What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2025-03-14 compared with 2024-03-20 · 212 added, 128 removed, 879 unchanged (28% of the section changed)

19 unchanged sentences

Remaining shares available for issuance include 570,462 shares under the 2019 Equity Incentive Plan (“2019 Plan”).

Shares remaining to be issued subsequent to December 31, 2023 under the 2019 Plan can be issued either as a restricted stock grant or upon exercise of stock options.

Shares remaining to be issued subsequent to December 31, 2024 under the 2019 Plan can be issued either as a restricted stock grant or upon grant and exercise of stock options.

Unregistered Sales and Issuer Repurchases of Common Stock

3 unchanged sentences

The terms and conditions of the 2019 Plan were subsequently converted into and deemed to be the terms and conditions of a substantially identical Company incentive compensation plan.

To date, a total of 461,603 shares of restricted common stock have been awarded under the 2019 Plan.

To date, a total of 605,553 shares of restricted common stock have been awarded under the 2019 Plan and 26,015 shares have been forfeited, for a net of 579,538 shares of restricted common stock issued and outstanding under the 2019 Plan.

As of December 31, 2023, a total of 485,872 shares of restricted common stock had been awarded under the 2019 Plan and 24,269 shares had been forfeited, for a net of 461,603 shares of restricted common stock issued and outstanding under the 2019 Plan.

During 2024, (108,518) shares of restricted common stock vested from shares issued under both the 2019 Plan and the Bank's 2016 Equity Incentive Plan ("2016 Plan").

3 unchanged sentences

All awards that were then outstanding under the 2016 Plan remained outstanding in accordance with their terms.

At the Annual Meeting of shareholders held on May 15, 2024, the Company's common shareholders approved a proposal to increase the number of shares of authorized common stock from 650,000 to 1,150,000 shares.

Repurchases of Common Stock

49 unchanged sentences

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;

volatility in the financial institution industry, including failures and/or rumors of possible failures of other financial institutions and actions by regulatory authorities in response thereto;

litigation or governmental actions;

impairment of a material asset;

other factors beyond our knowledge or control.

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.

1 unchanged sentence

The Company disclaims any obligation to revise or update any forward-looking statements contained in this Form 10-K to reflect future events or developments.

The discussion of the critical accounting policies and analysis set forth below is intended to supplement and highlight information contained in the accompanying Consolidated Financial Statements and the selected financial data presented elsewhere in this Form 10-K.

Additional information on risk factors that may affect forward-looking statements is included under “Risk Factors” in this Form 10-K.

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.

14 unchanged sentences

Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses.

Organization, Basis of Presentation, Summary of Significant Accounting Policies, and Impact of Recently Issued Accounting Pronouncements for a more detailed description of methodology and impact of adoption.

Organization, Basis of Presentation, and Impact of Recently Issued Accounting Pronouncements for a more detailed description of methodology and impact of adoption.

Fair Value of Financial Instruments :

A portion of the Company’s assets and liabilities is carried at fair value, with changes in fair value recorded either in earnings or accumulated other comprehensive income (loss).

A portion of the Company’s assets and liabilities are carried at fair value, with changes in fair value recorded either in earnings or accumulated other comprehensive income (loss).

These include investment securities available-for-sale and interest rate loan swaps on qualifying commercial loans.

17 unchanged sentences

This information should be read together with the accompanying consolidated financial statements included in this Form 10-K.

The historical information indicated as of and for the years ended December 31, 2023,and 2022 has been derived from the Company's audited consolidated financial statements for the years ended December 31, 2023, and 2022.

The historical information indicated as of December 31, 2024 and 2023 and for the years ended December 31, 2024, 2023, and 2022, has been derived from the Company's audited consolidated financial statements for the years ended December 31, 2024, 2023, and 2022.

Historical results set forth below and elsewhere in this Form 10-K are not necessarily indicative of future performance.

9 unchanged sentences

Total deposits

FHLB advances

Federal funds purchased

12 unchanged sentences

Total non-interest expenses

Income before income taxes

Income tax expense

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Preferred stock dividends

Net income available to common shareholders

Basic and diluted earnings per common share

Net income (loss) available to common shareholders

Basic and diluted earnings (loss) per common share

At or For the Years Ended December 31,

8 unchanged sentences

Per share Data and Shares Outstanding:

Earnings per common share (basic and diluted)

Earnings (loss) per common share (basic and diluted)

Book value per common share

23 unchanged sentences

Analysis of Results of Operations for the Years Ended December 31, 2024, 2023 , and 2022

The following table sets forth the principal components of net income for the periods indicated.

The following table sets forth the principal components of net income (loss) for the periods indicated.

For the Year Ended December 31,

(In thousands)

Interest income

5 unchanged sentences

Non-interest expense

Net income before income taxes

Income tax expense

Net income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Preferred stock dividends

Net income available to common shareholders

Net income for the year ended December 31, 2023, was $26.6 million, a decrease of $0.1 million, or 0.3% compared to $26.7 million earned during the year ended December 31, 2022.

