreased $32.0 million to $60.0 million for the three months ended September 30, 2024. The Company did see an uptick in non-performing loans at September 30, 2024, with a balance of $28.3 million. 42% of this balance is attributable to one relationship and the remaining 58% are confined to nine relationships that experienced liquidity constraints. The Company is proactive in identifying any potential issues and acts decisively when prudent. As of September 30, 2024, the Company had only 6.86% criticized and classified loans to total gross loans. The recovery of credit losses on off-balance sheet credit exposure was $212,000 for the three months ended September 30, 2024 compared to a provision for credit losses of $353,000 for the three months ended September 30, 2023. The decrease in off-balance sheet credit exposure was primarily related to the utilization of revolving lines of credit. During the three months ended September 30, 2024, special mention (criticized) loans increased $29.9 million and substandard (classified) loans increased $44.2 million as of September 30, 2024 to a balance of $45.8 million and $77.6 million, respectively. Of the classified loans as of September 30, 2024, 57% is related to a relationship that is experiencing a drop in liquidity due to the sharp rise in interest rates. Classified loans have increased by $67.2 million as of September 30, 2024 compared to the same period in 2023. Approximately 65% of the classified loan balances are related to a segment of loans that share similar characteristics. This segment was originated during 2021 and experienced swings in operating costs, permit delays, and liquidity tightening as a result of the sharp increase in interest rates. The Company routinely charges off potential exposure as identified, and identifies and executes the best course of action to minimize any further loss exposure. Approximately 35% of classified loans are made up of smaller credits that have been either placed on nonaccrual or the Company is monitoring closely to be able to assess repayment. As interest rates have risen significantly over the last two years, management believes in taking a proactive approach to risk management in the loan portfolio, particularly as credits are due to reprice in a new rate environment. During the three months ended September 30, 2024, there was $1.9 million in charge-offs incurred and recoveries of $11,000 were received. 33 Non-Interest Income Non-interest income decreased $5,000, or 0.6%, to $886,000 for the three months ended September 30, 2024 from $891,000 for the three months ended September 30, 2023 . The decrease in non-interest income was primarily due to other fee income related to prepayment penalties that were recognized during 2023 that were not recurring in 2024. Offsetting other fee income were increases in deposit account service charges in the three months ended September 30, 2024 of $43,000 compared to the same period in 2023. The increase in account service charges was in addition to an increase of $30,000 in bank owned life insurance income for the three months ended September 30, 2024 , as a result of the elevated interest rate environment compared to same period in the prior year. The Company continues to focus on increasing non-interest income as it continues to add services that strategically benefit our customers. Non-Interest Expense Non-interest expense increased $1.7 million, or 14.4%, to $13.2 million for the three months ended September 30, 2024, from $11.6 million for the three months ended September 30, 2023 primarily because of increases in salaries and employee benefits of $326,000. The Company added fifteen employees as the franchise continues to grow and build out its strategic initiatives. Outside services, which includes professional fees for attorneys, accountants and consultants, increased $148,000 to $845,000 for the three months ended September 30, 2024, from $697,000 for the three months ended September 30, 2023. This increase is driven by regulatory requirements in audits and routine legal assistance as the Company grows. Information security tools, a subset of furniture and equipment expenses, increased approximately $54,000 to $162,000 for the three months ended September 30, 2024, from $108,000 for the three months ended September 30, 2023. Franchise tax, a subset of other operating expenses, increased approximately $98,000 to $557,000 for the three months ended September 30, 2024, from $459,000 for the three months ended September 30, 2023 because of growth in the Company's capital as of September 30, 2024 compared to the capital levels as of September 30, 2023. Offsetting these increases was a decrease in administrative expenses of $62,000, or 22.4%, to $215,000 for the three months ended September 30, 2024 from $277,000 for the three months ended September 30, 2023 due to expense management. During the three months ended September 30, 2024 the Company incurred $594,000 in nonrecurring expenses related to loan sale and dispositions, which was allocated to other operating expenses. Income Tax Expense Income tax expense decreased $1.7 million, or 111.1%, to a tax benefit of $168,000 for the three months ended September 30, 2024 from a tax expense of $1.5 million for the three months ended September 30, 2023. The decrease in federal income tax expense for the three months ended September 30, 2024 compared to the same period a year ago was driven by the decrease in income before income taxes of $7.8 million, to income before income tax of $97,000 for the three months ended September 30, 2024 compared to income before income tax expense of $7.9 million for the same period in the prior year. The Company accrues taxes based on an estimated tax rate basis using inputs and assumptions about pre-tax income. As the inputs and assumptions change, the estimated tax accruals will change throughout the year. The Company was able to apply and claim a research and development tax credit of approximately $245,000 for its associated work in developing a software platform. The Company also invests in projects that have tax credit benefits in order to help reduce its overall tax liability, timing of these tax credits are layered into our overall assessment. As a result of expanding its footprint, the Company has included assessments in income tax expense for potential state tax liabilities which totaled $212,000 for the three months ended September 30, 2024. For the three months ended September 30, 2024, the Company had an effective income tax benefit rate of 173%, compared to an effective income tax expense rate of 19.3% for the three months ended September 30, 2023. The effective tax rate for the three months ended September 30, 2024 was largely impacted by muted earnings and adjustments to estimated tax accruals. Comparison of Statements of Income for the Nine Months Ended September 30, 2024 and 2023 General Total revenue increased $8.1 million to $101.9 million for the nine months ended September 30, 2024 from $93.8 million for the nine months ended September 30, 2023. This increase in total revenue was offset primarily by an increase in interest expense. Total expenses increased $25.4 million, to $91.5 million for the nine months ended September 30, 2024 from $66.1 million for the nine months ended September 30, 2023, of which interest expense accounted for $21.2 million. The increase in revenue for the nine months ended September 30, 2024 was primarily due to increases in loan interest income of $8.3 million over the same period in 2023. Operating costs grew by 12.4%, or $4.3 million for the nine months ended September 30, 2024 from $34.3 million for the nine months ended September 30, 2023. Net income decreased $15.3 million to $6.2 million for the nine months ended September 30, 2024 from $21.4 million for the nine months ended September 30, 2023. The decrease in net income was primarily impacted by the sharp rise in funding costs that occurred in the last three quarters of 2023 and continues through the first nine months of 2024. The Company also made provisions for credit losses for $3.4 million during the first nine months of 2024 compared to $1.2 million for the same period in 2023. Interest Income Total interest income increased $8.3 million, or 9.0%, to $99.5 million for the nine months ended September 30, 2024 from $91.2 million for the nine months ended September 30, 2023, on a tax equivalent basis. The increase was primarily the result of an increase in interest and fees on loans of $8.3 million. Total average interest-earning assets increased $121.1 million, to $1.96 billion for the nine months ended September 30, 2024 from $1.84 billion for the same