What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-14 compared with 2024-03-20 · 762 added, 299 removed, 1246 unchanged (46% of the section changed)

10 unchanged sentences

207,708 114,513

Investment securities available-for-sale, at fair value

Investment securities available-for-sale (AFS), at fair value

55,747 59,928

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

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

16,078 17,275

6 unchanged sentences

Accrued interest and other receivables

11,311 12,390

Computer software, net of amortization

17 unchanged sentences

Federal funds purchased

Federal Home Loan Bank advances

Subordinated debt, net

17 unchanged sentences

91,150 106,549

Accumulated other comprehensive income (loss)

Accumulated other comprehensive (loss)

( 7,711 ) ( 7,478 )

4 unchanged sentences

See Notes to the Consolidated Financial Statements

Consolidated Statements of Income for the Years Ended December 31, 2023 and 2022 (Dollars in thousands, except per share data).

Consolidated Statements of Income (Loss) for the Years Ended December 31, 2024, 2023, and 2022 (Dollars in thousands, except per share data).

For the Year Ended December 31,

1 unchanged sentence

Interest and fees on loans

$ 125,177 $ 116,482 $ 79,045

Interest and dividends on investments securities

2 unchanged sentences

Tax-exempt obligations of states and political subdivisions

1,093 1,065 1,058

Taxable obligations of states and political subdivisions

912 1,185 874

Interest on federal funds sold

6,652 5,038 2,312

Total Interest Income

134,615 124,421 84,018

Interest Expense

Interest on interest bearing DDA deposits

Interest on interest bearing demand deposits

8,661 1,786 494

Interest on savings and NOW deposits

Interest on money market deposits

21,386 13,631 1,380

Interest on time deposits

Interest on federal fund purchases

37,364 26,905 8,009

Interest on federal funds purchased

Interest on Federal Home Loan Bank advances

Interest on subordinated debt

3,255 3,288 2,936

Total Interest Expense

72,041 47,679 13,369

Net Interest Income

62,574 76,742 70,649

Provision For Credit Losses - Loans

7,485 1,943 2,398

Recovery of Credit Losses - Off-Balance Sheet Credit Exposure

( 722 ) ( 301 ) —

Net interest income after provision for (recovery of) credit losses

55,811 75,100 68,251

Non-Interest Income

Deposit account service charges

1,996 2,149 2,420

Bank owned life insurance income

1,189 1,069 1,008

Loan swap fee income

Net gain on held-to-maturity securities

Net gain (loss) on securities called or matured

Net loss on sale of loans

1 unchanged sentence

Total Non-Interest Income

3,252 3,340 4,661

Non-Interest Expense

Salaries and employee benefits

30,475 28,267 23,801

Furniture and equipment expenses

3,636 2,787 2,786

Advertising and marketing

2,199 2,343 2,304

Occupancy expenses

1,614 1,684 1,471

Outside services

3,627 2,044 2,075

Franchise tax

2,226 1,835 1,430

FDIC insurance

1,342 1,131 637

Data processing

1,354 1,328 1,303

Administrative expenses

Other real estate expenses, net

Computer software intangible impairment

Other operating expenses

5,844 3,275 2,807

Total Non-Interest Expense

Income before income taxes

Income Tax Expense

72,967 45,616 39,524

Income (Loss) before income taxes

( 13,904 ) 32,824 33,388

Income Tax Expense (Benefit)

( 3,924 ) 6,239 6,714

Net Income (Loss)

$ ( 9,980 ) $ 26,585 $ 26,674

Preferred Stock Dividends

Net Income available to common shareholders

Earnings per common share:

2,156 2,156 2,156

Net Income (Loss) available to common shareholders

$ ( 12,136 ) $ 24,429 $ 24,518

Earnings (loss) per common share:

$ ( 1.60 ) $ 3.25 $ 3.26

See Notes to the Consolidated Financial Statements

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2023 and 2022 (Dollars in thousands)

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2024, 2023, and 2022 (Dollars in thousands).