Net income (loss) available to common shareholders

Net loss for the year ended December 31, 2024, was $10.0 million, a decrease of $36.6 million, or 137.5% compared to net income of $26.6 million earned during the year ended December 31, 2023.

The decrease in net income was due to increases in interest expense of $24.4 million and an increase of non-interest expenses of $27.4 million compared to the same period in the prior year.

Despite increases in interest expense, net interest income increased $5.9 million, primarily driven by increased volume of loans and increase in interest rates.

Net Interest Income and Net Interest Margin

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Fluctuations in interest rates as well as changes in the volume and mix of earning assets and interest-bearing liabilities can impact net interest income and net interest margin.

Net interest income before provision for or recovery of credit losses totaled $75.9 million for the year ended December 31, 2023, compared to $70.0 million for the year ended December 31, 2022.

The increase in net interest income was driven by an increase in loan production and increase in interest rates on variable rate credits and loans that repriced during the year ended December 31, 2023.

The net interest margin was 4.08% for the year ended December 31, 2023, compared to 4.19% for the year ended December 31, 2022, on a fully tax equivalent basis.

Net interest income before provision for credit losses totaled $62.6 million for the year ended December 31, 2024, compared to $76.7 million for the year ended December 31, 2023.

The decrease in net interest income was driven by an increase in deposit interest expense discussed below, for the year ended December 31, 2024.

The net interest margin was 3.13% for the year ended December 31, 2024, compared to 4.15% for the year ended December 31, 2023, on a fully tax equival ent basis.

The decrease in net interest margin primarily resulted from an increase of interest expense on our interest bearing liabilities that outpaced the increase in interest income.

The primary drivers of increased interest expense came from money market and time deposits.

The increase in the federal funds target rate impacted our maturing wholesale deposits that had to reprice in a higher interest rate environment, which increased margin pressure on our loan portfolio and other interest earning assets.

The primary drivers of increased interest expense came from demand, money market, and time deposits.

The federal funds target rate remaining high in 2024 impacted our maturing wholesale deposits that had to reprice in a higher interest rate environment, which increased margin pressure on our loan portfolio and other interest earning assets.

Management made efforts to replace these deposits with callable wholesale deposits, allowing more optionality for future rate movements.

The yield for the year ended December 31, 2023 for the loan portfolio was 7.00% compared to 5.47% for the year ended December 31, 2022.

The increase primarily reflects the maturity of lower yielding loans and higher yields on new and variable rate loans based on higher interest rates during the year.

The Federal Reserve increased its targeted benchmark interest rate to a range of 525 - 550 basis points in 2023, which impacted yields obtained on new loans throughout the year.

Th e yield for the year ended December 31, 2024 for the loan portfolio was 7.02% compared to 7.02% for the year ended December 31, 2023 .

The unchanging yield primarily reflects the maturity of lower yielding loans and higher yields on new and variable rate loans based on higher interest rates during the year.

The Federal Reserve maintained its targeted benchmark interest rate at the range of 525 - 550 basis points through September 2024.

The ranged was lowered to 425 - 450 by December 2024.

Maintaining higher rates in 2024 with a slight rate decrease in the last quarter of 2024 impacted yields obtained on new loans throughout the year.

For the year ended December 31, 2024, the yield on the taxable investment securities portfolio was 3.08% compared to 3.20% for the year ended December 31, 2023.

For the year ended December 31, 2024, the yield on the tax-exempt investment securities portfolio was 3.80% compared to 3.57% for the year ended December 31, 2023.

The increase in both categories was primarily due to rates on variable securities increasing with the current rate environment and lower yields on investment securities maturing during the period.

The increase in yield on the tax-exempt investment securities was primarily due to rates on variable securities remaining high with the current rate environment and lower yields on investment securities maturing during the period.

The rate paid on interest bearing deposits increased to 4.70% during the year ended December 31, 2024, from 3.57% during the year ended December 31, 2023.

This increase was a result of higher rates paid on all outstanding deposits in conjunction with the increasing rate environment throughout the year.

The rate paid on FHLB borrowings and federal funds purchased for the year ended December 31, 2023 was 4.90% and 5.36%, respectively, compared to the prior year of 1.45% for FHLB borrowings and no interest paid on federal funds purchased.

The following table sets forth the major components of net interest income and the related yields and rates for the year ended December 31, 2023, compared to the year ended December 31, 2022.

This increase was a result of higher rates paid on all outstanding deposits in conjunction with the higher rate environment throughout the year.

The rate paid on FHLB borrowings and federal funds purchased for the year ended December 31, 2024 was 5.61% and 5.78%, respectively, compared to the prior year of 4.90% for FHLB borrowings and 5.36% for federal funds purchased.

This increase was a result of higher rates paid on all outstanding borrowings in conjunction with the higher rate environment throughout the year.