period in 2023 primarily because of an increase of $132.6 million in the average balance of loans and was offset by a decrease of $5.2 million in the average balance of federal funds sold and a $6.4 million decrease in the average balance of investment securities. The average yield on our interest-earning assets increased 16 basis points to 6.81% for the nine months ended September 30, 2024 as compared to 6.65% for the nine months ended September 30, 2023 primarily due to market conditions, and the Company strategically managing the balance sheet in response to the changing conditions. For the nine months ended September 30, 2024, the Company reversed $1.8 million in accrued interest income in relation to loans placed on nonaccrual. Interest and fees on loans increased $8.3 million, to $93.9 million for the nine months ended September 30, 2024 from $85.5 million for the same period in 2023. This increase was primarily due to an increase in the average yield on loans and the average loans outstanding increasing $132.6 million, which increased to $1.77 billion for the nine months ended September 30, 2024 from $1.64 billion for the nine months ended September 30, 2023. The average yield on loans increased 11 basis points, or 1.6% for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. Interest income on federal funds sold and interest-earning deposits increased by $22,000 to $3.6 million for the nine months ended September 30, 2024, from $3.5 million for the nine months ended September 30, 2023. The increase was primarily due to an increase in the average yield on these deposits increasing over the same time period. The average balance of interest-earning deposits and federal funds sold decreased $5.2 million to $93.9 million for the nine months ended September 30, 2024 from $99.0 million for the same period in 2023. The average yield increased to 5.06% for the nine months ended September 30, 2024 from 4.76% for the same period in 2023. 34 Interest on investment securities decreased by $78,000 to $2.3 million for the nine months ended September 30, 2024 from $2.4 million for the nine months ended September 30, 2023 on a fully tax-equivalent basis. Interest on investments in U.S. Treasury, U.S. Government Agencies, and U.S. Municipals decreased in total $3,000, or 0.3%, to $1.1 million for the nine months ended September 30, 2024, from $1.1 million for the nine months ended September 30, 2023. Interest on mortgage-backed securities decreased by $27,000, or 8.8%, to $281,000 for the nine months ended September 30, 2024, from $308,000 for the nine months ended September 30, 2023. Subordinated debt interest income decreased by $31,000, or 7.7%, to $364,000 for the nine months ended September 30, 2024, from $395,000 for the nine months ended September 30, 2023. The average yield on taxable securities decreased 1 basis points, to 3.04% and the average yield on tax-exempt securities increased 28 basis points, to 3.84% on a tax equivalent basis for the nine months ended September 30, 2024, from 3.05% and 3.56%, respectively, for the same period in 2023. Fluctuation in market rates and maturing securities resulted in investment income decreasing, in conjunction with, the average balance of investment securities decreasing by $6.4 million, to $92.1 million for the nine months ended September 30, 2024, from $98.5 million for the nine months ended September 30, 2023. I nterest Expense Total interest expense increased $21.2 million, to $53.0 million for the nine months ended September 30, 2024 from $31.8 million for the nine months ended September 30, 2023 , primarily due to an $8.7 million increase in interest expense on time deposits and a $7.8 million increase in interest expense on money market deposits. The Company also saw an increase of interest expense on interest bearing demand deposits of $5.3 million in the nine months ended September 30, 2024 over the nine months ended September 30, 2023 . These increases were offset by a decrease of interest expense of $1.1 million on advances from the Federal Home Loan Bank in the nine months ended September 30, 2024 , compared to the nine months ended September 30, 2023 . Interest expense on deposits increased $22.0 million to $49.9 million for the nine months ended September 30, 2024 from $28.0 million for the nine months ended September 30, 2023 primarily as a result of an increase in average interest-bearing deposit yields and balances. The increase in average interest-bearing deposit balances was $235.6 million to $1.39 billion during the nine months ended September 30, 2024 as compared to $1.16 billion for the nine months ended September 30, 2023. The increase in the average balance of interest-bearing deposits was primarily a result of a $119.6 million increase in the average balance of money market deposit accounts and by an $86.2 million increase in the average balance of interest-bearing demand deposits. The average cost of deposits was 479 basis points for the nine months ended September 30, 2024, compared to 323 basis points for the nine months ended September 30, 2023. The average rate paid on money market deposits increased 145 basis points to 4.75% for the nine months ended September 30, 2024 from 3.30% for the nine months ended September 30, 2023. The average rate paid on interest bearing demand deposits increased 363 basis points to 4.93% for the nine months ended September 30, 2024 from 1.3% for the nine months ended September 30, 2023 primarily due to market competition and the interest rate environment. The average cost of time deposits increased by 146 basis points to 5.02% for the nine months ended September 30, 2024 as compared to 3.56% for the nine months ended September 30, 2023. The decrease in the average balance of non-interest bearing demand deposits for the nine months ended September 30, 2024, primarily was the result of depositors looking for higher yielding products and market competition. Net Interest Income Net interest income, on a tax equivalent basis, decreased approximately $13.0 million, or 21.7%, to $46.8 million for the nine months ended September 30, 2024 from $59.7 million for the nine months ended September 30, 2023 in connection with our net interest-earning assets decreasing $91.9 million to $480.4 million for the nine months ended September 30, 2024 from $572.4 million for the nine months ended September 30, 2023. The interest rate spread tightened by 128 basis points to 2.02% for the nine months ended September 30, 2024 from 3.30% for the nine months ended September 30, 2023, on a tax equivalent basis. The net interest margin compressed by 115 basis points from 4.34% for the nine months ended September 30, 2023 to 3.19% for the nine months ended September 30, 2024 on a tax equivalent basis. Refer to “Use of Certain Non-GAAP Financial Measures,” below, for a reconciliation of adjusted net interest margin. 35 Average Balances, Net Interest Income, Yields Earned and Rates Paid The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances. For the Nine Months Ended September 30, 2024 2023 Average Balance Interest Income/ Expense (6) Yield/ Cost(5)(6) Average Balance Interest Income/ Expense(6) Yield/ Cost(5)(6) (Dollars in thousands) Interest-earning assets: Loans(1) $ 1,773,050 $ 93,852 7.08% $ 1,640,460 $ 85,530 6.97 % Investment securities: Taxable 55,478 1,262 3.04% 60,640 1,384 3.05 % Tax-exempt 36,670 1,053 3.84% 37,876 1,009 3.56 % Federal funds and interest-bearing deposits 93,853 3,550 5.06% 99,004 3,528 4.76 % Total interest-earning assets 1,959,051 $ 99,717 6.81% 1,837,980 $ 91,451 6.65 % Non-interest-earning assets 125,808 71,452 Total assets $ 2,084,859 $ 1,909,432 Interest-bearing liabilities: Interest bearing demand deposits $ 164,192 $ 6,049 4.93% $ 78,018 $ 761 1.30 % Savings and NOW deposits 51,119 553 1.45% 50,382 400 1.06 % Money market deposits 447,668 15,911 4.75% 328,037 8,091 3.30 % Time deposits 728,459 27,361 5.02% 699,377 18,719 3.58 % Total interest bearing deposits 1,391,438 49,874 4.79% 1,155,814 27,971 3.24 % Federal funds purchased 13,279 575 5.79% 6,878 274 5.33 % Federal Home Loan Bank advances 1,095 46 5.62% 30,531 1,105 4.84 % Subordinated debt 72,802 2,468 4.53% 72,405 2,460 4.54 % Total interest-bearing liabilities 1,478,614 $ 52,963 4.79% 1,265,628 $ 31,810 3.36 % Non-interest-bearing liabilities: Demand deposits and other liabilities 382,591 436,157 Total liabilities 1,861,205 1,701,785 Stockholders’ Equity 223,654 207,647 Total liabilities and stockholders’ equity $ 2,084,859 $ 1,909,432 Net interest income $ 46,754 $ 59,641 Interest rate spread(2) 2.02% 3.30 % Net interest-earning assets(3) $ 480,437 $ 572,352 Net interest margin(4) 3.19% 4.34 % Average interest-earning assets to average interest-bearing liabilities 132.49 % 145.22 % (1) Includes loans classified as non-accrual (2) Interest rate spread represents the difference between the average yield on average interest–earning assets and the average cost of average interest-bearing liabilities. (3) Net interest earning assets represent total average interest–earning assets less average interest–bearing liabilities. (4) Net interest margin represents net interest income divided by total average interest-earning assets. (5) Annualized. (6) Income and yields for all periods presented are reported on a fully tax-equivalent basis using the federal statutory tax rate of 21%. Refer to “Use of Certain Non-GAAP Financial Measures.” 