For the Year Ended December 31,

Comprehensive Income, net of taxes

Comprehensive Income (Loss), net of taxes

Net Income (Loss)

$ ( 9,980 ) $ 26,585 $ 26,674

Other comprehensive gain (loss), net of tax expense (benefit):

Other comprehensive income (loss), net of tax expense (benefit):

Unrealized gains (losses) on available for sale securities arising during the period (net of tax expense (benefit), ($ 44 ), $ 309 and ($ 2.6 million), respectively)

1 unchanged sentence

reclassification adjustment for amortization of unrealized losses on securities transferred from available for sale to held to maturity (net of tax, $ 0 , $ 2 , and $ 4 respectively)

Other comprehensive gain (loss)

Other comprehensive income (loss)

( 233 ) 1,068 ( 8,743 )

Comprehensive Income

Comprehensive Income (Loss)

$ ( 10,213 ) $ 27,653 $ 17,931

6 unchanged sentences

$ 27,263 $ 29,466 $ 67,668 $ 64,194 $ 197 $ 188,788

Vesting of restricted stock

— 407 ( 407 ) — — —

Stock based compensation expense

— — 2,519 — — 2,519

Common stock repurchased

— ( 1,137 ) ( 5,781 ) — — ( 6,918 )

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

— — — ( 2,156 ) — ( 2,156 )

Dividends on common stock - ($ 0.25 per share)

— — — ( 1,882 ) — ( 1,882 )

— — — 26,674 — 26,674

Other comprehensive loss

— — — — ( 8,743 ) ( 8,743 )

Balance, December 31, 2022

$ 27,263 $ 28,736 $ 63,999 $ 86,830 $ ( 8,546 ) $ 198,282

Cumulative change in accounting principle (Note 3)

15 unchanged sentences

$ 27,263 $ 29,198 $ 65,985 $ 106,549 $ ( 7,478 ) $ 221,517

Accumulated Other

Comprehensive

Income (Loss)

Balance, December 31, 2021

Cumulative change in accounting principle (Note 1)

( 217 ) ( 217 )

9 unchanged sentences

— — — ( 3,046 ) — ( 3,046 )

Net income (loss)

— — — ( 9,980 ) — ( 9,980 )

Other comprehensive loss

Other comprehensive gain (loss)

— — — — ( 233 ) ( 233 )

5 unchanged sentences

Cash Flows from Operating Activities

Net income (loss)

$ ( 9,980 ) $ 26,585 $ 26,674

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

Depreciation, amortization, and accretion, net

3,683 2,268 2,083

Amortization of right-of-use assets

Amortization of intangible assets

Deferred income tax benefit

( 4,528 ) ( 191 ) ( 894 )

Loss on sale of other real estate owned

3 unchanged sentences

Gain on disposal of premises and equipment

Gain on called held-to-maturity securities

( 99 ) ( 129 ) —

Realized (Gain) loss on securities (AFS/HTM)

Provision for credit losses, net

6,763 1,642 2,398

Stock based compensation expense

2,838 2,491 2,519

Income from bank owned life insurance

( 1,189 ) ( 1,069 ) ( 1,008 )

Subordinated debt amortization expense

Computer software intangible impairment

Accrued interest receivable and other receivables

1,079 ( 2,803 ) ( 1,861 )

( 4,794 ) 4,912 ( 22,407 )

Other liabilities

( 150 ) ( 3,198 ) 24,978

Net cash provided by operating activities

14,740 31,633 33,544

Cash Flows from Investing Activities

Activity in available-for-sale securities:

2,540 3,696 6,634

Maturities, sales, called, refunded

1,445 — 245,000

( 445 ) — ( 226,215 )

Activity in held-to-maturity securities:

Maturities, called, refunded

1,520 265 2,595

Purchases of equity securities

( 8,241 ) ( 4,174 ) ( 3,916 )

Purchases of restricted investment in bank stock

( 1,624 ) ( 7,059 ) ( 9,123 )

Redemption of restricted investment in bank stock

1,425 10,425 4,125

Net increase in loan portfolio

( 142,482 ) ( 128,025 ) ( 240,756 )

Proceeds from sale of other real estate owned

Proceeds from sale of loans

Proceeds from sale of premises and equipment

Purchases of premises and equipment

( 909 ) ( 497 ) ( 1,125 )

Computer software developed

( 4,880 ) ( 5,508 ) ( 6,656 )

Net cash used in investing activities

( 122,278 ) ( 130,748 ) ( 228,736 )

Cash Flows from Financing Activities

Net increase (decrease) in non-interest deposits

( 40,299 ) ( 186,084 ) 20,012

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

261,966 359,322 80,914

Net increase (decrease) in Federal Home Loan Bank advances

Net increase in federal funds purchased

— ( 100,000 ) 100,000

Net increase (decrease) in federal funds purchased

( 15,000 ) 15,000 —

Net increase in subordinated debt

Repurchase of common stock

( 732 ) ( 43 ) ( 6,918 )