Discussion of net interest income and net interest margin for the year ended December 31, 2022 has been omitted as such discussion was provided in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Net Interest Income and Net Interest Margin” in the Company’s Annual Report on Form 10-K for the year ended December 31, 202 2 , which was filed with the SEC on March 23, 2023, and is incorporated herein by reference.

The following table sets forth the major components of net interest income and the related yields and rates for the year ended December 31, 2024, compared to the years ended December 31, 2023 and December 31, 2022.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

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Yield/ Cost (5)

Average Balance

Interest Income/ Expense (5)

Yield/ Cost (5)

(Dollars in thousands)

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Interest rate spread represents the difference between the average yield on average interest–earning assets and the average cost of average interest-bearing liabilities.

Net interest earning assets represent total average interest–earning assets less total interest–bearing liabilities.

Net interest earning assets represent total average interest–earning assets less total average interest–bearing liabilities.

Net interest margin represents net interest income divided by total average interest-earning assets.

8 unchanged sentences

For the Twelve Months Ended

December 31, 2024 and 2023

December 31, 2023 and 2022

Increase (Decrease) Due to

Total Increase

Increase (Decrease) Due to

Total Increase

(In thousands)

Interest-earning assets:

18 unchanged sentences

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

The allowance for credit losses on loans is assessed on a monthly basis and provisions are made for credit losses on loans as required in order to maintain the allowance.

The allowance for off-balance sheet credit is assessed quarterly and provisions are made to maintain the allowance.

The provision for credit losses on loans decreased to a loan loss provision of $1.9 million for the year ended December 31, 2023, compared to the prior year which ended at loan loss provision of $2.4 million.

The provision for credit losses on off-balance sheet exposure was a net recovery of $301 from the original establishment of $1.3 million upon the adoption of CECL.

The decrease in provision for credit losses on loans was primarily driven by loan growth as well as increasing qualitative factors within our model assumptions for increased levels of past dues and potential weaknesses in underlying collateral for certain asset classes.

The allowance for credit losses on loans is assessed on a monthly basis and provisions are made for credit losses on loans as required in order to maintain the allowance at the required level determined by our analysis.

The allowance for off-balance sheet credit is assessed quarterly and provisions are made to maintain the allowance at the required level determined by our analysis.

The provision for credit losses on loans increased to a credit loss provision of $7.5 million for the year ended December 31, 2024, compared to the prior year which ended at credit loss provision of $1.9 million.

The provision for credit losses on off-balance sheet exposure was a net recovery of $722,000 compared to the prior year which ended with a net recovery of $301,000.

The increase in provision for credit losses on loans was primarily driven by loan growth and charge offs taken in 2024 as well as increasing qualitative factors within our model assumptions for increased levels of past dues, higher levels of nonperforming loans as of December 31, 2024 compared to December 31, 2023, and potential weaknesses in underlying collateral for certain asset classes.

The recovery of credit losses for off-balance sheet exposure was driven by fluctuations in our revolving credit line utilization rates as of December 31, 2024.

Loan originations decreased $73.6 million, which totaled $447.6 million for the year ended December 31, 2023 compared to loan originations of $374.0 million for the year ended December 31, 2024.

Non-performing loans were $21,000 at December 31, 2022 and $1.0 million at December 31, 2023.

On September 22, 2022, the Company completed the sale of a loan note for a customer that had stopped making payments and declared bankruptcy.

The Company incurred a loss of $211,000 on this transaction that was properly accounted for in its Statement of Income as a loss on the sale of a loan.

This credit had previously identified weaknesses and deemed to be of substandard quality with an appropriate reserve allocation.

We determined that the best course of action was to sell the note at a discount to an interested party.

Had the loan sale not occurred, the Company would have recorded a specific allocation to the provision for loan losses and proceeded with an orderly liquidation of collateral.

During the year ended December 31, 2023, substandard loans increased $11.7 million for a balance of $21.2 million.

During the year ended December 31, 2023, special mention loans increased $19.0 million to $19.0 million.

Non-performing loans were $1.0 million at December 31, 2023 and $21.7 million at December 31, 2024.

During the year ended December 31, 2024, classified loans increased $36.2 million for a balance of $57.4 million.

During the year ended December 31, 2024, criticized loans increased $66.3 million to $85.3 million.

During the year ended December 31, 2024, watch list loans increased $63.9 million to $122.6 million.

Management does not believe any significant loss exposure currently exists in these loans.

During the year ended December 31, 2023, there was $468,000 in charge-offs recorded and recoveries of $22,000 were received.

During the year ended December 31, 2022, there were no charge-offs recorded and recoveries received of $19,000.

During the year ended December 31, 2024, there was $4.6 million in charge-offs recorded and recoveries of $28,000 were received.

During the year ended December 31, 2023, there was $468,000 in charge-offs recorded and recoveries received of $22,000.

Discussion of provision for loan losses for the year ended December 31, 2022 has been omitted as such discussion was provided in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Provision for Loan Losses” in the Company’s Annual Report on Form 10-K for the year ended December 31, 202 2 , which was filed with the SEC on March 23, 2023, and is incorporated herein by reference.