36 Rate/ Volume Analysis The following table presents the effects of changing rates and volumes on net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior average volume). The volume column shows the effects attributable to changes in volume (changes in average volume multiplied by prior rate). Changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately. The Total Increase (Decrease) column represents the sum of the prior columns. For the Nine Months Ended September 30, 2024 and 2023 Increase (Decrease) Due to Total Increase Volume Rate (Decrease) (In thousands) Interest-earning assets: Loans $ 10,008 $ (1,686 ) $ 8,322 Investment securities: Taxable (129 ) 7 (122 ) Tax-exempt 13 31 44 Federal funds and interest-bearing deposits 10 12 22 Total interest-earning assets 9,902 (1,636 ) 8,266 Interest bearing liabilities: Interest-bearing demand deposits 6,571 (1,283 ) 5,288 Savings and NOW accounts 29 124 153 Money market deposit accounts 9,435 (1,615 ) 7,820 Time deposits 3,636 5,006 8,642 Total interest bearing deposits 19,671 2,232 21,903 Federal funds purchased 336 (35 ) 301 Federal Home Loan Bank advances (926 ) (133 ) (1,059 ) Subordinated debt 6 2 8 Total interest-bearing liabilities 19,087 2,066 21,153 Change in net interest income $ (9,185 ) $ (3,702 ) $ (12,887 ) Provision for Credit Losses Management believes that the provision recorded for the period ended September 30, 2024 reflects a balance sufficient to provide for each allowance segment, using objective data and information available to us at this time in evaluating our standard analysis of local/national economic data, changes in underwriting quality, portfolio concentrations, experience of lending team, credit quality and supportable forecasts. We will continuously review the credit portfolio to determine the depth and breadth of potential credit losses. As we obtain additional information and to more accurately assess the full nature and extent of elevated risk to the credit portfolio that may arise, additional provision expenses may be required. The provision for credit losses, which is an operating expense, is maintained to ensure that the allowance for credit losses is maintained at levels we consider necessary and appropriate to absorb expected credit losses at a balance sheet date. In determining the level of the allowance for credit losses on loans and off-balance sheet credit exposure, we consider past and current loss experience, evaluations of real estate collateral, current and future economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of non-performing loans. The amount of the allowance is based on estimates, and actual losses may vary from such estimates as more information becomes available over time or economic conditions change. This evaluation is inherently subjective, as it requires estimates and assumptions that are susceptible to significant revision as circumstances change or as more information becomes available. The allowance for credit losses is assessed monthly and provisions are made for credit losses as required in order to maintain the overall allowance. The provision for credit losses on loans increased by $3.3 million for the nine months ended September 30, 2024 from a provision for credit losses on loans of 934,000 for the nine months ended September 30, 2023. The Company charged off $2.4 million in loans during the year. The Company also added $1 million to the allowance for credit loss reserves for loan growth and in conjunction with heightened risk factors. Loan originations, which totaled approximately $227.7 million for the nine months ended September 30, 2023 decreased $80.1 million to $147.6 million for the nine months ended September 30, 2024. The Company did see an uptick in non-performing loans at September 30, 2024, with a balance of $28.3 million. 42% of this balance is attributable to one relationship and the remaining 58% are confined to nine relationships that experienced liquidity constraints. The Company is proactive in identifying any potential issues and acts decisively when prudent. As of September 30, 2024, the Company had only 6.86% criticized and classified loans to total gross loans. The recovery of credit losses on off-balance sheet credit exposure was $864,000 for the nine months ended September 30, 2024 and provision for this exposure was $242,000 for the nine months ended September 30, 2023. The decrease in off-balance sheet credit exposure was primarily related to the utilization of revolving lines of credit. During the nine months ended September 30, 2024, special mention (criticized) loans increased $26.8 million. Substandard (classified) loans increased $56.4 million as of September 30, 2024 to a balance of $77.6 million. Of the classified loans as of September 30, 2024, approximately 65% of the balances are related to a subset of loans that share similar characteristics. This subset was originated during 2021 and experienced swings in operating costs, permit delays, and liquidity tightening as a result of the sharp increase in interest rates. The Company routinely charges off potential exposure as identified, and identifies and executes the best course of action to minimize any further loss exposure. Approximately 35% of classified loans are made up of smaller credits that have been either placed on nonaccrual or the Company is monitoring closely to be able to assess repayment. During the nine months ended September 30, 2024, the Company has adjusted certain factors within the allowance for credit loss model to respond to the current increase in nonperforming loans and directional consistency for credit quality indicators. As interest rates have risen significantly over the last two years, management believes in taking a proactive approach to risk management in the loan portfolio, particularly as credits are due to reprice in a new rate environment. During the nine months ended September 30, 2024, there was $2.4 in charge-offs incurred and recoveries of $19,000 were received. 37 Non-Interest Income Non-interest income decreased $137,000, or 5.3%, to $2.4 million for the nine months ended September 30, 2024 from $2.6 million for the nine months ended September 30, 2023. The decrease in non-interest income was primarily due to decreases in deposit account service charges in the nine months ended September 30, 2024 compared to the same period in 2023. Additionally, there was nonrecurring prepayment fee income recognized in the nine months ended September 30, 2023 that contributed to the decrease of $65,000 in other fee income during 2024. The decrease in account service charges was offset by an increase $99,000 in bank owned life insurance income for the nine months ended September 30, 2024, as a result of the elevated interest rate environment compared to same period in the prior year. The Company continues to focus on increasing fee income as it continues to add services that strategically benefit our customers. The Company recognized a loss of $48,000 on a security that was called and replaced with more favorable terms that benefited both the bond issuers and bond holders during the nine months ended September 30, 2024. Non-Interest Expense Non-interest expense increased $4.2 million, or 12.4%, to $38.5 million for the nine months ended September 30, 2024, from $34.3 million for the nine months ended September 30, 2023 primarily because of increases in furniture and equipment expenses of $823,000 and other various operating expenses of $2.1 million. Salaries and employee benefits increased $1.1 million for the nine months ended September 30, 2024 compared to the same period in 2023. The Company added fifteen employees as the franchise continues to grow and build out it strategic initiatives. Outside services, which includes professional fees for attorneys, accountants and consultants, increased $767,000 to $2.5 million for the nine months ended September 30, 2024, from $1.7 million for the nine months