Cash dividends paid on preferred stock

( 2,156 ) ( 2,156 ) ( 2,156 )

Cash dividends paid on common stock

( 3,046 ) ( 3,011 ) ( 1,882 )

Net cash provided by financing activities

Increase (decrease) in Cash and Cash Equivalents

200,733 83,028 232,593

Increase (decrease) in Cash and Cash Equivalents, net

93,195 ( 16,087 ) 37,401

Cash and Cash Equivalents, beginning of period

114,513 130,600 93,199

Cash and Cash Equivalents, end of period

$ 207,708 $ 114,513 $ 130,600

Supplementary Disclosure of Cash Flow Information

Cash paid during the period for interest

$ 70,893 $ 45,534 $ 12,639

Cash paid during the period for income taxes

$ 1,275 $ 7,280 $ 6,381

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

$ — $ — $ 715

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

$ ( 277 ) $ 1,371 $ ( 11,373 )

See Notes to the Consolidated Financial Statements

4 unchanged sentences

MainStreet Bancshares Inc.

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

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

On May 18, 2016, the stockholders of MainStreet Bank (the “Bank”) approved a Reorganization Agreement and Plan of Share Exchange (“Reorganization”) whereby the Bank would reorganize into a holding company structure.

The Plan of Share Exchange called for each outstanding share of Bank common stock to be automatically converted into and exchanged for one share of the Company’s common stock, and the common stockholders of the Bank would become the common stockholders of the Company on the effective date of the Reorganization.

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

The holding company is regulated under the Bank Holding Company Act of 1956, as amended, and is subject to inspection, examination, and supervision by the Federal Reserve Board.

On October 12, 2021, the Company filed an election with the Federal Reserve Board to be a financial holding company in order to engage in a broader range of financial activities than are permitted for bank holding companies generally.

2 unchanged sentences

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

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

The holding company is regulated under the Bank Holding Company Act of 1956, as amended, and is subject to inspection, examination, and supervision by the Federal Reserve Board.

On April 18, 2019, the Company completed the registration of its common stock with the Securities Exchange Commission through its filing of a General Form for Registration of Securities on Form 10 (“Form 10” ), pursuant to Section 12 (b) of the Securities Exchange Act of 1934.

The Company is considered an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act,” and as defined in Section 2 (a) of the Securities Act of 1933, as amended, or the “Securities Act.” We are also a “smaller reporting company” as defined in Exchange Act Rule 12b - 2.

As such, we may elect to comply with certain reduced public company reporting requirements in future reports that we file with the Securities and Exchange Commission, or the “SEC.”

The Company was considered to be 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,” through the quarter ended September 30, 2024.

The Company is no longer considered an emerging growth company and will be an accelerated filer effective with this filing.

We were approved to list shares of our common stock on the Nasdaq Capital Market under our current symbol “MNSB” as of April 22, 2019.

1 unchanged sentence

Each depositary share represents a 1/40 th interest in a share of 7.50 % Series A Fixed-Rate Non-Cumulative Perpetual Preferred Stock.

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

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.

Refer to Note 8 for additional information around the computer software intangible asset.

The Avenu division is classified within our Financial Technology reportable segment outlined in Note 26.

Additional information can be found in our investor presentations filed quarterly.

MainStreet Bank is headquartered in Fairfax, Virginia where it also operates a branch.

5 unchanged sentences

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) as applicable to a smaller reporting company.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).

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

10 unchanged sentences

Debt securities are stated at historical cost adjusted for amortization of premiums and accretion of discount, and net of any allowance for credit losses.

The Company measures expected credit losses on held-to-maturity (HTM) securities on a collective basis by major security type and credit ratings.

Purchase premiums and discounts are amortized using the interest method over the term or first call date of each security.

Allowance for Credit Losses - Held-to-Maturity Securities - The Company measures expected credit losses on held-to-maturity (HTM) securities on an individual basis.

Accrued interest receivable on these securities are excluded from the estimate of credit losses.

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 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 adoption of CECL had an insignificant impact on the Company's held-to-maturity securities portfolio.

Purchase premiums and discounts are amortized using the interest method over the term or first call date of each security.

A HTM or an AFS debt security that management does not intend to sell, for which there has been a value impairment deemed by management, an allowance for credit losses is established and written down.

An AFS security that management does intend to sell or more likely than not will be required to sell, that is in an unrealized loss position shall be written down to its fair value with a charge to current operations.