Non-Interest Income

6 unchanged sentences

Bank owned life insurance income

Loan swap fee income

Net gain on called held-to-maturity securities

Net gain (loss) on sale of loans

Net loss on securities called or matured

Other fee income

Total non-interest income

Non-interest income decreased $1.2 million, or 24.7%, to $3.6 million for the year ended December 31, 2023 from $4.8 million for the year ended December 31, 2022.

The decrease in non-interest income was primarily due to a decrease in swap fee income and mortgage origination fees decreasing $379,000 for the year ended December 31, 2023.

The Company did not recognize any fees on interest rate swaps for commercial loans for the year ended December 31, 2023 down from $619,000 for the year ended December 31, 2022.

Non-interest inco me decreased $0.1 million, or 2.6%, to $3.3 million for the year ended December 31, 2024 from $3.3 million for the year ended December 31, 2023.

The decrease in non-interest income was primarily due to a decrease in deposit account service charges and other fee income for the year ended December 31, 2024.

The Company did not recognize any fees on interest rate swaps for commercial loans for the year ended December 31, 2024 or December 31, 2023.

The Company also recognized $251,000 in planned operating losses in other fee income related to two New Market Tax Credit investments during the year ended December 31, 2023.

Bank owned life insurance income increased $61,000 for the year ended December 31, 2023, compared to the year ended December 31, 2022, due to the rising rate environment throughout 2023.

Bank owned life insurance income increased $120,000 for the year ended December 31, 2024, compared to the year ended December 31, 2023, due to the high rate environment throughout 2024.

The deposit service fees decreased $153,000 for the year ended December 31, 2024, as compared to the same period in 2023, due to a decrease in customer activity.

Discussion of non-interest income for the year ended December 31, 2022 has been omitted as such discussion was provided in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Non-Interest Income” in the Company’s Annual Report on Form 10-K for the year ended December 31, 202 2 , which was filed with the SEC on March 23, 2023, and is incorporated herein by reference.

Non-Interest Expense

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Administrative expenses

Computer software intangible impairment

Other operating expenses

Total non-interest expense

Non-interest expense increased $6.1 million or 15.5% to $45.1 million for the year ended December 31, 2023 from $39.1 million for the year ended December 31, 2022 primarily as a result of increases in salary and employee benefits of $4.5 million, FDIC insurance of $494,000 and Franchise tax of $405,000.

Non-interest expense increased $27.4 million or 60.0% to $73.0 million for the year ended December 31, 2024 from $45.6 million for the year ended December 31, 2023 primarily as a result of the impairment of the computer software intangible of $19.7 million, increases in salary and employee benefits of $2.2 mil lion, outside services of $1.6 mi llion, and furniture and equipment expenses of $849,000.

Management performed an impairment analysis on the computer software intangible asset during the three months ended December 31, 2024 and determined that the intangible had become fully impaired, which led to a charge of $19.7 million to the income statement.

Salaries and employee benefits expense increased by $2.2 million to $30.5 million for the year ended December 31, 2024 from $28.3 million for the year ended December 31, 2023 primarily as a result of increasing our personnel team members by 18 employees.

FDIC insurance increased $494,000, or 77.6%, to $1.1 million for the year ended December 31, 2023 from $637,000 for the year ended December 31, 2022.

While the Company was not included in the special assessment directly related to four bank failures, the FDIC is increasing the reserve ratio within its insurance fund.

Franchise tax expense increased $405,000, or 28.3%, to $1.8 million for the year ended December 31, 2023, due to consistent growth of the Company's capital and earnings profile.

Many of the non-interest expense categories remained consistent for the year ended December 31, 2023 compared to the year ended December 31, 2022 as management continues to exercise judicious expense controls.

Outside services increase d $1.6 million, or 77.4% , to $3.6 million fo r the year ended December 31, 2024 from $2.0 million for the year ended December 31, 2023.

Furniture and equipment expenses incre ased $849,000 , or 30% , to $3.6 million f or the year ended December 31, 2024 from $2.8 million for the year ended December 31, 2023.

Many of the non-interest expense categories remain consistent for the year ended December 31, 2024 compared to the year ended December 31, 2023 as management continues to exercise judicious expense controls.

Discussion of non-interest expense for the year ended December 31, 2022 has been omitted as such discussion was provided in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Non-Interest Expense” in the Company’s Annual Report on Form 10-K for the year ended December 31, 202 2 , which was filed with the SEC on March 23, 2023, and is incorporated herein by reference.

Income Tax Expense

Income tax expense decreased $475,000, or 7.1%, to $6.2 million for the year ended December 31, 2023 from $6.7 million for the year ended December 31, 2022.

The decrease in federal income tax expense for the year ended December 31, 2023 compared to the same period a year earlier was driven by continued investments in projects that provide tax credit incentives and further the mission of our community development entity.