ended September 30, 2023. This increase is driven by regulatory requirements in audits and routine legal assistance as the Company grows. Information security tools and other software expenses, which are subsets of furniture and equipment expenses, increased approximately $358,000 to $658,000 for the nine months ended September 30, 2024, from $300,000 for the nine months ended September 30, 2023. Franchise tax, a subset of other operating expenses, increased approximately $294,000 to $1.7 million for the nine months ended September 30, 2024, from $1.4 million for the nine months ended September 30, 2023 because of the level of the Company's capital as of September 30, 2024 compared to the capital levels as of September 30, 2023. Offsetting these increases was a decrease in advertising and marketing expenses of $473,000, or 22.8%, to $1.6 million for the nine months ended September 30, 2024 from $2.1 million for the nine months ended September 30, 2023 due to timing and being selective in initiatives to further enhance the Company's brand. Income Tax Expense Income tax expense decreased $4.2 million, or 82.4%, to a tax expense of $900,000 for the nine months ended September 30, 2024 from a tax expense of $5.1 million for the nine months ended September 30, 2023. The decrease in federal income tax expense for the nine months ended September 30, 2024 compared to the same period a year ago was driven by the decrease in income before income taxes of $19.5 million, to income before income tax of $7.1 million for the nine months ended September 30, 2024 compared to income before income tax expense of $26.6 million for the same period in the prior year. The Company accrues taxes based on an estimated tax rate basis using inputs and assumptions about pre-tax income. As the inputs and assumptions change, the estimated tax accruals will change throughout the year. The Company was able to apply and claim a research and development tax credit of approximately $245,000 for its associated work in developing a software platform. The Company also invests in projects that have tax credit benefits in order to help reduce its overall tax liability, timing of these tax credits are layered into our overall assessment. As a result of expanding its footprint, the Company has included assessments in income tax expense for potential state tax liabilities which totaled $185,000 for the nine months ended September 30, 2024. For the nine months ended September 30, 2024, the Company had an effective income tax expense rate of 12.7%, compared to an effective income tax expense rate of 19.3% for the nine months ended September 30, 2023. Comparison of Statements of Financial Condition at September 30, 2024 and December 31, 2023 Total Assets Total assets increased $189.2 million, or 9.3%, to $2.2 billion at September 30, 2024 from $2.0 billion at December 31, 2023. The increase was primarily the result of increases in the loan portfolio of $70.4 million and an increase in federal funds sold of $130.2 million as of September 30, 2024. Investment Securities Investment securities decreased $309,000, or 0.3%, from $101.6 million at December 31, 2023 to $101.2 million at September 30, 2024. The decrease was primarily due to normal paydown of available-for-sale securities and amortization of certain restricted stock securities, which was offset by new investments of restricted equities of $2.4 million. At September 30, 2024, our held-to-maturity portion of the securities portfolio, at amortized cost, was $16.0 million, and our available-for-sale portion of the securities portfolio, at fair value, was $58.5 million compared to our held-to-maturity portion of the securities portfolio of $17.3 million and our available-for-sale portion of the securities portfolio of $59.9 million at December 31, 2023. Net Loans Net loans increased $70.4 million, or 4.1%, to $1.78 billion at September 30, 2024 from $1.71 billion at December 31, 2023. Residential real estate loans decreased $1.5 million, or 3.1%, to $446.1 million at September 30, 2024 from $474.6 million at December 31, 2023. Commercial real estate loans increased by $127.5 million from $743.8 million at December 31, 2023 to $871.3 million at September 30, 2024. Commercial and industrial loans increased by $30.8 million from $75.4 million at December 31, 2023 to $106.2 million at September 30, 2024. Construction and land development loans decreased $56.2 million to $373.5 million at September 30, 2024 from $429.6 million at December 31, 2023. Consumer loans decreased by $1.6 million from $3.6 million at December 31, 2023 to $2.0 million at September 30, 2024. The decrease in consumer loans is primarily a result of management’s decision to let the indirect lending portfolio amortize off the balance sheet. 38 A significant portion of the loan portfolio consists of commercial, construction and commercial real estate loans, primarily made in the Washington, D.C. metropolitan area and secured by real estate or other collateral in that market. Although these loans are made to a diversified pool of unrelated borrowers across numerous businesses, adverse developments in the Washington, D.C. metropolitan real estate market could have an adverse impact on this portfolio of loans and the Company’s income and financial position. While our basic market area is the Washington, D.C. metropolitan area, the Bank has made loans outside that market area where the applicant is an existing customer, and the nature and quality of such loans was consistent with the Company's lending policies. The federal banking Agencies issued guidance in 2006 which addresses institutions with increased concentrations of commercial real estate (CRE) loans. The guidance does not establish specific CRE lending limits; rather, it promotes sound risk management practices and appropriate levels of capital that will enable institutions to continue to pursue CRE lending in a safe and sound manner. In developing this guidance, the Agencies recognized that different types of CRE lending present different levels of risk, and that consideration should be given to the lower risk profiles and historically superior performance of certain types of CRE, such as well-structured multifamily housing finance, when compared to others, such as speculative office space construction. As discussed under “CRE Concentration Assessments,” institutions are encouraged to segment their CRE portfolios to acknowledge these distinctions for risk management purposes. The guidance focuses on those CRE loans for which the cash flow from the real estate is the primary source of repayment rather than loans to a borrower for which real estate collateral is taken as a secondary source of repayment or through an abundance of caution. Thus, for the purposes of the guidance, CRE loans include those loans with risk profiles sensitive to the condition of the general CRE market (for example, market demand, changes in capitalization rates, vacancy rates, or rents). CRE loans are land development and construction loans (including 1- to 4-family residential and commercial construction loans) and other land loans. CRE loans also include loans secured by multifamily property, and nonfarm nonresidential property where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Excluded from the scope of this Guidance are loans secured by nonfarm nonresidential properties where the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property. As part of their ongoing supervisory monitoring processes, the Agencies use certain criteria to identify institutions that are potentially exposed to significant CRE concentration risk. An institution that has experienced rapid growth in CRE lending, has notable exposure to a specific type of CRE, or is approaching or exceeds the following supervisory criteria may be identified for further supervisory analysis of the level and nature of its CRE concentration risk: 1. Total reported loans for construction, land development, and other land represent 100 percent or more of the institution’s total risk-based capital; or 2. Total commercial real estate loans as defined in this guidance represent 300 percent or more of the institution’s total risk-based capital, and the outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50 percent or more during the prior 36 months. The Agencies use the criteria as a preliminary step to identify institutions that may have CRE concentration risk. Because regulatory reports capture a broad range of CRE loans with varying risk characteristics, the supervisory monitoring criteria do not constitute limits on an institution’s lending activity but rather serve as high-level indicators to identify