Restricted equity securities consist of the Federal Reserve Bank and Federal Home Loan Bank of Atlanta (“FHLB”) stock in the amount of $ 5.2 million and $ 1.3 million respectively, as of December 31, 2023 , compared to $ 4.8 million and $ 5.1 million, respectively, as of December 31, 2022 .

Restricted equity securities also consisted of $ 126,800 in Community Bankers Bank stock at December 31, 2023 and December 31, 2022 .

The Company's HTM securities ACL was immaterial at December 31, 2024.

Allowance for Credit Losses - Available-for-Sale Securities - For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis.

If either criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value with a charge to current operations.

For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Restricted Equity Securities - Restricted equity securities consist of the Federal Reserve Bank and Federal Home Loan Bank of Atlanta (“FHLB”) stock in the amount of $ 5.3 million and $ 1.4 million respectively, as of December 31, 2024 , compared to $ 5.2 million and $ 1.3 million, respectively, as of December 31, 2023 .

Restricted equity securities also consiste d of $ 126,800 in C ommunity Bankers Bank stock at December 31, 2024 and December 31, 2023 .

This restricted stock is recorded at cost because its ownership is restricted and it lacks a market for resale.

3 unchanged sentences

The Bank does not consider these investments to be impaired at December 31, 2024 or December 31, 2023 and no previous impairment has been recognized as of December 31, 2024 .

Restricted equities include $ 8.2 million in Low-Income Housing Tax Credits (“LIHTC”) that are carried at amortized cost through the proportional amortization method.

Restricted equities include $ 7.6 million in Low-Income Housing Tax Credits (“LIHTC”) and $ 9.4 million of New Market Tax Credits ("NMTC") that are both carried at amortized cost through the proportional amortization method.

Restricted equities also include $ 6.7 million of nonmarketable securities as of December 31, 2024 that do not qualify for equity method accounting.

As of December 31, 2022 restricted equities include $ 6.7 million in LIHTC and $ 6.1 million of nonmarketable securities that do not qualify for equity method accounting.

As of December 31, 2023 restricted equities include $ 8.2 million in LIHTC, $ 3.1 million in NMTC, and $ 6.4 million of nonmarketable securities that do not qualify for equity method accounting.

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

17 unchanged sentences

These policies are applied consistently across our loan portfolio.

The Company designates individually evaluated loans on nonaccrual status as collateral-dependent loans, as well as other loans that management of the Company designates as having higher risk.

The Company designates individually evaluated loans on nonaccrual status as collateral-dependent loans, as well as other loans that management of the Company designates as having differing risk.

Collateral-dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty.

3 unchanged sentences

If the fair value of the collateral exceeds the amortized cost, no allowance is required.

Allowance for Credit Losses - see discussion of allowance for credit loss presentation under Recently Adopted Accounting Policies.

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

Any required initial write-downs are charged to allowance for credit losses.

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

The Bank may incur additional write-downs of foreclosed assets to fair value less costs to sell if valuations indicate a further deterioration in market values.

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

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

The accrual of interest on loans is discontinued when, in the opinion of management, there is an indication that the borrower may be unable to meet payments as they become due.

Upon such discontinuance, all unpaid accrued interest is reversed.

Generally, the Bank will return a loan to accrual status when all delinquent interest and principal becomes current and remains current for six consecutive months under the terms of the loan agreement or the loan is well-secured or in process of collection.

Upon returning to accrual status, interest payments applied to the principal balance of a loan while in nonaccrual status are recognized as a yield adjustment over the remaining life.

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

The Bank amortizes these net amounts over the life of the related loans or, in the case of demand loans, over the estimated life.

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

Premises and equipment – Land is carried at cost.

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

Leasehold improvements are amortized over the shorter of the related lease term or the estimated useful lives of the improvements.

Construction in progress includes assets which will be reclassified and depreciated once placed into service.

Computer software development - The Company capitalizes new product development costs incurred for software to be sold from the point at which technological feasibility has been established through the point at which the product is ready for general availability.

Software development costs that are capitalized are evaluated annually for impairment and are assigned an estimated economic life based on the type of product, market characteristics, and maturity of the market for that particular product.

These costs are amortized on a straight-line basis.

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

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

Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future.

The principal items relate primarily to differences between the allowance for credit losses, deferred loan fees, and accumulated depreciation and amortization.

Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Income tax expense (benefit) is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.

The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.

Tax positions taken are not offset or aggregated with other positions.

Tax positions that meet the more-likely-than- not recognition threshold are measured as the largest amount of tax benefit that is more than 50 % likely of being realized upon settlement with the applicable taxing authority.