The Company is able to apply and claim a research and development tax credit for its associated work in developing a software platform.

The Company has invested in projects that generate tax credits through the Low Income Housing Tax Credits ("LIHTC") program as well as NMTC projects.

As a result of tax regulation, the Company has included assessments in income tax expense for state tax liabilities during 2023.

For the year ended December 31, 2023, the Bank had an effective tax rate of 19.0%, compared to effective federal tax rate of 20.1% for the year ended December 31, 2022.

Income tax expense decreased $10.2 million or 162.9%, to a tax benefit of $3.9 million for the year ended December 31, 2024 from a tax expense of $6.2 million for the year ended December 31, 2023.

The decrease in federal income tax expense for the year ended December 31, 2024 compared to the same period a year earlier was driven by a net loss recorded for the year ended December 31, 2024 due to the decline in net interest income given the impact of the highly competitive deposit interest rate environment and the impairment of the computer software intangible asset.

For the year ended December 31, 2024, the Bank had an effective tax benefit rate of 28.2%, compared to effective federal tax rate of 19.0% for the year ended December 31, 2023.

Discussion of income tax expense for the year ended December 31, 2022 has been omitted as such discussion was provided in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Income Tax Expense” in the Company’s Annual Report on Form 10-K for the year ended December 31, 202 2 , which was filed with the SEC on March 23, 2023, and is incorporated herein by reference.

Avenu, a division of MainStreet Bank

Analysis of Results of Operations for the Year Ended December 31, 2024

The following table sets forth the principal components of net income (loss) for the Avenu division of MainStreet Bank for the periods indicated.

Refer to Note 26 for detailed segment reporting tables for the Financial Technology division of MainStreet Bank for the periods indicated.

All amounts set forth are included in the Results of Operations for the Year Ended December 31, 2024 and 2023 for MainStreet Bancshares, Inc.

unless indicated otherwise.

For the Year Ended December 31,

(In thousands)

Income Statement

Service charge income

Income from deposits (1)

Salaries and employee benefits

Outside services

Compliance expenses

Other operating expenses

Total expense

Net income (loss) before taxes

Determined by funds transfer pricing of non-interest bearing deposits using the weighted average Effective Fed Funds Rate during fiscal year ended December 31, 2023 and 2022.

For the year ended December 31, 2023, the Avenu division recorded net income of $51,000.

As the Company develops the software and ramps up the resources needed to operate a new division, elevated levels of non-interest expenses are anticipated.

The Avenu division held $45.0 million in average non-interest bearing deposits which provides tremendous value to the Company, while simultaneously establishing a new division.

Avenu is developing a comprehensive hosted BaaS software platform that will provide Fintechs with a subledger integrated within a regulatory compliant framework, easily connectable application programming interfaces ("APIs"), and access to banking payment networks.

The Avenu team will deploy the platform in 2024.

Comparison of Statements of Financial Condition at December 31, 2024 and at December 31, 2023

Total assets increased $192.7 million, or 9.5%, to $2.2 billion at December 31, 2024 from $2.0 billion at December 31, 2023.

The increase was primarily the result of increases of $127.5 million in gross loans receivable, $5.5 million in computer software, and $2.8 million in accrued interest receivables.

These increases were offset by a decrease in available-for-sale securities of $2.7 million and a decrease of $5.0 in other assets, which was primarily impacted by fluctuations in market value of our executed loan swaps.

The increase was primarily the result of increases of $107.9 million in gross loans receivable, $93.2 million in cash and cash equivalents, $8.4 million in other assets, and $6.3 million in restricted securities.

These increases were offset by a decrease in available-for-sale and held-to-maturity securities of $5.4 million and a decrease of $19.7 million in computer software, due to the impairment charges taken on the computer software intangible asset.

Investment Securities

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At December 31, 2024, the investment securities portfolio includes $55.7 million of investment securities available-for-sale and $16.1 million of investment securities held-to-maturity compared to $59.9 million of investment securities available-for-sale and $17.3 million of investment securities held-to-maturity at December 31, 2023.

The Company did not sell any securities within the investment portfolio for the year ended December 31, 2023 or 2022.

The Company did not sell any securities within the investment portfolio during the year ended December 31, 2024 or 2023.

For available-for-sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation.

15 unchanged sentences

Subordinated Debt

Preferred Stock

Municipal Securities

3 unchanged sentences

Subordinated Debt

Total Securities

Yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 21%

Weighted average yields are reported on a taxable equivalent basis using the statutory federal corporate tax rate of 21%.

Weighted average yield is calculated as the tax-equivalent yield on a pro rata basis for each security based on its relative amortized cost.

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Loans, net of unearned income, totaled $1.8 billion at December 31, 2024, an increase of $107.9 million from December 31, 2023.

The increase in total loans was primarily driven by growth in the overall loan portfolio, with increases in multifamily residential real estate, as well as in construction and land development credits.

The increase in total loans was primarily driven by growth in the overall loan portfolio, with increases in commercial real estate for owner occupied and non-owner occupied segments as well as in commercial and industrial credits.