institutions potentially exposed to CRE concentration risk. The Company holds a concentration in commercial real estate loans. As of September 30, 2024, construction, land development and other land loans represented 118.2% of consolidated risk-based capital. Total commercial real estate loans as defined by the Agency guidance represented 360.3% of consolidated risk-based capital. During the prior 36 months, the Company has experienced an increase in its commercial real estate portfolio by 76%. The management team has extensive experience in underwriting commercial real estate loans and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio. The Board of Directors has established internal maximum limits on CRE to better manage and control the exposure to property classes during periods of changing economic conditions. The Board of Directors also has minimum targets for regulatory capital ratios that are in excess of well capitalized ratios. Our risk management process begins with a robust underwriting program. The underwriting and risk rating of all loans is completed by an underwriting team that is independent of the originating lender(s). The underwriting analysis of commercial real estate loans includes pre-origination stress testing utilizing the portfolio stress testing methods to fully understand the potential exposure before we originate the credit. Once originated, each loan receives ongoing quarterly stress tests to evaluate the risk profile over the life of the credit. We stress test earning assets on a quarterly basis and measure the results against the Bank's risk-based capital. For commercial loans, residential real estate loans, owner-occupied commercial real estate loans and consumer installment loans, we multiply the total outstanding amount for each loan category by our highest quarter historical loss for that category as a surrogate in order to calculate a stressed loss. 39 For our non-owner occupied commercial real estate loans, we use three separate methodologies in our stress test. If a property fails more than one of the three tests, we extend the test with the highest exposure value and add an additional 10% for selling costs. • An immediate and sustained 3.0% increase in interest rates, • An immediate and sustained 5.0% increase in vacancy rates, and • An immediate and sustained 2.0% change in the capitalization rate, or “cap rate.” We stress test the construction lending portfolio by applying exponential discounting (using a "k factor" of 2) to each project based upon its percentage of completion. The project is stressed using the as-is and as-complete appraised values and assumes 10% selling costs. For all other loans, we utilize the Bank's historic loss rates or if not available, the average loss rates of FFIEC Uniform Bank Performance Report Group 4 banks, for bank owned life insurance we utilize default rates from S&P Global ratings, and for securities we obtain an independent fair market value and if it is less than the book value, we subtract the fair market value from the book value to determine the stress loss. The following table shows the Company's earning assets and the results of the stress test performed for the periods indicated. September 30, 2024 Outstanding Balance Stress Test Results (1) Stressed Loss Percent (Dollars in thousands) Earning Asset Component Construction and land development $ 373,486 $ (7,488 ) (2.00 )% Non-Owner Occupied CRE (2) 765,344 (11,404 ) (1.49 )% All Other Loans (3) 660,271 (26,499 ) (4.01 )% AFS Securities (Amortized Cost) 66,767 (6,374 ) (9.55 )% HTM Securities 16,016 (88 ) (0.55 )% Swap Portfolio — — — Bank Owned Life Insurance 39,203 (48 ) (0.12 )% Total $ 1,921,087 $ (51,901 ) (2.70 )% (1) Net tax effective loss at the statutory rate of 21% (2) Non-Owner Occupied CRE includes call codes 1E2 and 1D (3) The historical loss percentage for All Other Loans changed between December 31, 2023 and September 30, 2024 December 31, 2023 Outstanding Balance Stress Test Results (1) Stressed Loss Percent (Dollars in thousands) Earning Asset Component Construction and land development $ 429,637 $ (5,831 ) (1.36 )% Non-Owner Occupied CRE (2) 732,815 (8,625 ) (1.18 )% All Other Loans 564,639 (22,024 ) (3.90 )% AFS Securities (Amortized Cost) 69,665 (7,478 ) (10.73 )% HTM Securities 17,275 (112 ) (0.65 )% Swap Portfolio — — — Bank Owned Life Insurance 38,318 (49 ) (0.13 )% Total $ 1,852,349 $ (44,119 ) (2.38 )% (1) Net tax effective loss at the statutory rate of 21% (2) Non-Owner Occupied CRE includes call codes 1E2 and 1D 40 The total estimated stress test loss is deducted from capital and we recalculate the capital ratios. As shown in the tables below, as of September 30, 2024 and December 31, 2023, the post-stress capital ratios well exceed our Board target ratios as well as Agency minimums (with buffer). For Non-Owner-Occupied CRE & Multi-family the stress test is bifurcated with a low-end loss estimate and high-end estimate. The Low Estimate produces loss amounts for loans that are flagged for default (per the model) and floors the loss amount at zero. The High Estimate executes similar to the low estimate but floors the Loss-Given-Default rate at 10%, per Basel Committee on Banking Supervision rules. It also has a collective loss held on all loans regardless of if the loan is flagged for default. September 30, 2024 Bank Capital Adequacy Ratios Pre- and Post-Stress (Tax-Effective) Well Capitalized with Buffer Bank Minimum Target As of September 30, 2024 Post Stress, Low Estimate Post Stress, High Estimate Community Bank Leverage Ratio 8.00 % 8.50 % 13.98 % 12.47 % 12.29 % Leverage Ratio 5.00 % 8.00 % 13.98 % 12.47 % 12.29 % Total Risk-Based Capital 10.00 % 11.50 % 16.96 % 15.23 % 15.03 % Tier 1 Risk-Based Capital 8.00 % 9.50 % 15.97 % 14.24 % 14.04 % Common Equity Tier 1 Risk-Based Capital 6.50 % 8.00 % 15.97 % 13.90 % 13.70 % December 31, 2023 Bank Capital Adequacy Ratios Pre- and Post-Stress (Tax-Effective) Well Capitalized with Buffer Bank Minimum Target As of December 31, 2023 Post Stress, Low Estimate Post Stress, High Estimate Community Bank Leverage Ratio 8.00 % 8.50 % 14.66 % 13.74 % 13.59 % Leverage Ratio 5.00 % 8.00 % 14.66 % 13.74 % 13.59 % Total Risk-Based Capital 10.00 % 11.50 % 17.18 % 16.17 % 16.00 % Tier 1 Risk-Based Capital 8.00 % 9.50 % 16.22 % 15.20 % 15.04 % Common Equity Tier 1 Risk-Based Capital 6.50 % 8.00 % 16.22 % 14.79 % 14.62 % The following two tables break down the September 30, 2024 and December 31, 2023 non-owner occupied CRE portfolio balances by showing the current balance in each sub-category and location. The tables also display very favorable weighted average interest rates and weighted average loan-to-values for both periods. The weighted average occupancy percentages are also broadly favorable for both periods. September 30, 2024 (Dollars in thousands) Non-Owner Occupied CRE (2) Location Weighted Average Rate Weighted Average Loan-to-Value (1) Weighted Average Occupancy % DC MD VA Other Total Multifamily $ 220,282 $ 7,257 $ 17,449 $ — $ 244,988 6.59 % 73 % 73 % Office Mixed use 609 2,690 2,957 — 6,256 5.41 % 64 % 81 % Medical — 22,250 14,894 449 37,593 5.61 % 63 % 69 % Office 1,307 1,891 3,534 — 6,732 6.26 % 56 % 90 % Office to Residential Conversion 11,900 — 32,135 — 44,035 11.01 % 58 % N/A Hospitality 28,926 75,825 87,743 — 192,494 6.42 % 65 % N/A (3) Retail/Commercial 58,852 42,354 96,580 9,162 206,948 6.30 % 57 % 78 % Industrial — 14,851 5,567 5,880 26,298 7.23 % 57 % 90 % Total Non-Owner Occupied CRE 321,876 167,118 260,859 15,491 765,344 6.59 % 64 % 69 % Construction and Land Development Multifamily 92,385 — 13,250 14,299 119,934 7.78 % 65 % N/A 1-4 family 71,811 — 51,716 775 124,302 8.87 % 64 % N/A Retail/Commercial 19,108 — — — 19,108 8.57 % 69 % N/A Industrial 36,516 — 1,030 — 37,546 7.00 % 57 % N/A Mixed use 11,829 — — — 11,829 7.90 % 59 % N/A Self-storage — — — 14,541 14,541 7.95 % 30 % N/A Other 247 10,523 27,578 7,878 46,226 8.12 % 45 % N/A Total Construction and Land Development 231,896 10,523 93,574 37,493 373,486 8.24 % 60 % N/A Total Construction, Land Development, and Non-Owner Occupied CRE $ 553,772 $ 177,641 $ 354,433 $ 52,984 $ 1,138,830 (1) Loan-to-value is based on maximum potential outstanding at time of origination (2) Non-Owner Occupied CRE includes call codes 1E2 and 1D (3) Hospitality relies upon individual STR data 41 December 31, 2023 (Dollars in thousands) Non-Owner Occupied CRE (2) Location Weighted Average Rate Weighted Average Loan-to-Value (1) Weighted Average Occupancy % DC MD VA Other Total Multifamily $ 246,153 $ 7,357 $ 17,530 $ — $ 271,040 6.27 % 64 % 81 % Office: Mixed use 9,445 2,729 4,395 — 16,569 6.65 % 36 % 87 % Medical — 22,428 