The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

As of December 31, 2023 , and December 31, 2022 , there were no such liabilities recorded.

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

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

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

Stock compensation plans – Stock compensation accounting guidance (FASB ASC 718, “Compensation – Stock Compensation”) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements.

That cost will be measured based on the grant date fair value of the equity or liability instruments issued.

The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period.

For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

A Black-Sholes model is used to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.

No stock options were granted during 2023 and 2022 .

Earnings per common share – Earnings per common share has been determined under the provisions of FASB ASC 260, “Earnings Per Share” and has been computed based on the weighted average common shares outstanding during the year ended December 31, ( 7,522,913 for 2023 and 7,529,382 for 2022 ).

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

The only potential dilutive stock of the Bank as defined in FASB ASC 260 would be stock options granted to various directors, officers, and employees of the Bank.

There were no such options outstanding during the years ended December 31, 2023 or December 31, 2022 .

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

Off-balance sheet instruments – In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, and standby letters of credit.

Such financial instruments are recorded in the financial statements when they are funded, or related fees are incurred or received.

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

Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.

Actual results could differ from the estimates.

The Company’s critical accounting policies relate to ( 1 ) the allowance for credit losses, ( 2 ) fair value of financial instruments, and ( 3 ) derivative financial instruments.

These critical accounting policies require the use of estimates, assumptions and judgments which are based on information available as of the date of the financial statements.

Accordingly, as this information changes, future financial statements could reflect the use of different estimates, assumptions and judgments.

Certain determinations inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.

In connection with the determination of the allowances for credit losses on loans, management obtains independent appraisals for significant properties.

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

Fair value estimates involve uncertainties and matters of significant judgment.

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

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

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

Because the interest rate swaps with loan customers and dealer counterparties are not designated as hedging instruments, adjustments to reflect unrealized gains and losses resulting from changes in fair value of these instruments are reported as noninterest income or noninterest expense, as applicable.

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

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

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

Revenue Recognition - Most revenue associated with the Company’s financial instruments, including interest income and gains/losses on investment securities, derivatives and sales of financial instruments are outside the scope of ASC Topic 606.

The Company’s services that fall within the scope of ASC Topic 606 are presented within noninterest income and are recognized as revenue.

A description of the primary revenue streams accounted for under ASC Topic 606 follows:

Deposit Account Service Charges.

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

Overdraft fees are recognized when the overdraft occurs.

Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the company satisfies the performance obligation.

Other Service Charges and Fees.

The Company earns fees from its customers for transaction-based services.

Such services include safe deposit box, ATM, stop payment, wire transfer, mortgage origination and interest rate swap fees.

In each case, these service charges and fees are recognized in income at the time or within the same period that the Company’s performance obligation is satisfied.

Interchange Income.

The Company earns interchange fees from debit and credit cardholder transactions conducted through various payment networks.

Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services.

Recently Adopted Accounting Policies

Adoption of New Accounting Standards:

Allowance for Credit Losses

On January 1, 2023, the Company adopted ASU 2016 - 13 Financial Instruments - Credit Losses (Topic 326 ):

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The Company has concluded that this policy results in the timely reversal of uncollectible interest.

Allowance for Credit Losses (ACL) - Loans

The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans.

Allowance for Credit Losses - Loans - The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans.

Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed.

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These risks are attempted to be mitigated by carefully underwriting loans of this type and by following appropriate loan-to-value standards

Construction loans and land improvement carry risks that the project will not be finished according to schedule, the project will not be finished according to budget and the value of the collateral may, at any point in time, be less than the principal amount of the loan.

Construction and land development loans carry risks that the project will not be finished according to schedule, the project will not be finished according to budget and the value of the collateral may, at any point in time, be less than the principal amount of the loan.

Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure unrelated to the project.

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Historical Losses - Quantitative loss estimation models have been developed based largely on call report data from 2004 through the current period and the economic conditions during the same time period.

Within our historical losses calculation, the Company projects out the loss environment for the subsequent two quarters, based largely on the preceding four quarters.

Within our historical losses calculation, the Company projects out the loss environment for the subsequent two quarters, based largely on the preceding twelve quarters.

After that period, the historical loss percentage reverts back to the lifetime historical mean over a four quarter progression.

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Loans that do not share risk characteristics are evaluated on an individual basis.

When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting dated unadjusted for selling costs as appropriate.

Allowance for Credit Losses - Off-Balance Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.