Owner occupied loans had a balance of $357.7 million at December 31, 2024 compared to $282.1 million at December 31, 2023, for a net increase of $75.7 million.

Non-owner occupied loans had a balance of $560.1 million at December 31, 2024 compared to $461.8 million at December 31, 2023, for a net increase of $98.3 million.

Commercial and industrial loans had a balance of $82.8 million at December 31, 2024 compared to $75.4 million at December 31, 2023, for a net increase of $7.4 million.

A significant portion of the loan portfolio consists of commercial, construction and commercial real estate loans, primarily made in the Washington, D.C.

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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 Company has a limited amount of credit exposure to government contractors in the Washington, D.C.

metropolitan area.

Below is a schedule that outlines the credit exposure to businesses with government contracts by structure type as of December 31, 2024.

The line of credit balances consist of asset based lines of credits on billed receivables, which are receivables for work that has been completed and invoiced to the government or the prime contractor.

Ongoing monitoring of the lines of credit include receiving borrowing base certificates monthly on the billed receivables amount.

Since December 31, 2024, we have strengthened the monitoring of these lines of credit to fully verify the billed receivables amount each time funds are advanced.

Term debt is secured by a combination of business assets and additional real estate collateral.

Government Contracting Credit Exposures as of December 31, 2024

(Dollars in thousands)

Principal Balance

Line/Term Commitment

Number of Relationships

Number of Relationships with Balances

Line of Credit

Term Debt Exposure

Total Exposure

The federal banking Agencies issued guidance in 2006 which addresses institutions’ with increased concentrations of commercial real estate (CRE) loans.

15 unchanged sentences

The Company holds a concentration in commercial real estate loans.

As of December 31, 2023, construction, land development and other land loans represented 137.7% of consolidated risk-based capital.

The Board has set a risk tolerance level of 150% and 375% of consolidated risk-based capital for construction, land development and other land l oans and commercial real estate loans.

As of December 31, 2024, construction, land development and other land l oans represented 131.9% of consolidated risk-based capital.

Total commercial real estate loans as defined by the Agency guidance represented 393.8% of consolidated risk-based capital.

During the prior 36 months, the Company has experienced an increase in its commercial real estate portfolio by 72% .

The Company has temporarily exceeded the target level for the commercial real estate segment and is working quickly to bring this segment back within the Board tolerance level.

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.

15 unchanged sentences

For all other loans, we utilize the Bank's historic loss rates or if not available, the average loss rates of UBPR 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.

For The following table shows the Company's earning assets and the results of the stress test performed for the periods indicated.

The following table shows the Company's earning assets and the results of the stress test performed for the periods indicated.

December 31, 2024

6 unchanged sentences

All Other Loans

HTM Securities

AFS Securities

10 unchanged sentences

All Other Loans

HTM Securities

AFS Securities

Swap Portfolio

Bank Owned Life Insurance

(1) Net tax effective loss at the statutory rate of 21%

(2) The Company began stressing all earning assets beginning March 31, 2023.

The total estimated stress test loss is deducted from capital and we recalculate the capital ratios.

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Post Stress, High Estimate

Community Bank Leverage Ratio

Leverage Ratio

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Post Stress, High Estimate

Community Bank Leverage Ratio

Leverage Ratio

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Non-owner occupied includes multifamily call code 1D

Hospitality occupancy rates rely on individual STR data

December 31, 2023

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Non-owner occupied includes multifamily call code 1D

Hospitality occupancy rates rely on individual STR data

The Company also underwrites and originates owner-occupied commercial real estate loans.

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Total Owner Occupied CRE

Loan-to-value is based on maximum potential outstanding at time of origination

December 31, 2023

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Total Owner Occupied CRE

Loan-to-value is based on maximum potential outstanding at time of origination

The risk profile of real estate properties within our market can vary depending upon location.

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The Company’s asset quality remained strong during the year ended December 31, 2024.

Nonperforming assets, which includes nonaccrual loans, accruing loans 90 days past due, and other real estate owned totaled $1,004,000 at December 31, 2023, and $21,000 at December 31, 2022.

Nonperforming assets, which includes nonaccrual loans, accruing loans 90 days past due, and other real estate owned totaled $21.7 million at December 31, 2024, and $1.0 million at December 31, 2023.

A loan’s past due status is based on the contractual due date of the most delinquent payment due.

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As of December 31, 2024, the Company had $21.7 million in loans on nonaccrual status.

During the last quarter of the year ended December 31, 2024, nonperforming assets trended positively with loans on nonaccrual status decreasing by $6.7 million or 23.5%.

See Note 1, Organization, Basis of Presentation, and Impact of Recently Issued Accounting Pronouncements and Note 5, Allowance for Credit Losses, in Notes to Consolidated Financial Statements for further information on the Company’s credit grade categories, which are derived from standard regulatory rating definitions.