15,297 499 38,224 5.61 % 43 % 69 % Office — 1,892 6,386 — 8,278 6.64 % 43 % 87 % Office to Residential Conversion — — 21,550 — 21,550 9.50 % 48 % N/A Hospitality — 60,530 73,677 — 134,207 6.77 % 60 % N/A (3) Retail/Commercial 60,133 42,084 94,400 11,977 208,594 6.06 % 44 % 80 % Industrial 753 14,007 7,809 6,015 28,584 7.29 % 63 % 96 % Other — — — 5,769 5,769 6.00 % 60 % 0 % Total Non-Owner Occupied CRE 316,484 151,027 241,044 24,260 732,815 6.46 % 57 % 71 % Construction and Land Development Multifamily 103,608 — 11,060 14,563 129,231 8.44 % 62 % N/A 1-4 family 95,764 — 54,947 — 150,711 8.99 % 63 % N/A Office: 1,328 — — — 1,328 4.85 % 79 % N/A Retail/Commercial 17,798 — — — 17,798 9.13 % 72 % N/A Raw land — 3,690 15,457 8,000 27,147 8.00 % 36 % N/A Hospitality — 7,070 — — 7,070 9.50 % 63 % N/A Industrial 25,110 — 1,477 7,458 34,045 7.27 % 51 % N/A Mixed use 9,511 — 15,730 — 25,241 9.17 % 68 % N/A Other 1,757 23,081 12,228 — 37,066 9.00 % 54 % N/A Total Construction and Land Development 254,876 33,841 110,899 30,021 429,637 8.66 % 60 % N/A Total Construction, Land Development, and Non-Owner Occupied CRE $ 571,360 $ 184,868 $ 351,943 $ 54,281 $ 1,162,452 (1) Loan-to-value is based on maximum potential outstanding at time of origination (2) Non-Owner Occupied CRE includes call codes 1E2 and 1D (3) Hospitality relies upon individual STR data The Company also underwrites and originates owner-occupied commercial real estate loans. These loans are typically term loans made to support properties that rely upon the operations of the business occupying the property for repayment. The Agencies specifically excluded owner-occupied commercial real estate from their concentration guidance, as the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property. The following two tables depict a well-diversified portfolio of owner-occupied commercial real estate as of September 30, 2024 and December 31, 2023. The properties are distributed nicely among the Company's footprint. This loan segment continues to perform very well and is supported by strong loan-to-values (LTVs). The following table sets forth our owner-occupied CRE portfolio by the business industry groups that occupy the properties for the periods indicated. September 30, 2024 (Dollars in thousands) Owner Occupied CRE Location Weighted Average Rate Weighted Average Loan-to-Value (1) DC MD VA Other Total Accommodation and food services $ 18,796 $ 2,944 $ 10,842 $ 10,982 $ 43,564 5.94 % 72 % Administrative and support — 4,500 4,445 — 8,945 5.49 % 56 % Arts and recreation — — 36,750 — 36,750 5.97 % 62 % Construction services 13,732 4,144 15,827 — 33,703 5.76 % 69 % Education services 28,190 — 5,693 — 33,883 5.98 % 59 % Health care 4,726 17,538 16,058 136 38,458 7.12 % 65 % Information — — 4,376 — 4,376 4.37 % 50 % Manufacturing — — 5,977 — 5,977 4.22 % 56 % Other Services 6,056 15,986 61,610 935 84,587 6.21 % 69 % Professional, scientific, tech services 2,862 — 5,640 — 8,502 5.42 % 73 % Real estate and rental leasing 742 3,753 3,726 — 8,221 6.33 % 70 % Retail trade 874 9,222 25,746 — 35,842 5.78 % 68 % Wholesale trade — 169 890 7,057 8,116 5.96 % 73 % Total Owner Occupied CRE $ 75,978 $ 58,256 $ 197,580 $ 19,110 $ 350,924 6.03 % 66 % (1) Loan-to-value is based on maximum potential outstanding at time of origination 42 December 31, 2023 (Dollars in thousands) Owner Occupied CRE Location Weighted Average Rate Weighted Average Loan-to-Value (1) DC MD VA Other Total Accommodation and food services $ 17,925 $ 2,995 $ 12,186 $ 5,605 $ 38,711 5.68 % 69 % Administrative and support — 4,500 4,557 — 9,057 5.49 % 56 % Arts and recreation — — 37,127 — 37,127 6.14 % 62 % Construction services 5,173 4,035 16,278 — 25,486 5.23 % 73 % Education services 29,169 — 5,581 — 34,750 5.86 % 61 % Health care 4,810 993 16,836 139 22,778 5.43 % 76 % Manufacturing — — 6,218 — 6,218 4.33 % 55 % Religious and other 6,141 8,047 32,305 946 47,439 5.78 % 66 % Professional, scientific, tech services 2,908 — 10,474 — 13,382 5.06 % 75 % Real estate and rental leasing — 2,281 1,168 — 3,449 6.55 % 62 % Retail trade 894 6,692 25,249 2,670 35,505 5.83 % 69 % Wholesale trade — 184 837 7,129 8,150 5.98 % 73 % Total Owner Occupied CRE $ 67,020 $ 29,727 $ 168,816 $ 16,489 $ 282,052 5.72 % 67 % (1) Loan-to-value is based on maximum potential outstanding at time of origination Allowance for Credit Losses - Loans The allowance for credit losses on loans represents an amount that, in our judgment, will be adequate to absorb current and expected losses in the loan portfolio. The provision for credit losses on loans increases the allowance, and loans charged off, net of recoveries, reduce the allowance. The table below summarizes the allowance activity for the periods indicated: For the Nine Months Ended September 30, For the Year Ended December 31, 2024 2023 (Dollars in thousands) Balance at beginning of year $ 16,506 $ 14,114 Impact of adopting ASC 326 — 895 Charge-offs: Residential real estate (132 ) — Construction and land development (2,273 ) — Commercial and industrial (4 ) (462 ) Consumer (9 ) (6 ) Total charge-offs (2,418 ) (468 ) Recoveries: Residential real estate — 7 Commercial and industrial 10 — Consumer 9 15 Total recoveries 19 22 Net charge-offs (2,399 ) (446 ) Provision for credit losses - loans 4,220 1,943 Balance at end of period $ 18,327 $ 16,506 Ratios: Net charge-offs to average loans outstanding 0.14 % 0.03 % Allowance for credit losses on loans to non-performing loans 64.84 % 16.44X Allowance for credit losses on loans to gross loans at end of period 1.02 % 0.96 % 43 Nonperforming Assets The following table presents information regarding nonperforming assets at the dates indicated: September 30, December 31, 2024 2023 (Dollars in thousands) Non-accrual loans: Residential real estate: Single family 1,910 149 Construction and land development 13,331 — Commercial Real Estate: Non owner-occupied 11,900 — Commercial and industrial 1,123 851 Total non-accrual loans 28,264 1,000 Loans 90 days past due and still accruing — 4 Total non-performing loans 28,264 1,004 Other real estate owned — — Total non-performing assets $ 28,264 $ 1,004 Ratios: Total non-performing loans to gross loans receivable 1.57 % 0.06 % Total non-performing loans to total assets 1.27 % 0.05 % Total non-performing assets to total assets 1.27 % 0.05 % Deposits Deposits increased $207.5 million, or 12.3% to $1.89 billion at September 30, 2024 from $1.69 billion at December 31, 2023. Our core deposits increased $215.2 million, or 17.1%, to $1.47 billion at September 30, 2024 from $1.25 billion at December 31, 2023. Non-interest bearing demand deposits decreased $17.0 million, or 4.7%, to $347.6 million at September 30, 2024 from $364.6 million at December 31, 2023. Interest bearing demand deposits increased $60.4 million, or 44.0%, to $197.5 million at September 30, 2024 from $137.1 million at December 31, 2023. Time deposits increased $138.4 million, or 19.9%, to $834.7 million at September 30, 2024 from $696.3 million at December 31, 2023. Money market demand deposits increased $9.8 million, or 1.4%, to $451.9 million at September 30, 2024 from $442.2 million at December 31, 2023. The increase in money market deposit accounts and time deposits were primarily the result of the higher rate environment, deposit competition, and customers looking for additional interest-bearing options. The following table presents the Company’s deposits segregated by major category as of September 30, 2024 and December 31, 2023: September 30, 2024 December 31, 2023 (Dollars in thousands) Deposit type: Balance Percent % Balance Percent % Interest bearing demand deposits $ 197,527 10.3 % $ 137,128 8.2 % Savings and NOWdeposits 61,893 3.3 % 45,878 2.7 % Money market demand deposits 451,936 23.9 % 442,179 26.2 % Time deposits 834,738 44.1 % 696,336 41.3 % Interest bearing deposits 1,546,094 81.6 % 1,321,521 78.4 % Non-interest bearing demand deposits 347,575 18.4 % 364,606 21.6 % Total deposits $ 1,893,669 100.0 % $ 1,686,127 100.0 % 44 The Company uses wholesale deposits as a funding source in addition to customer deposits. Wholesale deposits provide a diversified and stable source of funding during times of market volatility. As of September 30, 2024, the Company had $422.6 million of total wholesale deposit balances, a decrease of $10.4 million compared to December 31, 2023, which totaled $433.0 million. Given the interest rate environment and strategic initiatives, the Company replaced maturing lower yielding wholesale CDs with higher market rate CDs. The replacement CDs include call options at our discretion if economic conditions changed. The Company also utilized additional wholesale demand deposits to provide liquidity and more effectively balance our interest rate sensitivity. During the nine months ended September 30, 2024, total wholesale deposit funding accounted for approximately 32% of our interest expense. The following table presents the Company's total wholesale deposit composition, concentrations, current rate and remaining duration, if applicable as of September 30, 2024. September 30, 2024 December 31, 2023 (Dollars in thousands) Wholesale Money Market Deposits Accounts (MMDA) Percent % Weighted Average Rate Weighted Remaining Maturity (in months) Percent % Weighted Average Rate Weighted Remaining Maturity (in months) Wholesale MMDAs $ 50,464 11.9 % 5.15 % N/A $ 120,536 27.8 % 5.75 % N/A Wholesale Time Deposits Listing Service CDs (1) 27,862 6.6 % 4.86 % 12 34,481 8.0 % 4.86 % 5 Wholesale CDs: Term 161,357 38.2 % 4.67 % 10 148,906 34.4 % 4.32 % 7 Term with Call Option 182,957 43.3 % 5.16 % 38 129,083 29.8 % 5.22 % 30 Total Wholesale CDs 344,314 277,989 Total Wholesale Deposits $ 422,640 100.0 % $ 433,006 100.0 % (1) Listing service CDs are excluded from being classified as wholesale deposits, per FDIC call report instructions Regulatory Defined Wholesale Deposits Each quarter the Bank files a bank call report with the FDIC, which has a specific way it defines wholesale brokered deposits. As of September 30, 2024, the Company had $394.8 million of wholesale deposits outstanding, as defined by FDIC, a decrease of $3.7 million from December 31, 2023. In addition, pursuant to rule 12 CFR 337.6(e), well-capitalized and well-rated institutions are not required to treat reciprocal deposits as wholesale deposits up to the lesser of 20 percent of their total liabilities or $5 billion. Reciprocal core deposits exceeding this threshold must be reported additionally as wholesale deposits for call report purposes only. As of September 30, 2024, the Company additionally reported $293.1 million in reciprocal deposits considered wholesale for call report purposes only, bringing regulatory defined wholesale deposits to $687.9 million as of September 30, 2024. As of December 31, 2023, the Company additionally reported $176.3 million in reciprocal deposits considered wholesale for call report purposes only, bringing regulatory defined wholesale deposits to $609.3 million as of December 31, 2024. As of September 30, 2024 and December 31, 2023, all of the Company's reciprocal deposits were core deposits from customers who placed their deposits in the reciprocal network for additional FDIC insurance coverage. 45 Liquidity and Capital Resources Liquidity Management. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Deposits are the primary source of funds for lending and investing activities. The Company uses wholesale deposits in addition to customer deposits, as funding sources. Scheduled payments, as well as prepayments, and maturities from portfolios of loans and investment securities also provide a stable source of funds. FHLB secured advances, other secured borrowings, federal funds purchased, and other short-term unsecured borrowed funds, as well as longer-term debt issued through the capital markets, all provide supplemental liquidity sources. Additional liquidity can be obtained through the Federal Reserve Bank discount window. The Company’s funding activities are monitored and governed through the Company’s asset/liability management process. MainStreet Bank had no federal funds purchased outstanding and an additional secured borrowing capacity of $521.3 million as of September 30, 2024. Additionally, at September 30, 2024, we had the ability to borrow up to $144.0 million from other financial institutions. The Board of Directors, management, and the Asset Liability Committee (ALCO) are responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enough sources of liquidity to satisfy our short and long-term liquidity needs as of September 30, 2024. We monitor and adjust our investments in liquid assets based upon our assessment of expected loan demand; expected deposit flows; yields available on interest-earning deposits and securities; and the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short-and intermediate-term securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents, which include federal funds sold and interest-earning deposits in other banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At September 30, 2024, cash and cash equivalents totaled $232.1 million. The Company has availability on secured and unsecured lines for an additional $665.3 million. Finally, securities classified as available-for-sale, which provide additional sources of liquidity, totaled $58.5 million at September 30, 2024. Our cash flows are provided by and used in three primary activities: operating activities, investing activities, and financing activities. Net cash provided by operating activities was $9.3 million and $26.3 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. There were no sales of securities in the nine months ended September 30, 2024 or for nine months ended September 30, 2023. Net cash used in investing activities, which consist primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans and proceeds from maturing securities, was $79.6 million and $102.1 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. Net cash provided by financing activities was $187.9 million and $66.4 for the nine months ended September 30, 2024 and 2023, respectively, which consisted primarily of increases in interest bearing deposits of $224.6 million for the nine months ended September 30, 2024, partially offset by repayments of federal funds purchased of $15.0 million and decreased non-interest bearing deposits of $17.0 million. We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily. We anticipate that we have sufficient funds to meet our current funding commitments. Certificates of deposit due within one year of September 30, 2024, totaled $564.0 million of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits, Federal Home Loan Bank advances and commitments from other financial institutions. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on experience that a significant portion of such deposits will remain with us. We can attract and retain deposits by adjusting the interest rates offered. Effects of Inflation. In an effort to combat inflation, the Federal Reserve, through the FOMC, increased rates a total of 5.25% during 2022 and through the first eight months of 2023, which has had a negative effect on the price of existing securities. The FOMC did reduce interest rates by 50 basis points in September 2024 to a target range of 5.00% to 4.75%. As a result of sustained high interest rates, the Company recorded an accumulated other comprehensive loss on secu rities available for sale of approximately $ 6.4 million as of September 30, 2024, compared to recording accumulated other comprehensive loss in the amount of $7.5 million as of December 31, 2023. This unrealized loss is counter to total equity growth during 2023 and 2024 that had otherwise continued capital addition through net earnings. Management does not anticipate the unrealized losses to result in write-down through earnings as they do not reflect credit deterioration within the portfolio. Capital Management. MainStreet Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2024, MainStreet Bank exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines. Regulatory Capital Information presented for September 30, 2024 and December 31, 2023, reflects the Basel III capital requirements that became effective January 1, 2015 for the Bank. Under these capital requirements and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk- weightings and other factors. 46 The Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). Under the Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer for 2024 and 2023 is 2.50%. Quantitative measures established by regulation to ensure capital adequacy require the Bank 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 September 30, 2024, the Bank meet 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 September 30, 2024 Total capital (to risk-weighted assets) $ 316,110 16.96 % $ 149,117 ≥ 8.0% $ 186,396 ≥ 10.0% Common equity tier 1 capital (to risk-weighted assets) $ 297,638 15.97 % $ 83,878 ≥ 4.5% $ 121,157 ≥ 6.5% Tier 1 capital (to risk-weighted assets) $ 297,638 15.97 % $ 111,838 ≥ 6.0% $ 149,117 ≥ 8.0% Tier 1 capital (to average assets) $ 297,638 13.98 % $ 85,162 ≥ 4.0% $ 106,452 ≥ 5.0% As of December 31, 2023 Total capital (to risk-weighted assets) $ 312,069 17.18 % $ 145,300 ≥ 8.0% $ 181,625 ≥ 10.0% Common equity tier 1 capital (to risk-weighted assets) $ 294,553 16.22 % $ 81,731 ≥ 4.5% $ 118,056 ≥ 6.5% Tier 1 capital (to risk-weighted assets) $ 294,553 16.22 % $ 108,975 ≥ 6.0% $ 145,300 ≥ 8.0% Tier 1 capital (to average assets) $ 294,553 14.66 % $ 80,375 ≥ 4.0% $ 100,469 ≥ 5.0% Off-Balance Sheet Arrangements and Contractual Obligations Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At September 30, 2024, we had outstanding loan commitments of $237.2 million and $311,000 in outstanding stand-by letters of credit. We anticipate that we will have sufficient funds available to meet our current lending commitments. Use of Certain Non-GAAP Financial Measures The accounting and reporting policies of the Company conform to U.S. GAAP and prevailing practices in the banking industry. However, certain non-GAAP measures are used by management to supplement the evaluation of the Company’s performance. These measures include adjusted net interest income and net interest margin. Management believes that the use of these non-GAAP measures provides meaningful information about operating performance by enhancing comparability with other financial periods and other financial institutions. The non-GAAP measures used by management enhance comparability by excluding the effects of items that do not reflect ongoing operating performance, including non-recurring gains or charges. These non-GAAP financial measures should not be considered an alternative to U.S. GAAP-basis financial statements, and other bank holding companies may define or calculate these or similar measures differently. A reconciliation of the non-GAAP financial measures used by the Company to evaluate and measure the Company’s performance to the most directly comparable U.S. GAAP financial measures is presented below. For the three months ended September 30, For the nine months ended September 30, (Dollars in thousands, except for per share data) 2024 2023 2024 2023 Net interest margin, fully-taxable equivalent (FTE) Net interest income (GAAP) $ 15,343 $ 18,772 $ 46,533 $ 59,429 FTE adjustment on tax-exempt securities 78 71 221 212 Net interest income (FTE) (non-GAAP) $ 15,421 $ 18,843 $ 46,754 $ 59,641 Average interest earning assets 2,002,745 1,856,075 1,959,051 1,837,980 Net interest margin (GAAP) 3.04 % 4.01 % 3.18 % 4.32 % Net interest margin (FTE) (non-GAAP) 3.05 % 4.03 % 3.19 % 4.34 % 47 Item 3 – Quantitative and Qualitative Disclosures about Market Risk Market Risk Management The effective management of market risk is essential to achieving the Company’s strategic financial objectives. As a financial institution, the Company’s most significant market risk exposure is interest rate risk in its balance sheet; however, market risk also includes product liquidity risk, price risk and volatility risk in the Company’s lines of business. The primary objectives of market risk management are to minimize any adverse effect that changes in market risk factors may have on net interest income, and to offset the risk of price changes for certain assets recorded at fair value. Interest Rate Market Risk The Company’s net interest income and the fair value of its financial instruments are influenced by changes in the level of interest rates. The Company manages its exposure to fluctuations in interest rates through policies established by its Asset/Liability Committee. The Asset/Liability Committee meets regularly and has responsibility for approving asset/liability management policies, formulating strategies to improve balance sheet positioning and/or earnings and reviewing the interest rate sensitivity of the Company. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under different interest rate assumptions. These estimates require certain assumptions to be made, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturity and decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on our net interest income. The table below reflects the results of our Earnings-at-Risk (EaR) stress simulation. The EaR stress simulation is a financial risk management tool that we use to assess our raw exposure to an immediate and sustained change in interest rates up and down 400 basis points. The results focus specifically on the potential impact of each scenario to our net interest income, and help us understand how various risks, such as market fluctuations, economic downturns, or specific events, could affect our ability to generate profits. Our simulation model uses actual data as of September 30, 2024, and dynamically incorporates Board-approved budget assumptions in order to forecast the impact of stress factors. It is important to note that no other changes are made. The purpose of this simulation is so that management and the Board can make informed decisions that enhance our resilience and long-term viability. In other words, we examine the results of the stress test first to ensure that they are within Board-approved risk tolerance limits and second to determine whether we should make changes to the structure of our earning assets and interest-bearing liabilities. Finally, as we consider simulation model outputs, we also consider their impact to other risk factors and ultimately to determine whether our capital provides a sufficient cushion to our risk profile. Net Interest Income Stress Simulation September 30, 2024 Basis Point Change in Net Interest Income Year 1 Change Interest Rates (1) Year 1 Forecast (2) From Level (Dollars in thousands) +400 $87,826 17.12% +300 $85,319 13.77% +200 $82,051 9.42% +100 $78,903 5.22% Level $74,990 — -100 $72,377 (3.48)% -200 $71,755 (4.31)% -300 $73,409 (2.11)% -400 $75,180 0.25% (1) Interest rate changes are immediate and sustained for the entire 12-month period (2) Simulation model assumptions are locked for the entire 12-month period. Item 4 – Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of September 30, 2024. Based on their evaluation of the Company’s disclosure controls and procedures, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are designed and operating in an effective manner. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) occurred during the third fiscal quarter of 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There has been no significant effect or impact on internal controls over financial reporting as the Company implemented the current expected credit loss accounting standard. 48 PART II – OTHER INFORMATION Item 1 – Legal Proceedings At September 30, 2024, the Company was not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which involve amounts in the aggregate believed by management to be immaterial to the financial condition and operating results of the Company. In addition, no material proceedings are pending or known to be threatened or contemplated against the Company or its subsidiary by governmental authorities. Item 1A – Risk Factors Not required for smaller reporting companies. Reference is made to “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 20, 2024. For a discussion of certain risk factors affecting the Company, see our disclosure under “Forward-Looking Statements” in Part I, Item 2 in this Form 10-Q. Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds The following table summarized the common shares repurchased during the three months ended September 30, 2024. (Dollars in thousands, except for per share amounts) Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs July 1, 2024 - July 31, 2024 — $ — — $ 3,538 August 1, 2024 - August 31, 2024 — $ — — $ 3,538 September 1, 2024 - September 30, 2024 — $ — — $ 3,538 Total — $ — — $ 3,538 49 Item 6 – Exhibits 31.1 Rule 13a-14(a) Certification of the Chief Executive Officer * 31.2 Rule 13a-14(a) Certification of the Chief Financial Officer * 32.0 Section 1350 Certification * 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 101 The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 formatted in Inline XBRL, filed herewith: (i) the Consolidated Balance Sheets (unaudited), (ii) the Consolidated Statements of Income (unaudited), (iii) the Consolidated Statements of Comprehensive Income (unaudited), (iv) the Consolidated Statements of Stockholders’ Equity (unaudited), (v) the Consolidated Statements of Cash Flows (unaudited) and (vi) the Notes to Consolidated Financial Statements (unaudited) 104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL (included with Exhibit 101) * Filed herewith 50 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MAINSTREET BANCHSHARES, INC (Registrant) Date: November 13, 2024 By: /s/ Jeff W. Dick Jeff W. Dick Chairman & Chief Executive Officer (Principal Executive Officer) Date: November 13, 2024 By: /s/ Thomas J. Chmelik Thomas J. Chmelik Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer) 51