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Single family

Commercial real estate

Non-owner occupied

Construction & Land Development

Commercial non-real estate

Commercial and industrial

Total non-accrual loans

Loans accruing past 90 days:

Commercial and industrial

Loans greater than 90 days past due and still accruing:

Consumer non real estate - secured

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Total non-accrual loans to gross loans receivable

Interest income that would have been recorded for the years ended December 31, 2023 and 2022 had non-accruing loans been current according to their original terms was $133,092 and $0, respectively.

Interest income that would have been recorded for the years ended December 31, 2024 and 2023 had non-accruing loans been current according to their original terms was $1.9 million and $133,092, respectively.

Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans.

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Current expected credit losses, nonrecurring adoption

Residential real estate

Commercial real estate

Commercial and industrial

1 unchanged sentence

Residential real estate

Commercial and industrial

Total recoveries

Net (charge-offs) recoveries

Net charge-offs

Provision for credit losses - loans

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Net charge-offs to average loans

At December 31, 2023, our allowance for credit losses on loans represented 0.96% of total loans and we had only $1.0 million in non-performing loans.

The allowance for credit losses on loans increased to $16.5 million at December 31, 2023 from $14.1 million at December 31, 2022 as a direct result of adopting the CECL accounting standard and normal credit provisions in conjunction with loan growth throughout the year.

There were $446,000 in net loan charge-offs and $19,000 in net loan recoveries during the years ended December 31, 2023 and December 31, 2022, respectively.

Net charge-offs

Net charge-offs to average loans

Commercial and industrial

At December 31, 2024, our allowance for credit losses on loans represented 1.06% of total loans and we had $21.7 million in non-performing loans.

The allowance for credit losses on loans increased to $19.5 million at December 31, 2024 from $16.5 million at December 31, 2023 as a direct result of loan growth and charge offs taken in 2024 as well as increasing qualitative factors within our model assumptions for increased levels of past dues and potential weaknesses in underlying collateral for certain asset classes.

There were $4.5 million in net loan charge-offs and $446,000 in net loan charge-offs during the years ended December 31, 2024 and December 31, 2023, respectively.

Allocation of Allowance for Credit Losses on Loans .

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Percent of Loans in Each Category to Total Loans

Allowance for Loan Losses

Allowance for Credit Losses - Loans

Percent of Allowance in Each Category to Total Allocated Allowance

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Wholesale deposits, which are included in the table below, totaled $468.1 million and $433.0 million at December 31, 2024, and December 31, 2023, respectively.

The following table presents the Company’s average deposits segregated by major category for the year ended December 31, 2023:

The following table presents the Company’s average deposits segregated by major category for the years ended December 31, 2024 and December 31, 2023:

At December 31,

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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.

Many replacement CDs include call options at our discretion if economic conditions change.

The Company also utilized additional wholesale demand deposits to provide liquidity and more effectively balance our interest rate sensitivity.

During the year ended December 31, 2023 , total wholesale deposit funding accounted for approximately 33% of our in terest expense.

The following table presents the Company's total wholesale deposit composition, concentrations, current rate and remaining duration, if applicable as of December 31, 2023.

During the year ended December 31, 2024 , total wholesale deposit funding accounted for approximately 28% 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 December 31, 2024 and December 31, 2023.

As of December 31,

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Wholesale Time Deposits

CDARS one-way

Listing Service CDs (1)

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Listing service CDs are excluded from being classified as wholesale deposits, per FDIC call report instructions

Average weighted call date is April 2024

80% of the CDs in this balance can be called as of December 31, 2024

Regulatory Defined Wholesale Deposits

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Federal Home Loan Bank advances are generally available to meet seasonal and other withdrawals of deposit accounts and to permit increased lending.

At December 31, 2023 and 2022, we were permitted to borrow up to an aggregate total of $504.8 million and $465.0 million, respectively, from the Federal Home Loan Bank of Richmond.

There were Federal Home Loan Bank borrowings outstanding of $0 and $100.0 million at December 31, 2023, and December 31, 2022, respectively.

Additionally, we had credit availability of $114.0 million with correspondent banks for short-term liquidity needs, if necessary.

Borrowings were $15.0 million and $0 outstanding at December 31, 2023 and 2022, respectively, under this facility.

At December 31, 2024 and 2023, we were permitted to borrow up to an aggregate total of $544.8 million and $504.8 million, re spectively, from the Federal Home Loan Bank of Richmond.

There were Federal Home Loan Bank borrowings outstanding of $0 at December 31, 2024, and December 31, 2023, respectively.

Additionally, as of December 31, 2024 and 2023 we had credit availabilit y of $144.0 mill ion and $114.0 million with correspondent banks for short-term liquidity needs, if necessary.

Borrowings were $0 million and $15.0 out standing at December 31, 2024 and 2023, respectively, under this facility.

Liquidity and Capital Resources

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cash flows from operating activities, investing activities, and financing activities.

Net cash provided by operating activities was $31.6 million and $33.5 million for the twelve months ended December 31, 2023, and December 31, 2022, respectively.

Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans and proceeds from maturing securities, was $130.7 million and $228.7 million for the twelve months ended December 31, 2023, and December 31, 2022, respectively.

Net cash provided by operating activities was $14.7 million, $31.6 million, and $33.5 million for the twelve months ended December 31, 2024, December 31, 2023, and December 31, 2022, respectively.

Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans and proceeds from maturing securities, was $122.3 million, $130.7 million, and $228.7 million for the twelve months ended December 31, 2024, December 31, 2023, and December 31, 2022, respectively.

There were no sales of available-for-sale debt securities in 2024, 2023, or 2022.

Net cash provided by financing activities was $83.0 million and $232.6 million for the twelve months ended December 31, 2023 and 2022, respectively, which consisted primarily of increases in interest bearing deposits and federal funds purchased for the twelve months ended December 31, 2023.

There were repayments of $100.0 million to the Federal Home Loan Bank for year ended 2023.

Net cash provided by financing activities was $200.7 million, $83.0 million, and $232.6 million, for the twelve months ended December 31, 2024, 2023, and 2022, respectively, which consisted primarily of increases in interest bearing deposits and federal funds purchased for the twelve months ended December 31, 2024.

There were repayments of $15.0 million in federal funds purchased for year ended 2024 and repayments of $100.0 million in FHLB advances for the year ended 2023.

We are committed to maintaining a strong liquidity position.

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Non-GAAP Measures

In reporting the results of December 31, 2023, the Company has provided supplemental performance measures on an operating basis.

In reporting the results as of and for the year ended December 31, 2024, the Company has provided supplemental performance measures on an operating basis.

These measures are a supplement to GAAP used to prepare the Company’s financial statements and should not be considered in isolation or as a substitute for comparable measures calculated in accordance with GAAP.

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Net interest margin on a fully tax equivalent (FTE) basis, provides valuable additional insight into the net interest margin and the impact that investments in tax-exempt securities have on our financial metrics.

The entire FTE adjustment is attributable to the interest tax effect on tax-exempt securities, using the statutory federal income tax rate of 21%.

The entire FTE adjustment is attributable to the income tax effect on tax-exempt securities, using the statutory federal income tax rate of 21%.

The Company believes that tangible common stockholders' equity, excluding intangible assets, is a meaningful supplement to GAAP financial measures and useful to investors because it provides an additional measure to calculate the book value of our common shares by removing the value of a subjective portion of our balance sheet.

9 unchanged sentences

Net interest margin (FTE) (non-GAAP)

Stockholders' equity, adjusted

Total stockholders' equity (GAAP)

preferred stock

Total common stockholders' equity (GAAP)

intangible assets

Tangible common stockholders' equity (non-GAAP)

Shares outstanding

Tangible book value per common share (non-GAAP)

Yield on earning assets (FTE)

Total interest income

Total interest income (GAAP)

FTE adjustment on tax-exempt securities

9 unchanged sentences

Net interest spread (FTE) (non-GAAP)

Net Income and earnings per share, adjusted

Net Income (loss), as reported

nonrecurring intangible impairment

nonrecurring restructuring expenses

nonrecurring other expenses

Related income tax benefit

Net income (loss), adjusted

Preferred stock dividends

Net income (loss) available to common shareholders, adjusted

Weighted average shares - basic and diluted

Earnings (loss) per common share, basic and diluted, adjusted

Earnings (loss) per common share, basic and diluted, as reported

Nonrecurring expenses per share, net of taxes

Earnings (loss) per common share, basic and diluted, adjusted

Adjusted Return (loss) on Average Assets (ROAA)

Average assets, as reported

Annualized ROAA, as reported

Annualized ROAA, as adjusted

Adjusted Return (loss) on Average Equity (ROAE)

Average equity, as reported

Annualized ROAE, as reported

Annualized ROAE, as adjusted

Efficiency Ratio, adjusted

Noninterest expenses, as reported

nonrecurring intangible impairment

nonrecurring restructuring expenses

nonrecurring other expenses

Noninterest expenses, adjusted for nonrecurring expenses

Efficiency ratio, as reported

Efficiency ratio, as adjusted

Tangible common stockholders' equity

Total stockholders' equity (GAAP)

intangible assets

Tangible stockholders' equity (non-GAAP)

preferred stock

Tangible common stockholders' equity (non-GAAP)

Common shares outstanding

Tangible book value per common share (non-GAAP)

Stockholders equity, adjusted

Total stockholders equity (GAAP)

intangible assets

Total tangible stockholders equity (non-GAAP)

Total tangible assets

Total assets (GAAP)

intangible assets

Total tangible assets (non-GAAP)

Average tangible stockholders' equity

Total average stockholders' equity (GAAP)

average intangible assets

Total average tangible stockholders' equity (non-GAAP)

Average tangible assets

Total average assets (GAAP)

average intangible assets

Total average tangible assets (non-GAAP)

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity